File Nos. 333-29337, 811-08257
As filed with the Securities and Exchange Commission on May 11, 1998
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 / /
Pre-Effective Amendment No. / /
Post-Effective Amendment No. 1 / X /
REGISTRATION STATEMENT UNDER
THE INVESTMENT COMPANY ACT OF 1940 / /
Amendment No. 3 / X /
(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
777 Long Ridge Road, Building B
Stamford, Connecticut 06927
(Name and Address of Agent for Service)
...................................................................
Copy to:
Stephen E. Roth, Esq.
Sutherland, Asbill & Brennan LLP
1275 Pennsylvania Avenue, N.W.
Washington, DC 20004-2404
It Is Proposed That this Filing Will Become Effective (check appropriate box)
[ ] Immediately upon Filing Pursuant to Paragraph (b) of Rule 485
[ ] on ______ Pursuant to Paragraph (b) of Rule 485
[ ] 60 Days after Filing Pursuant to Paragraph (a) of Rule 485
[ ] on (Date) Pursuant to Paragraph (a) of Rule 485
[X] 75 Days after Filing Pursuant to Paragraph (a)(2) of Rule 485
[ ] on (Date) Pursuant to Paragraph (a)(2) of Rule 485
Title of Securities Being Registered: Shares of Beneficial Interest.
<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 in Part A (Prospectuses)
and Part B (Statement of Additional Information) of the Registration Statement
PART A
ITEM NO. PROSPECTUS HEADING
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1. Cover Page........................................................Cover Page
2. Synopsis.................................................Expense Information
3. Condensed Financial Information.........................Financial Highlights
(Investment Class Only)
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;
Risk Factors and Special
Considerations;
Investment Restrictions;
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
6. Capital Stock and Other Securities............................... Dividends,
Distributions and
Taxes; Additional Matters
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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
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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
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;
Additional Information
19. Purchase, Redemption and Pricing
of Securities Being Offered............................Redemption of Shares;
Net Asset Value;
See Prospectus -
Purchase of Shares
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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.
<PAGE>
[Logo] GE Institutional Funds
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GE Institutional Funds
Prospectus
Emerging Markets Fund
Premier Growth Equity Fund
Small-Cap Value Equity Fund
Mid-Cap Growth Fund
International Equity Fund
Value Equity Fund
U.S. Equity Fund
S&P 500 Index Fund
Strategic Investment Fund
Income Fund
Money Market Fund
[Small-Cap Growth Equity Fund
Mid-Cap Value Equity Fund
High Yield Fund]
_______________, 1998
Investment Class
Prospectus begins on page 1
<PAGE>
SUBJECT TO COMPLETION, DATED MAY 11, 1998
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.
GE Institutional Funds (the "Trust") is an open-end management investment
company that offers a selection of diversified managed investment portfolios
(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. The Investment Class shares and the Service Class shares are
identical, except as to the services offered, and the expenses borne, by each
class. Investors 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.
The Trust is currently comprised of fourteen Funds, three of which (Small-Cap
Growth Equity Fund, Mid-Cap Value Equity Fund and High Yield Fund) are not
presently being offered. This Prospectus describes the Investment Class shares
of the following eleven Funds currently offered by the Trust:
* 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 of issuers that are located in emerging markets countries.
* 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.
* Small-Cap Value 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 companies with small-sized market capitalizations that
the Fund's management considers to be undervalued by the market.
* 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.
* International Equity Fund's investment objective is long-term growth of
capital. The Fund seeks to achieve this objective by investing primarily in
foreign equity securities.
* Value 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 equity securities of companies with
large-sized market capitalization that the Fund's management considers to be
undervalued by the market.
* 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.
* 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.
* Strategic Investment Fund's investment objective is to maximize total return,
consisting of capital appreciation 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.
* 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.
* 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.
[* Small-Cap Growth 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 companies with small-sized market capitalizations that
have the potential for above-average growth.
* Mid-Cap Value 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 companies with medium-sized market capitalizations that
the Fund's management considers to be undervalued by the market.
<PAGE>
* High Yield Fund's investment objective is to maximize total return,
consistent with the preservation of capital and prudent investment
management. The Fund seeks to achieve this objective by investing primarily
in fixed income securities that are rated below investment grade (as defined
in this Prospectus).]
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. There can be no assurance that a Fund will achieve its
investment objective.
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. SHARES OF THE FUNDS
ARE SUBJECT TO INVESTMENT RISK, INCLUDING POSSIBLE LOSS OF THE PRINCIPAL
INVESTED.
Additional information about the Funds and the Trust, contained in a Statement
of Additional Information dated the same date as this Prospectus, has been filed
with the Securities and Exchange Commission (the "SEC") and is available upon
request and without charge by calling the Trust at the telephone number listed
below or by contacting the Trust at the address listed below. The SEC maintains
a Web site (http://www.sec.gov) that contains the Statement of Additional
Information, material incorporated by reference and other information regarding
the Funds and the Trust. The Statement of Additional Information is incorporated
in its entirety by reference into this Prospectus.
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.
<PAGE>
PROSPECTUS
[INSERT], 1998
TABLE OF CONTENTS
Expense Information.........................................................1
Financial Highlights........................................................2
Performance.................................................................3
Investment Objectives and Management Policies ..............................5
Investments in Debt Securities.............................................16
Cash Management Policies -- Non-Money Market Funds.........................17
Additional Permitted Investments...........................................18
Investment Restrictions....................................................22
Risk Factors and Special Considerations....................................23
Management of the Trust....................................................28
Purchase of Shares.........................................................32
Redemption of Shares.......................................................35
Investment Switches........................................................36
Net Asset Value............................................................36
Dividends, Distributions and Taxes.........................................37
Custodian and Transfer Agent...............................................38
Distributor................................................................38
Additional Matters.........................................................39
Appendix -- Further Information:
Certain Investment Techniques and Strategies..............................i
3003 Summer Street
Stamford, Connecticut 06905
(800) 493-3042
<PAGE>
EXPENSE INFORMATION
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Expenses are one of several factors to consider when investing in the Funds. The
following fee table and example are designed to assist investors in
understanding the various costs and expenses that they will bear directly or
indirectly as investors in the Investment Class shares of a Fund. 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.
SHAREHOLDER TRANSACTION EXPENSES
The Funds have no sales load on purchases or reinvested dividends, deferred
sales load, redemption fee or exchange fee.
FEE TABLE
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ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE OF NET ASSETS):
MAXIMUM ADVISORY
and ADMINISTRATION OTHER TOTAL OPERATING
FEES EXPENSES EXPENSES
---- -------- --------
Emerging Markets Fund 1.05%* None 1.05%
Premier Growth Equity Fund .55%* None .55%
Small-Cap Value Equity .70%* None .70%
Fund
Mid-Cap Growth Fund .55%* None .55%
International Equity Fund .75%* None .75%
Value Equity Fund .55%* None .55%
U.S. Equity Fund .55%* None .55%
S&P 500 Index Fund .15% None .15%
Strategic Investment Fund .45%* None .45%
Income Fund .35%* None .35%
Money Market Fund .25%* None .25%
[Small-Cap Growth Equity .70%* None .70%
Fund
Mid-Cap Value Equity Fund .60%* None .60%
High Yield Fund .45%* None .45%]
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* 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, brokerage fees, and expenses that are not normal
operating expenses of the Funds (such as extraordinary expenses, interest and
taxes). The amount shown as the advisory and administration fee for a Fund
reflects 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, brokerage fees, and expenses
that are not normal operating expenses of the Funds. This amount is expected to
be de minimus (less than .01%); therefore "Other Expenses" are reflected as
"None."
1
<PAGE>
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.
A SHAREHOLDER WOULD PAY THE FOLLOWING
EXPENSES ON A $1,000 INVESTMENT,
ASSUMING A (1) 5% ANNUAL RETURN; AND (2)
REDEMPTION AT THE END OF THE TIME PERIODS
SHOWN:
---------------------------------------------
1 YEAR 3 YEARS
------ -------
Emerging Markets Fund $11 $33
Premier Growth Equity Fund $6 $18
Small-Cap Value Equity Fund $7 $22
Mid-Cap Growth Fund $6 $18
International Equity Fund $8 $24
Value Equity Fund $6 $18
U.S. Equity Fund $6 $18
S&P 500 Index Fund $2 $ 5
Strategic Investment Fund $5 $14
Income Fund $4 $11
Money Market Fund $3 $ 8
Small-Cap Growth Equity Fund $7 $22
Mid-Cap Value Equity Fund $6 $19
High Yield Fund $5 $14]
The above example is intended to assist investors 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 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.
FINANCIAL HIGHLIGHTS
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The tables below provide selected unaudited data for an Investment Class Fund
share outstanding throughout the period presented. The Trust refers to, and
hereby incorporates by reference into the Prospectus, the Trust's Semi-Annual
Report dated March 31, 1998. Copies of the Trust's Semi-Annual Report may be
obtained without charge upon request made to the Trust by calling the toll free
number listed on the back cover page of the Prospectus or by writing to the
Trust at the address listed on the first page of the Prospectus. The following
unaudited data for the fiscal period ended March 31, 1998 should be read in
conjunction with the financial statements and the notes to the financial
statements which are incorporated by reference into the Statement of Additional
Information.
(TO BE FILED BY AMENDMENT)
2
<PAGE>
PERFORMANCE
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The chart below shows the historical performance of the Investment Class shares
of the following Funds for the referenced period. The performance figures
reflected below are net of fees and expenses attributable to the Investment
Class shares of the Funds noted and assume changes in share price, reinvestment
of dividends and capital gains. Because the Investment Class shares of the Funds
do not pay a shareholder servicing and distribution fee, the performance figures
shown below for the Investment Class shares of the Funds noted can be expected
to be higher than the performance figures for the Service Class shares of the
corresponding Fund.
AGGREGATE TOTAL RETURN*
-----------------------
Emerging Markets Fund 10.69% (11/25/97)
Mid-Cap Growth Fund 12.77% (11/25/97)
International Equity Fund 20.27% (11/25/97)
U.S. Equity Fund 15.29% (11/25/97)
S&P 500 Index Fund 16.44% (11/25/97)
Income Fund 2.91% (11/21/97)
Money Market Fund 1.79% (12/02/97)
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* From commencement of operations, as indicated in parentheses, to March 31,
1998. Performance figures shown above have not been annualized.
As of the date of this Prospectus, General Electric Capital Assurance Co.
("GECA"), an indirect subsidiary of General Electric Company ("GE"), owned 100%
of the outstanding Investment Class shares of the Premier Growth Equity Fund,
the Value Equity Fund and the Strategic Investment Fund. The shares were issued
to GECA for providing the initial seed capital to these Funds. Because each of
these Funds lacks an operating history, no performance figures are provided for
these Funds.
TOTAL RETURN
From time to time, the Trust may advertise an "average annual total return" over
various periods of time for Investment Class shares of a Fund. This total return
figure shows an average percentage change in value of an investment in such
shares from the beginning date of the measuring period to the ending date of the
period. The figure reflects changes in the price of a Fund's shares and assumes
that any income, dividends and/or capital gains distributions made by the Fund
during the period are reinvested in shares of the same class. Figures will be
given for recent one-, five- and 10-year periods (if applicable), and may be
given for other periods as well (such as from commencement of a Fund's
operations, or on a year-by-year basis).
YIELD
The Trust may, from time to time, include the yield and effective yield of the
Money Market Fund in advertisements or reports to shareholders or prospective
investors. Current yield for the Money Market Fund will be based upon income
received by a hypothetical investment in a given seven-day period (which period
will be stated in the advertisement), and then "annualized" (that is, assuming
that the seven-day yield would be received for 52 weeks, stated in terms of an
annual percentage return on the investment). "Effective yield" for the Money
Market Fund will be calculated in a manner similar to that used to calculate
yield, but will reflect the compounding effect of earnings on reinvested
dividends. The seven-day current yield and effective seven-day yield as of March
31, 1998 were 5.36% and 5.50%, respectively.
3
<PAGE>
The Trust may, from time to time, advertise a 30-day "yield" for each class of a
Fund. The yield of a Fund refers to the income generated by an investment in a
class over the 30-day period identified in the advertisement and is computed by
dividing the net investment income per share earned by a class during the period
by the net asset value per share for that class on the last day of the period.
This income is "annualized" by assuming that the amount of income is generated
each month over a one-year period and is compounded semi-annually. The
annualized income is then shown as a percentage of the Fund's net asset value.
The 30-day yield for the period ended March 31, 1998 for Investment Class shares
of the Income Fund was 5.74%.
TOTAL RETURN AND YIELD FIGURES ARE BASED ON HISTORICAL EARNINGS AND ARE NOT
INTENDED TO INDICATE FUTURE PERFORMANCES. THE STATEMENT OF ADDITIONAL
INFORMATION DESCRIBES THE METHOD USED TO DETERMINE A FUND'S TOTAL RETURN AND
YIELD.
SMALL-CAP VALUE EQUITY FUND
PRIOR PERFORMANCE OF PALISADE CAPITAL MANAGEMENT, L.L.C.
The investment performance presented below represents the composite performance
of relevant private accounts (the "Accounts") managed by the investment
professionals of Palisade Capital Management, L.L.C. ("Palisade"), the
investment sub-adviser of the Small-Cap Value Equity Fund (the "Small-Cap Value
Fund"). The performance of the Accounts was computed by Palisade and verified by
independent accountants. The methodology of calculating the performance differs
from that required to be employed by mutual funds. The performance data of the
Accounts is net of advisory fees and other expenses.
The performance data below represents the prior performance of the Accounts, not
the prior performance of the Small-Cap Value Fund, and should not be considered
an indication of future performance of the Fund. In managing the Fund, Palisade
will employ substantially the same investment objectives, policies and
strategies that it employed in managing the Accounts. However, in managing the
Fund, Palisade will be subject to restrictions imposed by the Investment Company
Act of 1940 and the Internal Revenue Code (e.g., limits on the percentage of
assets invested in securities of issuers in a single industry and requirements
on distributing income to shareholders) that do not apply to the Accounts. The
Fund also will incur operating expenses, such as transfer agency, legal and
auditing fees, that are not borne by the Accounts. In addition, the continuous
offering of the Fund's shares and the Fund's obligation to redeem its shares
will likely cause the Fund to experience cash flows different from those of the
Accounts. All of the foregoing may affect the performance of the Fund and cause
it to differ from that of the Accounts.
Palisade Capital Management, L.L.C.
Small-Cap Equity Composite
(5/1/87 to 12/31/97)
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SMALL-CAP
EQUITY RUSSELL 2000 # OF ACCOUNTS
COMPOSITE INDEX IN COMPOSITE
--------- ----- ------------
1987* -11.18% -24.45% 1
1988 18.36% 24.89% 1
1989** 25.26% 16.24% 1
1990 6.67% -19.51% 1
1991 40.53% 46.05% 1
1992 10.86% 18.41% 1
1993 11.89% 18.91% 1
1994 3.59% -1.82% 3
1995 32.05% 28.44% 3
1996 23.17% 16.52% 5
1997 26.26% 22.37% 6
- ----------
* Represents performance 5/1/87 through 12/31/87.
** See Note B below.
4
<PAGE>
ANNUALIZED RETURN (AS OF 12/31/97)
SMALL-CAP EQUITY RUSSELL 2000
COMPOSITE INDEX
--------- -----
1 Year 26.26% 22.37%
3 Years 27.11% 22.35%
5 Years 18.94% 16.41%
7 Years 20.59% 20.54%
10 Years 19.35% 15.76%
NOTE A -- COMPOSITE. The Palisade Small-Cap Equity Composite (the "Composite")
is comprised of all fully discretionary, fee-paying, tax-exempt institutional
Accounts with assets of $10 million or greater at the beginning of the calendar
quarter that are managed in accordance with Palisade's small capitalization
investment strategy. The investment objective of the small capitalization equity
strategy is long-term growth of capital. Under normal circumstances, the
Accounts managed in accordance with this strategy are primarily invested in
small capitalization securities with the balance of an Account invested in cash
equivalents. Portfolio returns of Accounts are compared to the Russell 2000
Index (the "Russell Index"), which is an unmanaged index of common stocks of
issuers with total market capitalizations between $__ million and $__ billion as
of June 30, 1998. Both the Composite and the Russell Index reflect the
reinvestment of dividends and distributions. Portfolio structure and security
holdings of Accounts included in the Composite, however, may differ materially
from those of the Russell Index. Moreover, unlike the Russell Index, the
Composite reflects the effect of transaction and other fees and expenses and the
deduction of the actual dollar-weighted management fee rate paid by all Accounts
in the Composite.
NOTE B -- PERFORMANCE RESULTS. Palisade has prepared this presentation in
compliance with the Performance Presentation Standards of the Association for
Investment Management and Research ("AIMR") from May 1, 1987 through December
31, 1988 and from January 1, 1990 through December 31, 1997. The results for
1989 are not in compliance with the AIMR Performance Presentation Standards
because quarterly statements of market values are not available; the return
calculated for 1989 is the annual return without the effect of quarterly
compounding. AIMR has not been involved with the preparation of, and has not
reviewed, this report. Composite results are valued quarterly and the results
are time-weighted and asset-weighted by using beginning-of-quarter market
values. The Composite results presented for periods prior to the commencement of
operations of Palisade in April 1995 are the investment results of the same
Accounts managed by the identical investment professionals while they were
employed as a separate operating group within Smith Barney Inc. and Drexel
Burnham Lambert.
INVESTMENT OBJECTIVES AND MANAGEMENT POLICIES
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The Trust is a diversified, open-end management investment company that consists
of separate series of shares, each of which is divided into 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 compensate GE Investment Management
Incorporated ("GEIM"), the Trust's investment adviser and administrator, or
enable GEIM to compensate other persons, 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 compensate GEIM, or enable GEIM to
compensate other persons, including GE Investment Distributors, Inc. (the
"Distributor"), for providing certain services that are primarily intended to
result in the sale of Service Class shares of the Funds 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
5
<PAGE>
distribution fee paid by the Service Class shares will cause such shares to have
a higher expense ratio and lower return than the Investment Class shares.
Investors should be aware that GE Funds, an investment company that is
affiliated with the Trust and also advised by GEIM, 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 (the "GE Funds") advised by GEIM with the same or similar
investment objectives and policies as those of certain 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. INVESTORS SHOULD EVALUATE THE LEVELS AT WHICH THEY INTEND TO INVEST
AND THEIR INDIVIDUAL SHAREHOLDER SERVICES REQUIREMENTS TO DETERMINE THE CLASS OF
SHARES OF THE FUNDS OR THE GE FUNDS THAT BEST SUITS THEIR NEEDS AT THE LOWEST
LEVEL OF FEES.
Set forth below is a description of the investment objective and policies of
each Fund that is currently offered by the Trust. 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 of issuers
that are located in emerging markets countries. The determination of where an
issuer is located will be made by reference to the country in which the issuer:
(a) is organized; (b) derives at least 50% of its revenues or profits from goods
produced or sold, investments made or services performed; (c) has at least 50%
of its assets situated; or (d) has the principal trading market for its
securities (the "Country Identification Test").
GEIM allocates the Emerging Markets Fund's assets among the selected emerging
markets of newly industrializing countries in Asia, Latin America, the Middle
East, Southern Europe, Eastern Europe (including the former republics of the
Soviet Union and the Eastern Bloc) 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 Emerging Markets Index.
The Emerging Markets 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 markets 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 foreign investment funds or trusts and foreign real estate
investment trust securities. The Emerging Markets Fund may invest in American
Depositary Receipts ("ADRs") (sometimes referred to as Continental Depositary
Receipts, or "CDRs"), European Depositary Receipts ("EDRs") and Global
Depositary Receipts ("GDRs").
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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
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 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 Fund in debt instruments issued by a governmental entity if
GEIM 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" and in the Appendix. (See "Risk Factors and Special
Considerations" for a discussion of risks associated with investing in emerging
markets countries.)
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
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 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 capitalization. In addition, the
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 foreign
securities, excluding, for purposes of this limitation, ADRs and securities of a
foreign issuer with a class of securities registered with the SEC and listed on
a U.S. national securities exchange ("U.S. Listed Securities") or traded on the
Nasdaq National Market or the Nasdaq SmallCap Market (collectively, "Nasdaq
Traded Securities"). The equity securities in which the 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 Fund may invest up to 35%
of its assets in bonds, notes and debentures. For temporary defensive purposes,
the Fund may invest in fixed income securities without limitation. To the extent
that the Fund invests in fixed income securities, it may not achieve its
investment objective. The Fund also may engage in certain investments discussed
below under "Additional Permitted Investments" and in the Appendix.
SMALL-CAP VALUE EQUITY FUND
The investment objective of the Small-Cap Value Fund is long-term growth of
capital. The Fund seeks to achieve its objective by investing primarily in
equity securities of companies with small-sized market capitalizations that
Palisade, the Fund's investment sub-adviser, considers to be undervalued by the
market in relation to factors such as the company's assets, earnings, or growth
potential. The Fund uses a fundamental, "bottom-up" analysis to identify those
companies whose share price does not fully reflect the value of the company.
The Small-Cap Value Fund, under normal market conditions, invests at least 65%
of its total assets in a portfolio of equity securities of small-capitalization
companies traded on U.S. securities exchanges or in the U.S. over-the-
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counter market, including common stocks, preferred stocks, convertible bonds,
convertible debentures, convertible notes, convertible preferred stocks, ADRs
and warrants or rights issued by U.S. and foreign companies. The Fund considers
a "small-capitalization" company to be one that has a market capitalization,
measured at the time it purchases a security of that company, within the range
of capitalizations of companies represented in the Russell 2000 Index. (Although
as of June 30, 1998, the Russell 2000 Index included companies with market
capitalizations between $___ million and $___ billion, currently it is expected
that the weighted average market capitalization of the Fund's portfolio will
ordinarily fall between $100 million and $1 billion.) Companies whose
capitalization no longer meets this definition after purchase continue to be
considered small-capitalization companies for purposes of the Fund's policy of
investing at least 65% of its assets in small-capitalization companies. In
addition, the Fund may invest up to 35% of its total assets in securities of
companies outside the capitalization range of the Russell 2000 Index. As a
result of these policies, the average market capitalization of the Fund's
portfolio at any particular time may exceed $___ billion, particularly at times
when the market values of small-capitalization company stocks are rising. In
general, investments in smaller-capitalization companies often involve greater
risks than investments in larger companies. (See "Risk Factors and Special
Considerations -- Smaller Companies.")
The Small-Cap Value Fund will invest primarily in companies whose securities are
traded in the U.S. markets, but may invest up to 10% of its assets in foreign
securities, excluding, for purposes of this limitation, ADRs, U.S. Listed
Securities and Nasdaq Traded Securities. (See "Risk Factors and Special
Considerations -- Investment in Foreign Securities.") The Fund may also sell
securities short against the box and engage in certain investments discussed
below under "Additional Permitted Investments" and in the Appendix.
MID-CAP GROWTH FUND
The investment objective of the Mid-Cap Growth Fund is long-term growth of
capital. The Fund seeks to achieve this objective by investing primarily in the
equity securities of companies with medium-sized market capitalization
("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 have one or
more of a variety of characteristics, including attractive products or 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 Mid-Cap Growth Fund's investment in them will be
successful.
The Mid-Cap Growth Fund may invest up to 35% of its assets in: (i) securities of
companies outside the capitalization range of the S&P 400 Index; (ii) foreign
securities, excluding, for purposes of this limitation, ADRs, U.S. Listed
Securities and Nasdaq Traded Securities; and (iii) bonds, notes and debentures.
The Fund may sell securities short against the box and engage in certain
investments discussed below under "Additional Permitted Investments" and in the
Appendix.
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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 foreign equity securities. The 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. (See "Risk Factors and Special
Considerations" for a discussion of the risks associated with investing in
foreign equity securities.) The Fund intends to position itself broadly among
countries and, under normal circumstances, at least 65% of the Fund's total
assets will be invested in securities of issuers collectively in no fewer than
three different countries other than the United States. 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. The
determination of where an issuer is located will be made by reference to the
Country Identification Test, as set forth above in "Investment Objectives and
Management Policies -- Emerging Markets Fund."
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 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 Fund will emphasize
established companies, although it may invest in companies of varying sizes as
measured by assets, sales or capitalization.
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 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.
When GEIM believes there are unstable market, economic, political or currency
conditions abroad, the International 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. In addition, the International Fund may sell
securities short against the box and may engage in certain investments discussed
below under "Additional Permitted Investments" and in the Appendix.
VALUE EQUITY FUND
The investment objective of the Value Equity 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 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,
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convertible debentures, convertible notes, convertible preferred stocks, and
warrants or rights issued by foreign and U.S. companies.
The Value Equity 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
over-forecasts 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) a low price/earnings ratio relative
to a normalized growth rate and/or Standard & Poor's 500 Composite Stock Price
Index (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.
GEIM believes that such investments will position the Value Equity 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 Equity Fund, under normal market conditions, may invest (i) up to 35%
of its assets in bonds, notes and debentures, and (ii) up to 25% of its assets
in foreign securities, excluding, for purposes of this limitation, ADRs, U.S.
Listed Securities and Nasdaq Traded Securities. The Fund may sell securities
short against the box and engage in certain investments discussed below under
"Additional Permitted Investments" and in the Appendix.
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, and warrants or
rights issued by U.S. companies. The 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 Fund's assets
may be invested in foreign securities. ADRs, U.S. Listed Securities and Nasdaq
Traded Securities will be included for purposes of the Fund's 65% minimum
described above, and excluded for purposes of the Fund's 15% maximum investments
in foreign securities.
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 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 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 characteristics similar to the S&P 500
Index by virtue of blending investments in both "value" and "growth" securities.
Since the Fund's strategy seeks to combine these basic elements, but is designed
to select investments
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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 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. The Fund also may engage
in certain investments discussed below under "Additional Permitted Investments"
and in the Appendix.
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 & Poor's (also referred to herein
as "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,
delete common stocks from, and add common stocks to, 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 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
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 investment sub-adviser to the 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.
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 a similar market
capitalization and other investment characteristics). In addition, from time to
time adjustments may be made in the Fund's holdings due to changes in the
composition or weighting of issues comprising the S&P 500 Index.
- ----------
(1) Standard & Poor's,(R) S&P,(R) and S&P 500(R) are trademarks of The
McGraw-Hill Companies, Inc. and have been licensed for use. The S&P 500
Index Fund is not sponsored, endorsed, sold or promoted by S&P, and 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.
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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 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 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 Fund expenses, in addition to
potential tracking error, will tend to cause the 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
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 (i)
stocks and other securities not included in the S&P 500 Index and (ii) foreign
securities, excluding, for purposes of this limitation, ADRs, U.S. Listed
Securities and Nasdaq Traded Securities. In this regard, the Fund may
temporarily invest cash balances, pending withdrawals or investments, in high
quality money market instruments. Nevertheless, the 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" and in the Appendix.
STRATEGIC INVESTMENT FUND
The investment objective of the Strategic Investment Fund (the "Strategic Fund")
is to maximize total return, consisting of capital appreciation 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 Fund's experiencing a high portfolio turnover rate. See "Risk
Factors and Special Considerations -- Portfolio Transactions and Turnover"
below.
The Strategic Fund invests in the following classes of investments: common
stocks, preferred stocks, convertible securities and warrants or 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 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, up to 30% of the Fund's total
assets may be invested in foreign securities, excluding, for purposes of this
limitation, ADRs, U.S. Listed Securities and Nasdaq Traded Securities. The Fund
also may invest in 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 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 Fund at any given time in light of its assessment of the attractiveness of
each market. Although GEIM cannot predict the mix of the Fund's investments at
any one time, GEIM can delineate certain situations that can lead to a shift in
the mix of the 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 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 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 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 Strategic Fund may invest in
municipal leases, floating and variable rate instruments, participation
interests in certain Municipal Obligations, Municipal Obligation components,
custody receipts and zero coupon obligations and may enter into mortgage dollar
rolls. The Fund also may engage in certain investments discussed below under
"Additional Permitted Investments" and in the Appendix.
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 Fund's portfolio securities may occur but is
not an objective of the Fund. In seeking to achieve its investment objective,
the 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 Fund also may invest in
depositary receipts 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 foreign
securities, excluding, for purposes of this limitation, ADRs, U.S. Listed
Securities and Nasdaq Traded Securities. The Fund also may enter into mortgage
dollar rolls, and may engage in certain investments discussed below under
"Additional Permitted Investments" and in the Appendix. The Fund typically
invests not more than 35% of its assets in money market instruments if GEIM
deems such investments to be consistent with the Fund's investment objective.
See "Cash Management Policies -- Non-Money Market Funds," below.
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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 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.
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 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 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 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 (collectively, "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 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 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. Up to 25% of the Fund's total assets may be invested in
foreign securities, excluding, for purposes of this limitation, ADRs, U.S.
Listed Securities and Nasdaq Traded Securities. The Fund will maintain a
dollar-weighted average portfolio maturity of 90 days or less. The assets of the
Fund are valued on the basis of amortized cost, as described below under "Net
Asset Value." The Fund also may hold liquid Rule 144A Securities (see
"Additional Permitted Investments -- Illiquid Investments and Restricted
Securities") and engage in certain other investments discussed below under
"Additional Permitted Investments" and in the Appendix.
[SMALL-CAP GROWTH EQUITY FUND]
The investment objective of the Small-Cap Growth Equity Fund (the "Small-Cap
Growth Fund") is long-term growth of capital. The Fund seeks to achieve its
objective by investing primarily in equity securities of companies with
small-sized market capitalizations that GEIM believes have the potential for
above-average growth.
The Small-Cap Growth Fund, under normal market conditions, invests at least 65%
of its total assets in a portfolio of equity securities of small-capitalization
companies traded on U.S. securities exchanges or in the U.S. over-the-counter
market, including 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
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Fund considers a "small-capitalization" company to be one that has a market
capitalization, measured at the time it purchases a security of that company,
within the range of capitalizations of companies represented in the Russell 2000
Index. (Although as of June 30, 1998, the Russell 2000 Index included companies
with market capitalizations between $___ million and $___ billion, currently it
is expected that the weighted average market capitalization of the Fund's
portfolio will ordinarily fall between $100 million and $1 billion.) Companies
whose capitalization no longer meets this definition after purchase continue to
be considered small-capitalization companies for purposes of the Fund's policy
of investing at least 65% of its assets in small-capitalization companies. In
addition, the Fund may invest up to 35% of its total assets in securities of
companies outside the capitalization range of the Russell 2000 Index. As a
result of these policies, the average market capitalization of the Fund's
portfolio at any particular time may exceed $___ billion, particularly at times
when the market values of small-capitalization company stocks are rising. In
general, investments in smaller-capitalization companies often involve greater
risks than investments in larger companies. (See "Risk Factors and Special
Considerations -- Smaller Companies.")
GEIM relies on its proprietary research to identify small-capitalization
companies with potentially attractive growth prospects. These companies
typically have one or more of a variety of characteristics, including attractive
products or 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 Small-Cap Growth Fund's investment
in them will be successful.
The Small-Cap Growth Fund will invest primarily in companies whose securities
are traded in the U.S. markets, , but may invest up to 35% of its assets in
foreign securities, excluding, for purposes of this limitation, ADRs, U.S.
Listed Securities and Nasdaq Traded Securities. (See "Risk Factors and Special
Considerations -- Investment in Foreign Securities.") The Fund may also sell
securities short against the box and engage in certain investments discussed
below under "Additional Permitted Investments" and in the Appendix.
[MID-CAP VALUE EQUITY FUND]
The investment objective of the Mid-Cap Value Equity Fund (the "Mid-Cap Value
Fund") is long-term growth of capital. The Fund seeks to achieve its objective
by investing primarily in equity securities of companies with medium-sized
market capitalizations ("mid-cap") that GEIM considers to be undervalued by the
market. Current income, while considered important, will be secondary to the
objective of capital growth.
The Mid-Cap Value Fund, under normal market conditions, invests 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 bonds, convertible debentures,
convertible notes, convertible preferred stocks, ADRs and warrants or rights
issued by U.S. and foreign companies. The Fund considers a "mid-cap" company to
be one that has a market capitalization, measured at the time it purchases a
security of that company, within the range of capitalizations of companies
represented in the S&P MidCap 400 Index. (As of June 30, 1998, the S&P MidCap
400 Index included companies with market capitalizations between $___ million
and $___ billion.) Companies whose capitalization no longer meets this
definition after purchase continue to be considered mid-cap companies for
purposes of the Fund's policy of investing at least 65% of its assets in mid-cap
companies. In addition, the Fund may invest up to 35% of its total assets in
securities of companies outside the capitalization range of the S&P MidCap 400
Index. As a result of these policies, the average market capitalization of the
Fund's portfolio at any particular time may fall below or exceed the range of
capitalizations of companies represented in the S&P MidCap 400 Index,
particularly at times when the market values of mid-cap company stocks are
fluctuating. In general, investments in smaller-capitalization companies often
involve greater risks than investments in larger companies. (See "Risk Factors
and Special Considerations -- Smaller Companies.")
GEIM seeks investments in equity securities based on its judgment of fundamental
value. Factors deemed particularly relevant include price, earnings
expectations, earnings and price histories, balance sheet characteristics and
perceived management skills. Changes in the economic and political outlooks as
well as
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individual corporate developments influence specific security prices. When the
Mid-Cap Value Fund's investments lose their perceived value relative to other
similar investments and investment alternatives, they typically are sold.
The Mid-Cap Value Fund will invest primarily in companies whose securities are
traded in the U.S. markets, but may invest up to 35% of its assets in foreign
securities, excluding, for purposes of this limitation, ADRs, U.S. Listed
Securities and Nasdaq Traded Securities. (See "Risk Factors and Special
Considerations -- Investment in Foreign Securities.") The Fund may also sell
securities short against the box and engage in certain investments discussed
below under "Additional Permitted Investments" and in the Appendix.
[HIGH YIELD FUND]
The investment objective of the High Yield Fund is to maximize total return,
consistent with the preservation of capital and prudent investment management.
The Fund seeks to achieve its objective by investing primarily in fixed income
securities that are rated below investment grade (as discussed below). In
selecting securities for the Fund, GEIM utilizes economic forecasting, interest
rate anticipation, credit and call risk analysis, foreign currency exchange rate
forecasting, and other securities selection techniques. The proportion of the
Fund's assets committed to investment in securities with particular
characteristics (such as maturity, type and coupon rate) will vary based on
GEIM's outlook for the U.S. and foreign economies, the financial markets, and
other factors.
The High Yield Fund, under normal market conditions, invests at least 65% of its
total assets in a diversified portfolio of fixed income securities rated lower
than Baa by Moody's or lower than BBB by S&P but rated at least B by Moody's or
S&P (or, if unrated, determined by GEIM to be of comparable quality). The
remainder of the Fund's assets may be invested in investment grade fixed income
securities (i.e., securities rated at least Baa by Moody's or BBB by S&P, or, if
unrated, deemed by GEIM to be of comparable quality). The average portfolio
duration of the Fund will normally vary within a two- to six-year time frame
depending on GEIM's view of the potential for total return offered by a
particular duration strategy.
The High Yield Fund will invest at least 65% of its total assets in Government
Securities; corporate debt securities of domestic and foreign issuers, including
convertible securities and corporate commercial paper; mortgage-backed and other
asset-backed securities; inflation-indexed bonds issued by both governments and
corporations; structured notes, including hybrid or "indexed" securities, and
loan participations; bank certificates of deposit, fixed time deposits and
bankers' acceptances; repurchase agreements and reverse repurchase agreements;
Municipal Obligations; obligations of foreign governments or their subdivisions,
agencies and instrumentalities; and obligations of international agencies or
supranational entities. Fixed income securities may have fixed, variable, or
floating rates of interest, including rates of interest that vary inversely at a
multiple of a designated or floating rate, or that vary according to changes in
relative values of currencies. The Fund may hold different percentages of its
assets in these various types of securities and may invest all of its assets in
derivative instruments or in mortgage- or asset-backed securities. The Fund may
adhere to its investment policy by entering into a series of purchase and sale
contracts or by utilizing other investment techniques by which it may obtain
market exposure to the securities in which it primarily invests.
Investments in high yield securities, while generally providing greater
potential opportunity for capital appreciation and higher yields than
investments in higher rated securities, also entail greater risk, including the
possibility of default or bankruptcy of the issuer of the securities. Risk of
default or bankruptcy may be greater in periods of economic uncertainty or
recession, as the issuers of high yield securities may be less able to withstand
general economic downturns. GEIM seeks to reduce risk through diversification,
credit analysis and attention to current developments and trends in both the
economy and financial markets. The value of all fixed income securities,
including those held by the High Yield Fund, can be expected to change inversely
with interest rates. (See "Risk Factors and Special Considerations -- Low-rated
Securities.")
In addition to the above, up to 35% of the High Yield Fund's assets may be
invested in foreign securities, excluding, for purposes of this limitation,
ADRs, U.S. Listed Securities and Nasdaq Traded Securities. (See "Risk Factors
and Special Considerations -- Investment in Foreign Securities.") The Fund may
also sell securities short
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against the box and engage in certain investments discussed below under
"Additional Permitted Investments" and in the Appendix.
INVESTMENTS IN DEBT SECURITIES
- --------------------------------------------------------------------------------
Each of the Premier Growth Fund, Small-Cap Value Fund, [Small-Cap Growth Fund,
Mid-Cap Value Fund,] International Fund, Value Equity Fund, U.S. Equity Fund and
S&P 500 Index Fund limits investment in debt securities to those that are rated
investment grade, except that each such Fund, other than the Small-Cap Value
Fund, may invest up to 5% of that Fund's assets in securities rated lower than
investment grade and the Small-Cap Value Fund may invest up to 10% of its assets
in below investment grade securities. [The High Yield Fund has no limitation on
the amount of its assets that 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 rating categories assigned by S&P
or 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 Emerging Markets Fund, Mid-Cap Growth Fund, Strategic Fund and
Income Fund limits its purchases of debt instruments to those that are rated
within the six highest rating 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 that have received an equivalent rating from another NRSRO 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, or that have received an equivalent rating from another NRSRO 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 under "Investment Objectives and
Management Policies -- Money Market Fund." This section describes the cash
management policies of the other Funds (each, a "non-money market Fund").
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.
When the Investment Manager(2) 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 non-money market 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 (the "Investment Fund"), in the following types of money market
securities during normal market conditions and/or 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;
- ----------
(2) As used in this Prospectus, the term "Investment Manager" shall refer to
GEIM, Palisade or SSGA, as applicable.
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(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 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 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 GE. 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.
ILLIQUID INVESTMENTS AND RESTRICTED SECURITIES. Each non-money market Fund 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 and restricted securities that the Investment Manager has determined
are not liquid under guidelines established by the Trust's Board of Trustees.
In addition, each non-money market Fund may invest up to 10% of its assets in
restricted securities. A restricted security is one that is subject to a
contractual or legal restriction on transfer, excluding for purposes of this
limitation securities sold to "qualified institutional buyers" in accordance
with Rule 144A under the 1933 Act ("Rule 144A Securities") determined to be
liquid by the Trust's Board of Trustees based upon the trading markets for the
securities. If a Fund holds Rule 144A Securities, the level of illiquidity in
the Fund may increase during periods when qualified institutional buyers lose
interest in purchasing Rule 144A Securities.
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
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<PAGE>
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 the Investment Manager
determines that the issuing agency's or instrumentality's credit risk makes 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 repurchase that
security at a specified price on a date that occurs within a relatively short
time period (usually one to seven days). Repurchase agreements allow a Fund to
earn a fixed rate of return that is not subject to market fluctuations during
the Fund's holding period, 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, the Investment Manager will monitor the value of the
securities underlying the agreement on an ongoing basis to ensure that the value
remains equal to the total amount of the repurchase price (including interest).
The Investment Manager 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 to provide liquidity to meet redemption
requests or to pay dividends and distributions when the sale of the Fund's
portfolio securities is considered 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 [, the High Yield 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 a 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
discussion of such investments, which include WEBs, CountryBaskets and SPDRs.
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PURCHASING PUT AND CALL OPTIONS ON SECURITIES. Each 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.
A put option is an option to sell. If the Investment Manager 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.
A call option is an option to buy. A Fund may purchase a call option on a
security when the Investment Manager 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.
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.
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
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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, each 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 options for hedging purposes, the non-money market 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, other than the
Small-Cap Value Fund, may enter into interest rate, financial and stock or bond
index futures contracts or related options that are traded on a U.S. or foreign
exchange or 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 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
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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, other than the
Small-Cap Value Fund, may hold currencies to meet settlement requirements for
foreign securities. Each non-money market Fund, other than the Premier Growth
Fund, the Small-Cap Value Fund and 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 a future date and at a price that is 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 the Investment Manager. 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, other than the
Premier Growth Fund and the Small-Cap Value 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.
ADDITIONAL INVESTMENT TECHNIQUES. Each Fund may enter into securities
transactions on a when-issued or delayed-delivery basis and may lend its
portfolio securities.
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
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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 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.
3. 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.
4. 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
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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.
OTHER INVESTORS. Investors may be materially affected by the actions of other
large institutional investors. For example, if a large institutional investor
withdraws an investment in a Fund, the Fund could diminish in size by a
substantial amount causing the remaining investors to experience higher pro rata
operating expenses, resulting in lower returns for such investors. The
withdrawal by a large investor also may result in significant portfolio
liquidation expenses that are borne by remaining shareholders.
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.
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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 to 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 the 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 the Investment Manager
deems representative of their value.
RESTRICTED SECURITIES. Restricted securities are generally more illiquid than
publicly traded securities. The prices realized from reselling restricted
securities in privately negotiated transactions may be less than those
originally paid by a Fund. Companies whose securities are restricted are not
subject to the disclosure and other investor protection requirements applicable
to publicly traded securities.
SMALLER CAPITALIZATION COMPANIES. Investing on securities of small- and
medium-sized capitalization companies may involve greater risks than investing
in larger, more established issuers. Such smaller capitalization 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. In addition, these companies are typically
subject to a greater degree of changes in earnings and business prospects than
are larger, more established issuers. As a result, the prices of securities of
smaller capitalization companies may fluctuate to a greater degree than the
prices of securities of other issuers. Although investing in securities of
smaller capitalization companies offers potential
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for above-average returns if the companies are successful, the risk exists that
the companies will not succeed and the prices of the companies' shares could
significantly decline in value.
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 by 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 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, including securities issued in the form of depositary
receipts, 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; and
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.
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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 a 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.
The former republics of the Soviet Union and the Eastern Bloc are emerging
markets countries that are undergoing a rapid transition from centralized,
planned economies to market-oriented economies. There can be no assurance that
such transition, including ongoing privatization efforts and recently
implemented economic reform programs, will continue. Moreover, there is a risk
that such countries might return to the centrally planned economies that existed
when they had a communist form of government. Investors should note that when
the former republics of the Soviet Union and the Eastern Bloc operated under
such centralized economies, they confiscated personal property and abrogated
property and other legal rights.
INVESTING IN A SINGLE COUNTRY. As discussed above, the Emerging Markets Fund
may, from time to time, invest all of its assets in a single emerging markets
country. There is a higher degree of risk associated with investing in one
country rather than diversifying investments among countries. If the Fund
invests all or a significant portion of its assets at any time in a single
country, events occurring in that country are more likely to affect the Fund's
investments. Specific risks associated with investing in a single country
include a greater effect on portfolio holdings of currency fluctuations and
country-specific economic, social or political factors.
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 addressing the validity of the obligations and whether the interest
on such obligations is exempt from Federal income tax. Neither the Trust nor the
Investment Manager 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 the Investment Manager 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 the security at a price that is higher than market price.
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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
option 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 the Investment Manager
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 may be
limited with respect to certain currencies. The existence of a limited market
may in turn restrict a 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 the Investment Manager with respect to
those instruments and will usually depend upon the ability of the Investment
Manager 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.
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,
securities index options, futures contracts, swaps and options on futures
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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 risks.
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, debt obligations 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.
YEAR 2000 RISKS. Like other mutual funds, financial and business organizations
and individuals around the worlds, each of the Funds could be adversely affected
if the computer systems used by its Investment Manager and other service
providers do not properly process and calculate date-released information from
and after January 1, 2000. This is commonly known as the "Year 2000 Problem."
GEIM is taking steps that it believes are reasonably designed to address the
Year 2000 Problem with respect to the computer systems that it uses and to
obtain satisfactory assurances that comparable steps are being taken by each of
the Funds' other major service providers. At this time, however, there can be no
assurances that these steps will be sufficient to avoid any adverse impact on
the Funds. In addition, it is possible that the markets for securities in which
the Funds invest may be detrimentally affected by computer failures throughout
the financial services industry beginning January 1, 2000 if systems should
cease to function at that time. This may result in trade settlement problems and
liquidity issues. Corporate and governmental data processing errors may result
in production problems for individual companies and overall economic
uncertainties. Earnings of individual issuers may be affected by remediation
costs. In addition, it has been reported that foreign institutions have made
less progress in addressing Year 2000 compliance than major U.S. entities, which
could make certain of the Funds' investments more sensitive to these risks.
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 the Investment Manager, 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 Emerging
Markets Fund, 50% for the Premier Growth Fund, 150% for the Small-Cap Value
Fund, [150% for the Small-Cap Growth Fund, 150% for the Mid-Cap Value Fund, 150%
for the High Yield Fund,] 200% for the Mid-Cap Growth Fund, 50% for the
International Fund, 30% for the Value Equity Fund, 50% for the U.S. Equity Fund,
25% for the S&P 500 Index Fund, 200% for the Strategic Fund, and 300% for the
Income 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. The Investment Manager
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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.
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'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 and their predecessors, GE has more than 70 years of
investment management experience.
GE Investments provides investment management services to various institutional
accounts with total assets as of March 31, 1998 in excess of $75.5 billion, of
which more than $14.9 billion was invested in mutual funds. 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 (as defined above, the
"GE Funds") are offered 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 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 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. GEIM has also served as
investment adviser to the U.S. Government Money Market Fund and U.S. Treasury
Money Market Fund of Financial Investors Trust since March 1997, and the Prime
Fund of Financial Investors Trust since May 1998.
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 members are former members who
have retired from those companies.
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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.
The Investment Manager, 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. The Investment Manager 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.
The Investment Manager 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 the Investment Manager 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 the Investment Manager 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."
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 the 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):
AVERAGE DAILY NET ASSETS ANNUAL RATE
NAME OF FUND OF FUND PERCENTAGE (%)
- --------------------------------------------------------------------------------
Emerging Markets Fund First $50 million 1.05
Over $50 million .95
- --------------------------------------------------------------------------------
Premier Growth Equity Fund First $25 million .55
Mid-Cap Growth Fund Next $25 million .45
Value Equity Fund Over $50 million .35
U.S. Equity Fund
- --------------------------------------------------------------------------------
Small-Cap Value Fund First $25 million .75
[Small-Cap Growth Fund] Next $25 million .65
Over $50 million .60
- --------------------------------------------------------------------------------
[Mid-Cap Value Fund] First $25 million .60
Next $25 million .55
Over $50 million .50
- --------------------------------------------------------------------------------
International Equity Fund First $25 million .75
Next $50 million .65
Over $75 million .55
- --------------------------------------------------------------------------------
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S&P 500 Index Fund All assets .15
- --------------------------------------------------------------------------------
Strategic Investment Fund First $25 million .45
[High Yield Fund] Next $25 million .40
Over $50 million .35
- --------------------------------------------------------------------------------
Income Fund First $25 million .35
Next $25 million .30
Next $50 million .25
Over $100 million .20
- --------------------------------------------------------------------------------
Money Market Fund First $25 million .25
Next $25 million .20
Next $50 million .15
Over $100 million .10
From time to time, GEIM may waive or reimburse advisory or administrative fees
paid by a Fund.
INVESTMENT SUB-ADVISERS
S&P 500 INDEX FUND. SSGA is the investment sub-adviser to the S&P 500 Index Fund
pursuant to an investment sub-advisory agreement with GEIM. 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 $475 billion under
management as of March 31, 1998, 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 is also the investment sub-adviser to the GEIFI Funds' S&P 500 Index Fund.
GEIM pays SSGA monthly compensation in the form of an investment sub-advisory
fee at an annual rate of .05% of the first $100 million, .04% of the next $200
million and .03% for all amounts over $300 million, of the Fund's average daily
net assets.
SMALL-CAP VALUE FUND. Palisade, located at One Bridge Plaza, Fort Lee, New
Jersey 07024, is the investment sub-adviser to the Small-Cap Value Fund pursuant
to an investment sub-advisory agreement with GEIM. Although Palisade has no
previous experience managing mutual fund portfolios, Palisade has managed
various institutional and private accounts with total assets in excess of $3
billion as of March 31, 1998. Palisade is also the investment sub-adviser to the
GE Funds' GE Small-Cap Value Equity Fund. GEIM pays Palisade monthly
compensation in the form of an investment sub-advisory fee at an annual rate of
.35% of the first $100 million, .325% of the next $100 million and .30% for all
amounts over $200 million, 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 1991. Mr. Bolton leads a team of portfolio managers for the U.S.
Equity Fund [and the Small-Cap Growth Fund] and has served in that capacity
since the commencement of the Funds' operations. In addition, Mr. Bolton has
served in a similar capacity with respect to the GE Funds' GE U.S. Equity Fund
[and GE Small-Cap Growth Fund] since the commencement of those Funds'
operations. 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.
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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 a
Portfolio Manager to similar funds of GE Funds since the commencement of their
operations. He has more than 15 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 is the Portfolio Manager of the Value Equity 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' GE Value Equity 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 since the commencement of its operations and the GE
Strategic Investment Fund since September 1997. He has more than 18 years of
investment experience and has held positions with GE Investments since 1991. 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 [,
the High Yield Fund] and the Money Market 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 [, GE High Yield Fund], GE Money
Market 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 Growth Fund [and the
Mid-Cap Value Fund] and has served in that capacity since commencement of the
Funds' operations. Ms. Harris also serves as the Portfolio Manager for GE Funds'
GE Mid-Cap Growth Fund [and GE Mid-Cap Value 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. Ms. Harris is currently a Senior Vice
President of GE Investments.
Jack Feiler, Chief Investment Officer at Palisade, leads a team of portfolio
managers for the Small-Cap Value Fund. Mr. Feiler has served in that capacity
since the commencement of the Fund's operations. In addition, Mr. Feiler serves
in a similar capacity with respect to GE Funds' GE Small-Cap Value Equity Fund.
Mr. Feiler has more than 30 years of investment experience and has served as the
principal small-cap portfolio manager at Palisade since the commencement of
Palisade's operations in April 1995. Prior to joining Palisade, Mr. Feiler was a
Senior Vice President-Investments at Smith Barney from 1990 to 1995.
Investment personnel at GEIM, SSGA and Palisade 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
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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
- --------------------------------------------------------------------------------
PURCHASING SHARES -- GENERAL INFORMATION
The Distributor offers Investment Class shares on a continuous basis. A purchase
order is 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
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.
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. The Trust does not issue physical
certificates representing shares in any Fund.
Investors begin to earn income as of the first business day following the day
State Street has received payment for an order. Orders are accepted only upon
receipt by State Street of all documentation required to be submitted in
connection with such order. If an investor purchases or redeems shares through
an Authorized Firm (defined below), it may be subject to service fees imposed by
that Firm.
ELIGIBLE INVESTORS
The Distributor offers Investment Class shares to certain investors that meet
the minimum investment requirements. The Trust was designed to appeal to
institutional investors such as corporations, foundations, endowments and trusts
established to fund employee benefit plans of various types as well as
charitable, religious and educational institutions. The Trust expects that most
of the time each Fund will have relatively few shareholders (as compared with
most mutual funds) but that these shareholders will invest substantial amounts
in a Fund. Typical institutional investors may include banks, insurance
companies, broker-dealers, investment advisers, trusts that fund qualified
pension and profit-sharing plans (Section 401 of the Code), trusts that fund
government employer non-qualified deferred compensation obligations (Section 457
of the Code), trusts that fund charitable, religious and educational
institutions (Section 501(c)(9) of the Code), non-government employers seeking
to fund non-qualified deferred compensation obligations, and investment
companies that are not affiliated persons of the Trust (or affiliated persons of
such persons).
MINIMUM INVESTMENT REQUIREMENT
The minimum initial investment in each Fund is $35 million for each investor or
group of related investors. Related investors are investors that are affiliated
persons of each other within the meaning of the 1940 Act. For this purpose,
common trust funds and collective trust funds of the same bank (or of affiliated
banks) are considered related investors of each other and their bank(s).
Likewise, separate accounts of the same insurance company (or of affiliated
insurance companies) are related investors of each other and their insurance
company or companies and clients whose assets are managed on a discretionary
basis by the same bank, insurance company, investment adviser or broker-dealer
are related investors of each other and their manager. The Distributor also may
treat clients of other financial intermediaries as related persons where shares
of a Fund are held by that intermediary in an omnibus account for its
institutional clients. There is no minimum investment requirement for subsequent
purchases. If the value of an investor's, or a group of related investors',
investment in a Fund falls below $35 million for more than 120 days because of
redemptions (and not because of market fluctuations or Investment Switches
(defined below)), the Distributor may, in its sole discretion, refuse to sell
additional Fund shares to such investor (other than reinvestment of dividends
and capital gains).
The minimum investment requirement is waived for each investor or group of
related investors so long as such person or group has invested at least $100
million in one or more investment portfolios or accounts that are
33
<PAGE>
advised by GEIM and/or GEIC and at least $35 million of this $100 million amount
is invested in the Trust. If the value of such investor's, or group of related
investors', investment portfolios and accounts that are advised by GEIM and/or
GEIC falls below $100 million, or if the value of such investor's, or group of
related investors', investment in the Trust falls below $35 million, for more
than 120 days because of redemptions (and not because of market fluctuations or
Investment Switches), the Distributor may, in its sole discretion, refuse to
sell additional Fund shares to such investor (other than reinvestment of
dividends and capital gains).
The minimum investment requirement is waived for up to three years from the date
of initial purchase of Fund shares for certain investors or groups of related
investors having: (a) at least $100 million of investment assets within six
months from the date of the initial purchase of Fund shares, provided they
invest in only one Fund, (b) at least $200 million of investment assets within
six months from the date of the initial purchase of Fund shares, provided they
invest in no more than two Funds, and (c) at least $500 million of investment
assets within six months from the date of the initial purchase of Fund shares,
for which they may invest in any number of Funds. If such an investor does not
have the applicable amount of investment assets within the six-month period, the
Distributor may, in its sole discretion, refuse to sell additional Fund shares
to such investor (other than reinvestment of dividends and capital gains
distributions). Even if the investor has the applicable amount of investment
assets within the six-month period, the Distributor may refuse to sell to such
investor additional Fund shares (other than reinvestment of dividends and
capital gains distributions), if such investor has not satisfied the $35 million
minimum investment requirement within three years.
For a bank, insurance company, broker-dealer, investment adviser or other
financial intermediary investing in an omnibus account for its clients, the
amount of investment assets is determined either by (i) aggregating Client
Assets (defined below) over which it has investment discretion or (ii)
aggregating Client Assets of any entity described under "Eligible Investors"
which are managed by the financial intermediary on a non-discretionary basis or
for which it (or its affiliates) provides recordkeeping, shareholder servicing
or other administrative services. "Client Assets" means the assets of any client
of a financial intermediary that has invested in the Trust.
LETTER OF INTENT. Investors or a group of related investors may meet the $35
million minimum investment requirement through a series of investments over a
period of no more than three years. To elect this alternative, the investor or
group must submit a letter to the Distributor indicating its commitment to
purchase at least $35 million in shares of a Fund over a 3-year period. If the
investor or group does not invest the required minimum amount within the 3-year
period, such investor or group may, in the Distributor's sole discretion, be
prohibited from making additional purchases of Fund shares (other than
reinvestment of dividends and capital gains distributions).
HOW TO OPEN AN ACCOUNT
Investors must establish an account before purchasing shares, and may do so
either by submitting an account application to the Distributor or the transfer
agent, or through an Authorized Firm (defined below). Investors may obtain an
account application by telephoning the Trust at (800) 493-3042 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.
1004 Baltimore
Kansas City, MO 64105
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<PAGE>
To open an account, an investor must complete and sign an application and
furnish its taxpayer identification number to the Trust. The investor also must
certify whether or not it is subject to withholding for failing to report income
to the Internal Revenue Service.
HOW TO BUY SHARES
After a completed account application has been received and processed, an
investor may purchase Fund shares from the Distributor or through brokers,
dealers, financial institutions or investment advisers that have entered into
sales agreements with the Distributor ("Authorized Firms").
An investor 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 the investor's order
promptly to the transfer agent. Investors should contact their Sales
Representative for further instructions.
Investors also may purchase Investment Class shares directly from the transfer
agent by wiring federal funds to: State Street Bank and Trust Company (ABA #
0110-0002-8) For: GE Institutional Funds-[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 investors promptly.
An investor's financial institution may charge a fee for wiring its account.
PURCHASES IN-KIND
Investors may purchase Investment Class shares in amounts of $5 million or more
with either cash or investment securities acceptable to the appropriate Fund.
The particular investment securities acceptable to a Fund may vary over time and
the Trust does not guarantee that any particular investment securities will be
accepted at any particular time or at all. Investors interested in purchasing
Investment Class shares with investment securities should contact their Sales
Representative or the Distributor for information about which securities a
particular Fund will accept. The Trust reserves the right to require the
Distributor to suspend the offering of Investment Class shares of the Emerging
Markets Fund or International Equity Fund for cash in amounts above $5 million
and of the other non-money market Funds in amounts above $10 million.
REDEMPTION OF SHARES
- --------------------------------------------------------------------------------
On any Business Day, investors may redeem all or a portion of their 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.
If an investor holds more than one class of shares, it must specify which class
of shares it is redeeming. The investor's redemption request might be delayed if
it does not specify the appropriate class of shares or if it owns fewer shares
than specified in its redemption request.
REDEMPTIONS THROUGH AN AUTHORIZED FIRM
If an investor purchases shares through a Sales Representative, it may redeem
its shares in accordance with its Sales Representative's instructions. If State
Street's books reflect that the investor, and not its Sales Representative, is
the shareholder of record on an account, the investor also may redeem by mail or
by wire, as described below. The
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investor's Authorized Firm is responsible for transmitting a redemption order
(and crediting the investor with any redemption proceeds) on a timely basis.
REDEMPTION BY MAIL
If the investor is the shareholder of record on the books of State Street, it
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 the investor's account number and (4) is signed on the
investor's behalf by an authorized person exactly as the shares are registered.
Investors should send the request to the Trust at the appropriate address listed
above under "How to Open an Account."
SIGNATURE GUARANTEES
To protect investors' accounts, 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 an account. Signature guarantees will
be required for redemptions over $50,000 and requests that redemption proceeds
be (1) mailed to an address other than the address of record, (2) paid to a
person 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 $50,000 or less if it is able to verify the signatures of all
registered owners from its accounts.
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.
The Trust will redeem an investor's shares in-kind at the request of that
investor.
INVESTMENT SWITCHES
- --------------------------------------------------------------------------------
An investor may exchange Investment Class shares of a Fund for Investment Class
shares of another Fund or Service Class shares of the same or another Fund
("Investment Switches"). Such Investment Switches are permitted provided the
Fund is an option available to that investor, the investor meets the minimum
investment requirement for such Fund and the shares of such Fund may legally be
sold in the investor's state of residence.
The Trust may, upon 60 days prior written notice to a Fund's shareholders,
terminate the Investment Switch privilege. An Investment Switch to shares of
another Fund is treated for Federal income tax purposes as a redemption (that
is, a sale) of shares given in exchange by the investor, followed by a deemed
purchase of shares in the other Fund, and therefore the investor may experience
a taxable gain or loss in connection with the Investment Switch. Investors may
conduct an Investment Switch by writing the Trust at the appropriate address
listed above under "How to Open an Account."
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NET ASSET VALUE
- --------------------------------------------------------------------------------
Each class' 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 that class
by the total number of shares of that class outstanding. The NYSE is currently
open each day, Monday through Friday, except on the following holidays: New
Year's Day, Dr. Martin Luther King, Jr. 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 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.
Securities that are primarily traded on a foreign exchange generally will be
valued for purposes of calculating a Fund's net asset value at the preceding
closing value of the securities on the exchange, except that, when an occurrence
subsequent to the time a value was so established is likely to have changed that
value, the fair market value of those securities will be determined by
consideration of other factors by or under the direction of the Board. 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, the Investment Manager 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
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DIVIDENDS AND DISTRIBUTIONS
Dividends and capital gain distributions paid to investors will be automatically
reinvested in shares of the same class. Dividends attributable to the Income
Fund [, and the High Yield 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 an investor redeems all of
the shares that it may own in the Income Fund [, the High Yield Fund] or the
Money Market Fund at any time during a month, the investor's dividends (if any)
will be paid to it along with the proceeds of its redemption.
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The Trust will send investors written confirmations relating to the automatic
reinvestment of daily dividends within five days following the end of each
quarter for the Income Fund [and the High Yield 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 [, the High Yield 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, or 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. Investors should consult their own tax
advisor regarding the application of Federal, state, local and foreign tax laws
to their specific tax situation.
TAXES ON THE FUNDS. 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 prescribed 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 an 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. An investor
may not claim a deduction for foreign taxes if it does 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 an investor
receives 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 an investor has held its shares. As a
general rule, any gain or loss when an investor sells or redeems (including a
redemption in-kind) its Fund shares will be a long-term capital gain or loss if
it has held its shares for more than one year and a short-term capital gain or
loss if it has held its 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 [, the High Yield 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, Small-Cap Value Fund, [Small-Cap
Growth Fund, Mid-Cap Value Fund,] Mid-Cap Growth Fund, Value Equity Fund, U.S.
Equity Fund, S&P 500 Index Fund and Strategic 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 portion of a Fund's dividends that are attributable
to
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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 investors on or before January 31st of each
year.
CUSTODIAN AND TRANSFER AGENT
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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
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GE Investment Distributors, Inc. (formerly known as GE Investment Services
Inc.), located at 777 Long Ridge Road, Building B, Stamford, Connecticut 06927,
serves as distributor of the Funds' shares. The Distributor, an indirect
wholly-owned subsidiary of GE, also serves as Distributor for the Elfun Funds,
GE LifeStyle Funds, GE Investments Funds, Inc. 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
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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
August 29, 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 the date of this Prospectus, GECA, an indirect
subsidiary of GE, owned 100% of the outstanding shares of the Premier Growth
Fund, the Value Equity Fund and the Strategic Fund. The shares were issued to
GECA for providing the initial seed capital to these Funds. In addition, as of
April 15, 1998: (i) Leaseway Transportation Corp. owned more than 25% of the
outstanding voting securities of the Emerging Markets Fund, Mid-Cap Growth Fund,
International Fund, U.S. Equity Fund, S&P 500 Index Fund, Income Fund and Money
Market Fund; (ii) AID Association for Lutherans owned more than 25% of the
outstanding voting securities of the International Fund; and (iii) MRA Systems,
Inc. owned more than 25% of the outstanding voting securities of the Money
Market Fund. So long as the above entities own more than 25% of the outstanding
voting securities of the Funds noted, they may be deemed to control these Funds.
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.
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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 10% 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
an audited annual report. The Trust will send investors a copy of its
semi-annual report, dated March 31, 1998, and annual report (the latter, when
issued), each of which includes a list of the investment securities held by each
Fund in which it has invested. Only one report each will be mailed to an
investor's address. Investors may request additional copies of any report, or
make shareholder inquiries, by calling or writing the Trust. The toll-free
number and the address of the Trust are 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. Each Fund 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.
SUPRA-NATIONAL AGENCIES. Each Fund may invest in debt obligations 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.
Debt obligations of supra-national agencies are not considered U.S. Government
Obligations and are not supported, directly or indirectly, by the U.S.
Government.
STRATEGIES AVAILABLE TO SOME BUT NOT ALL FUNDS
INVESTMENTS IN OTHER INVESTMENT COMPANIES. Each non-money market Fund, other
than the U.S. Equity 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.
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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 it had
purchased them from a sponsored depository.
WEBS AND OTHER INDEX-RELATED SECURITIES. Each of the Emerging Markets Fund,
International Fund and 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 Funds 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 Equity 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.
EMERGING MARKETS. The Emerging Markets Fund, International Fund, Strategic Fund
and Income Fund each may invest more than 5% of its total assets in securities
of issuers located in one or more emerging markets countries. The Mid-Cap Growth
Fund, Premier Growth Fund, Value Equity Fund, U.S. Equity Fund and S&P 500 Index
Fund each may invest up to 5% of its total assets in such securities. Emerging
markets countries are located primarily in Asia, Latin America, the Middle East,
Southern Europe, Eastern Europe (including the former republics of the Soviet
Union and the Eastern Bloc) and Africa. Risks and special considerations
associated with investing in emerging markets countries are discussed above
under "Risk Factors and Special Considerations -- Investing in Developing or
Emerging Markets."
MUNICIPAL LEASES. The Strategic Fund [and High Yield 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 tax 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 -- 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
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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, [High Yield Fund,]
Income Fund and 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 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 [, High Yield Fund] and 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.
The Strategic Fund [and High Yield 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 [and High Yield 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
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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, Strategic Fund [, High Yield
Fund] and 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 than securities paying interest on a current basis.
Conversely, when interest rates fall, the values of zero coupon bonds rise more
rapidly than 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 each Fund receives no payments on its zero coupon securities prior
to maturity or disposition, for Federal income tax purposes it 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 [and High Yield 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 [and High Yield 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 [and High Yield 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
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underlying issuer. 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 [, High Yield Fund] and Income Fund may invest represent pools of
mortgage loans assembled for sale to investors by various governmental agencies,
such as the Government National Mortgage Association ("GNMA"), by government
related organizations, such as the Federal National Mortgage Association
("FNMA") and the Federal Home Loan Mortgage Corporation ("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, each Fund 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 or Income Fund invests, 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 [, High
Yield Fund] and 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. Each 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 the Fund's securities.
v
<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 these
Funds' 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 [, High Yield
Fund] and 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 [, High Yield Fund] and 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 the purchaser to 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 Small-Cap Value Fund, International Fund, Value
Equity Fund, Mid-Cap Growth Fund [, Small-Cap Growth Fund, Mid-Cap Value Fund,
High Yield Fund] and 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.
vi
<PAGE>
GE INSTITUTIONAL FUNDS
Emerging Markets Fund
Premier Growth Equity Fund
Small-Cap Value Equity Fund
Mid-Cap Growth Fund
International Equity Fund
Value Equity Fund
U.S. Equity Fund
S&P 500 Index Fund
Strategic Investment Fund
Income Fund
Money Market Fund
[Small-Cap Growth Equity Fund
Mid-Cap Value Equity Fund
High Yield Fund]
For information, contact your investment professional or call the Trust at
1-800-493-3042.
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 whom, an offer may not lawfully be made.
<PAGE>
[Logo] GE Institutional Funds
- --------------------------------------------------------------------------------
GE Institutional Funds
Prospectus
Emerging Markets Fund
Premier Growth Equity Fund
Mid-Cap Growth Fund
International Equity Fund
Value Equity Fund
U.S. Equity Fund
S&P 500 Index Fund
Strategic Investment Fund
Income Fund
Money Market Fund
_________________, 1998
Service Class
<PAGE>
SUBJECT TO COMPLETION, DATED MAY 11, 1998
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.
GE Institutional Funds (the "Trust") is an open-end management investment
company that offers a selection of diversified managed investment portfolios
(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. The Service Class shares and the Investment Class shares are
identical, except as to the services offered, and the expenses borne, by each
class. Investors 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.
The Trust is currently comprised of fourteen Funds, three of which (Small-Cap
Growth Equity Fund, Mid-Cap Value Equity Fund and High Yield Fund) are not
presently being offered. This Prospectus describes the Service Class shares of
the following eleven Funds currently offered by the Trust:
* 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 of issuers that are located in emerging markets
countries.
* 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.
* Small-Cap Value 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 companies with small-sized market capitalizations
that the Fund's management considers to be undervalued by the market.
* 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.
* International Equity Fund's investment objective is long-term growth of
capital. The Fund seeks to achieve this objective by investing primarily
in foreign equity securities.
* Value 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 equity securities of companies
with large-sized market capitalization that the Fund's management
considers to be undervalued by the market.
* 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.
* 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.
* Strategic Investment Fund's investment objective is to maximize total
return, consisting of capital appreciation 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.
* 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.
* 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.
[* Small-Cap Growth 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 companies with small-sized market
capitalizations that have the potential for above-average growth.
<PAGE>
* Mid-Cap Value 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 companies with medium-sized market capitalizations
that the Fund's management considers to be undervalued by the market.
* High Yield Fund's investment objective is to maximize total return,
consistent with the preservation of capital and prudent investment
management. The Fund seeks to achieve this objective by investing
primarily in fixed income securities that are rated below investment grade
(as defined in this Prospectus).]
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.
There can be no assurance that a Fund will achieve its investment objective.
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. SHARES OF THE FUNDS
ARE SUBJECT TO INVESTMENT RISK, INCLUDING POSSIBLE LOSS OF THE PRINCIPAL
INVESTED.
Additional information about the Funds and the Trust, contained in a Statement
of Additional Information dated the same date as this Prospectus, has been filed
with the Securities and Exchange Commission (the "SEC") and is available upon
request and without charge by calling the Trust at the telephone number listed
below or by contacting the Trust at the address listed below. The SEC maintains
a Web site (http://www.sec.gov) that contains the Statement of Additional
Information, material incorporated by reference and other information regarding
the Funds and the Trust. The Statement of Additional Information is incorporated
in its entirety by reference into this Prospectus.
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.
<PAGE>
PROSPECTUS
[INSERT], 1998
TABLE OF CONTENTS
Expense Information...................................................1
Performance...........................................................3
Investment Objectives and Management Policies.........................6
Investments in Debt Securities.......................................17
Cash Management Policies -- Non-Money Market Funds...................18
Additional Permitted Investments.....................................19
Investment Restrictions..............................................23
Risk Factors and Special Considerations..............................24
Management of the Trust..............................................30
Purchase of Shares...................................................35
Redemption of Shares.................................................37
Investment Switches..................................................39
Net Asset Value......................................................39
Dividends, Distributions and Taxes...................................40
Custodian and Transfer Agent.........................................41
Distributor..........................................................41
Additional Matters...................................................41
Appendix -- Further Information:
Certain Investment Techniques and Strategies........................i
3003 Summer Street
Stamford, Connecticut 06905
(800) 493-3042
<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 investors in
understanding the various costs and expenses that they will bear directly or
indirectly as investors in the Service Class shares of a Fund. 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.
SHAREHOLDER TRANSACTION EXPENSES
The Funds have no sales load on purchases or reinvested dividends, deferred
sales load, redemption fee or exchange fee.
FEE TABLE
- --------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE OF NET ASSETS):
SHAREHOLDER
MAXIMUM SERVICING
ADVISORY AND AND TOTAL
ADMINISTRATION DISTRIBUTION OTHER OPERATING
FEES FEE** EXPENSES EXPENSES
---- ----- -------- --------
Emerging Markets Fund 1.05%* .25% None 1.30%
Premier Growth Equity Fund .55%* .25% None .80%
Small-Cap Value Equity Fund .70%* .25% None .95%
Mid-Cap Growth Fund .55%* .25% None .80%
International Equity Fund .75%* .25% None 1.00%
Value Equity Fund .55%* .25% None .80%
U.S. Equity Fund .55%* .25% None .80%
S&P 500 Index Fund .15% .25% None .40%
Strategic Investment Fund .45%* .25% None .70%
Income Fund .35%* .25% None .60%
Money Market Fund .25%* .25% None .50%
[Small-Cap Growth .70%* .25% None .95%
Equity Fund
Mid-Cap Value Equity Fund .60%* .25% None .85%
High Yield Fund .45%* .25% None .70%]
- ----------
* 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 .25% shareholder servicing and distribution fee is intended to
compensate GE Investment Management Incorporated ("GEIM"), the Trust's
investment adviser and administrator, or enable GEIM to compensate other
persons, for expenditures made on behalf of each Fund, as discussed below
under "Investment Objectives and Management Policies."
1
<PAGE>
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, shareholder servicing and distribution fees,
brokerage fees, and expenses that are not normal operating expenses of the Funds
(such as extraordinary expenses, interest and taxes). The amount shown as the
advisory and administration fee for a Fund reflects 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, brokerage fees, and expenses that are not normal operating expenses of
the Funds. This amount is expected to be de minimus (less than .01%); therefore
"Other Expenses" are reflected as "None." Long-term shareholders of the Funds
may pay more than the economic equivalent of the maximum front-end sales charge
currently permitted by the rules of the National Association of Securities
Dealers, Inc. governing investment company sales charges.
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.
A SHAREHOLDER WOULD PAY THE
FOLLOWING
EXPENSES ON A $1,000 INVESTMENT,
ASSUMING (1) A 5% ANNUAL RETURN,
AND (2)
REDEMPTION AT THE END OF THE TIME
PERIODS SHOWN:
-------------------------------------
1 YEAR 3 YEARS
------ -------
Emerging Markets Fund $13 $41
Premier Growth Equity Fund $ 8 $26
Small-Cap Value Equity Fund $10 $30
Mid-Cap Growth Fund $ 8 $26
International Equity Fund $10 $32
Value Equity Fund $ 8 $26
U.S. Equity Fund $ 8 $26
S&P 500 Index Fund $ 4 $13
Strategic Investment Fund $ 7 $22
Income Fund $ 6 $19
Money Market Fund $ 5 $16
[Small-Cap Growth Equity Fund $10 $30
Mid-Cap Value Equity Fund $ 9 $27
High Yield Fund $ 7 $22]
2
<PAGE>
The above example is intended to assist investors 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 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 the date of this Prospectus, General Electric Assurance Capital Co.
("GECA"), an indirect subsidiary of General Electric Company ("GE"), owned 100%
of the outstanding Service Class shares of each of the Funds. The shares were
issued to GECA for providing the initial seed capital to the Funds. Because the
Service Class shares of each of the Funds lack an operating history, no
performance figures are provided below for the Service Class shares of the
Funds.
The chart below shows the historical performance of the Investment Class shares
of the following Funds for the referenced period. The performance figures
reflected below are net of fees and expenses attributable to the Investment
Class shares of the Funds noted and assume changes in share price, reinvestment
of dividends and capital gains. Because the Investment Class shares of the Funds
do not pay a shareholder servicing and distribution fee, the performance figures
shown below for the Investment Class shares of the Funds noted can be expected
to be higher than the performance figures for the Service Class shares of the
corresponding Fund had such Service Class shares had an operating history. No
performance figures are shown below for the Investment Class shares of the
Premier Growth Equity Fund, the Value Equity Fund and the Strategic Investment
Fund because each of these Funds lacks an operating history as of the date of
this Prospectus.
AGGREGATE TOTAL RETURN*
-----------------------
Emerging Markets Fund 10.69% (11/25/97)
Mid-Cap Growth Fund 12.77% (11/25/97)
International Equity Fund 20.27% (11/25/97)
U.S. Equity Fund 15.29% (11/25/97)
S&P 500 Index Fund 16.44% (11/25/97)
Income Fund 2.91% (11/21/97)
Money Market Fund 1.79% (12/02/97)
- ----------
* From commencement of operations, as indicated in parentheses, to March 31,
1998. Performance figures shown above have not been annualized.
TOTAL RETURN
From time to time, the Trust may advertise an "average annual total return" over
various periods of time for Service Class shares of a Fund. This total return
figure shows an average percentage change in value of an investment in such
shares from the beginning date of the measuring period to the ending date of the
period. The figure reflects changes in the price of a Fund's shares and assumes
that any income, dividends and/or capital gains distributions made by the Fund
during the period are reinvested in shares of the same class. Figures will be
given for recent one-, five- and 10-year periods (if applicable), and may be
given for other periods as well (such as from commencement of a Fund's
operations, or on a year-by-year basis).
3
<PAGE>
YIELD
The Trust may, from time to time, include the yield and effective yield of the
Money Market Fund in advertisements or reports to shareholders or prospective
investors. Current yield for the Money Market Fund will be based upon income
received by a hypothetical investment in a given seven-day period (which period
will be stated in the advertisement), and then "annualized" (that is, assuming
that the seven-day yield would be received for 52 weeks, stated in terms of an
annual percentage return on the investment). "Effective yield" for the Money
Market Fund will be calculated in a manner similar to that used to calculate
yield, but will reflect the compounding effect of earnings on reinvested
dividends.
The Trust may, from time to time, advertise a 30-day "yield" for each class of a
Fund. The yield of a Fund refers to the income generated by an investment in a
class over the 30-day period identified in the advertisement and is computed by
dividing the net investment income per share earned by a class during the period
by the net asset value per share for that class on the last day of the period.
This income is "annualized" by assuming that the amount of income is generated
each month over a one-year period and is compounded semi-annually. The
annualized income is then shown as a percentage of the Fund's net asset value.
TOTAL RETURN AND YIELD FIGURES ARE BASED ON HISTORICAL EARNINGS AND ARE NOT
INTENDED TO INDICATE FUTURE PERFORMANCES. THE STATEMENT OF ADDITIONAL
INFORMATION DESCRIBES THE METHOD USED TO DETERMINE A FUND'S TOTAL RETURN AND
YIELD.
SMALL-CAP VALUE EQUITY FUND
PRIOR PERFORMANCE OF PALISADE CAPITAL MANAGEMENT, L.L.C.
The investment performance presented below represents the composite performance
of relevant private accounts (the "Accounts") managed by the investment
professionals of Palisade Capital Management, L.L.C. ("Palisade"), the
investment sub-adviser of the Small-Cap Value Equity Fund (the "Small-Cap Value
Fund"). The performance of the Accounts was computed by Palisade and verified by
independent accountants. The methodology of calculating the performance differs
from that required to be employed by mutual funds. The performance data of the
Accounts is net of advisory fees and other expenses.
The performance data below represents the prior performance of the Accounts, not
the prior performance of the Small-Cap Value Fund, and should not be considered
an indication of future performance of the Fund. In managing the Fund, Palisade
will employ substantially the same investment objectives, policies and
strategies that it employed in managing the Accounts. However, in managing the
Fund, Palisade will be subject to restrictions imposed by the Investment Company
Act of 1940 and the Internal Revenue Code (e.g., limits on the percentage of
assets invested in securities of issuers in a single industry and requirements
on distributing income to shareholders) that do not apply to the Accounts. The
Fund also will incur operating expenses, such as transfer agency, legal and
auditing fees, that are not borne by the Accounts. In addition, the continuous
offering of the Fund's shares and the Fund's obligation to redeem its shares
will likely cause the Fund to experience cash flows different from those of the
Accounts. All of the foregoing may affect the performance of the Fund and cause
it to differ from that of the Accounts.
4
<PAGE>
Palisade Capital Management, L.L.C.
Small-Cap Equity Composite
(5/1/87 to 12/31/97)
- -------------------------------------------------------------------------------
SMALL-CAP
EQUITY RUSSELL 2000 # OF ACCOUNTS
COMPOSITE INDEX IN COMPOSITE
--------- ----- ------------
1987* -11.18% -24.45% 1
1988 18.36% 24.89% 1
1989** 25.26% 16.24% 1
1990 6.67% -19.51% 1
1991 40.53% 46.05% 1
1992 10.86% 18.41% 1
1993 11.89% 18.91% 1
1994 3.59% -1.82% 3
1995 32.05% 28.44% 3
1996 23.17% 16.52% 5
1997 26.26% 22.37% 6
- --------------------
* Represents performance 5/1/87 through 12/31/87.
** See Note B below.
ANNUALIZED RETURN (AS OF 12/31/97)
SMALL-CAP EQUITY RUSSELL 2000
COMPOSITE INDEX
--------- -----
1 Year 26.26% 22.37%
3 Years 27.11% 22.35%
5 Years 18.94% 16.41%
7 Years 20.59% 20.54%
10 Years 19.35% 15.76%
NOTE A -- COMPOSITE. The Palisade Small-Cap Equity Composite (the "Composite")
is comprised of all fully discretionary, fee-paying, tax-exempt institutional
Accounts with assets of $10 million or greater at the beginning of the calendar
quarter that are managed in accordance with Palisade's small capitalization
investment strategy. The investment objective of the small capitalization equity
strategy is long-term growth of capital. Under normal circumstances, the
Accounts managed in accordance with this strategy are primarily invested in
small capitalization securities with the balance of an Account invested in cash
equivalents. Portfolio returns of Accounts are compared to the Russell 2000
Index (the "Russell Index"), which is an unmanaged index of common stocks of
issuers with total market capitalizations between $__ million and $__ billion as
of June 30, 1998. Both the Composite and the Russell Index reflect the
reinvestment of dividends and distributions. Portfolio structure and security
holdings of Accounts included in the Composite, however, may differ materially
from those of the Russell Index. Moreover, unlike the Russell Index, the
Composite reflects the effect of transaction and other fees and expenses and the
deduction of the actual dollar-weighted management fee rate paid by all Accounts
in the Composite.
NOTE B -- PERFORMANCE RESULTS. Palisade has prepared this presentation in
compliance with the Performance Presentation Standards of the Association for
Investment Management and Research ("AIMR") from May 1, 1987 through December
31, 1988 and from January 1, 1990 through December 31, 1997. The results for
1989 are not in compliance with the AIMR Performance Presentation Standards
because quarterly statements of market values are not available; the return
calculated for 1989 is the annual return without
5
<PAGE>
the effect of quarterly compounding. AIMR has not been involved with the
preparation of, and has not reviewed, this report. Composite results are valued
quarterly and the results are time-weighted and asset-weighted by using
beginning-of-quarter market values. The Composite results presented for periods
prior to the commencement of operations of Palisade in April 1995 are the
investment results of the same Accounts managed by the identical investment
professionals while they were employed as a separate operating group within
Smith Barney Inc. and Drexel Burnham Lambert.
INVESTMENT OBJECTIVES AND MANAGEMENT POLICIES
- --------------------------------------------------------------------------------
The Trust is a diversified, open-end management investment company that consists
of separate series of shares, each of which is divided into 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 compensate GEIM, or enable GEIM to
compensate other persons, 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 compensate GEIM, or enable GEIM to compensate other
persons, including GE Investment Distributors, Inc. (the "Distributor"), for
providing certain services that are primarily intended to result in the sale of
Service Class shares of the Funds 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 the Investment Class shares.
Investors should be aware that GE Funds, an investment company that is
affiliated with the Trust and also advised by GEIM, 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 (the "GE Funds") advised by GEIM with the same or similar
investment objectives and policies as those of certain 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. INVESTORS SHOULD EVALUATE THE LEVELS AT WHICH THEY INTEND TO INVEST
AND THEIR INDIVIDUAL SHAREHOLDER SERVICES REQUIREMENTS TO DETERMINE THE CLASS OF
SHARES OF THE FUNDS OR THE GE FUNDS THAT BEST SUITS THEIR NEEDS AT THE LOWEST
LEVEL OF FEES.
Set forth below is a description of the investment objective and policies of
each Fund that is currently offered by the Trust. 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 of issuers
that are located in emerging markets countries. The determination of where an
issuer is located will be
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made by reference to the country in which the issuer: (a) is organized; (b)
derives at least 50% of its revenues or profits from goods produced or sold,
investments made or services performed; (c) has at least 50% of its assets
situated; or (d) has the principal trading market for its securities (the
"Country Identification Test").
GEIM allocates the Emerging Markets Fund's assets among the selected emerging
markets of newly industrializing countries in Asia, Latin America, the Middle
East, Southern Europe, Eastern Europe (including the former republics of the
Soviet Union and the Eastern Bloc) 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 Emerging Markets Index.
The Emerging Markets 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 markets 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 foreign investment funds or trusts and foreign real estate
investment trust securities. The Emerging Markets Fund may invest in American
Depositary Receipts ("ADRs") (sometimes referred to as Continental Depositary
Receipts, or "CDRs"), 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
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 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 Fund in debt instruments issued by a governmental entity if
GEIM 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" and in the Appendix. (See "Risk Factors and Special
Considerations" for a discussion of risks associated with investing in emerging
markets countries.)
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
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
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financial returns, competitive position in the issuer's economic sector and
shareholder-oriented management. While the 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 capitalization. In addition, the 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 foreign
securities, excluding, for purposes of this limitation, ADRs and securities of a
foreign issuer with a class of securities registered with the SEC and listed on
a U.S. national securities exchange ("U.S. Listed Securities") or traded on the
Nasdaq National Market or the Nasdaq SmallCap Market (collectively, "Nasdaq
Traded Securities"). The equity securities in which the 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 Fund may invest up to 35%
of its assets in bonds, notes and debentures. For temporary defensive purposes,
the Fund may invest in fixed income securities without limitation. To the extent
that the Fund invests in fixed income securities, it may not achieve its
investment objective. The Fund also may engage in certain investments discussed
below under "Additional Permitted Investments" and in the Appendix.
SMALL-CAP VALUE EQUITY FUND
The investment objective of the Small-Cap Value Fund is long-term growth of
capital. The Fund seeks to achieve its objective by investing primarily in
equity securities of companies with small-sized market capitalizations that
Palisade, the Fund's investment sub-adviser, considers to be undervalued by the
market in relation to factors such as the company's assets, earnings, or growth
potential. The Fund uses a fundamental, "bottom-up" analysis to identify those
companies whose share price does not fully reflect the value of the company.
The Small-Cap Value Fund, under normal market conditions, invests at least 65%
of its total assets in a portfolio of equity securities of small-capitalization
companies traded on U.S. securities exchanges or in the U.S. over-the-counter
market, including common stocks, preferred stocks, convertible bonds,
convertible debentures, convertible notes, convertible preferred stocks, ADRs
and warrants or rights issued by U.S. and foreign companies. The Fund considers
a "small-capitalization" company to be one that has a market capitalization,
measured at the time it purchases a security of that company, within the range
of capitalizations of companies represented in the Russell 2000 Index. (Although
as of June 30, 1998, the Russell 2000 Index included companies with market
capitalizations between $___ million and $___ billion, currently it is expected
that the weighted average market capitalization of the Fund's portfolio will
ordinarily fall between $100 million and $1 billion.) Companies whose
capitalization no longer meets this definition after purchase continue to be
considered small-capitalization companies for purposes of the Fund's policy of
investing at least 65% of its assets in small-capitalization companies. In
addition, the Fund may invest up to 35% of its total assets in securities of
companies outside the capitalization range of the Russell 2000 Index. As a
result of these policies, the average market capitalization of the Fund's
portfolio at any particular time may exceed $___ billion, particularly at times
when the market values of small-capitalization company stocks are rising. In
general, investments in smaller-capitalization companies often involve greater
risks than investments in larger companies. (See "Risk Factors and Special
Considerations -- Smaller Companies.")
The Small-Cap Value Fund will invest primarily in companies whose securities are
traded in the U.S. markets, but may invest up to 10% of its assets in foreign
securities, excluding, for purposes of this limitation, ADRs, U.S. Listed
Securities and Nasdaq Traded Securities. (See "Risk Factors and Special
Considerations -- Investment in Foreign Securities.") The Fund may also sell
securities short against the box and engage in certain investments discussed
below under "Additional Permitted Investments" and in the Appendix.
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MID-CAP GROWTH FUND
The investment objective of the Mid-Cap Growth Fund is long-term growth of
capital. The Fund seeks to achieve this objective by investing primarily in the
equity securities of companies with medium-sized market capitalization
("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 have one or
more of a variety of characteristics, including attractive products or 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 Mid-Cap Growth Fund's investment in them will be
successful.
The Mid-Cap Growth Fund may invest up to 35% of its assets in: (i) securities of
companies outside the capitalization range of the S&P 400 Index; (ii) foreign
securities, excluding, for purposes of this limitation, ADRs, U.S. Listed
Securities and Nasdaq Traded Securities; and (iii) bonds, notes and debentures.
The Fund may sell securities short against the box and engage in certain
investments discussed below under "Additional Permitted Investments" and in the
Appendix.
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 foreign equity securities. The 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. (See "Risk Factors and Special
Considerations" for a discussion of the risks associated with investing in
foreign equity securities.) The Fund intends to position itself broadly among
countries and, under normal circumstances, at least 65% of the Fund's total
assets will be invested in securities of issuers collectively in no fewer than
three different countries other than the United States. The percentage of the
Fund's assets invested in particular countries or regions of the world will vary
depending on political and economic conditions. The determination of where an
issuer is located will be made by reference to the Country Identification Test,
as set forth above in "Investment Objectives and Management Policies -- Emerging
Markets Fund."
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.
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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 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 Fund will emphasize
established companies, although it may invest in companies of varying sizes as
measured by assets, sales or capitalization.
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 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.
When GEIM believes there are unstable market, economic, political or currency
conditions abroad, the International 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. In addition, the International Fund may sell
securities short against the box and may engage in certain investments discussed
below under "Additional Permitted Investments" and in the Appendix.
VALUE EQUITY FUND
The investment objective of the Value Equity 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 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 Equity 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
over-forecasts 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) a low price/earnings ratio relative
to a normalized growth rate and/or Standard & Poor's 500 Composite Stock Price
Index (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.
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GEIM believes that such investments will position the Value Equity 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 Equity Fund, under normal market conditions, may invest (i) up to 35%
of its assets in bonds, notes and debentures, and (ii) up to 25% of its assets
in foreign securities, excluding, for purposes of this limitation, ADRs, U.S.
Listed Securities and Nasdaq Traded Securities. The Fund may sell securities
short against the box and engage in certain investments discussed below under
"Additional Permitted Investments" and in the Appendix.
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, and warrants or
rights issued by U.S. companies. The 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 Fund's assets
may be invested in foreign securities. ADRs, U.S. Listed Securities and Nasdaq
Traded Securities will be included for purposes of the Fund's 65% minimum
described above, and excluded for purposes of the Fund's 15% maximum investments
in foreign securities.
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 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 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 characteristics similar to the S&P 500
Index, by virtue of blending investments in both "value" and "growth"
securities. Since the 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 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. The Fund also may engage
in certain investments discussed below under "Additional Permitted Investments"
and in the Appendix.
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 & Poor's (also referred to herein
as "S&P")(1)
- ----------
1 Standard & Poors,(R) S&P,(R) and S&P 500(R) are trademarks of The McGraw-Hill
Companies, Inc. and have been licensed for use. The S&P 500 Index Fund is not
sponsored, endorsed, sold or promoted by S&P, and 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.
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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, delete
common stocks from, and add common stocks to, 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 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
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 investment sub-adviser to the 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.
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 a similar market
capitalization and other investment characteristics). In addition, from time to
time adjustments may be made in the 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 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 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 Fund expenses, in addition to
potential tracking error, will tend to cause the 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
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 (i)
stocks and other securities not included in the S&P 500 Index and (ii) foreign
securities, excluding, for purposes of this limitation, ADRs, U.S. Listed
Securities and Nasdaq Traded Securities. In this regard, the Fund may
temporarily invest cash balances, pending withdrawals or investments, in high
quality money market instruments. Nevertheless, the 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" and in the Appendix.
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STRATEGIC INVESTMENT FUND
The investment objective of the Strategic Investment Fund (the "Strategic Fund")
is to maximize total return, consisting of capital appreciation 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 Fund's experiencing a high portfolio turnover rate. See "Risk
Factors and Special Considerations -- Portfolio Transactions and Turnover"
below.
The Strategic Fund invests in the following classes of investments: common
stocks, preferred stocks, convertible securities and warrants or 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 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, up to 30% of the Fund's total
assets may be invested in foreign securities, excluding, for purposes of this
limitation, ADRs, U.S. Listed Securities and Nasdaq Traded Securities. The Fund
also may invest in 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 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.
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 Fund at any given time in light of its assessment of the attractiveness of
each market. Although GEIM cannot predict the mix of the Fund's investments at
any one time, GEIM can delineate certain situations that can lead to a shift in
the mix of the 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 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 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 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
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<PAGE>
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 Strategic Fund may invest in
municipal leases, floating and variable rate instruments, participation
interests in certain Municipal Obligations, Municipal Obligation components,
custody receipts and zero coupon obligations and may enter into mortgage dollar
rolls. The Fund also may engage in certain investments discussed below under
"Additional Permitted Investments" and in the Appendix.
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 Fund's portfolio securities may occur but is
not an objective of the Fund. In seeking to achieve its investment objective,
the 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 Fund also may invest in
depositary receipts 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 foreign
securities, excluding, for purposes of this limitation, ADRs, U.S. Listed
Securities and Nasdaq Traded Securities. The Fund also may enter into mortgage
dollar rolls, and may engage in certain investments discussed below under
"Additional Permitted Investments" and in the Appendix. The Fund typically
invests not more than 35% of its assets in money market instruments if GEIM
deems such investments to be consistent with the Fund's investment objective.
See "Cash Management Policies -- Non-Money Market Funds," below.
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 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.
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.
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"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 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 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 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 (collectively, "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 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 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. Up to 25% of the Fund's total assets may be invested in
foreign securities, excluding, for purposes of this limitation, ADRs, U.S.
Listed Securities and Nasdaq Traded Securities. The Fund will maintain a
dollar-weighted average portfolio maturity of 90 days or less. The assets of the
Fund are valued on the basis of amortized cost, as described below under "Net
Asset Value." The Fund also may hold liquid Rule 144A Securities (see
"Additional Permitted Investments -- Illiquid Investments and Restricted
Securities") and engage in certain other investments discussed below under
"Additional Permitted Investments" and in the Appendix.
[SMALL-CAP GROWTH EQUITY FUND]
The investment objective of the Small-Cap Growth Equity Fund (the "Small-Cap
Growth Fund") is long-term growth of capital. The Fund seeks to achieve its
objective by investing primarily in equity securities of companies with
small-sized market capitalizations that GEIM believes have the potential for
above-average growth.
The Small-Cap Growth Fund, under normal market conditions, invests at least 65%
of its total assets in a portfolio of equity securities of small-capitalization
companies traded on U.S. securities exchanges or in the U.S. over-the-counter
market, including 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 Fund considers a
"small-capitalization" company to be one that has a market capitalization,
measured at the time it purchases a security of that company, within the range
of capitalizations of companies represented in the Russell 2000 Index. (Although
as of June 30, 1998, the Russell 2000 Index included companies with market
capitalizations between $___ million and $___ billion, currently it is expected
that the weighted average market capitalization of the Fund's portfolio will
ordinarily fall between $100 million and $1 billion.) Companies whose
capitalization no longer meets this definition after purchase continue to be
considered small-capitalization companies for purposes of the Fund's policy of
investing at least 65% of its assets in small-capitalization companies. In
addition, the Fund may invest up to 35% of its total assets in securities of
companies outside the capitalization range of the
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<PAGE>
Russell 2000 Index. As a result of these policies, the average market
capitalization of the Fund's portfolio at any particular time may exceed $___
billion, particularly at times when the market values of small-capitalization
company stocks are rising. In general, investments in smaller-capitalization
companies often involve greater risks than investments in larger companies. (See
"Risk Factors and Special Considerations -- Smaller Companies.")
GEIM relies on its proprietary research to identify small-capitalization
companies with potentially attractive growth prospects. These companies
typically have one or more of a variety of characteristics, including attractive
products or 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 Small-Cap Growth Fund's investment
in them will be successful.
The Small-Cap Growth Fund will invest primarily in companies whose securities
are traded in the U.S. markets, but may invest up to 35% of its assets in
foreign securities, excluding, for purposes of this limitation, ADRs, U.S.
Listed Securities and Nasdaq Traded Securities. (See "Risk Factors and Special
Considerations -- Investment in Foreign Securities.") The Fund may also sell
securities short against the box and engage in certain investments discussed
below under "Additional Permitted Investments" and in the Appendix.
[MID-CAP VALUE EQUITY FUND]
The investment objective of the Mid-Cap Value Equity Fund (the "Mid-Cap Value
Fund") is long-term growth of capital. The Fund seeks to achieve its objective
by investing primarily in equity securities of companies with medium-sized
market capitalizations ("mid-cap") that GEIM considers to be undervalued by the
market. Current income, while considered important, will be secondary to the
objective of capital growth.
The Mid-Cap Value Fund, under normal market conditions, invests 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 bonds, convertible debentures,
convertible notes, convertible preferred stocks, ADRs and warrants or rights
issued by U.S. and foreign companies. The Fund considers a "mid-cap" company to
be one that has a market capitalization, measured at the time it purchases a
security of that company, within the range of capitalizations of companies
represented in the S&P MidCap 400 Index. (As of June 30, 1998, the S&P MidCap
400 Index included companies with market capitalizations between $___ million
and $___ billion.) Companies whose capitalization no longer meets this
definition after purchase continue to be considered mid-cap companies for
purposes of the Fund's policy of investing at least 65% of its assets in mid-cap
companies. In addition, the Fund may invest up to 35% of its total assets in
securities of companies outside the capitalization range of the S&P MidCap 400
Index. As a result of these policies, the average market capitalization of the
Fund's portfolio at any particular time may fall below or exceed the range of
capitalizations of companies represented in the S&P MidCap 400 Index,
particularly at times when the market values of mid-cap company stocks are
fluctuating. In general, investments in smaller-capitalization companies often
involve greater risks than investments in larger companies. (See "Risk Factors
and Special Considerations -- Smaller Companies.")
GEIM seeks investments in equity securities based on its judgment of fundamental
value. Factors deemed particularly relevant include price, earnings
expectations, earnings and price histories, balance sheet characteristics and
perceived management skills. Changes in the economic and political outlooks as
well as individual corporate developments influence specific security prices.
When the Mid-Cap Value Fund's investments lose their perceived value relative to
other similar investments and investment alternatives, they are typically sold.
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<PAGE>
The Mid-Cap Value Fund will invest primarily in companies whose securities are
traded in the U.S. markets, but may invest up to 35% of its assets in foreign
securities, excluding, for purposes of this limitation, ADRs, U.S. Listed
Securities and Nasdaq Traded Securities. (See "Risk Factors and Special
Considerations -- Investment in Foreign Securities.") The Fund may also sell
securities short against the box and engage in certain investments discussed
below under "Additional Permitted Investments" and in the Appendix.
[HIGH YIELD FUND]
The investment objective of the High Yield Fund is to maximize total return,
consistent with the preservation of capital and prudent investment management.
The Fund seeks to achieve its objective by investing primarily in fixed income
securities that are rated below investment grade (as discussed below). In
selecting securities for the Fund, GEIM utilizes economic forecasting, interest
rate anticipation, credit and call risk analysis, foreign currency exchange rate
forecasting, and other securities selection techniques. The proportion of the
Fund's assets committed to investment in securities with particular
characteristics (such as maturity, type and coupon rate) will vary based on
GEIM's outlook for the U.S. and foreign economies, the financial markets, and
other factors.
The High Yield Fund, under normal market conditions, invests at least 65% of its
total assets in a diversified portfolio of fixed income securities rated lower
than Baa by Moody's or lower than BBB by S&P but rated at least B by Moody's or
S&P (or, if unrated, determined by GEIM to be of comparable quality). The
remainder of the Fund's assets may be invested in investment grade fixed income
securities (i.e., securities rated at least Baa by Moody's or BBB by S&P, or, if
unrated, deemed by GEIM to be of comparable quality). The average portfolio
duration of the Fund will normally vary within a two- to six-year time frame
depending on GEIM's view of the potential for total return offered by a
particular duration strategy.
The High Yield Fund will invest at least 65% of its total assets in Government
Securities; corporate debt securities of domestic and foreign issuers, including
convertible securities and corporate commercial paper; mortgage-backed and other
asset-backed securities; inflation-indexed bonds issued by both governments and
corporations; structured notes, including hybrid or "indexed" securities, and
loan participations; bank certificates of deposit, fixed time deposits and
bankers' acceptances; repurchase agreements and reverse repurchase agreements;
Municipal Obligations; obligations of foreign governments or their subdivisions,
agencies and instrumentalities; and obligations of international agencies or
supranational entities. Fixed income securities may have fixed, variable, or
floating rates of interest, including rates of interest that vary inversely at a
multiple of a designated or floating rate, or that vary according to changes in
relative values of currencies. The Fund may hold different percentages of its
assets in these various types of securities and may invest all of its assets in
derivative instruments or in mortgage- or asset-backed securities. The Fund may
adhere to its investment policy by entering into a series of purchase and sale
contracts or by utilizing other investment techniques by which it may obtain
market exposure to the securities in which it primarily invests.
Investments in high yield securities, while generally providing greater
potential opportunity for capital appreciation and higher yields than
investments in higher rated securities, also entail greater risk, including the
possibility of default or bankruptcy of the issuer of the securities. Risk of
default or bankruptcy may be greater in periods of economic uncertainty or
recession, as the issuers of high yield securities may be less able to withstand
general economic downturns. GEIM seeks to reduce risk through diversification,
credit analysis and attention to current developments and trends in both the
economy and financial markets. The value of all fixed income securities,
including those held by the High Yield Fund, can be expected to change inversely
with interest rates. (See "Risk Factors and Special Considerations -- Low-rated
Securities.")
In addition to the above, up to 35% of the High Yield Fund's assets may be
invested in foreign securities, excluding, for purposes of this limitation,
ADRs, U.S. Listed Securities and Nasdaq Traded Securities. (See
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"Risk Factors and Special Considerations -- Investment in Foreign Securities.")
The Fund may also sell securities short against the box and engage in certain
investments discussed below under "Additional Permitted Investments" and in the
Appendix.
INVESTMENTS IN DEBT SECURITIES
- --------------------------------------------------------------------------------
Each of the Premier Growth Fund, Small-Cap Value Fund, [Small-Cap Growth Fund,
Mid-Cap Value Fund,] International Fund, Value Equity Fund, U.S. Equity Fund,
and S&P 500 Index Fund limits investment in debt securities to those that are
rated investment grade, except that each such Fund, other than the Small-Cap
Value Fund, may invest up to 5% of that Fund's assets in securities rated lower
than investment grade and the Small-Cap Value Fund may invest up to 10% of its
assets in below investment grade securities. [The High Yield Fund has no
limitation on the amount of its assets that 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 rating categories assigned
by S&P or 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 Emerging Markets Fund, Mid-Cap Growth Fund, Strategic Fund and
Income Fund limits its purchases of debt instruments to those that are rated
within the six highest rating 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 that have received an equivalent rating from another NRSRO
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 or that have received an equivalent rating from another NRSRO 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 under "Investment Objectives and
Management Policies -- Money Market Fund." This section describes the cash
management policies of the other Funds (each, a "non-money market Fund").
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.
When the Investment Manager(2) 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 non-money market 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 (the "Investment Fund"), in the following types of money market
securities during normal market conditions and/or for temporary defensive
purposes:
(i) U.S. Government Obligations (described below);
- ----------
(2) As used in this Prospectus, the term "Investment Manager" shall refer to
GEIM, Palisade or SSGA, as applicable.
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<PAGE>
(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 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 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 GE. 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.
ILLIQUID INVESTMENTS AND RESTRICTED SECURITIES. Each non-money market Fund 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, and restricted securities that the Investment Manager has determined
are not liquid under guidelines established by the Trust's Board of Trustees.
In addition, each non-money market Fund may invest up to 10% of its assets in
restricted securities. A restricted security is one that is subject to a
contractual or legal restriction on transfer, excluding for purposes of this
limitation securities sold to "qualified institutional buyers" in accordance
with Rule 144A under the 1933 Act ("Rule 144A Securities") determined to be
liquid by the Trust's Board of Trustees based upon the trading markets for the
securities. If a Fund holds Rule 144A Securities, the level of illiquidity in
the Fund may increase during periods when qualified institutional buyers lose
interest in purchasing Rule 144A Securities.
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<PAGE>
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 the Investment Manager
determines that the issuing agency's or instrumentality's credit risk makes 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 repurchase that
security at a specified price on a date that occurs within a relatively short
time period (usually one to seven days). Repurchase agreements allow a Fund to
earn a fixed rate of return that is not subject to market fluctuations during
the Fund's holding period, 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, the Investment Manager will monitor the value of the
securities underlying the agreement on an ongoing basis to ensure that the value
remains equal to the total amount of the repurchase price (including interest).
The Investment Manager 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 to provide liquidity to meet redemption
requests or to pay dividends and distributions when the sale of the Fund's
portfolio securities is considered 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 [, the High Yield 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 a 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
20
<PAGE>
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
discussion of such investments, which include WEBs, CountryBaskets and SPDRs.
PURCHASING PUT AND CALL OPTIONS ON SECURITIES. Each 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.
A put option is an option to sell. If the Investment Manager 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.
A call option is an option to buy. A Fund may purchase a call option on a
security when the Investment Manager 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.
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.
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
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<PAGE>
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, each 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 options for hedging purposes, the non-money market 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, other than the
Small-Cap Value Fund, may enter into interest rate, financial and stock or bond
index futures contracts or related options that are traded on a U.S. or foreign
exchange or 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, other than the
Small-Cap Value Fund, may hold currencies to meet settlement requirements for
foreign securities. Each non-money market Fund, other than the Premier Growth
Fund, the Small-Cap Value Fund and 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 a future date and at a price that is 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 the Investment Manager. 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, other than the
Premier Growth Fund and the Small-Cap Value 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.
ADDITIONAL INVESTMENT TECHNIQUES. 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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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
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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 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.
3. 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.
4. 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.
OTHER INVESTORS. Investors may be materially affected by the actions of other
large institutional investors. For example, if a large institutional investor
withdraws an investment in a Fund, the Fund could diminish in size by a
substantial amount causing the remaining investors to experience higher pro rata
operating expenses, resulting in
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lower returns for such investors. The withdrawal by a large investor also may
result in significant portfolio liquidation expenses that are borne by remaining
shareholders.
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.
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 to 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 the 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 the Investment Manager
deems representative of their value.
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RESTRICTED SECURITIES. Restricted securities are generally more illiquid than
publicly traded securities. The prices realized from reselling restricted
securities in privately negotiated transactions may be less than those
originally paid by a Fund. Companies whose securities are restricted are not
subject to the disclosure and other investor protection requirements applicable
to publicly traded securities.
SMALLER CAPITALIZATION COMPANIES. Investing in securities of small- and
medium-sized capitalization companies may involve greater risks than investing
in larger, more established issuers. Such smaller capitalization 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. In addition, these companies are typically
subject to a greater degree of changes in earnings and business prospects than
are larger, more established issuers. As a result, the prices of securities of
smaller capitalization companies may fluctuate to a greater degree than the
prices of securities of other issuers. Although investing in securities of
smaller capitalization companies offers potential for above-average returns if
the companies are successful, the risk exists that the companies will not
succeed and the prices of the companies' shares could significantly decline in
value.
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 by 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 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, including securities issued in the form of depositary
receipts, 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; and
changes in governmental administration or economic or monetary policy (in the
United States or abroad).
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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 a 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.
The former republics of the Soviet Union and the Eastern Bloc are emerging
markets countries that are undergoing a rapid transition from centralized,
planned economies to market-oriented economies. There can be no assurance that
such transition, including ongoing privatization efforts and recently
implemented economic reform programs, will continue. Moreover, there is a risk
that such countries might return to the centrally planned economies that existed
when they had a communist form of government. Investors should note that when
the former republics of the Soviet Union and the Eastern Bloc operated under
such centralized economies, they confiscated personal property and abrogated
property and other legal rights.
INVESTING IN A SINGLE COUNTRY. As discussed above, the Emerging Markets Fund
may, from time to time, invest all of its assets in a single emerging markets
country. There is a higher degree of risk associated with investing in one
country rather than diversifying investments among countries. If the Fund
invests all or a significant portion of its assets at any time in a single
country, events occurring in that country are more likely to affect the
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Fund's investments. Specific risks associated with investing in a single country
include a greater effect on portfolio holdings of currency fluctuations and
country-specific economic, social or political factors.
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 addressing the validity of the obligations and whether the interest
on such obligations is exempt from Federal income tax. Neither the Trust nor the
Investment Manager 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 the Investment Manager 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 the 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
option 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 the Investment Manager
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 may be
limited with respect to certain currencies. The existence of a limited market
may in turn restrict a 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 the
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Investment Manager with respect to those instruments and will usually depend
upon the ability of the Investment Manager 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.
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,
securities 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 risks.
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, debt obligations 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.
YEAR 2000 RISKS. Like other mutual funds, financial and business organizations
and individuals around the worlds, each of the Funds could be adversely affected
if the computer systems used by its Investment Manager and other service
providers do not properly process and calculate date-released information from
and after January 1, 2000. This is commonly known as the "Year 2000 Problem."
GEIM is taking steps that it believes are reasonably designed to address the
Year 2000 Problem with respect to the computer systems that it uses and to
obtain satisfactory assurances that comparable steps are being taken by each of
the Funds' other major service providers. At this time, however, there can be no
assurances that these steps will be sufficient to avoid any adverse impact on
the Funds. In addition, it is possible that the markets for securities in which
the Funds invest may be detrimentally affected by computer failures throughout
the financial services industry beginning January 1, 2000 if systems should
cease to function at that time. This may result in trade settlement problems and
liquidity issues. Corporate and governmental data processing errors may result
in production problems for individual companies and overall economic
uncertainties.
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Earnings of individual issuers may be affected by remediation costs. In
addition, it has been reported that foreign institutions have made less progress
in addressing Year 2000 compliance than major U.S. entities, which could make
certain of the Funds' investments more sensitive to these risks.
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 the Investment Manager, 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 Emerging
Markets Fund, 50% for the Premier Growth Fund, 150% for the Small-Cap Value
Fund, [150% for the Small-Cap Growth Fund, 150% for the Mid-Cap Value Fund, 150%
for the High Yield Fund,] 200% for the Mid-Cap Growth Fund, 50% for the
International Fund, 30% for the Value Equity Fund, 50% for the U.S. Equity Fund,
25% for the S&P 500 Index Fund, 200% for the Strategic Fund, and 300% for the
Income 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. The Investment Manager 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.
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'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 and their predecessors, GE has more than 70 years of
investment management experience.
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GE Investments provides investment management services to various institutional
accounts with total assets as of March 31, 1998, in excess of $75.5 billion, of
which more than $14.9 billion was invested in mutual funds. 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 (as defined above, the
"GE Funds") are offered 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 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 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. GEIM has also served as
investment adviser to the U.S. Government Money Market Fund and U.S. Treasury
Money Market Fund of Financial Investors Trust since March 1997, and the Prime
Fund of Financial Investors Trust since May 1998.
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 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.
The Investment Manager, 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. The Investment Manager 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.
The Investment Manager 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 the Investment Manager 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 the Investment Manager 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
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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."
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 the 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):
AVERAGE DAILY NET ANNUAL RATE
NAME OF FUND ASSETS OF FUND PERCENTAGE (%)
- --------------------------------------------------------------------------------
Emerging Markets Fund First $50 million 1.05
Over $50 million .95
- --------------------------------------------------------------------------------
Premier Growth Equity Fund First $25 million .55
Mid-Cap Growth Fund Next $25 million .45
Value Equity Fund Over $50 million .35
U.S. Equity Fund
- --------------------------------------------------------------------------------
Small-Cap Value Fund First $25 million .70
[Small-Cap Growth Fund] Next $25 million .65
Over $50 million .60
- --------------------------------------------------------------------------------
[Mid-Cap Value Fund] First $25 million .60
Next $25 million .55
Over $50 million .50
- --------------------------------------------------------------------------------
International Equity Fund First $25 million .75
Next $50 million .65
Over $75 million .55
- --------------------------------------------------------------------------------
S&P 500 Index Fund All assets .15
- --------------------------------------------------------------------------------
Strategic Investment Fund First $25 million .45
[High Yield Fund] Next $25 million .40
Over $50 million .35
- --------------------------------------------------------------------------------
Income Fund First $25 million .35
Next $25 million .30
Next $50 million .25
Over $100 million .20
- --------------------------------------------------------------------------------
Money Market Fund First $25 million .25
Next $25 million .20
Next $50 million .15
Over $100 million .10
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From time to time, GEIM may waive or reimburse advisory or administrative fees
paid by a Fund.
INVESTMENT SUB-ADVISERS
S&P 500 INDEX FUND. SSGA is the investment sub-adviser to the S&P 500 Index Fund
pursuant to an investment sub-advisory agreement with GEIM. 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 $475 billion under
management as of March 31, 1998, 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 is also the investment sub-adviser to the GEIFI Funds' S&P 500 Index Fund.
GEIM pays SSGA monthly compensation in the form of an investment sub-advisory
fee at an annual rate of .05% of the first $100 million, .04% of the next $200
million and .03% for all amounts over $300 million, of the Fund's average daily
net assets.
SMALL-CAP VALUE FUND. Palisade, located at One Bridge Plaza, Fort Lee, New
Jersey 07024, is the investment sub-adviser to the Small-Cap Value Fund pursuant
to an investment sub-advisory agreement with GEIM. Although Palisade has no
previous experience managing mutual fund portfolios, Palisade has managed
various institutional and private accounts with total assets in excess of $3
billion as of March 31, 1998. Palisade is also the investment sub-adviser to the
GE Funds' GE Small-Cap Value Equity Fund. GEIM pays Palisade monthly
compensation in the form of an investment sub-advisory fee at an annual rate of
.35% of the first $100 million, .325% of the next $100 million and .30% for all
amounts over $200 million, 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 1991. Mr. Bolton leads a team of portfolio managers for the U.S.
Equity Fund [and the Small-Cap Growth Fund] and has served in that capacity
since the commencement of the Funds' operations. In addition, Mr. Bolton has
served in a similar capacity with respect to the GE Funds' GE U.S. Equity Fund
[and GE Small-Cap Growth Fund] since the commencement of those Funds'
operations. 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 a
Portfolio Manager to similar funds of GE Funds since the commencement of their
operations. He has more than 15 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 is the Portfolio Manager of the Value Equity 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' GE Value Equity 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 since the commencement of its operations and the GE
Strategic Investment Fund since September 1997. He has more than 18 years of
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investment experience and has held positions with GE Investments since 1991. 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 [,
the High Yield Fund] and the Money Market 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 [, GE High Yield Fund], GE Money
Market 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 Growth Fund [and the
Mid-Cap Value Fund] and has served in that capacity since commencement of the
Funds' operations. Ms. Harris also serves as the Portfolio Manager for GE Funds'
GE Mid-Cap Growth Fund [and the GE Mid-Cap Value 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. Ms. Harris is currently a
Senior Vice President of GE Investments.
Jack Feiler, Chief Investment Officer at Palisade, leads a team of portfolio
managers for the Small-Cap Value Fund. Mr. Feiler has served in that capacity
since the commencement of the Fund's operations. In addition, Mr. Feiler serves
in a similar capacity with respect to GE Funds' GE Small-Cap Value Equity Fund.
Mr. Feiler has more than 30 years of investment experience and has served as the
principal small-cap portfolio manager at Palisade since the commencement of
Palisade's operations in April 1995. Prior to joining Palisade, Mr. Feiler was a
Senior Vice President-Investments at Smith Barney from 1990 to 1995.
Investment personnel at GEIM, SSGA and Palisade 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; shareholder servicing and
distribution 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 the Service Class
Shares of 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 .25% of the value
of the average daily net assets of such Fund attributable to the Service Class
shares. 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 compensate GEIM, or 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
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<PAGE>
other things, providing Service Class shareholders with one or more of the
following: (i) information on their investments; (ii) general information
regarding investing in mutual funds; (iii) periodic newsletters containing
materials relating to the Fund or to investments in general in mutual funds;
(iv) periodic financial seminars designed to assist in the education of
shareholders with respect to mutual funds generally and the Fund specifically;
(v) access to a telephone inquiry center relating to the Fund; (vi)
sub-accounting and sub-account maintenance, servicing and transaction processing
and (vii) 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 printing and distribution to prospective investors in the Fund
of prospectuses and statements of additional information that are used in
connection with sales of the Service Class shares of the Fund; the preparation,
including printing and distribution of sales literature and media advertisements
relating to the Service Class shares of a Fund; and distributing Service Class
shares of the Fund. In providing compensation for Selling Services in accordance
with the Plan, GEIM is expressly authorized: (i) to make, or cause to be made,
payments reflecting an allocation of overhead and other office expenses related
to the distribution of the Service Class shares of the Fund; (ii) to 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 (iii) to make, or cause to be made,
payments to financial intermediaries 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
- --------------------------------------------------------------------------------
PURCHASING SHARES -- GENERAL INFORMATION
The Distributor offers Service Class shares on a continuous basis. A purchase
order is 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
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.
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. The Trust does not issue physical
certificates representing shares in any Fund.
Investors begin to earn income as of the first business day following the day
State Street has received payment for an order. Orders are accepted only upon
receipt by State Street of all documentation required to be submitted in
connection with such order. If an investor purchases or redeems shares through
an Authorized Firm (defined below), it may be subject to service fees imposed by
that Firm.
ELIGIBLE INVESTORS
The Distributor offers Service Class shares to certain investors that meet the
minimum investment requirements. The Trust was designed to appeal to
institutional investors such as corporations, foundations, endowments and trusts
established to fund employee benefit plans of various types as well as
charitable, religious and educational institutions. The Trust expects that most
of the time each Fund will have relatively few shareholders (as compared with
most mutual funds) but that these shareholders will invest substantial amounts
in a Fund. Typical institutional investors may include banks, insurance
companies, broker-dealers, investment advisers, trusts that fund qualified
pension and profit-sharing plans (Section 401 of the Code), trusts that fund
government employer non-qualified deferred compensation obligations (Section 457
of the Code), trusts that fund charitable, religious
35
<PAGE>
and educational institutions (Section 501(c)(9) of the Code), non-government
employers seeking to fund non-qualified deferred compensation obligations, and
investment companies that are not affiliated persons of the Trust (or affiliated
persons of such persons).
MINIMUM INVESTMENT REQUIREMENT
The minimum initial investment in each Fund is $35 million for each investor or
group of related investors. Related investors are investors that are affiliated
persons of each other within the meaning of the 1940 Act. For this purpose,
common trust funds and collective trust funds of the same bank (or of affiliated
banks) are considered related investors of each other and their bank(s).
Likewise, separate accounts of the same insurance company (or of affiliated
insurance companies) are related investors of each other and their insurance
company or companies and clients whose assets are managed on a discretionary
basis by the same bank, insurance company, investment adviser or broker-dealer
are related investors of each other and their manager. The Distributor also may
treat clients of other financial intermediaries as related persons where shares
of a Fund are held by that intermediary in an omnibus account for its
institutional clients. There is no minimum investment requirement for subsequent
purchases. If the value of an investor's, or a group of related investors',
investment in a Fund falls below $35 million for more than 120 days because of
redemptions (and not because of market fluctuations or Investment Switches
(defined below)), the Distributor may, in its sole discretion, refuse to sell
additional Fund shares to such investor (other than reinvestment of dividends
and capital gains).
The minimum investment requirement is waived for each investor or group of
related investors so long as such person or group has invested at least $100
million in one or more investment portfolios or accounts that are advised by
GEIM and/or GEIC and at least $35 million of this $100 million amount is
invested in the Trust. If the value of such investor's, or group of related
investors', investment portfolios and accounts that are advised by GEIM and/or
GEIC falls below $100 million, or if the value of such investor's, or group of
related investors', investment in the Trust falls below $35 million, for more
than 120 days because of redemptions (and not because of market fluctuations or
Investment Switches), the Distributor may, in its sole discretion, refuse to
sell additional Fund shares to such investor (other than reinvestment of
dividends and capital gains).
The minimum investment requirement is waived for up to three years from the date
of initial purchase of Fund shares for certain investors or groups of related
investors having: (a) at least $100 million of investment assets within six
months from the date of the initial purchase of Fund shares, provided they
invest in only one Fund, (b) at least $200 million of investment assets within
six months from the date of the initial purchase of Fund shares, provided they
invest in no more than two Funds, and (c) at least $500 million of investment
assets within six months from the date of the initial purchase of Fund shares,
for which they may invest in any number of Funds. If such an investor does not
have the applicable amount of investment assets within the six-month period, the
Distributor may, in its sole discretion, refuse to sell additional Fund shares
to such investor (other than reinvestment of dividends and capital gains
distributions). Even if the investor has the applicable amount of investment
assets within the six-month period, the Distributor may refuse to sell to such
investor additional Fund shares (other than reinvestment of dividends and
capital gains distributions), if such investor has not satisfied the $35 million
minimum investment requirement within three years.
For a bank, insurance company, broker-dealer, investment adviser or other
financial intermediary investing in an omnibus account for its clients, the
amount of investment assets is determined either by (i) aggregating Client
Assets (defined below) over which it has investment discretion or (ii)
aggregating Client Assets of any entity described under "Eligible Investors"
which are managed by the financial intermediary on a non-discretionary basis or
for which it (or its affiliates) provides recordkeeping, shareholder servicing
or other administrative services. "Client Assets" means the assets of any client
of a financial intermediary that has invested in the Trust.
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<PAGE>
LETTER OF INTENT. Investors or a group of related investors may meet the $35
million minimum investment requirement through a series of investments over a
period of no more than three years. To elect this alternative, the investor or
group must submit a letter to the Distributor indicating its commitment to
purchase at least $35 million in shares of a Fund over a 3-year period. If the
investor or group does not invest the required minimum amount within the 3-year
period, such investor or group may, in the Distributor's sole discretion, be
prohibited from making additional purchases of Fund shares (other than
reinvestment of dividends and capital gains distributions).
HOW TO OPEN AN ACCOUNT
Investors must establish an account before purchasing shares, and may do so
either by submitting an account application to the Distributor or the transfer
agent or through an Authorized Firm (defined below). Investors may obtain an
account application by telephoning the Trust at (800) 493-3042 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.
1004 Baltimore
Kansas City, MO 64105
To open an account, an investor must complete and sign an application and
furnish its taxpayer identification number to the Trust. The investor also must
certify whether or not it is subject to withholding for failing to report income
to the Internal Revenue Service.
HOW TO BUY SHARES
After a completed account application has been received and processed, an
investor may purchase Fund shares from the Distributor or through brokers,
dealers, financial institutions or investment advisers that have entered into
sales agreements with the Distributor ("Authorized Firms").
An investor 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 the investor's order
promptly to the transfer agent. Investors should contact their Sales
Representative for further instructions.
Investors also may purchase Service Class shares directly from the transfer
agent by wiring federal funds to: State Street Bank and Trust Company (ABA #
0110-0002-8) For: GE Institutional Funds -- [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 investors promptly.
An investor's financial institution may charge a fee for wiring its account.
37
<PAGE>
PURCHASES IN-KIND
Investors may purchase Service Class shares in amounts of $5 million or more
with either cash or investment securities acceptable to the appropriate Fund.
The particular investment securities acceptable to a Fund may vary over time and
the Trust does not guarantee that any particular investment securities will be
accepted at any particular time or at all. Investors interested in purchasing
Service Class shares with investment securities should contact their Sales
Representative or the Distributor for information about which securities a
particular Fund will accept. The Trust reserves the right to require the
Distributor to suspend the offering of Service Class shares of the Emerging
Markets Fund or International Equity Fund for cash in amounts above $5 million
and of the other non-money market Funds in amounts above $10 million.
REDEMPTION OF SHARES
- --------------------------------------------------------------------------------
On any Business Day, investors may redeem all or a portion of their 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.
If an investor holds more than one class of shares, it must specify which class
of shares it is redeeming. The investor's redemption request might be delayed if
it does not specify the appropriate class of shares or if it owns fewer shares
than specified in its redemption request.
REDEMPTIONS THROUGH AN AUTHORIZED FIRM
If an investor purchases shares through a Sales Representative, it may redeem
its shares in accordance with its Sales Representative's instructions. If State
Street's books reflect that the investor, and not its Sales Representative, is
the shareholder of record on an account, the investor also may redeem by mail or
by wire, as described below. The investor's Authorized Firm is responsible for
transmitting a redemption order (and crediting the investor with any redemption
proceeds) on a timely basis.
REDEMPTION BY MAIL
If the investor is the shareholder of record on the books of State Street, it
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 the investor's account number and (4) is signed on the
investor's behalf by an authorized person exactly as the shares are registered.
Investors should send the request to the Trust at the appropriate address listed
above under "How to Open an Account."
SIGNATURE GUARANTEES
To protect investors' accounts, 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 an account. Signature guarantees will
be required for redemptions over $50,000 and requests that redemption proceeds
be (1) mailed to an address other than the address of record, (2) paid to a
person 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
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account. The Trust may waive the signature guarantee on a redemption of $50,000
or less if it is able to verify the signatures of all registered owners from its
accounts.
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.
The Trust will redeem an investor's shares in-kind at the request of that
investor.
INVESTMENT SWITCHES
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An investor may exchange Service Class shares of a Fund for Service Class shares
of another Fund or Investment Class shares of the same or another Fund
("Investment Switches"). Such Investment Switches are permitted provided the
Fund is an option available to that investor, the investor meets the minimum
investment requirement for such Fund and the shares of such Fund may legally be
sold in the investor's state of residence.
The Trust may, upon 60 days prior written notice to a Fund's shareholders,
terminate the Investment Switch privilege. An Investment Switch to shares of
another Fund is treated for Federal income tax purposes as a redemption (that
is, a sale) of shares given in exchange by the investor, followed by a deemed
purchase of shares in the other Fund, and therefore the investor may experience
a taxable gain or loss in connection with the Investment Switch. Investors may
conduct an Investment Switch by writing the Trust at the appropriate address
listed above under "How to Open an Account."
NET ASSET VALUE
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Each class' 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 that class
by the total number of shares of that class outstanding. The NYSE is currently
open each day, Monday through Friday, except on the following holidays: New
Year's Day, Dr. Martin Luther King, Jr. 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
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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.
Securities that are primarily traded on a foreign exchange generally will be
valued for purposes of calculating a Fund's net asset value at the preceding
closing value of the securities on the exchange, except that when an occurrence
subsequent to the time a value was so established is likely to have changed that
value, the fair market value of those securities will be determined by
consideration of other factors by or under the direction of the Board. 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, the Investment Manager 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
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DIVIDENDS AND DISTRIBUTIONS
Dividends and capital gain distributions paid to investors will be automatically
reinvested in shares of the same class. Dividends attributable to the Income
Fund [, the High Yield 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 an investor redeems all of the
shares that it may own in the Income Fund [, the High Yield Fund] or the Money
Market Fund at any time during a month, the investor's dividends (if any) will
be paid to it along with the proceeds of its redemption.
The Trust will send investors written confirmations relating to the automatic
reinvestment of daily dividends within five days following the end of each
quarter for the Income Fund [and the High Yield 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 [, the High Yield 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."
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, or 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. Investors should consult
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their own tax advisor regarding the application of Federal, state, local and
foreign tax laws to their specific tax situation.
TAXES ON THE FUNDS. 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 prescribed 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 an 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. An investor
may not claim a deduction for foreign taxes if it does 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 an investor
receives 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 an investor has held its shares. As a
general rule, any gain or loss when an investor sells or redeems (including a
redemption in-kind) its Fund shares will be a long-term capital gain or loss if
it has held its shares for more than one year and a short-term capital gain or
loss if it has held its 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 [, the High Yield 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, Small-Cap Value Fund, [Small-Cap
Growth Fund, Mid-Cap Value Fund,] Mid-Cap Growth Fund, Value Equity Fund, U.S.
Equity Fund, S&P 500 Index Fund and Strategic 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 portion 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 investors on or before January 31st of each
year.
CUSTODIAN AND TRANSFER AGENT
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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
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GE Investment Distributors, Inc. (formerly known as GE Investment Services
Inc.), located at 777 Long Ridge Road, Building B, Stamford, Connecticut 06927,
serves as distributor of the Funds' shares. The
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Distributor, an indirect wholly-owned subsidiary of GE, also serves as
Distributor for the Elfun Funds, GE LifeStyle Funds, GE Investments Funds, Inc.
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
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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
August 29, 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 the date of this Prospectus, GECA, an indirect
subsidiary of GE, owned 100% of the outstanding shares of the Premier Growth
Fund, the Value Equity Fund and the Strategic Fund. The shares were issued to
GECA for providing the initial seed capital to these Funds. In addition, as of
April 15, 1998: (i) Leaseway Transportation Corp. owned more than 25% of the
outstanding voting securities of the Emerging Markets Fund, Mid-Cap Growth Fund,
International Fund, U.S. Equity Fund, S&P 500 Index Fund, Income Fund and
Money Market Fund; (ii) AID Association for Lutherans owned more than 25% of the
outstanding voting securities of the International Fund; and (iii) MRA Systems,
Inc. owned more than 25% of the outstanding voting securities of the Money
Market Fund. So long as the above entities own more than 25% of the outstanding
voting securities of the Funds noted, they may be deemed to control these Funds.
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 10% 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
an audited annual report. The Trust will send investors a copy of its
semi-annual report, dated March 31, 1998, and annual report (the latter, when
issued), each of which includes a list of the investment securities held by each
Fund in which it has invested. Only one report each will be mailed to an
investor's address. Investors may request additional
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copies of any report, or make shareholder inquiries, by calling or writing the
Trust. The toll-free number and the address of the Trust are 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. Each Fund 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.
SUPRA-NATIONAL AGENCIES. Each Fund may invest in debt obligations 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.
Debt obligations of supra-national agencies are not considered U.S.
Government Obligations and are not supported, directly or indirectly, by the
U.S. Government.
STRATEGIES AVAILABLE TO SOME BUT NOT ALL FUNDS
INVESTMENTS IN OTHER INVESTMENT COMPANIES. Each non-money market Fund, other
than the U.S. Equity 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.
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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 it had
purchased them from a sponsored depository.
WEBS AND OTHER INDEX-RELATED SECURITIES. Each of the Emerging Markets Fund,
International Fund and 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 Funds 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 Equity 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.
EMERGING MARKETS. The Emerging Markets Fund, International Fund, Strategic Fund
and Income Fund each may invest more than 5% of its total assets in securities
of issuers located in one or more emerging markets countries. The Mid-Cap Growth
Fund, Premier Growth Fund, Value Equity Fund, U.S. Equity Fund and S&P 500 Index
Fund each may invest up to 5% of its total assets in such securities. Emerging
markets countries are located primarily in Asia, Latin America, the Middle East,
Southern Europe, Eastern Europe (including the former republics of the Soviet
Union and the Eastern Bloc) and Africa. Risks and special considerations
associated with investing in emerging markets countries are discussed above
under "Risk Factors and Special Considerations -- Investing in Developing or
Emerging Markets."
MUNICIPAL LEASES. The Strategic Fund [and the High Yield 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 tax 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 -- 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
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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, [High Yield Fund,]
Income Fund and 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 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 [, High Yield
Fund] and 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.
The Strategic Fund [and the High Yield 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 [and the High Yield 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.
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ZERO COUPON OBLIGATIONS. The U.S. Equity Fund, Strategic Fund [, High Yield
Fund] and 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 than securities paying interest on a current basis.
Conversely, when interest rates fall, the values of zero coupon bonds rise more
rapidly than 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 each Fund receives no payments on its zero coupon securities prior
to maturity or disposition, for Federal income tax purposes it 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 [and the High Yield 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 [and the High Yield 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 [and the High Yield 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.
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MORTGAGE RELATED SECURITIES. The mortgage related securities in which the
Strategic Fund [, High Yield Fund] and Income Fund may invest represent pools of
mortgage loans assembled for sale to investors by various governmental agencies,
such as the Government National Mortgage Association ("GNMA"), by government
related organizations, such as the Federal National Mortgage Association
("FNMA") and the Federal Home Loan Mortgage Corporation ("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, each Fund 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 or the Income Fund invests, 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 [, High
Yield Fund] and 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. Each 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 the 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
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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 these
Funds' 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 [, High Yield
Fund] and 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 [, High Yield Fund] and 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 the purchaser to 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 Small-Cap Value Fund, International Fund, Value
Equity Fund, Mid-Cap Growth Fund [, Small-Cap Growth Fund, Mid-Cap Value Fund,
High Yield Fund] and 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
Emerging Markets Fund
Premier Growth Equity Fund
Small-Cap Value Equity Fund
Mid-Cap Growth Fund
International Equity Fund
Value Equity Fund
U.S. Equity Fund
S&P 500 Index Fund
Strategic Investment Fund
Income Fund
Money Market Fund
[Small-Cap Growth Equity Fund
Mid-Cap Value Equity Fund
High Yield Fund]
For information, contact your investment professional or call the Trust at
1-800-493-3042.
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 whom, an
offer may not lawfully be made.
<PAGE>
SUBJECT TO COMPLETION, DATED MAY 11, 1998
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
any offers to buy be accepted prior to the time the registration statement
becomes effective. This Statement of Additional Information does not
constitute a prospectus.
STATEMENT OF ADDITIONAL INFORMATION
[INSERT], 1998
GE INSTITUTIONAL FUNDS
3003 Summer Street, Stamford, Connecticut 06905
For information, call 1-800-493-3042
* Emerging Markets Fund * Value Equity Fund
* Premier Growth Equity Fund * U.S. Equity Fund
* Small-Cap Growth Equity Fund * S&P 500 Index Fund
* Small-Cap Value Equity Fund * Strategic Investment Fund
* Mid-Cap Growth Fund * High Yield Fund
* Mid-Cap Value Equity Fund * Income Fund
* International 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 [INSERT], 1998. 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 the telephone number listed
above 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.
<PAGE>
CONTENTS
PAGE
----
Investment Objectives and Management Policies...................1
Investment Restrictions........................................12
Management of the Trust........................................15
Compensation Table.............................................18
Redemption of Shares...........................................24
Investment Switches............................................24
Net Asset Value................................................24
Dividends, Distributions and Taxes.............................26
The Funds' Performance.........................................29
Performance Calculation........................................29
Principal Stockholders.........................................33
Additional Information.........................................36
Counsel........................................................38
Independent Accountants........................................38
Financial Statements...........................................38
Appendix......................................................A-1
Audited Financial Statements..................................F-1
Accountants' Report...........................................F-2
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<PAGE>
INVESTMENT OBJECTIVES AND MANAGEMENT POLICIES
The Prospectuses dated [INSERT], 1998 discuss the investment objectives and
policies of the following eleven managed investment funds currently offered by
the Trust: Emerging Markets Fund, Premier Growth Equity Fund (the "Premier
Growth Fund"), Small-Cap Value Equity Fund (the " Small-Cap Value Fund"),
Mid-Cap Growth Fund, International Equity Fund (the "International Fund"), Value
Equity Fund, U.S. Equity Fund, S&P 500 Index Fund,(1) Strategic Investment Fund
(the "Strategic Fund"), Income Fund, and Money Market Fund. Small-Cap Growth
Equity Fund (the "Small-Cap Growth Fund"), Mid-Cap Value Equity Fund (the
"Mid-Cap Value Fund") and High Yield Fund, each an additional series of the
Trust, are not currently being offered by the Trust. 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.
- ----------
(1) The S&P 500 Index Fund is not sponsored, endorsed, sold or promoted by
Standard & Poor's ("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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<PAGE>
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; 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: (a) 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 (b) 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 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. Although the
2
<PAGE>
Investment Manager(2) uses these ratings as initial criteria for the selection
of the Funds' portfolio securities, the Investment Manager 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, the Investment Manager 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 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 respective investment objectives and
policies.
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. Debt obligations of
supra-national agencies are not considered U.S. Government Obligations and are
not supported, directly or indirectly, by the U.S. Government.
STRATEGIES AVAILABLE TO SOME BUT NOT ALL FUNDS
SECURITIES OF OTHER INVESTMENT COMPANIES. A Fund other than the Money
Market Fund (each, a "non-money market Fund") and the U.S. Equity 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 non-money market 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 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
- ----------
(2) As used in this Statement of Additional Information, the term
"Investment Manager" shall refer to GE Investment Management
Incorporated ("GEIM"), the Funds' investment adviser and administrator,
or Palisade Capital Management, L.L.C., the investment sub-adviser to
the Small-Cap Value Fund, or State Street Global Advisors, the
investment sub-adviser to the S&P 500 Index Fund, as applicable.
3
<PAGE>
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.
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 (a) 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, (b) 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, (c) 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 (d) 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 (a) 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 (b) 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 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 normally will 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
4
<PAGE>
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. The Investment Manager 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 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 (a) the
amount, if any, by which the fixed exercise
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<PAGE>
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 (b) 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 the
Investment Manager'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.
OVER-THE-COUNTER ("OTC") OPTIONS. The Funds may purchase OTC or dealer
options or sell covered OTC options. Unlike exchange-listed options where an
intermediary or clearing corporation, such as the Clearing Corporation, assures
that all transactions in such options are properly executed, the responsibility
for performing all transactions with respect to OTC options rests solely with
the writer and the holder of those options. A listed call option writer, for
example, is obligated to deliver the underlying stock to the clearing
organization if the option is exercised, and the clearing organization is then
obligated to pay the writer the exercise price of the option. If a Fund were to
purchase a dealer option, however, it would rely on the dealer from whom it
purchased the option to perform if the option were exercised. If the dealer
fails to honor the exercise of the option by the Fund, the Fund would lose the
premium it paid for the option and the expected benefit of the transaction.
Listed options generally have a continuous liquid market while dealer
options have none. Consequently, a Fund will generally be able to realize the
value of a dealer option it has purchased only by exercising it or reselling it
to the dealer who issued it. Similarly, when a Fund writes a dealer option, it
generally will be able to close out the option prior to its expiration only by
entering into a closing purchase transaction with the dealer to which the Fund
originally wrote the option. Although the Funds will seek to enter into dealer
options only with dealers who will agree to and that are expected to be capable
of entering into closing transactions with the Funds, there can be no assurance
that a Fund will be able to liquidate a dealer option at a favorable price at
any time prior to expiration. The inability to enter into a
6
<PAGE>
closing transaction may result in material losses to a Fund. Until a Fund, as a
covered OTC call option writer, is able to effect a closing purchase
transaction, it will not be able to liquidate securities (or other assets) used
to cover the written option until the option expires or is exercised. This
requirement may impair a Fund's ability to sell portfolio securities or, with
respect to currency options, currencies at a time when such sale might be
advantageous. In the event of insolvency of the other party, the Fund may be
unable to liquidate a dealer option.
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 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.
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<PAGE>
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
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
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<PAGE>
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.
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 (a)
other complex foreign political and economic factors, (b) lesser availability of
data on which to make trading decisions than in the United States, (c) delays in
a Fund's ability to act upon economic events occurring in foreign markets during
non-business hours in the United States, (d) the imposition of different
exercise and settlement terms and procedures and margin requirements than in the
United States and (e) lesser trading volume.
MUNICIPAL OBLIGATIONS. The term Municipal Obligations as used in each
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
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<PAGE>
to acquire a wide variety of equipment and facilities such as fire and
sanitation vehicles, computer equipment and other capital assets. Although
municipal lease obligations do not normally constitute general obligations of
the municipality, a lease obligation is ordinarily backed by the municipality's
agreement to make the payments due under the lease obligation. 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 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. Some
municipal lease obligations may be, and could become, illiquid. 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.
Municipal lease obligations may be deemed to be illiquid as determined by
or in accordance with methods adopted by the Board. In determining the liquidity
and appropriate valuation of a municipal lease obligation, the following factors
relating to the security are considered, among others: (a) the frequency of
trades and quotes; (b) the number of dealers willing to purchase or sell the
security; (c) the willingness of dealers to undertake to make a market; (d) the
nature of the marketplace trades; and (e) the likelihood that the obligation
will continue to be marketable based on the credit quality of the municipality
or relevant obligor.
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
the Investment Manager 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 the
Investment Manager 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.
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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. The Government National Mortgage
Association ("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 the Federal
National Mortgage Association ("FNMA") and the Federal Home Loan Mortgage
Corporation ("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 instruments whose principal or interest payments
may vary or whose terms to maturity may be shorter than previously customary.
The Investment Manager 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 ("CARssm") and interests in
pools of credit card receivables. CARssm 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 CARssm 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 CARssm 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; depreciation, damage or loss of a vehicle; and/or the
application of Federal and state bankruptcy and insolvency laws or other
factors. Certificate holders may experience delays in payment if the letter of
credit is exhausted.
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INVESTMENT RESTRICTIONS
Investment restrictions numbered 1 through 12 below have been adopted by
the Trust as fundamental policies of all 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 13 and 14 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.
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 total 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 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.
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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 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 each Prospectus.
11. No Fund may invest in companies for the purpose of exercising control
or management.
12. No Fund may issue senior securities except as otherwise permitted by
the 1940 Act and as otherwise permitted herein.
13. No Fund may purchase illiquid securities if more than 15% of the net
assets of the 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.
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14. No Fund may purchase restricted securities if more than 10% of the
total assets of the Fund would be invested in 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 upon the trading markets for the
securities.
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 Price 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 the
Investment Manager, 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, the Investment Manager seeks the best overall terms available.
In assessing the best overall terms available for any transaction, the
Investment Manager 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 the Investment Manager relating to a Fund authorizes the Investment
Manager, on behalf of the Fund, in selecting brokers or
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<PAGE>
dealers to execute a particular transaction, and in evaluating the best overall
terms available, to consider the brokerage and research services (as those terms
are defined in Section 28(e) of the Securities Exchange Act of 1934, as amended)
provided to the Fund and/or other accounts over which the Investment Manager or
its affiliates exercise investment discretion. The fees under each 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 the Investment Manager is
a member, except to the extent permitted under rules, interpretations or
exemptions of the SEC. The Investment Manager may select broker-dealers who are
affiliated with the Trust or the Investment Manager. The Investment Manager 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.
AGE AND PRINCIPAL
POSITIONS HELD OCCUPATION(S) DURING
NAME AND ADDRESS WITH TRUST PAST FIVE YEARS
- ---------------- -------------- --------------------
*Michael J. Cosgrove+ Chairman of the Age 49. President, GE
3003 Summer Street Board and Investment Services Group
Stamford, CT 06905 President of GE Financial Assurance
Holdings, Inc. ("GEFA"), an indirect
wholly-owned subsidiary of General
Electric Company ("GE"), since February
1997; Executive Vice President - Mutual
Funds of GEIM
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AGE AND PRINCIPAL
POSITIONS HELD OCCUPATION(S) DURING
NAME AND ADDRESS WITH TRUST PAST FIVE YEARS
- ---------------- -------------- --------------------
and GEIC, wholly-owned
subsidiaries of GE that are registered
as investment advisers under the
Investment Advisers Act of 1940, as
amended, since March 1993; 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 Age 52. Executive Vice
3003 Summer Street Executive Vice President, General
Stamford, CT 06905 President Counsel and Secretary of
GEIM since 1988 and of GEIC since
October 1987.
John R. Costantino++ Trustee Age 52. Managing Director,
150 East 58th Street Walden Partners, Ltd.,
New York, NY 10055 consultants and 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; Director,
Brooklyn Bankcorp, Inc., a financial
institution; 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.
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AGE AND PRINCIPAL
POSITIONS HELD OCCUPATION(S) DURING
NAME AND ADDRESS WITH TRUST PAST FIVE YEARS
- ---------------- -------------- --------------------
William J. Lucas++ Trustee Age 51. Vice President
Fairfield University and Treasurer of
North Benson Road Fairfield University
Fairfield, CT 06430 since 1983.
Robert P. Quinn++ Trustee Age 62. Retired since
45 Shinnecock Road 1983 from Salomon
Quogue, NY 11959 Brothers Inc; Director,
GP Financial Corp., a holding company,
since 1994; Director, The Greenpoint
Savings Bank, a financial institution,
since 1987.
*Jeffrey A. Groh Treasurer Age 36. Vice President -
3003 Summer Street Operations of GEIM and
Stamford, CT 06905 GEIC since January 1997
and Treasurer and Controller of GEIM
and GEIC since August 1994; prior to
August 1994, Senior Manager in
Investment Company Services Group and
certified public accountant with Price
Waterhouse LLP.
*Matthew J. Simpson Secretary Age 37. Vice President
3003 Summer Street and General Counsel,
Stamford, CT 06905 Investment Services Group
of GEFA since February 1997; Vice
President, Associate General Counsel
and Assistant Secretary of GEIM and
GEIC since October 1992.
- ----------
+ As of the date of this Statement of Additional Information, Mr. Cosgrove
serves as Trustee of four investment companies advised by GEIM, Mr. Lewis
serves as Trustee for three investment companies advised by GEIM and
Messrs. Cosgrove and Lewis serve as Trustees 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 four investment
companies advised by GEIM and receive compensation for their services as
Trustees of all companies.
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No employee of 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
Distributors, Inc. (the "Distributor"), GE, or any affiliate of those companies,
receives an annual fee of $5,000 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.
COMPENSATION TABLE*
TOTAL COMPENSATION
FOR ALL INVESTMENT
TOTAL COMPENSATION COMPANIES MANAGED
NAME OF TRUSTEE FROM THE TRUST BY GEIM AND/OR GEIC
- --------------- -------------- -------------------
Michael J. Cosgrove None None
Alan M. Lewis None None
John R. Costantino $5,000 $25,000
William J. Lucas $5,000 $25,000
Robert P. Quinn $5,000 $25,000
- ----------
* 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 September 30, 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 a
number of other mutual funds and 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. GEIM
and GEIC managed assets in excess of $75.5 billion as of March 31, 1998, of
which more than $14.9 billion was invested in mutual fund assets.
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GEIM INVESTMENT ADVISORY AND ADMINISTRATION AGREEMENTS
The duties and responsibilities of GEIM are specified in investment
advisory and administration agreements (each, an "Advisory Agreement" and
collectively, the "Advisory Agreements") between GEIM and the Trust on behalf of
the respective Funds. Under each Advisory Agreement, GEIM, subject to the
supervision of the Trust's Board of Trustees, provides a continuous investment
program for the relevant Fund's assets, including investment research and
management. GEIM determines from time to time what investments are purchased,
retained or sold by the Fund and places purchase and sale orders for the Fund's
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: (a) maintains the books and records of
each Fund; (b) prepares reports to shareholders of each Fund; (c) prepares and
files tax returns for each Fund; (d) assists with the preparation and filing of
reports and the Trust's registration statement with the SEC; (e) provides
appropriate officers for the Trust; (f) provides administrative support
necessary for the Board of Trustees to conduct meetings; and (g) 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 each Advisory Agreement. Each Advisory
Agreement obligates GEIM to provide services in accordance with the relevant
Fund's investment objective, policies and restrictions 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 that Fund, including
furnishing the Trust with whatever information and reports the Board of Trustees
reasonably requests.
Except for those expenses assumed by a Fund as described below, GEIM bears
all of each Fund's expenses, including, but not limited to: charges and expense
of any registrar; the costs of custody, transfer agency and recordkeeping
services in connection with the Fund; registration costs of the Fund and its
shares under Federal and state securities laws; the cost and expense of
printing, including typesetting, and distributing of prospectuses describing the
Fund and supplements to those prospectuses to regulatory authorities and the
Fund's shareholders; all expenses incurred in conducting meetings of the Fund's
shareholders and meetings of the Board relating to the Fund, excluding fees paid
to members of the Board who are not affiliated with GEIM or any of its
affiliates; all expenses incurred in preparing, printing and mailing proxy
statements and reports to shareholders of the Fund; all expenses incident to any
dividend, withdrawal or redemption options provided to Fund shareholders;
charges and expenses of any outside service used for pricing the Fund's
portfolio securities and calculating the net asset value of the Fund's shares;
fees and expenses of legal counsel, including counsel to the members of the
Board who are not interested persons of the Fund, or GEIM, and independent
auditors; membership dues of industry associations; postage;
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insurance premiums on property or personnel (including officers and Trustees) of
the Trust that inure to their benefit; and all other costs of the Fund's
operations.
Each Fund will bear the following expenses: advisory and administration
fees described in that Fund's Advisory Agreement; shareholder servicing and
distribution fees under the terms of the shareholder servicing and distribution
plan adopted by the Trust with respect to the Fund pursuant to Rule 12b-1 under
the 1940 Act; brokerage fees and commissions and other expenses incurred in the
acquisition or disposition of any securities or other investments; fees and
travel expenses of members of the Board of Trustees or members of any advisory
board or committee who are not affiliated with GEIM, or any of its affiliates;
and expenses that are not normal operating expenses of the Fund (such as
extraordinary expenses, interest and taxes).
Each 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.
Each Advisory Agreement provides that GEIM may render similar advisory and
administrative services to other clients so long as when a Fund or any other
client served by GEIM are prepared to invest in or desire to dispose of the same
security, available investments or opportunities for sales will be allocated in
a manner believed by GEIM to be equitable to the Fund. The Advisory Agreements
also provide 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 a loss resulting from willful misfeasance,
bad faith or gross negligence in the performance of its duties or from reckless
disregard of its obligations and duties under the Agreement.
Each Advisory Agreement is effective from its date of execution, and
continues in effect for an initial two-year term and will continue from year to
year thereafter so long as its continuance is approved annually by (a) the Board
of Trustees or (b) a vote of a majority of the relevant Fund's outstanding
voting securities, provided that in either event the continuance also is
approved by the vote of a majority of the Trustees who are not parties to the
Agreement or interested persons, as such term is defined in the 1940 Act, of any
party to the Agreement by a vote cast in person at meeting called for the
purpose of voting on such approval.
Each Advisory Agreement is not assignable and may be terminated without
penalty by either the Trust or GEIM upon no more than 60 days' nor less than 30
days' written notice to the other or by vote of holders of a majority of the
relevant Fund's outstanding voting securities.
20
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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 fees payable to GEIM are based
on the average daily net assets of each Fund at the following rates:
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AVERAGE DAILY ANNUAL RATE
NAME OF FUND NET ASSETS OF FUND PERCENTAGE (%)*
- ------------ ------------------ ---------------
Emerging Markets Fund First $50 million 1.05
Over $50 million .95
Premier Growth Equity Fund First $25 million .55
Next $25 million .45
Mid-Cap Growth Fund Over $50 million .35
Value Equity Fund
U.S. Equity Fund
International Equity Fund First $25 million .75
Next $50 million .65
Over $75 million .55
S&P 500 Index Fund All assets .15
Strategic Investment Fund First $25 million .45
Next $25 million .40
Over $100 million .35
Income Fund First $25 million .35
Next $25 million .30
Next $50 million .25
Over $100 million .20
Money Market Fund First $25 million .25
Next $25 million .20
Next $50 million .15
Over $100 million .10
- ----------
* From time to time, GEIM may waive 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.
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<PAGE>
INVESTMENT SUB-ADVISERS
S&P 500 INDEX FUND. 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 $475 billion under management as of
March 31, 1998, 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.
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 .05% of the
first $100 million, .04% of the next $200 million and .03% for all amounts over
$300 million.
SMALL-CAP VALUE FUND. Palisade Capital Management, L.L.C. ("Palisade"),
located at One Bridge Plaza, Fort Lee, New Jersey 07024, has been retained by
GEIM to act as an investment sub-adviser to the Small-Cap Value Fund. Although
Palisade has no previous experience managing mutual fund portfolios, Palisade
has managed various institutional and private accounts with total assets in
excess of $3 billion as of March 31, 1998.
For Palisade's services, GEIM pays Palisade 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
.35% of the first $100 million, .325% of the next $100 million and .30% for all
amounts over $200 million.
INVESTMENT SUB-ADVISORY AGREEMENTS
SSGA and Palisade serve as investment sub-advisers to the S&P 500 Index
Fund and the Small-Cap Value Fund, respectively, pursuant to investment
sub-advisory agreements with GEIM (the "Sub-Advisory Agreements"). Each of the
Sub-Advisory Agreements is not assignable and may be terminated without penalty
by either the investment sub-adviser or GEIM upon 60 days' written notice to the
other or by the Board of Trustees, or by the vote of a majority of the
outstanding voting securities of the Fund, on 60 days' written notice to the
investment sub-adviser. The Sub-Advisory Agreements provide that the investment
sub-adviser 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 Agreements also provide that the investment sub-adviser shall not
be liable for any error of judgment or mistake of law or for any loss incurred
by the Fund in connection with the investment sub-adviser's services pursuant to
the Sub-Advisory Agreement, except for a loss resulting from willful
misfeasance, bad faith or gross negligence in the performance of its duties or
from reckless disregard of its obligations and duties under the Sub-Advisory
Agreement.
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SECURITIES ACTIVITIES OF THE INVESTMENT MANAGER
Securities held by the Funds also may be held by other funds or separate
accounts for which the Investment Manager or GEIC acts as an adviser. Because of
different investment objectives or other factors, a particular security may be
bought by the Investment Manager 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 the Investment Manager 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 the Investment Manager 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 the Investment Manager (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 the Investment Manager 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 the position obtainable for a Fund.
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 (a) compensate
GEIM, or 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 (b) 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
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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 Distributors, Inc. (formerly known as GE Investment Services
Inc.), located at 777 Long Ridge Road, Building B, Stamford, Connecticut 06927,
serves as the distributor of shares of the Funds on a best efforts basis.
REDEMPTION OF SHARES
Detailed information on how to redeem shares of a Fund is included in each
Prospectus. The right of redemption of shares of a Fund may be suspended or the
date of payment postponed (a) for any periods during which the NYSE is closed
(other than for customary weekend and holiday closings), (b) 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 (c) for such other periods as the SEC by order may permit for the protection
of the Fund's shareholders.
INVESTMENT SWITCHES
As described in the Prospectuses, a shareholder of the Investment Class of
a Fund may exchange such shares for Investment Class shares of another Fund or
for Service Class shares of the same or another Fund ("Investment Switches").
Likewise, shareholders of the Service Class shares of a Fund may exchange such
shares for Service Class shares of another Fund or for Investment Class shares
of the same or another Fund. Upon receipt of proper instructions and all
necessary supporting documents, and provided the Fund is an available option,
the shareholder meets the minimum investment requirement for the Fund that is
the "target" of the Investment Switch, and such Fund may be legally sold in the
shareholder's state of residence, shares subject to an Investment Switch would
be redeemed at the then-current net asset value and the proceeds would be
immediately invested in shares of the class being acquired. The Trust reserves
the right to reject any request for an Investment Switch
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and may, upon 60 days' prior written notice to a Fund's shareholders, terminate
the Investment Switch privilege.
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.
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
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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.
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 (a) is a regulated
investment company and (b) 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, (a) 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
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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 (b) 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)(3)(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 a significant rule as to investment results. 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").
Dividends and distributions paid by the Income Fund [, the High Yield 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 Small-Cap Value Fund, [the
Small-Cap Growth Fund, the Mid-Cap Value Fund,] the U.S. Equity Fund, the
Mid-Cap Growth Fund, the Strategic Fund, the S&P 500 Index Fund, the
International Fund, the Emerging Markets Fund and the Value Equity 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 International Fund and the Emerging Markets Fund each
anticipates that it will seek to qualify for and make this election in most, but
not necessarily all, of its taxable years. If a Fund were to make an election,
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
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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 (a) could affect the
character, amount and timing of distributions to shareholders of a Fund, (b)
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 (c) 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 Prospectuses. 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 Prospectuses. 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 each 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 (a) taxable dividends and distributions from the Fund and (b) 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. 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.
The yield for the Money Market Fund is computed by (a) 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, (b) dividing the net change by the value of the account
at the beginning of the period to obtain the base period return, and (c)
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
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base period return (calculated as described above), raising the sum to a power
equal to 365/7 and subtracting one.
A 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 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) [Superior]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.
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
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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 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.
AVERAGE ANNUAL TOTAL RETURN COMPUTATION:
The average annual total return figures for the Funds described in the
Prospectuses are computed for a class according to a formula prescribed by the
SEC. The formula can be expressed as follows:
P(1 + T) [Superior]n = ERV
Where P = a hypothetical initial payment of $1,000;
T = average annual total return;
n = number of years; and
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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 COMPUTATION:
The aggregate total return figures described in the Prospectuses represent
the cumulative change in the value of an investment in a class for the specified
period are computed by the following formula:
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.
Yield and total return figures are based on historical earnings and are not
intended to indicate future performances.
DISTRIBUTION RATE
The Trust may advertise a Fund's distribution rate and/or effective
distribution rate. A Fund's distribution rate differs from yield and total
return and therefore is not intended to be a complete measure of performance.
A Fund's distribution rate measures dividends distributed for a specified
period. A Fund's distribution rate is computed by dividing the most recent
monthly distribution per share annualized by the current net asset value per
share. A 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. A 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 performance information that may be included
in the Prospectus and otherwise quoted in sales and advertising materials, the
Trust may
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<PAGE>
compare the Fund's performance with (a) 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, (b) various
unmanaged indexes, including the Russell Index, S&P 500 Index, and the Dow Jones
Industrial Average or (c) other appropriate indexes of investment securities or
with data developed by GEIM derived from those indexes.
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.
PRINCIPAL STOCKHOLDERS
As of the date of this Statement of Additional Information, General
Electric Capital Assurance Co. ("GECA"), located at 6604 West Broad Street,
Richmond, Virginia 23230, an indirect subsidiary of GE, owned 100% of the
outstanding shares of the Premier Growth Fund, the Value Equity Fund and the
Strategic Fund and 100% of the Service Class shares of the remaining Funds. The
shares were issued to GECA for providing the initial seed capital to these
Funds. So long as GECA owns more than 25% of the outstanding voting securities
of the Premier Growth Fund, the Value Equity Fund and the Strategic Fund, it may
be deemed to control each of these Funds.
The following person are the only persons known by the Trust to hold
beneficially more than 5% of the outstanding Investment Class shares of the
following Funds as of April 15, 1998:
AMOUNT OF PERCENT OF
NAME AND ADDRESS OF RECORD OWNER OWNERSHIP CLASS
- -------------------------------- --------- -----
EMERGING MARKETS FUND (INVESTMENT CLASS)
Saxon & Co. 650,331 89.28%
FBO Leaseway Transport Shares
ABC Trust Institutional Service
200 Stevens Dr. - Suite 260
Lester, PA 19113-1522
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AMOUNT OF PERCENT OF
NAME AND ADDRESS OF RECORD OWNER OWNERSHIP CLASS
- -------------------------------- --------- -----
Defined Benefit Plans Master Trust 77,059 10.58%
Agreement between MRA Sys. Inc. & Shares
State Street Bank & Trust
c/o Joe Mays
1 Newmann Way J-103
Evendale, OH 45215
MID-CAP GROWTH FUND (INVESTMENT CLASS)
Saxon & Co. 1,295,107 89.50%
FBO Leaseway Transport Shares
ABC Trust Institutional Service
200 Stevens Dr. - Suite 260
Lester, PA 19113-1522
Defined Benefit Plans Master Trust 150,877 10.43%
Agreement between MRA Sys. Inc. & Shares
State Street Bank & Trust
c/o Joe Mays
1 Newmann Way J-103
Evendale, OH 45215
INTERNATIONAL FUND (INVESTMENT CLASS)
AID Association for Lutherans 4,851,926 43.82%
Ron Anderson Trustee Shares
Attn: David J. Schnarsky
4321 N. Ballard Rd.
Appleton, WI 54919
Saxon & Co. 3,251,951 29.37%
FBO Leaseway Transport Shares
ABC Trust Institutional Service
200 Stevens Dr. - Suite 260
Lester, PA 19113-1522
AID Association for Lutherans 1,473,401 13.31%
Ron Anderson Trustee Shares
Attn: David J. Schnarsky
4321 N. Ballard Rd.
Appleton, WI 54919
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<PAGE>
AMOUNT OF PERCENT OF
NAME AND ADDRESS OF RECORD OWNER OWNERSHIP CLASS
- -------------------------------- --------- -----
AID Association for Lutherans 982,962 8.88%
Ron Anderson Trustee Shares
Attn: David J. Schnarsky
4321 N. Ballard Rd.
Appleton, WI 54919
U.S. EQUITY FUND (INVESTMENT CLASS)
Saxon & Co. 8,533,067 79.50%
FBO Leaseway Transport Shares
ABC Trust Institutional Services
200 Stevens Dr. - Suite 260
Lester, PA 19113-1522
GELCO Corp. DBA GE Capital Fleet 1,367,695 12.71%
Svc. Shares
Norwest Bank N A
Attn: Mutual Funds
510 Marquette, Suite 500
Minneapolis, MN 55402-1118
Defined Benefit Plans Master Trust 836,457 7.78%
Agreement between MRA Sys. Inc. & Shares
State Street Bank & Trust
c/o Joe Mays
1 Newmann Way J-103
Evendale, OH 45215
S&P 500 INDEX FUND (INVESTMENT CLASS)
Saxon & Co. 1,729,946 94.23%
FBO Leaseway Transport Shares
ABC Trust Institutional Services
200 Stevens Dr. - Suite 260
Lester, PA 19113-1522
Defined Benefit Plans Master Trust 104,907 5.71%
Agreement Between MRA Sys Inc. & Shares
State Street Bank & Trust
c/o Joe Mays
1 Newmann Way J-103
Evendale, OH 45215
36
<PAGE>
AMOUNT OF PERCENT OF
NAME AND ADDRESS OF RECORD OWNER OWNERSHIP CLASS
- -------------------------------- --------- -----
INCOME FUND (INVESTMENT CLASS)
Saxon & Co. 4,928,978 74.41%
FBO Leaseway Transport Shares
ABC Trust Institutional Services
200 Stevens Dr. - Suite 260
Lester, PA 19113-1522
GELCO Corp. DBA GE Capital Fleet Svc. 992,097 14.98%
Norwest Bank N A Shares
Attn: Mutual Funds
510 Marquette, Suite 500
Minneapolis, MN 55402-1118
Defined Benefit Plans Master Trust 701,746 10.59%
Agreement Between MRA Sys. Inc. & Shares
State Street Bank & Trust
c/o Joe Mays
1 Newmann Way J-103
Evendale, OH 45215
MONEY MARKET FUND (INVESTMENT CLASS) 4,456,170 59.13%
Saxon & Co. Shares
FBO Leaseway Transport
ABC Trust Institutional Services
200 Stevens Dr. - Suite 260
Lester, PA 19113-1522
Defined Benefit Plans Master Trust 3,070,195 40.74%
Agreement Between MRA Sys. Inc. & Shares
State Street Bank & Trust
c/o Joe Mays
1 Newmann Way J-103
Evendale, OH 45215
As of April 15, 1998: (i) the current Trustees and officers of each Fund,
as a group, beneficially owned less than 1% of each Fund's outstanding shares;
(ii) Leaseway Transportation Corp. owned 89.28%, 89.50%, 29.37%, 79.50%, 94.23%,
74.41% and 59.13% of the outstanding shares of the Emerging Markets Fund,
Mid-Cap Growth Fund, International Fund, U.S. Equity Fund, S&P 500 Index Fund,
Income Fund and Money Market Fund, respectively; (iii) AID Association for
Lutherans owned 65.01% of the outstanding shares of the International Fund; and
(iv) MRA Systems, Inc. owned 40.74% of the outstanding shares of the Money
Market Fund. So long as the above entities own more than 25% of the outstanding
shares of the Funds noted, they may be deemed to control these Funds.
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
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time. The Trust's Declaration of Trust, dated August 29, 1997 (the "Declaration
of Trust") permits the Trustees to issue an unlimited number of full and
fractional shares of beneficial interest of the Trust par value $.001 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. The Emerging Markets Fund, Premier Growth Fund, Mid-Cap
Growth Fund, International Fund, Value Equity Fund, U.S. Equity Fund, S&P 500
Index Fund, Strategic Fund, Income Fund and Money Market Fund were established
as series of the Trust on November 13, 1997. The Small-Cap Value Fund, Small-Cap
Growth Fund, Mid-Cap Value Fund and High Yield Fund were added as series of the
Trust as of the date of this Statement of Additional Information. 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 Statement of
Additional Information, 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 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: (a) the distribution and service fees relating to Service Class shares
will be borne exclusively by that class; and (b) 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 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
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("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: (a) 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,
(b) provides for the indemnification out of Trust property of any shareholders
held personally liable for any obligations of the Trust or any Fund, and (c)
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 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: (a) a court
refuses to apply Delaware law; (b) the liability arose under tort law or, if
not, no contractual limitation of liability was in effect; and (c) 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 LLP, 1275 Pennsylvania Avenue, N.W.,
Washington, D.C. 20004-2404 serves as counsel for the Trust.
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<PAGE>
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 an Annual Report. The Trust's Semi-Annual Report dated
March 31, 1998, which either accompanies this Statement of Additional
Information or has previously been provided to the person to whom this Statement
of Additional Information is being sent, is incorporated herein by reference.
The Trust will furnish, without charge, a copy of the Semi-Annual Report and
Annual Report (the latter, when issued) upon request to the Trust at P.O. Box
120065, Stamford, CT 06912-0065, (800) 493-3042.
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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 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
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<PAGE>
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.
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.
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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.
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.
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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 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
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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.
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
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<PAGE>
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.
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
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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.
7
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PART C
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
FINANCIAL STATEMENTS:
Included in Part A (to be filed by amendment):
Financial Highlights for the period from November 20, 1997
(commencement of operations) to March 31, 1998 (Investment Class
shares only)
Included in Part B (to be filed by amendment):
(1) Financial Highlights for the period from November 20,
1997 (commencement of operations) to March 31, 1998
(Investment Class shares only)
(2) Statement of Assets and Liabilities for the period from
November 20, 1997 (commencement of operations) to March
31, 1998 (Investment Class shares only)
(3) Statement of Operations for the period from November 20,
1997 (commencement of operations) to March 31, 1998
(Investment Class shares only)
(4) Statement of Changes in Net Assets for the period from
November 20, 1997 (commencement of operations) to March
31, 1998 (Investment Class shares only)
(5) Schedule of Investments at March 31, 1998
(b) EXHIBITS:
EXHIBIT NO. DESCRIPTION OF EXHIBIT
----------- ----------------------
1(a) Certificate of Trust, incorporated herein by
reference to GE Institutional Funds' ("Registrant")
Form N-1A registration statement (File Nos.
333-29337; 811-08257) (the "Registration Statement"),
filed with the Securities and Exchange Commission
(the "Commission") on June 16, 1997.
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1(b) Declaration of Trust, incorporated herein by
reference to pre-effective amendment number one to
the Registration Statement, filed with the
Commission on September 17, 1997.
2 Inapplicable.
3 Inapplicable.
4 Inapplicable.
5(a) Investment Advisory and Administration Agreement
between GE Institutional Funds Emerging Markets Fund
and GE Investment Management Incorporated ("GEIM"),
incorporated herein by reference to pre-effective
amendment number two to the Registration Statement,
filed with the Commission on November 7, 1997.
5(b) Investment Advisory and Administration Agreement
between GE Institutional Funds Premier Growth Equity
Fund and GEIM, incorporated herein by reference to
pre-effective amendment number two to the
Registration Statement, filed with the Commission on
November 7, 1997.
5(c) Investment Advisory and Administration Agreement
between GE Institutional Funds Mid-Cap Growth Fund
and GEIM, incorporated herein by reference to
pre-effective amendment number two to the
Registration Statement, filed with the Commission on
November 7, 1997.
5(d) Investment Advisory and Administration Agreement
between GE Institutional Funds International Equity
Fund and GEIM, incorporated herein by reference to
pre-effective amendment number two to the
Registration Statement, filed with the Commission on
November 7, 1997.
5(e) Investment Advisory and Administration Agreement
between GE Institutional Funds Value Equity Fund and
GEIM, incorporated herein by reference to
pre-effective amendment number two to the
Registration Statement, filed with the Commission on
November 7, 1997.
5(f) Investment Advisory and Administration Agreement
between GE Institutional Funds U.S. Equity Fund and
GEIM, incorporated herein by reference to
pre-effective amendment number two to the
Registration Statement, filed with the Commission on
November 7, 1997.
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5(g) Investment Advisory and Administration Agreement
between GE Institutional Funds S&P 500 Index Fund and
GEIM, incorporated herein by reference to
pre-effective amendment number two to the
Registration Statement, filed with the Commission on
November 7, 1997.
5(h) Investment Advisory and Administration Agreement
between GE Institutional Funds Strategic Investment
Fund and GEIM, incorporated herein by reference to
pre-effective amendment number two to the
Registration Statement, filed with the Commission on
November 7, 1997.
5(i) Investment Advisory and Administration Agreement
between GE Institutional Funds Income Fund and GEIM,
incorporated herein by reference to pre-effective
amendment number two to the Registration Statement,
filed with the Commission on November 7, 1997.
5(j) Investment Advisory and Administration Agreement
between GE Institutional Funds Money Market Fund and
GEIM, incorporated herein by reference to
pre-effective amendment number two to the
Registration Statement, filed with the Commission on
November 7, 1997.
5(k) Sub-Advisory Agreement between GEIM and State Street
Bank and Trust Company ("State Street"), incorporated
herein by reference to pre-effective amendment number
two to the Registration Statement, filed with the
Commission on November 7, 1997.
6(a) Distribution Agreement between Registrant and GE
Investment Services Inc. (renamed GE Investment
Distributors, Inc.), incorporated herein by
reference to pre-effective amendment number two to
the Registration Statement, filed with the Commission
on November 7, 1997.
6(b) Shareholder Servicing and Distribution Agreement
between Registrant and GEIM, incorporated herein by
reference to pre-effective amendment number two to
the Registration Statement, filed with the Commission
on November 7, 1997.
7 Inapplicable.
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8 Custodian Contract, incorporated herein by reference
to the Form N-1A registration statement of GE
Investments Funds, Inc. (File Nos. 2-91369;
811-4041), filed with the Commission on
October 24, 1997.
9 Transfer Agency and Service Agreement between
Registrant and State Street, incorporated herein
by reference to pre-effective amendment number
two to the Registration Statement, filed with the
Commission on November 7, 1997.
10 To be Filed by Amendment.
11 To be Filed by Amendment.
12 Inapplicable.
13 Purchase Agreement between Registrant and General
Electric Capital Assurance Company, incorporated
herein by reference to pre-effective amendment
number two to the Registration Statement,
filed with the Commission on November 7, 1997.
14 Inapplicable.
15 Shareholder Servicing and Distribution Plan Adopted
pursuant to Rule 12b-1 under the Investment Company
Act of 1940, as amended (the "1940 Act"),
incorporated herein by reference to pre-effective
amendment number two to the Registration Statement,
filed with the Commission on November 7, 1997.
16 To Be Filed by Amendment.
17 To Be Filed by Amendment.
18 Multiple Class Plan for GE Institutional Funds
Adopted pursuant to Rule 18f-3 under the 1940 Act,
incorporated herein by reference to pre-effective
amendment number two to the Registration Statement,
filed with the Commission on November 7, 1997.
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
Registrant was organized as a business trust in Delaware on May 23, 1997.
General Electric Capital Assurance Co., a corporation organized under the laws
of Delaware and an indirect subsidiary of General Electric Company ("GE"),
provided the initial investment in Registrant and currently owns 100% of the
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Service Class shares of each Fund (except the Small-Cap Value Equity
Fund, Small-Cap Growth Equity Fund, Mid-Cap Value Equity Fund and High Yield
Fund) and 100% of the Investment Class Shares of the Premier Growth Equity Fund,
the Value Equity Fund and the Strategic Investment Fund.
The list required by this Item 25 of persons controlled by or under common
control with Registrant, which includes the subsidiaries of GE, is incorporated
herein by reference to Exhibit 21, "Subsidiaries of Registrant," of the Form
10-K filed by GE pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934, as amended (SEC File No. 1-35) for the fiscal year ended December 31,
1997 (the "Form 10-K"). Additional information about persons controlled by or
under common control with Registrant is incorporated herein by reference to
pages 10-12 of the Form 10-K, beginning under the caption "GECs Segments."
ITEM 26. NUMBER OF HOLDERS OF SECURITIES
NUMBER OF RECORD HOLDERS
TITLE OF CLASS AS OF APRIL 15, 1998*
-------------- --------------------
Shares of Beneficial Interest, Par Value $0.001 per share
Emerging Markets Fund (Investment Class) Three (3)
Emerging Markets Fund (Service Class) One (1)
Premier Growth Equity Fund (Investment Class) One (1)
Premier Growth Equity Fund (Service Class) One (1)
Small-Cap Value Equity Fund (Investment Class) None
Small-Cap Value Equity Fund (Service Class) None
Mid-Cap Growth Fund (Investment Class) Three (3)
Mid-Cap Growth Fund (Service Class) One (1)
International Equity Fund (Investment Class) Seven (7)
International Equity Fund (Service Class) One (1)
Value Equity Fund (Investment Class) One (1)
Value Equity Fund (Service Class) One (1)
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U.S. Equity Fund (Investment Class) Four (4)
U.S. Equity Fund (Service Class) One (1)
S&P 500 Index Fund (Investment Class) Three (3)
S&P 500 Index Fund (Service Class) One (1)
Strategic Investment Fund (Investment Class) One (1)
Strategic Investment Fund (Service Class) One (1)
Income Fund (Investment Class) Four (4)
Income Fund (Service Class) One (1)
Money Market Fund (Investment Class) Four (4)
Money Market Fund (Service Class) One (1)
Small-Cap Growth Equity Fund (Investment Class) None
Small-Cap Growth Equity Fund (Service Class) None
Mid-Cap Value Equity Fund (Investment Class) None
Mid-Cap Value Equity Fund (Service Class) None
High Yield Fund (Investment Class) None
High Yield Fund (Service Class) None
* General Electric Capital Assurance Co. owns 100% of the Service Class
shares of each Fund (except the Small-Cap Value Equity Fund, the Small-Cap
Growth Equity Fund, the Mid-Cap Value Equity Fund and the High Yield Fund)
and all of the Investment Class Shares of the Premier Growth Equity Fund,
the Value Equity Fund and the Strategic Investment Fund.
ITEM 27. INDEMNIFICATION
As a Delaware business trust, the operations of Registrant are governed by
its Declaration of Trust dated August 29, 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
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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.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to Trustees, officers and controlling persons pursuant
to the foregoing provisions, or otherwise, Registrant has been advised that in
the opinion of the Securities and Exchange 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.
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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, the
Funds' investment adviser, 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 herein by
reference to Schedules A and D of the Form ADV filed by GEIM pursuant to the
Investment Advisers Act of 1940, as amended (SEC File No. 801-31947).
The list required by this Item 28 of officers and directors of State
Street Global Advisors ("SSGA"), the investment sub-adviser to the S&P 500 Index
Fund, 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 herein by reference to Schedules A
and D of the Form ADV filed by SSGA pursuant to the Investment Advisers Act of
1940, as amended (SEC File No. 801-49368).
The list required by this Item 28 of officers and directors of Palisade
Capital Management, L.L.C. (Palisade), the investment sub-adviser to the
Small-Cap Value Equity Fund, 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 herein by
reference to Schedules A and D of the Form ADV filed by Palisade pursuant to the
Investment Advisers Act of 1940, as amended (SEC File No. 801-48401).
ITEM 29. PRINCIPAL UNDERWRITERS
(a) GE Investment Distributors, Inc. ("GEID") also serves as distributor
for the investment portfolios of GE Funds, GE Investments Funds, Inc. and GE
LifeStyle 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 GEID is incorporated herein by reference to Schedule A of Form BD
filed by GEID pursuant to the Securities Exchange Act of 1934, as amended (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 1940 Act, and the rules thereunder,
are maintained at the offices
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of: Registrant located at 3003 Summer Street, Stamford, Connecticut 06905; 777
Long Ridge Road, Stamford, Connecticut 06927; State Street, Registrant's
custodian and transfer agent, located at 225 Franklin Street, Boston,
Massachusetts 02101; and National Financial Data Services Inc., an indirect
subsidiary of State Street, located at P.O. Box 419631, Kansas, MO 64141-6631.
ITEM 31. MANAGEMENT SERVICES
Inapplicable.
ITEM 32. UNDERTAKINGS
(a) Inapplicable.
(b) Inapplicable.
(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.
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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
Post-Effective Amendment to the Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Stamford,
State of Connecticut, on the 11th day of May, 1998.
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 Amendment to the 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 May 11, 1998
- -------------------------- Chairman of the Board
Michael J. Cosgrove (Chief Executive Officer)
/S/ ALAN M. LEWIS Trustee, May 11, 1998
- -------------------------- Executive Vice President
Alan M. Lewis
/S/ JOHN R. COSTANTINO Trustee May 11, 1998
- --------------------------
John R. Costantino
/S/ WILLIAM J. LUCAS Trustee May 11, 1998
- --------------------------
William J. Lucas
/S/ ROBERT P. QUINN Trustee May 11, 1998
- --------------------------
Robert P. Quinn
/S/ JEFFREY A. GROH Treasurer May 11, 1998
- -------------------------- (Chief Financial and
Jeffrey A. Groh Accounting Officer)
