[Federal Register Volume 62, Number 172 (Friday, September 5, 1997)]
[Notices]
[Pages 47073-47076]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-23599]
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SECURITIES AND EXCHANGE COMMISSION
[Investment Company Act Release No. 22804; 812-10682]
GE Funds, et al.; Notice of Application
August 29, 1997.
AGENCY: Securities and Exchange Commission (``SEC'').
ACTION: Notice of application for an order under section 17(b) of the
Investment Company Act of 1940 (the ``Act'') for an exemption from
section 17(a) of the Act.
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SUMMARY OF APPLICATION: Applicants seek an order to permit certain
series of GE Funds to acquire all of the assets and assume certain of
the liabilities of certain series of the Investors Trust.
APPLICANTS: GE Funds (the ``Company'') and Investors Trust (the
``Trust'').
FILING DATES: The application was filed on May 23, 1997, and amended on
August 28, 1997.
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
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received by the SEC by 5:30 p.m. on September 23, 1997, 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 may request notification of
a hearing by writing to the SEC's Secretary.
ADDRESSES: Secretary, SEC, 450 Fifth Street, N.W., Washington, D.C.
20549. Applicants: GE Funds, 3003 Summer Street, Stamford, CT 06905;
Investors Trust, Suite 5600, Two Union Square, 601 Union Street,
Seattle, WA 98101.
FOR FURTHER INFORMATION CONTACT: Kathleen L. Knisely, Staff Attorney,
at (202) 942-0517, or Christine Y. Greenlees, 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, 450 Fifth Street, N.W., Washington,
D.C. 20549 (tel. 202-942-8090).
Applicants' Representations
1. The Company and the Trust are both Massachusetts business trusts
registered under the Act as open-end management investment companies.
The Company currently is comprised of thirteen series, including GE
Short-Term Government Fund, GE Tax-Exempt Fund, GE Mid-Cap Growth Fund,
GE Government Securities Fund, and GE Value Equity Fund (the
``Acquiring Funds'').\1\
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\1\ The registration statements for the GE Government Securities
Fund and GE Value Equity Fund were declared effective by the SEC on
July 25, 1997, and these Funds, along with GE Mid-Cap Growth Fund,
are expected to commence operations upon the consummation of the
transactions described in this application.
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2. The Trust currently is comprised of five series, including
Investors Trust Adjustable Rate Fund, Investors Trust Government Fund,
Investors Trust Tax Free Fund, Investors Trust Value Fund, and
Investors Trust Growth Fund (the ``Acquired Funds''). The Acquiring
Funds and the Acquired Funds are referred to individually as a ``Fund''
and collectively as the ``Funds.''
3. GE Investment Management Incorporated (``GEIM''), a wholly-owned
subsidiary of the General Electric Company (``GE''), and GNA Capital
Management, Inc. (``GNA Capital''), an indirect, wholly-owned
subsidiary of GE, serve as investment advisers to the Acquiring Funds
and the Acquired Funds, respectively. GEIM and GNA Capital are
registered as investment advisers under the Investment Advisers Act of
1940. GNA Capital has engaged certain unaffiliated sub-advisers for
each of the Acquired Funds.
4. GE, through its subsidiaries and affiliates, owns in excess of
5% of the total outstanding voting securities of each of the Funds
(except for GE Value Equity Fund and GE Government Securities Fund,
which are new series of the Company, and Investors Trust Government
Fund).
5. The Company, on behalf of the Acquiring Funds, and the Trust, on
behalf of the Acquired Funds, entered into an Agreement and Plan of
Reorganization (the ``Agreement'') to effectuate the proposed
reorganization (the ``Reorganization''). The Company, on behalf of each
Acquiring Fund, proposes to acquire all of the assets of the
corresponding Acquired Fund in exchange for shares of the Acquiring
Fund with an aggregate net asset value equal to that of the assets
transferred minus the liabilities of the Acquired Fund that will be
assumed by the Acquiring Fund. Each Acquired Fund will endeavor to
discharge all of its known liabilities and obligations prior to a
closing presently expected to occur on or about September 26, 1997 (the
``Closing Date''). Each Acquiring Fund will assume all liabilities,
expenses, costs, charges, and reserves of the corresponding Acquired
Fund reflected on an unaudited statement of assets and liabilities of
the Acquired Fund as of the close of regular trading on the New York
Stock Exchange (``NYSE'') on the closing Date. Each Acquiring Fund will
assume only those liabilities reflected in the unaudited statement of
assets and liabilities of the corresponding Acquired Fund and certain
indemnification obligations contained in the Agreement, and will not
assume any other liabilities (other than certain indemnification
obligations specified in the Agreement).\2\
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\2\ It is anticipated that the liabilities of the Acquired Fund
to be reflected in the closing statement of assets and liabilities
and to be assumed by the Acquiring Fund will consist of all of the
known non-contingent liabilities of the Acquired Fund. If at the
time of valuation there should be any known contingent liability or
any known absolute but unquantified liability of the Acquired Fund,
the parties to the Reorganization would agree to an appropriate
procedure for the satisfaction of such liability, e.g., insurance,
indemnity, or establishment of reserve.
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6. Each Acquiring Fund operates as a multiple class fund and offers
four classes of shares: Class A, Class B, Class C, and Class D shares.
Shares of each of the Acquiring Funds are, or will be, offered to
investors at net asset value and are identical, except for varying
services made available to shareholders and varying expenses borne by
each class. Each Acquired Fund operates as a multiple class fund and
offers two classes of shares: Class A and Class B shares. The two
classes are identical, except as to distribution and sales charges and
the expenses borne by each class. The characteristics of Class A and
Class B shares of each Acquiring Fund are similar to those of the
Acquired Funds. The investment objectives, policies, and restrictions
of each of the Acquiring Funds and the corresponding Acquired Fund are
substantially similar.
7. The Company and the Trust each have adopted, pursuant to rule
12b-1 under the act, Shareholder Servicing and Distribution Plans (the
``Plans''), pursuant to which each of the Funds pays GE Investment
Services Inc. (``GEIS''), a wholly-owned subsidiary of GEIM, and GNA
Distributors, respectively, fees for shareholder and distribution
services. Class A and Class B shareholders of the Acquired Funds will,
upon consummation of the Reorganization, become subject to the
Company's Plans. Class A shares of each Acquired Fund are subject to a
12b-1 service fee equal to a maximum of .25% of annual average net
assets. Class B shares of each Acquired Fund are subject to 12b-1
service and distribution fees equal to a maximum of .25% and .75% of
annual average net assets, respectively. Class A shares of each
Acquiring Fund are, and will continue to be, subject to a 12b-1 fee
equal to .50% of annual average net assets. Class B shares of each
Acquiring Fund, other than GE Short-Term Government Fund, will be
subject to a 12b-1 fee equal to 1.00% of annual average net assets.
Class B shareholders of GE Short-Term Government Fund will be subject
to a 12b-1 fee equal to .85% of annual average net assets. Class B
shareholders of the Acquired Funds will, however, remain subject to
their contingent deferred sales charge schedule until their automatic
conversion into Class A shares of the Company after eight years. Class
B shareholders of the Acquired Funds will receive credit for the number
of years they held Class B Acquired Fund shares prior to the
consummation of the Reorganization. Shares of each Acquiring Fund
received by shareholders of an Acquired Fund pursuant to the
Reorganization will not otherwise be subject to any sales charges as a
result of the Reorganization.
8. On or before the Closing Date, each Acquired Fund will have
declared a dividend and/or other distribution that, together with all
previous dividends
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and other distributions, will have the effect of distributing to the
Acquired Fund's shareholders all taxable income for all taxable years
ending on or prior to the Closing Date and for its current taxable year
through the Closing Date (computed without regard to any deduction for
such dividends paid) and all of its net capital gain realized in all
such taxable years (after reduction for any capital loss carryforward).
9. As soon as practicable after the Closing Date, each Acquired
Fund will distribute in kind pro rata to its shareholders of record
determined as of the close of regular trading on the NYSE on the
Closing Date (the ``Valuation Time''), in liquidation of the Acquired
Fund, the shares of the Acquiring Fund received by it pursuant to the
Reorganization. Such distribution will be accomplished by the
establishment of an account in the name of each shareholder of the
Acquired Fund on the share records of the Acquiring Fund's transfer
agent and the transfer to each such account of a number of shares of
the Acquiring Fund representing the respective pro rata number of full
and fractional shares of the Acquiring Fund due to such shareholder of
the Acquired Fund. The number of full and fractional Class A and Class
B shares of each Acquiring Fund to be issued to shareholders of the
corresponding Acquired Fund will be determined on the basis of the
relative net asset values of the Acquired Fund and the Acquiring Fund
computed as of the Valuation Time. After such distribution and the
winding up of its affairs, the Acquired Fund will be terminated
10. Pursuant to the Reorganization, GEIM will become each Acquiring
Fund's sole investment adviser, except for GE Tax-Exempt Fund, which
will retain Brown Brothers Harriman & Co. (``Brown Brothers''), sub-
adviser to Investors Trust Tax Free Fund, as its sub-adviser.
11. On May 15 and 16, 1997, the boards of trustees of the Company
and the Trust (including their respective non-interested trustees),
respectively, approved the Agreement. After considering the relevant
factors concerning the advisability of the Reorganization, each board
found that participation in the Reorganization was in the best
interests of the relevant Fund and that the interests of the existing
shareholders of each relevant Fund would not be diluted as a result of
the Reorganization.
12. In assessing the Reorganization and the terms of the Agreement,
the factors considered by the boards of the Company the Trust included:
(a) The relative past growth in assets and investment performance of
the Funds; (b) the future prospects of the Funds, both under
circumstances where they are not reorganized and where they are
reorganized; (c) the compatibility of the investment objectives,
policies, and restrictions of the Funds; (d) the effect of the
Reorganization on the expense ratios of each Fund based on a comparison
of the expense ratios of each Acquiring Fund with those of the
corresponding Acquired Fund on a ``pro forma'' basis; (e) the fact that
GEIM would be bearing the costs of the Reorganization; (f) whether any
future cost savings could be achieved by combining the Funds; (g) the
tax-free nature of the Reorganization; and (h) alternatives to the
Reorganization.
13. In approving the Agreement, the Trust's board considered that
the GE Short-Term Government Fund has a more favorable performance
record that the IT Adjustable Rate Fund, and the IT Tax Free Fund has a
better performance record than the GE Tax-Exempt Fund. As noted above,
GE Tax-Exempt Fund will retain the IT Tax Free Fund's sub-adviser. In
considering the Reorganization and the Agreement, each board noted that
the investment objectives, policies, and restrictions of each Acquiring
Fund and the corresponding Acquired Fund were substantially similar.
14. Each board also recognized the fact that the Funds would not
bear any of the expenses of the Reorganization. GEIM will bear the
costs attributable to the establishment of the two new Acquiring Funds
and all of the expenses of the Reorganization. Costs and fees of the
Reorganization will be the responsibility of GEIM whether or not the
Reorganization is consummated. These expenses include professional fees
and the cost of soliciting proxies for the meeting of the Acquired
Funds and the GE Tax-Exempt Fund shareholders, consisting principally
of printing and mailing expenses, together with the cost of any
supplementary solicitation. Additionally, GNA Capital will bear some of
the indirect costs of the Reorganization by providing employee time and
effort in the planning, preparation, and consummation of the
Reorganization.
15. The board of the Trust also noted that, apart from changes in
fund expenses, the Reorganization was not anticipated to have any
adverse effect upon the shareholders of the Acquired Fund and might
provide instead, enhanced opportunities for growth, diversification,
investment efficiency, and the continued opportunity to accord their
respective shareholders the benefits of a family of funds. After
considering all the relevant factors, each board, including the non-
interested trustees, concluded that any potential benefits to GE, GEIM,
GNA Capital and their affiliates as a result of the Reorganization are
on balance outweighed by the benefits of the Reorganization to each
Fund and its shareholders.
16. Consummation of the Reorganization is subject to the conditions
set forth in the Agreement, including: (a) The parties shall have
received exemptive relief from the SEC with respect to the issues that
are the subject of the application; (b) the shareholders of each
Acquired Fund will have approved the Reorganization; and (c) in the
case of the reorganization of GE Tax-Exempt Fund, that Fund's
shareholders shall have approved Brown Brothers as sub-adviser and
changes to certain investment policies and restrictions.
17. Applicants filed with the SEC a prospectus/proxy statement
describing the Reorganization, and a proxy statement respecting GE Tax-
Exempt Fund on June 6, 1997, and July 3, 1997, respectively. Applicants
sent the prospectus/proxy statement to shareholders on or about July
31, 1997, for their approval at a shareholder meeting expected to be
held on or about September 15, 1997.
18. Notwithstanding approval of the Agreement by the shareholders
of the Acquired Funds, the Closing Date may be postponed and the
Agreement may be terminated prior to the Closing Date by: (a) Mutual
agreement of the parties; (b) either party because a material breach by
the other party of any representation, warranty, or agreement contained
in the Agreement has occurred; or (c) either party because a condition
to the obligation of the terminating party cannot be met. Applicants
agree not to make any material changes to the Agreement without prior
SEC approval.
Applicants' Legal Analysis
1. Section 17(a) of the Act, in relevant part, prohibits an
affiliated person of a registered investment company, or any affiliated
person of such person, acting as principal, from knowingly selling to
or purchasing from such registered investment company or any company
controlled by such registered company, any security or other property.
2. Section 2(a)(3) of the Act defines the term ``affiliated
person'' of another person to include, in pertinent part, any person
directly or indirectly owning, controlling, or holding with power to
vote, 5% or more of the outstanding voting securities of such other
person,
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and any person directly or indirectly controlling, controlled by, or
under common control with such other person, and if such other person
is an investment company, any investment adviser thereof.
3. Rule 17a-8 under the Act exempts from the prohibitions of
section 17(a) mergers consolidations, or purchases or sales of
substantially all of the assets of registered investment companies that
are affiliated persons solely by reason of having a common investment
adviser, common directors/trustees, and/or common officers, provided
that certain conditions are satisfied.
4. Applicants believe that they may not rely upon rule 17a-8
because the Funds may be affiliated for reasons other than those set
forth in the rule. GE indirectly owns 100% of the outstanding voting
securities of GNA Capital, the adviser to the Acquired Funds. GE also
owns, with power to vote, shares of certain of the Funds as described
in the application, which constitute between 7% and 83% of the
outstanding shares of each such Fund. Because of this ownership, the
Acquiring Funds may be deemed an affiliated person of the Acquired
Funds, and vice versa, for reasons not based solely on their common
adviser. Consequently, applicants are requesting an order pursuant to
section 17(b) of the Act exempting them from section 17(a) to the
extent necessary to consummate the Reorganization.
5. Section 17(b) of the Act provides that the SEC may exempt a
transaction from the provisions of section 17(a) if 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; the proposed transaction is
consistent with the policy of each registered investment company
concerned; and the proposed transaction is consistent with the general
purposes of the Act.
6. Applicants submit that the terms of the proposed Reorganization
satisfy the standards set forth in section 17(b), in that the terms are
fair and reasonable and do not involve overreaching on the part of any
person concerned. The boards of trustees of the Company and the Trust,
including their non-interested trustees, have reviewed the terms of the
Reorganization as set forth in the Agreement, including the
consideration to be paid or received, and have found that participation
in the Reorganization is in the best interests of the Company, the
Trust, and each Fund, and that the interests of the existing
shareholders of each Fund will not be diluted as a result of the
Reorganization. Applicants also note that the exchange of each Acquired
Fund's assets and liabilities for the shares of the corresponding
Acquiring Fund will be based on the Funds' relative net asset values.
For the SEC, by the Division of Investment Management, under
delegated authority.
Jonathan G. Katz,
Secretary.
[FR Doc. 97-23599 Filed 9-4-97; 8:45 am]
BILLING CODE 8010-01-M