Citigroup Inc. and Its Affiliates (Citigroup or the Applicant); Subaru of America, Inc. (Subaru); and The Bank of New York Mellon (BNY Mellon); et al.; Proposed Exemptions, 8128-8137 [2010-3444]

Agencies

• Employee Benefits Security Administration
• DEPARTMENT OF LABOR

[Federal Register Volume 75, Number 35 (Tuesday, February 23, 2010)]
[Notices]
[Pages 8128-8137]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2010-3444]


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DEPARTMENT OF LABOR

Employee Benefits Security Administration

[Application Nos. and Proposed Exemptions; D-11514]


Citigroup Inc. and Its Affiliates (Citigroup or the Applicant); 
Subaru of America, Inc. (Subaru); and The Bank of New York Mellon (BNY 
Mellon); et al.; Proposed Exemptions

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 applications for exemption and the 
comments received will be available for public inspection in the Public 
Documents Room of the Employee Benefits Security Administration, U.S. 
Department of Labor, Room N-1513, 200 Constitution Avenue, NW., 
Washington, DC 20210.
    Warning: If you submit written comments or hearing requests, do not 
include any personally-identifiable or confidential business 
information that you do not want to be publicly-disclosed. All comments 
and hearing requests are posted on the Internet exactly as they are 
received, and they can be retrieved by most Internet search engines. 
The Department will make no deletions, modifications or redactions to 
the comments or hearing requests received, as they are public records.

Notice to Interested Persons

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.

Citigroup Inc. and Its Affiliates (Citigroup or the Applicant), Located 
in New York, New York

    [Application No. D-11514.]

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

[[Page 8129]]

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 
section 406 of the Act should be read to refer as well to the 
corresponding provisions of section 4975 of the Code.
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Section I. Sales of Auction Rate Securities From Plans to Citigroup: 
Unrelated to a Settlement Agreement

    If the proposed exemption is granted, the restrictions of section 
406(a)(1)(A) and (D) and section 406(b)(1) and (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), (D), and (E) of the Code, shall not 
apply, effective February 1, 2008, to the sale by a Plan (as defined in 
Section V(e)) of an Auction Rate Security (as defined in Section V(c)) 
to Citigroup, where such sale (an Unrelated Sale) is unrelated to, and 
not made in connection with, a Settlement Agreement (as defined in 
Section V(f)), provided that the conditions set forth in Section II 
have been met.

Section II. Conditions Applicable to Transactions Described in Section 
I

    (a) The Plan acquired the Auction Rate Security in connection with 
brokerage or advisory services provided by Citigroup to the Plan;
    (b) The last auction for the Auction Rate Security was 
unsuccessful;
    (c) Except in the case of a Plan sponsored by Citigroup for its own 
employees (a Citigroup Plan), the Unrelated Sale is made pursuant to a 
written offer by Citigroup (the Offer) containing all of the material 
terms of the Unrelated Sale. Either the Offer or other materials 
available to the Plan provide: (1) The identity and par value of the 
Auction Rate Security; (2) the interest or dividend amounts that are 
due and unpaid with respect to the Auction Rate Security; and (3) the 
most recent rate information for the Auction Rate Security (if reliable 
information is available). Notwithstanding the foregoing, in the case 
of a pooled fund maintained or advised by Citigroup, this condition 
shall be deemed met to the extent each Plan invested in the pooled fund 
(other than a Citigroup Plan) receives advance written notice regarding 
the Unrelated Sale, where such notice contains all of the material 
terms of the Unrelated Sale;
    (d) The Unrelated Sale is for no consideration other than cash 
payment against prompt delivery of the Auction Rate Security;
    (e) The sales price for the Auction Rate Security is equal to the 
par value of the Auction Rate Security, plus any accrued but unpaid 
interest or dividends;
    (f) The Plan does not waive any rights or claims in connection with 
the Unrelated Sale;
    (g) The decision to accept the Offer or retain the Auction Rate 
Security is made by a Plan fiduciary or Plan participant or IRA owner 
who is independent (as defined in Section V(d)) of Citigroup. 
Notwithstanding the foregoing: (1) in the case of an IRA (as defined in 
Section V(e)) which is beneficially owned by an employee, officer, 
director or partner of Citigroup, the decision to accept the Offer or 
retain the Auction Rate Security may be made by such employee, officer, 
director or partner; or (2) in the case of a Citigroup Plan or a pooled 
fund maintained or advised by Citigroup, the decision to accept the 
Offer may be made by Citigroup after Citigroup has determined that such 
purchase is in the best interest of the Citigroup Plan or pooled fund; 
\2\
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    \2\ The Department notes that the Act's general standards of 
fiduciary conduct also would apply to the transactions described 
herein. In this regard, section 404 of the Act requires, among other 
things, that a fiduciary discharge his duties respecting a plan 
solely in the interest of the plan's participants and beneficiaries 
and in a prudent manner. Accordingly, a plan fiduciary must act 
prudently with respect to, among other things, the decision to sell 
the Auction Rate Security to Citigroup for the par value of the 
Auction Rate Security, plus unpaid interest and dividends. The 
Department further emphasizes that it expects plan fiduciaries, 
prior to entering into any of the proposed transactions, to fully 
understand the risks associated with this type of transaction 
following disclosure by Citigroup of all relevant information.
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    (h) Except in the case of a Citigroup Plan or a pooled fund 
maintained or advised by Citigroup, neither Citigroup nor any affiliate 
exercises investment discretion or renders investment advice within the 
meaning of 29 CFR 2510.3-21(c) with respect to the decision to accept 
the Offer or retain the Auction Rate Security;
    (i) The Plan does not pay any commissions or transaction costs with 
respect to the Unrelated Sale;
    (j) The Unrelated Sale is not part of an arrangement, agreement or 
understanding designed to benefit a party in interest to the Plan;
    (k) Citigroup and its affiliates, as applicable, maintain, or cause 
to be maintained, for a period of six (6) years from the date of the 
Unrelated Sale, such records as are necessary to enable the persons 
described below in paragraph (l)(1), to determine whether the 
conditions of this exemption, if granted, have been met, except that:
    (1) No party in interest with respect to a Plan which engages in an 
Unrelated Sale, other than Citigroup and its affiliates, as applicable, 
shall be subject to a civil penalty under section 502(i) of the Act or 
the taxes imposed by section 4975(a) and (b) of the Code, if such 
records are not maintained, or not available for examination, as 
required, below, by paragraph (l)(1); and
    (2) A separate prohibited transaction shall not be considered to 
have occurred solely because, due to circumstances beyond the control 
of Citigroup or its affiliates, as applicable, such records are lost or 
destroyed prior to the end of the six-year period;
    (l)(1) Except as provided below in paragraph (l)(2), and 
notwithstanding any provisions of subsections (a)(2) and (b) of section 
504 of the Act, the records referred to above in paragraph (k) are 
unconditionally available at their customary location for examination 
during normal business hours by:
    (A) Any duly authorized employee or representative of the 
Department, the Internal Revenue Service, or the U.S. Securities and 
Exchange Commission; or
    (B) Any fiduciary of any Plan, including any IRA owner, that 
engages in an Unrelated Sale, or any duly authorized employee or 
representative of such fiduciary; and
    (C) Any employer of participants and beneficiaries and any employee 
organization whose members are covered by a Plan that engages in the 
Unrelated Sale, or any authorized employee or representative of these 
entities;
    (2) None of the persons described above in paragraphs (l)(1)(B)-(C) 
shall be authorized to examine trade secrets of Citigroup, or 
commercial or financial information which is privileged or 
confidential; and
    (3) Should Citigroup refuse to disclose information on the basis 
that such information is exempt from disclosure, Citigroup 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 III. Sales of Auction Rate Securities From Plans to Citigroup: 
Related to a Settlement Agreement

    If the proposed exemption is granted, the restrictions of section 
406(a)(1)(A) and (D) and section 406(b)(1) and (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), (D), and (E) of the Code, shall not 
apply, effective February 1, 2008, to the sale by a Plan of an Auction 
Rate Security to Citigroup, where such sale (a Settlement Sale) is 
related to, and made in connection with, a Settlement

[[Page 8130]]

Agreement, provided that the conditions set forth in Section IV have 
been met.

Section IV. Conditions Applicable to Transactions Described in Section 
III

    (a) The terms and delivery of the Offer are consistent with the 
requirements set forth in the Settlement Agreement and acceptance of 
the Offer does constitute a waiver of any claim of the tendering Plan;
    (b) The Offer or other documents available to the Plan specifically 
describe, among other things:
    (1) How a Plan may determine: the Auction Rate Securities held by 
the Plan with Citigroup; the number of shares or par value of the 
Auction Rate Securities; the interest or dividend amounts that are due 
and unpaid with respect to the Auction Rate Securities; and (if 
reliable information is available) the most recent rate information for 
the Auction Rate Securities;
    (2) The background of the Offer;
    (3) That neither the tender of Auction Rate Securities nor the 
purchase of any Auction Rate Securities pursuant to the Offer will 
constitute a waiver of any claim of the tendering Plan;
    (4) The methods and timing by which Plans may accept the Offer;
    (5) The purchase dates, or the manner of determining the purchase 
dates, for Auction Rate Securities tendered pursuant to the Offer;
    (6) The timing for acceptance by Citigroup of tendered Auction Rate 
Securities;
    (7) The timing of payment for Auction Rate Securities accepted by 
Citigroup for payment;
    (8) The methods and timing by which a Plan may elect to withdraw 
tendered Auction Rate Securities from the Offer;
    (9) The expiration date of the Offer;
    (10) The fact that Citigroup may make purchases of Auction Rate 
Securities outside of the Offer and may otherwise buy, sell, hold or 
seek to restructure, redeem or otherwise dispose of the Auction Rate 
Securities;
    (11) A description of the risk factors relating to the Offer as 
Citigroup deems appropriate;
    (12) How to obtain additional information concerning the Offer; and
    (13) The manner in which information concerning material amendments 
or changes to the Offer will be communicated to the Plan;
    (c) The terms of the Settlement Sale are consistent with the 
requirements set forth in the Settlement Agreement; and
    (d) All of the conditions in Section II have been met.

Section V. Definitions

    For purposes of this proposed exemption:
    (a) The term ``affiliate'' means any person directly or indirectly, 
through one or more intermediaries, controlling, controlled by, or 
under common control with such other person;
    (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 ``Auction Rate Security'' or ``ARS'' means a security: 
(1) that is either a debt instrument (generally with a long-term 
nominal maturity) or preferred stock; and (2) with an interest rate or 
dividend that is reset at specific intervals through a Dutch auction 
process;
    (d) A person is ``independent'' of Citigroup if the person is: (1) 
not Citigroup or an affiliate; and (2) not a relative (as defined in 
section 3(15) of the Act) of the party engaging in the transaction;
    (e) The term ``Plan'' means an individual retirement account or 
similar account described in section 4975(e)(1)(B) through (F) of the 
Code (an IRA); an employee benefit plan as defined in section 3(3) of 
the Act; or an entity holding plan assets within the meaning of 29 CFR 
2510.3-101, as modified by section 3(42) of the Act; and
    (f) The term ``Settlement Agreement'' means a legal settlement 
involving Citigroup and a U.S. state or federal authority that provides 
for the purchase of an ARS by Citigroup from a Plan.
    Effective Date: If granted, this proposed exemption will be 
effective as of February 1, 2008.

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 June 30, 2008, Citigroup and its subsidiaries 
had total consolidated assets of approximately $2.1 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 registered broker-dealer, Citigroup Global 
Markets Inc. Formerly, ``Smith Barney'' was the brand name used by 
Citigroup for its retail brokerage business, and Smith Barney had more 
than 15,000 financial advisors, located in approximately 800 offices 
across the United States, who served approximately 9.2 million domestic 
client accounts, representing approximately $1.5 trillion in assets.\3\ 
In the ordinary course of its business, Citigroup provides a range of 
financial services to IRAs and pension, profit sharing and 401(k) 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. 
In this last regard, Citigroup acts as a broker and a dealer with 
respect to the purchase and sale of securities, including Auction Rate 
Securities.
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    \3\ In May 2009, Morgan Stanley Smith Barney was formed as a 
joint venture (JV). Under the JV agreement, each of Citigroup and 
Morgan Stanley Inc. (Morgan Stanley) (including their respective 
subsidiaries) contributed specified businesses into the JV, together 
with all contracts, employees, property licenses and other assets 
(as well as liabilities) used primarily in the contributed 
businesses. Generally, in the case of Citigroup, the contributed 
businesses included Citigroup's retail brokerage and futures 
business operated under the name ``Smith Barney'' in the United 
States and Australia and operated under the name ``Quilter'' in the 
United Kingdom, Ireland and Channel Islands. Certain investment 
advisory and other businesses of Citigroup also were included. In 
the case of Morgan Stanley, the contributed businesses consisted 
generally of Morgan Stanley's global wealth management (retail 
brokerage) and private wealth management businesses. This exemption 
application covers transactions between Citigroup and Plan clients 
as of the period prior to the formation of the JV.
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    2. The Applicant describes Auction Rate Securities and the 
arrangement by which ARS are bought and sold as follows. Auction Rate 
Securities are securities (issued as debt or preferred stock) with an 
interest rate or dividend that is reset at periodic intervals pursuant 
to a process called a Dutch Auction. Investors submit orders to buy, 
hold, or sell a specific ARS to a broker-dealer selected by the entity 
that issued the ARS. The broker-dealers, in turn, submit all of these 
orders to an auction agent. The auction agent's functions include 
collecting orders from all participating broker-dealers by the auction 
deadline, determining the amount of securities available for sale, and 
organizing the bids to determine the winning bid. If there are any buy 
orders placed into the auction at a specific rate, the auction agent 
accepts bids with the lowest rate above any applicable minimum rate and 
then successively higher rates up to the maximum applicable rate, until 
all sell orders and orders that are treated as sell orders are filled. 
Bids below any applicable minimum rate or above the applicable maximum 
rate are rejected. After determining the clearing rate for all of the 
securities at auction, the auction agent allocates the ARS available 
for sale to the participating broker-dealers

[[Page 8131]]

based on the orders they submitted. If there are multiple bids at the 
clearing rate, the auction agent will allocate securities among the 
bidders at such rate on a pro-rata basis.
    3. The Applicant states that, under a typical Dutch Auction 
process, Citigroup is permitted, but not obligated, to submit orders in 
auctions for its own account either as a bidder or a seller and 
routinely does so in the auction rate securities market in its sole 
discretion. Citigroup may place one or more bids in an auction for its 
own account to acquire ARS for its inventory, to prevent: (a) a failed 
auction (i.e., an event where there are insufficient clearing bids 
which would result in the auction rate being set at a specified rate, 
resulting in no ARS being sold through the auction process); or (b) an 
auction from clearing at a rate that Citigroup believes does not 
reflect the market for the particular ARS being auctioned.
    4. The Applicant states that for many ARS, Citigroup has been 
appointed by the issuer of the securities to serve as a dealer in the 
auction and is paid by the issuer for its services. Citigroup is 
typically appointed to serve as a dealer in the auctions pursuant to an 
agreement between the issuer and Citigroup. That agreement provides 
that Citigroup will receive from the issuer auction dealer fees based 
on the principal amount of the securities placed through Citigroup.
    5. The Applicant states further that Citigroup may share a portion 
of the auction rate dealer fees it receives from the issuer with other 
broker-dealers that submit orders through Citigroup, for those orders 
that Citigroup successfully places in the auctions. Similarly, with 
respect to ARS for which broker-dealers other than Citigroup act as 
dealer, such other broker-dealers may share auction dealer fees with 
Citigroup for orders submitted by Citigroup.
    6. According to the Applicant, since February 2008, only a minority 
of auctions have cleared, particularly involving municipalities. As a 
result, Plans holding ARS may not have sufficient liquidity to make 
benefit payments, mandatory payments and withdrawals and expense 
payments when due.\4\
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    \4\ The Department notes that Prohibited Transaction Exemption 
80-26 (45 FR 28545 (April 29, 1980), as amended at 71 FR 17917 
(April 7, 2006)) permits interest-free loans or other extensions of 
credit from a party in interest to a plan if, among other things, 
the proceeds of the loan or extension of credit are used only: (1) 
for the payment of ordinary operating expenses of the plan, 
including the payment of benefits in accordance with the terms of 
the plan and periodic premiums under an insurance or annuity 
contract, or (2) for a purpose incidental to the ordinary operation 
of the plan.
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    7. The Applicant represents that, in certain instances, Citigroup 
may have previously advised or otherwise caused a Plan to acquire and 
hold an Auction Rate Security.\5\ In connection with Citigroup's role 
in the acquisition and holding of ARS by various Citigroup clients, 
including the Plans, Citigroup entered into Settlement Agreements with 
certain U.S. states and federal authorities. Pursuant to these 
Settlement Agreements, among other things, Citigroup was required to 
send a written offer to certain Plans that held ARS in connection with 
the advice and/or brokerage services provided by Citigroup. As 
described in further detail below, eligible Plans that accepted the 
Offer were permitted to sell the ARS to Citigroup for cash equal to the 
par value of such securities, plus any accrued interest and/or 
dividends. Specifically, pursuant to the relevant settlement, Applicant 
made an offer (the First Offer or an Offer) by letter dated October 3, 
2008, to eligible customers who then maintained an account with 
Applicant to purchase all non-auctioning auction rate securities 
purchased by such eligible customers from Applicant on or before 
February 11, 2008 (Subject Securities). Eligible customers who wanted 
Applicant to purchase some or all of their auction rate securities by 
November 5, 2008 were required to notify Applicant of their desire to 
do so by October 21, 2008. Eligible customers that wanted Applicant to 
purchase some or all of their auction rate securities at any scheduled 
auction date between November 5, 2008 and June 12, 2009 were required 
to notify Applicant of their desire to do so at least three business 
days before the auction date.
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    \5\ The relief contained in this proposed exemption does not 
extend to the fiduciary provisions of section 404 of the Act.
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    Also pursuant to the relevant settlement, by letter dated October 
20, 2008, Applicant made an Offer (the Second Offer, and together with 
the First Offer, the Offers) to eligible customers who had transferred 
their account from Applicant to another securities firm or bank to 
purchase all Subject Securities purchased by such eligible customers. 
Eligible customers who wanted Applicant to purchase some or all of 
their auction rate securities by December 23, 2008 were required to 
notify Applicant of their desire to do so by December 5, 2008. Eligible 
customers who wanted Applicant to purchase some or all of their auction 
rate securities at any scheduled auction date between December 23, 2008 
and June 12, 2009 were required to notify Applicant of their desire to 
do so at least three business days before the auction date. To take 
advantage of the Second Offer, eligible customers were also required to 
arrange for the transfer of the Subject Securities to Applicant through 
FINRA's Automated Customer Account Transfer Service. No additional 
custody charges were imposed in connection with transferred securities.
    The Applicant is requesting retroactive and prospective relief for 
the Settlement Sales. With respect to Unrelated Sales, the Applicant 
states that to the best of its knowledge, no Unrelated Sale has 
occurred. However, the Applicant is requesting retroactive relief (and 
prospective relief) for Unrelated Sales in the event that a sale of 
Auction Rate Securities by a Plan to Citigroup has occurred outside the 
Settlement process. If granted, the proposed exemption will be 
effective February 1, 2008.
    8. The Applicant is requesting relief for the sale of Auction Rate 
Securities under two different circumstances: (a) Where Citigroup 
initiates the sale by sending to a Plan a written Offer to acquire the 
ARS (i.e., an Unrelated Sale), notwithstanding that such Offer is not 
required under a Settlement Agreement; and (b) where Citigroup is 
required under a Settlement Agreement to send to Plans a written Offer 
to acquire the ARS (i.e., a Settlement Sale). The Applicant states that 
the Unrelated Sales and Settlement Sales (hereinafter, either, a 
Covered Sale) are in the interests of Plans. In this regard, the 
Applicant states that the Covered Sales would permit Plans to normalize 
Plan investments. The Applicant represents that each Covered Sale will 
be for no consideration other than cash payment against prompt delivery 
of the ARS, and such cash will equal the par value of the ARS, plus any 
accrued but unpaid interest or dividends. The Applicant represents 
further that Plans will not pay any commissions or transaction costs 
with respect to any Covered Sale.
    9. The Applicant represents that the proposed exemption is 
protective of the Plans. The Applicant states that: Each Covered Sale 
will be made pursuant to a written Offer; and the decision to accept 
the Offer or retain the ARS will be made by a Plan fiduciary or Plan 
participant or IRA owner who is independent of Citigroup. Additionally, 
each Offer will be delivered in a manner designed to alert a Plan 
fiduciary that Citigroup intends to purchase ARS from the Plan. Offers 
made in connection with an Unrelated Sale will include the material 
terms of the Unrelated Sale,

[[Page 8132]]

including: The identity and par value of the Auction Rate Security; the 
interest or dividend amounts that are due with respect to the Auction 
Rate Security; and the most recent rate information for the Auction 
Rate Security (if reliable information is available). Offers made in 
connection with a Settlement Agreement will specifically include, among 
other things: the background of the Offer; the method and timing by 
which a Plan may accept the Offer; the expiration date of the Offer; a 
description of certain risk factors relating to the Offer; how to 
obtain additional information concerning the Offer; and the manner in 
which information concerning material amendments or changes to the 
Offer will be communicated. The Applicant states that, with very 
narrowly tailored exceptions, neither Citigroup nor any affiliate will 
exercise investment discretion or render investment advice with respect 
to a Plan's decision to accept the Offer or retain the ARS.\6\ In the 
case of a Citigroup Plan or a pooled fund maintained or advised by 
Citigroup, the decision to engage in a Covered Sale may be made by 
Citigroup after Citigroup has determined that such purchase is in the 
best interest of the Citigroup Plan or pooled fund. The Applicant 
represents further that Plans will not waive any rights or claims in 
connection with any Covered Sale.
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    \6\ The Applicant states that while there may be communication 
between a Plan and Citigroup subsequent to an Offer, such 
communication will not involve advice regarding whether the Plan 
should accept the Offer.
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    10. The Applicant represents that the proposed exemption, if 
granted, would be administratively feasible. In this regard, the 
Applicant notes that each Covered Sale will occur at the par value of 
the affected ARS (plus accrued but unpaid interest and dividends, to 
the extent applicable), and such value is readily ascertainable. The 
Applicant represents further that Citigroup will maintain the records 
necessary to enable the Department and Plan fiduciaries, among others, 
to determine whether the conditions of this exemption, if granted, have 
been met.
    11. In summary, the Applicant represents that the transactions 
described herein satisfy the statutory criteria of section 408(a) of 
the Act because, among other things:
    (a) Each Covered Sale shall be made pursuant to a written Offer;
    (b) Each Covered Sale shall be for no consideration other than cash 
payment against prompt delivery of the ARS;
    (c) The amount of each Covered Sale shall equal the par value of 
the ARS, plus any accrued but unpaid interest or dividends;
    (d) Plans will not waive any rights or claims in connection with 
any Covered Sale;
    (e)(1) the decision to accept an Offer or retain the ARS shall be 
made by a Plan fiduciary or Plan participant or IRA owner who is 
independent of Citigroup; and (2) neither Citigroup nor any affiliate 
shall exercise investment discretion or render investment advice within 
the meaning of 29 CFR 2510.3-21(c) with respect to the decision to 
accept the Offer or retain the ARS;
    (f) Plans shall not pay any commissions or transaction costs with 
respect to any Covered Sale;
    (g) A Covered Sale shall not be part of an arrangement, agreement 
or understanding designed to benefit a party in interest to the 
affected Plan;
    (h) With respect to any Settlement Sale, the terms and delivery of 
the Offer, and the terms of Settlement Sale, shall be consistent with 
the requirements set forth in the Settlement Agreement;
    (i) Citigroup shall make available in connection with an Unrelated 
Sale the material terms of the Unrelated Sale, including: (1) The 
identity and par value of the Auction Rate Security; (2) the interest 
or dividend amounts that are due but unpaid with respect to the Auction 
Rate Security; and (3) the most recent rate information for the Auction 
Rate Security (if reliable information is available);
    (j) Each Offer made in connection with a Settlement Agreement shall 
describe the material terms of the Settlement Sale, including the 
following (and shall not constitute a waiver of any claim of the 
tendering Plan): (1) The background of the Offer; (2) that neither the 
tender of ARS nor the purchase of ARS pursuant to the Offer will 
constitute a waiver of any claim of the tendering Plan; (3) the methods 
and timing by which the Plan may accept the Offer; and (4) the purchase 
dates, or the manner of determining the purchase dates, for ARS 
pursuant to the Offer and the timing for acceptance by Citigroup of 
tendered ARS for payment; and
    (k) Citigroup shall make available to the Plan information 
regarding how the Plan can determine: The ARS held by the Plan with 
Citigroup; the number of shares and par value of the ARS; interest or 
dividend amounts; purchase dates for the ARS; and (if reliable 
information is available) the most recent rate information for the ARS.

Notice to Interested Persons

    The Applicant represents that the potentially interested 
participants and beneficiaries cannot all be identified, and, 
therefore, the only practical means of notifying such participants and 
beneficiaries of this proposed exemption is by the publication of this 
notice in the Federal Register. Comments and requests for a hearing 
must be received by the Department not later than 30 days from the date 
of publication of this notice of proposed exemption in the Federal 
Register.

FOR FURTHER INFORMATION CONTACT: Brian Shiker of the Department, 
telephone (202) 693-8552. (This is not a toll-free number.)

Subaru of America, Inc. (Subaru), Located in Cherry Hill, New Jersey

    [Application No. D-11531.]

Proposed Exemption

    The Department is considering granting an exemption under the 
authority of section 408(a) of the Act 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) and (b) of the Act shall not apply to the 
reinsurance of risks and the receipt of premiums therefrom by Pleiades 
Insurance Company, Ltd. (PIC) in connection with an insurance contract 
sold by Minnesota Life Insurance Company (MN Life) or any successor 
insurance company to MN Life which is unrelated to Subaru, to provide 
group-term life insurance to employees of Subaru under the Subaru of 
America, Inc. Welfare Benefit Plan (the Plan), provided the following 
conditions are met:
    (a) PIC--
    (1) Is a party in interest with respect to the Plan by reason of a 
stock or partnership affiliation with Subaru that is described in 
section 3(14)(E) or (G) of the Act,
    (2) Is licensed to sell insurance or conduct reinsurance operations 
in at least one State as defined in section 3(10) of the Act, (3) Has a 
U.S. branch, the Pleiades Insurance Company Ltd. (US Branch), which has 
obtained a Certificate of Authority from the Insurance Commissioner of 
its domiciliary State which has neither been revoked nor suspended,
    (4)(A) Has undergone and shall continue to undergo an examination 
by an independent certified public accountant for its last completed 
taxable year immediately prior to the taxable year of the reinsurance 
transaction; or
    (B) Has undergone a financial examination (within the meaning of 
the law of its domiciliary State, the District of Columbia) by the 
Insurance Commissioner of the District of

[[Page 8133]]

Columbia within 5 years prior to the end of the year preceding the year 
in which the reinsurance transaction occurred, and
    (5) Is licensed to conduct reinsurance transactions by a State 
whose law requires that an actuarial review of reserves be conducted 
annually by an independent firm of actuaries and reported to the 
appropriate regulatory authority;
    (b) The Plan pays no more than adequate consideration for the 
insurance contracts;
    (c) In subsequent years, the formula used to calculate premiums by 
MN Life or any successor insurer will be similar to formulae used by 
other insurers providing comparable coverage under similar programs. 
Furthermore, the premium charge calculated in accordance with the 
formula will be reasonable and will be comparable to the premium 
charged by the insurer and its competitors with the same or a better 
rating providing the same coverage under comparable programs;
    (d) The Plan only contracts with insurers with a rating of A or 
better from A.M. Best Company. The reinsurance arrangement between the 
insurer and PIC will be indemnity insurance only, i.e., the insurer 
will not be relieved of liability to the Plan should PIC be unable or 
unwilling to cover any liability arising from the reinsurance 
arrangement;
    (e) No commissions are paid with respect to the reinsurance of such 
contracts; and
    (f) For each taxable year of PIC, the gross premiums and annuity 
considerations received in that taxable year by PIC for life and health 
insurance or annuity contracts for all employee benefit plans (and 
their employers) with respect to which PIC is a party in interest by 
reason of a relationship to such employer described in section 3(14)(E) 
or (G) of the Act does not exceed 50% of the gross premiums and annuity 
considerations received for all lines of insurance (whether direct 
insurance or reinsurance) in that taxable year by PIC. For purposes of 
this condition (f):
    (1) the term ``gross premiums and annuity considerations received'' 
means as to the numerator the total of premiums and annuity 
considerations received, both for the subject reinsurance transactions 
as well as for any direct sale or other reinsurance of life insurance, 
health insurance or annuity contracts to such plans (and their 
employers) by PIC. This total is to be reduced (in both the numerator 
and the denominator of the fraction) by experience refunds paid or 
credited in that taxable year by PIC.
    (2) all premium and annuity considerations written by PIC for plans 
which it alone maintains are to be excluded from both the numerator and 
the denominator of the fraction.

Summary of Facts and Representations

    1. Subaru of America, Inc. (Subaru), a wholly owned subsidiary of 
Fuji Heavy Industries, Ltd. of Japan (Fuji), is a marketer of Subaru 
products manufactured by Fuji. The Plan is a fully insured welfare plan 
within the meaning of section 3(1) of the Act. The Plan includes group-
term life insurance (including basic, supplemental and dependent 
coverage).
    2. PIC is a 100% owned subsidiary of Subaru. PIC's U.S. branch, the 
Pleiades Insurance Company, Ltd. (US Branch) (hereafter, ``Branch''), 
is domiciled in the District of Columbia. As of March 31, 2009, PIC 
reported approximately $39 million in gross annual premiums and $214 
million in total assets. The applicant represents that for each taxable 
year of PIC, the total amount of premiums, both for the subject 
reinsurance transactions as well as for any direct sale or other 
reinsurance of life insurance for all employee benefit plans for which 
PIC is a party in interest by reason of a relationship to the 
sponsoring employer described in section 3(14)(E) or (G) of the Act 
have not exceeded and will not exceed 50% of the gross premiums 
received by PIC from all lines of insurance in that taxable year.
    3. Subaru provides to its employees certain welfare benefits 
through the Plan. The group-term life insurance component of the Plan 
currently has approximately 929 participants and beneficiaries.
    4. The life insurance is currently underwritten by Minnesota Life 
Insurance Company (MN Life), an unaffiliated insurance carrier. Subaru 
has entered into a policy with MN Life for 100% of this coverage. 
Subaru proposes to use its subsidiary, PIC (through Branch), to 
reinsure 100% of the risk through a reinsurance contract between PIC 
and MN Life in which MN Life would pay 100% of the premiums to PIC. The 
premium paid to MN Life by Subaru includes fees for administrative 
costs, so there is no additional cost to the Plan as a result of the 
reinsurance arrangement. From the participants' perspective, the 
participants have a binding contract with MN Life, which is legally 
responsible for the group-term life insurance risk associated under the 
Plan. MN Life is liable to provide the promised coverage regardless of 
the proposed reinsurance arrangement.
    5. The applicant represents that the proposed transaction will not 
in any way affect the cost to the insureds of the group-term life 
insurance contracts, and the Plan will pay no more than adequate 
consideration for the insurance. Neither Subaru nor PIC will profit 
from the reinsurance arrangement at the expense of the Plan or its 
participants. Also, Plan participants are afforded insurance protection 
from MN Life at competitive rates arrived at through arm's-length 
negotiations. MN Life is rated ``A+'' by the A. M. Best Company, whose 
insurance ratings are widely used in financial and regulatory circles. 
MN Life has assets in excess of $26 billion. MN Life will continue to 
have the ultimate responsibility in the event of loss to pay insurance 
benefits to the employee's beneficiary. The applicant represents that 
PIC is a sound, viable company which is dependent upon insurance 
customers that are unrelated to itself and its affiliates for premium 
revenue.
    6. The applicant represents that the proposed reinsurance 
transaction will meet all of the conditions of PTE 79-41 covering 
direct insurance transactions:
    (a) PIC is a party in interest with respect to the Plan (within the 
meaning of section 3(14)(G) of the Act) by reason of stock affiliation 
with Subaru, which maintains the Plan.
    (b) Branch is licensed to do business in the District of Columbia.
    (c) PIC has undergone an examination by an independent certified 
public accountant for its fiscal year ending March 31, 2009.
    (d) PIC has received a Certificate of Authority from its 
domiciliary State (as defined in Act section 3(10)), the District of 
Columbia, which has neither been revoked nor suspended.
    (e) The Plan will pay no more than adequate consideration for the 
insurance. The proposed transaction will not in any way affect the cost 
to the insureds of the group-term life insurance transaction.
    (f) No commissions will be paid with respect to the acquisition of 
insurance by Subaru from MN Life or the acquisition of reinsurance by 
MN Life from PIC.
    (g) For each taxable year of PIC, the ``gross premiums and annuity 
considerations received'' in that taxable year for group life and 
health insurance (both direct insurance and reinsurance) for all 
employee benefit plans (and their employers) with respect to which PIC 
is a party in interest by reason of a relationship to such employer 
described in section 3(14)(E) or (G) of the Act will not exceed 50% of 
the ``gross premiums

[[Page 8134]]

and annuity considerations received'' by PIC from all lines of 
insurance in that taxable year. All of the premium income of PIC comes 
from reinsurance. PIC has received no premiums for the group-term life 
insurance in the past.
    7. In summary, the applicant represents that the proposed 
transaction will meet the criteria of section 408(a) of the Act 
because: (a) Plan participants and beneficiaries are afforded insurance 
protection by MN Life, an ``A+'' rated group insurer, at competitive 
market rates arrived at through arm's-length negotiations; (b) PIC is a 
sound, viable insurance company which does a substantial amount of 
public business outside its affiliated group of companies; and (c) each 
of the protections provided to the Plan and its participants and 
beneficiaries by PTE 79-41 will be met under the proposed reinsurance 
transaction.

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

The Bank of New York Mellon (BNY Mellon), Located in Pittsburgh, PA

    [Application No. D-11584.]

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, in accordance with the procedures set forth in 29 CFR part 2570, 
subpart B (55 FR 32836, 32847, August 10, 1990).\7\
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    \7\ For purposes of this proposed exemption, references to 
section 406 of the Act should be read to refer as well to the 
corresponding provisions of section 4975 of the Code.
---------------------------------------------------------------------------

    If the proposed exemption is granted, the restrictions of sections 
406(a), 406(b)(1) and 406(b)(2) of the Act and the sanctions resulting 
from the application of section 4975 of the Code, by reason of sections 
4975(c)(1)(A) through (E) of the Code, shall not apply as of July 10, 
2009, to the cash sale of certain medium term notes (the Notes) issued 
by Stanfield Victoria Finance Ltd. (Victoria Finance or the Issuer) for 
an aggregate purchase price of $26,997,049.52 by the BNY Mellon's Short 
Term Investment Fund (the Fund) to The Bank of New York Mellon 
Corporation (BNYMC), a party in interest with respect to employee 
benefit plans (the Plans) invested, directly or indirectly, in the 
Fund, provided that the following conditions are met:
    (a) The sale was a one-time transaction for cash;
    (b) The Fund received an amount which was equal to the sum of (1) 
the total current amortized cost of the Notes as of the date of the 
sale plus (2) interest for the period beginning on January 1, 2008 to 
July 12, 2009, calculated at a rate equal to the earnings rate of the 
Fund during such period;
    (c) The Fund did not bear any commissions, fees, transaction costs, 
or other expenses in connection with the sale;
    (d) BNY Mellon, as trustee of the Fund, determined that the sale of 
the Notes was appropriate for and in the best interests of the Fund, 
and the Plans invested, directly or indirectly, in the Fund, at the 
time of the transaction;
    (e) BNY Mellon took all appropriate actions necessary to safeguard 
the interests of the Fund, and the Plans invested, directly or 
indirectly, in the Fund, in connection with the transaction;
    (f) If the exercise of any of BNYMC's rights, claims or causes of 
action in connection with its ownership of the Notes results in BNYMC 
recovering from Victoria Finance, the Issuer of the Notes, or from any 
third party, an aggregate amount that is more than the sum of: (1) the 
purchase price paid for the Notes by BNYMC and (2) interest on the 
purchase price paid for the Notes at the interest rate specified in the 
Notes, then BNYMC will refund such excess amount promptly to the Fund 
(after deducting all reasonable expenses incurred in connection with 
the recovery);
    (g) BNY Mellon and its affiliates, as applicable, maintain, or 
cause to be maintained, for a period of six (6) years from the date of 
any covered transaction such records as are necessary to enable the 
person described below in paragraph (h)(1), to determine whether the 
conditions of this exemption have been met, except that:
    (1) No party in interest with respect to a Plan which engages in 
the covered transaction, other than BNY Mellon and its affiliates, as 
applicable, shall be subject to a civil penalty under section 502(i) of 
the Act or the taxes imposed by sections 4975(a) and (b) of the Code, 
if such records are not maintained, or not available for examination, 
as required, below, by paragraph (h)(1); and
    (2) A separate prohibited transaction shall not be considered to 
have occurred solely because, due to circumstances beyond the control 
of BNY Mellon or its affiliates, as applicable, such records are lost 
or destroyed prior to the end of the six-year period.
    (h)(1) Except as provided in paragraph (h)(2), and notwithstanding 
any provisions of subsection (a)(2) and (b) of 504 of the Act, the 
records referred to, above, in paragraph (g) are unconditionally 
available at their customary location for examination during normal 
business hours by:
    (A) Any duly authorized employee or representative of the 
Department, the Internal Revenue Service, or the Securities and 
Exchange Commission;
    (B) Any fiduciary of any Plan that engages in the covered 
transaction, or any duly authorized employee or representative of such 
fiduciary;
    (C) Any employer of participants and beneficiaries and any employee 
organization whose members are covered by a Plan that engages in the 
covered transaction, or any authorized employee or representative of 
these entities; or
    (D) Any participant or beneficiary of a Plan that engages in the 
covered transaction, or duly authorized employee or representative of 
such participant or beneficiary;
    (2) None of the persons described in paragraphs (h)(1)(B)-(D) shall 
be authorized to examine trade secrets of BNY Mellon or its affiliates, 
or commercial or financial information which is privileged or 
confidential; and
    (3) Should BNY Mellon refuse to disclose information on the basis 
that such information is exempt from disclosure, BNY Mellon 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.
    Effective Date: If granted, this proposed exemption will be 
effective as of July 10, 2009.

Summary of Facts and Representations

    1. BNY Mellon is a state bank subject to regulation by the State of 
New York. As of December 31, 2008, BNY Mellon managed assets in excess 
of $210 billion, a substantial part of which consisted of Plans subject 
to the Act. BNY Mellon is a subsidiary of BNYMC.
    2. BNYMC is the parent of BNY Mellon by reason of its 100% 
ownership of BNY Mellon. BNYMC has a number of subsidiaries and 
affiliates. It is a Delaware financial services company that provides a 
wide range of banking and fiduciary services to a broad array of 
clients, including employee benefit plans subject to the Act and plans 
subject to Section 4975 of the Code. As of December 31, 2008, BNYMC had 
total assets of $237.5 billion.
    3. The Fund is a group trust that is exempt from federal income tax 
pursuant to Rev. Rul. 81-100. BNY Mellon serves as a discretionary 
trustee for the Fund. The Fund is a short-term

[[Page 8135]]

investment fund that values its assets based on their amortized cost 
and seeks to maintain a constant unit value equal to $1.00. The Fund 
invests primarily in commercial paper, including repurchase agreements, 
agency discount notes, corporate notes, medium term notes, floating 
rate notes, Treasuries, agency securities, time deposits, asset backed 
securities, and mortgage backed securities.
    4. On July 10, 2009, the value of the Fund's portfolio was 
approximately $4.9 billion. Also on July 10, 2009, there were in excess 
of 300 direct investors in the Fund, a substantial number of which were 
government-sponsored employee benefit plans, individual retirement 
accounts subject to section 408 of the Code, and employee benefit plans 
covered under section 401 of the Code.\8\ No in-house Plan of BNY 
Mellon invested in the Fund. However, the BNYMC Pension Plan did invest 
in the Fund, and it had a 0.05% indirect interest in the Fund.
---------------------------------------------------------------------------

    \8\ It is represented that section 408(b)(8) of the Act would 
apply to the investment by the ERISA-covered Plans in the Fund. 
Section 408(b)(8) of the Act provides a statutory exemption for any 
transactions between a plan and a common or collective trust fund 
maintained by a party in interest which is a bank or trust company 
supervised by a State or Federal agency if certain requirements are 
met.
---------------------------------------------------------------------------

    5. On May 16, 2007, the Fund purchased, with settlement on May 18, 
2007, the Notes, having an aggregate par value of $81,000,000, for 
$81,000,000. Victoria Finance, an unrelated party to BNY Mellon, issued 
these notes on May 18, 2007. The Notes had a maturity date of February 
8, 2009. On November 30, 2007, BNY Mellon sold back to the Issuer 
$47,033,000 of the Notes pursuant to a tender offer by the Issuer. 
Although BNY Mellon had tendered all the Notes owned by the Fund, only 
a partial tender was accepted, leaving the Fund with a balance of 
$33,967,000 in the Notes.
    6. The Issuer is a structured investment vehicle (SIV) that raised 
capital primarily by issuing various types and classes of commercial 
paper, including the Notes. The assets acquired by the Issuer, which 
consisted of corporate and asset backed securities, were then pledged 
to secure the Notes pursuant to a security agreement with an 
independent bank serving as collateral agent. The security agreement 
provided that, as a general rule, upon the occurrence of an 
``Enforcement Event'' (as defined in the security agreement), the 
collateral agent was required to sell all of the Issuer's assets and 
distribute the proceeds thereof. Interest on the Notes was taxable and 
payable monthly at a variable rate that was reset on the 15th day of 
each month based upon the one-month London Interbank Offered Rate 
(LIBOR), minus four basis points. All interest accrued through December 
31, 2007 was paid in full and on a timely basis.
    7. The decision to invest in the Notes was made by BNY Mellon. 
Prior to the investment, BNY Mellon conducted an investigation of the 
potential investment, examining and considering the economic and other 
terms of the Notes. BNY Mellon represents that the investment in the 
Notes was consistent with the applicable investment policies and 
objectives of the Fund. At the time the Fund acquired the Notes, they 
were rated ``A-1+'' by Standard & Poor's Corporation (S&P) and ``P-1'' 
by Moody's Investor Services, Inc. (Moody's). Based on its 
consideration of the relevant facts and circumstances, BNY Mellon 
states that it was prudent and appropriate for the Fund to acquire the 
Notes.\9\
---------------------------------------------------------------------------

    \9\ The Department is expressing no opinion in this proposed 
exemption regarding whether the acquisition and holding of the Notes 
by the Fund violated any of the fiduciary responsibility provisions 
of Part 4 of Title I of the Act. In this regard, the Department 
notes that section 404(a) of the Act requires, among other things, 
that a fiduciary of a plan act prudently, solely in the interest of 
the plan's participants and beneficiaries, and for the exclusive 
purpose of providing benefits to participants and beneficiaries when 
making investment decisions on behalf of a plan. Section 404(a) of 
the Act also states that a plan fiduciary should diversify the 
investments of a plan so as to minimize the risk of large losses, 
unless under the circumstances it is clearly prudent not to do so.
     Moreover, the Department is not providing any opinion as to 
whether a particular category of investments or investment strategy 
would be considered prudent or in the best interests of a plan as 
required by section 404 of the Act. The determination of the 
prudence of a particular investment or investment course of action 
must be made by a plan fiduciary after appropriate consideration of 
those facts and circumstances that, given the scope of such 
fiduciary's investment duties, the fiduciary knows or should know 
are relevant to the particular investment or investment course of 
action involved, including a plan's potential exposure to losses and 
the role the investment or investment course of action plays in that 
portion of the plan's portfolio with respect to which the fiduciary 
has investment duties (see 29 CFR 2550.404a-1). The Department also 
notes that in order to act prudently in making investment decisions, 
a plan fiduciary must consider, among other factors, the 
availability, risks and potential return of alternative investments 
for the plan. Thus, a particular investment by a plan, which is 
selected in preference to other alternative investments, would 
generally not be prudent if such investment involves a greater risk 
to the security of a plan's assets than other comparable investments 
offering a similar return or result.
---------------------------------------------------------------------------

    8. On November 7, 2007, S&P placed a ``negative watch'' on the 
Notes. On December 21, 2007, Moody's downgraded the rating of the Notes 
to ``Baa3.'' On January 7, 2008, S&P downgraded the rating of the Notes 
to ``B-.'' Responding to these events, BNY Mellon, on behalf of the 
Fund, executed an amendment to the security agreement governing the 
Notes pursuant to which, by providing notice (Election Notice) on or 
before January 17, 2008, BNY Mellon could elect to have the pro-rata 
share of the collateral assets allocable to the Notes held by the Fund 
excluded from any asset sale by the collateral agent that would 
otherwise occur immediately upon the occurrence of an Enforcement 
Event. On January 8, 2008, as a result of the foregoing ratings down-
grades, an Enforcement Event occurred. On January 15, 2008, Moody's 
further downgraded its rating of the Notes to ``B2.'' On January 16, 
2008, BNY Mellon submitted an Election Notice to the collateral agent 
instructing the collateral agent to exclude the Fund's pro rata share 
of the Issuer's assets from the asset sale triggered by the occurrence 
of the Enforcement Event on January 8, 2008. On January 17, 2008, S&P 
further downgraded its rating of the Notes to ``D.''
    9. BNY Mellon's election was based on BNY Mellon's determination 
that the market for the collateral assets securing the Notes was 
severely distressed and that the inherent value of such assets was 
substantially greater than the price that could have been obtained if 
such assets were sold currently by the collateral agent. Accordingly, 
BNY Mellon determined that it was in the best interests of the Fund to 
exclude such assets from a current sale. Had BNY Mellon not executed 
this amendment and submitted the Election Notice, the assets of the 
Issuer underlying the Notes likely would have been sold at a 
substantial discount, resulting in large losses for the Fund's 
investors.
    10. The Applicant represents that since the time of the Enforcement 
Event, a collateral agent and an enforcement manager have controlled 
the Issuer and, under the terms of the applicable security agreement, 
stopped paying interest or principal on the Notes. However, pro rata 
periodic distributions to holders of the Notes and other senior 
creditors of the Issuer have been made based on the cash flow received 
by the Issuer with respect to underlying assets. The Applicant 
represents that as of July 12, 2009, the Fund had received 
distributions from the collateral agent sufficient to pay down the 
unpaid interest accrued through January 15, 2008, plus approximately 23 
percent of the amortized cost of the Notes (from $33,967,000 to 
$26,090,137.06).
    11. BNY Mellon represents that following the date of the 
Enforcement Event, the market value of the Notes

[[Page 8136]]

decreased substantially. BNY Mellon further represents that on or about 
July 10, 2009, it obtained information from two independent broker-
dealers (Deutsche Bank and Credit Suisse) that the market for the Notes 
was in extreme distress, with prices for actual trades being 
substantially lower than their par value or amortized cost. In this 
regard, Deutsche Bank provided an execution price of $29.50 and Credit 
Suisse provided a bid indication price of $25.00.
    12. In view of the foregoing, BNY Mellon and the BNY Mellon 
fiduciary committee with responsibility for overseeing the Fund 
ultimately determined that it would be appropriate and in the best 
interests of the Fund to sell the Notes to BNYMC at a price equal to 
the sum of (a) the total current amortized cost of the Notes, plus (b) 
interest for the period from January 1, 2008 to July 12, 2009, 
calculated at a rate equal to the earnings rate of the Fund during such 
period. Such a sale would protect the Fund from any investment loss 
with respect to the Notes. BNY Mellon also determined that the purchase 
of the Notes by BNYMC would be permissible under applicable banking 
law.
    13. Shortly before the consummation of the transaction on July 10, 
2009, BNY Mellon sent written notice to the designated representative 
of each of the investors having a direct interest in the Fund of BNY 
Mellon's intent to cause the Fund to sell the Notes to BNYMC. While 
such notice did not contemplate or require any response, it should be 
noted that this notice did not generate any negative reaction from any 
of the recipients thereof.
    14. The Applicant represents that on July 10, 2009, BNYMC purchased 
the Notes from the Fund for an aggregate lump sum payment of 
$26,997,049.52, which amount represented the sum of (a) the total 
current amortized cost of the Notes ($26,090,137.06), plus (b) interest 
for the period from January 1, 2008 to July 12, 2009, calculated at a 
rate equal to the earnings rate of the Fund during such period 
($906,912.46).
    15. BNY Mellon, as trustee of the Fund, believed that the sale of 
the Notes to BNYMC was in the best interests of the Fund, and the Plans 
invested, directly or indirectly, in the Fund, at the time of the 
transaction. BNY Mellon states that any sale of the Notes on the open 
market would have produced significant losses for the Fund and for the 
participating investors in the Fund.
    16. BNY Mellon represents that the sale of the Notes by the Fund to 
BNYMC benefited the investors in the Fund because the purchase price 
paid by BNYMC for the Notes substantially exceeded the aggregate fair 
market value of the Notes. In addition, BNY Mellon states that the 
transaction was a one-time sale for cash in connection with which the 
Fund did not bear any brokerage commissions, fees, or other expenses. 
BNY Mellon represents that it took all appropriate actions necessary to 
safeguard the interests of the Fund and its participating investors in 
connection with the sale of the Notes.
    17. BNY Mellon states that the sale of the Notes by the Fund to 
BNYMC resulted in an assignment of all of the Fund's rights, claims, 
and causes of action against the Issuer or any third party arising in 
connection with or out of the issuance of the Notes or the acquisition 
of the Notes by the Fund. BNY Mellon states further that if the 
exercise of any of the foregoing rights, claims or causes of action 
results in BNYMC recovering from the Issuer or any third party an 
aggregate amount that is more than the sum of (a) the purchase price 
paid for the Notes by BNYMC, and (b) interest on the purchase price 
paid for the Notes at the interest rate specified in the Notes, then 
BNYMC will refund such excess amount promptly to the Fund (after 
deducting all reasonable expenses incurred in connection with the 
recovery).
    18. In summary, the Applicant represents that the transactions 
satisfied the statutory criteria for an exemption under section 408(a) 
of the Act because: (a) the sale of the Notes by the Fund to BNYMC was 
a one-time transaction for cash; (b) the Fund received an amount equal 
to the sum of (i) the total current amortized cost of the Notes, plus 
(ii) interest for the period beginning on January 1, 2008 to July 12, 
2009, calculated at a rate equal to the earnings rate of the Fund 
during such p