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EBSA Notices

Proposed Exemptions From Certain Prohibited Transaction Restrictions   [1/20/2012]
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Federal Register, Volume 77 Issue 13 (Friday, January 20, 2012)
[Federal Register Volume 77, Number 13 (Friday, January 20, 2012)]
[Notices]
[Pages 3038-3064]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-932]



[[Page 3037]]

Vol. 77

Friday,

No. 13

January 20, 2012

Part II





Department of Labor





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 Employee Benefits Security Administration





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Proposed Exemptions From Certain Prohibited Transaction Restrictions; 
Notice

Federal Register / Vol. 77 , No. 13 / Friday, January 20, 2012 / 
Notices

[[Page 3038]]


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DEPARTMENT OF LABOR

Employee Benefits Security Administration


Proposed Exemptions From Certain Prohibited Transaction 
Restrictions

AGENCY: Employee Benefits Security 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 (ERISA or the Act) and/or the 
Internal Revenue Code of 1986 (the Code). This notice includes the 
following proposed exemptions: D-11655, Renaissance Technologies, Inc. 
(Renaissance or the Applicant); D-11677, Weyerhaeuser Company 
(Weyerhaeurser) and Federalway Asset Management LP (collectively the 
Applicants); and D-11680, Citigroup Inc. (Citigroup); et al.)

DATES: All interested persons are invited to submit written comments or 
requests 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.

ADDRESSES: 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.
    All written comments and requests for a hearing (at least three 
copies) should be sent to the Employee Benefits Security Administration 
(EBSA), Office of Exemption Determinations, Room N-5700, U.S. 
Department of Labor, 200 Constitution Avenue NW., Washington, DC 20210. 
Attention: Application No. ------, stated in each Notice of Proposed 
Exemption. Interested persons are also invited to submit comments and/
or hearing requests to EBSA via email or FAX. Any such comments or 
requests should be sent either by email to: moffitt.betty@dol.gov, or 
by FAX to (202) 219-0204 by the end of the scheduled comment period. 
The applications for exemption and the comments received will be 
available for public inspection in the Public Documents Room of the 
Employee Benefits Security Administration, U.S. Department of Labor, 
Room N-1513, 200 Constitution Avenue NW., Washington, DC 20210.

    WARNING: If you submit written comments or hearing requests, do 
not include any personally-identifiable or confidential business 
information that you do not want to be publicly-disclosed. All 
comments and hearing requests are posted on the Internet exactly as 
they are received, and they can be retrieved by most Internet search 
engines. The Department will make no deletions, modifications or 
redactions to the comments or hearing requests received, as they are 
public records.


SUPPLEMENTARY INFORMATION: 

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). 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, 5 U.S.C. App. 1 (1996), 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.

Renaissance Technologies, LLC (Renaissance, or the Applicant)

Located in New York, New York

[Application No. D-11655]

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 (or ERISA) 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. Covered Transactions Involving IRAs Subject to Title I and 
TITLE II of ERISA

    If the exemption is granted, the restrictions of section 
406(a)(1)(A) and (D) of the Act and the sanctions resulting from the 
application of section 4975 of the Code, by reason of section 
4975(c)(1)(A) and (D) of the Code,\1\ shall not apply, effective 
January 1, 2012, to:
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    \1\ For purposes of this proposed exemption, references to the 
provisions of Title I of the Act, unless otherwise specified, refer 
also to the corresponding provisions of the Code.
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    (a) The direct or indirect acquisition by a Participant's IRA of an 
interest in a Medallion Fund through such IRA's acquisition of an 
interest in a New Medallion Vehicle;
    (b) The acquisition of an additional interest by a Participant's 
IRA in a New Medallion Vehicle; and
    (c) The redemption of all or a portion of a Participant's IRA's 
interest in a New Medallion Vehicle.
    This proposed exemption is subject to the general conditions set 
forth below in Section III.

Section II. Covered Transactions Involving IRAs Subject to Title II of 
ERISA Only

    If the exemption is granted, the sanctions resulting from the 
application of section 4975 of the Code, by reason of section 
4975(c)(1)(A) and (D) of the Code,\2\ shall not apply, effective 
January 1, 2012, to:
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    \2\ Pursuant to 29 CFR 2510.3-2(d), the Spouses' IRAs are not 
within the jurisdiction of Title I of the Act. However, there is 
jurisdiction under Title II of the Act pursuant to section 4975 of 
the Code.
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    (a) The direct or indirect acquisition by a Spouse's IRA of an 
interest in a Medallion Fund through such IRA's acquisition of an 
interest in a New Medallion Vehicle;
    (b) The acquisition of an additional interest by a Spouse's IRA in 
a New Medallion Vehicle; and
    (c) The redemption of all or a portion of a Spouse's IRA's interest 
in a New Medallion Vehicle.
    This proposed exemption is subject to the general conditions set 
forth below in Section III.

Section III. General Conditions

    (a) An IRA's acquisition of an interest in a New Medallion Vehicle 
is made at the specific direction of an IRA Holder.
    (b) Renaissance renders no investment advice (within the meaning of 
29 CFR 2510.3-21(c)) to IRA Holders concerning a potential acquisition 
of an

[[Page 3039]]

interest in a New Medallion Vehicle and does not engage in marketing 
activities or offer employment-related incentives of any kind intended 
to cause IRA Holders to consider such acquisition.
    (c) An interest in a New Medallion Vehicle is only available to IRA 
Holders who satisfy the securities law-based investor qualifications 
applicable to all investors in such New Medallion Vehicle.
    (d) No commissions, sales charges, or other fees or profit 
participations in the form of performance allocations or otherwise, 
direct or indirect, are assessed against an IRA in connection with its 
acquisition and holding of an interest in a New Medallion Vehicle.
    (e) An IRA pays no more and receives no less for its particular 
interest in any of the New Medallion Vehicles than they would in an 
arm's length transaction with an unrelated party.
    (f) An IRA's interest in a New Medallion Vehicle is redeemable, in 
whole or in part, without the payment of any redemption fee or penalty, 
no less frequently than on a quarterly basis upon no less than 10 days 
advance written notice.
    (g) An acquisition or redemption of an IRA's interest in a New 
Medallion Vehicle is made for fair market value, determined as follows:
    (1) Equity securities are valued at their last sale price or 
official closing price on the market on which such securities primarily 
trade using sources independent of Renaissance and the issuer. If no 
sales occurred on such day, equity securities are valued at the last 
reported independent ``bid'' price or, if sold short, at the last 
reported independent ``asked'' price.
    (2) Fixed income securities are valued on either the basis of 
``firm quotes'' obtained at the time of an acquisition or redemption 
from U.S.-registered or foreign broker-dealers, which are registered 
and subject to the laws of their respective jurisdiction, which quotes 
reflect the share volume involved in the transaction, or on the basis 
of prices provided by independent pricing services that determine 
valuations based on market transactions for comparable securities and 
various relationships between such securities that are generally 
recognized by institutional traders.
    (3) Options are valued at the mean between the current independent 
``bid'' price and the current independent ``asked'' price or, where 
such prices are not available, are valued at their fair value in 
accordance with Fair Value Pricing Practices by the Renaissance 
Valuation Committee, which utilizes a set of defined rules and an 
independent review process.
    (4) If current market quotations are not readily available for any 
investments, such investments are valued at their fair value by the 
Renaissance Valuation Committee in accordance with Fair Value Pricing 
Practices.
    (h) Redemption of an IRA's interest in a New Medallion Vehicle, in 
whole or in part, is made in cash.
    (i) In the event that a redemption of any portion of an IRA 
Holder's interest in any of the Medallion Funds becomes necessary as 
the result of a reduction of the Investment Allocation applicable to an 
IRA Holder, then, at such IRA Holder's election, a redemption is first 
made of the IRA Holder's taxable investments (if any) prior to his or 
her IRA's interest in a New Medallion Vehicle.
    (j) With respect to the investment by Participants in the New 
Medallion Vehicles through IRAs, Renaissance acknowledges that such 
investments may constitute investments by a ``pension plan'' within the 
meaning of section 3(2) of the Act, and the Applicant represents that, 
with respect to such investments, it will comply with all applicable 
requirements of Title I of the Act.
    (k) Renaissance does not use the fact that IRAs invested in the 
Funds in any marketing activities or publicity materials for the Funds.
    (l) In advance of the initial investment by an IRA in a New 
Medallion Vehicle, the IRA Holder receives:
    (1) A copy of the proposed exemption and the final exemption, 
following the publication of the final exemption in the Federal 
Register;
    (2) A private offering memorandum (with all related exhibits) 
describing the relevant investment vehicles, including its investment 
objectives, risks, conflicts, operating expenses and redemption and 
valuation policies, and any IRA Holder whose IRA owns an interest in a 
New Medallion Vehicle receives the same disclosures and information 
provided to other investors with respect to the Fund in which he or she 
invests; and
    (3) All reasonably available relevant information as such IRA 
Holder may request.
    (m) On an on-going basis, Renaissance provides each IRA Holder 
whose IRA owns an interest in a New Medallion Vehicle with the 
following information:
    (1) Unaudited performance reports at the end of each month; and
    (2) Audited annual financial statements following the end of each 
calendar year.
    (n) Prior to the acquisition by an IRA of an interest in a New 
Medallion Vehicle or each Fund or vehicle in which, or through which, a 
New Medallion Vehicle invests, Renaissance or the applicable New 
Medallion Vehicle manager (the New Medallion Vehicle Manager):
    (1) Agrees to submit to the jurisdiction of the federal and state 
courts located in the State of New York;
    (2) Agrees to appoint an agent for service of process for the New 
Medallion Vehicle, and any other Fund described in this section, in the 
United States (the Process Agent);
    (3) Consents to service of process on the Process Agent; and
    (4) Agrees that any enforcement by an IRA Holder of his or her 
rights pursuant to this exemption will, at the option of the IRA 
Holder, occur exclusively in the United States courts.
    (o) Renaissance maintains or causes to be maintained for a period 
of six years from the date of any covered transaction such records as 
are necessary to enable the persons described in paragraph (p)(i) below 
to determine whether the conditions of this proposed exemption, if 
granted, have been met, provided that (i) a separate prohibited 
transaction will not be considered to have occurred if, due to 
circumstances beyond the control of Renaissance, the records are lost 
or destroyed prior to the end of the six-year period, and (ii) no party 
in interest or disqualified person other than Renaissance shall be 
subject to a civil penalty under section 502(i) of the Act or the taxes 
imposed by section 4975(a) and (b) of the Code, if such records are not 
maintained, or are not available for examination as required by 
paragraph (p)(i) below; and
    (p)(i) Except as provided below in paragraph (p)(ii), and 
notwithstanding any provisions of subsections (a)(2) and (b) of section 
504 of the Act, the records referred to above in paragraph (o) 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, the Commodity Futures Trading 
Commission (CFTC), or the U.S. Securities and Exchange Commission 
(SEC), and
    (B) Any IRA Holder or any duly authorized representative or 
beneficiary of an IRA; and
    (ii) None of the persons described above in paragraph (p)(i)(B) 
shall be authorized to examine trade secrets of Renaissance, or 
commercial or financial information which is privileged or 
confidential, and should Renaissance

[[Page 3040]]

refuse to disclose information on the basis that such information is 
exempt from disclosure, Renaissance shall, by the close of the 
thirtieth (30th) day following the request, provide a written notice 
advising that person of the reasons for the refusal and that the 
Department may request such information.

Section IV. Definitions

    For purposes of this proposed exemption:
    (a) The term ``Renaissance'' means Renaissance Technologies, LLC, 
and its affiliates.
    (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 such entity (for purposes of this paragraph, the term ``control'' 
means the power to exercise a controlling influence over the management 
or policies of a person other than an individual); and
    (2) Any officer of, director of, or partner in such person.
    (c) The term ``Fair Value Pricing Policies'' means the Official 
Pricing Policy established in good faith by the Renaissance Valuation 
Committee for valuing an instrument, which is subject to the approval 
of the Renaissance Technologies LLC Board of Directors.
    (d) The term ``Fund'' or ``Funds'' means, individually or 
collectively, the nine privately offered U.S. and non-U.S. collective 
investment vehicles managed by Renaissance, comprised almost 
exclusively of assets of Renaissance and its owners and employees (the 
Proprietary Funds) and the five privately offered U.S. and non-U.S. 
collective investment vehicles, consisting primarily of assets of 
clients of Renaissance (the non-Proprietary Funds).
    (e) The term ``Investment Allocation'' means the permitted 
investment allocation in the Medallion Funds applicable to a 
Renaissance employee, which such employee and his or her Spouse may 
utilize to make investments in a Medallion FF or Kaleidoscope, or in an 
applicable New Medallion Vehicle investing in such Funds, subject to 
each such employee's overall Investment Allocation limit.
    (f) The term ``IRA'' means an ``individual retirement account'' as 
defined under section 408(a) of the Code or a ``Roth IRA'' as defined 
under section 408A of the Code that is beneficially owned by an IRA 
Holder.
    (g) The term ``IRA Holder'' means a Participant, or the Spouse of a 
Participant, who is eligible to invest in a New Medallion Vehicle 
through his or her IRA.
    (h) The term ``Kaleidoscope'' means Kaleidoscope Fund LLC, a 
Delaware limited liability company established by Renaissance to 
facilitate the investment by certain employees of Renaissance in the 
other Proprietary Funds.
    (i) The term ``Medallion Funds'' means six of the nine Proprietary 
Funds, organized in a ``master-feeder'' investment structure, comprised 
of six Medallion Fund feeder funds (Medallion FFs) engaging in their 
investment and trading activities only through certain master funds and 
their subsidiaries (the Medallion Master Funds).
    (j) The term ``New Medallion Vehicle'' or ``New Medallion 
Vehicles'' means, individually or collectively, New Medallion FF, the 
New Medallion Conduit, and New Kaleidoscope.
    (k) The term ``New Kaleidoscope'' means Kaleidoscope RF Fund LLC, 
the Delaware limited liability company to be established by Renaissance 
in order to facilitate the investment in the Medallion Funds (through 
the New Medallion Conduit), by IRA Holders who do not meet the investor 
qualifications to invest in the New Medallion FF.
    (l) The term ``New Medallion Conduit'' means Medallion RMPRF Fund 
LP, the Bermuda Limited Partnership that is treated as a corporation 
for US Federal Income Tax purposes, to be established by Renaissance in 
order to facilitate the investment by New Kaleidoscope in the Medallion 
Funds.
    (m) The term ``New Medallion FF'' means Medallion Fund RF LP, the 
Bermuda Limited Partnership that is treated as a corporation for US 
Federal Income Tax purposes, to be established by Renaissance in order 
to facilitate an IRA Holder's investment in the Medallion Master Funds.
    (n) The term ``Participant'' means a former participant in the 
Renaissance Technologies, LLC 401(k) Plan (the 401(k) Plan) who 
received a distribution of their entire account balance in the 401(k) 
Plan prior to December 31, 2010 as a result of the termination of such 
plan, and is either an employee or a Permitted Owner of Renaissance at 
the time of such individual's investment in the New Medallion Vehicles.
    (o) The term ``Permitted Owners'' means the seven individuals 
permitted to invest in the Medallion Funds following the termination of 
their Renaissance employment, comprised of three Renaissance 
``founders,'' and four former employees who are owners of Renaissance.
    (p) The term ``Renaissance Valuation Committee,'' or ``RVC,'' means 
the committee, established by Renaissance in 2008, that oversees and 
monitors the valuation process, and establishes the methods of, and 
procedures for, valuing various instruments traded by Renaissance 
(e.g., the Proprietary Funds), composed of high-level Renaissance 
employees who also are Fund investors.
    (q) The term ``Spouse'' means a person who is (a) married to a 
Participant, or (b) to the extent not prohibited by applicable law, in 
a civil union or similar marriage-equivalent institution established 
pursuant to State law of the State where the Participant resides (or 
otherwise recognized by the State where the Participant resides) with a 
Participant.

Section IV. Effective Date

    If granted, this proposed exemption will be effective as of January 
1, 2012.

Summary of Facts and Representations\3\
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    \3\ The Summary of Facts and Representations (the Summary) is 
based on the Applicant's representations and does not reflect the 
views of the Department.
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The Applicant

    1. Renaissance is an investment adviser registered with the SEC and 
a commodity pool operator and commodity trading advisor registered with 
the CFTC. The firm was founded in 1982 and is headquartered in New York 
City, and its research and trading activities are conducted from its 
office in East Setauket, New York. Renaissance implements quantitative 
investment strategies on behalf of its clients, employing quantitative 
analysis, specifically, mathematical and statistical methods, to 
uncover technical indicators with predictive value. This analysis is 
used to construct proprietary computer models which use publicly 
available financial data to identify and implement trading decisions 
electronically. Renaissance's quantitative analysis and trading 
activities are applied to mature, highly liquid, publicly-traded 
instruments in both U.S. and foreign markets.
    2. The Applicant has approximately 275 employees, about 100 of whom 
are owners of Renaissance. According to the Applicant, many of 
Renaissance's employees are specialists with non-financial backgrounds, 
including mathematicians, physicists, astrophysicists, and 
statisticians. In this respect, about a third of the more than 200 
employees at the Long Island office have Ph.D.s.

[[Page 3041]]

    3. Renaissance is the investment manager of the Funds, fourteen 
privately offered U.S. and non-U.S. collective investment vehicles with 
aggregate net assets under management as of April 30, 2011 of 
approximately $19 billion. Renaissance's nine Proprietary Funds are 
comprised almost exclusively of assets of Renaissance and its owners 
and employees, and include, among others, the six Medallion Funds and 
Kaleidoscope. According to the Applicant, none of the assets of any 
Proprietary Fund is treated as ``plan assets'' of any ``benefit plan 
investor,'' as those terms are defined in section 3(42) of the Act and 
29 CFR 2510.3-101. Renaissance's non-Proprietary Funds consist 
primarily of assets of clients, such as foundations, private- and 
public-sector pension funds, financial institutions, and high net worth 
individuals, as well as a small amount of proprietary assets.
    According to Renaissance, as of April 30, 2011 the breakdown of 
aggregate assets under management between the Proprietary Funds and the 
non-Proprietary Funds is $13.3 billion and $5.8 billion, respectively. 
Of this, the Applicant states that the Medallion Funds (described 
below) represent approximately $10.2 billion of the Proprietary Funds' 
assets under management as of April 30, 2011.

The Medallion Funds

    4. Renaissance explains that the Medallion Funds are organized in a 
``master-feeder'' structure, with investors owning shares of a ``feeder 
fund'' that invests directly in one or more ``master funds,'' generally 
organized as such for tax or other regulatory reasons. There are six 
Medallion FFs, each of which is intended for investors who meet certain 
criteria specific to that Medallion FF concerning that investor's 
residency (U.S. or non-U.S.) and regulatory status under the U.S. 
federal securities laws. All equity interests in each Medallion FF are 
owned by the investors in that Medallion FF, and, as described below, 
also by Renaissance (in certain Medallion FFs).
    5. The Applicant states that the Medallion FFs all have the same 
investment objectives and trading strategies and currently do, and 
will, invest and trade together through the same master trading 
vehicles that were formed solely for that purpose. In this regard, each 
Medallion FF engages in its investment and trading activities only 
through the Medallion Master Funds. Investors contribute capital to a 
Medallion FF and receive interests or shares (depending on the 
Medallion FF structure as either a partnership or a corporation) in 
such Medallion FF. All investment capital in each Medallion FF (minus a 
small amount necessary to pay expenses at the Medallion FF level) is 
re-invested in the Medallion Master Funds where all investment and 
trading activities occur. According to the Applicant, as a practical 
matter, the Medallion FFs have a minimum capital investment requirement 
of $25,000, from subscribers but do have the discretion to accept less 
in appropriate circumstances.
    6. The Medallion Master Funds and the Medallion FFs are organized 
as either limited partnerships or corporations, and all equity 
interests in the Medallion Master Funds are owned collectively and 
directly by one or more of the Medallion FFs, and indirectly, primarily 
by Renaissance, owners of Renaissance, and Renaissance's employees. All 
investors in the Medallion FFs (as well as the other Proprietary Funds 
and non-Proprietary Funds) must, among other things, meet the entry 
requirements established under the U.S. federal securities laws for 
admission.\4\ Further, the Medallion Funds are audited annually by a 
nationally-recognized accounting firm.
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    \4\ The Medallion FFs currently operate under the exemptions set 
forth in sections 3(c)(7), 3(c)(1), or 6(b) of the 1940 Act, and 
Rule 506 of Regulation D under the Securities Act of 1933, as 
amended (the 1933 Act).
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    7. The Applicant states that the primary objective of each 
Medallion Fund is to achieve appreciation of its assets through 
investment and trading in a variety of both securities-related and 
futures-related financial instruments. According to the Applicant, the 
Medallion Funds seek out investments that are reasonably liquid in 
nature and that complement their other trading activities. The 
Applicant states further that the Medallion Funds trading takes place 
on organized U.S. and foreign exchanges, as well as through the 
interbank or cash markets, or on or through recognized markets of 
regional, national or international standing, based on a proprietary 
and highly confidential computational trading system developed by 
Renaissance.
    8. According to the Applicant, the Medallion Funds invest and trade 
in various types of financial instruments as determined by Renaissance, 
including, without limitation: (a) Equity securities and related 
instruments, such as common and preferred stocks, ADRs, options, 
warrants, convertible securities and swaps and other derivatives 
relating to equity securities, (b) futures contracts (and options 
thereon) and forward contract transactions, and (c) fixed income 
securities and related derivatives, including U.S. and non-U.S. 
government issued (and U.S. government agency guaranteed) securities, 
mortgage-related securities and derivatives and credit default swaps. 
The Applicant explains that allocations of the Medallion Funds' assets 
among these investment areas will vary based on market opportunities 
and other related factors. Furthermore, the Medallion Funds also may 
utilize other securities, options, cash instruments, interest rate 
swaps and futures and other derivatives for hedging purposes. 
Nevertheless, the Applicant notes that the Medallion Funds are not 
limited to the specific investments described above and Renaissance has 
the exclusive responsibility for choosing the investments and 
strategies in which the Medallion Funds may from time to time invest 
and the amount of capital that will be invested.
    9. According to the Applicant, Renaissance operates a diverse 
proprietary equity trading program consisting of several different 
equity trading strategies primarily based on technical methods that 
produce a statistical forecast of future prices of individual 
securities. In this regard, the Applicant explains that the Medallion 
Funds' portfolio of equity securities may consist of both long and 
short positions, and a substantial portion of the positions are 
structured as derivative transactions. Furthermore, the Applicant notes 
that Renaissance may from time to time develop and utilize other equity 
trading strategies as a part of the Medallion Funds' overall equity 
trading program, which may be integrated into the existing Medallion 
Master Funds and their subsidiaries or may be implemented through new 
affiliates of such Funds.
    10. According to the Applicant, the Medallion Funds' investment 
strategy for its proprietary futures trading program is based primarily 
on technical analysis using a trading method based on input from 
certain proprietary computer programs, databases and algorithms, and to 
a limited extent on the basis of fundamental analysis of factors 
affecting prices of futures instruments. The Applicant notes that a 
wide variety of traditional commodity futures contracts are traded, 
together with certain financial futures contracts and contracts in 
major currencies, although there will not necessarily be positions in 
each such contract on every day.
    11. The Applicant states that the Medallion Funds also invest and 
trade

[[Page 3042]]

in a variety of fixed income securities as a cash management strategy 
in support of its other investment programs. According to the 
Applicant, these fixed income securities include, but are not limited 
to, U.S. government-issued (and U.S. government agency-guaranteed) and 
non-U.S. government issued instruments including securities and 
repurchase and/or reverse repurchase transactions thereon. The 
Applicant states further that cash instruments, such as money market 
shares, also are employed, as are mortgage-related securities and 
derivatives, and credit default swaps.
    12. According to the Applicant, the Medallion Funds use leverage in 
their investment and trading activities, derived from two sources--
borrowed funds in securities transactions and inherent leverage 
embedded in futures contracts and related instruments. In this regard, 
the Medallion Funds borrow, either directly or indirectly, in order to 
finance the acquisition of securities and secure such borrowings with 
its assets, at market rates of interest without recourse to the Funds' 
investors. The Applicant states that the amount of these borrowings 
varies, but that the Medallion Funds' equities positions generally 
equal 4 to 5 times its investor capital. According to the Applicant, 
futures and forward contracts trading also is leveraged in that the 
margin deposits required to establish and to maintain these positions 
create inherent leverage on these transactions, but do not involve any 
borrowed funds (they are good faith deposits).\5\
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    \5\ The Applicant explains that futures contract positions on 
recognized exchanges in the U.S. may be acquired with initial margin 
deposits generally that range from 2% to 15% of the face amount of a 
contract (e.g., a $37,997 contract to acquire wheat can be 
established with an initial deposit of $3,037 (8% of its face 
value).
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    13. The Applicant states that the risk of investing in the 
Medallion Funds results from a variety of factors, including the 
volatility in the various markets for financial instruments that the 
Funds trade in, the use of leverage (which can exacerbate both profits 
and losses), and the uncertainty of governmental actions around the 
world and their impact on the interconnected global financial markets 
(e.g., actions of central banks that affect interest rates in various 
currencies). However, the Applicant observes that these risks are 
mitigated by several factors, including the Medallion Funds' broad 
investment diversification, the liquidity of most of the instruments 
the Funds trade, the quarterly liquidity afforded to each investor, and 
the success that Renaissance has achieved in trading the various 
Medallion Funds that have resulted in average annual returns (before 
management fees and performance allocations) of 76.91% over the past 
twenty years.

The Kaleidoscope Fund

    14. One of the nine Proprietary Funds maintained by Renaissance is 
Kaleidoscope, a Delaware limited liability company, established 
exclusively as a ``perk'' to Renaissance's employees who do not meet 
the financial qualification requirements under the U.S. federal 
securities laws for eligibility to invest in any of the other eight 
Proprietary Funds.\6\ Kaleidoscope is a ``fund-of-funds'' that 
currently invests in the Medallion Funds through one of the Medallion 
FFs, known as ``Medallion RMP,'' in addition to the other Proprietary 
Funds. As of April 30, 2011, Kaleidoscope held approximately $29.1 
million in assets under management, approximately $8.9 million of which 
was invested in Medallion RMP. Further, as Kaleidoscope only invests in 
the Proprietary Funds, it invests indirectly in the instruments and 
transactions that such Funds invest in directly. Kaleidoscope is also 
audited annually by a nationally-recognized accounting firm.
---------------------------------------------------------------------------

    \6\ Kaleidoscope currently operates under the exemption set 
forth in section 3(c)(1) of the 1940 Act and Rule 506 of Regulation 
D under the 1933 Act.
---------------------------------------------------------------------------

The RIFF and RIEF Funds

    15. In addition to the Medallion Funds and Kaleidoscope, RIEF RMP 
LLC (RIEF) and RIFF RMP LLC (RIFF) make up the remainder of the 
Proprietary Funds. RIEF is a Delaware limited liability company that 
does not trade in a master-feeder structure, but instead engages in 
direct investing and has multiple classes of ownership interests. RIEF 
invests and trades for its own account primarily in a widely 
diversified portfolio consisting almost exclusively of listed U.S. and 
non-U.S. equity securities that are publicly traded on U.S. securities 
exchanges, and to a more limited extent in derivatives, such as 
exchange traded futures contracts and total return swaps. RIFF is also 
a Delaware limited liability company, but, unlike RIEF, it operates in 
a master-feeder structure similar to the Medallion Funds. Thus, all 
investment decisions are made at the level of the ultimate RIFF master 
fund, through which RIEF invests and trades primarily in futures 
contracts on organized exchanges, forward contracts, and other 
derivative instruments.
    16. Investors in RIEF and RIFF are limited primarily to certain of 
Renaissance's employees and their family members, as well as entities 
maintained for the benefit of the foregoing persons, each of whom meets 
the applicable federal securities law requirements.\7\ Such investors 
either invest directly by acquiring interests in such Funds, or they 
may invest indirectly through Kaleidoscope. RIEF and RIFF are subject 
to both SEC registration and regulation by the CFTC, and are both 
audited annually by a nationally-recognized accounting firm.\8\
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    \7\ According to the Applicant, Renaissance owns less than 1% of 
the equity interests in each of RIEF and RIFF, and no Participant is 
a majority owner of either of such Funds. Therefore, the Applicant 
states that neither RIEF nor RIFF are parties in interest or 
disqualified persons with respect to IRAs investing therein. As a 
result, the Department is not proposing exemptive relief for such 
transactions, nor fully describing them, herein.
    \8\ RIEF qualifies under section 6(b) of the 1940 Act and Rule 
506 of Regulation D under the 1933 Act, and RIFF qualifies under 
Rule 506 of Regulation D under the 1933 Act (there is no parallel 
exemption under the 1940 Act because RIFF trades primarily in 
futures, and thus is a ``futures'' fund and not a ``securities'' 
fund).
---------------------------------------------------------------------------

The Interests of Renaissance and its Owners and Employees in the 
Medallion Funds

    17. Renaissance is the general partner of the Medallion FFs and 
Medallion Master Funds that are organized as limited partnerships, and 
certain of Renaissance's owners serve as directors of the Medallion FFs 
and Medallion Master Funds that are organized as non-U.S. corporations. 
Renaissance is also the investment manager to all the Medallion Funds, 
including both Medallion FFs and Medallion Master Funds, and has 
investment discretion over their assets. However, the Applicant states 
that Renaissance's role as ``investment manager'' of the Medallion FFs 
is extremely narrow in practice, as each Medallion FF, by its terms, 
only may invest in, and thus effectively is ``hardwired'' to, the 
Medallion Master Funds. In effect, the Applicant contends, 
Renaissance's role at the Medallion FF level is more administrative 
than investment related (as compared to the role of an ``investment 
manager'' as defined in Section 3(38) of the Act).
    18. As the investment manager of the Medallion Funds, Renaissance 
receives a quarterly, fixed management fee from each Medallion FF, 
based on the net asset value of each Medallion fund at the beginning of 
each semi-annual period (January 1 and July 1 of each year), and 
payable in cash. However,

[[Page 3043]]

Renaissance does not receive a management fee from any of the Medallion 
Master Funds. These management fees are charged at the annualized rate 
of 5% of net asset value (i.e., 2\1/2\% of net asset value at the 
beginning of each semi-annual period). Thus, the most recent fixed 
quarterly management fees paid to Renaissance by the Medallion FFs are 
equal to approximately $107 million.
    19. Renaissance also maintains substantial capital investments in 
the four U.S. Medallion FFs that are organized as Delaware limited 
partnerships, and hence has a ``capital account'' in each U.S. 
Medallion FF. In addition, Renaissance owns a separate class of non-
participating shares in the two non-U.S. Medallion FFs that are 
organized as Bermuda corporations. Combined, Renaissance owns 
approximately 28.49% of the combined equity interests in the Medallion 
FFs.\9\ Because the Medallion FFs directly invest solely in the 
Medallion Master Funds, Renaissance indirectly owns 28.49% of the 
combined equity interests in the Medallion Master Funds.
---------------------------------------------------------------------------

    \9\ According to the Applicant, Renaissance directly owns 28.41% 
of the combined Medallion FFs, but Kaleidoscope, which invests 
directly in the Medallion FFs, is owned approximately 94.6% by 
Renaissance and 5.4% by its owners, directors, and employees. Taking 
this into account, Renaissance's equity ownership percentage of the 
combined Medallion FFs is actually 28.49%.
---------------------------------------------------------------------------

    20. Renaissance also receives a contractual performance allocation 
equal to a percentage of the semi-annual net profits that are earned by 
each investor, from (a) the two non-U.S. Medallion FFs, through its 
separate class of non-participating shares in each such non-U.S. 
Medallion FF, and (b) each of the four U.S. Medallion FFs through its 
capital account in each such Medallion FF. According to the Applicant, 
performance allocations are calculated and assessed on an investor-by-
investor basis within each Medallion fund in an amount that ranges 
between 20% and 44% of the new high net capital appreciation (realized 
and unrealized) experienced by each investor during each semi-annual 
period (i.e., January 1 to June 30 and July 1 to December 31 of each 
year).\10\ The Applicant states that the performance allocation is 
calculated on a ``high-watermark'' basis (i.e., only after any 
cumulative net losses from prior semi-annual calculation periods are 
overcome).\11\ Thus, the quarterly performance allocations paid to 
Renaissance by the Medallion FFs for the most recent calculation period 
are equal to approximately $891 million. Furthermore, payment of such 
performance allocations increases the amount of Renaissance's capital 
account in the applicable Medallion Fund. According to the Applicant, 
Renaissance then has the option in whole or in part to withdraw such 
performance allocation in cash or to leave the performance allocation 
in its capital account (which is available to be withdrawn at any time 
in the future).
---------------------------------------------------------------------------

    \10\ The Applicant states that calculating the performance 
allocation on an investor-by-investor basis assures that every 
investor only pays a performance allocation on its own investment 
profits (because it is possible for a Fund to have net profits while 
certain investors do not).
    \11\ The Applicant explains that performance allocations are not 
assessed on any unrecouped losses from prior periods, which must be 
made up before a new performance allocation is assessed. 
Furthermore, the Applicant notes that performance allocations are 
assessed as of a redemption date that occurs in the middle of a 
performance allocation calculation period with respect to any 
redeemed amounts as of that date. In such event, the date used to 
calculate appreciation of the Funds is the date of redemption.
---------------------------------------------------------------------------

    Renaissance does not receive a performance allocation directly from 
any of the Medallion Master Funds. However, as a result of its 
contractual performance allocations from the Medallion FFs, Renaissance 
indirectly holds a 36% profits interest in the Medallion Master Funds.
    21. According to the Applicant, since the Medallion Master Funds 
are owned by the Medallion FFs, Renaissance has an indirect profits 
interest in the Medallion Master Funds in excess of 50% through a 
combination of its (a) profit participation in the Medallion FFs' net 
profits received through the performance allocations resulting from the 
Medallion Master Funds' trading and investment activities, and (b) 
direct ownership interests in the U.S. Medallion FFs, which in turn 
invest in the Medallion Master Funds.\12\ The Applicant explains that, 
since Renaissance holds a 36% profits interest in the Medallion Master 
Funds through its contractual performance allocations from the 
Medallion FFs, 64% of the profits interest in the Medallion Master 
Funds remains to be divided among all equity holders, in proportion to 
their equity ownership in the Medallion FFs. Because Renaissance owns 
approximately 28.49% of the combined equity interests in the Medallion 
FFs, they own a corresponding 18.23% interest in profits in the 
Medallion Master Funds based on their equity interest in the Medallion 
FFs (28.49% of 64% = 18.23%). Thus, Renaissance has a 54.23% profits 
interest (36% + 18.23% = 54.23%) in the Medallion Master Funds.
---------------------------------------------------------------------------

    \12\ Section 3(14)(G) of the Act and/or section 4975(e)(2)(G) of 
the Code provides that a partnership is a party in interest or a 
disqualified person with respect to a plan if 50% or more of the 
capital or profits interest in the partnership is owned by, among 
others, a fiduciary, service provider, or an employer any of whose 
employees are covered by such plan.
---------------------------------------------------------------------------

    22. Renaissance's owners and employees (and their affiliated 
entities) also may invest in the Medallion FFs in their personal 
capacities (if they meet the investor qualification requirements 
applicable to such Funds) and would thus have direct ownership 
interests in the Medallion FFs (but not necessarily in the same 
Medallion FFs or in the same proportions). As of April 30, 2011, such 
individuals owned approximately 71.46% of the total assets under 
management of the Medallion FFs, or $7.3 billion.
    23. In addition, small ownership interests in the Medallion FFs are 
held by Kaleidoscope (0.09% or $8.9 million) and certain ``outsiders,'' 
i.e., individuals who are employed by two entities in which Renaissance 
has a minority ownership interest in connection with these entities' 
management of two venture capital partnerships (0.13% or $13.4 
million). As described below, the investment by Kaleidoscope 
facilitates the indirect investment in the Medallion FFs by individuals 
who do not otherwise qualify to invest directly in such Funds.
    24. Renaissance is also the managing member of Kaleidoscope and its 
investment manager. However, since Renaissance maintains Kaleidoscope 
purely as a ``perk'' to its employees, it does not receive any 
performance allocations or management fees (or other compensation) from 
Kaleidoscope for acting as its managing member or investment manager, 
respectively. Kaleidoscope does, however, pay management fees to, and 
is subject to performance allocations at the investee Fund levels in 
the same manner as are all other investors. The Applicant explains that 
Kaleidoscope currently invests only in Medallion RMP, RIEF, and RIFF. 
As an investor in such Funds, Kaleidoscope is subject to the same fixed 
fees and performance allocations payable to Renaissance as are all the 
other investors in such Funds (although such fees and allocations may 
vary by investor). In this regard, the most recent fixed quarterly 
management fees and performance allocations for the most recent 
calculation period paid to Renaissance by Medallion RMP, that are 
allocable to Kaleidoscope's investment in such Fund, are equal to 
$196,154, and $774,654, respectively. However, no extra compensation is 
paid to Renaissance for its role in managing Kaleidoscope.

[[Page 3044]]

    25. As of April 30, 2011, Kaleidoscope held $29,117,684 in assets 
under management, approximately $60,037 of which represented expenses 
accrued to the partners in such Fund. Furthermore, as of April 30, 
2011, Renaissance held an ownership interest in Kaleidoscope worth 
$27,554,570 or approximately 94.6% of the Fund's value, and 
Renaissance's owners and employees (and their affiliated entities, 
e.g., personal trusts) held an ownership interest of approximately 5.4% 
of Kaleidoscope's assets under management, or $1,563,114, in their 
personal capacities.

The Decision To Terminate the 401(k) Plan

    26. Renaissance previously sponsored the 401(k) Plan for its 
employees. All aspects of the 401(k) Plan, including the investment 
options, were provided by Fidelity Investments (Fidelity), the Plan 
recordkeeper, and a directed trustee and an unrelated party. 
Renaissance relates that many of its employees expressed an interest to 
invest their retirement assets in the Medallion Funds or in some other 
investment vehicle that is managed by Renaissance. According to the 
Applicant, these individuals were dissatisfied with the investment 
options offered under the 401(k) Plan and their marked volatility and 
poor performance (many 401(k) Plan investment options lost over 40% of 
their value in 2008 alone), and they desired to take advantage of the 
Funds' comparatively high investment returns. The Applicant notes that 
the Medallion Funds have historically been excellent investments, 
earning a net average return in excess of 40 percent per annum since 
1998, including net returns for 2005 through 2010 ranging from 
approximately 33 to 98 percent.\13\ In addition, according to the 
Applicant, Kaleidoscope has earned a net average return in excess of 22 
percent per annum since its inception in 2007.
---------------------------------------------------------------------------

    \13\ As the New Medallion Vehicles will not charge fees or 
profit participations in the form of performance allocations, 
Renaissance anticipates that their returns to IRA investors will 
exceed the historical net returns of the existing Proprietary Funds.
---------------------------------------------------------------------------

    27. The Applicant relates that there were a number of factors 
which, taken together, led Renaissance to conclude that the best 
opportunity for its employees to invest their retirement assets in the 
Medallion Funds was through the termination of the 401(k) Plan and the 
application for an administrative exemption to permit Participants to 
invest in the Medallion Funds through their IRAs. As a threshold 
consideration, Renaissance explains that Fidelity's management policies 
would not permit unregistered, alternative investment vehicles such as 
the Funds as an investment option for the Plan. However, even if 
Fidelity had agreed to allow the 401(k) Plan to offer the Funds as an 
investment option, the Applicant suggests that there were considerable 
legal obstacles to establishing such investments options.
    28. According to the Applicant, offering the Funds as investment 
options under the 401(k) Plan could have created a potential issue 
under section 404(c) of the Act in connection with Participants' 
ability to reallocate their investments among the different investment 
options in the 401(k) Plan.\14\ The Applicant explains that, although 
the Medallion Funds invest primarily in liquid investments which can be 
valued on a daily basis, they permit redemptions only on a quarterly or 
monthly basis. By contrast, the 401(k) Plan investments were comprised 
of mutual funds that permitted investments in or out on a daily basis 
(subject to frequent trading restrictions imposed by some of the mutual 
funds). Renaissance suggests that, if the 401(k) Plan investment 
options other than the Medallion Funds all allowed daily investments 
and redemptions, but the Medallion Funds did not, there could have been 
a question as to whether the regulations under section 404(c) of the 
Act were satisfied.
---------------------------------------------------------------------------

    \14\ 29 CFR 2550.404c-1(b)(2)(ii)(C) provides that ``each 
investment alternative * * * [must permit] participants and 
beneficiaries to give investment instructions with a frequency which 
is appropriate in light of the market volatility to which the 
investment alternative may reasonably be expected to be subject.''
---------------------------------------------------------------------------

    29. The Applicant also observes that, as a tax-qualified plan, the 
401(k) Plan was subject to the nondiscrimination requirements of 
section 401(a)(4) of the Code, including the requirement that benefits, 
rights and features under the 401(k) Plan be available on a basis that 
does not discriminate in favor of non-highly compensated employees. In 
order to comply with provisions of laws governing securities and 
futures contracts, and provisions relating to the registration of fund 
offerings and pre-filing requirements linked to investor financial 
qualifications, each Fund (except Kaleidoscope) provides financial 
standards for ownership that would exclude some persons who were 
participants in the Plan. Thus, according to the Applicant, if a group 
of 401(k) Plan participants was ineligible to invest in the Funds 
through the Plan as a result of those restrictions, and those 
participants were non-highly compensated employees, there could be an 
issue as to whether the Plan satisfied the requirements under section 
401(a)(4) of the Code.\15\
---------------------------------------------------------------------------

    \15\ See Income Tax Reg. 1.401(a)(4)-4(e)(3)(i) and (iii)(C).
---------------------------------------------------------------------------

    30. Finally, the Applicant states that an important consideration 
for Renaissance was to give participants the opportunity to take 
advantage of the special rule for spreading the tax liability from a 
Roth conversion in 2010 over two taxable years.\16\ The Applicant 
explains that, while legislation was adopted in September 2010 to amend 
section 402A of the Code to permit a ``Roth rollover'' inside a 
qualified plan, there was no IRS guidance on this provision in 2010, 
while there was guidance on Roth IRA conversions. Thus, Renaissance 
determined that it was most advantageous to the Participants to 
terminate the 401(k) Plan in October 2010, so that Participants could 
take their distributions prior to the end of that year, because they 
would only have the opportunity to take advantage of the ``two-year 
averaging'' tax benefit if such election was made in 2010.
---------------------------------------------------------------------------

    \16\ See section 408A(3)(A)(iii) of the Code.
---------------------------------------------------------------------------

    31. Accordingly, the Applicant terminated the 401(k) Plan, causing 
the distribution of the 401(k) Plan's account balances (the Proceeds) 
to Participants. Renaissance intended that Participants would receive 
their Proceeds in newly created or pre-existing IRAs or Roth IRAs and 
could either invest in the Funds through a group of new feeder funds, 
described below, designed specifically for that purpose, or, if they 
desired, in unrelated investments managed by third parties. 
Furthermore, Renaissance intended that the Spouses of Participants 
would be allowed to invest alongside such Participants through their 
IRAs to the extent such investment is allowed under Renaissance's 
investment guidelines governing the Medallion Funds.
    32. The Applicant states that most of Renaissance's approximately 
275 current employees are potential IRA investors in the Funds. They 
note that 249 of Renaissance's employees are currently investors in the 
Funds on an after-tax basis. The Applicant notes further that, based on 
the amount of Proceeds, the potential amount of IRA assets of 
Participants that could be invested in the Funds if the proposed 
transactions are granted exemptive relief is equal to approximately $88 
million (representing all Participants' account balances). However, 
according to the Applicant, some Proceeds were distributed to persons 
(e.g., former employees) who are not eligible to

[[Page 3045]]

invest in the new feeder funds,\17\ and it will not be clear how many 
employees intend to invest in the Funds through IRAs until after such 
new feeder funds are established and begin accepting investments. In 
addition, the Applicant states that the IRAs of Spouses also may be 
permitted to invest in the Funds, and it is impossible to know how many 
of these persons will invest. Nevertheless, the Applicant believes that 
the total of all of such IRA investments would constitute less than one 
percent (1%) of its total assets under management.
---------------------------------------------------------------------------

    \17\ The eligibility requirements for investing in the New 
Medallion Vehicles are discussed below.
---------------------------------------------------------------------------

The New Medallion Vehicles

    33. In order to facilitate investment by Participants and their 
Spouses in the Proprietary Funds, Renaissance has proposed to create a 
group of new feeder funds that will only accept investment from the 
IRAs of such individuals; provided that, in order for a Participant or 
a Participant's Spouse to invest, such Participant is employed by 
Renaissance at the time of such investment.\18\ Specifically, 
Renaissance has proposed to create the New Medallion FF, the New 
Medallion Conduit, and New Kaleidoscope, referred to as the ``New 
Medallion Vehicles,'' in order to facilitate the investment of IRAs 
into the Medallion Funds, in addition to two other new feeder funds 
designed to facilitate the investment by IRAs into RIEF and RIFF.\19\
---------------------------------------------------------------------------

    \18\ However, according to the Applicant, there are seven owners 
of Renaissance (the Permitted Owners), who would be eligible to 
invest their IRAs in the new feeder funds regardless of whether they 
are employed by Renaissance.
    \19\ Because neither RIEF nor RIFF are covered under the 
exemptive relief proposed herein, the new feeder funds created to 
facilitate investment in the Funds by IRAs are not fully described 
herein.
---------------------------------------------------------------------------

    34. According to the Applicant, the New Medallion Vehicles are an 
essential part of the covered transactions, because: (a) They are 
necessary for the IRA Holders in each Fund to avoid being subject to 
taxes on unrelated business taxable income under the Code on the income 
resulting from each Fund's borrowings; (b) they are required to assure 
compliance to the maximum extent with the requirements of the various 
United States securities laws; and (c) in the case of New Medallion FF, 
it is preferable (although not essential) to create a new vehicle that 
would be parallel to the New Medallion Conduit (where a new vehicle was 
essential) rather than create a new class of an existing Medallion FF.
    35. New Medallion FF would be organized as a Bermuda Limited 
Partnership that elects to be treated as a corporation for US Federal 
Income Tax purposes, and will invest directly in the Medallion Master 
Funds. New Medallion FF would be available only to IRAs maintained by 
Participants who meet the same investor qualifications as those 
investing in the Medallion Funds. The Applicant states that absolutely 
no management fees or other fees or profit participations in the form 
of performance allocations or otherwise, direct or indirect, will be 
charged to or imposed on IRAs that invest in the New Medallion FF.
    36. New Kaleidoscope is proposed to be a new fund-of-funds 
patterned after Kaleidoscope that is available only to IRAs maintained 
by Participants that do not meet the investor qualifications to invest 
directly in the New Medallion FF. New Kaleidoscope would be organized 
as a Delaware limited liability company, and will invest in the 
Medallion Master Funds through the New Medallion Conduit, a Bermuda 
Limited Partnership that will elect to be treated as a corporation for 
US Federal Income Tax purposes.\20\ In addition, New Kaleidoscope will 
invest in the two other newly established feeder funds which are 
designed to facilitate investment in RIEF and RIFF. Absolutely no 
management fees or other fees or profit participations in the form of 
performance allocations or otherwise, direct or indirect, will be 
charged to IRAs that invest any Proceeds in New Kaleidoscope.\21\
---------------------------------------------------------------------------

    \20\ New Medallion FF and the New Medallion Conduit are 
structurally identical, save for the securities law qualifications 
for investors' admittance, as described below. Furthermore, New 
Medallion FF will accept direct IRA investment, whereas the New 
Medallion Conduit will only accept investment by New Kaleidoscope, 
and thus will have no direct investment by IRAs.
    \21\ The Applicant notes that IRAs investing in the two new 
feeder funds designed to facilitate the investment into RIEF and 
RIFF, will similarly not be charged management fees or profit 
participations of any kind.
---------------------------------------------------------------------------

    37. The investment portfolios of New Medallion FF and New 
Kaleidoscope will be different from each other but will have the same 
respective portfolios as the existing Medallion FFs and Kaleidoscope, 
respectively, as described above. For example, the Applicant explains 
that the New Medallion FF will invest alongside the other Medallion FFs 
in the Medallion Master Funds, which generally invest and trade in the 
transactions and instruments described above. As New Kaleidoscope only 
invests in the Medallion Master Funds (through the New Medallion 
Conduit) and the other two non-Medallion Proprietary Funds, it will not 
have its own portfolio of investments but instead will own indirect 
interests in each of the instruments and transactions that such Funds 
invest in directly. Thus, New Kaleidoscope will have the same portfolio 
as Kaleidoscope.

Qualifications To Invest in the New Medallion Vehicles

    38. The Applicant states that, in order to qualify for investment 
in one of the New Medallion Vehicles with an IRA, such an individual 
must generally be either a current employee or owner of Renaissance who 
received Proceeds, or such person's Spouse, except for the Permitted 
Owners of Renaissance who may be eligible to invest in the New 
Medallion Vehicles past the termination of their employment. 
Additionally, an ``IRA Holder'' must meet the particular securities law 
based investor qualifications of such New Medallion Vehicles.
    39. According to Renaissance, an IRA investing in the New Medallion 
FF will be required to be a ``Qualified Purchaser'' as defined in 
section 3(c)(7) of the 1940 Act, an IRA whose beneficial owner is a 
``knowledgeable employee'' as defined in Rule 3c-5 of the 1940 Act (a 
Knowledgeable Employee), or an ``Accredited Investor,'' as defined in 
Rules 501-506 of Regulation D under the 1933 Act.\22\ Renaissance 
explains that an IRA qualifies as an Accredited Investor if the person 
for whose benefit it is established is an Accredited Investor in his/
her own right or if the IRA has a net worth of at least $15 million.
---------------------------------------------------------------------------

    \22\ A Qualified Purchaser under the 1940 Act is an individual 
who owns at least $5,000,000 in investments (as defined in Rule 
2a51-1 under the 1940 Act). An Accredited Investor under the 1933 
Act is an individual who (i) has a net worth, or joint worth with 
that person's spouse, at the time of his purchase in excess of 
$1,000,000 (excluding the value of the primary residence of such 
person); or (ii) had an income in excess of $200,000 in each of the 
two most recent years or joint income with that person's spouse in 
excess of $300,000 in each of those years and who reasonably expects 
an income in excess of the same income level in the current year.
---------------------------------------------------------------------------

    40. The Applicant states that New Kaleidoscope will qualify as a 
3(c)(1) fund under the 1940 Act, and thus will accept investment by 
IRAs that are Accredited Investors, plus up to 35 non-Accredited 
Investors.\23\ The New Medallion Conduit, through which New 
Kaleidoscope will invest in the Medallion Master Funds, will similarly 
allow investment by Accredited Investors and up to 35 non-Accredited 
Investors. Thus, the Applicant explains that any investors in New 
Kaleidoscope

[[Page 3046]]

in excess of 35 must be Accredited Investors.\24\
---------------------------------------------------------------------------

    \23\ Under Regulation D of the 1933 Act, up to 35 persons who 
are not Accredited Investors are eligible to invest in any vehicle 
that determines to accept them (as have Kaleidoscope and one of the 
Medallion Funds).
    \24\ The Applicant notes that potential non-Accredited Investors 
in New Kaleidoscope will be admitted in the order that Participants' 
completed IRA transfer applications are received. However, the 
Applicant does not expect there to be 35 such applications, as there 
are currently only 25 non-Accredited Investors in Kaleidoscope.
---------------------------------------------------------------------------

    41. The Applicant notes that the investor qualifications for New 
Kaleidoscope mirror those of Kaleidoscope itself, as there are no 
financial qualification requirements for investors in the Kaleidoscope 
Fund. Accordingly, the Applicant believes that it is consistent with 
the purpose for which Kaleidoscope was created that anyone eligible to 
invest in Kaleidoscope who wishes to invest his or her IRA in New 
Kaleidoscope should be able to do so, without further investment 
restrictions. Furthermore, the Applicant notes that by combining 
investment by New Kaleidoscope (including the New Medallion Conduit) 
with investment by the New Medallion FF in the Medallion Master Funds, 
Renaissance will be able to maximize the number of IRAs that can be 
invested in the Medallion Funds.\25\
---------------------------------------------------------------------------

    \25\ The Applicant notes that section 3(c)(7) of the 1940 Act 
does not limit the number of investors a Fund may take, but Funds 
qualifying under section 3(c)(1) of the 1940 Act are limited to 100 
in number.
---------------------------------------------------------------------------

    42. According to the Applicant, based on representations made by 
the 249 employees that invest in the Funds on an after-tax basis, 
approximately 100 are Qualified Purchasers and approximately 125 (who 
are not Qualified Purchasers) are Accredited Investors. The Applicant 
notes that all the Qualified Purchasers also are Accredited Investors. 
The other 24 employees invested in the Applicant's Funds on an after-
tax basis are neither Qualified Purchasers nor Accredited Investors.

Coverage Issues Related to the Investment by IRAs in the New Medallion 
Vehicles

    43. The Applicant notes that the characteristics of the structure 
and implementation of the transactions described herein raise certain 
coverage issues under Title I of the Act. In this regard, the 
Department believes that, with respect to the investment by 
Participants' IRAs in the Proprietary Funds, the transactions described 
herein do not satisfy the requirements for the safe harbor for 
individual retirement accounts under DOL Regulation 29 CFR 2510.3-2(d). 
The Department is unable to conclude that, with respect to the 
investment by Participants' IRAs in the New Medallion Vehicles, 
Renaissance has not created a pension plan subject to Title I of the 
Act. However, the Department notes that the IRAs beneficially owned by 
the Spouses of Participants would be not subject to Title I of the Act, 
but would remain subject to Title II of the Act and the rules and 
regulations promulgated thereunder.
    44. As a result of the Department's view that the covered 
transactions may constitute a Title I plan with respect to the 
investment of Participants' IRAs in the New Medallion Vehicles, the 
Department believes that Renaissance, as the sponsor of a Title I plan 
and the fiduciary with respect to the Participants' IRAs, would be 
required to operate the arrangement in accordance with Title I of the 
Act. This includes, to the extent applicable, ensuring compliance with 
section 404 of the Act and the duty to diversify plan investments. In 
this regard, the Department does not believe that it would be practical 
to develop a single percentage limitation that would apply to 
investment in the Medallion Funds by IRAs due to the different types of 
investment activities engaged in by such entities. The Department notes 
that section 404(a) of the Act requires, among other things, that a 
fiduciary discharge his duties with respect to a plan solely in the 
interest of the participants and beneficiaries, and in a prudent 
fashion. Section 404(a)(1)(C) of the Act further requires that a 
fiduciary diversify the investments of the plan so as to minimize the 
risk of large losses, unless under the circumstances it is clearly 
prudent not to do so.
    Accordingly, it is the responsibility of the relevant fiduciary 
intending to take advantage of the relief provided by this proposed 
exemption to determine the appropriate level of investment in the 
Medallion Master Funds, based on the particular facts and 
circumstances, consistent with its responsibilities under section 404 
of the Act.\26\
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    \26\ The Department notes that its views regarding the 
Applicant's establishment of a plan, and the operation of such plan, 
subject to Title I of the Act, also extend to the investment by IRAs 
in the new feeder funds created by Renaissance to facilitate the 
investment by IRAs in RIEF and/or RIFF.
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The Request for Exemptive Relief

    45. The Applicant states that, prior to an IRA Holder's investment 
of Proceeds in a New Medallion Vehicle, such IRA Holder will have no 
disqualified person or party in interest relationship with Renaissance 
or any affiliate of Renaissance (in this regard, see 29 CFR 2510.3-
2(d)). However, the Applicant states that IRAs will hold 25% or more of 
the equity interests in each New Medallion Vehicle in which they 
invest.\27\ The IRAs are ``benefit plan investors'' for purposes of 
section 3(42) of the Act and 29 CFR 2510.3-101, as the IRAs constitute 
plans described in section 4975(e)(1) of the Code, and in the case of 
IRAs owned by Participants, may constitute an ``employee benefit 
plan(s)'' under section 3(3) of the Act.\28\ Thus, investment by 
benefit plan investors in each New Medallion Vehicle would be deemed 
``significant,'' and each IRA would own an undivided interest in the 
assets of each New Medallion Vehicle in which it invests.\29\
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    \27\ According to the Applicant, benefit plan investors will not 
hold 25% or more of the equity interests in any Medallion Master 
Fund or any other Fund maintained by Renaissance.
    \28\ 29 CFR 2510.3-101(f)(2). As stated above, the Department is 
unable to conclude that Renaissance has not established a Title I 
plan pursuant to 29 CFR 2510.3-2(d).
    \29\ 29 CFR 2510.3-101(a)(2).
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    46. According to the Applicant, once a Participant's IRA invests in 
a New Medallion Vehicle, establishing the plan asset relationships 
described above, Renaissance, the Medallion Master Funds, and certain 
employees, officers, directors, and 10% owners of each will become 
parties in interest under section 3(14) of the Act and/or disqualified 
persons and section 4975(e)(2) of the Code, with respect to IRAs that 
invest in the New Medallion Vehicles.\30\
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    \30\ As the Applicant states, neither RIEF nor RIFF are 
currently parties in interest and/or disqualified persons with 
respect to the IRA Holders. It is the Department's view that, absent 
a current showing of a disqualified person relationship, no 
exemptive relief for such transactions is appropriate. However, once 
a disqualified person relationship exists between the IRAs and the 
two non-Medallion Proprietary Funds, the Applicant could resubmit an 
application for exemptive relief for covered transactions involving 
those Funds.
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    47. As a result, the Applicant states that the indirect acquisition 
by an IRA of an interest in a Medallion Master Fund through such IRA's 
acquisition of an interest in a New Medallion Vehicle constitutes the 
initial prohibited transaction, pursuant to section 406(a)(1)(A) and 
(D) of the Act and/or section 4975(c)(1)(A) and (D) of the Code. After 
such initial acquisition of an interest in a Medallion Master Fund has 
been made by an IRA, additional acquisitions or redemptions of 
interests in a New Medallion Vehicle by such IRA would constitute 
additional prohibited transactions pursuant to section 406(a)(1)(A) and 
(D) of the Act and/or section 4975(c)(1)(A) and (D) of the Code.
    48. Furthermore, the Applicant states that Renaissance's provision 
of services to a New Medallion Vehicle would constitute a prohibited 
transaction pursuant to section 406(a)(1)(C) of the Act and/or section 
4975(c)(1)(C) of the

[[Page 3047]]

Code with respect to each IRA investing in such New Medallion Vehicle. 
The Applicant explains that Renaissance will provide certain 
administrative services to the New Medallion Vehicles that are strictly 
ministerial in nature. However, the Applicant states that Renaissance 
will also provide a ``limited'' amount of investment management 
services where, for example, it makes semi-annual distributions,\31\ or 
limits the overall size of the Medallion Funds, either of which could 
cause a full or partial redemption of an IRA investment.
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    \31\ Renaissance states that, because of capacity constraints in 
the operation of the strategy employed by the Medallion Funds, for a 
number of years the Funds have returned all or substantially all of 
their profits to investors.
---------------------------------------------------------------------------

    49. However, the Applicant states that Renaissance's providing of 
investment management and ministerial services to a New Medallion 
Vehicle would be exempted by section 408(b)(2) of the Act (provided all 
conditions were satisfied). Section 408(b)(2) of the Act provides 
relief for the ``[c]ontracting or making reasonable arrangements with a 
party in interest for office space, or legal, accounting or other 
services necessary for the establishment or operation of the plan, if 
no more than reasonable compensation is paid therefor.'' \32\ Under the 
Department's regulations, a service is necessary for the establishment 
or operation of a plan if the service is ``appropriate and helpful to 
the plan obtaining the service in carrying out the purposes for which 
the plan is established or maintained.'' \33\
---------------------------------------------------------------------------

    \32\ Section 408(b)(2) of the Act.
    \33\ 29 CFR 2550.408(b)(2).
---------------------------------------------------------------------------

    50. Nevertheless, the Applicant contends that a single, individual 
exemption covering section 406(a)(1)(A), (C), and (D) of the Act and/or 
section 4975(d)(1)(A), (C), and (D) of the Code would be appropriate, 
given that the parties to whom this relief would apply are all 
individuals. Otherwise, according to the Applicant, an IRA Holder would 
be forced to rely in part on section 408(b)(2) of the Act and in part 
on the administrative exemptive relief provided herein, which the 
Applicant suggests is unnecessarily burdensome on such individual 
investors.
    51. Despite the Applicant's concerns, the Department believes that 
it would be more appropriate for the Applicant to rely on the statutory 
relief in section 408(b)(2) of the Act and/or section 4975(d)(2) of the 
Code for Renaissance's provision of investment management and 
ministerial services to the IRAs, rather than to propose administrative 
exemptive relief for such transactions. As a fiduciary to the New 
Medallion Vehicles, it would ultimately be Renaissance's responsibility 
to determine whether the services it provides satisfy all of the 
conditions set forth in the statutory exemption and pertinent 
regulations. Moreover, Renaissance should be in the best position to 
determine whether the conditions of that exemption are satisfied, and 
to demonstrate compliance therewith.
    52. Accordingly, the Applicant is seeking administrative exemptive 
relief under section 408(a) of the Act and/or section 4975(c)(2) of the 
Code from the prohibitions outlined in sections 406(a)(1)(A) and (D) of 
the Act and section 4975(c)(1)(A) and (D) of the Code, for the 
following transactions: (a) The direct or indirect acquisition by a 
Participant's IRA of an interest in a Proprietary Fund through such 
IRA's acquisition of an interest in a New Medallion Vehicle; (b) the 
acquisition of an additional interest by a Participant's IRA in a New 
Medallion Vehicle; and (c) the redemption by a Participant's IRA of all 
or a portion of its interest in a New Medallion Vehicle. Additionally, 
the Applicant is seeking administrative exemptive relief under section 
4975(c)(2) of the Code from the prohibitions of section 4975(c)(1)(A) 
and (D) of the Code for the following transactions: (a) The direct or 
indirect acquisition by a Spouse's IRA of an interest in a Proprietary 
Fund through such IRA's acquisition of an interest in a New Medallion 
Vehicle; (b) the acquisition of an additional interest by a Spouse's 
IRA in a New Medallion Vehicle; and (c) the redemption by a Spouse's 
IRA of all or a portion of its interest in a New Medallion Vehicle.\34\
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    \34\ The Applicant states that it does not believe relief from 
section 406(b)(1) or (2) of the Act and/or section 4975(c)(1)(E) or 
(F) of the Code is necessary in connection with the covered 
transactions, because, according to Renaissance, neither it nor any 
IRA Holder will be using any of its authority, control or 
responsibility as a fiduciary to benefit itself or a person in which 
it has an interest which may affect the exercise of its best 
judgment as a fiduciary. The Department notes that regulation 29 CFR 
2550.408b-2(e)(2) provides that a fiduciary does not engage in an 
act described in section 406(b)(1) of the Act if the fiduciary does 
not use any of the authority control, or responsibility that makes 
him a fiduciary to cause a plan to pay additional fees for a service 
furnished by such fiduciary or to pay a fee for a service furnished 
by a person in which the fiduciary has an interest that may affect 
the exercise of his judgment as a fiduciary. It is also the 
Department's view that generally a fiduciary's decision to retain 
itself or an affiliate service provider whose fees will be paid by 
the plan sponsor (or who does not charge fees of any kind for the 
provision of services) will not involve an adversity of interests as 
contemplated by section 406(b)(2) of the Act. Accordingly, the 
decision to invest the IRAs' assets in the Funds, which are managed 
by Renaissance, would not appear, in itself, to raise issues under 
section 406(b)(1) or (b)(2) of the Act.
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Investments in the New Medallion Vehicles To Be Made at IRA Holders' 
Discretion

    53. Renaissance notes that each Participant has complete investment 
discretion over his or her Proceeds. Thus, a Participant could, in his 
or her discretion, receive the Proceeds as taxable income and choose to 
invest them as he or she determines. One investment option would be to 
roll the Proceeds over to an IRA (either a Roth IRA or a traditional 
IRA). The Applicant notes that, subject to an IRA Holder's Investment 
Allocation discussed below, no upper dollar amount limitations would be 
imposed on the portion of the Proceeds which a Participant may invest 
in the New Medallion Vehicles. However, for administrative reasons, the 
Applicant states that it is necessary to provide for a $1,000 minimum 
threshold for each New Medallion Vehicle.\35\ Nevertheless, a 
Participant could invest none, some, or all of his or her Proceeds in 
the New Medallion Vehicles. An IRA Holder could also redeem his or her 
interest in the Funds at his or her discretion, subject to the 
redemption guidelines attributable to the respective New Medallion 
Vehicles, described below.
---------------------------------------------------------------------------

    \35\ The Applicant states that the New Medallion Vehicles' 
offering documents will provide for a $1,000 minimum investment 
unless Renaissance agrees to accept less in a particular 
circumstance.
---------------------------------------------------------------------------

    54. Moreover, the Applicant states that it has not provided, nor 
will it at any time provide, investment advice concerning an IRA 
Holder's investment of their IRA in the New Medallion Vehicles or offer 
any financial or employment-related incentives to invest in the Funds. 
The Applicant notes that there have been no official communications 
with Participants regarding the opportunity to invest in the Funds 
through IRAs since the termination of the 401(k) Plan, except that 
Renaissance's general counsel recently advised the Firm's management 
committee that comments on the application were received and are being 
addressed. However, the Applicant states that, once the proposed 
exemption is granted, it will provide certain disclosures intended to 
facilitate the informed decision making of IRA Holders regarding the 
investment of their IRAs in the New Medallion Vehicles.
    55. According to Renaissance, in advance of the initial investment 
by an IRA in a New Medallion Vehicle, each IRA Holder will receive (a) 
the copy of the proposed exemption and the final

[[Page 3048]]

exemption, following the publication of the final exemption in the 
Federal Register, (b) a private offering memorandum (with all related 
exhibits) describing the relevant investment vehicles, including its 
investment objectives, risks, conflicts, operating expenses and 
redemption and valuation policies (which disclosures and information 
will be the same as that provided to other investors with respect to 
the Fund in which such IRA Holder invests), and (c) any other 
reasonably available relevant information as such IRA Holder may 
request. Moreover, after the initial investment by an IRA in a New 
Medallion Vehicle, on an on-going basis, Renaissance will provide each 
IRA Holder whose IRA owns an interest in a New Medallion Vehicle with 
(a) unaudited performance reports at the end of each month, and (b) 
audited annual financial statements following the end of each calendar 
year.
    56. The Applicant observes that, as IRA Holders have the discretion 
to invest in the New Medallion Vehicles, they may use whatever IRA 
custodian they so choose. According to the Applicant, two major 
financial institutions with which it has banking and other customer and 
investment relationships have indicated that they would be willing to 
act as IRA custodians on a fee-free basis through their private wealth 
management divisions to facilitate Participants' IRA investments.\36\ 
The Applicant has also identified other IRA custodians who are willing 
to act as custodians for investments that are not publicly-traded, on a 
fee-basis, whose names Renaissance will make available to IRA Holders 
who inquire. However, the Applicant stresses that it will not make any 
endorsement or recommendation concerning IRA custodians, and will 
impose no restrictions on the custodian that a Participant may use, and 
neither Renaissance nor any Participant (or Spouse) will obtain any 
additional benefit from using a particular custodian.
---------------------------------------------------------------------------

    \36\ Deutsche Bank AG provides brokerage and other investment-
related services, including acting as a prime broker and equity 
derivatives counterparty, to the Medallion Funds, and receives 
market-competitive fees from such Funds for those services; and 
JPMorgan Chase & Co. provides brokerage and banking services to all 
of Applicant's Funds, and receives market-competitive fees from the 
Funds for those services. The Applicant emphasizes that neither 
custodian will receive any fees from a New Medallion Vehicle, 
although they will receive market-rate fees from such New Medallion 
Vehicle's underlying master funds for separate services that they 
perform for such Funds.
---------------------------------------------------------------------------

    57. Finally, the Applicant notes that there should not be any 
institutional or corporate pressure on Participants to invest in the 
New Medallion Vehicles, as only a small number of individuals within 
Renaissance will have actual knowledge of an employee's investment in 
the New Medallion Vehicles. According to Renaissance, the CFO/CCO and 
the General Counsel would have access to that information, in addition 
to approximately 10 other employees of Renaissance in Investor 
Relations, Fund Accounting, and Infrastructure, who, as a result of 
their respective job positions, are responsible for the preparation and 
distribution to investors of investor statements.

Voting of IRAs' Interests in the New Medallion Vehicles

    58. According to the Applicant, IRA investors in the New Medallion 
Vehicles will have certain voting rights that will mirror the rights of 
other investors in the existing Medallion and Kaleidoscope Funds. In 
this regard, the Applicant states that IRA Holders will generally have 
the right to vote for all material amendments to an organizational 
document (i.e., a limited partnership agreement or a limited liability 
company agreement) that either are proposed by, or are consented to by, 
Renaissance (i.e., those amendments not involving ministerial, legally 
mandated, or technically conforming or corrective changes). For 
example, the Applicant observes that IRA Holders also may vote to 
approve (a) the admission of an additional general partner to New 
Medallion FF or New Medallion Conduit proposed by Renaissance, or (b) 
the appointment of a liquidator when one is required and Renaissance is 
unable to serve in such a role. Finally, in the event of a New 
Medallion Vehicle's dissolution, IRA Holders will generally have the 
right to vote to continue or reconstitute (as applicable) the business 
of each New Medallion Vehicle and to select one or more successors to 
Renaissance as its manager.
    The Applicant states that IRA Holders will be able to exercise 
their voting rights either (a) at a formal meeting of all investors 
where votes may be exercised in person or by proxy, or (b) by executing 
a written consent pursuant to a prior written solicitation from 
Renaissance on reasonable prior notice. Furthermore, each New Medallion 
Vehicle will have the right to vote on certain matters arising at their 
master fund levels. However, the Applicant notes that these master fund 
voting rights effectively are held by Renaissance because of its 
control position with respect to each master fund entity. Nevertheless, 
the Applicant represents that it will seek the consent of IRA Holders 
for matters described above to the extent that a situation arises at a 
master fund level where it would be inequitable or imprudent for 
Renaissance not to obtain the requisite IRA Holder consents at the 
feeder fund level consistent with the IRA Holders' voting rights set 
out above.

Voluntary Redemptions of IRAs' Interests

    59. The Applicant states that voluntary redemptions of an IRA's 
interest in a New Medallion Vehicle would be available periodically 
with prior notice given to Renaissance. The Medallion Funds permit 
redemptions to be effected quarterly on 10 days' prior notice, and the 
New Medallion FF would also allow redemptions quarterly on 10 days' 
prior notice. Kaleidoscope also has quarterly redemptions on 45 days' 
prior notice and New Kaleidoscope would be the same. At present, 
greater than 75% of the Medallion Funds' net assets are in cash, cash 
equivalents or can be liquidated into cash on one week's notice or 
less. The same is true indirectly for Kaleidoscope, which invests in 
the Medallion Funds as well as the other two non-Medallion Proprietary 
Funds.
    60. According to the Applicant, redemptions of investors' interests 
in the Funds are normally made in cash, as the Funds do not ordinarily 
invest in illiquid investments. Further, since the IRAs' potential 
combined interests in the New Medallion Vehicles are not expected 
initially to exceed 1% of the total assets of all Renaissance-managed 
funds, any request for redemption by an IRA from any of the New 
Medallion Vehicles should be redeemable in cash on a timely basis. 
However, the provision for in-kind distributions exists in the 
operating agreements of the Funds in the event of an unforeseen event, 
such as the liquidation of a Fund where the issuer of one its portfolio 
securities is in bankruptcy.
    Nevertheless, the Department is concerned that, in the event that a 
Fund makes a distribution in-kind to an IRA, such IRA may receive 
illiquid assets in exchange for its interest in the New Medallion 
Vehicles, and consequently may experience difficulty in realizing full 
value in redemption of its investment in the Funds. In response to the 
Department's concerns, the Applicant states that it will provide for 
any redemption of IRAs' interests in the New Medallion Vehicles in 
cash.

Compulsory Redemptions of IRAs' Interests

    61. Renaissance states that its investment and trading strategy for 
the

[[Page 3049]]

Medallion Funds cannot be executed efficiently if too much capital has 
been invested in such Funds. Therefore, the Medallion Funds have for a 
number of years imposed an aggregate limit on the amount of capital 
that the Medallion Funds can accept. The Applicant explains that, as a 
result, each Renaissance employee from the President to the lowest-paid 
employee, has a permitted ``Investment Allocation'' in the Medallion 
Funds that is based on his or her compensation level, and, if 
applicable, an employee's ownership interest in Renaissance itself, and 
is adjusted at the beginning of each semi-annual period (January 1 and 
July 1 of each year). The Investment Allocation specifies the aggregate 
dollar amount that each Renaissance employee is entitled, at the 
employee's discretion, to invest in a Medallion Fund, subject to that 
employee's ability to comply with all applicable securities law 
requirements for the relevant Medallion Fund, or in Kaleidoscope (which 
invests up to 40% of its assets in Medallion and the balance in the 
remaining two non-Medallion Proprietary Funds).
    62. The Applicant states that IRA Holders would be able, at their 
discretion, to utilize their Investment Allocations in connection with 
making an investment of some or all of their IRA assets in the New 
Medallion Vehicles, subject to each Participant's overall Investment 
Allocation limit. In addition, Renaissance permits an employee to share 
his or her Investment Allocation with certain family members. Thus, a 
Spouse could invest his or her IRA in New Medallion FF or in New 
Kaleidoscope to the extent of the remainder of such IRA Holder's 
Investment Allocation. However, the Applicant states that, on occasion, 
Renaissance may proportionately reduce employees' Investment 
Allocations, in order, for example, to maintain the Funds' 
profitability or to permit an allocation to be made to new 
employees.\37\ According to the Applicant, any reduction of Investment 
Allocations would be effected on a pro rata basis with respect to all 
Renaissance employees with Investment Allocations.\38\
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    \37\ As noted above, because of capacity constraints in the 
operation of the Medallion Funds, Renaissance may determine the 
appropriate size of the Medallion Funds and reduce investors' 
Investment Allocations accordingly.
    \38\ As noted above, Renaissance has the option in whole or in 
part to receive its performance allocation in cash or to leave such 
amounts in its capital account, which could cause a corresponding 
reduction in the Investment Allocations of other investors, 
including IRAs. The Department generally notes that, even if a 
transaction, at its inception, did not involve a violation of 
section 406(b)(1) or (b)(2) of the Act, if a divergence of interests 
develops between the IRA and the fiduciary (or persons in which the 
fiduciary has an interest), the fiduciary must take steps to 
eliminate the conflict of interest in order to avoid engaging in a 
prohibited transaction.
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    63. In the event IRA Holders' Investment Allocations are reduced, 
the Funds may be forced to redeem a portion of such IRA Holders' 
interests in New Medallion FF or New Kaleidoscope. The Applicant states 
that the size of such IRA Holders' redemption would correspond to the 
amount necessary to lower an IRA Holder's total investment in the Funds 
to comply with the limit imposed by his or her Investment Allocation. 
According to the Applicant, in the event that an IRA Holder had both an 
individual account and an IRA account invested in the Medallion Funds, 
he or she would generally be able to choose from where the redemption 
would come. Furthermore, the Applicant suggests that an IRA Holder 
should be able to redeem a portion of his or her IRA's interest without 
any adverse tax consequence by reinvesting the IRA in other assets.\39\
---------------------------------------------------------------------------

    \39\ In such case, an IRA Holder may desire to reallocate his or 
her IRA's investments to investments outside of the Funds or to the 
other new feeder funds for RIEF or RIFF that are designed to accept 
investment from Participants' IRAs and are not subject to Investment 
Allocations.
---------------------------------------------------------------------------

    64. Redemptions of IRAs' interests in the New Medallion Vehicles 
may also be necessary when IRA Holders terminate employment with 
Renaissance. According to the Applicant, when employees and owners of 
Renaissance terminate employment, they retain their Investment 
Allocations for a period of between 6 to 12 months following such 
termination, depending upon an employee's length of service and other 
negotiated terms of the employment arrangement. The Applicant states 
that an IRA would generally also be permitted to retain its interest in 
a New Medallion Vehicle for up to 12 months, and potentially as long as 
14 months or more, following the date of termination.
    65. Thereafter, the Applicant explains that IRA Holders could, in 
their sole discretion, transfer their IRAs' investments to RIEF or RIFF 
(but not the newly created feeder funds for such Funds), or redeemed 
outright in exchange for cash.\40\ Likewise, the Applicant states that, 
if a person ceases to be a Spouse, he or she is no longer eligible to 
invest in any New Vehicle and will be redeemed. Renaissance notes that 
such Funds are generally available to employees of Renaissance as 
investments past termination of their employment, but that IRA Holders' 
investments transferred to such Funds will be subject to the payment of 
management fees and profit participations in the same manner as such 
individual's taxable investments.\41\
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    \40\ The Applicant states that Renaissance generally desires to 
restrict the availability of fee-free investment in the New 
Medallion Vehicles and the new feeder funds for RIEF and RIFF to 
IRAs of current employees and owners of Renaissance (and such 
individuals' spouses).
    \41\ Notwithstanding the foregoing, the Applicant notes that 
there are seven Participants, the Permitted Owners, whose IRA 
investments (and those of their Spouses) would not be compulsorily 
redeemed from the New Medallion Vehicles upon their termination of 
employment with Renaissance, comprised of a group referred to as 
Renaissance ``founders'' and current owners who are also permitted 
to retain a reduced Investment Allocation.
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Valuations of IRAs' Interests in the New Medallion Vehicles

    66. According to Renaissance, the Medallion Funds are designed to 
trade highly diversified portfolios of liquid securities and other 
instruments traded on international exchanges or derivatives whose 
value is based on such liquid securities or instruments. The Applicant 
notes that to the extent that a Fund's assets are traded through OTC 
derivative products, the majority of those products follow the 
liquidity of the underlying assets.
    67. The Applicant emphasizes that Renaissance's valuation policies 
would apply equally to all investors, including IRA Holders. According 
to the Applicant, an acquisition or redemption of an IRA's interest in 
a New Medallion Vehicle would be made for fair market value. 
Renaissance explains that equity securities are valued at their last 
sale price or official closing price on the market on which such 
securities primarily trade using sources independent of Renaissance and 
the issuer. Furthermore, if no sales occurred on such day, equity 
securities are valued at the last reported independent ``bid'' price 
or, if sold short, at the last reported independent ``asked'' price. 
Fixed income securities are valued on either the basis of ``firm 
quotes'' obtained at the time of an acquisition or redemption from 
U.S.-registered or foreign broker-dealers, which are registered and 
subject to the laws of their respective jurisdiction, which quotes 
reflect the share volume involved in the transaction, or on the basis 
of prices provided by independent pricing services that determine 
valuations based on market transactions for comparable securities and 
various relationships between such securities that are generally 
recognized by institutional traders.

[[Page 3050]]

    68. Options are valued at the mean between the current independent 
``bid'' price and the current independent ``asked'' price or, where 
such prices are not available, are valued at their fair value in 
accordance with Fair Value Pricing Practices by the Renaissance 
Valuation Committee, which utilizes a set of defined rules and an 
independent review process. Except for derivative transactions 
described above, Renaissance states that the Funds generally do not 
invest in other non-publicly traded investments. However, in the very 
unlikely event that neither primary nor secondary pricing sources are 
available for a particular security or instrument, Renaissance would 
assess in good faith all information available in the market, including 
dealer quotations, and establish ``fair value'' according to their Fair 
Value Pricing Policies established by Renaissance Valuation Committee.
    69. The Applicant explains that the Renaissance Valuation Committee 
establishes valuation policies and provides a check and balance on the 
entire valuation process. Among other things, Renaissance states that 
it meets monthly with Renaissance's Fund Accounting Group, which is 
responsible for the daily valuation issues, interfaces with the Fund's 
auditors when necessary to assist the auditors in understanding certain 
valuations in connection with the auditors review of the Funds' 
financial statements, and keeps abreast of industry valuation standards 
in an attempt to assure that Renaissance follows ``best valuation 
practices.''
    70. According to the Applicant, Renaissance's Official Pricing 
Policy reflects Renaissance's judgment of best practices in the 
financial services industry for valuing various assets. The Applicant 
notes that the methodology utilized in establishing these policies 
involves constant reassessment and review to determine whether or not 
Renaissance's pricing sources and reliance thereon are fair and 
reasonable and consistent with practices of other firms and 
professionals in the financial services industry, and these policies 
attempt to be as objective and fair as they can be given the 
circumstances.
    71. The Applicant clarifies that, with respect to ``hard to value 
assets,'' the following guidelines generally will apply for stale or 
unpriced equity securities trading on U.S. or Foreign Exchanges:

    If the security has not been traded for a period of 30 days or 
less, then the last price from the pricing source as per the 
official pricing policy will be applied as the closing price.
    If the security has not traded for a period of more than 30 days 
but less than 60 days, then the last price from the pricing source 
as per the official pricing policy will be reduced by 50% and 
applied as the closing price.
    If the security has not traded for a period of more than 60 
days, then the last price from the pricing source as per the 
official pricing policy will be reduced by 90% and applied as the 
closing price.
    If a security has been delisted from an exchange, then the 
security will be marked to zero.
    If, from time to time, a quoted price is not available for a 
particular security, the RVC will establish a methodology for 
valuing the security, and the ultimate valuation is subject to 
approval by the Renaissance Technologies LLC Board of Directors.

    72. It is stressed by the Applicant that the RVC's pricing policies 
are not ad hoc. Rather, according the Applicant, the policies 
established to address hard to value assets are applied uniformly and 
equitably across all Funds at the same time. However, the Applicant 
explains that by definition, hard to value assets frequently will have 
their own unique circumstances that require flexibility and judgment to 
value them; and not rigid and inflexible rules. Thus, the Applicant 
notes that the policy is to obtain the best available information from 
leading data vendors and other pricing sources and to use that 
information to value these assets as fairly, equitably and uniformly as 
possible.\42\
---------------------------------------------------------------------------

    \42\ The Applicant notes that Renaissance's asset valuations are 
also reviewed by the Funds' auditors in connection with their 
certification of audited financial statements for the Funds under 
GAAP.
---------------------------------------------------------------------------

Statutory Findings

    73. According to the Applicant, the proposed exemption is 
administratively feasible because it is similar to other relief that 
the Department previously granted in Prohibited Transaction Exemption 
(PTE) 91-1 and PTE 2008-03,\43\ and the purchase of interests in the 
New Medallion Vehicles would be consummated at the discretion of the 
Participants and regulated by certain provisions of the 1940 Act and 
the 1933 Act, as described above.
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    \43\ PTE 2008-03, published in the Federal Register at 73 FR 
13582 (March 13, 2008), granted exemptive relief for (A) the 
acquisition, from an offshore corporation (the Offshore Corporation) 
of non-voting equity securities, representing an economic interest 
in the Offshore Corporation by an ERISA-covered client plan (the 
Client Plan), where the Offshore Corporation is a party in interest 
with respect to the Client Plan, due to the ownership of all of the 
voting equity shares of the Offshore Corporation by Wellington 
Global Administrator, Ltd., a subsidiary of Wellington Management, 
which is (or may become) a fiduciary and a service provider with 
respect to the Client Plan; and (B) the redemption of the Client 
Plan's Shares by the Offshore Corporation either in cash or in kind; 
and PTE 91-1, published in the Federal Register at 56 FR 448 
(January 4, 1991), granted exemptive relief for the acquisition, 
sale or redemption of limited partnership units between pension 
plans (the Plans) investing in the International Small Float Fund 
(the Fund) and PIM, the general partner of the Fund and a party in 
interest to the Plans.
---------------------------------------------------------------------------

    74. The Applicant further states that the proposed exemption is in 
the interest of the IRAs and their beneficiaries, because, if the 
Medallion Funds' investments continue to perform in a manner consistent 
with their historical returns, the IRAs will realize excellent 
investment returns compared to the alternatives previously available in 
the 401(k) Plan or otherwise in the marketplace. Furthermore, IRA 
Holders would be able to take advantage of those above-average 
investment returns on a tax-deferred (or in the case of a Roth IRA, 
tax-free), and a fee-free, basis.
    The Applicant offers that many investment management firms seek to 
permit their employees to invest in the investment products that they 
manage. In its conversations with the Department, the Applicant 
emphasized that it is motivated by goodwill in creating the New 
Medallion Vehicles to accept Participants' IRA investments, and that 
Renaissance will not benefit in any material sense from such 
transactions. In this regard, the Applicant observes that Renaissance 
will not charge or accept any fees or profit participations, and no 
compensatory benefit will be received by any owner or employee of 
Renaissance in connection with an IRA's investment in a New Medallion 
Vehicle.\44\
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    \44\ Renaissance notes that certain operating expenses of the 
New Medallion Vehicles payable to third parties will be paid from 
the assets of the New Medallion Vehicles, but nothing in the manner 
of management fees or performance allocations, direct or indirect, 
will accrue to the Applicant. Additionally, the underlying Funds in 
which the New Medallion Vehicles invest will incur substantial 
obligations to pay third party brokerage commissions, option 
premiums, and other transaction costs, regardless of whether the 
Funds realize any profits. Such expenses, as noted in certain of the 
Funds' ``Private Offering Memoranda,'' are significantly higher than 
those incurred by most other investment programs, due to the highly 
active nature of Renaissance's trading programs.
---------------------------------------------------------------------------

    In addition, according to the Applicant, no meaningful marketing 
benefit could inure to Renaissance through IRA Holders' purchasing of 
interests in the New Medallion Vehicles. The Applicant contends that 
current and potential third party investors are already well aware of 
the significant holdings by Applicant's own employees and directors in 
the Funds in such individuals' personal capacities. Renaissance states 
that the Medallion Funds are already virtually entirely owned by 
employees of Renaissance and their families.

[[Page 3051]]

    75. Finally, Renaissance states that the proposed exemption is 
protective of IRAs and their beneficiaries because all transactions 
would be required to be effected at the discretion of IRA Holders. 
Renaissance has not made, nor will it make, an endorsement or 
recommendation to Participants that they establish IRAs to invest any 
Proceeds in the New Medallion Vehicles. Moreover, Renaissance will not 
engage in any marketing activities intended to cause IRA Holders to 
consider such an investment or offer any financial or employment-
related incentive for IRA Holders to invest in the New Medallion 
Vehicles. Further, the Applicant contends that neither Renaissance nor 
any employee or owner of Renaissance will exercise any of its 
authority, control, or responsibility as a fiduciary of a New Medallion 
Vehicle to benefit itself or a person in which it has an interest which 
may affect the exercise of its best judgment as a fiduciary.
    The Applicant observes that no IRA Holder will be able to invest in 
a New Medallion Vehicle for a particular Fund unless he or she 
satisfies the securities law-based requirements for other investors in 
the same Fund. In addition, prior to and during an investment in the 
Funds, IRA Holders will receive written disclosures allowing them to 
make informed decisions regarding any determination to invest (or 
redeem) Proceeds in the Funds. The Applicant notes that each Medallion 
Fund's investment objectives, strategies, risks, and mechanics of 
maintaining an investment (including information about redemptions), 
are described in detail in the relevant offering document delivered to 
each investor. Renaissance points out that the Participants are 
comprised of a highly educated cadre of professionals with over 200 
combined Ph.D.'s in mathematics, physics, and statistics. Thus, they 
explain, the population of potential IRA Holders is on the whole more 
educated, and possibly more sophisticated, that the average investor, 
and thus better able to judge the merits of an investment in the Funds.
    The Applicant states that the risks involved in the proposed 
transactions are mitigated by several factors, including the Medallion 
Funds' broad investment diversification, the liquidity of most of the 
instruments that the Medallion Funds trade, and the quarterly liquidity 
afforded to each investor. Moreover, the Applicant represents that it 
is knowledgeable and experienced in the transactions contemplated by 
the Funds and has a significant record of positive investment returns. 
Moreover, only a relatively small amount of IRA assets would be 
invested through the New Medallion Vehicles, facilitating the valuation 
and ready redemption of such investments, in cash, upon the receipt of 
a redemption request.
    Finally, with respect to the investment by Participants in the New 
Medallion Vehicles through IRAs, the Applicant acknowledges that such 
investments may constitute investments by a ``pension plan'' within the 
meaning of Section 3(2) of the Act and the Applicant represents that, 
with respect to such investments, it will comply with all applicable 
requirements of Title I of the Act. Moreover, prior to the acquisition 
by an IRA of an interest in a New Medallion Vehicle, the Applicant 
states that it will submit to the jurisdiction of the federal and state 
courts located in the State of New York, take steps to facilitate the 
service of process by an IRA Holder, and submit itself to jurisdiction 
in the United States courts, in the event that an IRA Holder is 
required to exercise his or her rights pursuant to this exemption.

Summary

    76. In summary, the Applicant represents that the covered 
transactions will satisfy the statutory criteria for an exemption under 
section 408(a) of the Act and/or section 4975(c)(2) of the Code 
because:
    (a) An IRA's acquisition of an interest in a New Medallion Vehicle 
will only be made at the specific direction of an IRA Holder.
    (b) Renaissance will render no investment advice to IRA Holders 
concerning a potential acquisition of an interest in a New Medallion 
Vehicle and will not engage in marketing activities or offer 
employment-related incentives of any kind intended to cause IRA Holders 
to consider such acquisition.
    (c) An interest in a New Medallion Vehicle will only be available 
to IRA Holders who satisfy the securities law-based investor 
qualifications applicable to all investors in such New Medallion 
Vehicle.
    (d) No commissions, sales charges, or other fees or profit 
participations in the form of performance allocations or otherwise, 
direct or indirect, will be assessed against an IRA in connection with 
its acquisition and holding of an interest in a New Medallion Vehicle.
    (e) An IRA will pay no more and receive no less for its particular 
interest in any of the New Medallion Vehicles than it would in an arm's 
length transaction with an unrelated party.
    (f) An IRA's interest in a New Medallion Vehicle will be 
redeemable, in whole or in part, without the payment of any redemption 
fee or penalty, no less frequently than on a quarterly basis upon no 
less than 10 days advance written notice.
    (g) All acquisitions and redemptions by an IRA of its interest in a 
New Medallion Vehicle will be made for fair market value.
    (h) Redemption of an IRA's interest in a New Medallion Vehicle, in 
whole or in part, will be made in cash.
    (i) In the event that a redemption of any portion of an IRA 
Holder's interest in any of the Medallion Funds becomes necessary as 
the result of a reduction of the Investment Allocation applicable to an 
IRA Holder, then, at such IRA Holder's election, a redemption will 
first be made of the IRA Holder's taxable investments (if any) prior to 
his or her IRA's interest in a New Medallion Vehicle.
    (j) With respect to the investment in the New Medallion Vehicles 
through Participants' IRAs, Renaissance acknowledges that such 
investments may constitute investments by a ``pension plan'' within the 
meaning of section 3(2) of the Act, and the Applicant represents that, 
with respect to such investments, it will comply with all applicable 
requirements of Title I of the Act.
    (k) Renaissance will not use the fact that IRAs invested in the 
Funds in any marketing activities or publicity materials for the Funds.
    (l) In advance of the acquisition of an interest by an IRA in a New 
Medallion Vehicle, and periodically thereafter, the IRA Holder will 
receive certain disclosures and financial information related to the 
Funds, described herein, enabling such individual to make an informed 
decision regarding his or her investment in the Funds.
    (m) Renaissance, the New Medallion Vehicles, and each Fund or 
vehicle in which, or through which, a New Medallion Vehicle invests, 
will agree to the legal jurisdictional, service of process, and venue 
requirements described herein.
    (n) Renaissance will comply with the recordkeeping requirements 
provided herein to enable certain authorized persons to determine 
whether the conditions of the exemption have been met, for so long as 
such records are required to be maintained.

Notice to Interested Persons

    Notice of the proposed exemption will be given to interested 
persons within 3 days of the publication of the notice of proposed 
exemption in the Federal Register. The notice will be given to 
interested persons who are

[[Page 3052]]

current employees by electronic mail, with receipt of delivery 
requested (or its equivalent), and to other interested persons by 
overnight mail with proof of delivery required. Such notice will 
contain a copy of the notice of proposed exemption, as published in the 
Federal Register, and a supplemental statement, as required pursuant to 
29 CFR 2570.43(b)(2). The supplemental statement will inform interested 
persons of their right to comment on and/or to request a hearing with 
respect to the pending exemption. Written comments and hearing requests 
are due within 33 days of the publication of the notice of proposed 
exemption in the Federal Register.

FOR FURTHER INFORMATION CONTACT: Warren Blinder of the Department, 
telephone (202) 693-8553. (This is not a toll-free number.)

Weyerhaeuser Company (Weyerhaeuser) and Federalway Asset Management LP 
(Collectively, the Applicants)

Located in Federalway, Washington

[Application No. D-11677]

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: Specific Proposed Exemption Involving the Contribution In-
Kind

    If the proposed exemption is granted, the restrictions of sections 
406(a)(1)(A), 406(b)(1), 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) and 4975(c)(1)(E) of the Code,\45\ shall not 
apply, effective as of the date of the publication of a final exemption 
in the Federal Register, to the contribution in-kind by the 
Weyerhaeuser Company (Weyerhaeuser), the sponsor of the Weyerhaeuser 
Pension Plan (the Plan), of a bundle of assets (the Assets) owned by 
Weyerhaeuser Asset Management LLC (WAM), a wholly-owned subsidiary of 
Weyerhaeuser NR Company which is in turn a wholly-owned subsidiary of 
Weyerhaeuser, to the Weyerhaeuser Company Master Retirement Trust (the 
Master Trust); provided that the conditions, as set forth, below, in 
section IV, and the following conditions are satisfied:
---------------------------------------------------------------------------

    \45\ For purposes of this proposed exemption, references to 
specific provisions of Title I of the Act, unless otherwise 
specified, refer also to the corresponding provisions of the Code.
---------------------------------------------------------------------------

    (a) Prior to the execution and closing on the in-kind contribution 
of the Assets, an independent, qualified fiduciary (the I/F), as 
defined in section V(k), acting on behalf of the Master Trust, 
determines whether and on what terms to enter into the in-kind 
contribution of such Assets;
    (b) The I/F negotiates, reviews, and approves the specific terms 
and conditions of the in-kind contribution of the Assets and 
determines, prior to entering into such in-kind contribution, that such 
transaction is feasible, in the interest of, and protective of the 
Master Trust and its participants and beneficiaries;
    (c) The I/F takes the necessary steps to ensure compliance by 
Weyerhaeuser with the terms and conditions of the in-kind contribution 
of the Assets;
    (d) As of the date the Assets are contributed to the Master Trust, 
the contributed value of the Assets is equal to the fair market value 
of the Assets, as determined by the I/F;
    (e) The terms and conditions of the in-kind contribution of the 
Assets are no less favorable to the Master Trust than terms negotiated 
at arm's length under similar circumstances between unrelated parties;
    (f) The fair market value of the Assets will constitute less than 
one percent (1%) of the assets of the Master Trust at the time such 
Assets are contributed to the Master Trust;
    (g) The Master Trust incurs no commissions, fees, costs, or other 
charges and expenses in connection with the in-kind contribution of the 
Assets to the Master Trust;
    (h) The in-kind contribution of the Assets is a one-time 
transaction;
    (i) The fair market value of the Assets is not credited in the 
prefunding balance for purposes of calculating the minimum required 
contributions of Weyerhaeuser to the Plan;
    (j) Pursuant to the royalty interest agreement (the Royalty 
Agreement) with Federalway Asset Management LP (Newco), the Master 
Trust will be entitled to receive annual royalty payments in the amount 
of 12.5 percent (12.5%) on revenues of less than $25 million per year 
and 15 percent (15%) on revenues of more than $25 million per year; and
    (k) The termination of Newco as investment manager of the Master 
Trust will have no impact on the Master Trust's rights under the 
Royalty Agreement.

Section II: Specific Proposed Exemption Involving the Management by 
Newco of the Assets of Employee Benefit Plans

    Effective for a period of five (5) years, beginning on the date of 
the publication of a final exemption in the Federal Register and ending 
on the day which is five (5) years from such publication date, the 
restrictions of section 406(a)(1)(A) through (D) of the Act and the 
taxes imposed by section 4975(a) and (b) of the Code, by reason of 
section 4975(c)(1)(A) through (D) of the Code, shall not apply to:
    (a) Any transaction between a party in interest, as defined in 
section V(e), with respect to the Plan and the Master Trust in which 
such Plan has an interest; and any transaction between a party in 
interest, as defined in section V(e), with respect to any other 
employee benefit plan or employee benefit plans sponsored by 
Weyerhaeuser (the Other Plan(s)) and the Master Trust in which such 
Other Plan(s) have an interest; and
    (b) Any transaction between a party in interest, as defined in 
section V(e), and any employee benefit plan or any employee benefit 
plans, as defined in section V(i), (the Client Plan(s)), where such 
Client Plan has engaged Newco to act as investment manager within the 
meaning of section 3(38) of the Act, or where such Client Plan is 
invested in a collective investment vehicle managed by Newco, the 
assets of which are treated as plan assets under section 3(42) of the 
Act; provided that:
    (1) Newco has discretionary authority or control with respect to 
the assets of the Plan, the assets of the Other Plan(s), or the assets 
of the Client Plan(s) which are invested in an investment fund (a 
Managed Account) involved in any such transaction;
    (2) Newco satisfies the definition, as set forth, below, in section 
V(a)of this exemption; and
    (3) The conditions as set forth, below, in section III, and section 
IV, are satisfied.

Section III: Specific Conditions Applicable to Transactions Described 
in Section II of This Proposed Exemption

    (a) At the time of the transaction, as defined in section V(h), 
neither the party in interest, as defined in section V(e), nor any 
affiliate, as defined in section V(b):
    (1) Has the authority to appoint or terminate Newco as a manager of 
the Managed Account involved in the transaction, or
    (2) Has the authority to negotiate on behalf of the Plan, the Other 
Plan(s), or the Client Plan(s), the terms of the management agreement 
with Newco

[[Page 3053]]

(including renewals or modifications thereof) with respect to the 
Managed Account involved in the transaction.
    Notwithstanding the foregoing, in the case of a Managed Account in 
which two (2) or more unrelated plans, as defined in section V(i), have 
an interest, a transaction with a party in interest, as defined in 
section V(e), with respect to a plan will be deemed to satisfy the 
requirements of section III(a), if the assets of the plan managed by 
Newco in the Managed Account, when combined with the assets of other 
plans established or maintained by the same employer (or affiliate 
thereof, as described in section V(b)(1)) or by the same employee 
organization, and managed in the same Managed Account, represent less 
than 10 percent (10%) of the assets of the Managed Account;
    (b) The transaction is not described in--
    (1) Prohibited Transaction Exemption 2006-16 (71 FR 63786; October 
31, 2006) (relating to securities lending arrangements) (as amended or 
superseded),
    (2) Prohibited Transaction Exemption 83-1 (48 FR 895; January 7, 
1983) (relating to acquisitions by plans of interests in mortgage 
pools) (as amended or superseded), or
    (3) Prohibited Transaction Exemption 82-87 (47 FR 21331; May 18, 
1982) (relating to certain mortgage financing arrangements) (as amended 
or superseded);
    (c) The terms of the transaction are negotiated on behalf of the 
Managed Account by, or under the authority and general direction of, 
Newco, and either Newco, or (so long as Newco retains full fiduciary 
responsibility with respect to the transaction) a property manager 
acting in accordance with written guidelines established and 
administered by Newco, makes the decision on behalf of the Managed 
Account to enter into the transaction, provided that the transaction is 
not part of an agreement, arrangement, or understanding designed to 
benefit a party in interest, as defined in section V(e);
    (d) The party in interest, as defined in section V(e), dealing with 
the Managed Account is neither Newco nor a person related to Newco, 
within the meaning of section V(g);
    (e) At the time the transaction is entered into, and at the time of 
any subsequent renewal or modification thereof that requires the 
consent of Newco, the terms of the transaction are at least as 
favorable to the Managed Account as the terms generally available in 
arm's length transactions between unrelated parties;
    (f) Neither Newco nor any affiliate thereof, as defined in section 
V(c), nor any owner, direct or indirect, of a 5 percent (5%) or more 
interest in Newco is a person who within the ten (10) years immediately 
preceding the transaction has been either convicted or released from 
imprisonment, whichever is later, as a result of:
    (1) Any felony involving abuse or misuse of such person's employee 
benefit plan position or employment, or position or employment with a 
labor organization;
    (2) Any felony arising out of the conduct of the business of a 
broker, dealer, investment adviser, bank, insurance company, or 
fiduciary;
    (3) Income tax evasion;
    (4) Any felony involving the larceny, theft, robbery, extortion, 
forgery, counterfeiting, fraudulent concealment, embezzlement, 
fraudulent conversion, or misappropriation of funds or securities;
    (5) Conspiracy or attempt to commit any such crimes or a crime in 
which any of the foregoing crimes is an element; or
    (6) Any other crime described in section 411 of the Act. For 
purposes of this section III(f), a person shall be deemed to have been 
``convicted'' from the date of the judgment of the trial court, 
regardless of whether that judgment remains under appeal.

Section IV--General Requirements Applicable to Transactions Described 
in Section I and Section II of This Proposed Exemption

    (a) Newco or an affiliate, as defined in section V(l), maintains or 
causes to be maintained within the United States, for a period of six 
(6) years from the date of each covered transaction, the records 
necessary to enable the persons described, below, in section 
IV(b)(1)(A)-(E), to determine whether the conditions of this proposed 
exemption have been met, except that:
    (1) a separate prohibited transaction will not be considered to 
have occurred solely because, due to circumstances beyond the control 
of Newco and/or its affiliates, as defined in section V(l), the records 
are lost or destroyed prior to the end of the six (6) year period, and
    (2) No party in interest or disqualified person, as defined in 
section V(e), other than Newco, 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 
section IV(b)(1).
    (b)(1) Except as provided in section IV(b)(2), and notwithstanding 
any provisions of subsections (a)(2) and (b) of section 504 of the Act, 
the records referred to, above, in section IV(a) are unconditionally 
available for examination at their customary location during normal 
business hours by:
    (A) Any duly authorized employee or representative of the 
Department or of the Internal Revenue Service;
    (B) Any fiduciary of the Plan, any fiduciary of any Other Plan(s), 
any fiduciary of any Client Plan(s), and any duly authorized 
representative of such fiduciary;
    (C) Any contributing employer to the Plan, any contributing 
employer to any Other Plan(s), any contributing employer to any of the 
Client Plan(s), and any duly authorized employee representative of such 
contributing employer;
    (D) Any participant or beneficiary of the Plan, any participant or 
beneficiary of any Other Plan(s), any participant or beneficiary of any 
Client Plan(s), and any duly authorized representative of such 
participants or beneficiaries; and
    (E) Any employee organization whose members are covered by the 
Plan, any employee organization whose members are covered by the Other 
Plan(s), and any employee organization whose members are covered by any 
Client Plan(s);
    (2) None of the persons, described in section IV(b)(1)(B) through 
(E), shall be authorized to examine trade secrets of Newco or its 
affiliates, as defined in section V(l), or commercial or financial 
information which is privileged or confidential.

Section V--Definitions

    (a) For purposes of this proposed exemption, the term, Federalway 
Asset Management LP, and the term, ``Newco,'' means a fiduciary (as 
defined in section V(j)) which is an investment adviser registered 
under the Investment Advisers Act of 1940 that has total client assets 
under its management and control in excess of $85,000,000, as of the 
date Newco commences operations, and shareholders' or partners' equity 
(as defined in section V(m) in excess of $1,000,000.
    (b) For purposes of section III(a), an ``affiliate'' of a person 
means--
    (1) Any person directly or indirectly, through one or more 
intermediaries, controlling, controlled by, or under common control 
with the person,
    (2) Any corporation, partnership, trust or unincorporated 
enterprise of which such person is an officer, director, 10 percent 
(10%) or more partner, or highly compensated employee as defined in 
section 4975(e)(2)(H) of the Code (but

[[Page 3054]]

only if the employer of such employee is the plan sponsor), and
    (3) Any director of the person or any employee of the person who is 
a highly compensated employee, as defined in section 4975(e)(2)(H) of 
the Code, or who has direct or indirect authority, responsibility or 
control regarding the custody, management or disposition of plan assets 
involved in the transaction. A named fiduciary (within the meaning of 
section 402(a)(2) of the Act) of a plan with respect to the plan assets 
involved in the transaction and an employer any of whose employees are 
covered by the plan will also be considered affiliates with respect to 
each other for purposes of section III(a), if such employer or an 
affiliate of such employer has the authority, alone or shared with 
others, to appoint or terminate the named fiduciary or otherwise 
negotiate the terms of the named fiduciary's employment agreement.
    (c) For purposes of section III(f), an ``affiliate'' of a person 
means--
    (1) Any person directly or indirectly through one or more 
intermediaries, controlling, controlled by, or under common control 
with the person,
    (2) Any director of, relative of, or partner in, any such person,
    (3) Any corporation, partnership, trust or unincorporated 
enterprise of which such person is an officer, director, or a 5 percent 
(5%) or more partner or owner, and
    (4) Any employee or officer of the person who--
    (A) Is a highly compensated employee (as defined in section 
4975(e)(2)(H)) or officer (earning 10 percent (10%) or more of the 
yearly wages of such person), or
    (B) Has direct or indirect authority, responsibility or control 
regarding the custody, management or disposition of plan assets.
    (d) For purposes of section V(b), section V(c), and section V(l), 
the term, ``control,'' means the power to exercise a controlling 
influence over the management or policies of a person other than an 
individual.
    (e) For purposes of this proposed exemption, the term, ``party in 
interest,'' means a person described in section 3(14) of the Act and 
includes a ``disqualified person,'' as defined in Code section 
4975(e)(2).
    (f) For purposes of section V(c)(2) and section V(l)(2), the term, 
``relative,'' means a relative as that term is defined in section 3(15) 
of the Act, or a brother, a sister, or a spouse of a brother or sister.
    (g) Newco is ``related'' to a party in interest for purposes of 
section III(d), if, as of the last day of its most recent calendar 
quarter: (i) Newco owns a 10 percent (10%) or more interest in the 
party in interest; (ii) a person controlling, or controlled by, Newco 
owns a 20 percent (20%) or more interest in the party in interest; 
(iii) the party in interest owns a 10 percent (10%) or more interest in 
Newco; or (iv) a person controlling, or controlled by, the party in 
interest owns a 20 percent (20%) or more interest in Newco. 
Notwithstanding the foregoing, a party in interest is ``related'' to 
Newco if: (i) A person controlling, or controlled by, the party in 
interest has an ownership interest that is less than 20 percent (20%) 
but greater than 10 percent (10%) in Newco and such person exercises 
control over the management or policies of Newco by reason of its 
ownership interest; (ii) a person controlling, or controlled by, Newco 
has an ownership interest that is less than 20 percent (20%) but 
greater than 10 percent (10%) in the party in interest and such person 
exercises control over the management or policies of the party in 
interest by reason of its ownership interest. For purposes of this 
definition:
    (1) The term ``interest'' means with respect to ownership of an 
entity--
    (A) The combined voting power of all classes of stock entitled to 
vote or the total value of the shares of all classes of stock of the 
entity if the entity is a corporation,
    (B) The capital interest or the profits interest of the entity if 
the entity is a partnership, or
    (C) The beneficial interest of the entity if the entity is a trust 
or unincorporated enterprise; and
    (2) A person is considered to own an interest if, other than in a 
fiduciary capacity, the person has or shares the authority--
    (A) To exercise any voting rights or to direct some other person to 
exercise the voting rights relating to such interest, or
    (B) To dispose or to direct the disposition of such interest.
    (h) For purposes of this proposed exemption, the time as of which 
any transaction occurs is the date upon which the transaction is 
entered into. In addition, in the case of a transaction that is 
continuing, the transaction shall be deemed to occur until it is 
terminated. If any transaction is entered into on or after the date of 
the publication of the final exemption in the Federal Register or a 
renewal that requires the consent of the Newco occurs on or after the 
date of the publication of the final exemption in the Federal Register, 
and the requirements of the final exemption are satisfied at the time 
the transaction is entered into or renewed, respectively, the 
requirements will continue to be satisfied thereafter with respect to 
the transaction. Nothing in this paragraph shall be construed as 
exempting a transaction entered into by a Managed Account which becomes 
a transaction described in section 406 of the Act or section 4975 of 
the Code while the transaction is continuing, unless the conditions of 
the final exemption were met either at the time the transaction was 
entered into or at the time the transaction would have become 
prohibited but for the final exemption.
    (i) For purposes of this proposed exemption, the terms, ``employee 
benefit plan'' and ``plan,'' include an employee benefit plan described 
in section 3(3) of the Act and/or a plan described in section 
4975(e)(1) of the Code, but do not include a plan sponsored by Newco or 
any affiliate of Newco.
    (j) For purposes of section V(a), the term ``fiduciary'' means a 
fiduciary managing the assets of a plan, as defined in section V(i), in 
a Managed Account that is independent of and unrelated to the employer 
sponsoring such plan. For purposes of this proposed exemption, a 
fiduciary will not be deemed to be independent of and unrelated to the 
employer sponsoring the plan, if such fiduciary directly or indirectly 
controls, is controlled by, or is under common control with the 
employer sponsoring the plan.
    (k) For purposes of section I, the term, ``I/F,'' means a fiduciary 
that:
    (1) Can demonstrate, through experience and/or education, 
proficiency in matters involving the in-kind contribution of assets, 
including assets such as the Assets which are the subject of section I 
of this proposed exemption;
    (2) Is an expert with respect to the valuation of assets, such as 
the Assets, or has the ability to access (itself or through persons 
engaged by it) appropriate data regarding the value of assets, such as 
the Assets, in the relevant market;
    (3) Has not engaged in any criminal activity involving fraud, 
fiduciary standards, or securities law violations;
    (4) Is appointed to act on behalf of the Master Trust for all 
purposes related to in-kind contribution of the Assets; and
    (5) Is independent of and unrelated to Weyerhaeuser and its 
affiliates, as defined, below, in section V(l). For purposes of this 
proposed exemption, a fiduciary will not be deemed to be independent of 
and unrelated to Weyerhaeuser and its affiliates if:
    (i) Such fiduciary directly or indirectly controls, is controlled 
by, or is under common control with

[[Page 3055]]

Weyerhaeuser and its affiliates, as defined, below, in section V(l),
    (ii) Such fiduciary directly or indirectly receives any 
compensation or other consideration in connection with any of the 
transactions described in this proposed exemption; except that an I/F 
may receive compensation for acting as an I/F in connection with the 
transactions contemplated herein, if the amount or payment of such 
compensation is not contingent upon or in any way affected by the I/F's 
ultimate decisions, and
    (iii) The annual gross revenue from Weyerhaeuser and its 
affiliates, as defined, below, in section V(l), received by such 
fiduciary, during any year of its engagement, does not exceed one 
percent (1%) of such fiduciary's annual gross revenue from all sources 
for its prior tax year.
    (l) For purposes of section IV(a) and section V(k), the term, 
``affiliate,'' means:
    (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 of any 
such person; and
    (3) Any corporation or partnership of which such person is an 
officer, director, partner, or employee.
    (m) For purposes of section V(a), the term ``shareholders' or 
partners' equity'' means the equity shown in the balance sheet, as of 
the date Newco commences operations, prepared in accordance with 
generally accepted accounting principles.

Temporary Nature of the Exemption

    Effective Date: With regard to the transaction described in section 
I, the Department has determined that the relief proposed with respect 
to such transaction shall be effective, as of the date of the 
publication of the final exemption in the Federal Register.
    With regard to the transactions described in section II, the 
Department has determined that the relief proposed with respect such 
transactions is temporary in nature, and, if granted, shall be 
effective, beginning on the date of the publication of the final 
exemption in the Federal Register and ending on the day which is five 
(5) years from the date of the publication of the final exemption in 
the Federal Register. Accordingly, relief described in this proposed 
exemption, if granted, with respect to the transactions described in 
section II will not be available upon the expiration of such five-year 
period for any new or additional transactions, as described herein, 
after such date, but would continue to apply beyond the expiration of 
such five-year period for continuing transactions entered into within 
the five-year period; provided that the conditions of this proposed 
exemption, if granted, continue to be satisfied. Should the applicant 
wish to extend, beyond the expiration of such five-year period, the 
relief provided for new or additional transactions, as described in 
section II, the Applicants may submit another application for 
exemption. In this regard, the Department expects that prior to filing 
another exemption application seeking relief for new or additional 
transactions, as described in section II, the Applicants should be 
prepared to demonstrate compliance with the conditions of the final 
exemption.

Summary of Facts and Representations

    1. The Plan is a non-contributory defined benefit pension plan tax-
qualified under section 401(a) of the Code. As of June 1, 2011, the 
date the Applicants filed the application for exemption, the Plan is 
the sole defined benefit pension plan sponsored by Weyerhaeuser. The 
Plan is maintained for salaried employees of Weyerhaeuser and 
participating subsidiaries. The Plan also covers certain hourly 
employees. In this regard, the Weyerhaeuser Company Retirement Plan for 
Hourly Rated Employees and the Weyerhaeuser Company Retirement Plan for 
Salaried Employees were merged, effective December 31, 2010, and were 
renamed the Weyerhaeuser Pension Plan, which is the Plan that is 
subject to this proposed exemption. As of January 1, 2011, the Plan had 
75,607 participants.
    It is represented that, as of December 31, 2010, the Plan had 
assets with a fair market value of $4.235 billion, with projected 
benefit obligations of $4.233 billion, and with a funded ratio of 
100.47%. In this regard, it is represented that the Plan is fully-
funded as of January 2008, 2009, 2010. Further, the Plan has no minimum 
required contribution due in 2011.
    2. Established in 1900, Weyerhaeuser (NYSE: WY) operates in 10 
countries, primarily in the United States and Canada. Weyerhaeuser's 
four major business segments span nearly all aspects of the forest 
products industry, including cellulose fibers, real estate, 
timberlands, and wood products. In this regard, Weyerhaeuser manages 
20.5 million acres of forests and generated approximately $6.6 billion 
in net sales in 2010. As the sponsor of the Plan, Weyerhaeuser is a 
party in interest with respect to the Plan, pursuant to section 
3(14)(C) of the Act.
    3. The named fiduciary for the Plan, within the meaning of section 
402(a)(2) of the Act, is an investment committee (the Investment 
Committee). As a fiduciary with respect to the Plan, the Investment 
Committee is a party in interest, pursuant to section 3(14)(A) of the 
Act. Plan administration and investment monitoring are the 
responsibilities of the administrative committee and the Investment 
Committee, respectively. Certain employees of Weyerhaeuser and its 
subsidiaries serve as members of these two (2) committees. The Chairman 
of the Investment Committee is a retired employee of and currently a 
consultant to Weyerhaeuser.
    4. The assets of the Plan are held in a Master Trust. The Master 
Trust is qualified under the Code and is exempt from federal income 
taxes. The Plan received a favorable determination letter from the 
Internal Revenue Service (IRS), dated October 28, 2005. The Plan has 
been amended and restated since that date. However, it is the opinion 
of Weyerhaeuser that the Plan, as amended and restated, meets the Code 
requirements; and that therefore, the Master Trust continues to be tax 
exempt.
    The Master Trust has total assets, as of December 31, 2010, of 
approximately $4.235 billion. As of June 1, 2011, the Plan is the only 
plan funded by the Master Trust. The trustee of the Master Trust is 
Bank of New York Mellon Corporation. The custodian for the group 
annuity contract held in the Master Trust is Metropolitan Life 
Insurance Company.
    5. During 2008 and 2009, Morgan Stanley Investment Management, Inc. 
(Morgan Stanley), and Northwater Capital Management Inc. (Northwater), 
and WAM acted as investment managers of the assets of the Plan in the 
Master Trust. It is represented that Morgan Stanley and Northwater each 
qualify as qualified professional asset managers (QPAMs) under 
Prohibited Transaction Exemption 84-14 (PTE 84-14).G \46\ Effective 
July 1, 2009, Northwater's investment management duties were 
transferred to WAM.
---------------------------------------------------------------------------

    \46\ 49 FR 9494, March 13, 1984, as corrected at 50 FR 41430, 
October 10, 1985, amended at 70 FR 49305, August 23, 2005, and 
amended at 75 FR 38837 (July 6, 2010).
---------------------------------------------------------------------------

    WAM provides a broad array of investment advisory and investment 
management services to the Master Trust. It is represented that WAM is 
a registered investment adviser with the Securities and Exchange 
Commission under the Investment Advisers Act of 1940, as amended. It is 
further

[[Page 3056]]

represented that WAM qualifies as an in-house asset manager (INHAM) 
within the meaning of Prohibited Transaction Exemption 96-23.\47\ If 
the proposed exemption is granted, it is represented that WAM will 
cease to be an investment manager for the Master Trust.
---------------------------------------------------------------------------

    \47\ 61 FR 15975, April 10, 1996, amended at 76 FR 18255 (April 
1, 2011).
---------------------------------------------------------------------------

    As the current investment managers with respect to the assets of 
the Plan, Morgan Stanley and WAM are fiduciaries, pursuant to section 
3(21)(A) of the Act and are parties in interest with respect to the 
Plan, pursuant to section 3(14)(A) of the Act. Further, Morgan Stanley 
and WAM, as service providers to the Plan, are parties in interest with 
respect to the Plan, pursuant to section 3(14)(B) of the Act. As a 
wholly-owned subsidiary of a wholly-owned affiliate of Weyerhaeuser, 
WAM is also a party in interest with respect to the Master Trust, 
pursuant to 3(14)(G) of the Act.

The In-Kind Contribution of Assets to the Plan

    6. Section I of this proposed exemption describes an in-kind 
contribution of assets. Specifically, Weyerhaeuser proposes to 
contribute in-kind to the Master Trust certain Assets which are owned 
by WAM. It is represented that the proposed contribution of the Assets 
will not be used to reduce Weyerhaeuser's cash contributions to the 
Plan. In this regard, it is represented that the fair market value of 
the Assets will not be credited in the prefunding balance for purposes 
of calculating minimum required contributions by Weyerhaeuser to the 
Plan.
    As Weyerhaeuser is the sponsor of the Plan, the Applicants are 
concerned that the in-kind contribution of the Assets by Weyerhaeuser 
to the Master Trust could be viewed as a prohibited transaction, 
pursuant to section 406(a)(1)(A) of the Act for which an exemption 
would be needed.\48\ Further, as both WAM and Weyerhaeuser are parties 
in interest with respect to the Plan, the in-kind contribution to the 
Master Trust by Weyerhaeuser of the Assets owned by WAM raises issues 
of conflict of interest for which the Applicants have requested relief 
from sections 406(b)(1) and 406(b)(2) of the Act.
---------------------------------------------------------------------------

    \48\ The Applicants site to Advisory Opinion 81-69A (July 28, 
1981) in which the Department determined that in-kind contributions 
of property to a defined benefit pension plan would be a prohibited 
sale or exchange of property between a plan and a party in interest 
under section 406(a)(1)(A) of the Act, because such in-kind 
contribution would constitute a discharge by the employer of its 
legal obligation to make a yearly cash contribution to such plan.
---------------------------------------------------------------------------

    The Assets arise from WAM's management of the assets of the Master 
Trust and WAM's management of the assets of the Weyerhaeuser Company 
Limited Master Trust (the Canadian Trust), established in connection 
with Weyerhaeuser's Canadian pension plans. The Assets include: (1) A 
limited right to disclose the ``Weyerhaeuser'' name; (2) access to 
WAM's historical investment performance calculations and related work 
papers; (3) access to the books and records of the Canadian Trust; (4) 
certain business contracts; (5) computers, scanners, printers, MFD's, 
polycom video conference hardware; (6) office furniture and fixtures; 
(7) information filed within personal hard drives and filed within 
shared drives of transferring employees; (8) various newsletters, 
publications, reviews, analysis, and reports; (9) books, studies, 
research articles, and publications purchased by WAM; and (10) various 
analytical models, spread sheets, and periodic reports. It is 
represented that, if this proposed exemption is granted, the fair 
market value of the Assets when contributed in-kind to the Master Trust 
will constitute less than one percent (1%) of the assets of the Master 
Trust.
    7. The Assets contributed in-kind by WAM and certain other property 
owned by the Master Trust, including performance backup books and 
records relating to WAM's management of the Master Trust (collectively, 
the Licensed Assets) will be licensed by the Master Trust under the 
Royalty Agreement with Newco. Newco will be permitted to market the 
track record of WAM and may refer to the management by certain WAM 
personnel of all or a portion of the Master Trust when marketing to 
other clients. Pursuant to the Royalty Agreement, the Master Trust will 
be entitled to receive annual royalty payments of a specified 
percentage \49\ of Newco's revenue, other than any revenue received by 
Newco relating to Newco's management of the assets of the Plan invested 
in the Master Trust.
---------------------------------------------------------------------------

    \49\ It is represented that the specified percentage would be 
12.5% on revenues of less than $25 million per year and 15% on 
revenues of more than $25 million per year.
---------------------------------------------------------------------------

    In accordance with section 3.4 of the Royalty Agreement, commencing 
on December 31, 2018, the Master Trust could elect to require Newco to 
purchase the royalty interest and the Licensed Assets (the Put) in 
exchange for payment within a certain time frame of an amount based 
upon a specific formula, as set forth in the Royalty Agreement. Under 
the terms of the Put, proceeds equal to four (4) times the prior year's 
royalty payment are payable no later than 180 days following the ``put 
option measurement date.'' The ``put option measurement date'' is 
generally the December 31st following the one year anniversary of the 
date on which the Master Trust gives notice of its intent to exercise 
the Put, but in no event earlier than December 31, 2020. The Investment 
Committee would be responsible for exercising the Put.
    In accordance with section 3.3 of the Royalty Agreement, commencing 
on December 31, 2020, Newco could elect to require the Master Trust to 
sell the royalty interest and the Licensed Assets to Newco (the Call) 
in exchange for payment within a certain time frame of an amount based 
upon a specific formula, as set forth in the Royalty Agreement. Under 
the terms of the Call, proceeds equal to five (5) times the prior 
year's royalty payment are payable no later than 180 days following the 
``call option measurement date.'' The ``call option measurement date'' 
is generally the December 31st following the one year anniversary of 
the date on which Newco gives notice of its intent to exercise the 
Call, but in no event earlier than December 31, 2022. A majority of the 
Board of Directors of Federalway Asset Management GP LLC (the Newco GP) 
would be responsible for exercising the Call. The Royalty Agreement, 
pursuant to section 3.6 therein, also makes provision for Newco to 
charge back-end fees to the Master Trust.\50\
---------------------------------------------------------------------------

    \50\ The Applicants have not requested any relief from the 
prohibited transactions provision of the Act, with respect to the 
entry into the Royalty Agreement between Newco and the Master Trust, 
nor have the Applicants requested any relief for the operation of 
the terms of such agreement, including the exercise of the Put, or 
the exercise of the Call, and the receipt by Newco of back-end fees. 
In the opinion of the Applicants, Newco is not a fiduciary to the 
Master Trust with respect to the decision by the Master Trust to 
enter into the Royalty Agreement nor with respect to the operation 
of the Royalty Agreement, the exercise of the Put, the exercise of 
the Call, or the receipt of back-end fees, all of which the 
Applicants maintain are independent rights that are unconnected with 
any determination of whether the Master Trust becomes or remains a 
client of Newco. The Investment Committee and Newco represent that 
they are comfortable that the terms of the Royalty Agreement 
represent an arm's-length transaction and that the consideration, as 
set forth in the Royalty Agreement represents fair market value. 
Accordingly, the Investment Committee and Newco intend to rely on 
the relief provided by the statutory exemption, as set forth in 
section 408(b)(17) of the Act with respect to the decision by the 
Master Trust to enter into the Royalty Agreement, and with respect 
to the operation of the Royalty Agreement, the exercise of the Put, 
the exercise of the Call, and the receipt of back-end fees by Newco. 
The Department, herein, is offering no view as to the Applicant's 
reliance on the statutory exemption, as set forth in section 
408(b)(17) of the Act, for such transactions, nor is the Department 
offering any view, as to whether the Applicants satisfy the 
conditions, as set forth in such statutory exemption. Further, the 
Department, herein, is not providing any relief with regard to the 
entry into the Royalty Agreement, nor is the Department providing 
any relief, herein, with regard to the operation of terms of the 
Royalty Agreement, including the Put, the Call, and the back-end 
fees.

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

[[Page 3057]]

    8. The Applicants represent that the in-kind contribution of the 
Assets to the Master Trust, as described in section I of the proposed 
exemption, is administratively feasible in that such in-kind 
contribution will be a one-time transaction. The Applicants represent 
further that the transaction, as described in section I of this 
proposed exemption, is feasible, as the Applicants will be required to 
maintain records necessary to enable the Department and the IRS and 
other interested parties to determine whether the conditions of this 
proposed exemption, if granted, have been met.
    9. The Applicants represent that the transaction, described in 
section I of the proposed exemption, is protective of the rights of 
participants and beneficiaries of the Plan, because Evercore Trust 
Company, N.A. (Evercore Trust) has been retained by Weyerhaeuser and by 
the Investment Committee, pursuant to a written agreement (the 
Agreement), dated June 9, 2011, to serve as the I/F, who will act on 
behalf of the Plan with respect to the contribution in-kind of the 
Assets.
    Evercore Trust's responsibilities, pursuant to such Agreement, are 
to: (a) Determine whether to accept on behalf of the Plan the 
contribution in-kind of the Assets, subject to the Department's grant 
of a final exemption; (b) prepare the valuation of the current fair 
market value of the Assets; (c) negotiate on behalf of the Plan the 
terms and conditions of the contribution in-kind of the Assets; and (d) 
render an opinion in the form of a report suitable for submission to 
the Department in connection with the application for exemption. In 
addition, it is represented that Evercore Trust will take the necessary 
steps to ensure compliance by Weyerhaeuser with the terms and 
conditions of the in-kind contribution of the Assets. Further, as of 
the date the Assets are contributed to the Master Trust, the 
contributed value of the Assets will be equal to the fair market value 
of the Assets, as determined by Evercore Trust.
    The Applicants represent that Evercore Trust is qualified to serve 
as the independent fiduciary in connection with the proposed in-kind 
contribution of the Assets. In this regard, Evercore Trust is a 
nationally chartered trust bank with 12.8 billion in assets under 
management. Evercore Trust is a subsidiary of Evercore Partners, Inc. 
(NYSE:EVR) which provides specialized investment management, 
independent fiduciary, and trustee services to employee benefit plans. 
Charles E. Wert and Norman P. Goldberg at Evercore Trust lead a multi-
disciplinary team of 29 professionals, including relationship managers, 
plan administrators, financial analysts, and in-house legal counsel.
    Evercore Trust represents that it is independent and unrelated to 
Weyerhaeuser and the Investment Committee. In this regard: (a) Evercore 
Trust does not directly or indirectly control, is not controlled by, 
and is not under common control with, Weyerhaeuser; (b) neither is 
Evercore Trust nor any of its officers, directors, or employees an 
officer, director, partner, or employee of Weyerhaeuser (nor a relative 
of such persons); (c) Evercore Trust may receive compensation from 
Weyerhaeuser only for performing the services for acting as the I/F, as 
described in the Agreement, as long as the amount of such payment is 
not contingent upon or in any way affects such services; and (d) the 
annual compensation received by Evercore Trust, pursuant to the 
Agreement, does not exceed one percent (1%) of annual gross revenue of 
Evercore Trust.
    Evercore Trust represents that it understands and acknowledges its 
duties and responsibilities under ERISA in acting as the I/F on behalf 
of the Plan in connection with the in-kind contribution of the Assets. 
In this regard, Evercore Trust represents that it is required to act 
solely in the interest of the Plan's participants and beneficiaries 
with care, skill, and prudence in discharging its obligations.
    It is represented that Evercore Trust conducted a thorough due 
diligence process in evaluating the proposed in-kind contribution of 
the Assets. In this regard, the due diligence process involved a number 
of meetings with personnel from Weyerhaeuser, WAM, Lindsay Goldberg, 
and the Applicants' outside counsel. These meetings were conducted in 
person by Evercore Trust in an on-site visit with Weyerhaeuser and WAM 
personnel in Federal Way, WA on September 27, 2011, as well as via 
email and telephone conference calls. It is represented that these 
sessions enabled Evercore Trust to understand a number of important 
elements related to the in-kind contribution of the Assets, including 
the investment performance of WAM, the Plan's funded status, the 
projections for Newco, and the estimated cash flow to be generated by 
the Royalty Agreement. In addition, Evercore Trust reviewed and relied 
on a variety of information provided by Weyerhaeuser, represented to be 
accurate and complete in all material respects. In addition, Evercore 
Trust independently gathered and reviewed additional information that 
was publicly available.
    In evaluating whether to accept the in-kind contribution of the 
Assets on behalf of the Plan, Evercore Trust determined that the Plan 
would receive significant monetary benefits associated with such 
Assets. In this regard, once Newco is retained by the Client Plans, the 
Plan would accrue royalty payments. Based on the Royalty Agreement and 
certain base case projections for Newco (the Base Case 
Projections),\51\ the Assets would generate $1.3 million in royalty 
payments in year three (3) after start up. Based on the Base Case 
Projections and reasonable assumptions, Evercore Trust has projected 
that the Plan would receive between $17 million and $24.8 million in 
total royalty payments excluding any revenue received from the exercise 
of the Put or the Call. In addition, the Plan would receive proceeds 
associated with the expected exercise of either the Put or the Call. 
Based on the Base Case Projections and reasonable assumptions, Evercore 
Trust has projected that the Plan would receive either $13.2 million 
from the exercise of the Put in year nine (9) after start up or $18.9 
million from the exercise of the Call in year eleven (11) after start 
up. Based on these calculations the Plan would receive between $30.2 
million and $43.7 million in total proceeds generated by the Assets 
over these timeframes.
---------------------------------------------------------------------------

    \51\ Newco management prepared pro forma projections for Newco 
for six (6) years based on WAM's track record, cost structure, 
discussions with potential clients of Newco, and general industry 
conditions. As the Base Case Projections were prepared for Newco as 
a consolidated business, Evercore Trust reviewed all the revenue and 
cost assumptions underlying the Base Case Projections and concluded 
such assumptions were reasonable.
---------------------------------------------------------------------------

    With respect to diversification, to the extent that the returns 
generated by the Assets were uncorrelated to the returns generated by 
the Master Trust's investment portfolio, the in-kind contribution of 
the Assets would potentially reduce volatility for the Plan.
    With respect to Plan funding, the Plan does not have a required 
minimum contribution due in 2011. In this regard, it is represented 
that the in-kind contribution of the Assets would be a voluntary 
contribution of assets to the Plan. Moreover, Evercore Trust represents 
the proposed in-kind contribution of the Assets would have no adverse 
effect on Weyerhaeuser's

[[Page 3058]]

ability to satisfy future funding requirements of the Plan and would 
not materially impact Weyerhaeuser's operations, or financial 
condition. Accordingly, Evercore Trust represents that the in-kind 
contribution of the Assets will not be used to reduce Weyerhaeuser's 
cash contribution to the Plan and will not be used to directly offset 
future required contributions.
    With regard to the arrangement between the Plan and Newco, Evercore 
Trust states that the in-kind contribution of the Assets would 
indirectly support the continuity of the Plan's current investment 
team. In addition, the Plan would not be responsible for any start-up 
costs associated with Newco. Further, the Plan would not be locked into 
a long term arrangement with Newco, nor would the Investment Committee 
be prevented from selecting another service provider in the future.
    Evercore Trust states that the Plan would benefit from the 
favorable fee arrangement to be established with Newco. In this regard, 
the initial fee schedule to be charged by Newco to the Plan is designed 
to cover cost without a profit margin. It is represented that Newco 
will charge 25 basis points of assets under management to provide full 
service investment advisory and investment management services to the 
Plan, whereas Newco expects to charge 50 basis points for such services 
to the Client Plans. Further, in the opinion of Evercore Trust the 
floor and the cap on annual charges provides the Plan with greater 
certainty related to investment management fees. Accordingly, Evercore 
Trust concluded that the Plan would be no worse off with the fees 
charged by Newco than its current fee arrangement with WAM.
    Finally, Evercore Trust considered and resolved several possible 
issues associated with the in-kind contribution of the Assets. In this 
regard, Evercore Trust concluded that the stated limit on the growth of 
Newco and the Investment Committee's ongoing duty to monitor the Plan's 
service providers mitigates the risk that Newco's attention to the 
Plan's assets will decline as Newco develops and maintains new clients. 
Further, in the view of Evercore Trust, potential conflicts of interest 
that could arise, if the Investment Committee were reluctant to replace 
Newco as a service provider, are addressed by the fact that the Assets 
would represent less than .3 percent (.3%) of the Plan's assets and 
should not influence prudent fiduciary decision-making. Accordingly, 
Evercore Trust concluded that these potential issues are insignificant, 
unlikely, and vastly outweighed by the expected benefits associated 
with the in-kind contribution of the Assets to the Plan.
    Based on the preceding analysis, Evercore Trust has determined that 
on behalf of the Plan that it would be prudent to accept the in-kind 
contribution of the Assets and that such contribution in-kind is in the 
interests of the Plan and its participants and beneficiaries. In the 
opinion of Evercore Trust, the in-kind contribution of the Assets would 
provide monetary, diversification, and funding benefits to the Plan 
without significant costs or downside risk. Therefore, Evercore Trust 
has determined to accept on behalf of the Plan the in-kind contribution 
of the Assets, subject to the Department's grant of a final exemption. 
Evercore Trust has also concluded that additional negotiation on the 
terms and conditions of the proposed in-kind contribution of the Assets 
is not necessary, because the proposed structure provides sufficient 
protection of the Plan's interests.
    10. The Applicants believe that the relief requested in section I 
of this proposed exemption offers significant potential benefits to the 
Plan. In this regard, as of the date the Assets are contributed to the 
Master Trust, the contributed value of the Assets will be equal to the 
fair market value of the Assets, as determined by Evercore Trust.
    Evercore Trust represents that it is qualified to serve as the 
independent appraiser of the fair market value of the Assets, because 
of Evercore Trust's comprehensive valuation experience utilizing the 
discounted cash flow approach (the DCF Approach) upon which Evercore 
Trust relied in valuing the Assets.
    With regard to the methodology used, Evercore Trust employed the 
DCF Approach \52\ to value the stream of royalty payments to the Master 
Trust and the Put and the Call, pursuant to the Royalty Agreement. 
Under the DCF Approach, the free cash flow of the Assets is estimated 
and then discounted back to the present at a weighted average cost of 
capital. In addition, a residual value multiple or growth rate is 
generally assigned and then applied to the last year of the projected 
cash flow to take into account the future free cash flows into 
perpetuity.
---------------------------------------------------------------------------

    \52\ It is represented that the Evercore Trust did not use the 
comparable precedent transactions approach, as information regarding 
comparable precedent transactions of similar assets was not publicly 
available. Further, Evercore Trust did not employ the comparable 
valuation multiples approach, because there are no instructive 
publicly traded comparable securities.
---------------------------------------------------------------------------

    As only gross fees from assets under management from the Client 
Plan generate royalty payments, only assumptions regarding these fees 
directly impact the valuation of the Assets. The assumptions used by 
Evercore Trust for such gross fees from assets under management from 
the Client Plans are as follows: (a) A fee of 50 basis points, based on 
Newco's expectations of the fees clients will pay; (b) a $2 billion 
client acquired at the beginning of year three; and a $2 billion client 
acquired at the beginning of year six, based on the current pipeline of 
potential new clients and a long lead time to attract clients; and (c) 
six percent (6%) assets under management growth from existing clients 
based on the historical performance of the Master Trust assets managed 
by WAM. Evercore Trust reviewed the assumptions regarding such gross 
fees and found them reasonable.
    Further, Evercore Trust in valuing the Assets under the DCF 
Approach considered three (3) possible scenarios: (a) The royalty 
payments are continued in perpetuity; (b) the Put is exercised on 
December 31, 2020, (in which case the royalty payments would not be 
continued); and (c) the Call is exercised on December 31, 2022, (also 
in which case the royalty payments would not be continued). In 
discussions with Weyerhaeuser, Newco management, and LG Asset 
Management L.P. (Lindsay Goldberg) (see, paragraph no. 14, below), 
Evercore Trust was told that it as highly likely that the Put or the 
Call will be exercised and that there is about an equal chance that the 
Put or the Call will be exercised. As a result, Evercore Trust weighted 
exercising the Put and the Call at 50 percent (50%) each and did not 
give any weight to the scenario where the Master Trust received royalty 
payments in perpetuity.
    It is represented that Evercore Trust valued the potential Put and 
Call using the DCF Approach, whereby Evercore Trust calculated the 
exercised value of the Put and the Call and discounted those values 
back to the present at a weighted average cost of capital and weighed 
the three (3) scenarios to arrive at a valuation conclusion for the 
Assets. Evercore Trust used a 15 percent (15%) discount rate, based on 
the implied cost of equity for Newco, assuming Newco was 100% equity 
financed. Further, Evercore Trust did not deduct taxes from the stream 
of payments, because the Plan does not pay taxes. Accordingly, in the 
opinion of Evercore Trust the fair market value of the Assets, as of 
October 21, 2011, the date of the valuation report, is $11,700,000.
    11. In addition, it is represented that the in-kind contribution of 
the Assets, as described in section I of this

[[Page 3059]]

proposed exemption, will be in the interest of the Plan and its 
participants and beneficiaries, because the Plan will not pay any 
commissions, fees, costs, charges, or other expenses in connection with 
the in-kind contribution of Assets to the Plan.

Management by NEWCO of All or a Portion of the Assets in the Master 
Trust

    12. It is represented that the Master Trust has been at the 
forefront of investing in alternative investment vehicles for more than 
20 years. In this regard, the Master Trust's investments include cash 
and short-term investments, hedge funds, private equity, real estate 
fund investments, and common and preferred stock. In addition, the 
Master Trust is invested in equity index derivatives, fixed income 
derivatives, swaps, and other derivative instruments. For approximately 
the past seven (7) years, it is represented that a large portion of the 
assets of the Master Trust have been managed in this way by an 
investment team employed ``in house'' by WAM, as an INHAM, pursuant to 
PTE 96-23.
    13. It is represented that key personnel of the investment team 
currently employed ``in house'' by WAM will be leaving WAM (the Former 
WAM Personnel) and will be forming Newco, a new registered investment 
adviser under the Investment Advisers Act of 1940, as amended. The 
Former WAM Personnel who join Newco will be entering into employment 
agreements with Newco. Newco will be a Delaware limited partnership 
which will be outside of the Weyerhaeuser control group. Newco intends 
to market an alternative asset management platform designed to provide 
full-service investment advisory and investment management services to 
unrelated entities. These unrelated entities will include large 
investment firms such as foundations, sovereign wealth funds, endowment 
funds, public funds, and corporate pension funds (collectively, the 
Funds). Newco would initially target a few of the Funds unrelated to 
Weyerhaeuser with investable asset between $1 billion and $2 billion to 
add as new clients (the Unrelated Funds) Newco would initially limit 
the number of Unrelated Funds to between two (2) to five (5). Salim 
Shariff would be the Chief Investment Officer and President of Newco.
    14. In connection with the establishment and operation of Newco, 
the Former WAM Personnel will enter into a joint venture with an 
affiliate of Goldberg Lindsay & Co. LLC (GLCo). GLCo, a registered 
investment adviser, is the investment manager to a series of private 
investment funds with aggregate capital commitments of approximately 
$10 billion that are focused on making long-term equity investments in 
established industries. The affiliate of GLCo which will enter into the 
joint venture with Former WAM Personnel is LG Asset Management L.P., 
and is referred to, herein, as Lindsay Goldberg. It is represented that 
Lindsay Goldberg will assist Newco with the provision of (or, in the 
alternative, the retention of persons to provide) various services, 
including marketing, IT operations, HR, administration, and use of 
space. However, Lindsay Goldberg will not provide portfolio management 
services. Such portfolio management services will be provided 
exclusively by Newco.
    It is represented that Lindsay Goldberg has an experienced team of 
investment professionals led by its co-managing partners, Alan E. 
Goldberg (Mr. Goldberg) and Robert D. Lindsay (Mr. Lindsay) each of 
whom has more than 25 years of private investment experience.
    15. Newco will initially be funded by Lindsay Goldberg. In this 
regard, it is represented that the Master Trust will not pay, directly 
or indirectly, any part of Newco's start up fees. Approximately 60 
percent (60%) of Newco will be owned by Lindsay Goldberg. Approximately 
40 percent (40%) of Newco will be owned by key personnel of Newco. A 
substantial portion of the equity of Newco will be held by the Former 
WAM Personnel.
    16. The Newco GP will be a Delaware limited liability company. The 
Newco GP will be managed by a board of four (4) managers (the Board). 
Lindsay Goldberg will be entitled to appoint two (2) managers to the 
Board of the Newco GP. The Former WAM Personnel will be entitled to 
appoint one (1) manager to the Board. The Master Trust will be entitled 
to appoint one (1) of the managers to the Board.
    17. Weyerhaeuser and the Investment Committee wish to retain the 
services of the Former WAM Personnel after such personnel have been 
engaged by Newco. In this regard, Weyerhaeuser has determined that 
expansion of WAM under the corporate umbrella, as a wholly-owned 
business providing investment management services to unrelated entities 
is not within its overall corporate strategy and would not be a core 
business of Weyerhaeuser. Accordingly, to accommodate the desire of the 
Former WAM Personnel to expand their business operations and also to 
ensure the continuity of investment management services provided to the 
Master Trust by the Former WAM Personnel, the Investment Committee has 
made a preliminary determination to engage Newco as an investment 
manager, within the meaning of section 3(38) of the Act, for some or 
all of the assets in the Master Trust. It is represented that any such 
investment management services provided by Newco to the Master Trust 
will be pursuant to a written investment management agreement 
terminable by the Investment Committee on reasonably short notice.\53\ 
The Master Trust will have no obligation to engage Newco or to continue 
the services of Newco for any set period of time. It is represented 
that initially Newco will charge a fee for providing investment 
management services to the Master Trust at a cost that approximates the 
cost incurred by WAM to manage the Master Trust's assets (i.e., no 
profit margin included). In this regard, it is represented that the 
initial ad valorem fee charged would be 25 basis points with a floor 
and a cap on annual increases of 3 percent (3%) and 6 percent (6%), 
respectively. The Applicants represent that the fees payable by the 
Master Trust to Newco will be significantly less than ``market rate'' 
fees for similar services.\54\
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    \53\ It is represented that termination of Newco as investment 
manager of the Master Trust will have no impact on the Master 
Trust's rights under the Royalty Agreement, discussed above.
    \54\ The Applicants have not requested and the Department, 
herein, is not providing any relief for the receipt of a fee by 
Newco from the Master Trust for the provision of investment 
management services to such Master Trust. The statutory exemption, 
as set forth in section 408(b)(2) of the Act and the Department's 
regulations, pursuant to 29 CFR 2550.408b-2, provides relief from 
section 406(a) of the Act for contracting or making reasonable 
arrangements with a party in interest for services necessary for the 
establishment or operation of a plan, if no more than reasonable 
compensation is paid therefore. The Department, herein, is offering 
no view, as to whether the receipt by Newco of a fee for the 
provision of investment management services to the Master Trust is 
covered by such statutory exemption, nor is the Department, herein, 
offering any view as to whether Newco satisfies the conditions set 
forth in such statutory exemption.
---------------------------------------------------------------------------

    It is represented that the determination of the Investment 
Committee to hire Newco as the investment manager for some or all of 
the assets in the Master Trust is conditioned upon the grant by the 
Department to Newco of a final exemption permitting Newco to enter into 
transactions on behalf of the Master Trust, as though Newco were a 
QPAM. Accordingly, the Applicants have requested that the proposed 
exemption be modeled after PTE 84-14, as amended.
    18. PTE 84-14 generally permits various parties in interest with 
respect

[[Page 3060]]

to an employee benefit plan to engage in a transaction involving plan 
assets, if the transaction is authorized by a QPAM, provided certain 
conditions are satisfied. Specifically, the Applicants seek an 
individual exemption for transactions that are described in Part I of 
PTE 84-14.\55\ Part I of PTE 84-14 provides relief from the 
restrictions of section 406(a)(1)(A)-(D) of the Act and section 
4975(c)(1)(A)-(D) of the Code for transactions between a party in 
interest with respect to an employee benefit plan and an investment 
fund in which such plan has an interest and which is managed by a QPAM, 
provided certain conditions are satisfied.
---------------------------------------------------------------------------

    \55\ The Applicants have not requested an administrative 
exemption for the transactions described in Part II, Part III, and 
Part IV, and Part V of PTE 84-14.
---------------------------------------------------------------------------

    One such condition (the Diverse Clientele Test), as set forth in 
Part I(e) of PTE 84-14, requires that:

    The transaction is not entered into with a party in interest 
with respect to any plan whose assets managed by QPAM, when combined 
with the assets of other plans established or maintained by the same 
employer (or affiliate thereof * * * or by the same employee 
organization, and managed by the QPAM, represent more than 20 
percent of the total client assets managed by the QPAM at the time 
of the transaction.

    Another condition, as set forth in Part VI(a)(4) of PTE 84-14(the 
Assets Under Management Test), requires that an investment adviser 
registered under the Investment Advisers Act of 1940 have total client 
assets under its management and control in excess of $85,000,000, as of 
the last day of its most recent fiscal year. As a newly established 
entity, Newco will not be able, as of the last day of its most recent 
fiscal year, to satisfy the Assets Under Management Test, as set forth 
in PTE 84-14. However, it is anticipated that Newco will have 
$85,000,000 in assets under management on the date it commences 
operations.
    In addition, another condition, as set forth in Part VI(a)(4) of 
PTE 84-14 (the Shareholders'/Partners' Equity Test), requires that an 
investment adviser in order to qualify as a QPAM must either have 
shareholders' or partners' equity in excess of $1 million, as evidenced 
by the most recent balance sheet prepared within the immediately 
preceding two years, or payment of all of its liabilities including any 
liabilities that may arise by reason of a breach or violation of a duty 
described in sections 404 and 406 of the Act unconditionally guaranteed 
by a party, including an affiliate, a bank, a saving and loan, an 
insurance company, or a broker-dealer who must satisfy certain net 
worth requirements. As a newly established entity, Newco will not be 
able to satisfy the Shareholders'/Partners' Equity Test, as set forth 
in PTE 84-14, because it will not have a recent balance sheet prepared 
within the immediately preceding two years. However, it is represented 
that Newco will be capitalized in excess of $1 million, as of the date 
Newco commences operations.
    19. Because Newco does not satisfy the Assets under Management 
Test, the Shareholders'/Partners' Equity Test, and the Diverse 
Clientele Test, as those tests are set forth in PTE 84-14, Newco will 
not qualify as a QPAM with respect to the Master Trust. Accordingly, 
the Applicants request that the Department grant exemptive relief that 
will permit Newco to act as though it were a QPAM, in light of the fact 
that: (a) Newco's investment team will consist of the same Former WAM 
Personnel who managed the assets of the Master Trust as an INHAM; (b) 
on the day Newco commences operation, it will be capitalized in excess 
of $1 million; and (c) on the day Newco commences operation, it is 
anticipated that Newco will have $85,000,000 in assets under 
management.
    20. In the opinion of the Applicants the proposed transactions, as 
set forth in section II, are administratively feasible, because such 
transactions are similar in some respect to other class and 
administrative exemptions previously granted by the Department. In this 
regard, the Former WAM Personnel who will be employed by Newco will 
continue to implement the investment management strategy that has been 
in operation for the past seven (7) year under the auspices of WAM. In 
addition, it is represented that the transactions, as described in 
section II of this proposed exemption would not impose any 
administrative burdens on the Department which are not already imposed 
by PTE 84-14.
    Further, the transactions, as described in section II of this 
proposed exemption are feasible, as the Applicants will be required to 
maintain records necessary to enable the Department and the IRS and 
other interested parties to determine whether the conditions of the 
proposed exemption, if granted, have been met.
    21. With respect to the transactions described in section II of 
this proposed exemption, it is represented that the conditions, as set 
forth in section III of this proposed exemption provide sufficient 
safeguards for the protection of the Plan, any Other Plan(s) and any 
Client Plan(s). In this regard, the transactions which are the subject 
of section II of this proposed exemption cannot be part of an 
agreement, arrangement, or understanding designed to benefit a party in 
interest. Neither Newco nor a person related to Newco may engage in 
transactions with a Managed Account. Any party in interest (including a 
fiduciary) which deals with a Managed Account may only be a remote 
party in interest, and such party in interest may not have 
discretionary authority or control with respect to the investment of 
plan assets involved in the transaction nor render investment advice 
with respect to those assets.
    22. It is represented that the transactions described in section II 
of the proposed exemption are in the interest of the Plan, any Other 
Plan(s), and any Client Plan(s) which invest in a Managed Account, 
because Newco will be able to negotiate transactions with parties in 
interest with respect to such plan(s) where such transactions are 
beneficial. Absent the proposed exemption, such plan(s) would be 
precluded from engaging in such transactions, even though such 
transactions may offer favorable investment opportunities.
    Further, the Applicants maintain that if the Department were to 
deny to Newco the relief, as set forth in section II of the proposed 
exemption, the Master Trust would lose access to the Former WAM 
Personnel who have been running a large portion of the assets of the 
Plan in the Master Trust for over seven (7) years. Further, if the 
Department were not to grant to Newco the ability act as though it were 
a QPAM, Newco would not be able to continue to implement its proven 
investment strategy on behalf of the Master Trust, as counterparties 
are not willing to enter into transactions with the Master Trust, other 
than under the umbrella of PTE 84-14 or similar exemptive relief.
    23. In summary, the Applicants represent that the subject 
transactions satisfy the statutory criteria of section 408(a) of the 
Act and section 4975(c)(2) of the Code because:
    (a) Prior to the execution and closing on the in-kind contribution 
of the Assets, Evercore Trust, acting on behalf of the Master Trust, 
will determine whether and on what terms to enter into the in-kind 
contribution of such Assets;
    (b) Evercore Trust will negotiate, review, and approve the specific 
terms of the in-kind contribution of the Assets and will determine, 
prior to entering into such in-kind contribution, that such transaction 
is feasible, in the interest of, and protective of the Master Trust and 
its participants and beneficiaries;
    (c) Evercore Trust will take the necessary steps to ensure 
compliance by

[[Page 3061]]

Weyerhaeuser with the terms and conditions of the in-kind contribution 
of the Assets;
    (d) As of the date the Assets are contributed to the Master Trust, 
the contributed value of the Assets will be equal to the fair market 
value of the Assets, as determined by Evercore Trust.
    (e) The terms and conditions of the in-kind contribution of the 
Assets will be no less favorable to the Master Trust than terms 
negotiated at arm's length under similar circumstances between 
unrelated third parties;
    (f) The fair market value of the Assets will constitute less than 
one percent (1%) of the assets of the Master Trust at the time such 
Assets are contributed to the Master Trust;
    (g) The Master Trust will incur no commissions, fees, costs, or 
other charges and expenses in connection with the in-kind contribution 
of the Assets to the Master Trust; and
    (h) The in-kind contribution of the Assets is a one-time 
transaction;
    (i) On the day Newco commences operation, Newco will be capitalized 
in excess of $1 million, and on the same day, it is anticipated that 
Newco will have $85,000,000 in assets under management;
    (j) Newco will be able to continue to implement a proven investment 
strategy on behalf of the Master Trust;
    (k) The proposed exemption will ensure the continuity of investment 
management services provided to the Master Trust by the Former WAM 
Personnel, who have been running a large portion of the assets of the 
Plan in the Master Trust in recent years;
    (l) The Master Trust will not be precluded from engaging in 
transactions with parties in interest, even though such transactions 
may offer favorable investment opportunities;
    (m) The transactions which are the subject of section II of this 
proposed exemption cannot be part of an agreement, arrangement, or 
understanding designed to benefit a party in interest;
    (n) Neither Newco nor a person related to Newco may engage in 
transactions with a Managed Account;
    (o) Any party in interest (including a fiduciary) which deals with 
a Managed Account may only be a remote party in interest, and such 
party in interest may not have discretionary authority or control with 
respect to the investment of plan assets involved in the transaction 
nor render investment advice with respect to those assets; and
    (p) The Applicants will be required to maintain records necessary 
to enable the Department and the IRS and other interested parties to 
determine whether the conditions of the proposed exemption, if granted, 
have been met.

Notice to Interested Persons

    The persons who may be interested in the publication in the Federal 
Register of the Notice of Proposed Exemption (the Notice) include all 
the participants in the Plan, the active employees, terminated 
participants and each beneficiary.
    It is represented that these several classes of interested persons 
will be notified of the publication of the Notice through different 
methods. In this regard, notification will be provided within twenty 
(20) days of the date of publication of the Notice in the Federal 
Register, by posting at locations customarily used for notices 
regarding labor-management matters for review. Such posting will 
contain a copy of the Notice, as it appears in the Federal Register on 
the date of publication, plus a copy of the supplemental statement (the 
Supplemental Statement) as required, pursuant to 29 CFR 2570.43(b)(2), 
which will advise interested persons of their right to comment and to 
request a hearing.
    It is represented that Weyerhaeuser will also provide notice to 
each terminated participant and each beneficiary receiving benefits of 
the publication of the Notice by first class mail, within twenty (20) 
days of publication of the Notice in the Federal Register. Such mailing 
will contain a copy of the Notice, as it appears in the Federal 
Register on the date of publication, plus a copy of the Supplemental 
Statement, as required, pursuant to 29 CFR 2570.43(b)(2), which will 
advise all such interested persons of their right to comment and to 
request a hearing.
    The Department must receive all written comments and/or requests 
for a hearing no later than thirty (30) days from the later of: (1) The 
date a copy of the Notice and a copy of the Supplemental Statement are 
posted; or (2) the date of the mailing first class of a copy of the 
Notice and a copy of the supplemental Statement to terminated 
participants and beneficiaries of the Plan.

FOR FURTHER INFORMATION CONTACT: Ms. Angelena C. Le Blanc of the 
Department, telephone (202) 693-8540. (This is not a toll-free number.)

Citigroup Inc. (Citigroup)

Located in New York, New York

Exemption Application Number D-11680

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 (or ERISA) 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).\56\
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    \56\ For purposes of this proposed exemption, references to 
section 406 of ERISA should be read to refer to the corresponding 
provisions of section 4975 of the Code as well.
---------------------------------------------------------------------------

    If the proposed exemption is granted, Citigroup Inc. and its 
current and future affiliates (collectively, Citigroup) shall not be 
precluded, as of December 1, 2010, from functioning as a ``qualified 
professional asset manager'' (QPAM), pursuant to Prohibited Transaction 
Exemption 84-14 (PTE 84-14), (49 FR 9494 March 13, 1984, as amended on 
August 23, 2005 at 70 FR 49305), solely because of a failure to satisfy 
Section I(g) of PTE 84-14, as a result of Citigroup's affiliation with 
Citibank Belgium SA (CBB), an entity convicted of six (6) counts of 
criminal activity in Belgium, provided that the following conditions 
are met:
    (a) The affiliate convicted under Belgium law does not provide 
fiduciary or QPAM services to employee benefit plans (plans) or 
otherwise exercise discretionary control over plan assets;
    (b) ERISA-covered assets are not involved in the misconduct that is 
the subject of the affiliate's conviction(s);
    (c) Citigroup imposes its internal procedures, controls, and 
protocols on the affiliate to reduce the likelihood of any recurrence 
of misconduct to the extent permitted by local law;
    (d) This exemption is not applicable if Citigroup, or any affiliate 
(other than branches or affiliates found liable for similar crimes in 
Belgium in connection with the sale of certain structured notes (the 
Lehman Notes) is convicted of any of the crimes described in Section 
I(g) of PTE 84-14;
    (e) Citigroup maintains records that demonstrate that the 
conditions of the exemption have been and continue to be met for at 
least six years following the conviction of an affiliate under Belgium 
law;
    (f) Citigroup has adopted procedures to afford ample protection of 
the interests of participants and beneficiaries of employee benefit 
plans; and

[[Page 3062]]

    (g) Citigroup complies with the other conditions of PTE 84-14, as 
amended.
    Effective Date: This proposed exemption, if granted, will be 
effective as of December 1, 2010.

Summary of Facts and Representations

    1. Citigroup Inc. (Citigroup), is a multinational financial 
services corporation headquartered in New York. Citigroup operates, for 
management reporting purposes, principally via two primary business 
segments: Citicorp, consisting of Citigroup's Regional Consumer Banking 
businesses (including retail banking and Citi-branded cards in North 
America, EMEA, Latin America and Asia) and Institutional Clients Group 
(including securities and banking and transaction services); and Citi 
Holdings, consisting of Citigroup's Brokerage and Asset Management and 
Local Consumer Lending businesses. Citigroup, through securities and 
banking, offers a wide array of investment and commercial banking 
services and products for corporations, governments, institutional and 
retail investors, and high-net-worth individuals. The applicant 
represents that on March 31, 2011, Citicorp held approximately $1.3 
trillion of assets and $784 billion of deposits, representing 
approximately 68% of Citigroup's total assets and approximately 91% of 
its deposits. In addition, Citigroup provides fiduciary and asset 
management services to employee benefit plans described in section 3(3) 
of the Act. Citigroup manages billions of dollars representing ERISA-
covered plan assets. Therefore, it would not be uncommon for a plan for 
which Citigroup currently serves as a QPAM to engage in a transaction 
which may involve a party in interest. The applicant represents that 
without the ability to function as a QPAM pursuant to PTE 84-14, 
virtually no manager of ERISA assets will be able to manage such assets 
effectively.
    2. Section I(g) of PTE 84-14 precludes a person who otherwise 
qualifies as a QPAM from serving as a QPAM if such person or an 
affiliate thereof has, within 10 years immediately preceding the 
transaction, been either convicted or released from imprisonment, 
whichever is later, as a result of certain specified criminal activity 
described under Section I(g) of PTE 84-14, section 411 of the Act and 
various laws incorporated by reference in section 411 of the Act. The 
applicant represents that the violations which would jeopardize 
Citigroup's QPAM status involve convictions of Citibank Belgium SA 
(CBB), a wholly-owned legal entity incorporated under Belgium law that 
is responsible for the retail banking activities of Citigroup in 
Belgium, and three (3) of CBB's employees. CBB is a part of Citigroup's 
global consumer banking business line and focuses on the distribution 
of banking products to consumers by offering a wide range of credit 
cards, installment credit and deposit services and investment products 
to its approximately 580,000 customers, and acts as an intermediary for 
life insurance products. The applicant represents that CBB has no ERISA 
plan clients and is not expected to have any ERISA plan clients in the 
future.
    3. On August 14, 2009, CBB and three (3) of its employees \57\ were 
criminally charged on six (6) counts in connection with certain 
structured bond products issued by Lehman Brothers (Lehman). The 
Court's decision was announced on December 1, 2010.\58\ The applicant 
represents that, in general, the criminal convictions of CBB and the 
three employees were related to the use of certain marketing letters 
and leaflets, as well as a prospectus, describing the characteristics 
of certain bond products issued by Lehman. Some of these materials had 
not been approved by the appropriate Belgium regulator (the FSMA, 
formerly known as the CBFA) at the time of distribution, as required by 
local law. Additionally, CBB was convicted for the use of unclear and 
misleading sales documentation and for inadequate oversight of the 
sales agency network. The applicant represents that the convictions 
related to the violation of the following Belgian Statutes: Act of 16 
June 2006 regarding the public offers of investment instruments and the 
admission of investments instruments to trading on regulated markets 
(the Prospectus Act), Article 60; the Prospectus Act, Article 69; and 
Act of 14 July 1991 on commercial practices and on information and 
protection of the consumer (the Commercial Practices Act), Article 94. 
The applicant further represents that the Court's judgment did not 
detail the statutory provisions on which each conviction is based, that 
these convictions are on appeal by CBB and Mr. Staroukine as of the 
date of this proposal, and that criminal acts are neither authorized 
nor condoned by Citigroup.
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    \57\ Jose de Peneranda de Fanchimont, Chief Compliance Officer, 
is no longer employed by CBB; Bernard Beyens, former Belgium Country 
Counsel, is no longer employed by CBB; and Francois Staroukine, is 
the current Belgium Country Counsel for CBB.
    \58\ The sentencing date is also December 1, 2010.
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    4. Citigroup represents that although none of the unlawful 
misconduct involved its (or its affiliates') investment management 
activities, the criminal conduct described above would preclude each 
component of Citigroup and other affiliated investment managers from 
serving as a QPAM pursuant to 84-14. Accordingly, the applicant 
requests an exemption to enable Citigroup and any of its current or 
future affiliates to act as a QPAM despite their failure to satisfy 
Section I(g) of PTE 84-14 solely as a result of CBB and its employees' 
December 1, 2010 criminal conviction in Belgium. The transactions 
covered by the proposed exemption would include the full range of 
transactions that can be executed by investment managers who qualify as 
QPAMs pursuant to PTE 84-14. If granted, the exemption will enable 
Citigroup and its current and future affiliates to qualify as QPAMs by 
satisfying all conditions of PTE 84-14, unless Citigroup or any other 
affiliate (other than branches or affiliates found liable for similar 
crimes in Belgium in connection with the sale of the Lehman Notes) is 
convicted of any additional instances of the crimes described in 
Section I(g) of PTE 84-14.
    5. The applicant maintains that the requested exemption is 
protective of the rights of participants and beneficiaries of affected 
plans because: (a) After the time of the conduct described herein, 
Citigroup launched an initiative to establish global standards for 
addressing the risk associated with its retail and investment products 
businesses; (b) a global policy has been created to assist Citigroup's 
investment professionals in meeting their responsibilities related to 
ensuring that investment product sales are suitable for clients in the 
context of the client's investment objectives, risk tolerance, and 
knowledge and experience; (c) Citigroup's suitability processes include 
a classification system for Citigroup accounts, a corresponding client 
rating scale, and defined mechanisms for framing suitability judgments; 
(d) consistent requirements were developed through the policy for 
mandatory sales force training on products, as well as Citigroup 
policies; (e) the investment product risk group has standardized 
requirements for review and approval of new products, as well as third 
party structured note issuers; (f) a local compliance staff reports to 
the global Chief Compliance Officer to ensure independence; (g) 
training regarding the policy and the applicant's other global policies 
and procedures is conducted in the local language; (h) CBB has 
voluntarily agreed to participate in the FSMA's moratorium applicable 
to distribution of structured products to retail investors; and (i) the 
applicant has

[[Page 3063]]

updated its procedures regarding review of marketing materials and 
communications related to ratings changes which should be reflected in 
marketing materials, in order to ensure compliance with the laws of 
Belgium.\59\
---------------------------------------------------------------------------

    \59\ The applicant represents that in the event of a breach of 
the policies and/or procedures listed, an evaluation will be 
performed to determine if any future modifications are needed in the 
overall compliance structure.
---------------------------------------------------------------------------

    The proposed exemption also contains conditions, in addition to 
those imposed by PTE 84-14, which are designed to ensure the presence 
of adequate safeguards to protect the interests of the ERISA plan 
participants and beneficiaries against wrongdoers now and in the 
future. In this regard, the proposed exemption will be applicable if: 
(a) CBB has not, and does not, provide fiduciary or QPAM service to 
employee benefit plans covered by ERISA or otherwise exercise 
discretionary control over ERISA assets; (b) ERISA-covered assets were 
not involved in the conduct that is the subject of the affiliate's 
convictions; (c) Citigroup has imposed and will continue to impose its 
internal procedures, controls, and protocols on the affiliate to reduce 
the likelihood of any recurrence of misconduct to the extent permitted 
by local law; (d) The exemption will not be applicable if the applicant 
or any affiliate (other than branches or affiliates found liable for 
similar circumstances in Belgium in connection with the sale of the 
Lehman Notes) is convicted of any of the crimes described in Section 
I(g) of PTE 84-14; (e) Citigroup has kept and will continue to keep 
records that demonstrate that the conditions of the exemption have been 
and continue to be met for at least 6 years following the conviction of 
an affiliate; and (f) Citigroup has adopted procedures to afford ample 
protection of the interests of participants and beneficiaries of 
employee benefit plans.
    6. The applicant represents that the proposed exemption is 
administratively feasible because it does not require the Department to 
oversee or administer any aspect of the relief provided. Further the 
applicant represents that the exemption will enable the plans to 
continue their current investment strategy with their current 
investment manager.
    Moreover, the applicant notes that if the Department denies the 
requested exemption, the applicant will be unable to manage assets on 
an optimal basis subject to ERISA or the prohibited transaction 
provisions of the Code, thereby making it difficult for the applicant 
to enter into the transactions deemed necessary to meet the plans' 
investment mandates. The applicant also states that plans would need to 
find other investment managers who could manage the assets in the 
strategy dictated by the plan.
    7. The applicant represents that it has adopted substantial 
compliance policies and procedures intended to ensure that the 
applicable legal requirements are satisfied and that the highest 
standard of business integrity is maintained wherever the applicant 
conducts business. Employees of the applicant have been required to 
complete mandatory policy awareness training, which included training 
on global policy disclosure standards. Also, sales, marketing and 
promotional materials must now be approved by the applicant's legal 
and/or compliance department or the designated authorities prior to 
distribution. The applicant further represents that Mr. Staroukine, 
although currently serving as CBB's Belgium Country Counsel, has no 
involvement with ERISA plans, and will not have any future dealings 
with any ERISA plan assets while he is employed by the applicant, CBB 
or an affiliate.
    8. In summary, it is represented that the transactions have 
satisfied and will satisfy the statutory criteria for an exemption 
under 408(a) because: (a) The affiliate convicted under Belgium law has 
not provided and will not provide fiduciary or QPAM services to ERISA-
covered plans or otherwise exercise discretionary control over plan 
assets; (b) ERISA-covered assets have not been involved and will not be 
involved in the misconduct that is the subject of the affiliate's 
conviction; (c) Citigroup has continued and will continue to impose its 
internal procedures, controls, and protocols on the affiliate to reduce 
the likelihood of any recurrence of misconduct to the extent permitted 
by local law; (d) this exemption is not applicable if Citigroup, or any 
affiliate (other than branches or affiliates found liable for similar 
crimes in Belgium in connection with the sale of the Lehman Notes) is 
convicted of any of the crimes described in Section I(g) of PTE 84-14; 
(e) Citigroup has maintained and will maintain records that demonstrate 
that the conditions of the exemption have been met for at least six 
years following the conviction of the affiliate under Belgium law; and 
(f) Citigroup has adopted procedures which have afforded and will 
afford ample protection of the interests of participants and 
beneficiaries of employee benefit plans.

Notice to Interested Persons

    The applicant represents that because those potentially interested 
ERISA-covered plans cannot all be identified, the only practical means 
of notifying such plans of this proposed exemption is by publication in 
the Federal Register. Therefore, comments and requests for a hearing 
must be received by the Department not later than 30 days from the 
publication of this notice of proposed exemption in the Federal 
Register.

FOR FURTHER INFORMATION CONTACT: Gary H. Lefkowitz of the Department, 
telephone (202) 693-8546. (This is not a toll-free number.)

General Information

    The attention of interested persons is directed to the following:
    (1) The fact that a transaction is the subject of an exemption 
under section 408(a) of the Act and/or section 4975(c)(2) of the Code 
does not relieve a fiduciary or other party in interest or disqualified 
person from certain other provisions 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.


[[Page 3064]]


    Signed at Washington, DC, this 13th day of January, 2012.
Ivan Strasfeld,
Director of Exemption Determinations, Employee Benefits Security 
Administration, U.S. Department of Labor.
[FR Doc. 2012-932 Filed 1-19-12; 8:45 am]
BILLING CODE 4510-29-P