[Federal Register Volume 64, Number 118 (Monday, June 21, 1999)]
[Notices]
[Pages 33120-33124]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-15598]


=======================================================================
-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 23871; 812-9416]


PaineWebber Group Inc., et al.; Notice of Application

June 15, 1999.
AGENCY: Securities and Exchange Commission (``SEC'').

ACTION: Notice of application for an exemption under sections 6(c) and 
17(b) of the Investment Company Act of 1940 (the ``Act'') from section 
17(a) of the Act, under section 6(c) of the Act from section 12(d)(3) 
of the Act, and for an order under section 17(d) of the Act and rule 
17d-1 under the Act to permit certain joint transactions.

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

SUMMARY OF THE APPLICATION: Applicants request an order to permit: (a) 
GE Issuers (as defined below) to sell commercial paper issued by the GE 
Issuers to certain registered investment companies and the GE Issuers 
to repurchase (i.e., prepay) the commercial paper; (b) certain 
registered investment companies to purchase municipal obligations 
insured by the Financial Guaranty Insurance Company (``FGIC'') and/or 
insurance policies issued by FGIC on municipal obligations; and (c) 
certain registered investment companies to purchase in the secondary 
market common stock and other securities issued by General Electric 
Company and its subsidiaries.
    Applicants: PaineWebber Group Inc. (``PWG''), PaineWebber 
Incorporated (``PWI''), Mitchell Hutchins Asset Management Inc. 
(``MHAM''), (collectively, the ``PaineWebber Companies''), General 
Electric Company (``GE''), General Electric Capital Services, Inc. 
(``GECS''), General Electric Capital Corporation (``GECC''), GE 
Financial Assurance Holdings, Inc. (``GEFA'') (collectively, the ``GE 
Issuers''), FGIC, PaineWebber America Fund, PaineWebber Cashfund, Inc., 
PaineWebber Investment Series, PaineWebber Managed Assets Trust, 
PaineWebber Managed Investments Trust, PaineWebber Managed Municipal 
Trust, PaineWebber Master Series, Inc., PaineWebber Municipal Series, 
PaineWebber Mutual Fund Trust, PaineWebber Olympus Fund, PaineWebber 
Financial Services Growth Fund Inc., PaineWebber RMA Money Fund, Inc., 
PaineWebber RMA Tax-Free Fund, Inc., PaineWebber Securities Trust, 
Mitchell Hutchins Series Trust, Strategic Global Income Fund, Inc., 
2002 Target Term Trust Inc., All-American Term Trust Inc., Global High 
Income Dollar Fund Inc., Investment Grade Municipal Income Fund Inc., 
Insured Municipal Income Fund Inc., Managed High Yield Fund Inc., 
PaineWebber Municipal Money Market Series, PaineWebber Investment 
Trust, PaineWebber Investment Trust II, Liquid Institutional Reserves, 
PaineWebber PACE Select Advisors Trust, Mitchell Hutchins Portfolios, 
PaineWebber Index Trust, Mitchell Hutchins Institutional Series, 
Managed High Yield Plus Fund Inc. (``PaineWebber Funds''), and The 
Infinity Mutual Funds, Inc. (the ``Outside Fund,'' and, together with 
PaineWebber Funds and any other registered investment companies for 
which PWG or any of its subsidiaries may serve as investment adviser or 
principal underwriter in the future (``Future Funds''), the ``Funds'').
    Filing Dates: The application was filed on January 3, 1995, and 
amended on August 16, 1996, and June 1, 1999.
    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 applicants with a copy of the request, personally or by mail. 
Hearing requests should be received by the SEC by 5:30 p.m. on July 6, 
1999, and should be accompanied by proof of service on applicants in 
the form of an affidavit or, for lawyers, a certificate of service. 
Hearing requests should state the nature of the writer's interest, the 
reason for the request, and the issues contested. Persons who wish to 
be notified of a hearing may request notification by writing to the 
SEC's Secretary.

ADDRESSES: Secretary, SEC, 450 Fifth Street, N.W., Washington, D.C. 
20549-0609. PaineWebber Group Inc., 1285 Avenue of the Americas, New 
York 10019. The Infinity Mutual Funds, Inc., 3235 Stelzer Road, 
Columbus, Ohio 4319-3035. General Electric Company, 3135 Easton 
Turnpike, Fairfield, Connecticut 06431. General Electric Capital 
Services, Inc., and General Electric Capital Corporation, 260 Long 
Ridge Road, Stamford, Connecticut 06927. GE Financial Assurance 
Holdings, Inc., 6604 West Broad Street, Richmond, Virginia 23230. 
Financial Guaranty Insurance Company, 115 Broadway, New York, New York 
10006.

FOR FURTHER INFORMATION CONTACT: J. Amanda Machen, Senior Counsel, at 
(202) 942-7120, or Mary Kay Frech, Branch Chief, at (202) 942-0564 
(Office of Investment Company Regulation, Division of Investment 
Management).

SUPPLEMENTARY INFORMATION: The following is a summary of the 
application. The complete application may be obtained for a fee at the 
SEC's Public Reference Branch, 450 Fifth St., N.W., Washington, D.C. 
20549-0102 (tel. 202-942-8090).

Applicants' Representations

    1. PWG is a publicly held financial services holding company. GE 
owns approximately 21.6% of PWG's common stock acquired in a 1994 
transaction (``1994 Transaction''). Pursuant to a 1995 SEC order, GE 
does not control PWG within the meaning of section 2(a)(9) of the Act 
and will not control PWG for a 15 year period ending on December 16, 
2009 (``Effective

[[Page 33121]]

Period'').\1\ PWI, a wholly-owned subsidiary of PWG, is a broker-dealer 
registered under the Securities Exchange Act of 1934 (``Exchange Act'') 
and an investment adviser registered under the Investment Advisers Act 
of 1940 (``Advisers Act''). MHAM, a wholly-owned subsidiary of PWI, a 
broker-dealer registered under the Exchange Act and an investment 
adviser registered under the Advisers Act.
---------------------------------------------------------------------------

    \1\ See In the Matter of Paine Webber Group Inc., Investment 
Company Release Nos. 21177 (June 30, 1995) (notice) and 21261 (July 
27, 1995) (order).
---------------------------------------------------------------------------

    2. Each of the Paine Webber Funds is organized as a Massachusetts 
or Delaware business trust or Maryland corporation and is registered 
under the Act as an open-end or closed-end investment company. Each of 
the Paine Webber Funds has entered into an investment advisory 
agreement with PWI or MHAM. PWI or MHAM serves as principal underwriter 
to all of the open-end Paine Webber Funds. GE Investment Management 
Incorporated (``GEIM''), a wholly-owned subsidiary of GE, serves as 
investment subadviser to Global Small Cap Fund Inc. Series of Funds for 
which GEIM serves, or may in the future serve, as investment adviser or 
subadviser are referred to as ``GEIM-Advised Series.'' \2\ The Infinity 
Mutual Funds, Inc. is organized as a Maryland corporation and MHAM 
serves as investment adviser to two of its series.
---------------------------------------------------------------------------

    \2\ Series of Funds for which GEIM in the past served, but no 
longer serves, as investment adviser or subadviser will not be 
considered GEIM-Advised Series. To the extent that a series of a 
Fund for which GEIM serves as investment adviser or subadviser 
ceases to be advised by GEIM, such series will be deemed a Future 
Fund for purposes of the application.
---------------------------------------------------------------------------

    3. GE and its consolidated affiliates (the ``GE Company'') comprise 
one of the largest and most diversified industrial corporations in the 
world. Through GECS, a wholly-owned subsidiary of GE, and GECS' two 
principal subsidiaries, GECC and GE Global Insurance Holding 
Corporation, the GE Company engages in a broad spectrum of financial 
services. FGIC, which provides financial guaranty insurance, 
principally on municipal obligations and structured finance issues, is 
a subsidiary of FGIC Holdings, Inc., a Delaware holding company that 
is, in turn, a wholly-owned subsidiary of GECC.
    4. Applicants request relief to permit (i) the GE Issuers to sell 
to the Funds short-term obligations issued by the GE Issuers, commonly 
known as commercial paper (``GE commercial paper''), (ii) the Funds to 
purchase, to the extent otherwise permitted by their investment 
objectives, policies, and restrictions, from the GE Issuers, GE 
commercial paper, and (iii) the GE Issuers to repurchase (i.e., 
prepay), and the Funds to request repurchase by the GE Issuers of, GE 
commercial paper held by the Funds (collectively, ``GE Debt 
Transactions''). While the PaineWebber Funds and the Outside Fund have 
differing investment objectives, policies and restrictions, virtually 
all are able to invest some portion of their assets, either as part of 
their regular investment program or for temporary defensive purposes, 
in commercial paper.
    5. Applicants also request relief to permit (i) the Funds to 
purchase, to the extent otherwise permitted by their investment 
objectives, policies, and restrictions, municipal obligations insured 
as to timely payment of principal and interest by FGIC and/or insurance 
policies issued by FGIC on municipal obligations, and (ii) FGIC to sell 
such insurance policies to the Funds (collectively, the ``FGIC 
Transactions''). In addition, with respect to municipal obligations 
insured by FGIC, applicants request relief to permit the Funds (i) to 
accept certain payments that might arise from claims made upon such 
insurance and (ii) in connection with the Funds' acceptance of any such 
payments, to assign to FGIC the Funds' rights of recovery (i.e., to 
permit subrogation of FGIC, to the extent of such payments, to the 
Funds' rights of recovery against other parties) (collectively, ``Claim 
Settlement Transactions'').
    6. A number of the Funds are permitted to invest at least some 
portion of their assets, and one has a policy requiring it under normal 
circumstances to invest at least 80% of its assets, in municipal 
obligations that are insured as to timely payment of principal and 
interest (``Insured Municipal Obligations'') under an insurance policy 
(a) obtained by the issuer or underwriter of the municipal obligation 
(``Primary Market Insurance''), or (b) purchased by a Fund or by a 
previous owner of the municipal obligation (``Secondary Market 
Insurance''). The purchase of Secondary Market Insurance by the Funds 
themselves, however, would be unusual, and the Funds would only 
purchase Secondary Market Insurance directly from FGIC if the prices 
offered by FGIC were at least as favorable as those obtainable from 
non-affiliated insurers of similar stature and creditworthiness.
    7. Applicants also request relief to permit the Funds to purchase 
in the secondary market (on an exchange or over the counter), to the 
extent otherwise permitted by their investment objectives, policies, 
and restrictions, common stock and other securities issued by GE and 
its subsidiaries.
    8. Applicants state that as of May 6, 1999, GE had approximately 
$4.2 billion, GECS had approximately $5.6 billion, GECC had 
approximately $77.6 billion, and GEFA had approximately $1.0 billion in 
commercial paper outstanding. Collectively, the GE Issuers are the 
largest issuer of commercial paper in the United States, with a 
collective market share of approximately 7.7% as of December 31, 1998. 
Applicants state that large institutional investors have consistently 
viewed GE commercial paper as an attractive short-term investment. 
Commercial paper issued by each of GE, GECS, GECC and GEFA is rated in 
the highest possible rating category for commercial paper by Standard & 
Poor's Rating Group, a division of the McGraw Hill Companies, Inc. 
(``S&P'') and Moody's Investors Service, Inc. (``Moody's''). GE 
commercial paper is also highly liquid, in that the GE Issuers are 
prepared generally to prepay their paper upon request from a holder, 
subject to prevailing market conditions and the GE commercial paper's 
liquidity. Moreover, GE Issuers, like a number of other large 
corporations, permit institutional purchasers to purchase commercial 
paper directly, thereby saving the purchaser a dealer's markup.
    9. Applicants further state that for at least the last eight years 
prior to the 1994 Transaction, GE commercial paper represented 
significant investment opportunities for the PaineWebber Funds. 
Historically, when considering investments in commercial paper, MHAM 
has considered investment in commercial paper of various other issuers 
comparable to the GE Issuers. Of these, the GE Issuers have the largest 
market presence in the United States (collectively), and, in the 
judgment of MHAM, offer the highest quality commercial paper at a 
favorable price. In addition, commercial paper issued by GE itself, 
representing investments in the electric, appliance, finance, 
broadcasting, and other industries, offers greater diversification than 
commercial paper issued by most other issuers, whose commercial paper 
represents investment in a narrower band of industries.
    10. Applicants represent that, with respect to each GE Debt 
Transaction, a determination will be required, based upon the 
information reasonably available to the purchasing Fund and its 
investment adviser, that the commercial paper available for purchase 
from the GE Issuer in question is of an overall quality and value equal 
to or better than

[[Page 33122]]

commercial paper then available in the same quantities from other 
issuers, taking into consideration such factors as yield, maturity, 
rating by a NRSRO, quality of issuer, flexibility, transaction costs or 
any other factor deemed relevant by the Fund and adviser in evaluating 
the desirability of an investment in commercial paper. In particular, 
applicants represent that before purchasing any commercial paper from a 
GE Issuer, applicants will obtain yield information on commercial paper 
offered by at least two comparable issuers, i.e., issuers with similar 
credit rating and program size, and in a similar market segment or 
segments, as the GE Issuer.
    11. With respect to FGIC Transactions, applicants state that FGIC 
is among a small number of leading insurers in the market for issuing 
insurance policies which guarantee the timely payment of principal of, 
and interest on, particular municipal obligations or on a portfolio of 
municipal obligations. As of December 31, 1998, FGIC's 21.7% market 
share of insured new issues ranked FGIC as third in the market. FGIC 
has received insurance claims-paying ability ratings of AAA/Aaa/AAA by 
S&P, Moody's, and Fitch IBCA, Inc. FGIC-insured municipal bonds have 
represented significant investment opportunities for certain of the 
Funds.
    12. Applicants acknowledge and agree that the requested order will 
be effective only during the Effective Period and will not be 
applicable with respect to any GEIM-Advised Series. Applicants further 
acknowledge and agree that the applicability of the requested order to 
any Fund is conditioned upon approval of the conditions set forth in 
the application by the Fund's disinterested directors/trustees.

Applicants' Legal Analysis

Sections 17(a) and (d)

    1. Section 17(a) of the Act provides, in relevant part, that it is 
unlawful for any affiliated person of a registered investment company, 
or any affiliated person of such an affiliated person, acting as 
principal, knowingly: (i) to sell any security or other property to 
such registered company; (ii) to purchase any security or other 
property from such registered company; or (iii) to borrow money or 
other property from such registered company. To the extent that GE and 
each of the GE entities would be deemed to be an affiliated person of 
an affiliated person of each of the Funds, section 17(a) could be 
deemed applicable to GE Debt Transactions, FGIC Transactions, and Claim 
Settlement Transactions.
    2. Section 17(d) of the Act and rule 17d-1 under the Act prohibit 
an affiliated person of a registered investment company, or an 
affiliated person of such affiliated person, acting as principal, from 
engaging in a joint enterprise or other joint arrangement with such 
registered investment company, unless an application regarding such 
enterprise or arrangement has been filed with the SEC and an order has 
been granted. To the extent that GE and each of the GE entities would 
be deemed to be affiliated persons of an affiliated person of each of 
the Funds, section 17(d) and rule 17d-1 could be deemed applicable to 
FGIC Transactions and Claim Settlement Transactions.
    3. Section 17(d) provides that on application, the SEC shall grant 
an order exempting a proposed transaction from section 17(a) if 
evidence establishes that: (1) the terms of the proposed transaction, 
including the consideration to be paid or received, are reasonable and 
fair and do not involve overreaching on the part of any person 
concerned; (2) the proposed transaction is consistent with the policy 
of each registered investment company concerned; and (3) the proposed 
transaction is consistent with the general purposes of the Act. Rule 
17d-1(b) provides that in passing upon applications, the SEC will 
consider whether each party's participation in the proposed joint 
transaction ``is consistent with the provisions, policies and purposes 
of the Act'' as well as the ``extent to which such participation is on 
a basis different or less advantageous than that of other 
participants.''
    4. Section 6(c) of the Act provides, in pertinent part, that the 
SEC may, by order upon application, conditionally or unconditionally 
exempt any class of transactions from any provisions of the Act ``if 
and to the extent that such exemption is necessary or appropriate in 
the public interest and consistent with the protection of investors and 
the purposes fairly intended by the policies and provisions of this 
title.''
    5. Applicants seek an order: (1) Under sections 6(c) and 17(b) of 
the Act, granting an exemption from the provisions of section 17(a) of 
the Act to permit the GE Debt Transactions, FGIC Transactions, and 
Claim Settlement Transactions; and (2) under section 17(d) of the Act 
and rule 17d-1 under the Act to permit FGIC Transactions and Claim 
Settlement Transactions.
    6. Applicants state that while the requested order would enable the 
Funds to engage in the enumerated transactions, it would neither 
require nor encourage the Funds to do so. Such transactions would be 
matters left solely within the discretion of the Funds' investment 
advisers and boards of directors, consistent with each of the Funds' 
investment objectives, policies and restrictions.
    7. With respect to GE Debt Transactions, applicants state that the 
ability of any Fund to continue to invest in GE commercial paper is 
important to the management of the Funds and their opportunity to 
achieve their overall investment objectives to the benefit of their 
shareholders. Applicants contend that in light of the significant 
market share of GE commercial paper in the commercial paper market, it 
is undesirable for the Funds to be precluded from these potentially 
favorable investment opportunities. Since purchases in the 
significantly smaller secondary market in GE commercial paper are often 
at a less favorable price than direct purchases from GE Issuers, 
applicants argue that in the absence of the requested relief, the Funds 
may not have a reasonable and cost-effective opportunity to purchase GE 
commercial paper. Given many of the Funds' diversification 
requirements, applicants contend that the inability of the Funds to 
purchase GE commercial paper (or to ``sell'' such paper back to the GE 
Issuers through requesting prepayment on such paper) could cause the 
Funds to turn to smaller, possibly less attractive issuers of 
commercial paper.
    8. With respect to the FGIC Transactions, applicants state that the 
ability of those Funds which are permitted to invest in municipal 
obligations to continue to engaged in FGIC Transactions is important to 
the management of the Funds and their opportunity to achieve their 
overall investment objectives to the benefit of their shareholders. 
Applicants contend that given the significant position of FGIC in the 
market of insurers of municipal bonds, as well as the fact that insured 
municipal bonds make up an increasingly large percentage of the market, 
it is undesirable for the Funds to be precluded from these potentially 
favorable investment opportunities. Applicants argue that precluding 
any municipal Funds, whether or not diversified, from purchasing FGIC-
insured municipal obligations would significantly reduce the pool of 
potential investments for these Funds, thereby potentially adversely 
affecting the Funds' ability to achieve the most favorable investment 
results, and could increase the Funds' exposure in the event that one 
of the other insurers

[[Page 33123]]

experiences problems meeting its insurance obligations.
    9. Applicants state that the proposed conditions will help to 
ensure that GE Debt Transactions and FGIC Transactions will be 
reasonable and fair to the shareholders of the Funds will not involve 
overreaching on the part of any person concerned, and will accord with 
the relevant policies of the Act by ensuring that the Funds' portfolios 
securities will not be selected in the interest of affiliated persons 
or FGIC rather than in the interest of the Funds' shareholders. In 
addition, with respect to Claim Settlement Transactions, applicants 
assert that the terms of any Claim Settlement Transactions will be 
reasonable and fair and will not involve overreaching on the part of 
any person concerned.

Section 12(d)(3)

    10. Section 12(d)(3) of the Act generality prohibits a registered 
investment company from acquiring any security issued by a securities 
related buisness--i.e. the business of any person who is a broker, a 
dealer, an underwriter, or an investment adviser. Although rule 12d3-1 
exempts from section 12(d)(3) purchases by an investment company of 
certain such securities, rule 12d3-1(c) provides that the exemption 
does not extend to the acquisition of any security issued by the 
acquiring company's investment adviser, promoter, or principal 
underwriter, or any affiliated person of such investment adviser, 
promoter, or principal underwriter.
    11. To the extent that GE and its subsidiaries may be deemed to be 
affiliated persons of PWI and MHAM, or to be engaged in a securities-
related business, applicants seek an order from the SEC pursuant to 
section 6(c) of the Act exempting them from section 12(d)(3) to the 
extent necessary to permit the GE Debt Transactions, as well as 
secondary market submit that the concerns at which section 12(d)(3) is 
directed are not implicated, and the criteria of section 6(c) are met, 
with respect to the proposed transactions. Applicants note that the GE 
Company itself derived less than 1% of its gross revenues from 
``securities related activities'' (excluding its interest in PWG) of 
its fiscal year ended December 31, 1989.

Applicants' Conditions

    Applicants agree that any order granting this requested relief will 
be subject to the following conditions:
    1. GE Debt Transactions will be limited to commercial paper issued 
by the GE Issuer that is a party to the transaction.
    2. Before any GE Debt Transaction is consummated, the Fund or its 
investment adviser will obtain such information as it deems necessary 
to satisfy itself that the price available to the Fund is at least as 
favorable to the Fund as the price available to other institutional 
purchasers or sellers, buying or selling, respectively, in 
approximately the same quantities at approximately the same time.
    3. All GE commercial paper purchased by the Funds from GE Issuers 
under the order will, at the time of purchase, be an ``eligible 
security'' and a ``rated security'' as those terms are defined in rule 
2a-7 under the Act.
    4. Each GE Debt Transaction will be in accordance with the 
participating Fund's investment objectives, policies and restrictions, 
and neither MHAM, PWI nor any other investment adviser of any of the 
Funds will take any action to encourage a change in such investment 
objectives, policies or restrictions with the intent of facilitating GE 
Debt Transactions.
    5. The Funds will not purchase commercial paper of a GE Issuer if, 
after such purchase, the Funds' holdings in the aggregate of such GE 
Issuer's commercial paper would exceed: (a) 10% (measured at the time 
of purchase) of the value of the outstanding commercial paper of such 
GE Issuer if such GE Issuer is GE or GECS (or 15%, measured at the time 
of purchase), if the Funds are investing for temporary defensive 
purposes or for other purposes of liquidity) or (b) 5% (measured at the 
time of purchase) of the value of the outstanding commercial paper of 
such GE Issuer if such GE Issuer is GECC (or 10%, measured at the time 
of purchase, if the Funds are investing for temporary defensive 
purposes or for other purposes of liquidity). The Funds will calculate 
the amount of limitations applicable under this paragraph on the bases 
of the amount of each GE Issuer's outstanding commercial paper as shown 
in, and as of the end of the period covered by, the GE Issuer's most 
recent quarterly report, or, if more recent, the GE Issuers' annual 
report.
    6. No fund or series of any Fund will invest more then 1% (measured 
to the time of purchase) of the value of its total assets, or, if 
lower, the maximum percentage permitted by its investment policies and 
restrictions, in the commercial paper of GE Issuers, measured in the 
aggregate, except that each Money Market Fund or series of any Money 
Market Fund may invest up to 5% (measured at the time of purchase) of 
the value of its total assets in the commercial paper of GE Issuers, 
measured in the aggregate, subject to any limitations in rule 2a-7 
under the Act.
    7. The Funds and their investment advisers will maintain such 
records with respect to GE Debt Transactions conducted pursuant to the 
requested order (``Order'') as may be necessary to confirm compliance 
with the conditions of the Order.
    a. Each Fund shall maintain an itemized daily record of all 
purchases and sales of securities pursuant to the Order, showing for 
each transaction: the name and quality of securities; the unit purchase 
or sale price; the time and date of the transaction; and the rating of 
the securities. Such records also shall document for each commercial 
paper transaction at least two quotations on securities of comparable 
issuers, including: the source of the quotations (Telerate or another 
generally accepted electronic means); the prices quoted; the time and 
dates the quotations were received; and the ratings of these securities 
of comparable issuers.
    b. Each Fund shall maintain a ledger or other record showing, on a 
daily basis, the percentage of that Fund's total assets invested in GE 
commercial paper.
    c. Each Fund and/or its investment adviser shall maintain records 
sufficient to verify compliance with the limitations in condition 5 
above.
    The records required by this condition 7 will be maintained and 
preserved in the same manner as records required under rule 31a-1(b)(1) 
under the Act.
    8. Each FGIC Transaction will be in accordance with the 
participating Fund's investment objectives, policies and restrictions, 
and neither MHAM, PWI nor any other investment adviser of any of the 
Funds will take any action to encourage a change to such investment 
objectives, policies or restrictions with the intent of facilitating 
FGIC Transactions.
    9. The Funds and their investment advisers will maintain such 
records with respect to FGIC Transactions conducted pursuant to the 
Order as may be necessary to confirm compliance with the conditions of 
the Order. The records will show for each transaction conducted 
pursuant to the Order, among other things, the time and date of the 
FGIC Transaction, the price of the insured purchased pursuant to the 
Order, the type of insurance covering the security, and, in the case of 
Secondary Market Insurance purchased directly from FGIC, the procedures 
taken to make the determination set forth on condition 10. The records 
will

[[Page 33124]]

be maintained and preserved in the same manner as records required 
under rule 31a-1(b)(1) under the Act.
    10. The Funds will not purchase Secondary Market Insurance from 
FGIC unless the Funds or their investment advisers determine that: (a) 
the rates and terms of such insurance are at least as favorable to the 
Funds as the rates and terms FGIC offers non-affiliated investment 
companies; and (b) the rates and terms of such insurance are at least 
as favorable to the Funds as those obtainable from non-affiliated 
insurers of similar stature and creditworthiness.
    11. The Funds will not purchase: (a) in any initial public offering 
of municipal securities insured wholly through FGIC Primary Market 
Insurance, more than 10% of the offering; and (b) in any initial public 
offering of municipal securities insured partly through FGIC Primary 
Market Insurance, more than 10% of that portion of the offering insured 
by FGIC.
    12. A Fund that purchases insurance with an option to continue in 
effect after the resale of a municipal obligation will only exercise 
such option when the insured value of the security, less the cost of 
the premium for the insurance, exceeds the value of the security 
without the insurance.
    13. In the event there is a payment default on a municipal 
obligation held by a Fund that is insured by FGIC, the Fund will not 
accept from FGIC in settlement of any claim less than an amount 
sufficient to pay any principal or interest then due on such municipal 
obligation in accordance with the insurance policy to which such 
obligation is subject without obtaining a further exemptive order or 
other relief from the SEC except as follows: If holders of such 
obligation, otherwise unaffiliated with FGIC or any GE entity and 
holding in the aggregate a larger principal amount than the Fund, 
accept a settlement by a majority (in principal amount) of such 
unaffiliated holders, then the Fund may accept a settlement on terms as 
least as favorable as those accepted by such majority without obtaining 
an order from the Commission, provided the Fund's board of directors/
trustees (``Board''), including a majority of the non-interested 
directors/trustees (``Disinterested Directors''), approve the 
settlement as in the best interests of the Fund.
    14. The Board of each Fund, including a majority of the 
Disinterested Directors, will adopt guidelines for the Funds and their 
investment advisers to ensure compliance with the conditions set forth 
in the application. Each Fund shall maintain and preserve permanently 
in an easily accessible place a copy of the guidelines. The Board shall 
review, no less frequently than annually, compliance with such 
guidelines in order to determine that: (a) transactions conducted 
pursuant to the Order comply with the conditions set forth herein; (b) 
the above procedures are followed in all respects; and (c) 
participation by the Fund in such transactions is, and continues to be, 
in the best interests of the Fund and its shareholders. The minutes of 
the meeting of the Board of each Fund at which this determination is 
made will reflect in detail the reasons for the Board's determination.

    For the Commission, by the Division of Investment Management, 
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 99-15598 Filed 6-18-99; 8:45 am]
BILLING CODE 8010-01-M