GE Life and Annuity Assurance Company, et al., Notice of Application, 36666-36670 [E5-3279]
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36666
Federal Register / Vol. 70, No. 121 / Friday, June 24, 2005 / Notices
Commission, Office of Information and
Regulatory Affairs, Office of
Management and Budget, Room 10102,
New Executive Office Building,
Washington, DC, 20503 or by sending an
e-mail to: DavidlRostker@omb.eop.gov;
and (ii) R. Corey Booth, Director/Chief
Information Officer, 100 F Street, NE.,
Washington, DC 20549. Comments must
be submitted to OMB within 30 days of
this notice.
Dated: June 16, 2005.
Jill M. Peterson,
Assistant Secretary.
[FR Doc. E5–3286 Filed 6–23–05; 8:45 am]
BILLING CODE 8010–01–P
SECURITIES AND EXCHANGE
COMMISSION
Submission for OMB Review;
Comment Request
Upon Written Request, Copies Available
From: Securities and Exchange
Commission, Office of Filings and
Information Services, Washington, DC
20549.
Extension:
Rule 15c2–11, SEC File No. 270–196, OMB
Control No. 3235–0202.
Notice is hereby given that pursuant
to the Paperwork Reduction Act of 1995
(44 U.S.C. 3501 et seq.) the Securities
and Exchange Commission
(‘‘Commission’’) has submitted to the
Office of Management and Budget
request for extension of the previously
approved collection of information
discussed below.
The Commission adopted Rule 15c2–
11 1 (Rule 15c2–11 or Rule) in 1971
under the Securities Exchange Act of
1934 2 (Exchange Act) to regulate the
initiation or resumption of quotations in
a quotation medium by a broker-dealer
for over-the-counter (OTC) securities.
The Rule was designed primarily to
prevent certain manipulative and
fraudulent trading schemes that had
arisen in connection with the
distribution and trading of unregistered
securities issued by shell companies or
other companies having outstanding but
infrequently traded securities. Subject to
certain exceptions, the Rule prohibits
brokers-dealers from publishing a
quotation for a security, or submitting a
quotation for publication, in a quotation
medium unless they have reviewed
specified information concerning the
security and the issuer.
According to NASDR estimates, we
also believe that approximately 1,200
1 17
2 15
CFR 240.15c2-11.
U.S.C. 78a et seq.
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new applications from broker-dealers to
initiate or resume publication of
covered OTC securities in the OTC
Bulletin Board and/or the Pink Sheets or
other quotation mediums were received
by the NASDR for the 2004 calendar
year. We estimate that 80% of the
covered OTC securities were issued by
reporting issuers, while the other 20%
were issued by non-reporting issuers.
We believe that it will take a brokerdealer about 4 hours to collect, review,
record, retain, and supply to the NASDR
the information pertaining to a reporting
issuer, and about 8 hours to collect,
review, record, retain, and supply to the
NASDR the information pertaining to a
non-reporting issuer.
We therefore estimate that brokerdealers who are the first to publish the
first quote for a covered OTC security of
a reporting issuer will require 3,840
hours (1,200 × 80% × 4) to collect,
review, record, retain, and supply to the
NASDR the information required by the
Rule. We estimate that the brokerdealers who are the first to publish the
first quote for a covered OTC security of
a non-reporting issuer will require 1,920
hours (1,200 × 20% × 8) to collect,
review, record, retain, and supply to the
NASDR the information required by the
Rule. We therefore estimate the total
annual burden hours for the first brokerdealers to be 5,760 hours (3,840 +
1,920). The Commission estimates that
the annual cost to comply with Rule
15c2–11 is $115,200 ($20 per hour times
5,760 hours).
Subject to certain exceptions, the Rule
prohibits brokers-dealers from
publishing a quotation for a security, or
submitting a quotation for publication,
in a quotation medium unless they have
reviewed specified information
concerning the security and the issuer.
The broker-dealer just also make the
information reasonably available upon
request to any person expressing an
interest in a proposed transaction in the
security with such broker or dealer. The
collection of information that is
submitted to the NASDR for review and
approval is currently not available to the
public from the NASDR.
An agency may not conduct or
sponsor, and a person is not required to
respond to, a collection of information
unless it displays a currently valid
control number.
Written comments are invited on: (a)
Whether the proposed collection of
information is necessary for the proper
performance of the functions of the
agency, including whether the
information will have practical utility;
(b) the accuracy of the agency’s estimate
of the burden of the collection of
information; (c) ways to enhance the
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quality, utility, and clarity of the
information collected; and (d) ways to
minimize the burden of the collection of
information on respondents, including
through the use of automated collection
techniques or other forms of information
technology.
Written comments regarding the
above information should be directed to
the following persons: (i) Desk Officer
for the Securities and Exchange
Commission, Office of Information and
Regulatory Affairs, Office of
Management and Budget, Room 10102,
New Executive Office Building,
Washington, DC 20503, or by sending an
e-mail to DavidlRostker@omb.eop.gov;
and (ii) R. Corey Booth, Director/Chief
Information Officer, Office of
Information Technology, Securities and
Exchange Commission, 100 F Street,
NE., Washington, DC 20549. Comments
must be submitted to OMB within 30
days of this notice.
Dated: June 16, 2005.
Jill M. Peterson,
Assistant Secretary.
[FR Doc. E5–3287 Filed 6–23–05; 8:45 am]
BILLING CODE 8010–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. IC–26910; File No. 812–13127]
GE Life and Annuity Assurance
Company, et al., Notice of Application
June 17, 2005.
The Securities and Exchange
Commission (‘‘Commission’’).
ACTION: Notice of application for an
Order pursuant to Section 26(c) of the
Investment Company Act of 1940
(‘‘1940 Act’’).
AGENCY:
Applicants: GE Life and Annuity
Assurance Company and GE Capital Life
Assurance Company of New York
(collectively, the ‘‘Companies’’), and GE
Capital Life Separate Account II and GE
Life & Annuity Separate Account II and
GE Life & Annuity Separate Account 4
(collectively, the ‘‘Separate Accounts’’)
(the Companies and the Separate
Accounts collectively referred to as the
‘‘Applicants’’).
Summary of the Application:
Applicants request an Order pursuant to
Section 26(c) of the 1940 Act to permit
the substitution of shares of the GE
Investments Funds, Inc.—Global Income
Fund (‘‘GE Global Fund’’), currently
held in the Separate Accounts, for
shares of the Franklin Templeton
Variable Insurance Products Trust—
Templeton Global Income Securities
Fund—Class 1 (‘‘FT Global Fund’’).
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Federal Register / Vol. 70, No. 121 / Friday, June 24, 2005 / Notices
Filing Date: The application was filed
on September 17, 2004, and amended
and restated on June 2, 2005.
Hearing or Notification of Hearing: An
order granting the application will be
issued unless the Commission orders a
hearing. Interested persons may request
a hearing by writing to the
Commission’s secretary and serving
applicants with a copy of the request,
personally or by mail. Hearing requests
should be received by the Commission
by 5:30 p.m. on July 12, 2005, and
should be accompanied by proof of
service on the 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
Commission’s secretary.
ADDRESSES: Secretary, Securities and
Exchange Commission, 100 F Street,
NE., Washington, DC 20549–9303.
Applicants, Heather Harker, Vice
President and Associate General
Counsel, Genworth Financial, 6610
West Broad Street, Richmond, Virginia
23230.
FOR FURTHER INFORMATION CONTACT:
Mark Cowan, Senior Counsel, or Zandra
Bailes, Branch Chief, Office of Insurance
Products, Division of Investment
Management, at (202) 551–6795.
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, 100 F Street,
NE., Room 1580, Washington, DC 20549
(telephone (202) 551–5850).
Applicant’s Representations
1. GE Life and Annuity Assurance
Company (‘‘GELAAC’’), located at 6610
West Broad Street, Richmond, Virginia
23230, is a stock life insurance company
incorporated under the laws of the
Commonwealth of Virginia and
operating under a charter granted by the
Commonwealth in 1871. GELAAC
principally offers annuity contracts,
guaranteed investment contracts,
funding agreements and life insurance.
GELAAC is licensed to do business in
the District of Columbia and all states
except New York. GELAAC is an
indirect wholly-owned subsidiary of
Genworth Financial, Inc. (‘‘Genworth’’),
a publicly-traded company. General
Electric Company (‘‘GE’’), through its
indirect wholly owned subsidiary, GE
Financial Assurance Holdings, Inc.,
owns approximately 70% of the
outstanding common stock of Genworth.
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2. GE Life & Annuity Separate
Account II (‘‘Separate Account II’’) was
established by GELAAC pursuant to the
laws of the Commonwealth of Virginia
on August 21, 1986 as a segregated asset
account and is registered under the 1940
Act as a unit investment trust (File No.
811–4885). Separate Account II supports
variable life insurance policies, the
interests in which are registered under
the Securities Act of 1933 (the ‘‘1933
Act’’) (File Nos. 33–09651, 333–32071,
333–82311, 333–41031, and 333–
111208).
3. GE Life & Annuity Separate
Account 4 (‘‘Separate Account 4’’) was
established by GELAAC pursuant to the
laws of the Commonwealth of Virginia
on August 19, 1987 as a segregated asset
account and is registered under the 1940
Act as a unit investment trust (File No.
811–5343). Separate Account 4 supports
deferred variable annuity contracts, the
interests in which are registered under
the 1933 Act (File Nos. 33–17428, 33–
76336, 33–76334, 333–96513, 333–
62695, and 333–63531).
4. GE Capital Life Assurance
Company of New York (‘‘GECLANY’’),
located at 622 Third Avenue, 33rd
Floor, New York, New York 10017, is a
stock life insurance company that was
incorporated under the laws of the State
of New York in 1988. GECLANY
principally offers variable annuities and
variable life insurance policies.
GECLANY is licensed to do business in
the State of New York. GECLANY is an
indirect, wholly-owned subsidiary of
Genworth.
5. GE Capital Life Separate Account II
(‘‘Capital Account II’’) was established
by GECLANY pursuant to the laws of
the State of New York on April 1, 1996
as a segregated asset account and is
registered under the 1940 Act as a unit
investment trust (File No. 811–8475).
Capital Account II supports deferred
variable annuity contracts, the interests
in which are registered under the 1933
Act (File No. 333–39955).
6. Each variable annuity contract and
variable life insurance policy
(collectively, the ‘‘Contracts’’) issued by
the Companies through the Separate
Accounts has a variable investment
component that allows an investor to
allocate purchase payments among a
specific menu of underlying mutual
fund options. Some of the Contracts also
provide for a fixed account allocation,
which is supported by the assets of the
Company’s general account. The
Separate Accounts maintain separate
sub-accounts for each underlying
mutual fund available under the
Contracts. Contract owners may
currently choose to have purchase
payments allocated to one or more sub-
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accounts, each of which invests in an
underlying mutual fund.
7. The current prospectuses for the
Contracts, and the Contracts themselves,
contain provisions stipulating the
Companies’ right to substitute shares of
one underlying mutual fund for shares
of another underlying mutual fund in
the event that: (i) the underlying mutual
fund option currently available under
the Contracts is no longer available for
investment by the Separate Accounts; or
(ii) in the judgment of the Company’s
management, further investment in
currently available underlying mutual
fund shares is inappropriate in view of
the purposes of the Contracts.
8. None of the Contracts are being
actively marketed by the Companies.
Although existing Contract owners are
permitted to make additional
subsequent purchase payments, the
Companies do not anticipate acquiring
new assets through new Contract
owners.
9. The GE Global Fund is a series of
GE Investments Funds, Inc. (‘‘GIF’’). GIF
is registered with the Commission as an
open-end management investment
company and presently consists of 14
separate series (File Nos. 2–91369; 811–
04041). GE Asset Management
Incorporated (‘‘GEAM’’) is the
investment adviser and administrator of
the GE Global Fund. GEAM is a whollyowned subsidiary of GE and, by virtue
of GE’s indirect ownership of
approximately 70% of the outstanding
common stock of Genworth, could be
deemed to be an affiliated person of the
Companies. The GE Global Fund is
available only through the Contracts,
which as noted previously are no longer
being sold by the Companies.
10. Applicants have been informed
that GEAM wishes to liquidate the GE
Global Fund and terminate its
operations. GEAM has explained to
Applicants that the GE Global Fund was
created to serve as an investment option
for variable annuity contracts and
variable life insurance policies offered
by GE-affiliated insurers. According to
GEAM, the GE Global Fund has not
attracted sufficient assets to grow to an
efficient size and there is no realistic
expectation that it will do so in the
future as the Contracts are no longer
actively marketed by the Companies.
Thus, it is not anticipated that the GE
Global Fund will attain economies of
scale and the benefits associated
therewith. Additionally, the GE Global
Fund consistently has been outperformed by other mutual funds with
similar objectives. In light of these
factors, GEAM has presented the GIF
Board of Directors with a proposal to
liquidate the GE Global Fund and the
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Federal Register / Vol. 70, No. 121 / Friday, June 24, 2005 / Notices
GIF Board has determined that
liquidating the GE Global Fund is in the
best interest of shareholders.
11. In light of the foregoing,
Applicants propose to substitute shares
of the GE Global Fund with shares of the
FT Global Fund. The FT Global Fund is
a series of the Franklin Templeton
Variable Insurance Products Trust (File
Nos. 33–23493; 811–5583). The FT
Global Fund and its investment adviser,
Franklin Advisers, Inc., are not affiliated
with the Companies or their Separate
Accounts.
12. Applicants believe that the FT
Global Fund is an appropriate substitute
for the GE Global Fund because the FT
Global Fund has: (i) investment
objectives, strategies and risks that are
substantially similar to those of the GE
Global Fund; (ii) lower total operating
expenses than the GE Global Fund; (iii)
a larger asset base than the GE Global
Fund; and (iv) returns that demonstrate
that it has significantly outperformed
the GE Global Fund.
13. The discussion below compares
the investment objectives, investment
risks and strategies of the GE Global
Fund and the FT Global Fund.
Applicants submit that the investment
objectives, strategies and risks of the GE
Global Fund are substantially similar to
those of the FT Global Fund.
14. GE Global Fund—Investment
Objectives and Strategies. The GE
Global Fund seeks high return,
emphasizing current income, and, to a
lesser extent, capital appreciation. The
GE Global Fund seeks to achieve its
objective by investing in a combination
of foreign and domestic debt securities,
with an emphasis in foreign debt
securities. Under normal circumstances,
the Fund invests in securities of
companies or governments representing
at least three different countries, one of
which may be the United States. The
particular types of securities in which
the Fund invests include foreign
government securities, foreign and
domestic corporate bonds, U.S.
Government securities, and money
market instruments. The Fund may
invest up to 25% of its net assets in
below-investment grade debt securities
rated B or higher by S&P or Moodys (or
otherwise comparably rated). Of that
25%, no more than 10% may be
represented by securities in the B rating
category. The Fund may also invest in
securities of emerging market issuers
and in derivatives. In selecting
investments for the Fund, the portfolio
manager considers factors such as:
currency and interest rate trends; the
instrument’s duration; yield; issuer
credit quality; and prospects for capital
appreciation. The Fund is non-
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diversified as defined by Section 5(b)(2)
of the 1940 Act.
15. GE Global Fund—Investment
Risks. Because the GE Global Fund
invests primarily in debt securities, the
principal risks of investing in this Fund
are interest rate and credit risk. The
Fund is also subject to foreign securities
risk because its assets are invested in
securities of issuers from around the
world, including issuers located or
doing business in emerging markets,
which exposes the Fund to emerging
markets risk. To the extent the Fund
invests in below-investment grade debt
securities, the Fund is subject to the
risks associated with high-yield, lowerrated instruments. Finally, the Fund
may invest in derivative instruments
which carry derivative instruments risk.
16. FT Global Fund—Investment
Objectives and Strategies. The Fund’s
investment objective is high current
income, consistent with preservation of
capital. Capital appreciation is a
secondary consideration. Under normal
market conditions, the Fund invests
mainly in debt securities of
governments and their political
subdivisions and agencies,
supranational organizations and
companies located anywhere in the
world, including emerging markets.
Under normal circumstances, the
Fund’s assets are invested in issuers in
at least three countries, one of which
may be the United States. The Fund
focuses on investment grade debt
securities but may invest up to 30% of
its net assets in lower-rated securities,
including debt obligations of emerging
market issuers, and up to 10% in
defaulted debt securities. The manager
allocates the Fund’s assets among
issuers, geographic regions, and
currencies based upon its assesment of:
Relative interest rates among currencies,
outlook for changes in interest rates, and
credit risks. The Fund is non-diversified
as defined by Section 5(b)(2) of the 1940
Act.
17. FT Global Fund—Investment
Risks. Like the GE Global Fund, the FT
Global Fund is subject to interest rate
and credit risk with respect to its
investments in debt securities. Because
the Fund invests its assets around the
world, the Fund is also subject to
foreign securities risk as well as
emerging markets risk. To the extent the
Fund invests in below-investment grade
debt securities, the Fund will be subject
to the risks associated with high yield,
lower-rated instruments. In addition, as
the manager uses derivatives in
managing the portfolio, the Fund is
subject to the risks associated with those
instruments.
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18. The table below compares the
audited fees and expenses (as of
December 31, 2004) of the GE Global
Fund and the FT Global Fund. As the
table reflects, the total expenses of the
FT Global Fund are lower than those of
the GE Global Fund.
GE Global
fund
(percent)
FT Global
fund
(percent)
Management
Fees ..............
Other Expenses
12b–1 Fees .......
0.60
0.26
None
0.62
0.16
None
Total Expenses .......
0.86
0.78
19. The table below compares the
asset size of the GE Global Fund and the
FT Global Fund as well as their
respective performance history as of
December 31, 2004.
GE Global
fund
(percent)
Inception Date ..
Net Assets (in
millions) .........
FT Global
fund
(percent)
05/01/97
01/24/89
$16.7
$49.5
Average Annual Total Return for the Periods
Ended December 31, 2004
1 Year ...............
3 Years .............
5 Years .............
10 Years ...........
5.72
12.55
6.84
N/A
15.09
19.79
12.91
9.08
20. The prospectuses, as well as the
Contracts, state that the Companies may
substitute, eliminate, and/or combine
shares of one mutual fund for shares of
another mutual fund already purchased
or to be purchased in the future if either
of the following occurs: (i) Shares of a
current mutual fund are no longer
available for investment; or (ii) in the
judgment of our Company’s
management, investment in a mutual
fund’s shares are inappropriate for
purposes of the Contracts.
21. Applicants note that in view of the
fact that GEAM has proposed to
liquidate the GE Global Fund,
Applicants are exercising their
contractual right, subject to Commission
approval, to provide Contract owners
with alternative investment options
through a substitution transaction.
Applicants have taken several steps
toward accomplishing the proposed
substitution. The Companies have
added the FT Global Fund to the
Contract registration statements via a
post-effective amendment and have
delivered a current prospectus for the
FT Global Fund to all Contract owners.
In addition, supplements have been sent
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Federal Register / Vol. 70, No. 121 / Friday, June 24, 2005 / Notices
to all Contract owners informing
Contract owners that the Companies
have filed an application with the
Commission to effect a substitution of
shares of the FT Global Fund for shares
of the GE Global Fund. The substitution
transaction will be effected on a date
designated by the Companies (the
‘‘Exchange Date’’).
22. Contract owners also will be
advised that they are free to transfer
assets from the GE Global Fund to any
of the investment options available
under the Contracts, in accordance with
the terms of the Contracts, in advance of
the Exchange Date without the
imposition of any restrictions or fees.
Likewise, after the Exchange Date,
Contract owners affected by the
substitution will be free to transfer
assets from the FT Global Fund to any
other investment option without
restriction or the imposition of any fees
for at least thirty (30) days after the
Exchange Date. Contract owners may
still be restricted to trade via U.S. mail
or overnight delivery service as
described in the current prospectus. All
necessary forms and other information
necessary for Contract owners to
effectuate exchanges among investment
options will continue to be provided. In
addition, Applicants represent that they
will not exercise their right to impose a
fee on transfers involving the GE Global
Fund during the thirty day period
leading up to the substitution or on
transfers involving the FT Global Fund
during the thirty day period following
the substitution. Moreover, Applicants
presently permit Contract owners to
make unlimited transfers. However, any
transfer after the 12th in a calendar year
must be submitted by U.S. mail or
overnight delivery. Applicants represent
that they will honor, during the 30 day
periods prior to and after the
substitution, one transfer request
involving the FT Global Fund that is not
submitted by U.S. mail or overnight
delivery by a Contract owner who has
exceeded or, because of such transfer,
will exceed the 12 transfer limitation.
23. On the Exchange Date, shares of
the GE Global Fund held by the
Separate Account will be redeemed.
Contemporaneously with this
redemption, proceeds received from the
GE Global Fund will be used to
purchase shares in the FT Global Fund.
All shares will be purchased and
redeemed at each Fund’s current net
asset value per share next computed
after receipt of the purchase and
redemption requests, consistent with
Section 22(c) of the 1940 Act and Rule
22c–1 thereunder. Applicants submit
that there will be no change in the
amount of any Contract owner’s
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Contract value or in the dollar value of
his or her investment in the Separate
Account. Fees charged under the
Contracts will not increase because of
the substitution. In addition, no charges
will be assessed in connection with the
substitution transaction. The Companies
will bear all of the costs (including
legal, accounting, brokerage, and other
expenses) associated with the
substitution. The proposed substitution
will not impose any tax liability on
Contract owners and will not cause the
fees and charges currently being paid by
existing Contract owners to be greater
after the proposed substitution than
before the proposed substitution. The
substitution will in no way alter the
insurance benefits to Contract owners or
the contractual obligations of the
Companies.
24. Within five (5) days after the
Exchange Date, all Contract owners
affected by the substitution transaction
will receive a written confirmation. The
confirmation will state that Contract
owners may transfer Contract value
allocated to the FT Global Fund as a
result of the substitution transaction to
any other available sub-accounts. The
notice will also reiterate that the
Companies will not exercise any right
reserved by them under the Contracts to
impose any fees on transfers involving
the FT Global Fund until at least thirty
(30) days after the Exchange Date.
However, as discussed above, Contract
owners who have exceeded the 12
transfer limitation may be required to
submit transfer requests involving the
Funds by U.S. mail or overnight
delivery.
Applicants’ Legal Analysis
1. Section 26(c) of the 1940 Act
prohibits a depositor or trustee of a
registered unit investment trust holding
the securities of the single issuer from
substituting another security for such
security unless the Commission
approves the substitution, finding that it
is consistent with the protection of
investors and the purposes fairly
intended by the policy and provisions of
the 1940 Act.
2. The legislative history makes clear
that the purpose of Section 26(c) is to
protect the expectation of investors in a
unit investment trust that the unit
investment trust will accumulate shares
of a particular issuer by preventing
unscrutinized substitutions that might,
in effect, force shareholders dissatisfied
with the substituted security to redeem
their shares, thereby possibly incurring
either a loss of the sales load deducted
from initial premium payments, an
additional sales load upon reinvestment
of the redemption proceeds, or both.
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Moreover, in the insurance product
context, a contract owner forced to
redeem may suffer adverse tax
consequences. Section 26(c) affords
protection to investors by preventing a
depositor or trustee of a unit investment
trust that holds shares of one issuer
from substituting for those shares the
shares of another issuer, unless the
Commission approves that substitution.
3. Applicants submit that the
proposed substitution is in the best
interests of Contract owners and will
not give rise to the type of costly forced
redemption that Section 26(c) was
intended to guard against. Applicants
further submit that, for the reasons
discussed below, the Commission
should find that the substitution is
consistent with the protection of
investors and the purposes fairly
intended by the 1940 Act.
4. Applicants have proposed the
substitution in response to GEAM’s
decision to recommend the liquidation
of the GE Global Fund to the GIF Board
of Directors. Applicants have been
informed that the GIF Board believes it
is in the best interest of shareholders to
liquidate the GE Global Fund and is
expected to act on GEAM’s proposal
pending the outcome of the application.
As discussed previously, GEAM
proposed the liquidation because the GE
Global Fund has not attracted assets
sufficient to achieve economies of scale,
and the Fund’s performance has lagged
behind that of its peers. Because the GE
Global Fund is available only through
the Contracts and the Companies no
longer sell the Contracts, there is no
realistic expectation that the GE Global
Fund will grow in size.
5. Applicants submit that the FT
Global Fund is an appropriate substitute
for the GE Global Fund. The FT Global
Fund has investment objectives,
strategies and risks that are substantially
similar to those of the GE Global Fund.
Accordingly, the proposed substitution
should not cause Contract owners to
surrender their Contracts for purposes of
seeking out other investment
opportunities in order to maintain a
desired investment strategy. On the
contrary, Applicants believe that the FT
Global Fund should provide Contract
owners with continuity of investment
objectives and expectations. In this
connection, Applicants submit that the
Funds have substantially similar
investment objectives as they both seek
high returns, with an emphasis on
current income. Capital appreciation is
a secondary consideration for both
Funds. The investment strategies of the
Funds are also substantially similar as
both Funds invest primarily in debts
securities of issuers from around the
E:\FR\FM\24JNN1.SGM
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36670
Federal Register / Vol. 70, No. 121 / Friday, June 24, 2005 / Notices
world. The assets of each Fund are
represented by issuers from at least
three countries, one of which may be
the United States. In addition, both
Funds may invest in securities of issuers
located, or that do business in, emerging
markets. Although the Funds have
authority to invest in below-investment
grade debt securities, they both focus
their investments on investment-grade
debt. And, while the FT Global Fund
may invest a greater percentage of its
assets in below-investment grade debt
than the GE Global Fund (30% vs. 25%),
Applicants submit that this limited
flexibility does not significantly or
meaningfully increase the risk profile of
the FT Global Fund as compared to that
of the GE Global Fund because of the FT
Global Fund’s stated focus on
investment-grade debt. In fact, the
average credit quality of the debt
securities comprising the FT Global
Fund as of December 31, 2004 was AA/A+. Moreover, annual returns, which
can provide an indication of the risks of
investing in a fund, demonstrate that,
year after year, the FT Global Fund is a
more consistent performer than the GE
Global Fund. Furthermore, the FT
Global Fund’s consistently higher
income ratios strongly suggest that the
Fund’s investment approach to
achieving its objective of high current
income is superior to and more effective
than the GE Global Fund’s approach.
6. Because both Funds have
substantially similar objectives and
strategies, their portfolios are subject to
the same types of principal risks,
including the following: Interest rate
risk, credit risk, foreign securities risk,
emerging markets risk, derivatives risk,
and non-diversification risk.
7. Furthermore, the performance
history of the FT Global Fund is
significantly better than that of the GE
Global Fund. Given the reasons offered
by GEAM for the liquidation of the GE
Global Fund, Applicants believe that the
FT Global Fund should continue to
outperform the GE Global Fund.
Factoring into this conclusion is the fact
that the FT Global Fund has
substantially greater assets than the GE
Global Fund. This creates the
opportunity for better performance
because the FT Global Fund’s fixed
costs are spread across a larger number
of shareholders. The economies of scale
inherent in the FT Global Fund’s greater
asset size will be passed to Contract
owners.
8. Importantly, the total operating
expenses of the FT Global Fund are
lower than those of the GE Global Fund.
Given that there is no expectation for
any significant growth in the assets of
the GE Global Fund, Applicants believe
VerDate jul<14>2003
19:06 Jun 23, 2005
Jkt 205001
that the expenses of the GE Global Fund
will remain higher than those of the FT
Global Fund. Thus, the substitution will
not result in Contract owners paying a
higher level of expenses.
9. Applicants asset that after taking all
of these factors into consideration—
namely that (1) the investment
objectives, strategies and risks of the
Funds are substantially similar, (2) the
FT Global Fund consistently has
outperformed the GE Global Fund, (3)
the FT Global Fund has produced a
higher level of income for its
shareholders year after year, (4) the FT
Global Fund has lower operating
expenses than the GE Global, and (5) the
GIF Board has determined that the
liquidation of the GE Global Fund
would be in the best interests of its
shareholders—if Contract owners are
not satisfied with the FT Global Fund as
a replacement for the GE Global Fund,
it is important to note that they will
have a myriad of options under their
Contracts, managed by a diverse group
of quality investment advisers, from
which to choose if they decide to
transfer their assets.
10. Furthermore, the Companies
submit that the substitution and the
selection of the FT Global Fund were
not motivated by any financial
consideration paid or to be paid to the
Companies or their affiliates by the FT
Global Fund, its advisor or underwriter,
or their respective affiliates. In this
connection, Applicants represent that
the Companies will not receive, for 36
months following the Exchange Date,
any direct or indirect benefits from the
FT Global Fund, its advisor or
underwriter (or their affiliates) at a rate
higher than that which they had
received from the GE Global Fund, its
advisor or underwriter (or their
affiliates), including without limitation
12b-1, shareholder service,
administration or other service fees,
revenue sharing or other arrangements.
11. In addition to the foregoing,
Applicants submit that the proposed
substitution satisfies the standards of
Section 26(c) because:
(a) The costs of the substitution,
including any brokerage costs, will be
borne by the Companies and will not be
borne by Contract owners. No charges
will be assessed to effect the
substitution.
(b) The substitution will be effected at
the net asset values of the respective
shares without the imposition of any
transfer or similar charge and with no
change in the amount of any Contract
owner’s accumulation value.
(c) The Substitution will not cause the
fees and charges under the Contracts
currently being paid by Contract owners
PO 00000
Frm 00114
Fmt 4703
Sfmt 4703
to be greater after the substitution than
before the substitution.
(d) All Contract owners will be given
prior notice of the substitution and will
have an opportunity for 30 days after
the Exchange Date to reallocate Contract
value among other available subaccounts without the restriction or the
imposition of any fees.
(e) Within five days after the
substitution, the Companies will send to
affected Contract owners written
confirmation that the substitution has
occurred.
(f) The substitution will in no way
alter the insurance benefits to Contract
owners or the contractual obligations of
the Companies.
(g) The substitution will have no
adverse tax consequences to Contract
owners and will in no way alter the tax
benefits to Contract owners.
Conclusion: Applicants request an
order of the Commission pursuant to
Section 26(c) of the 1940 Act approving
the Substitution. Section 26(c), in
pertinent part, provides that the
Commission shall issue an order
approving a substitution of securities if
the evidence establishes that it is
consistent with the protection of
investors and the purposes fairly
intended by the policy and provisions of
the Act. Thus, Applicants assert that, for
the reasons and upon the facts set forth
above, the requested order meets the
standards set forth in Section 26(c) and
should, therefore, be granted.
For the Commission, by the Division of
Investment Management, pursuant to
delegated authority.
Jill M. Peterson,
Assistant Secretary.
[FR Doc. E5–3279 Filed 6–23–05; 8:45 am]
BILLING CODE 8010–01–P
SECURITIES AND EXCHANGE
COMMISSION
Sunshine Act Meetings
Notice is hereby given, pursuant to
the provisions of the Government in the
Sunshine Act, Pub. L. 94–409, that the
Securities and Exchange Commission
will hold the following meetings during
the week of June 27, 2005:
An Open Meeting will be held on
Wednesday, June 29, 2005, at 10 a.m. in
Room L–002, the Auditorium, at the
Securities and Exchange Commission’s new
headquarters located at 100 F Street, NE., and
a Closed Meeting will be held on Thursday,
June 30, 2005 at 2 p.m.
Commissioners, Counsel to the
Commissioners, the Secretary to the
Commission, and recording secretaries
will attend the Closed Meeting. Certain
E:\FR\FM\24JNN1.SGM
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]]>Agencies
[Federal Register Volume 70, Number 121 (Friday, June 24, 2005)]
[Notices]
[Pages 36666-36670]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E5-3279]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. IC-26910; File No. 812-13127]
GE Life and Annuity Assurance Company, et al., Notice of
Application
June 17, 2005.
AGENCY: The Securities and Exchange Commission (``Commission'').
ACTION: Notice of application for an Order pursuant to Section 26(c) of
the Investment Company Act of 1940 (``1940 Act'').
-----------------------------------------------------------------------
Applicants: GE Life and Annuity Assurance Company and GE Capital
Life Assurance Company of New York (collectively, the ``Companies''),
and GE Capital Life Separate Account II and GE Life & Annuity Separate
Account II and GE Life & Annuity Separate Account 4 (collectively, the
``Separate Accounts'') (the Companies and the Separate Accounts
collectively referred to as the ``Applicants'').
Summary of the Application: Applicants request an Order pursuant to
Section 26(c) of the 1940 Act to permit the substitution of shares of
the GE Investments Funds, Inc.--Global Income Fund (``GE Global
Fund''), currently held in the Separate Accounts, for shares of the
Franklin Templeton Variable Insurance Products Trust--Templeton Global
Income Securities Fund--Class 1 (``FT Global Fund'').
[[Page 36667]]
Filing Date: The application was filed on September 17, 2004, and
amended and restated on June 2, 2005.
Hearing or Notification of Hearing: An order granting the
application will be issued unless the Commission orders a hearing.
Interested persons may request a hearing by writing to the Commission's
secretary and serving applicants with a copy of the request, personally
or by mail. Hearing requests should be received by the Commission by
5:30 p.m. on July 12, 2005, and should be accompanied by proof of
service on the 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 Commission's secretary.
ADDRESSES: Secretary, Securities and Exchange Commission, 100 F Street,
NE., Washington, DC 20549-9303. Applicants, Heather Harker, Vice
President and Associate General Counsel, Genworth Financial, 6610 West
Broad Street, Richmond, Virginia 23230.
FOR FURTHER INFORMATION CONTACT: Mark Cowan, Senior Counsel, or Zandra
Bailes, Branch Chief, Office of Insurance Products, Division of
Investment Management, at (202) 551-6795.
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, 100 F Street, NE., Room 1580,
Washington, DC 20549 (telephone (202) 551-5850).
Applicant's Representations
1. GE Life and Annuity Assurance Company (``GELAAC''), located at
6610 West Broad Street, Richmond, Virginia 23230, is a stock life
insurance company incorporated under the laws of the Commonwealth of
Virginia and operating under a charter granted by the Commonwealth in
1871. GELAAC principally offers annuity contracts, guaranteed
investment contracts, funding agreements and life insurance. GELAAC is
licensed to do business in the District of Columbia and all states
except New York. GELAAC is an indirect wholly-owned subsidiary of
Genworth Financial, Inc. (``Genworth''), a publicly-traded company.
General Electric Company (``GE''), through its indirect wholly owned
subsidiary, GE Financial Assurance Holdings, Inc., owns approximately
70% of the outstanding common stock of Genworth.
2. GE Life & Annuity Separate Account II (``Separate Account II'')
was established by GELAAC pursuant to the laws of the Commonwealth of
Virginia on August 21, 1986 as a segregated asset account and is
registered under the 1940 Act as a unit investment trust (File No. 811-
4885). Separate Account II supports variable life insurance policies,
the interests in which are registered under the Securities Act of 1933
(the ``1933 Act'') (File Nos. 33-09651, 333-32071, 333-82311, 333-
41031, and 333-111208).
3. GE Life & Annuity Separate Account 4 (``Separate Account 4'')
was established by GELAAC pursuant to the laws of the Commonwealth of
Virginia on August 19, 1987 as a segregated asset account and is
registered under the 1940 Act as a unit investment trust (File No. 811-
5343). Separate Account 4 supports deferred variable annuity contracts,
the interests in which are registered under the 1933 Act (File Nos. 33-
17428, 33-76336, 33-76334, 333-96513, 333-62695, and 333-63531).
4. GE Capital Life Assurance Company of New York (``GECLANY''),
located at 622 Third Avenue, 33rd Floor, New York, New York 10017, is a
stock life insurance company that was incorporated under the laws of
the State of New York in 1988. GECLANY principally offers variable
annuities and variable life insurance policies. GECLANY is licensed to
do business in the State of New York. GECLANY is an indirect, wholly-
owned subsidiary of Genworth.
5. GE Capital Life Separate Account II (``Capital Account II'') was
established by GECLANY pursuant to the laws of the State of New York on
April 1, 1996 as a segregated asset account and is registered under the
1940 Act as a unit investment trust (File No. 811-8475). Capital
Account II supports deferred variable annuity contracts, the interests
in which are registered under the 1933 Act (File No. 333-39955).
6. Each variable annuity contract and variable life insurance
policy (collectively, the ``Contracts'') issued by the Companies
through the Separate Accounts has a variable investment component that
allows an investor to allocate purchase payments among a specific menu
of underlying mutual fund options. Some of the Contracts also provide
for a fixed account allocation, which is supported by the assets of the
Company's general account. The Separate Accounts maintain separate sub-
accounts for each underlying mutual fund available under the Contracts.
Contract owners may currently choose to have purchase payments
allocated to one or more sub-accounts, each of which invests in an
underlying mutual fund.
7. The current prospectuses for the Contracts, and the Contracts
themselves, contain provisions stipulating the Companies' right to
substitute shares of one underlying mutual fund for shares of another
underlying mutual fund in the event that: (i) the underlying mutual
fund option currently available under the Contracts is no longer
available for investment by the Separate Accounts; or (ii) in the
judgment of the Company's management, further investment in currently
available underlying mutual fund shares is inappropriate in view of the
purposes of the Contracts.
8. None of the Contracts are being actively marketed by the
Companies. Although existing Contract owners are permitted to make
additional subsequent purchase payments, the Companies do not
anticipate acquiring new assets through new Contract owners.
9. The GE Global Fund is a series of GE Investments Funds, Inc.
(``GIF''). GIF is registered with the Commission as an open-end
management investment company and presently consists of 14 separate
series (File Nos. 2-91369; 811-04041). GE Asset Management Incorporated
(``GEAM'') is the investment adviser and administrator of the GE Global
Fund. GEAM is a wholly-owned subsidiary of GE and, by virtue of GE's
indirect ownership of approximately 70% of the outstanding common stock
of Genworth, could be deemed to be an affiliated person of the
Companies. The GE Global Fund is available only through the Contracts,
which as noted previously are no longer being sold by the Companies.
10. Applicants have been informed that GEAM wishes to liquidate the
GE Global Fund and terminate its operations. GEAM has explained to
Applicants that the GE Global Fund was created to serve as an
investment option for variable annuity contracts and variable life
insurance policies offered by GE-affiliated insurers. According to
GEAM, the GE Global Fund has not attracted sufficient assets to grow to
an efficient size and there is no realistic expectation that it will do
so in the future as the Contracts are no longer actively marketed by
the Companies. Thus, it is not anticipated that the GE Global Fund will
attain economies of scale and the benefits associated therewith.
Additionally, the GE Global Fund consistently has been out-performed by
other mutual funds with similar objectives. In light of these factors,
GEAM has presented the GIF Board of Directors with a proposal to
liquidate the GE Global Fund and the
[[Page 36668]]
GIF Board has determined that liquidating the GE Global Fund is in the
best interest of shareholders.
11. In light of the foregoing, Applicants propose to substitute
shares of the GE Global Fund with shares of the FT Global Fund. The FT
Global Fund is a series of the Franklin Templeton Variable Insurance
Products Trust (File Nos. 33-23493; 811-5583). The FT Global Fund and
its investment adviser, Franklin Advisers, Inc., are not affiliated
with the Companies or their Separate Accounts.
12. Applicants believe that the FT Global Fund is an appropriate
substitute for the GE Global Fund because the FT Global Fund has: (i)
investment objectives, strategies and risks that are substantially
similar to those of the GE Global Fund; (ii) lower total operating
expenses than the GE Global Fund; (iii) a larger asset base than the GE
Global Fund; and (iv) returns that demonstrate that it has
significantly outperformed the GE Global Fund.
13. The discussion below compares the investment objectives,
investment risks and strategies of the GE Global Fund and the FT Global
Fund. Applicants submit that the investment objectives, strategies and
risks of the GE Global Fund are substantially similar to those of the
FT Global Fund.
14. GE Global Fund--Investment Objectives and Strategies. The GE
Global Fund seeks high return, emphasizing current income, and, to a
lesser extent, capital appreciation. The GE Global Fund seeks to
achieve its objective by investing in a combination of foreign and
domestic debt securities, with an emphasis in foreign debt securities.
Under normal circumstances, the Fund invests in securities of companies
or governments representing at least three different countries, one of
which may be the United States. The particular types of securities in
which the Fund invests include foreign government securities, foreign
and domestic corporate bonds, U.S. Government securities, and money
market instruments. The Fund may invest up to 25% of its net assets in
below-investment grade debt securities rated B or higher by S&P or
Moodys (or otherwise comparably rated). Of that 25%, no more than 10%
may be represented by securities in the B rating category. The Fund may
also invest in securities of emerging market issuers and in
derivatives. In selecting investments for the Fund, the portfolio
manager considers factors such as: currency and interest rate trends;
the instrument's duration; yield; issuer credit quality; and prospects
for capital appreciation. The Fund is non-diversified as defined by
Section 5(b)(2) of the 1940 Act.
15. GE Global Fund--Investment Risks. Because the GE Global Fund
invests primarily in debt securities, the principal risks of investing
in this Fund are interest rate and credit risk. The Fund is also
subject to foreign securities risk because its assets are invested in
securities of issuers from around the world, including issuers located
or doing business in emerging markets, which exposes the Fund to
emerging markets risk. To the extent the Fund invests in below-
investment grade debt securities, the Fund is subject to the risks
associated with high-yield, lower-rated instruments. Finally, the Fund
may invest in derivative instruments which carry derivative instruments
risk.
16. FT Global Fund--Investment Objectives and Strategies. The
Fund's investment objective is high current income, consistent with
preservation of capital. Capital appreciation is a secondary
consideration. Under normal market conditions, the Fund invests mainly
in debt securities of governments and their political subdivisions and
agencies, supranational organizations and companies located anywhere in
the world, including emerging markets. Under normal circumstances, the
Fund's assets are invested in issuers in at least three countries, one
of which may be the United States. The Fund focuses on investment grade
debt securities but may invest up to 30% of its net assets in lower-
rated securities, including debt obligations of emerging market
issuers, and up to 10% in defaulted debt securities. The manager
allocates the Fund's assets among issuers, geographic regions, and
currencies based upon its assesment of: Relative interest rates among
currencies, outlook for changes in interest rates, and credit risks.
The Fund is non-diversified as defined by Section 5(b)(2) of the 1940
Act.
17. FT Global Fund--Investment Risks. Like the GE Global Fund, the
FT Global Fund is subject to interest rate and credit risk with respect
to its investments in debt securities. Because the Fund invests its
assets around the world, the Fund is also subject to foreign securities
risk as well as emerging markets risk. To the extent the Fund invests
in below-investment grade debt securities, the Fund will be subject to
the risks associated with high yield, lower-rated instruments. In
addition, as the manager uses derivatives in managing the portfolio,
the Fund is subject to the risks associated with those instruments.
18. The table below compares the audited fees and expenses (as of
December 31, 2004) of the GE Global Fund and the FT Global Fund. As the
table reflects, the total expenses of the FT Global Fund are lower than
those of the GE Global Fund.
------------------------------------------------------------------------
GE Global FT Global
fund fund
(percent) (percent)
------------------------------------------------------------------------
Management Fees............................... 0.60 0.62
Other Expenses................................ 0.26 0.16
12b-1 Fees.................................... None None
--------------
Total Expenses.............................. 0.86 0.78
------------------------------------------------------------------------
19. The table below compares the asset size of the GE Global Fund
and the FT Global Fund as well as their respective performance history
as of December 31, 2004.
------------------------------------------------------------------------
GE Global FT Global
fund fund
(percent) (percent)
------------------------------------------------------------------------
Inception Date................................ 05/01/97 01/24/89
Net Assets (in millions)...................... $16.7 $49.5
------------------------------------------------------------------------
Average Annual Total Return for the Periods Ended December 31, 2004
------------------------------------------------------------------------
1 Year....................................... 5.72 15.09
3 Years....................................... 12.55 19.79
5 Years....................................... 6.84 12.91
10 Years...................................... N/A 9.08
------------------------------------------------------------------------
20. The prospectuses, as well as the Contracts, state that the
Companies may substitute, eliminate, and/or combine shares of one
mutual fund for shares of another mutual fund already purchased or to
be purchased in the future if either of the following occurs: (i)
Shares of a current mutual fund are no longer available for investment;
or (ii) in the judgment of our Company's management, investment in a
mutual fund's shares are inappropriate for purposes of the Contracts.
21. Applicants note that in view of the fact that GEAM has proposed
to liquidate the GE Global Fund, Applicants are exercising their
contractual right, subject to Commission approval, to provide Contract
owners with alternative investment options through a substitution
transaction. Applicants have taken several steps toward accomplishing
the proposed substitution. The Companies have added the FT Global Fund
to the Contract registration statements via a post-effective amendment
and have delivered a current prospectus for the FT Global Fund to all
Contract owners. In addition, supplements have been sent
[[Page 36669]]
to all Contract owners informing Contract owners that the Companies
have filed an application with the Commission to effect a substitution
of shares of the FT Global Fund for shares of the GE Global Fund. The
substitution transaction will be effected on a date designated by the
Companies (the ``Exchange Date'').
22. Contract owners also will be advised that they are free to
transfer assets from the GE Global Fund to any of the investment
options available under the Contracts, in accordance with the terms of
the Contracts, in advance of the Exchange Date without the imposition
of any restrictions or fees. Likewise, after the Exchange Date,
Contract owners affected by the substitution will be free to transfer
assets from the FT Global Fund to any other investment option without
restriction or the imposition of any fees for at least thirty (30) days
after the Exchange Date. Contract owners may still be restricted to
trade via U.S. mail or overnight delivery service as described in the
current prospectus. All necessary forms and other information necessary
for Contract owners to effectuate exchanges among investment options
will continue to be provided. In addition, Applicants represent that
they will not exercise their right to impose a fee on transfers
involving the GE Global Fund during the thirty day period leading up to
the substitution or on transfers involving the FT Global Fund during
the thirty day period following the substitution. Moreover, Applicants
presently permit Contract owners to make unlimited transfers. However,
any transfer after the 12th in a calendar year must be submitted by
U.S. mail or overnight delivery. Applicants represent that they will
honor, during the 30 day periods prior to and after the substitution,
one transfer request involving the FT Global Fund that is not submitted
by U.S. mail or overnight delivery by a Contract owner who has exceeded
or, because of such transfer, will exceed the 12 transfer limitation.
23. On the Exchange Date, shares of the GE Global Fund held by the
Separate Account will be redeemed. Contemporaneously with this
redemption, proceeds received from the GE Global Fund will be used to
purchase shares in the FT Global Fund. All shares will be purchased and
redeemed at each Fund's current net asset value per share next computed
after receipt of the purchase and redemption requests, consistent with
Section 22(c) of the 1940 Act and Rule 22c-1 thereunder. Applicants
submit that there will be no change in the amount of any Contract
owner's Contract value or in the dollar value of his or her investment
in the Separate Account. Fees charged under the Contracts will not
increase because of the substitution. In addition, no charges will be
assessed in connection with the substitution transaction. The Companies
will bear all of the costs (including legal, accounting, brokerage, and
other expenses) associated with the substitution. The proposed
substitution will not impose any tax liability on Contract owners and
will not cause the fees and charges currently being paid by existing
Contract owners to be greater after the proposed substitution than
before the proposed substitution. The substitution will in no way alter
the insurance benefits to Contract owners or the contractual
obligations of the Companies.
24. Within five (5) days after the Exchange Date, all Contract
owners affected by the substitution transaction will receive a written
confirmation. The confirmation will state that Contract owners may
transfer Contract value allocated to the FT Global Fund as a result of
the substitution transaction to any other available sub-accounts. The
notice will also reiterate that the Companies will not exercise any
right reserved by them under the Contracts to impose any fees on
transfers involving the FT Global Fund until at least thirty (30) days
after the Exchange Date. However, as discussed above, Contract owners
who have exceeded the 12 transfer limitation may be required to submit
transfer requests involving the Funds by U.S. mail or overnight
delivery.
Applicants' Legal Analysis
1. Section 26(c) of the 1940 Act prohibits a depositor or trustee
of a registered unit investment trust holding the securities of the
single issuer from substituting another security for such security
unless the Commission approves the substitution, finding that it is
consistent with the protection of investors and the purposes fairly
intended by the policy and provisions of the 1940 Act.
2. The legislative history makes clear that the purpose of Section
26(c) is to protect the expectation of investors in a unit investment
trust that the unit investment trust will accumulate shares of a
particular issuer by preventing unscrutinized substitutions that might,
in effect, force shareholders dissatisfied with the substituted
security to redeem their shares, thereby possibly incurring either a
loss of the sales load deducted from initial premium payments, an
additional sales load upon reinvestment of the redemption proceeds, or
both. Moreover, in the insurance product context, a contract owner
forced to redeem may suffer adverse tax consequences. Section 26(c)
affords protection to investors by preventing a depositor or trustee of
a unit investment trust that holds shares of one issuer from
substituting for those shares the shares of another issuer, unless the
Commission approves that substitution.
3. Applicants submit that the proposed substitution is in the best
interests of Contract owners and will not give rise to the type of
costly forced redemption that Section 26(c) was intended to guard
against. Applicants further submit that, for the reasons discussed
below, the Commission should find that the substitution is consistent
with the protection of investors and the purposes fairly intended by
the 1940 Act.
4. Applicants have proposed the substitution in response to GEAM's
decision to recommend the liquidation of the GE Global Fund to the GIF
Board of Directors. Applicants have been informed that the GIF Board
believes it is in the best interest of shareholders to liquidate the GE
Global Fund and is expected to act on GEAM's proposal pending the
outcome of the application. As discussed previously, GEAM proposed the
liquidation because the GE Global Fund has not attracted assets
sufficient to achieve economies of scale, and the Fund's performance
has lagged behind that of its peers. Because the GE Global Fund is
available only through the Contracts and the Companies no longer sell
the Contracts, there is no realistic expectation that the GE Global
Fund will grow in size.
5. Applicants submit that the FT Global Fund is an appropriate
substitute for the GE Global Fund. The FT Global Fund has investment
objectives, strategies and risks that are substantially similar to
those of the GE Global Fund. Accordingly, the proposed substitution
should not cause Contract owners to surrender their Contracts for
purposes of seeking out other investment opportunities in order to
maintain a desired investment strategy. On the contrary, Applicants
believe that the FT Global Fund should provide Contract owners with
continuity of investment objectives and expectations. In this
connection, Applicants submit that the Funds have substantially similar
investment objectives as they both seek high returns, with an emphasis
on current income. Capital appreciation is a secondary consideration
for both Funds. The investment strategies of the Funds are also
substantially similar as both Funds invest primarily in debts
securities of issuers from around the
[[Page 36670]]
world. The assets of each Fund are represented by issuers from at least
three countries, one of which may be the United States. In addition,
both Funds may invest in securities of issuers located, or that do
business in, emerging markets. Although the Funds have authority to
invest in below-investment grade debt securities, they both focus their
investments on investment-grade debt. And, while the FT Global Fund may
invest a greater percentage of its assets in below-investment grade
debt than the GE Global Fund (30% vs. 25%), Applicants submit that this
limited flexibility does not significantly or meaningfully increase the
risk profile of the FT Global Fund as compared to that of the GE Global
Fund because of the FT Global Fund's stated focus on investment-grade
debt. In fact, the average credit quality of the debt securities
comprising the FT Global Fund as of December 31, 2004 was AA-/A+.
Moreover, annual returns, which can provide an indication of the risks
of investing in a fund, demonstrate that, year after year, the FT
Global Fund is a more consistent performer than the GE Global Fund.
Furthermore, the FT Global Fund's consistently higher income ratios
strongly suggest that the Fund's investment approach to achieving its
objective of high current income is superior to and more effective than
the GE Global Fund's approach.
6. Because both Funds have substantially similar objectives and
strategies, their portfolios are subject to the same types of principal
risks, including the following: Interest rate risk, credit risk,
foreign securities risk, emerging markets risk, derivatives risk, and
non-diversification risk.
7. Furthermore, the performance history of the FT Global Fund is
significantly better than that of the GE Global Fund. Given the reasons
offered by GEAM for the liquidation of the GE Global Fund, Applicants
believe that the FT Global Fund should continue to outperform the GE
Global Fund. Factoring into this conclusion is the fact that the FT
Global Fund has substantially greater assets than the GE Global Fund.
This creates the opportunity for better performance because the FT
Global Fund's fixed costs are spread across a larger number of
shareholders. The economies of scale inherent in the FT Global Fund's
greater asset size will be passed to Contract owners.
8. Importantly, the total operating expenses of the FT Global Fund
are lower than those of the GE Global Fund. Given that there is no
expectation for any significant growth in the assets of the GE Global
Fund, Applicants believe that the expenses of the GE Global Fund will
remain higher than those of the FT Global Fund. Thus, the substitution
will not result in Contract owners paying a higher level of expenses.
9. Applicants asset that after taking all of these factors into
consideration--namely that (1) the investment objectives, strategies
and risks of the Funds are substantially similar, (2) the FT Global
Fund consistently has outperformed the GE Global Fund, (3) the FT
Global Fund has produced a higher level of income for its shareholders
year after year, (4) the FT Global Fund has lower operating expenses
than the GE Global, and (5) the GIF Board has determined that the
liquidation of the GE Global Fund would be in the best interests of its
shareholders--if Contract owners are not satisfied with the FT Global
Fund as a replacement for the GE Global Fund, it is important to note
that they will have a myriad of options under their Contracts, managed
by a diverse group of quality investment advisers, from which to choose
if they decide to transfer their assets.
10. Furthermore, the Companies submit that the substitution and the
selection of the FT Global Fund were not motivated by any financial
consideration paid or to be paid to the Companies or their affiliates
by the FT Global Fund, its advisor or underwriter, or their respective
affiliates. In this connection, Applicants represent that the Companies
will not receive, for 36 months following the Exchange Date, any direct
or indirect benefits from the FT Global Fund, its advisor or
underwriter (or their affiliates) at a rate higher than that which they
had received from the GE Global Fund, its advisor or underwriter (or
their affiliates), including without limitation 12b-1, shareholder
service, administration or other service fees, revenue sharing or other
arrangements.
11. In addition to the foregoing, Applicants submit that the
proposed substitution satisfies the standards of Section 26(c) because:
(a) The costs of the substitution, including any brokerage costs,
will be borne by the Companies and will not be borne by Contract
owners. No charges will be assessed to effect the substitution.
(b) The substitution will be effected at the net asset values of
the respective shares without the imposition of any transfer or similar
charge and with no change in the amount of any Contract owner's
accumulation value.
(c) The Substitution will not cause the fees and charges under the
Contracts currently being paid by Contract owners to be greater after
the substitution than before the substitution.
(d) All Contract owners will be given prior notice of the
substitution and will have an opportunity for 30 days after the
Exchange Date to reallocate Contract value among other available sub-
accounts without the restriction or the imposition of any fees.
(e) Within five days after the substitution, the Companies will
send to affected Contract owners written confirmation that the
substitution has occurred.
(f) The substitution will in no way alter the insurance benefits to
Contract owners or the contractual obligations of the Companies.
(g) The substitution will have no adverse tax consequences to
Contract owners and will in no way alter the tax benefits to Contract
owners.
Conclusion: Applicants request an order of the Commission pursuant
to Section 26(c) of the 1940 Act approving the Substitution. Section
26(c), in pertinent part, provides that the Commission shall issue an
order approving a substitution of securities if the evidence
establishes that it is consistent with the protection of investors and
the purposes fairly intended by the policy and provisions of the Act.
Thus, Applicants assert that, for the reasons and upon the facts set
forth above, the requested order meets the standards set forth in
Section 26(c) and should, therefore, be granted.
For the Commission, by the Division of Investment Management,
pursuant to delegated authority.
Jill M. Peterson,
Assistant Secretary.
[FR Doc. E5-3279 Filed 6-23-05; 8:45 am]
BILLING CODE 8010-01-P
