[Federal Register Volume 64, Number 70 (Tuesday, April 13, 1999)]
[Notices]
[Pages 18062-18063]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-9124]
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SECURITIES AND EXCHANGE COMMISSION
[Investment Company Act Release No. 23772; 812-11540]
The Goldman Sachs Group, Inc., et al.; Notice of Application
April 7, 1999.
agency: Securities and Exchange Commission (``Commission'').
action: Notice of application under section 6(c) of the Investment
Company Act of 1940 (the ``Act'') for an exemption from section
12(d)(3) of the Act.
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summary of the application: Applicants request an order to amend a
prior order (``Prior Order'') relating to certain registered investment
companies advised by the Goldman Advisers, as defined below, and one or
more other investment advisers (``Unaffiliated Advisers'').\1\ The
Prior Order permits the portion of the portfolio of these registered
investment companies advised by an Unaffiliated Adviser (``Unaffiliated
Portion'') to engage in certain principal and brokerage transactions
with and to purchase certain securities from Goldman, Sachs & Co.
(``Goldman Sachs'') or a member of an underwriting syndicate in which
Goldman Sachs is a principal underwriter. The requested order would
permit the Unaffiliated Portion to purchase equity or debt securities
issued by The Goldman Sachs Group, Inc. (``Goldman Sachs, Inc.'') or an
affiliated person of Goldman Sachs, Inc. (``Goldman Securities''),
subject to the limits in rule 12d3-1 under the Act.
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\1\ Goldman Sachs & Co., et al., Investment Company Act Release
Nos. 22858 (Oct. 17, 1997) (notice) and 22887 (Nov. 13, 1997)
(order).
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applicants: Goldman Sachs, Inc., Goldman Sachs, Goldman Sachs Asset
Management (``GSAM''), Liberty Investment Management (``Liberty''),
Goldman Sachs Asset Management International (``GSAMI''), and Goldman
Sachs Funds Management, L.P. (``GSFM''); The Diversified Investors
Funds Group, Diversified Investors Portfolios, the Managers Funds, the
Hirtle Callaghan Trust, EAI Select Managers Equity Fund, and the
Seasons Series Trust (collectively, the ``Funds''). GSAM, Liberty,
GSAMI, GSFM, and any other entities controlling, controlled by, or
under common control with Goldman Sachs that serve as investment
advisers to the Funds are collectively referred to as the ``Goldman
Advisers.''
filing dates: The application was filed on April 6, 1999.
hearing or notification of hearing: An order granting the application
will be issued unless the Commission orders a hearing. Interested
persons may request a hearing by writing to the Commission's Secretary
and serving applicants with a copy of the request, personally or by
mail. Hearing requests should be received by the SEC by 5:30 p.m. on
April 28, 1999, and should be accompanied by proof of service on
applicants, in the form of an affidavit or, for lawyers, a certificate
of service. Hearing requests should state the nature of the writer's
interest, the reason for the request, and the issues contested. Persons
who wish to be notified of a hearing may request notification by
writing to the Commission's Secretary.
addresses: Secretary, SEC, 450 Fifth Street, N.W., Washington, D.C.
20549-0609. Applicants, 85 Broad Street, New York, NY 10004.
for further information contact: Kathleen L. Knisely, Staff Attorney,
at (202) 942-0517, or Nadya B. Roytblat, Assistant Director, at (202)
942-0564 (Division of Investment Management, Office of Investment
Company Regulation).
SUPPLEMENTARY INFORMATION: The following is a summary of the
application. The complete application may be obtained for a fee at the
Commission's Public Reference Branch, 450 Fifth Street, NW, Washington,
DC 20549-0102 (tel. 202-942-8090).
Applicants' Representations
1. Goldman Sachs, Inc. is a newly created entity that owns The
Goldman Sachs Group, L.P. (``Goldman Sachs Group''), the parent holding
company of Goldman Sachs. Goldman Sachs is registered as a broker-
dealer under the Securities Exchange Act of 1934 and an investment
adviser under the Investment Advisers Act of 1940 (``Advisers Act'').
GSAMI and GSFM are under common control with Goldman Sachs and are
investment advisers registered under the Advisers Act. GSAM is an
operating division of Goldman Sachs, and Liberty is an operating
division of GSFM.
2. The Funds, open-end management investment companies registered
under the Act, are organized as Massachusetts business trusts, or in
the case of The Hirtle Callaghan Trust, as a Delaware
[[Page 18063]]
business trust.\2\ GSAM and Liberty serve as an investment adviser to
series of the Funds that have more than one investment adviser
(``Multi-Managed Portfolios''). Each Multi-Managed Portfolio is advised
by one or more Unaffiliated Advisers registered under the Advisers Act.
The Unaffiliated Advisers are not affiliated persons of Goldman Sachs
or affiliated persons of affiliated persons of Goldman Sachs or any
Goldman Adviser (``Unaffiliated Advisers,'' together with the Goldman
Advisers, the ``Subadvisers'').\3\ Each Subadviser is responsible for
managing only the investments of a discrete portion of the Multi-
Managed Portfolio's assets.
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\1\ All registered investment companies that currently intend to
rely on the order are named as applicants. Any other existing or
future registered investment company that relies on the order will
comply with the terms and conditions of the application.
\2\ The term ``Subadvisers'' includes a primary adviser
(``Primary Adviser'') to the extent the Primary Adviser is
responsible for managing a portion of a Multi-Managed Portfolio. No
Goldman Adviser will serve as a Primary Adviser to a Multi-Managed
Portfolio.
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3. Applicants state that in managing a portion of a Multi-Managed
Portfolio, each Subadviser acts as if it were managing a separate
investment company. The Subadvisers do not collaborate, and each is
responsible for making independent investment and brokerage allocation
decisions for its portion of the Multi-Managed Portfolio based on its
own research and analysis. The Subadvisers do not receive information
about investment or brokerage allocation decisions of another portion
of the Multi-Managed Portfolio before they are implemented. Each
Subadviser is compensated for advisory services based only on a
percentage of the value of the assets of the portion of the Multi-
Managed Portfolio allocated to that Subadviser. Applicants state that
Goldman Sachs does not and will not control the Multi-Managed Portfolio
for which a Goldman Adviser acts as Subadviser or otherwise influence
the investment decisions of the Unaffiliated Portion.
4. The Goldman Sachs Group publicly announced on March 8, 1999 that
it will sell approximately 12.8% of its equity in an initial public
offering scheduled to take place during the Spring of 1999. Applicants
request relief to permit the Unaffiliated Portions to purchase Goldman
Securities in the initial public offering, in any subsequent offering,
or in the secondary market.
Applicants' Legal Analysis
1. Section 12(d)(3) of the Act generally prohibits a registered
investment company from acquiring any security issued by any person who
is a broker, dealer, investment adviser, or engaged in the business of
underwriting (collectively, ``securities-related activities'').
Applicants state that because the issuer of the Goldman Securities is
engaged in securities-related activities, an Unaffiliated Portion would
be prohibited by section 12(d)(3) from purchasing the Goldman
Securities.
2. Rule 12d3-1 under the Act exempts from the prohibition of
section 12(d)(3) purchases of securities of an issuer engaged in
securities-related activities if certain conditions are met. One of
these conditions, set forth in rule 12d3-1(c), prohibits the
acquisition of a security issued by the investment company's investment
adviser, promoter, or principal underwriter, or any affiliated person
of the investment adviser, promoter, or principal underwriter.
3. Section 2(a)(3) of the Act defines an ``affiliated person'' of
another person to include: (a) any person that directly or indirectly
owns, controls, or holds with power to vote 5% or more of the
outstanding voting securities of the other person; (b) any person 5% or
more of whose outstanding voting securities are directly or indirectly
owned, controlled, or held with power to vote by the other person; (c)
any person directly or indirectly controlling, controlled by, or under
common control with the other person; and (d) if the other person is an
investment company, any investment adviser of that company.
4. Applicants state that the issuer of the Goldman Securities would
be an affiliated person of a Goldman Adviser. As an investment adviser
to a portion of a Multi-Managed Portfolio, a Goldman Adviser is deemed
to be an investment adviser to the entire Multi-Managed Portfolio.
Thus, applicants state that a purchase by an Unaffiliated Portion of
Goldman Securities would not meet rule 12d3-1(c) and that applicants
are therefore unable to rely on the rule.
5. Applicants request an exemption under section 6(c) from section
12(d)(3) to permit the Unaffiliated Portions to purchase Goldman
Securities, provided that all of the requirements of rule 12d3-1,
except rule 12d3-1(c), are met. Applicants state that their proposal
does not raise the conflicts of interest that rule 12d3-1(c) was
designed to address because of the nature of the affiliation between a
Goldman Adviser and the Unaffiliated Portion. Applicants submit that
each Subadviser acts independently of the other Subadvisers in making
investment and brokerage allocation decisions for the assets allocated
to its portion of the Multi-Managed Portfolio. Applicants state that
Goldman Securities will not be purchased by any portion advised by a
Goldman Adviser. Applicants assert that prohibiting the Unaffiliated
Portions from purchasing Goldman Securities may cause Unaffiliated
Advisers to forego investment opportunities that would be in the best
interests of the Funds' shareholders.
Applicants' Conditions
Applicants agree that any order granting the requested relief and
amending the Prior Order will be subject to the following conditions:
1. Each Multi-Managed Portfolio will be advised by a Goldman
Adviser and at least one Unaffiliated Adviser and will be operated
consistent with the manner described in the application. No Goldman
Adviser will serve as a Primary Adviser to a Multi-Managed Portfolio.
2. No Goldman Adviser or any future investment adviser that is an
affiliated person of a Goldman Adviser or an affiliated person of an
affiliated person of a Goldman Adviser will purchase for its portion of
a Multi-Managed Portfolio any Goldman Securities.
3. Each Multi-Managed Portfolio will abide by the restrictions
imposed by rule 12d3-1, except paragraph (c) of that rule with respect
to purchases of Goldman Securities by Unaffiliated Portions.
4. No Subadviser will directly or indirectly consult with any other
Subadviser concerning any investment management decisions, including
those relating to the Goldman Securities. Subadvisers may only consult
with a Primary Adviser about Goldman Securities in order to monitor
compliance with the limits in rule 12d3-1.
5. No Subadviser will participate in an arrangement whereby the
amount of its compensation will be affected by the investment
performance of any other Subadviser.
6. Neither a Goldman Adviser (except by virtue of serving as
Subadviser) nor Goldman Sachs will be an affiliated person or an
affiliated person of an affiliated person of any Unaffiliated Adviser
or any officer, trustee or employee of the registered investment
company relying on this order.
For the Commission, by the Division of Investment Management,
under delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 99-9124 Filed 4-12-99; 8:45 am]
BILLING CODE 8010-01-M
