[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