
[Federal Register: October 4, 2010 (Volume 75, Number 191)]
[Notices]               
[Page 61230-61232]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr04oc10-77]                         

=======================================================================
-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 29441; 813-00373]

 
Elfun Trusts, et al.; Notice of Application

September 27, 2010.
AGENCY: Securities and Exchange Commission (``Commission'').

ACTION: Notice of an application under section 6(b) of the Investment 
Company Act of 1940 (``Act'') for an exemption from sections 15(a) and 
15(c) of the Act, as well as from certain disclosure requirements.

-----------------------------------------------------------------------

Summary of Application: Applicants request an order that would permit 
certain employees' securities companies to enter into and materially 
amend investment subadvisory agreements (``Subadvisory Agreements'') 
with investment subadvisers (``Subadvisers'') without shareholder 
approval, and subject to the approval of a board of trustees 
(``Board'') all the members of which are ``interested persons'' within 
the meaning of section 2(a)(19) of the Act (``Interested Board 
Members''), and would grant relief from certain disclosure 
requirements.

Applicants: Elfun Trusts, Elfun International Equity Fund, Elfun 
Diversified Fund, Elfun Tax-Exempt Income Fund, Elfun Income Fund, 
Elfun Money Market Fund, General Electric S&S Program Mutual Fund, and 
General Electric S&S Income Fund (each, a ``Fund'' and, collectively, 
the ``Funds''), and GE Asset Management Incorporated (the ``Adviser'').

DATES: 

Filing Dates: The application was filed on July 9, 2008, and amended on 
January 20, 2009, January 28, 2009, and August 20, 2010. Applicants 
have agreed to file an amendment during the notice period, the 
substance of which is reflected in this notice.

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 October 22, 2010, 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 who wish to be notified of a hearing may request 
notification by writing to the Commission's Secretary.

ADDRESSES: Secretary, U.S. Securities and Exchange Commission, 100 F 
Street, NE., Washington, DC 20549-1090; Applicants: c/o GE Asset 
Management Incorporated, 3001 Summer Street, Stamford, CT 06905.

FOR FURTHER INFORMATION CONTACT: Steven I. Amchan, Senior Counsel, at 
(202) 551-6826, or Jennifer L. Sawin, Branch Chief, at (202) 551-6821 
(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 via the 
Commission's Web site by searching for the file number, or an applicant 
using the Company name box, at http://www.sec.gov/search/search.htm or 
by calling (202) 551-8090.

Applicants' Representations

    1. Each Fund is organized as a trust under the laws of New York or 
under the laws of Connecticut, and is a single series open-end 
management investment company registered under the Act.\1\ Each Fund is 
an ``employees' securities company,'' as defined in section 2(a)(13) of 
the Act, that has previously received a Commission order under section 
6(b) of the Act granting relief from: (i) Section 10(a) of the Act to 
permit the Fund to have a Board comprised only of Interested Board 
Members, (ii) section 15(a) of the Act to permit the Fund to enter into 
an advisory agreement with the Adviser (or predecessors of the Adviser) 
without obtaining the approval of shareholders, and (iii) section 15(c) 
of the Act to permit the Fund to enter into, renew, or perform an 
advisory agreement with the Adviser (or its predecessors) with the 
approval of its fully ``interested'' Board (collectively, the ``Prior 
Orders'').
---------------------------------------------------------------------------

    \1\ Applicants also request relief with respect to any future 
registered open-end company that may be organized as an ``employees' 
securities company'' as defined in section 2(a)(13) of the Act, 
similar to the Funds as described in the application, which: (a) Is 
advised by the Adviser; (b) uses the investment management structure 
described in the application; and (c) complies with the terms and 
conditions of the application. The only existing registered open-end 
companies of this type that currently intend to rely on the 
requested order are named as applicants. If the name of any Fund 
contains the name of a Subadviser, the name of the Adviser will 
precede the name of the Subadviser.
---------------------------------------------------------------------------

    2. The Adviser, a wholly-owned subsidiary of General Electric 
Company (``GE''), is registered as an investment adviser under the 
Investment Advisers Act of 1940, as amended (``Advisers Act''). The 
Adviser serves as investment adviser to each Fund pursuant to an 
investment advisory agreement with the Fund (each, an ``Advisory 
Agreement''). In accordance with the Prior Orders, the Funds did not 
obtain shareholder approval to implement the Advisory Agreements, and 
the Advisory Agreements were approved by the Board comprised only of 
Interested Board Members.
    3. Under the terms of the Advisory Agreements, the Adviser provides 
each Fund with investment management services and administrative 
services. For these services, the Adviser receives from each Fund the 
compensation specified in the related Advisory Agreement, which is 
limited to reimbursement of the Adviser's reasonable costs of providing 
investment management and administrative services to the Fund, without 
an element of profit to the Adviser or its employees. The Advisory 
Agreements permit the Adviser to delegate certain responsibilities to 
Subadvisers. The Adviser has not exercised this authority, but may do 
so if the Commission grants the requested order. Each Subadviser will 
be registered as an investment adviser under the Advisers Act. The 
Adviser will evaluate, allocate assets to, and oversee the Subadvisers, 
and make recommendations about their hiring, termination and 
replacement to the Board, at all times subject to the authority of the 
fully ``interested'' Board. For its services to a Fund, a Subadviser 
will receive a fee as described in the

[[Page 61231]]

related Subadvisory Agreement, which will be paid directly by the Fund. 
Unlike the Adviser's compensation, which is limited to reimbursement of 
the Adviser's reasonable costs, the fee paid to a Subadviser (other 
than an Affiliated Subadviser, as defined below) will contain an 
element of profit. Compensation to a Subadviser that is an ``affiliated 
person,'' as defined in section 2(a)(3) of the Act, of the Funds or the 
Adviser (other than by reason of serving as a Subadviser to one or more 
Funds) (``Affiliated Subadviser'') would be limited to the Affiliated 
Subadviser's reasonable cost of providing subadvisory services to the 
particular Fund and would not contain any element of profit.
    4. Applicants request an order to permit the Adviser, subject to 
the approval of the Board, all the members of which are Interested 
Board Members, to enter into and materially amend Subadvisory 
Agreements without obtaining shareholder approval. Applicants also 
request an exemption from the various disclosure provisions described 
below that may require the Funds to disclose fees paid by the Adviser 
to each Subadviser. An exemption is requested to permit a Fund to 
disclose (as both a dollar amount and as a percentage of the Fund's net 
assets): (a) The aggregate compensation paid to the Adviser and any 
Affiliated Subadvisers; and (b) the aggregate fees paid to Subadvisers 
other than Affiliated Subadvisers (``Aggregate Fee Disclosure'').

Applicants' Legal Analysis

    1. Section 15(a) of the Act provides, in relevant part, that it is 
unlawful for any person to act as an investment adviser to a registered 
investment company except pursuant to a written contract that has been 
approved by the vote of a majority of the company's outstanding voting 
securities. Section 15(c) of the Act makes it unlawful for any 
registered investment company having a board of directors to enter 
into, renew, or perform any contract with an investment adviser unless 
the terms of the contract and any renewal thereof have been approved at 
an in-person meeting by a majority of directors who are not parties to 
the contract or ``interested persons'' of any such party, as that term 
is defined in section 2(a)(19) of the Act.
    2. Form N-1A is the registration statement used by open-end 
investment companies. Item 14(a)(3) of Form N-1A requires disclosure of 
the method and amount of the investment adviser's compensation.\2\
---------------------------------------------------------------------------

    \2\ Form N-1A was recently amended by the Commission, effective 
March 31, 2009, and Item 14(a)(3) should be read to refer to Item 
19(a)(3) for each Fund when that Fund begins using the revised form.
---------------------------------------------------------------------------

    3. Item 22 of Schedule 14A under the Securities Exchange Act of 
1934 (``1934 Act''), through the application of rule 20a-1 under the 
Act, sets forth the information that must be included in an investment 
company proxy statement. Items 22(c)(1)(ii), 22(c)(1)(iii), 22(c)(8) 
and 22(c)(9) of Schedule 14A, taken together, require a proxy statement 
for a shareholder meeting at which the advisory contract will be voted 
upon to include the ``rate of compensation of the investment adviser,'' 
the ``aggregate amount of the investment adviser's fees,'' a 
description of the ``terms of the contract to be acted upon,'' and, if 
a change in the advisory fee is proposed, the existing and proposed 
fees and the difference between the two fees.
    5. Regulation S-X sets forth the requirements for financial 
statements required to be included as part of investment company 
registration statements and shareholder reports filed with the 
Commission. Sections 6-07(2)(a), (b), and (c) of Regulation S-X require 
that investment companies include in their financial statements 
information about investment advisory fees.
    6. Section 6(b) of the Act provides that the Commission may by 
order upon application exempt any employees' securities company from 
the provisions of the Act, as well as the rules and regulations 
thereunder, ``if and to the extent that such exemption is consistent 
with the protection of investors.'' Applicants believe that their 
requested relief meets this standard.
    7. Applicants assert that under the proposed arrangement, the 
Adviser would not face any of the types of conflicts that the typical 
adviser faces in managing a registered investment company. Applicants 
assert that the Adviser shares a substantial community of interest with 
the Funds' shareholders, all of whom are current or former employees of 
GE, the Adviser, and other affiliates of GE, including immediate family 
members of these employees, as well as with the Board members (who 
themselves are officers or employees of GE). Applicants also argue that 
GE, the Adviser, and the Board members have a strong interest in 
assuring that the Funds are well managed because of their belief that 
the success of these Funds helps to boost employee morale and maintain 
satisfactory employee/retiree relations, both of which are matters of 
vital importance to GE. Applicants state that the Adviser provides 
investment management and other services to the Funds at cost, and does 
not profit in any way from doing so. Applicants assert that because of 
the alignment of their respective interests and the compensation terms 
under which the Adviser provides services to the Funds, the Adviser is 
motivated at all times to act in the best interests of shareholders. 
Applicants believe that by acting for the benefit of shareholders, the 
Adviser and the members of the Board are also acting to protect 
substantially corresponding interests of their own.
    8. Applicants further state that shareholders would expect the 
Adviser and the Board to select the Subadviser for a Fund that is best 
suited to achieve the Fund's investment objective. Applicants assert 
that, from the perspective of the investor, the role of Subadvisers is 
substantially equivalent to the role of the individual portfolio 
managers employed by traditional investment company advisory firms. 
Applicants believe that permitting the Adviser to select, supervise and 
evaluate Subadvisers without incurring unnecessary delay or expense 
would benefit Fund investors because it would allow the Funds to 
operate more efficiently.
    9. Applicants assert that many investment advisers charge their 
customers for advisory services according to a ``posted'' fee schedule. 
Applicants state that while investment advisers typically are willing 
to negotiate fees that are lower than those posted on the schedule, 
they are reluctant to do so where the negotiated fees are disclosed to 
other prospective and existing customers. Applicants submit that the 
requested relief will allow the Adviser to negotiate more effectively 
with each Subadviser that is not an Affiliated Subadviser.

Applicants' Conditions

    Applicants agree that any order granting the requested relief will 
be subject to the following conditions:
    1. Before a Fund may rely on the order requested in the 
application, the operation of the Fund in the manner described in the 
application will be approved by a majority of the Fund's outstanding 
voting securities, as defined in the Act, or, in the case of a Fund 
whose public shareholders purchase shares on the basis of a prospectus 
containing the disclosure contemplated by condition 2 below, by the 
sole initial shareholder before offering the Fund's shares to the 
public.

[[Page 61232]]

    2. The prospectus for each Fund will disclose the existence, 
substance, and effect of any order granted pursuant to the application. 
Each Fund will hold itself out to the public as employing the 
management structure described in the application. The prospectus will 
prominently disclose that the Adviser has ultimate responsibility 
(subject to oversight by the Board) to oversee the Subadvisers and 
recommend their hiring, termination, and replacement.
    3. Within 90 days of the hiring of a new Subadviser, the affected 
Fund's shareholders will be furnished all information about the new 
Subadviser that would be included in a proxy statement, except as 
modified to permit Aggregate Fee Disclosure. This information will 
include Aggregate Fee Disclosure and any change in such disclosure 
caused by the addition of the new Subadviser. To meet this obligation, 
the Fund will provide shareholders within 90 days of the hiring of a 
new Subadviser with an information statement meeting the requirements 
of Regulation 14C, Schedule 14C, and Item 22 of Schedule 14A under the 
1934 Act, except as modified by the order to permit Aggregate Fee 
Disclosure.
    4. The Adviser will not enter into a Subadvisory Agreement with an 
Affiliated Subadviser unless the agreement provides that the Affiliated 
Subadviser's compensation will be limited to reimbursement of its 
reasonable costs of providing subadvisory services to the particular 
Fund, without any element of profit.
    5. When a Subadviser change is proposed for a Fund with an 
Affiliated Subadviser, the Board will make a separate finding, 
reflected in the applicable Board minutes, that such change is in the 
best interests of the Fund and its shareholders and does not involve a 
conflict of interest from which the Adviser or the Affiliated 
Subadviser derives an inappropriate advantage.
    6. The Adviser will provide general management services to each 
Fund, including overall supervisory responsibility for the general 
management and investment of the Fund's assets and, subject to review 
and approval of the Board, will (a) Set each Fund's overall investment 
strategies; (b) evaluate, select and recommend Subadvisers to manage 
all or a part of a Fund's assets; (c) when appropriate, allocate and 
reallocate a Fund's assets among multiple Subadvisers; (d) monitor and 
evaluate the performance of Subadvisers; and (e) implement procedures 
reasonably designed to ensure that the Subadvisers comply with each 
Fund's investment objective, policies and restrictions.
    7. No director, trustee or officer of any Fund, or director or 
officer of the Adviser, will own directly or indirectly (other than 
through a pooled investment vehicle that is not controlled by such 
person) any interest in a Subadviser, except for (a) ownership of 
interests in the Adviser or any entity that controls, is controlled by, 
or is under common control with the Adviser; or (b) ownership of less 
than 1% of the outstanding securities of any class of equity or debt of 
a publicly traded company that is either a Subadviser or an entity that 
controls, is controlled by or is under common control with a 
Subadviser.
    8. Each Fund will disclose in its registration statement the 
Aggregate Fee Disclosure.

    For the Commission, by the Division of Investment Management, 
under delegated authority.
Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-24824 Filed 10-1-10; 8:45 am]
BILLING CODE 8010-01-P

