Legislation was introduced yesterday in the Senate and the House of Representatives, the “Offshore Deferred Compensation Reform Act of 2007," to limit the ability of a cash-basis taxpayer to defer compensation earned from many non-U.S. corporations. The legislation, if enacted, would be effective with respect to deferrals for years beginning after December 31, 2007. Existing deferrals, and earnings on existing deferrals, would not be affected by the new legislation.

The proposed legislation provides that compensation deferred under a nonqualified deferred compensation plan of a "nonqualified foreign corporation" must be included in income when it is not subject to a substantial risk of forfeiture. It is expected that any risk relating to the investment performance of a deferred amount will not be treated as a substantial risk of forfeiture. A "nonqualified foreign corporation" is any non-U.S.

corporation, unless substantially all of its income is (i) effectively connected with the conduct of a U.S. trade or business, (ii) is subject to a comprehensive income tax (as determined by the Treasury Department) in a foreign country, under which a current deduction is not allowed for deferred compensation, or (iii) is subject to income tax in a foreign country which has a comprehensive income tax treaty (as determined by the Treasury Department) with the United States, the foreign corporation is a beneficiary of the treaty, and the foreign corporation is not allowed a current deduction for deferred compensation by such country.

Under the proposed legislation, many deferred compensation arrangements with certain non-U.S. corporations, including investment funds organized in low-tax and non-treaty jurisdictions such as the Cayman Islands or Bermuda, would no longer be effective to defer current taxation in the United States.

We will inform you of further developments in this area.