David,

As I mentioned one of our hedgefund counterparties has suggested the 
following change to our representation.

"(ii) it is not any employee benefit plan subject to the Employee Retirement 
Income Security Act of 1974 (&ERISA8), is not acting on behalf of an employee 
benefit plan subject to ERISA, and not more than 24.9% of its assets areis 
not using assets which are or which are deemed under ERISA to be assets of an 
employee benefit plan."

The following paragraphs are two explanations on why they want this change.

...we have counsel tracking down the cite, but I think your expert is
mixing two different issues.  We are not obliged to get exception from a
"prohibited transaction" because we are NOT an employee benefit plan.  If
more than 25% of your assets are employee benefit assets you are deemed to
be a plan - which is why we have a limitation up to that amount.  It is
clearly our intention to not be considered a employee benefit plan fiduciary
and the 25% test is one of the criteria for this.

The cite is 29 C.F.R. Section 2510.3-101, which is a Department of Labor
regulation generally referred to as the "plan asset regulation".  The plan
asset regulation states that a fund is not deemed to hold plan assets (and
therefore is not subject to the prohibited transaction rules under ERISA) if
benefit plans investors in the aggregate hold less than 25% of each class of
equity interest in the fund (disregarding interests held by the manager of
the fund and its affiliates)

Can you please review the explanation and let me know if it makes sense.

Regards,
Brent