Proposed Exemptions; Phillips Petroleum Company

DEPARTMENT OF LABOR

[Application No. D-09909, et al.]

Proposed Exemptions; Phillips Petroleum Company

AGENCY: Pension and Welfare Benefits Administration, Labor.

ACTION: Notice of proposed exemptions.

-----------------------------------------------------------------------

SUMMARY: This document contains notices of pendency before the

Department of Labor (the Department) of proposed exemptions from

certain of the prohibited transaction restriction 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

All interested persons are invited to submit written comments or

request for a hearing on the pending exemptions, unless otherwise

stated in the Notice of Proposed Exemption, within 45 days from the

date of publication of this Federal Register Notice. Comments and

request for a hearing should state: (1) The name, address, and

telephone [[Page 30107]] 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. 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.

Phillips Petroleum Company (Phillips), Located in Bartlesville, OK;

Proposed Exemption

[Application No. D-09909]

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). If the exemption

is granted, the restrictions of sections 406(a), 406 (b)(1) and (b)(2)

of the Act and the sanctions resulting from the application of section

4975 of the Code by reason of section 4975(c)(1) (A) through (E) of the

Code, shall not apply to (1) The proposed making of interest-free loans

to the Thrift Plan of Phillips Petroleum Company (the Plan) by

Phillips, the Plan sponsor pursuant to the terms of a credit facility

arrangement; and (2) the proposed repayment of such loans by the Plan

to Phillips.

This proposed exemption is conditioned on the following

requirements:

(a) Each loan executed under the proposed credit facility

arrangement provides short-term funds to the Plan in connection with

inter-fund transfers, withdrawals and participant loans and permits the

orderly disposal of Phillips common stock.

(b) Each loan made under the proposed credit facility arrangement

is unsecured and no interest, commissions or expenses are paid by the

Plan.

(c) In the event of a loan default or delinquency, Phillips has no

recourse against the Plan.

(d) Each loan is initiated, accounted for and administered by an

independent fiduciary who monitors the terms and conditions of the

exemption, if granted.

Summary of Facts and Representations

1. Phillips, which maintains its principal place of business in

Bartlesville, Oklahoma, was incorporated in the State of Delaware on

June 13, 1917. Phillips is engaged in various business activities

ranging from worldwide petroleum exploration and production to the

production and distribution of chemicals. Phillips is also a leader in

research and development and it holds 3,400 patents in technology that

support company business lines. As of December 31, 1993, Phillips had

assets of approximately $10.9 billion, liabilities of approximately

$7.8 billion, annual revenues totaling $12.5 billion and net income of

$243 million. As of September 30, 1994, Phillips had 74,300

shareholders and 18,796 employees.

2. The Plan, of which Phillips is the sponsor, is a defined

contribution plan having 15,394 participants and total assets of $1.27

billion as of May 16, 1994. The trustee of the Plan (the Trustee) is

Bankers Trust Company of New York, New York.

3. The Plan permits participants to direct the investment of their

account balances among several investment funds (the Funds) and to

receive participant loans from their accounts. Generally, any regular

employee on the payroll of Phillips is eligible to participate in the

Plan except non-managerial retail outlet marketing employees. Plan

participants may have up to 15 percent of their pay deposited in the

Plan each month. The first 5 percent is designated as regular deposits

with any excess being designated as supplemental deposits. Deposits may

be further designated by a participant as ``before-tax'' or ``after-

tax'' deposits. Before-tax deposits represent participant contributions

made pursuant to an election by the participant under section 401(k) of

the Code to have his or her salary reduced in exchange for the

contribution. Before-tax deposits are participant contributions to the

Plan that are made from participant earnings prior to the payment of

Federal or state taxes. After-tax deposits are Plan contributions made

by a participant from the participant's pay after Federal and state

taxes have been paid. Plan participants are allowed to change their

investment directions and deposit rates only during designated

enrollment periods.

4. Employee deposits are placed in a special investment fund called

the ``Temporary Investment Fund.'' The deposits are initially invested

in certain short-term securities for up to 45 days after receipt by the

Trustee. Then, the deposits and earnings thereon are paid into four

other Funds, namely, Funds A, B, E or F as directed by the participant,

and invested as follows:

a. In Fund A, a commingled trust government/corporate bond index

fund held by Wells Fargo Institutional Trust Company.

b. In Fund B which holds Phillips common stock.

c. In Fund E, a Standard and Poor's equity index commingled fund

held by the Trustee.

d. In Fund F, a commingled money market fund managed by the

Trustee.1

1The applicant represents that investments by the Plan in Fund

E and Fund F are covered by and comply with section 408(b)(8) of the

Act. However, the Department expresses no opinion herein on whether

such investments satisfy the terms and conditions of section

408(b)(8) of the Act. [[Page 30108]]

---------------------------------------------------------------------------

In addition to the above, there are two other Funds that comprise

the trust funds. They are Fund C and Fund D. Fund C is composed

primarily of Phillips common stock. Fund D, which is closed to new

deposits, holds guaranteed investment contracts.

Phillips contributes 25 percent of an employee's regular deposits

to Fund B and 15 percent of regular deposits to any of the other

investment Funds. The interest of a participant in each Fund is

represented by units allocated to such participant.

5. The Plan allows a participant to elect a direct rollover of most

distributions to an individual retirement account (the IRA) or to

another tax qualified plans. The Plan also provides for participant

loans as well as for transfers among certain of the Funds. In this

regard, the Plan does not permit transfers to Fund C, Fund D or the

Temporary Investment Fund.2 However, it does allow transfers from

these Funds with limited exceptions.3

2For example, with respect to the Temporary Investment Fund,

the applicant represents that its purpose is to hold participant

contributions until they are transferred to the elected investment

Fund. Due to the short-term nature of this Fund, the applicant

explains that participants are not entitled to transfer deposits to

the Temporary Investment Fund from any other Fund.

\3\In the case of Fund C, the applicant explains that

participants may make a one-time transfer from Fund C after

retirement. In the case of Fund D, the applicant represents that a

participant may not transfer from Fund D except to transfer upon the

expiration of such participant's Class Year (guaranteed investment

contract) Account.

---------------------------------------------------------------------------

6. Phillips represents that the right to transfer monthly from Fund

to Fund and to borrow from the Plan has given participants greater

control of their plan investments. Thus, for any valuation date (the

Valuation Date) (i.e., the first working day for the Trustee and The

New York Stock Exchange following the 14th of each month), participants

may elect (to the extent permitted by the Plan) to transfer their

account balances from one investment alternative to another, to

withdraw funds or to borrow a portion of their account. As of the

Valuation Date, Phillips common stock will be valued based on the

closing sales prices for such stock. The steps that a participant may

undertake in effecting transfers, withdrawals or participant loans are

described as follows:

a. Inter-Fund Transfers. In order to transfer assets from one Fund

to another, a participant must complete a standard transfer form

applicable to all transfers or withdrawals. The transfer form must be

delivered to the Plan Administrator by the last business day before the

monthly Valuation Date. The transfer will be effective on the next

Valuation Date.

b. Withdrawals from Funds. If the participant wishes to withdraw

assets from a Fund, the procedure for withdrawal is essentially the

same as that to transfer Funds. The participant must complete a

withdrawal form and deliver it to the Plan Administrator by the last

business day before the monthly Valuation Date. The withdrawal is

effective as of the Valuation Date and it is usually paid within two

weeks. If the participant intends to have the assets paid to an IRA or

a qualified plan, the participant must provide the Plan Administrator

with descriptive information concerning such plan or IRA, including the

name and address. The participant must also verify that the recipient

plan or IRA will accept the direct payment from the Plan.

c. Participant Loans. Assuming the participant requests a

participant loan, such participant must be an active employee of

Phillips with a vested account in the Plan of $2,000 or more. A

participant may have up to two regular loans (any loan except a home

loan) and one home loan outstanding at any one time. The maximum amount

of any loan is limited to the lesser of: $50,000 less the highest loan

balance in the last 12 months (determined as of the previous month's

Valuation Date) or 50 percent of the vested account balance less the

current outstanding loan balance for all loans, with values determined

as of the previous month's Valuation Date. A participant may not apply

for a loan if he or she has the maximum number of loans outstanding,

has borrowed the maximum amount in the last 12 months or has an

outstanding loan that is delinquent. The minimum amount of any single

loan is $1,000.4

\4\The applicant represents that the Plan's participant loan

provisions are designed and administered to comply with section

408(b)(1) of the Act and applicable regulations. However, the

Department expresses no opinion herein on whether such loans satisfy

the terms and conditions of section 408(b)(1) of the Act and the

regulations promulgated thereunder.

---------------------------------------------------------------------------

A participant may apply for a participant loan by telephone, then

sign a transaction authorization form approved by the Plan

Administrator and consent to irrevocable payroll deductions that will

provide the amount necessary to repay the loan. Loan applications can

be made only by telephone during the first 10 calendar days of each

month. Loans will be processed once a month on the applicable Valuation

Date. Proceeds will be paid within two to three weeks after the date

the loan is processed. Participants may not make a withdrawal on the

same Valuation Date that the loan is processed, even if the withdrawal

form is submitted first.

7. To effect the aforementioned transfers, withdrawals or

participant loans, the Trustee is required to liquidate assets held in

the Fund or Funds from which the proceeds are needed. In this regard,

the Plan document provides that the Trustee must take reasonable steps

to invest deposits received for Funds B and C in Phillips common stock

as soon as reasonably possible provided, however, that up to $10

million of cash equivalent investments may be maintained in the Funds

to effect transfers, withdrawals and loans on the next regular

Valuation Date. The Trustee must take reasonable steps to effect

transfers, withdrawals or participant loans from Funds B and C5

within 5 business days (on which both the Trustee and The New York

Stock Exchange are in business) following the appropriate Valuation

Date. The Trustee is also required to spread the sales of Phillips

common stock that will be used to effect the transfers, withdrawals or

participant loans ratably over the remaining trading days before the

next regular Valuation Date.6 However, if the number of shares

which are to be sold would result in ratable sales of less than 10,000

shares a day, the Trustee is not required to sell less than 10,000

shares per day.

\ 5\Although transfers are restricted from Fund C, withdrawals

are permitted of vested company contributions. Loans can be taken

from Fund C after all of the other Funds have been depleted subject

to the loan limitation rules in the Plan.

\ 6\Although the Department expresses no opinion herein on the

requirement that the Trustee spread the sales of Phillips common

stock over the remaining trading days before the next regular

Valuation Date, it notes that Trustee's decision to spread stock

sales should be in the interests of the Plan and consistent with the

provisions of section 404 of the Act.

---------------------------------------------------------------------------

To the extent that the cash necessary to effect the transfers,

withdrawals and participant loans within the 5 day trading period

exceeds $10 million, the Trustee is permitted to borrow funds to

provide sufficient liquidity to Funds B and C. Expenses and other costs

attributable to such borrowings will be allocated to Funds B and C.

8. To bridge the gap between the immediate need for assets to fund

transfers, withdrawals or participant loans and the disposal of

Phillips common stock, the Trustee entered into a one-year, renewable

revolving credit facility arrangement with NationsBank of Dallas, Texas

on July 14, 1993. By its terms, the credit facility arrangement

initially permitted the Trustee, on behalf of the Plan, to borrow up to

$50 [[Page 30109]] million on a short-term and unsecured basis.

Interest is charged on a sliding scale margin above the London

Interbank Offered Rate. The Plan is required to repay each loan in cash

within 30 days of its making with proceeds from the sale of Phillips

common stock. In addition, NationsBank charges the Plan a commitment

fee of .10 percent of any unused amount of funds and a margin of .25

percent over NationsBank's actual cost of funds.

The Trustee has drawn upon the credit facility arrangement three

times, resulting in loans to the Plan in the following amounts over the

following time frames: (a) $3.3 million for 10 days; (b) $850,000 for

12 days; and (c) $10,000 for 8 days. As of March 10, 1995, the Plan had

repaid all principal for the loans, including interest and expenses

totaling $94,144. Although the credit facility arrangement was expected

to expire in July 1994, it has been extended by NationsBank until July

12, 1995. However, the credit facility amount has been reduced from $50

million to $25 million.

9. The Plan wishes to terminate its credit facility arrangement

with NationsBank. Therefore, Phillips requests an administrative

exemption from the Department in order that it may provide the Plan

with a similar lending arrangement. Phillips represents that it is

aware that Prohibited Transaction Exemption (PTE) 80-26 (45 FR 28545,

April 29, 1980) permits interest-free loans to a plan by a party in

interest. In this regard, Phillips notes that PTE 80-26 permits an

unsecured loan by a party in interest to a plan for a purpose

incidental to the ordinary operation of the plan and for a period not

exceeding 3 days. If the loan proceeds are used only for the payment of

operating expenses of the plan, including the payment of benefits,

Phillips explains that no time limit is imposed under PTE 80-26.

In view of the foregoing, Phillips represents that the extent to

which PTE 80-26 would cover the proposed credit facility arrangement is

unclear. Phillips believes that the inter-fund transfers and

participant loans that would be initially funded by its proposed

extension of credit may not be viewed as ordinary operating expenses of

the Plan under PTE 80-26. Even if viewed as ordinary operating

expenses, Phillips states that it is not clear whether the loans could

be repaid within 3 days inasmuch as the Plan documents require the

Trustee to spread sales of stock ratably over a Plan month to prevent

sales from negatively impacting the market.

10. Under its proposed credit facility arrangement, Phillips will

extend an initial line of credit of $25 million. The line of credit may

be renewed annually by Phillips and the Plan. Each loan made thereunder

will be unsecured and no administrative fees or interest will be

charged to the Plan in connection with any of the loans. Each loan will

be repaid within 31 days of its making. Funds for repaying the loans

will be derived from the Trustee's sale of stock held in Funds B and C.

Assets held in the other investment Funds will not be utilized for such

repayments. Further, Phillips will have no recourse against the Plan or

against any participant in the event of a loan default or delinquency

and it will also not charge any late fees.

11. The Trustee will serve on behalf of the Plan as the independent

fiduciary and, in such capacity, it will activate and administer the

proposed credit facility arrangement. The Trustee represents that it is

a leading provider of global financial services and that it has been

providing services to employee benefit plans since 1927. As of March

10, 1995, the Trustee represents that it had employee benefit plan

assets under management of over $165 billion and serves as a trustee

for more than $115 billion in defined contribution plan assets. As of

December 31, 1994, the Trustee states that it provided trust/custody

services to 575 clients with total assets under administration of

approximately $394 billion.

The Trustee represents that it is familiar with the Plan and its

investment portfolios since it has access to information regarding Plan

assets and can ascertain the extent to which the proposed credit

facility arrangement will affect the Plan's investment needs. The

Trustee also represents that it is independent of Phillips. In this

regard, the Trustee states that during 1994, the fees paid to it by

Phillips represented less than one percent of its total fiduciary and

funds management revenues.

The Trustee explains that the Plan and its trust document were

amended in 1993 to permit the credit facility arrangement with

NationsBank. In view of its experience in negotiating and monitoring

the NationsBank credit facility on behalf of the Plan, the Trustee

states that it is fully familiar with the terms and costs associated

with such arrangements. The Trustee points out that it has had to

resort to the NationsBank credit facility arrangement on only a small

number of occasions in the past 18 months. However, the costs

associated with using the facility and assuring its continued

availability could be avoided if Phillips were permitted to make

similar, short-term extensions of credit to the Plan on an interest-

free basis.

Consistent with relevant Plan provisions, the Trustee states that

it will be responsible for determining when and how much to borrow and

to cause the Plan to repay each loan within a 31 day period. The

Trustee represents that it will not receive an additional fee or other

compensation from the Plan as the result of the proposed credit

facility arrangement between the Phillips and the Plan.

In view of the above, the Trustee concludes that the proposed

interest-free loan program is in the best interest of the Plan and its

participants and beneficiaries. The Trustee believes that such

arrangement will result in cost savings to the Plan and enable the Plan

to complete transactions in a timely manner. Further, the Trustee

asserts that its ongoing, independent involvement in and oversight of

the program will provide protection for the Plan and its participants

and beneficiaries.

12. In summary, it is represented that the proposed transactions

will satisfy the statutory criteria for an exemption under section

408(a) of the Act because:

(a) Each loan executed under the proposed credit facility

arrangement will provide short-term funds to the Plan in connection

with inter-fund transfers, withdrawals and participant loans and it

will permit the orderly disposal of Phillips common stock.

(b) Each loan made under the proposed credit facility arrangement

will be unsecured and no interest, commissions or expenses will be paid

by the Plan.

(c) In the event of a loan default or delinquency, Phillips will

have no recourse against the Plan.

(d) Each loan will be initiated, accounted for and administered by

the Trustee, which will also monitor the terms and conditions of the

exemption, if granted.

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

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

Universal Underwriters Group Thrift Plan (the Plan), Located in

Overland Park, Kansas; Proposed Exemption

[Application No. D-09947]

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). If

[[Page 30110]] the exemption is granted, the restrictions of sections

406(a), 406(b)(1) and (b)(2) of the Act and the sanctions resulting

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

4975(c)(1)(A) through (E) of the Code shall not apply to (1) the

proposed extensions of credit (the Loans) to the Plan from Universal

Underwriters Insurance Company (the Employer), with respect to a

guaranteed investment contract (the GIC) issued by Confederation Life

Insurance Company (Confederation); (2) the Plan's potential repayment

of the Loans upon the receipt by the Plan of payments under the GIC;

and (3) the assignment by the Plan to the Employer of all claims or

causes of action it may have against the Plan's former GIC placement

advisor for recommending that the Plan purchase the GIC; provided the

following conditions are satisfied:

(A) All terms and conditions of such transaction are no less

favorable to the Plan than those which the Plan could obtain in arm's-

length transactions with unrelated parties;

(B) No interest or expenses are paid by the Plan in connection with

the proposed transaction;

(C) The Loans will be repaid only out of amounts paid to the Plan

by Confederation, its successors, or any other responsible third party;

(D) Repayment of the Loans will be waived to the extent that the

Loans exceed GIC proceeds;

(E) A qualified independent fiduciary will represent the interests

of the Plan throughout the duration of the proposed transaction; and

(F) The Employer's recovery resulting from a cause of action

assigned to the Employer by the Plan will be limited to the amount

necessary to pay for litigation expenses and to pay off the Plan's

outstanding Loan balance and any excess recovery will be transferred

back to the Plan.

Summary of Facts and Representations

1. The Plan is a defined contribution 401(k) plan which provides

for individual participant accounts and participant-directed

investments. The Plan had approximately 1,100 participants as of

December 30, 1993 and $45,924,914.96 in assets as of June 30, 1994. The

Plan trustee is United Missouri Bank, N.A. (UMB), located in Kansas

City, Missouri. The Employer is a Missouri corporation that provides

insurance protection for automobile dealerships and other businesses.

Under the terms of the Plan, participants have the option of investing

in any of six investment funds, including the Stable Interest Fund,

which invests primarily in interest-paying contracts with insurance

companies. As of December 31, 1994, the Stable Interest Fund held ten

guaranteed investment contracts and several other interest bearing

contracts, as well as approximately $74,413 in a deposit account. The

GIC, which was issued on February 10, 1994, is part of the Stable

Interest Fund. The GIC is a single-deposit non-participating contract

which allows the Plan to make benefit-responsive withdrawals to fund

benefit payments, investment fund transfers, hardship withdrawals and

participant loans (collectively, the Withdrawal Events). The terms of

the GIC provide for interest on the $5,500,000 principal amount at a

guaranteed interest rate of 6.12% over a period of 61 months. Interest

payments are to be made annually to the Plan on April 1 (beginning

April 1, 1995), up to the scheduled maturity date of April 1, 1999. As

of June 30, 1994, the GIC had an accumulated book value of

$5,615,769.50.

2. Confederation is a Canadian corporation doing business in the

United States through branches in Michigan and Georgia. The Employer

represents that on August 11, 1994, the Canadian insurance regulatory

authorities placed Confederation into a liquidation and winding-up

process, and on August 12, 1994, the insurance authorities of the State

of Michigan commenced legal action to place the U.S. operations of

Confederation into a rehabilitation proceeding. As a result of these

actions, Confederation suspended interest and maturity payments under

the GIC and significantly limited the circumstances under which

withdrawals may be obtained from the GIC. The Employer represents that

it has established a separate fund to which the portion of the Stable

Interest Fund attributable to the GIC has been transferred. This

separate fund has been frozen so that no payments for Withdrawal Events

are permitted.\7\

\7\The Department notes that the decisions to acquire and hold

the GIC are governed by the fiduciary responsibility requirements of

Part 4, Subtitle B, Title I of the Act. In this regard, the

Department is not herein proposing relief for any violations of Part

4 which may have arisen as a result of the acquisition and holding

of the GIC issued by Confederation.

---------------------------------------------------------------------------

3. The Employer proposes to advance interest free loans to the Plan

at such times and in such amounts as required to fully realize the

interest payments due the Plan under the GIC, but only to the extent

that such amounts are not timely paid by or on behalf of Confederation.

Consequently, each Loan will be reduced by any amounts actually

received by the Plan, with respect to the particular interest payment

due, from Confederation or any other party making payment with respect

to Confederation's obligations under the GIC. In addition to the Loans

required to guarantee interest payments, the Employer is also proposing

a final Loan upon the GIC's final maturity date to the extent that

Confederation fails to pay the full amount due. The amount of interest

accrual and the final maturity payment due will be determined on the

basis of the GIC's principal plus interest at the guaranteed rate, less

previous withdrawals, as of the date of the Loan.

4. The Loans and their repayments will be made pursuant to a

written agreement (the Loan Agreement) between the Plan and the

Employer. The Plan and the Employer will also enter into a separate

agreement (the Assignment Agreement) under which the Plan will agree to

assign to the Employer any and all claims or causes of action it may

have as holder of the GIC against the Plan's former GIC placement

adviser, Buck Pension Fund Services, Inc. and its employees, agents,

and related entities (collectively referred to as Buck). The Employer's

recovery under the Assignment Agreement will be limited to the amount

necessary to pay for litigation expenses and to pay off the Plan's

outstanding Loan balance. If, pursuant to a cause of action assigned by

the Plan, the Employer recovers from Buck an amount exceeding such

litigation expenses and the outstanding Loan balance, the excess

recovery will be transferred back to the Plan.

5. UMB (see section 1--above) has agreed to serve as independent

fiduciary on behalf of the Plan throughout the duration of the

transaction. UMB has acknowledged its duties, responsibilities and

liabilities in acting as a fiduciary with respect to the proposed

transaction. UMB represents that the Employee Benefit Division of its

Trust Department has extensive experience as a provider of services to

employee benefit plans. UMB maintains that less than 1% of its business

is associated with the Employer. As independent fiduciary, UMB has

concluded that the proposed transaction is in the best interests of,

and protective of, the rights of the Plan's participants and

beneficiaries. In this regard, UMB represents that the Loan Agreement

will ensure that the Plan suffers no investment loss from its

investment in the GIC, will make it possible for Plan Participants to

gain access to their funds which have been frozen, and will allow the

Plan to reinvest the funds that were previously invested in the GIC. In

addition, UMB represents that the proposed transaction is protective of

the [[Page 30111]] Plan in that it provides the Plan with the cash it

needs to fund Withdrawal Events and permits the Employer to pursue any

claims that the Plan may have against the Plan's former GIC placement

advisor. UMB represents that, under this arrangement, the Employer, not

the Plan bears the risk of an uncertain recovery on a claim that would

be expensive and time consuming for the Plan to pursue. If the Employer

does bring any claim or cause of action against Buck, UMB has agreed to

monitor the division of any recovery obtained in such litigation to

assure that the Plan receives the portion to which it is entitled.

6. The Employer represents that it wishes to enter into the

proposed transaction in order to protect the Plan participants from the

effects of a prolonged rehabilitation process and from any potential

loss resulting from Confederation's inability to meet its obligations

under the GIC. In this regard, the Employer represents that the

proposed transaction would ensure the availability of benefits

equivalent to those anticipated by participants prior to the failure of

Confederation, at no additional cost to participants. In addition, the

Employer represents that the Loans will contribute to the Plan's

ability to fund Withdrawal Events. The Employer also represents that

the Loans will be non-interest-bearing and the Plan will not incur any

expenses in connection with the proposed transaction.

7. Repayment of the Loans under the Agreement is limited to

payments made to the Plan by or on behalf of Confederation, or its

successor, or any other responsible third parties. No other assets of

the Plan will be available for repayment of the Loans. If the payments

by or on behalf of Confederation are not sufficient to fully repay the

Loans, the Loan Agreement provides that the Employer will have no

recourse against the Plan, or against any participants or beneficiaries

of the Plan, for the unpaid amount. To the extent the Plan receives GIC

proceeds in excess of the total amount of the Loans, such additional

amounts will be retained by the Plan and allocated among the accounts

of the Plan's participants.

8. In summary, the applicant represents that the proposed

transaction satisfies the criteria of section 408(a) of the Act

because: (1) The transaction will preserve the Plan's ability to timely

fund participants' benefits; (2) The transaction will preserve any

cause of action that may exist against the Plan's GIC placement

advisor; (3) The Plan will not incur any expenses with respect to the

transaction; (4) Repayment of the Loans will be made only from amounts

paid to the Plan by Confederation, its successor, or any other third

party; (5) If the payments by or on behalf of Confederation are not

sufficient to fully repay the Loans, the Employer will have no recourse

against the Plan, or against any participants or beneficiaries of the

Plan, for the unpaid amount; and (6) Repayment of the Loans will be

waived with respect to the amount by which the Loans exceed the amount

the Plan receives from GIC proceeds.

FOR FURTHER INFORMATION CONTACT: Virginia J. Miller of the Department,

telephone (202) 219-8971. (This is not a toll-free number.)

BlackRock Financial Management L.P. (BlackRock), Located in New York,

New York; Proposed Exemption

[Application No. D-09963]

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). If the exemption

is granted, the restrictions of sections 406(a)(1)(A) and 406(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) of the Code, shall

not apply to the proposed cross-trading of equity or debt securities

between various accounts managed by BlackRock (the Accounts) where at

least one Account involved in any cross-trade is an employee benefit

plan account (Plan Account) for which BlackRock acts as a fiduciary.

Conditions and Definitions

This proposed exemption is subject to the following conditions:

1. (a) A Plan's participation in the cross-trade program is subject

to a written authorization executed in advance by a fiduciary with

respect to each such Plan, the fiduciary of which is independent of

BlackRock;

(b) The authorization referred to in paragraph (a) is terminable at

will without penalty to such Plan, upon receipt by BlackRock of written

notice of termination; and

(c) Before an authorization is made, the authorizing Plan fiduciary

must be furnished with any reasonably available information necessary

for the authorizing fiduciary to determine whether the authorization

should be made, including (but not limited to) a copy of this exemption

(if granted), an explanation of how the authorization may be

terminated, a description of BlackRock's cross-trade practices, and any

other reasonably available information regarding the matter that the

authorizing fiduciary requests.

2. (a) No more than three (3) business days prior to the execution

of any cross-trade transaction, BlackRock must inform an independent

fiduciary of each Plan involved in the cross-trade transaction: (i)

That BlackRock proposes to buy or sell specified securities in a cross-

trade transaction if an appropriate opportunity is available; (ii) the

current trading price for such securities; and (iii) the total number

of shares to be acquired or sold by each such Plan;

(b) Prior to each cross-trade transaction, the transaction must be

authorized either orally or in writing by the independent fiduciary of

each Plan involved in the cross-trade transaction;

(c) If a cross-trade transaction is authorized orally by an

independent fiduciary, BlackRock will provide written confirmation of

such authorization in a manner reasonably calculated to be received by

such independent fiduciary within one (1) business day from the date of

such authorization;

(d) The authorization referred to in this paragraph (2) will be

effective for a period of three (3) business days; and

(e) No more than ten (10) days after the completion of a cross-

trade transaction, the independent fiduciary authorizing the cross-

trade transaction must be provided a written confirmation of the

transaction and the price at which the transaction was executed.

3. (a) Each cross-trade transaction is effected at the current

market value for the security on the date of the transaction, which

shall be, for equity securities, the closing price for the security on

the date of the transaction, and for debt securities, the fair market

value for the security as determined in accordance with paragraph (b)

of Rule 17a-7 issued by the Securities and Exchange Commission (SEC)

under the Investment Company Act of 1940 (the 1940 Act);

(b) The cross-trade transaction is effected at a price that: (1) In

the case of any equity security, is within 10 percent of the closing

price for the security on the day before the date on which BlackRock

receives authorization from the independent Plan fiduciary to engage in

the cross-trade transaction; and (2) in the case of any debt security,

is within 10 percent of the fair market value of the security on the

last valuation date preceding the date on which BlackRock receives

authorization by the independent Plan fiduciary to engage in the cross-

trade transaction as [[Page 30112]] determined in accordance with SEC

Rule 17a-7(b) of the 1940 Act;

(c) The securities involved in the cross-trade transaction are

those for which there is a generally recognized market;

(d) The cross-trade transaction is effected only where the trade

involves less than five (5) percent of the aggregate average daily

trading volume of the securities which are the subject of the

transaction for the week immediately preceding the authorization of the

transaction. A cross-trade transaction may exceed this limit only by

express authorization of independent fiduciaries on behalf of Plans

affected by the transaction, prior to the execution of the cross-trade.

4. For all accounts participating in the cross-trading program, if

the number of units of a particular security which any accounts need to

sell on a given day is less than the number of units of such security

which any accounts need to buy, or vice versa, the direct cross-trade

opportunity must be allocated among the buying or selling accounts on a

pro rata basis.

5. (a) BlackRock furnishes the authorizing Plan fiduciary at least

once every three months, and not later than 45 days following the

period to which it relates, a report disclosing: (i) a list of all

cross-trade transactions engaged in on behalf of the Plan; and (ii)

with respect to each cross-trade transaction, the prices at which the

securities involved in the transaction were traded on the date of such

transaction; and

(b) The authorizing Plan fiduciary is furnished with a summary of

the information required under this paragraph 4(a) at least once per

year. The summary must be furnished within 45 days after the end of the

period to which it relates, and must contain the following: (i) A

description of the total amount of Plan assets involved in cross-trade

transactions during the period; (ii) a description of BlackRock's

cross-trade practices, if such practices have changed materially during

the period covered by the summary; (iii) a statement that the Plan

fiduciary's authorization of cross-trade transactions may be terminated

upon receipt by BlackRock of the fiduciary's written notice to that

effect; and (iv) a statement that the Plan fiduciary's authorization of

the cross-trade transactions will continue in effect unless it is

terminated.

6. The cross-trade transaction does not involve assets of any Plan

established or maintained by BlackRock or any of its affiliates.

7. All Plans that participate in the cross-trade program have total

assets of at least $25 million.

8. BlackRock receives no fee or other compensation (other than its

agreed upon investment management fee) with respect to any cross-trade

transaction.

9. BlackRock is a discretionary investment manager with respect to

Plans participating in the cross-trade program.

10. For purposes of this proposed exemption:

(a) Cross-trade transaction means a purchase and sale of securities

between accounts for which BlackRock or an affiliate is acting as an

investment manager;

(b) Affiliate means any person directly or indirectly through one

or more intermediaries, controlling, controlled by, or under common

control with BlackRock;

(c) Plan Account means an account holding assets of one or more

employee benefit plans that are subject to the Act, for which BlackRock

acts as a fiduciary.

Summary of Facts and Representations

1. BlackRock is a Delaware limited partnership with its principal

office located in New York City. BlackRock Management Partners L.P.

(BMP) is the general partner of BlackRock. The partners of BlackRock

and BMP executed an agreement with PNC Bank on February 28, 1995,

whereby all of the interests in BlackRock and BMP were sold to a

wholly-owned subsidiary of PNC Bank, N.A. In this regard, BlackRock

continues to conduct its business in the same manner as it did prior to

the sale. BlackRock provides a broad range of financial services to a

variety of clients, including corporations, financial institutions,

registered investment companies and employee benefit plans. BlackRock

serves as investment manager for a substantial number of qualified

pension plans and currently has more than $24 billion of assets under

management.

2. With respect to the employee benefit plans that will participate

in the proposed cross-trading program (the Plans), BlackRock will be

acting as a discretionary investment manager. The Plan Accounts

maintained by BlackRock are all considered ``managed accounts'' under

which BlackRock and the sponsor or other named fiduciary of the

underlying Plan have agreed that the investment of the assets in

question will be managed actively at the discretion of BlackRock,

pursuant to written guidelines as to which types of securities to buy

or sell for the account.

Under the investment guidelines for many of the Plan Accounts,

BlackRock manages the assets in accordance with investment parameters

that are designed to invest the assets in various types of fixed-income

securities, such as mortgage-backed securities, U.S. Government

securities or corporate debt securities. BlackRock primarily manages

such Plan assets using duration management techniques with the

performance and composition of the assets for the Plan Account measured

against a specified benchmark, such as various Salomon Brothers, Lehman

Brothers or Merrill Lynch indices that are selected by the Plan sponsor

or other named fiduciary. The duration of the assets held by the Plan

Account will be comparable to the portfolio specified by the referenced

benchmark. BlackRock states that the objective factors contained in or

required by these investment parameters may not be changed or otherwise

altered without the prior written approval of the Plan sponsor or other

named fiduciary. The types of securities held in these accounts are

generally the same for each Plan Account that retains BlackRock for

purposes of managing such an account, although the specific mix of

securities varies depending on the investment objectives of the

particular Plan Account.

3. Securities sales and purchases for Plan Accounts may result from

either: (a) The active decision-making by BlackRock's account manager

relating to new investments for the Plan Account; or (b) a change in

the overall level of investment as a result of investments and

withdrawals made to the Plan Account by the Plan sponsor or other named

fiduciary requiring a rebalancing of the account with transactions

involving the Plan Account's existing securities. Under either of these

circumstances, BlackRock's disposition of a particular security for one

Plan Account may involve a security that is desirable for another Plan

Account, presenting an opportunity to save substantial dealer markups

for both the liquidating Plan Account and the acquiring Plan Account.

This saving could be effected by a cross-trade transaction, which

involves matching BlackRock's sell orders for a particular day with its

buy orders for the same day in nondealer transactions.

The execution of such cross-trades between various BlackRock

accounts could involve trades between Plan Accounts, or between Plan

Accounts and investment companies managed by BlackRock, or between Plan

Accounts and private institutional accounts managed by BlackRock. In

this regard, because BlackRock has special expertise in fixed-income

securities, registered [[Page 30113]] investment companies and

institutional accounts for which BlackRock or an affiliate serves as

the investment advisor also hold the same types of securities as the

Plan Accounts, although in different combinations based on their

particular investment objectives.

4. BlackRock proposes to take advantage of opportunities to

eliminate unnecessary third-party dealer markups by cross-trading

securities, whenever possible, directly between Plan Accounts or

directly between Plan Accounts and other client accounts. BlackRock

represents that comparable trades of such securities on the open market

between unrelated parties often require dealer markups equal to between

one-sixteenth to one percent of the price of the securities for each

sale or purchase transaction. BlackRock proposes to execute cross-trade

transactions on behalf of the Plan Accounts without charging any

commissions or receiving any dealer markups.

5. BlackRock represents that by participating in the cross-trading

program, the Plan Accounts will benefit by not incurring the cost, in

terms of price, of dealing with a person or firm acting as ``market-

maker'' for the particular security involved in the cross-trade

transaction. This cost is generally measured by the spread between the

bid and offer prices for the security which would be paid to the

market-maker. The Plan Accounts will also benefit under the cross-

trading program by avoiding false pricing differentials that result in

transactions with a market-maker where the securities in question are

traded in odd-lot sizes. For example, in the case of debt securities,

BlackRock states that both buyer and seller will benefit by cross-

trading because the securities involved will be priced either by

reference to the last sale price for the securities on the date of the

transaction or, if no transactions have occurred that day, by averaging

the spread between the highest independent bid and lowest independent

offer obtained from at least two independent dealers, in accordance

with SEC Rule 17a-7(b) of the 1940 Act (see Paragraph 10 below). Thus,

in situations where an average of the current bid/offer prices is used,

the seller will receive a higher price than the dealers' bid price and

the buyer will pay a lower price than the dealers' offer price, which

would not, in all instances, be the case in an open market transaction

or a transaction directly with a dealer. BlackRock states further that

where trading of a particular debt or equity security is ``thin'' (i.e.

limited number of securities available) or round lots are not

available, participation in the cross- trading program may enable the

Plan Accounts to obtain early opportunities to acquire or sell such

securities at favorable prices. Therefore, by participating in the

cross-trading program, BlackRock represents that the Plan Accounts will

incur substantially lower expenses for the particular transactions and

will be better able to effect purchase and sale transactions.

6. BlackRock makes decisions regarding which securities to purchase

or sell for client accounts considering all of the relevant facts and

circumstances, including the composition of the portfolios and the

liquidity requirements of the accounts. BlackRock states that such

decisions will not be influenced by the fact that an opportunity for a

cross-trade may be available. In this regard, BlackRock represents that

the matching of sale and purchase orders for its accounts on any

particular day will be largely automatic.

With respect to the allocation of cross-trade opportunities among

various accounts, including the Plan Accounts, BlackRock proposes to

use a non-discretionary pro-rata allocation system. For example, if the

number of units of a particular security that any accounts need to sell

on a given day is less than the number of units of such security which

other accounts need to buy on that date, the cross-trade opportunity

would be allocated among the buying accounts on a pro-rata basis. The

same procedure would apply where the number of units of a particular

security to be sold by various accounts is more than the number of

units of such security which other accounts need to buy on that date,

so that in such instances the cross-trade opportunity would be

allocated among the selling accounts on a pro-rata basis. Thus, all

accounts participating in BlackRock's cross-trading program, including

the Plan Accounts, will have opportunities to participate on a

proportional basis in cross-trade transactions during the operation of

the program. BlackRock represents that this aspect of the cross-trading

program will be part of the information disclosed in writing to the

fiduciaries of the Plan Accounts prior to their authorization for

participation in the program (as discussed further below).

7. Under the requested exemption, only Plans with at least $25

million in total assets will be eligible to participate in the cross-

trading program. A Plan fiduciary that is independent of BlackRock must

provide written authorization allowing the Plan's participation in the

program before any specific cross-trade transactions can be executed

for such Plan. This authorization will be terminable at will upon

written notice by the appropriate independent Plan fiduciary. BlackRock

will receive no fee or other compensation (other than its agreed upon

investment management fee) with respect to any cross-trade transaction.

Thus, a Plan will not pay any separate fees to BlackRock for cross-

trading services. No penalty or other charge will be made as a result

of the termination of a Plan's participation in the cross-trading

program. In addition, before any authorization is made by a Plan for

participation in the cross-trading program, BlackRock must provide the

authorizing Plan fiduciary with all materials necessary to permit an

evaluation of the program. These materials will include a copy of the

proposed exemption and final exemption, if granted, an explanation of

how the authorization may be terminated, a description of BlackRock's

cross-trading practices, and any other available information that the

authorizing Plan fiduciary may reasonably request.

8. In addition to requiring a general authorization of a Plan's

participation in BlackRock's cross-trading program, an independent

fiduciary of each Plan must specifically authorize each cross-trade

transaction. Any such authorization will be effective only for a period

of three (3) business days and will be subject to certain pricing

limitations (as discussed below in Paragraph 10). The authorization to

proceed with the transaction may be either oral or written. If a cross-

trade transaction is authorized orally by an independent fiduciary,

BlackRock will provide a written confirmation of such authorization in

a manner reasonably calculated to be received by the independent

fiduciary within one (1) business day from the date of the

authorization. The Plan fiduciary will be sent a written confirmation

of the cross-trade, including the price at which it was executed,

within ten (10) days of the completion of the transaction.

9. BlackRock will provide the authorizing Plan fiduciary with a

report, at least once every three (3) months and not later than forty-

five (45) days following the period to which it relates, that sets

forth: (a) A list of all the cross-trade transactions conducted on

behalf of the Plan Account during the previous period; and (b) with

respect to each cross-trade transaction, the prices at which the

subject securities were traded on the date of the transaction. Each

Plan fiduciary will also be provided with a summary of the quarterly

reports, at least once a year and not later than 45 days after the end

of the period to which [[Page 30114]] it relates, that includes: (a) A

description of the total amount of Plan assets involved in cross-trade

transactions completed during the year; (b) a statement that the Plan

fiduciary's authorization to participate in the cross-trading program

can be terminated without penalty upon BlackRock's receipt of a written

notice to that effect; (c) a statement that the fiduciary's

authorization of the Plan's participation in the program will continue

unless it is terminated; and (d) a description of any material change

in BlackRock's cross-trade practices during the period covered by the

summary. These reports will provide the Plan fiduciaries with a

mechanism for monitoring the operation of the cross-trade program. The

applicant represents that the authorization of each cross-trade will

prevent BlackRock from favoring one account at the expense of another

in the cross-trade transaction.

10. The securities involved in any cross-trade transaction will be

only those for which there is a generally recognized market. BlackRock

represents that each cross-trade transaction will be effected at the

current market value for the securities on the date of the transaction.

For all equity securities, the current market value shall be the

closing price for the security on the date of the transaction. For all

debt securities, the current market value shall be the fair market

value of the security as determined on the date of the transaction in

accordance with SEC Rule 17a-7 under the 1940 Act. In this regard, SEC

Rule 17a-7(b) contains four possible means of determining ``current

market value'' depending on such factors as whether the security is a

reported security and whether its principal market is an exchange. This

Rule is also applicable to registered investment companies for which

BlackRock acts as an investment advisor.

In addition, BlackRock states that each cross-trade transaction

will be effected at a price that: (a) In the case of any equity

security, is within 10 percent of the closing price for the security on

the day before the date on which BlackRock receives authorization from

the independent Plan fiduciary to engage in the cross-trade

transaction; and (b) in the case of any debt security, is within 10

percent of the fair market value of the security on the last valuation

date preceding the date on which BlackRock receives authorization by

the independent Plan fiduciary to engage in the cross-trade

transaction. This safeguard prevents BlackRock from effecting cross-

trades at prices that were not contemplated at the time the independent

fiduciary authorized the transaction.

Finally, each cross-trade transaction will be effected only where

the trade involves less than five (5) percent of the aggregate average

daily trading volume of the securities which are the subject of the

transaction for the week immediately preceding the authorization of the

transaction. BlackRock states that a particular cross-trade transaction

may exceed this limit only by express authorization of independent

fiduciaries on behalf of Plans affected by the transaction, prior to

the execution of the cross-trade.

11. In summary, the applicant represents that the proposed

transactions will satisfy the statutory criteria of section 408(a) of

the Act because, among other things: (a) An independent Plan fiduciary

must provide written authorization, terminable at will and without

penalty, for each Plan's participation in the cross-trading program;

(b) oral or written authorization must be provided by the independent

Plan fiduciary to BlackRock prior to each cross-trade transaction; (c)

all cross-trades will be executed at the current market price for the

security on the date of the transaction, as determined by an

independent third party source; (d) a cross-trade transaction will be

effected only if certain price requirements are satisfied; (e) all

securities involved in cross-trades will be ones for which there is a

generally recognized market; (f) BlackRock will receive no commissions

or additional fees as a result of the proposed cross-trades; (g)

BlackRock will provide periodic reporting on cross-trade transactions

to the participating Plan's independent fiduciary; (h) Plans

participating in the cross-trading program will realize savings on

their transactions due to the elimination of brokerage commissions,

transaction fees and dealer markups; (i) the Plans participating in the

cross-trading program will have assets of at least $25 million; and (j)

the Plans participating in the cross-trading program will not include

any employee benefit plan established or maintained by BlackRock or its

affiliates.

FOR FURTHER INFORMATION CONTACT: Mr. E.F. Williams of the Department,

telephone (202) 219-8194. (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 that each application

accurately describes all material terms of the transaction which is the

subject of the exemption.

Signed at Washington, DC, this 2nd day of June, 1995.

Ivan Strasfeld,

Director of Exemption Determinations Pension and Welfare Benefits

Administration, U.S. Department of Labor.

[FR Doc. 95-13910 Filed 6-6-95; 8:45 am]

BILLING CODE 4510-29-P