[Federal Register Volume 63, Number 203 (Wednesday, October 21, 1998)]
[Notices]
[Pages 56227-56231]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-28216]
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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 * 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