Proposed Exemptions From Certain Prohibited Transaction Restrictions, 3038-3064 [2012-932]

Agencies

• Employee Benefits Security Administration
• DEPARTMENT OF LABOR

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



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Vol. 77

Friday,

No. 13

January 20, 2012

Part II





Department of Labor





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 Employee Benefits Security Administration





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Proposed Exemptions From Certain Prohibited Transaction Restrictions; 
Notice

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

[[Page 3038]]


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DEPARTMENT OF LABOR

Employee Benefits Security Administration


Proposed Exemptions From Certain Prohibited Transaction 
Restrictions

AGENCY: Employee Benefits Security Administration, Labor.

ACTION: Notice of Proposed Exemptions.

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SUMMARY: This document contains notices of pendency before the 
Department of Labor (the Department) of proposed exemptions from 
certain of the prohibited transaction restrictions of the Employee 
Retirement Income Security Act of 1974 (ERISA or the Act) and/or the 
Internal Revenue Code of 1986 (the Code). This notice includes the 
following proposed exemptions: D-11655, Renaissance Technologies, Inc. 
(Renaissance or the Applicant); D-11677, Weyerhaeuser Company 
(Weyerhaeurser) and Federalway Asset Management LP (collectively the 
Applicants); and D-11680, Citigroup Inc. (Citigroup); et al.)

DATES: All interested persons are invited to submit written comments or 
requests for a hearing on the pending exemptions, unless otherwise 
stated in the Notice of Proposed Exemption, within 45 days from the 
date of publication of this Federal Register Notice.

ADDRESSES: Comments and requests for a hearing should state: (1) The 
name, address, and telephone number of the person making the comment or 
request, and (2) the nature of the person's interest in the exemption 
and the manner in which the person would be adversely affected by the 
exemption. A request for a hearing must also state the issues to be 
addressed and include a general description of the evidence to be 
presented at the hearing.
    All written comments and requests for a hearing (at least three 
copies) should be sent to the Employee Benefits Security Administration 
(EBSA), Office of Exemption Determinations, Room N-5700, U.S. 
Department of Labor, 200 Constitution Avenue NW., Washington, DC 20210. 
Attention: Application No. ------, stated in each Notice of Proposed 
Exemption. Interested persons are also invited to submit comments and/
or hearing requests to EBSA via email or FAX. Any such comments or 
requests should be sent either by email to: moffitt.betty@dol.gov, or 
by FAX to (202) 219-0204 by the end of the scheduled comment period. 
The applications for exemption and the comments received will be 
available for public inspection in the Public Documents Room of the 
Employee Benefits Security Administration, U.S. Department of Labor, 
Room N-1513, 200 Constitution Avenue NW., Washington, DC 20210.

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


SUPPLEMENTARY INFORMATION: 

Notice to Interested Persons

    Notice of the proposed exemptions will be provided to all 
interested persons in the manner agreed upon by the applicant and the 
Department within 15 days of the date of publication in the Federal 
Register. Such notice shall include a copy of the notice of proposed 
exemption as published in the Federal Register and shall inform 
interested persons of their right to comment and to request a hearing 
(where appropriate). The proposed exemptions were requested in 
applications filed pursuant to section 408(a) of the Act and/or section 
4975(c)(2) of the Code, and in accordance with procedures set forth in 
29 CFR Part 2570, Subpart B (55 FR 32836, 32847, August 10, 1990). 
Effective December 31, 1978, section 102 of Reorganization Plan No. 4 
of 1978, 5 U.S.C. App. 1 (1996), transferred the authority of the 
Secretary of the Treasury to issue exemptions of the type requested to 
the Secretary of Labor. Therefore, these notices of proposed exemption 
are issued solely by the Department.
    The applications contain representations with regard to the 
proposed exemptions which are summarized below. Interested persons are 
referred to the applications on file with the Department for a complete 
statement of the facts and representations.

Renaissance Technologies, LLC (Renaissance, or the Applicant)

Located in New York, New York

[Application No. D-11655]

Proposed Exemption

    Based on the facts and representations set forth in the 
application, the Department is considering granting an exemption under 
the authority of section 408(a) of the Act (or ERISA) and section 
4975(c)(2) of the Code and in accordance with the procedures set forth 
in 29 CFR Part 2570, Subpart B (55 FR 32836, 32847 August 10, 1990).

Section I. Covered Transactions Involving IRAs Subject to Title I and 
TITLE II of ERISA

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

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

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

Section III. General Conditions

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

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

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

Section IV. Definitions

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

Section IV. Effective Date

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

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

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

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

The Medallion Funds

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

[[Page 3042]]

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

The Kaleidoscope Fund

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

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

The RIFF and RIEF Funds

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

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

[[Page 3043]]

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

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

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

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

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

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

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

[[Page 3044]]

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

The Decision To Terminate the 401(k) Plan

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

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

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

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

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

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

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

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

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

[[Page 3045]]

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

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

The New Medallion Vehicles

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

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

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

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

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

Qualifications To Invest in the New Medallion Vehicles

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

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

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

[[Page 3046]]

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

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

    41. The Applicant notes that the investor qualifications for New 
Kaleidoscope mirror those of Kaleidoscope itself, as there are no