Proposed Exemptions; Wells Fargo Bank, N.A. (Wells Fargo)

DEPARTMENT OF LABOR

Pension and Welfare Benefits Administration

[Application No. D-10468, et al.]

Proposed Exemptions; Wells Fargo Bank, N.A. (Wells Fargo)

AGENCY: Pension and Welfare Benefits Administration, Labor.

ACTION: Notice of proposed exemptions.

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SUMMARY: This document contains notices of pendency before the

Department of Labor (the Department) of proposed exemptions from

certain of the prohibited transaction restrictions of the Employee

Retirement Income Security Act of 1974 (the Act) and/or the Internal

Revenue Code of 1986 (the Code).

Written Comments and Hearing Requests

Unless otherwise stated in the Notice of Proposed Exemption, all

interested persons are invited to submit written comments, and with

respect to exemptions involving the fiduciary prohibitions of section

406(b) of the Act, requests for hearing within 45 days from the date of

publication of this Federal Register Notice. Comments and requests for

a hearing should state: (1) The name, address, and telephone number of

the person making the comment or request, and (2) the nature of the

person's interest in the exemption and the manner in which the person

would be adversely affected by the exemption. A request for a hearing

must also state the issues to be addressed and include a general

description of the evidence to be presented at the hearing.

ADDRESSES: All written comments and request for a hearing (at least

three copies) should be sent to the Pension and Welfare Benefits

Administration, Office of Exemption Determinations, Room N-5649, U.S.

Department of Labor, 200 Constitution Avenue, NW., Washington, DC.

20210. Attention: Application No. stated in each Notice of Proposed

Exemption. The applications for exemption and the comments received

will be available for public inspection in the Public Documents Room of

Pension and Welfare Benefits Administration, U.S. Department of Labor,

Room N-5507, 200 Constitution Avenue, NW., Washington, DC. 20210.

Notice to Interested Persons

Notice of the proposed exemptions will be provided to all

interested persons in the manner agreed upon by the applicant and the

Department within 15 days of the date of publication in the Federal

Register. Such notice shall include a copy of the notice of proposed

exemption as published in the Federal Register and shall inform

interested persons of their right to comment and to request a hearing

(where appropriate).

SUPPLEMENTARY INFORMATION: The proposed exemptions were requested in

applications filed pursuant to section 408(a) of the Act and/or section

4975(c)(2) of the Code, and in accordance with procedures set forth in

29 CFR part 2570, subpart B (55 FR 32836, 32847, August 10, 1990).

Effective December 31, 1978, section 102 of Reorganization Plan No. 4

of 1978 (43 FR 47713, October 17, 1978) transferred the authority of

the Secretary of the Treasury to issue exemptions of the type requested

to the Secretary of Labor. Therefore, these notices of proposed

exemption are issued solely by the Department.

The applications contain representations with regard to the

proposed exemptions which are summarized below. Interested persons are

referred to the applications on file with the Department for a complete

statement of the facts and representations.

[[Page 4133]]

Wells Fargo Bank, N.A. (Wells Fargo), Located in San Francisco, CA

[Application No. D-10468]

Proposed Exemption

Based on the facts and representations set forth in the

application, the Department is considering granting an exemption under

the authority of section 408(a) of the Act and section 4975(c)(2) of

the Code and in accordance with the procedures set forth in 29 CFR part

2570, subpart B (55 FR 32836, 32847, August 10, 1990).1

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\1\ For purposes of this proposed exemption, reference to

provisions of Title I of the Act, unless otherwise specified, refer

also to corresponding provisions of the Code.

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Section I. Proposed Exemption for the Conversion of Assets (the

Conversion Transactions)

If the exemption is granted, the restrictions of section 406(a) and

section 406(b) of the Act and the sanctions resulting from the

application of section 4975 of the Code, by reason of section

4975(c)(1) (A) through (F) of the Code, shall not apply, effective

September 16, 1996, to the exchange of the assets of various employee

benefit plans (the Plans) that are either held in certain collective

investment funds (the CIF or CIFs) maintained by Wells Fargo, or

otherwise held by Wells Fargo as trustee, investment manager or in any

other capacity as fiduciary on behalf of the Plans, for shares of any

open-end investment company (the Fund or Funds) registered under the

Investment Company Act of 1940 (the 1940 Act) to which Wells Fargo or

any of its affiliates (collectively, Wells Fargo) serves as investment

adviser and may provide other services, provided the following

conditions are met:

(a) The Plans are not sponsored by Wells Fargo.

(b) No sales commissions are paid by a Plan in connection with a

Conversion Transaction.

(c) All or a pro rata portion of the assets of a CIF or all or a

pro rata portion of the assets of the Plans held by Wells Fargo in any

capacity as fiduciary on behalf of such Plans are transferred in-kind

to the Funds in exchange for shares of such Funds.

(d) The Plans or the CIFs receive shares of the Funds that have a

total net asset value equal in value to the assets of the Plans or the

CIFs exchanged for such shares on the date of transfer.

(e) The current market value of the assets of a Plan or the CIF is

determined in a single valuation performed in the same manner as of the

close of the same business day with respect to all such Plans

participating in the transaction on such day, using independent sources

in accordance with the procedures set forth in Rule 17a-7b (Rule 17a-7)

under the Investment Company Act of 1940 (the 1940 Act), as amended,

and the procedures established by the Funds pursuant to Rule 17a-7 for

the valuation of such assets. Such procedures must require that all

securities for which a current market price cannot be obtained by

reference to the last sale price for transactions reported on a

recognized securities exchange or NASDAQ be valued based on an average

of the highest current independent bid and lowest current independent

offer, as of the close of business on the last business day prior to

the Conversion Transaction determined on the basis of reasonable

inquiry from at least three sources that are broker-dealers or pricing

services independent of Wells Fargo.

(f) A second fiduciary (the Second Fiduciary) who is acting on

behalf of each affected Plan and who is independent of and unrelated to

Wells Fargo, as defined in paragraph (g) of Section III below, receives

advance written notice of the Conversion Transaction and the

disclosures described in paragraph (f) of Section II below.

(g) On the basis of the information described in paragraph (f) of

Section II below, the Second Fiduciary authorizes in writing the

Conversion Transaction, the investment of such assets in corresponding

Funds and the fees received by Wells Fargo in connection with its

services to the Funds. Such authorization by the Second Fiduciary is

consistent with the responsibilities, obligations, and duties imposed

on fiduciaries by Part 4 of Title I of the Act.

(h)(1) For the Conversion Transaction which occurred on September

16, 1996, the written confirmation described below in paragraph (h)(2)

was made by Wells Fargo to all Second Fiduciaries of the appropriate

Plans within 38 business days of the transaction.

(2) Not later than 30 days after completion of each Conversion

Transaction (except for the transaction described in paragraph (h)(1)

above), Wells Fargo sends by regular mail to the Second Fiduciary, a

written confirmation that contains the following information:

(A) The identity of each of the assets that was valued for purposes

of the transaction in accordance with Rule 17a-7(b)(4) under the 1940

Act;

(B) The price of each of the assets involved in the transaction;

and

(C) The identity of each pricing service or market maker consulted

in determining the value of such assets.

(i) No later than 90 days after completion of each Conversion

Transaction, Wells Fargo sends by regular mail to the Second Fiduciary,

a written confirmation that contains the following information:

(1) The number of CIF units held by such affected Plan immediately

before the conversion (and the related per unit value and the aggregate

dollar value of the units transferred); and

(2) The number of shares in the Funds that are held by such

affected Plan following the conversion (and the related per share net

asset value and the aggregate dollar value of the shares received).

(j) The conditions set forth in paragraphs (d), (e), (f), (n), (o),

(p), and (q) of Section II below are satisfied.

Section II. Proposed Exemption for Receipt of Fees From Funds

(Transactions Involving the Receipt of Fees)

If the exemption is granted, the restrictions of section 406(a) and

section 406(b) of the Act and the sanctions resulting from the

application of section 4975 of the Code, by reason of section

4975(c)(1)(D) through (F) of the Code, shall not apply to the receipt

of fees by Wells Fargo from the Funds for acting as the investment

adviser, as well as for acting as the custodian, sub-administrator, or

for providing any ``secondary service'' (the Secondary Service) to the

Funds [as defined in Section III(h)], in connection with the investment

in the Funds by the Plans for which Wells Fargo acts as a fiduciary,

provided that:

(a) No sales commissions are paid by the Plans in connection with

purchase or sale of shares of the Funds through a Conversion

Transaction, and no redemption fees are paid in connection with the

sale of such shares by the Plans to the Funds.

(b) The price paid or received by the Plans for shares of the

Funds, in connection with a Conversion Transaction is the net asset

value per share, as defined in paragraph (e) of Section III, at the

time of the transaction and is the same price which would have been

paid or received for the shares by any other investor at that time.

(c) Neither Wells Fargo nor an affiliate, including any officer or

director purchases from or sells to any of the Plans shares of any of

the Funds.

(d) As to each individual Plan, the combined total of all Plan-

level and Fund-level fees received by Wells Fargo for the provision of

services to such

[[Page 4134]]

Plan and to the Funds (with respect to the Plan's assets invested in

the Funds), respectively, are not in excess of ``reasonable

compensation'' within the meaning of section 408(b)(2) of the Act.

(e) Wells Fargo does not receive any fees payable pursuant to Rule

12b-1 under the 1940 Act (the 12b-1 Fees) in connection with the

transactions.

(f) The Second Fiduciary receives, in advance of the investment by

the Plan in a Fund, a full and detailed written disclosure of

information concerning such Fund (including, but not limited to--

(1) A current prospectus for each Fund in which a Plan is

considering investing;

(2) A statement describing the fees for investment advisory or

similar services, any Secondary Services, and all other fees to be

charged to or paid by the Plan and by the Funds, including the nature

and extent of any differential between the rates of such fees;

(3) The reasons why Wells Fargo may consider such investment to be

appropriate for the Plan;

(4) A statement describing whether there are any limitations

applicable to Wells Fargo with respect to which assets of a Plan may be

invested in the Funds, and if so, the nature of such limitations; and

(5) Upon request of the Second Fiduciary, a copy of the proposed

exemption and/or a copy of the final exemption, if granted, once such

documents are published in the Federal Register.

(g) On the basis of the prospectus and disclosure referred to in

paragraph (f) of this Section II, the Second Fiduciary gives prior

approval for such purchases, holdings and sales of Fund shares through

Conversion Transactions that is consistent with the responsibilities

obligations, and duties imposed on fiduciaries by Part 4 of Title I of

the Act. Such approval must be in accordance with the provisions of

Prohibited Transaction Exemption (PTE) 77-4 (42 FR 18732, April 8,

1977) or its successor, as it may be amended from time to time.

(h) The authorization, described in paragraph (g) of this Section

II, is terminable at will by the Second Fiduciary of a Plan, without

penalty to such Plan. Such termination will be effected by Wells Fargo

redeeming the shares of the Fund held by the affected Plan by the close

of the business day following the date of receipt by Wells Fargo,

either by mail, hand delivery, facsimile, or other available means of

written communication at the option of the Second Fiduciary, of the

termination form (the Termination Form), as defined in paragraph (i) of

Section III below, or any other written notice of termination; provided

that if, due to circumstances beyond the control of Wells Fargo, the

sale cannot be executed within one business day, Wells Fargo shall have

one additional business day to complete such redemption.

(i) Each Plan satisfies either (but not both) of the following:

(1) For a Plan for which Wells Fargo serves as a non-discretionary

trustee, the Plan does not pay any Plan-level investment management

fees, investment advisory fees, or similar fees to Wells Fargo with

respect to Plan assets invested in the Funds. (This condition does not

preclude the payment of investment advisory fees or similar fees by a

Fund to Wells Fargo under the terms of its investment advisory

agreement adopted in accordance with section 15 of the 1940 Act, nor

does it preclude the payment of fees for Secondary Services to Wells

Fargo pursuant to a duly adopted agreement between Wells Fargo and the

Funds.)

(2) For a Plan for which Wells Fargo serves as a discretionary

fiduciary (i.e., a trustee or investment manager), such Plan pays Wells

Fargo an investment advisory fee based on total Plan assets from which

a credit has been subtracted representing such Plan's pro rata share of

investment advisory fees paid by the Funds. (This condition also does

not preclude the payment of fees for Secondary Services to Wells Fargo

pursuant to a duly adopted agreement between Wells Fargo and the

Funds.)

(j) In the event of an increase in the rate of any fees paid by the

Funds to Wells Fargo regarding any investment management services,

investment advisory services, or fees for similar services that Wells

Fargo provides to the Funds over an existing rate for such services

that had been authorized by a Second Fiduciary, in accordance with

paragraph (g) of this Section II, Wells Fargo will, at least 30 days in

advance of the implementation of such increase, provide a written

notice (which may take the form of a proxy statement, letter, or

similar communication that is separate from the prospectus of the Fund

and which explains the nature and amount of the increase in fees) to

the Second Fiduciary of each of the Plans invested in a Fund which is

increasing such fees. Such notice shall be accompanied by the

Termination Form, as defined in paragraph (i) of Section III below.

(k) In the event of an addition of a Secondary Service, as defined

in paragraph (g) of Section III below, provided by Wells Fargo to the

Fund for which a fee is charged or an increase in the rate of any fee

paid by the Funds to Wells Fargo for any Secondary Service, as defined

in paragraph (h) of Section III below, that results either from an

increase in the rate of such fee or from the decrease in the number or

kind of services performed by Wells Fargo for such fee over an existing

rate for such Secondary Service which had been authorized by the Second

Fiduciary of a Plan, in accordance with paragraph (g) of this Section

II, Wells Fargo will, at least 30 days in advance of the implementation

of such additional service for which a fee is charged or fee increase,

provide a written notice (which may take the form of a proxy statement,

letter, or similar communication that is separate from the prospectus

of the Fund and which explains the nature and amount of the additional

service for which a fee is charged or the nature and amount of the

increase in fees) to the Second Fiduciary of each of the Plans invested

in a Fund which is adding a service or increasing fees. Such notice

shall be accompanied by the Termination Form, as defined in paragraph

(i) of Section III below.

(l) The Second Fiduciary is supplied with a Termination Form at the

times specified in paragraphs (j), (k) and (m) of this Section II with

instructions regarding the use of such Termination Form including the

following information--

(1) The authorization is terminable at will by any of the Plans,

without penalty to such Plans. Such termination will be effected by

Wells Fargo redeeming shares of the Fund held by the Plans requesting

termination within one business day following the date of receipt by

Wells Fargo, either by mail, hand delivery, facsimile, or other

available means at the option of the Second Fiduciary, of the

Termination Form or any other written notice of termination; provided

that if, due to circumstances beyond the control of Wells Fargo, the

redemption of shares of such Plans cannot be executed within one

business day, Wells Fargo shall have one additional business day to

complete such redemption; and

(2) Failure by the Second Fiduciary to return the Termination Form

on behalf of a Plan will be deemed to be an approval of the additional

Secondary Service for which a fee is charged or increase in the rate of

any fees, if such Termination Form is supplied pursuant to paragraphs

(j) and (k) of this Section II, and will result in the continuation of

the authorization, as described in paragraph (h) of this Section II, of

Wells Fargo to engage in the transactions on behalf of such Plan.

[[Page 4135]]

(m) The Second Fiduciary is supplied with a Termination Form,

annually during the first quarter of each calendar year, beginning with

the first quarter of the calendar year that begins after the date the

notice granting this proposed exemption is published in the Federal

Register and continuing for each calendar year thereafter; provided

that the Termination Form need not be supplied to the Second Fiduciary,

pursuant to paragraph (m) of this Section II, sooner than six months

after such Termination Form is supplied pursuant to paragraphs (j) and

(k) of this Section II, except to the extent required by said

paragraphs (j) and (k) of this Section II to disclose an additional

Secondary Service for which a fee is charged or an increase in fees.

(n)(1) With respect to each of the Funds in which a Plan invests,

Wells Fargo will provide the Second Fiduciary of such Plan:

(A) At least annually with a copy of an updated prospectus of such

Fund;

(B) Upon the request of such Second Fiduciary, with a report or

statement (which may take the form of the most recent financial report,

the current statement of additional information, or some other written

statement) which contains a description of all fees paid by the Fund to

Wells Fargo; and

(2) With respect to each of the Funds in which a Plan invests, in

the event such Fund places brokerage transactions with Wells Fargo,

Wells Fargo will provide the Second Fiduciary of such Plan at least

annually with a statement specifying:

(A) The total, expressed in dollars, brokerage commissions of each

Fund's investment portfolio that are paid to Wells Fargo by such Fund;

(B) The total, expressed in dollars, of brokerage commissions of

each Fund's investment portfolio that are paid by such Fund to

brokerage firms unrelated to Wells Fargo;

(C) The average brokerage commissions per share, expressed as cents

per share, paid to Wells Fargo by each portfolio of a Fund; and

(D) The average brokerage commissions per share, expressed as cents

per share, paid by each portfolio of a Fund to brokerage firms

unrelated to Wells Fargo.

(o) All dealings between the Plans and any of the Funds are on a

basis no less favorable to such Plans than dealings between the Funds

and other shareholders holding the same class of shares as the Plans.

(p) Wells Fargo maintains, for a period of six years, in a manner

that is convenient and accessible for audit and examination, the

records necessary to enable the persons, described in paragraph (q) of

Section II below, to determine whether the conditions of this proposed

exemption have been met, except that--

(1) A prohibited transaction will not be considered to have

occurred if, due to circumstances beyond the control of Wells Fargo,

the records are lost or destroyed prior to the end of the 6 year

period; and

(2) No party in interest, other than Wells Fargo, shall be subject

to the civil penalty that may be assessed under section 502(i) of the

Act, or to the taxes imposed by section 4975(a) and (b) of the Code, if

the records are not maintained, or are not available for examination as

required by paragraph (q) of Section II below;

(q)(1) Except as provided in paragraph (q)(2) of this Section II

and notwithstanding any provisions of subsection (a)(2) and (b) of

section 504 of the Act, the records referred to in paragraph (p) of

Section II above are unconditionally available at their customary

location for examination during normal business hours by----

(A) Any duly authorized employee or representative of the

Department, the Internal Revenue Service or the Securities and Exchange

Commission (the SEC);

(B) Any fiduciary of each of the Plans who has authority to acquire

or dispose of shares of any of the Funds owned by such a Plan, or any

duly authorized employee or representative of such fiduciary; and

(C) Any participant or beneficiary of the Plans or duly authorized

employee or representative of such participant or beneficiary;

(2) None of the persons described in paragraph (q)(1)(B) and

(q)(1)(C) of Section II shall be authorized to examine trade secrets of

Wells Fargo, or commercial or financial information which is privileged

or confidential.

Section III. Definitions

For purposes of this proposed exemption,

(a) The term ``Wells Fargo'' means Wells Fargo Bank, N.A. and any

of its affiliates, as defined in paragraph (b) of this Section III.

(b) An ``affiliate'' of a person includes:

(1) Any person directly or indirectly through one or more

intermediaries, controlling, controlled by, or under common control

with the person.

(2) Any officer, director, employee, relative, or partner in any

such person; and

(3) Any corporation or partnership of which such person is an

officer, director, partner, or employee.

(c) The term ``control'' means the power to exercise a controlling

influence over the management or policies of a person other than an

individual.

(d) The term ``Fund'' or ``Funds'' means any diversified open-end

investment company or companies registered under the 1940 Act for which

Wells Fargo serves as investment adviser (including sub-adviser), and

may also provide custodial or other services as approved by such Funds.

(e) The term ``net asset value'' means the amount for purposes of

pricing all purchases and redemptions through the Conversion

Transactions, calculated by dividing the value of all securities,

determined by a method adopted by the Fund's board of directors in

accordance with the 1940 Act, and other assets belonging to each of the

portfolios in such Fund, less the liabilities charged to each

portfolio, by the number of outstanding shares.

(f) The term ``relative'' means a ``relative'' as that term is

defined in section 3(15) of the Act (or a ``member of the family'' as

that term is defined in section 4975(e)(6) of the Code), or a brother,

a sister, or a spouse of a brother or a sister.

(g) The term ``Second Fiduciary'' means a fiduciary of a plan who

is independent of and unrelated to Wells Fargo. For purposes of this

exemption, the Second Fiduciary will not be deemed to be independent of

and unrelated to Wells Fargo if----

(1) Such Second Fiduciary directly or indirectly controls, is

controlled by, or is under common control with Wells Fargo;

(2) Such Second Fiduciary, or any officer, director, partner,

employee, or relative of such Second Fiduciary is an officer, director,

partner, or employee of Wells Fargo (or is a relative of such persons);

(3) Such Second Fiduciary directly or indirectly receives any

compensation or other consideration from Wells Fargo for his or her own

personal account in connection with any transaction described in this

proposed exemption.

If an officer, director, partner, or employee of Wells Fargo (or a

relative of such persons), is a director of such Second Fiduciary, and

if he or she abstains from participation in (A) the choice of the

Plan's investment manager/adviser, (B) the approval of any purchase or

redemption by the Plan of shares of the Funds through a Conversion

Transaction, and (C) the approval of any change of fees charged to or

paid by the Plan, in connection with any of the transactions described

in Sections I and II above, then

[[Page 4136]]

paragraph (g)(2) of Section III above, shall not apply.

(h) The term ``Secondary Service'' means a service, other than an

investment management, investment advisory, or similar service, which

is provided by Wells Fargo to the Funds, including but not limited to

custodial, accounting, brokerage, administrative, or any other service.

(i) The term ``Termination Form'' means the form supplied to the

Second Fiduciary, at the times specified in paragraphs (j), (k) and (m)

of Section II above, which expressly provides an election to the Second

Fiduciary to terminate on behalf of the Plans the authorization,

described in paragraph (g) of Section II. Such Termination Form may be

used at will by the Second Fiduciary to terminate such authorization

without penalty to the Plans and to notify Wells Fargo in writing to

effect such termination by redeeming the shares of the Fund held by the

Plans requesting termination by the close of the business day following

the date of receipt by Wells Fargo, either by mail, hand delivery,

facsimile, or other available means at the option of the Second

Fiduciary, of written notice of such request for termination; provided

that if, due to circumstances beyond the control of Wells Fargo, the

redemption cannot be executed within one business day, Wells Fargo

shall have one additional business day to complete such redemption.

EFFECTIVE DATE: If granted, this proposed exemption will be effective

September 16, 1996 with respect to the Conversion Transactions

described in Section I and effective as of the date of the grant with

respect to Transactions Involving the Receipt of Fees, as described in

Section II.

Preamble

On April 4, 1996, the Department granted PTE 96-54 at 61 FR 37933.

PTE 96-54 permitted, effective July 2, 1993 until October 1, 1993, the

in-kind transfer of all or a pro rata portion of assets of Plans that

were held in certain CIFs maintained by Wells Fargo to certain Funds

advised by Wells Fargo, in exchange for shares of the Funds, in

connection with the partial termination of the CIFs. The assets

transferred consisted of stock, U.S. Treasury obligations, other

government and agency obligations, certain fixed income obligations,

asset-backed securities and other securities. The Department made a

decision to bifurcate the original exemption request thereby exempting

the transaction described in PTE 96-54. The Department also provided no

exemptive relief in PTE 96-54 for transactions involving the receipt of

fees by Wells Fargo from the Funds beyond that provided under PTE 77-4.

2

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\2\ In relevant part, PTE 77-4 permits, under certain

conditions, the purchase and sale by an employee benefit plan of

shares of a registered open-end investment company when a fiduciary

with respect to such plan is also the investment adviser for the

investment company.

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In its amended exemption request, Wells Fargo has agreed to modify

the original application so that it will apply to current and future

Conversion Transactions and to implement a ``negative consent''

procedure with respect to fees paid to Wells Fargo by the Funds (i.e.,

Transactions Involving the Receipt of Fees). If granted, the proposed

exemption will be effective as of September 16, 1996 with respect to

the Conversion Transactions and effective on the date the grant notice

is published in the Federal Register for Transactions Involving the

Receipt of Fees.

Summary of Facts and Representations

Description of the Parties

1. Wells Fargo, which is located in San Francisco, California, is a

wholly owned subsidiary of Wells Fargo & Company (WFC) and the seventh

largest commercial bank in the United States. Wells Fargo currently

serves as a fiduciary with respect to the assets of certain Plans. As

of January 15, 1999, Wells Fargo had approximately $15 billion under

management. Wells Fargo also serves as a trustee of certain CIFs and as

the investment adviser or sub-adviser with respect to the Funds that

are described below.

Effective December 31, 1995, WFC and its affiliates sold certain

elements of their institutional trust business, including interests in

other entities to Barclays Bank PLC (Barclays). These entities were

subsequently reorganized primarily into Barclays Global Fund Advisors.

In addition to the Barclays' transaction, effective January 23, 1996,

First Interstate Bancorp, a bank holding company (First Interstate),

merged into WFC, with the latter as the surviving entity. Effective

April 1, 1996, First Interstate's wholly owned subsidiary, First

Interstate Bank of California, N.A., was merged into Wells Fargo.

Although First Interstate's bank subsidiaries in six other states also

merged into Wells Fargo in June 1996, several former First Interstate

bank subsidiaries in other states currently remain as separate

subsidiaries of WFC. These First Interstate entities have also been

made parties to this exemption request.

2. The Plans, as well as those that may invest in the future,

consist of various pension plans as defined in section 3(2) of the Act,

independently-sponsored pension and profit sharing plans, qualified

plans of owner-employees and welfare plans, as defined in section 3(1)

of the Act. The Plans do not include any plans sponsored by Wells

Fargo.3

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\3\ The Department herein is not proposing relief for any

transaction afforded relief by Section 404(c) of the Act.

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3. The CIFs are various portfolios of the Wells Fargo Bank

Collective Investment Funds for Business Retirement Programs and the

Wells Fargo Bank Collective Investment Funds for BRP Retirement Plans

4 and similar CIFs that may be formed in the future for

which Wells Fargo serves as trustee and manager. (Any CIFs acquired as

part of the First Interstate transaction have been and will be merged

into the Wells Fargo CIFs.)

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\4\ The applicant represents that the Wells Fargo Bank

Collective Investment Funds for Business Retirement Plans do not

charge a fee whereas the Wells Fargo Bank Collective Investment

Funds for BRP Retirement Plans charges a management fee of 75 basis

points.

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The CIFs were formed effective April 1, 1995 with the assets spun

off from the Wells Fargo Investment Funds for Employee Retirement Plans

in anticipation of the Barclays transaction. Many of the CIFs invest as

``feeder'' funds in counterpart to Wells Fargo ``master'' funds. Under

this arrangement, the master fund holds all of the investment assets

while the feeder fund invests in the master fund and does not hold the

actual investment property but instead holds interests in the master

fund. Plans have the option of investing either directly in the master

fund or indirectly, by investing in the feeder fund which will then

invest in the master fund.5

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\5\ It is represented that the primary benefit of the master-

feeder arrangement is the flexibility it offers clients of Wells

Fargo with respect to the payment of investment management fees

while allowing a pooling of a larger group of assets. A master-

feeder arrangement gives a plan the option of having the plan, or

the plan sponsor, pay the investment management fee directly to the

investment manager if Plan assets are invested in the master fund

(in which case the investment management fee would be paid at the

plan-level) or having the investment management fee paid out of the

Plan's assets invested in the fund assuming plan assets are invested

in the feeder fund (in which case the investment management fee

would be paid at the feeder fund-level).

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The CIFs described herein relate only to those CIFs for which a

Wells Fargo affiliate serves as trustee/manager and/or investment

adviser. These CIFs are identified as follows:

Wells Fargo Bank Collective Investment Funds for Business Retirement

Programs (BRP)

``Feeder'' CIFs for BRP Employee Retirement Plans--

[[Page 4137]]

Asset Allocation Fund,

Bond Index Fund,

U.S. Treasury Allocation Fund,

S&P 500 Stock Fund,

S&P MidCap Stock Fund,

Equity Value Fund,

Money Market Fund,

Extended Market Fund,

International Equity Fund,

Income Accumulation Fund,

Core Bond Fund,

Growth Stock Fund,

Short-Intermediate Term Fund,

Small Capitalization Growth Fund.

The 14 foregoing CIFs, other than the Money Market Fund, are

``shadow'' or ``feeder'' funds that are managed by Wells Fargo. These

CIFs invest in counterpart ``master'' collective investment trusts that

are also managed by Wells Fargo.

``Master'' CIFs for BRP Retirement Plans--

Core Bond Fund for BRP Retirement Plans,

Growth Stock Fund,

Short-Intermediate Term Fund,

Small Capitalization Growth Fund.

The aforementioned 4 CIFs are ``master'' funds that are managed by

Wells Fargo. These CIFs invest directly in portfolio securities. Wells

Fargo BRP Plan clients invest directly in these CIFs.

Wells Fargo Bank Collective Investment Funds for BRP Retirement Plans

``Feeder CIFs'' for BRP Retirement Plans--

Asset Allocation,

Bond Index Fund,

U.S. Treasury Allocation Fund,

S&P 500 Stock Fund,

International Equity Fund.

The above-mentioned 5 CIFs are ``shadow'' or ``feeder'' funds that

are managed by Wells Fargo. These CIFs invest in counterpart ``master''

collective investment trusts that are managed by Wells Fargo. The CIFs

are distinct from the parallel, but similarly-named counterpart Funds

for BRP Employee Retirement Plans (also listed above) and, as also

noted previously, have different fee arrangements.

4. The Mutual Funds to which the requested exemption will apply are

certain investment portfolios of the Stagecoach Funds, Inc. (the

Stagecoach Funds), the Overland Express Funds, Inc. (the Overland

Funds), certain corresponding master funds in which these Funds may

invest (e.g., the MasterWorks Funds), and to any similar Funds for

which Wells Fargo or any of its affiliates may provide investment

advisory and other services. The Funds are being offered to Plan

investors at no load.

(a) The Stagecoach Funds constitute an open-end management

investment company that was organized as a Maryland corporation on

September 9, 1991 and registered under the 1940 Act. Currently, the

Stagecoach Funds comprise 25 portfolios, some of which are ``feeder''

portfolios that invest in the Master Investment Trust, an open-end

investment company organized as a Delaware business trust on August 15,

1991 and registered under the 1940 Act. Wells Fargo serves as

investment adviser to all of the Stagecoach Funds. For those Fund

portfolios that operate under the master-feeder structure, all advisory

services are performed at the master fund-level by Wells Fargo. Under

such circumstances, the feeder funds have no investment adviser.

The portfolios of the Stagecoach Funds are presented below. As

noted, some of the feeder Funds may invest in the Master Investment

Trust through a series of master portfolios (the Master Portfolios)

having objectives similar to the affected Funds. Other Funds may not be

used by Plans as investment vehicles.

Portfolios for the Stagecoach Funds

Money Market Mutual Fund*

Aggressive Growth Fund

Balanced Fund*

Corporate Stock Fund

Diversified Income Fund

Equity Value Fund*

Growth & Income Fund*

Small Cap Fund*

Asset Allocation Fund*

U.S. Government Allocation Fund

California Tax-Free Money Market Fund**

Government Money Market Fund

National Tax-Free Money Market Fund**

Treasury Money Market Mutual Fund*

Prime Money Market Mutual Fund*

Arizona Tax-Free Bond Fund

California Tax-Free Bond Fund**

California Tax-Free Income Fund**

Ginnie Mae Fund*

Intermediate Bond Fund

Short-Intermediate U.S. Government Income Fund*

Money Market Trust*

National Tax-Free Fund

Oregon Tax-Free Fund

California Tax-Free Money Market Trust

*Feeder Fund investing in the Master Investment Trust through a

comparable Master Portfolio.

**Fund generally not used by a Plan as an investment vehicle.

For investment advisory services rendered to the Stagecoach Funds,

Wells Fargo is paid an annualized investment advisory fee ranging from

0.20 percent of the average daily net assets of the National Tax-Free

Money Market Fund to 0.60 percent of the average daily net assets of

the Small Cap Master Portfolio which holds the assets of the Small Cap

Fund.

(b) The Overland Funds constitute an open-end management investment

company that has been organized as a Maryland corporation on April 27,

1987 and registered under the 1940 Act. At present, the Overland Funds

consist of 15 portfolios, some of which are feeder portfolios that also

invest in the Master Investment Trust. Wells Fargo serves as investment

adviser to all of the Overland Funds. For those portfolios of the

Overland Funds that operate under the master-feeder structure, all

advisory services are performed at the master-fund level through

comparable Master Portfolios. Again, under such circumstances, the

feeder Funds would have no investment adviser.

Portfolios for the Overland Funds

Asset Allocation Fund

California Tax-Free Bond Fund**

California Tax-Free Money Market Fund**

Money Market Fund

Municipal Income Fund*

National Tax-Free Institutional Money Market Fund**

Overland Sweep Fund**

Short-Term Government-Corporate Income Fund*

Short-Term Municipal Income Fund*

Strategic Growth Fund*

U.S. Government Income Fund

U.S. Treasury Money Market Fund

Variable Rate Government Funds

Index Allocation Fund*

Small Cap Strategy Fund*

*Feeder Fund investing in the Master Investment Trust through a

comparable Master Portfolio.

**Fund generally not used by a Plan as an investment vehicle.

For investment advisory services provided to those Overland Funds

that are available to Plan investors, Wells Fargo is paid an annualized

investment advisory fee ranging from 0.25 percent of the average daily

net assets of the U.S. Treasury Money Market Fund to 0.70 percent of

the average daily net assets of the Asset Allocation Fund.

In addition, to investment advisory services, Wells Fargo may

provide certain non-advisory or Secondary Services to the Stagecoach

Funds and Overland Funds for which it is separately compensated at the

``Fund'' or ``feeder'' Fund level, in the case of a master-feeder

arrangement.6 Currently,

[[Page 4138]]

these annualized fees and their respective ranges can be summarized as

follows:

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\6\ Because of the manner in which fees are structured under the

aforementioned master-feeder arrangements, Wells Fargo has confirmed

that it does not receive any double fees for the services it renders

to the Funds.

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Custodial Services, 0.0167 percent plus certain transaction

charges according to published schedules (e.g., wire transfers).

Portfolio Accounting, 0.070 percent of the first $50 million,

0.045 percent of the next $50 million and 0.2 percent of any excess.

Transfer Agency Services, 0 percent or 0.02 percent (Overland

Funds and Stagecoach Money Market Funds) to 0.06 percent (other

Stagecoach Funds).

Shareholder Servicing, 0 percent (Overland and certain

Stagecoach Funds) to 0.25 percent (certain Stagecoach Funds).

Subadministration, 0.04 percent of the 0.06 percent fee paid to

Stephens, Inc. as administrator. Some of the subadministration services

performed by Wells Fargo include maintaining and preserving the records

of the Funds, tracking authorized versus issued shares, furnishing

statistical and research data, and coordinating (or assisting in) the

preparation and filing with the SEC of registration statements,

notices, reports and other materials required to be filed under

applicable laws.

The Conversion Transactions

5. Besides the Conversion Transactions that were described in PTE

96-54, on September 16, 1996, Wells Fargo began offering Plans shares

of the Funds as an investment vehicle alternative to units in the CIFs.

Although Wells Fargo intends that the CIFs and their corresponding

Funds will be identical from the standpoint of their investment

objectives, it anticipates that the Fund option will be selected by

Plans that desire to obtain daily price quotations and ease of trading.

Therefore, Wells Fargo is providing each Plan the opportunity to

designate one or more Funds in lieu of the parallel CIFs for investment

purposes with respect to part or all of the assets of the Plan. The

decision to engage in a Conversion Transaction is subject to the review

and approval of a Second Fiduciary.

In addition, Wells Fargo represents that it may choose to terminate

one or more CIFs if the CIF does not have a sufficient number of

investors to make it economically viable. Further, Wells Fargo proposes

that from time to time it may be appropriate for an individual Plan for

which Wells Fargo serves as a fiduciary to transfer all or a pro rata

share of its assets that are held in a custodial Account with Wells

Fargo, in-kind, to any of the Funds in exchange for shares of such

Funds. In this regard, in the case of an in-kind exchange between an

individual Plan whose portfolio consists of common stock, money market

securities and real estate and a Fund that invests only in common stock

and money market securities, the Conversion Transaction would involve

all or a pro rata share of the common stock and money market securities

held by the Plan, if the stock and securities are eligible for purchase

by the Fund and would not involve the transfer or exchange of the real

estate holdings of the Plan. No brokerage commissions or other fees or

expenses (other than customary transfer charges paid to parties other

than Wells Fargo or its affiliates) have been or will be charged to the

Plans in connection with any of the Conversion Transactions and the

acquisition of shares of the Funds by the investing Plans.

Finally, to avoid potentially large brokerage expenses that would

otherwise be incurred, Wells Fargo proposes that an exchange of Plan

interests in a CIF for shares in a corresponding Fund (or a direct

exchange of securities between a Plan and a Fund as previously

described) may be effected by means of a direct transfer to the Fund of

the Plan's proportionate interest in the CIF (or of the securities), in

exchange for the issuance of Fund shares. In this regard, the Plan's

proportionate interest in certain securities investments of the CIF

would be transferred directly.7

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\7\ In certain cases, a Conversion Transaction will not take

place to the extent that it will result in the creation of

fractional shares. In this situation, the number of shares to be

transferred will be automatically (mechanically) rounded up or down

to the next nearest whole number. For this purpose, Wells Fargo

states that fractional dollar amounts ending below $0.005 and

fractional share amounts ending below 0.5 will be rounded downward

to the next lower cent or whole share, respectively. Amounts at or

above these figures will be rounded upward to the next higher cent

or whole share.

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6. Wells Fargo represents that the Conversion Transactions are

ministerial transactions performed in accordance with pre-established

objective procedures which are approved by the board of trustees of

each Fund. Such procedures require that assets transferred to a Fund

(a) be consistent with the investment objectives, policies and

restrictions of the corresponding portfolios of the Fund, (b) satisfy

the applicable requirements of the 1940 Act and the Code and, (c) have

a readily ascertainable market value. In addition, any assets that are

transferred will be marketable and will not be subject to restrictions

on resale. Assets which do not meet these requirements will be sold in

the open market through an unaffiliated brokerage firm prior to any

Conversion Transaction. Further, prior to entering into a Conversion

Transaction, each affected Plan will receive certain disclosures from

Wells Fargo and approve such transaction in writing.

Prior to a Conversion Transaction, the assets of a transferring CIF

will be reviewed to confirm that they are appropriate investments for

the receiving Fund. If any of the assets of a CIF are not appropriate

for its corresponding Fund, Wells Fargo intends to sell such assets in

the open market through an unaffiliated brokerage firm.

7. As noted above, on September 16, 1996, Wells Fargo exchanged all

interests in the Small Capitalization Growth ``shadow'' or feeder CIF

for mutual fund shares of the Stagecoach Small Capitalization Fund. The

feeder CIF held interests in the Small Capitalization Growth Fund,

which was managed by Wells Fargo and invested in portfolio securities.

The Small Capitalization Growth Fund consisted of a master CIF and the

subject feeder CIF.

The transaction involved an in-kind transfer by the Plans of their

interests in the feeder CIF to the Fund and a simultaneous transfer of

such interests to the master CIF in exchange for all of its underlying

assets. Wells Fargo represents that the Small Capitalization CIF assets

were valued for purposes of the Conversion Transaction in accordance

with Rule 17a-7 (see Representation 9) such that the value of the Fund

shares received by the CIF interest-holders on the conversion date was

equal to the value of the CIF interests as so calculated. All interests

in the Small Capitalization CIF (both master and feeder) were

transferred in-kind and the CIF was subsequently terminated. Wells

Fargo further represents that Plans participating in the Small

Capitalization CIF were provided notice of the Conversion Transaction

and every Plan affirmatively elected to participate in such Conversion

Transaction.

Following the Conversion Transaction, Wells Fargo states that it

provided Second Fiduciaries with written confirmations of the

transaction. In this regard, approximately 38 business days after the

Conversion Transaction, Wells Fargo sent each affected Second Fiduciary

written confirmation of the identity of the assets that were valued for

purposes of the in-kind transfer in accordance with Rule

[[Page 4139]]

17a-7(b)(4), the price determined for such assets and the identity of

each pricing service or market maker consulted in determining their

value.8 In addition, no later than 90 days after the

Conversion Transaction, Well Fargo sent each affected Second Fiduciary

written confirmation of (a) the number of CIF units held by the Plan

before the Conversion Transaction (and the related per unit value and

the aggregate dollar value of the units transferred); and (b) the

number of Fund shares received by the Plan as the result of the

Conversion Transaction (and the related per share net asset value and

the aggregate dollar value of the shares received).

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\8\ The securities subject to valuation under Rule 17(a)-7(b)(4)

include all securities other than ``reported securities'' as the

term is defined in Rule 11Aa3-1 under the Securities Exchange Act of

1934, or those quoted on the NASDAQ system or for which the

principal market is an exchange.

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Wells Fargo requests that the exemption apply retroactively for the

Conversion Transaction that took place on September 16, 1996 and

prospectively with respect to any similar Fund in which a Plan invests

and with respect to which Wells Fargo or any of its affiliates may

provide investment advisory and other services. For this purpose, Wells

Fargo represents that all other future Funds to which Wells Fargo will

serve as investment adviser and that utilize the exemption will assume

similar investment structures and Plan investments therein will be

subject to the terms and conditions of the exemption.

Advance Disclosure/Approval

8. With respect to each Conversion Transaction, Wells Fargo will

provide the Second Fiduciary of each affected Plan with the disclosures

required by PTE 77-4. In this regard, such information will include,

but is not limited to, (a) a current prospectus for the Fund in which

the Plan is considering investing; (b) a statement describing the fees

that are to be paid to Wells Fargo and its affiliates and to unrelated

parties, including the nature and extent of any differential between

the rates of the fees; and (c) the reasons why Wells Fargo considers

such investment to be appropriate for the Plan. In addition, upon the

request of the Second Fiduciary, Wells Fargo will provide a copy of the

proposed exemption and/or a copy of the final exemption, if granted.

Based on the required disclosures, the Second Fiduciary will approve,

in writing, the Conversion Transaction, including the fees to be paid

by the Funds to Wells Fargo.

Valuation Procedures

9. The assets transferred in connection with a Conversion

Transaction will consist entirely of cash and marketable securities.

For this purpose, the value of the securities in the CIF will be

determined based on market value as of the close of business on the

last business date prior to the transfer (the Valuation Date). The

values on the Valuation Date will be determined in a single valuation

using the valuation procedures described in Rule 17a-7 under the 1940

Act. In this regard, the ``current market price'' for specific types of

CIF securities will be determined as follows:

(a) If the security is a ``reported security'' as the term is

defined in Rule 11Aa3-1 under the Securities Exchange Act of 1934

(1934 Act), the last sale price with respect to such security

reported in the consolidated transaction reporting system (the

Consolidated System) for the Valuation Date; or if there are no

reported transactions in the Consolidated System that day, the

average of the highest current independent bid and the lowest

current independent offer for such security (reported pursuant to

Rule 11Ac1-1 under the 1934 Act), as of the close of business on the

Valuation Date; or

(b) If the security is not a reported security, and the

principal market for such security is an exchange, then the last

sale on such exchange on the Valuation Date; or if there is no

reported transaction on such exchange that day, the average of the

highest current independent bid and lowest current independent offer

on such exchange as of the close of business on the Valuation Date;

or

(c) If the security is not a reported security and is quoted in

the NASDAQ system, then the average of the highest current

independent bid and lowest current independent offer reported on

Level 1 of NASDAQ as of the close of business on the Valuation Date;

or

(d) For all other securities, the average of the highest current

independent bid and lowest current independent offer as of the close

of business on the Valuation Date, determined on the basis of

reasonable inquiry. For securities in this category, Wells Fargo

intends to obtain quotations from at least three sources that are

either broker-dealers or pricing services independent of and

unrelated to Wells Fargo and, where more than one valid quotation is

available, use the average of the quotations to value the

securities, in conformance with interpretations by the SEC and

practice under Rule 17a-7.

The securities received by a transferee Fund portfolio will be

valued by such portfolio for purposes of the transfer in the same

manner and as of the same day as such securities will be valued by the

corresponding transferor CIF. The per share value of the shares of each

portfolio of each Fund portfolio issued to the CIFs will be based on

the corresponding portfolio's then-current net asset value. Wells Fargo

represents that the value of a Plan's investment in shares of each Fund

as of the opening of business on the date of the Conversion Transaction

will be not less than the value of such Plan's investment in the CIF as

of the close of business on the last business day prior to the

Conversion Transaction.

Not later than 30 business days after completion of a Conversion

Transaction, Wells Fargo will send by regular mail a written

confirmation of the transaction to each affected Plan. Such

confirmation will contain: (a) The identity of each security that is

valued in accordance with Rule 17a-7(b)(4), as described above; (b) the

price of each such security for purposes of the transaction; and (c)

the identity of each pricing service or market maker consulted in

determining the value of such securities.

No later than 90 days after completion of each Conversion

Transaction, Wells Fargo will mail to the Plan a written confirmation

of the fair market value (i.e., the Rule 17a-7 value) of the securities

held by the Plan immediately before the Conversion Transaction and the

number of shares in each Fund that are held by the Plan following the

Conversion Transaction (and the related per share net asset value and

the aggregate dollar value of the shares received).

Transactions Involving the Receipt of Fees

10. In connection with the Plans' investment in the Funds, Wells

Fargo represents that PTE 77-4 permits it to receive fees from the

Funds under either of two circumstances: (a) Where a Plan does not pay

any investment management, investment advisory, or similar fees with

respect to the assets of such Plan invested in shares of a Fund for the

entire period of such investment; or (b) where a Plan pays investment

management, investment advisory, or similar fees to Wells Fargo based

on the total assets of such Plan from which a credit has been

subtracted representing such Plan's pro rata share of such investment

advisory fees paid to Wells Fargo by the Fund. As such, Wells Fargo

notes that there may be two levels of fees--those fees which a Wells

Fargo affiliate could charge to the Plans for serving as trustee with

investment discretion or as investment manager (the Plan-level fees);

and those fees a Wells Fargo affiliate could charge to the Funds (the

Fund-level fees) for serving as investment adviser, custodian, or

service provider.

In this regard, Wells Fargo states that its client Plans are

typically subject to standard Plan-level fee schedules

[[Page 4140]]

covering various services provided by it and/or its affiliates. These

fees are subject to negotiation with the individual Plans. Wells Fargo

represents that it also receives investment management fees with

respect to the CIFs. All fees are disclosed and approved in advance as

part of the Plan's fee schedule and vary from CIF to CIF. Wells Fargo

further represents that it may be reimbursed by the CIFs for certain

direct expenses (e.g., charges of outside auditors).

With respect to Fund-level fees, Wells Fargo represents that all

such fees are described in prospectuses and include investment advisory

fees that are paid to Wells Fargo as well as certain fees for Secondary

Services provided by Wells Fargo entities (see Representation 4). Wells

Fargo states that it does not receive any 12b-1 Fees in connection with

the transactions. In addition, Wells Fargo represents that the Funds'

service providers may be reimbursed for certain third-party expenses.

11. Depending upon the nature of its fiduciary relationship with a

Plan, Wells Fargo currently utilizes the following fee structures:

(a) With respect to Plans for which Wells Fargo serves as a

nondiscretionary trustee, such Plans pay a Plan-level fee to Wells

Fargo for basic administrative services. The administrative services

include, among others, Wells Fargo's acting as custodian of the assets

of a Plan, maintaining the records of a Plan, preparing periodic

reports concerning the status of the Plan and its assets, and

accounting for contributions, benefit distributions, and other receipts

and disbursements.9 Wells Fargo represents that these Plan-

level functions are separate and distinct from those it performs at the

Fund-level. At the Fund-level, the Wells Fargo is receiving

compensation for investment advisory services rendered to the Funds. In

addition, Wells Fargo is retaining fees for providing Secondary

Services to the Funds.

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\9\ For Plan-level trustee services, Wells Fargo may be paid a

quarterly fee of up to 0.30 percent on the first $1 million of

Account assets, 0.15 percent based on the next $9 million of Account

assets and 0.05 percent on the balance.

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(b) For Plans for which it serves as a discretionary fiduciary

(i.e., trustee or investment adviser), Wells Fargo presently charges an

overall Plan-level management fee that includes investment management/

investment advisory services in addition to Plan-level administrative

services. Currently, the standard fee is 95 basis points. For such

managed accounts, Wells Fargo is utilizing the ``credit'' or ``offset''

approach of PTE 77-4, i.e., it charges a Plan-level investment

management fee based on total assets under management from which an

advance credit is subtracted representing the Plan's pro rata share of

the Fund-level investment advisory fees paid to Wells Fargo. In

addition, Wells Fargo proposes to retain fees for Secondary Services

provided to the Funds.

12. Wells Fargo believes that the foregoing fee arrangements comply

with PTE 77-4 and that as to each Plan, the combined total of all Plan-

level and Fund-level fees received by it for the provision of services

to the Plans and to the Funds (with respect to the Plan's assets

invested in the Funds), respectively, are not in excess of ``reasonable

compensation'' within the meaning of section 408(b)(2) of the

Act.10 However, Wells Fargo notes that there is one

difference from PTE 77-4 for which it has requested exemptive relief

from the Department. In this regard, one of the requirements of PTE 77-

4 has been that any future change in any of the rates of fees would

require prior written approval by the Second Fiduciary of the Plans

participating in the Funds. Wells Fargo maintains that where many Plans

participate in a Fund, the addition of a service or any good faith

increase in fees cannot be implemented until written approval of such

change is obtained from every Second Fiduciary. Therefore, Wells Fargo

proposes to follow an alternative ``negative consent'' procedure set

out in other similar exemptions granted by the Department. Wells Fargo

believes the negative consent procedure will provide the basic

safeguards for the Plans and is more efficient, cost effective, and

administratively feasible than those contained in PTE 77-4.

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\10\ The fact that certain transactions and fee arrangements are

the subject of an administrative exemption does not relieve the

fiduciaries of the Plans from the general fiduciary responsibility

provisions of section 404 of the Act. Thus, the Department cautions

the fiduciaries of the Plans investing in the Funds that they have

an ongoing duty under section 404 of the Act to monitor the services

provided to the Plans to assure that the fees paid by the Plans for

such services are reasonable in relation to the value of the

services provided. Such responsibilities would include

determinations that the services provided are not duplicative and

that the fees are reasonable in light of the level of services

provided.

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Specifically, in the event of an increase in the rate of any

investment management fees, investment advisory fees, or similar fees,

the addition of a Secondary Service for which a fee is charged, or an

increase in the fees for Secondary Services paid by the Funds to Wells

Fargo over an existing rate that had been authorized by the Second

Fiduciary, Wells Fargo will provide, at least 30 days in advance of the

implementation of such additional service or fee increase, to the

Second Fiduciary of the Plans invested in such Fund a written notice of

such additional service or fee increase, (which may take the form of a

proxy statement, letter, or similar communication that is separate from

the prospectus of the Fund and which explains the nature and amount of

the additional service or the nature and amount of the increase in

fees). In this regard, such increase in fees for Secondary Services can

result either from an increase in the rate of such fee or from the

decrease in the number or kind of services performed by Wells Fargo for

such fee over that which had been authorized by the Second Fiduciary of

a Plan. Wells Fargo believes that notice provided in this way will give

the Second Fiduciary of each of the Plan adequate opportunity to decide

whether or not to continue the authorization of a Plan's investment in

any of the portfolios of the Funds in light of the increase in

investment management fees, investment advisory fees, or similar fees,

the addition of a Secondary Service for which a fee is charged, or the

increase in fees for any Secondary Services. In addition, Wells Fargo

represents that such fee increase will be disclosed to the Second

Fiduciaries in an amendment of or supplement to the Fund's prospectus

or in the Funds' Statement of Additional Information, to the extent

necessary to comply with SEC disclosure requirements.11

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\11\ An increase in the amount of a fee for an existing

Secondary Service (other than through an increase in the value of

the underlying assets in the Funds) or the imposition of a fee for a

newly-established Secondary Service shall be considered an increase

in the rate of such Secondary Fee. However, in the event a Secondary

Fee has already been described in writing to the Second Fiduciary

and the Second Fiduciary has provided authorization for the amount

of such Secondary Fee, and such fee was waived, no further action by

Wells Fargo would be required in order for Wells Fargo to receive

such fee in the same amount at a later time. Thus, for example, no

further disclosure would be necessary if Wells Fargo had received

authorization for a fee for custodial services from Plan investors

and subsequently determined to waive the fee for a period of time in

order to attract new investors but later charged the fee. However,

reinstituting the fee at an amount greater than previously disclosed

would necessitate Wells Fargo providing notice of the fee increase

and a Termination Form.

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Authorization Requirements for the Second Fiduciary

13. The written notice of an additional service for which a fee is

charged or a fee increase, as described in Representation 12, will be

accompanied by a Termination Form, as defined in paragraph (i) of

Section III, and by instructions on the use of such

[[Page 4141]]

form, as described in paragraph (l) of Section II, which expressly

provide an election to the Second Fiduciaries to terminate at will any

prior authorizations without penalty to the Plans. The Second Fiduciary

will be supplied with a Termination Form annually during the first

quarter of each calendar year, beginning with the first quarter of the

calendar year that begins after the date the grant of this proposed

exemption is published in the Federal Register and continuing for each

calendar year thereafter, regardless of whether there have been any

changes in the fees payable to Wells Fargo or changes in other matters

in connection with services rendered to the Funds. However, if the

Termination Form has been provided to the Second Fiduciary in the event

of an increase in the rate of any investment management fees,

investment advisory fees, or similar fees, an addition of a Secondary

Service for which a fee is charged, or an increase in any fees for

Secondary Services paid by the Fund to Wells Fargo, then such

Termination Form need not be provided again to the Second Fiduciary

until at least six months have elapsed, unless such Termination Form is

required to be sent sooner as a result of another increase in any

investment management fees, investment advisory fees, or similar fees,

the addition of a Secondary Service for which a fee is charged, or an

increase in any fees for Secondary Services.

The Termination Form will contain instructions regarding its use

which will state expressly that the authorization is terminable at will

by a Second Fiduciary, without penalty to any Plan, and that failure to

return the form will be deemed to be an approval of the additional

Secondary Service or the increase in the rate of any fees and will

result in the continuation of all authorizations previously given by

such Second Fiduciary. Termination by any Plan of authorization to

invest in the Funds will be effected by Wells Fargo redeeming the

shares of the Fund held by the affected Plan by the close of business

on the day following receipt by Wells Fargo, either by mail, hand

delivery, facsimile, or other available means at the option of the

Second Fiduciary, of the Termination Form or any other written notice

of termination. If, due to circumstances beyond the control of Wells

Fargo, the redemption cannot be executed within one business day, Wells

Fargo shall have one additional business day to complete such

redemption.

Conditions for Exemption

14. If granted, this proposed exemption will be subject to the

satisfaction of certain general conditions that will further protect

the interests of the Plans. For example, the proposed transactions are

subject to the prior authorization of a Second Fiduciary, acting on

behalf of each of the Plans, who has been provided with full written

disclosure by Wells Fargo. The Second Fiduciary will generally be the

administrator, sponsor, or a committee appointed by the sponsor to act

as a named fiduciary for a Plan.

With respect to disclosure, the Second Fiduciary of each Plan will

receive advance written notice of the in-kind transfer of assets of the

Plan or the CIF upon termination of a CIF (with respect to any

Conversion Transaction) and full written disclosure of information

concerning the Funds (including a current prospectus for each of the

Funds and a statement describing the fee structure), consistent with

the requirements of PTE 77-4, as well as information regarding the

terms and conditions of the requested exemption.

On the basis of the information disclosed, the Second Fiduciary

will authorize in writing the investment of assets of the Plans in

shares of the Fund in connection with the transactions set forth herein

and the compensation received by Wells Fargo in connection with its

services to the Funds. For any Conversion Transaction, the Second

Fiduciary's written authorization will extend to only those investment

portfolios of the Funds with respect to which the Plan has received the

written disclosures referred to above. For other investments, written

authorization may be set out in the Plan documents or the Plan's

investment management agreement as contemplated by PTE 77-4, provided

again that investment in any Fund may be made only with respect to

those investment portfolios of the Funds with respect to which the Plan

has received the written disclosures. Having obtained the authorization

of the Second Fiduciary, Wells Fargo will invest the assets of a Plan

among the portfolios and in the manner covered by the authorization,

subject to satisfaction of the other terms and conditions of this

proposed exemption.

In addition to the disclosures provided to the Plan prior to

investment in any of the Funds, Wells Fargo represents that it will

routinely provide at least annually to the Second Fiduciary updated

prospectuses of the Funds in accordance with the requirements of the

1940 Act and the SEC rules promulgated thereunder. Further, the Second

Fiduciary will be supplied, upon request, with a report or statement

(which may take the form of the most recent financial report of such

Funds, the current statement of additional information, or some other

written statement) which contains a description of all fees paid by the

Fund. Depending upon the type of relationship (e.g., discretionary or

non-discretionary) Wells Fargo has with the Plan, each Plan will be

advised that it may or may not be required to pay a Plan-level

investment management or advisory fee with respect to Plan assets

invested in the Funds and that Wells Fargo will receive and retain fees

for Secondary Services.

Wells Fargo and its affiliates currently do not execute securities

brokerage transactions for the investment portfolios of the Funds. To

the extent that it proposes to do so in the future, Wells Fargo will,

at least 30 days in advance of the implementation of such additional

service, provide a written notice to the Plan's Second Fiduciary which

explains the nature of such additional brokerage service and the amount

of the fees. Further, with respect to any Fund for which Wells Fargo

will provide such brokerage services, Wells Fargo will provide at least

annually to the Second Fiduciary of any Plan that invests in such Funds

with a written disclosure indicating (a) the total, expressed in

dollars, of brokerage commissions of each Fund's investment portfolio

that are paid to Wells Fargo by such Fund; (b) the total, expressed in

dollars, of brokerage commissions of each Fund's investment portfolio

that are paid by such Fund to brokerage firms unrelated to Wells Fargo;

(c) the average brokerage commissions per share, expressed as cents per

share, paid to Wells Fargo by each portfolio of a Fund; and (d) the

average brokerage commissions per share, expressed as cents per share,

paid by each portfolio of a Fund to brokerage firms unrelated to Wells

Fargo.

In addition to the foregoing, Wells Fargo represents that (a) Plans

and other investors will purchase or redeem shares in the Funds in

accordance with standard procedures adopted by each Fund's board of

directors; (b) the Plans will pay no sales commissions or redemption

fees in connection with purchase or redemption of shares in the Funds

by the Plans; (c) Wells Fargo will not purchase from or sell to any of

the Plans shares of any of the Funds; and (d) the price paid or

received by the Plans for shares of the Funds will be the net asset

value per share at the time of such purchase or redemption and will be

the same price as any other investor would

[[Page 4142]]

have paid or received at that time. The value of the Funds' shares and

the value of each Funds' portfolios are determined on a daily basis.

Assets are valued at fair or market value, as required by Rule 17a-7.

Net asset value per share for purposes of pricing purchases and

redemptions is determined by dividing the value of all securities and

other assets of each portfolio, less the liabilities charged to each

portfolio, by the number of each portfolio's outstanding shares.

15. In summary, it is represented that the transactions have

satisfied or will satisfy the statutory criteria for an exemption under

section 408(a) of the Act because:

(a) The Plans or the CIFs have not and will not pay sales

commissions or redemption fees in connection with a Conversion

Transaction or in connection with purchases or redemptions by the Plans

or the CIFs of shares of the Funds.

(b) The Plans have received or will receive shares of the Funds

that are equal in value to the assets of the Plans or the CIFs

exchanged for such shares, with the value of such Plan or CIF asset

determined in a single valuation performed in the same manner and as of

the close of business on the same day in accordance with the procedures

set forth in Rule 17a-7 under the 1940 Act, as amended from time to

time or any successor rule, regulation or similar pronouncement.

(c) Within 38 business days of the initial Conversion Transaction

involving the Small Capitalization CIF and not later than 30 business

days after completion of a subsequent Conversion Transaction, each

affected Plan has received or will receive written confirmation of the

assets involved in the exchange which were valued in accordance with

Rule 17a-7(b)(4), the price of such assets and the identity of the

pricing service or market maker consulted.

(d) No later than 90 days after completion of a Conversion

Transaction, Wells Fargo has mailed or will mail to the Second

Fiduciary of each Plan, a written confirmation containing (1) the

aggregate dollar value of the assets held by the Plan immediately

before a Conversion Transaction, (2) the number of CIF units held by a

Plan prior to the Conversion Transaction (and the related per unit

value or the aggregate dollar value of the assets transferred), and (3)

the number of shares of the Funds that are held by such Plan following

the conversion (and the related per share net asset value and the

aggregate dollar value of the shares received).

(e) The price that has been or will be paid or received by the

Plans for shares in the Funds is the net asset value per share at the

time of the transaction and will be the same price for the shares which

would have been paid or received by any other investor for shares of

the same class at that time.

(f) Neither Wells Fargo nor an affiliate, including any officer or

director have not and will not purchase from or sell to any of the

Plans shares of any of the Funds.

(g) As to each individual Plan, the combined total of all fees

received by Wells Fargo for the provision of services to a Plan, and in

connection with the provision of services to any of the Funds in which

the Plan may invest, will not be in excess of ``reasonable

compensation'' within the meaning of section 408(b)(2) of the Act.

(h) Wells Fargo will not receive any 12b-1 Fees in connection with

the transactions.

(i) Depending on the nature of its relationship with Wells Fargo, a

Plan either (i) will not pay any Plan-level investment management,

investment advisory or similar fees to Wells Fargo with respect to any

of the assets of such Plans which are invested in shares of the Funds;

or (ii) will pay a Plan-level investment advisory fee based on total

Plan assets from which a credit has been subtracted representing the

Plan's pro rata share of investment advisory fees paid by the Funds.

(j) Prior to investment by a Plan in any of the Funds, the Second

Fiduciary has received or will receive a full and detailed written

disclosure of information concerning such Fund.

(k) On the basis of the disclosures, the Second Fiduciary has

authorized or will authorize the Conversion Transaction, as applicable,

and investment of the Plan's assets in the Funds.

(l) Subsequent to the investment by a Plan in any of the Funds,

Wells Fargo has provided or will provide the Plan, among other

information, at least annually with an updated copy of the prospectus

for each of the Funds in which the Plan invests.

(m) The authorization by the Second Fiduciary will be terminable at

will without penalty to such Plans, and any such termination will be

effected by the close of the business day following the date of receipt

by Wells Fargo, either by mail, hand delivery, facsimile or other

available means of written communication at the option of the Second

Fiduciary, of the Termination Form or any other written notice of

termination, unless due to circumstances beyond the control of Wells

Fargo delay execution for no more than one additional business day.

(n) With respect to each Plan, the Second Fiduciary will receive a

written notice accompanied by the Termination Form with instructions

regarding the use of such form, at least 30 days in advance of the

implementation of any increase in the rate of any fees for investment

management, investment advisory or similar fees, any addition of a

Secondary Service for which a fee is charged, or any increase in fees

for Secondary Services that Wells Fargo provides to the Funds.

(o) In the event such Fund places brokerage transactions with Wells

Fargo, Wells Fargo will provide the Second Fiduciary of such Plan at

least annually with a statement specifying the total, expressed in

dollars, of brokerage commissions of each Fund's investment portfolio

that are paid by such Fund to Wells Fargo and to unrelated brokerage

firms and the average brokerage commissions per share, expressed as

cents per share, by each portfolio of a Fund paid to Wells Fargo and to

brokerage firms unrelated to Wells Fargo.

(p) All dealings between the Plans and any of the Funds have been

and will remain on a basis that is no less favorable to such Plans than

dealings between the Funds and other shareholders holding the same

shares of the same class as the Plans.

FOR FURTHER INFORMATION CONTACT: Ms. Jan D. Broady of the Department,

telephone (202) 219-8881. (This is not a toll-free number.)

Plumbers and Pipefitters National Pension Fund (the Pension Plan)

and Pipefitters Local No. 211 Joint Educational Trust (the Welfare

Plan) (Collectively, the Plans) Located in Alexandria, VA and

Houston, TX, Respectively

[Application Nos. D-10700 and L-10709]

Proposed Exemption

The Department of Labor is considering granting an exemption under

the authority of section 408(a) of the Act and section 4975(c)(2) of

the Code and in accordance with the procedures set forth in 29 CFR part

2570, subpart B (55 FR 32836, 32847, August 10, 1990). If the exemption

is granted, the restrictions of sections 406(a) of the Act and the

sanctions resulting from the application of section 4975 of the Code,

by reason of section 4975(c)(1)(A) through (D) of the Code, shall not

apply to the sale (the Sale) of certain real property (the Property) by

the Pension Plan to the Welfare Plan, a party in interest with respect

to the

[[Page 4143]]

Pension Plan; provided the following conditions are satisfied:

(A) The terms and conditions of the transaction are no less

favorable to the Pension Plan and the Welfare Plan than those which

either the Pension Plan or the Welfare Plan would receive in an arm's-

length transaction with an unrelated party;

(B) The Sale is a one-time transaction for cash;

(C) The Pension Plan and the Welfare Plan incur no expenses, fees,

or commissions from the Sale other than their own respective appraisal,

recording, and legal expenses;

(D) The Welfare Plan pays as consideration for the Property no more

than the fair market value of the Property as determined by a

qualified, independent appraiser on the date of the Sale;

(E) The Pension Plan sells the Property for a price that is not

less than the fair market value of the Property as determined by a

qualified, independent appraiser on the date of the Sale; and

(F) The fiduciaries for the Pension Plan and the Welfare Plan,

respectively, will enforce the terms of the proposed exemption, if

granted.

Summary of Facts and Representations

1. The Pension Plan is a jointly administered Taft-Hartley trust

fund established pursuant to section 302(c)(5) of the Labor Management

Relations Act which is intended to qualify under section 401(a) of the

Code. The Pension Plan's participants are employees covered by

collective bargaining agreements between sponsoring employers of the

Pension Plan and the United Association of Journeymen and Apprentices

of the Plumbing and Pipe Fitting Industry of the United States and

Canada (the United Association), including seven employees of the

Welfare Plan. The United Association and its local affiliates are the

sole collective bargaining agencies for employees covered by applicable

collective bargaining agreements who are employed by the sponsoring

employers of the Pension Plan.

The Pension Plan is administered by a six member Board of Trustees

(the Trustees) of whom three members are appointed by the sponsoring

employers, and three members are appointed by the United Association.

The Trustees of the Pension Plan are represented by the applicant to

have investment discretion over the assets of the Pension Plan.

Currently the Trustees are Messrs. Charles H. Carlson, Fred G.

Christman, and James A. House, who were appointed by the employers; and

Messrs. Martin J. Maddaloni, Chairman, General President of the Union

Association, Thomas H. Patchell, General Secretary-Treasurer of the

Union Association, and Patrick R. Perno, Admin. Asst. to the General

President for the Union, who were appointed by the United Association.

The applicant represents that, as of June 30, 1997, the Pension

Plan had total assets of approximately $3,166,000,000; and as of

September 23, 1998, the Pension Plan had approximately 97,988

participants and beneficiaries.

2. The Welfare Plan is a jointly administered Taft-Hartley trust

fund established pursuant to section 302(c)(5) of the Labor Management

Relations Act, which provides training for apprentices and journeymen

pipe fitters located in the Houston, Texas area, who are members of the

United Association Local Union No. 211 (Local 211). The Welfare Plan

has four trustees (the Trustees) who are represented by the applicant

to have investment discretion over the assets of the Welfare Plan.

Currently the Trustees include Messrs. William A. Gregory and John

Morrow, who were appointed by the sponsoring employers of the Welfare

Plan; and Messrs. Lynn Williams, Business Manager of Local 211 and

Richard Seeton, who were appointed by Local 211.

The applicant represents that as of July 31, 1997, the Welfare Plan

had total assets of $1,147,297. Presently there are 137 participants in

the apprenticeship program given by the Welfare Plan.

The applicant further represents that none of the Trustees of the

Pension Plan serves as a Trustee of the Welfare Plan, and none of the

Trustees of the Welfare Plan serves as a Trustee of the Pension Plan.

However, the applicant represents that the Sale is a prohibited

transaction because seven employees of the Welfare Plan are

participants of the Pension Plan; and as such, the Welfare Plan is an

employer as defined under section 3(14) of the Act and is a party in

interest with respect to the Pension Plan.

3. The Property is described by the applicant as 1.5863 acres of

land, being Tract 10, out of the J. R. Harris Survey, Abstract 27,

Houston, Harris County, Texas, with improvements consisting of asphalt

paving and a chain link fence. It is located at the southeast corner of

Old Galveston Road and Loop 610. The Property was appraised by an

independent appraiser, Randy L. Seale, MAI, with Allen, Williford &

Seale, located in Houston, Texas, who determined that the Property had

a fair market value of $69,100, as of June 30, 1998.

4. The Pension Plan proposes to sell the Property to the Welfare

Plan for cash in a one-time transaction with no expenses, fees, or

commissions incurred from the Sale by either the Pension Plan or the

Welfare Plan other than their own respective appraisal, recording, and

legal expenses. The applicant represents that the Pension Plan will

receive, as consideration from the Sale, no less than the fair market

value of the Property as determined on the date of the Sale by a

qualified, independent appraiser.

The applicant represents that the Pension Plan is prompted to take

this action because the Property does not fit within the investment

strategy of the Pension Plan. The applicant further represents that the

continued possession of the Property will increase costs and expenses

to the Pension Plan without generating a reasonable return on the

investment. Title to the Property was obtained by the Pension Plan in

June 1990 as a result of Local 211's pension plan being merged into the

Pension Plan. During 1992, consideration was given to having the

Property sold to the Welfare Plan and then abandoned. In 1994 the

Pension Plan listed the Property with a commercial real estate agent in

Houston, Texas in an attempt to sell it to an unrelated party. After

one year, when no offers to purchase the Property were received, the

Pension Plan did not renew the listing agreement. During June 1997, the

Pension Plan agreed to sell the Property to the Welfare Plan upon

obtaining from the Department an exemption from the prohibited

transaction provisions of the Act.

The applicant represents that the Trustees for both Plans have

determined that the proposed Sale of the Property will be in the best

interests of their respective Plans and the rights of their

participants and beneficiaries will be protected because the Property

will provide each of the Plans with desirable improvements in their

respective investments. The Pension Plan will sell an illiquid and

superfluous asset, and the Welfare Plan will acquire an asset that has

a proximity to its present facilities which will provide increased on-

site parking space and increased security in a changing neighborhood,

and thus, minimizing inconveniences to participants and beneficiaries

and personnel of the Welfare Plan, enhancing its administrative

efficiencies.

The applicant also represents that compliance with the terms and

conditions of the requested exemption will be monitored and enforced by

the independent fiduciaries of the

[[Page 4144]]

respective Plans. The respective fiduciaries of both Plans represent

that the proposed Sale is in the best interests of the Plans and is

protective of the rights of the participants and beneficiaries of the

Plans; and that they have the power, authority, and responsibility to

take the necessary action in the proposed transaction so that the

Welfare Plan will not pay more and the Pension Plan will not receive

less than the fair market value as determined by the independent

appraiser on the date of the Sale.

5. In summary, the applicant represents that the proposed

transaction satisfies the criteria of section 408(a) of the Act because

(a) the Sale is a one-time transaction for cash; (b) the Plans will not

incur any expenses from the transaction other than their own respective

expenses; (c) the Pension Plan will receive no less than the fair

market value of the Property as determined on the date of the Sale by a

qualified, independent appraiser; (d) the Welfare Plan will pay no more

than the fair market value of the Property as determined on the date of

the Sale by a qualified, independent appraiser; and (e) the proposed

transaction will be enforced by the Plans respective independent

fiduciaries.

FOR FURTHER INFORMATION CONTACT: Mr. C. E. Beaver of the Department,

telephone (202) 219-8881. (This is not a toll-free number.)

State Street Bank and Trust Company (State Street), Located in Boston,

Massachusetts

[Application Number D-10701]

Proposed Exemption

The Department is considering granting an exemption under the

authority of section 408(a) of the Act and section 4975(c)(2) of the

Code and in accordance with the procedures set forth in 29 CFR part

2570, subpart B (55 FR 32836, 32847, August 10, 1990).

Section I. Transactions

If the exemption is granted, the restrictions of section

406(a)(1)(A) through (D) and section 406(b)(1) and (b)(2) of the Act

and the sanctions resulting from the application of section 4975 of the

Code, by reason of section 4975(c)(1)(A) through (E) of the Code, shall

not apply to the sale (the Sale) of fractional amounts of certain

fixed-income instruments (Fractional Amounts) to State Street and its

affiliates by plans for which State Street or its affiliates provide

fiduciary or other services (Client Plans), as well as employee benefit

plans established and maintained by State Street or its affiliates

(State Street Plans; collectively, the Plans), provided that the

following conditions are met:

(a) Each Sale involves a one time transaction for cash;

(b) The terms of each Sale are at least as favorable to the Plan as

those terms which would be available in an arm's-length transaction

with an unrelated party;

(c) The Plans receive an amount which is not less than the par

value for each of the Fractional Amounts;

(d) In the case of single Client Plans:

(1) Each Sale is subject to the prior consent of an independent

plan fiduciary;

(2) The independent fiduciary of each Plan is furnished with notice

within 90 days of the proposed Sale, providing information necessary

for the independent fiduciary to determine whether to approve the Sale

transaction. If the fixed-income instruments are not redenominated

within a year of provision of this notice, additional notice will be

provided to the independent fiduciaries of each Plan each year

notifying them of their right not to participate in this program of

Sales; and

(3) Each independent fiduciary who determines to participate in the

Sale receives written confirmation of the decision to participate and

written confirmation of the transaction and its terms.

(e) In the case of Client Plans participating in collective funds

for which State Street serves as trustee or investment manager,

(1) Each Sale engaged in by the collective fund is subject to the

prior approval of each independent plan fiduciary of Plans

participating in the fund;

(2) The independent fiduciary of each Plan is furnished notice

within 90 days of the proposed Sale, containing information necessary

for the independent fiduciary to determine whether to approve the Sale

transaction or withdraw from the collective fund prior to the Sale. If

the fixed-income instruments are not redenominated within a year of

provision of this notice, additional notice will be provided to the

independent fiduciaries each year notifying them of their right to

withdraw from the collective fund;

(3) Each independent fiduciary of a plan participating in a

collective fund who determines to participate in the Sale receives

written confirmation of the decision to participate and written

confirmation of the transaction and its terms;

(f) In the case of the Plans, State Street must engage in the Sale

within 30 days of the date that the Fractional Amounts are received by

State Street as custodian or trustee for the Plans from the issuers of

the fixed-income security;

(g) The Plans do not incur any commissions or other expenses in

connection with the Sales; and

(h)(1) State Street or an affiliate maintains or causes to be

maintained within the United States, for a period of six years from the

date of such transaction, the records necessary to enable the persons

described in this section to determine whether the conditions of this

exemption have been met; except that a party in interest with respect

to an employee benefit plan, other than State Street or its affiliates,

shall not be subject to a civil penalty under section 502(i) of the Act

or the taxes imposed by section 4975(a) or (b) of the Code, if such

records are not maintained, or are not available for examination, as

required by this section, and a prohibited transaction will not be

deemed to have occurred if, due to circumstances beyond the control of

State Street or its affiliates, such records are lost or destroyed

prior to the end of such six year period;

(2) The records referred to in subsection (1) above are

unconditionally available for examination during normal business hours

by duly authorized employees of (a) the Department, (b) the Internal

Revenue Service, (c) plan participants and beneficiaries, (d) any

employer of plan participants and beneficiaries, and (e) any employee

organization whose members are covered by such plan; except that none

of the persons described in (c) through (e) of this subsection shall be

authorized to examine trade secrets of State Street or its affiliates

or any commercial or financial information which is privileged or

confidential.

Section II. Definitions

(a) The term ``affiliate'' of State Street means any other bank or

similar financial institution directly or indirectly controlling,

controlled by, or under common control with State Street.

(b) The term ``Euro'' means the single European currency introduced

on January 1, 1999 in eleven Member States of the European

Union.12

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\12\ For purposes of reference, on January 6, 1999, 1 Euro

equaled approximately 1.16 U.S. dollars.

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(c) The term ``Fractional Amount'' means, with respect to any

fixed-income instrument, an amount less than one Euro.

(d) The term ``independent plan fiduciary'' means a plan fiduciary

[[Page 4145]]

independent of State Street and any of its affiliates.

(e) The term ``par value'' means the face value of the fixed-income

instrument.

(f) The term ``Plan'' includes all employee benefit plans to which

State Street or an affiliate acts as a service provider, including a

fiduciary, and all plans established and maintained by State Street and

its affiliates, which have net assets of at least $25,000,000.

EFFECTIVE DATE: This exemption is effective for the period beginning on

January 1, 1999 and ending three years from the date on which each

country joining the European Economic and Monetary Union converts to

the Euro.

Summary of Facts and Representations

1. State Street, a Massachusetts banking corporation, is a

commercial bank which provides a wide range of banking, fiduciary,

record keeping, custodial, brokerage and investment services to

corporations, institutions, governments, employee benefit plans,

governmental retirement plans and private investors worldwide. State

Street is a wholly-owned subsidiary of State Street Corporation, a bank

holding company organized in 1970 under the laws of the Commonwealth of

Massachusetts. As a Massachusetts trust company and a member bank of

the Federal Reserve System, State Street is a bank, as defined in

section 202(a)(2) of the Investment Advisers Act of 1940 and section

581 of the Code. As of December 31, 1997, State Street Corporation's

total assets were $37.975 billion with shareholders' equity of $1.995

billion.

2. Among the assets of the Client Plans and the State Street Plans

are corporate and government-issued fixed-income instruments

denominated in the currencies of the following eleven European nations:

Austria, Belgium, Finland, France, Germany, Ireland, Italy, Luxembourg,

Netherlands, Portugal and Spain. In May 1998, these eleven nations

agreed to join the Economic and Monetary Union (EMU) and to cooperate

in the creation of a European Central Bank and the development of a

central currency (the Euro), in lieu of the individual currencies of

the eleven members (Legacy Currencies). Beginning on January 1, 1999,

these Legacy Currencies will be converted into the Euro,13

although the Legacy Currencies will continue to coexist with the Euro

for a limited time as denominations of the Euro.14

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\13\ On December 31, 1998, the Council of the European Union

adopted the irrevocably fixed conversion rates between the Euro and

the currencies of the Member States adopting the Euro. See Council

Regulation (EC) No. 2866/98. The Council of the European Union

mandated the following conversion rates: 1 Eur=40.3399 BEF, 1

Eur=1.95583 DEM, 1 Eur=166.386 ESP, 1 Eur= 6.55957 FRF, 1

Eur=.787564 IEP, 1 Eur=1936.27 ITL, 1 Eur=40.3399 LUF, 1 Eur=2.20371

NLG, 1 Eur=13.7603 ATS, 1 Eur=200.482 PTE, 1 Eur=5.94573 FIM.

\14\ For example, a French Franc will be treated as a sub-unit

of a Euro in the same way as a centime is treated as a subunit of

the Franc. The applicant represents that because the conversion rate

will be irrevocably fixed throughout a three-year transitional

period, all existing banknotes and coins will continue in

circulation as legal tender but will be treated as referring to the

Euro at the fixed conversion rate.

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During the initial transition weekend that included January 1,

1999, nine of the eleven securities markets (Austria, Belgium, Finland,

France, Germany, Italy, Luxembourg, Portugal and Spain) in the EMU

underwent a conversion in which: (1) All stock exchanges and

depositories commenced pricing, trading and settling only in the Euro,

(2) approximately 1500 government securities were redenominated, (3)

currency balances were converted to the Euro, and (4) all securities

transactions pending over that weekend were converted to settle in the

Euro. Since January 1, 1999 forward, the stock exchanges, depositories

and national or central banks in these nine countries operate only in

the Euro. Ireland permitted Legacy Currency or Euro currency

instructions until January 8, 1999, and the Netherlands is permitting

Legacy Currency or Euro currency instructions throughout the entire

three-year transition period.

With regard to fixed-income instruments, the process of conversion

is scheduled to take place over a three-year period. The applicant

states that the other European nations not currently part of the EMU

may decide to follow these eleven nations and start their own

conversion process after January 1, 1999. In that event, these other

nations may take approximately three years from their commencement of

the conversion process to redenominate fixed-income securities. State

Street represents that in the process of this redenomination,

Fractional Amounts (as defined in paragraph (c) of Section II) will be

created as a result of the relationship between the former currency

values and the Euro.15

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\15\ In the case of Austria, Belgium, Finland, Germany, Ireland,

Italy, Luxembourg, Portugal, and Spain, fixed-income instruments are

being reissued in whole Euros. These securities markets are dealing

with the resulting Fractional Amounts by issuing fractional shares

of the fixed-income securities. Instead of issuing fractional

shares, France and the Netherlands have directed that their

sovereign debt instruments are to be redenominated in whole Euros,

with the value of the fractional share compensated with cash. As for

corporate issuers in France and the Netherlands, State Street

represents that it is unclear how they will redenominate.

Regardless, State Street represents that it is treating each

transaction as the Sale by the plan of a Fractional Amount of the

underlying security, regardless of the treatment by France and the

Netherlands, and is paying to each Plan an amount equal to 120% of

the par value of such Fractional Amount.

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4. State Street seeks exemptive relief permitting it and its

affiliates to purchase the Fractional Amounts resulting from the

conversion to the Euro of certain fixed-income instruments denominated

in the Legacy Currencies that are held by its Client Plans and the

State Street Plans. State Street represents that while its custody

systems currently support Fractional Amounts, it is widely predicted

that there will be little or no market for Fractional Amounts resulting

from the conversion to the Euro. In addition, State Street represents

that the Fractional Amounts will need to be disposed of as soon as

possible after the Euro conversion because these Fractional Amounts

will likely trade at a discount in any potential secondary market. In

addition, when transaction costs and other costs are considered, the

cost of selling the Fractional Amounts may exceed their value.

Accordingly, State Street proposes purchasing the Fractional Amounts

for 120% of par value from its clients, including Client Plans, and the

State Street Plans to ensure that no losses are sustained by such

investors in the Sale of the Fractional Amounts.

5. State Street represents that it contacted the independent

fiduciaries of each of its Client Plans within 90 days of December 31,

1998 to provide notice of the subject transaction. In notifying the

independent fiduciaries of the Client Plans, State Street provided

several items of important information. First, State Street informed

the Client Plans regarding the conversion of certain European

currencies into the Euro. In doing so, State Street advised the Client

Plans of the background and timing of the conversion, including the

fact that Fractional Amounts would result from the process of

conversion. Second, State Street advised the Client Plans that such

Fractional Amounts were not being traded on the open market. Also, as

an accommodation to its customers, State Street informed the Client

Plans that it would purchase the Fractional Amounts for 120% of the par

value of such shares, and clients would see a confirmation of that

transaction and future activity regarding the Fractional Amounts on

their quarterly statements as the issuers of the fixed-income

[[Page 4146]]

instruments converted their fixed-income securities. Third, Client

Plans were informed that if they opt not to have their Fractional

Amounts purchased by State Street, State Street would accommodate such

request and permit the Client Plans to deal with the Fractional Amounts

as they so choose. In this regard, State Street represents that every

Client Plan was given an adequate amount of time prior to December 31,

1998 to opt out of the program. In the case of Client Plans

participating in collective funds, such Plans were given the

opportunity to withdraw from the fund if they objected to participation

in the program of Sales.

State Street represents that every independent fiduciary of the

single Client Plans and Client Plans participating in collective funds

has agreed to participate in the program of Sales. State Street

provided each independent fiduciary with written confirmation of their

decision to participate in the program of Sales. Furthermore, State

Street represents that its quarterly statements will continue to

provide the Client Plans with an indication of the activity in the

accounts with respect to Fractional Amounts as issuers redenominate the

fixed-income securities.

6. State Street represents that the subject transactions are

administratively feasible in that each Sale is for cash at an amount

equal to 120% the par value of the Fractional Amounts and that all

transaction records will be maintained. Furthermore, State Street

states that each transaction should be viewed as being in the best

interest of the Plans and their participants and beneficiaries because

such transactions provide for more efficient administration of the

currency conversion process for such assets and increased value to the

Plan's investments. Finally, State Street represents that the subject

transactions are protective of the Plans' participants and

beneficiaries because each Plan receives 120% of the par value for the

Fractional Amounts during a time when any market that may develop for

these interests could result in them being sold at a discount.

7. In summary, State Street represents that the transactions

satisfy the statutory criteria of section 408(a) of the Act and section

4975 of the Code because:

(a) Each Sale involves a one time transaction for cash;

(b) The terms of each Sale are at least as favorable to the Plan as

those terms which would be available in an arm's-length transaction

with an unrelated party;

(c) The Plans receive an amount which is not less than the par

value for each of the Fractional Amounts;

(d) In the case of Single Client Plans:

(1) Each Sale is subject to the prior consent of an independent

plan fiduciary;

(2) The independent fiduciary of each Plan is furnished with notice

within 90 days of the proposed Sale, providing information necessary

for the independent fiduciary to determine whether to approve the Sale

transaction. If the fixed-income instruments are not redenominated

within a year of provision of this notice, additional notice will be

provided to the independent fiduciaries each year notifying them of

their right not to participate in this program of Sales; and

(3) each independent fiduciary who determines to participate in the

Sale receives written confirmation of its decision to participate and

written confirmation of the transaction and its terms.

(e) In the case of Client Plans participating in collective funds

for which State Street serves as trustee or investment manager,

(1) Each Sale engaged in by the collective fund is subject to the

prior approval of each independent plan fiduciary of Plans

participating in the fund;

(2) The independent fiduciary of each Plan is furnished notice

within 90 days of the proposed Sale, containing information necessary

for the independent fiduciary to determine whether to approve the Sale

transaction or withdraw from the collective fund prior to the Sale. If

the fixed-income instruments are not redenominated within a year of

provision of this notice, additional notice will be provided to the

independent fiduciaries each year notifying them of their right to

withdraw from the collective fund;

(3) Each independent fiduciary of a plan participating in a

collective fund who determines to participate in the Sale receives

written confirmation of the decision to participate and written

confirmation of the transaction and its terms;

(f) In the case of the Plans, State Street must engage in the Sale

within 30 days of the date that the Fractional Amounts are received by

State Street from the issuers of the fixed-income security; and

(g) The Plans do not incur any commissions or other expenses in

connection with the Sales.

NOTICE TO INTERESTED PERSONS: Because of the large number of interested

persons associated with the Plans, the Department and the applicant

have agreed that notification through publication of the proposal in

the Federal Register is sufficient.

FOR FURTHER INFORMATION: Contact James Scott Frazier of the Department,

phone number (202) 219-8881 (this is not a toll-free number).

General Information

The attention of interested persons is directed to the following:

(1) The fact that a transaction is the subject of an exemption

under section 408(a) of the Act and/or section 4975(c)(2) of the Code

does not relieve a fiduciary or other party in interest of disqualified

person from certain other provisions of the Act and/or the Code,

including any prohibited transaction provisions to which the exemption

does not apply and the general fiduciary responsibility provisions of

section 404 of the Act, which among other things require a fiduciary to

discharge his duties respecting the plan solely in the interest of the

participants and beneficiaries of the plan and in a prudent fashion in

accordance with section 404(a)(1)(b) of the act; nor does it affect the

requirement of section 401(a) of the Code that the plan must operate

for the exclusive benefit of the employees of the employer maintaining

the plan and their beneficiaries;

(2) Before an exemption may be granted under section 408(a) of the

Act and/or section 4975(c)(2) of the Code, the Department must find

that the exemption is administratively feasible, in the interests of

the plan and of its participants and beneficiaries and protective of

the rights of participants and beneficiaries of the plan;

(3) The proposed exemptions, if granted, will be supplemental to,

and not in derogation of, any other provisions of the Act and/or the

Code, including statutory or administrative exemptions and transitional

rules. Furthermore, the fact that a transaction is subject to an

administrative or statutory exemption is not dispositive of whether the

transaction is in fact a prohibited transaction; and

(4) The proposed exemptions, if granted, will be subject to the

express condition that the material facts and representations contained

in each application are true and complete and accurately describe all

material terms of the transaction which is the subject of the

exemption. In the case of continuing exemption transactions, if any of

the material facts or representations described in the application

change after the exemption is granted, the exemption will cease to

apply as of the date of such change. In the event of any such change,

application for a new

[[Page 4147]]

exemption may be made to the Department.

Signed at Washington, DC, this 21st day of January, 1999.

Ivan Strasfeld,

Director of Exemption Determinations, Pension and Welfare Benefits

Administration, U.S. Department of Labor.

[FR Doc. 99-1848 Filed 1-26-99; 8:45 am]

BILLING CODE 4510-29-P