[Federal Register Volume 61, Number 226 (Thursday, November 21, 1996)]
[Notices]
[Pages 59257-59259]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-29717]


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SECURITIES AND EXCHANGE COMMISSION
[Rel. No. IC--22335; 813-158]


Elfun Trust, et al.; Notice of Application

November 14, 1996.
AGENCY: Securities and Exchange Commission (``SEC'').

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

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APPLICANTS: Elfun Trusts, Elfun Tax-Exempt Income Fund, Elfun Income 
Fund, Elfun Global Fund, Elfun Diversified Fund, Elfun Money Market 
Fund, General Electric S&S Program Mutual Fund, and General Electric 
S&S Long Term Interest Fund (collectively, ``Fund'').

RELEVANT ACT SECTIONS: Order requested pursuant to section 6(b) of the 
Act for an exemption from section 2(a)(13) of

[[Page 59258]]

the Act and to amend a previous order granting relief from certain 
sections of the Act.

SUMMARY OF APPLICATION: The order would permit the beneficial owners of 
applicants, each applicant an employees' securities company, to donate 
units (``Units'') of applicants to charities of their choosing, which 
Units must, on the first business day following the later of the 90th 
day after their receipt as described in the application or the 
cessation of circumstances described in paragraphs (1)-(3) of section 
22(e) of the Act, be redeemed by the holder or involuntarily by the 
appropriate applicant, or be transferred to an investor eligible for 
investing in an Elfun Fund or an S&S Fund.

FILING DATE: The application was filed on November 13, 1996.

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 December 9, 
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, N.W., Washington, D.C. 
20549. Applicants, 3003 Summer Street, Stamford, Connecticut 06905.

FOR FURTHER INFORMATION CONTACT: Deepak T. Pai, Staff Attorney (202) 
942-0574, or Mercer E. Bullard, Branch Chief (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.

Applicants' Representations

    1. Applicants are diversified, open-end, management investment 
companies, and each is organized and operated to meet the definition of 
an ``employees' securities company'' within the meaning of section 
2(a)(13) of the Act. Elfun Trusts is a trust created pursuant to an 
agreement among the Fund's trustees dated May 27, 1935 and most 
recently amended July 18, 1978. Elfun Tax-Exempt Income Fund is a trust 
created pursuant to an agreement among the Fund's trustees dated March 
14, 1977 and most recently amended July 12, 1978. Elfun Income Fund is 
a trust created pursuant to an agreement among the Fund's trustees 
dated December 22, 1982. Elfun Global Fund is a trust created pursuant 
to an agreement among the Fund's trustees dated May 15, 1987. Elfun 
Diversified Fund is a trust created pursuant to an agreement among the 
Fund's trustees dated June 1, 1987. Elfun Money Market is a trust 
created pursuant to an agreement among its trustees dated July 15, 
1989. General Electric S&S Program Mutual Fund is a trust created 
pursuant to an agreement among the Fund's trustees dated May 1, 1967, 
as amended and restated January 1, 1976. General Electric S&S Long Term 
Interest Fund is a trust created pursuant to an agreement among the 
Fund's trustees dated as of September 15, 1979.
    2. Pursuant to prior orders issued by the SEC, each of the 
applicants has received exemptions from certain provisions of the Act 
permitting the formation of various employees' securities companies. 
Under three prior orders, the SEC has granted Elfun Trusts an exemption 
from sections 8(b), 10a, 15a, 15c, 16(b), 20(a), 22(f), 30(b)(1) and 
32(a) of the Act.\1\ The SEC also has issued orders exempting each of 
Elfun Tax-Exempt Income Fund,\2\ Elfun Income Fund,\3\ Elfun Global 
Fund,\4\ Elfun Diversified Fund \5\ and Elfun Money Market Fund \6\ 
from sections 10(a), 13(a)(4), 15(a), 15(c), 16(a), 30(d) and 32(a) of 
the Act. In addition, the order for the Elfun Tax-Exempt Income Fund 
also provided for an exemption from sections 8(b) and 22(f). Finally, 
the SEC has issued orders exempting the General Electric S&S Long Term 
Interest Fund \7\ and the General Electric S&S Program Mutual Fund \8\ 
from sections 8(b), 10(a), 13(a)(4), 15, 16(a), 18(i), 22(e), 22(f), 
24, 30(d) and 32(a)(1); and 8(b), 10(a), 13(a)(4), 15, 16(a), 22(e), 
22(f), 24, 30(d) and 32(a) of the Act, respectively.
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    \1\ Investment Company Act Release Nos. 584 (Dec. 2, 1943), 
10375 (Aug. 23, 1978) (notice) and 10414 (Sept. 20, 1978) (order), 
and 17038 (Jun. 30, 1989) (notice) and 17083 (July 25, 1989) 
(order).
    \2\ Investment Company Act Release Nos. 9839 (July 5, 1977) 
(notice) and 9879 (Aug. 2, 1977) (order).
    \3\ Investment Company Act Release Nos. 13485 (Sept. 7, 1983) 
(notice) and 13612 (Nov. 2, 1983) (order).
    \4\ Investment Company Act Release Nos. 16042 (Oct. 8, 1987) 
(notice) and 16114 (Nov. 5, 1987) (order).
    \5\ Investment Company Act Release Nos. 16146 (Nov. 24, 1987) 
(notice) and 16186 (Dec. 22, 1987) (order).
    \6\ Investment Company Act Release Nos. 17284 (Mar. 16, 1990) 
(notice) and 17433 (Apr. 13, 1990) (order).
    \7\ Investment Company Act Release Nos. 10929 (Nov. 6, 1979) 
(notice) and 10971 (Dec. 4, 1979) (order).
    \8\ General Electric Co., 44 S.E.C. 87 (1969).
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    3. Applicants propose to offer holders of Units (``Unitholders'') 
\9\ the opportunity to realize the tax advantages associated with gifts 
of appreciated property by permitting Unitholders to donate appreciated 
Units to charities of their choosing, provided, however, that the 
charities qualify as tax-exempt entities under section 501(c)(3) of the 
Internal Revenue Code of 1986, as amended (the ``Code''), and are not 
private foundations.\10\
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    \9\ Unitholders includes only those persons eligible to invest 
in applicants under the Prior Orders.
    \10\ With regard to the S&S Funds, this Proposal is limited to 
those Units that are held outside of the GE Savings and Security 
Program, a qualified employee benefit program.
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    4. Applicants have been advised by special tax counsel that a 
donee-charity's right to hold the appreciated property for a reasonable 
period of time during which market fluctuations and other events can 
affect the value of a Unit will help assure that the donor's gift will 
receive the desired tax treatment. Applicants propose that a charity 
may hold the Units for up to 90 days during which time it may 
voluntarily dispose of the Units to eligible participants or submit the 
Units for redemption. If, after 90 days, a charity remains a 
Unitholder, the Fund's trustees will use their power under the trust 
agreement to redeem involuntarily the Units and the charities will be 
paid the next determined net asset value for the Units they hold.\11\
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    \11\ Each Fund's net asset value per share is calculated on each 
day the New York Stock Exchange is open for business. Under each 
Fund's trust agreement, the trustees have the power to cause the 
involuntary redemption of Units if the Unitholder would cause the 
Fund to lose its status as an employees' securities company.
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Applicant's Legal Analysis

    1. Section 2(a)(13) of the Act defines ``employees' securities 
company'' generally as an investment company or similar issuer all of 
the outstanding securities of which (other than short-term paper) are 
beneficially owned by employees and former employees of a company.
    2. Section 6(b) of the Act provides that the SEC shall exempt 
employees' securities companies from the provisions of the Act to the 
extent that such exemption is consistent with the protection of 
investors. The applicants believe that the Proposal satisfies the 
requirements of section 6(b).
    3. Applicants state that many of the Unitholders have held Units 
for significant periods of time. In many

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cases, these Units have net asset values that are substantially higher 
than the basis at which they are carried, causing the Unitholder to 
realize a gain upon redemption of the Units. Applicants state that 
their proposal would provide the Unitholder with the tax advantages 
associated with gifts of appreciated property while the charity 
receives a security that it can then present to the Fund for redemption 
in return for cash.
    4. Applicants assert that their proposal is an attempt to promote 
the economic welfare of their employee-investors. The proposal, 
applicants contend, simply provides the Unitholders with the option of 
divesting themselves of appreciated property, gaining the associated 
tax advantages, and avoiding what could otherwise be a substantial tax 
burden, while donating to the charity of their choosing. Applicants 
contend that, without this option, many of the Unitholders may be 
subject to substantial taxes upon redemption of their Units owing to 
the long holding periods and the appreciation in the value of the Units 
that has occurred over time. Applicants believe that a Unitholder 
wishing to use his or her ownership interest in the applicants for 
philanthropic purposes thus would be forced to submit the shares for 
redemption, pay the taxes associated with the gain realized by the 
Unitholder, and then donate the cash proceeds to the charity of his or 
her choice. Applicants contend that the Unitholder consequently will be 
forced to redeem more Units than would otherwise be required in order 
to cover the associated taxes if the Unitholder has an established 
amount that he or she wishes to donate to a charity.
    5. Applicants state that the gift of appreciated property to a 
charity is a commonly used strategy in philanthropy. Applicants contend 
that their proposal would permit the Unitholders to do nothing more 
than they would be entitled to do if the security at issue were any 
other form of security or asset. The applicants believe that their 
status as employees' securities companies should not cause detriment to 
the very people that status is intended to benefit.
    6. Applicants also believe that, owing to the short holding period, 
the charities are less in need of the protections afforded by the Act. 
The charities will only be permitted to hold the Units for up to 90 
days before mandatory redemption is instituted by the applicants at an 
amount equal to their net asset values.
    7. Applicants note that the donee-charities, like all eligible 
investors, will have many of the protections afforded by the Act. 
Applicants state that, except for the prospect of involuntary 
redemption, each donee-charity will be treated as any other Unitholder 
and therefore will not be disadvantaged by their temporary ownership of 
Units. Applicants also assert that, so long as the donee-charities 
qualify as tax-exempt entities under section 501(c)(3) of the Code, the 
donee-charities will not be subject to any tax liability by reason of 
their holding Units in applicants or by the redemption of such Units.

Applicants' Condition

    Applicants agree that the order granting the requested relief shall 
be subject to the condition that on the first business day following 
the later of the 90th day after receipt of Units donated as described 
in the application or the cessation of circumstances described in 
paragraphs (1)-(3) of section 22(e) of the Act, the Units will be 
redeemed by the holder or involuntarily by the appropriate applicant or 
be transferred by the holder to an investor who is eligible to invest 
in an Elfun Fund or an S&S Fund.


    For the Commission, by the Division of Investment Management, 
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 96-29717 Filed 11-20-96; 8:45 am]
BILLING CODE 8010-01-M