File Nos. 333 - __________, 811-__________
- - --------------------------------------------------------------------------------
As filed with the Securities and Exchange Commission on June 16, 1997
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 / X /
Pre-Effective Amendment No. ______ / /
Post-Effective Amendment No. ______ / /
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 /X/
Amendment No. ______ / /
(Check appropriate box or boxes)
...................................................................
GE INSTITUTIONAL FUNDS
3003 Summer Street
Stamford, Connecticut 06905
(203) 326-4040
(Registrant's Exact Name, Address and Telephone Number)
...................................................................
Matthew J. Simpson, Esq.
Vice President, Associate General Counsel & Assistant Secretary
GE Investment Management Incorporated
3003 Summer Street
Stamford, Connecticut 06905
...................................................................
(Name and Address of Agent for Service)
Copies to:
Stephen E. Roth, Esq.
Sutherland, Asbill & Brennan, L.L.P.
1275 Pennsylvania Avenue, N.W.
Washington, DC 20004-2404
Approximate Date of Proposed Public Offering: As soon as practicable after the
effective date of this Registration Statement.
Pursuant to Rule 24-f-2 under the Investment Company Act of 1940, the Registrant
declares that an indefinite amount of securities is being registered under the
Securities Act of 1933.
The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment that specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933, as amended, or until the Registration Statement becomes
effective on such date as the Securities and Exchange Commission, acting
pursuant to Section 8(a) of the Securities Act of 1933, as amended, may
determine.
<PAGE>
GE INSTITUTIONAL FUNDS
FORM N-1A
CROSS REFERENCE SHEET
Pursuant to Rule 481(a) under the Securities Act of 1933
----------
Showing Location of Information Required by Form N-1A (Prospectus)
and Part B (Statement of Additional Information) of the Registration Statement
----------
Part A
Item No. Prospectus Heading
- - -------- ------------------
1. Cover Page.............................................. Cover Page
2. Synopsis................................................Expense Information
3. Condensed Financial Information.........................Expense Information
4. General Description of Registration..................... Cover Page;
Investment Objectives and
Management Policies;
Investments in Debt Securities;
Cash Management Policies --
Non-Money Market Funds;
Additional Permitted Investments;
Additional Matters;
Appendix--
Further Information:
Certain Investment
Techniques and Strategies
5. Management of the Funds.......................... Expense Information;
Investment Objectives and
Management Policies;
Management of the Trust;
Appendix -- Further Information:
Certain Investment
Techniques and Strategies
6. Capital Stock and Other Securities............... Dividends;
Distributions and
Taxes; Additional Matters
A-i
<PAGE>
7. Purchase of Securities Being Offered................ Purchase of Shares;
Net Asset Value;
Distributor
8. Redemption or Repurchase............................ Redemption of Shares
9. Legal Proceedings................................... Not applicable
Part B Heading in Statement of
Item No. Additional Information
- - -------- ----------------------
10. Cover Page.......................................... Cover Page
11. Table of Contents.................................. Contents
12. General Information and History................. The Funds' Performance;
Additional Information
13. Investment Objectives and Policies.............. Investment Objectives
and Management Policies;
Appendix -- Further Information:
Certain Investment
Techniques and Strategies
14. Management of the Funds......................... Management of the Trust
15. Control Persons and Principal
Holders of Securities...............................Principal Stockholders;
Management of the Trust
See Prospectus--
Additional Matters
16. Investment Advisory and Other Services........ Management of the Trust
17. Brokerage Allocation and Other Practices........ Investment Restrictions;
Management of the Trust
18. Capital Stock and Other Securities.............. Redemption of Shares;
Addional Information
19. Purchase, Redemption and Pricing
of Securities Being Offered...................... Redemption of Shares;
Net Asset Value;
See Prospectus -- Purchase of Shares
A-ii
<PAGE>
20. Tax Status.......................................Dividends, Distributions
and Taxes
21. Underwriters............................................ Not Applicable
22. Calculation of Performance Data.............. The Funds' Performance
23. Financial Statements.............................Independent Accountants;
Financial Statements
Part C
Information required to be included in Part C is set forth after the
appropriate item, so numbered, in Part C to this Registration Statement.
A-iii
<PAGE>
GE Institutional Funds (the "Trust") is an open-end management investment
company that offers ten diversified managed investment funds (each, a "Fund" and
collectively, the "Funds"), each of which has two classes of shares -- the
Service Class and the Investment Class. Each Fund has a discrete investment
objective that it seeks to achieve by following distinct investment policies.
This Prospectus describes the Service Class shares of the Funds. The Service
Class shares and the Investment Class shares are identical, except as to the
services offered, and the expenses borne, by each class. You may obtain a copy
of the prospectus describing the Investment Class shares free of charge by
calling the telephone number listed below or writing the Trust at the address
listed below.
o Emerging Markets Fund's investment objective is long-term growth of
capital. The Fund seeks to achieve this objective by investing primarily in
equity securities that are traded in emerging markets or equity securities
of companies that are organized or conduct their principal business
activities in emerging markets countries.
o International Equity Fund's investment objective is long-term growth of
capital. The Fund seeks to achieve this objective by investing primarily in
securities of foreign issuers.
o Mid-Cap Growth Fund's investment objective is long-term growth of capital.
The Fund seeks to achieve this objective by investing primarily in equity
securities of companies with medium-sized market capitalization that have
the potential for above-average growth.
o Premier Growth Equity Fund's investment objective is long-term growth of
capital and future income rather than current income. The Fund seeks to
achieve this objective by investing primarily in growth-oriented equity
securities.
o Value Equity Fund's investment objective is long-term growth of capital and
future income. The Fund seeks to achieve this objective by investing
primarily in equity securities of companies with large sized market
capitalization that the Fund's management considers to be undervalued by
the market.
o U.S. Equity Fund's investment objective is long-term growth of capital. The
Fund seeks to achieve this objective by investing primarily in equity
securities of U.S. companies.
o S&P 500 Index Fund's investment objective is to provide growth of capital
and accumulation of income that corresponds to the investment return of the
Standard & Poor's 500 Composite Stock Price Index. The Fund seeks to
achieve this objective by investing in common stocks comprising that Index.
o Strategic Investment Fund's investment objective is to maximize total
return, consisting of growth of capital and current income. The Fund seeks
to achieve this objective by following an asset allocation strategy that
provides diversification across a range of asset classes and contemplates
shifts among them from time to time.
o Income Fund's investment objective is to seek maximum income consistent
with prudent investment management and the preservation of capital. The
Fund seeks to achieve this objective by investing in fixed income
securities.
o Money Market Fund's investment objective is to seek a high level of current
income consistent with the preservation of capital and maintenance of
liquidity. The Fund seeks to achieve this objective by investing in U.S.
dollar denominated, short-term money market instruments.
This Prospectus briefly sets forth certain information about the Funds and the
Trust, including shareholder servicing and distribution fees, that prospective
investors will find helpful in making an investment decision. Investors are
encouraged to read this Prospectus carefully and retain it for future reference.
An investment in the Money Market Fund is neither insured nor guaranteed by the
U.S. Government, and there can be no assurance that this Fund will be able to
maintain a stable net asset value of $1.00 per share.
Shares of the Funds are not deposits with or obligations of any financial
institution, are not guaranteed or endorsed by any financial institution or its
affiliates, and are not insured by the Federal Deposit Insurance Corporation,
the Federal Reserve Board or any other government agency. There can be no
assurance that a Fund will achieve its investment objective.
GE INVESTMENT MANAGEMENT INCORPORATED
Investment Adviser and Administrator
These Securities Have Not Been Approved or Disapproved by
The Securities and Exchange Commission or Any State
Securities Commission Nor Has the Securities and
Exchange Commission or Any State Securities
Commission Passed upon the Accuracy or
Adequacy of this Prospectus. Any
Representation to the Contrary
Is a Criminal Offense.
Prospectus
__________________, 1997
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
TABLE OF CONTENTS
Expense Information.......1
Performance...............3
Investment Objectives
and Management
Policies.................5
Investments in Debt
Securities..............12
Cash Management
Policies - Non-Money
Market Funds............12
Additional Permitted
Investments.............13
Investment Restrictions..18
Management of the
Trust...................23
Purchase of Shares.......26
Redemption of Shares.....29
Exchanges................31
Net Asset Value..........31
Dividends, Distributions
and Taxes...............32
Custodian and Transfer
Agent...................33
Distributor..............34
Additional Matters.......34
Appendix-Further
Information: Certain
Investment Techniques
and Strategies...........i
3003 Summer Street
Stamford, Connecticut 06905
(203) 326-4040
<PAGE>
EXPENSE INFORMATION
Expenses are one of several factors to consider when investing in the Funds. The
following fee table and example are designed to assist you in understanding the
various costs and expenses that you will bear directly or indirectly as an
investor in the Service Class shares of a Fund. Shareholder Transaction Expenses
are fees charged directly to you when you buy, sell or exchange Service Class
shares. Annual Fund Operating Expenses are paid out of each Fund's assets and
include fees for portfolio management, maintenance of shareholder accounts,
accounting and other services.
Fee Table
<TABLE>
<CAPTION>
Emerging Interna- Mid-Cap Premier Value U.S. S&P Strategic Income Money
Markets tional Growth Growth Equity Equity 500 Invest- Fund Market
Fund Equity Fund Equity Fund Fund Index ment Fund
Fund Fund Fund Fund
- - ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Shareholder
Transaction
Expenses*
Maximum Sales None None None None None None None None None None
Load Imposed on
Purchases of
Shares (as a
percentage of
Offering Price)
Maximum None None None None None None None None None None
Contingent
Deferred Sales
Load
Cash Purchase 1.25% .65% .40% .25% .25% .25% .25% .20% .10% None
premium*
(as a percentage of
amount invested)
Redemption fees* 1.25% .65% .40% .25% .25% .25% .25% .20% .10% None
(as a percentage of
amount
redeemed):
Maximum None None None None None None None None None None
Exchange Fee**
</TABLE>
- - ----------
* Purchase premiums and redemption fees apply only to those transactions that
are not in-kind ("cash transactions") of $5 million or more with respect to
each of the Emerging Markets and International Equity Funds and $10 million
or more with respect to each of the other Funds (other than the Money
Market Fund). Purchase premiums and redemption fees are discussed below
under "Purchase of Shares" and "Redemption of Shares," respectively. These
fees are paid to, and retained by, a Fund and are intended to allocate
transaction costs caused by shareholder activity to the shareholder
generating the activity, rather than to the Fund as a whole. The Trust may
reduce purchase premium and/or redemption fee amounts if GE Investment
Management Incorporated ("GEIM") determines that due to offsetting
transactions the brokerage and/or other transaction costs generated by the
relevant shareholder activity will be minimal. The Trust also may, in its
discretion, require that proposed investments of $5 million or $10 million
or more in a Fund, as applicable, be made in-kind.
** While currently there is no exchange fee, redemption fees and, if
applicable, purchase premiums are charged on exchanges.
1
<PAGE>
<TABLE>
<CAPTION>
Emerging Interna- Mid- Premier Value U.S. S&P Strategic Income Money
Markets tional Cap Growth Equity Equity 500 Invest- Fund Market
Fund Equity Growth Equity Fund Fund Index ment Fund
Fund Fund Fund Fund Fund
- - ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Annual Fund
Operating
Expenses (as
of percentage
of net assets)
Maximum 1.05%(1) .75%(1) .55%(1) .55%(1) .55%(1) .55%(1) .15%(1) .55%(1) .35%(1) .25%(1)
Advisory and
Administration
Fees
Shareholder .25% .25% .25% .25% .25% .25% .25% .25% .25% .25%
Servicing and
Distribution Fee
Other expenses None None None None None None None None None None
Total Operating 1.30% 1.00% .80% .80% .80% .80% .40% .80% .60% .50%
Expenses
</TABLE>
- - ----------
(1) The advisory and administration fee shown is the maximum payable by the
Fund; this fee declines inrementally as the Fund's assets increase as
described under "Management of the Trust - Fee Structure."
The nature of the services provided to, and the advisory and administration fee
paid by, each Fund are described under "Management of the Trust." A Fund's
advisory and administration fee is intended to be a "unitary" fee that includes
any other operating expenses payable by a Fund, except for fees paid to the
Trust's independent Trustees. The amount shown as the advisory and
administration fee for a Fund reflect the highest fee payable, and does not
reflect that the fee decreases incrementally as Fund assets increase. Because
the Funds have only recently commenced operations, "Other Expenses" in the table
above are based on estimated amounts for the current fiscal year. "Other
Expenses" include only Trustees' fees payable to the Trust's independent
Trustees. This amount is expected to be de minimus (less than .01%), therefore
"Other Expenses" are reflected as "None."
Example
The following example demonstrates the projected dollar amount of total
cumulative expenses that would be incurred over a one-year and three-year period
with respect to a hypothetical investment in each Fund. These amounts are based
upon (1) payment by the Fund of operating expenses at the levels set out in the
table above and (2) the specific assumptions stated below.
<TABLE>
<CAPTION>
You would pay the following You would pay the following
expenses on a $1,000 investment, expenses on the same
assuming (1) a 5% annual return and investment, assuming no
(2) redemption at the end redemption
of the time periods shown:
------------------------------------ ----------------------------
1 Year 3 Years 1 Year 3 Years
------ ------- ------ -------
<S> <C> <C> <C> <C>
Emerging Markets Fund $38 $66 $26 $53
International Equity Fund $23 $45 $17 $38
Mid-Cap Growth Fund $16 $33 $12 $29
Premier Growth Equity Fund: $13 $30 $11 $28
Value Equity Fund: $13 $30 $11 $28
U.S. Equity Fund $13 $30 $11 $28
S&P 500 Index Fund $9 $18 $7 $15
Strategic Investment Fund: $12 $29 $10 $27
Income Fund: $8 $21 $7 $20
Money Market Fund $5 $16 $5 $16
</TABLE>
2
<PAGE>
The above example is intended to assist you in understanding various costs and
expenses that an investor in the Service Class shares of a Fund will bear
directly or indirectly. Although the table assumes a 5% annual return, a Fund's
actual performance will vary and may result in an actual return that is greater
or less than 5%. The table assumes that any applicable purchase premiums are
charged to an investor, even though such premiums are not applicable in all
cases. The example should not be considered to be a representation of past or
future expenses of a Fund; actual expenses may be greater or less than those
shown.
Performance
As of ____________________, 1997, the Funds had not yet commenced investment
operations and therefore no Fund has a performance record of its own. With
respect to certain of the Funds, the chart below shows the historical
performance of (i) broad market indexes for one-, three-, five- and ten- year
time periods; and (ii) mutual funds and institutional private accounts having
similar objectives as the Funds for which the investment adviser is GEIM, the
Funds' investment adviser and administrator, or General Electric Investment
Corporation ("GEIC", and together with GEIM collectively referred to as "GE
Investments"), a sister company of GEIM that is wholly-owned by General Electric
Company ("GE"). The professionals responsible for the investment operations of
GEIM and the Funds serve in similar capacities with respect to GEIC. The 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. These accounts consist of separate and distinct portfolios
and their performance is not indicative of, or a substitute for, the past or
future performance of the Funds.
<TABLE>
<CAPTION>
Average Annual Total Return (%) (as of 4/30/97)
FUND NAME
One Three Five Ten Since
Year Year Year Year Inception
---- ---- ---- ---- ---------
<S> <C> <C> <C> <C> <C>
International Equity Fund: --- --- --- --- ---
GE International Equity Fund 7.33 8.16 _ _ 7.66
Class D (3/2/94)
International Equity Composite [TBD] [TBD] [TBD] [TBD] N/A
Morgan Stanley EAFE Index -0.89 5.25 10.58 5.0 N/A
Value Equity Fund --- --- --- --- ---
Premier Growth Equity Fund: -- -- -- -- --
GE Premier Growth Fund N/A N/A N/A N/A -1.93
Class D (12/31/96)
Elfun Trusts 21.38 23.27 16.73 14.39 N/A
S&P 500 Index 25.12 24.15 17.11 14.12 N/A
U.S. Equity Fund: --- --- --- --- ---
GE U.S. Equity Fund 22.47 21.98 _ _ 18.37
Class D (11/29/93)
U.S. Multi-Style - Equity Composite [TBD] [TBD] [TBD] [TBD] N/A
S&P 500 Index 25.12 24.15 17.11 14.12 N/A
Strategic Fund: --- --- --- --- ---
GE Strategic Investment Fund 13.79 15.28 _ _ 12.62
Class D (11/29/93)
Elfun Diversified Fund 13.87 15.22 12.43 _ 11.87
(1/1/88)
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
FUND NAME
One Three Five Ten Since
Year Year Year Year Inception
---- ---- ---- ---- ---------
<S> <C> <C> <C> <C> <C>
S&P 500 & LB Aggregate Index Composite 17.90 17.56 13.21 11.95 N/A
Income Fund: --- --- --- --- ---
GE Funds' Fixed Income Fund Class D 7.15 7.20 --- --- 5.46
(11/29/93)
Elfun Income Fund 7.56 7.79 7.48 8.58 N/A
S&S Long Term Interest Fund 7.78 7.93 7.50 8.69 N/A
Lehman Brothers Aggregate Bond Index 7.08 7.68 7.35 8.69 N/A
Money Market Fund: --- --- --- --- ---
GE Money Market Fund 5.07 5.10 _ _ 4.44
(2/22/93)
Elfun Money Market Fund 5.23 5.29 4.53 _ 5.13
(6/13/90)
90 Day T-Bill 5.20 5.26 4.43 5.6 N/A
</TABLE>
Notes to Performance
The composite performance data shown above for the International Equity
Composite was developed from the aggregate performance of various institutional
private accounts managed on a basis substantially similar to the International
Equity Fund; the U.S. Multi-Style-Equity Composite was developed from the
aggregate performance of various institutional private accounts managed on a
basis substantially similar to the U.S. Equity Fund. The raw composite
performance data was calculated in accordance with recommended standards of the
Association for Investment Management and Research and the effect of fees was
calculated as described below.
Custodial fees and expenses were not deducted from the composite results, but
management fees are reflected as follows: fees of all fee paying accounts were
deducted and, with respect to the non-fee paying GE-affiliated accounts, a
hypothetical fee equal to the highest annual rate that would have been charged
to a comparable fee paying account based on GE Investments' stated fee schedules
was deducted. The fees and expenses deducted from the composite performance data
generally are lower than the expenses incurred by the corresponding Funds and
the composite performance figures would have been lower if they were subject to
the higher fees and expenses incurred by the Funds. In addition, the composite
performance might have been adversely affected by the diversification
requirements, tax restrictions and investment limitations to which the Funds are
subject, if the accounts within each composite had been regulated as investment
companies under the federal securities and tax laws.
The mutual fund results are net of fees and expenses and assume changes in share
price, reinvestment of dividends and capital gains. The management fees charged
to the Elfun Funds and to S&S Long Term Interest Fund are the reasonable costs,
both direct and indirect, incurred in providing management and advisory
services. Consequently, the expenses incurred by the Elfun Funds and S&S Long
Term Interest Fund generally are lower than those incurred by the corresponding
Funds and their performance would have been lower if they were subject to the
higher fees and expenses incurred by the Funds. GE Funds offer four classes of
shares, each having different fees and expenses. GE Funds Class D shares are
offered to certain institutional investors and bear the lowest level of fees and
expenses. GEIM has voluntarily agreed to reduce or otherwise limit certain
expenses of the GE Funds. Absent these limits, the GE Funds' performance would
have been lower. Also, certain of the results for Elfun Diversified, Elfun
Global and Elfun Money Market Funds were favorably affected by expense waivers
or limitations.
<PAGE>
The Standard & Poor's 500 Composite Stock Price Index (the "S&P 500 Index"),
Morgan Stanley Capital International World Index ("MSCI World"), Morgan Stanley
Capital International EAFE Index ("MSCI EAFE"), Lehman Brothers Aggregate Bond
Index ("LB Aggregate"), the Lehman Brothers Municipal Bond Index ("LBMI") and
Lehman Brothers 1-3 Year Government Bond Index ("LB 1-3") are unmanaged indexes
and do not reflect the actual cost of investing in the instruments that comprise
each index. The S&P 500 Index is a composite of the prices of 500 widely held
stocks recognized by investors to be representative of the stock market in
general. MSCI World Index is a composite of that currently consists of 1,554
stocks in companies from 22 countries representing the European, Pacific Basin
and American regions. MSCI EAFE Index is a composite that currently consists of
1,091 stocks of companies from 20 countries representing stock markets of
Europe, Australia, Asia, New Zealand and Far East. LB Aggregate is a composite
index of short-, medium-, and long-term bond performance and is widely
recognized as a barometer of the bond market in general. LBMI is a composite of
investment grade, fixed rate municipal bonds and is considered to be
representative of the municipal bond market. The LB 1-3 is a composite of
government and U.S. Treasury obligations with maturities of 1-3 years. S&P 500
Index & LB Aggregate Composite Index simulates a blended return which is
representative of the approximate asset allocation mix of the GE Strategic
Investment Fund for the periods presented (composed of 60% S&P 500 Index 40%
LBKL"). The actual allocation mix of this Fund may have varied from time to
time. The results shown for the foregoing indexes assume the reinvestment of net
dividends.
4
<PAGE>
INVESTMENT OBJECTIVES AND MANAGEMENT POLICIES
The Trust is a diversified, open-end management investment company that consists
of ten separate investment portfolios, each of which has two classes of shares
- - -- the Service Class and the Investment Class. The Service Class shares differ
from the Investment Class shares in that an additional .25% shareholder
servicing and distribution fee is charged to each Fund with respect to Service
Class shares. This .25% fee is intended to reimburse the Trust or GE Investment
Services Inc. (the "Distributor") for expenditures made on behalf of each Fund
to obtain certain shareholder services, including third-party record-keeping,
transfer agency, and ongoing services related to the maintenance of Service
Class shareholder accounts and to pay for certain distribution costs pursuant to
a shareholder servicing and distribution plan adopted in accordance with Rule
12b-1 under the Investment Company Act of 1940, as amended (the "1940 Act"). The
shareholder servicing and distribution fee paid by the Service Class shares will
cause such shares to have a higher expense ratio and lower return than
Investment Class shares.
You should be aware that GE Funds offers additional class options for investors
that may not meet the minimum investment requirements of the Funds and/or
require services not provided by the Funds, but that wish to invest in
portfolios advised by GEIM with the same or similar investment objectives and
policies as those of the Funds. Class A shares of the GE Funds would be suitable
for investors that require "full service." Under the full service option, GEIM,
in conjunction with the employee retirement plan record-keeping capabilities of
State Street Bank and Trust Company ("State Street"), provides record-keeping
and other shareholder services (including shareholder communication services) to
investors in the Class A shares of the GE Funds. Class D shares of the GE Funds
would be suitable for investors that require only advisory and administration
services (similar to investors in the Investment Class shares of the Funds) but
that are not able to meet the minimum investment requirements of the Funds, as
well as for GE- affiliated employee retirement plans that require the full
service option. Because the GE Funds are marketed primarily to retail investors
that generally invest smaller amounts in such funds, the fees charged to
investors in the GE Funds are higher than those charged to investors in the
corresponding Funds of the Trust. You should evaluate the levels at which you
intend to invest and your individual shareholder services requirements to
determine the class of shares of the Funds or the GE Funds that best suit your
needs at the lowest level of fees.
Set forth below is a description of the investment objective and policies of
each Fund. The investment objective of a Fund may not be changed without the
approval of the holders of a majority of the Fund's outstanding voting
securities as defined in the 1940 Act. Such a majority is defined in the 1940
Act as the lesser of (1) 67% or more of the shares present at a Fund meeting, if
the holders of more than 50% of the outstanding shares of the Fund are present
or represented by proxy or (2) more than 50% of the outstanding shares of the
Fund. No assurance can be given that a Fund will be able to achieve its
investment objective.
Emerging Markets Fund
The investment objective of the Emerging Markets Fund is long-term growth of
capital. The Fund seeks to achieve this objective by investing, under normal
conditions, at least 65% of its total assets in equity securities that are
traded in emerging markets or equity securities of companies that are organized
or conduct their principal business activities in emerging markets countries.
GEIM allocates the Fund's assets among the selected emerging markets of newly
industrializing countries in Asia, Latin America, the Middle East, Southern
Europe, Eastern Europe and Africa. An emerging markets country is any country
having an economy and market that are or would be considered by the World Bank
to be emerging or developing, or emerging countries that are listed on the
Morgan Stanley Capital International World Index. A company will be considered
to conduct its principal business activities in a country, market or region if
it derives a significant portion (at least 50%) of its revenues or profits from
goods produced or sold, investments made, or services performed in such country,
market or region or has at least 50% of its assets situated in any such country,
market or region.
The Fund, from time to time, may invest all of its assets in a single country.
If the Fund invests all or a significant portion of its assets at any time in a
single country, events in that country are more likely to affect the Fund's
investments. GEIM bases its selection on certain relevant factors, including the
investment restrictions and tax barriers of a given country, the outlook for
economic growth, currency exchange rates, commodity prices, interest rates,
political factors and the stage of the local market cycle in the emerging
country.
Equity securities of emerging markets companies may include common stocks,
preferred stocks, convertible bonds, convertible debentures, convertible notes,
convertible preferred stocks and warrants or rights issued by foreign companies,
5
<PAGE>
equity interests in foreign investment funds or trusts and foreign real estate
investment trust securities. The Fund may invest in American Depositary Receipts
("ADRs"), European Depositary Receipts ("EDRs") and Global Depositary Receipts
("GDRs").
The Emerging Markets Fund, under normal market conditions, may invest up to 35%
of its assets in debt securities, including notes, bonds and debentures issued
by corporate or governmental entities when GEIM determines that investing in
those kinds of debt securities is consistent with the Fund's investment
objective of long-term growth of capital. GEIM believes that such a
determination could be made, for example, upon the Emerging Markets Fund's
investing in the debt securities of a company whose securities GEIM anticipates
will increase in value as a result of a development particularly or uniquely
applicable to the company. GEIM also believes such a determination could be made
with respect to an investment by the Emerging Markets Fund in debt instruments
issued by a governmental entity if GEIM's concludes that the value of the
instruments will increase as a result of improvements or changes in public
finances, monetary policies, external accounts, financial markets, exchange rate
policies or labor conditions of the country in which the governmental entity is
located.
In addition, the Emerging Markets Fund may sell securities short against the box
and may engage in certain investments discussed below under "Additional
Permitted Investments."
International Equity Fund
The investment objective of the International Equity Fund (the "International
Fund") is long-term growth of capital. The Fund seeks to achieve this objective
by investing primarily in securities of foreign issuers. The International Fund
may invest in securities of companies and governments located in developed and
developing countries outside the United States, and also may invest in
securities of foreign issuers in the form of depositary receipts. Investing in
securities issued by foreign companies and governments involves considerations
and potential risks not typically associated with investing in securities issued
by the U.S. Government and U.S. corporations. The International Fund intends to
position itself broadly among countries and, under normal circumstances, at
least 65% of the Fund's assets will be invested in securities of issuers
collectively in no fewer than three different countries. The percentage of the
International Fund's assets invested in particular countries or regions of the
world will vary depending on political and economic conditions. An issuer's
domicile or nationality will be determined by reference to (a) the country in
which the issuer is organized; (b) the country in which the issuer derives at
least 50% of its revenues or profits from goods produced or sold, investments
made or services performed, (c) the country in which the issuer has at least 50%
of its assets situated or (d) the principal trading market for the issuer's
securities.
In selecting investments on behalf of the International Fund, GEIM seeks
companies that are expected to grow faster than relevant markets and whose
securities are available at a price that does not fully reflect the potential
growth of those companies. GEIM typically focuses on companies that possess one
or more of a variety of characteristics, including strong earnings growth
relative to price-to-earnings and price-to-cash earnings ratios, low
price-to-book value, strong cash flow, presence in an industry experiencing
strong growth and high quality management.
The International Fund, under normal conditions, invests at least 65% of its
assets in common stocks, preferred stocks, convertible debentures, convertible
notes, convertible preferred stocks and common stock purchase warrants or
rights, issued by companies believed by GEIM to have a potential for superior
growth in sales and earnings. In most cases these securities are traded on
foreign or U.S. exchanges or in the U.S. or foreign over-the-counter markets.
The International Fund will emphasize established companies, although it may
invest in companies of varying sizes as measured by assets, sales or
capitalization. In addition, the International Fund may sell securities short
against the box and may engage in certain investments discussed below under
"Additional Permitted Investments."
The International Fund, under normal market conditions, may invest up to 35% of
its assets in notes, bonds and debentures issued by corporate or governmental
entities when GEIM determines that investing in those kinds of debt securities
is consistent with the Fund's investment objective of long-term growth of
capital. GEIM believes that such a determination could be made, for example,
upon the International Fund's investing in the debt securities of a company
whose securities GEIM anticipates will increase in value as a result of a
development particularly or uniquely applicable to the company, such as a
liquidation, reorganization, recapitalization or merger, material litigation,
technological breakthrough or new management or management policies. In
addition, GEIM believes such a determination could be made with respect to an
investment by the International Fund in debt instruments issued by a
governmental entity upon GEIM's concluding that the value of the instruments
will increase as a result of improvements or changes in public finances,
monetary policies, external accounts, financial markets, exchange rate policies
or labor conditions of the country in which the governmental entity is located.
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When GEIM believes there are unstable market, economic, political or currency
conditions abroad, the Fund may assume a temporary defensive posture and
restrict its investments to certain securities markets and/or invest all or a
significant portion of its assets in securities of the types described above
issued by companies incorporated in and/or having their principal activities in
the United States.
Mid-Cap Growth Fund
The investment objective of the Mid-Cap Growth Fund (the "Mid-Cap Fund") is
long-term growth of capital. The Mid-Cap Fund seeks to achieve this objective by
investing primarily in the equity securities of companies with medium-sized
market capitalizations ("mid-cap") that have the potential for above-average
growth. The Fund, under normal market conditions, will invest at least 65% of
its total assets in a portfolio of equity securities of mid-cap companies traded
on U.S. securities exchanges or in the U.S. over-the-counter market, including
common stocks, preferred stocks, convertible preferred stocks, convertible
bonds, convertible debentures, convertible notes, ADRs and warrants or rights
issued by foreign and U.S. companies. The Fund defines a mid-cap company as one
whose securities are within the market capitalization range of stocks listed on
the S&P MidCap 400 Index (the "S&P 400 Index").
Mid-cap growth companies are often still in the early phase of their life
cycles. Accordingly, investing in mid-cap companies generally entails greater
risk exposure and volatility (meaning upward or downward price swings) than
investing in large, well-established companies. However, GEIM believes that
mid-cap companies may offer the potential for more rapid growth. See "Risk
Factors and Special Considerations - Smaller Companies."
GEIM will rely on its proprietary research to identify mid-cap companies with
potentially attractive growth prospects. These companies typically would have
one or more of a variety of characteristics, including attractive products and
services, above average earnings growth potential, superior financial returns,
strong competitive position, shareholder focused management and sound balance
sheets. There is, of course, no guarantee that GEIM will be able to identify
such companies or that the Fund's investment in them will be successful.
The Mid-Cap Fund may invest up to 35% of its assets in bonds, notes, debentures,
securities that are traded in foreign markets and securities of companies
outside the capitalization range of the S&P 400 Index when GEIM determines that
investing in these kinds of securities is consistent with the Fund's investment
objective of long-term growth of capital. The Fund also may invest in foreign
issuers that are outside this capitalization range in the form of ADRs. The
Mid-Cap Fund may sell securities short against the box and engage in certain
investments discussed below under "Additional Permitted Investments."
Premier Growth Equity Fund
The investment objective of the Premier Growth Equity Fund (the "Premier Growth
Fund") is long-term growth of capital and future income rather than current
income. The Fund seeks to achieve this objective by investing primarily in
growth-oriented equity securities which, under normal market conditions, will
represent at least 65% of the Fund's assets. In pursuing its objective, the
Premier Growth Fund, under normal conditions, may invest in common stocks,
preferred stocks, convertible bonds, convertible debentures, convertible notes,
convertible preferred stocks and warrants or rights issued by U.S. and foreign
companies.
The Premier Growth Fund will seek to identify and invest in companies it
believes will offer potential for long-term growth of capital. These companies
typically would possess one or more of a variety of characteristics, including
high quality products and/or services, strong balance sheets, sustainable
internal growth, superior financial returns, competitive position in the
issuer's economic sector and shareholder-oriented management. While the Premier
Growth Fund may invest in companies of varying sizes as measured by assets,
sales or capitalization, a majority of its assets, under normal market
conditions, will be comprised of companies with relatively large
capitalizations. In addition, the Premier Growth Fund normally will be invested
in companies that have above-average growth prospects and which are typically
leaders in their fields. The Fund generally will be diversified over a cross
section of industries.
Up to 25% of the Premier Growth Fund's total assets may be invested in
securities traded in foreign markets. The Premier Growth Fund also may invest in
securities of foreign issuers in the form of ADRs. The equity securities in
which the Premier Growth Fund invests in most cases will be traded on domestic
or foreign securities exchanges, or traded in the domestic or foreign
over-the-counter markets. The Premier Growth Fund also may engage in certain
investments discussed below under "Additional Permitted Investments." For
temporary defensive purposes, the Fund may invest in fixed income securities
without limitation. To the extent the Fund invests in fixed income securities,
it may not achieve its investment objective.
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Value Equity Fund
The investment objective of the Value Equity Fund (the "Value Fund") is
long-term growth of capital and future income. The Fund seeks to achieve this
objective by investing primarily in equity securities of companies with large
sized market capitalization that the Fund's management considers to be
undervalued by the market. Undervalued securities are those selling for low
prices given the fundamental characteristics of their issuers. During normal
market conditions, the Fund will invest at least 65% of its assets in common
stocks, preferred stocks, convertible bonds, convertible debentures, convertible
notes, convertible preferred stocks, and warrants or rights issued by foreign
and U.S. companies.
The Value Fund's investment philosophy is that the market tends to overreact to
both good and bad news about issuers. Companies experiencing faster than
expected growth tend to be overvalued as the market extrapolates current good
news well beyond a sustainable time-frame and correspondingly overforecasts the
period and magnitude of decline of companies experiencing near term
difficulties. These difficulties can be driven by factors both internal and
external to the company. Internal factors may include operational mismanagement
or strategic mistakes. External factors may include a change in the economic
environment or a shift in the competitive dynamics of an industry. The Fund
attempts to identify firms that are out of favor for a variety of reasons and
select those which Fund management believes to be undervalued relative to their
true business prospects.
In accordance with this premise, GEIM will identify and select securities that
it believes are undervalued, using factors it considers indicative of
fundamental investment value including: (i) low price/earnings ratio relative to
a normalized growth rate and/or the S&P 500 Index; (ii) the potential for free
cash flow generation and prospects for dividend growth; (iii) a strong balance
sheet with low financial leverage; (iv) sustainable competitive advantages such
as a franchise brand name or dominant market position; (v) an experienced and
capable management team; (vi) improving returns on invested capital; and (vii)
net asset values in a restructuring/breakup analysis framework.
Fund management believes that such investments will position the Fund to benefit
from a positive change in business prospects from an issuing company that adopts
a turnaround strategy to increase/restore the earning power of the company.
The Value Fund, under normal market conditions, may invest up to 35% of its
assets in bonds, notes and debentures, and up to 25% of its assets in securities
traded in foreign markets. The Fund also may invest in securities of foreign
issuers in the form of ADRs. The Fund may sell securities short against the box
and engage in certain investments discussed below under "Additional Permitted
Investments."
U.S. Equity Fund
The investment objective of the U.S. Equity Fund is long-term growth of capital.
The Fund seeks to achieve this objective by investing primarily in equity
securities of U.S. companies and, under normal conditions, it will invest at
least 65% of its assets in common stocks, preferred stocks, securities
convertible into common stocks, including convertible bonds, convertible
debentures, convertible notes, convertible preferred stocks, zero coupon
obligations and warrants or rights issued by U.S. companies. The U.S. Equity
Fund typically will invest in equity securities that are issued by U.S.
companies and traded on U.S. securities exchanges or in the U.S.
over-the-counter market. Up to 15% of the U.S. Equity Fund's assets may be
invested in securities traded in foreign markets. The U.S. Equity Fund also may
invest in securities of foreign issuers in the form of ADRs, and may engage in
certain investments discussed below under "Additional Permitted Investments."
In managing the assets of the U.S. Equity Fund, GEIM uses a combination of
"value-oriented" and "growth-oriented" investing. Value-oriented investing
involves seeking securities that may have low price-to-earnings ratios, or high
yields, or that sell for less than intrinsic value as determined by GEIM, or
that appear attractive on a dividend discount model. The U.S. Equity Fund would
sell these securities when their prices approach targeted levels.
Growth-oriented investing generally involves buying securities with above
average earnings growth rates at reasonable prices. The U.S. Equity Fund holds
these securities until GEIM determines that their growth prospects diminish or
that they have become overvalued when compared with alternative investments.
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In investing on behalf of the U.S. Equity Fund, GEIM seeks to produce a
portfolio that GEIM believes will have similar characteristics to the S&P 500
Index by virtue of blending investments in both "value" and "growth" securities.
Since the U.S. Equity Fund's strategy seeks to combine these basic elements, but
is designed to select investments deemed to be the most attractive within each
category, GEIM believes that the strategy should be capable of outperforming the
U.S. equity market as reflected by the S&P 500 Index on a total return basis.
The U.S. Equity Fund, under normal market conditions, may invest up to 35% of
its assets in notes, bonds and debentures issued by corporate or governmental
entities when GEIM determines that investing in these kinds of debt securities
is consistent with the Fund's investment objective of long-term growth of
capital. GEIM believes that such a determination could be made, for example,
upon the U.S. Equity Fund's investing in the debt securities of a company whose
securities GEIM anticipates will increase in value as a result of a development
particularly or uniquely applicable to the company, such as a liquidation,
reorganization, recapitalization or merger, material litigation, technological
breakthrough or new management or management policies.
S&P 500 Index Fund
The investment objective of the S&P 500 Index Fund is to provide growth of
capital and accumulation of income that corresponds to the investment return of
the S&P 500 Index. The Fund seeks to achieve this objective by investing in
common stocks comprising that Index. Standard and Poor's Corporation ("Standard
& Poor's" or "S&P") 1 chooses the 500 common stocks comprising the S&P 500 Index
on the basis of market values, industry diversification and other factors. Most
of the common stocks in the S&P 500 Index are issued by 500 of the largest
companies, in terms of the aggregate market value of their outstanding stock,
and such companies generally are listed on the New York Stock Exchange.
Additional common stocks that are not among the 500 largest market value stocks
are included in the S&P 500 Index for diversification purposes. S&P may, from
time to time, add common stocks to, or delete common stocks from, the S&P 500
Index.
The S&P 500 Index Fund will attempt to achieve its objective by replicating the
total return of the S&P 500 Index. To the extent that it can do so consistent
with the pursuit of its investment objective, it will attempt to keep
transaction costs low and minimize portfolio turnover. To achieve its investment
objective, the S&P 500 Index Fund will purchase equity securities that reflect,
as a group, the total investment return of the S&P 500 Index. Like the S&P 500
Index, the S&P 500 Index Fund will hold both dividend paying and non-dividend
paying common stocks comprising the S&P 500 Index.
Active portfolio management strategies are not used in making investment
decisions for the S&P 500 Index Fund. Rather, State Street Global Advisors
("SSGA"), the sub-adviser to the S&P 500 Index Fund, utilizes a passive
investment management approach. From time to time SSGA also may supplement this
passive approach by using statistical selection techniques to determine which
securities to purchase or sell for the Fund in order to replicate the investment
return of the S&P 500 Index over a period of time.
- - --------
(1) The S&P 500 Index Fund is not sponsored, endorsed, sold or promoted by S&P.
S&P makes no representation or warranty, express or implied, to the
investors of the Fund or any member of the public regarding the
advisability of investing in securities generally or in this Fund
particularly or the ability of the S&P 500 Index to track general stock
market performance. S&P's only relationship to the Fund is the licensing of
certain trademarks and trade names of S&P and of the S&P 500 Index which is
determined, composed and calculated by S&P without regard to the Fund. S&P
has no obligation to take the needs of the Fund or the investors in the
Fund into consideration in determining, composing or calculating the S&P
500 Index. S&P is not responsible for and has not participated in the
determination of the prices or composition of the S&P 500 Index Fund or the
timing of the issuance or sale of the shares of that Fund. S&P has no
obligation or liability in connection with the administration, marketing or
trading of the Fund.
S&P DOES NOT GUARANTEE THE ACCURACY AND/OR THE COMPLETENESS OF THE S&P 500
INDEX OR ANY DATA INCLUDED THEREIN AND S&P SHALL HAVE NO LIABILITY FOR ANY
ERRORS, OMISSIONS, OR INTERRUPTIONS THEREIN. S&P MAKES NO WARRANTY, EXPRESS
OR IMPLIED, AS TO THE RESULTS TO BE OBTAINED BY THE FUND, INVESTORS IN THE
FUND, OR ANY OTHER PERSON OR ENTITY FROM THE USE OF THE S&P 500 INDEX OR
ANY DATA INCLUDED THEREIN. S&P MAKES NO EXPRESS OR IMPLIED WARRANTIES, AND
EXPRESSLY DISCLAIMS ALL WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A
PARTICULAR PURPOSE OR USE WITH RESPECT TO THE S&P 500 INDEX OR ANY DATA
INCLUDED THEREIN. WITHOUT LIMITING ANY OF THE FOREGOING, IN NO EVENT SHALL
S&P HAVE ANY LIABILITY FOR ANY SPECIAL, PUNITIVE, INDIRECT OR CONSEQUENTIAL
DAMAGES (INCLUDING LOST PROFITS), EVEN IF NOTIFIED OF THE POSSIBILITY OF
SUCH DAMAGES.
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The S&P 500 Index Fund may choose not to invest in all the securities that
comprise the S&P 500 Index, and its holdings may differ by industry segment from
the S&P 500 Index. The Fund may compensate for the omission from its portfolio
of stocks that are included in the S&P 500 Index, or for purchasing securities
included in the Index in proportions that are different from their weightings in
the Index, by purchasing securities that may or may not be included in the S&P
500 Index but which have characteristics similar to the omitted securities (such
as stocks from the same or similar industry groups having similar market
capitalizations and other investment characteristics). In addition, from time to
time adjustments may be made in the S&P 500 Index Fund's holdings due to changes
in the composition or weighting of issues comprising the S&P 500 Index.
The S&P 500 Index Fund will attempt to achieve a correlation between its total
return and that of the S&P 500 Index of at least 0.95, without taking expenses
into account. A correlation of 1.00 would indicate perfect correlation, which
would be achieved when the S&P 500 Index Fund's net asset value, including the
value of its dividends and capital gain distributions, increases or decreases in
exact proportion to changes in the S&P 500 Index. SSGA will monitor the S&P 500
Index Fund's correlation to the S&P 500 Index and attempt to minimize any
"tracking error" (i.e., the statistical measure of the difference between the
investment results of the S&P 500 Index Fund and that of the S&P 500 Index).
However, brokerage and other transaction costs, as well as other S&P 500 Index
Fund expenses, in addition to potential tracking error, will tend to cause the
S&P 500 Index Fund's return to be lower than the return of the S&P 500 Index.
There can be no assurance as to how closely the S&P 500 Index Fund's performance
will correspond to the performance of the S&P 500 Index.
The S&P 500 Index Fund will not invest more than 35% of its total assets in
stocks and other securities not included in the S&P 500 Index. In this regard,
the S&P 500 Index Fund may temporarily invest cash balances, pending withdrawals
or investments, in high quality money market instruments. Nevertheless, the S&P
500 Index Fund will not adopt a temporary defensive investment posture in times
of generally declining stock prices, and, therefore, investors will bear the
risk of such general stock market declines. The Fund also may engage in certain
investments discussed below under "Additional Permitted Investments."
Strategic Investment Fund
The investment objective of the Strategic Investment Fund (the "Strategic Fund")
is to maximize total return, consisting of growth of capital and current income.
The Fund seeks to achieve this objective by following an asset allocation
strategy that provides diversification across a range of asset classes and
contemplates shifts among them from time to time. This strategy may result in
the Strategic Fund's experiencing a high portfolio turnover rate. See "Portfolio
Transactions and Turnover" below.
The Strategic Fund invests in the following classes of investments: common
stocks, preferred stocks, convertible securities and warrants and rights issued
by U.S. and foreign companies; bonds, debentures and notes issued by U.S. and
foreign companies; securities issued or guaranteed by the U.S. Government or one
of its agencies or instrumentalities ("U.S. Government Obligations"); debt
obligations issued by, or on behalf of, states, territories and possessions of
the United States and the District of Columbia and their political subdivisions,
agencies and instrumentalities or multi-state agencies or authorities, the
interest on which is, in the opinion of issuers' counsel, excluded from gross
income for Federal income tax purposes ("Municipal Obligations"); obligations of
foreign governments or their agencies or instrumentalities; mortgage related
securities, adjustable rate mortgage related securities ("ARMs"), collateralized
mortgage related securities ("CMOs") and government stripped mortgage related
securities; asset-backed and receivable-backed securities; and domestic and
foreign money market instruments. The U.S. equity and debt instruments in which
the Strategic Fund invests are traded on U.S. securities exchanges or in the
U.S. over-the-counter market, except that the Fund may invest up to 10% of its
assets in non-publicly traded securities. In addition, the Strategic Fund may
invest up to 30% of its total assets in foreign securities that are listed on
foreign securities exchanges or traded in foreign over-the-counter markets. The
Strategic Fund also may invest in ADRs and structured and indexed securities,
the value of which is linked to currencies, interest rates, commodities, indexes
or other financial indicators. Mortgage related securities, ARMs, CMOs,
government stripped mortgage related securities and asset-backed and
receivable-backed securities are subject to several risks, including the
prepayment of principal.
The Strategic Fund generally seeks to invest in equity and debt securities that
GEIM has determined offer above average potential for total return. In making
this determination, GEIM will take into account factors including earnings
growth, industry attractiveness, company management, price-to-earnings ratios,
yield, price-to-book ratios and valuation of assets.
GEIM has broad latitude in selecting the classes of investments to which the
Strategic Fund's assets are committed. Although the Strategic Fund has the
authority to invest solely in equity securities, solely in debt securities,
solely in money market instruments or in any combination of these classes of
investments, GEIM anticipates that at most times the Fund will be invested in a
combination of equity and debt instruments.
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The Strategic Fund's investments are designed to achieve favorable performance
with lower volatility than a fund that invests solely in equity or debt
securities. GEIM will determine the weightings of equity and debt holdings for
the Strategic Fund at any given time in light of its assessment of the
attractiveness of each market. Although GEIM cannot predict the mix of the
Strategic Fund's investments at any one time, GEIM can delineate certain
situations that can lead to a shift in the mix of the Strategic Fund's
investments. If, for example, the prices of U.S. equity securities decline due
to falling economic activity and profits, and GEIM determines that the condition
is transitory, GEIM could allocate a major portion of the Strategic Fund's
assets to the equity market. If, on the other hand, the prices of debt
instruments are depressed by rising economic activity combined with restrictive
monetary or fiscal policies, and GEIM concludes that this condition is
temporary, GEIM could allocate a major portion of the Strategic Fund's assets to
debt securities.
The Strategic Fund typically purchases a debt security if GEIM believes that the
yield and potential for capital appreciation of the security are sufficiently
attractive in light of the risks of ownership of the security. In determining
whether the Strategic Fund should invest in particular debt instruments, GEIM
considers factors such as: the price, coupon and yield to maturity; GEIM's
assessment of the credit quality of the issuer; the issuer's available cash flow
and the related coverage ratios; the property, if any, securing the obligation;
and the terms of the debt securities, including the subordination, default,
sinking fund and early redemption provisions.
GEIM's decision that the Strategic Fund invest in foreign securities would be
predicated on the outlook for the foreign securities markets of selected
countries, the underlying economies of those countries and the availability of
attractively priced individual securities.
In addition to investing as described above, the Fund may invest in municipal
leases, floating and variable rate instruments, participation interests in
certain Municipal Obligations, Municipal Obligation components and custody
receipts, zero coupon obligations and in securities of supra-national agencies,
and may enter into mortgage dollar rolls. The Fund also may engage in certain
investments discussed below under "Additional Permitted Investments."
Income Fund
The investment objective of the Income Fund is to seek maximum income consistent
with prudent investment management and the preservation of capital. Capital
appreciation with respect to the Income Fund's portfolio securities may occur
but is not an objective of the Fund. In seeking to achieve this investment
objective, the Income Fund invests in the following types of fixed income
instruments: U.S. Government Obligations; obligations of foreign governments or
their agencies or instrumentalities; bonds, debentures, notes and
non-convertible preferred stocks issued by U.S. and foreign companies; mortgage
related securities, ARMs, CMOs and government stripped mortgage related
securities; asset-backed and receivable-backed securities; zero coupon
obligations; floating and variable rate instruments and money market
instruments. The Income Fund also may invest in ADRs and structured and indexed
securities, the value of which is linked to currencies, interest rates,
commodities, indexes or other financial indicators. Mortgage related securities,
ARMs, CMOs, government stripped mortgage related securities and asset-backed and
receivable-backed securities are subject to several risks, including the
prepayment of principal.
The Income Fund is subject to no limitation with respect to the maturities of
the instruments in which it may invest; the weighted average maturity of the
Fund's portfolio securities is anticipated to be approximately five to 10 years.
Up to 35% of the Income Fund's total assets may be invested in obligations of
foreign companies or foreign governments or their agencies and
instrumentalities. The Income Fund also may invest in securities of
supra-national agencies, may enter into mortgage dollar rolls, and may engage in
certain investments discussed below under "Additional Permitted Investments."
Money Market Fund
The investment objective of the Money Market Fund is to seek a high level of
current income consistent with the preservation of capital and the maintenance
of liquidity. The Money Market Fund seeks to achieve this objective by investing
in the following U.S. dollar denominated, short-term money market instruments:
(1) U.S. Government Obligations; (2) debt obligations of banks, savings and loan
institutions, insurance companies and mortgage bankers; (3) commercial paper and
notes, including those with floating or variable rates of interest; (4) debt
obligations of foreign branches of U.S. banks, U.S. branches of foreign banks
and foreign branches of foreign banks; (5) debt obligations issued or guaranteed
by one or more foreign governments or any of their political subdivisions,
agencies or instrumentalities, including obligations of supra-national entities;
(6) debt securities issued by foreign issuers; and (7) repurchase agreements.
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The Money Market Fund limits its portfolio investments to securities that the
Trust's Board of Trustees determines present minimal credit risk and that are
"Eligible Securities" at the time of acquisition by the Fund. "Eligible
Securities" as used in this Prospectus means securities rated by the requisite
nationally recognized statistical rating organizations ("NRSROs") in one of the
two highest short-term rating categories, consisting of issuers that have
received these ratings with respect to other short-term debt securities and
comparable unrated securities. "Requisite NRSROs" means (1) any two NRSROs that
have issued ratings with respect to a security or class of debt obligations of
an issuer or (2) one NRSRO, if only one NRSRO has issued such a rating at the
time that the Money Market Fund acquires the security. Currently, six
organizations are NRSROs: S&P, Moody's Investors Service, Inc. ("Moody's"),
Fitch Investors Service, Inc., Duff and Phelps, Inc., IBCA Limited and its
affiliate, IBCA, Inc., and Thomson BankWatch Inc. A discussion of the ratings
categories is contained in the Appendix to the Statement of Additional
Information. By limiting its investments to Eligible Securities, the Money
Market Fund may not achieve as high a level of current income as a fund
investing in lower-rated securities.
The Money Market Fund may not invest more than 5% of its total assets in the
securities of any one issuer, except for U.S. Government Obligations and except
to the extent permitted under rules adopted by the SEC under the 1940 Act. In
addition, the Money Market Fund may not invest more than 5% of its total assets
in Eligible Securities that have not received the highest rating from the
Requisite NRSROs and comparable unrated securities ("Second Tier Securities"),
and may not invest more than the greater of $1,000,000 or 1% of its total assets
in the Second Tier Securities of any one issuer. The Money Market Fund may
invest more than 5% (but not more than 25%) of the then-current value of the
Fund's total assets in the securities of a single issuer for a period of up to
three business days, so long as (1) the securities either are rated by the
Requisite NRSROs in the highest short-term rating category or are securities of
issuers that have received such ratings with respect to other short-term debt
securities or are comparable unrated securities and (2) the Fund does not make
more than one such investment at any one time. Determinations of comparable
quality for purchases of unrated securities are made by GEIM in accordance with
procedures established by the Board of Trustees. The Money Market Fund invests
only in instruments that have (or, pursuant to regulations adopted by the SEC,
are deemed to have) remaining maturities of 13 months or less at the date of
purchase (except securities subject to repurchase agreements), determined in
accordance with a rule promulgated by the SEC. The Money Market Fund will
maintain a dollar-weighted average portfolio maturity of 90 days or less. The
assets of the Money Market Fund are valued on the basis of amortized cost, as
described below under "Net Asset Value." The Money Market Fund also may hold
Rule 144A Securities (as defined below) and engage in certain investments
discussed below under "Additional Permitted Investments."
INVESTMENTS IN DEBT SECURITIES
Each of the Premier Growth Fund, the U.S. Equity Fund, the International Fund,
the S&P 500 Index Fund and the Value Fund limits investment in debt securities
to those that are rated investment grade, except that up to 5% of each such
Fund's assets may be invested in securities rated lower than investment grade. A
security is considered investment grade if it is rated at the time of purchase
within the four highest grades assigned by S&P, Moody's or has received an
equivalent rating from another NRSRO or, if unrated, is deemed by GEIM to be of
comparable quality.
Each of the Strategic Fund, the Income Fund, the Emerging Markets Fund and the
Mid-Cap Fund limits its purchases of debt instruments to those that are rated
within the six highest categories by S&P, Moody's or another NRSRO, or if
unrated, are deemed by GEIM to be of comparable quality. Each of these Funds
will not purchase a debt security if, as a result of the purchase, more than 25%
of the Fund's total assets would be invested in securities rated BBB by S&P or
Baa by Moody's or, if unrated, deemed by GEIM to be of comparable quality. In
addition, each such Fund will not purchase any obligation rated BB or B by S&P
or Ba or B by Moody's if, as a result of the purchase, more than 10% of the
Fund's total assets would be invested in obligations rated in those categories
or, if unrated, in obligations that are deemed by GEIM to be of comparable
quality. A description of S&P's and Moody's ratings relevant to a Fund's
investments is included as an Appendix to the Statement of Additional
Information.
CASH MANAGEMENT POLICIES - NON-MONEY MARKET FUNDS
The Money Market Fund's policies with respect to holding cash and investing in
money market instruments are described above. This section describes the cash
management policies of the other Funds (each, a "non-money market Fund").
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A non-money market Fund, under normal circumstances, may hold cash and/or invest
in money market instruments in order to manage its cash, pending investment in
accordance with its investment objective and policies and to meet operating
expenses. During normal market conditions, the Income Fund may invest a
substantial portion of its assets in money market instruments if GEIM deems such
investments to be consistent with that Fund's investment objective.
When GEIM believes that economic or other conditions warrant, a non-money market
Fund, other than the S&P 500 Index Fund, may assume a temporary defensive
posture and hold cash and/or invest in money market instruments without
limitation. To the extent that a Fund holds cash or invests in money market
instruments, it may not achieve its investment objective.
Types of Permitted Money Market Investments. Each non-money market Fund may
invest directly, or indirectly through its investment in the GEI Short-Term
Investment Fund (described below), in the following types of money market
securities during normal market conditions and for temporary defensive purposes:
(i) U.S. Government Obligations (described below);
(ii) debt obligations of banks, savings and loan institutions,
insurance companies and mortgage bankers;
(iii) commercial paper and notes, including those with variable and
floating rates of interest;
(iv) debt obligations of foreign branches of U.S. banks, U.S. branches
of foreign banks and foreign branches of foreign banks;
(v) debt obligations issued or guaranteed by one or more foreign
governments or any of their political subdivisions, agencies or
instrumentalities, including obligations of supra-national entities;
(vi) debt securities issued by foreign issuers; and
(vii) repurchase agreements and reverse repurchase agreements (see
"Risk Factors and Special Considerations -- Repurchase and Reverse
Repurchase Agreements" below for a further description).
Each non-money market Fund may invest up to 25% of its assets in the GEI
Short-Term Investment Fund (the "Investment Fund"). The Investment Fund invests
exclusively in the money market instruments described in (i) through (vii)
above, and serves as the investment vehicle that facilitates the collective
investment of the cash accounts of the non-money market Funds and other entities
advised by GEIM or its affiliate, GEIC. GEIM is the investment adviser to the
Investment Fund, and charges no advisory fee to the Investment Fund for these
services. A non-money market Fund would incur no sales charge and no
distribution or service fees in connection with its holdings in the Investment
Fund.
A non-money market Fund may hold money market instruments that are rated no
lower than A-2 by S&P or Prime-2 by Moody's, or that have received an equivalent
rating from another NRSRO, or if unrated, are issued by an entity having an
outstanding unsecured debt issue rated within an NRSRO's three highest rating
categories. A description of the rating systems of Moody's and S&P is contained
in an Appendix to the Statement of Additional Information. At no time will a
non-money market Fund's investments in bank obligations, including time
deposits, exceed 25% of the value of the Fund's assets.
ADDITIONAL PERMITTED INVESTMENTS
In addition to the investments discussed above, some or all of the Funds may
invest in the types of securities or may engage in investment techniques and
strategies discussed below.
Investment Techniques And Strategies. Each Fund may enter into securities
transactions on a when-issued or delayed-delivery basis and may lend its
portfolio securities.
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Illiquid Investments, Restricted Securities and Non-Publicly Traded Securities.
The S&P 500 Index Fund may invest up to 10%, and each of the other non-money
market Funds may invest up to 15%, of its net assets in illiquid securities.
Illiquid securities are securities that a Fund cannot dispose of within seven
days in the ordinary course of business at approximately the amount at which the
Fund has valued the securities. Illiquid securities include options traded
over-the-counter, repurchase agreements maturing in more than seven days,
certain mortgage related securities, investment-only debt instruments,
principal-only debt instruments and restricted securities. A restricted security
is one that has a contractual or legal restriction on transfer or which is not
registered for sale to the general public under Securities Act of 1933, as
amended (the "1933 Act").
Each non-money market Fund, except the S&P 500 Index Fund, may invest up to 10%
of its assets in restricted securities. While restricted securities generally
are considered illiquid, they may be deemed to be liquid if (i) such securities
may be sold to "qualified institutional buyers" in accordance with Rule 144A
under the 1933 Act ("Rule 144A Securities") and (ii) the Trust's Board of
Trustees, or GEIM acting under guidelines approved and monitored by the Board,
determines that an adequate trading market exists for such securities.
Investment by a Fund in Rule 144A Securities deemed to be liquid by the Board or
GEIM, as applicable, will not be subject to either the 15% limitation on
investment in illiquid securities or the 10% limitation on investment in
restricted securities. If a Fund holds Rule 144A Securities, the level of
illiquidity in its portfolio may increase during periods when qualified
institutional buyers lose interest in purchasing those securities.
In addition, each non-Money Market Fund, except the S&P 500 Index Fund, may
invest up to 10% of its assets in non-publicly traded securities. A Fund's
investment in restricted securities (except Rule 144A Securities deemed liquid),
if any, would be included in this 10% limitation, because restricted securities
are not publicly traded. In no event will any Fund's investments in illiquid and
non-publicly traded securities (including restricted securities, but excluding
Rule 144A Securities deemed liquid), in the aggregate, exceed 15% of its assets.
U.S. Government Obligations. Each Fund may invest in obligations issued by the
U.S. Government or by its agencies and instrumentalities (as defined above,
"U.S. Government Obligations"). Different types of U.S. Government Obligations
have different payment guarantees, if any. Some U.S. Government Obligations,
such as U.S. Treasury securities, are supported by the full faith and credit of
the U.S. government or U.S. Treasury guarantees. U.S. Treasury securities differ
in their interest rates, maturities and dates of issuance. Other U.S. Government
Obligations are backed by the right of the issuer or guarantor to borrow from
the U.S. Treasury; others, by the discretionary authority of the U.S. Government
to purchase obligations of the agency or instrumentality issuing the security;
and still others, only by the credit of the agency or instrumentality issuing
the obligation.
Where U.S. Government Obligations are not backed by the full faith and credit of
the United States, the investor must look principally to the agency or
instrumentality (which may be privately owned) issuing the obligations for
repayment. There is no guarantee that the U.S. Government would provide
financial support to its agencies or instrumentalities if it is not required to
do so. A Fund will invest in U.S. Government Obligations that are not backed by
full faith and credit of the U.S. Government only if GEIM determines that the
issuing agency's or instrumentality's credit risk make the obligations suitable
for Fund investment.
The types of U.S. Government Obligations in which the Funds may invest are
listed in the Statement of Additional Information.
Repurchase and Reverse Repurchase Agreements. Each Fund may enter into
repurchase agreements involving securities that are permitted investments for
that Fund. A repurchase agreement is a transaction in which a Fund purchases a
security at one price and the seller simultaneously agrees to buy back that
security at a higher price on a date that occurs within a relatively short time
period, usually one to seven days. Repurchase agreements allow a Fund to earn
income on idle cash at a fixed rate of return, and are treated as loans by the
Funds for purposes of the 1940 Act.
The Funds may engage in repurchase agreement transactions with certain Federal
Reserve System member banks and with certain dealers listed on the Federal
Reserve Bank of New York's list of reporting dealers. If a Fund enters into a
repurchase agreement, GEIM will monitor the value of the securities underlying
the agreement on an ongoing basis to ensure their value remains equal to the
total amount of the repurchase price (including interest). GEIM also monitors
the creditworthiness of the banks and dealers that enter into repurchase
agreements with the Funds in order to identify potential risks.
Each Fund may engage in reverse repurchase agreements, subject to its investment
restrictions. A reverse repurchase agreement involves the Fund selling
securities that it holds and concurrently agreeing to repurchase the same
securities at an agreed upon price and date. Reverse repurchase agreements are
considered to be borrowings by a Fund for purposes of the 1940 Act. A Fund will
enter into reverse repurchase agreements when it needs cash to meet redemption
requests or to pay dividends and distributions, but
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considers a sale of its portfolio securities to be disadvantageous. Cash, U.S.
Government Obligations or other liquid assets equal in value to the Fund's
obligations under outstanding reverse repurchase agreements would be segregated
and maintained with State Street, the Trust's custodian and transfer agent, or a
designated sub-custodian.
Structured and indexed Securities. The Strategic Fund and the Income Fund may
invest in structured and indexed securities. The value of the principal of
and/or interest on such securities is determined by reference to changes in the
value of specific currencies, interest rates, commodities, indexes or other
financial indicators (the "Reference") or the change in two or more References.
The interest rate or the principal amount payable upon maturity or redemption
may be increased or decreased depending upon changes in the applicable
Reference. The terms of structured and indexed securities may provide that in
certain circumstances no principal is due at maturity and, therefore, may result
in a loss of the Fund's investment. Structured and indexed securities may be
positively or negatively indexed, so that appreciation of the Reference may
produce an increase or a decrease in the interest rate or value of the security
at maturity. In addition, changes in interest rates or value of the security at
maturity may be some multiple of the change in value of the Reference.
Consequently, structured and indexed securities may entail a greater degree of
market risk than other types of debt securities because a Fund bears the risk of
the Reference. Structured and indexed securities may also be more volatile, less
liquid and more difficult to accurately price than less complex securities.
Certain of the other Funds may invest in other investment companies that issue
securities with values that are based on an underlying index. See "Appendix --
Further Information: Certain Investment Techniques and Strategies" for a further
discussion of such investments, which include WEBs, CountryBaskets and SPDRs.
Purchasing Put and Call Options on Securities. A non-money market Fund may
utilize up to 10% of its assets to purchase put options on portfolio securities
and an additional 10% of its assets to purchase call options on portfolio
securities. The aggregate value of the securities underlying the calls or
obligations underlying the puts, determined as of the date the options are sold,
shall not exceed 25% of the net assets of the Fund. In addition, the premiums
paid by a Fund in purchasing options on securities, options on securities
indexes, options on foreign currencies and options on futures contracts shall
not exceed 20% of the Fund's net assets.
An option holder has the right, but not the obligation, to buy or sell a
specified amount of securities or other assets on or before a fixed date at a
predetermined price. Each non-money market Fund may purchase put and call
options that are traded on a U.S. or foreign exchange or in the over-the-counter
market.
Put Options. A put option is an option to sell. If GEIM believes that the market
value of a security a Fund owns will decline, the Fund may purchase a put option
on that security. The put option would allow the Fund to sell the security at a
given price during the option period and thereby limit its losses on the
security. If the underlying security appreciates, rather than depreciates, the
Fund would choose not to exercise the option, but any appreciation in the value
of the underlying security would be offset by the premium the Fund paid for the
relevant put option, plus any related transaction costs.
Call Options. A call option is an option to buy. A Fund may purchase a call
option on a security when GEIM believes the market price of that security will
increase. A call option would allow the Fund to purchase the security at a set
price during the option period, and thereby limit its losses from rising prices.
A Fund also may purchase call options to increase its return at a time when the
call is expected to increase in value because the market anticipates the value
of the underlying security will increase.
Closing Sale Transactions. Prior to the expiration of a put or a call option,
the Fund may enter into a closing sale transaction. In a closing sale the Fund
sells an option having the same features (i.e., is of the same series) as an
option previously purchased. Profit or loss from a closing transaction would
depend on whether the amount received is more or less than the premium paid for
the option plus the related transaction costs.
Covered Option Writing. Each non-money market Fund may write only covered put
and call options on securities. Covered puts involve a Fund selling to another
party the right to compel the Fund to purchase an underlying security from the
option holder at a specified price at any time during the option period. A
"covered" put generally means that the Fund segregates with its custodian cash
or liquid securities with a value at least equal to the exercise price of the
option. Covered calls involve a Fund selling the right to another party to
purchase securities that the Fund owns at a specified price at any time during
the option period. A "covered" call generally means that the Fund owns the
underlying securities. A Fund will realize fees (referred to as "premiums") for
granting the rights evidenced by these options.
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A put or call option written by a Fund will be deemed covered in any manner
permitted under the 1940 Act or determined by the SEC to be permissible. See
"Strategies Available to Some But Not All Funds -- Covered Option Writing" in
the Statement of Additional Information for specific situations where put and
call options will be deemed to be covered by a Fund.
A Fund may engage in a closing purchase transaction to realize a profit, to
prevent an underlying security from being called or put or, in the case of a
call option, to unfreeze an underlying security (thereby allowing the Fund to
sell the security or write a new option prior to the outstanding option's
expiration). A Fund effects a closing purchase transaction by purchasing, prior
to the holder's exercise of an option written by the Fund, an option of the same
series as that on which the Fund desires to terminate its obligation. The
obligation of a Fund under an option that it has written would be terminated by
a closing purchase transaction, but the Fund would not be deemed to own an
option as the result of the transaction. To facilitate closing purchase
transactions, the Funds with option-writing authority will ordinarily write
options only if a secondary market for the options exists on a U.S. or foreign
securities exchange or in the over-the-counter market.
Option writing for a Fund may be limited by position and exercise limits
established by U.S. securities exchanges and the National Association of
Securities Dealers, Inc. and by requirements of the Internal Revenue Code of
1986, as amended (the "Code") for qualification as a regulated investment
company. A Fund would enter into options transactions as hedges to reduce
investment risk, and a properly correlated hedge will result in a loss on the
portfolio position's being offset by a gain on the hedge position.
Securities Index Options. In attempting to hedge all or a portion of its
investments, a non-money market Fund may purchase and write put or call options
on securities indexes listed on U.S. or foreign securities exchanges or traded
in the over-the-counter market. A Fund would purchase or write index options
only with respect to those indexes that include securities of the type that the
Fund would invest in. As discussed above, a Fund with option writing authority
may write only covered options. In addition to investing in securities index
option for hedging purposes, the Funds may use such options as a means of
participating in a securities market without making direct purchases of
securities.
A securities index measures the movement of a certain group of securities by
assigning relative values to the securities included in the index. Investments
in options on securities indexes generally have return characteristics similar
to direct investments in the underlying instruments.
Unlike options on securities, options on securities indexes do not involve the
delivery of an underlying security. An option on a securities index represents
the holder's right to obtain from the writer, in cash, a fixed multiple of the
amount by which the exercise price exceeds (in the case of a call) or is less
than (in the case of a put) the closing value of the underlying securities index
on the exercise date.
If a Fund writes a securities index option, that option may be deemed covered in
any manner permitted under the 1940 Act or any other method the SEC determines
to be permissible. See "Strategies Available to Some But Not All Funds --
Covered Option Writing" in the Statement of Additional Information for specific
situations where securities index options will be deemed to be covered by a
Fund. If a Fund has written a securities index option, it may terminate its
obligation by effecting a closing purchase transaction, which is accomplished by
purchasing an option of the same series as the option previously written.
Futures and Options on Futures. Each non-money market Fund may enter into
interest rate, financial and bond index futures contracts and, with the
exception of the Income Fund, stock index futures contracts, or related options,
that are traded on a U.S. or foreign exchanges or traded on a board of trade
approved by the CFTC or in the over-the-counter market. The Funds would engage
in these transactions to hedge against the effects of changes in the value of
portfolio securities due to anticipated changes in interest rates and/or market
conditions, to gain market exposure for accumulating and residual cash
positions, for duration management, or when the transactions are economically
appropriate to the reduction of risks inherent in the management of the Fund
involved. No Fund will enter into a transaction involving futures and options on
futures for speculative purposes.
A Fund may not enter into futures and options contracts for which aggregate
initial margin deposits and premiums paid for unexpired options exceed 5% of the
fair market value of the Fund's total assets, after taking into account
unrealized losses or profits on futures contracts or options on futures
contracts into which it has entered. The current view of the SEC staff is that
an investment fund's long and short positions in futures contracts, as well as
put and call options on futures written by that fund, must be collateralized
with cash or other liquid assets and segregated with the fund's custodian or a
designated sub-custodian or "covered" in a manner similar to that for covered
options on securities (see "Strategies Available to Some But Not All Funds --
Covered Option Writing" in the Statement of Additional Information) and designed
to eliminate any potential leveraging.
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An interest rate futures contract obligates the buyer to receive and the seller
to deliver a specified amount of a particular financial instrument (debt
security) at a specified price, date, time and place. Financial futures
contracts obligate the holder to deliver (in the case of a futures contract that
is sold) or receive (in the case of a futures contract that is purchased) at a
future date a specified quantity of a financial instrument, specified
securities, or the cash value of a securities index.
An index futures contract obligates the parties to contract to take or make
delivery of an amount of cash equal to the difference between the value of the
index at the close of the last trading day of the contract and the price at
which the index contract was originally written. A municipal bond index futures
contract is based on an index of long-term, tax-exempt municipal bonds; a
corporate bond index futures contract is based on an index of corporate bonds.
Stock index futures contracts are based on indexes that reflect the market value
of common stock of the companies included in the indexes. An option on an
interest rate or index futures contract generally gives the purchaser the right,
in return for the premium paid, to assume a position in a futures contract at a
specified exercise price at any time prior to the expiration date of the option.
Forward Currency Transactions. Each non-money market Fund may hold currencies to
meet settlement requirements for foreign securities. Each non-money market Fund,
other than the S&P 500 Index Fund, may engage in currency exchange transactions
to manage currency risk, which is the risk that fluctuations in exchange rates
may adversely affect a Fund. No Fund will enter into forward currency
transactions for speculative purposes.
Forward currency contracts are agreements to purchase or sell a specific
quantity of a currency at future date and at a price that are fixed at the time
that a Fund enters into the contract. Forward currency contracts are traded in a
market conducted directly between currency traders (typically, commercial banks
or other financial institutions) and their customers, generally have no deposit
requirements and are typically consummated without payment of any commissions. A
Fund, however, may enter into forward currency contracts requiring deposits or
involving the payment of commissions. To assure that a Fund's forward currency
contracts are not used to achieve investment leverage, cash or other liquid
assets will be segregated with State Street or a designated sub-custodian in an
amount at all times equal to or exceeding the Fund's commitment under the
contracts.
Upon maturity of a forward currency contract, a Fund may pay for and receive the
underlying currency, negotiate a roll over into a new forward currency contract
with a new settlement date, or negotiate a termination of the forward contract
into an offset whereby the Fund would pay the difference between the exchange
rate fixed in the contract and the then current exchange rate. The Trust also
may be able to negotiate such an offset on behalf of a Fund prior to maturity of
the original forward contract. No assurance can be given that new forward
contracts or offsets will always be available to a Fund.
In hedging a specific portfolio position, a Fund may enter into a forward
contract with respect to either the currency in which the position is
denominated or another currency deemed appropriate by GEIM. A Fund's exposure
with respect to forward currency contracts is limited to the amount of the
Fund's aggregate investments in instruments denominated in foreign currencies.
Options on Foreign Currencies. Each non-money market Fund may purchase or write
foreign currency options as a hedge against variations in foreign exchange rates
that would cause the U.S. dollar value of securities denominated in foreign
currency to decline or the cost of securities to be acquired to increase.
Foreign currency options provide the holder of such options the right to buy or
sell a currency at a fixed price on or before a future date. The Funds may write
only covered options, and no Fund will enter into a transaction involving
options on foreign currencies for speculative purposes. The Funds will purchase
or write options that are traded on U.S. or foreign exchanges or in the
over-the-counter market. The Trust will limit the premiums paid on a Fund's
options on foreign currencies to 5% of the value of the Fund's total assets.
See "Risk Factors and Special Considerations" and "Appendix -- Further
Information: Certain Investment Techniques and Strategies" for a discussion of
the risks and special considerations associated with the additional investments
and investment techniques and strategies discussed above.
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INVESTMENT RESTRICTIONS
The Trust has adopted certain fundamental investment restrictions with respect
to each Fund that may not be changed without approval of a majority of the
Fund's outstanding voting securities (as defined in the 1940 Act). Included
among those fundamental restrictions are those listed below.
1. No Fund may borrow money, except that a Fund may enter into reverse
repurchase agreements and may borrow from banks for temporary or emergency
(not leveraging) purposes, including the meeting of redemption requests and
cash payments of dividends and distributions that might otherwise require
the untimely disposition of securities, in an amount not to exceed 33-1/3%
of the value of the Fund's total assets (including the amount borrowed)
valued at market less liabilities (not including the amount borrowed) at
the time the borrowing is made. Whenever borrowings, including reverse
repurchase agreements, of 5% or more of a Fund's total assets are
outstanding, the Fund will not make any additional investments.
2. No Fund may lend its assets or money to other persons, except through (a)
purchasing debt obligations, (b) lending portfolio securities in an amount
not to exceed 30% of the Fund's assets taken at market value, (c) entering
into repurchase agreements, (d) trading in financial futures contracts,
index futures contracts, securities indexes and options on financial
futures contracts, options on index futures contracts, options on
securities and options on securities indexes and (e) entering into variable
rate demand notes.
3. No Fund may purchase securities (other than U.S. Government Obligations) of
any issuer if, as a result of the purchase, more than 5% of the Fund's
total assets would be invested in the securities of the issuer, except that
up to 25% of the value of the total assets of each non-money market Fund
may be invested without regard to this limitation. All securities of a
foreign government and its agencies will be treated as a single issuer for
purposes of this restriction.
4. No Fund may purchase more than 10% of the voting securities of any one
issuer, or more than 10% of the outstanding securities of any class of
issuer, except that (a) this limitation is not applicable to a Fund's
investments in U.S. Government Obligations and (b) up to 25% of the value
of the assets of a non-money market Fund may be invested without regard to
these 10% limitations. All securities of a foreign government and its
agencies will be treated as a single issuer for purposes of this
restriction.
5. No Fund may invest more than 25% of the value of its total assets in
securities of issuers in any one industry. For purposes of this
restriction, the term industry will be deemed to include (a) the government
of any country other than the United States, but not the U.S. Government
and (b) all supra-national organizations. In addition, securities held by
the Money Market Fund that are issued by domestic banks are excluded from
this restriction. For purposes of this investment restriction, the Trust
may use the industry classifications reflected by the S&P 500 Index, if
applicable at the time of determination. For all other portfolio holdings,
the Trust may use the Directory of Companies Required to File Annual
Reports with the SEC and Bloomberg Inc. In addition, the Trust may select
its own industry classifications, provided such classifications are
reasonable.
Certain other investment restrictions adopted by the Trust with respect to the
Funds are described in the Statement of Additional Information.
Risk Factors and Special Considerations
Investing in the Funds involves risk factors and special considerations, such as
those described below.
General. Investments in a Fund are not insured against loss of principal. As
with any investment portfolio, there can be no assurance that a Fund will
achieve its investment objective. Investing in shares of a Fund should not be
considered to be a complete investment program.
Equity Securities. A Fund's investments in common stocks and other equity
securities are subject to stock market risk, which is the risk that the value of
the equity securities the Fund holds may decline over short or even extended
periods. Equity securities also are subject to the risk that the value of a
particular issuer's securities will decline, even during periods when equity
securities traded in the stock market in general are rising.
Absence of Operating History. The Funds only recently commenced operations, and
therefore lack an operating history that shareholders may look to for purposes
of evaluating Fund performance.
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Debt Instruments. A Fund's investments in debt securities are subject to
interest rate risk, which is the risk that increases in market interest rates
will adversely affect investments in such securities. The value of investments
in fixed income securities tend to decrease when interest rates rise and
increase when interest rates fall. Generally, the value of longer-term debt
instruments will tend fluctuate more than shorter-term debt securities. In
addition, when interest rates are falling, the money a Fund receives from
continuously selling shares will likely be invested in portfolio instruments
producing lower yields than the balance of its portfolio, thereby reducing the
Fund's current yield. In periods of rising interest rates, the opposite result
can be expected to occur.
Credit Risk. The Funds may invest in debt securities that are not backed by the
U.S. government. Such securities are subject to credit risk, which is the risk
that the issuer may be unable to pay principal and/or interest when due.
Investment Grade Obligations. Obligations rated BBB by S&P or Baa by Moody's are
considered investment grade, but are somewhat riskier than higher-rated
investment grade obligations. Obligations rated BBB by S&P are regarded as
having only an adequate capacity to pay principal and interest, and those rated
Baa by Moody's are considered medium-grade obligations that lack outstanding
investment characteristics and have speculative characteristics as well.
Low-rated Securities. Certain Funds are authorized to invest in high-yield
securities that are rated lower than investment grade by the primary rating
agencies (e.g., are rated "BB" or lower by S&P and "Ba" or lower by Moody's).
These securities are sometimes referred to as "junk bonds," and are considered
to be speculative. Lower-rated and comparable unrated securities (collectively,
"low- rated" securities) provide poor protection for payment of principal and
interest. They generally are subject to greater risks of default than
higher-rated securities, and securities with the lowest ratings may be in
default or have a substantial risk of default. Low-rated securities generally
are unsecured and frequently are subordinated to the prior payment of senior
indebtedness. A Fund may incur additional expenses to the extent that it is
required to seek recovery upon a default.
The market value of certain low-rated securities tends to be more sensitive to
individual corporate developments and changes in economic conditions than
higher-rated securities. In addition, low-rated securities generally are subject
to a greater risk that the issuer cannot meet principal and interest payments
when due (i.e., credit risk). Issuers of low-rated securities are often highly
leveraged and may not have access to more traditional methods of financing.
Accordingly, the ability of such issuers to service their debt obligations
during an economic downturn or during sustained periods of rising interest rates
may be impaired. These issuers tend to be more vulnerable to real or perceived
economic changes, political developments, new or proposed laws and adverse
publicity.
The market for low-rated securities may be thinner and less active than that for
higher-rated securities, which may adversely affect the price at which these
securities may be sold. Thinner markets may diminish a Fund's ability to obtain
accurate market quotations for purposes of valuing the portfolio securities and
calculating a Fund's net asset value.
Illiquid Securities. Illiquid securities may be difficult to resell, and a
Fund's net assets may be adversely affected if there is no ready buyer willing
to purchase the Fund's illiquid securities at a price GEIM deems representative
of their value.
Non-publicly Traded Securities. Non-publicly traded securities are generally
more illiquid than publicly traded securities. The prices realized from
reselling non-publicly traded securities in privately negotiated transactions
may be less than those originally paid by a Fund. Companies whose securities are
not publicly traded are not subject to the disclosure and other investor
protection requirements applicable to publicly traded securities.
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Smaller Companies. Smaller companies in which the Mid-Cap Fund may invest may
involve greater risks than large, established issuers. Such smaller companies
may have limited product lines, markets or financial resources and their
securities may trade less frequently and in more limited volume than the
securities of larger or more established companies. As a result, the prices of
smaller companies may fluctuate to a greater degree than the prices of
securities of other issuers.
Repurchase and Reverse Repurchase Agreements. A Fund entering into a repurchase
agreement may suffer a loss if the other party to the transaction defaults on
its obligations and the Fund is delayed or prevented from exercising its rights
to dispose of the underlying securities. Specifically, there are risks that the
value of the underlying securities might decline while the Fund seeks to assert
its rights, that the Fund will incur additional expenses in asserting its
rights, and that the Fund may lose all or part of the income from the agreement.
A reverse repurchase agreement involves the risk that the market value of the
securities retained a Fund may decline below the price of the securities the
Fund has sold but is obligated to repurchase under the agreement. In the event
the buyer of securities under a reverse repurchase agreement files for
bankruptcy or becomes insolvent, the Fund's use of the proceeds of the agreement
may be restricted pending a determination by the party, or its trustee or
receiver, whether to enforce the Fund's obligation to repurchase the securities.
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Warrants. A warrant is a security that permits, but does not obligate, its
holder to subscribe for another security. Warrant holders do not have a right to
dividends or voting rights with respect to underlying securities, and warrants
do not represent any rights to the assets of the issuer. Therefore, a warrant
may be considered more speculative than certain other types of investments. In
addition, the value of a warrant does not necessarily change with the value of
the underlying security and a warrant ceases to have value if it is not
exercised prior to its expiration date. Warrants acquired by a Fund in units or
attached to securities may be deemed to be without value.
Rights. A right is a privilege granted to a corporation's existing shareholders
to purchase or subscribe to additional shares of stock at the time of a new
issuance, before the stock is offered to the general public. This allows the
stockholders to retain the same ownership percentage after the new stock
offering. Rights are freely transferable and generally entitle the holder to
purchase the stock at a price below the public offering price.
Investment in Foreign Securities. Investing in securities issued by foreign
companies and governments or traded in foreign markets involves considerations
and potential risks not typically associated with investing in obligations
issued by the U.S. Government and U.S. corporations, including:
Regulatory Risks. Less information may be available about foreign companies than
about U.S. companies, and foreign companies generally are not subject to uniform
accounting, auditing and financial reporting standards or to other regulatory
practices and requirements applicable to U.S. companies. The values of foreign
investments are affected by changes in exchange control regulations; application
of foreign tax laws, including withholding taxes; changes in governmental
administration or economic or monetary policy (in the United States or abroad).
Currency Risks. The values of foreign investments are affected by changes in
currency rates or exchange control regulations. When a Fund holds a security
denominated in a local currency (rather than in U.S. dollars), it may convert
U.S. dollars into that local currency in order to purchase the security and
convert local currency back into dollars when the security is sold. The value of
the local currency relative to the U.S. dollar would affect the value of that
foreign security. For example, if the local currency gains strength against the
U.S. dollar, the value of the foreign security increases. Conversely, if the
local currency weakens against the U.S. dollar, the value of the foreign
security would decline. U.S. dollar denominated securities of foreign issuers
also may be affected by currency risk.
Currency exchange rates generally are determined by the forces of supply and
demand in the foreign exchange markets and the relative merits of investments in
different countries as seen from an international perspective. Currency exchange
rates can also be affected unpredictably by intervention by U.S. or foreign
governments or central banks or by currency controls or political developments
in the United States or abroad.
Market Risks. Foreign markets, particularly those of developing or emerging
countries, may be less liquid, more volatile and less subject to governmental
supervision than domestic markets. There may be difficulties in enforcing
contractual obligations and transactions could be subject to extended clearance
and settlement periods.
Political/Economic Risk. A foreign government might impose restrictions or
prohibitions on the repatriation of foreign currencies, limitations on the use
or removal of funds or other assets (including the withholding of dividends). It
may adopt confiscatory tax policies or expropriate the assets or operations of a
company in which the Fund invests. Changes in the relationship or dealings
between nations may affect a Fund's investments in foreign securities.
Transaction Costs. Transaction costs of buying and selling foreign securities,
including tax, brokerage and custody costs, generally are higher than those
involving domestic transactions. Costs are incurred in connection with
conversion between various currencies.
Investing in Developing or Emerging Markets. Investing in securities issued by
companies located in countries with emerging economies and/or securities markets
involves risks in addition to those described above with respect to investing in
foreign securities. The economic structures in these countries generally are
less diverse and mature than those in developed countries, and their political
systems are less stable. Other characteristics of developing countries that may
affect investment in their markets include certain national policies that may
restrict investment by foreigners in issuers or industries deemed sensitive to
relevant national interests and the absence of developed legal structures
governing private and foreign investments and private property.
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The small size and inexperience of the securities markets in certain emerging or
developing countries and the low or nonexistent volume of trading in securities
in those countries may make investments in such countries illiquid and more
volatile than investments in Japan or most Western European countries. As a
result, a Fund investing in such countries may be required to establish special
custody or other arrangements before investing.
Municipal Obligations. Even though Municipal Obligations are interest-bearing
investments that promise a stable flow of income, like other debt instruments
their prices are inversely affected by changes in interest rates and, therefore,
are subject to the risk of market price fluctuations. The values of Municipal
Obligations with longer remaining maturities typically fluctuate more than those
of similarly rated Municipal Obligations with shorter remaining maturities. The
values of fixed income securities also may be affected by changes in the credit
rating or financial condition of the issuing entities.
At the time of issuance, issuers of Municipal Obligations obtain opinions from
bond counsel opinions addressing the validity of the Obligations and whether the
interest on such Obligations is exempt from Federal income taxes. Neither the
Trust nor GEIM will review the proceedings relating to the issuance of Municipal
Obligations or the basis for opinions of counsel. The U.S. Government has
enacted various laws that have restricted or diminished the income tax exemption
on various types of Municipal Obligations and may pass similar laws in the
future.
Covered Option Writing. A Fund that writes puts and calls may experience losses
if GEIM or any sub-adviser of the Fund incorrectly predicts the direction in
which the market will move. If a Fund writes a put option obligating that Fund
to purchase a security at a certain price, the Fund may experience a loss if the
market price of the underlying security goes down. This is because the Fund
would be compelled to purchase a security at a price that is higher than market
price. The loss would be equal to the difference between the price at which the
Fund must purchase the underlying security and its market value at the time of
the option exercise, less the premium received for writing the option. Likewise,
the Fund would experience a loss if it wrote a call option and the price of the
underlying security rises. This is because the Fund would be obligated to sell a
security at a price that is lower than market price. The loss would be equal to
the excess of the security's market value at the time of the option's exercise
over the Fund's acquisition cost of the security, less the premium received for
writing the option.
In addition, no assurance can be given that a Fund will be able to close out an
options position at the desired time. A Fund's ability to enter into closing
purchase transactions depends upon the existence of a liquid secondary market.
While the Funds purchase or write options only when GEIM or any sub-adviser of
the Fund believes a liquid secondary market exists, there is a possibility that
this market may be absent or cease to exist, which would make it difficult or
impossible to close out a position when desired.
Securities Index Options. As with other options, a Fund's ability to close out
positions in securities index options depends upon the existence of a liquid
secondary market. Although a Fund will generally purchase or write securities
index options only if a liquid secondary market for the options purchased or
sold appears to exist, no such secondary market may exist, or the market may
cease to exist at a later date. In addition, securities exchanges impose
position and exercise limits and other regulations on options traded on those
exchanges. The absence of a liquid secondary market and possible
exchange-imposed limitations may make it difficult or impossible to close out a
position when desired.
Futures and Options on Futures. The use of futures contracts and options on
futures contracts as a hedging device involves several risks. No assurance can
be given that a correlation will exist between price movements in the underlying
securities or index and price movements in the securities that are the subject
of the hedge. Positions in futures contracts and options on futures contracts
may be closed out only on the exchange or board of trade on which they were
entered, and no assurance can be given that an active market will exist for a
particular contract or option at any particular time.
Forward Currency Transactions. The market for forward currency contracts, for
example, may be limited with respect to certain currencies. The existence of a
limited market may in turn restrict the Fund's ability to hedge against the risk
of devaluation of currencies in which the Fund holds a substantial quantity of
securities. The successful use of forward currency contracts as a hedging
technique draws upon the special skills and experience of GEIM or any
sub-adviser of the Fund with respect to those instruments and will usually
depend upon the ability of GEIM or any sub-adviser of the Fund to forecast
interest rate and currency exchange rate movements correctly. Should interest or
exchange rates move in an unexpected manner, a Fund may not achieve the
anticipated benefits of forward currency contracts or may realize losses and
thus be in a less advantageous position than if those strategies had not been
used. Many forward currency contracts are subject to no daily price fluctuation
limits so that adverse market movements could
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continue with respect to those contracts to an unlimited extent over a period of
time. In addition, the correlation between movements in the prices of those
contracts and movements in the prices of the currencies hedged or used for cover
will not be perfect.
The Trust's ability to dispose of a Fund's positions in forward currency
contracts depends on the availability of active markets in those instruments and
the amount of trading interest that may exist in the future in forward currency
contracts which cannot now be predicted. Forward currency contracts may be
closed out only by the parties entering into an offsetting contract. As a
result, no assurance can be given that a Fund will be able to utilize these
contracts effectively for the intended purposes.
Options on Foreign Currencies. Like the writing of other kinds of options, the
writing of an option on a foreign currency constitutes only a partial hedge, up
to the amount of the premium received; a Fund could also be required, with
respect to any option it has written, to purchase or sell foreign currencies at
disadvantageous exchange rates, thereby incurring losses. The purchase of an
option on a foreign currency may constitute an effective hedge against
fluctuation in exchange rates, although in the event of rate movements adverse
to a Fund's position, the Fund could forfeit the entire amount of the premium
plus related transaction costs.
Derivatives. Certain of the Funds' permitted investments constitute derivatives,
including forward currency exchange contracts, stock options, currency options,
stock and stock index options, futures contracts, swaps and options on futures
contracts involving U.S. Government and foreign government securities and
currencies. Certain derivative securities can, under certain circumstances,
significantly increase an investor's exposure to market and other risk.
Instruments and Strategies Involving Special Risks. Certain instruments in which
the Funds can invest and certain investment strategies that the Funds may employ
could expose the Funds to various risks and special considerations. The
instruments presenting risks to a Fund that holds the instruments are: Rule 144A
Securities, depositary receipts, securities of supra-national agencies,
securities of other investment funds, municipal leases, floating and variable
rate instruments, participation interests, zero coupon obligations, Municipal
Obligation components, custody receipts, mortgage related securities, government
stripped mortgage related securities, and asset-backed and receivable-backed
securities. Among the risks that some but not all of these instruments involve
are lack of liquid secondary markets and the risk of prepayment of principal.
The investment strategies involving special risks to some or all of the Funds
are: engaging in when-issued or delayed-delivery securities transactions,
lending portfolio securities and selling securities short against the box. Among
the risks that some but not all of these strategies involve are increased
exposure to fluctuations in market value of the securities and certain credit
risks. See "Appendix -- Further Information: Certain Investment Techniques and
Strategies" for a more complete description of these instruments and strategies.
Portfolio Transactions and Turnover
The Board of Trustees of the Trust has determined that, to the extent consistent
with applicable provisions of the 1940 Act and rules thereunder, transactions
for a Fund may be executed through an affiliated broker-dealer if, in the
judgment of GEIM or any sub- adviser of the Fund, the use of such broker-dealer
is likely to result in price and execution at least as favorable to the Fund as
those obtainable through other qualified broker-dealers, and if, in the
transaction, such broker-dealer charges the Fund a fair and reasonable rate
consistent with that payable by the Fund to other broker-dealers on comparable
transactions. Under rules adopted by the SEC, such broker-dealer may not execute
transactions for a Fund on the floor of any national securities exchange, but
may effect transactions by transmitting orders for execution providing for
clearance and settlement, and arranging for the performance of those functions
by members of the exchange not associated with such broker-dealer. Such
broker-dealer will be required to pay fees charged by those persons performing
the floor brokerage elements out of the brokerage compensation that it receives
from a Fund.
The Trust cannot predict precisely the turnover rate for any Fund, but expects
that the annual turnover rate will generally not exceed 50% for the Premier
Growth Fund, 50% for the U.S. Equity Fund, 50% for the International Fund, 100%
for the Value Fund, 200% for the Strategic Fund, 300% for the Income Fund, 200%
for the Mid-Cap Fund, 50% for the Emerging Markets Fund and 25% for the S&P 500
Index Fund. The portfolio turnover rate for the Money Market Fund is expected to
be zero for regulatory purposes. A 100% annual turnover rate would occur if all
of a Fund's securities were replaced one time during a period of one year.
Short-term gains realized from portfolio turnover are taxable to investors as
ordinary income. In addition, higher portfolio turnover rates can result in
corresponding increases in brokerage commissions. GEIM does not consider
portfolio turnover rate a limiting factor in making investment decisions on
behalf of any Fund consistent with the Fund's investment objective and policies.
The Statement of Additional Information contains additional information
regarding portfolio transactions and turnover.
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MANAGEMENT OF THE TRUST
Board of Trustees
Overall responsibility for management and supervision of the Funds rests with
the Trust's Board of Trustees. The Trustees approve all significant agreements
between the Trust and the persons and companies that furnish services to the
Funds, including agreements with the Funds' investment adviser and
administrator, distributor, custodian and transfer agent. The day-to-day
operations of the Funds have been delegated to GEIM. The Statement of Additional
Information contains background information regarding each Trustee and executive
officer of the Trust.
Investment Adviser and Administrator
GEIM, located at 3003 Summer Street, P.O. Box 7900 Stamford, Connecticut 06904,
serves as the investment adviser and administrator of each Fund. GEIM was formed
under the laws of Delaware in 1988, and is a wholly-owned subsidiary of GE and a
registered investment adviser under the Investment Advisers Act of 1940, as
amended. GEIM has served as the investment adviser to the Trust since the
commencement of the Trust's operations on ____________________, 1997.
GEIM's principal officers, directors, and portfolio managers serve in similar
capacities with GEIC. Like GEIM, GEIC is a wholly-owned subsidiary of GE.
Through GEIM and GEIC (together, "GE Investments") and their predecessors, GE
has nearly 70 years of investment management experience.
As of ____________________, 1997, GE Investments provided investment management
services to various institutional accounts with total assets of approximately
$[____] billion. GEIM or GEIC serves as the investment adviser to the following
entities:
GE Funds - GEIM has served as the investment adviser and administrator for GE
Funds since January 1993, when GE Funds commenced operations. GE Funds is an
open-end management investment company whose portfolios (the "GE Funds") are
marketed to individual retail and institutional investors. The GE Funds are sold
through a multiple distribution system that offers an investor the option of
choosing a class that best suits the investor's needs in terms of purchase
amount and the length of time the investor intends to hold the GE Fund shares.
GE Investments Funds, Inc. ("GEIFI Funds") - GEIM has served as the investment
adviser to the investment portfolios of GEIFI Funds since May 1, 1997. GEIFI
Funds is an open-end management investment company whose shares are currently
offered only to insurance company separate accounts that fund certain variable
annuity and variable life contracts.
Other Institutional Accounts - GEIM has served as the sub-adviser to PaineWebber
Global Equity Fund, a series of PaineWebber Investment Trust, since its
inception in 1991, and to the Global Growth Portfolio of PaineWebber Series
Trust and Global Small Cap Fund Inc. since March, 1995. GEIM has served as
sub-adviser to the International Equity Portfolio and the U.S. Equity Portfolio
of WRL Series Fund, Inc. since January 1997 and to the International Equity
Portfolio of IDEX Series Fund since February 1997.
The Elfun Funds - GEIC serves as the investment adviser to Elfun Global Fund,
Elfun Trusts, Elfun Income Fund, Elfun Money Market Fund, Elfun Tax-Exempt
Income Fund and Elfun Diversified Fund (collectively, the "Elfun Funds"). The
first Elfun Fund, Elfun Trusts, was established in 1935. Investment in the Elfun
Funds generally is limited to regular and senior members of the Elfun Society,
whose regular members are selected from active employees of GE and/or its
majority-owned subsidiaries, and whose senior Society members are former members
who have retired from those companies.
S&S Funds - Under the General Electric Savings and Security Program, GEIC serves
as investment adviser to the GE S&S Program Mutual Fund and GE S&S Long Term
Interest Fund. GEIC also serves as the investment adviser to the General
Electric Pension Trust.
GEIM or any sub-adviser of a Fund, subject to the supervision and direction of
the Trust's Board of Trustees, manages the Funds' portfolios in accordance with
the Funds' respective investment objectives and stated policies, makes
investment decisions for the Funds and places purchase and sale orders for the
Funds' portfolio transactions. GEIM or any sub-adviser of a Fund also pays the
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salaries of all personnel employed by both it and the Trust and provides each
Fund with investment officers who are authorized by the Board of Trustees to
execute purchases and sales of securities on behalf of the Funds.
GEIM or any sub-adviser of a Fund makes investment decisions for each Fund
independently from its investment considerations with respect to the entities
that it manages. However, the Funds and these other entities may invest in the
same types of securities, particularly where they have the same or similar
investment objective or policies. When a Fund and one or more other accounts or
portfolios managed by GEIM or any sub-adviser of a Fund are prepared to invest
in, or desire to dispose of, the same security, available investments or sale
opportunities will be allocated in a manner that GEIM or any sub-adviser of a
Fund believes is equitable to each entity. In some cases, this procedure may
adversely affect the price a Fund pays or receives or the size of the position
obtained or disposed of by a Fund.
The agreements governing the investment advisory services furnished to the Trust
by GEIM provide that, if GEIM ceases to act as the investment adviser to the
Trust, at GEIM's request, the Trust's license to use the initials "GE" will
terminate and the Trust will change the name of the Trust and the Funds to a
name not including the initials "GE."
GEIM's Fee Structure
Each Fund pays GEIM a combined fee for advisory and administrative services that
is accrued daily and paid monthly. The advisory agreement for each Fund
specifies this advisory fee and other expenses that the Fund must pay. The
advisory and administration fee for each Fund, except the S&P 500 Index Fund,
declines incrementally as Fund assets increase. This means that investors pay a
reduced fee with respect to Fund assets over a certain level, or "breakpoint."
The advisory and administration fee or fees for each Fund, and the relevant
breakpoints, are stated in the following schedule (fees are expressed as an
annual rate):
<TABLE>
<CAPTION>
Name of Fund Average Daily Net Assets of Fund Annual Rate Percentage (%)
- - ------------ -------------------------------- --------------------------
<S> <C> <C>
Premier Growth Fund First $25 million .55
U.S. Equity Fund Next $25 million .45
Value Fund Over $50 million .35
Mid-Cap Fund
Strategic Fund
- - --------------------------------------------------------------------------------
Emerging Markets Fund First $50 million 1.05
Over $50 million .95
- - --------------------------------------------------------------------------------
International Fund First $25 million .75
Next $50 million .65
Over $75 million .55
- - --------------------------------------------------------------------------------
Money Market Fund First $25 million .25
Next $25 million .20
Next $50 million .15
Over $100 million .10
- - --------------------------------------------------------------------------------
S&P 500 Index Fund All assets .15
- - --------------------------------------------------------------------------------
</TABLE>
From time to time, GEIM may waive or reimburse advisory or administrative fees
paid by a Fund.
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Investment Sub-Adviser
SSGA is the investment sub-adviser to the S&P 500 Index Fund pursuant to an
investment sub-advisory agreement with GEIM effective _____________________,
1997. SSGA, a division of State Street, is located at Two International Place,
Boston, Massachusetts 02110. State Street is a wholly-owned subsidiary of State
Street Corporation, a publicly held bank holding company. State Street, with
over $292 billion under management as of December 31, 1996, provides complete
global investment management services from offices in the United States, London,
Sydney, Hong Kong, Tokyo, Toronto, Montreal, Luxembourg, Melbourne, Paris,
Dubai, Munich and Brussels. SSGA also manages the investments of certain
portfolios of GEIFI Funds, including GEIFI Funds' Value Fund and STP 500 Index
Fund. GEIM pays SSGA monthly compensation in the form of an investment
sub-advisory fee of [____]% of the Fund's average daily net assets.
Portfolio Management
Eugene K. Bolton is responsible for the overall management of the domestic
equity investment process at GE Investments. Mr. Bolton has served in that
capacity since the commencement of operations of the GE Funds. Mr. Bolton leads
a team of portfolio managers for the U.S. Equity Fund. Mr. Bolton has more than
12 years of investment experience and has held positions with GE Investments
since 1984. He is currently a Director and Executive Vice President of GE
Investments.
David B. Carlson is the Portfolio Manager of the Premier Growth Fund and is also
responsible for the management of the domestic equity related investments of the
portfolio of the Strategic Fund. Mr. Carlson has served those Funds since the
commencement of their operations. In addition, Mr. Carlson has served as the
Portfolio Manager to similar funds of GE Funds since the commencement of their
operations. He has more than 14 years of investment experience and has held
positions with GE Investments since 1982. Mr. Carlson is currently a Senior Vice
President of GE Investments.
Peter J. Hathaway leads a team of portfolio managers for the Value Fund and has
served in that capacity since the commencement of that Fund's operations. In
addition, Mr. Hathaway has served in a similar capacity with respect to GE
Funds' Value Fund since the commencement of that Fund's operations. He has more
than 36 years of investment experience and has held positions with GE
Investments since 1985. Mr. Hathaway is currently a Senior Vice President of GE
Investments.
Ralph R. Layman [leads a team of portfolio managers for] the International Fund
and the Emerging Markets Fund and also is responsible for the management of the
international equity-related investments of the Strategic Fund. Mr. Layman has
served those Funds since the commencement of their operations. In addition, Mr.
Layman has served in a similar capacity with respect to GE Funds' GE
International Equity Fund and GE Strategic Investment Fund since the
commencement of each such fund's operations. He has more than 17 years of
investment experience and has held positions with GE Investments since 1991.
From 1989 to 1991, Mr. Layman served as an Executive Vice President, Partner and
Portfolio Manager of Northern Capital Management, and prior thereto, served as
Vice President and Portfolio Manager of Templeton Investment Counsel. Mr. Layman
is currently a Director and Executive Vice President of GE Investments.
Robert A. MacDougall leads a team of portfolio managers for the Income Fund and
is also responsible for the management of fixed income related investments of
the portfolio of the Strategic Fund. Mr. MacDougall has served those Funds since
the commencement of their operations. In addition, Mr. MacDougall has served in
a similar capacity with respect to GE Funds' GE Fixed Income Fund and GE
Strategic Investment Fund since the commencement of their operations. He has
more than 13 years investment experience and has held positions with GE
Investments since 1986. Mr. MacDougall is currently a Director and Executive
Vice President of GE Investments.
Elaine G. Harris is the Portfolio Manager for the Mid-Cap Fund and has served in
that capacity since commencement of that Fund's operations. Ms. Harris also
serves as the Portfolio Manager for the GE Funds' GE Mid-Cap Fund. She has more
than 13 years of investment experience and has held positions with GE
Investments since 1993. From 1991 to 1993, Ms. Harris served as Senior Vice
President and Portfolio Manager at SunAmerica Asset Management and, prior
thereto, as Portfolio Manager at Alliance Capital Management Company and as an
analyst and subsequently, Portfolio Manager at Fidelity Investments. Ms. Harris
is currently a Senior Vice President of GE Investments.
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James B. May leads a team of portfolio managers for the S&P 500 Index Fund. Mr.
May has been an investment officer and portfolio manager in the U.S. Structured
Products Group of State Street since 1994. From 1991 to 1993, Mr. May served as
an Investment Support Analyst in the U.S. Passive Service Group of State Street.
Mr. May holds a B.S. in finance from Bentley College and an M.B.A. from Boston
College.
GEIM investment personnel may engage in securities transactions for their own
accounts pursuant to a code of ethics that establishes procedures for personal
investing and restricts certain transactions.
Expenses of the Funds
Each Fund's Service Class bears its own expenses, which generally include all
costs not specifically borne by GEIM. Specifically, expenses borne by a Fund
include: investment advisory and administration fees; fees paid to members of
the Trust's Board of Trustees who are not affiliated with GEIM or any of its
affiliates; fees for necessary brokerage services; and expenses that are not
normal operating expenses of the Funds (such as extraordinary expenses, interest
and taxes). GEIM pays any fees and expenses in excess of its advisory and
administration fee that are not borne by the Funds. The annual fees payable with
respect to each Fund are intended to compensate GEIM for its advisory and
administration services.
The Trust has adopted a Shareholder Servicing and Distribution Plan (the "Plan")
pursuant to Rule 12b-1 under the 1940 Act with respect to each Fund. Under the
Plan, the Trust will pay GEIM, with respect to the Service Class shares of a
Fund, fees for shareholder and distribution services provided to that class of
shares at an annual rate of [__]% of such Fund's average daily net assets. Fees
to be paid with respect to the Funds under the Plan will be calculated daily and
paid monthly.
The annual fees payable with respect to the Service Class shares of a Fund are
intended to enable GEIM to compensate other persons ("Service Providers") for
providing ongoing servicing and/or maintenance of the accounts of shareholders
of the Fund ("Shareholder Services") and to compensate GEIM, or enable GEIM to
compensate Service Providers, including any distributor of shares of the Fund,
for providing services that are primarily intended to result in, or that are
primarily attributable to, the sale of shares of the Fund ("Selling Services").
Shareholder Services means all forms of shareholder liaison services, including,
among other things, providing Service Class shareholders with one or more of the
following: [(i) information on their investments; (ii) general information
regarding investment in mutual funds; (iii) access to a telephone inquiry center
relating to the Fund; and other similar services not otherwise required to be
provided by the Trust's custodian or transfer agent.] Selling Services include,
but are not limited to [the costs of distributing Service Class shares]. In
providing compensation for Selling Services in accordance with the Plan, GEIM is
expressly authorized to [(i) make, or cause to be made, payments to, or provide
for the reimbursement of expenses of, persons who provide support services in
connection with the distribution of the Service Class shares of the Fund; or
(ii) to make, or cause to be made, payments to broker-dealers who have sold
Service Class shares of the Fund.
Payments under the Plan are not tied exclusively to the expenses for shareholder
servicing and distribution expenses actually incurred by GEIM or any Service
Provider, and the payments may exceed expenses actually incurred by a Service
Provider. The Trust's Board of Trustees evaluates the appropriateness of the
Plan and its payment terms on a continuing basis and in doing so considers all
relevant factors, including the types and extent of Shareholder Services
provided by GEIM and/or Service Providers and the amounts GEIM and/or Service
Providers receive under the Plan.
PURCHASE OF SHARES
Eligible Investors
Service Class shares are being offered without imposition of a sales charge
exclusively to institutional investors, and will be marketed primarily to
employee retirement plans, such as defined benefit plans ("DB plans") and
defined contribution plans ("DC plans"). A DB plan pays a specified benefit
amount to each plan participant who retires after a specified number of years of
service or otherwise becomes eligible to receive retirement benefits. In some
cases, employees contribute to DB plans. A DC plan pays benefits that vary
depending on investment return, and the contributions to such plans are set at
specific levels. With respect to some DC plans, such as 401(k) and 457 plans,
employees make voluntary contributions into a tax deferred account, which may or
may not be matched by an employer. In addition, the employer may contribute to a
profit-sharing account based on an employee's salary level, years of service,
age and other factors. Unlike DB plans, DC plans afford employees the option of
choosing where to invest.
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The types of plans to which Fund shares may be sold include 401(k) Plans,
eligible deferred compensation plans meeting the requirements of Section 457(b)
of the Code and tax-exempt organizations enumerated in Section 501(c)(3) of the
Code (collectively, "Eligible Plans"). Shares may, at times, be sold to other
similar categories of investors. Eligible Plans may purchase Service Class
shares and/or Investment Class shares of the Funds. Details about the procedure
to be followed by an Eligible Plan in investing in the Funds are available
through the Distributor.
Service Class shares also may be sold to: banks, insurance companies and
industrial corporations, each purchasing shares for its own account; investment
management programs of financial institutions that contemplate purchasing shares
of investment companies managed by an unaffiliated adviser; financial
institutions investing in their fiduciary capacity on behalf of clients; trusts
established under Section 501(c)(9) of the Code to fund the payment of certain
welfare benefits; charitable, religious and educational institutions, and
foundations or endowments of those investors; and investment companies not
managed by GEIM. Under no circumstances are regular IRAs, simplified employee
pension IRAs ("SEP-IRAs") and Keogh plans eligible to purchase Fund shares.
Individual Plan Participants
If you are an individual investor in a retirement plan that invests in the
Funds, you should address inquiries and seek investment servicing from your plan
administrator.
Purchasing Shares - General Information
The Distributor sells Fund shares on a continuous basis. A purchase order will
be processed at the net asset value next determined after the order (or wire, if
applicable) has been received and accepted by State Street, the Trust's
custodian and transfer agent. For a description of the manner of calculating a
Fund's net asset value, see "Net Asset Value." Shares are sold without the
imposition of a sales charge. However, a purchase premium (discussed below) may
be imposed on cash transactions.
You begin to earn income as of the first business day following the day State
Street has received payment for an order. Orders will be accepted only upon
receipt by State Street of all documentation required to be submitted in
connection with such order. If you purchase or redeem shares through an
Authorized Firm, you may be subject to service fees imposed by that Firm.
Minimum Investment Requirement
The minimum initial investment in a Fund is $35 million for each investor or for
a group of investors under common control. This minimum investment is waived for
shareholders who have invested at least $100 million in one or more investment
portfolios or accounts that are advised by GEIM, provided that at least $35
million of this $100 million amount is invested in the Trust. The Trust will
accept purchase orders for shares only on each "Business Day," which is a day on
which the Fund's net asset value is calculated as described below under "Net
Asset Value." The Trust, in its discretion, may reject any order for the
purchase of shares of a Fund. For convenience and in the interest of economy,
the Trust will not issue physical certificates representing shares in any Fund.
Letter of Intent. A letter of intent may be used as a way for investors to meet
the $35 million minimum investment requirement in a Fund or in the Trust (as
applicable, depending on your total investment in investment portfolios advised
by GEIM). An investor utilizing the letter or intent option would initially
invest a minimum of [$________] in a Fund or Funds, as applicable, of the Trust,
and would agree to purchase at least an additional [$_______] in shares of the
Fund or Funds within 13 months of the date of the letter. If the investor does
not invest the required minimum amount within the 13-month period, all Service
Class shares will be exchanged for the Class A shares of a corresponding
investment portfolio of GE Funds, if a corresponding portfolio exists and is
operational. Currently, the following Funds have corresponding operational GE
Funds portfolios: the Premier Growth Fund, the U.S. Equity Fund, the
International Fund, the Value Fund, the Strategic Fund, the Mid-Cap Fund, the
Income Fund and the Money Market Fund. If there is no corresponding fund in GE
Funds at the time an investor's shares would otherwise be exchanged, then the
shares actually purchased will be involuntarily redeemed and the proceeds sent
to the investor at the address of record. Redemption fees are charged in
connection with such exchanges and redemptions.
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How to Open an Account
You must establish an account before you purchase shares, and may do so either
by submitting an account application to the Trust or through an Authorized Firm
(defined below). You may obtain an account application by telephoning the Trust
at 1-800-[______] or by writing to the Trust at:
GE Institutional Funds
P.O. Box 120065
Stamford, CT 06912-0065
For overnight package delivery:
GE Institutional Funds
c/o National Financial Data Services Inc.
[________________]
Kansas, MO [_____]
To open an account, complete and sign an application and furnish your taxpayer
identification number to the Trust. You also must certify whether you are
subject to withholding for failing to report income to the Internal Revenue
Service ("IRS").
How to Buy Shares
After the Trust has received a completed account application in proper form at
the address set forth above, you may purchase Fund shares from the Distributor
or through brokers, dealers, financial institutions or investment advisers which
have entered into sales agreements with the Distributor ("Authorized Firms").
You may purchase shares through an Authorized Firm with the assistance of a
sales representative (a "Sales Representative") with that Authorized Firm. The
Authorized Firm will be responsible for transmitting your order promptly to
State Street, the Trust's custodian and transfer agent. Contact your Sales
Representative for further instructions. Purchases through a Sales
Representative with an Authorized Firm will be effected in accordance with a
completed order at the Fund's net asset value next determined after receipt.
You also may purchase shares of a Fund by wiring Federal funds to: State Street
Bank and Trust Company (ABA # [_______________________]) For: [Name of Fund]
Account of: [Investor's name, address and account number]. If a wire is received
by the close of regular trading on the NYSE on a Business Day, the shares will
be priced according to the net asset value of the Fund on that day. If a wire is
received after the close of regular trading on the NYSE, the shares will be
priced as of the time the Fund's net asset value per share is next determined.
Payment for orders that are not accepted will be returned to the you promptly.
Your financial institution may charge a fee for wiring your account.
Purchases In-Kind
The Trust may, in its sole discretion, require that proposed investments of $5
million or more in each of the Emerging Markets or International Funds, or $10
million or more in each of the other non-money market Funds, be made in-kind.
This requirement is intended minimize the effect of transaction costs on
existing shareholders of a Fund. Such transaction costs, which may include
broker's commissions and taxes or governmental fees, domestic or foreign, may be
borne by a proposed investor in shares of the Fund. Under these circumstances,
the Trust would inform the investor of the securities and amounts that are
acceptable to the Trust. The securities would then be accepted by the Trust at
their then market value in return for shares in the Fund of an equal value.
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Purchase Premiums
If cash is used to purchase shares in amounts over $5 million for each of the
Emerging Markets and International Funds, and over $10 million for each of the
other non-money market Funds, the cash amount paid may be reduced by the
appropriate purchase premium. The Trust, from time to time, will establish the
purchase premium to be paid by a particular Fund. As with in-kind purchases
discussed above, purchase premiums paid to the Trust are intended to cover
brokerage and other costs associated with putting an investment to work in the
relevant markets. The Trust may waive or reduce the purchase premium if GEIM
determines that because of offsetting transactions or redemptions, the cash
purchase results in minimum brokerage and/or other transactions costs. For
purposes of calculating purchase premiums, the Trust will look to underlying
participants in a DC Plan and assess such purchase premiums only where an
individual participant in such DC Plan redeems in excess of $10 million or $5
million, as applicable.
Both the Service Class shares and the Investment Class shares have the same
purchase premium, which is assessed on the entire amount purchased. The premium
currently in effect for each Fund is as follows:
Premier Growth Fund .25%
U.S. Equity Fund .25%
International Equity Fund .65%
Value Equity Fund .25%
Strategic Investment Fund .20%
Fixed Income Fund .10%
Mid-Cap Growth Fund .40%
Emerging Markets Fund 1.25%
S&P 500 Index Fund .25%
REDEMPTION OF SHARES
On any Business Day, you may redeem all or a portion of your shares. Redemption
requests received in proper form prior to the close of regular trading on the
NYSE will be effected at the net asset value per share determined on that
Business Day. Redemption requests received after the close of regular trading on
the NYSE will be effected at the net asset value as next determined. The Trust
normally transmits redemption proceeds within seven days after receipt of a
redemption request. Redemption fees (discussed below) may be imposed on cash
transactions.
If you hold more than one class of shares, you must specify which class of
shares you are redeeming. Your redemption request might be delayed if you do not
specify the appropriate class of shares or if you own fewer shares than
specified in your redemption request.
Redemptions through an Authorized Firm
If you purchase shares through a Sales Representative, you may redeem your
shares in accordance with your Sales Representative's instructions. If State
Street's books reflect that you, and not your Sales Representative, is the
shareholder of record on your accounts, you also may redeem by mail or by wire,
as described below. Your Authorized Firm is responsible for transmitting a
redemption order (and crediting you with any redemption proceeds) on a timely
basis.
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Redemption by Mail
If you are the shareholder of record on the books of State Street, you may
redeem shares by mail by a written redemption request that (1) states the class
and the number of shares or the specific dollar amount to be redeemed, (2)
identifies the Fund or Funds from which the number or dollar amount is to be
redeemed, (3) identifies your account number and (4) is signed on your behalf by
an authorized person exactly as the shares are registered. Send the request to
the Trust at the appropriate address listed above under "How to Open an
Account."
Signature Guarantees
To protect your account, the Trust and the Distributor from fraud, signature
guarantees are required to enable the Trust to verify the identity of the person
authorizing a redemption from your account. Signature guarantees will be
required for redemptions over $25,000 and requests that redemption proceeds be
(1) mailed to an address other than the address of record, (2) paid to other
than the shareholder, (3) wired to a bank other than the bank of record, or (4)
mailed to an address that has been changed within 30 days of the redemption
request. All signature guarantees must be guaranteed by a commercial bank, trust
company, broker, dealer, credit union, national securities exchange or
registered association, clearing agency or savings association. The Trust may
require additional supporting documents for redemptions made by corporations,
executors, administrators, trustees, guardians or persons utilizing a power of
attorney. A request for redemption will not be deemed to have been submitted
until the Trust receives all documents typically required to assure the safety
of a particular account. The Trust may waive the signature guarantee on a
redemption of $25,000 or less if it is able to verify the signatures of all
registered owners from its accounts.
Involuntary Exchanges or Redemptions
If the value of your investment in the Funds falls below the minimum
requirements discussed above because of redemptions (and not market
fluctuations) for more than [30] days, the Trust will involuntarily exchange
your Service Class shares for the Class A shares of a corresponding investment
portfolio of GE Funds if such a corresponding portfolio exists and is
operational. If no such GE Funds portfolio exists and is operational, the Trust
will involuntarily redeem your account. The Trust will effect such exchange or
involuntary redemption [30] days after the Trust has sent you written notice,
unless you increase your account to the required minimum within that [30]-day
period. More specifically, if you have $100 million or more invested in funds
advised by GEIM, then your shares may be exchanged or redeemed, as applicable,
if your investment in the Trust falls below $35 million for the requisite
[30]-day period, and if have invested less than $100 million in funds advised by
GEIM, your shares in a Fund may be redeemed or exchanged, as applicable, if your
investment in that Fund falls below $35 million for that period. Redemption fees
are charged in connection with such involuntary exchanges and redemptions.
Proceeds of any such redemption will be mailed to you, reduced by the amount of
the redemption fee.
Distributions in-Kind
If the Trust's Board of Trustees determines that it would be detrimental to the
best interests of a Fund's shareholders to make a redemption payment wholly in
cash, the Trust may pay, in accordance with rules adopted by the SEC, any
portion of a redemption in excess of the lesser of $250,000 or 1% of the Fund's
net assets by a distribution in-kind of portfolio securities in lieu of cash.
Redemptions failing to meet this threshold must be made in cash. Portfolio
securities issued in a distribution in-kind will be deemed by GEIM to be readily
marketable. Shareholders receiving distributions in-kind of portfolio securities
may incur brokerage commissions when subsequently disposing of those securities.
A redemption fee will not be charged on distributions in-kind.
Redemption Fees
The Trust will assess a redemption fee for cash redemptions in amounts over $5
million for each of the Emerging Markets and International Funds, and over $10
million for each of the other non-money market Funds. The proceeds from shares
redeemed will be reduced in an amount equal to such redemption fee. The Trust
will establish redemption fees from time to time, and like purchase premiums and
in-kind redemptions and purchases, such fees paid to the Trust are intended to
allocate brokerage and other costs to the appropriate investor. The Trust may
waive or reduce the redemption fee if GEIM determines that because of offsetting
transactions or subscriptions the cash redemption results in minimum brokerage
and/or other transactions costs. For purposes of calculating redemption fees,
the Trust will look to underlying participants in a DC Plan and assess such
redemption fees only where an individual participant in such DC Plan redeems in
excess of $10 million or $5 million, as applicable.
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Both the Service Class shares and the Investment Class shares have the same
redemption fee. The redemption fee is assessed on the entire amount of shares
being redeemed, and the fee currently in effect for each Fund is as follows:
Premier Growth Fund .25%
U.S. Equity Fund .25%
International Equity Fund .65%
Value Equity Fund .25%
Strategic Investment Fund .20%
Fixed Income Fund .10%
Mid-Cap Growth Fund .40%
Emerging Markets Fund 1.25%
S&P 500 Index Fund .25%
EXCHANGES
You may exchange Service Class shares of a Fund for Service Class of another
Fund or Investment Class shares of the same or another Fund. You also may
exchange Service Class shares for Class A shares or Class D shares of
corresponding funds of GE Funds. Such exchanges are permitted provided the
shares of the investment portfolio may legally be sold in your state of
residence. You will be required to pay redemption fees and, if applicable,
purchase premiums in connection with exchanges between Funds or between a Fund
and a portfolio of the GE Funds.
If an investor in a Fund directs that shares in that Fund be exchanged for
shares of the Funds or of GE Funds, such exchanges will be treated as
redemptions from the current Fund and purchases into the new Fund, or fund of GE
Funds for purposes of the purchase premiums and redemption fees discussed above.
For example, if an investor exchanges $10 million or $5 million or more, as
applicable, between Funds or between a Fund and a GE Funds portfolio, the
investor will pay purchase premiums, if applicable, and redemption fees with
respect to the exchanged shares. GE Funds does not assess purchase premiums.
The Trust may waive or reduce these exchange related transaction fees if GEIM
determines that because of offsetting transactions or redemptions result actual
brokerage or other transaction costs are minimal. For purposes of calculating
the purchase premiums and redemption fees to be charged in connection with an
exchange, the Trust will look to underlying participants in a DC Plan and assess
such premiums and fees only where an individual participant in such DC Plan
exchanges amounts in excess of $10 million or $5 million, as applicable.
In addition, the Trust may, upon 60 days prior written notice to a Fund's
shareholders, terminate the exchange privilege or assess a $5 exchange fee for
exchanges involving the Money Market Fund or amounts of less than $5 million in
the case of the Emerging Markets and International Funds and $10 million in the
case of the non-money market Funds. An exchange of shares is treated for Federal
income tax purposes as a redemption (that is, a sale) of shares given in
exchange by you, and therefore you may experience a loss in connection with the
exchange. You may exchange shares by writing the Trust at the appropriate
address listed above under "How to Open an Account."
NET ASSET VALUE
A Fund's net asset value per share is determined as of the close of regular
trading on the NYSE (currently 4:00 p.m., New York time) on each day the NYSE is
open by dividing the value of the Fund's net assets attributable to each Class
by the total number of shares of the Class outstanding. The NYSE is currently
open each day, Monday through Friday, except on the following holidays: New
Year's Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor
Day, Thanksgiving and Christmas, and on the preceding Friday or subsequent
Monday when one of these holidays falls on a Saturday or Sunday, respectively.
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In general, a Fund's investments will be valued at market value or, in the
absence of market value, at fair value as determined by or under the direction
of the Trust's Board of Trustees. All portfolio securities held by the Money
Market Fund, and any short-term investments of the other Funds that mature in 60
days or less, will be valued on the basis of amortized cost, if the Board of
Trustees determines that amortized cost represents fair value. Amortized cost
involves valuing an investment at its cost and, thereafter, assuming a constant
amortization to maturity of any discount or premium, regardless of the effect of
fluctuating interest rates on the market value of the investment. The Trust will
seek to maintain the Money Market Fund's net asset value at $1.00 per share for
purposes of purchases and redemptions, although no assurance can be given that
the Trust will be able to do so on a continuous basis.
A security that is primarily traded on a domestic or foreign securities exchange
will be valued at the last sale price on that exchange or, if no sales occurred
during the day, at the current quoted bid price. An option that is written or
purchased by a Fund generally will be valued at the mean between the last asked
and bid prices. The value of a futures contract will be equal to the unrealized
gain or loss on the contract that is determined by marking the contract to the
current settlement price for a like contract on the valuation date of the
futures contract. A settlement price may not be used if the market makes a limit
move with respect to a particular futures contract or if the securities
underlying the futures contract experience significant price fluctuations after
the determination of the settlement price. When a settlement price cannot be
used, futures contracts will be valued at their fair market value as determined
by or under the direction of the Board of Trustees.
A security that is primarily traded on a foreign exchange generally will be
valued at its preceding closing value on that exchange, except that the Board of
Trustees may determine to consider other factors an event occurring subsequent
to the closing of the foreign exchange will impact on fair value. Trading in
foreign markets may not take place on every NYSE business day. In addition,
trading may take place in various foreign markets on Saturdays or on other days
when the NYSE is not open and on which a fund's net asset value is not
calculated. Therefore, such calculation does not take place contemporaneously
with the determination of the prices of many of the portfolio securities used in
such calculation and the value of a Fund's portfolio may be significantly
affected on days when shares of the Fund may not be purchased or redeemed.
All assets and liabilities of a Fund initially expressed in foreign currency
values will be converted into U.S. dollar values at the mean between the bid and
offered quotations of the currencies against U.S. dollars as last quoted by any
recognized dealer. If the bid and offered quotations are not available, the rate
of exchange will be determined in good faith by the Board of Trustees. In
carrying out the Board's valuation policies, GEIM may consult with an
independent pricing service or services, retained by the Trust. Further
information regarding the Trust's valuation policies is contained in the
Statement of Additional Information.
DIVIDENDS, DISTRIBUTIONS AND TAXES
Dividends and Distributions
Dividends and capital gain distributions paid to you will be automatically
reinvested in shares of the same class unless you instruct the Trust, in
writing, to pay all dividends and distributions in cash. However, if a check
that is mailed to you is returned to the Trust as undeliverable, your dividends
will be reinvested until you notify the Trust in writing of your correct address
and request in writing that your election to receive dividends and other
distributions in cash be reinstated. There is no purchase premium charged with
respect to reinvested dividends. A redemption fee will be assessed with respect
to all dividends and distributions in cash that meet the applicable $5 million
or $10 million threshold discussed above under "Redemption of Shares -
Redemption Fees".
Dividends attributable to the Income Fund and the Money Market Fund are declared
daily and paid monthly. Dividends attributable to the net investment income of
each of the other Funds are declared and paid annually. If you redeem all of
your shares that you may own in the Income Fund or the Money Market Fund at any
time during a month, your dividends (if any) will be paid to you along with the
proceeds of your redemption.
The Trust will send you written confirmations relating to the automatic
reinvestment of daily dividends within five days following the end of each
quarter for the Income Fund, and within five days following the end of each
month for the Money Market Fund. Distributions of any net realized long-term and
short-term capital gains earned by a Fund will be made annually. Earnings of the
Income Fund and the Money Market Fund for Saturdays, Sundays and holidays will
be declared as dividends on the business day immediately preceding the Saturday,
Sunday or holiday. As a result of the different service fees applicable to the
Investment Class shares, dividends and distributions will be higher for the
Investment Class shares. See "Fee Table" and "Purchase of Shares."
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Each Fund is subject to a 4% non-deductible excise tax measured with respect to
certain undistributed amounts of net investment income and capital gains. If
necessary to avoid the imposition of this tax, and if in the best interests of
the Fund's shareholders, the Trust will declare and pay dividends and
distributions more frequently than stated above.
Taxes
The following discussion may not be relevant to tax-deferred retirement accounts
or other tax exempt investors, and is not a complete analysis of the federal tax
implications of investing in the Funds. You should consult your own tax advisor
regarding the application of Federal, state, local and foreign tax laws to your
specific tax situation.
Taxes on the Fund. The Trust intends that each Fund qualify as a separate
regulated investment company under the Code. As a regulated investment company,
each Fund should not be subject to federal income tax or federal excise taxes if
substantially all of its net investment income and net realized capital gains
are distributed within allowable time limits, as provided under the Code. It is
important that the Funds meet these time limits and the requirements for
qualifying as regulated investment companies under the Code so that any earnings
on your investment will not be taxed twice.
Net investment income or capital gains earned by a Fund from investing in
foreign securities may be subject to foreign income taxes withheld at the
source. The Trust intends that the Funds operate in a manner that they qualify
for foreign tax rates that have been reduced under tax treaties with the United
States. Provided certain requirements are met under the Code, a Fund may elect
to treat foreign income taxes paid by that Fund as passed through to
shareholders as a foreign tax credit. The Trust anticipates that each of the
International Fund and the Emerging Markets Fund will seek to qualify for and
make this election in most, but not necessarily all, of its taxable years. The
Trust will report to shareholders any amount per share that must be included in
gross income and that may be available as a credit or a deduction. You may not
claim a deduction for foreign taxes if you do not itemize deductions, and
certain limitations will be imposed on the extent to which the credit (but not
the deduction) for foreign taxes may be claimed.
Taxes on Distributions to Shareholders. Dividends and distributions you receive
from a Fund, whether reinvested or taken as cash, are subject to Federal income
tax. Dividends from a Fund's net investment income and distributions of the
Fund's short-term capital gains will be taxed as ordinary income, and
distributions of long-term capital gains will be taxed as long-term capital
gains, regardless of how long you have held your shares. As a general rule, any
gain or loss when you sell or redeem (including a redemption in-kind) your Fund
shares will be a long-term capital gain or loss if you have held your shares for
more than one year and a short-term capital gain or loss if you have held your
shares for one year or less. Some dividends received in January may be taxable
as if they had been paid the previous December.
Dividends and distributions paid by the Income Fund and the Money Market Fund,
and distributions of capital gains paid by all the Funds, will not qualify for
the Federal dividends-received deduction for corporations. Dividends paid by the
Premier Growth Fund, the U.S. Equity Fund, the Mid-Cap Fund, the Strategic Fund,
the S&P 500 Index Fund, the International Fund, the Emerging Markets Fund and
the Value Fund, to the extent derived from dividends attributable to certain
types of stock issued by U.S. corporations, will qualify for the
dividends-received deduction for corporations. Some states, if certain asset and
diversification requirements are satisfied, permit shareholders to treat their
portions of a Fund's dividends that are attributable to interest on U.S.
Treasury securities and certain U.S. Government Obligations as income that is
exempt from state and local income taxes.
Statements regarding the tax status of income dividends and capital gains
distributions will be mailed to you on or before January 31st of each year.
CUSTODIAN AND TRANSFER AGENT
State Street, located at 225 Franklin Street, Boston, Massachusetts 02101,
serves as the Trust's custodian and transfer agent, and is responsible for
receiving acceptance orders for the purchase of shares and processing redemption
requests.
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DISTRIBUTOR
GE Investment Services Inc., located at 3003 Summer Street, P.O. Box 7900,
Stamford, Connecticut, 06904-7900, serves as distributor of the Funds' shares.
The Distributor, a wholly-owned subsidiary of GEIM, also serves as Distributor
for the Elfun Funds and GE Funds. GEIM or its affiliates, at their own expense,
may allocate portions of their revenues or other resources to assist the
Distributor in distributing shares of the Funds, by providing additional
promotional incentives to dealers. In some instances, these incentives may be
limited to certain dealers who have sold or may sell significant numbers of
shares of the Funds. The Distributor routinely offers dealers in Fund shares the
opportunity to participate in contests for which prizes include tickets to
theater and sporting events, dining, travel to meetings and conferences held in
locations remote from their offices and other items.
ADDITIONAL MATTERS
The Trust was formed as a business trust under the laws of Delaware pursuant to
a Certificate of Trust on May 23, 1997. The Trust's Declaration of Trust dated
__________________, 1997, as amended from time to time (the "Declaration")
authorizes the Trust's Board of Trustees to create separate series, and within
each series separate Classes, of an unlimited number of shares of beneficial
interest, par value [$.001] per share. As of __________________, 1997, [two
retirement plans for which Montgomery Ward & Co., Incorporated serves as plan
sponsor and one for which Penske Truck Leasing Co. serves as sponsor] owned
[__%], [___%] and [__%], respectively of the shares of the Trust, and therefore
each such plan may be deemed to control the Trust.
As issued, shares of a Fund will be fully paid and non-assessable. Shares are
freely transferable and have no preemptive, subscription or conversion rights.
Each of the Service Class and the Investment Class represents an identical
interest in a Fund's investment portfolio. As a result, the Classes have the
same rights, privileges and preferences, except with respect to: (1) the
designation of each Class; (2) the sales arrangement; (3) the expenses allocable
exclusively to each Class; and (4) voting rights on matters exclusively
affecting a single Class. The Board of Trustees does not anticipate that there
will be any conflicts among the interests of the holders of the two Classes. The
Trustees, on an ongoing basis, will consider whether any conflict exists and, if
so, take appropriate action. Certain aspects of the shares may be changed, upon
notice to Fund shareholders, to satisfy certain tax regulatory requirements, if
the Trust's Board of Trustees deems the change necessary.
When matters are submitted for shareholder vote, each shareholder of each Fund
will have one vote for each full share held and proportionate, fractional votes
for fractional shares held. In general, shares of each Fund vote by individual
Fund on all matters except (1) a matter affecting the interests of one or more
of the Funds, in which case only shares of the affected Funds would be entitled
to vote, (2) a matter affecting only the interests of one Class, in which case
only shares of the affected Class would be entitled to vote, or (3) when the
1940 Act requires that shares of the Funds be voted in the aggregate.
Normally, no meetings of shareholders of the Funds will be held for the purpose
of electing Trustees unless and until such time as less than a majority of the
Trustees holding office have been elected by shareholders of the Trust, at which
time the Trustees then in office will call a shareholders' meeting for the
election of Trustees. Shareholders of record of no less than two-thirds of the
outstanding shares of the Trust may remove a Trustee through a declaration in
writing or by vote cast in person or by proxy at a meeting called for that
purpose. A meeting will be called for the purpose of voting on the removal of a
Trustee at the written request of holders of 30% of the Trust's outstanding
shares.
Shareholders who satisfy certain criteria will be assisted by the Trust in
communicating with other shareholders in seeking the holding of the meeting.
The Trust only recently commenced operations and therefore has not yet generated
semi-annual and audited annual reports. Once semi-annual and audited annual
reports become available, the Trust will send you a copy of each report, each of
which includes a list of the investment securities held by each Fund in which
you have invested. Only one report each will be mailed to your address. You may
request additional copies of any report by calling the toll free number listed
on the back cover page of the Prospectus or by writing to the Trust at the
address set forth on the front cover page of the Prospectus.
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APPENDIX
FURTHER INFORMATION: CERTAIN INVESTMENT TECHNIQUES AND STRATEGIES
The Funds may engage in a number of investment techniques and strategies,
including those described below. No Fund is under any obligation to use any of
the techniques or strategies at any given time or under any particular economic
condition. No assurance can be given that the use of any practice will have its
intended result or that the use of any practice is, or will be, available to any
Fund.
Strategies Available to All Funds
When-Issued and Delayed-Delivery Securities. The Funds may purchase when-issued
or delayed delivery securities, which means that delivery of and payment for the
securities will take place at a future time, i.e., beyond normal settlement. The
Funds purchase such securities to secure advantageous prices or yields, and not
for the purpose of leverage. When-issued securities purchased by a Fund may
include securities purchased on a "when, as and if issued" basis, meaning that
issuance of the securities depends on the occurrence of a subsequent event, such
as approval of a merger, corporate reorganization or debt restructuring.
The Funds do not earn interest or accrue income on when-issued or
delayed-delivery securities until settlement and bear the risk of market
fluctuation between the purchase and settlement dates. At the time of
settlement, a when-issued or delayed-delivery security may be valued at less
than its purchase price. In order to avoid the leveraging effect that may occur
with when-issued or delayed- delivery commitments, the Funds will maintain with
State Street, or with a designated sub-custodian, a separate account with a
segregated portfolio containing cash or other liquid assets in an amount equal
to the amount of such commitments.
Lending Portfolio Securities. Each Fund may lend its portfolio securities to
well-known and recognized U.S. and foreign brokers, dealers and banks. Such
loans may not exceed 30% of the Fund's assets, and must be collateralized by
cash, letters of credit or U.S. Government Obligations. Cash or instruments
collateralizing a Fund's loans of securities will be segregated and maintained
at all times with State Street, or with a designated sub-custodian, in an amount
at least equal to the current market value of the loaned securities. A Fund that
lends portfolio securities will be subject to the risk of loss of rights in the
collateral if the borrower fails financially.
Investments In Other Investment Companies. Each Fund may purchase securities of
other investment companies, provided that those other companies' investments are
consistent with the Fund's investment objective and policies and are permissible
under the 1940 Act. Pursuant to the 1940 Act each Fund: (i) may invest a maximum
of 10% of its total assets in the securities of other investment companies; (ii)
may not invest more than 5% of its total assets in any one investment company;
and (iii) may not own more than 3% of the securities of any one investment
company. The non-money market Funds' investments in the Investment Fund are not
considered investment in another investment company for purposes of this
paragraph and the restrictions just described. To the extent a Fund invests in
another investment company, the Fund's shareholders will incur certain
duplicative fees and expenses, including two levels of investment advisory fees.
Strategies Available to Some But Not All Funds
Depositary Receipts. Each non-money market Fund, may invest in American
Depositary Receipts, or "ADRs," European Depositary Receipts, or "EDRs"
(sometimes referred to as Continental Depositary Receipts, or "CDRs") and Global
Depositary Receipts, or "GDRs." Depositary receipts evidence an ownership
interest in securities of foreign corporations that are held on deposit with a
financial institution. ADRs are U.S. dollar-denominated receipts that represent
interests in shares of a foreign-based corporation held on deposit in a U.S.
bank or trust company. ADRs are traded on exchanges or over-the-counter in the
United States. EDRs represent interests in foreign or domestic securities held
in trust in a foreign bank, and are traded in European markets. EDRs may not
necessarily be denominated in the same currency as the securities they
represent. GDRs are receipts for shares in a foreign or domestic corporations
that are traded in capital markets around the world. While ADRs are intended to
permit foreign corporations to offer shares to Americans, and EDRs are designed
for use in European markets, GDRs allow companies to offer shares in many
markets. A Fund may purchase ADRs from institutions that are not sponsored by
the issuer of the underlying foreign securities, in which case the Fund may not
receive as much information about the ADRs that it would have received if had
purchased them from a sponsored depository.
i
<PAGE>
WEBs and Other Index-related Securities. Each of the Emerging Markets Fund, the
International Fund and the Strategic Fund may invest in shares in a particular
series issued by Foreign Fund, Inc., an investment company whose shares also are
known as "World Equity Benchmark Shares" or "WEBS." WEBS have been listed for
trading on the American Stock Exchange, Inc. The Fund also may invest in shares
in a particular series issued by CountryBaskets Index Fund, Inc., or another
fund the shares of which are the substantial equivalent of WEBS. Each of the
U.S. Equity Fund, Premier Growth Fund, Value Fund and Strategic Fund may invest
in Standard & Poor's Depositary Receipts, or "SPDRs." SPDRs are securities that
represent ownership in a long-term unit investment trust that holds a portfolio
of common stocks designed to track the performance of the S&P 500 Index. A Fund
investing in a SPDR would be entitled to receive proportionate quarterly cash
distributions corresponding to the dividends that accrue to the S&P 500 stocks
in the underlying portfolio, less trust expenses.
Supra-national Agencies. The Income Fund, the Strategic Fund and the Money
Market Fund each may invest up to 10% of its assets in securities of
supra-national agencies, which are agencies whose members make capital
contributions to support agency activities. Such agencies include the World
Bank, the European Coal and Steel Community, and the Asian Development Bank.
Securities of supra-national agencies are not considered U.S. Government
Obligations and are not supported, directly or indirectly, by the U.S.
Government.
Municipal Leases. The Strategic Fund may invest in municipal leases, which may
take the form of a lease or an installment purchase or a conditional sales
contract to acquire equipment and facilities. Interest payments on qualifying
municipal leases are exempt from Federal income taxes and state income taxes
within the state of issuance. The Fund may hold municipal leases that are rated
investment grade (or its issuer's senior debt is rated investment grade) and
unrated, if GEIM (subject to oversight and approval by the Board of Trustees)
deems such unrated leases to be of comparable quality to rated issues. Risks and
special considerations applicable to certain investment grade obligations are
described above under "Risk Factors and Special Considerations - Certain
Investment Grade Obligations." Municipal leases will be considered illiquid
securities unless the Trust's Board of Trustees determines on an ongoing basis
that the leases are readily marketable.
Municipal leases have special risks. They represent a type of financing that has
not yet developed the depth of marketability generally associated with other
Municipal Obligations. Some municipal leases contain "non-appropriation"
clauses, which means that the governmental issuer is under no obligation to make
future payments under the lease or contract unless money is appropriated for
that purpose by the appropriate legislative body on a yearly or other periodic
basis. Moreover, although a municipal lease will be secured by financed
equipment or facilities, disposing of such collateral might prove difficult in
the event of foreclosure. To limit these risks, the Fund will invest no more
than 5% of its total assets in municipal leases. In addition, the Fund will
purchase leases with non- appropriation clauses only when the lease payments
will commence amortization of principal at an early date, so that the leases
will have an average life of five years or less.
<PAGE>
Floating and Variable Rate Instruments. The Strategic Fund, the Income Fund and
the Money Market Fund each may invest in floating and variable rate instruments
(collectively, "adjustable rate securities"), which are securities with floating
or variable rates of interest or dividend payments. The floating or variable
rate is adjusted periodically according to a specified formula, which may be
determined by reference to a market interest rate or a some interest rate index,
or determined through an auction or re-marketing process. The variable and
floating rates of interest permit these Funds to take advantage of increases in
interest rates, and therefore these securities tend to be less sensitive than
fixed rate securities to interest rate changes and to have higher yields when
interest rates increase.
The amount by which the rates paid on an income security may increase or
decrease may be subject to periodic or lifetime reset limits (or "caps"), which
means that the interest rate does not increase beyond a certain level. If
interest rates exceed these levels, the values of certain capped adjustable rate
securities will fall. In addition, fluctuations in interest rates above these
caps could cause adjustable rate securities to behave more like fixed rate
securities in response to extreme movements in interest rates. Moreover, during
periods of rising interest rates, changes in the interest rate of an adjustable
rate security may lag changes in market rates.
The Strategic Fund and the Income Fund may invest in adjustable rate securities
that have interest rates that vary inversely with changes in market rates of
interest. Such securities also may pay a rate of interest determined by applying
a multiple to the variable rate. Increases and decreases in the value of
securities whose rates vary inversely with changes in market rates of interest
generally will be larger than comparable changes in the value of an equal
principal amount of a fixed rate security having similar credit quality,
redemption provisions and maturity.
ii
<PAGE>
The Strategic Fund may purchase floating and variable rate demand bonds and
notes, which are Municipal Obligations ordinarily having stated maturities in
excess of one year but which permit their holder to demand payment of principal
at any time or at specified intervals. Variable rate demand notes include master
demand notes, which permit the Fund to invest fluctuating amounts, which may
change daily without penalty, pursuant to direct arrangements between the Fund,
as lender, and the borrower. These obligations have interest rates that
fluctuate from time to time and frequently are secured by letters of credit or
other credit support arrangements provided by banks. Use of letters of credit or
other credit support arrangements will not adversely affect the tax-exempt
status of variable rate demand notes. Because they are direct lending
arrangements between the lender and borrower, variable rate demand notes
generally will not be traded and no established secondary market generally
exists for them, although they are redeemable at face value. If variable rate
demand notes are not secured by letters of credit or other credit support
arrangements, the Fund's right to demand payment will be dependent on the
ability of the borrower to pay principal and interest on demand. Each obligation
purchased by the Fund will meet the quality criteria established by GEIM for the
purchase of Municipal Obligations. GEIM, on behalf of the Fund, considers on an
ongoing basis the creditworthiness of the issuers of the floating and variable
rate demand obligations in the Fund's portfolio.
Participation Interests. The Strategic Fund may purchase participation interests
in certain Municipal Obligations from financial institutions. A participation
interest gives the Fund an undivided interest in the Municipal Obligation in the
proportion that the Fund's participation interest bears to the total principal
amount of the Municipal Obligation. These instruments may have fixed, floating
or variable rates of interest. If the participation interest is unrated, or has
been given a rating below one that is otherwise permissible for purchase by the
Fund, the participation interest will be backed by an irrevocable letter of
credit or guarantee of a bank that the Trust's Board of Trustees has determined
meets certain quality standards, or the payment obligation otherwise will be
collateralized by U.S. Government Obligations. The Fund will have the right,
with respect to certain participation interests, to demand payment, on a
specified number of days' notice, for all or any part of the Fund's
participation interest in the Municipal Obligation, plus accrued interest. The
Trust intends that the Fund exercise its right to demand payment only upon a
default under the terms of the Municipal Obligation, or to maintain or improve
the quality of its investment portfolio. The Fund will invest no more than 5% of
the value of its total assets in participation interests.
Zero Coupon Obligations. The U.S. Equity Fund, the Strategic Fund and the Income
Fund may invest in zero coupon obligations. Zero coupon obligations pay no
interest to their holders prior to maturity. Instead, the interest accrues (or
builds up) and is paid in a lump sum at maturity. Investors purchase zero coupon
obligations at a deep discount, or prices far lower than par value. Because zero
coupon securities bear no interest, they are more volatile than other
fixed-income securities. When interest rates rise, their values fall more
rapidly then securities paying interest on a current basis. Conversely, when
interest rates fall, the values of zero coupon bonds rise more rapidly then
securities paying interest on a current basis, because the zeros have locked in
a particular rate of reinvestment that becomes more attractive the further rates
fall.
Even though the Funds receive no payments on its zero coupon securities prior to
maturity or disposition, for federal income tax purposes they must distribute
income to shareholders as if payments had actually been made. Each Fund must pay
these dividends to shareholders from its cash assets, from borrowing or by
liquidating portfolio securities. The Fund may have to liquidate portfolio
securities at an inopportune time, such as when securities are thinly traded,
and therefore would sell securities at lower prices. Moreover, to the extent
that portfolio assets must be used to pay distributions, the Fund would lose the
opportunity to use those assets to purchase additional income-producing
securities, and therefore current income may be reduced.
The Strategic Fund may invest up to 10% of its assets in zero coupon Municipal
Obligations, which are generally divided into two categories: "Pure Zero
Obligations," which pay no interest for their entire life and "Zero/Fixed
Obligations," which pay no interest for some initial period and thereafter pay
interest currently. In the case of a Pure Zero Obligation, the failure to pay
interest currently may result from the obligation's having no stated interest
rate, in which case the obligation pays only principal at maturity and is sold
at a discount from its stated principal. A Pure Zero Obligation may, in the
alternative, provide for a stated interest rate, but provide that no interest is
payable until maturity, in which case accrued, unpaid interest on the obligation
may be capitalized as incremental principal. The value to the investor of a zero
coupon Municipal Obligation consists of the economic accretion either of the
difference between the purchase price and the nominal principal amount (if no
interest is stated to accrue) or of accrued, unpaid interest during the
Municipal Obligation's life or payment deferral period.
Municipal Obligation Components. The Strategic Fund may invest in Municipal
Obligations the interest rate on which has been divided by the issuer into two
different and variable components, which together result in a fixed interest
rate. Typically, the first of the components (the "Auction Component") pays an
interest rate that is reset periodically through an auction process, whereas the
second of the components (the "Residual Component") pays a residual interest
rate based on the difference between the total interest paid by the issuer on
the Municipal Obligation and the auction rate paid on the Auction Component. The
Fund may purchase both Auction and Residual Components. Because the interest
rate paid to holders of Residual Components is generally determined by
subtracting the interest rate paid to the holders of Auction Components from a
fixed amount, the interest rate paid to Residual Component holders will decrease
as the Auction Component's rate increases and increase as the Auction
Component's rate decreases. Moreover, the extent of the increases and decreases
in market value of Residual Components may be larger than comparable changes in
the market value of an equal principal amount of a fixed rate Municipal
Obligation having similar credit quality, redemption provisions and maturity.
iii
<PAGE>
Custody Receipts. The Strategic Fund may acquire custody receipts or
certificates underwritten by securities dealers or banks that evidence ownership
of future interest payments, principal payments, or both, on certain Municipal
Obligations. Similar to depositary receipts, the actual Municipal Obligations
are held in an irrevocable trust or custodial account with a custodian bank,
which then issues receipts or certificates that evidence ownership. Custody
receipts evidencing specific coupon or principal payments have the same general
attributes as zero coupon Municipal Obligations described above. Although under
the terms of a custody receipt, the Fund would be typically authorized to assert
its rights directly against the issuer of the underlying obligation, the Fund
could be required to assert through the custodian bank its rights against the
underlying issuers. Thus, in the event the underlying issuer fails to pay
principal and/or interest when due, the Fund may be subject to delays, expenses
and risks that are greater than those that would have been involved if the Fund
had purchased a direct obligation of the issuer.
Mortgage Related Securities. The mortgage related securities in which the
Strategic Fund and the Income Fund may invest represent pools of mortgage loans
assembled for sale to investors by various governmental agencies, such as GNMA,
by government related organizations, such as FNMA and FHLMC, as well as by
private issuers, such as commercial banks, savings and loan institutions,
mortgage bankers and private mortgage insurance companies.
Several risks are associated with mortgage related securities. The monthly cash
inflow from the underlying loans may be insufficient to meet the monthly payment
requirements of the mortgage related security. Early returns of principal (such
as from prepayments or foreclosures) will shorten the term of the underlying
mortgage pool for a mortgage related security and will affect the average life
of the mortgage related securities the Funds continue to hold. Factors affecting
the occurrence of mortgage prepayments include the level of interest rates,
general economic conditions, the location and age of the mortgaged property and
other social and demographic conditions. When interest rates fall, prepayments
tend to increase, and when they rise, prepayments tend to decrease.
Because prepayments of principal generally occur when interest rates are
declining, the Funds will likely have to reinvest the proceeds of prepayments at
lower interest rates than those at which its assets were previously invested,
resulting in a corresponding decline in the Fund's yield. Thus, mortgage related
securities may have less potential for capital appreciation in periods of
falling interest rates than other fixed income securities of comparable
maturity. To the extent that a Fund purchases mortgage related securities at a
premium, unscheduled prepayments, which are made at par, will result in a loss
equal to any unamortized premium.
Adjustable rate mortgages, or "ARMs" have interest rates that reset at periodic
intervals. The Funds may invest in ARMs that have maximum annual or lifetime
caps. ARMs have the advantages and risks associated with variable and floating
rate securities (including capped adjustable rate securities) discussed above.
Collateralized mortgage obligations, or "CMOs" are obligations fully
collateralized by a portfolio of mortgages or mortgage related securities.
Payments of principal and interest on the mortgages are passed through to the
holders of the CMOs on the same schedule as they are received, although certain
classes of CMOs have priority over others with respect to the receipt of
prepayments on the mortgages. Therefore, depending on the type of CMOs in which
the Strategic Fund and the Income Fund invest, the investment may be subject to
a greater or lesser risk of prepayment than other types of mortgage related
securities.
To the extent GEIM determines any mortgage related securities are not readily
marketable, each of the Funds would limit its investments in these securities,
together with other illiquid instruments, to not more than 15% of the value of
its net assets.
Government Stripped Mortgage Related Securities. The Strategic Fund and the
Income Fund each may invest in government stripped mortgage related securities
(i.e., the issuer has stripped the security into its interest and principal
components) issued and guaranteed by GNMA, FNMA or FHLMC. These securities
represent beneficial ownership interests in either periodic principal
distributions ("principal-only") or interest distributions ("interest-only") on
mortgage related certificates. The certificates underlying the government
stripped mortgage related securities represent all or part of the beneficial
interest in pools of mortgage loans. A Fund will invest in government stripped
mortgage related securities in order to enhance yield or to benefit from
anticipated appreciation in value of the securities at times when GEIM believes
that interest rates will remain stable or increase. In periods of rising
interest rates, the expected increase in the value of government stripped
mortgage related securities may offset all or a portion of any decline in value
of a Fund's securities.
iv
<PAGE>
Investing in government stripped mortgage related securities involves risks
normally associated with investing in mortgage related securities issued by
government or government related entities. In addition, the yields on government
stripped mortgage related securities are extremely sensitive to the prepayment
experience on the mortgage loans underlying the certificates collateralizing the
securities. If a decline in the level of prevailing interest rates results in a
rate of principal prepayments higher than anticipated, distributions of
principal will be accelerated, thereby reducing the yield to maturity on
interest-only government stripped mortgage related securities and increasing the
yield to maturity on principal-only government stripped mortgage related
securities. Sufficiently high prepayment rates could result in the Strategic
Fund or the Income Fund not fully recovering its initial investment in an
interest-only government stripped mortgage related security.
Under current market conditions, the Funds expect to invest in interest-only
government stripped mortgage related securities. Government stripped mortgage
related securities are currently traded in an over-the-counter market maintained
by several large investment banking firms. The Funds will acquire government
stripped mortgage related securities only if a secondary market for the
securities exists at the time of acquisition, but there can be no assurance that
either Fund will be able to effect a trade of such a security at a desired time.
Except for government stripped mortgage related securities based on fixed rate
FNMA and FHLMC mortgage certificates that meet certain liquidity criteria
established by the Trust's Board of Trustees, the Trust treats government
stripped mortgage related securities as illiquid and will limit each of the
Strategic Fund's and the Income Fund's investments in these securities, together
with other illiquid investments, to not more than 15% of its net assets.
Asset-Backed and Receivable-Backed Securities. The Strategic Fund and the Income
Fund each may invest in asset-backed and receivable-backed securities. These
instruments are secured by and payable from pools of assets, including credit
card receivables and pools of motor vehicle retail installment sales contracts
and security interests in the vehicles securing those contracts. A Fund's return
on an asset- or receivable-backed security may be adversely affected by early
prepayment of underlying sales contracts. In periods of falling interest rates,
there is a general tendency for prepayments to increase, shortening the average
maturity of an asset- or receivable-backed security making it difficult to lock
in higher interest rates. If a creditor defaults on an underlying sales
contract, asset- or receivable-backed securities might be adversely affected if
the full amount receivable on such contract cannot be realized.
Mortgage Dollar Rolls. The Strategic Fund and the Income Fund each may use up to
25% of its total assets to enter into mortgage "dollar rolls." A mortgage dollar
roll transaction requires a Fund to sell a security and simultaneously contract
with purchaser buy similar, but not identical, securities at some future date.
The Fund loses the right to principal and interest payments on the securities
sold. The Fund benefits from a dollar roll to the extent that (i) the price at
which the Fund sells the security exceeds the price at which it buys (i.e., the
"drop" price) similar securities in the future, and (ii) the Fund earns interest
on the cash proceeds from the sale. However, these gains are offset by foregone
interest income and capital appreciation on the securities sold. Therefore a
Fund's overall gains from mortgage dollar roll transactions depend upon GEIM's
ability to predict correctly mortgage prepayments and interest rates. To the
extent that GEIM incorrectly analyzes these factors, the Fund's investment
performance may be diminished compared to what it would have been without the
use of mortgage dollar rolls.
Short Sales Against the Box. The International Fund, the Value Fund, the Mid-Cap
Fund and the Emerging Markets Fund may sell securities "short against the box."
A short sale "against the box" means that at all times when the short position
is open, the Fund owns at least an equal amount of the securities, or securities
convertible into, or exchangeable without further consideration for, securities
of the same issue as the securities sold short. Short sales against the box are
typically used by sophisticated investors to defer recognition of capital gains
or losses.
v
<PAGE>
GE INSTITUTIONAL FUNDS
o Premier Growth Equity Fund
o U.S. Equity Fund
o International Equity Fund
o Value Equity Fund
o Strategic Investment Fund
o Income Fund
o Money Market Fund
o Mid-Cap Growth Fund
o Emerging Markets Fund
o S&P 500 Index Fund
For information contact you investment professional or call 1-800-[___________]
Statement of Additional Information ("SAI")
The SAI contains more detailed information about the Funds and the Trust. A
current SAI has been filed with the Securities and Exchange Commission and is
incorporated by reference (is legally a part of this Prospectus).
We will forward a free copy of the SAI upon request. To request the SAI, please
write or call:
GE Investment Management Incorporated
3003 Summer Street
Stamford, CT 06905
Telephone: 1-800-[_________________].
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS OR IN THE
STATEMENT OF ADDITIONAL INFORMATION INCORPORATED INTO THIS PROSPECTUS BY
REFERENCE IN CONNECTION WITH THE OFFERING OF SHARES OF GE INSTITUTIONAL FUNDS,
AND IF GIVEN OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY GE INSTITUTIONAL FUNDS. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFER IN ANY STATE IN WHICH, OR TO ANY PERSON TO WHOM, AN
OFFER MAY NOT LAWFULLY BE MADE.
<PAGE>
GE Institutional Funds (the "Trust") is an open-end management investment
company that offers ten diversified managed investment funds (each, a "Fund" and
collectively, the "Funds"), each of which has two classes of shares -- the
Investment Class and the Service Class. Each Fund has a discrete investment
objective that it seeks to achieve by following distinct investment policies.
This Prospectus describes the Investment Class shares of the Funds. The
Investment Class shares and the Service Class shares are identical, except as to
the services offered, and the expenses borne, by each class. You may obtain a
copy of the prospectus describing the Service Class shares free of charge by
calling the telephone number listed below or writing the Trust at the address
listed below.
o Emerging Markets Fund's investment objective is long-term growth of
capital. The Fund seeks to achieve this objective by investing primarily in
equity securities that are traded in emerging markets or equity securities
of companies that are organized or conduct their principal business
activities in emerging markets countries.
o International Equity Fund's investment objective is long-term growth of
capital. The Fund seeks to achieve this objective by investing primarily in
securities of foreign issuers.
o Mid-Cap Growth Fund's investment objective is long-term growth of capital.
The Fund seeks to achieve this objective by investing primarily in equity
securities of companies with medium-sized market capitalization that have
the potential for above-average growth.
o Premier Growth Equity Fund's investment objective is long-term growth of
capital and future income rather than current income. The Fund seeks to
achieve this objective by investing primarily in growth-oriented equity
securities.
o Value Equity Fund's investment objective is long-term growth of capital and
future income. The Fund seeks to achieve this objective by investing
primarily in equity securities of companies with large sized market
capitalization that the Fund's management considers to be undervalued by
the market.
o U.S. Equity Fund's investment objective is long-term growth of capital. The
Fund seeks to achieve this objective by investing primarily in equity
securities of U.S. companies.
o S&P 500 Index Fund's investment objective is to provide growth of capital
and accumulation of income that corresponds to the investment return of the
Standard & Poor's 500 Composite Stock Price Index. The Fund seeks to
achieve this objective by investing in common stocks comprising that Index.
o Strategic Investment Fund's investment objective is to maximize total
return, consisting of growth of capital and current income. The Fund seeks
to achieve this objective by following an asset allocation strategy that
provides diversification across a range of asset classes and contemplates
shifts among them from time to time.
o Income Fund's investment objective is to seek maximum income consistent
with prudent investment management and the preservation of capital. The
Fund seeks to achieve this objective by investing in fixed income
securities.
o Money Market Fund's investment objective is to seek a high level of current
income consistent with the preservation of capital and maintenance of
liquidity. The Fund seeks to achieve this objective by investing in U.S.
dollar denominated, short-term money market instruments.
This Prospectus briefly sets forth certain information about the Funds and the
Trust that prospective investors will find helpful in making an investment
decision. Investors are encouraged to read this Prospectus carefully and retain
it for future reference.
An investment in the Money Market Fund is neither insured nor guaranteed by the
U.S. Government, and there can be no assurance that this Fund will be able to
maintain a stable net asset value of $1.00 per share.
Shares of the Funds are not deposits with or obligations of any financial
institution, are not guaranteed or endorsed by any financial institution or its
affiliates, and are not insured by the Federal Deposit Insurance Corporation,
the Federal Reserve Board or any other government agency. There can be no
assurance that a Fund will achieve its investment objective.
GE INVESTMENT MANAGEMENT INCORPORATED
Investment Adviser and Administrator
These Securities Have Not Been Approved or Disapproved by
The Securities and Exchange Commission or Any State
Securities Commission Nor Has the Securities and
Exchange Commission or Any State Securities
Commission Passed upon the Accuracy or
Adequacy of this Prospectus. Any
Representation to the Contrary
Is a Criminal Offense.
Prospectus
________________, 1997
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
TABLE OF CONTENTS
Expense Information.......1
Performance...............3
Investment Objectives
and Management
Policies.................5
Investments in Debt
Securities..............12
Cash Management
Policies - Non-Money
Market Funds............12
Additional Permitted
Investments.............13
Investment Restrictions..17
Management of the
Trust...................23
Purchase of Shares.......26
Redemption of Shares.....29
Exchanges................31
Net Asset Value..........31
Dividends, Distributions
and Taxes...............32
Custodian and Transfer
Agent...................33
Distributor..............33
Additional Matters.......33
Appendix-Further
Information: Certain
Investment Techniques
and Strategies...........i
3003 Summer Street
Stamford, Connecticut 06905
(203) 326-4040
<PAGE>
EXPENSE INFORMATION
Expenses are one of several factors to consider when investing in the Funds. The
following fee table and example are designed to assist you in understanding the
various costs and expenses that you will bear directly or indirectly as an
investor in the Investment Class shares of a Fund. Shareholder Transaction
Expenses are fees charged directly to you when you buy, sell or exchange
Investment Class shares. Annual Fund Operating Expenses are paid out of each
Fund's assets and include fees for portfolio management, maintenance of
shareholder accounts, accounting and other services.
Fee Table
<TABLE>
<CAPTION>
Emerging Interna- Mid-Cap Premier Value U.S. S&P Strategic Income Money
Markets tional Growth Growth Equity Equity 500 Invest- Fund Market
Fund Equity Fund Equity Fund Fund Index ment Fund
Fund Fund Fund Fund
- - ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Shareholder
Transaction
Expenses*
Maximum Sales None None None None None None None None None None
Load Imposed on
Purchases of
Shares (as a
percentage of
Offering Price)
Maximum None None None None None None None None None None
Contingent
Deferred Sales
Load
Cash Purchase 1.25% .65% .40% .25% .25% .25% .25% .20% .10% None
premium*
(as a percentage of
amount invested)
Redemption fees* 1.25% .65% .40% .25% .25% .25% .25% .20% .10% None
(as a percentage of
amount
redeemed):
Maximum None None None None None None None None None None
Exchange Fee**
</TABLE>
- - ----------
* Purchase premiums and redemption fees apply only to those transactions that
are not in-kind ("cash transactions") of $5 million or more with respect to
each of the Emerging Markets and International Equity Funds and $10 million
or more with respect to each of the other Funds (other than the Money
Market Fund). Purchase premiums and redemption fees are discussed below
under "Purchase of Shares" and "Redemption of Shares," respectively. These
fees are paid to, and retained by, a Fund and are intended to allocate
transaction costs caused by shareholder activity to the shareholder
generating the activity, rather than to the Fund as a whole. The Trust may
reduce purchase premium and/or redemption fee amounts if GE Investment
Management Incorporated ("GEIM") determines that due to offsetting
transactions the brokerage and/or other transaction costs generated by the
relevant shareholder activity will be minimal. The Trust also may, in its
discretion, require that proposed investments of $5 million or $10 million
or more in a Fund, as applicable, be made in-kind.
** While currently there is no exchange fee, redemption fees and, if
applicable, purchase premiums are charged on exchanges.
1
<PAGE>
<TABLE>
<CAPTION>
Emerging Interna- Mid- Premier Value U.S. S&P Strategic Income Money
Markets tional Cap Growth Equity Equity 500 Invest- Fund Market
Fund Equity Growth Equity Fund Fund Index ment Fund
Fund Fund Fund Fund Fund
- - ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Annual Fund
Operating
Expenses (as
of percentage
of net assets)
Maximum 1.05%(1) .75%(1) .55%(1) .55%(1) .55%(1) .55%(1) .15% .55%(1) .35%(1) .25%(1)
Advisory and
Administration
Fees
Other expenses None None None None None None None None None None
Total Operating 1.05% .75% .55% .55% .55% .55% .15% .55% .35% .25%
Expenses
</TABLE>
- - ----------
(1) The advisory and administration fee shown is the maximum payable by the
Fund; this fee declines incrementally as the Fund's assets increase as
described under "Management of the Trust - Fee Structure."
The nature of the services provided to, and the advisory and administration fee
paid by, each Fund are described under "Management of the Trust." A Fund's
advisory and administration fee is intended to be a "unitary" fee that includes
any other operating expenses payable by a Fund, except for fees paid to the
Trust's independent Trustees. The amount shown as the advisory and
administration fee for a Fund reflect the highest fee payable, and does not
reflect that the fee decreases incrementally as Fund assets increase. Because
the Funds have only recently commenced operations, "Other Expenses" in the table
above are based on estimated amounts for the current fiscal year. "Other
Expenses" include only Trustees' fees payable to the Trust's independent
Trustees. This amount is expected to be de minimus (less than .01%), therefore
"Other Expenses" are reflected as "None."
Example
The following example demonstrates the projected dollar amount of total
cumulative expenses that would be incurred over a one-year and three-year period
with respect to a hypothetical investment in each Fund. These amounts are based
upon (1) payment by the Fund of operating expenses at the levels set out in the
table above and (2) the specific assumptions stated below.
<TABLE>
<CAPTION>
You would pay the following You would pay the following
expenses on a $1,000 investment, expenses on the same
assuming (1) a 5% annual return and investment, assuming no
(2) redemption at the end redemption
of the time periods shown:
------------------------------------ ----------------------------
1 Year 3 Years 1 Year 3 Years
------ ------- ------ -------
<S> <C> <C> <C> <C>
Emerging Markets Fund $36 $58 $23 $45
International Equity Fund $21 $37 $14 $30
Mid-Cap Growth Fund $14 $26 $10 $22
Premier Growth Equity Fund: $11 $23 $8 $20
Value Equity Fund: $11 $23 $8 $20
U.S. Equity Fund $11 $23 $8 $20
S&P 500 Index Fund $7 $10 $4 $7
Strategic Investment Fund: $10 $22 $8 $20
Income Fund: $6 $13 $5 $12
Money Market Fund $3 $8 $3 $8
</TABLE>
2
<PAGE>
The above example is intended to assist you in understanding various costs and
expenses that an investor in the Investment Class shares of a Fund will bear
directly or indirectly. Although the table assumes a 5% annual return, a Fund's
actual performance will vary and may result in an actual return that is greater
or less than 5%. The table assumes that any applicable purchase premiums are
charged to an investor, even though such premiums are not applicable in all
cases. The example should not be considered to be a representation of past or
future expenses of a Fund; actual expenses may be greater or less than those
shown.
Performance
As of ______________, 1997, the Funds had not yet commenced investment
operations and therefore no Fund has a performance record of its own. With
respect to certain of the Funds, the chart below shows the historical
performance of (i) broad market indexes for one-, three, five- and ten- year
time periods; and (ii) mutual funds and institutional private accounts having
similar objectives as the Funds for which the investment adviser is GEIM, the
Funds' investment adviser and administrator, or General Electric Investment
Corporation ("GEIC", and together with GEIM collectively referred to as "GE
Investments"), a sister company of GEIM that is wholly-owned by General Electric
Company ("GE"). The professionals responsible for the investment operations of
GEIM and the Funds serve in similar capacities with respect to GEIC. The 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. These accounts consist of separate and distinct portfolios
and their performance is not indicative of, or a substitute for, the past or
future performance of the Funds.
<TABLE>
<CAPTION>
Average Annual Total Return (%) (as of 4/30/97)
-----------------------------------------------
FUND NAME
One Three Five Ten Since
Year Year Year Year Inception
---- ---- ---- ---- ---------
<S> <C> <C> <C> <C> <C>
International Equity Fund: --- --- --- --- ---
GE International Equity Fund 7.33 8.16 _ _ 7.66
Class D (3/2/94)
International Equity Composite [TBD] [TBD] [TBD] [TBD] N/A
Morgan Stanley EAFE Index -0.89 5.25 10.58 5.0 N/A
Value Equity Fund --- --- --- --- ---
Premier Growth Equity Fund: --- --- --- --- ---
GE Premier Growth Fund N/A N/A N/A N/A -1.93
Class D (12/31/96)
Elfun Trusts 21.38 23.27 16.73 14.39 N/A
S&P 500 Index 25.12 24.15 17.11 14.12 N/A
U.S. Equity Fund: --- --- --- --- ---
GE U.S. Equity Fund 22.47 21.98 _ _ 18.37
Class D (11/29/93)
U.S. Multi-Style - Equity Composite [TBD] [TBD] [TBD] [TBD] N/A
S&P 500 Index 25.12 24.15 17.11 14.12 N/A
Strategic Fund: --- --- --- --- ---
GE Strategic Investment Fund 13.79 15.28 _ _ 12.62
Class D (11/29/93)
Elfun Diversified Fund 13.87 15.22 12.43 _ 11.87
(1/1/88)
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
FUND NAME
One Three Five Ten Since
Year Year Year Year Inception
---- ---- ---- ---- ---------
<S> <C> <C> <C> <C> <C>
S&P 500 & LB Aggregate Index Composite 17.90 17.56 13.21 11.95 N/A
Income Fund: --- --- --- --- ---
GE Fixed Income Fund 7.15 7.20 _ _ 5.46
Class D (11/29/93)
Elfun Income Fund 7.56 7.79 7.48 8.58 N/A
S&S Long Term Interest Fund 7.78 7.93 7.50 8.69 N/A
Lehman Brothers Aggregate Bond Index 7.08 7.68 7.35 8.69 N/A
Money Market Fund: --- --- --- --- ---
GE Money Market Fund 5.07 5.10 _ _ 4.44
(2/22/93)
Elfun Money Market Fund 5.23 5.29 4.53 _ 5.13
(6/13/90)
90 Day T-Bill 5.20 5.26 4.43 5.6 N/A
</TABLE>
Notes to Performance
The composite performance data shown above for the International Equity
Composite was developed from the aggregate performance of various institutional
private accounts managed on a basis substantially similar to the International
Equity Fund; the U.S. Multi-Style-Equity Composite was developed from the
aggregate performance of various institutional private accounts managed on a
basis substantially similar to the U.S. Equity Fund. The raw composite
performance data was calculated in accordance with recommended standards of the
Association for Investment Management and Research and the effect of fees was
calculated as described below.
Custodial fees and expenses were not deducted from the composite results, but
management fees are reflected as follows: fees of all fee paying accounts were
deducted and, with respect to the non-fee paying GE-affiliated accounts, a
hypothetical fee equal to the highest annual rate that would have been charged
to a comparable fee paying account based on GE Investments' stated fee schedules
was deducted. The fees and expenses deducted from the composite performance data
generally are lower than the expenses incurred by the corresponding Funds and
the composite performance figures would have been lower if they were subject to
the higher fees and expenses incurred by the Funds. In addition, the composite
performance might have been adversely affected by the diversification
requirements, tax restrictions and investment limitations to which the Funds are
subject, if the accounts within each composite had been regulated as investment
companies under the federal securities and tax laws.
The mutual fund results are net of fees and expenses and assume changes in share
price, reinvestment of dividends and capital gains. The management fees charged
to the Elfun Funds and to S&S Long Term Interest Fund are the reasonable costs,
both direct and indirect, incurred in providing management and advisory
services. Consequently, the expenses incurred by the Elfun Funds and S&S Long
Term Interest Fund generally are lower than those incurred by the corresponding
Funds and their performance would have been lower if they were subject to the
higher fees and expenses incurred by the Funds. GE Funds offer four classes of
shares, each having different fees and expenses. GE Funds Class D shares are
offered to certain institutional investors and bear the lowest level of fees and
expenses. GEIM has voluntarily agreed to reduce or otherwise limit certain
expenses of the GE Funds. Absent these limits, the GE Funds' performance would
have been lower. Also, certain of the results for Elfun Diversified, Elfun
Global and Elfun Money Market Funds were favorably affected by expense waivers
or limitations.
The Standard & Poor's 500 Composite Stock Price Index (the "S&P 500 Index"),
Morgan Stanley Capital International World Index ("MSCI World"), Morgan Stanley
Capital International EAFE Index ("MSCI EAFE"), Lehman Brothers Aggregate Bond
Index ("LB Aggregate"), the Lehman Brothers Municipal Bond Index ("LBMI") and
Lehman Brothers 1-3 Year Government Bond Index ("LB 1-3") are unmanaged indexes
and do not reflect the actual cost of investing in the instruments that comprise
each index. The S&P 500 Index is a composite of the prices of 500 widely held
stocks recognized by investors to be representative of the stock market in
general. MSCI World Index is a composite of that currently consists of 1,554
stocks in companies from 22 countries representing the European, Pacific Basin
and American regions. MSCI EAFE Index is a composite that currently consists of
1,091 stocks of companies from 20 countries representing stock markets of
Europe, Australia, Asia, New Zealand and Far East. LB Aggregate is a composite
index of short-, medium-, and long-term bond performance and is widely
recognized as a barometer of the bond market in general. LBMI is a composite of
investment grade, fixed rate municipal bonds and is considered to be
representative of the municipal bond market. The LB 1-3 is a composite of
government and U.S. Treasury obligations with maturities of 1-3 years. S&P 500
Index & LB Aggregate Composite Index simulates a blended return which is
representative of the approximate asset allocation mix of the GE Strategic
Investment Fund for the periods presented (composed of 60% S&P 500 Index 40%
LBKL"). The actual allocation mix of this Fund may have varied from time to
time. The results shown for the foregoing indexes assume the reinvestment of net
dividends.
4
<PAGE>
INVESTMENT OBJECTIVES AND MANAGEMENT POLICIES
The Trust is a diversified, open-end management investment company that consists
of ten separate investment portfolios, each of which has two classes of shares
- - -- the Investment Class and the Service Class. The Service Class shares differ
from the Investment Class shares in that an additional .25% shareholder
servicing and distribution fee is charged to each Fund with respect to Service
Class shares. This .25% fee is intended to reimburse the Trust or GE Investment
Services Inc. (the "Distributor") for expenditures made on behalf of each Fund
to obtain certain shareholder services, including third-party record-keeping,
transfer agency, and ongoing services related to the maintenance of Service
Class shareholder accounts and to pay for certain distribution costs pursuant to
a shareholder servicing and distribution plan adopted in accordance with Rule
12b-1 under the Investment Company Act of 1940, as amended (the "1940 Act"). The
shareholder servicing and distribution fee paid by the Service Class shares will
cause such shares to have a higher expense ratio and lower return than
Investment Class shares.
You should be aware that GE Funds offers additional class options for investors
that may not meet the minimum investment requirements of the Funds and/or
require services not provided by the Funds, but that wish to invest in
portfolios advised by GEIM with the same or similar investment objectives and
policies as those of the Funds. Class A shares of the GE Funds would be suitable
for investors that require "full service." Under the full service option, GEIM,
in conjunction with the employee retirement plan record-keeping capabilities of
State Street Bank and Trust Company ("State Street"), provides record-keeping
and other shareholder services (including shareholder communication services) to
investors in the Class A shares of the GE Funds. Class D shares of the GE Funds
would be suitable for investors that require only advisory and administration
services (similar to investors in the Investment Class shares of the Funds) but
that are not able to meet the minimum investment requirements of the Funds, as
well as for GE-affiliated employee retirement plans that require the full
service option. Because the GE Funds are marketed primarily to retail investors
that generally invest smaller amounts in such funds, the fees charged to
investors in the GE Funds are higher than those charged to investors in the
corresponding Funds of the Trust. You should evaluate the levels at which you
intend to invest and your individual shareholder services requirements to
determine the class of shares of the Funds or the GE Funds that best suit your
needs at the lowest level of fees.
Set forth below is a description of the investment objective and policies of
each Fund. The investment objective of a Fund may not be changed without the
approval of the holders of a majority of the Fund's outstanding voting
securities as defined in the 1940 Act. Such a majority is defined in the 1940
Act as the lesser of (1) 67% or more of the shares present at a Fund meeting, if
the holders of more than 50% of the outstanding shares of the Fund are present
or represented by proxy or (2) more than 50% of the outstanding shares of the
Fund. No assurance can be given that a Fund will be able to achieve its
investment objective.
Emerging Markets Fund
The investment objective of the Emerging Markets Fund is long-term growth of
capital. The Fund seeks to achieve this objective by investing, under normal
conditions, at least 65% of its total assets in equity securities that are
traded in emerging markets or equity securities of companies that are organized
or conduct their principal business activities in emerging markets countries.
GEIM allocates the Fund's assets among the selected emerging markets of newly
industrializing countries in Asia, Latin America, the Middle East, Southern
Europe, Eastern Europe and Africa. An emerging markets country is any country
having an economy and market that are or would be considered by the World Bank
to be emerging or developing, or emerging countries that are listed on the
Morgan Stanley Capital International World Index. A company will be considered
to conduct its principal business activities in a country, market or region if
it derives a significant portion (at least 50%) of its revenues or profits from
goods produced or sold, investments made, or services performed in such country,
market or region or has at least 50% of its assets situated in any such country,
market or region.
The Fund, from time to time, may invest all of its assets in a single country.
If the Fund invests all or a significant portion of its assets at any time in a
single country, events in that country are more likely to affect the Fund's
investments. GEIM bases its selection on certain relevant factors, including the
investment restrictions and tax barriers of a given country, the outlook for
economic growth, currency exchange rates, commodity prices, interest rates,
political factors and the stage of the local market cycle in the emerging
country.
Equity securities of emerging markets companies may include common stocks,
preferred stocks, convertible bonds, convertible debentures, convertible notes,
convertible preferred stocks and warrants or rights issued by foreign companies,
equity interests in
5
<PAGE>
foreign investment funds or trusts and foreign real estate investment trust
securities. The Fund may invest in American Depositary Receipts ("ADRs"),
European Depositary Receipts ("EDRs") and Global Depositary Receipts ("GDRs").
The Emerging Markets Fund, under normal market conditions, may invest up to 35%
of its assets in debt securities, including notes, bonds and debentures issued
by corporate or governmental entities when GEIM determines that investing in
those kinds of debt securities is consistent with the Fund's investment
objective of long-term growth of capital. GEIM believes that such a
determination could be made, for example, upon the Emerging Markets Fund's
investing in the debt securities of a company whose securities GEIM anticipates
will increase in value as a result of a development particularly or uniquely
applicable to the company. GEIM also believes such a determination could be made
with respect to an investment by the Emerging Markets Fund in debt instruments
issued by a governmental entity if GEIM's concludes that the value of the
instruments will increase as a result of improvements or changes in public
finances, monetary policies, external accounts, financial markets, exchange rate
policies or labor conditions of the country in which the governmental entity is
located.
In addition, the Emerging Markets Fund may sell securities short against the box
and may engage in certain investments discussed below under "Additional
Permitted Investments."
International Equity Fund
The investment objective of the International Equity Fund (the "International
Fund") is long-term growth of capital. The Fund seeks to achieve this objective
by investing primarily in securities of foreign issuers. The International Fund
may invest in securities of companies and governments located in developed and
developing countries outside the United States, and also may invest in
securities of foreign issuers in the form of depositary receipts. Investing in
securities issued by foreign companies and governments involves considerations
and potential risks not typically associated with investing in securities issued
by the U.S. Government and U.S. corporations. The International Fund intends to
position itself broadly among countries and, under normal circumstances, at
least 65% of the Fund's assets will be invested in securities of issuers
collectively in no fewer than three different countries. The percentage of the
International Fund's assets invested in particular countries or regions of the
world will vary depending on political and economic conditions. An issuer's
domicile or nationality will be determined by reference to (a) the country in
which the issuer is organized; (b) the country in which the issuer derives at
least 50% of its revenues or profits from goods produced or sold, investments
made or services performed, (c) the country in which the issuer has at least 50%
of its assets situated or (d) the principal trading market for the issuer's
securities.
In selecting investments on behalf of the International Fund, GEIM seeks
companies that are expected to grow faster than relevant markets and whose
securities are available at a price that does not fully reflect the potential
growth of those companies. GEIM typically focuses on companies that possess one
or more of a variety of characteristics, including strong earnings growth
relative to price-to-earnings and price-to-cash earnings ratios, low
price-to-book value, strong cash flow, presence in an industry experiencing
strong growth and high quality management.
The International Fund, under normal conditions, invests at least 65% of its
assets in common stocks, preferred stocks, convertible debentures, convertible
notes, convertible preferred stocks and common stock purchase warrants or
rights, issued by companies believed by GEIM to have a potential for superior
growth in sales and earnings. In most cases these securities are traded on
foreign or U.S. exchanges or in the U.S. or foreign over-the-counter markets.
The International Fund will emphasize established companies, although it may
invest in companies of varying sizes as measured by assets, sales or
capitalization. In addition, the International Fund may sell securities short
against the box and may engage in certain investments discussed below under
"Additional Permitted Investments."
The International Fund, under normal market conditions, may invest up to 35% of
its assets in notes, bonds and debentures issued by corporate or governmental
entities when GEIM determines that investing in those kinds of debt securities
is consistent with the Fund's investment objective of long-term growth of
capital. GEIM believes that such a determination could be made, for example,
upon the International Fund's investing in the debt securities of a company
whose securities GEIM anticipates will increase in value as a result of a
development particularly or uniquely applicable to the company, such as a
liquidation, reorganization, recapitalization or merger, material litigation,
technological breakthrough or new management or management policies. In
addition, GEIM believes such a determination could be made with respect to an
investment by the International Fund in debt instruments issued by a
governmental entity upon GEIM's concluding that the value of the instruments
will increase as a result of improvements or changes in public finances,
monetary policies, external accounts, financial markets, exchange rate policies
or labor conditions of the country in which the governmental entity is located.
6
<PAGE>
When GEIM believes there are unstable market, economic, political or currency
conditions abroad, the Fund may assume a temporary defensive posture and
restrict its investments to certain securities markets and/or invest all or a
significant portion of its assets in securities of the types described above
issued by companies incorporated in and/or having their principal activities in
the United States.
Mid-Cap Growth Fund
The investment objective of the Mid-Cap Growth Fund (the "Mid-Cap Fund") is
long-term growth of capital. The Mid-Cap Fund seeks to achieve this objective by
investing primarily in the equity securities of companies with medium-sized
market capitalizations ("mid-cap") that have the potential for above-average
growth. The Fund, under normal market conditions, will invest at least 65% of
its total assets in a portfolio of equity securities of mid-cap companies traded
on U.S. securities exchanges or in the U.S. over-the-counter market, including
common stocks, preferred stocks, convertible preferred stocks, convertible
bonds, convertible debentures, convertible notes, ADRs and warrants or rights
issued by foreign and U.S. companies. The Fund defines a mid-cap company as one
whose securities are within the market capitalization range of stocks listed on
the S&P MidCap 400 Index (the "S&P 400 Index").
Mid-cap growth companies are often still in the early phase of their life
cycles. Accordingly, investing in mid-cap companies generally entails greater
risk exposure and volatility (meaning upward or downward price swings) than
investing in large, well-established companies. However, GEIM believes that
mid-cap companies may offer the potential for more rapid growth. See "Risk
Factors and Special Considerations - Smaller Companies."
GEIM will rely on its proprietary research to identify mid-cap companies with
potentially attractive growth prospects. These companies typically would have
one or more of a variety of characteristics, including attractive products and
services, above average earnings growth potential, superior financial returns,
strong competitive position, shareholder focused management and sound balance
sheets. There is, of course, no guarantee that GEIM will be able to identify
such companies or that the Fund's investment in them will be successful.
The Mid-Cap Fund may invest up to 35% of its assets in bonds, notes, debentures,
securities that are traded in foreign markets and securities of companies
outside the capitalization range of the S&P 400 Index when GEIM determines that
investing in these kinds of securities is consistent with the Fund's investment
objective of long-term growth of capital. The Fund also may invest in foreign
issuers that are outside this capitalization range in the form of ADRs. The
Mid-Cap Fund may sell securities short against the box and engage in certain
investments discussed below under "Additional Permitted Investments."
Premier Growth Equity Fund
The investment objective of the Premier Growth Equity Fund (the "Premier Growth
Fund") is long-term growth of capital and future income rather than current
income. The Fund seeks to achieve this objective by investing primarily in
growth-oriented equity securities which, under normal market conditions, will
represent at least 65% of the Fund's assets. In pursuing its objective, the
Premier Growth Fund, under normal conditions, may invest in common stocks,
preferred stocks, convertible bonds, convertible debentures, convertible notes,
convertible preferred stocks and warrants or rights issued by U.S. and foreign
companies.
The Premier Growth Fund will seek to identify and invest in companies it
believes will offer potential for long-term growth of capital. These companies
typically would possess one or more of a variety of characteristics, including
high quality products and/or services, strong balance sheets, sustainable
internal growth, superior financial returns, competitive position in the
issuer's economic sector and shareholder-oriented management. While the Premier
Growth Fund may invest in companies of varying sizes as measured by assets,
sales or capitalization, a majority of its assets, under normal market
conditions, will be comprised of companies with relatively large
capitalizations. In addition, the Premier Growth Fund normally will be invested
in companies that have above-average growth prospects and which are typically
leaders in their fields. The Fund generally will be diversified over a cross
section of industries.
Up to 25% of the Premier Growth Fund's total assets may be invested in
securities traded in foreign markets. The Premier Growth Fund also may invest in
securities of foreign issuers in the form of ADRs. The equity securities in
which the Premier Growth Fund invests in most cases will be traded on domestic
or foreign securities exchanges, or traded in the domestic or foreign
over-the-counter markets. The Premier Growth Fund also may engage in certain
investments discussed below under "Additional Permitted Investments." For
temporary defensive purposes, the Fund may invest in fixed income securities
without limitation. To the extent the Fund invests in fixed income securities,
it may not achieve its investment objective.
7
<PAGE>
Value Equity Fund
The investment objective of the Value Equity Fund (the "Value Fund") is
long-term growth of capital and future income. The Fund seeks to achieve this
objective by investing primarily in equity securities of companies with large
sized market capitalization that the Fund's management considers to be
undervalued by the market. Undervalued securities are those selling for low
prices given the fundamental characteristics of their issuers. During normal
market conditions, the Fund will invest at least 65% of its assets in common
stocks, preferred stocks, convertible bonds, convertible debentures, convertible
notes, convertible preferred stocks, and warrants or rights issued by foreign
and U.S. companies.
The Value Fund's investment philosophy is that the market tends to overreact to
both good and bad news about issuers. Companies experiencing faster than
expected growth tend to be overvalued as the market extrapolates current good
news well beyond a sustainable time-frame and correspondingly overforecasts the
period and magnitude of decline of companies experiencing near term
difficulties. These difficulties can be driven by factors both internal and
external to the company. Internal factors may include operational mismanagement
or strategic mistakes. External factors may include a change in the economic
environment or a shift in the competitive dynamics of an industry. The Fund
attempts to identify firms that are out of favor for a variety of reasons and
select those which Fund management believes to be undervalued relative to their
true business prospects.
In accordance with this premise, GEIM will identify and select securities that
it believes are undervalued, using factors it considers indicative of
fundamental investment value including: (i) low price/earnings ratio relative to
a normalized growth rate and/or the S&P 500 Index; (ii) the potential for free
cash flow generation and prospects for dividend growth; (iii) a strong balance
sheet with low financial leverage; (iv) sustainable competitive advantages such
as a franchise brand name or dominant market position; (v) an experienced and
capable management team; (vi) improving returns on invested capital; and (vii)
net asset values in a restructuring/breakup analysis framework.
Fund management believes that such investments will position the Fund to benefit
from a positive change in business prospects from an issuing company that adopts
a turnaround strategy to increase/restore the earning power of the company.
The Value Fund, under normal market conditions, may invest up to 35% of its
assets in bonds, notes and debentures, and up to 25% of its assets in securities
traded in foreign markets. The Fund also may invest in securities of foreign
issuers in the form of ADRs. The Fund may sell securities short against the box
and engage in certain investments discussed below under "Additional Permitted
Investments."
U.S. Equity Fund
The investment objective of the U.S. Equity Fund is long-term growth of capital.
The Fund seeks to achieve this objective by investing primarily in equity
securities of U.S. companies and, under normal conditions, it will invest at
least 65% of its assets in common stocks, preferred stocks, securities
convertible into common stocks, including convertible bonds, convertible
debentures, convertible notes, convertible preferred stocks, zero coupon
obligations and warrants or rights issued by U.S. companies. The U.S. Equity
Fund typically will invest in equity securities that are issued by U.S.
companies and traded on U.S. securities exchanges or in the U.S.
over-the-counter market. Up to 15% of the U.S. Equity Fund's assets may be
invested in securities traded in foreign markets. The U.S. Equity Fund also may
invest in securities of foreign issuers in the form of ADRs, and may engage in
certain investments discussed below under "Additional Permitted Investments."
In managing the assets of the U.S. Equity Fund, GEIM uses a combination of
"value-oriented" and "growth-oriented" investing. Value-oriented investing
involves seeking securities that may have low price-to-earnings ratios, or high
yields, or that sell for less than intrinsic value as determined by GEIM, or
that appear attractive on a dividend discount model. The U.S. Equity Fund would
sell these securities when their prices approach targeted levels.
Growth-oriented investing generally involves buying securities with above
average earnings growth rates at reasonable prices. The U.S. Equity Fund holds
these securities until GEIM determines that their growth prospects diminish or
that they have become overvalued when compared with alternative investments.
In investing on behalf of the U.S. Equity Fund, GEIM seeks to produce a
portfolio that GEIM believes will have similar characteristics to the S&P 500
Index by virtue of blending investments in both "value" and "growth" securities.
Since the U.S. Equity Fund's strategy seeks to combine these basic elements, but
is designed to select investments deemed to be the most attractive within each
category, GEIM believes that the strategy should be capable of outperforming the
U.S. equity market as reflected by the S&P 500 Index on a total return basis.
8
<PAGE>
The U.S. Equity Fund, under normal market conditions, may invest up to 35% of
its assets in notes, bonds and debentures issued by corporate or governmental
entities when GEIM determines that investing in these kinds of debt securities
is consistent with the Fund's investment objective of long-term growth of
capital. GEIM believes that such a determination could be made, for example,
upon the U.S. Equity Fund's investing in the debt securities of a company whose
securities GEIM anticipates will increase in value as a result of a development
particularly or uniquely applicable to the company, such as a liquidation,
reorganization, recapitalization or merger, material litigation, technological
breakthrough or new management or management policies.
S&P 500 Index Fund
The investment objective of the S&P 500 Index Fund is to provide growth of
capital and accumulation of income that corresponds to the investment return of
the S&P 500 Index. The Fund seeks to achieve this objective by investing in
common stocks comprising that Index. Standard and Poor's Corporation ("Standard
& Poor's" or "S&P") 1 chooses the 500 common stocks comprising the S&P 500 Index
on the basis of market values, industry diversification and other factors. Most
of the common stocks in the S&P 500 Index are issued by 500 of the largest
companies, in terms of the aggregate market value of their outstanding stock,
and such companies generally are listed on the New York Stock Exchange.
Additional common stocks that are not among the 500 largest market value stocks
are included in the S&P 500 Index for diversification purposes. S&P may, from
time to time, add common stocks to, or delete common stocks from, the S&P 500
Index.
The S&P 500 Index Fund will attempt to achieve its objective by replicating the
total return of the S&P 500 Index. To the extent that it can do so consistent
with the pursuit of its investment objective, it will attempt to keep
transaction costs low and minimize portfolio turnover. To achieve its investment
objective, the S&P 500 Index Fund will purchase equity securities that reflect,
as a group, the total investment return of the S&P 500 Index. Like the S&P 500
Index, the S&P 500 Index Fund will hold both dividend paying and non- dividend
paying common stocks comprising the S&P 500 Index.
Active portfolio management strategies are not used in making investment
decisions for the S&P 500 Index Fund. Rather, State Street Global Advisors
("SSGA"), the sub-adviser to the S&P 500 Index Fund, utilizes a passive
investment management approach. From time to time SSGA also may supplement this
passive approach by using statistical selection techniques to determine which
securities to purchase or sell for the Fund in order to replicate the investment
return of the S&P 500 Index over a period of time.
- - ----------
(1) The S&P 500 Index Fund is not sponsored, endorsed, sold or promoted by S&P.
S&P makes no representation or warranty, express or implied, to the
investors of the Fund or any member of the public regarding the
advisability of investing in securities generally or in this Fund
particularly or the ability of the S&P 500 Index to track general stock
market performance. S&P's only relationship to the Fund is the licensing of
certain trademarks and trade names of S&P and of the S&P 500 Index which is
determined, composed and calculated by S&P without regard to the Fund. S&P
has no obligation to take the needs of the Fund or the investors in the
Fund into consideration in determining, composing or calculating the S&P
500 Index. S&P is not responsible for and has not participated in the
determination of the prices or composition of the S&P 500 Index Fund or the
timing of the issuance or sale of the shares of that Fund. S&P has no
obligation or liability in connection with the administration, marketing or
trading of the Fund.
S&P DOES NOT GUARANTEE THE ACCURACY AND/OR THE COMPLETENESS OF THE S&P 500
INDEX OR ANY DATA INCLUDED THEREIN AND S&P SHALL HAVE NO LIABILITY FOR ANY
ERRORS, OMISSIONS, OR INTERRUPTIONS THEREIN. S&P MAKES NO WARRANTY, EXPRESS
OR IMPLIED, AS TO THE RESULTS TO BE OBTAINED BY THE FUND, INVESTORS IN THE
FUND, OR ANY OTHER PERSON OR ENTITY FROM THE USE OF THE S&P 500 INDEX OR
ANY DATA INCLUDED THEREIN. S&P MAKES NO EXPRESS OR IMPLIED WARRANTIES, AND
EXPRESSLY DISCLAIMS ALL WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A
PARTICULAR PURPOSE OR USE WITH RESPECT TO THE S&P 500 INDEX OR ANY DATA
INCLUDED THEREIN. WITHOUT LIMITING ANY OF THE FOREGOING, IN NO EVENT SHALL
S&P HAVE ANY LIABILITY FOR ANY SPECIAL, PUNITIVE, INDIRECT OR CONSEQUENTIAL
DAMAGES (INCLUDING LOST PROFITS), EVEN IF NOTIFIED OF THE POSSIBILITY OF
SUCH DAMAGES.
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The S&P 500 Index Fund may choose not to invest in all the securities that
comprise the S&P 500 Index, and its holdings may differ by industry segment from
the S&P 500 Index. The Fund may compensate for the omission from its portfolio
of stocks that are included in the S&P 500 Index, or for purchasing securities
included in the Index in proportions that are different from their weightings in
the Index, by purchasing securities that may or may not be included in the S&P
500 Index but which have characteristics similar to the omitted securities (such
as stocks from the same or similar industry groups having similar market
capitalizations and other investment characteristics). In addition, from time to
time adjustments may be made in the S&P 500 Index Fund's holdings due to changes
in the composition or weighting of issues comprising the S&P 500 Index.
The S&P 500 Index Fund will attempt to achieve a correlation between its total
return and that of the S&P 500 Index of at least 0.95, without taking expenses
into account. A correlation of 1.00 would indicate perfect correlation, which
would be achieved when the S&P 500 Index Fund's net asset value, including the
value of its dividends and capital gain distributions, increases or decreases in
exact proportion to changes in the S&P 500 Index. SSGA will monitor the S&P 500
Index Fund's correlation to the S&P 500 Index and attempt to minimize any
"tracking error" (i.e., the statistical measure of the difference between the
investment results of the S&P 500 Index Fund and that of the S&P 500 Index).
However, brokerage and other transaction costs, as well as other S&P 500 Index
Fund expenses, in addition to potential tracking error, will tend to cause the
S&P 500 Index Fund's return to be lower than the return of the S&P 500 Index.
There can be no assurance as to how closely the S&P 500 Index Fund's performance
will correspond to the performance of the S&P 500 Index.
The S&P 500 Index Fund will not invest more than 35% of its total assets in
stocks and other securities not included in the S&P 500 Index. In this regard,
the S&P 500 Index Fund may temporarily invest cash balances, pending withdrawals
or investments, in high quality money market instruments. Nevertheless, the S&P
500 Index Fund will not adopt a temporary defensive investment posture in times
of generally declining stock prices, and, therefore, investors will bear the
risk of such general stock market declines. The Fund also may engage in certain
investments discussed below under "Additional Permitted Investments."
Strategic Investment Fund
The investment objective of the Strategic Investment Fund (the "Strategic Fund")
is to maximize total return, consisting of growth of capital and current income.
The Fund seeks to achieve this objective by following an asset allocation
strategy that provides diversification across a range of asset classes and
contemplates shifts among them from time to time. This strategy may result in
the Strategic Fund's experiencing a high portfolio turnover rate. See "Portfolio
Transactions and Turnover" below.
The Strategic Fund invests in the following classes of investments: common
stocks, preferred stocks, convertible securities and warrants and rights issued
by U.S. and foreign companies; bonds, debentures and notes issued by U.S. and
foreign companies; securities issued or guaranteed by the U.S. Government or one
of its agencies or instrumentalities ("U.S. Government Obligations"); debt
obligations issued by, or on behalf of, states, territories and possessions of
the United States and the District of Columbia and their political subdivisions,
agencies and instrumentalities or multi-state agencies or authorities, the
interest on which is, in the opinion of issuers' counsel, excluded from gross
income for Federal income tax purposes ("Municipal Obligations"); obligations of
foreign governments or their agencies or instrumentalities; mortgage related
securities, adjustable rate mortgage related securities ("ARMs"), collateralized
mortgage related securities ("CMOs") and government stripped mortgage related
securities; asset-backed and receivable- backed securities; and domestic and
foreign money market instruments. The U.S. equity and debt instruments in which
the Strategic Fund invests are traded on U.S. securities exchanges or in the
U.S. over-the-counter market, except that the Fund may invest up to 10% of its
assets in non-publicly traded securities. In addition, the Strategic Fund may
invest up to 30% of its total assets in foreign securities that are listed on
foreign securities exchanges or traded in foreign over-the-counter markets. The
Strategic Fund also may invest in ADRs and structured and indexed securities,
the value of which is linked to currencies, interest rates, commodities, indexes
or other financial indicators. Mortgage related securities, ARMs, CMOs,
government stripped mortgage related securities and asset-backed and
receivable-backed securities are subject to several risks, including the
prepayment of principal.
The Strategic Fund generally seeks to invest in equity and debt securities that
GEIM has determined offer above average potential for total return. In making
this determination, GEIM will take into account factors including earnings
growth, industry attractiveness, company management, price-to-earnings ratios,
yield, price-to-book ratios and valuation of assets.
GEIM has broad latitude in selecting the classes of investments to which the
Strategic Fund's assets are committed. Although the Strategic Fund has the
authority to invest solely in equity securities, solely in debt securities,
solely in money market instruments or in any combination of these classes of
investments, GEIM anticipates that at most times the Fund will be invested in a
combination of equity and debt instruments.
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The Strategic Fund's investments are designed to achieve favorable performance
with lower volatility than a fund that invests solely in equity or debt
securities. GEIM will determine the weightings of equity and debt holdings for
the Strategic Fund at any given time in light of its assessment of the
attractiveness of each market. Although GEIM cannot predict the mix of the
Strategic Fund's investments at any one time, GEIM can delineate certain
situations that can lead to a shift in the mix of the Strategic Fund's
investments. If, for example, the prices of U.S. equity securities decline due
to falling economic activity and profits, and GEIM determines that the condition
is transitory, GEIM could allocate a major portion of the Strategic Fund's
assets to the equity market. If, on the other hand, the prices of debt
instruments are depressed by rising economic activity combined with restrictive
monetary or fiscal policies, and GEIM concludes that this condition is
temporary, GEIM could allocate a major portion of the Strategic Fund's assets to
debt securities.
The Strategic Fund typically purchases a debt security if GEIM believes that the
yield and potential for capital appreciation of the security are sufficiently
attractive in light of the risks of ownership of the security. In determining
whether the Strategic Fund should invest in particular debt instruments, GEIM
considers factors such as: the price, coupon and yield to maturity; GEIM's
assessment of the credit quality of the issuer; the issuer's available cash flow
and the related coverage ratios; the property, if any, securing the obligation;
and the terms of the debt securities, including the subordination, default,
sinking fund and early redemption provisions.
GEIM's decision that the Strategic Fund invest in foreign securities would be
predicated on the outlook for the foreign securities markets of selected
countries, the underlying economies of those countries and the availability of
attractively priced individual securities.
In addition to investing as described above, the Fund may invest in municipal
leases, floating and variable rate instruments, participation interests in
certain Municipal Obligations, Municipal Obligation components and custody
receipts, zero coupon obligations and in securities of supra-national agencies,
and may enter into mortgage dollar rolls. The Fund also may engage in certain
investments discussed below under "Additional Permitted Investments."
Income Fund
The investment objective of the Income Fund is to seek maximum income consistent
with prudent investment management and the preservation of capital. Capital
appreciation with respect to the Income Fund's portfolio securities may occur
but is not an objective of the Fund. In seeking to achieve this investment
objective, the Income Fund invests in the following types of fixed income
instruments: U.S. Government Obligations; obligations of foreign governments or
their agencies or instrumentalities; bonds, debentures, notes and
non-convertible preferred stocks issued by U.S. and foreign companies; mortgage
related securities, ARMs, CMOs and government stripped mortgage related
securities; asset-backed and receivable-backed securities; zero coupon
obligations; floating and variable rate instruments and money market
instruments. The Income Fund also may invest in ADRs and structured and indexed
securities, the value of which is linked to currencies, interest rates,
commodities, indexes or other financial indicators. Mortgage related securities,
ARMs, CMOs, government stripped mortgage related securities and asset-backed and
receivable-backed securities are subject to several risks, including the
prepayment of principal.
The Income Fund is subject to no limitation with respect to the maturities of
the instruments in which it may invest; the weighted average maturity of the
Fund's portfolio securities is anticipated to be approximately five to 10 years.
Up to 35% of the Income Fund's total assets may be invested in obligations of
foreign companies or foreign governments or their agencies and
instrumentalities. The Income Fund also may invest in securities of
supra-national agencies, may enter into mortgage dollar rolls, and may engage in
certain investments discussed below under "Additional Permitted Investments."
Money Market Fund
The investment objective of the Money Market Fund is to seek a high level of
current income consistent with the preservation of capital and the maintenance
of liquidity. The Money Market Fund seeks to achieve this objective by investing
in the following U.S. dollar denominated, short-term money market instruments:
(1) U.S. Government Obligations; (2) debt obligations of banks, savings and loan
institutions, insurance companies and mortgage bankers; (3) commercial paper and
notes, including those with floating or variable rates of interest; (4) debt
obligations of foreign branches of U.S. banks, U.S. branches of foreign banks
and foreign branches of foreign banks; (5) debt obligations issued or guaranteed
by one or more foreign governments or any of their political subdivisions,
agencies or instrumentalities, including obligations of supra-national entities;
(6) debt securities issued by foreign issuers; and (7) repurchase agreements.
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The Money Market Fund limits its portfolio investments to securities that the
Trust's Board of Trustees determines present minimal credit risk and that are
"Eligible Securities" at the time of acquisition by the Fund. "Eligible
Securities" as used in this Prospectus means securities rated by the requisite
nationally recognized statistical rating organizations ("NRSROs") in one of the
two highest short-term rating categories, consisting of issuers that have
received these ratings with respect to other short-term debt securities and
comparable unrated securities. "Requisite NRSROs" means (1) any two NRSROs that
have issued ratings with respect to a security or class of debt obligations of
an issuer or (2) one NRSRO, if only one NRSRO has issued such a rating at the
time that the Money Market Fund acquires the security. Currently, six
organizations are NRSROs: S&P, Moody's Investors Service, Inc. ("Moody's"),
Fitch Investors Service, Inc., Duff and Phelps, Inc., IBCA Limited and its
affiliate, IBCA, Inc., and Thomson BankWatch Inc. A discussion of the ratings
categories is contained in the Appendix to the Statement of Additional
Information. By limiting its investments to Eligible Securities, the Money
Market Fund may not achieve as high a level of current income as a fund
investing in lower-rated securities.
The Money Market Fund may not invest more than 5% of its total assets in the
securities of any one issuer, except for U.S. Government Obligations and except
to the extent permitted under rules adopted by the SEC under the 1940 Act. In
addition, the Money Market Fund may not invest more than 5% of its total assets
in Eligible Securities that have not received the highest rating from the
Requisite NRSROs and comparable unrated securities ("Second Tier Securities"),
and may not invest more than the greater of $1,000,000 or 1% of its total assets
in the Second Tier Securities of any one issuer. The Money Market Fund may
invest more than 5% (but not more than 25%) of the then-current value of the
Fund's total assets in the securities of a single issuer for a period of up to
three business days, so long as (1) the securities either are rated by the
Requisite NRSROs in the highest short-term rating category or are securities of
issuers that have received such ratings with respect to other short-term debt
securities or are comparable unrated securities and (2) the Fund does not make
more than one such investment at any one time. Determinations of comparable
quality for purchases of unrated securities are made by GEIM in accordance with
procedures established by the Board of Trustees. The Money Market Fund invests
only in instruments that have (or, pursuant to regulations adopted by the SEC,
are deemed to have) remaining maturities of 13 months or less at the date of
purchase (except securities subject to repurchase agreements), determined in
accordance with a rule promulgated by the SEC. The Money Market Fund will
maintain a dollar-weighted average portfolio maturity of 90 days or less. The
assets of the Money Market Fund are valued on the basis of amortized cost, as
described below under "Net Asset Value." The Money Market Fund also may hold
Rule 144A Securities (as defined below) and engage in certain investments
discussed below under "Additional Permitted Investments."
INVESTMENTS IN DEBT SECURITIES
Each of the Premier Growth Fund, the U.S. Equity Fund, the International Fund,
the S&P 500 Index Fund and the Value Fund limits investment in debt securities
to those that are rated investment grade, except that up to 5% of each such
Fund's assets may be invested in securities rated lower than investment grade. A
security is considered investment grade if it is rated at the time of purchase
within the four highest grades assigned by S&P, Moody's or has received an
equivalent rating from another NRSRO or, if unrated, is deemed by GEIM to be of
comparable quality.
Each of the Strategic Fund, the Income Fund, the Emerging Markets Fund and the
Mid-Cap Fund limits its purchases of debt instruments to those that are rated
within the six highest categories by S&P, Moody's or another NRSRO, or if
unrated, are deemed by GEIM to be of comparable quality. Each of these Funds
will not purchase a debt security if, as a result of the purchase, more than 25%
of the Fund's total assets would be invested in securities rated BBB by S&P or
Baa by Moody's or, if unrated, deemed by GEIM to be of comparable quality. In
addition, each such Fund will not purchase any obligation rated BB or B by S&P
or Ba or B by Moody's if, as a result of the purchase, more than 10% of the
Fund's total assets would be invested in obligations rated in those categories
or, if unrated, in obligations that are deemed by GEIM to be of comparable
quality. A description of S&P' and Moody's ratings relevant to a Fund's
investments is included as an Appendix to the Statement of Additional
Information.
CASH MANAGEMENT POLICIES - NON-MONEY MARKET FUNDS
The Money Market Fund's policies with respect to holding cash and investing in
money market instruments are described above. This section describes the cash
management policies of the other Funds (each, a "non-money market Fund").
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A non-money market Fund, under normal circumstances, may hold cash and/or invest
in money market instruments in order to manage its cash, pending investment in
accordance with its investment objective and policies and to meet operating
expenses. During normal market conditions, the Income Fund may invest a
substantial portion of its assets in money market instruments if GEIM deems such
investments to be consistent with that Fund's investment objective.
When GEIM believes that economic or other conditions warrant, a non-money market
Fund, other than the S&P 500 Index Fund, may assume a temporary defensive
posture and hold cash and/or invest in money market instruments without
limitation. To the extent that a Fund holds cash or invests in money market
instruments, it may not achieve its investment objective.
Types of Permitted Money Market Investments. Each non-money market Fund may
invest directly, or indirectly through its investment in the GEI Short-Term
Investment Fund (described below), in the following types of money market
securities during normal market conditions and for temporary defensive purposes:
(i) U.S. Government Obligations (described below);
(ii) debt obligations of banks, savings and loan institutions,
insurance companies and mortgage bankers;
(iii) commercial paper and notes, including those with variable and
floating rates of interest;
(iv) debt obligations of foreign branches of U.S. banks, U.S.
branches of foreign banks and foreign branches of foreign banks;
(v) debt obligations issued or guaranteed by one or more foreign
governments or any of their political subdivisions, agencies or
instrumentalities, including obligations of supra-national
entities;
(vi) debt securities issued by foreign issuers; and
(vii) repurchase agreements and reverse repurchase agreements (see
"Risk Factors and Special Considerations -- Repurchase and
Reverse Repurchase Agreements" below for a further description).
Each non-money market Fund may invest up to 25% of its assets in the GEI
Short-Term Investment Fund (the "Investment Fund"). The Investment Fund invests
exclusively in the money market instruments described in (i) through (vii)
above, and serves as the investment vehicle that facilitates the collective
investment of the cash accounts of the non-money market Funds and other entities
advised by GEIM or its affiliate, GEIC. GEIM is the investment adviser to the
Investment Fund, and charges no advisory fee to the Investment Fund for these
services. A non-money market Fund would incur no sales charge and no
distribution or service fees in connection with its holdings in the Investment
Fund.
A non-money market Fund may hold money market instruments that are rated no
lower than A-2 by S&P or Prime-2 by Moody's, or that have received an equivalent
rating from another NRSRO, or if unrated, are issued by an entity having an
outstanding unsecured debt issue rated within an NRSRO's three highest rating
categories. A description of the rating systems of Moody's and S&P is contained
in an Appendix to the Statement of Additional Information. At no time will a
non-money market Fund's investments in bank obligations, including time
deposits, exceed 25% of the value of the Fund's assets.
ADDITIONAL PERMITTED INVESTMENTS
In addition to the investments discussed above, some or all of the Funds may
invest in the types of securities or may engage in investment techniques and
strategies discussed below.
Investment Techniques And Strategies. Each Fund may enter into securities
transactions on a when-issued or delayed-delivery basis and may lend its
portfolio securities.
Illiquid Investments, Restricted Securities and Non-Publicly Traded Securities.
The S&P 500 Index Fund may invest up to 10%, and each of the other non-money
market Funds may invest up to 15%, of its net assets in illiquid securities.
Illiquid securities are securities that a Fund cannot dispose of within seven
days in the ordinary course of business at approximately the amount at which the
Fund has valued the securities. Illiquid securities include options traded
over-the-counter, repurchase agreements maturing in more than seven days,
certain mortgage related securities, investment-only debt instruments,
principal-only debt instruments and restricted
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securities. A restricted security is one that has a contractual or legal
restriction on transfer or which is not registered for sale to the general
public under Securities Act of 1933, as amended (the "1933 Act").
Each non-money market Fund, except the S&P 500 Index Fund, may invest up to 10%
of its assets in restricted securities. While restricted securities generally
are considered illiquid, they may be deemed to be liquid if (i) such securities
may be sold to "qualified institutional buyers" in accordance with Rule 144A
under the 1933 Act ("Rule 144A Securities") and (ii) the Trust's Board of
Trustees, or GEIM acting under guidelines approved and monitored by the Board,
determines that an adequate trading market exists for such securities.
Investment by a Fund in Rule 144A Securities deemed to be liquid by the Board or
GEIM, as applicable, will not be subject to either the 15% limitation on
investment in illiquid securities or the 10% limitation on investment in
restricted securities. If a Fund holds Rule 144A Securities, the level of
illiquidity in its portfolio may increase during periods when qualified
institutional buyers lose interest in purchasing those securities.
In addition, each non-Money Market Fund, except the S&P 500 Index Fund, may
invest up to 10% of its assets in non-publicly traded securities. A Fund's
investment in restricted securities (except Rule 144A Securities deemed liquid),
if any, would be included in this 10% limitation, because restricted securities
are not publicly traded. In no event will any Fund's investments in illiquid and
non- publicly traded securities (including restricted securities, but excluding
Rule 144A Securities deemed liquid), in the aggregate, exceed 15% of its assets.
U.S. Government Obligations. Each Fund may invest in obligations issued by the
U.S. Government or by its agencies and instrumentalities (as defined above,
"U.S. Government Obligations"). Different types of U.S. Government Obligations
have different payment guarantees, if any. Some U.S. Government Obligations,
such as U.S. Treasury securities, are supported by the full faith and credit of
the U.S. government or U.S. Treasury guarantees. U.S. Treasury securities differ
in their interest rates, maturities and dates of issuance. Other U.S. Government
Obligations are backed by the right of the issuer or guarantor to borrow from
the U.S. Treasury; others, by the discretionary authority of the U.S. Government
to purchase obligations of the agency or instrumentality issuing the security;
and still others, only by the credit of the agency or instrumentality issuing
the obligation.
Where U.S. Government Obligations are not backed by the full faith and credit of
the United States, the investor must look principally to the agency or
instrumentality (which may be privately owned) issuing the obligations for
repayment. There is no guarantee that the U.S. Government would provide
financial support to its agencies or instrumentalities if it is not required to
do so. A Fund will invest in U.S. Government Obligations that are not backed by
full faith and credit of the U.S. Government only if GEIM determines that the
issuing agency's or instrumentality's credit risk make the obligations suitable
for Fund investment.
The types of U.S. Government Obligations in which the Funds may invest are
listed in the Statement of Additional Information.
Repurchase and Reverse Repurchase Agreements. Each Fund may enter into
repurchase agreements involving securities that are permitted investments for
that Fund. A repurchase agreement is a transaction in which a Fund purchases a
security at one price and the seller simultaneously agrees to buy back that
security at a higher price on a date that occurs within a relatively short time
period, usually one to seven days. Repurchase agreements allow a Fund to earn
income on idle cash at a fixed rate of return, and are treated as loans by the
Funds for purposes of the 1940 Act.
The Funds may engage in repurchase agreement transactions with certain Federal
Reserve System member banks and with certain dealers listed on the Federal
Reserve Bank of New York's list of reporting dealers. If a Fund enters into a
repurchase agreement, GEIM will monitor the value of the securities underlying
the agreement on an ongoing basis to ensure their value remains equal to the
total amount of the repurchase price (including interest). GEIM also monitors
the creditworthiness of the banks and dealers that enter into repurchase
agreements with the Funds in order to identify potential risks.
Each Fund may engage in reverse repurchase agreements, subject to its investment
restrictions. A reverse repurchase agreement involves the Fund selling
securities that it holds and concurrently agreeing to repurchase the same
securities at an agreed upon price and date. Reverse repurchase agreements are
considered to be borrowings by a Fund for purposes of the 1940 Act. A Fund will
enter into reverse repurchase agreements when it needs cash to meet redemption
requests or to pay dividends and distributions, but considers a sale of its
portfolio securities to be disadvantageous. Cash, U.S. Government Obligations or
other liquid assets equal in value to the Fund's obligations under outstanding
reverse repurchase agreements would be segregated and maintained with State
Street, the Trust's custodian and transfer agent, or a designated sub-custodian.
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Structured and Indexed Securities. The Strategic Fund and the Income Fund may
invest in structured and indexed securities. The value of the principal of
and/or interest on such securities is determined by reference to changes in the
value of specific currencies, interest rates, commodities, indexes or other
financial indicators (the "Reference") or the change in two or more References.
The interest rate or the principal amount payable upon maturity or redemption
may be increased or decreased depending upon changes in the applicable
Reference. The terms of structured and indexed securities may provide that in
certain circumstances no principal is due at maturity and, therefore, may result
in a loss of the Fund's investment. Structured and indexed securities may be
positively or negatively indexed, so that appreciation of the Reference may
produce an increase or a decrease in the interest rate or value of the security
at maturity. In addition, changes in interest rates or value of the security at
maturity may be some multiple of the change in value of the Reference.
Consequently, structured and indexed securities may entail a greater degree of
market risk than other types of debt securities because a Fund bears the risk of
the Reference. Structured and indexed securities may also be more volatile, less
liquid and more difficult to accurately price than less complex securities.
Certain of the other Funds may invest in other investment companies that issue
securities with values that are based on an underlying index. See "Appendix --
Further Information: Certain Investment Techniques and Strategies" for a further
discussion of such investments, which include WEBs, CountryBaskets and SPDRs.
Purchasing Put and Call Options on Securities. A non-money market Fund may
utilize up to 10% of its assets to purchase put options on portfolio securities
and an additional 10% of its assets to purchase call options on portfolio
securities. The aggregate value of the securities underlying the calls or
obligations underlying the puts, determined as of the date the options are sold,
shall not exceed 25% of the net assets of the Fund. In addition, the premiums
paid by a Fund in purchasing options on securities, options on securities
indexes, options on foreign currencies and options on futures contracts shall
not exceed 20% of the Fund's net assets.
An option holder has the right, but not the obligation, to buy or sell a
specified amount of securities or other assets on or before a fixed date at a
predetermined price. Each non-money market Fund may purchase put and call
options that are traded on a U.S. or foreign exchange or in the over-the-counter
market.
Put Options. A put option is an option to sell. If GEIM believes that the market
value of a security a Fund owns will decline, the Fund may purchase a put option
on that security. The put option would allow the Fund to sell the security at a
given price during the option period and thereby limit its losses on the
security. If the underlying security appreciates, rather than depreciates, the
Fund would choose not to exercise the option, but any appreciation in the value
of the underlying security would be offset by the premium the Fund paid for the
relevant put option, plus any related transaction costs.
Call Options. A call option is an option to buy. A Fund may purchase a call
option on a security when GEIM believes the market price of that security will
increase. A call option would allow the Fund to purchase the security at a set
price during the option period, and thereby limit its losses from rising prices.
A Fund also may purchase call options to increase its return at a time when the
call is expected to increase in value because the market anticipates the value
of the underlying security will increase.
Closing Sale Transactions. Prior to the expiration of a put or a call option,
the Fund may enter into a closing sale transaction. In a closing sale the Fund
sells an option having the same features (i.e., is of the same series) as an
option previously purchased. Profit or loss from a closing transaction would
depend on whether the amount received is more or less than the premium paid for
the option plus the related transaction costs.
Covered Option Writing. Each non-money market Fund may write only covered put
and call options on securities. Covered puts involve a Fund selling to another
party the right to compel the Fund to purchase an underlying security from the
option holder at a specified price at any time during the option period. A
"covered" put generally means that the Fund segregates with its custodian cash
or liquid securities with a value at least equal to the exercise price of the
option. Covered calls involve a Fund selling the right to another party to
purchase securities that the Fund owns at a specified price at any time during
the option period. A "covered" call generally means that the Fund owns the
underlying securities. A Fund will realize fees (referred to as "premiums") for
granting the rights evidenced by these options.
A put or call option written by a Fund will be deemed covered in any manner
permitted under the 1940 Act or determined by the SEC to be permissible. See
"Strategies Available to Some But Not All Funds -- Covered Option Writing" in
the Statement of Additional Information for specific situations where put and
call options will be deemed to be covered by a Fund.
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A Fund may engage in a closing purchase transaction to realize a profit, to
prevent an underlying security from being called or put or, in the case of a
call option, to unfreeze an underlying security (thereby allowing the Fund to
sell the security or write a new option prior to the outstanding option's
expiration). A Fund effects a closing purchase transaction by purchasing, prior
to the holder's exercise of an option written by the Fund, an option of the same
series as that on which the Fund desires to terminate its obligation. The
obligation of a Fund under an option that it has written would be terminated by
a closing purchase transaction, but the Fund would not be deemed to own an
option as the result of the transaction. To facilitate closing purchase
transactions, the Funds with option- writing authority will ordinarily write
options only if a secondary market for the options exists on a U.S. or foreign
securities exchange or in the over-the-counter market.
Option writing for a Fund may be limited by position and exercise limits
established by U.S. securities exchanges and the National Association of
Securities Dealers, Inc. and by requirements of the Internal Revenue Code of
1986, as amended (the "Code") for qualification as a regulated investment
company. A Fund would enter into options transactions as hedges to reduce
investment risk, and a properly correlated hedge will result in a loss on the
portfolio position's being offset by a gain on the hedge position.
Securities Index Options. In attempting to hedge all or a portion of its
investments, a non-money market Fund may purchase and write put or call options
on securities indexes listed on U.S. or foreign securities exchanges or traded
in the over-the-counter market. A Fund would purchase or write index options
only with respect to those indexes that include securities of the type that the
Fund would invest in. As discussed above, a Fund with option writing authority
may write only covered options. In addition to investing in securities index
option for hedging purposes, the Funds may use such options as a means of
participating in a securities market without making direct purchases of
securities.
A securities index measures the movement of a certain group of securities by
assigning relative values to the securities included in the index. Investments
in options on securities indexes generally have return characteristics similar
to direct investments in the underlying instruments.
Unlike options on securities, options on securities indexes do not involve the
delivery of an underlying security. An option on a securities index represents
the holder's right to obtain from the writer, in cash, a fixed multiple of the
amount by which the exercise price exceeds (in the case of a call) or is less
than (in the case of a put) the closing value of the underlying securities index
on the exercise date.
If a Fund writes a securities index option, that option may be deemed covered in
any manner permitted under the 1940 Act or any other method the SEC determines
to be permissible. See "Strategies Available to Some But Not All Funds --
Covered Option Writing" in the Statement of Additional Information for specific
situations where securities index options will be deemed to be covered by a
Fund. If a Fund has written a securities index option, it may terminate its
obligation by effecting a closing purchase transaction, which is accomplished by
purchasing an option of the same series as the option previously written.
Futures and Options on Futures. Each non-money market Fund may enter into
interest rate, financial and bond index futures contracts and, with the
exception of the Income Fund, stock index futures contracts, or related options,
that are traded on a U.S. or foreign exchanges or traded on a board of trade
approved by the CFTC or in the over-the-counter market. The Funds would engage
in these transactions to hedge against the effects of changes in the value of
portfolio securities due to anticipated changes in interest rates and/or market
conditions, to gain market exposure for accumulating and residual cash
positions, for duration management, or when the transactions are economically
appropriate to the reduction of risks inherent in the management of the Fund
involved. No Fund will enter into a transaction involving futures and options on
futures for speculative purposes.
A Fund may not enter into futures and options contracts for which aggregate
initial margin deposits and premiums paid for unexpired options exceed 5% of the
fair market value of the Fund's total assets, after taking into account
unrealized losses or profits on futures contracts or options on futures
contracts into which it has entered. The current view of the SEC staff is that
an investment fund's long and short positions in futures contracts, as well as
put and call options on futures written by that fund, must be collateralized
with cash or other liquid assets and segregated with the fund's custodian or a
designated sub-custodian or "covered" in a manner similar to that for covered
options on securities (see "Strategies Available to Some But Not All Funds --
Covered Option Writing" in the Statement of Additional Information) and designed
to eliminate any potential leveraging.
An interest rate futures contract obligates the buyer to receive and the seller
to deliver a specified amount of a particular financial instrument (debt
security) at a specified price, date, time and place. Financial futures
contracts obligate the holder to deliver (in the
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case of a futures contract that is sold) or receive (in the case of a futures
contract that is purchased) at a future date a specified quantity of a financial
instrument, specified securities, or the cash value of a securities index.
An index futures contract obligates the parties to contract to take or make
delivery of an amount of cash equal to the difference between the value of the
index at the close of the last trading day of the contract and the price at
which the index contract was originally written. A municipal bond index futures
contract is based on an index of long-term, tax-exempt municipal bonds; a
corporate bond index futures contract is based on an index of corporate bonds.
Stock index futures contracts are based on indexes that reflect the market value
of common stock of the companies included in the indexes. An option on an
interest rate or index futures contract generally gives the purchaser the right,
in return for the premium paid, to assume a position in a futures contract at a
specified exercise price at any time prior to the expiration date of the option.
Forward Currency Transactions. Each non-money market Fund may hold currencies to
meet settlement requirements for foreign securities. Each non-money market Fund,
other than the S&P 500 Index Fund, may engage in currency exchange transactions
to manage currency risk, which is the risk that fluctuations in exchange rates
may adversely affect a Fund. No Fund will enter into forward currency
transactions for speculative purposes.
Forward currency contracts are agreements to purchase or sell a specific
quantity of a currency at future date and at a price that are fixed at the time
that a Fund enters into the contract. Forward currency contracts are traded in a
market conducted directly between currency traders (typically, commercial banks
or other financial institutions) and their customers, generally have no deposit
requirements and are typically consummated without payment of any commissions. A
Fund, however, may enter into forward currency contracts requiring deposits or
involving the payment of commissions. To assure that a Fund's forward currency
contracts are not used to achieve investment leverage, cash or other liquid
assets will be segregated with State Street or a designated sub-custodian in an
amount at all times equal to or exceeding the Fund's commitment under the
contracts.
Upon maturity of a forward currency contract, a Fund may pay for and receive the
underlying currency, negotiate a roll over into a new forward currency contract
with a new settlement date, or negotiate a termination of the forward contract
into an offset whereby the Fund would pay the difference between the exchange
rate fixed in the contract and the then current exchange rate. The Trust also
may be able to negotiate such an offset on behalf of a Fund prior to maturity of
the original forward contract. No assurance can be given that new forward
contracts or offsets will always be available to a Fund.
In hedging a specific portfolio position, a Fund may enter into a forward
contract with respect to either the currency in which the position is
denominated or another currency deemed appropriate by GEIM. A Fund's exposure
with respect to forward currency contracts is limited to the amount of the
Fund's aggregate investments in instruments denominated in foreign currencies.
Options on Foreign Currencies. Each non-money market Fund may purchase or write
foreign currency options as a hedge against variations in foreign exchange rates
that would cause the U.S. dollar value of securities denominated in foreign
currency to decline or the cost of securities to be acquired to increase.
Foreign currency options provide the holder of such options the right to buy or
sell a currency at a fixed price on or before a future date. The Funds may write
only covered options, and no Fund will enter into a transaction involving
options on foreign currencies for speculative purposes. The Funds will purchase
or write options that are traded on U.S. or foreign exchanges or in the
over-the-counter market. The Trust will limit the premiums paid on a Fund's
options on foreign currencies to 5% of the value of the Fund's total assets.
See "Risk Factors and Special Considerations" and "Appendix -- Further
Information: Certain Investment Techniques and Strategies" for a discussion of
the risks and special considerations associated with the additional investments
and investment techniques and strategies discussed above.
INVESTMENT RESTRICTIONS
The Trust has adopted certain fundamental investment restrictions with respect
to each Fund that may not be changed without approval of a majority of the
Fund's outstanding voting securities (as defined in the 1940 Act). Included
among those fundamental restrictions are those listed below.
1. No Fund may borrow money, except that a Fund may enter into reverse
repurchase agreements and may borrow from banks for temporary or emergency
(not leveraging) purposes, including the meeting of redemption requests and
cash payments of dividends and distributions that might otherwise require
the untimely disposition of securities, in an amount not to exceed 33-1/3%
of the value of the
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Fund's total assets (including the amount borrowed) valued at market less
liabilities (not including the amount borrowed) at the time the borrowing
is made. Whenever borrowings, including reverse repurchase agreements, of
5% or more of a Fund's total assets are outstanding, the Fund will not make
any additional investments.
2. No Fund may lend its assets or money to other persons, except through (a)
purchasing debt obligations, (b) lending portfolio securities in an amount
not to exceed 30% of the Fund's assets taken at market value, (c) entering
into repurchase agreements, (d) trading in financial futures contracts,
index futures contracts, securities indexes and options on financial
futures contracts, options on index futures contracts, options on
securities and options on securities indexes and (e) entering into variable
rate demand notes.
3. No Fund may purchase securities (other than U.S. Government Obligations) of
any issuer if, as a result of the purchase, more than 5% of the Fund's
total assets would be invested in the securities of the issuer, except that
up to 25% of the value of the total assets of each non-money market Fund
may be invested without regard to this limitation. All securities of a
foreign government and its agencies will be treated as a single issuer for
purposes of this restriction.
4. No Fund may purchase more than 10% of the voting securities of any one
issuer, or more than 10% of the outstanding securities of any class of
issuer, except that (a) this limitation is not applicable to a Fund's
investments in U.S. Government Obligations and (b) up to 25% of the value
of the assets of a non-money market Fund may be invested without regard to
these 10% limitations. All securities of a foreign government and its
agencies will be treated as a single issuer for purposes of this
restriction.
5. No Fund may invest more than 25% of the value of its total assets in
securities of issuers in any one industry. For purposes of this
restriction, the term industry will be deemed to include (a) the government
of any country other than the United States, but not the U.S. Government
and (b) all supra-national organizations. In addition, securities held by
the Money Market Fund that are issued by domestic banks are excluded from
this restriction. For purposes of this investment restriction, the Trust
may use the industry classifications reflected by the S&P 500 Index, if
applicable at the time of determination. For all other portfolio holdings,
the Trust may use the Directory of Companies Required to File Annual
Reports with the SEC and Bloomberg Inc. In addition, the Trust may select
its own industry classifications, provided such classifications are
reasonable.
Certain other investment restrictions adopted by the Trust with respect to the
Funds are described in the Statement of Additional Information.
Risk Factors and Special Considerations
Investing in the Funds involves risk factors and special considerations, such as
those described below.
General. Investments in a Fund are not insured against loss of principal. As
with any investment portfolio, there can be no assurance that a Fund will
achieve its investment objective. Investing in shares of a Fund should not be
considered to be a complete investment program.
Equity Securities. A Fund's investments in common stocks and other equity
securities are subject to stock market risk, which is the risk that the value of
the equity securities the Fund holds may decline over short or even extended
periods. Equity securities also are subject to the risk that the value of a
particular issuer's securities will decline, even during periods when equity
securities traded in the stock market in general are rising.
Absence of Operating History. The Funds only recently commenced operations, and
therefore lack an operating history that shareholders may look to for purposes
of evaluating Fund performance.
Debt Instruments. A Fund's investments in debt securities are subject to
interest rate risk, which is the risk that increases in market interest rates
will adversely affect investments in such securities. The value of investments
in fixed income securities tend to decrease when interest rates rise and
increase when interest rates fall. Generally, the value of longer-term debt
instruments will tend fluctuate more than shorter-term debt securities. In
addition, when interest rates are falling, the money a Fund receives from
continuously selling shares will likely be invested in portfolio instruments
producing lower yields than the balance of its portfolio, thereby reducing the
Fund's current yield. In periods of rising interest rates, the opposite result
can be expected to occur.
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Credit Risk. The Funds may invest in debt securities that are not backed by the
U.S. government. Such securities are subject to credit risk, which is the risk
that the issuer may be unable to pay principal and/or interest when due.
Investment Grade Obligations. Obligations rated BBB by S&P or Baa by Moody's are
considered investment grade, but are somewhat riskier than higher-rated
investment grade obligations. Obligations rated BBB by S&P are regarded as
having only an adequate capacity to pay principal and interest, and those rated
Baa by Moody's are considered medium-grade obligations that lack outstanding
investment characteristics and have speculative characteristics as well.
Low-rated Securities. Certain Funds are authorized to invest in high-yield
securities that are rated lower than investment grade by the primary rating
agencies (e.g., are rated "BB" or lower by S&P and "Ba" or lower by Moody's).
These securities are sometimes referred to as "junk bonds," and are considered
to be speculative. Lower-rated and comparable unrated securities (collectively,
"low- rated" securities) provide poor protection for payment of principal and
interest. They generally are subject to greater risks of default than
higher-rated securities, and securities with the lowest ratings may be in
default or have a substantial risk of default. Low-rated securities generally
are unsecured and frequently are subordinated to the prior payment of senior
indebtedness. A Fund may incur additional expenses to the extent that it is
required to seek recovery upon a default.
The market value of certain low-rated securities tends to be more sensitive to
individual corporate developments and changes in economic conditions than
higher-rated securities. In addition, low-rated securities generally are subject
to a greater risk that the issuer cannot meet principal and interest payments
when due (i.e., credit risk). Issuers of low-rated securities are often highly
leveraged and may not have access to more traditional methods of financing.
Accordingly, the ability of such issuers to service their debt obligations
during an economic downturn or during sustained periods of rising interest rates
may be impaired. These issuers tend to be more vulnerable to real or perceived
economic changes, political developments, new or proposed laws and adverse
publicity.
The market for low-rated securities may be thinner and less active than that for
higher-rated securities, which may adversely affect the price at which these
securities may be sold. Thinner markets may diminish a Fund's ability to obtain
accurate market quotations for purposes of valuing the portfolio securities and
calculating a Fund's net asset value.
Illiquid Securities. Illiquid securities may be difficult to resell, and a
Fund's net assets may be adversely affected if there is no ready buyer willing
to purchase the Fund's illiquid securities at a price GEIM deems representative
of their value.
Non-publicly Traded Securities. Non-publicly traded securities are generally
more illiquid than publicly traded securities. The prices realized from
reselling non-publicly traded securities in privately negotiated transactions
may be less than those originally paid by a Fund. Companies whose securities are
not publicly traded are not subject to the disclosure and other investor
protection requirements applicable to publicly traded securities.
Smaller Companies. Smaller companies in which the Mid-Cap Fund may invest may
involve greater risks than large, established issuers. Such smaller companies
may have limited product lines, markets or financial resources and their
securities may trade less frequently and in more limited volume than the
securities of larger or more established companies. As a result, the prices of
smaller companies may fluctuate to a greater degree than the prices of
securities of other issuers.
Repurchase and Reverse Repurchase Agreements. A Fund entering into a repurchase
agreement may suffer a loss if the other party to the transaction defaults on
its obligations and the Fund is delayed or prevented from exercising its rights
to dispose of the underlying securities. Specifically, there are risks that the
value of the underlying securities might decline while the Fund seeks to assert
its rights, that the Fund will incur additional expenses in asserting its
rights, and that the Fund may lose all or part of the income from the agreement.
A reverse repurchase agreement involves the risk that the market value of the
securities retained a Fund may decline below the price of the securities the
Fund has sold but is obligated to repurchase under the agreement. In the event
the buyer of securities under a reverse repurchase agreement files for
bankruptcy or becomes insolvent, the Fund's use of the proceeds of the agreement
may be restricted pending a determination by the party, or its trustee or
receiver, whether to enforce the Fund's obligation to repurchase the securities.
Warrants. A warrant is a security that permits, but does not obligate, its
holder to subscribe for another security. Warrant holders do not have a right to
dividends or voting rights with respect to underlying securities, and warrants
do not represent any rights to the assets of the issuer. Therefore, a warrant
may be considered more speculative than certain other types of investments. In
addition, the value
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of a warrant does not necessarily change with the value of the underlying
security and a warrant ceases to have value if it is not exercised prior to its
expiration date. Warrants acquired by a Fund in units or attached to securities
may be deemed to be without value.
Rights. A right is a privilege granted to a corporation's existing shareholders
to purchase or subscribe to additional shares of stock at the time of a new
issuance, before the stock is offered to the general public. This allows the
stockholders to retain the same ownership percentage after the new stock
offering. Rights are freely transferable and generally entitle the holder to
purchase the stock at a price below the public offering price.
Investment in Foreign Securities. Investing in securities issued by foreign
companies and governments or traded in foreign markets involves considerations
and potential risks not typically associated with investing in obligations
issued by the U.S. Government and U.S. corporations, including:
Regulatory Risks. Less information may be available about foreign companies than
about U.S. companies, and foreign companies generally are not subject to uniform
accounting, auditing and financial reporting standards or to other regulatory
practices and requirements applicable to U.S. companies. The values of foreign
investments are affected by changes in exchange control regulations; application
of foreign tax laws, including withholding taxes; changes in governmental
administration or economic or monetary policy (in the United States or abroad).
Currency Risks. The values of foreign investments are affected by changes in
currency rates or exchange control regulations. When a Fund holds a security
denominated in a local currency (rather than in U.S. dollars), it may convert
U.S. dollars into that local currency in order to purchase the security and
convert local currency back into dollars when the security is sold. The value of
the local currency relative to the U.S. dollar would affect the value of that
foreign security. For example, if the local currency gains strength against the
U.S. dollar, the value of the foreign security increases. Conversely, if the
local currency weakens against the U.S. dollar, the value of the foreign
security would decline. U.S. dollar denominated securities of foreign issuers
also may be affected by currency risk.
Currency exchange rates generally are determined by the forces of supply and
demand in the foreign exchange markets and the relative merits of investments in
different countries as seen from an international perspective. Currency exchange
rates can also be affected unpredictably by intervention by U.S. or foreign
governments or central banks or by currency controls or political developments
in the United States or abroad.
Market Risks. Foreign markets, particularly those of developing or emerging
countries, may be less liquid, more volatile and less subject to governmental
supervision than domestic markets. There may be difficulties in enforcing
contractual obligations and transactions could be subject to extended clearance
and settlement periods.
Political/Economic Risk. A foreign government might impose restrictions or
prohibitions on the repatriation of foreign currencies, limitations on the use
or removal of funds or other assets (including the withholding of dividends). It
may adopt confiscatory tax policies or expropriate the assets or operations of a
company in which the Fund invests. Changes in the relationship or dealings
between nations may affect a Fund's investments in foreign securities.
Transaction Costs. Transaction costs of buying and selling foreign securities,
including tax, brokerage and custody costs, generally are higher than those
involving domestic transactions. Costs are incurred in connection with
conversion between various currencies.
Investing in Developing or Emerging Markets. Investing in securities issued by
companies located in countries with emerging economies and/or securities markets
involves risks in addition to those described above with respect to investing in
foreign securities. The economic structures in these countries generally are
less diverse and mature than those in developed countries, and their political
systems are less stable. Other characteristics of developing countries that may
affect investment in their markets include certain national policies that may
restrict investment by foreigners in issuers or industries deemed sensitive to
relevant national interests and the absence of developed legal structures
governing private and foreign investments and private property.
The small size and inexperience of the securities markets in certain emerging or
developing countries and the low or nonexistent volume of trading in securities
in those countries may make investments in such countries illiquid and more
volatile than investments in Japan or most Western European countries. As a
result, a Fund investing in such countries may be required to establish special
custody or other arrangements before investing.
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Municipal Obligations. Even though Municipal Obligations are interest-bearing
investments that promise a stable flow of income, like other debt instruments
their prices are inversely affected by changes in interest rates and, therefore,
are subject to the risk of market price fluctuations. The values of Municipal
Obligations with longer remaining maturities typically fluctuate more than those
of similarly rated Municipal Obligations with shorter remaining maturities. The
values of fixed income securities also may be affected by changes in the credit
rating or financial condition of the issuing entities.
At the time of issuance, issuers of Municipal Obligations obtain opinions from
bond counsel opinions addressing the validity of the Obligations and whether the
interest on such Obligations is exempt from Federal income taxes. Neither the
Trust nor GEIM will review the proceedings relating to the issuance of Municipal
Obligations or the basis for opinions of counsel. The U.S. Government has
enacted various laws that have restricted or diminished the income tax exemption
on various types of Municipal Obligations and may pass similar laws in the
future.
Covered Option Writing. A Fund that writes puts and calls may experience losses
if GEIM or any sub-adviser of the Fund incorrectly predicts the direction in
which the market will move. If a Fund writes a put option obligating that Fund
to purchase a security at a certain price, the Fund may experience a loss if the
market price of the underlying security goes down. This is because the Fund
would be compelled to purchase a security at a price that is higher than market
price. The loss would be equal to the difference between the price at which the
Fund must purchase the underlying security and its market value at the time of
the option exercise, less the premium received for writing the option. Likewise,
the Fund would experience a loss if it wrote a call option and the price of the
underlying security rises. This is because the Fund would be obligated to sell a
security at a price that is lower than market price. The loss would be equal to
the excess of the security's market value at the time of the option's exercise
over the Fund's acquisition cost of the security, less the premium received for
writing the option.
In addition, no assurance can be given that a Fund will be able to close out an
options position at the desired time. A Fund's ability to enter into closing
purchase transactions depends upon the existence of a liquid secondary market.
While the Funds purchase or write options only when GEIM or any sub-adviser of
the Fund believes a liquid secondary market exists, there is a possibility that
this market may be absent or cease to exist, which would make it difficult or
impossible to close out a position when desired.
Securities Index Options. As with other options, a Fund's ability to close out
positions in securities index options depends upon the existence of a liquid
secondary market. Although a Fund will generally purchase or write securities
index options only if a liquid secondary market for the options purchased or
sold appears to exist, no such secondary market may exist, or the market may
cease to exist at a later date. In addition, securities exchanges impose
position and exercise limits and other regulations on options traded on those
exchanges. The absence of a liquid secondary market and possible
exchange-imposed limitations may make it difficult or impossible to close out a
position when desired.
Futures and Options on Futures. The use of futures contracts and options on
futures contracts as a hedging device involves several risks. No assurance can
be given that a correlation will exist between price movements in the underlying
securities or index and price movements in the securities that are the subject
of the hedge. Positions in futures contracts and options on futures contracts
may be closed out only on the exchange or board of trade on which they were
entered, and no assurance can be given that an active market will exist for a
particular contract or option at any particular time.
Forward Currency Transactions. The market for forward currency contracts, for
example, may be limited with respect to certain currencies. The existence of a
limited market may in turn restrict the Fund's ability to hedge against the risk
of devaluation of currencies in which the Fund holds a substantial quantity of
securities. The successful use of forward currency contracts as a hedging
technique draws upon the special skills and experience of GEIM or any
sub-adviser of the Fund with respect to those instruments and will usually
depend upon the ability of GEIM or any sub-adviser of the Fund to forecast
interest rate and currency exchange rate movements correctly. Should interest or
exchange rates move in an unexpected manner, a Fund may not achieve the
anticipated benefits of forward currency contracts or may realize losses and
thus be in a less advantageous position than if those strategies had not been
used. Many forward currency contracts are subject to no daily price fluctuation
limits so that adverse market movements could continue with respect to those
contracts to an unlimited extent over a period of time. In addition, the
correlation between movements in the prices of those contracts and movements in
the prices of the currencies hedged or used for cover will not be perfect.
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The Trust's ability to dispose of a Fund's positions in forward currency
contracts depends on the availability of active markets in those instruments and
the amount of trading interest that may exist in the future in forward currency
contracts which cannot now be predicted. Forward currency contracts may be
closed out only by the parties entering into an offsetting contract. As a
result, no assurance can be given that a Fund will be able to utilize these
contracts effectively for the intended purposes.
Options on Foreign Currencies. Like the writing of other kinds of options, the
writing of an option on a foreign currency constitutes only a partial hedge, up
to the amount of the premium received; a Fund could also be required, with
respect to any option it has written, to purchase or sell foreign currencies at
disadvantageous exchange rates, thereby incurring losses. The purchase of an
option on a foreign currency may constitute an effective hedge against
fluctuation in exchange rates, although in the event of rate movements adverse
to a Fund's position, the Fund could forfeit the entire amount of the premium
plus related transaction costs.
Derivatives. Certain of the Funds' permitted investments constitute derivatives,
including forward currency exchange contracts, stock options, currency options,
stock and stock index options, futures contracts, swaps and options on futures
contracts involving U.S. Government and foreign government securities and
currencies. Certain derivative securities can, under certain circumstances,
significantly increase an investor's exposure to market and other risk.
Instruments and Strategies Involving Special Risks. Certain instruments in which
the Funds can invest and certain investment strategies that the Funds may employ
could expose the Funds to various risks and special considerations. The
instruments presenting risks to a Fund that holds the instruments are: Rule 144A
Securities, depositary receipts, securities of supra-national agencies,
securities of other investment funds, municipal leases, floating and variable
rate instruments, participation interests, zero coupon obligations, Municipal
Obligation components, custody receipts, mortgage related securities, government
stripped mortgage related securities, and asset-backed and receivable-backed
securities. Among the risks that some but not all of these instruments involve
are lack of liquid secondary markets and the risk of prepayment of principal.
The investment strategies involving special risks to some or all of the Funds
are: engaging in when-issued or delayed-delivery securities transactions,
lending portfolio securities and selling securities short against the box. Among
the risks that some but not all of these strategies involve are increased
exposure to fluctuations in market value of the securities and certain credit
risks. See "Appendix -- Further Information: Certain Investment Techniques and
Strategies" for a more complete description of these instruments and strategies.
Portfolio Transactions and Turnover
The Board of Trustees of the Trust has determined that, to the extent consistent
with applicable provisions of the 1940 Act and rules thereunder, transactions
for a Fund may be executed through an affiliated broker-dealer if, in the
judgment of GEIM or any sub-adviser of the Fund, the use of such broker-dealer
is likely to result in price and execution at least as favorable to the Fund as
those obtainable through other qualified broker-dealers, and if, in the
transaction, such broker-dealer charges the Fund a fair and reasonable rate
consistent with that payable by the Fund to other broker-dealers on comparable
transactions. Under rules adopted by the SEC, such broker-dealer may not execute
transactions for a Fund on the floor of any national securities exchange, but
may effect transactions by transmitting orders for execution providing for
clearance and settlement, and arranging for the performance of those functions
by members of the exchange not associated with such broker-dealer. Such
broker-dealer will be required to pay fees charged by those persons performing
the floor brokerage elements out of the brokerage compensation that it receives
from a Fund.
The Trust cannot predict precisely the turnover rate for any Fund, but expects
that the annual turnover rate will generally not exceed 50% for the Premier
Growth Fund, 50% for the U.S. Equity Fund, 50% for the International Fund, 100%
for the Value Fund, 200% for the Strategic Fund, 300% for the Income Fund, 200%
for the Mid-Cap Fund, 50% for the Emerging Markets Fund and 25% for the S&P 500
Index Fund. The portfolio turnover rate for the Money Market Fund is expected to
be zero for regulatory purposes. A 100% annual turnover rate would occur if all
of a Fund's securities were replaced one time during a period of one year.
Short-term gains realized from portfolio turnover are taxable to investors as
ordinary income. In addition, higher portfolio turnover rates can result in
corresponding increases in brokerage commissions. GEIM does not consider
portfolio turnover rate a limiting factor in making investment decisions on
behalf of any Fund consistent with the Fund's investment objective and policies.
The Statement of Additional Information contains additional information
regarding portfolio transactions and turnover.
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MANAGEMENT OF THE TRUST
Board of Trustees
Overall responsibility for management and supervision of the Funds rests with
the Trust's Board of Trustees. The Trustees approve all significant agreements
between the Trust and the persons and companies that furnish services to the
Funds, including agreements with the Funds' investment adviser and
administrator, distributor, custodian and transfer agent. The day-to-day
operations of the Funds have been delegated to GEIM. The Statement of Additional
Information contains background information regarding each Trustee and executive
officer of the Trust.
Investment Adviser and Administrator
GEIM, located at 3003 Summer Street, P.O. Box 7900 Stamford, Connecticut 06904,
serves as the investment adviser and administrator of each Fund. GEIM was formed
under the laws of Delaware in 1988, and is a wholly-owned subsidiary of GE and a
registered investment adviser under the Investment Advisers Act of 1940, as
amended. GEIM has served as the investment adviser to the Trust since the
commencement of the Trust's operations on ______________, 1997.
GEIM's principal officers, directors, and portfolio managers serve in similar
capacities with GEIC. Like GEIM, GEIC is a wholly-owned subsidiary of GE.
Through GEIM and GEIC (together, "GE Investments") and their predecessors, GE
has nearly 70 years of investment management experience.
As of ______________, 1997, GE Investments provided investment management
services to various institutional accounts with total assets of approximately
$[____] billion. GEIM or GEIC serves as the investment adviser to the following
entities:
GE Funds - GEIM has served as the investment adviser and administrator for GE
Funds since January 1993, when GE Funds commenced operations. GE Funds is an
open-end management investment company whose portfolios (the "GE Funds") are
marketed to individual retail and institutional investors. The GE Funds are sold
through a multiple distribution system that offers an investor the option of
choosing a class that best suits the investor's needs in terms of purchase
amount and the length of time the investor intends to hold the GE Fund shares.
GE Investments Funds, Inc. ("GEIFI Funds") - GEIM has served as the investment
adviser to the investment portfolios of GEIFI Funds since May 1, 1997. GEIFI
Funds is an open-end management investment company whose shares are currently
offered only to insurance company separate accounts that fund certain variable
annuity and variable life contracts.
Other Institutional Accounts - GEIM has served as the sub-adviser to PaineWebber
Global Equity Fund, a series of PaineWebber Investment Trust, since its
inception in 1991, and to the Global Growth Portfolio of PaineWebber Series
Trust and Global Small Cap Fund Inc. since March, 1995. GEIM has served as
sub-adviser to the International Equity Portfolio and the U.S. Equity Portfolio
of WRL Series Fund, Inc. since January 1997 and to the International Equity
Portfolio of IDEX Series Fund since February 1997.
The Elfun Funds - GEIC serves as the investment adviser to Elfun Global Fund,
Elfun Trusts, Elfun Income Fund, Elfun Money Market Fund, Elfun Tax-Exempt
Income Fund and Elfun Diversified Fund (collectively, the "Elfun Funds"). The
first Elfun Fund, Elfun Trusts, was established in 1935. Investment in the Elfun
Funds generally is limited to regular and senior members of the Elfun Society,
whose regular members are selected from active employees of GE and/or its
majority-owned subsidiaries, and whose senior Society members are former members
who have retired from those companies.
S&S Funds - Under the General Electric Savings and Security Program, GEIC serves
as investment adviser to the GE S&S Program Mutual Fund and GE S&S Long Term
Interest Fund. GEIC also serves as the investment adviser to the General
Electric Pension Trust.
GEIM or any sub-adviser of a Fund, subject to the supervision and direction of
the Trust's Board of Trustees, manages the Funds' portfolios in accordance with
the Funds' respective investment objectives and stated policies, makes
investment decisions for the Funds and places purchase and sale orders for the
Funds' portfolio transactions. GEIM or any sub-adviser of a Fund also pays the
salaries of all personnel employed by both it and the Trust and provides each
Fund with investment officers who are authorized by the Board of Trustees to
execute purchases and sales of securities on behalf of the Funds.
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<PAGE>
GEIM or any sub-adviser of a Fund makes investment decisions for each Fund
independently from its investment considerations with respect to the entities
that it manages. However, the Funds and these other entities may invest in the
same types of securities, particularly where they have the same or similar
investment objective or policies. When a Fund and one or more other accounts or
portfolios managed by GEIM or any sub-adviser of a Fund are prepared to invest
in, or desire to dispose of, the same security, available investments or sale
opportunities will be allocated in a manner that GEIM or any sub-adviser of a
Fund believes is equitable to each entity. In some cases, this procedure may
adversely affect the price a Fund pays or receives or the size of the position
obtained or disposed of by a Fund.
The agreements governing the investment advisory services furnished to the Trust
by GEIM provide that, if GEIM ceases to act as the investment adviser to the
Trust, at GEIM's request, the Trust's license to use the initials "GE" will
terminate and the Trust will change the name of the Trust and the Funds to a
name not including the initials "GE."
GEIM's Fee Structure
Each Fund pays GEIM a combined fee for advisory and administrative services that
is accrued daily and paid monthly. The advisory agreement for each Fund
specifies this advisory fee and other expenses that the Fund must pay. The
advisory and administration fee for each Fund, except the S&P 500 Index Fund,
declines incrementally as Fund assets increase. This means that investors pay a
reduced fee with respect to Fund assets over a certain level, or "breakpoint."
The advisory and administration fee or fees for each Fund, and the relevant
breakpoints, are stated in the following schedule (fees are expressed as an
annual rate):
<TABLE>
<CAPTION>
Name of Fund Average Daily Net Assets of Fund Annual Rate Percentage (%)
- - ------------ -------------------------------- --------------------------
<S> <C> <C>
Premier Growth Fund First $25 million .55
U.S. Equity Fund Next $25 million .45
Value Fund Over $50 million .35
Mid-Cap Fund
Strategic Fund
- - ------------------------------------------------------------------------------------------------------
Income Fund First $25 million .35
Next $25 million .30
Next $50 million .25
Over $100 million .20
- - ------------------------------------------------------------------------------------------------------
Emerging Markets Fund First $50 million 1.05
Over $50 million .95
- - ------------------------------------------------------------------------------------------------------
International Fund First $25 million .75
Next $50 million .65
Over $75 million .55
- - ------------------------------------------------------------------------------------------------------
Money Market Fund First $25 million .25
Next $25 million .20
Next $50 million .15
Over $100 million .10
- - ------------------------------------------------------------------------------------------------------
S&P 500 Index Fund All assets .15
</TABLE>
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<PAGE>
From time to time, GEIM may waive or reimburse advisory or administrative fees
paid by a Fund.
Investment Sub-Adviser
SSGA is the investment sub-adviser to the S&P 500 Index Fund pursuant to an
investment sub-advisory agreement with GEIM effective ____________________,
1997. SSGA, a division of State Street, is located at Two International Place,
Boston, Massachusetts 02110. State Street is a wholly-owned subsidiary of State
Street Corporation, a publicly held bank holding company. State Street, with
over $292 billion under management as of December 31, 1996, provides complete
global investment management services from offices in the United States, London,
Sydney, Hong Kong, Tokyo, Toronto, Montreal, Luxembourg, Melbourne, Paris,
Dubai, Munich and Brussels. SSGA also manages the investments of certain
portfolios of GEIFI Funds, including GEIFI Funds' Value Fund and STP 500 Index
Fund. GEIM pays SSGA monthly compensation in the form of an investment
sub-advisory fee of [____]% of the Fund's average daily net assets.
Portfolio Management
Eugene K. Bolton is responsible for the overall management of the domestic
equity investment process at GE Investments. Mr. Bolton has served in that
capacity since the commencement of operations of the GE Funds. Mr. Bolton leads
a team of portfolio managers for the U.S. Equity Fund. Mr. Bolton has more than
12 years of investment experience and has held positions with GE Investments
since 1984. He is currently a Director and Executive Vice President of GE
Investments.
David B. Carlson is the Portfolio Manager of the Premier Growth Fund and is also
responsible for the management of the domestic equity related investments of the
portfolio of the Strategic Fund. Mr. Carlson has served those Funds since the
commencement of their operations. In addition, Mr. Carlson has served as the
Portfolio Manager to similar funds of GE Funds since the commencement of their
operations. He has more than 14 years of investment experience and has held
positions with GE Investments since 1982. Mr. Carlson is currently a Senior Vice
President of GE Investments.
Peter J. Hathaway leads a team of portfolio managers for the Value Fund and has
served in that capacity since the commencement of that Fund's operations. In
addition, Mr. Hathaway has served in a similar capacity with respect to GE
Funds' Value Fund since the commencement of that Fund's operations. He has more
than 36 years of investment experience and has held positions with GE
Investments since 1985. Mr. Hathaway is currently a Senior Vice President of GE
Investments.
Ralph R. Layman [leads a team of portfolio managers for] the International Fund
and the Emerging Markets Fund and also is responsible for the management of the
international equity-related investments of the Strategic Fund. Mr. Layman has
served those Funds since the commencement of their operations. In addition, Mr.
Layman has served in a similar capacity with respect to GE Funds' GE
International Equity Fund and GE Strategic Investment Fund since the
commencement of each such fund's operations. He has more than 17 years of
investment experience and has held positions with GE Investments since 1991.
From 1989 to 1991, Mr. Layman served as an Executive Vice President, Partner and
Portfolio Manager of Northern Capital Management, and prior thereto, served as
Vice President and Portfolio Manager of Templeton Investment Counsel. Mr. Layman
is currently a Director and Executive Vice President of GE Investments.
Robert A. MacDougall leads a team of portfolio managers for the Income Fund and
is also responsible for the management of fixed income related investments of
the portfolio of the Strategic Fund. Mr. MacDougall has served those Funds since
the commencement of their operations. In addition, Mr. MacDougall has served in
a similar capacity with respect to GE Funds' GE Fixed Income Fund and GE
Strategic Investment Fund since the commencement of their operations. He has
more than 13 years investment experience and has held positions with GE
Investments since 1986. Mr. MacDougall is currently a Director and Executive
Vice President of GE Investments.
Elaine G. Harris is the Portfolio Manager for the Mid-Cap Fund and has served in
that capacity since commencement of that Fund's operations. Ms. Harris also
serves as the Portfolio Manager for the GE Funds' GE Mid-Cap Fund. She has more
than 13 years of investment experience and has held positions with GE
Investments since 1993. From 1991 to 1993, Ms. Harris served as Senior Vice
President and Portfolio Manager at SunAmerica Asset Management and, prior
thereto, as Portfolio Manager at Alliance Capital Management Company and as an
analyst and subsequently, Portfolio Manager at Fidelity Investments. Ms. Harris
is currently a Senior Vice President of GE Investments.
25
<PAGE>
James B. May leads a team of portfolio managers for the S&P 500 Index Fund. Mr.
May has been an investment officer and portfolio manager in the U.S. Structured
Products Group of State Street since 1994. From 1991 to 1993, Mr. May served as
an Investment Support Analyst in the U.S. Passive Service Group of State Street.
Mr. May holds a B.S. in finance from Bentley College and an M.B.A. from Boston
College.
GEIM investment personnel may engage in securities transactions for their own
accounts pursuant to a code of ethics that establishes procedures for personal
investing and restricts certain transactions.
Expenses of the Funds
Each Fund's Investment Class bears its own expenses, which generally include all
costs not specifically borne by GEIM. Specifically, expenses borne by a Fund
include: investment advisory and administration fees; fees paid to members of
the Trust's Board of Trustees who are not affiliated with GEIM or any of its
affiliates; fees for necessary brokerage services; and expenses that are not
normal operating expenses of the Funds (such as extraordinary expenses, interest
and taxes). GEIM pays any fees and expenses in excess of its advisory and
administration fee that are not borne by the Funds. The annual fees payable with
respect to each Fund are intended to compensate GEIM for its advisory and
administration services.
PURCHASE OF SHARES
Eligible Investors
Investment Class shares are being offered without imposition of a sales charge,
service fee or distribution fee exclusively to institutional investors, and will
be marketed primarily to employee retirement plans, such as defined benefit
plans ("DB plans") and defined contribution plans ("DC plans"). A DB plan pays a
specified benefit amount to each plan participant who retires after a specified
number of years of service or otherwise becomes eligible to receive retirement
benefits. In some cases, employees contribute to DB plans. A DC plan pays
benefits that vary depending on investment return, and the contributions to such
plans are set at specific levels. With respect to some DC plans, such as 401(k)
and 457 plans, employees make voluntary contributions into a tax deferred
account, which may or may not be matched by an employer. In addition, the
employer may contribute to a profit-sharing account based on an employee's
salary level, years of service, age and other factors. Unlike DB plans, DC plans
afford employees the option of choosing where to invest.
The types of plans to which Fund shares may be sold include 401(k) Plans,
eligible deferred compensation plans meeting the requirements of Section 457(b)
of the Code and tax-exempt organizations enumerated in Section 501(c)(3) of the
Code (collectively, "Eligible Plans"). Shares may, at times, be sold to other
similar categories of investors. Eligible Plans may purchase Investment Class
shares and/or Service Class shares of the Funds. Details about the procedure to
be followed by an Eligible Plan in investing in the Funds are available through
the Distributor.
Investment Class shares also may be sold to: banks, insurance companies and
industrial corporations, each purchasing shares for its own account; investment
management programs of financial institutions that contemplate purchasing shares
of investment companies managed by an unaffiliated adviser; financial
institutions investing in their fiduciary capacity on behalf of clients; trusts
established under Section 501(c)(9) of the Code to fund the payment of certain
welfare benefits; charitable, religious and educational institutions, and
foundations or endowments of those investors; and investment companies not
managed by GEIM. Under no circumstances are regular IRAs, simplified employee
pension IRAs ("SEP-IRAs") and Keogh plans eligible to purchase Fund shares.
Individual Plan Participants
If you are an individual investor in a retirement plan that invests in the
Funds, you should address inquiries and seek investment servicing from your plan
administrator.
26
<PAGE>
Purchasing Shares - General Information
The Distributor sells Fund shares on a continuous basis. A purchase order will
be processed at the net asset value next determined after the order (or wire, if
applicable) has been received and accepted by State Street, the Trust's
custodian and transfer agent. For a description of the manner of calculating a
Fund's net asset value, see "Net Asset Value." Shares are sold without the
imposition of a sales charge. However, a purchase premium (discussed below) may
be imposed on cash transactions.
You begin to earn income as of the first business day following the day State
Street has received payment for an order. Orders will be accepted only upon
receipt by State Street of all documentation required to be submitted in
connection with such order. If you purchase or redeem shares through an
Authorized Firm, you may be subject to service fees imposed by that Firm.
Minimum Investment Requirement
The minimum initial investment in a Fund is $35 million for each investor or for
a group of investors under common control. This minimum investment is waived for
shareholders who have invested at least $100 million in one or more investment
portfolios or accounts that are advised by GEIM, provided that at least $35
million of this $100 million amount is invested in the Trust. The Trust will
accept purchase orders for shares only on each "Business Day," which is a day on
which the Fund's net asset value is calculated as described below under "Net
Asset Value." The Trust, in its discretion, may reject any order for the
purchase of shares of a Fund. For convenience and in the interest of economy,
the Trust will not issue physical certificates representing shares in any Fund.
Letter of Intent. A letter of intent may be used as a way for investors to meet
the $35 million minimum investment requirement in a Fund or in the Trust (as
applicable, depending on your total investment in investment portfolios advised
by GEIM). An investor utilizing the letter or intent option would initially
invest a minimum of [$________] in a Fund or Funds, as applicable, of the Trust,
and would agree to purchase at least an additional [$_______] in shares of the
Fund or Funds within 13 months of the date of the letter. If the investor does
not invest the required minimum amount within the 13-month period, all
Investment Class shares will be exchanged for the Class D shares of a
corresponding investment portfolio of GE Funds, if a corresponding portfolio
exists and is operational. Currently, the following Funds have corresponding
operational GE Funds portfolios: the Premier Growth Fund, the U.S. Equity Fund,
the International Fund, the Value Fund, the Strategic Fund, the Mid-Cap Fund,
the Income Fund and the Money Market Fund. If there is no corresponding fund in
GE Funds at the time an investor's shares would otherwise be exchanged, then the
shares actually purchased will be involuntarily redeemed and the proceeds sent
to the investor at the address of record. Redemption fees are charged in
connection with such exchanges and redemptions.
How to Open an Account
You must establish an account before you purchase shares, and may do so either
by submitting an account application to the Trust or through an Authorized Firm
(defined below). You may obtain an account application by telephoning the Trust
at 1-800-[______] or by writing to the Trust at:
GE Institutional Funds
P.O. Box 120065
Stamford, CT 06912-0065
For overnight package delivery:
GE Institutional Funds
c/o National Financial Data Services Inc.
[_________________________]
Kansas, MO [_____]
To open an account, complete and sign an application and furnish your taxpayer
identification number to the Trust. You also must certify whether you are
subject to withholding for failing to report income to the Internal Revenue
Service ("IRS").
27
<PAGE>
How to Buy Shares
After the Trust has received a completed account application in proper form at
the address set forth above, you may purchase Fund shares from the Distributor
or through brokers, dealers, financial institutions or investment advisers which
have entered into sales agreements with the Distributor ("Authorized Firms").
You may purchase shares through an Authorized Firm with the assistance of a
sales representative (a "Sales Representative") with that Authorized Firm. The
Authorized Firm will be responsible for transmitting your order promptly to
State Street, the Trust's custodian and transfer agent. Contact your Sales
Representative for further instructions. Purchases through a Sales
Representative with an Authorized Firm will be effected in accordance with a
completed order at the Fund's net asset value next determined after receipt.
You also may purchase shares of a Fund by wiring Federal funds to: State Street
Bank and Trust Company (ABA # [_______________________]) For: [Name of Fund]
Account of: [Investor's name, address and account number]. If a wire is received
by the close of regular trading on the NYSE on a Business Day, the shares will
be priced according to the net asset value of the Fund on that day. If a wire is
received after the close of regular trading on the NYSE, the shares will be
priced as of the time the Fund's net asset value per share is next determined.
Payment for orders that are not accepted will be returned to the you promptly.
Your financial institution may charge a fee for wiring your account.
Purchases In-Kind
The Trust may, in its sole discretion, require that proposed investments of $5
million or more in each of the Emerging Markets or International Funds, or $10
million or more in each of the other non-money market Funds, be made in-kind.
This requirement is intended minimize the effect of transaction costs on
existing shareholders of a Fund. Such transaction costs, which may include
broker's commissions and taxes or governmental fees, domestic or foreign, may be
borne by a proposed investor in shares of the Fund. Under these circumstances,
the Trust would inform the investor of the securities and amounts that are
acceptable to the Trust. The securities would then be accepted by the Trust at
their then market value in return for shares in the Fund of an equal value.
Purchase Premiums
If cash is used to purchase shares in amounts over $5 million for each of the
Emerging Markets and International Funds, and over $10 million for each of the
other non-money market Funds, the cash amount paid may be reduced by the
appropriate purchase premium. The Trust, from time to time, will establish the
purchase premium to be paid by a particular Fund. As with in-kind purchases
discussed above, purchase premiums paid to the Trust are intended to cover
brokerage and other costs associated with putting an investment to work in the
relevant markets. The Trust may waive or reduce the purchase premium if GEIM
determines that because of offsetting transactions or redemptions, the cash
purchase results in minimum brokerage and/or other transactions costs. For
purposes of calculating purchase premiums, the Trust will look to underlying
participants in a DC Plan and assess such purchase premiums only where an
individual participant in such DC Plan redeems in excess of $10 million or $5
million, as applicable.
Both the Investment Class shares and the Service Class shares have the same
purchase premium, which is assessed on the entire amount purchased. The premium
currently in effect for each Fund is as follows:
28
<PAGE>
Premier Growth Fund .25%
U.S. Equity Fund .25%
International Equity Fund .65%
Value Equity Fund .25%
Strategic Investment Fund .20%
Fixed Income Fund .10%
Mid-Cap Growth Fund .40%
Emerging Markets Fund 1.25%
S&P 500 Index Fund .25%
REDEMPTION OF SHARES
On any Business Day, you may redeem all or a portion of your shares. Redemption
requests received in proper form prior to the close of regular trading on the
NYSE will be effected at the net asset value per share determined on that
Business Day. Redemption requests received after the close of regular trading on
the NYSE will be effected at the net asset value as next determined. The Trust
normally transmits redemption proceeds within seven days after receipt of a
redemption request. Redemption fees (discussed below) may be imposed on cash
transactions.
If you hold more than one class of shares, you must specify which class of
shares you are redeeming. Your redemption request might be delayed if you do not
specify the appropriate class of shares or if you own fewer shares than
specified in your redemption request.
Redemptions through an Authorized Firm
If you purchase shares through a Sales Representative, you may redeem your
shares in accordance with your Sales Representative's instructions. If State
Street's books reflect that you, and not your Sales Representative, is the
shareholder of record on your accounts, you also may redeem by mail or by wire,
as described below. Your Authorized Firm is responsible for transmitting a
redemption order (and crediting you with any redemption proceeds) on a timely
basis.
Redemption by Mail
If you are the shareholder of record on the books of State Street, you may
redeem shares by mail by a written redemption request that (1) states the class
and the number of shares or the specific dollar amount to be redeemed, (2)
identifies the Fund or Funds from which the number or dollar amount is to be
redeemed, (3) identifies your account number and (4) is signed on your behalf by
an authorized person exactly as the shares are registered. Send the request to
the Trust at the appropriate address listed above under "How to Open an
Account."
Signature Guarantees
To protect your account, the Trust and the Distributor from fraud, signature
guarantees are required to enable the Trust to verify the identity of the person
authorizing a redemption from your account. Signature guarantees will be
required for redemptions over $25,000 and requests that redemption proceeds be
(1) mailed to an address other than the address of record, (2) paid to other
than the shareholder, (3) wired to a bank other than the bank of record, or (4)
mailed to an address that has been changed within 30 days of the redemption
request. All signature guarantees must be guaranteed by a commercial bank, trust
company, broker, dealer, credit union,
29
<PAGE>
national securities exchange or registered association, clearing agency or
savings association. The Trust may require additional supporting documents for
redemptions made by corporations, executors, administrators, trustees, guardians
or persons utilizing a power of attorney. A request for redemption will not be
deemed to have been submitted until the Trust receives all documents typically
required to assure the safety of a particular account. The Trust may waive the
signature guarantee on a redemption of $25,000 or less if it is able to verify
the signatures of all registered owners from its accounts.
Involuntary Exchanges or Redemptions
If the value of your investment in the Funds falls below the minimum
requirements discussed above because of redemptions (and not market
fluctuations) for more than [30] days, the Trust will involuntarily exchange
your Investment Class shares for the Class D shares of a corresponding
investment portfolio of GE Funds if such a corresponding portfolio exists and is
operational. If no such GE Funds portfolio exists and is operational, the Trust
will involuntarily redeem your account. The Trust will effect such exchange or
involuntary redemption [30] days after the Trust has sent you written notice,
unless you increase your account to the required minimum within that [30]-day
period. More specifically, if you have $100 million or more invested in funds
advised by GEIM, then your shares may be exchanged or redeemed, as applicable,
if your investment in the Trust falls below $35 million for the requisite
[30]-day period, and if have invested less than $100 million in funds advised by
GEIM, your shares in a Fund may be redeemed or exchanged, as applicable, if your
investment in that Fund falls below $35 million for that period. Redemption fees
are charged in connection with such involuntary exchanges and redemptions.
Proceeds of any such redemption will be mailed to you, reduced by the amount of
the redemption fee.
Distributions in-Kind
If the Trust's Board of Trustees determines that it would be detrimental to the
best interests of a Fund's shareholders to make a redemption payment wholly in
cash, the Trust may pay, in accordance with rules adopted by the SEC, any
portion of a redemption in excess of the lesser of $250,000 or 1% of the Fund's
net assets by a distribution in-kind of portfolio securities in lieu of cash.
Redemptions failing to meet this threshold must be made in cash. Portfolio
securities issued in a distribution in-kind will be deemed by GEIM to be readily
marketable. Shareholders receiving distributions in-kind of portfolio securities
may incur brokerage commissions when subsequently disposing of those securities.
A redemption fee will not be charged on distributions in-kind.
Redemption Fees
The Trust will assess a redemption fee for cash redemptions in amounts over $5
million for each of the Emerging Markets and International Funds, and over $10
million for each of the other non-money market Funds. The proceeds from shares
redeemed will be reduced in an amount equal to such redemption fee. The Trust
will establish redemption fees from time to time, and like purchase premiums and
in-kind redemptions and purchases, such fees paid to the Trust are intended to
allocate brokerage and other costs to the appropriate investor. The Trust may
waive or reduce the redemption fee if GEIM determines that because of offsetting
transactions or subscriptions the cash redemption results in minimum brokerage
and/or other transactions costs. For purposes of calculating redemption fees,
the Trust will look to underlying participants in a DC Plan and assess such
redemption fees only where an individual participant in such DC Plan redeems in
excess of $10 million or $5 million, as applicable.
Both the Investment Class shares and the Service Class shares have the same
redemption fee. The redemption fee is assessed on the entire amount of shares
being redeemed, and the fee currently in effect for each Fund is as follows:
Premier Growth Fund .25%
U.S. Equity Fund .25%
International Equity Fund .65%
Value Equity Fund .25%
Strategic Investment Fund .20%
Fixed Income Fund .10%
30
<PAGE>
Mid-Cap Growth Fund .40%
Emerging Markets Fund 1.25%
S&P 500 Index Fund .25%
EXCHANGES
You may exchange Investment Class shares of a Fund for Investment Class of
another Fund or Service Class shares of the same or another Fund. You also may
exchange Investment Class shares for Class A shares or Class D shares of
corresponding funds of GE Funds. Such exchanges are permitted provided the
shares of the investment portfolio may legally be sold in your state of
residence. You will be required to pay redemption fees and, if applicable,
purchase premiums in connection with exchanges between Funds or between a Fund
and a portfolio of the GE Funds.
If an investor in a Fund directs that shares in that Fund be exchanged for
shares of the Funds or of GE Funds, such exchanges will be treated as
redemptions from the current Fund and purchases into the new Fund, or fund of GE
Funds for purposes of the purchase premiums and redemption fees discussed above.
For example, if an investor exchanges $10 million or $5 million or more, as
applicable, between Funds or between a Fund and a GE Funds portfolio, the
investor will pay purchase premiums, if applicable, and redemption fees with
respect to the exchanged shares. GE Funds does not assess purchase premiums.
The Trust may waive or reduce these exchange related transaction fees if GEIM
determines that because of offsetting transactions or redemptions result actual
brokerage or other transaction costs are minimal. For purposes of calculating
the purchase premiums and redemption fees to be charged in connection with an
exchange, the Trust will look to underlying participants in a DC Plan and assess
such premiums and fees only where an individual participant in such DC Plan
exchanges amounts in excess of $10 million or $5 million, as applicable.
In addition, the Trust may, upon 60 days prior written notice to a Fund's
shareholders, terminate the exchange privilege or assess a $5 exchange fee for
exchanges involving the Money Market Fund or amounts of less than $5 million in
the case of the Emerging Markets and International Funds and $10 million in the
case of the non-money market Funds. An exchange of shares is treated for Federal
income tax purposes as a redemption (that is, a sale) of shares given in
exchange by you, and therefore you may experience a loss in connection with the
exchange. You may exchange shares by writing the Trust at the appropriate
address listed above under "How to Open an Account."
NET ASSET VALUE
A Fund's net asset value per share is determined as of the close of regular
trading on the NYSE (currently 4:00 p.m., New York time) on each day the NYSE is
open by dividing the value of the Fund's net assets attributable to each Class
by the total number of shares of the Class outstanding. The NYSE is currently
open each day, Monday through Friday, except on the following holidays: New
Year's Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor
Day, Thanksgiving and Christmas, and on the preceding Friday or subsequent
Monday when one of these holidays falls on a Saturday or Sunday, respectively.
In general, a Fund's investments will be valued at market value or, in the
absence of market value, at fair value as determined by or under the direction
of the Trust's Board of Trustees. All portfolio securities held by the Money
Market Fund, and any short-term investments of the other Funds that mature in 60
days or less, will be valued on the basis of amortized cost, if the Board of
Trustees determines that amortized cost represents fair value. Amortized cost
involves valuing an investment at its cost and, thereafter, assuming a constant
amortization to maturity of any discount or premium, regardless of the effect of
fluctuating interest rates on the market value of the investment. The Trust will
seek to maintain the Money Market Fund's net asset value at $1.00 per share for
purposes of purchases and redemptions, although no assurance can be given that
the Trust will be able to do so on a continuous basis.
A security that is primarily traded on a domestic or foreign securities exchange
will be valued at the last sale price on that exchange or, if no sales occurred
during the day, at the current quoted bid price. An option that is written or
purchased by a Fund generally will be valued at the mean between the last asked
and bid prices. The value of a futures contract will be equal to the unrealized
gain or loss on the contract that is determined by marking the contract to the
current settlement price for a like contract on the valuation date of the
futures contract. A settlement price may not be used if the market makes a limit
move with respect to a particular futures contract or if the securities
underlying the futures contract experience significant price fluctuations after
the determination of the settlement price. When a settlement
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price cannot be used, futures contracts will be valued at their fair market
value as determined by or under the direction of the Board of Trustees.
A security that is primarily traded on a foreign exchange generally will be
valued at its preceding closing value on that exchange, except that the Board of
Trustees may determine to consider other factors an event occurring subsequent
to the closing of the foreign exchange will impact on fair value. Trading in
foreign markets may not take place on every NYSE business day. In addition,
trading may take place in various foreign markets on Saturdays or on other days
when the NYSE is not open and on which a fund's net asset value is not
calculated. Therefore, such calculation does not take place contemporaneously
with the determination of the prices of many of the portfolio securities used in
such calculation and the value of a Fund's portfolio may be significantly
affected on days when shares of the Fund may not be purchased or redeemed.
All assets and liabilities of a Fund initially expressed in foreign currency
values will be converted into U.S. dollar values at the mean between the bid and
offered quotations of the currencies against U.S. dollars as last quoted by any
recognized dealer. If the bid and offered quotations are not available, the rate
of exchange will be determined in good faith by the Board of Trustees. In
carrying out the Board's valuation policies, GEIM may consult with an
independent pricing service or services, retained by the Trust. Further
information regarding the Trust's valuation policies is contained in the
Statement of Additional Information.
DIVIDENDS, DISTRIBUTIONS AND TAXES
Dividends and Distributions
Dividends and capital gain distributions paid to you will be automatically
reinvested in shares of the same class unless you instruct the Trust, in
writing, to pay all dividends and distributions in cash. However, if a check
that is mailed to you is returned to the Trust as undeliverable, your dividends
will be reinvested until you notify the Trust in writing of your correct address
and request in writing that your election to receive dividends and other
distributions in cash be reinstated. There is no purchase premium charged with
respect to reinvested dividends. A redemption fee will be assessed with respect
to all dividends and distributions in cash that meet the applicable $5 million
or $10 million threshold discussed above under "Redemption of Shares --
Redemption Fees."
Dividends attributable to the Income Fund and the Money Market Fund are declared
daily and paid monthly. Dividends attributable to the net investment income of
each of the other Funds are declared and paid annually. If you redeem all of
your shares that you may own in the Income Fund or the Money Market Fund at any
time during a month, your dividends (if any) will be paid to you along with the
proceeds of your redemption.
The Trust will send you written confirmations relating to the automatic
reinvestment of daily dividends within five days following the end of each
quarter for the Income Fund, and within five days following the end of each
month for the Money Market Fund. Distributions of any net realized long-term and
short-term capital gains earned by a Fund will be made annually. Earnings of the
Income Fund and the Money Market Fund for Saturdays, Sundays and holidays will
be declared as dividends on the business day immediately preceding the Saturday,
Sunday or holiday. As a result of the different service fees applicable to the
Service Class shares, dividends and distributions will be higher for the
Investment Class shares. See "Fee Table" and "Purchase of Shares."
Each Fund is subject to a 4% non-deductible excise tax measured with respect to
certain undistributed amounts of net investment income and capital gains. If
necessary to avoid the imposition of this tax, and if in the best interests of
the Fund's shareholders, the Trust will declare and pay dividends and
distributions more frequently than stated above.
Taxes
The following discussion may not be relevant to tax-deferred retirement accounts
or other tax exempt investors, and is not a complete analysis of the federal tax
implications of investing in the Funds. You should consult your own tax advisor
regarding the application of Federal, state, local and foreign tax laws to your
specific tax situation.
Taxes on the Fund. The Trust intends that each Fund qualify as a separate
regulated investment company under the Code. As a regulated investment company,
each Fund should not be subject to federal income tax or federal excise taxes if
substantially all of its net investment income and net realized capital gains
are distributed within allowable time limits, as provided under the Code. It is
important that the Funds meet these time limits and the requirements for
qualifying as regulated investment companies under the Code so that any earnings
on your investment will not be taxed twice.
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Net investment income or capital gains earned by a Fund from investing in
foreign securities may be subject to foreign income taxes withheld at the
source. The Trust intends that the Funds operate in a manner that they qualify
for foreign tax rates that have been reduced under tax treaties with the United
States. Provided certain requirements are met under the Code, a Fund may elect
to treat foreign income taxes paid by that Fund as passed through to
shareholders as a foreign tax credit. The Trust anticipates that each of the
International Fund and the Emerging Markets Fund will seek to qualify for and
make this election in most, but not necessarily all, of its taxable years. The
Trust will report to shareholders any amount per share that must be included in
gross income and that may be available as a credit or a deduction. You may not
claim a deduction for foreign taxes if you do not itemize deductions, and
certain limitations will be imposed on the extent to which the credit (but not
the deduction) for foreign taxes may be claimed.
Taxes on Distributions to Shareholders. Dividends and distributions you receive
from a Fund, whether reinvested or taken as cash, are subject to Federal income
tax. Dividends from a Fund's net investment income and distributions of the
Fund's short-term capital gains will be taxed as ordinary income, and
distributions of long-term capital gains will be taxed as long-term capital
gains, regardless of how long you have held your shares. As a general rule, any
gain or loss when you sell or redeem (including a redemption in-kind) your Fund
shares will be a long-term capital gain or loss if you have held your shares for
more than one year and a short-term capital gain or loss if you have held your
shares for one year or less. Some dividends received in January may be taxable
as if they had been paid the previous December.
Dividends and distributions paid by the Income Fund and the Money Market Fund,
and distributions of capital gains paid by all the Funds, will not qualify for
the Federal dividends-received deduction for corporations. Dividends paid by the
Premier Growth Fund, the U.S. Equity Fund, the Mid-Cap Fund, the Strategic Fund,
the S&P 500 Index Fund, the International Fund, the Emerging Markets Fund and
the Value Fund, to the extent derived from dividends attributable to certain
types of stock issued by U.S. corporations, will qualify for the
dividends-received deduction for corporations. Some states, if certain asset and
diversification requirements are satisfied, permit shareholders to treat their
portions of a Fund's dividends that are attributable to interest on U.S.
Treasury securities and certain U.S. Government Obligations as income that is
exempt from state and local income taxes.
Statements regarding the tax status of income dividends and capital gains
distributions will be mailed to you on or before January 31st of each year.
CUSTODIAN AND TRANSFER AGENT
State Street, located at 225 Franklin Street, Boston, Massachusetts 02101,
serves as the Trust's custodian and transfer agent, and is responsible for
receiving acceptance orders for the purchase of shares and processing redemption
requests.
DISTRIBUTOR
GE Investment Services Inc., located at 3003 Summer Street, P.O. Box 7900,
Stamford, Connecticut, 06904-7900, serves as distributor of the Funds' shares.
The Distributor, a wholly-owned subsidiary of GEIM, also serves as Distributor
for the Elfun Funds and GE Funds. GEIM or its affiliates, at their own expense,
may allocate portions of their revenues or other resources to assist the
Distributor in distributing shares of the Funds, by providing additional
promotional incentives to dealers. In some instances, these incentives may be
limited to certain dealers who have sold or may sell significant numbers of
shares of the Funds. The Distributor routinely offers dealers in Fund shares the
opportunity to participate in contests for which prizes include tickets to
theater and sporting events, dining, travel to meetings and conferences held in
locations remote from their offices and other items.
ADDITIONAL MATTERS
The Trust was formed as a business trust under the laws of Delaware pursuant to
a Certificate of Trust on May 23, 1997. The Trust's Declaration of Trust dated ,
1997, as amended from time to time (the "Declaration") authorizes the Trust's
Board of Trustees to create separate series, and within each series separate
Classes, of an unlimited number of shares of beneficial interest, par value
[$.001] per share. As of ________________, 1997, [two retirement plans for which
Montgomery Ward & Co., Incorporated serves as plan sponsor and one for which
Penske Truck Leasing Co. serves as sponsor] owned [__%], [___%] and [__%],
respectively of the shares of the Trust, and therefore each such plan may be
deemed to control the Trust.
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As issued, shares of a Fund will be fully paid and non-assessable. Shares are
freely transferable and have no preemptive, subscription or conversion rights.
Each of the Investment Class and the Service Class represents an identical
interest in a Fund's investment portfolio. As a result, the Classes have the
same rights, privileges and preferences, except with respect to: (1) the
designation of each Class; (2) the sales arrangement; (3) the expenses allocable
exclusively to each Class; and (4) voting rights on matters exclusively
affecting a single Class. The Board of Trustees does not anticipate that there
will be any conflicts among the interests of the holders of the two Classes. The
Trustees, on an ongoing basis, will consider whether any conflict exists and, if
so, take appropriate action. Certain aspects of the shares may be changed, upon
notice to Fund shareholders, to satisfy certain tax regulatory requirements, if
the Trust's Board of Trustees deems the change necessary.
When matters are submitted for shareholder vote, each shareholder of each Fund
will have one vote for each full share held and proportionate, fractional votes
for fractional shares held. In general, shares of each Fund vote by individual
Fund on all matters except (1) a matter affecting the interests of one or more
of the Funds, in which case only shares of the affected Funds would be entitled
to vote, (2) a matter affecting only the interests of one Class, in which case
only shares of the affected Class would be entitled to vote, or (3) when the
1940 Act requires that shares of the Funds be voted in the aggregate.
Normally, no meetings of shareholders of the Funds will be held for the purpose
of electing Trustees unless and until such time as less than a majority of the
Trustees holding office have been elected by shareholders of the Trust, at which
time the Trustees then in office will call a shareholders' meeting for the
election of Trustees. Shareholders of record of no less than two-thirds of the
outstanding shares of the Trust may remove a Trustee through a declaration in
writing or by vote cast in person or by proxy at a meeting called for that
purpose. A meeting will be called for the purpose of voting on the removal of a
Trustee at the written request of holders of 30% of the Trust's outstanding
shares.
Shareholders who satisfy certain criteria will be assisted by the Trust in
communicating with other shareholders in seeking the holding of the meeting.
The Trust only recently commenced operations and therefore has not yet generated
semi-annual and audited annual reports. Once semi-annual and audited annual
reports become available, the Trust will send you a copy of each report, each of
which includes a list of the investment securities held by each Fund in which
you have invested. Only one report each will be mailed to your address. You may
request additional copies of any report by calling the toll free number listed
on the back cover page of the Prospectus or by writing to the Trust at the
address set forth on the front cover page of the Prospectus.
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APPENDIX
FURTHER INFORMATION: CERTAIN INVESTMENT TECHNIQUES AND STRATEGIES
The Funds may engage in a number of investment techniques and strategies,
including those described below. No Fund is under any obligation to use any of
the techniques or strategies at any given time or under any particular economic
condition. No assurance can be given that the use of any practice will have its
intended result or that the use of any practice is, or will be, available to any
Fund.
Strategies Available to All Funds
When-Issued and Delayed-Delivery Securities. The Funds may purchase when-issued
or delayed delivery securities, which means that delivery of and payment for the
securities will take place at a future time, i.e., beyond normal settlement. The
Funds purchase such securities to secure advantageous prices or yields, and not
for the purpose of leverage. When-issued securities purchased by a Fund may
include securities purchased on a "when, as and if issued" basis, meaning that
issuance of the securities depends on the occurrence of a subsequent event, such
as approval of a merger, corporate reorganization or debt restructuring.
The Funds do not earn interest or accrue income on when-issued or
delayed-delivery securities until settlement and bear the risk of market
fluctuation between the purchase and settlement dates. At the time of
settlement, a when-issued or delayed-delivery security may be valued at less
than its purchase price. In order to avoid the leveraging effect that may occur
with when-issued or delayed- delivery commitments, the Funds will maintain with
State Street, or with a designated sub-custodian, a separate account with a
segregated portfolio containing cash or other liquid assets in an amount equal
to the amount of such commitments.
Lending Portfolio Securities. Each Fund may lend its portfolio securities to
well-known and recognized U.S. and foreign brokers, dealers and banks. Such
loans may not exceed 30% of the Fund's assets, and must be collateralized by
cash, letters of credit or U.S. Government Obligations. Cash or instruments
collateralizing a Fund's loans of securities will be segregated and maintained
at all times with State Street, or with a designated sub-custodian, in an amount
at least equal to the current market value of the loaned securities. A Fund that
lends portfolio securities will be subject to the risk of loss of rights in the
collateral if the borrower fails financially.
Investments In Other Investment Companies. Each Fund may purchase securities of
other investment companies, provided that those other companies' investments are
consistent with the Fund's investment objective and policies and are permissible
under the 1940 Act. Pursuant to the 1940 Act each Fund: (i) may invest a maximum
of 10% of its total assets in the securities of other investment companies; (ii)
may not invest more than 5% of its total assets in any one investment company;
and (iii) may not own more than 3% of the securities of any one investment
company. The non-money market Funds' investments in the Investment Fund are not
considered investment in another investment company for purposes of this
paragraph and the restrictions just described. To the extent a Fund invests in
another investment company, the Fund's shareholders will incur certain
duplicative fees and expenses, including two levels of investment advisory fees.
Strategies Available to Some But Not All Funds
Depositary Receipts. Each non-money market Fund, may invest in American
Depositary Receipts, or "ADRs," European Depositary Receipts, or "EDRs"
(sometimes referred to as Continental Depositary Receipts, or "CDRs") and Global
Depositary Receipts, or "GDRs." Depositary receipts evidence an ownership
interest in securities of foreign corporations that are held on deposit with a
financial institution. ADRs are U.S. dollar-denominated receipts that represent
interests in shares of a foreign-based corporation held on deposit in a U.S.
bank or trust company. ADRs are traded on exchanges or over-the-counter in the
United States. EDRs represent interests in foreign or domestic securities held
in trust in a foreign bank, and are traded in European markets. EDRs may not
necessarily be denominated in the same currency as the securities they
represent. GDRs are receipts for shares in a foreign or domestic corporations
that are traded in capital markets around the world. While ADRs are intended to
permit foreign corporations to offer shares to Americans, and EDRs are designed
for use in European markets, GDRs allow companies to offer shares in many
markets. A Fund may purchase ADRs from institutions that are not sponsored by
the issuer of the underlying foreign securities, in which case the Fund may not
receive as much information about the ADRs that it would have received if had
purchased them from a sponsored depository.
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WEBs and Other Index-related Securities. Each of the Emerging Markets Fund, the
International Fund and the Strategic Fund may invest in shares in a particular
series issued by Foreign Fund, Inc., an investment company whose shares also are
known as "World Equity Benchmark Shares" or "WEBS." WEBS have been listed for
trading on the American Stock Exchange, Inc. The Fund also may invest in shares
in a particular series issued by CountryBaskets Index Fund, Inc., or another
fund the shares of which are the substantial equivalent of WEBS. Each of the
U.S. Equity Fund, Premier Growth Fund, Value Fund and Strategic Fund may invest
in Standard & Poor's Depositary Receipts, or "SPDRs." SPDRs are securities that
represent ownership in a long-term unit investment trust that holds a portfolio
of common stocks designed to track the performance of the S&P 500 Index. A Fund
investing in a SPDR would be entitled to receive proportionate quarterly cash
distributions corresponding to the dividends that accrue to the S&P 500 stocks
in the underlying portfolio, less trust expenses.
Supra-national Agencies. The Income Fund, the Strategic Fund and the Money
Market Fund each may invest up to 10% of its assets in securities of
supra-national agencies, which are agencies whose members make capital
contributions to support agency activities. Such agencies include the World
Bank, the European Coal and Steel Community, and the Asian Development Bank.
Securities of supra-national agencies are not considered U.S. Government
Obligations and are not supported, directly or indirectly, by the U.S.
Government.
Municipal Leases. The Strategic Fund may invest in municipal leases, which may
take the form of a lease or an installment purchase or a conditional sales
contract to acquire equipment and facilities. Interest payments on qualifying
municipal leases are exempt from Federal income taxes and state income taxes
within the state of issuance. The Fund may hold municipal leases that are rated
investment grade (or its issuer's senior debt is rated investment grade) and
unrated, if GEIM (subject to oversight and approval by the Board of Trustees)
deems such unrated leases to be of comparable quality to rated issues. Risks and
special considerations applicable to certain investment grade obligations are
described above under "Risk Factors and Special Considerations - Certain
Investment Grade Obligations." Municipal leases will be considered illiquid
securities unless the Trust's Board of Trustees determines on an ongoing basis
that the leases are readily marketable.
Municipal leases have special risks. They represent a type of financing that has
not yet developed the depth of marketability generally associated with other
Municipal Obligations. Some municipal leases contain "non-appropriation"
clauses, which means that the governmental issuer is under no obligation to make
future payments under the lease or contract unless money is appropriated for
that purpose by the appropriate legislative body on a yearly or other periodic
basis. Moreover, although a municipal lease will be secured by financed
equipment or facilities, disposing of such collateral might prove difficult in
the event of foreclosure. To limit these risks, the Fund will invest no more
than 5% of its total assets in municipal leases. In addition, the Fund will
purchase leases with non- appropriation clauses only when the lease payments
will commence amortization of principal at an early date, so that the leases
will have an average life of five years or less.
Floating and Variable Rate Instruments. The Strategic Fund, the Income Fund and
the Money Market Fund each may invest in floating and variable rate instruments
(collectively, "adjustable rate securities"), which are securities with floating
or variable rates of interest or dividend payments. The floating or variable
rate is adjusted periodically according to a specified formula, which may be
determined by reference to a market interest rate or a some interest rate index,
or determined through an auction or re-marketing process. The variable and
floating rates of interest permit these Funds to take advantage of increases in
interest rates, and therefore these securities tend to be less sensitive than
fixed rate securities to interest rate changes and to have higher yields when
interest rates increase.
The amount by which the rates paid on an income security may increase or
decrease may be subject to periodic or lifetime reset limits (or "caps"), which
means that the interest rate does not increase beyond a certain level. If
interest rates exceed these levels, the values of certain capped adjustable rate
securities will fall. In addition, fluctuations in interest rates above these
caps could cause adjustable rate securities to behave more like fixed rate
securities in response to extreme movements in interest rates. Moreover, during
periods of rising interest rates, changes in the interest rate of an adjustable
rate security may lag changes in market rates.
The Strategic Fund and the Income Fund may invest in adjustable rate securities
that have interest rates that vary inversely with changes in market rates of
interest. Such securities also may pay a rate of interest determined by applying
a multiple to the variable rate. Increases and decreases in the value of
securities whose rates vary inversely with changes in market rates of interest
generally will be larger than comparable changes in the value of an equal
principal amount of a fixed rate security having similar credit quality,
redemption provisions and maturity.
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The Strategic Fund may purchase floating and variable rate demand bonds and
notes, which are Municipal Obligations ordinarily having stated maturities in
excess of one year but which permit their holder to demand payment of principal
at any time or at specified intervals. Variable rate demand notes include master
demand notes, which permit the Fund to invest fluctuating amounts, which may
change daily without penalty, pursuant to direct arrangements between the Fund,
as lender, and the borrower. These obligations have interest rates that
fluctuate from time to time and frequently are secured by letters of credit or
other credit support arrangements provided by banks. Use of letters of credit or
other credit support arrangements will not adversely affect the tax-exempt
status of variable rate demand notes. Because they are direct lending
arrangements between the lender and borrower, variable rate demand notes
generally will not be traded and no established secondary market generally
exists for them, although they are redeemable at face value. If variable rate
demand notes are not secured by letters of credit or other credit support
arrangements, the Fund's right to demand payment will be dependent on the
ability of the borrower to pay principal and interest on demand. Each obligation
purchased by the Fund will meet the quality criteria established by GEIM for the
purchase of Municipal Obligations. GEIM, on behalf of the Fund, considers on an
ongoing basis the creditworthiness of the issuers of the floating and variable
rate demand obligations in the Fund's portfolio.
Participation Interests. The Strategic Fund may purchase participation interests
in certain Municipal Obligations from financial institutions. A participation
interest gives the Fund an undivided interest in the Municipal Obligation in the
proportion that the Fund's participation interest bears to the total principal
amount of the Municipal Obligation. These instruments may have fixed, floating
or variable rates of interest. If the participation interest is unrated, or has
been given a rating below one that is otherwise permissible for purchase by the
Fund, the participation interest will be backed by an irrevocable letter of
credit or guarantee of a bank that the Trust's Board of Trustees has determined
meets certain quality standards, or the payment obligation otherwise will be
collateralized by U.S. Government Obligations. The Fund will have the right,
with respect to certain participation interests, to demand payment, on a
specified number of days' notice, for all or any part of the Fund's
participation interest in the Municipal Obligation, plus accrued interest. The
Trust intends that the Fund exercise its right to demand payment only upon a
default under the terms of the Municipal Obligation, or to maintain or improve
the quality of its investment portfolio. The Fund will invest no more than 5% of
the value of its total assets in participation interests.
Zero Coupon Obligations. The U.S. Equity Fund, the Strategic Fund and the Income
Fund may invest in zero coupon obligations. Zero coupon obligations pay no
interest to their holders prior to maturity. Instead, the interest accrues (or
builds up) and is paid in a lump sum at maturity. Investors purchase zero coupon
obligations at a deep discount, or prices far lower than par value. Because zero
coupon securities bear no interest, they are more volatile than other
fixed-income securities. When interest rates rise, their values fall more
rapidly then securities paying interest on a current basis. Conversely, when
interest rates fall, the values of zero coupon bonds rise more rapidly then
securities paying interest on a current basis, because the zeros have locked in
a particular rate of reinvestment that becomes more attractive the further rates
fall.
Even though the Funds receive no payments on its zero coupon securities prior to
maturity or disposition, for federal income tax purposes they must distribute
income to shareholders as if payments had actually been made. Each Fund must pay
these dividends to shareholders from its cash assets, from borrowing or by
liquidating portfolio securities. The Fund may have to liquidate portfolio
securities at an inopportune time, such as when securities are thinly traded,
and therefore would sell securities at lower prices. Moreover, to the extent
that portfolio assets must be used to pay distributions, the Fund would lose the
opportunity to use those assets to purchase additional income-producing
securities, and therefore current income may be reduced.
The Strategic Fund may invest up to 10% of its assets in zero coupon Municipal
Obligations, which are generally divided into two categories: "Pure Zero
Obligations," which pay no interest for their entire life and "Zero/Fixed
Obligations," which pay no interest for some initial period and thereafter pay
interest currently. In the case of a Pure Zero Obligation, the failure to pay
interest currently may result from the obligation's having no stated interest
rate, in which case the obligation pays only principal at maturity and is sold
at a discount from its stated principal. A Pure Zero Obligation may, in the
alternative, provide for a stated interest rate, but provide that no interest is
payable until maturity, in which case accrued, unpaid interest on the obligation
may be capitalized as incremental principal. The value to the investor of a zero
coupon Municipal Obligation consists of the economic accretion either of the
difference between the purchase price and the nominal principal amount (if no
interest is stated to accrue) or of accrued, unpaid interest during the
Municipal Obligation's life or payment deferral period.
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Municipal Obligation Components. The Strategic Fund may invest in Municipal
Obligations the interest rate on which has been divided by the issuer into two
different and variable components, which together result in a fixed interest
rate. Typically, the first of the components (the "Auction Component") pays an
interest rate that is reset periodically through an auction process, whereas the
second of the components (the "Residual Component") pays a residual interest
rate based on the difference between the total interest paid by the issuer on
the Municipal Obligation and the auction rate paid on the Auction Component. The
Fund may purchase both Auction and Residual Components. Because the interest
rate paid to holders of Residual Components is generally determined by
subtracting the interest rate paid to the holders of Auction Components from a
fixed amount, the interest rate paid to Residual Component holders will decrease
as the Auction Component's rate increases and increase as the Auction
Component's rate decreases.
Moreover, the extent of the increases and decreases in market value of Residual
Components may be larger than comparable changes in the market value of an equal
principal amount of a fixed rate Municipal Obligation having similar credit
quality, redemption provisions and maturity.
Custody Receipts. The Strategic Fund may acquire custody receipts or
certificates underwritten by securities dealers or banks that evidence ownership
of future interest payments, principal payments, or both, on certain Municipal
Obligations. Similar to depositary receipts, the actual Municipal Obligations
are held in an irrevocable trust or custodial account with a custodian bank,
which then issues receipts or certificates that evidence ownership. Custody
receipts evidencing specific coupon or principal payments have the same general
attributes as zero coupon Municipal Obligations described above. Although under
the terms of a custody receipt, the Fund would be typically authorized to assert
its rights directly against the issuer of the underlying obligation, the Fund
could be required to assert through the custodian bank its rights against the
underlying issuers. Thus, in the event the underlying issuer fails to pay
principal and/or interest when due, the Fund may be subject to delays, expenses
and risks that are greater than those that would have been involved if the Fund
had purchased a direct obligation of the issuer.
Mortgage Related Securities. The mortgage related securities in which the
Strategic Fund and the Income Fund may invest represent pools of mortgage loans
assembled for sale to investors by various governmental agencies, such as GNMA,
by government related organizations, such as FNMA and FHLMC, as well as by
private issuers, such as commercial banks, savings and loan institutions,
mortgage bankers and private mortgage insurance companies.
Several risks are associated with mortgage related securities. The monthly cash
inflow from the underlying loans may be insufficient to meet the monthly payment
requirements of the mortgage related security. Early returns of principal (such
as from prepayments or foreclosures) will shorten the term of the underlying
mortgage pool for a mortgage related security and will affect the average life
of the mortgage related securities the Funds continue to hold. Factors affecting
the occurrence of mortgage prepayments include the level of interest rates,
general economic conditions, the location and age of the mortgaged property and
other social and demographic conditions. When interest rates fall, prepayments
tend to increase, and when they rise, prepayments tend to decrease.
Because prepayments of principal generally occur when interest rates are
declining, the Funds will likely have to reinvest the proceeds of prepayments at
lower interest rates than those at which its assets were previously invested,
resulting in a corresponding decline in the Fund's yield. Thus, mortgage related
securities may have less potential for capital appreciation in periods of
falling interest rates than other fixed income securities of comparable
maturity. To the extent that a Fund purchases mortgage related securities at a
premium, unscheduled prepayments, which are made at par, will result in a loss
equal to any unamortized premium.
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Adjustable rate mortgages, or "ARMs" have interest rates that reset at periodic
intervals. The Funds may invest in ARMs that have maximum annual or lifetime
caps. ARMs have the advantages and risks associated with variable and floating
rate securities (including capped adjustable rate securities) discussed above.
Collateralized mortgage obligations, or "CMOs" are obligations fully
collateralized by a portfolio of mortgages or mortgage related securities.
Payments of principal and interest on the mortgages are passed through to the
holders of the CMOs on the same schedule as they are received, although certain
classes of CMOs have priority over others with respect to the receipt of
prepayments on the mortgages. Therefore, depending on the type of CMOs in which
the Strategic Fund and the Income Fund invest, the investment may be subject to
a greater or lesser risk of prepayment than other types of mortgage related
securities.
To the extent GEIM determines any mortgage related securities are not readily
marketable, each of the Funds would limit its investments in these securities,
together with other illiquid instruments, to not more than 15% of the value of
its net assets.
Government Stripped Mortgage Related Securities. The Strategic Fund and the
Income Fund each may invest in government stripped mortgage related securities
(i.e., the issuer has stripped the security into its interest and principal
components) issued and guaranteed by GNMA, FNMA or FHLMC. These securities
represent beneficial ownership interests in either periodic principal
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distributions ("principal-only") or interest distributions ("interest-only") on
mortgage related certificates. The certificates underlying the government
stripped mortgage related securities represent all or part of the beneficial
interest in pools of mortgage loans. A Fund will invest in government stripped
mortgage related securities in order to enhance yield or to benefit from
anticipated appreciation in value of the securities at times when GEIM believes
that interest rates will remain stable or increase. In periods of rising
interest rates, the expected increase in the value of government stripped
mortgage related securities may offset all or a portion of any decline in value
of a Fund's securities.
Investing in government stripped mortgage related securities involves risks
normally associated with investing in mortgage related securities issued by
government or government related entities. In addition, the yields on government
stripped mortgage related securities are extremely sensitive to the prepayment
experience on the mortgage loans underlying the certificates collateralizing the
securities. If a decline in the level of prevailing interest rates results in a
rate of principal prepayments higher than anticipated, distributions of
principal will be accelerated, thereby reducing the yield to maturity on
interest-only government stripped mortgage related securities and increasing the
yield to maturity on principal-only government stripped mortgage related
securities. Sufficiently high prepayment rates could result in the Strategic
Fund or the Income Fund not fully recovering its initial investment in an
interest-only government stripped mortgage related security.
Under current market conditions, the Funds expect to invest in interest-only
government stripped mortgage related securities. Government stripped mortgage
related securities are currently traded in an over-the-counter market maintained
by several large investment banking firms. The Funds will acquire government
stripped mortgage related securities only if a secondary market for the
securities exists at the time of acquisition, but there can be no assurance that
either Fund will be able to effect a trade of such a security at a desired time.
Except for government stripped mortgage related securities based on fixed rate
FNMA and FHLMC mortgage certificates that meet certain liquidity criteria
established by the Trust's Board of Trustees, the Trust treats government
stripped mortgage related securities as illiquid and will limit each of the
Strategic Fund's and the Income Fund's investments in these securities, together
with other illiquid investments, to not more than 15% of its net assets.
Asset-Backed and Receivable-Backed Securities. The Strategic Fund and the Income
Fund each may invest in asset-backed and receivable-backed securities. These
instruments are secured by and payable from pools of assets, including credit
card receivables and pools of motor vehicle retail installment sales contracts
and security interests in the vehicles securing those contracts. A Fund's return
on an asset- or receivable-backed security may be adversely affected by early
prepayment of underlying sales contracts. In periods of falling interest rates,
there is a general tendency for prepayments to increase, shortening the average
maturity of an asset- or receivable- backed security making it difficult to lock
in higher interest rates. If a creditor defaults on an underlying sales
contract, asset- or receivable-backed securities might be adversely affected if
the full amount receivable on such contract cannot be realized.
Mortgage Dollar Rolls. The Strategic Fund and the Income Fund each may use up to
25% of its total assets to enter into mortgage "dollar rolls." A mortgage dollar
roll transaction requires a Fund to sell a security and simultaneously contract
with purchaser buy similar, but not identical, securities at some future date.
The Fund loses the right to principal and interest payments on the securities
sold. The Fund benefits from a dollar roll to the extent that (i) the price at
which the Fund sells the security exceeds the price at which it buys (i.e., the
"drop" price) similar securities in the future, and (ii) the Fund earns interest
on the cash proceeds from the sale. However, these gains are offset by foregone
interest income and capital appreciation on the securities sold. Therefore a
Fund's overall gains from mortgage dollar roll transactions depend upon GEIM's
ability to predict correctly mortgage prepayments and interest rates. To the
extent that GEIM incorrectly analyzes these factors, the Fund's investment
performance may be diminished compared to what it would have been without the
use of mortgage dollar rolls.
Short Sales Against the Box. The International Fund, the Value Fund, the Mid-Cap
Fund and the Emerging Markets Fund may sell securities "short against the box."
A short sale "against the box" means that at all times when the short position
is open, the Fund owns at least an equal amount of the securities, or securities
convertible into, or exchangeable without further consideration for, securities
of the same issue as the securities sold short. Short sales against the box are
typically used by sophisticated investors to defer recognition of capital gains
or losses.
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GE INSTITUTIONAL FUNDS
o Premier Growth Equity Fund
o U.S. Equity Fund
o International Equity Fund
o Value Equity Fund
o Strategic Investment Fund
o Income Fund
o Money Market Fund
o Mid-Cap Growth Fund
o Emerging Markets Fund
o S&P 500 Index Fund
For information contact you investment professional or call 1-800-[___________]
Statement of Additional Information ("SAI")
The SAI contains more detailed information about the Funds and the Trust. A
current SAI has been filed with the Securities and Exchange Commission and is
incorporated by reference (is legally a part of this Prospectus).
We will forward a free copy of the SAI upon request. To request the SAI, please
write or call:
GE Investment Management Incorporated
3003 Summer Street
Stamford, CT 06905
Telephone: 1-800-[_________________].
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS OR IN THE
STATEMENT OF ADDITIONAL INFORMATION INCORPORATED INTO THIS PROSPECTUS BY
REFERENCE IN CONNECTION WITH THE OFFERING OF SHARES OF GE INSTITUTIONAL FUNDS,
AND IF GIVEN OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY GE INSTITUTIONAL FUNDS. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFER IN ANY STATE IN WHICH, OR TO ANY PERSON TO WHOM, AN
OFFER MAY NOT LAWFULLY BE MADE.
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
STATEMENT OF ADDITIONAL INFORMATION
___________________, 1997
GE INSTITUTIONAL FUNDS
3003 Summer Street, Stamford, Connecticut 06905
For information, call (203) 326-4040
* Emerging Markets Fund * U.S. Equity Fund
* International Equity Fund * S&P 500 Index Fund
* Mid-Cap Growth Fund * Strategic Investment
* Premier Growth Equity Fund * Income Fund
* Value Equity Fund * Money Market Fund
This Statement of Additional Information supplements the information contained
in, and should be read in conjunction with, the current Prospectuses of GE
Institutional Funds (the "Trust") each dated _________________, 1997. Copies of
the Prospectuses may be obtained without charge by calling the Trust at the
telephone number listed above. Information regarding the status of shareholder
accounts may be obtained by calling the Trust at 1-800-_______________ for
Investment Class shareholders and 1-800-_______________ for Service Class
shareholders, or by writing to the Trust at P.O. Box 120065, Stamford, CT
06912-0065. This Statement of Additional Information, although not a prospectus,
is incorporated in its entirety by reference into each Prospectus. Terms that
are defined in the Prospectuses shall have the same meanings in this Statement
of Additional Information.
- - - 1 -
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Contents
Page
----
Investment Objectives and Management Policies..........................1
Investment Restrictions...............................................10
Management of the Trust...............................................14
Redemption of Shares..................................................24
Exchanges ............................................................24
Net Asset Value.......................................................24
Dividends, Distributions and Taxes....................................25
The Funds' Performance................................................29
Performance Calculation...............................................29
Principal Stockholders................................................34
Additional Information................................................34
Counsel...............................................................36
Independent Accountants...............................................36
Financial Statements..................................................36
Appendix.............................................................A-1
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INVESTMENT OBJECTIVES AND MANAGEMENT POLICIES
The Prospectuses dated ________________, 1997 discuss the investment
objectives and policies of the following ten managed investment funds currently
offered by the Trust: Emerging Markets Fund, International Equity Fund (the
"International Fund"), Mid-Cap Growth Fund (the "Mid-Cap Fund"), Premier Growth
Equity Fund (the "Premier Growth Fund"), Value Equity Fund (the "Value Fund"),
U.S. Equity Fund, Income Fund (the "Income Fund"), S&P 500 Index Fund, Strategic
Investment Fund (the "Strategic Fund"), and Money Market Fund. Supplemental
information is set out below concerning certain of the securities and other
instruments in which the Funds may invest, the investment policies and
strategies that the Funds may utilize and certain risks attendant to those
investments, policies and strategies.
Strategies Available to All Funds
WHEN-ISSUED AND DELAYED-DELIVERY SECURITIES. When-issued and
delayed-delivery securities transactions involve the purchase of a security with
payment and delivery at a future date. When a Fund engages in when-issued or
delayed-delivery securities transactions, it relies on the other party to
consummate the trade. Failure of the seller to do so may result in the Fund's
incurring a loss or missing an opportunity to obtain a price considered to be
advantageous.
SECURITIES OF OTHER INVESTMENT COMPANIES. A Fund may invest in securities
of other investment companies to the extent permitted under the Investment
Company Act of 1940, as amended (the "1940 Act"). Presently, under the 1940 Act,
a Fund may hold securities of another investment company in amounts which (a) do
not exceed 3% of the total outstanding voting stock of such company, (b) do not
exceed 5% of the value of the Fund's total assets and (c) when added to all
other investment company securities held by the Fund, do not exceed 10% of the
value of the Fund's total assets. Each Fund other than the Money Market Fund
(each, a "non-money market Fund") may invest up to 25% of its assets in the GEI
Short-Term Investment Fund (the "Investment Fund"), an investment Fund advised
by GEIM. The Investment Fund was specifically created to serve as a vehicle for
the collective investment of cash balances of the investment portfolios of other
management investment companies and accounts advised by either GEIM or its
affiliate, General Electric Investment Corporation ("GEIC"). The Investment Fund
is not considered an investment in another investment company for purposes of
this restriction.
LENDING PORTFOLIO SECURITIES. If a Fund loans its portfolio securities, it
will adhere to the following conditions: (a) the Fund must receive at least 100%
cash collateral or equivalent securities from the borrower; (b) the borrower
must increase the collateral whenever the market value of the securities loaned
rises above the level of the collateral; (c) the Fund must be able to terminate
the loan at any time; (d) the Fund must receive reasonable interest on the loan,
as well as any dividends, interest or other distributions on the loaned
securities, and any increase in market value; (e) the Fund may pay only
reasonable custodian fees in connection with the loan;
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and (f) voting rights on the loaned securities may pass to the borrower except
that, if a material event adversely affecting the investment in the loaned
securities occurs, the Trust's Board of Trustees must terminate the loan and
regain the right to vote the securities. From time to time, a Fund may pay a
part of the interest earned from the investment of collateral received for
securities loaned to the borrower and/or a third party that is unaffiliated with
the Fund and is acting as a "finder."
BANK OBLIGATIONS. Domestic commercial banks organized under Federal law are
supervised and examined by the U.S. Comptroller of the Currency and are required
to be members of the Federal Reserve System and to be insured by the Federal
Deposit Insurance Corporation ("FDIC"). Foreign branches of U.S. banks and
foreign banks are not regulated by U.S. banking authorities and generally are
not bound by mandatory reserve requirements, loan limitations, accounting,
auditing and financial reporting standards comparable to those binding U.S.
banks. Obligations of foreign branches of U.S. banks and foreign banks are
subject to the risks associated with investing in foreign securities generally.
These obligations entail risks that are different from those of investments in
obligations in domestic banks, including foreign economic and political
developments outside the United States, foreign governmental restrictions that
may adversely affect payment of principal and interest on the obligations,
foreign exchange controls and foreign withholding or other taxes on income.
A U.S. branch of a foreign bank may or may not be subject to reserve
requirements imposed by the Federal Reserve System or by the state in which the
branch is located if the branch is licensed in that state. In addition, branches
licensed by the Comptroller of the Currency and branches licensed by certain
states ("State Branches") may or may not be required to: (1) pledge to the
regulator by depositing assets with a designated bank within the state, an
amount of its assets equal to 5% of its total liabilities; and (2) maintain
assets within the state in an amount equal to a specified percentage of the
aggregate amount of liabilities of the foreign bank payable at or through all of
its agencies or branches within the state. The deposits of State Branches may
not necessarily be insured by the FDIC. In addition, less information may be
available to the public about a U.S. branch of a foreign bank than about a U.S.
bank.
RATINGS AS INVESTMENT CRITERIA. The ratings of nationally recognized
statistical rating organizations ("NRSROs") such as Standard & Poor's
Corporation ("S&P") or Moody's Investors Service, Inc. ("Moody's") represent the
opinions of those organizations as to the quality of securities that they rate.
These ratings are relative, subjective and are not absolute standards of
quality. GEIM uses these ratings as initial criteria for the selection of the
Funds' portfolio securities and also relies upon its own analysis to evaluate
potential investments.
A Fund may purchase a security that subsequently ceases to be rated or is
downgraded to a rating below the minimum required for purchase by the Fund.
Although neither event will require a non-money market Fund to sell the
security, GEIM will consider the event in its determination of whether the Fund
should continue to hold the security. In the event of a lowering of the rating
of a security held by the Money Market Fund or a default by the issuer of
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the security, that Fund will dispose of the security as soon as practicable,
unless the Trust's Board of Trustees determines that disposal of the security
would not be in the best interests of the Fund. To the extent that an NRSRO's
ratings change as a result of a change in the NRSRO or its rating system, the
Funds will attempt to use comparable ratings as standards for their investments
in accordance with their investment objectives and policies.
Strategies Available to Some But Not All Funds
SUPRA-NATIONAL AGENCIES. Supra-national agencies include: the International
Bank for Reconstruction and Development (commonly referred to as the World
Bank), which was chartered to finance development projects in developing member
countries; the European Community, which is a twelve-nation organization engaged
in cooperative economic activities; the European Coal and Steel Community, which
is an economic union of various European nations' steel and coal industries; and
the Asian Development Bank, which is an international development bank
established to lend funds, promote investment and provide technical assistance
to member nations in the Asian and Pacific regions. Securities of supra-national
agencies are not considered U.S. Government Obligations and are not supported,
directly or indirectly, by the U.S. Government.
COVERED OPTION WRITING. The Funds with option-writing authority will write
(i.e., sell) only options that are covered. A call option written by a Fund will
be deemed covered (1) if the Fund owns the securities underlying the call or has
an absolute and immediate right to acquire those securities without additional
cash consideration upon conversion or exchange of other securities held in its
portfolio, (2) if the Fund holds a call at the same exercise price for the same
exercise period and on the same securities as the call written, (3) in the case
of a call option on a stock index, if the Fund owns a portfolio of securities
substantially replicating the movement of the index underlying the call option,
or (4) if at the time the call is written, an amount of cash, U.S. Government
Obligations or other liquid assets equal to the fluctuating market value of the
optioned securities, is segregated with the Trust's custodian or with a
designated sub-custodian. A put option will be deemed covered (1) if, at the
time the put is written, an amount of cash, U.S. Government Obligations or other
liquid assets, having a value at least equal to the exercise price of the
underlying securities is segregated with the Trust's custodian or with a
designated sub-custodian, or (2) if the Fund continues to own an equivalent
number of puts of the same "series" (that is, puts on the same underlying
securities having the same exercise prices and expiration dates as those written
by the Fund), or an equivalent number of puts of the same "class" (that is, puts
on the same underlying securities) with exercise prices greater than those that
it has written (or if the exercise prices of the puts it holds are less than the
exercise prices of those it has written, the difference is segregated with the
Trust's custodian or with a designated sub-custodian).
The principal reason for writing covered call options on a securities
portfolio is to attempt to make more money from the receipt of premiums than
would be realized on the securities alone. In return for a premium, the writer
of a covered call option forfeits the right to any
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<PAGE>
appreciation in the value of the underlying security above the strike price for
the life of the option (or until a closing purchase transaction can be
effected). Nevertheless, the call writer retains the risk of a decline in the
price of the underlying security. Similarly, the principal reason for writing
covered put options is to realize income in the form of premiums. The writer of
a covered put option accepts the risk of a decline in the price of the
underlying security. The size of the premiums that a Fund may receive may be
adversely affected as new or existing institutions, including other investment
companies, engage in or increase their option-writing activities.
Options written by a Fund will normally have expiration dates between one
and nine months from the date written. The exercise price of the options may be
below, equal to or above the market values of the underlying securities at the
times the options are written. The exercise prices relative to the market is
referred to as "in-the-money," "at-the-money" and "out-of-the-money,"
respectively. In-the-money options are those where the current market price is
above the strike price for calls and below it for puts. At-the-money options are
those where the current price and the strike price are the same.
Out-of-the-money options are those whose strike price is higher than its current
market value in the case of a call, or lower in the case of a put.
So long as the obligation of a Fund as the writer of an option continues,
the Fund may be assigned an exercise notice by the broker-dealer through which
the option was sold, requiring the Fund to deliver, in the case of a call, or
take delivery of, in the case of a put, the underlying security against payment
of the exercise price. This obligation terminates when the option expires or the
Fund effects a closing purchase transaction. A Fund can no longer effect a
closing purchase transaction with respect to an option once it has been assigned
an exercise notice. To secure its obligation to deliver the underlying security
when it writes a call option, or to pay for the underlying security when it
writes a put option, a Fund will be required to deposit in escrow the underlying
security or other assets in accordance with the rules of the Options Clearing
Corporation (the "Clearing Corporation") and of the securities exchange on which
the option is written.
An option position may be closed out only if a secondary market exists for
an option of the same series on a recognized securities exchange or in the
over-the-counter market. In light of the need for a secondary market in which to
close an option position, the Funds are expected to purchase only call or put
options issued by the Clearing Corporation. GEIM expects that the Funds will
write options, other than those on U.S. Government Obligations, only on national
securities exchanges. Options on U.S. Government Obligations may be written by
the Funds in the over-the-counter market.
A Fund may realize a profit or loss upon entering into closing
transactions. When a Fund has written an option, it will realize a profit if the
cost of the closing purchase transaction is less than the premium received upon
writing the original option; the Fund will incur a loss if the cost of the
closing purchase transaction exceeds the premium received upon writing the
original
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<PAGE>
option. When a Fund has purchased an option and engages in a closing sale
transaction, whether the Fund realizes a profit or loss will depend upon whether
the amount received in the closing sale transaction is more or less than the
premium the Fund initially paid for the original option plus the related
transaction costs.
STOCK INDEX OPTIONS. Certain Funds may purchase and write put and call
options on stock indexes or stock index futures contracts that are traded on a
U.S. exchange or board of trade or a foreign exchange, to the extent permitted
under rules and interpretations of the Commodity Futures Trading Commission
("CFTC"), as a hedge against changes in market conditions and interest rates,
and for duration management, and may enter into closing transactions with
respect to those options to terminate existing positions. A stock index
fluctuates with changes in the market values of the stocks included in the
index. Stock index options may be based on a broad or narrow market index or on
an industry or market segment.
The delivery requirements of options on stock indexes differ from options
on stock. Unlike a stock option, which contemplates the right to take or make
delivery of stock at a specified price, an option on a stock index gives the
holder the right to receive a cash "exercise settlement amount" equal to (1) the
amount, if any, by which the fixed exercise price of the option exceeds (in the
case of a put) or is less than (in the case of a call) the closing value of the
underlying index on the date of exercise, multiplied by (2) a fixed "index
multiplier." Receipt of this cash amount will depend upon the closing level of
the stock index upon which the option is based being greater than, in the case
of a call, or less than, in the case of a put, the exercise price of the option.
The amount of cash received will be equal to the difference between the closing
price of the index and the exercise price of the option expressed in dollars
times a specified multiple. The writer of the option is obligated, in return for
the premium received, to make delivery of this amount. The writer may offset its
position in stock index options prior to expiration by entering into a closing
transaction on an exchange or the purchaser may allow the option to expire
unexercised.
The effectiveness of purchasing or writing stock index options as a hedging
technique will depend upon the extent to which price movements in the portion of
a securities portfolio being hedged correlate with price movements of the stock
index selected. Because the value of an index option depends upon movements in
the level of the index rather than the price of a particular stock, whether a
Fund realizes a gain or loss from the purchase or writing of options on an index
depends upon movements in the level of stock prices in the stock market
generally or, in the case of certain indexes, in an industry or market segment,
rather than movements in the price of a particular stock. As a result,
successful use by a Fund of options on stock indexes is subject to GEIM's
ability to predict correctly movements in the direction of the stock market
generally or of a particular industry. This ability contemplates different
skills and techniques from those used in predicting changes in the price of
individual stocks.
FUTURES CONTRACTS. A Fund neither pays nor receives consideration upon
trading a futures contract. Upon entering into a futures contract, cash,
short-term U.S. Government
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Obligations or other U.S. dollar-denominated, high-grade, short-term money
market instruments, equal to approximately 1% to 10% of the contract amount,
will be segregated with the Trust's custodian or a designated sub-custodian.
This amount, which is subject to change by the exchange on which the contract is
traded, is known as "initial margin" and is in the nature of a performance bond
or good faith deposit on the contract. The initial margin is returned to the
Fund upon termination of the futures contract, so long as all contractual
obligations have been satisfied. The broker will have access to amounts in the
margin account if the Fund fails to meet its contractual obligations. Subsequent
payments, known as "variation margin," to and from the broker, will be made
daily as the price of the securities underlying the futures contract fluctuates,
making the long and short positions in the contract more or less valuable, a
process known as "marking-to-market." At any time prior to the expiration of a
futures contract, a Fund may elect to close a position by taking an opposite
position, which will operate to terminate the Fund's existing position in the
contract.
Although the Trust intends that the Funds enter into futures contracts only
if an active market exists for the contracts, no assurance can be given that an
active market will exist for the contracts at any particular time. Most U.S.
futures exchanges and boards of trade limit the amount of fluctuation permitted
in futures contract prices during a single trading day. Once the daily limit has
been reached in a particular contract, no trades may be made on that day at a
price beyond that limit. Futures contract prices may move to the daily limit for
several consecutive trading days with little or no trading, thereby preventing
prompt liquidation of futures positions and subjecting some futures traders to
substantial losses. In such a case, and in the event of adverse price movements,
a Fund would be required to make daily cash payments of variation margin. In
such circumstances, an increase in the value of the portion of the portfolio
being hedged, if any, may partially or completely offset losses on the futures
contract.
If a Fund has hedged against the possibility of an increase in interest
rates and rates decrease instead, the Fund will lose part or all of the benefit
of the increased value of securities that it has hedged because it will have
offsetting losses in its futures positions. In addition, in such situations, if
the Fund had insufficient cash, it may have to sell securities to meet daily
variation margins requirements at a time when it may be disadvantageous to do
so. These sales of securities may, but will not necessarily, be at increased
prices that reflect the decline in interest rates.
OPTIONS ON FUTURES CONTRACTS. An option on a futures contract, unlike a
direct investment in such a contract, gives the purchaser the right, in return
for the premium paid, to assume a position in the futures contract at a
specified exercise price at any time prior to the expiration date of the option.
Upon exercise of an option, the delivery of the futures position by the writer
of the option to the holder of the option will be accompanied by delivery of the
accumulated balance in the writer's futures margin account, which represents the
amount by which the market price of the futures contract exceeds, in the case of
a call, or is less than, in the case of a put, the exercise price of the option
on the futures contract. The potential loss related to the purchase of an option
on futures contracts is limited to the premium paid for the option (plus
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transaction costs). Because the price of the option to the purchaser is fixed at
the point of sale, no daily cash payments are made to reflect changes in the
value of the underlying contract. The value of the option, however, does change
daily and that change would be reflected in the net asset value of the Fund
holding the options.
FORWARD CURRENCY TRANSACTIONS. The cost to a Fund of engaging in currency
transactions varies with factors such as the currency involved, the length of
the contract period and the market conditions then prevailing. Because
transactions in currency exchange are usually conducted on a principal basis, no
fees or commissions are involved. The use of forward currency contracts does not
eliminate fluctuations in the underlying prices of the securities, but it does
establish a rate of exchange that can be achieved in the future. In addition,
although forward currency contracts limit the risk of loss due to a decline in
the value of the hedged currency, at the same time they limit any potential gain
that might result should the value of the currency increase. If a devaluation is
generally anticipated, a Fund may not be able to sell currency at a price above
the anticipated devaluation level. A Fund will not enter into a currency
transaction if, as a result, it will fail to qualify as a regulated investment
company under the Internal Revenue Code of 1986, as amended (the "Code"), for a
given year.
OPTIONS ON FOREIGN CURRENCIES. Certain transactions involving options on
foreign currencies are undertaken on contract markets that are not regulated by
the CFTC. Options on foreign currencies traded on national securities exchanges
are within the jurisdiction of the Securities and Exchange Commission (the
"SEC"), as are other securities traded on those exchanges. As a result, many of
the protections provided to traders on organized exchanges will be available
with respect to those transactions. In particular, all foreign currency option
positions entered into on a national securities exchange are cleared and
guaranteed by the Clearing Corporation, thereby reducing the risk of
counterparty default. In addition, a liquid secondary market in options traded
on a national securities exchange may exist, potentially permitting a Fund to
liquidate open positions at a profit prior to exercise or expiration, or to
limit losses in the event of adverse market movements.
The purchase and sale of exchange-traded foreign currency options are
subject to the risks of the availability of a liquid secondary market as
described above, as well as the risks regarding adverse market movements,
margining of options written, the nature of the foreign currency market,
possible intervention by governmental authorities and the effects of other
political and economic events. In addition, exercise and settlement of
exchange-traded foreign currency options must be made exclusively through the
Clearing Corporation, which has established banking relationships in applicable
foreign countries for this purpose. As a result, the Clearing Corporation may,
if it determines that foreign governmental restrictions or taxes would prevent
the orderly settlement of foreign currency option exercises, or would result in
undue burdens on the Clearing Corporation or its clearing members, impose
special procedures on exercise and settlement, such as technical changes in the
mechanics of delivery of currency, the fixing of dollar settlement prices or
prohibitions on exercise.
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Options on foreign currencies may be traded on foreign exchanges, to the
extent permitted by the CFTC. These transactions are subject to the risk of
governmental actions affecting trading in or the prices of foreign currencies or
securities. The value of these positions could also be adversely affected by (1)
other complex foreign political and economic factors, (2) lesser availability of
data on which to make trading decisions than in the United States, (3) delays in
a Fund's ability to act upon economic events occurring in foreign markets during
non-business hours in the United States, (4) the imposition of different
exercise and settlement terms and procedures and margin requirements than in the
United States and (5) lesser trading volume.
MUNICIPAL OBLIGATIONS. The term "Municipal Obligations" as used in the
Prospectus and this Statement of Additional Information means debt obligations
issued by, or on behalf of, states, territories and possessions of the United
States and the District of Columbia and their political subdivisions, agencies
and instrumentalities or multistate agencies or authorities, the interest from
which debt obligations is, in the opinion of bond counsel to the issuer,
excluded from gross income for Federal income tax purposes. Municipal
Obligations generally are understood to include debt obligations issued to
obtain funds for various public purposes, including the construction of a wide
range of public facilities, refunding of outstanding obligations, payment of
general operating expenses and extensions of loans to public institutions and
facilities. Private activity bonds that are issued by or on behalf of public
authorities to finance privately operated facilities are considered to be
Municipal Obligations if the interest paid on them qualifies as excluded from
gross income (but not necessarily from alternative minimum taxable income) for
Federal income tax purposes in the opinion of bond counsel to the issuer.
Municipal Obligations may be issued to finance life care facilities, which
are an alternative form of long-term housing for the elderly that offer
residents the independence of a condominium life-style and, if needed, the
comprehensive care of nursing home services. Bonds to finance these facilities
have been issued by various state industrial development authorities. Because
the bonds are secured only by the revenues of each facility and not by state or
local government tax payments, they are subject to a wide variety of risks,
including a drop in occupancy levels, the difficulty of maintaining adequate
financial reserves to secure estimated actuarial liabilities, the possibility of
regulatory cost restrictions applied to health care delivery and competition
from alternative health care or conventional housing facilities.
Municipal leases are Municipal Obligations that may take the form of a
lease or an installment purchase contract issued by state and local governmental
authorities to obtain funds to acquire a wide variety of equipment and
facilities such as fire and sanitation vehicles, computer equipment and other
capital assets. These obligations have evolved to make it possible for state and
local government authorities to acquire property and equipment without meeting
constitutional and statutory requirements for the issuance of debt. Thus,
municipal leases have special risks not normally associated with Municipal
Obligations. These obligations frequently contain "non-appropriation" clauses
that provide that the governmental issuer of the obligation has no obligation to
make future payments under the lease or contract unless money is
8
<PAGE>
appropriated for those purposes by the legislative body on a yearly or other
periodic basis. In addition to the non-appropriation risk, municipal leases
represent a type of financing that has not yet developed the depth of
marketability associated with other Municipal Obligations. Moreover, although
municipal leases will be secured by the leased equipment, the disposition of the
equipment in the event of foreclosure might prove to be difficult.
Tax legislation in recent years has included several provisions that may
affect the supply of, and the demand for, Municipal Obligations, as well as the
tax-exempt nature of interest paid on those obligations. Neither the Trust nor
GEIM can predict with certainty the effect of recent tax law changes upon the
Municipal Obligation market, including the availability of instruments for
investment by a Fund. In addition, neither the Trust nor GEIM can predict
whether additional legislation adversely affecting the Municipal Obligation
market will be enacted in the future. The Trust monitors legislative
developments and considers whether changes in the objective or policies of a
Fund need to be made in response to those developments.
MORTGAGE RELATED SECURITIES. The average maturity of pass-through pools of
mortgage related securities in which certain of the Funds may invest varies with
the maturities of the underlying mortgage instruments. In addition, a pool's
stated maturity may be shortened by unscheduled payments on the underlying
mortgages. Factors affecting mortgage prepayments include the level of interest
rates, general economic and social conditions, the location of the mortgaged
property and age of the mortgage. Because prepayment rates of individual
mortgage pools vary widely, the average life of a particular pool cannot be
predicted accurately.
Mortgage related securities may be classified as private, governmental or
government-related, depending on the issuer or guarantor. Private mortgage
related securities represent pass-through pools consisting principally of
conventional residential mortgage loans created by non-governmental issuers,
such as commercial banks, savings and loan associations and private mortgage
insurance companies. Governmental mortgage related securities are backed by the
full faith and credit of the United States. GNMA, the principal U.S. guarantor
of these securities, is a wholly-owned U.S. government corporation within the
Department of Housing and Urban Development. Government-related mortgage related
securities are not backed by the full faith and credit of the United States.
Issuers include FNMA and FHLMC. FNMA is a government-sponsored corporation owned
entirely by private stockholders, which is subject to general regulation by the
Secretary of Housing and Urban Development. Pass-through securities issued by
FNMA are guaranteed as to timely payment of principal and interest by FNMA.
FHLMC is a corporate instrumentality of the United States, the stock of which is
owned by the Federal Home Loan Banks. Participation certificates representing
interests in mortgages from FHLMC's national portfolio are guaranteed as to the
timely payment of interest and ultimate collection of principal by FHLMC.
Private, governmental or government-related entities may create mortgage
loan pools offering pass-through investments in addition to those described
above. The mortgages underlying these securities may be alternative mortgage
instruments, that is, mortgage
9
<PAGE>
instruments whose principal or interest payments may vary or whose terms to
maturity may be shorter than previously customary. GEIM assesses new types of
mortgage related securities as they are developed and offered to determine their
appropriateness for investment by the relevant Fund.
ASSET-BACKED AND RECEIVABLE-BACKED SECURITIES. To date, several types of
asset-backed and receivable-backed securities have been offered to investors
including "Certificates for Automobile Receivables" ("CARs[sm]") and interests
in pools of credit card receivables. CARs[sm] represent undivided fractional
interests in a trust, the assets of which consist of a pool of motor vehicle
retail installment sales contracts and security interests in the vehicles
securing the contracts. Payments of principal and interest on CARs[sm] are
passed through monthly to certificate holders and are guaranteed up to certain
amounts and for a certain time period by a letter of credit issued by a
financial institution unaffiliated with the trustee or originator of the trust.
An investor's return on CARs[sm] may be affected by early prepayment of
principal on the underlying vehicle sales contracts. If the letter of credit is
exhausted, an investor may be prevented from realizing the full amount due on a
sales contract because of state law requirements and restrictions relating to
foreclosure sales of vehicles and the availability of deficiency judgments
following these sales, because of depreciation, damage or loss of a vehicle,
because of the application of Federal and state bankruptcy and insolvency laws
or other factors. As a result, certificate holders may experience delays in
payment if the letter of credit is exhausted.
INVESTMENT RESTRICTIONS
Investment restrictions numbered 1 through 10 below have been adopted by
the Trust as fundamental policies of the Funds. Under the 1940 Act, a
fundamental policy may not be changed with respect to a Fund without the vote of
a majority of the outstanding voting securities (as defined in the 1940 Act) of
the Fund. Investment restrictions 11 through 15 may be changed by a vote of the
Board of Trustees at any time.
1. No Fund may borrow money, except that a Fund may enter into reverse
repurchase agreements and may borrow from banks for temporary or emergency (not
leveraging) purposes, including the meeting of redemption requests and cash
payments of dividends and distributions that might otherwise require the
untimely disposition of securities, in an amount not to exceed 33-1/3% of the
value of the Fund's total assets (including the amount borrowed) valued at
market less liabilities (not including the amount borrowed) at the time the
borrowing is made. Whenever borrowings, including reverse repurchase agreements,
of 5% or more of a Fund's total assets are outstanding, the Fund will not make
any additional investments.
10
<PAGE>
2. No Fund may lend its assets or money to other persons, except through
(a) purchasing debt obligations, (b) lending portfolio securities in an amount
not to exceed 30% of the Fund's assets taken at market value, (c) entering into
repurchase agreements, (d) trading in financial futures contracts, index futures
contracts, securities indexes and options on financial futures contracts,
options on index futures contracts, options on securities and options on
securities indexes (except that the S&P 500 Index Fund shall not enter into
financial futures contracts, or acquire options thereon if, immediately
thereafter, the total of the initial margin deposits required with respect to
all open futures positions, at the time such positions were established, plus
the sum of the premiums paid for all unexpired options on futures contracts,
would exceed 5% of that Fund's total assets) and (e) entering into variable rate
demand notes.
3. No Fund may purchase securities (other than U.S. Government Obligations)
of any issuer if, as a result of the purchase, more than 5% of the Fund's total
assets would be invested in the securities of the issuer, except that up to 25%
of the value of the total assets of each non-money market Fund may be invested
without regard to this limitation. All securities of a foreign government and
its agencies will be treated as a single issuer for purposes of this
restriction.
4. No Fund may purchase more than 10% of the voting securities of any one
issuer, or more than 10% of the outstanding securities of any class of issuer,
except that (a) this limitation is not applicable to a Fund's investments in
U.S. Government Obligations and (b) up to 25% of the value of the assets of a
non-money market Fund may be invested without regard to these 10% limitations.
All securities of a foreign government and its agencies will be treated as a
single issuer for purposes of this restriction.
5. No Fund may invest more than 25% of the value of its total assets in
securities of issuers in any one industry unless the securities are backed only
by the assets and revenues of non-governmental issuers. For purposes of this
restriction, the term industry will be deemed to include (a) the government of
any one country other than the United States, but not the U.S. Government and
(b) all supra-national organizations. In addition, securities held by the Money
Market Fund that are issued by domestic banks are excluded from this
restriction.
6. No Fund may underwrite any issue of securities, except to the extent
that the sale of portfolio securities in accordance with the Fund's investment
objective, policies and limitations may be deemed to be an underwriting, and
except that the Fund may acquire securities under circumstances in which, if the
securities were sold, the Fund might be deemed to be an underwriter for purposes
of the Securities Act of 1933, as amended.
7. No Fund may purchase or sell real estate or real estate limited
partnership interests, or invest in oil, gas or mineral leases, or mineral
exploration or development programs, except that a Fund may (a) invest in
securities secured by real estate, mortgages or interests in real estate or
mortgages, (b) purchase securities issued by companies that invest or deal in
real estate, mortgages or interests in real estate or mortgages, (c) engage in
the purchase and sale of
11
<PAGE>
real estate as necessary to provide it with an office for the transaction of
business or (d) acquire real estate or interests in real estate securing an
issuer's obligations, in the event of a default by that issuer.
8. No Fund may make short sales of securities or maintain a short position,
unless at all times when a short position is open, the Fund owns an equal amount
of the securities or securities convertible into or exchangeable for, without
payment of any further consideration, securities of the same issue as, and equal
in amount to, the securities sold short.
9. No Fund may purchase securities on margin, except that a Fund may obtain
any short-term credits necessary for the clearance of purchases and sales of
securities. For purposes of this restriction, the deposit or payment of initial
or variation margin in connection with futures contracts, financial futures
contracts or related options, and options on securities, options on securities
indexes and options on currencies will not be deemed to be a purchase of
securities on margin by a Fund.
10. No Fund may invest in commodities, except that each non-money market
Fund may invest in futures contracts (including financial futures contracts,
index futures contracts or securities index futures contracts) and related
options and other similar contracts (including foreign currency forward, futures
and options contracts) as described in this Statement of Additional Information
and in the Prospectus.
11. No Fund may invest in companies for the purpose of exercising control
or management.
12. No Fund may purchase securities (other than U.S. Government
Obligations) if, as a result of the purchase, the Fund would then have more than
5% of its total assets invested in securities of companies (including
predecessors) that have been in continuous operation for fewer than three years.
13. No Fund may purchase illiquid securities if more than 15% of the total
assets of the Fund (10% of the net assets of the S&P 500 Index Fund) would be
invested in illiquid securities; the Money Market Fund will not purchase
illiquid securities. For purposes of this restriction, illiquid securities are
securities that cannot be disposed of by a Fund within seven days in the
ordinary course of business at approximately the amount at which the Fund has
valued the securities.
14. No Fund may purchase restricted securities if more than 10% of the
total assets of the Fund would be invested in restricted securities; the S&P 500
Index Fund may not purchase restricted securities. Restricted securities are
securities that are subject to contractual or legal restrictions on transfer,
excluding for purposes of this restriction, restricted securities that are
eligible for resale pursuant to Rule 144A under the Securities Act of 1933, as
amended ("Rule 144A Securities"), that have been determined to be liquid by the
Trust's Board of Trustees based
12
<PAGE>
upon the trading markets for the securities. In no event, however, will any
Fund's investment in illiquid and non-publicly traded securities, in the
aggregate, exceed 15% of its assets. In addition, no Fund may invest more than
50% of its net assets in securities of unseasoned issuers and restricted
securities, including for purposes of this restriction, Rule 144A Securities.
15. No Fund may issue senior securities except as otherwise permitted by
the 1940 Act and as otherwise permitted herein.
The Trust may make commitments more restrictive than the restrictions
listed above with respect to a Fund to permit the sale of shares of the Fund in
certain states. Should the Trust determine that any such commitment is no longer
in the best interests of a Fund and its shareholders, the Trust will revoke the
commitment by terminating the sale of shares of the Fund in the state involved
or may otherwise modify its commitment based on a change in the state's
restrictions. The percentage limitations in the restrictions listed above apply
at the time of purchases of securities. For purposes of investment restriction
number 5, the Trust may use the industry classifications reflected by the S&P
500 Composite Stock Index, if applicable at the time of determination. For all
other portfolio holdings, the Trust may use the Directory of Companies Required
to File Annual Reports with the SEC and Bloomberg Inc. In addition, the Trust
may select its own industry classifications, provided such classifications are
reasonable.
Portfolio Transactions and Turnover
Decisions to buy and sell securities for each Fund are made by GEIM,
subject to review by the Trust's Board of Trustees. Transactions on domestic
stock exchanges and some foreign stock exchanges involve the payment of
negotiated brokerage commissions. On exchanges on which commissions are
negotiated, the cost of transactions may vary among different brokers. On most
foreign exchanges, commissions are fixed. No stated commission will be generally
applicable to securities traded in U.S. over-the-counter markets, but the prices
of those securities include undisclosed commissions or mark-ups. The cost of
securities purchased from underwriters include an underwriting commission or
concession, and the prices at which securities are purchased from and sold to
dealers include a dealer's mark-up or mark-down. U.S. Government Obligations
generally will be purchased on behalf of a Fund from underwriters or dealers,
although certain newly issued U.S. Government Obligations may be purchased
directly from the U.S. Treasury or from the issuing agency or instrumentality.
In selecting brokers or dealers to execute securities transactions on
behalf of a Fund, GEIM seeks the best overall terms available. In assessing the
best overall terms available for any transaction, GEIM considers factors that it
deems relevant, including the breadth of the market in the security, the price
of the security, the financial condition and execution capability of the broker
or dealer and the reasonableness of the commission, if any, for the specific
transaction and on a continuing basis. In addition, the investment advisory
agreement between the Trust and GEIM relating to each Fund authorizes GEIM, on
behalf of the Fund, in selecting brokers or dealers to execute a particular
transaction, and in evaluating the best overall terms available, to
13
<PAGE>
consider the brokerage and research services (as those terms are defined in
Section 28(e) of the Securities Exchange Act of 1934) provided to the Fund
and/or other accounts over which GEIM or its affiliates exercise investment
discretion. The fees under the investment advisory agreement relating to a Fund
will not be reduced by reason of the Fund's receiving brokerage and research
services. The Trust's Board of Trustees periodically reviews the commissions
paid by a Fund to determine if the commissions paid over representative periods
of time were reasonable in relation to the benefits inuring to the Fund.
Over-the-counter purchases and sales on behalf of the Funds will be transacted
directly with principal market makers except in those cases in which better
prices and executions may be obtained elsewhere. A Fund will not purchase any
security, including U.S. Government Obligations, during the existence of any
underwriting or selling group relating to the security of which any affiliate of
the Fund or GEIM is a member, except to the extent permitted under rules,
interpretations or exemptions of the SEC. GEIM may select broker-dealers who are
affiliated with the Trust or GEIM. GEIM will pay brokerage commissions to
affiliates only if it believes that such commissions are fair and reasonable.
The Money Market Fund may attempt to increase its yield by trading to take
advantage of short-term market variations, which trading would result in the
Fund's experiencing high portfolio turnover. Because purchases and sales of
money market instruments are usually effected as principal transactions,
however, this type of trading by the Money Market Fund will not result in the
Fund's paying high brokerage commissions.
MANAGEMENT OF THE TRUST
Trustees and Officers
The names of the Trustees and executive officers of the Trust, their
addresses and their principal occupations during the past five years and their
other affiliations are shown below. The executive officers of the Trust are
employees of organizations that provide services to the Funds. An asterisk
appears before the name of each Trustee who is an "interested person" of the
Trust, as defined in the 1940 Act.
14
<PAGE>
<TABLE>
<CAPTION>
AGE AND PRINCIPAL OCCUPATION(S)
NAME AND ADDRESS POSITIONS HELD WITH TRUST DURING PAST FIVE YEARS
- - ---------------- ------------------------- -------------------------------
<S> <C> <C>
*Michael J. Cosgrove+ Chairman of the Board Age 47. Executive Vice President -
3003 Summer Street and President Mutual Funds of GEIM and GEIC,
Stamford, CT 06905 each a wholly-owned subsidiary of
General Electric Company ("GE") that and
each is registered as an investment
adviser under the Investment Advisers Act
of 1940, as amended, since March 1993
(responsibilities include general
management of all mutual funds managed by
GEIM and GEIC) and Director of GEIC and
Executive Vice President and Director of
GEIM since 1988; from 1988 until 1993,
Mr. Cosgrove served as Executive Vice
President - Finance and Administration of
GEIM and GEIC.
*Alan M. Lewis+ Trustee and Executive Age 51. Executive Vice President,
3003 Summer Street Vice President General Counsel and Secretary
Stamford, CT 06905 of GEIM since 1988 and
of GEIC since October 1987.
15
<PAGE>
John R. Constantino++ Trustee Age 51. Managing Director, Walden
150 East 58th Street Partners, Ltd., consultants and
New York, NY 10055 investors, since August 1992;
President, CMG Acquisition Corp., Inc., a
holding company, since 1988; Vice
Chairman, Acoustiguide Holdings, Inc., a
holding company, since 1989; President
CMG/IKH, Inc., a holding company, since
1991; Director, Crossland Federal Savings
Bank, a financial institution since [ ];
Director, Brooklyn Bankcorp, Inc., a
financial institution since [ ] Director,
IK Holdings, Inc., a holding company,
since 1991; Director, I. Kleinfeld & Son,
Inc., a retailer, since 1991; Director,
High Performance Appliances, Inc., a
distributor of kitchen appliances
("HPA"), since 1991; Director, HPA Hong
Kong, Ltd., a service subsidiary of HPA,
since 1991; Director, Lancit Media
Productions, Ltd., a children's and
family television film and videotape
production company, since 1995; Partner,
Costantino Melamede-Greenberg Investment
Partners, a general investment
partnership, from September 1987 through
August 1992.
William J. Lucas++ Trustee Age 50. Vice President and Treasurer
Fairfield University of Fairfield University since 1983.
North Benson Road
Fairfield, CT 06430
Robert P. Quinn++ Trustee Age 61. Retired since 1983 from
45 Shinnecock Road Salomon Brothers Inc.; Director, GP Financial
Quogue, NY 11959 Corp., a holding company, since 1994;
Director, The Greenpoint Savings Bank, a
financial institution, since 1987.
16
<PAGE>
*Jeffrey A. Groh Treasurer Age 35. Treasurer and Controller of
3003 Summer Street GEIM and GEIC since August 1994;
Stamford, CT 06905 from [________] to August 1994, Senior
Manager in Investment
Company Services Group and
certified public accountant
with Price Waterhouse LLP.
*Matthew J. Simpson Secretary Age 35. Vice President, Associate
3003 Summer Street General Counsel and Assistant
Stamford, CT 06905 Secretary of GEIM and GEIC since
October 1992; attorney with
the law firm of Baker &
McKenzie, April 1991 to
October 1992; prior to April
1991, an attorney with the
law firm of Spengler Carlson
Gubar Brodsky & Frischling.
</TABLE>
- - ----------
+ Messrs. Cosgrove and Lewis serve as Trustees of three investment companies
advised by GEIM and of eight investment companies advised by GEIC. They are
considered to be interested persons of each investment company advised by
GEIM or GEIC, as defined under Section 2(a)(19) of the 1940 Act, and
accordingly, serve as Trustees thereof without compensation.
++ Messrs. Costantino, Lucas and Quinn serve as Trustees of three investment
companies advised by GEIM and the compensation is for their services as
Trustees of all companies.
No employee of General Electric Company ("GE") or any of its affiliates receives
any compensation from the Trust for acting as a Trustee or officer of the Trust.
Each Trustee of the Trust who is not a director, officer or employee of GEIM, GE
Investment Services Inc. (the "Distributor"), GE, or any affiliate of those
companies, receives an annual fee of $10,000 for services as Trustee. In
addition, each Trustee receives $500 for each meeting of the Trust's Board of
Trustees attended by the Trustee and is reimbursed for expenses incurred in
connection with attendance at Board meetings.
17
<PAGE>
COMPENSATION TABLE*
NAME OF TRUSTEE TOTAL COMPENSATION FROM TOTAL COMPENSATION FOR ALL
THE TRUST INVESTMENT COMPANIES
MANAGED BY GEIM OR
GEIC
- - --------------------------------------------------------------------------------
Michael J. Cosgrove None None
Alan M. Lewis None None
John R. Costantino [TBD] [TBD]
William J. Lucas [TBD] [TBD]
Robert P. Quinn [TBD] [TBD]
* The Trust has not yet completed a full fiscal year since its organization.
The amounts shown are estimates of future payments that will be received by
the Trustees for the fiscal year ended [_______, 1998]. The Trustees will
not receive any pension or retirement benefits accrued as part of Fund
expenses.
Investment Adviser and Administrator
GEIM serves as the Trust's investment adviser and administrator. GEIM is
registered as an investment adviser under the Investment Advisers Act of 1940,
as amended and is located at 3003 Summer Street, Stamford, Connecticut 06905.
GEIM, which was formed under the laws of Delaware in 1988, is a wholly owned
subsidiary of GE. GEIM currently provides advisory services with respect to [__]
other mutual funds and a number of other private institutional accounts. The
professionals responsible for the investment operations of GEIM serve in similar
capacities with respect to GEIC, a sister company of GEIM wholly owned by GE,
which provides investment advisory services with respect to GE's pension and
benefit plans and a number of funds offered exclusively to GE employees,
retirees and certain related persons. These funds include the Elfun family of
Funds (the first of which, Elfun Trusts, was established in 1935) and the funds
offered as part of GE's 401(k) program (also known as the GE Savings and
Security Program), which are referred to as the GE S&S Program Mutual Fund and
the GE S&S Long Term Interest Fund. The investment professionals at GEIM and
GEIC and their predecessors have managed GE's pension assets since 1927. As of
_________________________, 1997 GEIM and GEIC managed assets in excess of $[___]
billion, including roughly $[___] billion in mutual fund assets.
18
<PAGE>
GEIM Investment Advisory and Administration Agreement
The duties and responsibilities of GEIM are specified in an investment
advisory and administration agreement (the "Advisory Agreement") between GEIM
and the Trust on behalf of the Funds. Under the Advisory Agreement, GEIM
provides a continuous investment program for each Fund's assets, including
investment research and management. GEIM determines what investments are
purchased, retained or sold by the Funds and places purchase and sale orders for
the Funds' investments. GEIM provides the Trust with all executive,
administrative, clerical and other personnel necessary to operate each Fund, and
pays salaries and other employment-related costs of employing these persons.
GEIM furnishes the Trust and each Fund with office space, facilities, and
equipment and pays the day-to-day expenses related to the operation of such
space, facilities and equipment. GEIM, as administrator, also: (1) maintains the
books and records of each Fund; (2) prepares reports to shareholders of each
Fund; (3) prepares and files tax returns for each Fund; (4) assists with the
preparation and filing of reports and the Trust's registration statement with
the SEC; (5) provides appropriate officers for the Trust; (6) provides
administrative support necessary for the Board of Trustees to conduct meetings;
and (7) supervises and coordinates the activities of other service providers,
including independent auditors, legal counsel, custodians, accounting service
agents and transfer agents.
GEIM is generally responsible for employing sufficient staff and consulting
with other persons that it determines to be necessary or useful in the
performance of its obligations under the Advisory Agreement. The Advisory
Agreement obligates GEIM to provide services in accordance with each Fund's
investment objective and policies as stated in the Trust's current registration
statement, as amended from time to time, and to keep the Trust informed of
developments materially affecting each Fund, including furnishing the Trust with
whatever information and reports the Board of Trustees reasonably requests.
GEIM bears all expenses in connection with the performance of its services
as each Fund's investment adviser and administrator. The advisory and
administration fee charged to each Fund is intended to be a "unitary fee." This
advisory and administration fee compensates GEIM for its advisory and
administration services, and covers any other fees and expenses in excess of
advisory and administration fees that are not borne by the Funds. The expenses
borne by the Funds include: investment advisory and administration fees; fees
paid to members of the Trust's Board of Trustees who are not affiliated with
GEIM or any of its affiliates; fees for necessary brokerage services; and
expenses that are not normal operating expenses of the Funds (such as
extraordinary expenses, interest and taxes).
[Under the Advisory Agreement, GEIM has agreed that, if in any fiscal year
of a Fund, the aggregate expenses of a Fund (including management fees, but
excluding interest, taxes, and, with the prior written consent of the necessary
state securities commissions, extraordinary expenses) exceed the expense
limitation of any state having jurisdiction over the Trust, GEIM
19
<PAGE>
will reimburse the Trust up to the amount of the Fund's investment advisory and
administration fee. As of the date of this Statement of Additional Information,
the most restrictive state expense limitation applicable to the Funds requires
reimbursement of expenses in any year that a Fund's expenses, subject to the
limitation, exceed 2-1/2% of the first $30 million of the average daily value of
the Fund's net assets, 2% of the next $70 million of the average daily value of
the Fund's net assets and 1-1/2% of the remaining average daily value of the
Fund's net assets.]
The Advisory Agreement permits GEIM, subject to the approval of the Board
of Trustees and other applicable legal requirements, to enter into any advisory
or sub-advisory agreement with affiliated or unaffiliated entities whereby such
entity would perform some or all of GEIM'S responsibilities under the Advisory
Agreement. In this event, GEIM remains responsible for ensuring that these
entities perform the services that each undertakes pursuant to a sub-advisory
agreement.
The Advisory Agreement provides that GEIM may render similar advisory and
administrative services to other clients so long as the services that it
provides under the Agreement are not impaired thereby. The Advisory Agreement
also provides that GEIM shall not be liable for any error of judgment or mistake
of law or for any loss incurred by a Fund in connection with GEIM'S services
pursuant to the Agreement, except for willful misfeasance, bad faith or gross
negligence in the performance of its duties or from reckless disregard of its
obligations or duties under the Agreement.
The Advisory Agreement was approved by the Board of Trustees (including a
majority of Trustees who are not parties to such Agreement or interested
persons, as defined by the 1940 Act, of any such party) at a meeting held for
that purpose on _________________, 1997. The Advisory Agreement is effective
_________________, 1997 and continues in effect for an initial term ending
_________________, 1999, and will continue from year to year thereafter, subject
to approval annually by (a) the Board of Trustees or a vote of a majority of the
outstanding shares of the Trust, and (b) the vote of a majority of the
independent Trustees, cast in person at meeting called for the purpose of voting
on such approval.
The Advisory Agreement is not assignable and may be terminated without
penalty by either the Trust or GEIM upon no more than sixty days nor less than
thirty days written notice to the other or by the Board of Trustees with respect
to a class of a Fund by a vote of a majority of the outstanding shares of the
class of stock representing an interest in that Fund.
GEIM Investment Advisory Fees
For its services to each Fund of the Trust, GEIM receives a monthly
advisory and administrative fee. The fee is deducted daily from the assets of
each of the Funds and paid to GEIM monthly. The advisory and administration fee
for each Fund, except the S&P 500 Index Fund, declines incrementally as Fund
assets increase. This means that investors pay a reduced fee with respect to
Fund assets over a certain level, or "breakpoint." The advisory and
administration fee or fees
20
<PAGE>
for each Fund. The fees payable to GEIM are based on the average daily net
assets of each Fund at the following rates:
Annual Rate
Name of Fund Average Daily Net Assets of Fund Percentage (%)
- - ------------ -------------------------------- --------------
Premier Growth Fund First $25 million .55
U.S. Equity Fund Next $25 million .45
Value Fund Over $50 million .35
Mid-Cap Fund
Strategic Fund
- - --------------------------------------------------------------------------------
Income Fund First $25 million .35
Next $25 million .30
Next $50 million .25
Over $100 million .20
- - --------------------------------------------------------------------------------
Emerging Markets Fund First $50 million 1.05
Over $50 million .95
- - --------------------------------------------------------------------------------
International Fund First $25 million .75
Next $50 million .65
Over $75 million .55
- - --------------------------------------------------------------------------------
Money Market Fund First $25 million .25
Next $25 million .20
Next $50 million .15
Over $100 million .10
- - --------------------------------------------------------------------------------
S&P 500 Index Fund All assets .15
- - --------------------------------------------------------------------------------
From time to time, GEIM may waive or reimburse advisory or administrative fees
paid by a Fund.
The Advisory Agreement does not contain any provisions prescribing limits on the
operating expenses of the Trust or any Fund.
21
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Investment Sub-Adviser
GEIM has retained State Street Global Advisors ("SSGA"), a division of
State Street Bank and Trust Company ("State Street"), as investment sub-adviser
to the S&P 500 Index Fund. SSGA and State Street are located at Two
International Place, Boston, Massachusetts 02110. State Street is a wholly-owned
subsidiary of State Street Corporation, a publicly held bank holding company.
State Street with over $292 billion under management as of December 31, 1996,
provides complete global investment management services from offices in the
United States, London, Sydney, Hong Kong, Tokyo, Montreal, Luxembourg,
Melbourne, Paris, Dubai, Munich and Brussels.
Investment Sub-Advisory Agreement
SSGA is the investment sub-adviser to the S&P 500 Index Fund pursuant to an
investment sub-advisory agreement with GEIM dated _________________, 1997 (the
Sub-Advisory Agreement). The Sub-Advisory Agreement was approved by the Board of
Trustees, including a majority of the independent Trustees, at a meeting held
for that purpose on _________________, 1997 and by the Fund's sole shareholder
on _________________, 1997.
The Sub-Advisory Agreement is not assignable and may be terminated without
penalty by either SSGA or GEIM upon sixty days written notice to the other or by
the Board of Trustees or with respect to a class of a Fund by the vote of a
majority of the outstanding shares of the class of stock representing an
interest in that Fund. The Agreement provides that SSGA may render similar
sub-advisory services to other clients so long as the services that it provides
under the Agreement are not impaired thereby. The Sub-Advisory Agreement also
provides that SSGA shall not be liable for any error of judgment or mistake of
law or for any loss incurred by a Fund in connection with SSGA's services
pursuant to the Agreement, except for willful misfeasance, bad faith or gross
negligence in the performance of its duties or from reckless disregard of its
obligations or duties under the Agreement.
GEIM Investment Sub-Advisory Fee
For SSGA's services, GEIM pays SSGA monthly compensation in the form of an
investment sub-advisory fee. The fee is paid by GEIM monthly and is a percentage
of the average daily net assets of the Fund at the annual rate of _______%.
Securities Activities of GEIM and SSGA
Securities held by the Funds also may be held by other funds or separate
accounts for which GEIM or its affiliate, GEIC acts as an adviser. Because of
different investment objectives or other factors, a particular security may be
bought by GEIM or GEIC for one or more of their clients, when one or more other
clients are selling the same security. If purchases or sales of securities for a
Fund or other client of GEIM or GEIC arise for consideration at or about the
same time, transactions in such securities will be made, insofar as feasible,
for the Fund and other clients in a manner deemed equitable to all. To the
extent that transactions on behalf of more than one client of GEIM or GEIC
during the same period may increase the demand for securities being purchased or
the supply of securities being sold, there may be an adverse effect on price.
On occasions when GEIM (under the supervision of the Board of Trustees)
deems the purchase or sale of a security to be in the best interests of the
Trust as well as other funds or accounts it may, to the extent permitted by
applicable laws and regulations, but will not be obligated to, aggregate the
securities to be sold or purchased for the Trust with those to be sold or
purchased for other funds or accounts in order to obtain favorable execution and
low brokerage commissions. In that event, allocation of the securities purchased
or sold, as well as the expenses incurred in the transaction, will be made by
GEIM in the manner it considers to be most equitable and consistent with its
fiduciary obligations to the Trust and to such other funds or accounts. In some
cases this procedure may adversely affect the size or the position obtainable
for a Fund. [Likewise, SSGA may, to the extent permitted by applicable laws and
regulations, but will not be obligated to, aggregate the securities to be sold
or purchased for the Trust with those to be sold or purchased for other funds or
in order to obtain favorable execution and low brokerage commissions. Like GEIM,
SSGA allocates the securities purchased or sold, as well as the expenses
incurred in the transaction, in the manner that it considers to be most
equitable and consistent with its fiduciary obligation to the Trust and to such
other funds or accounts.]
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Shareholder Servicing and Distribution Plan
The Trust's Board of Trustees adopted a Shareholder Servicing and
Distribution Plan with respect to the Trust's Service Class shares pursuant to
Rule 12b-1 under the 1940 Act (the "Plan"). Under the Plan, the Trust pays GEIM,
with respect to the Service Class shares of each Fund, an annual fee of .25% of
the value of the average daily net assets attributed to such Service Class
shares. The shareholder servicing and distribution fee is intended to (i) enable
GEIM to compensate other persons ("Service Providers") for providing ongoing
servicing and/or maintenance of the accounts of Service Class shareholders of a
Fund, and (ii) compensate GEIM, or enable GEIM to compensate Service Providers
(including any distributor of Service Class shares of the Fund) for providing
services primarily intended to result in, or are primarily attributable to, the
sale of Service Class shares.
The Plan was approved by the sole initial shareholder of the Trust. Under
its terms, the Plan continues from year to year, provided its continuance is
approved annually by vote of the Trust's full Board of Trustees, as well as by a
majority of the Trustees who are not interested persons of the Trust and who
have no direct or indirect financial interest in the operation of the Plan or in
any agreements related to the Plan ("Independent Trustees"). The Plan may not be
amended to increase materially the amount of the fees paid under the Plan with
respect to a Fund without approval of Service Class shareholders of the Fund. In
addition, all material amendments of the Plan must be approved by the Trustees
and Independent Trustees in the manner described above. The Plan may be
terminated with respect to a Fund at any time, without penalty, by vote of a
majority of the Independent Trustees or by a vote of a majority of the
outstanding voting securities of the Service Class shares of that Fund (as
defined in the 1940 Act).
Custodian and Transfer Agent
State Street, located at 225 Franklin Street, Boston, Massachusetts 02101,
serves as custodian and transfer agent of the Funds' investments. Under its
custodian contract with the Trust, State Street is authorized to appoint one or
more banking institutions as sub-custodians of assets owned by each Fund. For
its custody services, State Street receives monthly fees charged to the Funds
based upon the month-end, aggregate net asset value of the Funds, plus certain
charges for securities transactions. The assets of the Trust are held under bank
custodianship in accordance with the 1940 Act. As transfer agent, State Street
is responsible for processing redemption requests and crediting dividends to the
accounts of shareholders of the Funds.
Distributor
GE Investment Services Inc. serves as the distributor of shares of the
Funds on a best efforts basis.
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REDEMPTION OF SHARES
Detailed information on how to redeem shares of a Fund is included in the
Prospectus. The right of redemption of shares of a Fund may be suspended or the
date of payment postponed (1) for any periods during which the NYSE is closed
(other than for customary weekend and holiday closings), (2) when trading in the
markets the Fund normally utilizes is restricted, or an emergency, as defined by
the rules and regulations of the SEC, exists, making disposal of a Fund's
investments or determination of its net asset value not reasonably practicable
or (3) for such other periods as the SEC by order may permit for the protection
of the Fund's shareholders. As discussed in the Prospectus, redemption fees will
be charged with respect to cash redemptions.
EXCHANGES
As described in the Prospectus, a shareholder of a class of a Fund may
exchange shares of that Class for shares a Class of another Fund having a
different investment objective and policies, a different class of the same Fund,
or for shares of an investment portfolio of GE Funds, Inc. when the shareholder
believes that a shift between Funds or into a portfolio of GE Funds is an
appropriate investment decision. Upon receipt of proper instructions and all
necessary supporting documents, shares submitted for exchange are redeemed at
the then-current net asset value and the proceeds are immediately invested in
shares of the class being acquired. Redemption fees and, if applicable, purchase
premiums will be assessed on exchanges. The Trust reserves the right to reject
any exchange request.
NET ASSET VALUE
The Trust will not calculate net asset value on certain holidays
(currently, those holidays when the NYSE is closed). On those days, securities
held by a Fund may nevertheless be actively traded, and the value of the Fund's
shares could be significantly affected.
Because of the need to obtain prices as of the close of trading on various
exchanges throughout the world, the calculation of the net asset value of a
Class of a Fund may not take place contemporaneously with the determination of
the prices of many of its portfolio securities used in the calculation. A
security that is listed or traded on more than one exchange is valued at the
quotation on the exchange determined to be the primary market for the security.
All assets and liabilities of the Funds initially expressed in foreign currency
values will be converted into U.S. dollar values at the mean between the bid and
offered quotations of the currencies against U.S. dollars as last quoted by any
recognized dealer. If these quotations are not available, the rate of exchange
will be determined in good faith by the Trust's Board of Trustees. In carrying
out the Board's valuation policies, GEIM may consult with one or more
independent pricing services (each, a "Pricing Service") retained by the Trust.
Debt securities of U.S. issuers (other than U.S. Government obligations and
short-term investments), including Municipal Obligations, are valued by a dealer
or by a pricing service based upon a computerized matrix system, which considers
market transactions and dealer supplied valuations. Valuations for municipal
bonds are obtained from a qualified municipal bond pricing service; prices
represent the mean of the secondary market. GEIM, under the general supervision
and responsibility of the Board of Trustees, periodically reviews the procedures
of the Pricing Service.
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Under Rule 2a-7 of the 1940 Act, the Money Market Fund's portfolio
securities may be valued based upon amortized cost, which does not take into
account unrealized capital gains or losses. Amortized cost valuation involves
initially valuing an instrument at its cost and thereafter assuming a constant
amortization to maturity of any discount or premium, regardless of the effect of
fluctuating interest rates on the market value of the instrument. Although this
method provides certainty in valuation, it may result in periods during which
value, as determined by amortized cost, is higher or lower than the price the
Money Market Fund would receive if it sold the instrument.
The use of the amortized cost method of valuing the portfolio securities of
the Money Market Fund is permitted by a Rule 2a-7 under the 1940 Act. Under this
rule, the Money Market Fund must maintain a dollar-weighted average portfolio
maturity of 90 days or less, purchase only instruments having remaining
maturities of 397 days or less, and invest only in "eligible securities" as
defined in the rule, which are determined by GEIM to present minimal credit
risks. Pursuant to the rule, GEIM has established procedures designed to
stabilize, to the extent reasonably possible, the Fund's price per share as
computed for the purpose of sales and redemptions at $1.00. These procedures
include review of the Money Market Fund's portfolio holdings at such intervals
as GEIM may deem appropriate, to determine whether the Fund's net asset value
calculated by using available market quotations or market equivalents deviates
from $1.00 per share based on amortized cost.
The rule regarding amortized cost valuation provides that the extent of any
deviation between the Money Market Fund's net asset value based upon available
market quotations or market equivalents and the $1.00 per share net asset value
based on amortized cost must be examined by the Trust's Board of Trustees. In
the event the Board of Trustees determines that a deviation exists that may
result in material dilution or other unfair results to investors or existing
shareholders of the Money Market Fund, the Board of Trustees must, in accordance
with the rule, cause the Fund to take such corrective action as the Board of
Trustees regards as necessary and appropriate, including: selling portfolio
instruments of the Fund prior to maturity to realize capital gains or losses or
to shorten average portfolio maturity; withholding dividends or paying
distributions from capital or capital gains; redeeming shares in kind; or
establishing a net asset value per share by using available market quotations.
DIVIDENDS, DISTRIBUTIONS AND TAXES
Set forth below is a summary of certain Federal income tax considerations
generally affecting the Funds and their shareholders. The summary is not
intended as a substitute for individual tax planning, and shareholders are urged
to consult their tax advisors regarding the application of Federal, state, local
and foreign tax laws to their specific tax situations.
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Tax Status of the Funds and their Shareholders
Each Fund is treated as a separate entity for Federal income tax purposes.
Each Fund's net investment income and capital gains distributions are determined
separately from any other series that the Trust may designate.
The Trust intends for each Fund to continue to qualify each year as a
"regulated investment company" under the Code. If a Fund (1) is a regulated
investment company and (2) distributes to its shareholders at least 90% of its
net investment income (including for this purpose its net realized short-term
capital gains) and 90% of its tax-exempt interest income (reduced by certain
expenses), the Fund will not be liable for Federal income tax to the extent that
its net investment income and its net realized long-term and short-term capital
gains, if any, are distributed to its shareholders. In addition, in order to
avoid a 4% excise tax, a Fund must declare, no later than December 31 and
distribute no later than the following January 31, at least 98% of its taxable
ordinary income earned during the calendar year and 98% of its capital gain net
income for the year period ending on October 31 of such calendar year. One
requirement for qualification as a regulated investment company is that each
Fund must diversify its holdings so that, at the end of each quarter, (i) at
least 50% of the market value of the Fund's assets is represented by cash and
cash items, securities of other regulated investment companies, U.S. Government
Obligations and other securities, with such other securities limited for
purposes of this calculation in respect of any one issuer to an amount not
greater than 5% of the value of the Fund's assets and not greater than 10% of
the outstanding voting securities of such issuer, and (ii) not more than 25% of
the value of its total assets is invested in the securities of any one issuer or
of two or more issuers that are controlled by the Fund (within the meaning of
Section 851(b)(4)(B) of the Code) that are engaged in the same or similar trades
or businesses or related trades or businesses (other than U.S. Government
Obligations or the securities of other regulated investment companies).
The requirements for qualification as a regulated investment company also
include two significant rules as to investment results. First, a Fund must earn
at least 90% of its gross income from dividends, interest, payments with respect
to securities loans, gains from the disposition of stock or securities
(including gains from related investments in foreign currencies) and income
(including gains from options, futures or forward contracts) derived with
respect to its business of investing in such stocks, securities or currencies
(the "90% Income Test"). Second, a Fund must derive less than 30% of its gross
income from the sale or other disposition of (i) stock or securities held for
less than three months, (ii) options futures, or forward contracts held for less
than three months (other than options, futures, or forward contracts on foreign
currencies), and (iii) foreign currencies (or options, futures or forward
contracts on foreign currencies) held for less than three months, but only if
such currencies (or options, future or forward contracts) are
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not directly related to the Fund's principal business of investing in stock or
securities (or options and futures with respect to stocks or securities) (the
"30% Test").
The 30% Test will restrict the extent to which a Fund may, among other
things: (1) sell or purchase put options on securities held for less than three
months or purchase put options on substantially identical securities (unless the
option and the security are acquired on the same day); (2) write options that
expire in less than three months; and (3) close options that were written or
purchased within the preceding three months. For purposes of the 30% Test, a
Fund's increases or decreases in value of short-term investment positions that
constitute certain designated hedging transactions may generally be netted. The
Trust does not expect that the 30% Test will significantly affect the investment
policies of any Fund.
Dividends and distributions paid by the Income Fund and the Money Market
Fund, and distributions of capital gains paid by all the Funds, will not qualify
for the Federal dividends-received deduction for corporations. Dividends paid by
the Premier Fund, the U.S. Equity Fund, the Mid-Cap Fund, the Strategic Fund,
the S&P 500 Index Fund, the International Fund, the Emerging Markets Fund and
the Value Fund, to the extent derived from dividends attributable to certain
types of stock issued by U.S. corporations, will qualify for the
dividends-received deduction for corporations. Some states, if certain asset and
diversification requirements are satisfied, permit shareholders to treat their
portions of a Fund's dividends that are attributable to interest on U.S.
Treasury securities and certain U.S. Government Obligations as income that is
exempt from state and local income taxes. Dividends attributable to repurchase
agreement earnings are, as a general rule, subject to state and local taxation.
Net investment income or capital gains earned by the Funds investing in
foreign securities may be subject to foreign income taxes withheld at the
source. The United States has entered into tax treaties with many foreign
countries that entitle the Funds to a reduced rate of tax or exemption from tax
on this related income and gains. The effective rate of foreign tax cannot be
determined at this time since the amount of these Funds' assets to be invested
within various countries is not now known. The Trust intends that the Funds seek
to operate so as to qualify for treaty-reduced rates of tax when applicable. In
addition, if a Fund qualifies as a regulated investment company under the Code,
if certain distribution requirements are satisfied, and if more than 50% of the
value of the Fund's assets at the close of the taxable year consists of stocks
or securities of foreign corporations, the Trust may elect, for U.S. Federal
income tax purposes, to treat foreign income taxes paid by the Fund that can be
treated as income taxes under U.S. income tax principles as paid by its
shareholders. The Trust anticipates that each of the
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International Fund and the Emerging Markets Fund will seek to qualify for and
make this election in most, but not necessarily all, of its taxable years. If
the Trust were to make an election with respect to a Fund, an amount equal to
the foreign income taxes paid by the Fund would be included in the income of its
shareholders and the shareholders would be entitled to credit their portions of
this amount against their U.S. tax liabilities, if any, or to deduct those
portions from their U.S. taxable income, if any. Shortly after any year for
which it makes an election, the Trust will report to the shareholders of the
Fund, in writing, the amount per share of foreign tax that must be included in
each shareholder's gross income and the amount that will be available as a
deduction or credit. No deduction for foreign taxes may be claimed by a
shareholder who does not itemize deductions. Certain limitations will be imposed
on the extent to which the credit (but not the deduction) for foreign taxes may
be claimed.
A Fund's transactions in options and futures contracts are subject to
special provisions of the Code that, among other things, may affect the
character of gains and losses realized by the Fund (that is, may affect whether
gains or losses are ordinary or capital), accelerate recognition of income to
the Fund and defer losses of the Fund. These rules (1) could affect the
character, amount and timing of distributions to shareholders of a Fund, (2)
will require the Fund to "mark to market" certain types of the positions in its
portfolio (that is, treat them as if they were closed out) and (3) may cause the
Fund to recognize income without receiving cash with which to make distributions
in amounts necessary to satisfy the distribution requirements for avoiding
income and excise taxes described above and in the Prospectus. The Trust seeks
to monitor transactions of each Fund, will seek to make the appropriate tax
elections on behalf of the Fund and seeks to make the appropriate entries in the
Fund's books and records when the Fund acquires any option, futures contract or
hedged investment, to mitigate the effect of these rules and prevent
disqualification of the Fund as a regulated investment company.
As a general rule, a shareholder's gain or loss on a sale or redemption of
shares of a Fund will be a long-term capital gain or loss if the shareholder has
held the shares for more than one year. The gain or loss will be a short-term
capital gain or loss if the shareholder has held the shares for one year or
less.
A Fund's net realized long-term capital gains are distributed as described
in the Prospectus. The distributions ("capital gain dividends"), if any, are
taxable to a shareholder of a Fund as long-term capital gains, regardless of how
long a shareholder has held the shares, and will be designated as capital gain
dividends in a written notice mailed by the Trust to the shareholders of the
Fund after the close of the Fund's prior taxable year. If a shareholder receives
a capital gain dividend with respect to any share of a Fund, and if the share is
sold before it has been held by the shareholder for six months or less, then any
loss on the sale or exchange of the share, to the extent of the capital gain
dividend, will be treated as a long-term capital loss. Investors considering
buying shares of a Fund on or just prior to the record date for a taxable
dividend or capital gain distribution should be aware that the amount of the
dividend or distribution payment will be a taxable dividend or distribution
payment.
Special rules contained in the Code apply when a shareholder of a Fund
disposes of shares of the Fund through a redemption or exchange within 90 days
of purchase and subsequently acquires shares of a Fund on which a sales charge
normally is imposed without paying a sales charge in accordance with the
exchange privilege described in the Prospectus. In these cases, any gain on the
disposition of the shares of the Fund will be increased, or loss
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decreased, by the amount of the sales charge paid when the shares were acquired,
and that amount will increase the adjusted basis of the shares of the Fund
subsequently acquired. In addition, if shares of a Fund are purchased within 30
days of redeeming shares at a loss, the loss will not be deductible and instead
will increase the basis of the newly purchased shares.
If a shareholder of a Fund fails to furnish the Trust with a correct
taxpayer identification number, fails to report fully dividend or interest
income, or fails to certify that he or she has provided a correct taxpayer
identification number and that he or she is not subject to "backup withholding,"
then the shareholder may be subject to a 31% "backup withholding" tax with
respect to (1) taxable dividends and distributions from the Fund and (2) the
proceeds of any redemptions of shares of the Fund. An individual's taxpayer
identification number is his or her social security number. The 31% backup
withholding tax is not an additional tax and may be credited against a
taxpayer's regular Federal income tax liability.
THE FUNDS' PERFORMANCE
The Trust, from time to time, may quote a Fund's performance, in terms of a
Class' yield and/or total return, in reports or other communications to
shareholders of the Fund or in advertising material. To the extent that any
advertisement or sales literature of a Fund describes the expenses or
performance of any Class, it will also disclose the expenses or performance for
the other Class. Additional information regarding the manner in which
performance figures are calculated is provided below.
PERFORMANCE CALCULATION
Yield
The Trust may, from time to time, include the yield and effective yield of
the each class of shares of the Money Market Fund in advertisements or reports
to shareholders or prospective investors. "Current yield" will be based upon the
income that a hypothetical investment in a class of shares of the Fund would
earn over a stated seven-day period. This amount would then be "annualized,"
which means the amount of income generated over that week is assumed to be
generated each week over a 52-week period and is shown as a percentage of the
investment. The Money Market Fund's "effective yield" will be calculated
similarly, but, when annualized, the income earned by an investment in the Fund
is assumed to be reinvested. The effective yield would be slightly higher than
the current yield because of the compounding effect of this presumed
reinvestment.
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The yield for the Money Market Fund is computed by (1) determining the net
change in the value of a hypothetical preexisting account in the Fund having a
balance of one share at the beginning of a seven-calendar-day period for which
yield is to be quoted, (2) dividing the net change by the value of the account
at the beginning of the period to obtain the base period return, and (3)
annualizing the results (that is, multiplying the base period return by 365/7).
The net change in the value of the account reflects the value of additional
shares purchased with dividends declared on the original share and any such
additional shares, but does not include realized gains and losses or unrealized
appreciation and depreciation. In addition, the Money Market Fund may calculate
a compound effective annualized yield by adding one to the base period return
(calculated as described above), raising the sum to a power equal to 365/7 and
subtracting one.
The Income Fund's yield is calculated using a standardized formula the
income component of which is computed from the yields to maturity of all debt
obligations in the Fund's portfolio based on the market value of such
obligations (with all purchases and sales of securities during such period
included in the income calculation on a settlement date basis). Yield quotations
will be computed based on a 30-day period by dividing (a) the net income based
on the yield to maturity of each security earned during the period by (b) the
average daily number of shares outstanding during the period that were entitled
to receive dividends multiplied by the offering price per share on the last day
of the period.
The 30-day yield figure is calculated for a each class of the Income Fund
according to a formula prescribed by the SEC. The formula can be expressed as
follows:
Yield = 2[(a-b + 1)6 -1]
---
cd
Where:
a = dividends and interest earned during the period.
b = expenses accrued for the period (net of reimbursement).
c = the average daily number of shares outstanding during the
period that were entitled to receive dividends.
d = the maximum offering price per share on the last day of the period.
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For the purpose of determining the interest earned (variable "a" in the
formula) on debt obligations that were purchased by a Fund at a discount or
premium, the formula generally calls for amortization of the discount or
premium; the amortization schedule will be adjusted monthly to reflect changes
in the market values of the debt obligations.
Investors should recognize that, in periods of declining interest rates,
the yield will tend to be somewhat higher than prevailing market rates, and in
periods of rising interest rates the yield will tend to be somewhat lower. In
addition, when interest rates are falling, moneys received by a Fund from the
continuous sale of its shares will likely be invested in portfolio instruments
producing lower yields than the balance of the Fund's portfolio, thereby
reducing the current yield of the Fund. In periods of rising interest rates, the
opposite result can be expected to occur.
Yield information is useful in reviewing the performance of a Fund, but
because yields fluctuate, this information cannot necessarily be used to compare
an investment in shares of the Fund with bank deposits, savings accounts and
similar investment alternatives that often provide an agreed or guaranteed fixed
yield for a stated period of time. Shareholders of a Fund should remember that
yield is a function of the kind and quality of the instruments in the Fund's
portfolio, portfolio maturity, operating expenses and market conditions.
Total Return
From time to time, the Trust may advertise a Fund's "average annual total
return," which represents the average annual compounded rates of return over
one-, five- and ten-year periods, or other periods, or over the life of the Fund
(as stated in the advertisement) for each class of shares of a Fund. This total
return figure shows an average percentage change in value of an investment in
the Fund from the beginning date of the measuring period to the ending date of
the period, reflects changes in the price of a class of shares and assumes that
any income, dividends and/or capital gains distributions made by the Fund during
the period are reinvested. When considering average annual total return figures
for periods longer than one year, investors should note that a Fund's annual
total return for any one year in the period might have been greater or less than
the average for the entire period.
The Trust may use "aggregate total return" in advertisements, which
represents the cumulative change in value of an investment in a class of shares
of a Fund for a specific period, and which reflects changes in the Fund's share
price and reinvestment of dividends and distributions. Aggregate total return
may be shown by means of schedules, charts or graphs, and may indicate subtotals
of the various components of total return (that is, the change in value of
initial investment, income dividends and capital gains distributions). Because
there is a .25% shareholder servicing fee imposed on the Service Class shares,
the total returns for each of the Investment Class and the Service Class will
differ. Aggregate total return data reflects
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compounding over a longer period of time than does annual total return data, and
therefore aggregate total return will be higher.
The Trust also may advertise the actual annual and annualized total return
performance data for various periods of time, which may be shown by means of
schedules, charts or graphs. Actual annual or annualized total return data
generally will be lower than average annual total return data, because the
latter reflects compounding of return.
Yield and total return figures are based on historical earnings and are not
intended to indicate future performances.
Distribution Rate
The Trust also may advertise the Income Fund's distribution rate and/or
effective distribution rate. The Fund's distribution rate differs from yield and
total return and therefore is not intended to be a complete measure of
performance.
The Income Fund's distribution rate measures dividends distributed for a
specified period. The Fund's distribution rate is computed by dividing the most
recent monthly distribution per share annualized by the current net asset value
per share. The Fund's effective distribution rate is computed by dividing the
distribution rate by the ratio used to annualize the distribution and
reinvesting the resulting amount for a full year on the basis of such ratio. The
effective distribution rate will be higher than the distribution rate because of
the compounding effect of the assumed reinvestment. The Fund's yield is
calculated using the standardized formula described above. In contrast, the
distribution rate is based on the Fund's last monthly distribution, which tends
to be relatively stable and may be more or less than the amount of net
investment income and short-term capital gain actually earned by the Fund during
the month.
Comparative Performance Information
In addition to the comparative information set forth under "Performance"
above and otherwise quoted in sales and advertising materials, the Trust may
compare the Fund's performance with (1) the performance of other mutual funds as
listed in the rankings prepared by Lipper Analytical Services, Inc. or similar
independent services that monitor the performance of mutual funds, (2) various
unmanaged indexes, including the Russell Index, S&P 500 Index, and the Dow Jones
Industrial Average or (3) other appropriate indexes of investment securities or
with data developed by GEIM derived from those indexes.
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Performance information also may include evaluations of a Fund published by
nationally recognized ranking services and by financial publications that are
nationally recognized, such as Barron's, Business Week, Forbes, Fortune,
Institutional Investor, Kiplinger's Personal Finance, Money, Morningstar Mutual
Fund Values, The New York Times, The Wall Street Journal and USA Today. These
ranking services or publications may compare a Fund's performance to, or rank it
within, a universe of mutual funds with investment objectives and policies
similar, but not necessarily identical to, the Fund's. Such comparisons or
rankings are made on the basis of several factors, including the size of the
Fund, objectives and policies, management style and strategy, and portfolio
composition, and may change over time if any of those factors change.
Average Annual Total Return
The "average annual total return" figures for the Funds described in the
Prospectus, are computed for a class according to a formula prescribed by the
SEC. The formula can be expressed as follows:
P(1 + T)n = ERV
Where P = a hypothetical initial payment of $1,000;
T = average annual total return;
n = number of years; and
ERV = Ending Redeemable Value of a hypothetical $1,000
investment made at the beginning of a 1-, 5- or
10-year period at the end of a 1-, 5- or 10-year
period (or fractional portion thereof), assuming
reinvestment of all dividends and distributions.
The ERV assumes complete redemption of the hypothetical investment at the end of
the measuring period.
Aggregate Total Return
The "aggregate total return" figures described in the Prospectus represent
the cumulative change in the value of an investment in a class for the specified
period are computed by the following formula:
33
<PAGE>
Aggregate Total Return = ERV - P
-------
P
Where P = a hypothetical initial payment of $1,000; and
ERV = Ending Redeemable Value of a hypothetical $1,000
investment made at the beginning of a 1-, 5- or
10-year period at the end of the 1-, 5- or 10-year
period (or fractional portion thereof), assuming
reinvestment of all dividends and distributions.
PRINCIPAL STOCKHOLDERS
The Funds commenced operations on ___________________, 1997. Currently,
[two retirement plans for which Montgomery Ward & Co., Incorporated serves as
plan sponsor and one for which Penske Truck Leasing Co. serves as sponsor] owned
[__%], [___%] and [__%], respectively of the shares of the Trust, and therefore
each such plan may be deemed to control the Trust. As of ___________________,
1997, the current Trustees and officers of each Fund, as a group, beneficially
owned less than 1% of each Fund's outstanding shares.
ADDITIONAL INFORMATION
Shares of Beneficial Interest
The Trust was organized as an unincorporated business trust under the laws
of Delaware pursuant to a Certificate of Trust dated May 23, 1997, as amended
from time to time. The Trust has no prior history. The Trust's Declaration of
Trust, dated ___________, 1997 (the "Declaration of Trust") permits the Trustees
to issue an unlimited number of full and fractional shares of beneficial
interest of the Trust [without par value] [par value ___ per share]. Under the
Declaration of Trust, the Trustees have the authority to create and classify
shares of beneficial interest in separate series, without further action by
shareholders. As of the date of this SAI, the Trustees have authorized shares of
the ten Funds described in the Prospectuses. Additional series may be added in
the future. The Declaration of Trust also authorizes the Trustees to classify
and reclassify the shares of the Trust, or new series of the Trust, into one or
more classes. As of the date of this SAI, the Trustees have authorized the
issuance of two classes of shares of the Funds, designated as the Investment
Class shares and the Service Class shares. State Street maintains a record of
each shareholder's ownership of shares of a Fund. The shares of each class of
each Fund represent an equal proportionate interest in the aggregate net assets
attributable to that class of that Fund. Holders of Service Class shares have
certain exclusive voting rights on matters relating to the Plan. The different
classes of the
34
<PAGE>
Fund may bear different expenses relating to the cost of holding shareholder
meetings necessitated by the exclusive voting rights of any class of shares. In
the interest of economy and convenience, certificates representing shares of a
Fund are not physically issued.
Dividends paid by each Fund, if any, with respect to each class of shares
will be calculated in the same manner, at the same time and on the same day and
will be in the same amount, except for differences resulting from the facts
that: (i) the distribution and service fees relating to Service Class shares
will be borne exclusively by that class; and (ii) each of the Service Class
shares and the Investment Class shares will bear any other class expenses
properly allocable to such class of shares, subject to the requirements imposed
by the Internal Revenue Service on funds having a the multiple-class structure.
Similarly, the NAV per share may vary depending on whether Service Class shares
or Investment Class shares are purchased. In the event of liquidation,
shareholders of each class of each Fund are entitled to share pro rata in the
net assets of the class of the Fund available for distribution to these
shareholders. Shares entitle their holders to one vote per share, are freely
transferable and have no preemptive, subscription or conversion rights. When
issued, shares are fully paid and non-assessable.
Unless otherwise required by the 1940 Act or the Declaration of Trust, the
Trust has no intention of holding annual meetings of shareholders. Fund
shareholders may remove a Trustee by the affirmative vote of at least two-thirds
of the Trust's outstanding shares and the Trustees shall promptly call a meeting
for such purpose when requested to do so in writing by the record holders of not
less than 10% of the outstanding shares of the Trust.
Generally, Delaware business trust shareholders are not personally liable
for obligations of the Delaware business trust under Delaware law. The Delaware
Business Trust Act ("DBTA") provides that a shareholder of a Delaware business
trust shall be entitled to the same limitation of liability extended to
shareholders of private for-profit corporations. The Declaration expressly
provides that the Trust has been organized under the DBTA and that the
Declaration is to be governed by and interpreted in accordance with Delaware
law. It is nevertheless possible that a Delaware business trust, such as the
Trust, might become a party to an action in another state whose courts refuse to
apply Delaware law, in which case the Trust's shareholders could possibly be
subject to personal liability.
To guard against this risk, the Declaration: (i) contains an express
disclaimer of shareholder liability for acts or obligations of the Trust and
provides that notice of such disclaimer may be given in each agreement,
obligation and instrument entered into or executed by the Trust or its Trustees,
(ii) provides for the indemnification out of Trust property of any shareholders
held personally liable for any obligations of the Trust or any Fund, and (iii)
provides that the Trust shall, upon request, assume the defense of any claim
made against any shareholder for any act or obligation of the Trust and satisfy
any judgment thereon. Thus, the
35
<PAGE>
risk of a shareholder incurring financial loss beyond its investment because of
shareholder liability is limited to circumstances in which all of the following
factors are present: (1) a court refuses to apply Delaware law; (2) the
liability arose under tort law or, if not, no contractual limitation of
liability was in effect; and (3) the Trust itself would be unable to meet its
obligations. In the light of DBTA, the nature of the Trust's business, and the
nature of its assets, the risk of personal liability to a shareholder is remote.
Limitation of Trustee and Officer Liability
The Declaration further provides that the Trust shall indemnify each of its
Trustees and officers against liabilities and expenses reasonably incurred by
them, in connection with, or arising out of, any action, suit or proceeding,
threatened against or otherwise involving such Trustee or officer, directly or
indirectly, by reason of being or having been a Trustee or officer of the Trust.
The Declaration does not authorize the Trust to indemnify any Trustee or officer
against any liability to which he or she would otherwise be subject by reason of
or for willful misfeasance, bad faith, gross negligence or reckless disregard of
such person's duties.
Limitation of Interseries Liability
All persons dealing with a Fund must look solely to the property of that
particular Fund for the enforcement of any claims against that Fund, as neither
the Trustees, officers, agents or shareholders assume any personal liability for
obligations entered into on behalf of a Fund or the Trust. No Fund is liable for
the obligations of any other Fund.
COUNSEL
Sutherland, Asbill & Brennan, L.L.P., 1275 Pennsylvania Avenue, N.W.,
Washington, D.C. 20004-2404 serves as counsel for the Trust.
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP, 160 Federal Street, Boston, Massachusetts 02110,
serves as independent accountants of the Trust.
FINANCIAL STATEMENTS
The Trust recently commenced operations and has not been in operation long
enough to have generated financial statements. The Annual Report, when issued,
will contain financial statements and other information relevant to the Trust.
The Trust will furnish, without charge, a copy of the Annual Report (when it is
issued) upon request to the Trust at P.O. Box 120065, Stamford, CT 06912-0065,
(203) [_____________].
36
<PAGE>
APPENDIX
DESCRIPTION OF RATINGS
COMMERCIAL PAPER RATINGS
The rating A-1+ is the highest, and A-1 the second highest commercial paper
rating assigned by S&P. Paper rated A-1+ must have either the direct credit
support of an issuer or guarantor that possesses excellent long-term operating
and financial strength combined with strong liquidity characteristics
(typically, such issuers or guarantors would display credit quality
characteristics that would warrant a senior bond rating of AA or higher) or the
direct credit support of an issuer or guarantor that possesses above average
long-term fundamental operating and financing capabilities combined with ongoing
excellent liquidity characteristics. Paper rated A-1 must have the following
characteristics: liquidity ratios are adequate to meet cash requirements;
long-term senior debt is rated A or better; the issuer has access to at least
two additional channels of borrowing; basic earnings and cash flow have an
upward trend with allowance made for unusual circumstances; typically, the
issuer's industry is well established and the issuer has a strong position
within the industry; and the reliability and quality of management are
unquestioned. Capacity for timely payment on issues rated A-2 is satisfactory.
However, the relative degree of safety is not as high as issues designated
"A-1."
The rating Prime-1 is the highest commercial paper rating assigned by
Moody's. Among the factors considered by Moody's in assigning ratings are the
following: (a) evaluation of the management of the issuer; (b) economic
evaluation of the issuer's industry or industries and an appraisal of
speculative-type risks that may be inherent in certain areas; (c) evaluation of
the issuer's products in relation to competition and customer acceptance; (d)
liquidity; (e) amount and quality of long-term debt; (f) trend of earnings over
a period of ten years; (g) financial strength of parent company and the
relationships that exist with the issue; and (h) recognition by the management
of obligations that may be present or may arise as a result of public interest
questions and preparations to meet the obligations.
Issuers rated Prime-2 (or supporting institutions) have a strong ability
for repayment of senior short-term debt obligations. This normally will be
evidenced by many of the characteristics cited above, but to a lesser degree.
Earnings trends and coverage ratios, while sound, may be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
Short-term obligations, including commercial paper, rated A-1+ by IBCA
Limited or its affiliate IBCA Inc. are obligations supported by the highest
capacity for timely repayment. Obligations rated A-1 have a very strong capacity
for timely repayment. Obligations rated A-2
A-1
<PAGE>
have a strong capacity for timely repayment, although that capacity may be
susceptible to adverse changes in business, economic and financial conditions.
Fitch Investors Services, Inc. employs the rating F-1+ to indicate issues
regarded as having the strongest degree of assurance of timely payment. The
rating F-1 reflects an assurance of timely payment only slightly less in degree
than issues rated F-1+, while the rating F-2 indicates a satisfactory degree of
assurance of timely payment although the margin of safety is not as great as
indicated by the F-1+ and F-1 categories.
Duff & Phelps Inc. employs the designation of Duff 1 with respect to top
grade commercial paper and bank money instruments. Duff 1+ indicates the highest
certainty of timely payment: short-term liquidity is clearly outstanding and
safety is just below risk-free U.S. Treasury short-term obligations. Duff 1-
indicates high certainty of timely payment. Duff 2 indicates good certainty of
timely payment; liquidity factors and company fundamentals are sound.
Thompson BankWatch Inc. employs the rating TBW-1 to indicate issues having
a very high degree of likelihood of timely payment. TBW-2 indicates a strong
degree of safety regarding timely payment, however, the relative degree of
safety is not as high as for issues rated TBW-1. While the rating TBW-3
indicates issues that are more susceptible to adverse developments than
obligations with higher ratings, capacity to service principal and interest in a
timely fashion is considered adequate. The lowest rating category is TBW-4; this
rating is regarded as non-investment grade and, therefore, speculative.
Various NRSROs utilize rankings within ratings categories indicated by a
plus or minus sign. The Funds, in accordance with industry practice, recognize
such ratings within categories or gradations, viewing for example S&P's ratings
of A-1+ and A-1 as being in S&P's highest rating category.
DESCRIPTION OF S&P CORPORATE BOND RATINGS
AAA -- This is the highest rating assigned by S&P to a bond and indicates
an extremely strong capacity to pay interest and repay principal.
AA -- Bonds rated AA have a very strong capacity to pay interest and repay
principal and differ from AAA issues only in small degree.
A -- Bonds rated A have a strong capacity to pay interest and repay
principal although they are somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than debt in higher rated
categories.
A-2
<PAGE>
BBB -- Bonds rated BBB have an adequate capacity to pay interest and repay
principal. Adverse economic conditions or changing circumstances are more likely
to lead to a weakened capacity to pay interest and repay principal for bonds in
this category (even though they normally exhibit adequate protection parameters)
than for bonds in higher rated categories.
BB, B and CCC -- Bonds rated BB and B are regarded, on balance, as
predominately speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligation. BB represents a lower
degree of speculation than B, and CCC the highest degree of speculation. While
such bonds will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major risk exposures to adverse
conditions.
To provide more detailed indications of credit quality, the ratings from AA
to B may be modified by the addition of a plus or minus sign to show relative
standing within this major rating category.
DESCRIPTION OF MOODY'S CORPORATE BOND RATINGS
Aaa -- Bonds that are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edge." Interest payments are protected by a large or exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa -- Bonds that are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present that
make the long-term risks appear somewhat larger than in Aaa securities.
A -- Bonds that are rated A possess favorable investment attributes and are
to be considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate, but elements may be present that
suggest a susceptibility to impairment sometime in the future.
Baa -- Bonds that are rated Baa are considered as medium-grade obligations,
that is, they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
A-3
<PAGE>
Ba -- Bonds that are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
B -- Bonds that are rated B generally lack characteristics of desirable
investments. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa -- Bonds that are rated Caa are of poor standing. These issues may be
in default, or present elements of danger may exist with respect to principal or
interest.
Moody's applies numerical modifiers (1, 2 and 3) with respect to the bonds
rated Aa through B, The modifier 1 indicates that the bond being rated ranks in
the higher end of its generic rating category; the modifier 2 indicates a
mid-range ranking; and the modifier 3 indicates that the bond ranks in the lower
end of its generic rating category.
DESCRIPTION OF S&P MUNICIPAL BOND RATINGS
AAA -- Prime -- These are obligations of the highest quality. They have the
strongest capacity for timely payment of debt service.
General Obligation Bonds -- In a period of economic stress, the issuers
will suffer the smallest declines in income and will be least susceptible to
autonomous decline. Debt burden is moderate. A strong revenue structure appears
more than adequate to meet future expenditure requirements. Quality of
management appears superior.
Revenue Bonds -- Debt service coverage has been, and is expected to remain,
substantial. Stability of the pledged revenues is also exceptionally strong due
to the competitive position of the municipal enterprise or to the nature of the
revenues. Basic security provisions (including rate covenant, earnings test for
issuance of additional bonds, debt service reserve requirements) are rigorous.
There is evidence of superior management.
AA -- High Grade -- The investment characteristics of bonds in this group
are only slightly less marked than those of the prime quality issues. Bonds
rated AA have the second strongest capacity for payment of debt service.
A -- Good Grade -- Principal and interest payments on bonds in this
category are regarded as safe although the bonds are somewhat more susceptible
to the adverse effects of changes in circumstances and economic conditions than
bonds in higher rated categories. This rating
A-4
<PAGE>
describes the third strongest capacity for payment of debt service. The ratings
differ from the two higher ratings of municipal bonds, because:
General Obligations Bonds -- There is some weakness, either in the local
economic base, in debt burden, in the balance between revenues and expenditures,
or in quality of management. Under certain adverse circumstances, any one such
weakness might impair the ability of the issuer to meet debt obligations at some
future date.
Revenue Bonds -- Debt service coverage is good, but not exceptional.
Stability of the pledged revenues could show some variations because of
increased competition or economic influences on revenues. Basic security
provisions, while satisfactory, are less stringent. Management performance
appears adequate.
BBB -- Medium Grade -- Of the investment grade ratings, this is the lowest.
Bonds in this group are regarded as having an adequate capacity to pay interest
and repay principal. Adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity to pay interest and repay principal
for bonds in this category (even though they normally exhibit adequate
protection parameters) than for bonds in higher rated categories.
General Obligation Bonds -- Under certain adverse conditions, several of
the above factors could contribute to a lesser capacity for payment of debt
service. The difference between A and BBB ratings is that the latter shows more
than one fundamental weakness, or one very substantial fundamental weakness,
whereas, the former shows only one deficiency among the factors considered.
Revenue Bonds -- Debt coverage is only fair. Stability of the pledged
revenues could show substantial variations, with the revenue flow possibly being
subject to erosion over time. Basic security provisions are no more than
adequate. Management performance could be stronger.
BB, B, CCC and CC -- Bonds rated BB, B, CCC and CC are regarded, on
balance, as predominately speculative with respect to capacity to pay interest
and repay principal in accordance with the terms of the obligation. BB includes
the lowest degree of speculation and CC the highest degree of speculation. While
these bonds will likely have some quality and protective characteristics, these
characteristics are outweighed by large uncertainties or major risk exposures to
adverse conditions.
C -- The rating C is reserved for income bonds on which no interest is
being paid.
D -- Bonds rated D are in default, and payment of interest and/or repayment
of principal is in arrears.
A-5
<PAGE>
S&P's letter ratings may be modified by the addition of a plus or a minus
sign, which is used to show relative standing within the major rating
categories, except in the AAA-Prime Grade category.
DESCRIPTION OF S&P MUNICIPAL NOTE RATINGS
Municipal notes with maturities of three years or less are usually given
note ratings (designated SP-1, -2 or -3) to distinguish more clearly the credit
quality of notes as compared to bonds. Notes rated SP-1 have a very strong or
strong capacity to pay principal and interest. Those issues determined to
possess overwhelming safety characteristics are given the designation of SP-1+.
Notes rated SP-2 have satisfactory capacity to pay principal and interest.
DESCRIPTION OF MOODY'S MUNICIPAL BOND RATINGS
Aaa -- Bonds that are rated Aaa are judged to be the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edge." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
Aa -- Bonds that are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities, or fluctuation of
protective elements may be of greater amplitude, or there may be other elements
present that make the long-term risks appear somewhat larger than in Aaa
securities.
A -- Bonds that are rated A possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate, but elements may be
present that suggest a susceptibility to impairment sometime in the future.
Baa -- Bonds that are rated Baa are considered as medium grade obligations,
that is, they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba -- Bonds that are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterize bonds in this class.
A-6
<PAGE>
B -- Bonds that are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa -- Bonds that are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
Ca -- Bonds that are rated Ca represent obligations that are speculative in
a high degree. Such issues are often in default or have other marked
shortcomings.
C -- Bonds that are rated C are the lowest rated class of bonds, and issues
so rated can be regarded as having extremely poor prospects of ever attaining
any real investment standing.
Moody's applies the numerical modifiers 1, 2 and 3 in each generic rating
classification from Aa through B. The modifier 1 indicates that the security
ranks in the higher end of its generic ratings category; the modifier 2
indicates a mid-range ranking; and the modifier 3 indicates that the issue ranks
in the lower end of its generic ratings category.
DESCRIPTION OF MOODY'S MUNICIPAL NOTE RATINGS
Moody's ratings for state and municipal notes and other short-term loans
are designated Moody's Investment Grade (MIG) and for variable rate demand
obligations are designated Variable Moody's Investment Grade (VMIG). This
distinction recognizes the differences between short-term credit risk and
long-term risk. Loans bearing the designation MIG 1/VMIG 1 are the best quality,
enjoying strong protection from established cash flows of funds for their
servicing or from established and broad-based access to the market for
refinancing, or both. Loans bearing the designation MIG 2/VMIG 2 are of high
quality, with margins of protection ample, although not as large as the
preceding group. Loans bearing the designation MIG 3/VMIG3 are of favorable
quality, with all security elements accounted for but lacking the undeniable
strength of the higher grades. Market access for refinancing, in particular, is
likely to be less well established. Loans bearing the designation MIG 4/VMIG 4
are of adequate quality. Protection commonly regarded as required of an
investment security is present and although not distinctly or predominantly
speculative, there is specific risk.
A-7
<PAGE>
PART C
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
FINANCIAL STATEMENTS:
---------------------
Included in Part A:
None
Included in Part B:
Statement of Assets and Liabilities*
Report of Independent Auditors*
(b) EXHIBITS:
---------
EXHIBIT NO. DESCRIPTION OF EXHIBIT
----------- ----------------------
1(a) Certificate of Trust
1(b) Declaration of Trust*
2 By-Laws*
3 Inapplicable
4 Inapplicable
5 Investment Advisory and Administration Agreement*
6 Distribution Agreement*
7 Inapplicable
C-1
<PAGE>
8 Custodian Contract*
9 Transfer Agency and Service Agreement*
10 Opinion of Counsel, including consent*
11 Consent of Independent Auditors*
12 Inapplicable
13 Purchase Agreement*
14 Inapplicable
15 Written Plan Adopted pursuant to Rule 12b-1 under the
Investment Company Act of 1940, as amended*
16 Schedule of computation of performance data information*
17 Financial Data Schedules*
18 Written Plan Adopted pursuant to Rule 18f-3 under the
Investment Company Act of 1940, as amended*
- - ----------
* To be supplied by amendment
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
[To Be Completed]
ITEM 26. NUMBER OF HOLDERS OF SECURITIES
NUMBER OF RECORD
TITLE OF CLASS HOLDERS AS OF ________________, 1997
-------------- ------------------------------------
Shares representing [To Be Completed]
beneficial interests,
[no] par value [$.001 per share]
of the Fund
C-2
<PAGE>
ITEM 27. INDEMNIFICATION
As a Delaware business trust, the operations of GE Institutional Funds
("Registrant") are governed by its Declaration of Trust dated _________________,
1997 (the "Declaration of Trust"). Generally, Delaware business trust
shareholders are not personally liable for obligations of the Delaware business
trust under Delaware law. The Delaware Business Trust Act (the DBTA) provides
that a shareholder of a trust shall be entitled to the same limitation of
liability extended to shareholders of private for-profit Delaware corporations.
Registrant's Declaration of Trust expressly provides that it has been organized
under the DBTA and that the Declaration of Trust is to be governed by Delaware
law. It is nevertheless possible that a Delaware business trust, such as
Registrant, might become a party to an action in another state whose courts
refuse to apply Delaware law, in which case Registrant's shareholders could be
subject to personal liability.
To protect Registrant's shareholders against the risk of personal
liability, the Declaration of Trust: (i) contains an express disclaimer of
shareholder liability for acts or obligations of Registrant and provides that
notice of such disclaimer may be given in each agreement, obligation and
instrument entered into or executed by Registrant or its Trustees; (ii) provides
for the indemnification out of Trust property of any shareholders held
personally liable for any obligations of Registrant or any series of Registrant;
and (iii) provides that Registrant shall, upon request, assume the defense of
any claim made against any shareholder for any act or obligation of Registrant
and satisfy any judgment thereon. Thus, the risk of a shareholder incurring
financial loss beyond his or her investment because of shareholder liability is
limited to circumstances in which all of the following factors are present: (i)
a court refuses to apply Delaware law; (ii) the liability arose under tort law
or, if not, no contractual limitation of liability was in effect; and (iii)
Registrant itself would be unable to meet its obligations. In the light of
Delaware law, the nature of Registrant's business and the nature of its assets,
the risk of personal liability to a shareholder is remote.
The Declaration of Trust further provides that Registrant shall indemnify
each of its Trustees and officers against liabilities and expenses reasonably
incurred by them, in connection with, or arising out of, any action, suit or
proceeding, threatened against or otherwise involving such Trustee or officer,
directly or indirectly, by reason of being or having been a Trustee or officer
of Registrant. The Declaration of Trust does not authorize Registrant to
indemnify any Trustee or officer against any liability to which he or she would
otherwise be subject by reason of or for willful misfeasance, bad faith, gross
negligence or reckless disregard of such person's duties.
C-3
<PAGE>
Insofar as indemnification for liability arising under the Securities Act
of 1933 may be permitted to Trustees, officers and controlling persons, or
otherwise, Registrant has been advised that in the opinion of the Commission
such indemnification may be against public policy as expressed in the Act and
may be, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by Registrant of expenses
incurred or paid by a Trustee, officer or controlling person of Registrant in
the successful defense of any action, suit or proceeding) is asserted by such
Trustee, officer or controlling person in connection with the securities being
registered, Registrant will, unless in the opinion of its counsel the matter has
been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
Reference is made to "Management of the Trust" in the Prospectus forming
Part A, and "The Management of the Trust" in the Statement of Additional
Information forming Part B, of this Registration Statement.
The list required by this Item 28 of officers and directors of GEIM,
together with information as to any other business, profession, vocation or
employment of a substantial nature engaged in by those officers and directors
during the past two years, is incorporated by reference to Schedules A and D of
Form ADV filed by GEIM pursuant to the Investment Advisers Act of 1940, as
amended (SEC File No. 801-31947).
ITEM 29. PRINCIPAL UNDERWRITERS
(a) GE Investment Services Inc. ("GEIS") also serves as distributor for the
investment portfolios of GE Funds and for Elfun Tax-Exempt Income Fund, Elfun
Income Fund, Elfun Global Fund, Elfun Money Market Fund, Elfun Trusts and Elfun
Diversified Fund.
(b) The information required by this Item 29 with respect to each director
and Officer of GEIS is incorporated by reference to Schedule A of Form BD filed
by GEIS pursuant to the Securities Exchange Act of 1934 (SEC File No. 8-45710).
(c) Inapplicable.
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
All accounts, books and other documents required to be maintained by
Registrant pursuant to Section 31(a) of the Investment Company Act of 1940, as
amended (the "1940 Act"),
C-4
<PAGE>
and the rules thereunder, are maintained at the offices of: Registrant located
at 3003 Summer Street, Stamford, Connecticut 06905; State Street Bank and Trust
Company ("State Street"), Registrant's custodian and transfer agent, located at
225 Franklin Street, Boston, Massachusetts 02101; and Boston Financial Data
Services, Inc., a subsidiary of State Street, located at 2 Heritage Drive,
Quincy, Massachusetts 02171.
ITEM 31. MANAGEMENT SERVICES
Inapplicable.
ITEM 32. UNDERTAKINGS
(a) Inapplicable.
(b) Registrant undertakes to file a post-effective amendment containing
reasonably current financial statements that need not be certified, within four
to six months from the effective date of this Registration Statement.
(c) Registrant undertakes to furnish each person to whom a prospectus is
delivered with a copy of the Registrant's latest annual report to shareholders,
upon request and without charge.
(d) Registrant undertakes to call a meeting of the shareholders of each
Fund for the purpose of voting upon the question of removal of a trustee or
trustees of Registrant when requested in writing to do so by the holders of at
least 10% of Registrant's outstanding shares and, in connection with the
meeting, to comply with the provisions of Section 16(c) of the 1940 Act relating
to communications with the shareholders of certain common-law trusts.
C-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, and
the Investment Company Act of 1940, as amended, Registrant has duly caused this
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Stamford, State of Connecticut, on the 13th day
of June, 1997.
By: /s/ Michael J. Cosgrove
-----------------------------
Michael J. Cosgrove
President and Chairman
of the Board
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement on Form N-1A has been signed below by the following
persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
- - --------- ----- ----
/s/ MICHAEL J. COSGROVE Trustee, President and June 13, 1997
- - -------------------------- Chairman of the Board
Michael J. Cosgrove (Chief Executive Officer)
/s/ ALAN M. LEWIS Trustee, June 13, 1997
- - -------------------------- Executive Vice President
Alan M. Lewis
/s/ JEFFREY A. GROH Treasurer June 13, 1997
- - -------------------------- (Chief Financial and
Jeffrey A. Groh Accounting Officer)
<PAGE>
EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION
- - -------------- -----------
Ex-99.B1(a) Certificate of Trust
Exhibit 99.B1(a)
CERTIFICATE OF TRUST
OF
GE INSTITUTIONAL FUNDS
This Certificate of Trust (the "Certificate") is filed in accordance with
the provisions of the Delaware Business Trust Act (12 Del. Code Ann. Tit. 12
Section 3801 et seq.) and sets forth the following:
1. The name of the trust is: GE Institutional Funds (the "Trust").
2. The business address of the registered office of the Trust and of
the registered agent of the Trust is:
Corporation Service Company
1013 Centre Road
Wilmington, Delaware 19805
3. This Certificate is effective upon filing.
4. The Trust is a Delaware business trust to be registered under the
Investment Company Act of 1940, as amended. Notice is hereby given that the
Trust shall consist of one or more series. The debts, liabilities,
obligations and expenses incurred, contracted for or otherwise existing
with respect to a particular series of the Trust shall be enforceable
against the assets of such series only, and not against the assets of the
Trust generally or any other series.
IN WITNESS WHEREOF, the undersigned, being all of the Trustees of the
Trust, have executed this Certificate on this 23rd day of May, 1997.
/s/ Michael J. Cosgrove
---------------------------------
Michael J. Cosgrove, Trustee
/s/ Alan M. Lewis
---------------------------------
Alan M. Lewis, Trustee
