[Federal Register Volume 67, Number 39 (Wednesday, February 27, 2002)]
[Notices]
[Pages 9010-9016]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-4559]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. IC-25424; 812-12452]


Goldman, Sachs & Co., et al.; Notice of Application

February 20, 2002.
AGENCY: Securities and Exchange Commission (``Commission'').

ACTION: Notice of application for an order under section 12(d)(1)(J) of 
the Investment Company Act of 1940 (the ``Act'') for an exemption from 
section 12(d)(1) of the Act, under sections 6(c) and 17(b) of the Act 
for an exemption from section 17(a) of the Act, under section 6(c) for 
an exemption from section 17(e) of the Act, and under section 17(d) of 
the Act and rule 17d-1 under the Act to permit certain joint 
transactions.

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    Summary of Application: Applicants request an order to permit (a) 
certain registered investment companies to pay an affiliated lending 
agent a fee based on a share of the revenue derived from securities 
lending activities; (b) the registered investment companies to use cash 
collateral from securities lending transactions (``Cash Collateral'') 
to purchase shares of certain money market funds and private investment 
companies; (c) the registered investment companies to lend portfolio 
securities to affiliated broker-dealers; and (d) the affiliated broker-
dealers to engage in principal transactions with, and receive brokerage 
commissions from, certain registered investment companies that are 
affiliated with the broker-dealers solely as a result of investing Cash 
Collateral in the money market funds or private investment companies.
    Applicants: Goldman, Sachs & Co. (``Goldman Sachs''), Goldman Sachs 
Funds Management, L.P. (``GSFM''), Goldman Sachs Asset Management 
International (``GSAMI''), The Goldman Sachs Trust Company, Boston 
Global Investment Trust (``BGIT''), Goldman Sachs Trust (``GST''), and 
Goldman Sachs Variable Insurance Trust (``GSVIT'').
    Filing Dates: The application was filed on February 13, 2001 and 
amended on February 15, 2002.
    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 Commission by 
5:30 p.m. on March 18, 2002, 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 may request notification of a hearing by writing to 
the Commission's Secretary.

ADDRESSES: Secretary, Commission, 450 Fifth Street, NW, Washington, DC 
20549-0609. Applicants: c/o Howard B. Surloff, Esq., Goldman Sachs & 
Co., 32 Old Slip, New York, NY 10005.

FOR FURTHER INFORMATION CONTACT: Marilyn Mann, Senior Counsel, at (202)

[[Page 9011]]

942-0582, 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 from 
the Commission's Public Reference Branch, 450 5th Street, NW, 
Washington DC 20549-0102 (telephone (202) 942-8090).

Applicants' Representations

    1. Goldman Sachs is a New York limited partnership registered as a 
broker-dealer under the Securities Exchange Act of 1934 (the ``1934 
Act''), and as an investment adviser under the Investment Advisers Act 
of 1940 (the ``Advisers Act''). GSFM is a Delaware limited partnership 
registered as an investment adviser under the Advisers Act. GSAMI is a 
United Kingdom corporation registered as an investment adviser under 
the Advisers Act. Goldman Sachs, acting through Goldman Sachs Asset 
Management (``GSAM''), a business unit of its Investment Management 
Division, GSFM, and GSAMI are individually referred to as an 
``Adviser'' and collectively as the ``Advisers.''\1\ Goldman Sachs and 
any other broker-dealer that is controlled by or under common control 
with Goldman Sachs are individually referred to as an ``Affiliated 
Broker-Dealer'' and collectively as the ``Affiliated Broker-Dealers.''
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    \1\ The term ``Advisers'' also includes any other division of, 
or other person controlled by, controlling or under common control 
with, Goldman Sachs.
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    2. Goldman Sachs, GSFM and GSAMI are directly or indirectly 
partnership or corporate subsidiaries of The Goldman Sachs Group, Inc. 
(``GS Group''), a Delaware corporation. GS Group is the general partner 
and a limited partner of Goldman Sachs. GSFM is a Delaware limited 
partnership of which the general partner is a corporation wholly-owned 
directly by GS Group and the sole limited partner is GS Group. GSAMI is 
an English company wholly-owned indirectly by GS Group.
    3. GST and GSVIT, which are Delaware business trusts, are open-end 
management investment companies registered under the Act that have 59 
and 9 series, respectively. Goldman Sachs serves as the principal 
underwriter for GST and GSVIT. GSAMI serves as investment adviser to 7 
of GST's series and 2 of GSVIT's series. GSFM serves as investment 
adviser to 4 of GST's series and 2 of GSVIT's series. GSAM serves as 
investment adviser to the remaining series of GST and GSVIT. GST, 
GSVIT, their series, and any other registered management investment 
company, or series thereof, that is currently or in the future advised 
by GSAM, GSAMI, GSFM, or any other entity controlling, controlled by, 
or under common control with Goldman Sachs, that may participate as a 
lender in the securities lending program with the Goldman Sachs Trust 
Company as lending agent (the ``Program'') are referred to as the 
``Goldman Funds.'' Any other registered management investment companies 
or series thereof that may participate as lenders in the Program are 
referred to as the ``Non-Goldman Funds.'' The Goldman Funds and Non-
Goldman Funds are collectively referred to as the ``Registered Lending 
Funds.''\2\
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    \2\ All existing Goldman Funds that currently intend to rely on 
the requested relief have been named as applicants. Any existing or 
future Goldman Fund, Non-Goldman Fund, Adviser, Affiliated Broker-
Dealer, Money Market Fund (as defined below) or Private Investing 
Fund (as defined below) may rely on the requested relief only in 
accordance with the terms and conditions of the application.
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    4. BGIT is a Delaware business trust of which Delaware Trust 
Capital Management, a Delaware bank and trust company, is the sole 
trustee (the ``Trustee''). The Enhanced Portfolio, a series of BGIT, is 
an unregistered investment vehicle relying on section 3(c)(7) of the 
Act, and is advised by GSAM. The Enhanced Portfolio, and any other 
unregistered investment vehicle relying on sections 3(c)(1) or 3(c)(7) 
of the Act that is advised by an Adviser, are referred to as the 
Private Investing Funds. The Enhanced Portfolio invests in a variety of 
debt securities that have a remaining maturity of 397 days or less.\3\ 
Additional Private Investing Funds, which may or may not be a series of 
BGIT, may be created in the future. Future Private Investing Funds will 
invest in short-term liquid investments and will be advised by an 
Adviser. Certain Private Investing Funds will comply with rule 2a-7 
under the Act. Units of beneficial interest (``Units'') of the Private 
Investing Funds will not be subject to any sales load, redemption fee, 
asset-based sales charge or service fee.
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    \3\ For this purpose, the remaining maturity of instruments is 
determined by reference to paragraph (d) of rule 2a-7 under the Act, 
except that variable rate corporate debt instruments are deemed to 
have a maturity equal to the period remaining until the next 
adjustment of the interest rate.
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    5. The Advisers will create one or more registered open-end 
management investment companies, or series thereof, that are money 
market funds and comply with rule 2a-7 under the Act (the ``Money 
Market Funds''). The Money Market Funds will be created for the purpose 
of implementing the Program and will be available solely to the 
Registered Lending Funds. Each Money Market Fund will be advised by an 
Adviser. Shares of the Money Market Funds (``Shares'') will not be 
subject to any sales load, redemption fee, asset-based sales charge or 
service fee.
    6. The Program will be administered by Boston Global Advisers 
(``BGA''), a separate operating division of The Goldman Sachs Trust 
Company, a New York limited purpose trust company and a wholly-owned 
subsidiary of GS Group. BGA will enter into a Securities Lending Agency 
Agreement (``Agency Agreement'') with each Registered Lending Fund. BGA 
will enter into securities loan agreements (``SLAs'') with certain 
entities (``Borrowers'') designated by the Registered Lending Funds. 
Under the SLAs, BGA will lend securities to Borrowers in exchange for 
Cash Collateral or other types of collateral, such as U.S. government 
securities or irrevocable letters of credit, as permitted under the 
Agency Agreement. Under the terms of the Agency Agreement, each 
Registered Lending Fund will instruct BGA to invest any Cash Collateral 
in Units of a Private Investing Fund or Shares of a Money Market 
Fund.\4\
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    \4\ Alternatively, a Registered Lending Fund may choose to 
instruct BGA to invest its Cash Collateral in pre-approved 
instruments. If a Registered Lending Fund chooses this option, it is 
anticipated that BGA will charge a fee based on a percentage of Cash 
Collateral invested by the Registered Lending Fund.
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    7. BGA represents that its personnel providing day-to-day lending 
agency services to the Goldman Funds will not provide investment 
advisory services to the Goldman Funds or participate in any way in the 
selection of portfolio securities for, or other aspects of the 
management of, the Goldman Funds. The duties to be performed by BGA as 
lending agent with respect to any Registered Lending Fund will not 
exceed the parameters described in Norwest Bank, Minnesota, N.A., SEC 
No-Action Letter (pub. avail. May 25, 1995).
    8. With respect to securities loans that are collateralized by 
cash, the Borrower is entitled to receive a fixed fee based on the 
amount of cash held as collateral. The Registered Lending Fund in this 
case is compensated on the spread between the net amount earned on the 
investment of the Cash Collateral and the Borrower's fee. In the case 
of collateral other than Cash Collateral, the Registered Lending Fund 
receives a loan

[[Page 9012]]

fee paid by the Borrower equal to the agreed upon fee times the 
percentage of the market value of the loaned securities specified in 
the SLA.
    9. The applicants request relief to permit: (a) The Registered 
Lending Funds to pay BGA a fee based on a share of the revenue derived 
from securities lending activities; (b) the Registered Lending Funds to 
use Cash Collateral to purchase Shares of the Money Market Funds and 
Units of the Private Investing Funds; (c) the Registered Lending Funds 
to lend portfolio securities to the Affiliated Broker-Dealers; and (d) 
the Affiliated Broker-Dealers to engage in principal transactions with, 
and receive brokerage commissions from, the Non-Goldman Funds.

Applicants' Legal Analysis

A. Investment of Cash Collateral in Money Market Funds and Private 
Investing Funds

    1. Section 12(d)(1)(A) of the Act provides that no registered 
investment company may acquire securities of another investment company 
representing more than 3% of the acquired company's outstanding voting 
stock, more than 5% of the acquiring company's total assets, or, 
together with the securities of other investment companies, more than 
10% of the acquiring company's total assets. Section 12(d)(1)(B) of the 
Act provides that no registered open-end investment company may sell 
its securities to another investment company if the sale will cause the 
acquiring company to own more than 3% of the acquired company's voting 
stock, or if the sale will cause more than 10% of the acquired 
company's voting stock to be owned by investment companies. Section 
12(d)(1)(J) of the Act provides that the Commission may exempt any 
person or transaction from any provision of section 12(d)(1) if and to 
the extent that the exemption is consistent with the public interest 
and the protection of investors.
    2. Applicants request an exemption under section 12(d)(1)(J) to 
permit each Registered Lending Fund to use Cash Collateral to acquire 
Shares of a Money Market Fund in excess of the limits imposed by 
section 12(d)(1)(A), and each Money Market Fund to sell its Shares to 
the Registered Lending Funds in excess of the percentage limits in 
section 12(d)(1)(B).
    3. Applicants state that none of the abuses meant to be addressed 
by section 12(d)(1) of the Act is created by the proposed investment of 
Cash Collateral in the Money Market Funds. Applicants further state 
that access to the Money Market Funds will enhance each Registered 
Lending Fund's ability to manage and invest Cash Collateral. Applicants 
represent that the proposed arrangement will not result in an 
inappropriate layering of fees because the Money Market Funds will not 
charge a sales load, redemption fee, asset-based sales charge or 
service fee (as defined in rule 2830(b)(9) of the National Association 
of Securities Dealers, Inc. Conduct Rules (``NASD Conduct Rules'')). 
Applicants represent that no Money Market Fund will acquire securities 
of any other investment company in excess of the limits contained in 
section 12(d)(1)(A) of the Act, except that (a) a Money Market Fund may 
acquire securities of a registered open-end investment company in the 
same group of investment companies as the Money Market Fund to the 
extent permitted by section 12(d)(1)(E) of the Act, and (b) a Money 
Market Fund may purchase shares of an affiliated money market fund for 
short-term cash management purposes to the extent permitted by an 
exemptive order.
    4. Sections 17(a)(1) and 17(a)(2) of the Act prohibit an affiliated 
person or principal underwriter of a registered investment company, or 
any affiliated person of the affiliated person or principal underwriter 
(``Second Tier Affiliate''), acting as principal, from selling any 
security to, or purchasing any security from, the registered investment 
company. Section 2(a)(3) of the Act defines an ``affiliated person'' of 
another person to include: any person directly or indirectly owning, 
controlling, or holding with power to vote 5% or more of the 
outstanding voting securities of the other person; any person 5% or 
more of whose outstanding voting securities are directly or indirectly 
owned, controlled, or held with power to vote, by such other person; 
any person directly or indirectly controlling, controlled by, or under 
common control with, the other person; and, in the case of an 
investment company, its investment adviser. Control is defined in 
section 2(a)(9) of the Act to mean ``the power to exercise a 
controlling influence over the management or policies of a company, 
unless such power is solely the result of an official position with 
such company.''
    5. Applicants state that the Advisers serve as investment advisers 
to each of the Goldman Funds, Money Market Funds and Private Investing 
Funds, each such Adviser could be deemed to control the entities it 
advises, and the Advisers are under common control. Therefore, the 
Goldman Funds, Money Market Funds and Private Investing Funds could be 
deemed to be under common control and each Goldman Fund is an 
affiliated person of each Money Market Fund and each Private Investing 
Fund. In addition, applicants indicate that if a Non-Goldman Fund 
acquires 5% or more of a Money Market Fund's Shares or a Private 
Investing Fund's Units, the Money Market Fund or Private Investing Fund 
may be deemed to be an affiliated person of the Non-Goldman Fund. As a 
result, section 17(a) may prohibit each Money Market Fund and Private 
Investing Fund from selling its Shares or Units to, and redeeming its 
Shares or Units from, the Registered Lending Funds.
    6. Section 17(b) of the Act authorizes the Commission to exempt a 
transaction from section 17(a) if the terms of the proposed 
transaction, including the consideration to be paid or received, are 
reasonable and fair and do not involve overreaching on the part of any 
person concerned, and the proposed transaction is consistent with the 
policy of each registered investment company concerned and with the 
general purposes of the Act. Section 6(c) of the Act authorizes the 
Commission to exempt any person or transaction from any provision of 
the Act if the exemption is necessary or appropriate in the public 
interest and consistent with the protection of investors and the 
purposes fairly intended by the policy and provisions of the Act.
    7. Applicants request an order under sections 6(c) and 17(b) of the 
Act to permit the Registered Lending Funds to use Cash Collateral to 
purchase Shares of the Money Market Funds and Units of the Private 
Investing Funds and to permit the redemption of the Shares or Units. 
Applicants maintain that the terms of the proposed transactions are 
reasonable and fair because the Registered Lending Funds will (a) 
purchase and sell Shares of the Money Market Funds based on their net 
asset value determined in accordance with the Act, and (b) be treated 
like any other investors in the Private Investing Funds, and purchase 
and sell Units of the Private Investing Funds on the same terms and on 
the same basis as all other Unitholders of the Private Investing Funds. 
Applicants assert that the proposed transactions comply with each 
Goldman Fund's investment restrictions and policies and that an officer 
of each Non-Goldman Fund will certify that the proposed transactions 
comply with the Non-Goldman Fund's investment restrictions and 
policies. Applicants state that Cash Collateral of an Registered 
Lending Fund that is a money market fund will not be used to

[[Page 9013]]

acquire Units of any Private Investing Fund that does not comply with 
rule 2a-7 under the Act. Applicants further state that the investment 
of Cash Collateral will comply with all present and future Commission 
and staff positions concerning securities lending. Applicants also 
state that the Private Investing Funds will comply with the major 
substantive provisions of the Act, including the prohibitions against 
affiliated transactions, leveraging and issuing senior securities, and 
rights of redemption.
    8. Section 17(d) of the Act and rule 17d-1 under the Act prohibit 
any affiliated person or principal underwriter for a registered 
investment company, or any Second Tier Affiliate, acting as principal, 
from effecting any transaction in connection with any joint enterprise 
or other joint arrangement or profit sharing plan in which the 
investment company participates, without an order of the Commission.
    9. Applicants state that the Registered Lending Funds (by 
purchasing and redeeming shares of the Money Market Funds and Units of 
the Private Investing Funds), the Advisers (by acting as investment 
advisers to the Goldman Funds, Money Market Funds and Private Investing 
Funds at the same time that the Registered Lending Funds' Cash 
Collateral is invested in Shares and Units), BGA (by acting as lending 
agent, investing Cash Collateral in Shares and Units, and receiving a 
portion of the revenue generated by securities lending transactions), 
the Money Market Funds (by selling Shares to and redeeming Shares from 
the Registered Lending Funds) and the Private Investing Funds (by 
selling Units to and redeeming Units from the Registered Lending Funds) 
could be deemed to be participants in a joint enterprise or other joint 
arrangement within the meaning of section 17(d) of the Act and rule 
17d-1 under the Act. Applicants request an order in accordance with 
section 17(d) and rule 17d-1 to permit certain transactions incident to 
investments in the Money Market Funds and the Private Investing Funds.
    10. Under rule 17d-1, in passing on applications for orders under 
section 17(d), the Commission considers whether the company's 
participation in the joint enterprise is consistent with the 
provisions, policies, and purposes of the Act, and the extent to which 
the participation is on a basis different from or less advantageous 
than that of other participants. Applicants submit that the proposed 
transactions meet these standards.
    11. Applicants state that the investment by the Registered Lending 
Funds in Units of the Private Investing Funds will be on the same basis 
and will be indistinguishable from any other shareholder account 
maintained by the Private Investing Funds. In addition, applicants 
state that the Registered Lending Funds will purchase and sell Shares 
of the Money Market Funds based on their net asset value determined in 
accordance with the Act. Applicants also maintain that, to the extent 
any of the Registered Lending Funds invests in the Money Market Funds 
and Private Investing Funds as proposed, each Registered Lending Fund 
will participate on a fair and reasonable basis in the returns and 
expenses of the Money Market Funds and Private Investing Funds.

B. Payment of Lending Agent Fees to BGA

    1. Applicants also believe that a lending agent agreement between 
the Registered Lending Funds and BGA, under which compensation is based 
on a share of the revenue generated by the Program, may be a joint 
enterprise or other joint arrangement within the meaning of section 
17(d) and rule 17d-1. Consequently, applicants request an order to 
permit BGA, as lending agent, to receive a portion of the revenue 
generated by the Program.
    2. Applicants propose that each Goldman Fund adopt the following 
procedures to ensure that the proposed fee arrangement and the other 
terms governing the relationship with BGA will meet the standards of 
rule 17d-1:
    (a) In connection with the approval of BGA as lending agent for a 
Goldman Fund and implementation of the proposed fee arrangement, a 
majority of the board of directors or trustees (the ``Board''), 
including a majority of the directors or trustees that are not 
``interested persons'' as defined in section 2(a)(19) of the Act 
(``Independent Trustees''), will determine that (i) the Agency 
Agreement with BGA is in the best interests of the Goldman Fund and its 
shareholders, (ii) the services to be performed by BGA are appropriate 
for the Goldman Fund, (iii) the nature and quality of the services 
provided by BGA are at least equal to those services offered and 
provided by others, and (iv) the fees for BGA's services are within the 
range of, but in any event no higher than, the fees charged by BGA to 
comparable unaffiliated securities lending clients for services of the 
same nature and quality.
    (b) Each Goldman Fund's Agency Agreement with BGA for lending agent 
services will be reviewed annually by the Board and will be approved 
for continuation only if a majority of the Board, including a majority 
of Independent Trustees, makes the findings referred to in paragraph 
(a) above.
    (c) In connection with the initial implementation of an arrangement 
whereby BGA will be compensated as lending agent based on a percentage 
of the revenue generated by a Goldman Fund's participation in the 
Program, the Goldman Fund's Board shall secure a certificate from BGA 
attesting to the factual accuracy of clause (iv) in paragraph (a) 
above. In addition, the Board will request and evaluate, and BGA shall 
furnish, such information and materials as the Board, with and upon the 
advice of agents, consultants or counsel, determines to be appropriate 
in making the findings referred to in paragraph (a) above. Such 
information shall include, in any event, information concerning the 
fees charged by BGA to other institutional investors for providing 
similar services.
    (d) The Board of each Goldman Fund, including a majority of the 
Independent Trustees, will (i) determine at each regular quarterly 
meeting, on the basis of the reports submitted by BGA, that the loan 
transactions during the prior quarter were effected in compliance with 
the conditions and procedures set forth in the application and (ii) 
review no less frequently than annually the conditions and procedures 
set forth in the application for continuing appropriateness.
    (e) Each Goldman Fund will (i) maintain and preserve permanently in 
an easily accessible place a written copy of the procedures and 
conditions described in the application and (ii) maintain and preserve 
for a period of not less than six (6) years from the end of the fiscal 
year in which any loan transaction pursuant to the Program occurred, 
the first two (2) years in an easily accessible place, a written record 
of each such loan transaction setting forth a description of the 
security loaned, the identity of the person on the other side of the 
loan transaction, the terms of the loan transaction, and the 
information or materials upon which the determination was made that 
each loan was made in accordance with the procedures set forth above 
and the conditions to the application.

C. Lending to Affiliated Broker-Dealers

    1. Section 17(a)(3) of the Act makes it unlawful for any affiliated 
person of or principal underwriter for a registered investment company 
or any Second Tier Affiliate, acting as principal, to borrow money or 
other property from the registered investment company.

[[Page 9014]]

Applicants state that because an Affiliated Broker-Dealer would be 
under common control with the Goldman Funds, an Affiliated Broker-
Dealer may be considered an affiliated person of a Goldman Fund. In 
addition, the Affiliated Broker-Dealers will be under control with the 
Private Investing Funds and Money Market Funds. Thus, if a Non-Goldman 
Fund acquired 5% or more of a Private Investing Fund or Money Market 
Fund, the Affiliated Broker-Dealers would be Second Tier Affiliates of 
the Non-Goldman Fund. Accordingly, section 17(a)(3) would prohibit the 
Affiliated Broker-Dealers from borrowing securities from the Registered 
Lending Funds.
    2. As noted above, section 17(d) and rule 17d-1 generally prohibit 
joint transactions involving registered investment companies and their 
affiliates unless the Commission has approved the transaction. 
Applicants request relief under sections 6(c) and 17(b) of the Act 
exempting them from section 17(a)(3), and under section 17(d) and rule 
17d-1 to permit the Registered Lending Funds to lend portfolio 
securities to Affiliated Broker-Dealers.
    3. Applicants state that each loan to an Affiliated Broker-Dealer 
by a Goldman Fund will be made with a spread that is no lower than that 
applied to comparable loans to unaffiliated broker-dealers.\5\ In this 
regard, applicants state that at least 50% of the loans made by the 
Goldman Funds, on an aggregate basis, will be made to unaffiliated 
Borrowers. Moreover, all loans will be made with spreads that are no 
lower than those set forth in a schedule of spreads established by the 
Board of each Goldman Fund, including a majority of the Independent 
Trustees, and all transactions with Affiliated Broker-Dealers will be 
reviewed periodically by an officer of the Goldman Fund. The Board, 
including a majority of the Independent Trustees, also will review 
quarterly reports on all lending activity.
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    \5\ A ``spread'' is the compensation earned by a Goldman Fund 
from a securities loan, which compensation is in the form either of 
a lending fee payable by the Borrower to the Goldman Fund (when non-
cash collateral is posted) or of the excess retained by the Goldman 
Fund over a rebate rate payable by the Goldman Fund to the Borrower 
(when Cash Collateral is posted and then invested by the Goldman 
Fund).
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D. Transactions by Non-Goldman Funds with Affiliated Broker-Dealers

    1. As noted above, sections 17(a)(1) and 17(a)(2) prohibit certain 
principal transactions between a registered investment company and its 
affiliates. To the extent that the Affiliated Broker-Dealers, the Money 
Market Funds, and the Private Investing Funds are deemed to be under 
common control, applicants believe that an Affiliated Broker-Dealer 
could be considered an affiliated person of a Money Market Fund or 
Private Investing Fund and a Second Tier Affiliate of a Non-Goldman 
Fund that owns 5% or more of a Money Market Fund or Private Investing 
Fund.
    2. Applicants request relief under sections 6(c) and 17(b) from 
section 17(a) to permit principal transactions between Non-Goldman 
Funds and the Affiliated Broker-Dealers where the affiliation between 
the parties arises solely as a result of an investment by a Non-Goldman 
Fund in Shares of a Money Market Fund or Units of a Private Investing 
Fund. Applicants state that there will be no element of self-dealing 
because the Affiliated Broker-Dealers have no influence over the 
decisions made by any Non-Goldman Fund. Applicants assert that each 
transaction will be the product of arm's length bargaining. Because the 
interests of the Non-Goldman Funds' investment advisers are solely 
aligned with those of the Non-Goldman Funds, applicants believe it is 
reasonable to conclude that the consideration paid to or received by 
the Non-Goldman Funds in connection with a principal transaction with 
an Affiliated Broker-Dealer will be reasonable and fair.
    3. Section 17(e) of the Act makes it unlawful for any affiliated 
person of a registered investment company, or any Second Tier 
Affiliate, acting as broker in connection with the sale of securities 
to or by that registered investment company, to receive from any source 
a commission for effecting the transaction that exceeds specified 
limits. Rule 17e-1 provides that a commission shall be deemed a usual 
and customary broker's commission if certain procedures are followed by 
the registered investment company.
    4. Applicants request relief under section 6(c) from section 17(e) 
to the extent necessary to permit the Affiliated Broker-Dealers to 
receive fees or commissions for acting as broker or agent in connection 
with the purchase or sale of securities for any Non-Goldman Fund for 
which an Affiliated Broker-Dealer becomes a Second Tier Affiliate 
solely because of the investment by the Non-Goldman Fund in Shares of a 
Money Market Fund or Units of a Private Investing Fund.
    5. Applicants submit that brokerage or similar transactions by the 
Affiliated Broker-Dealers for the Non-Goldman Funds raise no 
possibility of self-dealing or any concern that the Non-Goldman Funds 
would be managed in the interest of the Affiliated Broker-Dealers. 
Applicants believe that each transaction between a Non-Goldman Fund and 
Affiliated Broker-Dealer would be the product of arm's length 
bargaining because each investment adviser to a Non-Goldman Fund would 
have no interest in benefiting an Affiliated Broker-Dealer at the 
expense of the Non-Goldman Fund.

Applicants' Conditions

    Applicants agree that any order granting the requested relief will 
be subject to the following conditions:

General

    1. The securities lending program of each Registered Lending Fund 
will comply with all present and future applicable guidelines of the 
Commission and/or its Staff regarding securities lending arrangements.
    2. a. No Goldman Fund will purchase Units of a Private Investment 
Fund or Shares of a Money Market Fund unless participation in the 
Program has been approved by a majority of the Independent Trustees of 
the Goldman Fund. The Independent Trustees will evaluate the Program no 
less frequently than annually and determine that investing Cash 
Collateral in the Private Investing Funds and Money Market Funds is in 
the best interest of the shareholders of the Goldman Fund.
    b. No Non-Goldman Fund will purchase Units of a Private Investing 
Fund or Shares of a Money Market Fund unless an officer of the Non-
Goldman Fund certifies in writing that (i) participation in the Program 
has been approved by a majority of the Independent Trustees of the Non-
Goldman Fund and (ii) the Independent Trustees of the Non-Goldman Fund 
will evaluate the Program no less frequently than annually to determine 
that the investment of Cash Collateral in the Private Investing Funds 
and Money Market Funds is in the best interests of the shareholders of 
the Non-Goldman Fund.
    3. The approval of a majority of a Goldman Fund's Board, including 
a majority of the Independent Trustees, shall be required for the 
initial and subsequent approvals of BGA's service as lending agent for 
such Goldman Fund pursuant to the Program, for the institution of all 
procedures relating to the Program as it relates to such Goldman Fund, 
and for any periodic review of loan transactions for which BGA has 
acted as lending agent pursuant to the Program.

[[Page 9015]]

Loans of Portfolio Securities to Affiliated Broker-Dealers

    4. A Goldman Fund will not make any loan to an Affiliated Broker-
Dealer unless the income attributable to such loan fully covers the 
transaction costs incurred in making the loan.
    5. The Goldman Funds will maintain and preserve permanently in an 
easily accessible place a written copy of the procedures (and any 
modifications thereto) which are followed in lending securities, and 
shall maintain and preserve for a period of not less than six years 
from the end of the fiscal year in which any loan occurs, the first two 
years in an easily accessible place, a written record of each loan 
setting forth the number of shares loaned, the face amount of the 
securities lent, the fee received (or the rebate rate remitted), the 
identity of the Borrower, the terms of the loan, and any other 
information or materials upon which the finding was made that each loan 
made to an Affiliated Broker-Dealer was fair and reasonable, and that 
the procedures followed in making such loan were in accordance with the 
other undertakings set forth in the application.
    6. The Goldman Funds, on an aggregate basis, will make at least 50% 
of their portfolio securities loans to unaffiliated Borrowers.
    7. a. All loans will be made with spreads no lower than those set 
forth in a schedule of spreads which will be established and may be 
modified from time to time by each Goldman Fund's Board and by a 
majority of the Independent Trustees (the ``Schedule of Spreads'').
    b. The Schedule of Spreads will set forth rates of compensation to 
the Goldman Funds that are reasonable and fair and that are determined 
in light of those considerations set forth in the application.
    c. The Schedule of Spreads will be uniformly applied to all 
Borrowers of the Goldman Funds' portfolio securities, and will specify 
the lowest allowable spread with respect to a loan of securities to any 
Borrower.
    d. If a security is lent to an unaffiliated Borrower with a spread 
higher than the minimum set forth in the Schedule of Spreads, all 
comparable loans to Affiliated Broker-Dealers will be made at no less 
than the higher spread.
    e. The securities lending program for each Goldman Fund will be 
monitored on a daily basis by an officer of each Goldman Fund who is 
subject to section 36(a) of the Act. This officer will review the terms 
of each loan to Affiliated Broker-Dealers for comparability with loans 
to unaffiliated Borrowers and conformity with the Schedule of Spreads, 
and will periodically, and at least quarterly, report his or her 
findings to the Goldman Fund's Board, including a majority of the 
Independent Trustees.
    8. The Boards of the Goldman Funds, including a majority of the 
Independent Trustees, (a) will determine no less frequently than 
quarterly that all transactions with Affiliated Broker-Dealers effected 
during the preceding quarter were effected in compliance with the 
requirements of the procedures adopted by the Boards and the conditions 
of any order that may be granted and that such transactions were 
conducted on terms that were reasonable and fair; and (b) will review 
no less frequently than annually such requirements and conditions for 
their continuing appropriateness.
    9. The total value of securities loaned to any one broker-dealer on 
the approved list will be in accordance with a schedule to be approved 
by the Board of each Goldman Fund, but in no event will the total value 
of securities lent to any one Affiliated Broker-Dealer exceed 10% of 
the net assets of the Goldman Fund, computed at market.

Investment of Cash Collateral in a Private Investing Fund or Money 
Market Fund

    10. a. Investment in Units of a Private Investing Fund or Shares of 
a Money Market Fund by a particular Goldman Fund will comply with the 
Goldman Fund's investment objectives and policies. A Goldman Fund that 
complies with the requirements of rule 2a-7 under the Act will not 
invest its Cash Collateral in any Private Investing Fund that does not 
comply with rule 2a-7 under the Act.
    b. No Non-Goldman Fund will be permitted to invest its Cash 
Collateral in Units of a Private Investing Fund or Shares of a Money 
Market Fund unless an officer of the Non-Goldman Fund certifies that 
such investment complies with the Non-Goldman Fund's investment 
objectives and policies. A Non-Goldman Fund that complies with the 
requirements of rule 2a-7 under the Act will not invest its Cash 
Collateral in any Private Investing Fund that does not comply with rule 
2a-7 under the Act.
    11. Investment in Shares of a Money Market Fund or Units of a 
Private Investing Fund by a particular Registered Lending Fund will be 
in accordance with the guidelines regarding the investment of Cash 
Collateral specified by the Registered Lending Fund in the Agency 
Agreement. A Goldman Fund's Cash Collateral will be invested in a 
particular Money Market Fund or Private Investing Fund only if that 
Money Market Fund or Private Investing Fund has been approved for 
investment by the Goldman Fund and if that Money Market Fund or Private 
Investing Fund invests in the types of instruments that the Goldman 
Fund has authorized for the investment of its Cash Collateral. A Non-
Goldman Fund's Cash Collateral will be invested in a particular Money 
Market Fund or Private Investing Fund only if (a) an officer of the 
Non-Goldman Fund certifies that the Money Market Fund or Private 
Investing Fund has been approved for investment by the Non-Goldman Fund 
and (b) the Money Market Fund or Private Investing Fund invests in the 
types of instruments that the Non-Goldman Fund has authorized for the 
investment of its Cash Collateral.
    12. Units of a Private Investing Fund or Shares of a Money Market 
Fund sold to and redeemed by a Registered Lending Fund will not be 
subject to a sales load, redemption fee, any asset-based sales charge 
or service fee (as defined in rule 2830(b)(9) of the NASD Conduct 
Rules).
    13. A Private Investing Fund or Money Market Fund will not acquire 
securities of any other investment company in excess of the limits in 
section 12(d)(1)(A) of the Act, except that (a) a Money Market Fund may 
acquire securities of a registered open-end investment company in the 
same group of investment companies as the Money Market Fund to the 
extent permitted by section 12(d)(1)(E) of the Act, and (b) a Private 
Investing Fund or Money Market Fund may purchase shares of an 
affiliated money market fund for short-term cash management purposes to 
the extent permitted by an exemptive order.

Operation of the Private Investing Funds

    14. A Private Investing Fund will comply with the requirements of 
sections 17(a), (d), and (e), and 18 of the Act as if the Private 
Investing Fund were a registered open-end investment company. With 
respect to all redemption requests made by a Registered Lending Fund, a 
Private Investing Fund will comply with section 22(e) of the Act. The 
Adviser to the Private Investing Fund will adopt procedures designed to 
ensure that the Private Investing Fund complies with sections 17(a), 
(d), and (e), 18, and 22(e) of the Act. The Adviser will also 
periodically review and periodically update as appropriate the 
procedures and will maintain books and records describing the 
procedures, and maintain the records required by rules 31a-1(b)(1), 
31a-1(b)(2)(ii), and 31a-1(b)(9)

[[Page 9016]]

under the Act. All books and records required to be made pursuant to 
this condition will be maintained and preserved for a period of not 
less than six years from the end of the fiscal year in which any 
transaction occurred, the first two years in an easily accessible 
place, and will be subject to examination by the Commission and/or its 
Staff.
    15. The net asset value per Unit with respect to Units of the 
Private Investing Funds will be determined separately for each Private 
Investing Fund by dividing the value of the assets belonging to that 
Private Investing Fund, less the liabilities of that Private Investing 
Fund, by the number of Units outstanding with respect to that Private 
Investing Fund.
    16. Each Registered Lending Fund will purchase and redeem Units of 
a Private Investing Fund as of the same time and at the same price, and 
will receive dividends and bear its proportionate share of expenses on 
the same basis, as other shareholders of a Private Investing Fund. A 
separate account will be established in the shareholder records of a 
Private Investing Fund for the account of each Registered Lending Fund.
    17. Each Private Investing Fund that operates as a money market 
fund and uses the amortized cost method of valuation, as defined in 
rule 2a-7 under the Act, will comply with rule 2a-7. Each such Private 
Investing Fund will value its Units, as of the close of business on 
each business day, using the amortized cost method to determine its net 
asset value per Unit. Each such Private Investing Fund will adopt the 
monitoring procedures described in rule 2a-7(c)(7) and the Adviser to 
the Private Investing Fund will comply with these procedures and take 
any other actions as are required to be taken pursuant to these 
procedures. A Registered Lending Fund may only purchase Units of such a 
Private Investing Fund if the Adviser to the Private Investing Fund 
determines on an ongoing basis that the Private Investing Fund is 
operating as a money market fund using the amortized cost method of 
valuation as defined in rule 2a-7. The Adviser will preserve for a 
period not less than six years from the date of determination, the 
first two years in an easily accessible place, a record of such 
determination and the basis on which the determination was made. This 
record will be subject to examination by the Commission and the Staff.

    For the Commission, by the Division of Investment Management, 
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 02-4559 Filed 2-26-02; 8:45 am]
BILLING CODE 8010-01-P