|  |                      |
|--|----------------------|
|  | Home | Previous Page |

|  |  | Investment Company Act of 1940 — Section 10(f)Goldman Sachs TrustAugust 19, 2008
RESPONSE OF THE OFFICE OF CHIEF COUNSELDIVISION OF INVESTMENT MANAGEMENT

Goldman Sachs TrustOur Ref. No. 200512141515File No. 811-05349

Your letter dated August 15, 2008 requests our assurance that we would not recommend enforcement action to the Commission under section 10(f) of the Investment Company Act of 1940, as amended ("1940 Act") against the Funds (as defined below), if the Funds purchase or otherwise acquire****certain securities, in the manner described below, when the Funds' investment advisers are affiliated persons of a principal underwriter of those securities.
FACTS
You state that the Goldman Sachs Trust is registered as an open-end management investment company under the 1940 Act (the "Trust") and currently offers shares in funds to the public (the "Funds"). You state that Goldman Sachs Asset Management L.P. and Goldman Sachs Asset Management International provide investment advisory services to the Funds (the "Advisers"). You state that Goldman Sachs & Co. is the Funds' principal underwriter ("GS&Co.").****You state that the Advisers may be deemed to be affiliated persons of GS&Co.1 You state that GS&Co. also is the principal underwriter for certain fixed income securities2 offerings that involve: (i) two or more co-issuers ("co-issuer underwritings") and (ii) securities of which the payment of principal and interest are fully guaranteed by a guarantor ("guarantor underwritings") (together with co-issuer underwritings, "GS&Co. Offerings").3
*Co-issuer Underwritings*:
You represent that each co-issuer underwriting involves: (a) an issuer ("Co-Issuer A") that is an established company, which has been in continuous operation for at least three years (including its predecessors, if any); and (b) a separate issuer ("Co-Issuer B"), which may have been in existence for less than three years at the time of the securities offering, that is either a wholly owned subsidiary of Co-Issuer A or is under common control with Co-Issuer A and that may have nominal assets and revenue. You represent that each of Co-Issuer A and Co-Issuer B are responsible unconditionally for the 100% of the payment of principal and interest on the fixed income securities purchased by a Fund. You further represent that any Fund that acquires such securities would have direct recourse against each of Co-Issuer A and Co-Issuer B in the event that 100% of the payment of principal and interest on the securities is not made.
*Guarantor Underwritings*:
You represent that the fixed income securities offered in a guarantor underwriting are backed by the unconditional guarantee of an established company ("Guarantor") that has been in continuous operation for at least three years (including its predecessors, if any).4 You represent that the guarantee provides for the payment in full of principal and interest on the securities purchased by a Fund. You represent that the securities guaranteed by the Guarantor are issued by another company ("Issuer C"), which is an affiliate of Guarantor and may have been in existence for less than three years at the time of the securities offering. You further represent that any Fund that acquires such securities would have direct recourse against the Guarantor in the event that payment in full of principal and interest on the securities is not made.

You propose to have the Funds purchase fixed income securities from each type of GS&Co. Offering ("proposed purchases"). You represent that the credit of Co-Issuer A (in co-issuer underwritings) and the credit of Guarantor (in guarantor underwritings) will stand behind the fixed income securities.5 You represent that absent the obligations of Co-Issuer and the Guarantor, the Funds would not purchase securities in these underwritings.

You represent that each of the fixed income securities issued in the GS&Co. Offerings are either: (a) part of an issue registered under the Securities Act of 1933; (b) government securities (as defined in section 2(a)(16) of the 1940 Act); (c) securities that are part of an "Eligible Foreign Offering" or (d) securities that are part of an "Eligible Rule 144A Offering" as those terms are defined in rule 10f-3 under the 1940 Act (altogether, "Eligible Securities"). You represent that the proposed purchases will be conducted in accordance with rule 10f-3 under the 1940 Act, which provides an exemption from section 10(f) of the 1940 Act, except for the requirement in paragraph (c)(4) that the issuer of any securities purchased pursuant to the rule be in continuous operation for not less than three years (including its predecessors, if any).****As discussed below, you believe that even if the proposed purchases are deemed not in compliance with paragraph (c)(4) of rule 10f-3 under the 1940 Act, your representations will address the concerns underlying section 10(f) of the 1940 Act and rule 10f-3 thereunder.
DISCUSSION
Section 10(f) of the 1940 Act, in relevant part, prohibits a registered investment company from knowingly purchasing or otherwise acquiring, during the existence of any underwriting or selling syndicate, any security a principal underwriter of which is a person of which an investment adviser of the investment company is an affiliated person. Section 10(f) of the 1940 Act was designed primarily to prevent an underwriter from "dumping" otherwise unmarketable securities on a fund in order to benefit the fund's affiliated underwriter.6

Rule 10f-3 under the 1940 Act permits a registered investment company to engage in transactions that are otherwise prohibited by section 10(f) of the 1940 Act under certain specified conditions designed to ensure that the purchase is consistent with the protection of investors**.**7****Paragraph (c)(4) of rule 10f-3 under the 1940 Act limits the types of Eligible Securities that can be purchased pursuant to the rule to those that have been issued by an issuer that has been in continuous operation for not less than three years, including the operations of any predecessors. The provision was added, in part, to prevent the purchase of less seasoned securities.8

The proposed purchases may violate section 10(f) of the 1940 Act because the Funds would knowingly purchase or otherwise acquire Eligible Securities, during the existence of an underwriting syndicate, of which GS&Co. serves as principal underwriter, and because the Advisers may be affiliated persons of GS&Co.9 You are concerned that the Funds may not rely on rule 10f-3 under the 1940 Act because Co-Issuer B and Issuer C have not been in continuous operation for three years, as required by rule 10f-3(c)(4).

You contend, however, that the concerns that rule 10f-3(c)(4) under the 1940 Act are intended to address, namely that a fund will acquire less seasoned securities from an affiliated underwriter, will not be implicated by the proposed purchases. In particular, you contend that the credit of Co-Issuer A (in co-issuer underwritings) and the credit of Guarantor (in guarantor underwritings) will stand behind the fixed income securities. You contend further that in each GS&Co. Offering, the Funds will have direct recourse against an established company (including the operations of any predecessors) that has been in continuous operation for at least three years for 100% of the payment obligations on the fixed income securities that are issued. You contend that with respect to co-issuer underwritings, Co-Issuer A is responsible unconditionally for 100% of the payment obligations on the fixed income securities, and that with respect to guarantor underwritings, the Guarantor has guaranteed payment in full of the principal and interest on the securities in the respective GS&Co. Offering. Finally, you represent that each Fund will comply with all of the conditions of rule 10f-3 under the 1940 Act, except for rule 10f-3(c)(4) with respect to the proposed purchases.

Based on the facts and representations set forth in your letter, we would not recommend enforcement action to the Commission under section 10(f) of the 1940 Act against the Funds, if the Funds make the proposed purchases in the manner described above when the Advisers are affiliated persons of a principal underwriter of those securities. In particular, our conclusion is based on your representations that:
- Co-Issuer A has been in continuous operation for at least three years (including its predecessors, if any) and Co-Issuer A will be responsible for 100% of the payment of principal and interest on the fixed income securities purchased by the Fund that are underwritten by GS&Co.;
- The credit of Co-Issuer A (in co-issuer underwritings) and the credit of Guarantor (in guarantor underwritings) will stand behind the fixed income securities purchased by the Fund that are underwritten by GS&Co.;
- Each Fund will have direct recourse against Co-Issuer A in the event that the 100% of the payment of principal and interest on the securities purchased by the Fund in a co-issuer underwriting has not been made;
- The Guarantor has been in continuous operation for at least three years (including its predecessors, if any) and has unconditionally guaranteed the payment in full of principal and interest on the fixed income securities purchased by the Fund that are underwritten by GS&Co.; and
- Each Fund will have direct recourse against the Guarantor in the event that the payment in full of principal and interest on the securities purchased by the Fund in a guarantor underwriting has not been made.

This response expresses our views on enforcement action only and does not express any legal conclusions on the questions presented. Because our position is based on the facts and representations in your letter, you should note that any different facts or representations may require a different conclusion.

Holly Hunter-CeciAttorney-Adviser
Endnotes
1  You state that each Adviser may be deemed to be an "affiliated person" of GS&Co. under section 2(a)(3)(C) of the 1940 Act because each Adviser and GS&Co. may be deemed to be under common control.

2  You state that the term "fixed income securities" includes convertible and non-convertible debt securities, preferred securities, lease certificates, equipment certificates, and other instruments that provide for payments of interest, dividends or other payments at fixed or variable rates.

3  You represent that "guarantee" means any unconditional obligation, including without limitation an obligation under a letter of credit, of a person to pay the principal amount of the fixed income securities involved, plus accrued interest, when due or upon default.

4  You represent that some guarantor underwritings will be guaranteed by two or more Guarantors, each of which has been in continuous operation for at least three years (including its predecessors, if any). You note that it is possible that the guarantee of each of these Guarantors will be a "fractional guarantee," that is, a guarantee relating to a specified portion of the value of the underwritten securities. You represent that, in those cases, the sum of the portions of the securities covered by these fractional guarantees will fully and unconditionally guarantee the obligations of Issuer C (as defined below) to pay principal and interest on the fixed income securities issued by Issuer C. Accordingly, the term "Guarantor" includes multiple Guarantors.

5 See National Aviation & Technology Corp., SEC Staff No-Action Letter (Sept. 17, 1977) (providing no-action assurances under section 10(f) of the 1940 Act to a fund purchasing certificates from an issuer, which had been in existence for less than three years and was underwritten by affiliated persons, when the credit of an entity that had been in existence for more than three years stood behind the payments on the certificates).

6 See Report of the Securities and Exchange Commission, Investment Trusts and Investment Companies, H.R. Doc. No. 279, 76th Cong., 2d Sess., pt. 3, at 2581,

2589 (1939) (discussing instances in which sponsors used investment companies as purchasers to maintain control of the portfolio companies, alleviate the financial distress of the sponsors, or otherwise attain indirect benefits) and Hearings on S.3580 Before a Subcommittee of the Commission on Banking and Currency, 76th Cong., 3d Sess. 209, 212-23 (1940).

7 See Adoption of Rule N-10F-3 Permitting Acquisition of Securities of Underwriting Syndicate Pursuant to Section 10(f) of the Investment Company Act of 1940, Investment Company Act Release No. 2797 (Dec. 2, 1958) (Initial Adopting Release for rule 10f-3) ("The experience heretofore gained by the Commission in its consideration of requests of orders of exemption under [its section 10(f) exemptive authority] indicates that protection of investors may be adequately insured by the conditions and safeguards specified by the rule being adopted").

8 See Exemption of Acquisition of Securities During the Existence of Underwriting Syndicate, Investment Company Act Release No. 10592 (Feb. 13, 1979) (the purpose of the provision is to "prevent the purchase of less seasoned securities").

9 See note 1 and accompanying text, supra.
Incoming Letter
The Incoming Letter is in Acrobat format.

 
*http://www.sec.gov/divisions/investment/noaction/2008/goldmansachstrust081908.htm* |
|--|--|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|