[Federal Register Volume 61, Number 173 (Thursday, September 5, 1996)]
[Notices]
[Pages 46876-46879]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-22625]


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SECURITIES AND EXCHANGE COMMISSION
[Investment Company Act Release No. 22187; 812-9838]


GE Funds, et al.; Notice of Application

August 29, 1996.
AGENCY: Securities and Exchange Commission (``SEC'').

ACTION: Notice of Application for an Order under the Investment Company 
Act of 1940 (the ``Act'').

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APPLICANTS: Elfun Trusts, Elfun Global Fund, Elfun Diversified Fund, 
Elfun Tax-Exempt Income Fund, Elfun Income Fund (collectively, the 
``Elfun Funds''), Variable Investment Trust (``Variable Trust''), GE 
S&S Program Mutual Fund, GE S&S Long-Term Interest Fund (collectively, 
all of the foregoing are the ``Registered Investing Entities''), 
General Electric Pension Trust, GE Savings and Security (collectively, 
the previous two are the ``Retirement Trusts''), GE Insurance Plan 
Trust, Ge Medical Care Trust for Pensioners, GE General Relief and Loan 
Funds (collectively, the previous three are the ``Welfare Trusts''), GE 
Investments International Fund, GE Investment International Fund--NYC, 
GE Investments Group Trust (collectively, the previous three are the 
``Group Trusts''), GE Investments Canada Fund (the ``Canada Fund''), GE 
Investment Realty Partners I, GE Investment Realty Partners II, GE 
Investment Realty Partners III, GE Investment Hotel Partners I 
(collectively, the previous four arethe ``Limited Partnerships'') 
collectively, all of the foregoing are the ``Investing Entities'', GEI 
Short-Term Investment Fund (the ``Investment Trust''), GE Investment 
Management Incorporated (``GEIM''), and General Electric Investment 
Corporation (``GEIC'').

RELEVANT ACT SECTIONS: Order of exemption requested pursuant to section 
6(c) of the Act from section 12(d)(1), under sections 6(c) and 17(b) 
that would grant an exemption from section 17(a), and under rule 17d-1 
to permit certain transactions in accordance with section 17(d) and 
rule 17d-1.

SUMMARY OF APPLICATION: Applicants request an order to permit the 
Investing Entities to purchase shares of the Investment Trust for cash 
management purposes.

FILING DATES: The applicant was filed on October 31, 1995 and amended 
on July 24, 1996. Applicants have agreed to file an amendment, the 
substance of which is incorporated herein, during the notice period.

HEARING OR NOTIFICATION OF HEARING: An order granting the application 
will be issued unless the SEC orders a hearing. Interested persons may 
request a hearing by writing to the SEC's Secretary and serving 
applicants with a copy of the request, personally or by mail. Hearing 
requests should be received by the SEC by 5:30 p.m. on September 24, 
1996, 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, NW., Washington, DC 20549. 
Applicants, 3003 Summer Street, Stamford, Connecticut 06905.

FOR FURTHER INFORMATION CONTACT: Elaine M. Boggs, Staff Attorney, at 
(202) 942-0572, or Alison E. Baur, 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.

[[Page 46877]]

Applicants' Representations

    1. The GE Funds, the Elfun Funds, the Variable Trust, and the S&S 
Funds are registered open-end management investment companies that are 
organized either under the laws of Connecticut, Massachusetts or New 
York. Certain of the foregoing funds are organized as series companies. 
In addition, the Elfun Funds and the S&S Funds are employee securities 
companies as defined in section 2(a)(13) of the Act. The Retirement 
Trusts hold assets for the benefit of current and previous employees of 
General Electric Company (``GE'') and its affiliates. The Welfare 
Trusts hold the assets of various health and welfare benefit plans for 
the benefit of current or previous employees of GE and its affiliates. 
The Group Trusts are each a pooled trust established by GEIM for the 
pooled investment of pension and profit sharing plans and certain 
governmental plans which are exempt from federal income taxation. The 
Canada Fund is a fund governed by the laws of Canada and established 
for the pooled investment by pension funds sponsored by an employer for 
the benefit of its employees. The Limited Partnerships are investment 
limited partnerships established for the purposes of acquiring and 
developing real estate assets and are offered only to ``accredited 
investors'' with the meaning of Rule 501 of Regulation D under the 
Securities Act of 1933.
    2. GEIM provides investment advisory and administrative services to 
the GE Funds, the Variable Trust, and the Canada Fund. GEIM also 
provides investment management services to the Limited Partnerships in 
its capacity as general partner. GEIC provides investment advisory and/
or administrative services to the Elfun Funds, the S&S Funds, the 
Retirement Trusts, the Welfare Trusts, the Group Trusts, and the Canada 
Fund. Both GEIM and GEIC are wholly-owned subsidiaries of GE.
    3. The Investment Trust will be organized as a New Hampshire 
investment trust and will be excluded from the definition of investment 
company under section 3(c)(1) of the Act. Shares will be non-voting and 
will be offered only to the Investing Entities. The Investment Trust 
will invest exclusively in certain short-term money market instruments, 
will maintain a dollar weighted average portfolio maturity of ninety 
days or less, and will not purchase any security with a remaining 
maturity of greater than 397 days. GEIM will serve as investment 
adviser to the investment trust.
    4. Each Investing Entity has, or may be expected to have, 
uninvested cash held by its custodian bank. Such cash may result from a 
variety of sources, including dividends or interest received on 
portfolio securities, unsettled securities transactions, reserves held 
for investment strategy purposes, scheduled maturity of investments, 
liquidation of investment securities to meet anticipated redemptions 
and dividend payments, and new monies received from investors. 
Applicants propose that the Investing Entities be able to invest such 
uninvested cash in shares of the Investment Trust. In addition, to 
facilitate the establishment of the Investment Trust, relief is also 
being requested to allow a Registered Investing Entity to participate 
initially in the Investment Trust through a one-time contribution of 
portfolio securities.
    5. Applicants request that relief be extended to any investment 
adviser controlled by or common control with GEIM or GEIC 
(collectively, the ``Advisers''). In addition, applicants request that 
relief be extended to all future registered investment companies and 
series thereof, future pension plans, or future limited partnerships 
for which an Adviser may act as investment adviser. (Such entities are 
also the ``Investing Entities'' and/or ``Registered Investing 
Entities.'') In no case will an Investing Entity be a registered 
investment company that values its assets in accordance with rule 2a-7 
under the Act.

Applicants' Legal Analysis

A. Section 12(d)(1)

    1. Section 12(d)(1)(A) of the Act prohibits any registered 
investment company (the ``acquiring company'') or any company or 
companies controlled by such acquiring company to purchase any security 
issued by any other investment company (the ``acquired company'') if 
such purchase will result in the acquiring company or companies it 
controls owning in the aggregate (a) more than 3% of the outstanding 
voting stock of the acquired company, (b) securities issued by the 
acquired company with an aggregate value in excess of 5% of the 
acquiring company's total assets, or (c) securities issued by the 
acquired company and all other investment companies with an aggregate 
value in excess of 10% of the value of the acquiring company's total 
assets. Section 12(d)(1)(B) prohibits a registered investment company 
(the ``acquired company'') from selling any security to another 
investment company (the ``acquiring company'') if such sale will result 
in (a) more than 3% of the outstanding stock of the acquired company is 
owned by the acquiring company and more than 10% of the total 
outstanding voting stock of the acquired company is owned by the 
acquiring company or other investment companies.
    2. Applicants state that, while the size of the Investment Trust 
may vary significantly from day to day, it is likely that one or more 
of the Investing Entities would have an investment in the Investment 
Trust that would exceed the section 12(d)(1) limits. In addition, 
applicants propose that each Registered Investing Entity be permitted 
to invest in, and holding shares of, the Investment Trust to the extent 
that a Registered Investing Entity's aggregate investment in the 
Investment Trust at the time the investment is made does not exceed 25% 
of the Registered Investing Entity's total assets. Accordingly, 
applicants seek an exemption from the provisions of section 12(d)(1) to 
the extent necessary to implement the proposed transactions.
    3. Applicants state that the Investment Trust will be excluded from 
the definition of investment company under section 3(c)(1).\1\ 
Applicants further state that the Investment Trust will issue any non-
voting securities. Applicants request relief from section 12(d)(1), 
however, because they are concerned that the Investment Trust's non-
voting securities could be deemed to be ``voting securities'' for 
purposes of section 3(c)(1). Applicants believe that if interests in 
the Investment Trust were deemed to be ``voting securities,'' 
applicants then must rely on the second 10% test of section 3(c)(1) in 
order to avoid a look through to the shareholders of the Investing 
Entities for purposes of determining the number of persons owning 
shares of the Investment Trust. Reliance on the second 10% test would

[[Page 46878]]

cause the Investment Trust to be deemed an investment company for 
purposes of section 12(d) of the Act pursuant to the last sentence of 
section 3(c)(1)(A).
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    \1\ Section 3(c)(1) provides, in pertinent part, that the term 
``investment company'' shall not include:
    Any issuer whose outstanding securities (other than short-term 
paper) are beneficially owned by not more than one hundred persons 
and which is not making and does not presently propose to make a 
public offering of its securities. For purposes of this paragraph:
    (A) Beneficial ownership by a company shall be deemed to be 
beneficial ownership by one person, except that, if the company owns 
10 per centum or more of the outstanding voting securities of the 
issuer, the beneficial holders of such company's outstanding 
securities (other than short-term paper) unless, as of the date of 
the most recent acquisition by such company of securities of that 
issuer, the value of all securities owned by such company of all 
issuers which are or would, but for the exception set forth in this 
subparagraph, be excluded from the definition of investment company 
solely by this paragraph, does not exceed 10 per centum of the value 
of the company's total assets. Such issuer nonetheless is deemed to 
be an investment company for purposes of section 12(d)(1).
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    4. Section 6(c) permits the SEC to exempt any person or transaction 
from any provision of the Act, if such exemption is necessary or 
appropriate in the public interest and consistent with the protection 
of investors and the purposes fairly intended by the policies of the 
Act. For the reasons provided below, applicants argue that the 
requested order meets the section 6(c) standards.
    5. Applicants believe that relief is appropriate to permit the 
Registered Investing Entities to invest in the Investment Trust because 
a private investment company is less expensive to operate than a 
registered investment company. In addition, applicants state that the 
use of a private investment company would maximize participation in the 
Investment Trust, thereby facilitating the ability of the Trust to 
obtain the advantages of a larger size.
    6. Applicants believe that at any given time it is possible that 
25% or more of an Investing Entity's total assets may be comprised of 
uninvested cash. Cash balances of this size may result from volatility 
in the marketplace, from cash collateral that is derived from 
securities lending transactions and cash generated from mortgage dollar 
rolls, and for other reasons. In addition, applicants believe that the 
Investment Trust need not be limited to making investments in eligible 
money market instruments under rule 2a-7 because the Investing Entities 
do not hold themselves out as money market funds subject to the 
constraints of rule 2a-7.
    7. Applicants state that section 12(d)(1) is intended, among other 
things, to protect an investment company's shareholders against (a) 
undue influence over portfolio management through the threat of large-
scale redemptions, and the disruption of orderly management of the 
investment company through the maintenance of large cash balances to 
meet potential redemptions and (b) the layering of sales charges, 
advisory fees, and administrative costs. Applicants state that the 
Investment Trust will be managed specifically to maintain a highly 
liquid portfolio and that access to the Investment Trust will enhance 
each Investing Entity's ability to manage and invest cash. In addition, 
the Investment Trust will not charge any sales charges, underwriting or 
distribution fees, or advisory fees. Therefore, applicants believe none 
of the perceived abuses meant to be addressed by section 12(d)(1) is 
created by the proposed transactions.

B. Section 17(a)

    1. Section 17(a) of the Act generally prohibits sales or purchases 
of securities between a registered investment company and any 
affiliated person of that company. Section 2(a)(3) of the Act defines 
an affiliated person of an investment company to include any person 
that owns more than 5% of the outstanding voting securities of that 
company and any investment adviser of the investment company and any 
person directly or indirectly controlling, or under common control 
with, such investment adviser. As the investment adviser to the 
Investment Trust, each Adviser may be deemed to be an ``affiliated 
person'' under section 2(a)(3), and as members of the same complex of 
funds and other investment entities, with the same investment adviser 
and similar members of the boards of directors or trustees, the 
Registered Investing Entities and the Investment Trust may be 
considered affiliated persons of each other.
    2. The sale by the Investment Trust of its shares to the Registered 
Investing Entities could be deemed to be a principal transaction 
between affiliated persons that is prohibited under section 17(a). 
Therefore, applicants request an order to permit the Investment Trust 
to sell its shares to the Registered Investing Entities and to allow 
the redemption of such shares from the Registered Investing Entities. 
In addition, applicants request an order to allow the Registered 
Investing Entities to make a one-time contribution of portfolio 
securities to the Investment Trust.
    3. Section 17(b) permits the SEC to grant an order permitting a 
transaction otherwise prohibited by section 17(a) if it finds that the 
terms of the proposed transaction are fair and reasonable and do not 
involve overreaching on the part of any person concerned. Section 17(b) 
could be interpreted to exempt only a single transaction. However, the 
Commission, under section 6(c) of the Act, may exempt a series of 
transactions that otherwise would be prohibited by section 17(a). For 
the reasons stated below, applicants believe that the terms of the 
transactions meet the standards of sections 6(c) and 17(b).
    4. With respect to the relief requested from section 17(a) for the 
proposed transactions, applicants state that the terms of the proposed 
transactions are fair because the consideration paid and received for 
the sale and redemption of shares of the Investment Trust will be based 
on the net asset value per share of the Investment Trust. In addition, 
the purchase of shares of the Investment Trust by the Investing 
Entities will be effected in accordance with each Investing Entity's 
investment restrictions and policies as set forth in its registration 
statement.
    5. With respect to the one-time contribution of shares by the 
Registered Investing Entities to the Investment Trust, applicants state 
that such relief is requested primarily in order to enable the 
Investment Trust quickly to achieve a size sufficient to benefit the 
Registered Investing Entities without requiring the Registered 
Investing Entities to have to sell portfolio securities in order to 
contribute cash. The one-time contribution will comply with the 
provisions of paragraphs (a) through (f) of the rule 17a-7 \2\ under 
the Act except that the consideration for the securities contributed to 
the Investment Trust will be Investment Trust shares rather than cash.
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    \2\ Rule 17a-7 provides for purchase or sale transactions 
between registered investment companies and certain affiliated 
persons provided that certain conditions are met.
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C. Section 17(d)

    1. Section 17(d) of the Act and rule 17d-1 thereunder prohibit an 
affiliated person of an investment company, acting as principal, from 
participating in or effecting any transaction in connection with any 
joint enterprise or joint arrangement in which the investment company 
participates. The proposed transaction could be deemed to be a joint 
enterprise or other joint arrangement because the Advisers will be 
pooling uninvested cash from across a number of funds advised by the 
Advisers. In doing so, each Investing Entity will be acting 
collectively to avail themselves of the benefits afforded by pooling 
these cash balances.
    2. Rule 17d-1 permits the SEC to approve a proposed joint 
transaction. In determining whether to approve a transaction, the SEC 
is to consider whether the proposed transaction is consistent with the 
provisions, policies, and purposes of the Act, and the extent to which 
the participation of the investment companies is on a basis different 
from or less advantageous than that of the other participants. For the 
reasons stated below, applicants believe that the requested relief 
meets these standards.
    3. Applicants state that the proposed transactions would be 
beneficial to each of the participants. Applicants state that there is 
no basis on which to believe that if the uninvested cash of the 
Investing Entities were invested directly in money market instruments, 
any

[[Page 46879]]

participant would benefit to a greater extent than any other. 
Applicants also believe that a Registered Investing Entity's 
contribution of portfolio securities, in lieu of cash, in exchange for 
shares of the Investment Trust, creates no adverse effects on any other 
Investment Entity because all shares of the Investment Trust will be 
sold at net asset value.

Applicants' Conditions

    Applicants agree that any order of the SEC granting the requested 
relief will be subject to the following conditions:
    1. The shares of the Investment Trust sold to and redeemed from the 
Investing Entities will not be subject to a sales load, redemption fee, 
distribution fee under a plan adopted in accordance with rule 12b-1, or 
service fee (as defined in rule 2830(b)(9) of the National Association 
of Securities Dealers' Rules of the Association). There will be no 
investment advisory fee charged to the Investment Trust.
    2. Investment in shares of the Investment Trust will be in 
accordance with each Registered Investing Entity's respective 
investment restrictions and will be consistent with each Registered 
Investing Entity's policies as set forth in its prospectuses and 
statements of additional information.
    3. The Investment Trust shall not acquire securities of any other 
investment company in excess of the limits contained in section 
12(d)(1)(A) of the Act.
    4. A majority of the directors of each Registered Investing Entity 
(except the Elfun Funds and the S&S Funds \3\) will not be ``interested 
persons'' as defined in section 2(a)(19) of the Act.
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    \3\ Each Elfun Fund and S&S Fund is an ``employees' securities 
company'' as defined in the Act. Each of these funds has obtained an 
SEC order exempting it from section 10(a) of the Act to permit more 
than 60% of its respective trustees to be ``interested persons'' as 
defined in the Act and from section 15(c) to exempt it from the 
requirement that a majority of its disinterested trustees approve 
any renewal of its advisory contract (Elfun Funds, Investment 
Company Act Release Nos. 17038 (June 30, 1989) (notice) and 17083 
(July 25, 1989) (order) and S&S Funds, Investment Company Act 
Release Nos. 10929 (Nov. 6, 1979) (notice) and 10971 (Dec. 4, 1979) 
(order)).
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    5. Each Investing Entity, the Investment Trust, and any future fund 
that may rely on the order shall be advised by one of the Advisers or a 
person controlling, controlled by, or under common control with one of 
the Advisers.
    6. Each of the Registered Investing Entities will invest uninvested 
cash in, and hold shares of, the Investment Trust only to the extent 
that the Registered Investing Entity's aggregate investment in the 
Investment Trust does not exceed 25% of the Registered Investing 
Entity's total assets.
    7. The Investment Trust will comply with the requirements of 
sections 17(a), (d), and (e), and 18 of the Act as if the Investment 
Trust were a registered open-end investment company. With respect to 
all redemption requests made by a Registered Investing Entity, the 
Investment Trust will comply with section 22(e) of the Act. The 
Investment Trust will value its shares, as of the close of business on 
each business day in accordance with section 2(a)(41) of the Act.
    8. The Advisers shall adopt procedures designed to ensure that the 
Investment Trust complies with sections 2(a)(41), 17(a), (d), and (e), 
18, and 22(e) to the same extent that procedures for compliance with 
these sections have been adopted for the Registered Investing Entities. 
The Advisers will also periodically review and update as appropriate 
such procedures and will maintain books and records describing such 
procedures, and maintain the records required by rules 31a-1(b)(1), 
31a-1(b)(2)(ii), and 31a-1(b)(9) under the Act. All books and records 
required to be kept under this condition will be maintained and 
preserved for a period of not less than six years from the end of the 
fiscal year in which any transaction occurred, the first two years in 
an easily accessible place, and will be subject to examination by the 
SEC and its staff.
    9. Each Investing Entity will purchase and redeem shares of the 
Investment Trust as of the same time and at the same price, and will 
receive dividends and bear its proportionate shares of expenses on the 
same basis, as other shareholders of the Investment Trust. A separate 
account will be established in the shareholder records of the 
Investment Trust for the account of each Investing Entity.

    For the Commission, by the Division of Investment Management, 
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 96-22625 Filed 9-4-96; 8:45 am]
BILLING CODE 8010-01-M