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Our Ref. No. 97-77-CC

RESPONSE OF THE OFFICE OF CHIEF COUNSEL GE Funds

DIVISION OF INVESTMENT MANAGEMENT File No. 811-7142

Yo~r letter of February S, 1997 requests assurance that the

staff would not recommend enforcement action to the Commission if

series of the GE Funds include in advertisements or supplemental

sales literature the performance information of other registered

investment companies and institutional private accounts that are

managed by GE Investment Management Incorporated ("GEIM"), the GE

Funds' investment adviser, or GEIM's affiliate, General Electric

Investment Corporation ("GEIC").

Facts

GE Funds (the "Trust") is a registered open-end investment

company that currently offers ten series (the "Funds"), eight of

which are offered to the public. GEIM and GEIC (together, "GE

Investments") are wholly-owned subsidiaries of General Electric

Company that have in common virtually all of their investment

professionals.. 1/ GE Investments provides investment

management services to a variety of institutional accounts,

including registered investment companies and private accounts

(coiiectively, the "Institutional Accounts").

In accordance with the staff's position in NicholasApplegate Mutual Funds ("Nicholas-Applegate I") (pub. avail. Aug.

6, 1996), GEIM intends to include in the Trust's prospectus

information regarding the performance of Institutional Accounts

that are advised by GEIM or GEIC and have investment obj ecti ves

and policies that are substantially similar to those of a

corresponding Fund. é/ You state that the Institutional

i/ You represent that GEIC serves as adviser exclusively to GEaffiliated accounts on an at-cost basis, while GEIM serves as '

adviser to external accounts on a fee-paying' basis. You

represent that, solely for administrative and accounting purposes

related to these differences, GEIM and GEIC are structured as

separate entities.

2/ You represent that, consistent with the requirements of Form

N-iA, the performance information of Institutional Accounts that

are registered investment companies will be calculated on the

basis of standardized total return, and will be presented in

comparison to appropriate broad-based market indices. See Form

N-iA, Items SA and 22 (b) (i). You also represent that the

composite performance of Institutional Accounts that are private

(continued. . .)
\

)

- 2

Accounts' performance information will be provided to illustrate

the performance of GE Investments in managing accounts that have

investment objectives and policies that are substantially similar

to those of the Funds. You represent that, with respect to a new

Fund, the prospectus will specifically and prominently disclose

that the Fund does not yet have its own performance record, and

that the performance information of the Institutional Accounts

should not be considered a substitute for the Fund's own

performance information. with respect to a Fund that has a

performance history of its own, you represent that the

Institutional Accounts' performance information will be given no

greater prominence than the Fund's own performance information.

You represent that the prospectus will disclose that the ,

Institutional Accounts consist of portfolios separate and

distinct from the Funds, and that the performance of the

Institutional Accounts is not indicative of the past or future

performance of the Funds. You further represent that the

prospectus will disclose all materiál differences between the

Institutional Accounts and the Funds and will include any other

disclosure that may be necessary to ensure that Institutional

Account performance information is not presented in a misleading

manner. Specifically, you represent that the prospectus will

disclose differences between the fee structures of the

Institutional Accounts and those of the Funds and, where

applicable, will disclose that the performance of the

Institutional Accounts would have been lower if they had been

subject to the fees and expenses of the relevant Fund. In

addition, the prospectus will disclose that the private accounts'

composite performance might have been lower if the private

accounts had been regulated as investment companies under the

federal securities and tax laws.

You request relief so that the Funds may include performance

information of the Institutional Accounts in advertisements

complying with the provisions of Rule 482 under the Securities

Act of 1933 (the "Securities Act") and supplemental sales

literature complying with the provisions of Rule 34b-1 under the

Investment Company Act of 1940 (the "Investment Company Act") .

You represent that the Institutional Accounts' performance

information and accompanying disclosure would be presented in

~ ( . . . continued)

accounts will be presented net of management fees. You state

that, with respect to those private accounts that do not pay a

management fee, a hypothetical management fee will be deducted

equal to the highest rate that would have been charged by GE

Investments to a comparable fee-paying account. See J. P. Morgan

Investment Management, Inc. (pub. avail. May 7, 1996);

Association for Investment Management and Research (pub. avail.

Dec. 18, 1996).
- 3 -

advertisements or supplemental sales literature exactly as the

information appears in the Trust's prospectus. l/ You further

represent that advertisements or supplemental sales literature

will clearly explain the nature and purpose of the Institutional

Account performance information.

Analysis

In Nicholas-Applegate I, the staff confirmed that neither

Section 34 (b) of the Investment Company Act nor Section 206 of

the Investment Advisers Act of 1940 would prohibit a fund from

including in its prospectus performance information regarding

private accounts managed by the fund's adviser that had

substantially similar investment objectives, policies, and

strategies, provided that the information was not presented in a

misleading manner and did not obscure or impede understanding of

information that is required to be included in the fund's

prospectus (including the fund's own performance information).

In Bramwell Growth Fund (pub. avai~: Aug. 7, 1996), the staff

took the same position with respect to the inclusion in a fund's

prospectus of standardized total return information of another

registered investment company previously managed by the fund's

portfolio manager that had substantially similar investment

objectives and policies. ~/ In each of these letters,

3/ An advertisement or supplemental sales literature pertaining

only to one Fund will include all of the performance information

and accompanying disclosure appearing in the Trust's then current

prospectus as it relates to that particular Fund. In

advertisements or supplemental sales literature pertaining to aii

of the Funds, all of the performance information and accompanying

disclosure will be included. You represent, however, that

performance information in advertisements or supplemental sales

literature may differ from performance information .included in

the Trust's current prospectus to the extent that the performance

information in advertisements or supplemental sales literature is

updated to reflect average annual total return for one, five, and

ten year periods measured as of the most recent calendar quarter, as required by Rule 482. ..'

!l We note that the facts presented here, and in NicholasApplegate I and Bramwell, differ from those in MassMutual

Institutional Funds ("MassMutual"l (pub. avail. Sept. 28, 1995).

MassMlltual addressed the case in which an unregistered account is

converted into a registered fund with substantially similar

investment obj ecti ves, policies, and strategies. In MassMutual,

the staff granted no-action relief to a registered fund that

sought to include, as part of the fund's own performance

information, the performance information of the unregistered

account for the period prior to the effectiveness of the fund's

(continued. . .)
ì

- 4 -

however, the staff declined to express any view regarding the

inclusion in a fund's Rule 482 advertisements or supplemental

sales literature of performance information of other accounts

managed by the fund's adviser.

Rule 482 under the Securities Act requires, among other

things, that if an open-end management investment company (other

than a money market fund) includes fund performance information

in an advertisement, it must include standardized total return information in accordance with paragraph (e) (3) of the rule.

Rule 34b-1 under the Investment Company Act provides that sales

literature containing fund performance information will be deemed

misleading unless it includes, among other things, the total return calculations required by paragraph (e) (3) of Rule 482.

Rule 482 and Rule 34b-1 are intended to standardize the

calculation and presentation of fund performance information in

advertisements or supplemental sales literature to prevent the

use of misleading information, and to facilitate the comparison

of funds by investors. 2/ '

Neither Rule 482 nor Rule 34b-1 by its terms prohibits a

fund from including in its advertisements or sales literature

performance information relating to other accounts managed by the

fund's adviser, so long as the information is not presented in a

misleading manner. The Commission has expressed the view that

Rule 482 should be read as precluding "performance information

about any related entity to the fund such as its adviser . . .

where the use of such performance is intended as a substitute for

the performance of the fund." ~/

You maintain that, because a Fund may, in accordance with

Nicholas-Applegate I and Bramwell, present the performance

information of the Institutional Accounts in the Trust's

prospectus in a manner that is not misleading, the identical

information would be no more likely to mislead investors when

presented in the Fund's advertisements or sales literature. You

also maintain that, with respect to a Fund that has its own

performance history, the proposal is consistent with Rule 482

because the Institutional Accounts' performance information would

M ( . '. . continued)

registration statement. Here, the Institutional Accounts are not

the predecessors of the Funds, so the performance information of

the Institutional Accounts can be presented only in addition to,

and not as' part of, the Funds' own performance information.

5/ See Investment Company Act Release No. 1624S (Feb. 2, 1988)

(release adopting amendments to Rule 482 and adopting Rule 34b-1)

(the "Adopting Release") .

~ Id. at n.31 (emphasis added).
J

)

- s -

be presented in addition to, rather than as a substitute for, the

Funds' own performance information, and would be accompanied by

prominent disclosure stating that the performance is not the

Funds' own performance. 7/

We believe that neither Rule 482, Section 34 (b), nor Rule

34b-1 prohibits a Fund from including in its advertisements or

supplemental sales literature the performance information of

Institutional Accounts that have substantially similar investment

objectives, policies, and strategies, provided that the

performance is not presented in a misleading manner and is not

presented as a substitute for the Fund's own performance.

Accordingly i we would not recommend enforcement action to the

Commission if the Funds include the performance information of

the Institutional Accounts in advertisements or supplemental

sales literature in accordance with the representations in your

letter. Our conclusion is based particularly on the following

facts and representations, each of which is designed to ensure

that the Institutional Account performance information would not

be presented as a substitute for the Fund's performance

information:

(i) advertisements or supplemental sales literature will

prominently disclose that the Institutional Account

performance is not the Fund's own performance, and should

not be considered indicative of the past or future

performance of the Fund;

(ii) advertisements or supplemental sales literature will

prominently disclose that Institutional Account performance

should not be considered a substitute for the Fund's

performance;

(iii) with respect to a Fund that has its own performance

history, the Institutional Account performance information

will be provided in addition to the performance information

of the Fund, and will be presented no more prominently than

the Fund's performance;

7/ As stated above, you represent that when a Fund has no

performance history of its own, in order to prevent the .

performance of the Institutional Accounts from being mistaken for.

the Fund's own performance, the Institutional Accounts'

performance information will be accompanied by prominent

disclosure stating that the Fund does not yet have its own

performance history and that the Institutional Account

performance is not intended to be a substitute for the Fund's own

performance.

.'"/
'\i

- 6 -

(iv) advertisements or supplemental sales literature will

clearly explain the nature and purpose of the Institutional

Account performance information; and

(v) advertisements or supplemental sales literature will

disclose all material differences between the Institutional

Accounts and the Fund and will include any other disclosure

that may be necessary to ensure that Institutional Account

performance information is not presented in a misleading

manner.

You should note that any different facts or representations

might require a different conclusion. ~/

This response supersedes positions taken by the Division of

Investment Management in 1993 that presenting performance

information regarding an adviser's other accounts is inconsistent

with the requirements of Rule 482, and that other account

performance information may be used,' in supplemental sales

literature only when the fund itself does not have any

performance history. ~/ Upon reconsideration, we believe that

this earlier position is inconsistent with both the Commission's

statement in the 1988 release adopting amendments to Rule

482 lQ/ and the Commission's long-standing position that

whether information in a fund's advertisements or sales

literature is misleading, for purposes of the federal securities

~ This response should not be construed as providing no-action

assurance with respect to any particular presentation of the

performance of Institutional Accounts.

In addition, we note that the National Association of

Securities Dealers, Inc. (the "NASD") has taken the position that

the use of advertisements and sales literature that include

performance ~nformation regarding an adviser's other accounts may

be a violation of its Conduct Rules. NASD Regulatory and

Compliance Alert at 7-8 (June 1992). Our response does not

address the status of your proposal under the NASD Conduct Rules.

~/ See Letter from Carolyn B. Lewis, Assistant Director,

Securities and Exchange Commission, Division of Investment

Management, to Registrants (Feb. 22, 1993) (citing footnote 31 of

the Adopting Release) .

10/ See supra notes S - 6 and accompanying text.
)

- 7 -

laws, depends on the totality of the circumstances, including the

manner in which it is presented. 11/

Attorney' , s~w~

11/ See,~, Investment Company Act Release No. 10621 (Mar. 8,

1979) (withdrawing the Commission's Statement of Policy on

investment company sales lite~ature) (II (w) hat is or is not

misleading in sales literature may depend greatly on the totality

of the circumstances, including the context in which it is used and the sophistication of the investor.").
. . -..

WILLKIE FARR& GALLAGHER New York,

Washington, DC

London

Paris )

February S, 1997 1933 Act Rule 482

1940 Act Rule 34b-1

BY HAND

Jack W. Murphy, Esq.

Chief Counsel

Division of Investment Management

Securities and Exchange Commission

Judiciary Plaza

450 Fifth Street, N. W .

Washington, D. C. 20S49

Re: GE Funds

Dear Mr. Murphy:

)

We are writing on behalf of GE Funds, a Massachusetts business

trust (the "Trust"), to request the assurance of the staff of the

Division of Investment Management (the "Staff") that it would not

recommend that the Securities and Exchange Commission (the

"Commission") take any enforcement action under the Securities

Act of 1933, as amended (the "1933 Act"), or the Investment

Company Act of 1940, as amended (the "1940 Act"), if the Trust

includes in advertisements in accordance with Rule 482 under the

1933 Act ("Rule 482") and in supplemental sales literature in

accordance with Rule 34b-1 under the 1940 Act, historical

performance information of other institutional accounts managed

by the Trust's investment adviser or its affiliate under the

circumstances described below.

Background

The Trust is an open-end management investment company registered

under the 1940 Act, the shares of which are registered under the

1933 Act (SEC File Nos. 811-7142 and 33-S1308, respectively).

The Trust consists of shares of eleven series, nine of which are

currently being offered to the public (each series, and any

future series, is herein referred to as a "Fund", and

collectively, the "Funds"). GE Investment Management

Incorporated, ("GEIM") is the Trust's investment adviser, GEIM

and its affiliate, General Electric Investment Corporation

("GEicn and, together with GEIM, "GE Investments") provide

investment. management services to a variety of institutional

accounts, including a number of registered investment companies

and private accounts. Each of GEIM and GEIC is a wholly-owned

subsidiary of General Electric Company ("GE"), GEIM and GEIC are

sister companies that have been structured as separate entities

for administrative and accounting purposes as a result of GEIC

serving exclusively as adviser to certain GE-affiliated accounts

One Citicorp Center 212 821 8000

153 East 53rd Street Fax: 212 821 8lll

New York, NY 10022-4677
jack W. Murphy, Esq.

February S, 1997

Page 2

'\ on an at cost basis only and GEIM serving as adviser to

externally-oriented accounts on a fee paying basis. The

investment professionals responsible for the investment

operations of each entity are virtually identical,

Prospectus Disclosure

In acc~rdance with a recent no-action position taken by the

Staff, GEIM intends to include in the Trust's prospectus

historical performance of all institutional, private accounts ~nd

all registered investment companies, with certain exceptions,

having investment objectives and policies substantially similar

to those of the Funds, for which either GEIM or GEIC currently

acts as investment adviser, compared to the historical

performance of broad market indexes. For a Fund with any history

of investment operations as of the effective date of its

prospectus, this related historical performance will appear

together with, and be given no greater prominence than, the

Fund's own historical performance information. Fora new Fund,

the Trust's prospectus will specifically and prominently state

that the Fund has no performance retord of its own and that the

related performance information should not be viewed as a

substitute for the Fund i s own performance.

)

The related performance data, calculated on an average annual

total return basis, is provided to illustrate the past

performance of GE Investments in managing accounts substantially

similar to the Funds. The prospectus will disclose that (1)

these accounts consist of portfolios separate and distinct from

the Funds, (2) their performance is not indicative of the past or

future performance of the Funds, and (3) investors should not

consider the performance data in any way indicative of future performance. In addition, differences in the fee structures of

the various accounts are noted and, where applicable, a statement

wiii be included to the effect that the performance figures would

i

Nicholas-Applegate Mutual Funds, SEC No-Action Letter (pub. avail. Aug.

7, 1996).

2

The Funds have determined to exclude certain registered investment

companies from the performance presentation in the Trust i s prospectus

because the current performance data of the excluded funds is either (a)

higher than, or in GE Investments' determination not materially lower

than, the included funds i performance data, (b) the excluded funds have

a shorter history of investment operations than the Funds being promoted

or (c) the excluded funds' holdings vary owing to the relatively recent

adoption of the relevant investment strategy or merger into the excluded

fund of funds with different investment strategies. See Association for

Investment Management and Research, SEC No-Action Letter (pub. avail.

Dec. 18, 1996), at footnote 2; and Nicholas-Applegate, at footnote 3.

0195655.05
Jack W. Murphy, Esq.

February S, 1997

Page 3

)

have been lower to the extent they were subj ect to the higher"

fees and expenses incurred by the relevant Fund,

Related performance data of registered investment companies is

calculated, and presented in accordance with the uniform standards prescribed by Form N-1A, All composite performance data is

calculated in accordance with recommended standards of the

Association for Investment Management and Research. Consistent

with the Staff's prior positions on related composite performance

data, the data reflects management fees actually incurred by fee

paying accounts, although rustodial fees and expenses are not

deducted from the results. With respect to non-fee paying GEaffiliated accounts, a hypothetical management fee is applied

equal in amount to the highest rate that would have been charged

to a comparable fee p~ying account based on GE Investments' stated fee schedules. In addition, the prospectus will disclose

that the composite performance could have been adversely affected

,by the imposition of certain regulatory requirements,

restrictions and limitations if the accounts within each

composite had been regulated as invastment companies under the federal securities and tax laws. '

Proposal

)

The Trust proposes to include in Rule 482 advertisements and in

supplemental sales literature relating to the Funds' historical

performance information of other institutional accounts managed

by GE Investments that have substantially similar investment '

objectives and policies to the Fun~s exactly as the information

appears in the Trust's prospectus. An advertisement or

supplemental sales literature for only one Fund would include all

of the performance data and accompanying disclosure appearing in

the Trust's then current prospectus as it relates to that

particular Fund. In advertisements or supplemental sales

materials that pertain to all the Funds, all of the performance

information and accompanying disclosure will be included. In

each case, the advertisement or supplemental sales literature

3

See Investment Company Institute, SEC No-Action Letter (pub. avail. Aug.

24, 1987).

.. See J.P. Morgan Investment Management, Inc., SEC No-Action Letter (pub.

avail. May 7, 1996).

5

Advertisements and supplemental sales materials will include the

identical disclosure accompanying a Fund's performance information,

however, consistent with Rule 482, the performance data itself will be

updated to reflect average annual total return for one, five and ten

year periods, as applicable, and will be current to the most recent

calendar quarter. To this limited extent, the performance data may vary

Ïrom the data included in the Trust's current prospectus.

D19S6SS.05
. .

ì

Jack W. Murphy, Esg.

February S, 1997

Page 4

will clearly explain the nature and purpose of the related

performance information, The Trust's prospectus will disclose

all material differences between private institutional accounts

and registered investment companies and will include any other

disclosure that may be necessary to ensure that an institutional

account i s performance is not presented in a misleading manner,

Discussion:

)

In Nicholas-Applegate Mutual Funds,6 the Staff permitted certain

mutual funds to include in their prospectus information

concerning the performance of certain private accounts managed by

the funds' investment adviser. However, the Staff specifically

noted that it was not expressing any view regarding the inclusion

of related historical performance7data in Rule 482 advertisements

or supplemental sales literature. A footnote in the '

Commission's release adopting certain amendments to Rule 482

stated that the amendments precluded "performance information

about any related entity to the fund such as its adviser, i,e.,

other funds or private accounts controlled by the adviser, where

the use of such performanfe is intended as a substitute for the

performance of the fund". In light of the Staff's recent noaction positions and the proposed presentation of performance

information as described in this letter, we are writing to seek

the Staff i s views on the scope of this footnote.

The quoted footnote expressed the position that the information

should not be used as a "substitute" for a fund's performance.

The Trust does not intend to use this related performance data as

a substitute for a Fund's own historical performance information.

For a new Fund, the prospectus will specifically and prominently

disclose that the Fund has no performance record of its own and

that the related performance information should not be viewed as

a substitute for the Fund's own performance. For a Fund with any

history of investment operations as of the effective date of its

prospectus, the Fund's historical performance data will accompany

the related performance data and will be presented with at least

equal prominence. As mentioned above, the disclosure will

clearly state that the adviser's performance relates to

portfolios separate and distinct from the Fund and should not be

construed as indicati ve of the Fund's performance, Therefore, we

submit that the prohibition addressed in the footnote is not

applicable to the Trust's proposed performance presentation,

6 See supra note 1.

7

Nicholas-Applegate, at footnote 2.

B

Investment Company Act Release No. 16245 at footnote 31 (May 1, 1988)

(emphasis supplied).

0195655.05
. , ' I. .

)

Jack W. Murphy, Esq.

February 5, 1997

Page, 5

We note that the Tru~t does not intend to extract excerpts of, the

adviser's historical performance information from the prospectus.

for use in Rule 482 advertisements and supplemental sales

literature. Rather, the historical performance data and

accompanying disclosure presented in a Fund i s sales materials

will be identical to the prospectus disclosure relating to that

Fund, which is subj ect to review by the Staff. We recognize the

concern that, in selecting disclosure to be included in Rule 482

advertisements, an adviser could choose to omit certain

disclosure included in the prospectus that would cause the

related performance information to be misleading. However, no

part of the prospectus performance disclosure relating to the

particular Fund being advertised will be omitted from the sales

materials. We submit that the sales material therefore would be

no more misleading than the identical disclosure included in the

Fund's prospectus, which is subj ect to review by the Staff and

the anti-fraud provisions of the federal securities laws. Thus,

if the Trust proceeds as described above, we believe that the

concerns expressed in the quoted footnote will be ameliorated.

Conciusion

In view of the foregoing, on behalf of the Trust, we respectfully

request the assurance of the Staff that it would not recommend

that the Commission take any enforcement action under the 1933

Act or the 1940 Act if the Trust advertises historical

performance information of other institutional accounts managed

by GE Investments as described above.

Should the Staff have any questions or comments concerning this

request, they should be directed to the undersigned, Burton M.

Leibert or Maryann Canfield of this office at 212-821-8000.

Very truly yours,

Jon

........

cc: Matt ew J ~ Simpson, Esq.

on M. Leibert, Esq.

Maryann Canfield, Esq.

D195655.05