[Federal Register Volume 59, Number 149 (Thursday, August 4, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-19009]
[[Page Unknown]]
[Federal Register: August 4, 1994]
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SECURITIES AND EXCHANGE COMMISSION
[Investment Company Act Rel. No. 20435; 812-8960]
FGIC Capital Market Services, Inc.; Notice of Application
July 29, 1994.
AGENCY: Securities and Exchange Commission (``SEC'').
ACTION: Notice of application for exemption under the Investment
Company Act of 1940 (``Act'').
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APPLICANT: FGIC Capital Market Services, Inc.
RELEVANT ACT SECTIONS: Exemption requested under section 6(c) from
paragraphs (a)(5), (a)(6), and (b) of rule 3a-5.
SUMMARY OF APPLICATION: Applicant seeks an order that would permit it
to rely on rule 3a-5.
FILING DATE: The application was filed on April 29, 1994 and amended on
July 22, 1994.
HEARING OR NOTIFICATION OF HEARING: An order granting the application
will be issued unless the SEC orders a hearing. Interested persons may
request a hearing by writing to the SEC's Secretary and serving
applicant with a copy of the request, personally or by mail. Hearing
requests should be received by the SEC by 5:30 p.m. on August 23, 1994,
and should be accompanied by proof of service on applicant, in the form
of an affidavit or, for lawyers, a certificate of service. Hearing
requests should state the nature of the writer's interest, the reason
for the request, and the issues contested. Persons who wish to be
notified of a hearing may request such notification by writing to the
SEC's Secretary.
ADDRESSES: Secretary, SEC, 450 Fifth Street, N.W., Washington, D.C.
20549. Applicant, 115 Broadway, New York, New York 10006.
FOR FURTHER INFORMATION CONTACT:
James E. Anderson, Staff Attorney, at (202) 942-0573, or Robert A.
Robertson, Branch Chief, at (202) 942-0564 (Division of Investment
Management, Office of Investment Company Regulation).
SUPPLEMENTARY INFORMATION: The following is a summary of the
application. The complete application may be obtained for a fee from
the SEC's Public Reference Branch.
Applicant's Representations
1. Applicant is a recently-formed Delaware corporation and a
wholly-owned subsidiary of FGIC Holdings, Inc. (``FGIC Holdings'').
FGIC Holdings is a wholly-owned subsidiary of GE Capital Corporation
(``GE Capital''), an indirect wholly-owned subsidiary of General
Electric Company. FGIC Holdings is a holding company engaged primarily
in the insurance business through its subsidiary, Financial Guaranty
Insurance Company. GE Capital is a diversified financial services
company. GE Capital's activities consist of several distinct businesses
that fall into five industry segments: specialized financing, mid-
market financing, consumer services, equipment management, and
specialty insurance.
2. Applicant was formed for the primary purpose of issuing and
selling in private placement transactions municipal reinvestment
contracts (``MRCs'') and similar investment agreements primarily to
state or local government entities or agencies. Applicant also sells
put options where the holder acquires securities permitted under rule
3a-5(a)(6) directly for its own account and applicant agrees, at the
option of the holder, to purchase such investments at a later date.\1\
Within six months of applicant's receipt of the proceeds of the MRC
offerings and put fees, applicant lends at least 85% of such proceeds
to GE Capital or certain companies controlled by GE Capital (the
``Subsidiaries'') for their use in financing their respective
operations.\2\ GE Capital fully guarantees applicant's obligations
under each MRC it issues.
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\1\Applicant considers the sale of put options to constitute the
sale of debt securities and proceeds of the put options to consist
of the put fees.
\2\All references herein to the Subsidiaries are intended to
include solely companies that are controlled by GE Capital under the
definition of a ``company controlled by a parent company'' under
rule 3a-5(b)(3).
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3. Section 3(a)(1) defines an investment company to include any
issuer that is engaged primarily, or that proposes to engage primarily,
in the business of investing, reinvesting, or trading in securities.
Section 3(a)(3) defines an investment company to include any issuer
engaged in the business of investing, reinvesting, owning, holding, or
trading in securities, and that owns or proposes to acquire investment
securities having a value exceeding 40% of the issuer's total assets,
exclusive of Government securities and cash items, on an unconsolidated
basis. Because applicant's loans to GE Capital and the Subsidiaries may
be considered investments in the debt securities of GE Capital and the
Subsidiaries, applicant falls within the definition of investment
company.
4. To date, applicant has relied on the exception provided under
section 3(c)(1) to avoid having to register as an investment
company.\3\ The number of holders of MRCs is anticipated eventually to
exceed 100. At that time, applicant will be unable to continue to rely
on section 3(c)(1). Accordingly, applicant requests an exemption from
paragraphs (a)(5), (a)(6), and (b) of rule 3a-5 so that it can issue
debt securities in the manner described above without registering as an
investment company under the Act.
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\3\Section 3(c)(1) excepts from the definition of investment
company any issuer whose securities are owned by less than 100
persons and which is not making a public offering of its securities.
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Applicant's Legal Conclusions
1. Rule 3a-5 excepts from the definition of investment company any
finance subsidiary of an operating company. Paragraph (a)(5) of rule
3a-5 requires that a finance subsidiary relying on the rule loan to its
parent company or a company controlled by its parent company at least
85% of amounts raised by the subsidiary. Paragraph (a)(6) limits the
investments of the finance subsidiary to Government securities,
securities of its parent company or a company controlled by its parent
company, and certain other debt instruments. Rule 3a-5(b) defines a
parent company and conpanies controlled by the parent company as
companies that are not investment companies under section 3(a) or that
are excepted or exempted by order from the definition of investment
company by section 3(b) or by the rules and regulations under section
3(a).
2. Assuming that GE Capital otherwise may be deemed to be an
investment company under the Act, the diversity of GE Capital's
financial activities requires it to rely on the exception from the
definition of investment company under section 3(c)(6).\4\ Because GE
Capital is excepted from the definition of investment company under
section 3(c)(6), rather than under section 3(b) or the rules and
regulations under section 3(a), GE Capital is not an eligible parent
within the meaning of rule 3a-5(b). Consequently, applicant cannot
comply with the requirements in paragraphs (a)(5) and (a)(6) that it
invest its assets in the securities of an eligible parent company and
companies controlled by the parent company.
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\4\Section 3(c)(6) excepts from the definition of investment
company any company primarily engaged in one or more of the
businesses described in paragraphs (3), (4), and (5) of section
3(c), or in one or more of such businesses (from which not less than
25% of such company's gross income during its last fiscal year was
derived) together with an additional business or businesses other
than investing, reinvesting, owning, holding, or trading securities.
Section 3(c)(3) excepts from the definition of investment company
banks and similar institutions. Section 3(c)(4) excepts from the
definition of investment company person engaged in the business of
making small loans, industrial banking, or similar businesses.
Section 3(c)(5) excepts from the definition of investment company
persons who are engaged in the business of: ``purchasing or
otherwise acquiring notes, drafts, acceptances, open accounts
receivable, and other obligations representing part or all of the
sales price of merchandise, insurance, and services; (B) making
loans to manufacturers, wholesales, and retailers of, and to
prospective purchasers of, specified merchandise, insurance, and
services; and (C) purchasing or otherwise acquiring mortgages and
other liens on and interests in real estate.''
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3. Section 6(c) provides that the Commission may exempt any person
or transaction from any provision of the Act or any rule thereunder 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 policy and provisions of the Act.
Applicant asserts that none of the investor protection concerns
addressed by the Act are raised by its activities since it is engaged
primarily in the business of financing the operations of GE Capital,
and GE Capital is not an investment company. Consequently, applicant
believes that the standards for relief under section 6(c) are
satisfied.
For the SEC, by the Division of Investment Management, under
delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 94-19009 Filed 8-3-94; 8:45 am]
BILLING CODE 8010-01-M
