General Electric Investment Corporation
3003 Summer Street
Stamford, Connecticut 06905

January 28, 2000

Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549

Attention: Mr. Jonathan G. Katz

RE: Role of Independent Directors of Investment Companies
File No. S7-23-99

Ladies and Gentlemen:

We appreciate this opportunity to comment on proposals to enhance the independence and effectiveness of investment company directors (the "Proposals").1 In particular, we wish to bring to your attention a class of investment companies -- employees' securities companies -- that may have been overlooked when formulating the Proposals. Because, among other things, the Proposals would require fund boards to have a majority of independent directors and a nominating committee composed only of independent directors as conditions to certain exemptive rules, we believe that their adoption -- without special recognition of the unique characteristics of employees' securities companies and the exemptions previously granted to such companies by the Commission -- would have unintended adverse consequences.


As the Commission knows, the term "employees' securities companies" is defined in Section 2(a)(13) of the Investment Company Act of 1940, as amended, (the "1940 Act") to mean

any investment company or similar issuer all of the outstanding securities of which (other than short-term paper) are beneficially owned (A) by the employees or persons on retainer of a single employer or of two or more employers each of which is an affiliated company of the other, (B) by former employees of such employer or employers, (C) by members of the immediate family of such employees, persons on retainer, or former employees, (D) by any two or more of the foregoing classes of persons, or (E) by such employer or employers together with any one or more of the foregoing classes of persons.

We act as investment adviser to eight employees' securities companies2 with approximately $12.7 billion in aggregate assets as of December 31, 1999. These funds are available only to GE employees, their immediate family members and others enumerated in orders issued by the Commission. Like many other employees' securities companies, each of these Funds has received an exemption from the provisions of Section 10(a) of the Investment Company Act.3 Pursuant to these exemptions, the Board of Trustees of each Fund is comprised of seven individuals directly involved in the management and operation of the Funds. Each Trustee is an officer of General Electric Investment Corporation ("GEIC"), the Funds' investment adviser, and thus an "interested person" of the Funds as defined in Section 2(a)(19) of the 1940 Act. In addition, the Funds currently rely on, and in the future expect to rely on, a number of the exemptive rules as to which the Commission is now proposing to condition reliance. We believe that it is in the Funds' best interest to be able to continue to rely on these exemptive rules, while concurrently relying on their exemptions from Section 10(a) of the 1940 Act.


I. Independent Directors

The Commission has acknowledged that employees' securities companies are "a peculiar type of company which the Congress evidently desired to have treated as a special case."4 The legislative history of Sections 2(a)(13) and 6(b) of the 1940 Act recognizes that an employees' securities company is a labor-related entity that exists to promote the economic welfare of its investors.5

Section 6(b) of the 1940 Act instructs the Commission to grant exemptions to employees' securities companies if and to the extent that such exemptions are consistent with the protection of investors. This is a mandate clearly different from the Commission's general exemptive authority found in Section 6(c) of the 1940 Act. For instance, Section 6(b) clearly emphasizes as the sole basis for exemption the nature of the employees' securities company-applicant. In contrast to Section 6(c), Section 6(b) does not include as a standard for exemption the general "public interest" or the "purposes fairly intended by the policy and provisions" of the 1940 Act. The Commission considered the facts relating to the Funds (and other employees' securities companies) in granting exemptions from Section 10(a) and, to our knowledge, no facts have been presented to or adduced by the Commission to suggest that these exemptions should be rescinded or revoked. Nonetheless, this would be the effect of adoption of the Proposals.

We have no doubt that the Proposals are aimed in part at confirming the Commission's ongoing oversight of funds in "the public interest" and at fine tuning the 1940 Act's detailed governance provisions to carry out more effectively the "purposes fairly intended by the policy and provisions" of the Act. As laudatory as these goals are, they should not be controlling the treatment of employees' securities companies under the Act. Certainly the Proposals and their underlying goals should not outweigh the specific Commission findings that investors in employees' securities companies exempted from Section 10(a) would nonetheless be protected; such findings necessarily supported the exemptions issued directly to the Funds.

Our Funds continue to warrant the relief previously granted by the Commission. As stated in the notices granting exemptive relief to the Funds (see footnote 3, above), the Trustees all have a very strong interest in assuring that the Funds are well-managed. The Funds were established to offer additional investing opportunities to GE employees, former employees and their immediate family members. GE and its subsidiaries may also invest in the Funds. Thus, the success of the Funds have a strong bearing on employee morale and satisfactory employee relations, a matter in which GE is vitally interested. GE's efforts to enhance employee relations has fostered the identity of interest between Fund management and Fund investors that Congress recognized as the basis for according special treatment to employees' securities companies. It is clear from the extensive experience and knowledge of the persons who have been selected to act as Trustees of the Funds that the addition of independent outside persons as trustees has not been necessary in order to bring the Funds the skills needed for their operation.

To effectively revoke our Funds' exemption from Section 10(a) would impose a substantial hardship on the Funds. The Commission did not provide the Funds relief from the requirements of Section 10(a) only on the condition that they not rely on other exemptions routinely available to mutual funds. We note, in this regard, the Commission's observations in the Proposing Release that most funds already meet the requirements of Section 10(b)6 and we believe that many fund boards have procedures in place that serve the purposes and functions of a nominating committee. On the other hand, most employees' securities companies would be required to change radically in order to continue to make use of exemptive rules such as 17e-1 and 10f-3 that are essential to their current operation. We do not believe that the Commission intended this result as it affects employees' securities companies since the preamble to the Proposals makes no reference to the unique circumstances of employees' securities companies or the special needs of these companies or their shareholders.

We also note that the Commission considered that the Proposals would result in additional costs to some investment companies, and determined that these modest costs would be appropriate in the case of conventional investment companies because such costs would be outweighed by the advantages to funds and their shareholders of increased director independence.7 However, in granting exemptive relief from Section 10(a) to employees' securities companies, the Commission acknowledged that it is consistent with the protection of investors for these Funds to operate without any independent directors. Therefore, the added costs of a majority of independent directors, while perhaps relatively small, would be a totally unnecessary burden on the Funds and their respective shareholders. Unlike the traditional investment company, the interests of management of an employees' securities company is completely aligned with shareholders in that they are all employees of the same company. No additional costs -- however small -- can be justified, as the Commission has already found on numerous occasions.

The current Trustees do not receive any compensation from the Funds for serving as Trustees. Although the Funds are required to reimburse GEIC for the portion of the Trustees' salaries which is allocable to the time they spend on Fund matters in their capacity as GEIC employees, there is no element of profit. In fact, GEIC receives no fees for its services to the Funds; it is, however, reimbursed for its costs which, including the aforementioned reimbursement for time spent by employees functioning as Fund trustees, equals approximately .08% of the total assets of the Funds for the year ended December 31, 1999. If the Proposals applied to the Funds, the added costs would reduce one of the primary advantages of the Funds -- to provide GE employees an opportunity to invest at a cost which is substantially lower than that at which they could individually invest in similar commercially operated funds.

We believe that the reasons recognized by the Commission in granting relief from the provisions of Section 10(a) for employees' securities companies are still valid. The Commission recognized that employers have strong motivation for acting in the best interests of their employees. There are no concerns that would inhibit the Trustees' ability to act pursuant to the exemptive rules in question in any way that is not in the best interests of the Funds and their respective shareholders. The Trustees in all circumstances act objectively in exercising their fiduciary obligations with respect to the Funds, and acting in reliance upon and pursuant to these exemptive rules would be no exception.

II. Directors' Disclosure Requirements

We have joined with the non-interested trustees of the investment companies managed by GE Asset Management Incorporated to submit a letter commenting on the Proposals from the perspective of publicly-distributed funds("GE Funds Letter"). In the GE Funds Letter, among other things, we argued vehemently against requiring certain additional disclosure by fund directors. In the alternative, that Letter suggests modifying the Proposals with a view toward realistically enabling compliance by directors of funds managed by advisory affiliates of a global, multi-faceted corporation like GE. In particular, the GE Funds Letter recommends that the disclosure requirements apply only to a fund's independent directors and immediate family members living in the same household as the director. Since the purpose of the disclosure is to allow the Commission and prospective shareholders to evaluate the "true independence" of a particular director, this information is irrelevant with respect to a director that the fund already views as "interested" for purposes of Section 2(a)(19) under the 1940 Act.

Our position in the GE Funds Letter is particularly appropriate in the case of employees' securities companies. For instance, one of the Proposals would require disclosure by the directors of their share ownership in the entire fund complex in order to demonstrate to shareholders that directors' interests are sufficiently aligned with their own. In the case of an employees' securities company, this disclosure is unnecessary because the Commission has already accepted the fact that management and shareholders have an identity of interests, which is the premise upon which exemptive relief from Section 10(a) was granted.

The Proposals would also require disclosure of ownership interests of fund directors and their immediate family members in the fund's adviser, principal underwriter and administrator, and their respective "control persons"8. But, in our employees' securities companies, it is readily apparent to shareholders that their fellow employees -- the trustees of the funds -- own shares of GE stock, as many of these employee-shareholders do themselves. Furthermore, disclosure of such investments in this instance is an unnecessary invasion of privacy. Management and shareholders in this case all work together and interact frequently. Information regarding an employee's stock ownership in the company and its affiliates is information that, like an employee's salary, is normally kept confidential by employers and employees. We fail to see how disclosure of inside trustees' ownership of GE stock can be important investment information to the investors in our employees' securities companies.


Accordingly, we respectfully request that, in conjunction with adopting the proposed amendments to certain exemptive rules by conditioning reliance on a fund's having a majority of independent directors, the Commission also adopt a procedural rule under the 1940 Act, or a rule under Section 2(a)(13) or Section 10 of the Act, that would exempt from these conditions employees' securities companies to the extent that they have received orders of exemption from Section 10(a) or 10(b). The rule could be phrased to provide that employees' securities companies shall not be precluded from relying on any exemptive rules adopted by the Commission solely because of the composition of their boards and the absence of a nominating committee composed exclusively of independent directors.

In addition, we recommend that if the Proposals regarding disclosure of a director's potential conflicts of interests are adopted, the requirements apply to a fund's independent directors only. Consequently, disclosure requirements designed to alert shareholders to potential conflicts would not apply to interested directors of an employees' securities company with exemptions from Section 10(a) of the 1940 Act where the Commission has already determined there to exist an identity of interests between management and investors.

We appreciate the Commission's consideration of our comments as they relate to employees' securities companies. If you have any questions or need additional information, please contact Alan M. Lewis, Esq. at 203-326-2313 or Matthew J. Simpson, Esq. at 203-961-2109.

Very truly yours,

/s/ Alan M. Lewis
Alan M. Lewis
Executive Vice President,
General Counsel and Secretary,
General Electric Investment Corporation

/s/ Matthew J. Simpson
Matthew J. Simpson
Vice President and General Counsel,
GE Asset Management Services


1 SEC Release No. IC-24082 (Oct. 14, 1999) ("Proposing Release").

2 Investment Company Act file numbers: Elfun Trusts: 811-00483; Elfun International Equity Fund (formerly Elfun Global Fund): 811-05216; Elfun Income Fund: 811-03866; Elfun Tax-Exempt Income Fund: 811-02735; Elfun Diversified Fund: 811-05324; Elfun Money Market Fund: 811-05904; General Electric S&S Program Mutual Fund: 811-01494; and General Electric S&S Long Term Interest Fund: 813-00048 (collectively, the "Funds").

3 Elfun Trusts, SEC Release No. IC-17083 (Jul. 25, 1989); Elfun International Equity Fund (formerly Elfun Global Fund), SEC Release No. IC-16114 (Nov. 5, 1987); Elfun Income Fund, SEC Release No. IC-13612 (Nov. 2, 1983); Elfun Tax-Exempt Income Fund, SEC Release No. IC-9879 (Jul. 5, 1977); Elfun Diversified Fund, SEC Release No. IC-16816 (Dec. 22, 1987); Elfun Money Market Fund, SEC Release No. IC-17433 (Apr. 13, 1990); General Electric S&S Program Mutual Fund, Admin. Proc. File No. 3-1057 (Nov. 5, 1968); and General Electric S&S Long Term Interest Fund, SEC Release No. IC-10971 (Dec. 4, 1979). For examples of other employees' securities companies that have recently received exemptions from the provisions of the 1940 Act, including Section 10, see also John Hancock Mutual Life Insurance Company, et al., SEC Release No. IC-23999 (Sept. 8, 1999); CIBC World Markets Corp., SEC Release No. IC-23932 (Aug. 3, 1999); The Goldman Sachs Group, L.P., SEC Release No. IC-23390 (Aug. 14, 1998); and RGIP, LLC, et al., SEC Release No. IC-23092 (Mar. 30, 1998).

4 See In the Matter of G.E. Employees Securities Corporation, 10 S.E.C. 652, 674 (Dec. 1, 1941).

5 Investment Trusts and Investment Companies: Hearings on S. 3580 Before a Subcomm. of the Senate Comm. on Banking and Currency, 76th Cong., 3d Sess. 196-97 (1940).

6 Proposing Release at 18 and n.39.

7 Proposing Release at 90-92.

8 The Commission proposes amending rule 0-1 to define "control person" as any person (other than a registered investment company) directly or indirectly controlling, controlled by, or under common control with a fund's investment adviser, principal underwriter, or administrator. See the Proposing Release at n.251.