[Federal Register Volume 60, Number 178 (Thursday, September 14, 1995)]
[Notices]
[Pages 47789-47792]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-22803]



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SECURITIES AND EXCHANGE COMMISSION
[Release No. IC-21340; 812-8950]


Goldman Sachs Money Market Trust, et al.; Notice of Application

September 7, 1995.
AGENCY: Securities and Exchange Commission (``SEC'').

ACTION: Notice of application for an order of exemption under the 
Investment Company Act of 1940 (``1940 Act'').

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APPLICANTS: Goldman Sachs Money Market Trust (formerly Goldman Sachs-
Institutional Liquid Assets), Trust For Credit Unions, Goldman Sachs 
Equity Portfolios, Inc., Goldman Sachs Trust, Financial Square Trust 
and Paragon Portfolio (collectively, the ``Funds'') and Goldman Sachs 
Funds Management, L.P., Goldman Sachs Asset Management International 
and Goldman, Sachs & Co. (collectively, ``Goldman Sachs''),\1\ on 

[[Page 47790]]
behalf of themselves and any other investment company for which Goldman 
Sachs may act as investment adviser (which term includes a sub-
adviser), administrator and/or distributor in the future.\2\

    \1\ The term ``Goldman Sachs'' refers to all entities 
controlling, controlled by or under common control with Goldman 
Sachs & Co. and which serve as investment adviser, administrator 
and/or distributor to one or more existing or future registered 
investment companies.
    \2\ The term ``Funds'' includes such future registered 
investment companies.
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RELEVANT 1940 ACT SECTIONS: Exemption requested under sections 6(c) and 
17(b) from the provisions of sections 17(a)(1) and 17(a)(2) of the 1940 
Act.

SUMMARY OF APPLICATIONS: Applicants seek a conditional order to let the 
Funds engage in purchase and sale transactions limited to certain types 
of high quality debt securities and repurchase agreements meeting the 
standards set forth in Condition 1 below (``Qualified Securities'') 
with banks, bank holding companies and affiliates thereof that are 
``affiliated persons'' of the Funds due solely to their owning, 
holding, or controlling a five percent or greater share interest in a 
Fund and/or acting as investment adviser to a Fund, except that no Fund 
will engage in such transactions with a bank, bank holding company, or 
an affiliate thereof that controls, advises or sponsors that Fund.

FILING DATES: The application was filed on April 22, 1994 and amended 
and restated on December 20, 1994, and May 25 and September 5, 1995.

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 October 2, 1995, 
and should be accompanied by proof of service on the 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, D.C. 
20549. Applicants, 85 Broad Street, New York, NY 10004.

FOR FURTHER INFORMATION CONTACT:
H.R. Hallock, Jr., Special Counsel, at (202) 942-0564, or C. David 
Messman, Branch Chief, at (202) 942-0564 (Office of Investment Company 
Regulation, Division of Investment Management).

SUPPLEMENTARY INFORMATION: The following is a summary of the 
application. The complete application may be obtained for a fee at the 
SEC's Public Reference Branch.

Applicants' Representations

    1. Each of the Funds currently is organized as a business trust 
under Massachusetts law or as a corporation under Maryland law. Each of 
the Funds also has a currently effective registration statement under 
the 1940 Act and the Securities Act of 1933. Goldman Sachs serves as 
investment adviser, distributor and/or administrator to each Fund.
    2. Several Funds are designed for institutional investors, 
particularly banks seeking investment of funds (frequently short-term 
monies) on behalf of accounts for which the banks act in an agency, 
trustee or other fiduciary capacity. Banks acting in such capacities 
normally purchase shares of the Funds through an omnibus or ``master'' 
account, and register such shares in the name of the bank or its 
nominee. In some cases, a bank may purchase Fund shares for its own 
account. Most of the institutionally oriented Funds are money market 
funds and short-term bond funds; as such the amount of a bank's 
holdings of shares therein can fluctuate significantly, even on a daily 
basis. From time to time, the number of shares of a Fund held by a bank 
may exceed five percent of a Fund's outstanding voting shares.
    3. Applicants seek an exemption from sections 17 (a)(1) and (a)(2) 
to permit the Funds to engage in transactions in Qualified Securities 
with ``Affiliated Banks.'' For purposes of the application, the term 
``Affiliated Banks'' is defined to mean banks, bank holding companies 
and affiliated persons thereof that are affiliated persons of any of 
the Funds solely because they directly or indirectly own, control or 
hold five percent or more of the outstanding voting securities of any 
of the Funds, or act as investment adviser to any of the Funds.

Applicants' Legal Analysis

    1. Sections 17(a)(1) and 17(a)(2) of the 1940 Act prohibit 
affiliated persons of the Funds, or affiliated persons of such 
affiliated persons, acting as principal, knowingly to sell or purchase 
any securities to or from the Funds. Section 2(a)(3) of the 1940 Act 
defines an ``affiliated person'' of another person as, among other 
persons: (A) Any person directly or indirectly owning, controlling, or 
holding with power to vote, five percent or more of the outstanding 
voting securities of such other person; (B) any person five percent or 
more of whose outstanding voting securities are directly or indirectly 
owned, controlled, or held with power to vote, by such other person; 
(C) any person directly or indirectly controlling, controlled by or 
under common control with, such other person; (D) any officer, 
director, partner, copartner or employee of such other person; and (E) 
if such other person is an investment company, any investment adviser 
thereof.
    2. By virtue of section 2(a)(3)(A), if a bank owns, controls or 
holds with power to vote five percent or more of the outstanding voting 
shares of one of the Funds, that bank could be considered an affiliated 
person of that Fund. In addition, that bank's holding company and 
affiliated persons thereof likewise may be deemed to be affiliated 
persons of an affiliated person of that Fund by virtue of section 
2(a)(3)(C). Furthermore, any person who is an affiliated person of a 
registered investment company also may be deemed to be affiliated with 
each other registered investment company which has a common investment 
adviser, or investment advisers which are affiliated persons of each 
other, or common directors or common officers, or a combination of the 
foregoing, because such investment companies may be deemed to be under 
common control. Accordingly, a bank, bank holding company, or 
affiliated person thereof that is deemed to be an Affiliated Bank in 
respect of one Fund by virtue of its ownership of such Fund's shares 
may be deemed to be an affiliated person of an affiliated person of all 
the Funds. The result of the operation of these provisions is to 
prohibit all of the Funds from engaging in any principal transaction in 
securities, including repurchase agreements and U.S. government 
securities, with a wide range of banks, bank holding companies and 
affiliates thereof.
    3. Section 17(b) of the 1940 Act provides that the SEC may exempt a 
transaction from the prohibitions of section 17(a) if evidence 
establishes that the terms of the proposed transaction, including the 
consideration to be paid, are reasonable and fair and do not involve 
overreaching on the part of any person concerned, and that the proposed 
transaction is consistent with the policy of the registered investment 
company concerned and with the general purposes of the 1940 Act. 
Section 6(c) of the 1940 Act provides that the SEC may conditionally or 
unconditionally exempt any person, security, or transaction, or any 
class or classes of persons, securities, or transactions, from any 
provisions of the 1940 Act, if and to the extent such exemption is 
necessary or appropriate 

[[Page 47791]]
in the public interest and consistent with the protection of investors 
and the purposes fairly intended by the policy and provisions of the 
1940 Act.\3\

    \3\ Applicants seek relief under section 6(c) as well as section 
17(b) because section 17(b) could be interpreted as giving the SEC 
power to exempt only a single transaction from section 17(a), as 
opposed to a class of transactions.
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    4. The Funds believe the applicability of sections 17(a)(1) and 
17(a)(2) to transactions between the Funds and Affiliated Banks in 
Qualified Securities unreasonably reduces the range of available 
investment alternatives. The inability to effect transactions in 
Qualified Securities with Affiliated Banks deprives the Funds of the 
ability to purchase and sell portfolio securities that, absent the 
prohibitions of section 17(a), would be appropriate investments made 
under circumstances which do not involve a conflict of interest or 
other potential for abuse. Furthermore, the increasing involvement of 
banks (or affiliated persons thereof) in the markets for a variety of 
taxable and tax-exempt securities has increased the need for the Funds 
to be able to engage in transactions in Qualified Securities with 
Affiliated Banks.
    5. Applicants believe that a bank, bank holding company or 
affiliated person thereof that is affiliated with a Fund solely because 
it owns, holds or controls five percent or more of a Fund's outstanding 
shares and/or acts as investment adviser to a Fund is unlikely to 
posses the power in fact to improperly influence a Fund with respect to 
purchases or sales by the Fund of securities from or to an Affiliated 
Bank. In this regard, as a condition to the relief requested, 
Applicants agree that no Fund will engage in transactions with an 
Affiliated Bank that serves as investment adviser (including sub-
adviser) or sponsor to such Fund. Moreover, no Fund will engage in 
transactions in Qualified Securities with any Affiliated Bank which 
controls such Fund within the meaning of section 2(a)(9) of the 1940 
Act. Applicants believe these conditions, in conjunction with the 
oversight to be provided, as a further condition to the relief 
requested, by the Boards of Directors/Trustees of the Funds, will 
preclude the possibility of overreaching by an Affiliated Bank. 
Applicants also submit that a limitation on the credit quality of the 
securities that may be purchased from an Affiliated Bank adequately 
addresses the concerns of section 17.
    6. Goldman Sachs represents that there is no express or implied 
understanding between Goldman Sachs and any bank, bank holding company 
or affiliated person thereof which is (or may become) an Affiliated 
Bank of a Fund that Goldman Sachs will cause any of the Funds to enter 
into purchase or sale transactions in Qualified Securities with such 
entity. Moreover, Applicants represent that they will give no 
preference to any Affiliated Bank in effecting purchase of sale 
transactions between the Funds and an Affiliated Bank which involve 
Qualified Securities issued by or purchased from or sold to such 
Affiliated Bank or because the customers of such bank purchase shares 
of any of the Funds.
    7. Applicants propose that the requested exemptive relief extend to 
include investment companies (and series thereof) for which Goldman 
Sachs does not act as investment adviser, but for which Goldman Sachs 
serves as distributor and/or administrator. As administrator, Goldman 
Sachs performs, assists in the performance of and/or supervises 
substantially all of various administrative services specified in the 
application on behalf of such investment company (or series thereof). 
Such services include, among others, assistance with the design, 
development and operation of a Fund, and the supervision of a Fund's 
custodian in the maintenance of the Fund's general ledger and in the 
preparation of the Fund's financial statements, including oversight of 
expense accruals and payments and of the determination of the net asset 
value of the Fund's assets and of the Fund's shares. Goldman Sachs also 
would develop uniform procedures and reports to allow each Fund's Board 
of Directors or Trustees to monitor compliance with the requirements of 
the 1940 Act, including compliance with section 17(a).

Applicants' Condition

    If the requested order is granted, Applicants agree to the 
following conditions:
    1. The Funds will engage in transactions with Affiliated Banks only 
in Qualified Securities. For purposes hereof, the term Qualified 
Securities is defined to mean:
    (a) For obligations which have a remaining maturity of 397 days or 
less, each such security shall constitute an ``Eligible Security'' 
within the meaning of rule 2a-7; provided, that, in the case of Unrated 
Securities (as defined in rule 2a-7(a)(20)), in addition to the 
requirements of rule 2a-7 applicable to such Unrated Securities, all 
determinations with respect to the comparability of such securities to 
treated securities are also reviewed and approved at least quarterly by 
a majority of the Fund's Trustee/Directors who are not interested 
persons of the Fund.
    (b) For obligations which have a remaining maturity of more than 
397 days, each such security (or another long-term security of the same 
issuer having comparable priority and security to such obligation) 
shall have been rated by a nationally-recognized statistical rating 
organization (``NRSRO'') in one of the four highest rating categories 
for long-term obligations; or, if the security and issuer have not been 
rated by any NRSRO, are determined by the Fund's investment adviser to 
be comparable in credit quality to a security carrying along-term 
rating in one of such four highest rating categories of a NRSRO, and 
such determination is reviewed and approved at least quarterly by a 
majority of such Fund's Directors/ Trustees who are not interested 
persons of the Fund.
    (c) Any repurchase agreements will be collateralized fully within 
the meaning of rule 2a-7.
    (d) For obligations subject to unconditional, irrevocable credit 
enhancement (including, without limitation, a guarantee, letter of 
credit or put), the Funds may rely upon the NRSRO ratings of the 
provider of such credit enhancement to determine whether the obligation 
satisfies the requirements of paragraphs (a) and (b) above. Such 
obligations shall be treated as rated securities to the extent that the 
credit enhancement is of comparable priority and security to the rated 
obligations of the provider of such credit enhancement.
    2. No Fund will engage in any transaction in Qualified Securities 
with an Affiliated Bank that is an investment adviser or sponsor to 
that Fund or an Affiliated Bank controlling, controlled by, or under 
common control with such investment adviser or sponsor. No Fund will 
engage in transactions in Qualified Securities with an Affiliated Bank 
that exercises a controlling influence over that Fund (and 
``controlling influence'' shall be deemed to include, but is not 
limited to, directly or indirectly, owning, controlling or holding more 
than 25 percent of the outstanding voting securities of the Fund). No 
Fund will purchase Qualified Securities of any Affiliated Bank (other 
than repurchase agreements) if, as a result, more than five percent of 
that Fund's total assets would be invested in Qualified Securities of 
that Affiliated Bank.
    3. The Funds (a) will maintain and preserve permanently in an 
easily accessible place a written copy of the procedures (and any 
modifications thereto) described in Condition 6 below, and (b) will 
maintain and preserve for 

[[Page 47792]]
a period of not less than six years from the end of the fiscal year in 
which any transactions with Affiliated Banks occurred, the first two 
years in an easily accessible place--a written record of each 
transaction in Qualified Securities setting forth a description of the 
security purchased or sold, the identify of the person on the other 
side of the transaction, the terms of the purchase or sale transaction 
and the information or materials upon which the determinations 
described below were made.
    4. The Qualified Securities to be purchased or sold by a Fund will 
be consistent with the investment objectives and policies of that Fund 
as recited in the Fund's registration statement, and will be consistent 
with the interests of that Fund and its shareholders.
    5. The terms of the transactions must be reasonable and fair to the 
shareholders of that Fund and cannot involve overreaching of that Fund 
or its shareholders on the part of any person concerned. In considering 
whether the price to be paid or received for a Qualified Security is 
reasonable and fair, the price of the security will be analyzed with 
respect to comparable transactions involving similar securities being 
purchased or sold during a comparable period of time. A Qualified 
Security to be purchased or sold by that Fund must be comparable in 
terms of quality, yield and maturity to other similar securities that 
are appropriate for that Fund and that are being purchased or sold 
during a comparable period of time. In making this analysis, the Board 
of Trustees/Directors may rely on a matrix pricing system which they 
believe properly assists them in determining the value of securities 
pursuant to section 2(a)(41) of the 1940 Act.
    6. The Board of Trustees/Directors of each of the Funds (including 
at least a majority of the disinterested members) will (a) adopt 
procedures, pursuant to which transactions in Qualified Securities may 
be effected for the Funds, which are reasonably designated to provide 
that all the requirements of Conditions 1 through 5 above and the 
requirements of Investment Company Act Release No. 13005 (Feb. 2, 1983) 
have been complied with, (b) review no less frequently than annually 
such procedures for their continuing appropriateness, and (c) determine 
no less frequently than quarterly that such transactions in Qualified 
Securities made during the preceding quarter were effected in 
compliance with such procedures. The investment adviser (or sub-adviser 
if Goldman Sachs is the sub-adviser) of each Fund will implement these 
procedures and make decisions necessary to meet these conditions, 
subject to the direction and control of the Board of Trustees/Directors 
of each Fund.

    For the Commission, by the Division of Investment Management, 
under delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 95-22803 Filed 9-13-95; 8:45 am]
BILLING CODE 8010-01-M