Goldman, Sachs & Co.; Notice of Application, 9431-9434 [2017-02360]
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Federal Register / Vol. 82, No. 23 / Monday, February 6, 2017 / Notices
SECURITIES AND EXCHANGE
COMMISSION
[Investment Company Act Release No. IC–
32460; File No. 812–14702]
Goldman, Sachs & Co.; Notice of
Application
January 31, 2017.
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 section 6(c) of
the Act for an exemption from section
14(a) of the Act, and under section 17(b)
of the Act for an exemption from section
17(a) of the Act.
AGENCY:
Goldman,
Sachs & Co. (the ‘‘Applicant’’) requests
an order to amend and supersede a prior
order 1 with respect to all existing and
future Automatic Common Exchange
Security Trusts (‘‘ACES Trusts’’) and
future trusts that are substantially
similar to the ACES Trusts and for
which Applicant will serve as a
principal underwriter (collectively, the
‘‘Trusts’’) that would (i) permit other
registered investment companies, and
companies excepted from the definition
of investment company under section
3(c)(1) or (3)(c)(7) of the Act, to own a
greater percentage of the total
outstanding voting stock (the
‘‘Securities’’) of any Trust than that
permitted by section 12(d)(1), (ii)
exempt the Trusts from the initial net
worth requirements of section 14(a), and
(iii) permit the Trusts to purchase U.S.
government securities from Applicant at
the time of a Trust’s initial issuance of
Securities.
FILING DATE: The application was filed
on September 21, 2016.
HEARING OR NOTIFICATION OF HEARING:
An order granting the requested relief
will be issued unless the Commission
orders a hearing. Interested persons may
request a hearing by writing to the
Commission’s Secretary and serving
Applicant with a copy of the request,
personally or by mail. Hearing requests
should be received by the Commission
by 5:30 p.m. on February 27, 2017, and
should be accompanied by proof of
service on Applicant, in the form of an
affidavit or, for lawyers, a certificate of
service. Pursuant to rule 0–5 under the
Act, hearing requests should state the
nature of the writer’s interest, any facts
bearing upon the desirability of a
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SUMMARY OF APPLICATION:
1 Investment Company Act Release Nos. 22578
(March 21, 1997) (notice) and 22622 (April 16,
1997) (order).
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hearing on the matter, the reason for the
request, and the issues contested.
Persons who wish to be notified of a
hearing may request notification by
writing to the Commission’s Secretary.
ADDRESSES: Secretary, U.S. Securities
and Exchange Commission, 100 F Street
NE., Washington, DC 20549–1090;
Applicant: 200 West Street, New York,
NY 10282.
FOR FURTHER INFORMATION CONTACT:
Robert Shapiro, Senior Counsel, at (202)
551–7758 or Mary Kay Frech, Branch
Chief, at (202) 551–6821 (Division of
Investment Management, Chief
Counsel’s Office).
SUPPLEMENTARY INFORMATION: The
following is a summary of the
application. The complete application
may be obtained via the Commission’s
Web site by searching for the file
number, or an applicant using the
Company name box, at https://
www.sec.gov/search/search.htm or by
calling (202) 551–8090.
Applicant’s Representations
1. Each Trust will be a limited-life,
grantor trust registered under the Act as
a non-diversified, closed-end
management investment company.
Applicant will serve as a principal
underwriter (as defined in section
2(a)(29) of the Act) of the Securities
issued by each Trust (including in
offerings under Rule 144A under the
Securities Act of 1933 (‘‘Rule 144A’’)).
2. Each Trust will, at the time of its
issuance of Securities, (i) enter into one
or more forward purchase contracts (the
‘‘Contracts’’) with a counterparty to
purchase a formulaically-determined
number of a specified equity security or
securities (the ‘‘Shares’’) of one
specified issuer,2 and (ii) in some cases,
purchase certain U.S. Treasury
securities (‘‘Treasuries’’), which may
include interest-only or principal-only
securities maturing at or prior to the
Trust’s termination. The Trusts will
purchase the Contracts from
counterparties that are not affiliated
with either the relevant Trust or
Applicant. The investment objective of
each Trust will be to provide to each
holder of Securities (‘‘Holder’’) (i)
current cash distributions from the
proceeds of any Treasuries, and (ii)
participation in, or limited exposure to,
changes in the market value of the
underlying Shares.
2 No Trust will hold Contracts initially relating to
the Shares of more than one issuer. However, if
certain events specified in the Contracts occur (such
as the spin-off by the issuer of Shares of securities
of another issuer to the holders of the Shares) the
Trust may receive at the termination of the
Contracts shares of more than one issuer.
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3. In all cases, the Shares will trade
in the secondary market and the issuer
of the Shares will be a reporting
company under the Securities Exchange
Act of 1934. The number of Shares, or
the value thereof, that will be delivered
to a Trust pursuant to the Contracts may
be fixed (e.g., one Share per Security
issued) or may be determined pursuant
to a formula, the product of which will
vary with the price of the Shares during
a period proximate to the termination of
the Contracts and the Trust. A formula
generally will result in each Holder of
Securities receiving fewer Shares as the
market value of the Shares increases,
and more Shares as their market value
decreases.3 At the termination of each
Trust, each Holder will receive the
number of Shares per Security, or the
value thereof, as determined by the
terms of the Contracts, that is equal to
the Holder’s pro rata interest in the
Shares or amount received by the Trust
under the Contracts.4
4. Securities issued by the Trusts in
a public offering (but not a private
offering) will be listed on a national
securities exchange. Thus, Securities
issued in a public offering will be
‘‘national market system’’ securities
subject to public price quotation and
trade reporting requirements. After the
Securities are issued, the trading price
of the Securities is expected to vary
from time to time based primarily upon
the price of the underlying Shares,
interest rates, and other factors affecting
conditions and prices in the debt and
equity markets. Applicant currently
intends, but will not be obligated, to
make a market in the Securities of each
Trust.
5. Each Trust will be internally
managed by three trustees and will not
have a separate investment adviser. The
trustees will have limited or no power
to vary the investments held by each
Trust. A bank or banks qualified to serve
as a trustee under the Trust Indenture
Act of 1939, as amended, will act as
custodian for each Trust’s assets and as
administrator, paying agent, registrar,
and transfer agent with respect to the
3 A formula is likely to limit the Holder’s
participation in any appreciation of the underlying
Shares, and it may, in some cases, limit the Holder’s
exposure to any depreciation in the underlying
Shares. It is anticipated that the Holders will
receive a yield greater than the ordinary dividend
yield on the Shares at the time of the issuance of
the Securities, which is intended to compensate
Holders for the limit on the Holders’ participation
in any appreciation of the underlying Shares. In
some cases, there may be an upper limit on the
value of the Shares that a Holder will ultimately
receive.
4 The contracts may provide for an option on the
part of a counterparty to deliver Shares, cash, or a
combination of Shares and cash to the Trust at the
termination of each Trust.
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Securities of each Trust. Any such bank
will have no other affiliation with, and
will not be engaged in any other
transaction with, any Trust. The day-today administration of each Trust will be
carried out by Applicant or by the bank.
6. The Trusts will be structured so
that the trustees are not authorized to
sell the Contracts or Treasuries under
any circumstances or are permitted to
sell them only under specified limited
circumstances. If the trustees of the
Trusts are not authorized to dispose of
the Contracts in any circumstances, the
Trusts will hold such Contracts until
maturity or any earlier acceleration, at
which time they will be settled
according to their terms. However, the
occurrence of certain defaults by a
counterparty under a Contract
(including, by way of example, the
bankruptcy or insolvency of such
counterparty) might result in the
acceleration of the obligations of one or
more counterparties under Contracts
with the Trust. If all the Contracts with
a Trust were to be so accelerated, that
Trust would be terminated immediately
after the distributions received from the
accelerated Contracts were distributed
to Holders.
7. The trustees of each Trust will be
selected initially by Applicant, together
with any other initial Holders, or by the
grantors of the Trust. The Holders of
each Trust will have the right, upon the
declaration in writing or vote of more
than two-thirds of the outstanding
Securities of the Trust, to remove a
trustee. Holders will be entitled to a full
vote, for each Security held, on all
matters to be voted on by Holders and
will not be able to cumulate their votes
in the election of trustees. The
investment objectives and policies of
each Trust may be changed only with
the approval of a ‘‘majority of the
Trust’s outstanding Securities’’ 5 or any
greater number required by the Trust’s
constituent documents. Unless Holders
so request, it is not expected that the
Trusts will hold any meetings of
Holders, or that Holders will ever vote.
8. The Trusts will not be entitled to
any rights with respect to the Shares
until any Contracts requiring delivery of
the Shares to the Trust are settled, at
which time the Shares will be promptly
distributed to Holders. The Holders,
therefore, will not be entitled to any
rights with respect to the Shares
(including voting rights or the right to
receive any dividends or other
5 A ‘‘majority of the Trust’s outstanding
Securities’’ means the lesser of (i) 67% of the
Securities represented at a meeting at which more
than 50% of the outstanding Securities are
represented, and (ii) more than 50% of the
outstanding Securities.
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distributions) until receipt by them of
the Shares at the time the Trust is
liquidated.
9. Each Trust’s organizational and
ongoing expenses will not be borne by
the Holders, but rather, directly or
indirectly, by Applicant, the
counterparties, or another third party, as
will be described in the prospectus for
the relevant Trust. At the time of the
original issuance of the Securities of any
Trust, there will be paid to each of the
administrator, the custodian, and the
paying agent, and to each trustee, a onetime amount in respect of such agent’s
or trustee’s fee over the term of the Trust
and, in the case of the administrator,
anticipated expenses of the Trust over
its term. Any expenses of the Trust in
excess of this anticipated amount will
be paid as incurred by a party other than
the Trust itself (which party may be
Applicant).
10. Applicant asserts that the
investment product offered by the
Trusts serves a valid business purpose.
The Trusts, unlike most registered
investment companies, are not marketed
to provide investors with either
professional investment asset
management or the benefits of
investment in a diversified pool of
assets. Rather, Applicant asserts that the
Securities are intended to provide
Holders with an investment having
unique payment and risk characteristics,
including an anticipated higher current
yield than the ordinary dividend yield
on the Shares at the time of the issuance
of the Securities.
Applicant’s Legal Analysis
Section 12(d)(1)
1. Section 12(d)(1)(A)(i) of the Act
prohibits (i) any registered investment
company from owning in the aggregate
more than 3% of the total outstanding
voting stock of any other investment
company, and (ii) any investment
company from owning in the aggregate
more than 3% of the total outstanding
voting stock of any registered
investment company. A company that is
excepted from the definition of
investment company under section
3(c)(1) or (c)(7) of the Act is deemed to
be an investment company for purposes
of section 12(d)(1)(A)(i) of the Act under
sections 3(c)(1) and (c)(7)(D) of the Act.
Section 12(d)(1)(C) of the Act similarly
prohibits any investment company,
other investment companies having the
same investment adviser, and
companies controlled by such
investment companies from owning
more than 10% of the total outstanding
voting stock of any closed-end
investment company.
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2. Section 12(d)(1)(J) of the Act
provides that the Commission may
exempt persons or transactions from any
provision of section 12(d)(1), if, and to
the extent that, the exemption is
consistent with the public interest and
protection of investors.
3. Applicant states that, in order for
the Trusts to be marketed most
successfully, and to be traded at a price
that most accurately reflects their value,
it is necessary for the Securities of each
Trust to be offered to large investment
companies and investment company
complexes. Applicant states that these
investors seek to spread the fixed costs
of analyzing specific investment
opportunities by making sizable
investments in those opportunities.
Conversely, Applicant asserts that it
may not be economically rational for the
investors, or their advisers, to take the
time to review an investment
opportunity if the amount that the
investors would ultimately be permitted
to purchase is immaterial in light of the
total assets of the investment company
or investment company complex.
Therefore, Applicant argues that in
order for the Trusts to be economically
attractive to large investment companies
and investment company complexes,
these investors should be able to acquire
Securities in each Trust in excess of the
limitations imposed by sections
12(d)(1)(A)(i) and 12(d)(1)(C). Applicant
requests that the Commission issue an
order under section 12(d)(1)(J)
exempting the Trusts from such
limitations.
4. Applicant states that section
12(d)(1) was designed to prevent one
investment company from buying
control of other investment companies
and creating complicated pyramidal
structures. Applicant also states that
section 12(d)(1) was intended to address
the layering of costs to investors.
5. Applicant asserts that the concerns
about pyramiding and undue influence
generally do not arise in the case of the
Trusts because neither the trustees nor
the Holders will have the power to vary
the investments held by each Trust or to
acquire or dispose of the assets of the
Trusts. To the extent that Holders can
change the composition of the board of
trustees or the fundamental policies of
each Trust by vote, Applicant argues
that any concerns regarding undue
influence will be eliminated by a
provision in the charter documents of
the Trusts that will require any
investment companies owning voting
stock of any Trust in excess of the limits
imposed by sections 12(d)(1)(A)(i) and
12(d)(1)(C) to vote their Securities in
proportion to the votes of all other
Holders. Applicant also states that the
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concern about undue influence through
a threat to redeem does not arise in the
case of the Trusts because the Securities
will not be redeemable.
6. Section 12(d)(1) also was designed
to address the excessive costs and fees
that may result from multiple layers of
investment companies. Applicant states
that these concerns do not arise in the
case of the Trusts because of the limited
ongoing fees and expenses incurred by
the Trusts and because generally these
fees and expenses will be borne, directly
or indirectly, by Applicant or another
third party, not by the Holders. In
addition, the Holders will not, as a
practical matter, bear the organizational
expenses (including underwriting
expenses) of the Trusts. Applicant
asserts that the organizational expenses
effectively will be borne by the
counterparties in the form of a discount
in the price paid to them for the
Contracts, or will be borne directly by
Applicant, the counterparties, or other
third parties. Thus, a Holder will not
pay duplicative charges to purchase
securities in any Trust. Finally, there
will be no duplication of advisory fees
because the Trusts will be internally
managed by their trustees.
Section 14(a)
7. Section 14(a) of the Act requires, in
pertinent part, that an investment
company have a net worth of at least
$100,000 before making any public
offering of its shares. The purpose of
section 14(a) is to ensure that
investment companies are adequately
capitalized prior to or simultaneously
with the sale of their securities to the
public. Rule 14a–3 exempts from
section 14(a) unit investment trusts
(‘‘UITs’’) that meet certain conditions in
recognition of the fact that, once the
units are sold, a UIT requires much less
commitment on the part of the sponsor
than does a management investment
company. Rule 14a–3 provides that a
UIT investing in eligible trust securities
shall be exempt from the net worth
requirement, provided that, among other
things, the trust holds at least $100,000
of eligible trust securities at the
commencement of a public offering.
8. Section 6(c) of the Act provides that
the Commission may exempt persons or
transactions if, and to the extent that,
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.
9. Applicant requests an order under
section 6(c) exempting the Trusts from
the requirements of section 14(a).
Applicant believes that the exemption is
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appropriate in the public interest and
consistent with the protection of
investors and the policies and
provisions of the Act. Applicant asserts
that, while the Trusts are classified as
management companies, they have the
characteristics of UITs. Investors in the
Trusts, like investors in a UIT, will not
be purchasing interests in a managed
pool of securities, but rather in a fixed
and disclosed portfolio that is held until
maturity. Applicant believes therefore,
that there is no need for an ongoing
commitment on the part of the
underwriter.
10. Applicant states that, in order to
ensure that each Trust will become a
going concern, the Securities will be
offered pursuant to firm commitment
arrangements, whether in an offering
registered under the Securities Act of
1933 (the ‘‘1933 Act’’) or in a private
placement, in either event resulting in
net proceeds to each Trust of at least
$10,000,000. If the Securities of a Trust
are placed in an offering registered
under the 1933 Act, prior to the
issuance and delivery of such Securities
to the underwriters, the underwriters
will enter into an underwriting
agreement pursuant to which they will
agree to purchase the Securities subject
to customary conditions to closing. The
underwriters will not be entitled to
purchase less than all of such Securities.
If the Securities of a Trust are placed in
a private offering, prior to the issuance
and delivery of such Securities, the
placement agent(s) (or initial
purchasers) will enter into a placement
agent agreement (or purchase
agreement) pursuant to which they will
agree to purchase the Securities subject
to customary conditions to closing. The
placement agent(s) or initial purchasers
will not be entitled to purchase less
than all of such Securities. Accordingly,
Applicant states that either the offering
will not be completed at all or each
Trust will have a net worth substantially
in excess of $100,000 on the date of the
issuance of the Securities. Applicant
also does not anticipate that the net
worth of the Trusts will fall below
$100,000 before they are terminated.
Section 17(a)
11. Sections 17(a)(1) and (2) of the Act
generally prohibit the principal
underwriter, or any affiliated person of
the principal underwriter, of a
registered investment company from
selling or purchasing any securities to or
from that investment company. The
result of these provisions is to preclude
the Trusts from purchasing Treasuries
from Applicant.
12. Section 17(b) of the Act provides
that the Commission shall exempt a
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proposed transaction from section 17(a)
if evidence establishes that the terms of
the proposed transaction are reasonable
and fair and do not involve
overreaching, and the proposed
transaction is consistent with the
policies of the registered investment
company involved and the purposes of
the Act. Applicant requests an
exemption from sections 17(a)(1) and (2)
to permit the Trusts to purchase
Treasuries from Applicant.
13. Applicant states that the policy
rationale underlying section 17(a) is the
concern that an affiliated person of an
investment company, by virtue of this
relationship, could cause the investment
company to purchase securities of poor
quality from the affiliated person or to
overpay for securities. Applicant argues
that it is unlikely that it would be able
to exercise any adverse influence over
the Trusts with respect to purchases of
Treasuries because Treasuries do not
vary in quality and are traded in one of
the most liquid markets in the world.
Treasuries are available through both
primary and secondary dealers, making
the Treasury market very competitive.
In addition, market prices on Treasuries
can be confirmed on a number of
commercially available information
screens. Applicant argues that because it
is one of a limited number of primary
dealers in Treasuries, it will be able to
offer the Trusts prompt execution of
their Treasury purchases at very
competitive prices.
14. Applicant states that it is only
seeking relief from section 17(a) with
respect to the initial purchase of the
Treasuries and not with respect to an
ongoing course of business.
Consequently, investors will know
before they purchase a Trust’s Securities
the Treasuries that will be owned by the
Trust and the amount of the cash
payments that will be provided
periodically by the Treasuries to the
Trust and distributed to Holders.
Applicant also asserts that whatever risk
there is of overpricing the Treasuries
will be borne by the counterparties and
not by the Holders because the cost of
the Treasuries will be calculated into
the amount paid on the Contracts.
Applicant argues that, for this reason,
the counterparties will have a strong
incentive to monitor the price paid for
the Treasuries, because any
overpayment could result in a reduction
in the amount that they would be paid
on the Contracts.
Applicant’s Conditions
Applicant agrees that the order
granting the requested relief will be
subject to the following conditions:
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1. Any investment company owning
voting stock of any Trust in excess of
the limits imposed by section 12(d)(1) of
the Act will be required by the Trust’s
charter documents, or will undertake, to
vote its Trust shares in proportion to the
vote of all other Holders.
2. The trustees of each Trust,
including a majority of the trustees who
are not interested persons of the Trust,
(a) will adopt procedures that are
reasonably designed to provide that the
conditions set forth below have been
complied with; (b) will make and
approve such changes as are deemed
necessary; and (c) will determine that
the transactions made pursuant to the
order were effected in compliance with
such procedures.
3. The Trusts (1) will maintain and
preserve in an easily accessible place a
written copy of the procedures (and any
modifications thereto), and (ii) will
maintain and preserve for the longer of
(x) the life of the Trusts and (y) six years
following the purchase of any
Treasuries, the first two years in an
easily accessible place, a written record
of all Treasuries purchased, whether or
not from Applicant, setting forth a
description of the Treasuries purchased,
the identity of the seller, the terms of
the purchase, and the information or
materials upon which the
determinations described below were
made.
4. The Treasuries to be purchased by
each Trust will be sufficient to provide
payments to Holders that are consistent
with the investment objectives and
policies of the Trust as recited in the
Trust’s registration statement and will
be consistent with the interests of the
Trust and the Holders of its Securities.
5. The terms of the transactions will
be reasonable and fair to the Holders of
the Securities issued by each Trust and
will not involve overreaching of the
Trust or the Holders of Securities of the
Trust on the part of any person
concerned.
6. The fee, spread, or other
remuneration to be received by
Applicant will be reasonable and fair
compared to the fee, spread, or other
remuneration received by dealers in
connection with comparable
transactions at such time, and will
comply with section 17(e)(2)(C) of the
Act.
7. Before any Treasuries are
purchased by the Trust, the Trust must
obtain such available market
information as it deems necessary to
determine that the price to be paid for,
and the terms of, the transaction are at
least as favorable as that available from
other sources. This shall include the
Trust obtaining and documenting the
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competitive indications with respect to
the specific proposed transaction from
two other independent government
securities dealers. Competitive
quotation information must include
price and settlement terms. These
dealers must be those who, in the
experience of the Trust’s trustees, have
demonstrated the consistent ability to
provide professional execution of
Treasury transactions at competitive
market prices. They also must be those
who are in a position to quote favorable
prices.
For the Commission, by the Division of
Investment Management, under delegated
authority.
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017–02360 Filed 2–3–17; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Securities Act of 1933, Release No. 33–
10297/January 31, 2017; Securities
Exchange Act of 1934, Release No. 34–
79912/January 31, 2017]
Order Regarding Review of FASB
Accounting Support Fee for 2017
Under Section 109 of The SarbanesOxley Act of 2002
The Sarbanes-Oxley Act of 2002 (the
‘‘Act’’) provides that the Securities and
Exchange Commission (the
‘‘Commission’’) may recognize, as
generally accepted for purposes of the
securities laws, any accounting
principles established by a standard
setting body that meets certain criteria.
Consequently, Section 109 of the Act
provides that all of the budget of such
a standard setting body shall be payable
from an annual accounting support fee
assessed and collected against each
issuer, as may be necessary or
appropriate to pay for the budget and
provide for the expenses of the standard
setting body, and to provide for an
independent, stable source of funding,
subject to review by the Commission.
Under Section 109(f) of the Act, the
amount of fees collected for a fiscal year
shall not exceed the ‘‘recoverable budget
expenses’’ of the standard setting body.
Section 109(h) amends Section 13(b)(2)
of the Securities Exchange Act of 1934
to require issuers to pay the allocable
share of a reasonable annual accounting
support fee or fees, determined in
accordance with Section 109 of the Act.
On April 25, 2003, the Commission
issued a policy statement concluding
that the Financial Accounting Standards
Board (‘‘FASB’’) and its parent
organization, the Financial Accounting
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Foundation (‘‘FAF’’), satisfied the
criteria for an accounting standardsetting body under the Act, and
recognizing the FASB’s financial
accounting and reporting standards as
‘‘generally accepted’’ under Section 108
of the Act.1 As a consequence of that
recognition, the Commission undertook
a review of the FASB’s accounting
support fee for calendar year 2017.2 In
connection with its review, the
Commission also reviewed the budget
for the FAF and the FASB for calendar
year 2017.
Section 109 of the Act also provides
that the standard setting body can have
additional sources of revenue for its
activities, such as earnings from sales of
publications, provided that each
additional source of revenue shall not
jeopardize, in the judgment of the
Commission, the actual or perceived
independence of the standard setter. In
this regard, the Commission also
considered the interrelation of the
operating budgets of the FAF, the FASB,
and the Governmental Accounting
Standards Board (‘‘GASB’’), the FASB’s
sister organization, which sets
accounting standards used by state and
local government entities. The
Commission has been advised by the
FAF that neither the FAF, the FASB, nor
the GASB accept contributions from the
accounting profession.
The Commission understands that the
Office of Management and Budget
(‘‘OMB’’) has determined the FASB’s
spending of the 2017 accounting
support fee is sequestrable under the
Budget Control Act of 2011.3 So long as
sequestration is applicable, we
anticipate that the FAF will work with
the Commission and Commission staff
as appropriate regarding its
implementation of sequestration.
The Commission understands that
FASB recently conducted a review of its
Investor Advisory Committee (‘‘IAC’’).
We anticipate that the FASB will keep
the Commission informed of IAC-related
actions, including any efforts the FASB
undertakes to improve the functioning
of the IAC. In this regard, the
Commission requests that the FASB
provide the Commission with quarterly
updates of its efforts to reach a broader
set of investors as well as the IAC’s
recommendations, funding,
1 Financial
Reporting Release No. 70.
Financial Accounting Foundation’s Board
of Trustees approved the FASB’s budget on
November 15, 2016. The FAF submitted the
approved budget to the Commission on November
22, 2016.
3 See ‘‘OMB Report Pursuant to the Sequestration
Transparency Act of 2012’’ (Pub. L. 112–155), page
222 of 224 at: https://www.whitehouse.gov/sites/
default/files/omb/assets/legislative_reports/
stareport.pdf.
2 The
E:\FR\FM\06FEN1.SGM
06FEN1
]]>Agencies
[Federal Register Volume 82, Number 23 (Monday, February 6, 2017)]
[Notices]
[Pages 9431-9434]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-02360]
[[Page 9431]]
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SECURITIES AND EXCHANGE COMMISSION
[Investment Company Act Release No. IC-32460; File No. 812-14702]
Goldman, Sachs & Co.; Notice of Application
January 31, 2017.
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 section 6(c) of the Act for an
exemption from section 14(a) of the Act, and under section 17(b) of the
Act for an exemption from section 17(a) of the Act.
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SUMMARY OF APPLICATION: Goldman, Sachs & Co. (the ``Applicant'')
requests an order to amend and supersede a prior order \1\ with respect
to all existing and future Automatic Common Exchange Security Trusts
(``ACES Trusts'') and future trusts that are substantially similar to
the ACES Trusts and for which Applicant will serve as a principal
underwriter (collectively, the ``Trusts'') that would (i) permit other
registered investment companies, and companies excepted from the
definition of investment company under section 3(c)(1) or (3)(c)(7) of
the Act, to own a greater percentage of the total outstanding voting
stock (the ``Securities'') of any Trust than that permitted by section
12(d)(1), (ii) exempt the Trusts from the initial net worth
requirements of section 14(a), and (iii) permit the Trusts to purchase
U.S. government securities from Applicant at the time of a Trust's
initial issuance of Securities.
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\1\ Investment Company Act Release Nos. 22578 (March 21, 1997)
(notice) and 22622 (April 16, 1997) (order).
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FILING DATE: The application was filed on September 21, 2016.
HEARING OR NOTIFICATION OF HEARING: An order granting the requested
relief will be issued unless the Commission orders a hearing.
Interested persons may request a hearing by writing to the Commission's
Secretary and serving Applicant with a copy of the request, personally
or by mail. Hearing requests should be received by the Commission by
5:30 p.m. on February 27, 2017, and should be accompanied by proof of
service on Applicant, in the form of an affidavit or, for lawyers, a
certificate of service. Pursuant to rule 0-5 under the Act, hearing
requests should state the nature of the writer's interest, any facts
bearing upon the desirability of a hearing on the matter, the reason
for the request, and the issues contested. Persons who wish to be
notified of a hearing may request notification by writing to the
Commission's Secretary.
ADDRESSES: Secretary, U.S. Securities and Exchange Commission, 100 F
Street NE., Washington, DC 20549-1090; Applicant: 200 West Street, New
York, NY 10282.
FOR FURTHER INFORMATION CONTACT: Robert Shapiro, Senior Counsel, at
(202) 551-7758 or Mary Kay Frech, Branch Chief, at (202) 551-6821
(Division of Investment Management, Chief Counsel's Office).
SUPPLEMENTARY INFORMATION: The following is a summary of the
application. The complete application may be obtained via the
Commission's Web site by searching for the file number, or an applicant
using the Company name box, at https://www.sec.gov/search/search.htm or
by calling (202) 551-8090.
Applicant's Representations
1. Each Trust will be a limited-life, grantor trust registered
under the Act as a non-diversified, closed-end management investment
company. Applicant will serve as a principal underwriter (as defined in
section 2(a)(29) of the Act) of the Securities issued by each Trust
(including in offerings under Rule 144A under the Securities Act of
1933 (``Rule 144A'')).
2. Each Trust will, at the time of its issuance of Securities, (i)
enter into one or more forward purchase contracts (the ``Contracts'')
with a counterparty to purchase a formulaically-determined number of a
specified equity security or securities (the ``Shares'') of one
specified issuer,\2\ and (ii) in some cases, purchase certain U.S.
Treasury securities (``Treasuries''), which may include interest-only
or principal-only securities maturing at or prior to the Trust's
termination. The Trusts will purchase the Contracts from counterparties
that are not affiliated with either the relevant Trust or Applicant.
The investment objective of each Trust will be to provide to each
holder of Securities (``Holder'') (i) current cash distributions from
the proceeds of any Treasuries, and (ii) participation in, or limited
exposure to, changes in the market value of the underlying Shares.
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\2\ No Trust will hold Contracts initially relating to the
Shares of more than one issuer. However, if certain events specified
in the Contracts occur (such as the spin-off by the issuer of Shares
of securities of another issuer to the holders of the Shares) the
Trust may receive at the termination of the Contracts shares of more
than one issuer.
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3. In all cases, the Shares will trade in the secondary market and
the issuer of the Shares will be a reporting company under the
Securities Exchange Act of 1934. The number of Shares, or the value
thereof, that will be delivered to a Trust pursuant to the Contracts
may be fixed (e.g., one Share per Security issued) or may be determined
pursuant to a formula, the product of which will vary with the price of
the Shares during a period proximate to the termination of the
Contracts and the Trust. A formula generally will result in each Holder
of Securities receiving fewer Shares as the market value of the Shares
increases, and more Shares as their market value decreases.\3\ At the
termination of each Trust, each Holder will receive the number of
Shares per Security, or the value thereof, as determined by the terms
of the Contracts, that is equal to the Holder's pro rata interest in
the Shares or amount received by the Trust under the Contracts.\4\
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\3\ A formula is likely to limit the Holder's participation in
any appreciation of the underlying Shares, and it may, in some
cases, limit the Holder's exposure to any depreciation in the
underlying Shares. It is anticipated that the Holders will receive a
yield greater than the ordinary dividend yield on the Shares at the
time of the issuance of the Securities, which is intended to
compensate Holders for the limit on the Holders' participation in
any appreciation of the underlying Shares. In some cases, there may
be an upper limit on the value of the Shares that a Holder will
ultimately receive.
\4\ The contracts may provide for an option on the part of a
counterparty to deliver Shares, cash, or a combination of Shares and
cash to the Trust at the termination of each Trust.
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4. Securities issued by the Trusts in a public offering (but not a
private offering) will be listed on a national securities exchange.
Thus, Securities issued in a public offering will be ``national market
system'' securities subject to public price quotation and trade
reporting requirements. After the Securities are issued, the trading
price of the Securities is expected to vary from time to time based
primarily upon the price of the underlying Shares, interest rates, and
other factors affecting conditions and prices in the debt and equity
markets. Applicant currently intends, but will not be obligated, to
make a market in the Securities of each Trust.
5. Each Trust will be internally managed by three trustees and will
not have a separate investment adviser. The trustees will have limited
or no power to vary the investments held by each Trust. A bank or banks
qualified to serve as a trustee under the Trust Indenture Act of 1939,
as amended, will act as custodian for each Trust's assets and as
administrator, paying agent, registrar, and transfer agent with respect
to the
[[Page 9432]]
Securities of each Trust. Any such bank will have no other affiliation
with, and will not be engaged in any other transaction with, any Trust.
The day-to-day administration of each Trust will be carried out by
Applicant or by the bank.
6. The Trusts will be structured so that the trustees are not
authorized to sell the Contracts or Treasuries under any circumstances
or are permitted to sell them only under specified limited
circumstances. If the trustees of the Trusts are not authorized to
dispose of the Contracts in any circumstances, the Trusts will hold
such Contracts until maturity or any earlier acceleration, at which
time they will be settled according to their terms. However, the
occurrence of certain defaults by a counterparty under a Contract
(including, by way of example, the bankruptcy or insolvency of such
counterparty) might result in the acceleration of the obligations of
one or more counterparties under Contracts with the Trust. If all the
Contracts with a Trust were to be so accelerated, that Trust would be
terminated immediately after the distributions received from the
accelerated Contracts were distributed to Holders.
7. The trustees of each Trust will be selected initially by
Applicant, together with any other initial Holders, or by the grantors
of the Trust. The Holders of each Trust will have the right, upon the
declaration in writing or vote of more than two-thirds of the
outstanding Securities of the Trust, to remove a trustee. Holders will
be entitled to a full vote, for each Security held, on all matters to
be voted on by Holders and will not be able to cumulate their votes in
the election of trustees. The investment objectives and policies of
each Trust may be changed only with the approval of a ``majority of the
Trust's outstanding Securities'' \5\ or any greater number required by
the Trust's constituent documents. Unless Holders so request, it is not
expected that the Trusts will hold any meetings of Holders, or that
Holders will ever vote.
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\5\ A ``majority of the Trust's outstanding Securities'' means
the lesser of (i) 67% of the Securities represented at a meeting at
which more than 50% of the outstanding Securities are represented,
and (ii) more than 50% of the outstanding Securities.
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8. The Trusts will not be entitled to any rights with respect to
the Shares until any Contracts requiring delivery of the Shares to the
Trust are settled, at which time the Shares will be promptly
distributed to Holders. The Holders, therefore, will not be entitled to
any rights with respect to the Shares (including voting rights or the
right to receive any dividends or other distributions) until receipt by
them of the Shares at the time the Trust is liquidated.
9. Each Trust's organizational and ongoing expenses will not be
borne by the Holders, but rather, directly or indirectly, by Applicant,
the counterparties, or another third party, as will be described in the
prospectus for the relevant Trust. At the time of the original issuance
of the Securities of any Trust, there will be paid to each of the
administrator, the custodian, and the paying agent, and to each
trustee, a one-time amount in respect of such agent's or trustee's fee
over the term of the Trust and, in the case of the administrator,
anticipated expenses of the Trust over its term. Any expenses of the
Trust in excess of this anticipated amount will be paid as incurred by
a party other than the Trust itself (which party may be Applicant).
10. Applicant asserts that the investment product offered by the
Trusts serves a valid business purpose. The Trusts, unlike most
registered investment companies, are not marketed to provide investors
with either professional investment asset management or the benefits of
investment in a diversified pool of assets. Rather, Applicant asserts
that the Securities are intended to provide Holders with an investment
having unique payment and risk characteristics, including an
anticipated higher current yield than the ordinary dividend yield on
the Shares at the time of the issuance of the Securities.
Applicant's Legal Analysis
Section 12(d)(1)
1. Section 12(d)(1)(A)(i) of the Act prohibits (i) any registered
investment company from owning in the aggregate more than 3% of the
total outstanding voting stock of any other investment company, and
(ii) any investment company from owning in the aggregate more than 3%
of the total outstanding voting stock of any registered investment
company. A company that is excepted from the definition of investment
company under section 3(c)(1) or (c)(7) of the Act is deemed to be an
investment company for purposes of section 12(d)(1)(A)(i) of the Act
under sections 3(c)(1) and (c)(7)(D) of the Act. Section 12(d)(1)(C) of
the Act similarly prohibits any investment company, other investment
companies having the same investment adviser, and companies controlled
by such investment companies from owning more than 10% of the total
outstanding voting stock of any closed-end investment company.
2. Section 12(d)(1)(J) of the Act provides that the Commission may
exempt persons or transactions from any provision of section 12(d)(1),
if, and to the extent that, the exemption is consistent with the public
interest and protection of investors.
3. Applicant states that, in order for the Trusts to be marketed
most successfully, and to be traded at a price that most accurately
reflects their value, it is necessary for the Securities of each Trust
to be offered to large investment companies and investment company
complexes. Applicant states that these investors seek to spread the
fixed costs of analyzing specific investment opportunities by making
sizable investments in those opportunities. Conversely, Applicant
asserts that it may not be economically rational for the investors, or
their advisers, to take the time to review an investment opportunity if
the amount that the investors would ultimately be permitted to purchase
is immaterial in light of the total assets of the investment company or
investment company complex. Therefore, Applicant argues that in order
for the Trusts to be economically attractive to large investment
companies and investment company complexes, these investors should be
able to acquire Securities in each Trust in excess of the limitations
imposed by sections 12(d)(1)(A)(i) and 12(d)(1)(C). Applicant requests
that the Commission issue an order under section 12(d)(1)(J) exempting
the Trusts from such limitations.
4. Applicant states that section 12(d)(1) was designed to prevent
one investment company from buying control of other investment
companies and creating complicated pyramidal structures. Applicant also
states that section 12(d)(1) was intended to address the layering of
costs to investors.
5. Applicant asserts that the concerns about pyramiding and undue
influence generally do not arise in the case of the Trusts because
neither the trustees nor the Holders will have the power to vary the
investments held by each Trust or to acquire or dispose of the assets
of the Trusts. To the extent that Holders can change the composition of
the board of trustees or the fundamental policies of each Trust by
vote, Applicant argues that any concerns regarding undue influence will
be eliminated by a provision in the charter documents of the Trusts
that will require any investment companies owning voting stock of any
Trust in excess of the limits imposed by sections 12(d)(1)(A)(i) and
12(d)(1)(C) to vote their Securities in proportion to the votes of all
other Holders. Applicant also states that the
[[Page 9433]]
concern about undue influence through a threat to redeem does not arise
in the case of the Trusts because the Securities will not be
redeemable.
6. Section 12(d)(1) also was designed to address the excessive
costs and fees that may result from multiple layers of investment
companies. Applicant states that these concerns do not arise in the
case of the Trusts because of the limited ongoing fees and expenses
incurred by the Trusts and because generally these fees and expenses
will be borne, directly or indirectly, by Applicant or another third
party, not by the Holders. In addition, the Holders will not, as a
practical matter, bear the organizational expenses (including
underwriting expenses) of the Trusts. Applicant asserts that the
organizational expenses effectively will be borne by the counterparties
in the form of a discount in the price paid to them for the Contracts,
or will be borne directly by Applicant, the counterparties, or other
third parties. Thus, a Holder will not pay duplicative charges to
purchase securities in any Trust. Finally, there will be no duplication
of advisory fees because the Trusts will be internally managed by their
trustees.
Section 14(a)
7. Section 14(a) of the Act requires, in pertinent part, that an
investment company have a net worth of at least $100,000 before making
any public offering of its shares. The purpose of section 14(a) is to
ensure that investment companies are adequately capitalized prior to or
simultaneously with the sale of their securities to the public. Rule
14a-3 exempts from section 14(a) unit investment trusts (``UITs'') that
meet certain conditions in recognition of the fact that, once the units
are sold, a UIT requires much less commitment on the part of the
sponsor than does a management investment company. Rule 14a-3 provides
that a UIT investing in eligible trust securities shall be exempt from
the net worth requirement, provided that, among other things, the trust
holds at least $100,000 of eligible trust securities at the
commencement of a public offering.
8. Section 6(c) of the Act provides that the Commission may exempt
persons or transactions if, and to the extent that, 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.
9. Applicant requests an order under section 6(c) exempting the
Trusts from the requirements of section 14(a). Applicant believes that
the exemption is appropriate in the public interest and consistent with
the protection of investors and the policies and provisions of the Act.
Applicant asserts that, while the Trusts are classified as management
companies, they have the characteristics of UITs. Investors in the
Trusts, like investors in a UIT, will not be purchasing interests in a
managed pool of securities, but rather in a fixed and disclosed
portfolio that is held until maturity. Applicant believes therefore,
that there is no need for an ongoing commitment on the part of the
underwriter.
10. Applicant states that, in order to ensure that each Trust will
become a going concern, the Securities will be offered pursuant to firm
commitment arrangements, whether in an offering registered under the
Securities Act of 1933 (the ``1933 Act'') or in a private placement, in
either event resulting in net proceeds to each Trust of at least
$10,000,000. If the Securities of a Trust are placed in an offering
registered under the 1933 Act, prior to the issuance and delivery of
such Securities to the underwriters, the underwriters will enter into
an underwriting agreement pursuant to which they will agree to purchase
the Securities subject to customary conditions to closing. The
underwriters will not be entitled to purchase less than all of such
Securities. If the Securities of a Trust are placed in a private
offering, prior to the issuance and delivery of such Securities, the
placement agent(s) (or initial purchasers) will enter into a placement
agent agreement (or purchase agreement) pursuant to which they will
agree to purchase the Securities subject to customary conditions to
closing. The placement agent(s) or initial purchasers will not be
entitled to purchase less than all of such Securities. Accordingly,
Applicant states that either the offering will not be completed at all
or each Trust will have a net worth substantially in excess of $100,000
on the date of the issuance of the Securities. Applicant also does not
anticipate that the net worth of the Trusts will fall below $100,000
before they are terminated.
Section 17(a)
11. Sections 17(a)(1) and (2) of the Act generally prohibit the
principal underwriter, or any affiliated person of the principal
underwriter, of a registered investment company from selling or
purchasing any securities to or from that investment company. The
result of these provisions is to preclude the Trusts from purchasing
Treasuries from Applicant.
12. Section 17(b) of the Act provides that the Commission shall
exempt a proposed transaction from section 17(a) if evidence
establishes that the terms of the proposed transaction are reasonable
and fair and do not involve overreaching, and the proposed transaction
is consistent with the policies of the registered investment company
involved and the purposes of the Act. Applicant requests an exemption
from sections 17(a)(1) and (2) to permit the Trusts to purchase
Treasuries from Applicant.
13. Applicant states that the policy rationale underlying section
17(a) is the concern that an affiliated person of an investment
company, by virtue of this relationship, could cause the investment
company to purchase securities of poor quality from the affiliated
person or to overpay for securities. Applicant argues that it is
unlikely that it would be able to exercise any adverse influence over
the Trusts with respect to purchases of Treasuries because Treasuries
do not vary in quality and are traded in one of the most liquid markets
in the world. Treasuries are available through both primary and
secondary dealers, making the Treasury market very competitive. In
addition, market prices on Treasuries can be confirmed on a number of
commercially available information screens. Applicant argues that
because it is one of a limited number of primary dealers in Treasuries,
it will be able to offer the Trusts prompt execution of their Treasury
purchases at very competitive prices.
14. Applicant states that it is only seeking relief from section
17(a) with respect to the initial purchase of the Treasuries and not
with respect to an ongoing course of business. Consequently, investors
will know before they purchase a Trust's Securities the Treasuries that
will be owned by the Trust and the amount of the cash payments that
will be provided periodically by the Treasuries to the Trust and
distributed to Holders. Applicant also asserts that whatever risk there
is of overpricing the Treasuries will be borne by the counterparties
and not by the Holders because the cost of the Treasuries will be
calculated into the amount paid on the Contracts. Applicant argues
that, for this reason, the counterparties will have a strong incentive
to monitor the price paid for the Treasuries, because any overpayment
could result in a reduction in the amount that they would be paid on
the Contracts.
Applicant's Conditions
Applicant agrees that the order granting the requested relief will
be subject to the following conditions:
[[Page 9434]]
1. Any investment company owning voting stock of any Trust in
excess of the limits imposed by section 12(d)(1) of the Act will be
required by the Trust's charter documents, or will undertake, to vote
its Trust shares in proportion to the vote of all other Holders.
2. The trustees of each Trust, including a majority of the trustees
who are not interested persons of the Trust, (a) will adopt procedures
that are reasonably designed to provide that the conditions set forth
below have been complied with; (b) will make and approve such changes
as are deemed necessary; and (c) will determine that the transactions
made pursuant to the order were effected in compliance with such
procedures.
3. The Trusts (1) will maintain and preserve in an easily
accessible place a written copy of the procedures (and any
modifications thereto), and (ii) will maintain and preserve for the
longer of (x) the life of the Trusts and (y) six years following the
purchase of any Treasuries, the first two years in an easily accessible
place, a written record of all Treasuries purchased, whether or not
from Applicant, setting forth a description of the Treasuries
purchased, the identity of the seller, the terms of the purchase, and
the information or materials upon which the determinations described
below were made.
4. The Treasuries to be purchased by each Trust will be sufficient
to provide payments to Holders that are consistent with the investment
objectives and policies of the Trust as recited in the Trust's
registration statement and will be consistent with the interests of the
Trust and the Holders of its Securities.
5. The terms of the transactions will be reasonable and fair to the
Holders of the Securities issued by each Trust and will not involve
overreaching of the Trust or the Holders of Securities of the Trust on
the part of any person concerned.
6. The fee, spread, or other remuneration to be received by
Applicant will be reasonable and fair compared to the fee, spread, or
other remuneration received by dealers in connection with comparable
transactions at such time, and will comply with section 17(e)(2)(C) of
the Act.
7. Before any Treasuries are purchased by the Trust, the Trust must
obtain such available market information as it deems necessary to
determine that the price to be paid for, and the terms of, the
transaction are at least as favorable as that available from other
sources. This shall include the Trust obtaining and documenting the
competitive indications with respect to the specific proposed
transaction from two other independent government securities dealers.
Competitive quotation information must include price and settlement
terms. These dealers must be those who, in the experience of the
Trust's trustees, have demonstrated the consistent ability to provide
professional execution of Treasury transactions at competitive market
prices. They also must be those who are in a position to quote
favorable prices.
For the Commission, by the Division of Investment Management,
under delegated authority.
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-02360 Filed 2-3-17; 8:45 am]
BILLING CODE 8011-01-P
