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Our Ref. No. 97-77-CCRESPONSE OF THE OFFICE OF CHIEF COUNSEL GE FundsDIVISION OF INVESTMENT MANAGEMENT File No. 811-7142

Yo~r letter of February S, 1997 requests assurance that thestaff would not recommend enforcement action to the Commission ifseries of the GE Funds include in advertisements or supplementalsales literature the performance information of other registeredinvestment companies and institutional private accounts that aremanaged by GE Investment Management Incorporated ("GEIM"), the GEFunds' investment adviser, or GEIM's affiliate, General ElectricInvestment Corporation ("GEIC").

Facts

GE Funds (the "Trust") is a registered open-end investmentcompany that currently offers ten series (the "Funds"), eight ofwhich are offered to the public. GEIM and GEIC (together, "GEInvestments") are wholly-owned subsidiaries of General ElectricCompany that have in common virtually all of their investmentprofessionals.. 1/ GE Investments provides investmentmanagement 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 Nicholas-Applegate Mutual Funds ("Nicholas-Applegate I") (pub. avail. Aug.6, 1996), GEIM intends to include in the Trust's prospectusinformation regarding the performance of Institutional Accountsthat are advised by GEIM or GEIC and have investment obj ecti vesand policies that are substantially similar to those of acorresponding Fund. é/ You state that the Institutional

i/ You represent that GEIC serves as adviser exclusively to GE-affiliated accounts on an at-cost basis, while GEIM serves as 'adviser to external accounts on a fee-paying' basis. Yourepresent that, solely for administrative and accounting purposesrelated to these differences, GEIM and GEIC are structured asseparate entities.

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

N-iA, the performance information of Institutional Accounts thatare registered investment companies will be calculated on thebasis of standardized total return, and will be presented incomparison to appropriate broad-based market indices. See Form

N-iA, Items SA and 22 (b) (i). You also represent that thecomposite performance of Institutional Accounts that are private

(continued. . .)

\

)

- 2

Accounts' performance information will be provided to illustratethe performance of GE Investments in managing accounts that haveinvestment objectives and policies that are substantially similarto those of the Funds. You represent that, with respect to a newFund, the prospectus will specifically and prominently disclosethat the Fund does not yet have its own performance record, andthat the performance information of the Institutional Accountsshould not be considered a substitute for the Fund's own

performance information. with respect to a Fund that has aperformance history of its own, you represent that theInstitutional Accounts' performance information will be given nogreater prominence than the Fund's own performance information.

You represent that the prospectus will disclose that the ,Institutional Accounts consist of portfolios separate anddistinct from the Funds, and that the performance of theInstitutional Accounts is not indicative of the past or futureperformance of the Funds. You further represent that theprospectus will disclose all materiál differences between theInstitutional Accounts and the Funds and will include any otherdisclosure that may be necessary to ensure that InstitutionalAccount performance information is not presented in a misleadingmanner. Specifically, you represent that the prospectus willdisclose differences between the fee structures of theInstitutional Accounts and those of the Funds and, whereapplicable, will disclose that the performance of theInstitutional Accounts would have been lower if they had beensubject to the fees and expenses of the relevant Fund. Inaddition, the prospectus will disclose that the private accounts'composite performance might have been lower if the privateaccounts had been regulated as investment companies under thefederal securities and tax laws.

You request relief so that the Funds may include performanceinformation of the Institutional Accounts in advertisementscomplying with the provisions of Rule 482 under the SecuritiesAct of 1933 (the "Securities Act") and supplemental salesliterature complying with the provisions of Rule 34b-1 under theInvestment Company Act of 1940 (the "Investment Company Act") .You represent that the Institutional Accounts' performanceinformation and accompanying disclosure would be presented in

~ ( . . . continued)accounts will be presented net of management fees. You statethat, with respect to those private accounts that do not pay amanagement fee, a hypothetical management fee will be deductedequal to the highest rate that would have been charged by GEInvestments to a comparable fee-paying account. See J. P. MorganInvestment 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 theinformation appears in the Trust's prospectus. l/ You furtherrepresent that advertisements or supplemental sales literaturewill clearly explain the nature and purpose of the InstitutionalAccount performance information.

Analysis

In Nicholas-Applegate I, the staff confirmed that neitherSection 34 (b) of the Investment Company Act nor Section 206 ofthe Investment Advisers Act of 1940 would prohibit a fund fromincluding in its prospectus performance information regardingprivate accounts managed by the fund's adviser that hadsubstantially similar investment objectives, policies, andstrategies, provided that the information was not presented in amisleading manner and did not obscure or impede understanding ofinformation that is required to be included in the fund'sprospectus (including the fund's own performance information).In Bramwell Growth Fund (pub. avai~: Aug. 7, 1996), the stafftook the same position with respect to the inclusion in a fund'sprospectus of standardized total return information of anotherregistered investment company previously managed by the fund'sportfolio manager that had substantially similar investmentobjectives and policies. ~/ In each of these letters,

3/ An advertisement or supplemental sales literature pertainingonly to one Fund will include all of the performance informationand accompanying disclosure appearing in the Trust's then currentprospectus as it relates to that particular Fund. Inadvertisements or supplemental sales literature pertaining to aiiof the Funds, all of the performance information and accompanyingdisclosure will be included. You represent, however, thatperformance information in advertisements or supplemental salesliterature may differ from performance information .included inthe Trust's current prospectus to the extent that the performanceinformation in advertisements or supplemental sales literature isupdated to reflect average annual total return for one, five, andten 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 Nicholas-Applegate I and Bramwell, differ from those in MassMutualInstitutional Funds ("MassMutual"l (pub. avail. Sept. 28, 1995).MassMlltual addressed the case in which an unregistered account isconverted into a registered fund with substantially similarinvestment obj ecti ves, policies, and strategies. In MassMutual,the staff granted no-action relief to a registered fund thatsought to include, as part of the fund's own performanceinformation, the performance information of the unregisteredaccount for the period prior to the effectiveness of the fund's

(continued. . .)

ì- 4 -

however, the staff declined to express any view regarding theinclusion in a fund's Rule 482 advertisements or supplementalsales literature of performance information of other accountsmanaged by the fund's adviser.

Rule 482 under the Securities Act requires, among otherthings, that if an open-end management investment company (otherthan a money market fund) includes fund performance informationin 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 salesliterature containing fund performance information will be deemedmisleading unless it includes, among other things, the totalreturn calculations required by paragraph (e) (3) of Rule 482.Rule 482 and Rule 34b-1 are intended to standardize thecalculation and presentation of fund performance information inadvertisements or supplemental sales literature to prevent theuse of misleading information, and to facilitate the comparisonof funds by investors. 2/ '

Neither Rule 482 nor Rule 34b-1 by its terms prohibits afund from including in its advertisements or sales literatureperformance information relating to other accounts managed by thefund's adviser, so long as the information is not presented in amisleading manner. The Commission has expressed the view thatRule 482 should be read as precluding "performance informationabout any related entity to the fund such as its adviser . . .where the use of such performance is intended as a substitute forthe performance of the fund." ~/

You maintain that, because a Fund may, in accordance withNicholas-Applegate I and Bramwell, present the performanceinformation of the Institutional Accounts in the Trust'sprospectus in a manner that is not misleading, the identicalinformation would be no more likely to mislead investors whenpresented in the Fund's advertisements or sales literature. Youalso maintain that, with respect to a Fund that has its own

performance history, the proposal is consistent with Rule 482because the Institutional Accounts' performance information would

M ( . '. . continued)registration statement. Here, the Institutional Accounts are notthe predecessors of the Funds, so the performance information ofthe 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, theFunds' own performance information, and would be accompanied byprominent disclosure stating that the performance is not theFunds' own performance. 7/

We believe that neither Rule 482, Section 34 (b), nor Rule34b-1 prohibits a Fund from including in its advertisements orsupplemental sales literature the performance information ofInstitutional Accounts that have substantially similar investmentobjectives, policies, and strategies, provided that theperformance is not presented in a misleading manner and is notpresented as a substitute for the Fund's own performance.Accordingly i we would not recommend enforcement action to theCommission if the Funds include the performance information ofthe Institutional Accounts in advertisements or supplementalsales literature in accordance with the representations in yourletter. Our conclusion is based particularly on the followingfacts and representations, each of which is designed to ensurethat the Institutional Account performance information would notbe presented as a substitute for the Fund's performanceinformation:

(i) advertisements or supplemental sales literature willprominently disclose that the Institutional Accountperformance is not the Fund's own performance, and shouldnot be considered indicative of the past or futureperformance of the Fund;

(ii) advertisements or supplemental sales literature willprominently disclose that Institutional Account performanceshould not be considered a substitute for the Fund'sperformance;

(iii) with respect to a Fund that has its own performancehistory, the Institutional Account performance informationwill be provided in addition to the performance informationof the Fund, and will be presented no more prominently thanthe Fund's performance;

7/ As stated above, you represent that when a Fund has noperformance 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 prominentdisclosure stating that the Fund does not yet have its own

performance history and that the Institutional Accountperformance is not intended to be a substitute for the Fund's own

performance.

.'"/

'\i

- 6 -(iv) advertisements or supplemental sales literature willclearly explain the nature and purpose of the InstitutionalAccount performance information; and

(v) advertisements or supplemental sales literature willdisclose all material differences between the InstitutionalAccounts and the Fund and will include any other disclosurethat may be necessary to ensure that Institutional Accountperformance information is not presented in a misleadingmanner.

You should note that any different facts or representationsmight require a different conclusion. ~/

This response supersedes positions taken by the Division ofInvestment Management in 1993 that presenting performanceinformation regarding an adviser's other accounts is inconsistentwith the requirements of Rule 482, and that other accountperformance information may be used,' in supplemental salesliterature only when the fund itself does not have anyperformance history. ~/ Upon reconsideration, we believe thatthis earlier position is inconsistent with both the Commission'sstatement in the 1988 release adopting amendments to Rule482 lQ/ and the Commission's long-standing position thatwhether information in a fund's advertisements or salesliterature is misleading, for purposes of the federal securities

~ This response should not be construed as providing no-actionassurance with respect to any particular presentation of theperformance of Institutional Accounts.

In addition, we note that the National Association ofSecurities Dealers, Inc. (the "NASD") has taken the position thatthe use of advertisements and sales literature that includeperformance ~nformation regarding an adviser's other accounts maybe a violation of its Conduct Rules. NASD Regulatory andCompliance Alert at 7-8 (June 1992). Our response does notaddress the status of your proposal under the NASD Conduct Rules.

~/ See Letter from Carolyn B. Lewis, Assistant Director,Securities and Exchange Commission, Division of InvestmentManagement, to Registrants (Feb. 22, 1993) (citing footnote 31 ofthe Adopting Release) .

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

)- 7 -

laws, depends on the totality of the circumstances, including themanner in which it is presented. 11/s~w~Attorney' ,

11/ See,~, Investment Company Act Release No. 10621 (Mar. 8,1979) (withdrawing the Commission's Statement of Policy oninvestment company sales lite~ature) (II (w) hat is or is notmisleading in sales literature may depend greatly on the totalityof the circumstances, including the context in which it is usedand the sophistication of the investor.").

. . -..

WILLKIE FARR& GALLAGHER New York,

Washington, DC

London

Paris)

February S, 1997 1933 Act Rule 4821940 Act Rule 34b-1

BY HAND

Jack W. Murphy, Esq.Chief CounselDivision of Investment ManagementSecurities and Exchange CommissionJudiciary Plaza450 Fifth Street, N. W .Washington, D. C. 20S49

Re: GE Funds

Dear Mr. Murphy:

)

We are writing on behalf of GE Funds, a Massachusetts businesstrust (the "Trust"), to request the assurance of the staff of theDivision of Investment Management (the "Staff") that it would notrecommend that the Securities and Exchange Commission (the"Commission") take any enforcement action under the SecuritiesAct of 1933, as amended (the "1933 Act"), or the InvestmentCompany Act of 1940, as amended (the "1940 Act"), if the Trustincludes in advertisements in accordance with Rule 482 under the1933 Act ("Rule 482") and in supplemental sales literature inaccordance with Rule 34b-1 under the 1940 Act, historicalperformance information of other institutional accounts managedby the Trust's investment adviser or its affiliate under thecircumstances described below.

Background

The Trust is an open-end management investment company registeredunder the 1940 Act, the shares of which are registered under the1933 Act (SEC File Nos. 811-7142 and 33-S1308, respectively).The Trust consists of shares of eleven series, nine of which arecurrently being offered to the public (each series, and anyfuture series, is herein referred to as a "Fund", andcollectively, the "Funds"). GE Investment ManagementIncorporated, ("GEIM") is the Trust's investment adviser, GEIMand its affiliate, General Electric Investment Corporation("GEicn and, together with GEIM, "GE Investments") provideinvestment. management services to a variety of institutionalaccounts, including a number of registered investment companiesand private accounts. Each of GEIM and GEIC is a wholly-ownedsubsidiary of General Electric Company ("GE"), GEIM and GEIC aresister companies that have been structured as separate entitiesfor administrative and accounting purposes as a result of GEICserving exclusively as adviser to certain GE-affiliated accounts

One Citicorp Center 212 821 8000153 East 53rd Street Fax: 212 821 8lll

New York, NY 10022-4677

jack W. Murphy, Esq.February S, 1997Page 2

'\ on an at cost basis only and GEIM serving as adviser toexternally-oriented accounts on a fee paying basis. Theinvestment professionals responsible for the investmentoperations of each entity are virtually identical,

Prospectus Disclosure

In acc~rdance with a recent no-action position taken by theStaff, GEIM intends to include in the Trust's prospectushistorical performance of all institutional, private accounts ~ndall registered investment companies, with certain exceptions,having investment objectives and policies substantially similarto those of the Funds, for which either GEIM or GEIC currentlyacts as investment adviser, compared to the historicalperformance of broad market indexes. For a Fund with any historyof investment operations as of the effective date of itsprospectus, this related historical performance will appeartogether with, and be given no greater prominence than, theFund's own historical performance information. Fora new Fund,the Trust's prospectus will specifically and prominently statethat the Fund has no performance retord of its own and that therelated performance information should not be viewed as asubstitute for the Fund i s own performance.

)The related performance data, calculated on an average annualtotal return basis, is provided to illustrate the pastperformance of GE Investments in managing accounts substantiallysimilar to the Funds. The prospectus will disclose that (1)these accounts consist of portfolios separate and distinct fromthe Funds, (2) their performance is not indicative of the past orfuture performance of the Funds, and (3) investors should notconsider the performance data in any way indicative of futureperformance. In addition, differences in the fee structures ofthe various accounts are noted and, where applicable, a statementwiii be included to the effect that the performance figures would

i Nicholas-Applegate Mutual Funds, SEC No-Action Letter (pub. avail. Aug.7, 1996).

2The Funds have determined to exclude certain registered investmentcompanies from the performance presentation in the Trust i s prospectusbecause the current performance data of the excluded funds is either (a)higher than, or in GE Investments' determination not materially lowerthan, the included funds i performance data, (b) the excluded funds havea shorter history of investment operations than the Funds being promotedor (c) the excluded funds' holdings vary owing to the relatively recentadoption of the relevant investment strategy or merger into the excludedfund of funds with different investment strategies. See Association forInvestment 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, 1997Page 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 iscalculated, and presented in accordance with the uniform standardsprescribed by Form N-1A, All composite performance data iscalculated in accordance with recommended standards of theAssociation for Investment Management and Research. Consistentwith the Staff's prior positions on related composite performancedata, the data reflects management fees actually incurred by feepaying accounts, although rustodial fees and expenses are notdeducted from the results. With respect to non-fee paying GE-affiliated accounts, a hypothetical management fee is appliedequal in amount to the highest rate that would have been chargedto a comparable fee p~ying account based on GE Investments'stated fee schedules. In addition, the prospectus will disclosethat the composite performance could have been adversely affected,by the imposition of certain regulatory requirements,restrictions and limitations if the accounts within eachcomposite had been regulated as invastment companies under thefederal securities and tax laws. 'Proposal

)The Trust proposes to include in Rule 482 advertisements and insupplemental sales literature relating to the Funds' historicalperformance information of other institutional accounts managedby GE Investments that have substantially similar investment 'objectives and policies to the Fun~s exactly as the informationappears in the Trust's prospectus. An advertisement orsupplemental sales literature for only one Fund would include allof the performance data and accompanying disclosure appearing inthe Trust's then current prospectus as it relates to thatparticular Fund. In advertisements or supplemental salesmaterials that pertain to all the Funds, all of the performanceinformation and accompanying disclosure will be included. Ineach case, the advertisement or supplemental sales literature

3See 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 theidentical disclosure accompanying a Fund's performance information,however, consistent with Rule 482, the performance data itself will beupdated to reflect average annual total return for one, five and tenyear periods, as applicable, and will be current to the most recentcalendar quarter. To this limited extent, the performance data may vary

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

D19S6SS.05

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Jack W. Murphy, Esg.February S, 1997Page 4

will clearly explain the nature and purpose of the relatedperformance information, The Trust's prospectus will discloseall material differences between private institutional accountsand registered investment companies and will include any otherdisclosure that may be necessary to ensure that an institutionalaccount i s performance is not presented in a misleading manner,

Discussion:

)

In Nicholas-Applegate Mutual Funds,6 the Staff permitted certainmutual funds to include in their prospectus informationconcerning the performance of certain private accounts managed bythe funds' investment adviser. However, the Staff specificallynoted that it was not expressing any view regarding the inclusionof related historical performance7data in Rule 482 advertisementsor supplemental sales literature. A footnote in the 'Commission's release adopting certain amendments to Rule 482stated that the amendments precluded "performance informationabout any related entity to the fund such as its adviser, i,e.,other funds or private accounts controlled by the adviser, wherethe use of such performanfe is intended as a substitute for theperformance of the fund". In light of the Staff's recent no-action positions and the proposed presentation of performanceinformation as described in this letter, we are writing to seekthe Staff i s views on the scope of this footnote.The quoted footnote expressed the position that the informationshould not be used as a "substitute" for a fund's performance.The Trust does not intend to use this related performance data asa substitute for a Fund's own historical performance information.For a new Fund, the prospectus will specifically and prominentlydisclose that the Fund has no performance record of its own andthat the related performance information should not be viewed asa substitute for the Fund's own performance. For a Fund with anyhistory of investment operations as of the effective date of itsprospectus, the Fund's historical performance data will accompanythe related performance data and will be presented with at leastequal prominence. As mentioned above, the disclosure willclearly state that the adviser's performance relates toportfolios separate and distinct from the Fund and should not beconstrued as indicati ve of the Fund's performance, Therefore, wesubmit that the prohibition addressed in the footnote is notapplicable to the Trust's proposed performance presentation,

6 See supra note 1.7 Nicholas-Applegate, at footnote 2.

BInvestment Company Act Release No. 16245 at footnote 31 (May 1, 1988)(emphasis supplied).

0195655.05

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)

Jack W. Murphy, Esq.February 5, 1997Page, 5

We note that the Tru~t does not intend to extract excerpts of, theadviser's historical performance information from the prospectus.for use in Rule 482 advertisements and supplemental salesliterature. Rather, the historical performance data andaccompanying disclosure presented in a Fund i s sales materialswill be identical to the prospectus disclosure relating to thatFund, which is subj ect to review by the Staff. We recognize theconcern that, in selecting disclosure to be included in Rule 482advertisements, an adviser could choose to omit certaindisclosure included in the prospectus that would cause therelated performance information to be misleading. However, nopart of the prospectus performance disclosure relating to theparticular Fund being advertised will be omitted from the salesmaterials. We submit that the sales material therefore would beno more misleading than the identical disclosure included in theFund's prospectus, which is subj ect to review by the Staff andthe anti-fraud provisions of the federal securities laws. Thus,if the Trust proceeds as described above, we believe that theconcerns expressed in the quoted footnote will be ameliorated.

Conciusion

In view of the foregoing, on behalf of the Trust, we respectfullyrequest the assurance of the Staff that it would not recommendthat the Commission take any enforcement action under the 1933Act or the 1940 Act if the Trust advertises historicalperformance information of other institutional accounts managedby GE Investments as described above.

Should the Staff have any questions or comments concerning thisrequest, 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