3038 Federal Register / Vol. 77, No. 13 / Friday, January 20, 2012 / Notices 

1For 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. 

2Pursuant 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. 

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. 

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. 

lll, 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: 

(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: 

(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 


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


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3040 Federal Register / Vol. 77, No. 13 / Friday, January 20, 2012 / Notices 

3The Summary of Facts and Representations (the 

Summary) is based on the Applicant’s 

representations and does not reflect the views of the 

Department. 

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 

Representations3

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 nonfinancial 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. 


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Federal Register / Vol. 77, No. 13 / Friday, January 20, 2012 / Notices 3041 

4The 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). 

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 nonProprietary 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. 

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 


srobinson on DSK4SPTVN1PROD with NOTICES2
3042 Federal Register / Vol. 77, No. 13 / Friday, January 20, 2012 / Notices 

5The 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). 

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. 

7According 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. 

8RIEF 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). 

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

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. 

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 masterfeeder 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

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 nonU.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, 


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9According 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%. 

10The 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). 

11The 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. 

12Section 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. 

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., 21⁄2% 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. 

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 investorby-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 ‘‘highwatermark’’ basis (i.e., only after any 

cumulative net losses from prior semiannual 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). 

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. 

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. 


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13As 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. 

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.’’ 

15See Income Tax Reg. 1.401(a)(4)–4(e)(3)(i) and 

(iii)(C). 

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

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. 

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. 

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 nonhighly 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 prefiling 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

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. 

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 


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17The eligibility requirements for investing in the 

New Medallion Vehicles are discussed below. 

18However, 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. 

19Because 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. 

20New 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. 

21The 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. 

22A 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. 

23Under 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). 

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. 

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

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

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. 

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 nonAccredited 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 


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24The Applicant notes that potential nonAccredited 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 nonAccredited Investors in Kaleidoscope. 

25The 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. 

26The 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. 

27According 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). 

30As 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. 

in excess of 35 must be Accredited 

Investors.24

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

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

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

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

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 


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31Renaissance 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. 

32Section 408(b)(2) of the Act. 

33 29 CFR 2550.408(b)(2). 

34The 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. 

35The 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. 

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. 

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

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

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. 

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 


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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. 

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 publiclytraded, 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. 

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 


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37As 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. 

38As 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. 

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. 

40The 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). 

41Notwithstanding 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. 

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 nonMedallion 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

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

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

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. 


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42The 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. 

43PTE 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. 

44Renaissance 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. 

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 nonpublicly 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

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. 

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

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. 


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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 lawbased 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 


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3052 Federal Register / Vol. 77, No. 13 / Friday, January 20, 2012 / Notices 

45For 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. 

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 inkind 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: 

(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 inkind 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 inkind 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 


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(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 


srobinson on DSK4SPTVN1PROD with NOTICES2
3054 Federal Register / Vol. 77, No. 13 / Friday, January 20, 2012 / Notices 

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 inkind 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 


srobinson on DSK4SPTVN1PROD with NOTICES2
Federal Register / Vol. 77, No. 13 / Friday, January 20, 2012 / Notices 3055 

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). 

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 taxqualified 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. 

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 


srobinson on DSK4SPTVN1PROD with NOTICES2
3056 Federal Register / Vol. 77, No. 13 / Friday, January 20, 2012 / Notices 

47 61 FR 15975, April 10, 1996, amended at 76 FR 

18255 (April 1, 2011). 

48The 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. 

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. 

50The 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 

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. 

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 inkind 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. 

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. 

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


srobinson on DSK4SPTVN1PROD with NOTICES2
Federal Register / Vol. 77, No. 13 / Friday, January 20, 2012 / Notices 3057 

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. 

51Newco 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. 

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 inkind 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 inkind 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. 

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 


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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. 

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. 

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 


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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. 

54The 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. 

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 fullservice 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 comanaging 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

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 


srobinson on DSK4SPTVN1PROD with NOTICES2
3060 Federal Register / Vol. 77, No. 13 / Friday, January 20, 2012 / Notices 

55The 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. 

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. 

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 


srobinson on DSK4SPTVN1PROD with NOTICES2
Federal Register / Vol. 77, No. 13 / Friday, January 20, 2012 / Notices 3061 

56For 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. 

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 inkind 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

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 


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3062 Federal Register / Vol. 77, No. 13 / Friday, January 20, 2012 / Notices 

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. 

58The sentencing date is also December 1, 2010. 

(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 Citibranded 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. 

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 


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Federal Register / Vol. 77, No. 13 / Friday, January 20, 2012 / Notices 3063 

59The 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. 

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

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 ERISAcovered 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 ERISAcovered 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. 


srobinson on DSK4SPTVN1PROD with NOTICES2
3064 Federal Register / Vol. 77, No. 13 / Friday, January 20, 2012 / Notices 

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 


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