
[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]]

-----------------------------------------------------------------------

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.

-----------------------------------------------------------------------

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.
---------------------------------------------------------------------------

    \1\ Investment Company Act Release Nos. 22578 (March 21, 1997) 
(notice) and 22622 (April 16, 1997) (order).

---------------------------------------------------------------------------
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 http://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.
---------------------------------------------------------------------------

    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\
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

    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


