[Federal Register Volume 59, Number 46 (Wednesday, March 9, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-5374]
[[Page Unknown]]
[Federal Register: March 9, 1994]
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SECURITIES AND EXCHANGE COMMISSION
[Rel. No. IC-20107; 812-8588]
Goldman Sachs Equity Portfolios, Inc. et al.; Application
March 2, 1994.
AGENCY: Securities and Exchange Commission (the ``SEC'' or the
``Commission'').
ACTION: Notice of Application for Exemption under the Investment
Company Act of 1940 (the ``Act'').
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APPLICANTS: Goldman Sachs Equity Portfolios, Inc. (``Equity
Portfolios''), Goldman Sachs Trust (``Bond Trust''), Goldman Sachs
Institutional Liquid Assets (``Institutional Liquid Assets)'',
Financial Square Trust (``Financial Square Trust''), Centerland Funds
(``Centerland''), Trust for Credit Unions and Paragon Portfolio
(``Paragon''), (collectively, the ``Funds''), Goldman, Sachs & Co.
(``Goldman Sachs''), and Goldman Sachs Funds Management, L.P. (``Funds
Management'').
RELEVANT ACT SECTIONS: Order requested under section 6(c) of the Act
for an exemption from sections 2(a)(32), 2(a)(35), 18(f)(1), 18(g),
18(i), 22(c) and 22(d) of the Act and rule 22c-1 thereunder.
SUMMARY OF APPLICATION: Applicants request an order to permit certain
investment companies to issue multiple classes of shares and assess a
contingent deferred sales charge (``CDSC''). The order would supersede
four prior orders (the ``Prior Orders'') and would permit certain Funds
to issue an unlimited number of classes and expand the types of
expenses that may be allocated to a particular class.
FILING DATES: The application was filed on September 17, 1993, and
amended on December 6, 1993 and February 3, 1994. Applicants have
agreed to file an additional amendment, the substance of which is
incorporated herein, during the notice period.
HEARING OR NOTIFICATION OF HEARING: An order granting the application
will be issued unless the SEC orders a hearing. Interested persons may
request a hearing by writing to the SEC'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 March 28, 1994
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 SEC's
Secretary.
ADDRESSES: Secretary, SEC, 450 Fifth Street NW., Washington, DC 20549.
Applicants; 32 Old Slip, New York, New York 10005.
FOR FURTHER INFORMATION CONTACT:
Deepak T. Pai, Staff Attorney, at (202) 272-3809, or Robert A.
Robertson, Branch Chief, at (202) 272-3030 (Division of Investment
Management, Office of Investment Company Regulation).
SUPPLEMENTARY INFORMATION: The following is a summary of the
application. The complete application is available for a fee at the
SEC's Public Reference Branch.
Applicants' Representations
1. Each of the Funds is a Massachusetts business trust, except that
Equity Portfolios is a Maryland corporation. The Funds are registered
management investment companies under the Act that have multiple
series. Certain series of the Funds currently offer more than one class
of shares under the Prior Orders.\1\
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\1\Goldman Sachs Equity Portfolios, et al., Investment Company
Act Release Nos. 19241 (Jan. 26, 1993), (notice) and 19288 (Feb. 23,
1993) (order). Institutional Liquid Assets, et al., Investment
Company Act Release Nos. 17420 (Apr. 11, 1990) (notice) and 17479
(May 8, 1990) (order). Financial Square Trust, et al., Invsetment
Company Act Release Nos. 18282 (Aug. 20, 1991) (notice) and 18319
(Sept. 17, 1991) (order). Centerland, et al., Investment Company Act
Release Nos. 18050 (Mar. 18, 1991) (notice) and 18101 (Apr. 16,
1991) (order).
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2. Each Fund, other than Paragon and certain series of Centerland,
has entered into an investment advisory contract with Goldman Sachs,
Goldman Sachs Asset Management, a separate operating division of
Goldman Sachs, or Funds Management. Certain series of the Funds also
pay Goldman Sachs Asset Management International, an affiliate of
Goldman Sachs, and certain series of Centerland also pay, or expect to
pay in connection with new series of such Fund, Boatmen's Trust Company
or Kleinwort Benson International Investment Limited, an advisory or
subadvisory fee.
3. Paragon, on behalf of Paragon Treasury Money Market Fund, has
entered into an investment advisory contract with Goldman Sachs.
Premier Investment Advisers, Inc. (``Premier'') acts as investment
adviser to each of the existing series of Paragon, other than Paragon
Treasury Money Market Fund. Boatman's Trust Company acts as investment
adviser to certain series of Centerland. Premier acts as subadviser to
Paragon Treasury Money Market Fund. Goldman Sachs acts as administrator
to each of Paragon's series.
4. Goldman Sachs Asset Management acts as administrator to all of
the series of Equity Portfolios and Financial Square Trust, to four
series of Bond Trust and to certain series of Centerland. Callahan
Credit Union Financial Services Limited Partnership acts as
administrator to all the series of Trust for Credit Unions, and
Boatmen's Trust Company acts as administrator to certain of the series
of Centerland. Goldman Sachs also acts as principal underwriter of each
Fund.
5. The Prior Orders permit certain Funds to issue multiple classes
of shares and assess a CDSC. Applicants request an order that would
expand the investment companies eligible to rely on the Prior Orders to
include Trust for Credit Unions and Paragon, permit the Funds to issue
an unlimited number of classes, and expand the types of expenses that
may be allocated to a particular class. Applicants request that the
exemption be extended to future funds for which Goldman Sachs or any
entity controlling, controlled by or under common control with Goldman
Sachs acts as investment adviser or distributor.
A. The Multiple Class Distribution System
1. Applicants request an order to permit each Fund to issue an
unlimited number of classes of shares. The classes would be identical
in all respects except: Any such class (a) may be subject to a
distribution plan adopted under rule 12b-1, a share-holder services
plan and/or an administration plan (collectively, the ``Plans'') and
may make different payments pursuant to such Plans (``Plan Payments'')
and relating to obtaining shareholder approval of a distribution plan
(or an amendment to such plan); (b) may bear different ``Class
Expenses'' (as described below); (c) may bear a different name or
designation; (d) will have exclusive voting rights with respect to any
Plan adopted exclusively with respect to such class; (e) may have
different exchange privileges; and (f) may bear any other incremental
expenses subsequently identified that should be properly allocated to
such class which shall be approved by the SEC pursuant to an amended
order.
2. Under an administration plan, a Fund (or Goldman Sachs) would
enter into servicing agreements (``Service Agreements'') with
affiliated and unaffiliated financial institutions, broker-dealers and
securities professionals (``Service Organizations'') capable of
providing support services to the customers of such Service
Organizations who beneficially own shares of the Funds offered pursuant
to such Plan. Under a shareholder services plan, a Fund (or Goldman
Sachs) would enter into Service Agreements with Service Organizations
concerning the provision of account administration services to the
customers of such Service Organizations who beneficially own shares of
the Funds offered pursuant to such Plan.
3. The Funds may establish a ``Limited Institutional Class'' which
will be offered only to one or more of the following six categories of
investors: (a) Unaffiliated benefit plans such as qualified retirement
plans, with respect to which a trustee is vested with investment
discretion as to plan assets, other than individual retirement accounts
and self-employed retirement plans; (b) tax exempt retirement plans of
Goldman Sachs and its affiliates; (c) unit investment trusts sponsored
by sponsors affiliated with the Fund's adviser, subadviser,
administrator or principal underwriter; (d) banks and insurance
companies purchasing for their own accounts; (e) investment companies
not affiliated with the Fund's adviser, subadviser, manager,
administrator or principal underwriter; and (f) endowment funds,
foundations or non-profit organizations.
4. Under the proposed multiple class system, certain expenses may
be attributable to a Fund, but not to a particular series thereof
(``Fund Expenses''). Fund Expenses may be allocated among the series of
each Fund based on the relative aggregate net assets of such series.
Expenses that are attributable to a particular series, but not a
particular class thereof, will be allocated daily to each class based
on relative net assets.
5. Each class of shares may generally be exchanged only for shares
of a class with similar characteristics in another Fund. Such exchanges
will be allowed only between Funds that are within the same ``group of
investment companies'' as that term is defined in rule 11a-3 under the
Act. However, exchanges may, at the discretion of the trustees, be
permitted among classes if (a) a shareholder ceases to be eligible to
purchase shares of the original class by reason of a change in the
shareholder's status or if another class would have been more
appropriate for such shareholder if such class existed at the time of
the shareholder's initial investment or (b) the terms of such exchange
do not result in the imposition of duplicative sales charges. Exchanges
also may be permitted from any class to certain money market funds that
have neither a Plan nor a CDSC. The exchanges will comply with rule
11a-3 under the Act.
B. The CDSC
1. Applicants also request an exemption to permit the Funds to
assess a CDSC on certain redemptions of shares and to permit the Funds
to waive, defer, or reduce any CDSC with respect to certain types of
redemptions. Under a CDSC arrangement, the amount of a CDSC, if any,
charged to a shareholder of a Fund would depend on the number of months
or years that had elapsed since the shareholder purchased the CDSC
class shares that were being redeemed. Any CDSC would be imposed on the
lesser of the net asset value of the redeemed shares at the time of
purchase or the net asset value of the redeemed shares at the time of
redemption. No CDSC would be imposed with respect to: (a) The portion
of redemption proceeds attributable to increases in the value of an
account above the net cost of the investment due to increases in the
net asset value per share; (b) shares acquired through reinvestment of
income dividends or capital gain distributions; or (c) CDSC class
shares held for more than a specified number of months or years after
the purchase order for such shares was accepted. Any front-end load,
CDSC, or 12b-1 fees imposed by the Funds would comply with section
26(d) of Article III of the Rules of Fair Practice of the NASD.
2. Applicants request the authority to waive or reduce any CDSC in
any of the following circumstances: (a) In connection with redemptions
of shares purchased by (i) Goldman Sachs, its affiliates or their
respective officers, partners, directors or employees (including
retired employees and former partners), any partnership of which
Goldman Sachs or any of its affiliates is a general partner, any
investment adviser, subadviser, manager, administrator or principal
underwriter (if other than Goldman Sachs) of the Funds (``Other
Affiliated Parties''), their affiliates or their respective officers,
partners, directors or employees (including retired employees and
former partners), any trustee or officer of the Funds and designated
family members of any of the above individuals (``designated family
members'' means any of the following: spouses, children, parents,
parents of spouses, spouses of parents, grandparents, grandchildren,
siblings, spouses of siblings, siblings of spouses, spouses of
children, children of siblings, spouses of siblings' children, aunts,
uncles, cousins, spouses of aunts, uncles and cousins and trusts,
estates and private foundations created by or for the benefit of the
individual or designated family members as to which the individual acts
as trustee or retains investment discretion); (ii) qualified retirement
plans of Goldman Sachs, Other Affiliated Parties or any of their
affiliates; (iii) trustees or directors of investment companies for
which Goldman Sachs or an affiliate acts as sponsor; (iv) any employee
or registered representative of an authorized dealer and their
``designated family members;'' (v) institutional investors, including
insurance companies, broker-dealers, discretionary accounts of
investment advisers with at least $100 million under management for the
last twelve months and business entities that have either gross assets
of at least $100 million or publicly traded securities outstanding;
(vi) banks, trust companies or other types of depository institutions;
(vii) any state, county or city, or any instrumentality, department,
authority or agency thereof, which is prohibited by applicable
investment laws from paying a sales charge or commission in connection
with the purchase of shares of the Funds; (viii) pension and profit
sharing plans, pension funds or other benefit plans sponsored by state
and municipal governments and by business entities, provided that any
such plan (1) has total assets of at least $25 million under management
or (2) is prohibited by law from paying a sales load or commission;
(ix) Taft-Hartley plans, provided any such plan has a minimum of $25
million under management; and (x) qualified nonprofit organizations,
foundations and endowments; (b) on redemptions following the death or
disability, as defined in section 72(m)(7) of the Internal Revenue Code
of 1986, as amended (the ``Code''), of a shareholder if the redemption
is made within one year of death or disability of a shareholder; (c) in
connection with distributions from retirement plans that are not
subject to any penalties under the Code; (d) in connection with
redemptions of shares by shareholders with accounts in excess of a
specified minimum dollar amount and additional reductions or waivers of
the CDSC occurring in connection with redemptions of shares by
shareholders with accounts in excess of certain additional break-
points; (e) pursuant to each Fund's right to liquidate or involuntarily
redeem shares in a shareholder's account; and (f) pursuant to a
systematic withdrawal plan.
Applicants' Legal Analysis
1. Applicants request an exemption under section 6(c) of the Act,
that would exempt the funds from sections 18(f)(1), 18(g) and 18(i) of
the Act to permit the issuance of an unlimited number of classes.
Applicants believe that the multiple class system does not raise any of
the legislative concerns that section 18 was designed to ameliorate.
The proposal does not involve borrowings and does not affect the
existing assets or reserves. In addition, the proposed arrangement will
not increase the speculative character of the shares of a Fund since
all such shares will participate in a Fund's appreciation, income and
expenses with the exception of the Plan Payments and Class Expenses.
The proposed allocation of expenses and voting rights relating to the
Plans is equitable and would not discriminate against any group of
shareholders.
2. Applicants also request an exemption under section 6(c), that
would exempt the funds from sections 2(a)(32), 2(a)(35), 22(c), 22(d)
of the Act and rule 22c-1 thereunder, to permit the Funds to assess,
waive, reduce or defer a CDSC with respect to certain redemptions of
shares. Applicants believe that the imposition of the CDSC on CDSC
class shares of the Funds is fair and in the best interests of their
shareholders.
Applicant's Conditions
1. Each class of shares will represent interests in the same
portfolio of investments of a Fund or a series, and be identical in all
respects except as set forth below. The only differences among the
classes of shares of the same Fund or series will relate solely to: (a)
The impact of certain Class Expenses, which will be limited to any or
all of the following expenses determined by the trustees to be
attributable to a specific class of shares: (i) transfer agent fees
(including the incremental cost of monitoring any CDSC) attributable to
a specific class of shares; (ii) expenses related to preparing,
printing, mailing and distributing materials such as shareholder
reports, prospectuses and proxy statements to current shareholders of a
specific class; (iii) SEC and state Blue Sky registration fees incurred
by a specific class of shares; (iv) the expenses of administrative
personnel and services required to support the shareholders of a
specific class; (v) litigation or other legal expenses relating to a
class of shares; (vi) trustees' fees or expenses incurred as a result
of issues relating to a specific class of shares; (vii) accounting,
audit and tax expenses relating to a specific class shares; and (viii)
fees and other payments made, other than pursuant to a Plan, to
entities performing services for a particular class, including account
maintenance, dividend disbursing or subaccounting services or
administration of a dividend reinvestment or systematic investment or
withdrawal plan; (b) expenses payable by a class pursuant to a Plan
with respect to such class; (c) the voting rights related to any Plan
affecting a specific class of shares, except as provided in condition
16 below; (d) exchange privileges; (e) the conversion features; (f)
class designations; and (g) any additional incremental expenses
subsequently identified that should properly be allocated to one class
which shall be approved by the SEC pursuant to an amended order.
2. The trustees of the Funds, including a majority of the non-
interested trustees, will approve the multiple class system. The
minutes of the meetings of the trustees of the Funds regarding the
deliberations of the trustees concerning, and their approval of, the
multiple class system will reflect in detail the reasons for the
trustees' determination that the proposed multiple class system is in
the best interests of both the Funds and their respective shareholders.
3. The initial determination of Class Expenses that will be
allocated to a class and any subsequent changes thereto will be
reviewed and approved by a vote of the trustees, including a majority
of the non-interested trustees. Any persons authorized to direct the
allocation and disposition of monies paid or payable by a Fund to meet
Class Expenses shall provide to the trustees, and the trustees shall
review at least quarterly, a written report of the amounts so expended
and the purposes for which such expenditures were made.
4. Any distributor will adopt compliance standards as to when each
class of shares may appropriately be sold to particular investors.
Applicants will require all persons selling shares of a Fund to agree
to conform to such standards. Such compliance standards will require
that all investors eligible to purchase shares of the Limited
Institutional Class be sold only shares of the Limited Institutional
Class, rather than any other class of shares offered by the Fund.
5. The Shareholder services plans and administrative plans will be
adopted and operated in accordance with the procedures set forth in
rule 12b-1(b) through (f) as if the expenditures made thereunder were
subject to rule 12(b)-1, except that shareholders need not enjoy the
voting rights specified in rule 12b-1.
6. On an ongoing basis, the trustees of the Funds, pursuant to
their fiduciary responsibilities under the Act and otherwise, will
monitor each Fund for the existence of any material conflicts among the
interests of the classes of shares. The trustees, including a majority
of the non-interested trustees, will take such action as is reasonably
necessary to eliminate any such conflicts that may develop. The
investment adviser and distributor of the Funds will be responsible for
reporting any potential or existing conflicts to the trustees. If a
conflict arises, the investment adviser and distributor of the Funds,
each at its own cost, will remedy such conflict up to and including
establishing a new registered management investment company.
7. The trustees will receive quarterly and annual statements
concerning the amounts expended under each shareholder services,
administration and distribution plan and the related Service Agreement
complying with paragraph (b)(3)(ii) of rule 12b-1, as it may be amended
from time to time, for their respective Funds. In the statements, only
expenditures properly attributable to the sale or servicing of a
particular class of shares will be used to justify any distribution or
servicing fee charged to that class. Expenditures not related to the
sale or servicing of a particular class will not be presented to the
trustees to justify any fee attributable to that class. The statements,
including the allocations upon which they are based, will be subject to
the review and approval of the non-interested trustees in the exercise
of their fiduciary duties.
8. Dividends paid by a Fund with respect to each class of its
shares, to the extent any dividends are paid, will be calculated in the
same manner, at the same time, on the same day, and will be paid in the
same amount, except that Plan Payments and any Class Expenses will be
borne exclusively by the affected class.
9. The methodology and procedures for calculating the net asset
value and dividends and distributions of the classes of shares and the
proper allocation of expenses among the classes have been reviewed by
an expert (the ``Expert''). The Expert has rendered a report to the
applicants filed with the application as exhibit C that such
methodology and procedures are adequate to ensure that such
calculations and allocations will be made in an appropriate manner. On
an ongoing basis, the Expert, or an appropriate substitute Expert, will
monitor the manner in which the calculations and allocations are being
made and, based upon such review, will render at least annually a
report to the Funds that the calculations and allocations are being
made properly. The reports of the Expert shall be filed as part of the
periodic reports filed with the SEC pursuant to sections 30(a) and
30(b)(1) of the Act. The work papers of the Expert with respect to such
reports, following a request by the Funds (which the Funds agree to
provide), will be available for inspection by the SEC's staff upon the
written request for such work papers by a senior member of the Division
of Investment Management or of a Regional Office of the SEC limited to
the Director, an Associate Director, the Chief Accountant, the Chief
Financial Analyst, an Assistant Director, and any Regional
Administrators or Associate and Assistant Administrators. The initial
report of the Expert is a ``Special Purpose'' report on the ``Design of
a System'' as defined and described in SAS No. 44 of the American
Institute of Certified Public Accountants (the ``AICPA'') and the
ongoing reports will be ``reports on policies and procedures placed in
operations and tests of operation effectiveness'' as defined and
described in SAS No. 70 of the AICPA, as it may be amended from time to
time, or in similar auditing standards as may be adopted by the ICPA
from time to time.
10. The applicants have adequate facilities in place to ensure
implementation of the methodology and procedures for calculating the
net asset value and dividends and distributions of the classes of
shares and the proper allocation of expenses among the classes of
shares and this representation has been concurred with by the Expert in
the initial report referred to in the immediately preceding condition
and will be concurred with by the Expert, or an appropriate substitute
expert, on an ongoing basis at least annually in the ongoing reports
referred to in the immediately preceding condition. The applicants
agree to take immediate corrective action if this representation is not
concurred in by the Expert or appropriate substitute Expert.
11. The prospectus of each Fund, or if applicable, the prospectus
of each class of shares of a Fund, will include a statement to the
effect that any person entitled to receive compensation for selling or
servicing Fund shares may receive different compensation with respect
to one particular class of shares over another in the Fund.
12. The conditions pursuant to which the exemptive order is granted
and the duties and responsibilities of the trustees of the Funds with
respect to the multiple class system will be set forth in guidelines
which will be furnished to the trustees.
13. The Fund will disclose the respective expenses, performance
data, distribution arrangements, services, fees, sales loads, deferred
sales loads, and exchange privileges applicable to each class of
shares, other than the Limited Institutional Class, in every
prospectus, regardless of whether all classes of shares are offered
through each prospectus. The Limited Institutional Class will be
offered solely pursuant to a separate prospectus. The prospectus for
the Limited Institutional Class will disclose the existence of the
Fund's other classes, and the prospectus for the other classes will
disclose the existence of the Limited Institutional Class and will
identify the persons eligible to purchase shares of such class. The
Fund will disclose the respective expenses and performance data
applicable to all classes of shares in every shareholder report. The
shareholder reports will contain, in the statement of assets and
liabilities and statement of operations, information related to the
Fund as a whole generally and not on a per class basis. Each Fund's per
share data, however, will be prepared on a per class basis with respect
to all classes of shares of such Fund. To the extent any advertisement
or sales literature describes the expenses or performance data
applicable to any class of shares, it will also disclose the respective
expenses and/or performance data applicable to all classes of shares,
except the Limited Institutional Class. Advertising materials
reflecting the expenses or performance data for the Limited
Institutional Class will be available only to those persons eligible to
purchase the Limited Institutional Class. The information provided by
applicants for publication in any newspaper or similar listing of the
Fund's net asset value and public offering price will present each
class of shares, except the Limited Institutional Class, separately.
14. The applicants acknowledge that the grant of the relief
requested by this application will not imply SEC approval,
authorization or acquiescence in any particular level of payments that
the Funds may make pursuant to the distribution, administration or
shareholder services plans in reliance on the exemptive order.
15. Any class of shares (``Purchase Class'') with a conversion
feature will convert into another class of shares (``Target Class'') on
the basis of the relative net asset values of the two classes, without
the imposition of any sales load, fee, or other charge. After
conversion, the converted shares will be subject to an asset-based
sales charge and/or service fee (as those terms are defined in Article
III, section 26 of the NASD's Rules of Fair Practice), if any, that in
the aggregate are lower than the asset-based sales charge and service
fee to which they were subject prior to the conversion.
16. If the Fund implements any amendment to its distribution plan
(or, if presented to shareholder, adopts or implements any amendment of
the non-rule 12b-1 shareholder services plan or administration plan)
that would increase materially the amount that may be borne by the
Target Class shares under the plan, existing Purchase Class shares will
stop converting into Target Class unless the Purchase Class
shareholders, voting separately as a class, approve the proposal. The
trustees shall take such action as is necessary to ensure that existing
Purchase Class shares are exchanged or converted into a new class of
shares (``New Target Class''), identical in all material respects to
Target Class as it existed prior to implementation of the proposal, no
later than the date such Purchase Class shares previously were
scheduled to convert into Target Class shares. If deemed advisable by
the trustees to implement the foregoing, such action may include the
exchange of all existing Purchase Class shares for a new class (``New
Purchase Class''), identical to existing Purchase Class shares in all
material respects except that New Purchase Class will convert into New
Target Class. A New Target Class or New Purchase Class may be formed
without further exemptive relief. Exchanges or conversions described in
this condition shall be effected in a manner that the trustees
reasonably believe will not be subject to federal taxation. In
accordance with condition 6, any additional cost associated with the
creation, exchange or conversion of New Target Class or New Purchase
Class shall be borne solely by the investment adviser or distributor.
Purchase Class shares sold after the implementation of the proposal may
convert into Target Class shares subject to the higher maximum payment,
provided that the material features of the Plan and the relationship of
such Plan to the Purchase Class shares are disclosed in an effective
registration statement.
17. Applicants will comply with the provisions of proposed rule 6c-
10 under the Act, IC-16619 (November 2, 1988), as such rule is
currently proposed and as it may be reproposed, adopted or amended.
For the SEC, by the Division of Investment Management, pursuant
to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 94-5374 Filed 3-8-94; 8:45 am]
BILLING CODE 8010-01-M