40568 Federal Register / Vol. 63, No. 145 /Wednesday, July 29, 1998 / Notices

1 Interests also could be sold to entities resident

outside the U.S. that are wholly-owned and

controlled by the individual limited partners and

formed for tax purposes.

utilize these records to monitor the

incidence of thefts and losses incurred

by reporting institutions and to

determine compliance with Rule 17f–1.

If such records were not retained by

reporting institutions, compliance with

Rule 17f–1 could not be monitored

effectively.

The Commission estimates that there

are 24,518 reporting institutions

(respondents) and, on average, each

respondent would need to retain 33

records annually, with each retention

requiring approximately 1 minute (33

minutes or .55 hours). The total

estimated annual burden is 13,484.9

hours (24,518×.55 hours=13,484.9).

Assuming an average hourly cost for

clerical work of $10, the average total

yearly record retention cost for each

respondent would be $5.50. Based on

these estimates, the total annual cost for

the estimated 24,518 reporting

institutions would be approximately

$134,849.

Rule 17f–1(g) does not require

periodic collection, but does require

retention of records generated as a result

of compliance with Rule 17f–1. Under

Section 17 (b) and (f) of the Act, the

information required by Rule 17f–1(g) is

available to the Commission and

Federal bank regulators for

examinations or collection purposes.

Rule 0–4 of the Act deems such

information to be confidential. Please

note that an agency may not conduct or

sponsor, and a person is not required to

respond to, a collection of information

unless it displays a currently valid

control number.

General Comments regarding the

estimated burden hours should be

directed to the following persons: (i)

Desk Officer for the Securities and

Exchange Commission, Office of

Information and Regulatory Affairs,

Office of Management and Budget,

Room 3208, New Executive Office

Building, Washington, DC 20503; and

(ii) Michael E. Bartell, Associate

Executive Director, Office of

Information Technology, Securities and

Exchange Commission, 450 5th Street,

NW Washington, DC 20549. Comments

must be submitted to OMB within 30

days of this notice.

Dated: July 22, 1998.

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 98–20247 Filed 7–28–98; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Rel. No. IC–23329; 813–168]

The Goldman Sachs Group, L.P.;

Notice of Application

July 22, 1998.

AGENCY: Securities and Exchange

Commission (‘‘Commission’’ or ‘‘SEC’’).

ACTION: Notice of application for an

order under sections 6(b) and 6(e) of the

Investment Company Act of 1940 (the

‘‘Act’’) exempting certain employees’

securities companies from all provisions

of the Act, except sections 9 and 36

through 53 and applicable rules and

regulations; and certain other

employees’ securities companies from

all provisions of the Act, except section

9, sections 17 and 30, sections 36

through 53, and applicable rules and

regulations.

APPLICANT: The Goldman Sachs Group,

L.P. (‘‘GS Group’’).

FILING DATES: The application was filed

on July 21, 1997. Applicant has agreed

to file an amendment, the substance of

which is incorporated in this notice,

during the notice period.

HEARING OR NOTIFICATION OF HEARING: An

order granting the application will be

issued unless the SEC orders a hearing.

Interested persons may request a

hearing by writing to the SEC’s

Secretary and serving applicant with a

copy of the request, personally or by

mail. Hearing requests should be

received by the SEC by 5:30 p.m. on

August 13, 1998, and should be

accompanied by proof of service on

applicant, in the form of an affidavit or,

for lawyers, a certificate of service.

Hearing requests should state the nature

of the writer’s interest, the reason for the

request, and the issues contested.

Persons who wish to be notified of a

hearing may request notification by

writing to the SEC’s Secretary.

ADDRESSES: Secretary, SEC, 450 Fifth

Street, NW, Washington, DC 20549.

Applicant, 85 Broad Street, New York,

New York 1004.

FOR FURTHER INFORMATION CONTACT:

Brian T. Hourihan, Senior Counsel, at

(202) 942–0526, or Mary Kay Frech,

Branch Chief, 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 SEC’s

Public Reference Branch, 450 Fifth

Street, NW, Washington, DC 20549 (tel.

(202) 942–8090).

Applicant’s Representations

1. GS Group, a Delaware limited

partnership, together with its corporate

and partnership subsidiaries, is a

leading international investment

banking organization. The GS Group,

and entities that are controlling,

controlled by, or under common control

with, the GS Group (collectively,

‘‘Goldman Sachs’’ and individually a

‘‘Goldman Sachs Entity’’) propose to

establish certain investment vehicles

(‘‘Funds’’) as a means of rewarding and

retaining Goldman Sachs’ limited

partners, officers, employees, and

consultants. The principal purposes of

the Funds are to enhance the investment

opportunities available to these persons,

strengthen the relationship between

employment and wealth creation, attract

talented professionals to Goldman

Sachs, and provide additional

investment opportunities to retired

partners.

2. The Funds will be organized as

partnerships, limited liability

companies or other entities. Each Fund

will enable its investors (i) to co-invest

with Goldman Sachs in investment

opportunities and (ii) to invest in

opportunities identified by Goldman

Sachs or in collective investment

programs with investment strategies

developed, monitored or overseen by

Goldman Sachs. Interests in the Funds

(‘‘Interests’’) will be sold without a sales

load. The Funds will be divided into

three categories—Bridge Street Funds,

Battery Place Funds, and Stone Street

Funds.

3. The Bridge Street Funds include

the Bridge Street Diversified Funds,

Bridge Street Real Estate Funds and

Bridge Street Separate Investment

Funds. These Funds will be offered and

sold to (i) individual limited partners 1

who are active in Goldman Sachs

business and share in the profits and

losses of the business (‘‘Participating

Limited Partners’’), (ii) individual

limited partners who are no longer

active in Goldman Sachs’ business and

who earn a fixed return on their capital

invested in the GS Group, members of

their families, trusts, and family

investment vehicles (‘‘Other Individual

Limited Partners’’ and, together with

Participating Limited Partners, ‘‘GS

Limited Partners’’), and (iii) Qualified

Participants (as defined below) of the

GS Limited Partners (collectively, the

‘‘Bridge Street Investors’’).

4. The Battery Place Funds include

the Battery Place Diversified Funds,
Federal Register / Vol. 63, No. 145 /Wednesday, July 29, 1998 / Notices 40569

2Eligible Employees will be experienced

professionals in the investment banking, asset

management, securities or commodities businesses,

or in administrative, financial, accounting, legal or

related operational fields.

3Consultants will have levels of expertise and

sophistication at least comparable to, and in most

cases exceeding, those of Eligible Employees.

4 In order to ensure that GS Limited Partners who

do not participate in a Bridge Street Fund do not,

in effect, bear the direct and indirect costs of

establishing and administering that Fund, GS Group

or an affiliated person of GS Group within the

meaning of section 2(a)(3)(C) of the Act may become

an interest holder of each Bridge Street Fund and

receive a special allocation. Special allocations will

have priority over all other Fund allocations.

Battery Place Real Estate Funds, and

Battery Place Separate Investment

Funds. These Funds will be offered and

sold to managing directors of Goldman

Sachs (‘‘Managing Directors’’) who are

not GS Limited Partners and their

Qualified Participants as defined below

(collectively, the ‘‘Battery Place

Investors’’). Battery Place Funds also

may be offered and sold to Bridge Street

Investors and Stone Street Investors

described below.

5. The Stone Street Funds include

Stone Street Diversified Funds, Stone

Street Real Estate Funds, and Stone

Street Separate Investment Funds.

These Funds will be offered and sold to

certain officers and employees of

Goldman Sachs (‘‘Eligible Employees’’) 2

and certain consultants of Goldman

Sachs (‘‘Consultants’’),3 and Qualified

Participants, defined below, of Eligible

Employees and Consultants

(collectively, the ‘‘Stone Street

Investors’’). Stone Street Funds also may

be offered and sold to Bridge Street

Investors and Battery Place Investors.

No Battery Place or Stone Street Fund

will invest in a Bridge Street Fund.

6. All GS Limited Partners, Managing

Directors, Eligible Employees, and

Consultants will be accredited investors

under Rule 501(a)(6) of Regulation D

(‘‘Regulation D’’) under the Securities

Act of 1933. GS Limited Partners that

invest in the Bridge Street Funds may

also be accredited investors under Rule

501(a)(5) of Regulation D.

7. Goldman Sachs has a number of

officers and employees located outside

the United States. Approximately 70 of

these persons would qualify as Bridge

Street Investors, 50 would qualify as

Battery Place Investors, and 850 would

qualify as Stone Street Investors. These

persons are not citizens of the United

States and are not subject to U.S. federal

income taxes. To maintain their tax

status, these persons desire to make

investments in the Funds through a

separate investment vehicle organized

in a non-U.S. jurisdiction (‘‘Nonresident

Investment Vehicle’’). Applicants expect

that the Nonresident Investment

Vehicles will be owned by the relevant

Eligible Investors in proportion to the

ownership interests that each investor

would have had in the relevant Fund

itself, and that the indirect ownership

interest of each Eligible Investor in the

relevant Fund will therefore be the same

as if all such Eligible Investors had

invested directly in the Fund.

8. Bridge Street Investors, Battery

Place Investors, Stone Street Investors,

Goldman Sachs, and investors in the

Nonresident Investment Vehicles are

collectively referred to as ‘‘Eligible

Investors.’’ A ‘‘Qualified Participant’’

eligible to invest in the Funds is a

spouse, parent, child, spouse of child,

brother, sister or grandchild of a GS

Limited Partner, a Managing Director

who is not a GS Limited Partner, an

Eligible Employee or Consultant (each

an ‘‘Eligible Family Member’’), or a

family investment vehicle, foundation,

charitable organization or trust

established by, or for the benefit of, a GS

Limited Partner, a Managing Director,

an Eligible Employee or Consultant, or

their Eligible Family Members. A

Qualified Participant must qualify as an

accredited investor under Rule 501(a) of

Regulation D.

9. The manager of each Fund

(‘‘Manager’’) will be an entity that is

directly or indirectly wholly-owned by

a Goldman Sachs Entity or the

Participating Limited Partners. The

Manager will register as an investment

adviser under the Investment Advisers

Act of 1940 if required under applicable

law. The Manager will be responsible

for administering the Fund’s investment

program and business affairs except for

certain administrative responsibilities

that may be delegated to other Goldman

Sachs Entities or third parties.

10. Interests in a Fund will not be

transferable, except with the express

consent of the Manager and then only to

another Eligible Investor, the Manager,

or Goldman Sachs. Interests will not be

redeemable at the option of the investor,

except upon the death of the investor.

Goldman Sachs will have the option to

purchase an investor’s Interest at a price

determined by a formula described in

the offering documents for the Fund if

an Other Individual Limited Partner

retires as a limited partner or a

Participating Limited Partner retires and

does not become an Other Individual

Limited Partner, or, if for any reason,

the employment of a Battery Place or

Stone Street Investor terminates. The

terms of any repurchase option will be

disclosed to Eligible Investors in the

offering documents for each Fund. The

failure of an investor in a Fund to make

a required capital contribution to the

Fund may result in the forfeiture of the

portion of the investor’s Interest

attributable to the defaulted amount and

to any remaining capital commitment.

The terms of any forfeiture provision

will be disclosed in the offering

documents for each Fund. Upon

repurchase, a Battery Place or a Stone

Street Investor will receive at least the

lower of (i) the amount invested by the

investor, plus interest (at an interest rate

disclosed in the offering document for

the applicable Battery Place or the Stone

Street Fund), and with appropriate

deduction for any distributions made by

the Fund to the investor, and (ii) the fair

market value of the investor’s Interest in

the Battery Place or Stone Street Fund

as determined at the time of repurchase,

less the portion, if any, of the fair

market value attributable to the Fund’s

use of leverage, if any.

11. The Manager of a Fund may be

paid an annual management fee by the

Fund, and in the case of a Bridge Street

Fund may also be paid a special

allocation.4 The Manager also may

receive a performance-based fee (a

‘‘carried interest’’) based on the net

gains of the Fund’s investments in

addition to any amount allocable to the

Manager’s capital contribution. Any

Goldman Sachs Entity or a Manager may

be compensated for providing services

to entities in which a Fund makes an

investment, and may engage in marketmaking activities in the securities of

entities in which a Fund makes an

investment. Employees of Goldman

Sachs may be compensated for serving

as officers or directors of entities in

which the Funds make an investment.

12. Goldman Sachs or a third party

may lend to the Funds or become a

senior or preferred limited partner or

other senior equity holder of a Fund.

Any such loans made by Goldman

Sachs or a third party will be on

commercially reasonable arm’s length

terms. To the extent that a senior

interest may be a security within the

meaning of the Act, the senior interest

holder will be required to be an Eligible

Investor.

13. The Funds may co-invest with a

Goldman Sachs Entity. The Funds also

may co-invest with an investment

vehicle for investors unaffiliated with

Goldman Sachs and over which a

Goldman Sachs Entity exercises

investment discretion (‘‘Third Party

Funds’’). Co-investments with a Third

Party Fund will not be subject to

condition 3 below. No Fund will

purchase or otherwise acquire any

security issued by a registered

investment company if the Fund

immediately after the purchase or
40570 Federal Register / Vol. 63, No. 145 /Wednesday, July 29, 1998 / Notices

5The requested order would supersede an

existing order. Stone Street Fund 1984, Investment

Company Act Release Nos. 19905 (Nov. 24, 1993)

(notice) and 19978 (Dec. 21, 1993) (order).

acquisition will own in the aggregate

more than 3% of the total outstanding

voting stock of the registered investment

company.

14. The Manager will have discretion

as to the distribution of any cash flow

or any proceeds derived from a Fund’s

investments, which will depend on the

investment objective of the Fund and

will be described in the Fund’s offering

documents. The offering documents for

each Fund also will describe the

following types of information to the

extent material to an Eligible Investor’s

investment decision: investment

objectives and policies (including a

discussion of leveraging strategies, if

any, that will be utilized by the Fund);

the organizational structure of the

Manager and the Fund; risk factors; any

conflicts of interest; procedures relevant

to the offering of Interests in the Fund;

use of proceeds from the offering;

relationship between the Fund and any

other Fund; the management of the

Fund, including any fees to be paid to

the manager; taxation of Interests;

procedures of allocations and

distributions; limits on the

transferability of Interests in the Funds;

special provisions applicable to the

Funds, including any relating to

disposition of an Interest in the Fund in

the event of termination of the investor’s

relationship with Goldman Sachs; and

such other matters as Goldman Sachs

considers material to the investment

decision of Eligible Investors. The

offering documents will be made

available to all Eligible Investors.

15. The Manager will send investors

in each Fund annual reports regarding

the operations and assets of the Fund.

Each Fund’s annual report will contain

audited financial statements with

disclosure of outstanding borrowings of

the Fund. Each investor in a Fund also

will receive a report of his or her

distributive share of income, gains,

losses, credits and other items for U.S.

federal income tax purposes resulting

from the operation of the Fund during

the tax year.

Applicant’s Legal Analysis

1. Section 6(b) of the Act provides

that the Commission shall exempt

employees’ securities companies from

the provisions of the Act to the extent

that the exemption is consistent with

the protection of investors. Section 6(b)

provides that the Commission shall

consider, in determining from which

provisions of the Act the company

should be exempt, the company’s form

of organization and capital structure, the

persons owning and controlling its

securities, the price of the company’s

securities and the amount of any sales

load, how the company’s funds are

invested, and the relationship between

the company and the issuers of the

securities in which it invests. Section

2(a)(13) defines ‘‘employees’ securities

company’’ to include any investment

company all of whose outstanding

securities are beneficially owned by (a)

current or former employees, or persons

on retainer, of one or more affiliated

employers, (b) immediate family

members of such persons, or (c) such

employer or employers together with

any of the persons in (a) or (b).

2. Section 7 of the Act generally

prohibits investment companies that are

not registered under section 8 from

selling or redeeming their securities.

Section 6(e) of the Act provides that in

connection with any order exempting an

investment company from any

provisions of section 7, certain specified

provisions of the Act will be applicable

to the company, and to other persons in

their transactions and relations with the

company, as though the company were

registered under the Act, if the

Commission deems it necessary or

appropriate in the public interest or for

the protection of investors.

3. Applicant requests an order under

sections 6(b) and 6(e) of Act exempting

the Bridge Street Funds from all

provisions of the Act, except sections 9

and 36 through 53 and applicable rules

and regulations. Applicant also requests

an order under sections 6(b) and 6(e) of

the Act exempting the Battery Place and

the Stone Street Funds from all

provisions of the Act, except section 9,

certain provisions of sections 17 and 30,

and sections 36 through 53, and

applicable rules and regulations.5

A. Bridge Street Funds

4. Applicant asserts that the requested

exemption for the Bridge Street Funds is

consistent with the protection of

investors because the Bridge Street

Investors who are Participating Limited

Partners participate in the profits and

losses of Goldman Sachs directly and

those who are Other Individual Limited

partners hold substantial partnership

capital of GS Group. Applicant states

that the capital of Goldman Sachs is

held by over 300 Participating and

Other Individual Limited Partners, their

family members or trusts, and

institutional limited partners. These

same persons (or their Qualified

Participants), other than institutional

limited partners, comprise the class of

Bridge Street Investors. Accordingly,

given the unique community of interests

among the Bridge Street Investors and

Goldman Sachs, applicant asserts that

the expectation that Goldman Sachs will

act in the ordinary course of its business

to maximize the profits of GS Limited

Partners provides ample protection to

the Bridge Street Investors. Applicant

states that, given the relationship of

trust and confidence between the Bridge

Street Investors and Goldman Sachs,

and their knowledge of the operations of

Goldman Sachs, the proposed

exemption would be appropriate.

Applicant acknowledges that new

Bridge Street Funds may be created and

existing Bridge Street Funds may raise

capital from new investors in reliance

upon the requested order only so long

as Goldman Sachs continues its current

form of organization as a limited

partnership.

B. Battery Place and Stone Street Funds

5. Section 17(a) of the Act makes it

unlawful for any affiliated person of a

registered investment company, or an

affiliated person of such a person, acting

as principal, to sell any security or other

property to the company or to purchase

any security or other property from the

company. Applicant requests an

exemption to the extent necessary to (i)

permit any Goldman Sachs Entity,

acting as principal, to engage in any

transaction directly or indirectly with

any Battery Place or Stone Street Fund

or any entity controlled by a Battery

Place or Stone Street Fund: (ii) permit

any Battery Place or Stone Street Fund

to invest in or engage in any transaction

with any entity, acting as principal, (a)

in which the Battery Place or Stone

Street Fund, any entity controlled by the

Fund or any Goldman Sachs Entity has

invested or will invest, or (b) with

which the Battery Place or Stone Street

Fund, any entity controlled by either a

Battery Place or Stone Street Fund or

any Goldman Sachs Entity is or will

become otherwise affiliated; and (iii)

permit any partner or other investor in

a Third Party Fund (a ‘‘Third Party

Investor’’), acting as principal, to engage

in any transaction directly or indirectly

with a Battery Place or Stone Street

Fund or any entity controlled by a

Battery Place or Stone Street Fund.

6. Applicant asserts that the requested

exemption is necessary, among other

purposes, to enable the Funds to make

investments in companies, properties,

or securities which are offered by a

Goldman Sachs Entity (or any GS

Partners’ Investment Vehicle or Third

party Fund) to investors, or in which a

Goldman Sachs Entity (any GS Partners’

Investment Vehicle or Third Party

Fund) is investing or may have made an
Federal Register / Vol. 63, No. 145 /Wednesday, July 29, 1998 / Notices 40571

investment. Applicant states that the

Battery Place or Stone Street Investors

will be fully informed of the possible

extent of each Fund’s dealings with

Goldman Sachs, GS Partners’

Investment Vehicles, and Third party

Funds, and as professionals employed

in the securities, or a related, industry

will be able to evaluate the attendant

risks. Moreover, applicant asserts that

the community of interest among the

Battery Place or Stone Street Investors

and the GS Limited Partners will reduce

the risk of abuse in these transactions.

7. Section 17(d) of the Act and rule

17d–1 under the Act prohibit affiliated

persons, and affiliated persons of such

persons, from participating in joint

transactions with a registered

investment company unless authorized

by the Commission. In passing on

applications for such orders under rule

17d–1, the Commission will consider

whether the participation of the

investment company 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. Applicant requests an

exemption from section 17(d) and rule

d–1 to permit the Battery Place or Stone

Street Funds to engage in transactions in

which affiliated persons of the Funds or

affiliated persons of those persons

(including Third Party Investors) may be

participants.

8. Applicant asserts that section 17(d)

and rule 17d–1 might prevent the

Battery Place and the Stone Street

Funds from engaging in transactions in

which a Battery Place or a Stone Street

Investor, a Goldman Sachs Entity, or a

Third Party Fund, are participants.

Applicant submits that restricting these

types of investments by a Fund would

undermine a principal rationale of the

Battery Place and the Stone Street

Funds, i.e., to provide a vehicle for the

Battery Place and the Stone Street

Investors to invest alongside Goldman

Sachs (acting through a Goldman Sachs

Entity, GS Partners’ Investment Vehicles

or Third Party Funds). Applicant further

asserts that attractive investment

opportunities of the types considered by

the Battery Place and the Stone Street

Funds often require each participant to

make available funds in amounts greater

than those available to a Fund alone

and, in certain instances, a Fund may

only invest in these opportunities as a

participant with a Goldman Sachs

Entity, a GS Partners’ Investment

Vehicle or a Third Party Fund.

Applicant submits that permitting joint

investments by a Goldman Sachs Entity,

a GS Partners’ Investment Vehicle, a

Third Party Fund and a Battery Place

and/or Stone Street Fund will not lead

to the disadvantageous treatment of

either Fund because Goldman Sachs

will be acutely concerned with its

relationship with the Battery Place and

the Stone Street Investors.

9. Section 17(e) of the Act and rule

17e–1 under the Act limit the

compensation an affiliated person of a

registered investment company, or an

affiliated person of such a person, may

receive when acting as agent or broker

for the company. Applicant requests an

exemption from section 17(e) to permit

a Goldman Sachs Entity (including the

Manager), acting as an agent or broker,

to receive compensation from a Battery

Place or Stone Street Fund in

connection with the purchase or sale by

either Fund of securities, provided the

fees or other compensation are ‘‘usual

and customary.’’ Applicant states that

fees or other compensation will be

deemed ‘‘usual and customary’’ only if

(i) the Battery Place or Stone Street

Fund is purchasing or selling securities

alongside other unaffiliated third parties

or Third Party Funds who are also

similarly purchasing or selling

securities, (ii) the fees or other

compensation that are charged to the

Battery Place or Stone Street Fund are

also charged to the unaffiliated third

parties and Third Party Funds, and (iii)

the amount of securities being

purchased or sold by the Battery Place

or Stone Street Fund does not exceed

50% of the total amount of securities

being purchased or sold by the Battery

Place or Stone Street Fund and the

unaffiliated third parties or Third Party

Funds. Applicant also requests an

exemption from paragraph (b) of rule

17e–1 to permit each Battery Place and

Stone Street Fund to comply with rule

17e–1 without having a majority of the

board of directors (or comparable body)

of the Manager who are not ‘‘interested

persons,’’ as defined in section 2(a)(19)

of the Act, take the actions and give the

approvals that are required under the

rule. Applicant states that because the

officers and directors of the Manager

will be affiliated persons, without the

relief requested, a Battery Place or a

Stone Street Fund could not comply

with rule 17e–1(b).

10. Section 17(f) of the Act provides

that the securities and similar

investments of a registered management

investment company must be placed in

the custody of a bank, a member of a

national securities exchange, or the

company itself in accordance with

Commission rules. Section 17(f) also

prohibits a company which is a member

of a national securities exchange and

which trades in securities for its own

account from acting as a custodian

except in accordance with rules

prescribed by the Commission. Rule

17f–1 under the Act specifies the

requirements that must be satisfied for

a registered management investment

company to use a broker-dealer as a

custodian.

11. One of Goldman Sachs’ principal

operating businesses in the United

States is Goldman, Sachs & Co.

(‘‘GS&Co.’’), a New York limited

partnership that is a broker-dealer

registered under the Securities

Exchange Act of 1934 (the ‘‘Exchange

Act’’), and a member of the National

Association of Securities Dealers and

the New York Stock Exchange.

Applicant requests an exemption from

section 17(f) of the Act and rule 17f–1

under the Act to the extent necessary to

permit GS&Co. or another Goldman

Sachs Entity to act as custodian of Fund

assets without a written contract.

Applicant states that any securities of

the Battery Place and the Stone Street

Funds held by GS&Co. will have the

protection of a fidelity bond. Applicant

also requests an exemption to the extent

necessary to establish one or more

brokerage accounts at GS&Co. in which

the Battery Place and the Stone Street

Funds will participate without the

necessity of separately segregating the

securities and investments of each

Fund. Applicant states that this relief is

needed to facilitate the investment by

the Battery Place and the Stone Street

Funds in a joint account established by

GS&Co. for investment by Goldman

Sachs Entities in certain types of

investments. Applicant believes that the

financial position of GS&Co., the

regulation to which it is subject under

the Exchange Act and the relationship

of the Battery Place and Stone Street

Investors, as Eligible Employees of and

Consultants to GS&Co., should

adequately protect the Funds’ assets.

12. Section 17(g) of the Act and rule

17g–1 under the Act generally require

the bonding of officers and employees of

a registered investment company who

have access to the securities or funds of

the company. Rule 17g–1 requires that

a majority of the investment company’s

directors who are not ‘‘interested

persons,’’ as defined in section 2(a)(19)

of the Act, take certain actions and give

certain approvals. Applicant requests

relief from the disinterested director

approval requirement because all

directors of the Manager will be

affiliated persons of the Funds, and the

Battery Place and the Stone Street

Funds therefore could not comply with

the requirement.

13. Section 17(j) of the Act and rule

17j–1 under the Act require a registered

investment company to adopt a written
40572 Federal Register / Vol. 63, No. 145 /Wednesday, July 29, 1998 / Notices

code of ethics that requires every access

person of the company to report to the

company concerning transactions in any

security in which the access person has,

or by reason of the transactions

acquires, any direct or indirect

beneficial ownership in the security.

Applicant requests an exemption from

section 17(j) and rule 17j–1 (except for

the antifraud provisions of paragraph

(a)) because the requirements are

burdensome and unnecessary as applied

to the Funds. Applicant asserts that

compliance with these requirements

would be unnecessary in light of the

community of interest between

investors in the Funds and Goldman

Sachs and the proposed conditions to

the requested order.

14. Applicant also requests an

exemption from paragraphs (a), (b), (c),

(d), and (h) of section 30 of the Act to

exempt the Battery Place and the Stone

Street Funds from filing annual and

quarterly reports with the Commission.

Applicant states that the pertinent

information in the filings must, under

the terms of the organizational

documents of the Funds, be sent to their

investors. Exemptive relief is also

requested under section 30(e) of the Act

to permit the Battery Place and the

Stone Street Funds to report annually to

their investors in the manner prescribed

by the organizational documents of the

Funds. Lastly, applicant requests an

exemption from the requirements of

section 30(h) of the Act so that the

Manager of each Battery Place and each

Stone Street Fund and all persons who

are directors or officers of a Manager

and each member of the board of

directors, if any, of a Battery Place or a

Stone Street Fund and any other

persons who may be deemed members

of an advisory board of a Battery Place

or a Stone Street Fund will not be

required to file Forms 3, 4, or 5 under

section 16 of the Exchange Act with

respect to their ownership of Interests in

a Battery Place or a Stone Street Fund.

Applicant’s Conditions

The Battery Place and the Stone Street

Funds agree that any order granting the

requested relief will be subject to the

following conditions:

1. Each proposed transaction

otherwise prohibited by Section 17(a) or

section 17(d) and rule 17d–1 (the

‘‘Section 17 Transactions’’) will be

effected only if the Manager determines

that: (i) the terms of the transaction,

including the consideration to be paid

or received, are fair and reasonable to

the investors in the Fund and do not

involve overreaching of the Fund or its

investors on the part of any person

concerned; and (ii) the transaction is

consistent with the interests of the

investors in the Fund, the organizational

documents of the Fund and the Fund’s

report to its investors. In addition, each

Manager will record and preserve a

description of each Section 17

Transaction, its findings, the

information or materials upon which its

findings are based and the basis for the

findings. All required records will be

maintained for the life of each Fund and

at least two years thereafter, and will be

subject to examination by the

Commission and its staff. All required

records will be maintained in an easily

accessible place for at least the first two

years.

2. Each Manager will adopt, and

periodically review and update,

procedures designed to ensure that

reasonable inquiry is made, prior to the

consummation of any Section 17

Transaction, with respect to the possible

involvement in the transaction of any

affiliated person or promoter of or

principal underwriter for the Funds, or

any affiliated person of an affiliated

person, promoter, or principal

underwriter.

3. Each Manager will not invest the

funds of any Funds in any investment

in which a ‘‘Co-Investor’’ (as defined

below) has acquired, or proposes to

acquire, the same class of securities of

the same issuer, if the investment

involves a joint enterprise or other joint

arrangement within the meaning of rule

17d–1 in which the Fund and the CoInvestor are participants, unless any

such Co-Investor, prior to disposing of

all or part of its investment, (i) gives the

Manager sufficient, but not less than one

day’s, notice of its intent to dispose of

its investment, and (ii) refrains from

disposing of its investment unless the

Fund has the opportunity to dispose of

the Fund’s investment prior to or

concurrently with, on the same terms as,

and pro rata with the Co-Investor. The

term ‘‘Co-Investor’’ means any person

who is: (i) an ‘‘affiliated person’’ (as

defined in section 2(a)(3) of the Act) of

the Fund (other than a Third Party

Fund); (ii) Goldman Sachs; (iii) an

employee, officer, or director of

Goldman Sachs; (iv) a GS Partners’

Investment Vehicle; (v) any entity (other

than a Third Party Fund) with respect

to which Goldman Sachs provides

management, investment management

or similar services as manager,

investment manager, or Manager or in a

similar capacity, and for which it may

receive compensation, including

without limitation, management or

performance fees, carried interests

entitling it to share disproportionately

in income and capital gains, or similar

compensation; or (vi) a company (other

than a Third Party Fund) in which an

officer or director of the Manager acts as

an officer, director, or Manager, or has

a similar capacity to control the sale or

other disposition of the company’s

securities. The restrictions contained in

this condition, however, shall not be

deemed to limit or prevent the

disposition of an investment by a CoInvestor: (i) to its direct or indirect

wholly-owned subsidiary, to any

company (‘‘Parent’’) of which the CoInvestment is a direct or indirect

wholly-owned subsidiary, or to a direct

or indirect wholly-owned subsidiary of

its Parent; (ii) to immediate family

members of the Co-Investor or a trust or

other investment vehicle established for

any such family member; (iii) when the

investment is comprised of securities

that are (a) listed on a national securities

exchange registered under section 6 of

the Exchange Act; (b) national market

system securities pursuant to section

11A(a)(2) of the Exchange Act and rule

11Aa2–1 under the Exchange Act; or (c)

listed on or traded on any foreign

securities exchange or board of trade

that satisfies regulatory requirements

under the law of the jurisdiction in

which such foreign securities exchange

or board of trade is organized similar to

those that apply to a national securities

exchange or a national market system

for securities.

4. In any case where purchases or

sales are made by a Fund from or to an

entity affiliated with the Fund by reason

of a 5% or more investment in such

entity by a director, officer, or employee

of the Manager, such individual will not

participate in the Manager’s

determination of whether or not to effect

the purchase or sale.

The Bridge Street, Battery Place, and

Stone Street Funds agree that any order

granting the requested relief will be

subject to the following conditions:

5. Each Manager will send to each

investor who had an Interest in its

Fund, at any time during the fiscal year

then ended, financial statements of the

Fund audited by the Fund’s

independent accountants. At the end of

each fiscal year, each Manager will

make a valuation or have a valuation

made of all of the assets of the Fund as

of such fiscal year end. The valuation of

the Fund assets may be by independent

third parties appointed by the

applicable Manager and deemed

qualified by such Manager to render an

opinion as to the value of Fund assets,

using such methods and considering

such information relating to the

investments, assets and liabilities of the

Fund as such persons may deem

appropriate, but in the case of an event

subsequent to the end of the fiscal year
Federal Register / Vol. 63, No. 145 /Wednesday, July 29, 1998 / Notices 40573

1 15 U.S.C. 78s(b)(1).

2 17 CFR 240.19b–4.

3Securities Exchange Act Release No. 39959 (May

5, 1998), 63 FR 26231.

4See Letter from Scott Van Hatten, Legal Counsel,

Amex, to Michael Walinskas, Deputy Associate

Director, SEC, dated July 9, 1998 (‘‘Amendment No.

1’’). Amendment No. 1 clarified that the Exchange

had received approval to move the close of narrowbased index options trading from 4:10 p.m. to 4:02

p.m., as set forth in Securities Exchange Act Release

No. 38640 (May 14, 1997), 62 FR 28081 (May 22,

1997). Amendment No. 1 also amended the filing

to permit the announcement of closing rotations in

narrow-based index options, in addition to equity

options, after 4:02 p.m.

5Securities Exchange Act Release No. 38640 (May

14, 1997), 62 FR 28081 (May 22, 1997).

6A closing rotation is a trading procedure to

determine appropriate closing prices or quotes for

each series of options on an underlying stock.

7 15 U.S.C. 78f(b)(5).

8 In approving this rule, the Commission notes

that it has considered the proposed rule’s impact on

efficiency, competition, and capital formation. 15

U.S.C. 78c(f).

9See CBOE Rule 6.2, Interpretations and Policies

.02; PCX Rule 6.64, Commentary .01; and PHLX

Rule 1047, Commentary .03.

materially affecting the value of any

Fund asset or investment, the Manager

may revise the valuation as it, in its sole

discretion, deems appropriate. In

addition, each Manager shall send a

report to each person who was an

investor in its Fund at any time during

the fiscal year then ended, setting forth

such tax information as shall be

necessary for the preparation by the

investor of his or its federal and state

income tax returns and a report of the

investment activities of the Fund during

such year by such date as may be

required to permit investors to comply

with income tax filing requirements

(including extensions).

6. Each Fund and its Manager will

maintain and preserve, for the life of the

Fund and at least two years thereafter,

all accounts, books, and other

documents as constitute the record

forming the basis for the audited

financial statements and annual reports

of such Fund to be provided to the

investors, and agree that all such

records will be subject to examination

by the Commission and its staff. All

required records will be maintained in

an easily accessible place for at least the

first two years.

For the Commission, by the Division of

Investment Management, pursuant to

delegated authority.

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 98–20246 Filed 7–28–98; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–40240; File No. SR–Amex–

98–16]

Self-Regulatory Organizations;

American Stock Exchange, Inc.; Order

Approving Proposed Rule Change and

Notice of Filing and Order Granting

Accelerated Approval to Amendment

No. 1 to the Proposed Rule Change

Relating to the Announcement of

Closing Rotations in Equity and

Narrow-Based Index Options After 4:02

p.m.

July 21, 1998.

I. Introduction

On April 8, 1998, the American Stock

Exchange, Inc. (‘‘Amex’’ or ‘‘The

Exchange’’), filed with the Securities

and Exchange Commission (‘‘SEC’’ or

‘‘the Commission’’) a proposed rule

change pursuant to Section 19(b)(1) of

the Securities Exchange Act of 1934

(‘‘Act’’),1 and Rule 19b–4 2 thereunder to

permit a closing rotation in equity

options to be announced after 4:02 p.m.

The proposed rule change was

published for comment in the Federal

Register on May 12, 1998.3 No

comments were received.

On July 9, 1998, the Amex submitted

Amendment No. 1 to the proposed rule

change.4 This order approves the

proposal and approves Amendment No.

1 on an accelerated basis.

II. Description of the Proposal

On May 14, 1997, the Exchange

received approval to move the close of

equity and narrow-based index options

trading from 4:10 p.m. to 4:02 p.m.5

This change was prompted by

improvements in dissemination of

closing prices in the underlying

securities, the limited ability of public

customers to react as quickly as

professional traders to news

announcements in the last ten minutes

of trading, and the difficulties

experienced by options specialists and

registered traders trying to make orderly

options markets without the ability to

hedge or otherwise offset market risk

with transactions in the underlying

stock. Following receipt of approval,

Rule 1 was amended to reflect this

change to 4:02 p.m. The Amex states

that the provision that permits a closing

rotation 6 to be initiated due to unusual

market conditions was severely limited

inadvertently when the rule was

changed to require that notice of the

closing rotation had to be publicly

disseminated before 4:02 p.m. As

currently written, the rule gives Floor

Officials only two minutes to assess an

unusual market condition, determine

whether it is appropriate to have a

closing rotation, and disseminate the

news of the rotation to the public.

The Amex proposes to amend

Exchange Rule 1 to permit a closing

rotation in equity and narrow-based

index options to be announced after

4:02 p.m., provided such a rotation does

not begin sooner than five minutes after

it is announced.

III. Discussion

The Commission finds that the

proposed rule change is consistent with

the requirements of the Act and the

rules and regulations thereunder

applicable to a national securities

exchange, and in particular, Section

6(b)(5).7 Section 6(b)(5) requires, among

other things, that the rules of an

exchange be designed to promote just

and equitable principles of trade, to

perfect the mechanism of a free and

open market, and in general, to further

investor protection and the public

interest.

The Commission believes that it is

reasonable for the Exchange to amend

its rules to provide Floor Officials with

more than two minutes to assess an

unusual market condition, determine

whether it is appropriate to have a

closing rotation, and disseminate the

news of the rotation to the public.8 The

Commission notes that the Chicago

Board Options Exchange (‘‘CBOE’’), the

Pacific Exchange (‘‘PCX’’), and the

Philadelphia Stock Exchange (‘‘PHLX’’)

permit trading rotation notice to be

given after the close of trading.9

The Commission also finds good

cause for approving proposed

Amendment No. 1 prior to the thirtieth

day after the date of publication of

notice of filing thereof in the Federal

Register. The Amendment clarified the

filing’s description of a prior rule

change and the scope of the proposed

rule change. For these reasons, the

Commission finds good cause for

approving Amendment No. 1 on an

accelerated basis.

IV. Solicitation of Comments

Interested persons are invited to

submit written data, views and

arguments concerning Amendment No.

1, including whether it is consistent

with the Act. Persons making written

submissions should file six copies

thereof with the Secretary, Securities

and Exchange Commission, 450 Fifth

Street, NW, Washington, DC 20549.

Copies of the submission, all subsequent

amendments, all written statements

with respect to the proposed rule

change that are filed with the