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Secretary of Labor Thomas E. Perez
Grant of Individual Exemptions; Harris Trust & Savings Bank, et al. [Notices] [10/21/1998]

EBSA (Formerly PWBA) Federal Register Notice

Grant of Individual Exemptions; Harris Trust & Savings Bank, et al. [10/21/1998]

[PDF Version]

Volume 63, Number 203, Page 56227-56231

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DEPARTMENT OF LABOR

Pension and Welfare Benefits Administration
[Prohibited Transaction Exemption 98-49; Exemption Application No. D-
10349, et al.]

 
Grant of Individual Exemptions; Harris Trust & Savings Bank, et 
al.

AGENCY: Pension and Welfare Benefits Administration, Labor.

ACTION: Grant of individual exemptions.

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SUMMARY: This document contains exemptions issued by the Department of 
Labor (the Department) 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).
    Notices were published in the Federal Register of the pendency 
before the Department of proposals to grant such exemptions. The 
notices set forth a summary of facts and representations contained in 
each application for exemption and referred interested persons to the 
respective applications for a complete statement of the facts and 
representations. The applications have been available for public 
inspection at the Department in Washington, D.C. The notices also 
invited interested persons to submit comments on the requested 
exemptions to the Department. In addition the notices stated that any 
interested person might submit a written request that a public hearing 
be held (where appropriate). The applicants have represented that they 
have complied with the requirements of the notification to interested 
persons. No public comments and no requests for a hearing, unless 
otherwise stated, were received by the Department.
    The notices of proposed exemption were issued and the exemptions 
are being granted solely by the Department because, 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 proposed to the Secretary 
of Labor.

[[Page 56228]]

Statutory Findings

    In accordance with section 408(a) of the Act and/or section 
4975(c)(2) of the Code and the procedures set forth in 29 CFR Part 
2570, Subpart B (55 FR 32836, 32847, August 10, 1990) and based upon 
the entire record, the Department makes the following findings:
    (a) The exemptions are administratively feasible;
    (b) They are in the interests of the plans and their participants 
and beneficiaries; and
    (c) They are protective of the rights of the participants and 
beneficiaries of the plans.

Harris Trust & Savings Bank and its Affiliates (Harris Trust) 
Located in Chicago, IL

[Prohibited Transaction Exemption 98-49; Exemption Application No. D-
10349]

Exemption

Section I--Exemption for Acquisition of Fund Shares With Assets 
Transferred in-kind from a CIF

    The restrictions of sections 406(a) and 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, as of March 21, 1997, to the acquisition by employee benefit 
plans (the Plans), including two plans sponsored by Harris Trust for 
its own employees (the In-house Plans), of shares of any open-end 
investment companies (the Funds) registered under the Investment 
Company Act of 1940 (the '40 Act) for which Harris Trust is an 
investment adviser and may provide other services, with Plan assets 
transferred in-kind to the Funds from certain collective investment 
funds maintained by Harris Trust (the CIFs), in connection with the 
termination of the CIFs, provided that the following conditions are 
satisfied:
    (a) For each Plan, a second fiduciary who is unrelated to, and 
independent of, Harris Trust (the Independent Fiduciary) receives prior 
written notice of the in-kind transfer of Plan assets from a CIF to a 
Fund in exchange for shares of the Fund, as well as the disclosures 
described in Section II(f).
    (b) On the basis of the information described in Section II(f), the 
Independent Fiduciary gives prior written approval for each acquisition 
of Fund shares with Plan assets transferred from a CIF and the fees to 
be received by Harris Trust in connection with its services to the 
Fund. Such approval must be consistent with the general fiduciary 
responsibility provisions imposed on fiduciaries by Part 4 of Title I 
of the Act.
    (c) No sales commissions are paid by the Plans in connection with 
the acquisition of Fund shares with Plan assets transferred from a CIF.
    (d) All or a pro rata portion of the assets of a CIF are 
transferred in-kind to a Fund in exchange for shares of the Fund.
    (e) Each Plan receives Fund shares having a total net asset value 
equal to the value of the Plan's pro rata share of the corresponding 
CIF's assets on the date of the in-kind transfer, based on the current 
market value of the CIF's assets as determined in a single valuation 
performed in the same manner and as of the close of business of the 
same day, using independent sources in accordance with Securities and 
Exchange Commission (SEC) Rule 17a-7 <SUP>*</SUP> of the `40 Act and 
the procedures established by the Fund pursuant to Rule 17a-7. Such 
procedures require that all securities for which a current market value 
cannot be obtained by reference to the last sales price for 
transactions reported on a recognized securities exchange or quoted in 
the NASDAQ system, must be valued based upon an average of the highest 
current independent bid and lowest current independent offer, as of the 
close of business on the last business day preceding the in-kind 
transfer, determined on the basis of reasonable inquiry from at least 
three sources that are broker-dealers or pricing services independent 
of Harris Trust;
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    \ *\ 17 CFR 270.17a-7.
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    (f) Within 30 days after completion of each acquisition of Fund 
shares with Plan assets transferred in-kind from a CIF, Harris Trust 
sends by regular mail to the Independent Fiduciary a written 
confirmation containing the following information:
    (1) The identity of each security that was valued for purposes of 
the transaction in accordance with Rule 17a-7(b)(4);
    (2) The market price, as of the date of the in-kind transfer, of 
each such security; and
    (3) The identity of each pricing service or market-maker consulted 
in determining the value of such securities.
    (g) Within 90 days after completion of each acquisition of Fund 
shares with Plan assets transferred in-kind from a CIF, Harris Trust 
sends by regular mail to the Independent Fiduciary a written 
confirmation containing the following information:
    (1) The number of CIF units held by the Plan immediately before the 
in-kind transfer, the related per unit value, and the total dollar 
amount of such CIF units; and
    (2) The number of shares in the Funds that are held by the Plan 
immediately after the in-kind transfer, the related per share net asset 
value, and the total dollar amount of such shares.
    (h) The conditions set forth in paragraphs (c), (d), (e), (f), (i), 
(o), (p), and (q) of Section II are satisfied.

Section II--Exemption for Receipt of Fees From the Funds

    The restrictions of sections 406(a) and 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, as of March 21, 1997, to the receipt of fees by Harris Trust 
from the Funds for acting as an investment adviser for the Funds, as 
well as for acting as the custodian, transfer agent, sub-administrator 
for the Funds, or for providing any other ``secondary service'' (as 
defined in Section III(i), below) to the Funds, in connection with the 
investment in shares of the Funds by Plans for which Harris Trust is a 
fiduciary (the Client Plans), other than the In-house Plans, provided 
that the following conditions are satisfied:
    (a) No sales commissions are paid by the Client Plans in connection 
with the purchase or sale of shares of the Funds, and no redemption 
fees are paid in connection with the sale of such shares by the Client 
Plans to the Funds.
    (b) The price paid or received by a Client Plan for shares of a 
Fund is the net asset value per share, as defined in Section III(f), 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 Harris Trust nor an affiliate (including officers or 
directors, and other persons, as defined in Section III(b), below) 
purchases from or sells to the Client Plans shares of the Funds.
    (d) For each Client Plan, the combined total of all fees received 
by Harris Trust for its services to the Client Plan, and in connection 
with its services to any of the Funds in which the Client Plan may 
invest, constitutes no more than ``reasonable compensation'' within the 
meaning of section 408(b)(2) of the Act.
    (e) Harris Trust receives no fees payable pursuant to Rule 12b-1 
under the 40 Act (12b-1 fees) in connection with the transactions.
    (f) Prior to the initial investment by a Client Plan in any of the 
Funds, the Independent Fiduciary receives full and detailed written 
disclosure of

[[Page 56229]]

information concerning the Fund, including, but not limited to
    (1) A current prospectus for the Fund;
    (2) A statement describing the fees for investment management, 
investment advisory, or other similar services, any fees for Secondary 
Services, as defined in Section III(i), and all other relevant fees to 
be paid by the Client Plan and by the Fund to Harris Trust, including 
the nature and extent of any differential between the rates of such 
fees;
    (3) The reasons why Harris Trust considers an investment in the 
Fund to be appropriate for the Client Plan;
    (4) A statement describing whether there are any limitations 
applicable to Harris Trust with respect to which assets of a Client 
Plan may be invested in the Fund, and, if so, the nature of such 
limitations; and
    (5) Upon request of the Independent Fiduciary, a copy of this 
notice of exemption (and a copy of the notice of proposed exemption), 
as published in the Federal Register.
    (g) On the basis of the information described in paragraph (f), the 
Independent Fiduciary gives prior written authorization for
    (1) The investment of assets of the Client Plan in shares of a 
Fund;
    (2) The Funds in which the assets of the Client Plan may be 
invested; and
    (3) The fees to be paid to Harris Trust in connection with its 
services to the Funds.
    Such authorization by the Independent Fiduciary must be consistent 
with the general fiduciary provisions of Part 4 of Title I of the Act.
    (h) The authorization described in paragraph (g) is terminable by 
the Independent Fiduciary at will without penalty to the Client Plan, 
upon written notice of termination to Harris Trust. Harris Trust shall 
effect such termination by selling the shares of the Fund held by the 
Client Plan by the close of the business day following the date of 
receipt by Harris Trust of the termination form (the Termination Form), 
as defined in Section III(j), or any other written notice of 
termination. However, if, due to circumstances beyond the control of 
Harris Trust, the sale cannot be executed within one business day, 
Harris Trust shall have one additional business day to complete such 
sale.
    (i) Each Client Plan receives a credit, either through cash, or, if 
applicable, the purchase of additional shares of the Funds pursuant to 
an annual election made by the Client Plan (which may be revoked at any 
time), of such Client Plan's proportionate share of all investment 
advisory fees charged to the Funds by Harris Trust, including any 
investment advisory fees paid by Harris Trust to third party sub-
advisers, within one business day of the receipt of such fees by Harris 
Trust. The crediting of all such fees to the Client Plans by Harris 
Trust must be audited by an independent accounting firm at least 
annually to verify the proper crediting of the fees to each Client 
Plan.
    (j) In the event of an increase in the rate of any fees paid by the 
Funds to Harris Trust for any investment management services, 
investment advisory services, or other similar services above the rate 
which has been approved previously by an Independent Fiduciary, in 
accordance with paragraph (g), Harris Trust will provide at least 30 
days' written notice (separate from the Fund Prospectus) to each Client 
Plan invested in a Fund which is increasing such fees.
    (k) In the event of an addition of a Secondary Service by Harris 
Trust to a Fund for which a fee is charged, or in the event of an 
increase in a fee paid by the Funds to Harris Trust for any Secondary 
Service (which may result from either an increase in the rate of such 
fee or a decrease in the number or kind of services performed for such 
fee) above the rate which has been approved previously by an 
Independent Fiduciary, in accordance with paragraph (g), Harris Trust 
will provide at least 30 days' written notice (separate from the Fund 
Prospectus) to each Client Plan invested in a Fund which is adding a 
service or increasing its fees. Such notice shall be accompanied by the 
Termination Form.
    (l) The Independent Fiduciary is supplied with a Termination Form 
at the times specified in paragraphs (k), (l), and (m), which expressly 
provides an election to terminate the authorization described in 
paragraph (g), with instructions regarding the use of the Termination 
Form, including the following information:
    (1) The authorization is terminable by the Independent Fiduciary at 
will without penalty to the Client Plan, upon written notice of 
termination to Harris Trust. Harris Trust shall effect such termination 
by selling the shares of the Fund held by the Client Plan by the close 
of the business day following the date of receipt by Harris Trust of 
the Termination Form, or any other written notice of termination. 
However, if, due to circumstances beyond the control of Harris Trust, 
the sale cannot be executed within one business day, Harris Trust shall 
have one additional business day to complete such sale; and
    (2) Failure of the Independent Fiduciary to return the Termination 
Form will be deemed to be an approval of the additional Secondary 
Service for which a fee is charged or an increase in the rate of any 
fees, if such Termination Form is supplied pursuant to paragraphs (k) 
and (l), and will result in continuation of authorization, as described 
in paragraph (g), for Harris Trust to engage in the transactions on 
behalf of the Client Plan.
    (m) The Independent Fiduciary is supplied annually with a 
Termination Form during the first quarter of each calendar year, 
beginning with the calendar year immediately following the date of 
publication in the Federal Register of a notice of exemption for the 
subject transactions. However, the Termination Form need not be 
supplied to the Independent Fiduciary sooner than six months after it 
has been supplied pursuant to paragraphs (k) and (l), except to the 
extent required to disclose either 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 Client Plan 
invests, Harris Trust will provide the Independent Fiduciary of such 
Client Plan:
    (A) at least annually, a copy of an updated prospectus of the Fund;
    (B) upon the request of the Independent 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 Harris Trust; and
    (2) With respect to each of the Funds in which a Client Plan 
invests, in the event such Fund places brokerage transactions with 
Harris Trust, Harris Trust, at least annually, will provide the 
Independent Fiduciary of such Client Plan with a statement specifying:
    (A) the total dollar amount of brokerage commissions of each Fund's 
investment portfolio paid to Harris Trust by such Fund;
    (B) the total dollar amount of brokerage commissions of each Fund's 
investment portfolio that are paid by such Fund to brokerage firms 
unrelated to Harris Trust;
    (C) the average brokerage commissions per share, in cents per 
share, paid to Harris Trust by each portfolio of a Fund; and
    (D) the average brokerage commissions per share, in cents per 
share, paid by each portfolio of a Fund to brokerage firms unrelated to 
Harris Trust.
    (o) All dealings between the Client Plans and the Funds are on a 
basis no less favorable to the Client Plans than

[[Page 56230]]

dealings between the Fund and its other shareholders holding shares of 
the same class as the Client Plans.
    (p) Harris Trust maintains for a period of six years the records 
necessary to enable the persons described in paragraph (q) to determine 
whether the conditions of this exemption have been satisfied, except 
that
    (1) a party in interest with respect to a Plan, other than Harris 
Trust, shall not be subject to a civil penalty under section 502(i) of 
the Act or to the taxes imposed by section 4975(a) and (b) of the Code, 
if such records are not maintained or are not available for 
examination, as required by paragraph (q); and
    (2) a prohibited transaction shall not be deemed to have occurred 
if, due to circumstances beyond Harris Trust's control, such records 
are lost or destroyed prior to the end of the six year period;
    (q) Notwithstanding any provisions of subsections (a)(2) and (b) of 
section 504 of the Act, Harris Trust makes the records referred to in 
paragraph (p) unconditionally available during normal business hours at 
their customary location to the following persons or a duly authorized 
representative thereof: (A) the Department or the Internal Revenue 
Service; (B) any fiduciary of a Client Plan with the authority to 
acquire or dispose of shares of the Funds owned by the Client Plan; and 
(C) any participant or beneficiary of a Client Plan. However, none of 
the persons described in (B) or (C) are authorized to examine the trade 
secrets of Harris Trust, or commercial or financial information which 
is privileged or confidential.

Section III--Definitions.

    For purposes of this proposed exemption:
    (a) The term ``Harris Trust'' means Harris Trust & Savings Bank and 
any affiliate thereof, as ``affiliate'' is defined in paragraph (b).
    (b) The term ``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 ``collective investment fund'' or ``CIF'' means a 
common or collective trust fund or pooled investment fund maintained by 
Harris Trust.
    (e) The term ``Fund'' or ``Funds'' means any diversified open-end 
management investment company or companies registered under the '40 Act 
for which Harris Trust serves as an investment adviser and may also 
provide custodial or other services approved by the Funds.
    (f) The term ``net asset value'' per share means the amount which 
is calculated by dividing the value of all securities (determined by a 
method set forth in a Fund's prospectus and statement of additional 
information) and other assets belonging to each portfolio in the Fund, 
less the liabilities chargeable to each such Fund portfolio, by the 
number of outstanding shares.
    (g) The term ``relative'' means a ``relative'' as defined in 
section 3(15) of the Act (or a ``member of the family'' as defined in 
section 4975(e)(6) of the Code), or a brother, a sister, or a spouse of 
a brother or a sister.
    (h) The term ``Independent Fiduciary'' means a fiduciary of a Plan 
who is unrelated to, and independent of, Harris Trust. For purposes of 
this proposed exemption, a Plan fiduciary will not be deemed to be 
unrelated to, and independent of, Harris Trust if
    (1) such fiduciary directly or indirectly controls, is controlled 
by, or is under common control with Harris Trust;
    (2) such fiduciary, or any officer, director, partner, employee, or 
relative of such fiduciary is an officer, director, partner, or 
employee of Harris Trust (or is a relative of such persons); or
    (3) Such fiduciary directly or indirectly receives any compensation 
or other consideration from Harris Trust for his or her own personal 
account in connection with any transaction described in this proposed 
exemption. However, with respect to the In-house Plans, the Independent 
Fiduciary may receive compensation from Harris Trust in connection with 
the subject transactions, provided that the amount or payment of such 
compensation is not contingent upon, nor in any way affected by, the 
Independent Fiduciary's ultimate decision regarding the Plans' 
participation in the transactions.
    With the exception of the In-house Plans, if an officer, director, 
partner or employee of Harris Trust (or relative of such persons) is a 
director of the Plan fiduciary and abstains from participation in (i) 
the choice of the Plan's investment adviser, (ii) the approval of any 
purchase or sale between the Plan and the Funds, and (iii) the approval 
of any change in fees paid by the Plan in connection with any of the 
subject transactions, then paragraph (g)(2) shall not apply.
    (i) The term ``Secondary Service'' means a service other than an 
investment management, investment advisory, or similar service, which 
is provided by Harris Trust to the Funds, including, but not limited 
to, custodial, accounting, transfer agent, administrative, brokerage, 
or any other service.
    (j) The term ``Termination Form'' means the form supplied to the 
Independent Fiduciary, at the times specified in Section II(k), (l), 
and (m), which expressly provides to the Independent Fiduciary an 
election to terminate at will the authorization described in Section 
II(g) without penalty to the Plan. The Independent Fiduciary may use 
such Termination Form to provide written notice of termination to 
Harris Trust and instruct Harris Trust to effect the termination by 
selling the shares of a Fund held by the Plan by the close of the 
business day following the date of receipt by Harris Trust of the 
Termination Form. However, if, due to circumstances beyond the control 
of Harris Trust, the sale cannot be executed within one business day, 
Harris Trust shall have one additional business day to complete such 
sale.
    (k) The term ``security'' shall have the same meaning as defined in 
section 2(36) of the '40 Act, as amended, 15 USC 80a-2(36) (1996).
    Effective Date: The exemption is effective, as of March 21, 1997.
    For a more complete statement of the facts and representations 
supporting the Department's decision to grant this exemption, refer to 
the notice of proposed exemption published on August 6, 1998 at 63 FR 
42068.

Written Comments

    The Department received one written comment with respect to the 
notice of proposed exemption (the Notice) and no requests for a 
hearing. The written comment was submitted by the applicant and 
concerns a clarification to the record.
    Harris Trust notes that the Summary of Facts and Representations 
(the Summary) for the Notice, in Paragraph 6, the second subparagraph 
(see page 42073, column 1) inaccurately states, ``All or a pro rata 
portion of the assets of a CIF are transferred in-kind to a Fund in 
exchange for shares of the Fund distributed to the Plans'' [emphasis 
added]. Harris Trust wishes to clarify that the shares of the Fund were

[[Page 56231]]

actually issued by the Fund directly to the Plans, rather than to the 
CIF and then, in turn, distributed by the CIF to the Plans.
    The Department notes the applicant's clarification to the written 
record, as stated in the Summary. Accordingly, the Department has 
determined to grant the exemption as proposed.

FOR FURTHER INFORMATION CONTACT: Ms. Karin Weng of the Department, 
telephone (202) 219-8881. (This is not a toll-free number.)

John B. Vick, D.D.S., P.A. Pension Plan (the Plan) Located in 
Minneapolis, MN

[Prohibited Transaction Exemption 98-50; Exemption Application Number 
D-10578]

Exemption

    The restrictions of sections 406(a), 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 cash sale (the Sale) of two promissory notes 
(the Notes) by the Plan to Dr. John B. Vick, a party in interest and 
disqualified person with respect to the Plan, provided the following 
conditions are met:
    (a) The Sale is a one-time transaction for cash;
    (b) The terms and conditions of the Sale are at least as favorable 
to the Plan as those obtainable in an arm's length transaction with an 
unrelated party;
    (c) The Plan receives an amount equal to the fair market value of 
the Notes as determined by a qualified, independent appraiser as of the 
date of Sale; and
    (d) The Plan is not required to pay any commissions, costs or other 
expenses in connection with the Sale.
    For a more complete statement of the facts and representations 
supporting the Department's decision to grant this exemption, please 
refer to the proposed exemption published on August 31, 1998 at 63 FR 
46253.
FOR FURTHER INFORMATION CONTACT: Mr. James Scott Frazier, telephone 
(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 or disqualified 
person from certain other provisions to which the exemptions 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) These exemptions are supplemental to and not in derogation of, 
any other provisions of the Act and/or the Code, including statutory or 
administrative exemptions and transactional 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
    (3) The availability of these exemptions is subject to the express 
condition that the material facts and representations contained in each 
application accurately describes all material terms of the transaction 
which is the subject of the exemption.

    Signed at Washington, D.C., this 15th day of October 1998.
Ivan Strasfeld,
Director of Exemption Determinations, Pension and Welfare Benefits 
Administration, U.S. Department of Labor.
[FR Doc. 98-28216 Filed 10-20-98; 8:45 am]
BILLING CODE 4510-29-P