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Employee Benefits Security Administration

EBSA Federal Register Notice

Proposed Exemptions and Application Nos. Gastroenterology and Oncology Associates, P.A. Profit Sharing Plan and Trust [10/26/2007]

[PDF Version]

Volume 72, Number 207

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DEPARTMENT OF LABOR

Employee Benefits Security Administration

 
Proposed Exemptions and Application Nos. Gastroenterology and 
Oncology Associates, P.A. Profit Sharing Plan and Trust (the Plan), D-
11141; Wellington Management Company, LLP (Wellington Management), D-
11343; GE Asset Management Incorporated, D-11389; Middleburg Trust 
Company (Middleburg), D-11405; and Citigroup, Inc. (Citigroup), D-11417

AGENCY: Employee Benefits Security Administration, Labor.

ACTION: Notice of proposed exemptions.

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SUMMARY: This document contains notices of pendency before the 
Department of Labor (the Department) of proposed exemptions from 
certain of the prohibited transaction restrictions of the Employee 
Retirement Income Security Act of 1974 (ERISA or the Act) and/or the 
Internal Revenue Code of 1986 (the Code).

Written Comments and Hearing Requests

    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. Comments and 
requests for a hearing should state: (1) The name, address, and 
telephone number of the person making the comment or request, and (2) 
the nature of the person's interest in the exemption and the manner in 
which the person would be adversely affected by the exemption. A 
request for a hearing must also state the issues to be addressed and 
include a general description of the evidence to be presented at the 
hearing.

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

scheduled comment period. The

[[Page 60890]]

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.

Notice to Interested Persons

    Notice of the proposed exemptions will be provided to all 
interested persons in the manner agreed upon by the applicant and the 
Department within 15 days of the date of publication in the Federal 
Register. Such notice shall include a copy of the notice of proposed 
exemption as published in the Federal Register and shall inform 
interested persons of their right to comment and to request a hearing 
(where appropriate).

SUPPLEMENTARY INFORMATION: The proposed exemptions were requested in 
applications filed pursuant to section 408(a) of the Act and/or section 
4975(c)(2) of the Code, and in accordance with procedures set forth in 
29 CFR Part 2570, Subpart B (55 FR 32836, 32847, August 10, 1990). 
Effective December 31, 1978, section 102 of Reorganization Plan No. 4 
of 1978, 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.

Gastroenterology and Oncology Associates, P.A. Profit Sharing Plan and 
Trust (the Plan) Located in St. Petersburg, FL

[Application No. D-11141]

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). If the exemption 
is granted, the restrictions of sections 406(a), 406(b)(1) and (b)(2) 
of the Act and the sanctions resulting from the application of section 
4975 of the Code, by reason of section 4975(c)(1)(A) through (E) of the 
Code, will not apply to the proposed sale of certain shares of common 
stock (the Stock) issued by Alden Enterprises, Inc. (Alden), an 
unrelated party, by the individually directed account in the Plan (the 
Account) of Jayaprakash K. Kamath, M.D. (Dr. Kamath), to Geetha J. 
Kamath, M.D., (Mrs. Kamath), Dr. Kamath's spouse and a party in 
interest with respect to the Plan.
    This proposed exemption is subject to the following conditions:
    (a) The sale of the Stock by the Account to Mrs. Kamath is a one-
time transaction for cash.
    (b) The Stock is sold to Mrs. Kamath for a price that reflects the 
fair market value of the Stock, as determined by a qualified, 
independent appraiser (the Appraiser).
    (c) The closing of the sale (the Closing Date) occurs at a time 
that is mutually agreed upon by Mrs. Kamath and the Plan trustees (the 
Trustees) within 30 days of the Department's approval of the final 
exemption.
    (d) As of the Closing Date, the Appraiser reviews the assumptions 
previously made in determining the appraised value of the Stock to see 
whether there has been a 3% or more increase (Material Increase) in the 
fair market value of the Stock between December 31, 2006 (the Appraisal 
Date) and the Closing Date.
    (e) If the Appraiser determines that there has been no Material 
Increase in the fair market value of the Stock on the Closing Date, the 
Appraiser issues a letter to the parties to the sale to such effect and 
the sale price of the Stock remains at the value determined on the 
Appraisal Date.
    (f) If the Appraiser determines that there has been a Material 
Increase in the fair market value of the Stock, he advises the parties 
to the transaction, in writing, as to the increased value as of the 
Closing Date. Then, the sale price for the Stock is revised to reflect 
the increased value and the amount of such increase is paid to the 
Trustees by Mrs. Kamath following the receipt of the updated appraisal 
report from the Appraiser setting forth the increased value of the 
Stock.
    (g) The sale proceeds from the transaction are credited to Dr. 
Kamath's Account simultaneously with the transfer of the Stock's title 
to Mrs. Kamath.
    (h) The Account is not responsible for paying any fees, 
commissions, or other costs or expenses associated with the sale of the 
Stock.
    (i) The terms and conditions of the Stock sale remain at least as 
favorable to the Account as the terms and conditions obtainable under 
similar circumstances negotiated at arm's length with an unrelated 
party.

Summary of Facts and Representations

    1. Dr. Kamath is a gastroenterologist and oncologist and a 50% 
owner of Gastroenterology and Oncology Associates, P.A. (the Employer), 
the sponsor of the Plan. The Employer is a Florida corporation, which 
is located in St. Petersburg, Florida. The Employer is also owned 50% 
by Mrs. Kamath.
    2. The Plan is a profit-sharing plan that was established by the 
Employer and provides for participant-directed investments. Dr. and 
Mrs. Kamath are the Plan Trustees. In addition, Dr. Kamath serves as 
the Plan Administrator. As of December 31, 2006, which is the most 
recent date Plan information is available, the Plan had 42 
participants, one of whom included Dr. Kamath. Also as of December 31, 
2006, the Plan had net assets available for benefits totaling 
$3,312,699. Of those assets, approximately $2,058,927 was held in Dr. 
Kamath's Account in the Plan.
    3. Among the assets allocated to Dr. Kamath's Account are 42.84 
shares of common stock, which constitute 14% of the issued and 
outstanding shares of Alden, a closely-held Florida corporation. 
Alden's primary business is the ownership and operation of a resort 
hotel on Florida's Gulf Coast. The property underlying the Stock 
consists of a 4.84 acre tract of land improved with 10 buildings that 
comprise the 142-unit beachfront hotel known as the ``Alden Beach 
Resort.'' The property is located at 5900 Gulf Boulevard, in the city 
of St. Pete Beach, Pinellas County, Florida.
    None of the other shareholders of Alden are related to the Kamaths 
or the Employer. In addition, neither the Kamaths nor members of their 
family are officers or directors of Alden.
    4. The Account acquired the Stock from Margaret Bradford, a 
retired, former Alden employee and an unrelated party, on September 15, 
1983, for a cash purchase price of $150,000. The purchase price paid by 
the Account for the Stock was negotiated by the Trustees and Ms. 
Bradford. During its ownership of the Stock, the Account received 
$706,860 in dividends from 1983 until 2006. In addition, the Alden 
Beach Resort was refinanced in 1990, and the proceeds were distributed 
to the shareholders. The Account received $433,860 from the 
refinancing. The Account incurred no expenses or administrative costs 
in connection with its ownership of the Stock. As a result of the 
acquisition and holding of the Stock, the Account has experienced a

[[Page 60891]]

net gain of $990,720 [($706,860 + $433,860) - $150,000].
    5. An administrative exemption is requested from the Department to 
allow Dr. Kamath's Account to sell the Stock to Mrs. Kamath. Following 
the sale, Mrs. Kamath proposes to transfer the Stock to a revocable 
trust for estate planning purposes. The sale price for the Stock will 
be based upon its independently appraised fair market value. The 
consideration for the Stock will be paid by Mrs. Kamath in cash. The 
Account will pay no fees or commissions in connection with the 
transaction.
    6. The value of the Stock on December 31, 2006 was $899,640, 
according to a January 2, 2007 appraisal report that was prepared by 
Mr. James W. Brockardt, CBA, a qualified, independent appraiser. The 
Appraiser, who is the President of Brockardt Consulting Group, LLC, an 
independent appraisal firm located in Pennington, New Jersey, has 
worked in the area of securities valuation since 1975. The Appraiser 
represents that he is completely independent of the parties involved in 
the transaction and has no present or prospective interest in the 
Stock.
    The Appraiser initially valued the Stock under both the Cost 
Approach and the Income Approach to valuation. Then, he determined a 
``freely traded value'' based upon weighting 75% to the Cost Approach, 
and 25% to the Income Approach. This value was next discounted by 35% 
for lack of marketability. As a result of the calculation, the 
Appraiser determined that the Stock had an aggregate fair market value, 
on a minority interest basis, of $6,428,398, or a per share value, on a 
minority interest basis, of $21,000. Thus, the 42.84 shares of Stock 
held by Dr. Kamath's Account have a total fair market value of 
$899,640. In addition, the Stock represents approximately 25.74% of the 
Account's assets.
    7. The proposed transaction is contingent upon the Department's 
issuance of a final exemption, on or before December 31, 2007, 
authorizing such transaction in accordance with an Agreement for Sale 
of Stock (the Stock Sale Agreement), to be entered into between Mrs. 
Kamath and the Trustees. In this regard, the Stock Sale Agreement 
provides that if the Department grants a final exemption approving the 
transaction, the closing of the transaction will occur within 30 days 
of such approval.
    As of the Closing Date, the Appraiser will review the assumptions 
he previously made in determining the appraised value of the Stock to 
see whether there has been a 3% or more increase (i.e., a Material 
Increase) in the fair market value of the Stock between the Appraisal 
Date (i.e., December 31, 2006) and the Closing Date. If the Appraiser 
determines that there has been no Material Increase in the fair market 
value of the Stock on the Closing Date, he will issue a letter to Mrs. 
Kamath and the Trustees informing them that the sale price of the Stock 
will be the value determined on the Appraisal Date. On the other hand, 
if the Appraiser determines that there has been a Material Increase in 
the fair market value of the Stock, he will advise the parties to the 
transaction, in writing, as to the increased value as of the Closing 
Date. Then, the sale price for the Stock will be revised to reflect the 
increased value and the amount of such increase will be paid by Mrs. 
Kamath to the Trustees following the receipt of the updated appraisal 
report from the Appraiser. Mrs. Kamath will pay the Trustees for the 
Stock either in cash or by wire transfer.
    If the Department does not grant a final exemption authorizing the 
proposed transaction by December 31, 2007, the transaction will be 
automatically rescinded and it will become null and void.
    8. The Trustees represent that the transaction is in the best 
interest of the Account because the sale ensures that the Account will 
have greater liquidity and diversification since its assets will be 
invested in either marketable securities or assets that are traded on 
an established market. This will enable Dr. Kamath's interest to be 
rolled over to his individual retirement account upon his retirement. 
Also, given the lack of operating or financial control of a minority 
shareholder, such as the Account, the Trustees state that it would be 
difficult, if not impossible, to sell the Stock. Further, the Trustees 
explain that the transaction will enable Alden to make a Subchapter S 
corporation election.
    9. It is represented that the transaction is protective of the 
Account because the fair market value of the property underlying the 
Stock will be updated on the Closing Date by the Appraiser. Further, 
the Account has not been required, nor will it be required, to pay any 
fees, commissions or other expenses or costs in connection with the 
subject transaction.
    10. In summary, it is represented that the proposed transaction 
will satisfy the statutory requirements for an exemption under section 
408(a) of the Act because:
    (a) The sale of the Stock by the Account to Mrs. Kamath will be a 
one-time transaction for cash.
    (b) The Stock will be sold to Mrs. Kamath for a price that reflects 
the fair market value of the Stock, as determined by the Appraiser on 
the Closing Date.
    (c) The Closing Date of the transaction will occur at a time that 
is mutually agreed upon by Mrs. Kamath and the Trustees within 30 days 
of the Department's approval of the final exemption.
    (d) The Appraiser will determine whether there has been a Material 
Increase in the fair market value of the Stock between the Appraisal 
Date and the Closing Date, and if so, he will make appropriate 
adjustments to the sale price in an updated appraisal report.
    (e) Dr. Kamath's Account will not be responsible for paying any 
fees, commissions, or other costs or expenses associated with the sale 
of the Stock.
    (f) The terms and conditions of the Stock sale will remain at least 
as favorable to the Account as the terms and conditions obtainable 
under similar circumstances negotiated at arm's length with an 
unrelated party.

Notice to Interested Persons

    Because Dr. Kamath is the only participant in the Plan, it has been 
determined that there is no need to distribute the notice of proposed 
exemption to interested persons. Accordingly, comments and requests for 
a public hearing are due within thirty (30) days after the publication 
of the notice of proposed exemption in the Federal Register.

FOR FURTHER INFORMATION CONTACT: Ms. Jan D. Broady of the Department, 
telephone (202) 693-8556. (This is not a toll-free number.)

Wellington Management Company, LLP (Wellington Management) and Its 
Subsidiaries (together, Wellington) Located in Boston, MA

[Application No. D-11343]

Proposed Exemption

    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).\1\
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    \1\ For purposes of this proposed exemption, references to 
provisions of Title I of the Act, unless otherwise specified, refer 
also to the corresponding provisions of the code.
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Section I. Covered Transactions
    If the exemption is granted, the restrictions of section 
406(a)(1)(A) and (D) of the Act and the sanctions

[[Page 60892]]

resulting from the application of section 4975 of the Code, by reason 
of section 4975(c)(1)(A) and (D) of the Code, shall not apply (1) 
retroactively, from January 1, 2001 through December 31, 2003, and (2) 
prospectively, from the date the notice granting the final exemption is 
published in the Federal Register, to--
    (A) The acquisition, from an offshore corporation (the Offshore 
Corporation) of certain non-voting equity securities (Shares), which 
represent interests in the economic value of 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 (Manager Shares) of 
the Offshore Corporation by Wellington Global Administrator, Ltd. 
(Wellington Global Administrator), 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.
Section II. Conditions
    This proposed exemption is conditioned upon adherence to the 
material facts and representations described herein and upon 
satisfaction of the following conditions, which apply both 
retroactively and prospectively, unless otherwise excepted:
    (a) All decisions to acquire or redeem Shares have been made or are 
made on behalf of the Client Plan by an authorized fiduciary, which is 
independent of Wellington and the applicable Offshore Corporation.
    (b) At the time of acquisition of Shares from an Offshore 
Corporation, each Client Plan either had or has assets at least equal 
to $100 million.
    (1) In the case of a master trust that holds assets of multiple 
related Client Plans maintained by a single employer or a controlled 
group of employers, as defined in section 407(d)(7) of the Act, this 
requirement is satisfied if the master trust has aggregate assets at 
least equal to $100 million (assuming the fiduciary responsible for 
making the investment decision is the Client Plan sponsor or an 
affiliate of the Client Plan sponsor).
    (2) In the case of a pooled fund (e.g., a group trust) whose assets 
are ``plan assets'' subject to the Act, this requirement is satisfied 
as long as either (i) the pooled fund has at least $100 million in 
aggregate assets and the fiduciary making the investment decision is 
unrelated to Wellington and manages at least $200 million in assets 
(exclusive of the aggregate assets invested in the Offshore 
Corporations); or (ii) at least 50 percent of the units of beneficial 
interest in the pooled fund are held by Client Plans, each of which has 
total net assets of at least $100 million.
    (c) Wellington has not provided and does not provide investment 
advice (within the meaning of 29 CFR 2510.3-21(c)), nor is it a 
fiduciary with respect to any Client Plan's investment in an Offshore 
Fund.
    (d) All acquisitions and redemptions of Shares by a Client Plan 
have been made or are made for fair market value, determined as 
follows:
    (1) Equity securities have been valued or are valued at their last 
sale price or official closing price on the market on which such 
securities primarily trade using sources independent of Wellington 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 have been valued or are valued on 
either the basis of ``firm quotes'' obtained at the time of the 
acquisition or redemption of Shares 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 have been valued or 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 Wellington 
Management's pricing 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 have been valued or will be valued at 
their fair value by Wellington Management's pricing committee in 
accordance with Fair Value Pricing Practices.
    (e) A Client Plan's Shares have been redeemed or may be redeemed, 
in whole or in part, without the payment of any redemption fee or other 
penalty, on a pre-specified, periodic (not longer than semi-annual) 
basis, upon no more than 45 days' advance notice, except for a one-year 
lock-up period imposed on new investors.
    (f) Redemptions of Shares in an Offshore Corporation by a Client 
Plan have been made or are made in cash unless:
    (1) A Client Plan consents to such in kind redemption; or
    (2) Wellington requires that such redemption be made in kind on a 
pro rata basis to protect the best interests of the Offshore Fund and 
the remaining investors, including other Client Plan investors.
    (g) In advance of the initial investment by a Client Plan in an 
Offshore Corporation's Shares, the independent fiduciary of a Client 
Plan has received or receives--
    (1) A copy of the proposed exemption and the final exemption. (This 
disclosure provision applies to the prospective exemptive relief 
described herein.)
    (2) An offering memorandum describing the relevant Offshore 
Fund(s), as well as the relevant investment objectives, fees and 
expenses and redemption and valuation procedures; and
    (3) All reasonably available relevant information as such 
independent fiduciary may request.
    (h) On an ongoing basis, Wellington has provided or provides a 
Client Plan with the following information:
    (1) Unaudited performance reports at the end of each month;
    (2) Audited annual financial statements and access to a protected 
internet site; and
    (3) Client services group assistance for any investor inquiries.
    (i) No commission or sales charge has been assessed or is assessed 
against the Client Plan in connection with its acquisition of an 
Offshore Corporation's Shares.
    (j) Not more than 10% of the assets of the Client Plan has been 
invested or is invested, in the aggregate, in Shares of all Offshore 
Corporations (determined at the time of any acquisition of such Shares) 
and not more than 5% of the assets of the Client Plan has been 
indirectly invested or is invested, in the aggregate, in any one 
offshore fund (the Offshore Fund), a separate collective investment 
vehicle underlying an Offshore Corporation, (also determined at the 
time of any acquisition of an interest in such Offshore Fund by such 
Client Plan).
    (k) For prospective transactions only, each Offshore Corporation, 
each Offshore Fund, Wellington Management Investment, Inc. (Wellington

[[Page 60893]]

Management Investment), Wellington Global Holdings, Ltd. (Wellington 
Global Holdings), Wellington Hedge Management, LLC (Wellington Hedge 
Management), and Wellington Global Administrator--
    (1) Has agreed to submit to the jurisdiction of the federal and 
state courts located in the Commonwealth of Massachusetts;
    (2) Has agreed to appoint an agent for service of process in the 
United States, which may be an affiliate (the Process Agent);
    (3) Has consented to service of process on the Process Agent; and
    (4) Has agreed that any enforcement by a Plan of its rights 
pursuant to this exemption will, at the option of the Plan, occur 
exclusively in the United States courts.
    (l) For prospective transactions only, Wellington maintains in the 
United States for a period of six years from the date of the covered 
transactions, such records as are necessary to enable the persons 
described in paragraph (m) of this Section II to determine whether the 
conditions of this exemption were met, except that:
    (1) If the records necessary to enable the persons described in 
paragraph (m) to determine whether the conditions of the exemption have 
been met are lost or destroyed, due to circumstances beyond the control 
of Wellington, then no prohibited transaction will be considered to 
have occurred solely on the basis of the unavailability of those 
records; and
    (2) No party in interest other than Wellington 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 have not been maintained or are not available for examination 
as required by paragraph (m) below.
    (m)(1) Except as provided in paragraph (m)(2) of this Section II 
and notwithstanding the provisions of subsections (a)(2) and (b) of 
section 504 of the Act, the records referred to above in paragraph (l) 
of this Section II are unconditionally available for examination during 
normal business hours at their customary location to the following 
persons or an authorized representative thereof:
    (i) Any duly authorized employee or representative of the 
Department or the Internal Revenue Service (the Service);
    (ii) Any fiduciary of a Client Plan; or
    (iii) Any participant or beneficiary of a Client Plan or any duly 
authorized employee or representative of such participant or 
beneficiary.
    (2) None of the persons described above in paragraphs (ii) and 
(iii) of this paragraph (m)(1)(ii) and (iii) of this Section II shall 
be authorized to examine trade secrets of Wellington, or any commercial 
or financial information, which is privileged or confidential.
Section III. Definitions
    (a) The term ``Wellington'' means Wellington Management Company, 
LLP and its subsidiaries.
    (b) An ``affiliate'' of Wellington 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 in any 
such person; and
    (3) Any corporation or partnership of which such person is an 
officer, director, partner, or employee.
    (c) The term ``control'' means the power to exercise a controlling 
influence over the management or policies of a person other than an 
individual.
    (d) The term ``Offshore Corporation'' means --
    (1) WMIB;
    (2) Any future expansion of WMIB that includes an additional class 
of securities or an additional Offshore Fund that is organized as a 
Bermuda limited partnership, which corresponds to the new WMIB class 
that is established by Wellington pursuant to the WMIB structure, and 
conforms to the same conditions, rules and regulations described in 
this exemption;
    (3) Archipelago; or
    (4) Any future ``fund of funds'' investment vehicle that is formed 
by Wellington under Bermuda law and is set up in substantially the same 
manner as Archipelago, with the same management structure, and conforms 
to the same conditions, rules and regulations described in this 
exemption.
    (e) The term ``Offshore Fund'' means a collective investment 
vehicle that is organized as a Bermuda limited partnership, which 
corresponds to each class of WMIB securities. Each Offshore Fund 
invests primarily in publicly-traded securities, although up to 15% of 
each Offshore Fund may be invested in securities that are not readily 
marketable.
    (f) The term ``U.S. broker-dealer'' means a broker-dealer 
registered in the United States under the Securities Exchange Act of 
1934 (the 1934 Act) or exempted from registration under section 
15(a)(1) of the 1934 Act as a dealer in exempted government securities 
(as defined in section 3(a)(12) of the 1934 Act).
    (g) The term ``foreign broker-dealer'' means a broker that has, as 
of the last day of its most recent fiscal year, equity capital that is 
the equivalent of not less than $200 million and is registered and 
regulated, under the relevant securities laws of a governmental entity 
of a country other than the United States, where such regulation and 
oversight by the governmental entities is comparable to regulatory 
regimes within the United States.
    (h) ``Manager Shares'' refer to the equity securities of an 
Offshore Corporation that have voting rights and control the election 
of the Board of Directors of an Offshore Corporation. Manager Shares do 
not participate in the economic performance of the Offshore Corporation 
and are owned 100% by Wellington Global Administrator.
    (i) ``Shares'' refer to the equity securities of an Offshore 
Corporation that do not have voting rights. Such shares represent 
substantially all of the economic value of the Offshore Corporation and 
are or will be directly linked either (i) by class to a corresponding 
Offshore Fund (in the case of WMIB) or (ii) to a mix of various WMIB 
classes (in the case of Archipelago or any other fund of funds entity).
    Effective Date: If granted, this proposed exemption will be 
effective retroactively for the transactions involving Wellington and 
two Client Plans that occurred from January 1, 2001 until December 31, 
2003. For prospective transactions involving Wellington and a Client 
Plan, this proposed exemption will be effective on the date the notice 
granting the final exemption is published in the Federal Register.

Summary of Facts and Representations

    1. Wellington, or the applicant (the Applicant), is a Massachusetts 
limited liability partnership that is a federally registered investment 
adviser and a financial services organization. Wellington manages the 
assets of many individual and institutional clients. As of September 
30, 2006, Wellington had over $544 billion in assets under management, 
including the assets of many ERISA-covered employee benefit plans.
    2. Wellington currently sponsors two offshore, open-end limited 
liability investment companies (i.e., the Offshore Corporations)--
Wellington Management Investors (Bermuda), Ltd. (WMIB) and Archipelago 
Holdings, Ltd. (Archipelago). Each Offshore Corporation was formed 
under the laws

[[Page 60894]]

of Bermuda. WMIB, which is a conduit vehicle and does not have an 
investment manager, is structured in a manner that is similar to a 
``series fund.'' It presently has outstanding nine classes of equity 
interests, each of which is linked to a separate collective investment 
vehicle that is organized as a Bermuda limited partnership (i.e., the 
Offshore Funds). There is a separate Bermuda limited partnership that 
corresponds to each class of WMIB securities.\2\ All amounts 
distributed to WMIB by a particular Offshore Fund are distributed to 
the holders of the corresponding class of WMIB securities. Each 
Offshore Fund invests primarily in publicly-traded securities, although 
up to 15% of such fund may be invested in securities that are not 
readily marketable.
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    \2\ WMIB actually has 11 classes of equity interests. However, 
two of these classes relate to funds that have different 
characteristics than those described herein, and such classes are 
not intended to be covered by this exemption. Therefore, the 
existence of these two classes (and the corresponding Offshore 
Funds) should be disregarded in this proposed exemption except for 
the fact that interests in these two classes are held by 
Archipelago.
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    Wellington Management Investment, a Delaware corporation, which is 
wholly owned by Wellington Management, does not have any contractual 
relationship with, or provide any services to, the Offshore 
Corporations or the Offshore Funds. Wellington Management Investment 
holds a 0.025% interest in Wellington Global Holdings, a 0.1% interest 
in Wellington Global Administrator and a 0.1% interest in Wellington 
Hedge Management. The remaining interests in each such entity are 
directly held by Wellington Management, so that all three entities are 
nearly 100% owned by Wellington Management.
    Wellington Global Holdings serves as the investment general partner 
of each WMIB Offshore Fund and, in such capacity, has hired Wellington 
Management as the investment sub-adviser of each WMIB Offshore Fund. 
Wellington Global Holdings also serves as the investment manager of 
Archipelago. Wellington Global Administrator serves as the 
administrative general partner of each WMIB Offshore Fund and also as 
the administrative manager of Archipelago. Wellington Hedge Management 
serves as the general partner of the Wellington-sponsored domestic 
``onshore'' hedge funds, but has no responsibility or relationship with 
respect to the Offshore Corporations or the Offshore Funds.
    In the future, WMIB may be expanded by Wellington to include 
additional classes of equity interests and additional Offshore Funds, 
corresponding in each case to the new WMIB class of equity interest. 
The future classes of equity interests and Offshore Funds will be 
established pursuant to the WMIB structure.
    3. Archipelago is a ``fund of funds'' in that all of its assets are 
invested in a mix of the WMIB classes and, as a result, indirectly in a 
mix of the Offshore Funds and other funds associated with those 
particular classes \3\. Archipelago operates as a conduit vehicle as 
well (in that the investments made by Archipelago (i.e., the WMIB asset 
classes) are, in most instances, pre-specified as are the specific 
percentages to be invested in each such class). Wellington Global 
Holdings serves as investment manager to Archipelago and has limited 
discretionary authority in that capacity.\4\
---------------------------------------------------------------------------

    \3\ Archipelago initially invested in six WMIB classes. Over 
time, however, two of these original six WMIB classes have been 
closed to new investment by Archipelago and two different WMIB 
classes have been substituted for new investments. Although new 
investments into Archipelago are allocated among six WMIB classes, 
Archipelago's assets are still invested in eight WMIB classes. Two 
of these eight WMIB classes, including one to which new Archipelago 
investments are allocated, correspond with underlying Bermuda 
limited partnerships that are not ``Offshore Funds,'' as defined in 
this proposed exemption, due to the fact that each such limited 
partnership permits investment in illiquid private placements that 
are not readily marketable to exceed 15% and has certain 
restrictions on redemptions. Because these two WMIB classes are not 
Offshore Funds, as defined in this proposed exemption, no plans will 
be permitted to invest in these WMIB classes.
    \4\ For example, Wellington Global Holdings oversees annual 
rebalancings of the underlying WMIB classes held by Archipelago. In 
addition, Wellington Global Holdings may determine to direct 
Archipelago investments in different percentages among the six 
current WMIB classes or to different WMIB classes. However, in 
either event, notice of the proposed change would be given to all 
affected investors in advance of such change.
---------------------------------------------------------------------------

    4. The Applicant explains that a Client Plan may choose to invest 
in Archipelago, rather than directly in the various classes of WMIB 
shares, because the amount it is investing may be too small to enable 
it to achieve the degree of diversification it desires among the 
various Offshore Funds. In particular, the WMIB classes typically 
require a minimum investment of $1-$3 million per class. For a 
relatively small investment (Archipelago's minimum investment is 
approximately $1 million), Archipelago represents an opportunity for 
greater diversification according to the Applicant.\5\ On an annual 
basis, Archipelago automatically rebalances its investments in the 
underlying WMIB classes to maintain the pre-specified target 
allocations.
---------------------------------------------------------------------------

    \5\ The minimum investment can be waived by Wellington.
---------------------------------------------------------------------------

    Wellington represents that it may in the future establish 
additional Offshore Corporations that are substantially similar to 
Archipelago. However, these future ``fund of funds'' investment 
vehicles will invest in a different mix of WMIB classes than 
Archipelago.
    5. The Applicant explains that within the universe of hedge funds, 
WMIB and Archipelago are not considered highly leveraged, nor will any 
future Offshore Corporations be highly leveraged. The Applicant states 
that many other hedge funds are more highly leveraged than WMIB and 
Archipelago. The Applicant bases this opinion on the SEC's Staff 
Report, ``Implications of the Growth of Hedge Funds'' (September 2003), 
which noted that, if a leverage ratio is defined as the ratio of total 
absolute dollars invested to total dollars of equity, a leverage ratio 
of greater than 2 to 1 is considered ``high'' while a ratio of less 
than or equal to 2 to 1 is considered ``low.'' When applying this 
criterion to the Offshore Funds, the Applicant states that 
historically, in most instances, total leverage exposure of each 
Offshore Fund has been substantially less than 2 to 1, and is 
consistent with the SEC's view that the leverage ratio is low.
    Further, each Offshore Corporation margins its long securities only 
through its prime broker, which is subject to the terms of Regulation T 
issued by the Board of Governors of the Federal Reserve System pursuant 
to the Securities Exchange Act of 1934. The Offshore Corporations are 
limited to 100% leverage with respect to long securities,\6\ they may 
short sell

[[Page 60895]]

securities, and may engage in derivative transactions. The derivative 
transactions are tracked daily and are not a significant source of 
leverage.
---------------------------------------------------------------------------

    \6\ The Applicant states that the reference to ``100% leverage'' 
with respect to its long securities is not inconsistent with its 
representation that the Offshore Funds are not highly leveraged. For 
one thing, the Applicant represents that this statement relates only 
to the limit imposed by Regulation T on an investor's ability to 
invest on margin (i.e., with funds borrowed from the relevant 
broker). The Applicant states that in fact, the Offshore Funds do 
not come close to approaching this limit. The Applicant further 
states that Regulation T would permit a maximum long exposure 
percentage of 200% (i.e. 100% leverage), whereas the long exposure 
number for the WMIB and Archipelago class funds never exceeds 150%.
    In addition, the Applicant states that ``100% leverage'' with 
respect to its long securities'' means that the Offshore Fund could 
utilize $100 of its own capital to purchase long securities and an 
additional $100 of borrowed funds to purchase long securities 
yielding a total long security position of $200 of which 50% would 
be attributable to debt and 50% would be attributable to the 
investment of its own equity. This would be analogous to an 
investment in real estate in which a property is bought for $200 
with a mortgage of $100 with the remaining $100 being derived from 
the investor's own capital.
    Moreover, the Applicant explains that since a Plan is likely to 
invest a small percentage of its assets in any particular Offshore 
Fund it may well be completely prudent and appropriate for some plan 
assets to be invested in an Offshore Fund that is more highly 
leveraged and therefore more risky, when such investment is viewed 
in the context of the Plan's overall portfolio and the other 
relevant facts and circumstances applicable to the particular plan 
that would affect its appetite for risk. The Applicant believes 
these are factors that must be taken into account by the independent 
Plan fiduciary prior to investing in a particular Offshore Fund.
---------------------------------------------------------------------------

    Moreover, the Applicant states that the Offshore Corporations are 
designed to provide absolute returns rather than to outperform a 
designated market.\7\ Therefore, the Offshore Corporations do not 
utilize tracking errors as risk management tools.
---------------------------------------------------------------------------

    \7\ Absolute return strategies are designed to move 
independently of the underlying markets and have lower correlations 
to the broader markets. During falling markets, the performance of a 
fund should stay independent from that of broader market movements, 
thus providing protection from those downward movements. In rising 
markets, funds employing absolute return strategies lag behind more 
traditional long-only investments. See ``Implications of the Growth 
of Hedge Funds,'' at 111.
---------------------------------------------------------------------------

    6. Each Offshore Corporation has (or will have) two broad classes 
of equity securities--Manager Shares and Shares. Manager Shares are 
voting shares and hence control the election of the Board of Directors 
of an Offshore Corporation, but do not participate in the economic 
performance of the Offshore Corporation. Manager Shares are owned 100% 
by Wellington Global Administrator. Shares are non-voting but represent 
substantially all of the economic value of the Offshore Corporation and 
are or will be directly linked either (a) by class to a corresponding 
Offshore Fund (in the case of WMIB) or (b) to a mix of various WMIB 
classes (in the case of Archipelago or any other fund of funds entity). 
Shares are presently owned by numerous investors, primarily unrelated 
non-U.S. individuals and institutions and unrelated U.S. non-taxable 
investors, but not by any Client Plans.
    In order to comply with National Association of Securities Dealers 
(NASD) rules (the ``new issues rules'') relating to the allocation of 
certain initial public offerings (IPOs), each Offshore Corporation 
offers three sub-classes of Shares: A Shares, which participate fully 
in initial public offering (IPO) allocations; C Shares, which 
participate only to a limited extent (i.e., only to the extent 
permitted by the applicable NASD rules) in IPO allocations; and E 
Shares, which do not participate to any extent in IPO allocations. In 
all other respects, these three sub-classes are identical. These NASD 
rules only impact investors that are professional money managers or 
broker-dealers as well as certain of their respective affiliates and 
related persons. All other investors would be required to invest in A 
Shares.\8\
---------------------------------------------------------------------------

    \8\ WMIB also offers S Shares with respect to classes that 
invest in underlying funds that are not intended to be covered by 
this exemption, except to the extent of Archipelago's interest 
therein.
---------------------------------------------------------------------------

    Client Plans that are not ``restricted'' (as defined in NASD Rule 
2790 \9\) would acquire Class A shares. Client Plans that are 
restricted would acquire Class C shares. Only Client Plans that are 
sponsored solely by a broker-dealer would be deemed to be 
``restricted.''
---------------------------------------------------------------------------

    \9\ On October 24, 2003, the SEC approved new Rule 2790 
(Restrictions on the purchase and sale of IPOs of equity 
securities), which replaces the Free-Riding and Withholding 
Interpretation (IM-2110-1). Rule 2790 prohibits a NASD member from 
selling a ``new issue'' to any account in which a ``restricted 
person'' has a beneficial interest. The term ``restricted person'' 
includes most associated persons of a member, most owners and 
affiliates of a broker-dealer, and certain other classes of persons. 
The Rule requires that a member, before selling a new issue to any 
account, meet certain ``preconditions for sale,'' which require the 
member to obtain a representation from the beneficial owner of the 
account that the account is eligible to purchase new issues in 
accordance with the Rule. The Rule also contains a series of general 
exemptions.
---------------------------------------------------------------------------

    In addition, each Share sub-class is further divided into a 
different series in order to account for different loss carryforwards 
associated with specific Shares held by investors depending upon their 
holding periods with respect to such Shares. According to the 
Applicant, the separate accounting and the resultant separate series 
are needed in order to reflect the correct incentive allocation amounts 
with respect to each investor. In this regard, the incentive allocation 
payable to Wellington Global Holdings, as the investment general 
partner, at the Offshore Fund level incorporates a ``high-water mark'' 
\10\ concept. Application of that concept requires that investments 
made at different times be accounted for separately. The various series 
provide a mechanism for such separate accounting.
---------------------------------------------------------------------------

    \10\ The Applicant states that Wellington Global Holdings is 
entitled to an incentive allocation equal to a specified percentage 
(typically 20 percent) of the net profits during each fiscal year. 
However, the Applicant notes that if there is a loss in any fiscal 
year, then no incentive allocation will be made with respect to 
subsequent net profits allocable to shareholders who incurred the 
loss until the cumulative net loss has been fully offset by 
subsequent net profits allocable to such shareholders. The Applicant 
states that although this structure is often referred to as a high-
water mark, it may be easier to understand as a loss carryforward.
---------------------------------------------------------------------------

    7. Each Offshore Corporation is exempt from registration under the 
Investment Company Act of 1940 (the 1940 Act) by reason of Section 
3(c)(7) of the 1940 Act (i.e., all U.S. investors in the Offshore 
Corporation must be ``qualified purchasers''). In addition, the assets 
of each Offshore Corporation are not currently, and are not expected to 
be, ``plan assets'' subject to the Act because the aggregate interests 
of each class of equity securities issued by the Offshore Corporation 
that are held by ``benefit plan investors'' are currently, and are 
expected to be, less than 25% of the aggregate outstanding interests of 
such class (determined in accordance with the plan assets 
regulation).\11\
---------------------------------------------------------------------------

    \11\ The Applicant states that its current intention is to keep 
investments by Client Plans, or ``benefit plan investors'' (as 
defined by section 3(42) of the Act), in each class of the Offshore 
Corporations' Shares below 25% and thereby avoid plan asset status. 
The Applicant represents that it monitors the level of investment by 
Client Plans each time there is any cash flow to make sure that the 
Offshore Corporations remain below the 25% threshold in each class. 
To the extent necessary, the Applicant explains that it may 
mandatorily redeem a Client Plan's Shares if necessary to remain 
below 25%. However, in the event benefit plan investors are allowed 
to exceed the 25% threshold and the underlying assets of the 
affected Offshore Corporations become plan assets, the Applicant 
states that it would comply with the applicable fiduciary 
obligations under the Act during any period that the assets being 
managed by Wellington include any plan assets. Under such 
circumstances, the Applicant states that it would provide advance 
notice to all investors in the affected entity and would not allow 
the 25% threshold to be exceeded until all such investors had an 
opportunity to redeem their Shares should they desire not to 
continue to invest in a plan assets vehicle.
---------------------------------------------------------------------------

    8. As an investment adviser registered under the Investment 
Advisers Act of 1940, Wellington Management is subject to the 
jurisdiction of the SEC. In this respect, the Applicant states that 
Wellington Management is subject to regulatory review and oversight by 
the SEC, which review encompasses all of Wellington Management's client 
relationships, including its relationships with the Offshore 
Corporations and the Offshore Funds. The sub-advisory agreement 
pursuant to which Wellington Management manages the assets of each 
Offshore Fund provides that such agreement is subject to the laws of 
Massachusetts (to the extent not preempted by applicable U.S. federal 
law). As a resident of Massachusetts, Wellington Management is subject 
to the jurisdiction of the state and federal courts in Massachusetts. 
Moreover, each Offshore Corporation, each Offshore Fund, Wellington 
Global Holdings and Wellington Global Administrator, will consent to 
the jurisdiction of such courts, and will appoint Wellington Management 
as its agent for service of process.
    9. Wellington's compensation is paid exclusively at the Offshore 
Fund-level. Thus, Wellington will receive no duplicate fees from a 
Client Plan. In this

[[Page 60896]]

regard, each Offshore Fund pays Wellington an aggregate annual 
management fee equal to one percent of the Offshore Fund's net assets. 
The management fee is paid quarterly in arrears and is calculated based 
on the value of the net assets of the Offshore Fund at the end of the 
quarter. Also, as discussed in Representation 6 and the footnote 
reference with respect thereto, each Offshore Fund allocates 20 percent 
of its net profits to Wellington Global Holdings on an annual basis or 
upon a full redemption by a Client Plan. There are no additional 
management fees incurred at the Offshore Corporation level.\12\
---------------------------------------------------------------------------

    \12\ Although the Applicant reserves the right to change its fee 
in the future, it states that in all cases, any such change would be 
fully disclosed to investors in advance. Any existing investors 
would then have an opportunity to withdraw from the affected 
Offshore Fund before the fee change became effective without 
penalty.
---------------------------------------------------------------------------

    Wellington believes its compensation with respect to these entities 
is reasonable, within the meaning of section 408(b)(2) of the Act and 
the regulations promulgated thereunder, and consistent with (and in 
many cases lower than) the levels of compensation charged by other 
managers of comparable entities. In addition, Wellington states that 
the reasonableness of its compensation is further evidenced by the fact 
that substantially all of the investors in these entities are 
independent of Wellington and all investors have made their decisions 
to invest in such entities after full disclosure of the level of 
compensation to be charged.
    10. The Applicant believes that certain of its clients may desire 
to invest in one or more Offshore Corporations. In particular, U.S. 
tax-exempt investors, including Client Plans, frequently invest in 
offshore funds structured as corporations (for U.S. tax purposes) in 
order to minimize the amount of unrelated business taxable income they 
incur as a result of certain investment strategies and activities. In 
effect, the Applicant states that the introduction of the Offshore 
Corporation shields the Client Plan from any unrelated business taxable 
income, thereby enhancing the after-tax investment return of the Client 
Plan. Because an investment in an Offshore Corporation would allow 
Client Plans to invest in these investment strategies and activities on 
the most tax efficient basis, the Applicant believes that it is in the 
best interest of Client Plans and their participants and beneficiaries, 
and also consistent with the requirements of section 408(a) of the Act, 
for the Department to grant an administrative exemption for the past 
and future acquisition and redemption of an Offshore Corporation's non-
voting Shares by a Client Plan.
    11. Accordingly, the Applicant requests an administrative exemption 
from the Department that would permit a Client Plan to acquire Shares 
from an Offshore Corporation. The exemption would also allow the Client 
Plan to redeem Shares from an Offshore Corporation, either in cash or 
in kind. An administrative exemption is required because Wellington 
Management is (or may become) a party in interest with respect to a 
Client Plan, as a fiduciary and a service provider under section 
3(14)(A) and (B) of the Act. Wellington Management would also be 
considered a party in interest with respect to a Client Plan under 
section 3(14)(H) of Act because it owns directly 10% or more of 
Wellington Global Administrator, a service provider to a Client Plan. 
In this respect, Wellington Management owns more than 99% of the common 
stock of Wellington Global Administrator and indirectly, more than 99% 
of Manager Shares.
    In addition, Wellington Global Administrator is a party in interest 
with respect to a Client Plan under section 3(14)(H) of the Act 
inasmuch as it is a 10% or more shareholder of an Offshore Corporation 
due to its ownership of 100% of Manager Shares.
    Further, an Offshore Corporation would be considered a party in 
interest with respect to a Client Plan because under section 3(14)(G) 
of the Act, it is a corporation in which 50% of the combined voting 
power of all stock entitled to vote is owned directly by Wellington 
Global Administrator, a service provider, and indirectly by Wellington 
Management, a fiduciary and a service provider.
    Therefore in the absence of an administrative exemption, the 
acquisition or redemption by a Client Plan of Shares from an Offshore 
Corporation would constitute a prohibited purchase and sale transaction 
between the Client Plan and a party in interest in violation of section 
406(a)(1)(A) and (D) of the Act.
    Because all decisions with respect to a Client Plan's acquisition 
or redemption of Shares would be (or have been made) by independent 
fiduciaries of Client Plans which are unrelated to Wellington, no 
exemption from section 406(b) of the Act is being requested by the 
Applicant.
    If granted, the exemption would provide retroactive relief, 
effective from January 1, 2001 until December 31, 2003 for transactions 
involving two Client Plans that formerly invested in the Offshore 
Corporations. The exemption would also provide prospective relief that 
would be effective on the date the grant notice is published in the 
Federal Register for future investments by Client Plans in the Offshore 
Corporations.
    The Applicant is aware that the prospective transactions described 
herein may be covered by the statutory exemption for service providers 
under section 408(b)(17) of the Act. Section 408(b)(17) of the Act 
requires that, in connection with transactions entered into pursuant to 
this statutory exemption, that a plan receive no less nor pay no more 
than ``adequate consideration.'' For purposes of the statutory 
exemption, the term ``adequate consideration'' means,
     In the case of a security for which there is a generally 
recognized market--
    [cir] The price of the security prevailing on a national securities 
exchange which is registered under section 6 of the Securities Exchange 
Act of 1934, taking into account factors such as the size of the 
transaction and marketability of the security, or
    [cir] If the security is not traded on a national securities 
exchange, a price not less favorable to the plan than the offering 
price for the security established by the current bid and asked prices 
quoted by persons independent of the issuer and of the party in 
interest, taking into account factors such as the size of the 
transaction and marketability of the security, and
     In the case of an asset other than a security for which 
there is a generally recognized market, the fair market value of the 
asset as determined in good faith by a fiduciary or fiduciaries in 
accordance with regulations prescribed by the Secretary of Labor.
    The Applicant is concerned about the requirement in section 
408(b)(17) that the plan ``receives no less, nor pays no more, than 
adequate consideration.'' In this context, the Applicant explains that 
this provision means fair market value as determined in good faith by 
the relevant plan fiduciary in accordance with regulations prescribed 
by the Department. In the absence of such regulations, the Applicant 
states that the determination of what constitutes adequate 
consideration is unclear, particularly if the underlying assets of an 
Offshore Fund are invested in securities and other investments that are 
not publicly-traded. But for this concern, the Applicant states that 
the statutory relief provided under section 408(b)(17) of the Act would 
be adequate for prospective transactions.
    12. The Applicant requests retroactive exemptive relief with 
respect to the

[[Page 60897]]

investment by two Client Plans in an Offshore Corporation. 
Specifically, the NCR Pension Plan (the NCR Plan) and the Lahey Clinic 
Pension Plan (the Lahey Plan) inadvertently acquired interests in an 
Offshore Corporation in January 1, 2001 and July 1, 2003, respectively. 
The NCR Plan invested $27,200,000 in the WMIB Offshore Corporation on 
January 1, 2001 in order to acquire Class A Shares. Based upon an 
available Form 5500, the NCR Plan had total assets of approximately $3 
billion on December 31, 2000. Therefore, the NCR Plan's investment in 
WMIB represented approximately 1% of that Client Plan's assets. In 
addition, WMIB made no interim distributions to the NCR Plan during the 
Client Plan's ownership of Shares. On December 31, 2003, the NCR Plan 
redeemed its interest in WMIB partially in cash and partially in kind. 
As the redemption amount, the NCR Plan received $31,052,990.
    The Lahey Plan invested $6 million in Archipelago on July 1, 2003 
to acquire Class A Shares. Based upon an available Form 5500, the Lahey 
Plan had total assets of approximately $150 million as of September 30, 
2003. Thus, the Lahey Plan's investment in Archipelago represented 
approximately 4% of that Client Plan's assets. During its ownership of 
the Class A Shares, Archipelago made no interim distributions to the 
Lahey Plan. On December 31, 2003, the Lahey Plan redeemed its interest 
in Archipelago in cash. The Lahey Plan received $6,712,168.
    It is represented that Wellington did not provide investment advice 
(within the meaning of 29 CFR 2510.3-21(c)), nor was it a fiduciary, 
with respect to either the Lahey Plan's or the NCR Plan's investments 
in the Class A Shares. Rather, in each case, the decision to acquire 
Class A Shares was made by an authorized fiduciary of the Client Plan 
who was independent of Wellington. Neither the independent fiduciary of 
the Client Plan nor Wellington had any knowledge that such acquisition 
would give rise to a prohibited transaction under section 406(a) of the 
Act. This was because the parties were not aware that Wellington 
Management's 95% indirect ownership of Manager Shares in WMIB and 
Archipelago resulted in either Offshore Corporation becoming a party in 
interest with respect to the applicable Client Plan. When the 
prohibited transaction concern was identified, the Applicant states 
that each Client Plan redeemed its interest in the Offshore Corporation 
in December 2003, within a reasonable period of time after such 
discovery. In the case of the Lahey Plan, the redemption was made 
entirely in cash, while the NCR Plan requested, and was given, a 
redemption that was partially in cash and partially in kind. The NCR 
Plan was permitted to receive an in-kind redemption in part because it 
intended to reinvest its redemption proceeds in a parallel domestic 
fund, also managed by Wellington.\13\ In view of this intent, the 
Applicant believes that it was more efficient and cost effective (i.e., 
by avoiding transaction costs) to effect a partial redemption in kind. 
Neither Client Plan incurred a loss as a result of its investment in 
the Offshore Corporation.
---------------------------------------------------------------------------

    \13\ The Applicant states that the redemption proceeds received 
by the NCR Plan were invested in Quisset Partners, L.P. (the 
Domestic Fund), a private investment fund organized as a Delaware 
limited partnership that is sponsored and managed by Wellington in a 
substantially similar manner to the Offshore Fund from which the NCR 
Plan was redeemed. The Applicant further states that the decision to 
invest in the Domestic Fund was made by an independent fiduciary of 
the NCR Plan without any fiduciary involvement by Wellington or any 
of its affiliates. The Applicant confirms that the assets of the 
Domestic Fund are not plan assets subject to the Act due to the fact 
that the holdings of equity interests in the Domestic Fund are such 
that ownership by benefit plan investors is not significant within 
the meaning of section 3(42) of the Act. Nevertheless, the 
Department is not proposing, nor is the Applicant requesting, 
exemptive relief with respect to the NCR Plan's investment in the 
Domestic Fund.
---------------------------------------------------------------------------

    During their investment in the Offshore Corporations, both the 
Lahey Plan and the NCR Plan were provided with the opportunity to 
access, among other things, monthly unaudited performance reports and 
audited annual financial statements. Both the Lahey Plan and the NCR 
Plan were also able to access this information online or through paper 
mailings that were initially given to the sponsor of the NCR Plan. In 
addition, during the entire duration of their respective investments, 
both Client Plans had telephone access to the Wellington's Hedge Fund 
Group for assistance with any questions they may have had.
    Neither the NCR Plan nor the Lahey Plan paid any sales or 
redemption fees or commissions in connection with their subscription 
and redemption of Class A Shares. Like all other investors, the Client 
Plans did indirectly bear the management fee and incentive allocation 
borne by the underlying partnerships to which their respective Class A 
Shares related.
    13. With respect to the determination of fair market value for 
purposes of the redemption transactions relating to the NCR Plan and 
the Lahey Plan, the Applicant states that to the extent that any of the 
assets of an Offshore Fund consisted of publicly-traded securities or 
other assets for which independent market prices were available, the 
public market prices or independent pricing sources were utilized. The 
Applicant further states that to the extent that any of the assets of 
an Offshore Fund were not capable of being valued in this manner, 
Wellington Management's pricing committee, which is comprised of senior 
Wellington investment professionals, determined the fair value of such 
assets pursuant to its Fair Value Pricing Practices.\14\ Wellington 
contemplates that not more than 5% of the securities held by an 
Offshore Fund which are not readily marketable will be subject to its 
Fair Value Pricing Practices.
---------------------------------------------------------------------------

    \14\ The Applicant states that a fair value pricing 
determination is intended to provide, on a best-efforts basis, the 
price at which the security could reasonably be expected to be sold 
in an arm's length transaction. The Applicant notes that a fair 
value determination does not contemplate the price at which the 
entire position would be sold; each situation is appraised 
individually and only a small percentage (typically in the range 
from 0-5%) of its holdings will be subject to fair value pricing at 
any one time. The Applicant considers the following factors in 
determining whether fair valuation is required: (a) Prices are 
unavailable on an exchange or market; (b) prices are unavailable 
from brokers/market makers; (c) a determination that prices from 
vendor/broker sources are stale or incorrect; (d) a private 
placement investment; (e) notice of default or the initiation of 
bankruptcy proceedings; (f) a determination that an investment has 
become worthless; (g) certain corporate reorganizations; (h) a 
``significant event'' has occurred with respect to a security or 
market.
    In making its fair value pricing determination, the Applicant 
represents that it utilizes a set of defined decision rules, which 
involve varying degrees of objectivity, an independent review 
process, and a continuing review of securities in fair value status. 
The valuation process is operated in a consistent manner over time 
as well as among investor accounts.
---------------------------------------------------------------------------

    14. Given that (a) there was no awareness of the technical 
prohibited transaction concern involved, (b) the investment decision 
was made by an independent fiduciary on the same terms as all other 
investors in the Offshore Corporation after receipt of an offering 
memorandum describing the details of the investment, (c) each of these 
two Client Plans had, at the time of investment, aggregate assets in 
excess of $100 million, (d) each Client Plan redeemed its entire 
interest in the Offshore Corporation within a reasonable period of time 
after the prohibited transaction concern was discovered, and (e) 
neither Client Plan incurred a loss on account of its investment in the 
Offshore Corporation, the Applicant believes that a retroactive 
exemption covering the acquisition and redemption of interests in the 
Offshore Corporations by these two Client Plans is appropriate. For 
these Client Plans, the exemption would be effective

[[Page 60898]]

between January 1, 2001 and December 31, 2003.
    15. The Applicant represents that the following safeguards for the 
prospective exemption will be in place:
     All decisions to acquire or redeem Shares will be made or 
are made on behalf of the Client Plan by an independent fiduciary.
     The Client Plan, either individually or through a pooled 
investment vehicle such as a master trust or a pooled fund, will have 
assets at least equal to $100 million. For example: (a) In the case of 
a master trust that holds assets of multiple related Client Plans 
maintained by a single employer or a controlled group of employers, as 
defined by section 407(d)(7) of the Act, this requirement will be 
satisfied if the master trust has aggregate assets at least equal to 
$100 million (assuming the fiduciary responsible for making the 
investment decision is the Client Plan sponsor or an affiliate of the 
Client Plan sponsor); or (b) in the case of a pooled fund (e.g., a 
group trust) whose assets are ``plan assets'' subject to the Act, this 
requirement will be satisfied as long as either (1) the pooled fund has 
at least $100 million in aggregate assets and the fiduciary making the 
investment decision is unrelated to Wellington and manages at least 
$200 million in assets (exclusive of the aggregate assets invested in 
the Offshore Corporations); or (2) at least 50 percent of the units of 
beneficial interest in the pooled fund are held by Client Plans, each 
of which has total net assets of at least $100 million.
     Wellington will not provide investment advice (within the 
meaning of 29 CFR 2510.3-21(c)), nor is it a fiduciary with respect to 
any Client Plan investment in an Offshore Fund.
     All acquisitions and redemptions of Shares by a Client 
Plan will be for fair market value, determined as follows: (a) equity 
securities will be valued at their last sale price or official closing 
price on the market on which such securities primarily trade using 
sources independent of Wellington 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; (b) fixed income securities will be valued 
either on the basis of ``firm quotes'' obtained at the time of the 
acquisition or redemption of Shares 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; (c) 
options will be 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 Wellington Management's 
pricing committee, which utilizes a set of defined rules and an 
independent review process; or (d) if current market quotations are not 
readily available for any investments, such investments will be valued 
at their fair value by Wellington Management's pricing committee, in 
accordance with Fair Value Pricing Practices.
     A Client Plan's Shares will be redeemed, in whole or in 
part, without the payment of any redemption fee or other penalty, on a 
pre-specified, periodic (not longer than semi-annual) basis, upon no 
more than 45 days' advance notice, except for a one-year lock-up period 
imposed on new investors. (If the Applicant extends the lock-up period 
to existing investors, such investors would receive advance notice and 
have an opportunity to withdraw from the affected Offshore Fund without 
penalty before the change become effective.)
     Redemptions of Shares in an Offshore Corporation by a 
Client Plan will be made in cash unless: (a) A Client Plan consents to 
such in kind redemption; or (b) Wellington requires that such 
redemption be made in kind on a pro rata basis to protect the best 
interests of the Offshore Fund and the remaining investors, including 
other Client Plan investors. (Each Offshore Corporation may redeem 
Shares in kind if deemed by the Board of Directors to be in the best 
interests of the Offshore Corporation. There is no threshold over which 
redemptions are automatically funded in kind, nor is there any minimum 
amount of redemption below which the redemption cannot be made in 
kind.)
     In advance of the initial investment by a Client Plan in 
an Offshore Corporation's Shares, the relevant independent fiduciary 
will receive: (a) A copy of the proposed and final exemption for 
prospective relief described herein; (b) an offering memorandum 
describing the relevant Offshore Fund(s), as well as the relevant 
investment objectives, fees and expenses and redemption and valuation 
procedures; and (c) all reasonably available relevant information as 
such independent fiduciary may request.
     On an ongoing basis, Wellington will provide a Client Plan 
with the following information: (a) Unaudited performance reports at 
the end of each month; (b) audited annual financial statements and 
access to a protected internet site; and (c) client services group 
assistance for any investor inquiries.
     No commission or sales charge will be assessed against the 
Client Plan in connection with its acquisition of an Offshore 
Corporation's Shares.
     Not more than 10% of the assets of the Client Plan will be 
invested, in the aggregate, in non-voting Shares of all Offshore 
Corporations (determined at the time of any acquisition of the Shares) 
and not more than 5% of the assets of the Client Plan will be invested, 
in the aggregate, in any one Offshore Fund (determined at the time of 
any acquisition of an interest in such Offshore Fund by such Client 
Plan).
     Each Offshore Corporation, each Offshore Fund, Wellington 
Management Investment, Wellington Global Holdings, Wellington Hedge 
Management, and Wellington Global Administrator will consent to the 
jurisdiction of the federal and state courts located in the 
Commonwealth of Massachusetts and has appointed Wellington Management 
as its agent for service of process.
     Wellington will maintain in the United States for a period 
of six years from the date of the covered transactions, such records as 
are necessary to enable any duly authorized employee or representative 
of the Department or the Service, any fiduciary of a Client Plan, or 
any participant or beneficiary of a Client Plan to determine whether 
the conditions of this exemption have been or are met.
    16. In summary, the Applicant represents that the transactions have 
satisfied or will satisfy the statutory criteria for an exemption under 
section 408(a) of the Act because:
    (a) All decisions to acquire or redeem such Shares have been or 
will be made on behalf of the Client Plan by an authorized fiduciary 
who is independent of Wellington and the applicable Offshore 
Corporation;
    (b) At the time of acquisition of Shares from an Offshore 
Corporation, each Client Plan has had or will have assets at least 
equal to $100 million either individually or through a pooled 
arrangement.
    (c) Wellington has not provided or will not provide investment 
advice (within the meaning of 29 CFR 2510.3-21(c)), nor is it a 
fiduciary with respect

[[Page 60899]]

to any Client Plan's investment in an Offshore Fund.
    (d) A Client Plan's Shares have been redeemed or will be redeemed, 
in whole or in part, without the payment of any redemption fee or other 
penalty, on a pre-specified, periodic (not longer than semi-annual) 
basis, upon no more than 45 days' advance notice, except for a one-year 
lock-up period imposed on new investors.
    (e) All acquisitions and redemptions of Shares by a Client Plan 
have been made or will be made for fair market value or have been 
valued or will be valued by Wellington Management's pricing committee, 
which utilizes a set of defined rules and an independent review 
process, all in accordance with Fair Value Pricing Practices.
    (f) Redemptions of interests in an Offshore Corporation by a Client 
Plan have been made or will be made in kind or cash unless: (1) A 
Client Plan consents to such in kind redemption; or (2) Wellington 
requires that such redemption be made in kind to protect the best 
interests of the Offshore Fund and the remaining investors, including 
other Client Plan investors.

    (g) In advance of the initial investment by a Client Plan in an 
Offshore Corporation's Shares, the relevant independent fiduciary has 
received or will receive: (1) A copy of the proposed exemption and the 
final exemption (This disclosure provision applies to the prospective 
exemptive relief described herein.); (2) an offering memorandum 
describing the relevant Offshore Fund(s), as well as the relevant 
investment objectives, fees and expenses and redemption and valuation 
procedures; and (3) all reasonably available relevant information as 
such independent fiduciary may request.
    (h) On an ongoing basis, Wellington has provided or will provide 
the independent fiduciary of a Client Plan with the following 
information: (1) Unaudited performance reports at the end of each 
month; (2) audited annual financial statements and access to a 
protected internet site; and (3) client services group assistance for 
any investor inquiries.
    (i) No commission or sales charge has been assessed or will be 
assessed against the Client Plan in connection with its acquisition of 
an Offshore Corporation's Shares.
    (j) Not more than 10% of the assets of the Client Plan has been 
invested or will be invested, in the aggregate, in non-voting Shares of 
all Offshore Corporations (determined at the time of any acquisition of 
such Shares) and not more than 5% of the assets of the Client Plan has 
been indirectly invested or will be invested, in the aggregate, in any 
one Offshore Fund (determined at the time of any acquisition of an 
interest in such Offshore Fund by such Client Plan).
    (k) For prospective transactions only, each Offshore Corporation, 
each Offshore Fund, Wellington Management Investment, Wellington Global 
Holdings, Wellington Hedge Management, and Wellington Global 
Administrator will consent to the jurisdiction of the federal and state 
courts located in the Commonwealth of Massachusetts and has appointed 
Wellington Management as its agent for service of process.
    (l) For prospective transactions only, Wellington will maintain in 
the United States for a period of six years from the date of the 
covered transactions, such records as are necessary to enable such 
persons as any duly authorized employee or representative of the 
Department or the Service, any fiduciary of a Client Plan, or any 
participant or beneficiary of a Client Plan, to determine whether the 
conditions of this exemption will be met.
    17. The Department notes that the general standards of fiduciary 
conduct under the Act would apply to the transactions permitted herein, 
and that the satisfaction of the conditions of this exemption should 
not be viewed as an endorsement, by the Department, of investments in 
the Offshore Corporations by Wellington's Client Plans. Therefore, the 
Department believes that it would be helpful to provide general 
information regarding its views on the responsibilities of an 
independent fiduciary of a Client Plan in connection with such plan's 
investment in an Offshore Corporation.
    As noted in the Department's Interpretive Bulletin, 29 CFR 2509.94-
3(d) (59 FR 66736, December 28, 1994), apart from consideration of the 
prohibited transaction provisions, a Client Plan's independent 
fiduciary must determine that such plan's investment in an Offshore 
Corporation is consistent with the general standards of fiduciary 
conduct under section 404 of the Act. In this regard, section 
404(a)(1)(A) and (B) of the Act requires that fiduciaries discharge 
their duties to a plan solely in the interests of the participants and 
beneficiaries, for the exclusive purpose of providing benefits to 
participants and beneficiaries and defraying reasonable administrative 
expenses, and with the care, skill, prudence, and diligence under the 
circumstances then prevailing that a prudent person acting in a like 
capacity and familiar with such matters would use in the conduct of an 
enterprise of a like character and with like aims. In addition, section 
404(a)(1)(C) of the Act requires that fiduciaries diversify plan 
investments so as to minimize the risk of large losses, unless under 
the circumstances it is clearly prudent not to do so.
    Accordingly, the independent fiduciary of a Client Plan must act 
``prudently,'' ``solely in the interest'' of the Client Plan's 
participants and beneficiaries, and with a view to the need to 
diversify such plan assets when deciding whether to invest plan assets 
in Shares of an Offshore Corporation. If such investment is not 
``prudent,'' or not ``solely in the interest'' of the participants and 
beneficiaries of the plan or would result in an improper lack of 
diversification of plan assets, the responsible fiduciary or 
fiduciaries of the plan would be liable for any losses resulting from 
such a breach of fiduciary responsibility.
    The Department further emphasizes that it expects the independent 
fiduciary to fully understand the benefits and risks associated with 
the Client Plan's investment in an Offshore Corporation, following 
disclosure to such fiduciary of all relevant information, including the 
fees that are paid to Wellington. Further, such plan fiduciary must be 
capable, either directly or indirectly through the use of hired 
professional experts, of monitoring the investment, including any 
changes in the performance of the investment. Thus, in considering a 
Client Plan's investment in an Offshore Corporation, an independent 
fiduciary should take into account its ability to provide adequate 
oversight of the particular investment.

FOR FURTHER INFORMATION CONTACT: Ms. Jan D. Broady of the Department, 
telephone number (202) 693-8556. (This is not a toll-free number.)

GE Asset Management Incorporated Located in Stamford, Connecticut

[Application No. D-11389]

Proposed Exemption

Section I--Exemption for In-Kind Redemption of Assets
    The Department is considering granting an exemption under the 
authority of section 408(a) of the Act and 4975(c)(2) of the Code, and 
in accordance with the procedures set forth in 29 CFR part 2570 subpart 
B (55 FR 32836, 32847, August 10, 1990). If the proposed exemption is 
granted, the restrictions in sections 406(a)(1)(A) through (D) and 
406(b)(1) and (b)(2) of the Act, and the sanctions resulting from the 
application of section 4975 of the Code, by reason of section

[[Page 60900]]

4975(c)(1)(A) through (E) of the Code, shall not apply,\15\ effective 
March 1, 2006, to certain in-kind redemptions (the Redemption(s)), by 
plans sponsored by the General Electric Company (GE) or an affiliate 
(the Plan(s)), of shares (the Shares) of certain proprietary mutual 
funds for which GE Asset Management Incorporated (GEAM) provides 
investment advisory and other services (the Mutual Fund(s)), provided 
that the following conditions are satisfied:
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    \15\ For purposes of this proposed exemption, references to 
specific provisions of Title I of the Act, unless otherwise 
specified, refer also to the corresponding provisions of the Code.
---------------------------------------------------------------------------

    (A) The Plan pays no sales commissions, redemption fees, or other 
similar fees in connection with the Redemption (other than customary 
transfer charges paid to parties other than GEAM and any affiliates 
thereof (GEAM Affiliates));
    (B) The assets transferred to the Plan pursuant to the Redemption 
consist entirely of cash and Transferable Securities, as such term is 
defined in Section II, below;
    (C) With certain exceptions described below, the Plan receives in 
any Redemption its pro rata portion of the securities that, when added 
to the cash received, is equal in value to the number of Shares 
redeemed, as determined in a single valuation performed in the same 
manner and as of 4 p.m. (local time for the New York Stock Exchange) on 
the same day, in accordance with Rule 2a-4 under the Investment Company 
Act of 1940, as amended (the 1940 Act), and the then-existing 
procedures established by the Board of Trustees of the Mutual Fund 
(using sources independent of GEAM and GEAM Affiliates). 
Notwithstanding the foregoing, Transferable Securities that are odd lot 
securities, fractional shares, and accruals on such securities may be 
distributed in cash;
    (D) Neither GEAM, nor any affiliate thereof, receives any direct or 
indirect compensation, or any fees, including any fees payable pursuant 
to Rule 12b-1 under the 1940 Act, in connection with any Redemption of 
the Shares;
    (E) Prior to a Redemption, GEAM provides in writing to an 
independent fiduciary, as such term is defined in Section II 
(Independent Fiduciary), a full and detailed written disclosure of 
information regarding the Redemption;
    (F) Prior to a Redemption, the Independent Fiduciary provides 
written authorization for such Redemption to GEAM, such authorization 
being terminable at any time prior to the date of Redemption without 
penalty to the Plan;
    (G) Before authorizing a Redemption, based on the disclosures 
provided by GEAM to the Independent Fiduciary, the Independent 
Fiduciary determines that the terms of the Redemption are fair to the 
Plan, and comparable to, and no less favorable than, terms obtainable 
at arm's length between unaffiliated parties, and that the Redemption 
is in the best interests of the Plan and its participants and 
beneficiaries;
    (H) Not later than thirty (30) business days after the completion 
of a Redemption, the Mutual Fund will provide to the Independent 
Fiduciary a written confirmation regarding such Redemption containing:
    (i) The total number of Shares of the Mutual Fund and the 
percentage held by the Plan immediately before the Redemption (and the 
related per Share net asset value and the total dollar value of the 
Shares held);
    (ii) The identity (and related aggregate dollar value) of each 
security provided to the Plan pursuant to the Redemption, including 
each security valued in accordance with Rule 2a-4 under the 1940 Act 
and the then-existing procedures established by the Board of Trustees 
of the Mutual Fund (using sources independent of GEAM and GEAM 
Affiliates);
    (iii) The current market price of each security received by the 
Plan pursuant to the Redemption; and
    (iv) The identity of each pricing service or market-maker consulted 
in determining the value of such securities;
    (I) The value of the securities received by the Plan for each 
redeemed Share, when added to the cash received, equals the net asset 
value of such Share at the time of the transaction, and such value 
equals the value that would have been received by any other investor 
for shares of the same class of the Mutual Fund at that time;
    (J) Subsequent to a Redemption, within 180 days of the date of such 
Redemption, the Independent Fiduciary performs a post-transaction 
review that will include, among other things, testing a sampling of 
material aspects of the Redemption deemed in its judgment to be 
representative, including pricing;
    (K) Each of the Plan's dealings with the Mutual Funds, the 
investment advisers to the Mutual Funds, the principal underwriter for 
the Mutual Funds, or any affiliated person thereof, are on a basis no 
less favorable to the Plan than dealings between the Mutual Funds and 
other shareholders holding shares of the same class as the Shares;
    (L) GEAM will maintain, or cause 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 (M) below to 
determine whether the conditions of this exemption, if granted, have 
been met, except that (i) this recordkeeping condition shall not be 
violated if, due to circumstances beyond the control of GEAM, the 
records are lost or destroyed prior to the end of the six year period, 
(ii) no party in interest with respect to the Plan other than GEAM 
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 such records are not maintained or are not 
available for examination as required by paragraph (M) below;
    (M)(1) Except as provided in subparagraph (2) of this paragraph 
(M), and notwithstanding any provisions of section 504(a)(2) and (b) of 
the Act, the records referred to in paragraph (L) above are 
unconditionally available at their customary locations for examination 
during normal business hours by (i) any duly authorized employee or 
representative of the Department of Labor, the Internal Revenue 
Service, or the Securities and Exchange Commission (SEC), (ii) any 
fiduciary of the Plan or any duly authorized representative of such 
fiduciary, (iii) any participant, beneficiary, or union employee 
covered by the Plan or duly authorized representative of such 
participant, beneficiary, or union employee, (iv) any employer whose 
employees are covered by Plan and any employee organization whose 
members are covered by such Plan.
    (2) None of the persons described in paragraphs (M)(1)(ii), (iii) 
and (iv) shall be authorized to examine trade secrets of GEAM or the 
Mutual Funds, or commercial or financial information that is privileged 
or confidential; and
    (3) Should GEAM or the Mutual Funds refuse to disclose information 
on the basis that such information is exempt from disclosure pursuant 
to paragraph (2) above, GEAM 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 II--Definitions
    (A) The term ``affiliate'' means:
    (1) Any person (including a corporation or partnership) directly or 
indirectly through one or more intermediaries, controlling, controlled 
by, or under common control with the person;

[[Page 60901]]

    (2) Any officer, director, employee, relative, or partner in any 
such person; and
    (3) Any corporation or partnership of which such person is an 
officer, director, partner, or employee.
    (B) The term ``control'' means the power to exercise a controlling 
influence over the management or policies of a person other than an 
individual.
    (C) The term ``net asset value'' means the amount for purposes of 
pricing all purchases and sales calculated by dividing the value of all 
securities, determined by a method as set forth in the Mutual Fund's 
prospectus and statement of additional information, and other assets 
belonging to the Mutual Fund, less the liabilities charged to each such 
Mutual Fund, by the number of outstanding shares.
    (D) The term ``Independent Fiduciary'' means a fiduciary who is: 
(i) Independent of and unrelated to GEAM and its affiliates, and (ii) 
appointed to act on behalf of the Plan with respect to the in-kind 
transfer of assets from one or more Mutual Funds to, or for the benefit 
of, the Plan. For purposes of this proposed exemption, a fiduciary will 
not be deemed to be independent of and unrelated to GEAM if: (i) Such 
fiduciary directly or indirectly controls, is controlled by, or is 
under common control with GEAM, (ii) such fiduciary directly or 
indirectly receives any compensation or other consideration in 
connection with any transaction described in this proposed exemption 
(except that an independent fiduciary may receive compensation from 
GEAM 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 independent fiduciary's ultimate decision), and 
(iii) an amount equal to more than two percent (2%) of such fiduciary's 
gross income, for federal income tax purposes, in its prior tax year, 
will be paid to such fiduciary by GEAM and its affiliates in such 
fiduciary's current tax year.
    (E) The term ``Transferable Securities'' means securities that are 
traded on public securities markets or for which quoted bid and asked 
prices are available from persons independent of GEAM and would not 
include the following types of securities or assets: (a) Securities 
that would have to be registered under the Securities Act of 1933, as 
amended; (b) securities issued by entities in countries that restrict 
the holdings of securities by non-nationals, including investment 
vehicles such as the Mutual Funds, or otherwise limit the ability to 
transfer the security other than through a local securities exchange 
transaction; and (c) certain portfolio assets (such as forward currency 
contracts, futures and option contracts, swap transactions, and 
repurchase agreements) that, although they may be liquid and 
marketable, involve the assumption of contractual obligations, require 
special trading facilities, or may be traded only with the counterparty 
to the transactions in order to effect a change in beneficial 
ownership.
    (F) The term ``relative'' means a ``relative'' as such term is 
defined in section 3(15) of the Act (or a ``member of the family,'' as 
such term is defined in section 4975(e)(6) of the Code), or a brother, 
sister, or a spouse of a brother or a sister.

Summary of Facts and Representations

    1. GE Asset Management Incorporated (i.e., GEAM) is a direct, 
wholly-owned subsidiary of the General Electric Company (i.e., GE). 
GEAM serves as investment adviser to the GE Funds, an open-end 
management investment company registered under the 1940 Act that 
consists of a number of series (the Retail Funds). The Retail Funds 
generally offer four classes of shares: A, B, C, and Y. Class Y shares 
are held by various institutional investors. Investors in Class Y 
shares of the Retail Funds do not pay sales commissions or redemption 
fees in connection with the purchase or redemption of such shares, nor 
do they pay any 12b-1 or similar fees with respect to the distribution 
of such shares. Individual account plans maintained by GE and its 
affiliates (i.e., the Plans), subject to the Act and the Code, were, in 
the past, invested in Class Y shares of certain Retail Funds.\16\ The 
Retail Funds in which the Plans have in the past invested include the 
following: The International Equity Fund, U.S. Equity Fund, Strategic 
Investment Fund, Small-Cap Value Equity Fund, Premier Growth Equity 
Fund, Value Equity Fund, and Fixed Income Fund.
---------------------------------------------------------------------------

    \16\ The applicant represents that the Plans were invested in 
the Retail Funds pursuant to the terms and conditions of Prohibited 
Transaction Exemption (PTE) 77-3. PTE 77-3 (42 Fed. Reg. 18734, 
April 8, 1977) is a class exemption that permits, under certain 
conditions, the acquisition or sale of shares of a registered, open-
end investment company by an employee benefit plan covering only 
employees of such investment company, employees of the investment 
adviser or principal underwriter for such investment company, or 
employees of any affiliated person (as defined therein) of such 
investment adviser or principal underwriter. Thus, the applicant is 
not requesting exemptive relief with respect to the Plan's past 
investment in the Retail Funds. The Department expresses no opinion 
herein as to whether the terms and conditions of PTE 77-3 were 
satisfied.
---------------------------------------------------------------------------

    2. GEAM also serves as investment adviser to GE Institutional 
Funds, an open-end management investment company registered under the 
1940 Act that consists of a number of portfolios (the Institutional 
Funds). The Institutional Funds are designed primarily for 
institutional investors, such as corporations, foundations, endowments, 
and trusts, as well as charitable, religious, and educational 
institutions. Shares of the Institutional Funds are currently offered 
in two classes: the Investment Class (Class I) and Service Class. 
Purchasers of Class I shares do not pay any sales charges (including 
front-end, contingent deferred, or asset-based sales charges), nor do 
they pay shareholder service and distribution fees in connection with 
their investments in the Institutional Funds.
    The applicant represents that certain Institutional Funds have the 
same investment objectives, investment strategies, and portfolio 
managers as corresponding Retail Funds, and therefore have 
substantially identical portfolio holdings as those corresponding 
Retail Funds.\17\ However, the expense ratios of the Institutional 
Funds are lower than the expense ratios of the corresponding Retail 
Funds. The Institutional Funds that correspond to the Retail Funds in 
which the Plans have in the past invested include the following: the 
International Equity Fund, U.S. Equity Fund, Strategic Investment Fund, 
Small-Cap Value Equity Fund, Premier Growth Equity Fund, Value Equity 
Fund, and Fixed Income Fund.
---------------------------------------------------------------------------

    \17\ According to the applicant, where an Institutional Fund has 
a corresponding Retail Fund, such Institutional Fund invests in 
substantially identical underlying securities and substantially the 
same proportional amounts as its corresponding Retail Fund.
---------------------------------------------------------------------------

    3. Historically, the investor qualification requirements 
established by the Institutional Funds precluded the Plans from 
investing in them. As a result of recent changes to those investor 
eligibility requirements, however, the Plans may now invest in Class I 
shares of the Institutional Funds.\18\ Certain Plans that previously 
invested in Retail Funds have chosen to invest in the Institutional 
Funds that correspond to those Retail Funds, given the lower expense 
ratios of the

[[Page 60902]]

Institutional Funds and the substantial identity in investment 
objectives and policies between the Retail Funds and the corresponding 
Institutional Funds. This choice included a decision by the Plans to 
redeem Class Y Shares of the Retail Funds and to use the proceeds to 
purchase Class I shares of the corresponding Institutional Funds.
---------------------------------------------------------------------------

    \18\ The applicant represents that the changes to the 
Institutional Funds' investor qualification requirements became 
effective November 1, 2004. However, the Plans' desired investment 
changes could not be implemented until certain securities law issues 
under the 1940 Act were resolved with the no-action relief from the 
SEC with respect to the in-kind purchases of Institutional Funds 
shares discussed in Item 5. See GE Institutional Funds (pub. avail. 
December 21, 2005).
---------------------------------------------------------------------------

    To facilitate investments by the Plans in the Institutional Funds, 
the Retail Funds and the Institutional Funds determined to permit 
simultaneous in-kind Redemption and in-kind purchase transactions where 
possible, and such transactions were effected in March 2006. The 
applicant represents that this approach benefited the Plans, as well as 
other shareholders of the Retail Funds and the Institutional Funds, by 
avoiding the significant brokerage costs that would have been 
incurred--if portfolio securities of the Retail Funds were sold to 
realize cash to pay redemption proceeds that were then used to acquire 
similar portfolio securities in corresponding Institutional Funds. The 
process of effecting the March 2006 Redemptions began with the 
commencement of a blackout period applicable to the relevant Plans upon 
the close of the New York Stock Exchange on March 15, and was completed 
when the blackout was lifted at 2:30 p.m., Eastern Time, on March 20.
    4. With respect to prohibited transaction issues under the Act and 
the Code, the applicant has requested this exemption to cover the in-
kind Redemptions effected in March 2006. Prior to March 2006, the 
applicant had discussions with the Department, through outside counsel, 
about obtaining individual retroactive relief for the contemplated 
Redemptions, modeled on similar prior individual exemptions. The 
applicant notes that PTE 77-3 provides an exemption for the sale of 
shares of a mutual fund by an employee benefit plan covering employees 
of the investment adviser for the mutual fund and its affiliates, 
subject to certain conditions. However, in several published 
exemptions, in which the Department has granted individual relief for 
the in-kind redemption of shares by plans of the investment advisers of 
mutual funds--e.g., PTE 2003-01 (Northern Trust Company and 
Affiliates); PTE 2002-20 (Union Bank of California); and PTE 2001-46 
(Bank of America Corporation) \19\--the exemption notices describe PTE 
77-3 as being available for a redemption of shares for cash, implying 
that PTE 77-3 would not be available for an in-kind redemption.
---------------------------------------------------------------------------

    \19\ The most recent example is PTE 2007-04 (Mellon Financial 
Corporation).
---------------------------------------------------------------------------

    The applicant requests retroactive relief for the March 2006 
Redemptions and for any other in-kind Redemptions involving the Mutual 
Funds that are effected prior to the date that an exemption, if 
granted, is published in the Federal Register, as well as prospective 
relief for any in-kind Redemptions effected on or after that 
publication date, to be carried out in accordance with the conditions 
of the exemption.
    The applicant is not requesting relief for the in-kind acquisitions 
of Institutional Funds shares effected in March 2006 (and, it is 
represented, in the future would be effected) in accordance with PTE 
77-3, in reliance on Advisory Opinion 98-06A (July 30, 1998).
    5. The applicant represent that, with respect to issues raised 
under the 1940 Act by the aforementioned transactions, the Retail Funds 
effected the March 2006 in-kind Redemptions in reliance upon the no-
action relief granted by the SEC to Signature Financial Group, Inc. 
(pub. avail. Dec. 28, 1999) (the Signature Letter).\20\ Further, the 
Institutional Funds obtained no-action relief from the SEC with respect 
to the in-kind purchases of Institutional Funds shares effected as part 
of the overall exchange. See GE Institutional Funds (pub. avail. 
December 21, 2005).
---------------------------------------------------------------------------

    \20\ In the Signature Letter, the Division of Investment 
Management of the SEC states that it will not recommend enforcement 
action pursuant to section 17(a) of the 1940 Act for certain in-kind 
distributions of portfolio securities to an affiliate of a mutual 
fund. Funds seeking to use this ``safe harbor'' must value the 
securities to be distributed to an affiliate in an in-kind 
distribution ``in the same manner as they are valued for purposes of 
computing the distributing fund's net asset value.''
    The Signature Letter does not address the marketability of the 
securities distributed in kind. The range of securities distributed 
pursuant to this ``safe harbor'' may therefore be broader than the 
range of securities covered by SEC Rule 17a-7, 17 CFR 270.17a-7. In 
granting past exemptive relief with respect to in-kind transactions 
involving mutual funds, the Department has required that the 
securities being distributed in-kind fall within Rule 17a-7. One of 
the requirements of Rule 17a-7 is that the securities are those for 
which ``market quotations are readily available.'' SEC Rule 17a-
7(a). Under this exemption request, exemptive relief also would be 
limited to in-kind distribution of securities for which market 
quotations are readily available. In addition, the Signature Letter 
requires pro rata distributions for any in-kind redemptions.
---------------------------------------------------------------------------

    According to the applicant, the March 2006 Redemptions were 
effected pursuant to certain procedures adopted by the Board of 
Trustees of the Retail Funds, and the in-kind acquisitions were 
effected pursuant to corresponding procedures adopted by the Board of 
Trustees of the Institutional Funds. (The same persons serve as members 
of the Boards of both the Retail Funds and the Institutional Funds.) 
The securities and cash received by a Plan in an in-kind Redemption 
from a Retail Fund pursuant to such procedures were used only for the 
simultaneous purchase of shares of the corresponding Institutional 
Fund. Any in-kind Redemptions (and simultaneous in-kind acquisitions) 
occurring in the future would be effected pursuant to the same 
procedures (the Procedures).
    6. Under the Procedures, each in-kind Redemption was effected at 
the current net asset value per Share of the relevant Retail Fund and 
was effected simultaneously with the in-kind acquisition of shares of 
the corresponding Institutional Fund. Pursuant to each in-kind 
Redemption, subject to the exceptions noted below, a Plan received a 
pro rata portion of securities of the Retail Fund that was equal in 
value to the number of Retail Fund Shares redeemed, as determined in a 
single valuation performed as of 4 p.m. Eastern Time (local time for 
the closing of the New York Stock Exchange) on the same day, in the 
same manner as such securities would be valued for purposes of 
computing the Retail Fund's net asset value per share in accordance 
with Rule 2a-4 under the 1940 Act and the procedures established by the 
Board of Trustees of the Retail Funds (using sources independent of 
GEAM and affiliates of GEAM).\21\
---------------------------------------------------------------------------

    \21\ The applicant further represents that, because each Retail 
Fund distributed a pro rata portion of every unique lot of every 
applicable security, the Plans received their proportionate share of 
each Retail Fund's high tax basis holdings as well as low tax basis 
holdings of each security distributed in kind. Accordingly, low-
basis securities were not disproportionately allocated to the 
redeeming Plans to any material extent.
---------------------------------------------------------------------------

    Securities for which quotations are readily available on a national 
securities exchange are valued at the last quoted sales price, or if 
there is no reported sale, the security is valued at the last quoted 
bid price. Certain fixed income securities are valued by a dealer or by 
a pricing service based upon a computerized matrix system, which 
considers market transactions and dealer supplied valuations. 
Valuations for municipal bonds are based on prices obtained from a 
qualified municipal bond pricing service, which prices are based on the 
mean of the bid and ask prices of the secondary market. The value of 
the securities received by the Plan, as determined by the Retail Fund 
for purposes of an in-kind Redemption, is the same value of such 
securities that is used in determining the number of Institutional Fund 
shares purchased by such Plan as a result of the in-kind

[[Page 60903]]

purchase that is effected simultaneously as part of the same 
Redemption/acquisition transaction (and such purchase is effected at 
the net asset value per share of such Institutional Fund determined as 
of the same time).
    7. Furthermore, under the Procedures, securities received by a Plan 
pursuant to an in-kind Redemption are limited to securities that are 
traded on public securities markets or for which quoted bid and asked 
prices are available from persons independent of GEAM (i.e., 
Transferable Securities) and do not include the following types of 
securities or assets: (a) Securities that would have to be registered 
under the Securities Act of 1933, as amended; (b) securities issued by 
entities in countries that restrict the holdings of securities by non-
nationals, other than through qualified investment vehicles such as the 
Mutual Funds, or otherwise limit the ability to transfer the security 
other than through a local securities exchange transaction; and (c) 
certain portfolio assets (such as forward foreign currency contracts, 
futures and option contracts, and repurchase agreements) that, although 
they may be liquid and marketable, involve the assumption of 
contractual obligations, require special trading facilities, or may 
only be traded with the counterparty to the transactions in order to 
effect a change in beneficial ownership. The applicant further 
represents that no Rule 144A securities were involved in the 
Redemptions.
    In addition, under the Procedures, a Plan receives from the 
relevant Retail Fund (and deposits to the corresponding Institutional 
Fund) cash for the portion of the Retail Fund's assets represented by 
cash equivalents (such as certificates of deposit, commercial paper, 
and repurchase agreements). A Plan receives from the relevant Retail 
Fund (and deposits to the corresponding Institutional Fund) cash for 
other securities and assets that are not readily distributable 
(including securities and assets of the types described in (a), (b) and 
(c) of the preceding paragraph, receivables, and prepaid expenses) net 
of a pro rata portion of all liabilities (including accounts payable), 
and for those portfolio securities not amounting to round lots (e.g., 
100 shares) (or would not amount to round lots if included in the in-
kind Redemption and purchase) or fractional shares and accruals on 
these securities.
    The applicant represents that the March Redemptions also satisfied 
the remaining conditions set forth in Section I not addressed above. 
Thus, for example, neither GEAM nor a GEAM Affiliate, received any fees 
(including any fees pursuant to Rule 12b-1 under the 1940 Act) in 
connection with any in-kind Redemption.
    8. Further, the applicant retained U.S. Trust Company, N.A. (U.S. 
Trust), a national bank, to act as the Independent Fiduciary on behalf 
of the Plans with regard to the March 2006 Redemptions. It is 
represented that U.S. Trust is independent of, and unrelated to, GEAM 
and GEAM Affiliates and is qualified to perform the functions of the 
Independent Fiduciary. U.S. Trust has acknowledged that it is a 
fiduciary to the Plans, as defined in section 3(21) of the Act, and has 
represented that it understands and accepts the duties, 
responsibilities, and liabilities in acting as a fiduciary under the 
Act for the Plan, pursuant to the terms of an engagement letter, dated 
December 20, 2005, by and between GEAM and U.S. Trust.
    As a condition of the proposed exemption, prior to any in-kind 
Redemption with respect to a Plan, GEAM and the Plan must provide the 
Independent Fiduciary with (or cause the Independent Fiduciary to be 
provided with) information necessary for the Independent Fiduciary to 
determine the fairness of the proposed in-kind Redemption. Before 
authorizing any in-kind Redemption, the Independent Fiduciary must 
determine, based on the information provided, that the terms of the in-
kind Redemption are fair to the participants of the Plan and are 
comparable to, and no less favorable than, terms obtainable at arm's 
length between unaffiliated parties, and that the in-kind Redemption is 
in the best interests of the Plan and its participants and 
beneficiaries. If the Independent Fiduciary makes that determination, 
the Independent Fiduciary provides written authorization for such in-
kind Redemption to GEAM. However, that authorization is terminable at 
any time prior to the date of the in-kind Redemption, without penalty 
to the Plan.
    U.S. Trust also conducted a post-transaction review, summarized in 
a letter dated September 5, 2006, within 180 days of the date of the 
March 2006 Redemptions. The post-transaction review confirmed that the 
transfer was carried out in accordance with the required criteria and 
procedures, by testing a sampling of certain material aspects of the 
redemption transactions.\22\ U.S. Trust states,
---------------------------------------------------------------------------

    \22\ Condition (J) in Section I refers to testing ``a sampling'' 
of material aspects of the Redemptions by the Independent Fiduciary. 
The applicant represents, however, that U.S. Trust received and 
reviewed all of the data in connection with the Redemptions, thus 
reviewing 100% of the security transactions, not merely a sampling.

    In the Pre-Trade analysis performed by GEAM, the costs to redeem 
in cash and repurchase all of the securities from the Funds to the 
corresponding GE Institutional Funds were estimated to be 
$435,612.34 combined for commissions, spread, taxes and fees. By 
completing the redemption and reinvestment in kind rather than in 
cash these costs were avoided. The Plans were immediately reinvested 
after the in kind redemption; therefore, potential opportunity costs 
associated with reinvestment risk were eliminated. If the Plans had 
received cash instead of their pro rata portion of the assets in 
each of the Funds, they would have been forced to incur their pro 
rata portion of the sell side transactions costs, and they would 
have had to incur all of the buy side transactions costs when they 
reinvested the proceeds. Furthermore, there may have been a time lag 
from the date of the redemption request to the time the Plans had 
fully redeployed the proceeds. This time lag would have imposed an 
opportunity cost by not being invested in securities that would have 
---------------------------------------------------------------------------
had the potential to match the Plans [sic] stated objectives.

    With respect to any future Redemptions, as a condition of the 
proposed exemption, the Independent Fiduciary will also perform such a 
post-transaction review within 180 days of the date of the Redemption.
    9. In summary, the applicant represents that the Redemptions have 
satisfied, and will satisfy, the statutory criteria for an exemption 
under section 408(a) of the Act for the following reasons:
    (A) The Plan pays no sales commissions, redemption fees, or other 
similar fees in connection with the Redemption (other than customary 
transfer charges paid to parties other than GEAM and GEAM Affiliates);
    (B) The assets transferred to the Plan pursuant to the Redemption 
consist entirely of cash and Transferable Securities;
    (C) With certain exceptions described below, the Plan receives in 
any Redemption its pro rata portion of the securities that, when added 
to the cash received, is equal in value to the number of Shares 
redeemed, as determined in a single valuation performed in the same 
manner and as of 4 p.m. (local time for the New York Stock Exchange) on 
the same day, in accordance with Rule 2a-4 under the 1940 Act, and the 
then-existing procedures established by the Board of Trustees of the 
Mutual Fund (using sources independent of GEAM and GEAM Affiliates). 
Notwithstanding the foregoing, Transferable Securities that are odd lot 
securities, fractional shares, and accruals on such securities may be 
distributed in cash;
    (D) Neither GEAM, nor any GEAM Affiliate, receives any direct or 
indirect

[[Page 60904]]

compensation, or any fees, including any fees payable pursuant to Rule 
12b-1 under the 1940 Act, in connection with any Redemption of the 
Shares;
    (E) Prior to a Redemption, GEAM provides in writing to an 
Independent Fiduciary a full and detailed written disclosure of 
information regarding the Redemption;
    (F) Prior to a Redemption, the Independent Fiduciary provides 
written authorization for such Redemption to GEAM, such authorization 
being terminable at any time prior to the date of Redemption without 
penalty to the Plan;
    (G) Before authorizing a Redemption, based on the disclosures 
provided by GEAM to the Independent Fiduciary, the Independent 
Fiduciary determines that the terms of the Redemption are fair to the 
Plan, and comparable to, and no less favorable than, terms obtainable 
at arm's length between unaffiliated parties, and that the Redemption 
is in the best interests of the Plan and its participants and 
beneficiaries;
    (H) Not later than thirty (30) business days after the completion 
of a Redemption, the Mutual Fund will provide to the Independent 
Fiduciary a written confirmation regarding such Redemption containing:
    (i) The total number of Shares of the Mutual Fund and the 
percentage held by the Plan immediately before the Redemption (and the 
related per Share net asset value and the total dollar value of the 
Shares held);
    (ii) The identity (and related aggregate dollar value) of each 
security provided to the Plan pursuant to the Redemption, including 
each security valued in accordance with Rule 2a-4 under the 1940 Act 
and the then-existing procedures established by the Board of Trustees 
of the Mutual Fund (using sources independent of GEAM and GEAM 
Affiliates);
    (iii) The current market price of each security received by the 
Plan pursuant to the Redemption; and
    (iv) The identity of each pricing service or market-maker consulted 
in determining the value of such securities;
    (I) The value of the securities received by the Plan for each 
redeemed Share, when added to the cash received, equals the net asset 
value of such Share at the time of the transaction, and such value 
equals the value that would have been received by any other investor 
for shares of the same class of the Mutual Fund at that time;
    (J) Subsequent to a Redemption, within 180 days of the date of such 
Redemption, the Independent Fiduciary performs a post-transaction 
review that will include, among other things, testing a sampling of 
material aspects of the Redemption deemed in its judgment to be 
representative, including pricing;
    (K) Each of the Plan's dealings with the Mutual Funds, the 
investment advisers to the Mutual Funds, the principal underwriter for 
the Mutual Funds, or any affiliated person thereof, are on a basis no 
less favorable to the Plan than dealings between the Mutual Funds and 
other shareholders holding shares of the same class as the Shares.
    Notice To Interested Persons: Notice of the proposed exemption will 
be given to the relevant named fiduciary of each Plan and to the 
Independent Fiduciary representing the Plans by first class mail within 
30 days from the date of publication of the proposed exemption in the 
Federal Register. Comments and requests for a hearing from all 
interested persons are due within 60 days from such date of publication 
in the Federal Register.

FOR FURTHER INFORMATION CONTACT: Ms. Karin Weng of the Department, 
telephone (202) 693-8557. (This is not a toll-free number.)

Middleburg Trust Company (Middleburg) Located in Richmond, VA

[Application No. D-11405]

Proposed Exemption

    The Department is considering granting an exemption under the 
authority of 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).\23\
---------------------------------------------------------------------------

    \23\ Pursuant to 29 CFR 2510.3-2(d), the IRA is not within the 
jurisdiction of Title I of the Employee Retirement Income Security 
Act of 1974 (the Act). However, there is jurisdiction under Title II 
of the Act pursuant to section 4975 of the Code.
---------------------------------------------------------------------------

    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) through (E) of the Code, shall not apply to the past 
sale, on March 28, 2006, by the William T. Smith IRA (the IRA) of 
certain bonds (the Bonds) to Middleburg, a disqualified person with 
respect to the IRA.
    This proposed exemption is conditioned upon adherence to the 
material facts and representations described herein and upon 
satisfaction of the following conditions:
    (a) The sale was a one-time transaction for cash;
    (b) The sale price for the Bonds was based on the Bonds' face 
value;
    (c) The Bonds' face value was in excess of bids for the Bonds 
solicited from independent brokers and in excess of the price for the 
Bonds quoted by an independent valuation service for the date of the 
sale;
    (d) Neither the IRA nor Mr. William T. Smith, the owner of the IRA, 
paid any fees, commissions, or other costs or expenses associated with 
the sale;
    (e) The IRA received its portion of income and all interest accrued 
on the Bonds through the date of the sale;
    (f) The terms and conditions of the sale were at least as favorable 
to the IRA as those obtainable in an arm's length transaction with an 
unrelated party; and
    (g) Within 30 days of the publication of the grant notice in the 
Federal Register, Middleburg will pay the IRA $196.53 to make up for 
the loss sustained by the IRA as a result of the sale.
    Effective Date: If granted, the proposed exemption will be 
effective as of March 28, 2006.

Summary of Facts and Representations

    1. The plan to which the proposed exemption applies is an 
individual retirement account described under section 408(a) of the 
Code. The IRA is a ``traditional IRA'' in that the custodian, rather 
than the IRA account holder, makes the investment decisions for such 
plan. Mr. William T. Smith is the IRA account holder. As of February 
28, 2006, the IRA had total assets having a fair market value of 
$578,193.89.
    Middleburg,\24\ an independent trust company, headquartered in 
Richmond, Virginia, formerly acted as the custodian and trustee of the 
IRA and had discretion over the IRA's assets. At no time did Mr. Smith 
ever serve as an officer, director, or employee of Middleburg or its 
affiliates or have any other relationship with these entities.
---------------------------------------------------------------------------

    \24\ Prior to its name change, which took effect on January 1, 
2006, Middleburg was known as ``Tredegar Trust Company.''
---------------------------------------------------------------------------

    2. On June 28, 2005, Middleburg purchased 200 Federal Home Loan 
Bank (FHLB) bonds having a combined face value of $200,000.00.\25\ Each 
Bond in the entire issue had a Committee on Uniform Securities 
Identification Procedures Number of 3133XB2C8. Middleburg paid a total 
purchase price of $201,600 for the Bonds. The seller of the Bonds was 
First Tryon Securities of Charlotte, North Carolina, an unrelated 
party. Each Bond was issued in denominations of $1,000. The Bonds carry 
interest at 5% and have a maturity date of March 28, 2008. The Bonds 
were

[[Page 60905]]

divided among nine accounts (i.e., trust accounts and two IRAs, 
including the subject IRA) that needed fixed income exposure. 
Middleburg was the trustee for all nine accounts. Middleburg placed 
$25,200.00 of the Bond issue (or 25 Bonds) in the IRA. Thus, the Bonds 
represented approximately 4.3% of the IRA's assets. Middleburg 
allocated the Bonds among the remaining accounts based on a pro rata 
share of their fair market value, in conjunction with the need in the 
account portfolios for fixed income exposure.
---------------------------------------------------------------------------

    \25\ FHLB bonds are issued in denominations of $1,000 each, 
usually with minimum purchase amounts of 5 bonds ($5,000 face). Some 
FHLB bonds are issued for the institutional market, requiring a 100 
bonds minimum ($100,000 face). The bonds normally pay a stated fixed 
coupon (interest) and will pay face value at maturity or at an 
optional call date.
---------------------------------------------------------------------------

    3. In February 2006, Mr. Smith decided to move his IRA to another 
custodian. As a result, he requested that Middleburg liquidate all of 
his IRA holdings in order to transfer cash to the new custodian. While 
attempting to liquidate the Bonds held by the IRA, Middleburg 
discovered that the issue would trade only in $100,000.00 blocks. 
Middleburg represents that the salesman neglected to mention this 
limitation when the Bonds were first purchased. As a result, this 
limitation made the Bonds held in the IRA illiquid.
    4. In order to satisfy Mr. Smith's request, Middleburg decided that 
it needed to make a market for the Bonds held in the IRA. To ensure 
that the transaction would occur on terms that were at least as 
favorable as an arm's length sale to a third party, Middleburg 
represents that it solicited bids as if it had $100,000.00 worth of the 
Bonds to sell. The bids from various independent dealers ranged from 
$99.50 to $99.80 per $100.00 of Bond value, or $99,500 to $99,800, 
respectively. In addition, Middleburg advertised the Bonds all day on 
March 28, 2006.
    5. Middleburg decided that it would buy the Bonds held by the IRA 
at their full face value of $100 per $100 of Bond value, which exceeded 
the fair market value at the time. In this regard, the Bond's fair 
market value, as quoted by Bloomberg Fair Value Service on March 28, 
2006, the trade date, was $99.87 per $100 of Bond value or $24,968 for 
the Bonds. Thus, Middleburg paid the IRA $25,000.00, plus accrued 
interest of $3.47, or a total purchase price of $25,003.47 for the 
Bonds. Middleburg did not charge the IRA any fees or commissions in 
connection with the transaction. Because the IRA sustained a loss as a 
result of the sale, Middleburg will pay the IRA $196.53 within 30 days 
of the publication of the grant notice in the Federal Register.
    6. In summary, Middleburg represents that the subject transaction 
satisfied or will satisfy the statutory criteria for an exemption under 
section 4975(c)(2) of the Code for the following reasons: (a) The sale 
was a one-time transaction for cash; (b) the sale price for the Bonds 
was based on the Bonds' face value; (c) the Bonds' face value was in 
excess of bids for the Bonds solicited from independent brokers and in 
excess of the price for the Bonds quoted by an independent valuation 
service for the date of the sale; (d) the IRA paid no fees, 
commissions, or other costs or expenses associated with the sale; (e) 
the IRA received its portion of income and all interest accrued on the 
Bonds through the date of the sale; (f) the terms and conditions of the 
sale were at least as favorable to the IRA as those obtainable in an 
arm's length transaction with an unrelated party; and (g) within 30 
days of the publication of the grant notice in the Federal Register, 
Middleburg will pay the IRA $196.53 to make up for the loss sustained 
by the IRA as a result of the sale.

Notice to Interested Persons

    Because Mr. Smith is the only participant in the IRA, it has been 
determined that there is no need to distribute the notice of proposed 
exemption to interested persons. Therefore, comments and requests for a 
hearing must be received by the Department within 30 days of the date 
of publication of the proposed exemption in the Federal Register.

FOR FURTHER INFORMATION CONTACT: Ms. Blessed Chuksorji of the 
Department, telephone number (202) 693-8567. (This is not a toll-free 
number.)

Citigroup, Inc. (Citigroup) Located in New York, NY

[Application No. D-11417]

Proposed Exemption

    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
    If the proposed exemption is granted, the restrictions of sections 
406(a)(1)(D) and 406(b) of ERISA and the sanctions resulting from the 
application of section 4975 of the Code, including the loss of 
exemption of an IRA pursuant to section 408(e)(2)(A) of the Code, by 
reason of section 4975(c)(1)(D), (E) and (F) of the Code, shall not 
apply to the receipt of services at reduced or no cost by an individual 
for whose benefit an IRA or, if self-employed, a Keogh Plan, is 
established or maintained, or by members of his or her family, from 
Citigroup pursuant to an arrangement in which the account value of, or 
the fees incurred for services provided to, the IRA or Keogh Plan is 
taken into account for purposes of determining eligibility to receive 
such services, provided that each condition of Section II of this 
exemption is satisfied.
Section II: Conditions
    (a) The IRA or Keogh Plan whose account value, or whose fees paid, 
are taken into account for purposes of determining eligibility to 
receive services under the arrangement must be established and 
maintained for the exclusive benefit of the participant covered under 
the IRA or Keogh Plan, his or her spouse or their beneficiaries.
    (b) The services offered under the arrangement must be of a type 
that a qualified affiliate could offer consistent with all applicable 
federal and state banking laws and all applicable federal and state 
laws regulating broker-dealers.
    (c) The services offered under the arrangement must be provided by 
a qualified affiliate in the ordinary course of its business as a bank 
or a broker-dealer to customers who qualify for reduced or no cost 
services, but do not maintain IRAs or Keogh Plans with a qualified 
affiliate.
    (d) For the purpose of determining eligibility to receive services, 
the arrangement satisfies:
    (i) Eligibility requirements based on the account value of the IRA 
or Keogh Plan are as favorable as any such requirement based on the 
value of any other type of account which the qualified affiliate 
includes to determine eligibility; and/or
    (ii) Eligibility requirements based on the amount of fees incurred 
by the IRA or Keogh Plan, are as favorable as any requirements based on 
the amount of fees incurred by any other type of account which the 
qualified affiliate includes to determine eligibility.
    (e) The combined total of all fees for the provision of services to 
the IRA or Keogh Plan is not in excess of reasonable compensation 
within the meaning of section 408(b)(2) of ERISA and section 4975(d)(2) 
of the Code.
    (f) The investment performance of the investments made by the IRAs 
and/or Keogh Plans is no less favorable than the investment performance 
of identical investments that could have been made at the same time by 
a customer of Citigroup who is not eligible for (or who does not 
receive) reduced or no cost services.
    (g) The services offered under the arrangement to the IRA or Keogh 
Plan customer must be the same as are offered to non-IRA or non-Keogh 
Plan customers of qualified affiliates with

[[Page 60906]]

account values of the same amount or the same amount of fees generated.
Section III: Definitions
    The following definitions apply to this exemption:
    (a) The term ``bank'' means a bank described in section 408(n) of 
the Code.
    (b) The term ``broker-dealer'' means a broker-dealer registered 
under the Securities Exchange Act of 1934, as amended.
    (c) The term ``IRA'' means an individual retirement account 
described in Code section 408(a), an individual retirement annuity 
described in Code section 408(b) or a Coverdell education savings 
account described in section 530 of the Code. For purposes of this 
exemption, the term IRA shall not include an IRA which is an employee 
benefit plan covered by Title I of ERISA, except for a Simplified 
Employee Pension (SEP) described in section 408(k) of the Code or a 
Simple Retirement Account described in section 408(p) of the Code which 
provides participants with the unrestricted authority to transfer their 
balances to IRAs or Simple Retirement Accounts sponsored by different 
financial institutions.
    (d) The term ``Keogh Plan'' means a pension, profit-sharing, or 
stock bonus plan qualified under Code section 401(a) and exempt from 
taxation under Code section 501(a) under which some or all of the 
participants are employees described in section 401(c) of the Code. For 
purposes of this exemption, the term Keogh Plan shall not include a 
Keogh Plan which is an employee benefit plan covered by Title I of 
ERISA.
    (e) The term ``account value'' means investments in cash or 
securities held in the account for which market quotations are readily 
available. For purposes of this exemption, the term cash shall include 
savings accounts that are insured by a federal deposit insurance agency 
and constitute deposits as that term is defined in 29 CFR 2550.408b-
4(c)(3). The term account value shall not include investments that are 
offered by Citigroup (or a qualified affiliate) exclusively to IRAs and 
Keogh Plans.
    (f) The term ``qualified affiliate'' means any person directly or 
indirectly controlling, controlled by, or under common control with 
Citigroup Inc. that is a bank or broker-dealer.
    (g) The term ``members of his or her family'' refers to 
beneficiaries of the individual for whose benefit the IRA or Keogh Plan 
is established or maintained, who would be members of the family as 
that term is defined in Code section 4975(e)(6), or a brother, a 
sister, or a spouse of a brother or sister.
    (h) The term ``service'' includes incidental products of a de 
minimis value which are directly related to the provision of services 
covered by the exemption.
    (i) The term ``fees'' means commissions and other fees received by 
a broker-dealer from the IRA or Keogh Plan for the provision of 
services, including, but not limited to, brokerage commissions, 
investments management fees, investments advisory fees, custodial fees 
and administrative fees.
    (j) The term ``Citigroup'' means Citigroup Inc. and any person 
directly or indirectly controlling, controlled by, or under common 
control with Citigroup Inc.
    (k) The term ``control'' means the power to exercise a controlling 
influence over the management or policies of a person other than an 
individual.
    Effective Date: If granted, this proposed exemption will be 
effective as of March 1, 2007.

Summary of Facts and Representations

    1. Citigroup, Inc. is a holding company whose businesses provide a 
broad range of financial services to consumer and corporate customers 
around the world. As of September 30, 2006, Citigroup and its 
subsidiaries had total consolidated assets of approximately $1.75 
trillion. Citigroup's consumer and corporate banking business is a 
global franchise encompassing, among other things, branch and 
electronic banking, consumer lending services, investment services, and 
credit and debit card services. Citigroup also provides securities 
trading, research and brokerage services to consumer and corporate 
customers, primarily through its Smith Barney business. Smith Barney, a 
division of a subsidiary of Citigroup Inc., is a retail brokerage firm 
with more than 12,500 financial advisors who serve approximately 7.1 
million client accounts, representing approximately $1.3 trillion in 
assets, and are located in approximately 600 offices across the United 
States. In the ordinary course of its business, Citigroup provides a 
range of financial services to IRAs and pension, profit sharing and 
stock bonus plans qualified under section 401(a) of the Code under 
which some or all of the participants are employees described in 
section 401(c) of the Code.
    2. PTE 93-33 as amended (64 FR 11044, March 8, 1999), provides 
relief from the restrictions of sections 406(a)(1)(D) and 406(b) of 
ERISA and the sanctions resulting from the application of sections 
4975(a) and (b), 4975(c)(3) and 408(e)(2) of the Code by reason of 
section 4975(c)(1)(D), (E) and (F) of the Code, and permits the receipt 
of services at reduced or no cost by an individual for whose benefit an 
IRA or Keogh Plan is established or maintained or by members of his or 
her family, from a bank pursuant to an arrangement in which the account 
balance of the IRA or Keogh Plan is taken into account for purposes of 
determining eligibility to receive such services, provided the 
conditions of the exemption are met. PTE 93-33 permitted banks to offer 
its customers only those services that may be offered by banks under 
applicable federal and state banking laws.\26\ In the case where the 
service is offered by an affiliate of the bank, the service must be of 
the type that the bank itself could offer customers.
---------------------------------------------------------------------------

    \26\ In the notice of proposed exemption for PTE 93-2 (PTE 93-33 
subsequently amended PTE 93-2) the following examples of 
relationship banking services were listed: free checking services, 
discounted safe deposit box rents, or free loan closing costs. (52 
FR 8365 (February 28, 1992)). In addition, the Department notes that 
a bank may offer other services or benefits to customers as part of 
its relationship banking program. For example, under PTE 93-33 a 
bank may offer its relationship banking customers a higher interest 
rate on their investments, provided the conditions of the exemption 
are met.
---------------------------------------------------------------------------

    PTE 97-11 as amended, (67 FR 76425, December 12, 2002) permits the 
receipt of services at reduced or no cost by an individual for whose 
benefit an IRA or Keogh Plan is established or maintained or by members 
of his or her family, from a broker-dealer registered under the 
Securities Exchange Act of 1934 pursuant to an arrangement in which the 
account value of, or the fees incurred for services provided to, the 
IRA or Keogh Plan is/are taken into account for purposes of determining 
eligibility to receive such services, provided that certain conditions 
are met. Under PTE 97-11 relief is provided from the restrictions of 
sections 406(a)(1)(D) and 406(b) of ERISA and the sanctions resulting 
from the application of sections 4975(a) and (b), 4975(c)(3) and 
408(e)(2) of the Code by reason of section 4975(c)(1)(D), (E) and (F) 
of the Code. PTE 97-11 limits the services that may be offered by 
broker-dealers under a relationship brokerage program to those services 
that the broker-dealer itself may offer consistent with federal and 
state laws regulating broker-dealers.\27\ Furthermore, in those

[[Page 60907]]

cases where the services are provided by an affiliate of the broker-
dealer, the service must be the type that the broker-dealer itself 
could offer customers.
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    \27\ In the notice of proposed exemption for PTE 97-11 (61 FR 
39996 (July 31, 1996), the following examples of relationship 
brokerage services were listed: financial planning services, direct 
deposit/debit and automatic fund transfer privileges, enhanced 
account statements, toll-free access to client service center, check 
writing privileges, debit/credit cards, special newsletter and 
reduced brokerage and asset management fees. In addition, the 
Department notes that a broker-dealer may offer its customers 
additional services and benefits as part of its relationship 
brokerage program. For example, under PTE 97-11, a broker-dealer may 
offer its relationship brokerage customers a higher interest rate on 
their investments, provided the conditions of the exemption are met.
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    The applicant requests an exemption to permit both account balances 
of an IRA or Keogh Plan or fees incurred by the IRA or Keogh Plan with 
respect to a qualified affiliate that serves as trustee or custodian, 
to be taken into account by Citigroup in determining eligibility to 
receive reduced or no cost services that are provided by its qualified 
affiliates.
    3. The applicant represents that the proposed exemption is 
necessary and appropriate because federal and state banking and 
securities laws have undergone changes since PTEs 93-33 and 97-11 were 
granted. In general, banks and broker-dealers are now permitted to 
offer services to its customers that integrate banking and broker-
dealer type services. These services were traditionally provided either 
by a bank to its customers or by a broker-dealer to its customers. 
Specifically, PTEs 93-33 and PTE 97-11 were granted by the Department 
prior to the enactment of the Gramm-Leach-Bliley Act of 1999 (the 
``GLBA''). According to the applicant, the GLBA altered the U.S. legal 
and regulatory framework governing the operations of U.S. bank holding 
companies such as Citigroup, the corporate parent of Citibank, N.A. 
(``Citibank'') and Citigroup Global Capital Markets Inc. (``CGMI''), 
the broker-dealer within which Smith Barney operates as a business 
division. The applicant represents that the GLBA permits bank holding 
companies that qualify as ``financial holding companies'' (``FHCs'')--
including Citigroup--to affiliate broadly with various types of 
financial services firms, including full-service U.S. broker-dealers. 
Further, the enactment of the GLBA has greatly facilitated both 
financial services integration in the United States and the growth of 
bank-affiliated securities operations.
    According to the applicant, a second significant U.S. regulatory 
development occurred in 1995 when the U.S. Federal Reserve Board (the 
FRB) adopted a rule regarding inter-affiliate combined balance discount 
service programs offered to individual customers of banks and bank 
affiliates.\28\ In particular, the rule establishes a safe harbor (the 
``Safe Harbor'') from the statutory restrictions on bank tying 
arrangements to allow banks greater flexibility to package products 
with their affiliates. The applicant states that the rule provided 
important validation of the ability of banks and their broker-dealer 
affiliates to offer to their customers' combined-balance discount 
programs meeting the requirements of the Safe Harbor. Furthermore, the 
applicant represents that in 1997, the FRB reaffirmed the Safe Harbor 
when it re-wrote its Regulation Y, which includes a section dealing 
with anti-tying restrictions. In this regard, the applicant represents 
that the reduced or no cost service program described in its exemption 
application meets the Safe Harbor.
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    \28\ See 12 CFR 225.7(b)(2).
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    In the context of the regulatory developments described above, the 
applicant states that Citigroup's decision to offer discount services 
as described in its application reflects the important changes in 
Citigroup's business model that have occurred since PTEs 93-33 and 97-
11 were granted by the Department. The applicant states that in 1998, 
Citigroup was created through the acquisition of Citicorp, Citibank's 
corporate parent, by Travelers Group, to form Citigroup. As part of 
this transaction, Citibank became affiliated with Smith Barney 
(formerly, Salomon Smith Barney), which operates a significant retail 
securities brokerage business.\29\ As a result, Citigroup developed 
programs that link retail banking activities with retail brokerage 
activities. Under these arrangements, qualified affiliates are able to 
take into account a customer's combined balance maintained with any of 
its affiliates in determining the customer's eligibility to receive 
reduced or no cost services that include bank and broker-dealer 
products and services.
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    \29\ The applicant states that Citibank's pre-GLBA-era 
securities businesses were principally institutional in nature 
(e.g., underwriting and dealing in certain securities subject to 
pre-GLBA restrictions and other wholesale capital markets 
activities).
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    4. The transactions covered by the proposed exemption are the 
receipt of services at reduced or no cost by an individual for whose 
benefit an IRA or, if self-employed, a Keogh Plan account, is 
established or maintained, or by members of his or her family, from 
Citigroup, pursuant to an arrangement in which the account balance of, 
or fees paid by, the IRA or Keogh Plan account is taken into account 
for purposes of determining eligibility to receive the reduced or no 
cost services. The proposed exemption does not apply to IRAs or Keogh 
Plans that are covered by Title I of ERISA except for a Simplified 
Employee Pension (SEP) described in section 408(k) of the Code or a 
Simple Retirement Account described in section 408(p) of the Code which 
provides participants with the unrestricted authority to transfer their 
balances to IRAs or Simple Retirement Accounts sponsored by different 
financial institutions. The IRA or Keogh Plan account must be 
established or maintained for the exclusive benefit of the participant 
covered by the IRA or Keogh Plan, or his family members. The services 
must be of a type that either a bank or broker-Dealer could offer 
consistent with all federal and state laws applicable to their 
businesses. Citigroup provides such services to its customers, 
including customers who do not maintain IRAs or Keogh Plans with 
Citigroup, in the regular course of Citigroup's business. The account 
balance or fee level required for the receipt of reduced or no cost 
services is equal to the lowest level required for any other type of 
account which is used to determine eligibility to receive reduced or no 
cost services. The investment performance of the IRA or Keogh Plan 
account's investments is no less favorable than the investment 
performance of identical investments that could have been made at the 
same time by a customer who is not eligible for (or who does not 
receive) reduced or no cost services.
    5. As part of its reduced or no cost service program, the applicant 
contemplates providing such services as: Reductions or waivers of fees 
for services such as checking, ATM, investment advisory and account 
opening or maintenance fees, preferred lending rates, premium interest 
crediting rates, credit or debit cards providing services such as 
enhanced mileage accumulation and reward points features and the 
provision of investment information and seminars that are available on 
an invitation-only basis. In this regard, the applicant offers the 
following example of a reduced or no cost service program:

    An individual client of Citigroup is a beneficial owner of an 
IRA with assets of $250,000 and with respect to which Smith Barney 
is custodian. Un-invested cash in the IRA is swept into a bank 
deposit program (``BDP'') on a daily basis, pursuant to the client's 
instruction. Assume that the client also maintains a Smith Barney 
Financial Management Account (``FMA Account''), a securities 
brokerage account, with an asset balance of $200,000, as well as 
personal savings and checking accounts, with an aggregate asset 
balance of $100,000, at Citibank. Without the proposed exemption, 
the client is not eligible for ``Reserved'' status in regard to the 
relationship with his Smith Barney custodied accounts (FMA Account

[[Page 60908]]

and IRA), which status requires asset balances of at least $500,000. 
As a result, the client would be charged a $100 annual fee in 
respect of the FMA Account and a $40 annual fee in respect of the 
IRA. The IRA's BDP investments would receive interest at a rate 
applicable to accounts having asset balances between $250,000 and 
$500,000, which rate was 3.35% Annual Percentage Yield as of June 
13, 2007.
    If the proposed exemption is granted, Citigroup would be 
permitted to aggregate the client's accounts (in accordance with the 
conditions of the exemption), and the combined asset balance in 
excess of $500,000 would result in an elimination of the $100 and 
$40 annual fees. In addition, the BDP investments would be eligible 
for a higher interest rate, equal to 3.51% Annual Percentage Yield 
as of June 13, 2007. Further, as part of a Reserved relationship, 
Smith Barney would waive the following fees (among others) in the 
client's FMA Account: ATM fees, shipping costs for lost or stolen 
cards, fees for transferring securities, safekeeping fees for 
physically holding securities, Fed wire fees, fees charged for 
bounced checks, fees charged to stop payment on a check, and check 
reorder fees.

    6. In summary, the Applicant represents that the transactions will 
satisfy the statutory criteria for an exemption under section 408(a) of 
the Act and section 4975(c)(2) since, among other things:
    (a) The IRA or Keogh Plan whose account value, or whose fees paid, 
are taken into account for purposes of determining eligibility to 
receive services under the arrangement will be established and 
maintained for the exclusive benefit of the participant covered under 
the IRA or Keogh Plan, his or her spouse or their beneficiaries.
    (b) The services offered under the arrangement will be of a type 
that a qualified affiliate could offer consistent with all applicable 
federal and state banking laws and all applicable federal and state 
laws regulating broker-dealers.
    (c) The services offered under the arrangement will be provided by 
a qualified affiliate in the ordinary course of its business as a bank 
or a broker-dealer to customers who qualify for reduced or no cost 
services, but do not maintain IRAs or Keogh Plans with a qualified 
affiliate.
    (d) For the purpose of determining eligibility to receive services, 
the arrangement will satisfy:
    (i) Eligibility requirements based on the account value of the IRA 
or Keogh Plan are as favorable as such requirements based on the value 
of any other type of account which the qualified affiliate includes to 
determine eligibility; and/or
    (ii) Eligibility requirements based on the amount of fees incurred 
by the IRA or Keogh Plan, are as favorable as any requirements based on 
the amount of fees incurred by any other type of account which the 
qualified affiliate includes to determine eligibility.
    (e) The combined total of all fees for the provision of services to 
the IRA or Keogh Plan will not be in excess of reasonable compensation 
within the meaning of section 408(b)(2) of ERISA and section 4975(d)(2) 
of the Code.
    (f) The investment performance of the investments made by the IRAs 
and/or Keogh Plans will be no less favorable than the investment 
performance of identical investments that could have been made at the 
same time by a customer of Citigroup who is not eligible for (or who 
does not receive) reduced or no cost services.
    (g) The services offered under the arrangement to the IRA or Keogh 
Plan customer will be the same as are offered to non-IRA or non-Keogh 
Plan customers of qualified affiliates with account values of the same 
amount or the same amount of fees generated.

Notice to Interested Persons

    The Applicant represents that because those potentially interested 
persons cannot all be identified at the time this proposed exemption is 
published in the Federal Register, the only practical means of 
notifying the public is by publication of the notice of pendency in the 
Federal Register. Therefore, written comments and/or requests for a 
public hearing must be received by the Department not later than 45 
days from the date of publication of this notice of proposed exemption 
in the Federal Register.

FOR FURTHER INFORMATION CONTACT: Allison Padams-Lavigne, U.S. 
Department of Labor, telephone (202) 693-8564. (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.

Ivan Strasfeld,
Director of Exemption Determinations, Employee Benefits Security 
Administration, U.S. Department of Labor.
[FR Doc. E7-20921 Filed 10-25-07; 8:45 am]

BILLING CODE 4510-29-P