[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]
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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.
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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.
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\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).
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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.
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\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.
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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