[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