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Secretary of Labor Hilda L. Solis
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EBSA Notices

Proposed Exemptions; Wells Fargo Bank, N.A. (Wells Fargo)   [1/27/1999]
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WAIS Document Retrieval
[Federal Register: January 27, 1999 (Volume 64, Number 17)]
[Notices]               
[Page 4132-4147]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr27ja99-92]

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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).<SUP>1</SUP>
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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. 
<SUP>2</SUP>
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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.<SUP>3</SUP>
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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 
<SUP>4</SUP> 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.<SUP>5</SUP>
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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).
---------------------------------------------------------------------------

    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)

<bullet> ``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.

<bullet> ``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

<bullet> ``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.<SUP>6</SUP> 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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<bullet>Custodial Services, 0.0167 percent plus certain transaction 
charges according to published schedules (e.g., wire transfers).
<bullet>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.
<bullet>Transfer Agency Services, 0 percent or 0.02 percent (Overland 
Funds and Stagecoach Money Market Funds) to 0.06 percent (other 
Stagecoach Funds).
<bullet>Shareholder Servicing, 0 percent (Overland and certain 
Stagecoach Funds) to 0.25 percent (certain Stagecoach Funds).
<bullet>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.<SUP>7</SUP>
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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.
---------------------------------------------------------------------------

    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.<SUP>8</SUP> 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.
---------------------------------------------------------------------------

    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.<SUP>9</SUP> 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.
---------------------------------------------------------------------------

    (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.<SUP>10</SUP> 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.
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

    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.<SUP>11</SUP>
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

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.<SUP>12</SUP>
---------------------------------------------------------------------------

    \12\ For purposes of reference, on January 6, 1999, 1 Euro 
equaled approximately 1.16 U.S. dollars.
---------------------------------------------------------------------------

    (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,<SUP>13</SUP> 
although the Legacy Currencies will continue to coexist with the Euro 
for a limited time as denominations of the Euro.<SUP>14</SUP>
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

    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.<SUP>15</SUP>
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

    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

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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