<PAGE>
File Nos. 333-29337, 811-08257
As filed with the Securities and Exchange Commission on November 13, 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. 3 / X /
and
REGISTRATION STATEMENT UNDER
THE INVESTMENT COMPANY ACT OF 1940 / /
Amendment No. 5 /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
3003 Summer Street
Stamford, Connecticut 06905
(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
Approximate Date of Proposed Public Offering: As soon as practicable after the
effective date of this Registration Statement.
It Is Proposed That this Filing Will Become Effective (check appropriate box)
[ ] Immediately upon Filing Pursuant to Paragraph (b) of Rule 485
[ ] on (Date) Pursuant to Paragraph (b) of Rule 485
[ ] 60 Days after Filing Pursuant to Paragraph (a)(1) of Rule 485
[ ] on (Date) Pursuant to Paragraph (a)(1) 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
If appropriate, check the following box:
[ ] This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
Title of Securities Being Registered: Shares of Beneficial Interest.
<PAGE>
This post-effective amendment includes an updated prospectus only for those
series of Registrant (the shares of) which are currently offered to the
public. The Small-Cap Growth Equity Fund and the High Yield Fund, each a series
of Registrant (the shares of) which are not currently being offered to the
public, remain registered and unaffected by this post-effective amendment.
<PAGE>
The information in this Prospectus is not complete and may be changed. We
may not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This Prospectus is not an
offer to sell these securities and is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
[GE LOGO]
GE INSTITUTIONAL FUNDS PROSPECTUS
(Date)
EQUITY FUNDS INCOME FUNDS
o U.S. Equity Fund o Income Fund
o S&P 500 Index Fund
o Premier Growth Equity Fund ASSET ALLOCATION FUNDS
o Value Equity Fund o Strategic Investment Fund
o Mid-Cap Growth Fund
o Mid-Cap Value Equity Fund MONEY MARKET FUNDS
o Small-Cap Value Equity Fund o Money Market Fund
o International Equity Fund
o Europe Equity Fund
o Emerging Markets Fund
Like all mutual funds, these securities have not been approved or
disapproved by the Securities and Exchange Commission, nor has the
Securities and Exchange Commission passed upon the accuracy or adequacy of
this prospectus. Any representation to the contrary is a criminal offense.
These mutual funds are not insured by the Federal Deposit Insurance
Corporation or any other government agency. They are not deposits or other
obligations of any bank and are not guaranteed. They are subject to
investment risks, including possible loss of principal invested.
<PAGE>
THE GE FAMILY OF FUNDS
A Tradition of Financial Services
For many years, General Electric Company's ("GE") tradition of ingenuity and
customer focus has included financial services. More than 70 years ago,
through a desire to promote the financial well-being of its employees, GE
began managing assets for its pension plan. By the mid-1930s, GE pioneered
some of the nation's earliest mutual funds, the Elfun Funds -- to be
followed by the GE Savings and Security Program Funds. The success of these
Funds spurred growth; eventually GE expanded its mutual fund offerings to
include a wide variety of investment products called the GE Family of Funds,
created specifically for the general public. Today, GE's investment advisers
manage $[ ] billion in individual and institutional assets with over $[ ]
billion in mutual funds alone.
The GE Family of Funds contains a variety of investment options, including
mutual funds for taxable and tax-deferred investments, funds created
specifically for variable life and annuity investments, institutional funds
and asset allocation funds. The GE Institutional Funds presented in this
prospectus include a diversified family of [ 15 ] mutual funds that cover a
wide range of investment objectives, from capital preservation and liquidity
to long-term growth. The GE Institutional Funds are available through GE
Financial Assurance-- a dynamic family of investment and insurance companies
devoted to providing investment and insurance alternatives to investors
seeking to accumulate, preserve, and protect wealth over their lifetimes.
Sound Approaches
When you invest with GE, you draw on the strengths of a trusted firm based
on a long history of providing investment management services. GE Investment
Management Incorporated, the investment adviser to the GE Institutional
Funds, bases its investment philosophy on two enduring principles. First, GE
Investment Management believes that a disciplined, consistent approach to
investing can add value to an investment portfolio over the long term. GE
Investment Management's commitment to in-depth research, sound judgment and
hard work provides investors with an opportunity to take advantage of
attractive investments around the world. Second, GE Investment Management
follows the same principles of integrity and quality that have guided GE
over the past century and have made it the world-class company that it is
today. Whether you are creating a new investment portfolio or adding to an
established one, the GE Institutional Funds offer an array of professionally
managed investment options that are intended to help investors meet a
lifetime of financial needs.
Investor Advantages
High quality products and customer service are at the heart of the GE Family
of Funds. GE Institutional Funds offer a wide range of mutual fund choices
designed with the single purpose of making investing as simple, flexible and
convenient as possible.
One of your most important investment considerations should be balancing
risk and return. Different types of investments tend to respond differently
to shifts in the economic and financial environment. So, diversifying your
investments among different asset classes -- such as stocks, bonds and cash
- -- and within an asset class --such as small-cap and large-cap stocks -- can
help you manage risk and achieve the results you need to comfortably reach
your financial goals.
2
<PAGE>
At GE we believe in the power and wisdom of professional investment
guidance. Talk to your investment professional about creating or updating
your personalized investment strategy and about how the GE Institutional
Funds can play a role in your investment future or visit our Web site at
www.ge.com/mutualfunds.
3
<PAGE>
TABLE OF CONTENTS
The GE Institutional Funds
The GE Family of Funds
Equity Funds
U.S. Equity Fund
S&P 500 Index Fund
Premier Growth Equity Fund
Value Equity Fund
Mid-Cap Growth Fund
Mid-Cap Value Equity Fund
Small-Cap Value Equity Fund
International Equity Fund
Europe Equity Fund
Emerging Markets Fund
Income Funds
Income Fund
Allocation Fund
Strategic Investment Fund
Money Market Fund
Money Market Fund
Fund Expenses
More on Strategies and Risks
Investment Techniques and Strategies
Charting the Risks
Risk Definitions
About the Investment Adviser
About the Funds' Portfolio Managers
About the Sub-Advisers
How to Invest
How to Buy Shares
How to Redeem Shares
How to Exchange Shares
Dividends, Capital Gains and Other Tax Information
Calculating Share Value
Appendix: Financial Highlights
Additional information regarding GE Institutional Funds is contained in the
Statement of Additional Information dated ________________, which is
incorporated by reference into (legally forms a part of) this Prospectus.
The Risks of Investing in Mutual Funds
No single GE Institutional Fund is intended to be a complete investment
program, but individual Funds may help you diversify other types of
investments in your portfolio. The GE Institutional Funds have the following
risks:
o the value of Equity Funds, Strategic Investment Fund and Income
Fund shares will rise and fall
o you could lose money
o you cannot be certain a Fund will achieve its investment objective
4
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EQUITY FUNDS
WHO MAY WANT TO INVEST IN AN EQUITY FUND
The Equity Funds may be appropriate for your investment portfolio if you:
o have a long-term investment goal
o are willing to accept higher short-term risk for potential
long-term returns
o want to diversify a portfolio composed mostly of fixed income
investments
The Equity Funds are not appropriate if you want:
o to avoid potentially significant changes in share price
o a short-term investment
o regular income
Equity funds generally invest in equity securities. Equity securities may
include common stocks, preferred stocks, Depositary Receipts, convertible
preferred stocks, convertible bonds, convertible debentures, convertible
notes, rights and warrants of U.S. and foreign companies. Stocks represent
an ownership interest in a corporation. Equity funds have more potential for
capital growth than other funds, but they have the greatest risk.
The following are important definitions of various securities for you to
refer to as you read about the Equity Funds:
Foreign securities include interests in or obligations of entities located
outside of the United States. The determination of where an issuer of a
security 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. Foreign securities may be denominated in non-U.S.
currencies and traded outside the United States or may be in the form of
Depositary Receipts. Foreign Securities include Depositary receipts, which
represent interests in an account at a bank or trust company which holds
equity securities. These may include American Depositary Receipts (held at
U.S. banks and traded in the United States), European Depositary Receipts,
Global Depositary Receipts or other similar instruments.
Debt securities are bonds and other securities that are used by issuers to
borrow money from investors. Holders of debt securities have a higher
priority claim to assets than do equity holders. Typically, the debt issuer
pays the investor a fixed, variable or floating rate of interest and must
repay the borrowed amount at maturity. Some debt securities, such as zero
coupon bonds, are sold at a discount from their face values instead of
paying interest.
Convertible securities may be debt or equity securities that pay interest or
dividends and that may be converted on specified terms into the stock of the
issuer.
Preferred securities are classes of stock that pay dividends at a specified
rate. Dividends are paid on preferred stocks before they are paid on common
stocks. In addition, preferred stockholders have priority over common
stockholders as to the proceeds from the liquidation of a company's assets.
5
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TYPES OF INVESTMENT STYLES THE FUNDS MAY USE
Growth investing involves buying stocks with above-average growth rates.
Typically, growth stocks are the stocks of the fastest growing companies in
the most rapidly growing sectors of the economy. Generally, growth stock
valuation levels will be higher than value stocks and the market averages.
Value investing involves buying stocks that are out of favor and/or
undervalued in comparison to their peers and/or their prospects for growth.
Generally, value stock valuation levels are lower than growth stocks.
6
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U.S. EQUITY FUND
Investment Objective: Seeks long-term growth of capital.
The Strategy
The U.S. Equity Fund invests primarily in equity securities of U.S. companies.
The portfolio managers use a Multi-Style(Registered) investment strategy that
combines growth and value investment management styles. As a result, the
portfolio has characteristics similar to the Standard & Poor's 500 Composite
Stock Index. Stock selection is key to the performance of the Fund.
Through fundamental company research the portfolio managers seek to identify
securities of large companies with characteristics such as:
o attractive valuations
o financial strength
o high quality management focused on generating shareholder value
The Fund also may invest to a lesser extent in foreign securities and debt
securities. The Fund generally intends to hold its investments for a long
time, which results in a relatively low portfolio turnover rate. The
portfolio managers may use various investment techniques to adjust the
Fund's investment exposure, but there is no guarantee that these techniques
will work.
The Risks
The principal risk of investing in this Fund is stock market risk. To the
extent that the portfolio managers invest in foreign securities or debt
securities, the Fund would be subject to foreign exposure risk, interest
rate risk and credit risk.
If you would like additional information regarding the Fund's investment
strategies and risks, please refer to "More on Strategies and Risks" later
in this Prospectus.
7
<PAGE>
Fund Performance
The bar chart and table below illustrate the short-term variability in the
Fund's performance and the Fund's returns relative to a common measure of
performance. The bar chart illustrates how the Fund's performance varies
from year to year over the periods shown.
Calendar Year Total Returns Chart
- --------------------------------------------------------------------------------
[ ] Class Shares
- --------------------------------------------------------------------------------
During the periods presented in the bar chart, the Fund's highest return for
a quarter was ___% for the quarter ended (date). The Fund's lowest return
for a quarter was ____% for the quarter ended (date). The Fund's
year-to-date return was ____% as of December 31, 1998.
The following table illustrates how the Fund's average annual returns for
different calendar periods compare to the returns of the Standard & Poor's
500 Composite Stock Index ("S&P 500 Index"), a widely recognized, unmanaged
index of common stock prices. The table reflects the impact of the Fund's
expenses and assumes that you sold your shares at the end of each period.
Average Annual Total Return Comparisons Table
Average Annual Total Return As of December 31, 1998
- --------------------------------------------------------------------------------
1 Year Since Inception*
US Equity Fund
Service Class
Investment Class
S&P 500 Index
Both the bar chart and table assume reinvestment of dividends and
distributions. As with all mutual funds, past performance is not an
indication of future performance.
*Fund's Inception: November 25, 1997
[Sidebar]
All mutual funds use a standard formula to calculate total return. Total
return measures the price change in a share assuming the reinvestment of all
dividend income and capital gain distributions.
8
<PAGE>
S&P 500 INDEX FUND
Investment Objective: Seeks growth of capital and accumulation of income
that corresponds to the investment return of the Standard & Poor's 500
Composite Stock Price Index.
The Strategy
The S&P 500 Index Fund invests primarily in equity securities of. companies
contained in the Standard & Poor's 500 Composite Stock Index ("S&P 500
Index"). The portfolio manager seeks to replicate the return of the S&P 500
Index while holding transaction costs low and minimizing portfolio turnover.
The portfolio manager uses a passive management approach to select a
representative group of stocks within the S&P 500 Index. The portfolio
manager also may use statistical selection to determine which securities
within the Index to purchase or sell for the Fund. The Fund generally will
not hold all the securities that comprise the Index and, in some cases, the
Fund's weightings in particular industry segments represented in the Index
may differ significantly from those of the Index.
The Fund also may invest to a lesser extent in securities that are not in
the S&P 500 Index, foreign securities and debt securities. The Fund
generally intends to hold its investments for a long time, which results in
a relatively low portfolio turnover rate. The portfolio managers may use
investment techniques to adjust the Fund's investment exposure, but there is no
guarantee that these techniques will work. The Fund will not adopt a temporary
defensive strategy in times of declining stock prices.
The Risks
The principal risks of investing in this Fund are stock market risk and the
risk that the Fund's return may not correlate exactly with that of the S&P
500 Index. To the extent that the portfolio managers invest in foreign
securities and debt securities, the Fund would be subject to foreign
securities risk, interest rate risk and credit risk.
If you would like additional information regarding the Fund's investment
strategies and risks, please refer to "More on Strategies and Risks" later
in this Prospectus.
9
<PAGE>
Fund Performance
The bar chart and table below illustrate the short-term variability in the
Fund's performance and the Fund's returns relative to a common measure of
performance. The bar chart illustrates how the Fund's performance varies
from year to year over the periods shown.
Calendar Year Total Returns Chart
- --------------------------------------------------------------------------------
[ ] Class Shares
- --------------------------------------------------------------------------------
During the periods presented in the bar chart, the Fund's highest return for
a quarter was ___% for the quarter ended (date). The Fund's lowest return
for a quarter was ____% for the quarter ended (date). The Fund's
year-to-date return was ____% as of December 31, 1998.
The following table illustrates how the Fund's average annual returns for
different calendar periods compare to the returns of the S&P 500 Index, a widely
recognized, unmanaged index of common stock prices. The table reflects the
impact of the Fund's expenses and assumes that you sold your shares at the end
of each period.
Average Annual Total Return Table
Average Annual Total Return As of December 31, 1998
- --------------------------------------------------------------------------------
1 Year Since Inception*
S&P 500 Index Fund
Service Class
Investment Class
S&P 500 Index
Both the bar chart and table assume reinvestment of dividends and
distributions. As with all mutual funds, past performance is not an
indication of future performance.
*Fund's Inception: November 25, 1997
[Sidebar]
All mutual funds use a standard formula to calculate total return. Total
return measures the price change in a share assuming the reinvestment of all
dividend income and capital gain distributions.
10
<PAGE>
PREMIER GROWTH EQUITY FUND
Investment Objective: Seeks long-term growth of capital and future income
rather than current income.
The Strategy
The Premier Growth Equity Fund invests primarily in a limited number of
equity securities of large- and medium-sized companies with above-average
growth histories and growth potential. Stock selection is key to the
performance of the Fund. The portfolio manager chooses equity securities
from a number of industries based on the merits of individual companies. The
portfolio manager seeks to identify stocks of growth companies with
characteristics such as:
o above-average annual growth rates
o financial strength
o leadership in their respective industries
o high quality management focused on generating shareholder value
The Fund also may invest to a lesser extent in foreign securities and debt
securities. The Fund generally intends to hold its investments for a long
time, which results in a relatively low portfolio turnover rate. The
portfolio manager may use various investment techniques to adjust the Fund's
investment exposure, but there is no guarantee that these techniques will
work.
The Risks
The principal risks of investing in this Fund are stock market risk,
concentration risk and style risk. To the extent that the portfolio manager
invests in foreign securities or debt securities, the Fund would be subject
to foreign securities risk, interest rate risk and credit risk.
If you would like additional information regarding the Fund's investment
strategies and risks, please refer to "More on Strategies and Risks" later
in this Prospectus.
11
<PAGE>
Fund Performance
The bar chart and table below illustrate the short-term variability in the
Fund's performance and the Fund's returns relative to a common measure of
performance. The bar chart illustrates how the Fund's performance varies
from year to year over the periods shown.
Calendar Year Total Returns Chart
- --------------------------------------------------------------------------------
[ ] Class Shares
- --------------------------------------------------------------------------------
During the periods presented in the bar chart, the Fund's highest return for
a quarter was ___% for the quarter ended (date). The Fund's lowest return
for a quarter was ____% for the quarter ended (date). The Fund's
year-to-date return was ____% as of December 31, 1998.
The following table illustrates how the Fund's average annual returns for
different calendar periods compare to the returns of the Standard & Poor's
500 Composite Stock Index ("S&P 500 Index"), a widely recognized, unmanaged
index of common stock prices. The table reflects the impact of the Fund's
expenses and assumes that you sold your shares at the end of each period.
Average Annual Total Return Table
Average Annual Total Return As of December 31, 1998
- --------------------------------------------------------------------------------
1 Year Since Inception*
Premier Growth Equity Fund
Service Class
Investment Class
S&P 500 Index
Both the bar chart and table assume reinvestment of dividends and
distributions. As with all mutual funds, past performance is not an
indication of future performance.
*Fund's Inception: [ ]
[Sidebar]
All mutual funds use a standard formula to calculate total return. Total
return measures the price change in a share assuming the reinvestment of all
dividend income and capital gain distributions.
12
<PAGE>
VALUE EQUITY FUND
Investment objective: Seeks long-term growth of capital and future income.
The Strategy
The Value Equity Fund invests primarily in equity securities of large U.S.
companies that are undervalued by the market but have solid growth
prospects. A company may be undervalued for reasons such as market
overreaction to recent company, industry or economic problems. Stock
selection is key to the performance of the Fund. The portfolio manager seeks
to identify securities of companies with characteristics such as:
o low prices in relation to their peers and the overall market
o the potential for long-term earnings growth
o higher-than-average dividend yields
o strong management
o financial strength
o attractive upside potential and limited downside risk
The Fund also may invest to a lesser extent in foreign securities and debt
securities. The Fund generally intends to hold its investments for a long
time, which results in a relatively low portfolio turnover rate. The
portfolio manager may use various investment techniques to adjust the Fund's
investment exposure, but there is no guarantee that these techniques will
work.
The Risks
The principal risks of investing in this Fund are stock market risk and
style risk. To the extent that the portfolio manager invests in foreign
securities or debt securities, the Fund would be subject to foreign
securities risk, interest rate risk and credit risk.
If you would like additional information regarding the Fund's investment
strategies and risks, please refer to "More on Strategies and Risks" later
in this Prospectus.
13
<PAGE>
Fund Performance
The bar chart and table below illustrate the short-term variability in the
Fund's performance and the Fund's returns relative to a common measure of
performance. The bar chart illustrates how the Fund's performance varies
from year to year over the periods shown.
Calendar Year Total Returns Chart
- --------------------------------------------------------------------------------
[ ] Class Shares
- --------------------------------------------------------------------------------
During the periods presented in the bar chart, the Fund's highest return for
a quarter was ___% for the quarter ended (date). The Fund's lowest return
for a quarter was ____% for the quarter ended (date). The Fund's
year-to-date return was ____% as of December 31, 1998.
The following table illustrates how the Fund's average annual returns for
different calendar periods compare to the returns of the Standard & Poor's
500/Barra Value Index ("S&P Value Index"). The table reflects the impact of the
Fund's expenses and assumes that you sold your shares at the end of each period.
Average Annual Total Return Table
Average Annual Total Return As of December 31, 1998
- --------------------------------------------------------------------------------
1 Year Since Inception*
Value Equity Fund
Service Class
Investment Class
S&P Value Index
Both the bar chart and table assume reinvestment of dividends and
distributions. As with all mutual funds, past performance is not an
indication of future performance.
*Fund's Inception: [ ]
[Sidebar]
All mutual funds use a standard formula to calculate total return. Total
return measures the price change in a share assuming the reinvestment of all
dividend income and capital gain distributions.
14
<PAGE>
MID-CAP GROWTH FUND
Investment Objective: Seeks long-term growth of capital.
The Strategy
The Mid-Cap Growth Fund invests primarily in equity securities of mid-cap
companies with above-average growth potential. The Fund defines a mid-cap
company as one with a market capitalization within the capitalization range
of the Standard & Poor's MidCap 400 Index. As of (date), the market
capitalization of companies in the index ranged from ____ to ____. The
portfolio manager will not sell a stock merely because the market
capitalization of a company in the portfolio moves above or below the
maximum or minimum capitalization of the index. Stock selection is key to
the performance of the Fund. The portfolio manager seeks to identify
securities of growth companies with characteristics such as:
o above-average revenue and earnings growth
o attractive products or services
o financial strength
o strong competitive positions within their industries
o high quality management focused on generating shareholder value
The Fund also may invest to a lesser extent in securities with
capitalizations outside the mid-cap range, foreign securities and debt
securities. The portfolio manager may use various investment techniques to
adjust the Fund's investment exposure, but there is no guarantee that these
techniques will work.
The Risks
The principal risks of investing in this Fund are stock market risk and
style risk. To the extent that the portfolio manager invests in foreign
securities or debt securities, the Fund would be subject to foreign exposure
risk, interest rate risk and credit risk.
If you would like additional information regarding the Fund's investment
strategies and risks, please refer to "More on Strategies and Risks" later
in this Prospectus.
15
<PAGE>
Fund Performance
The bar chart and table below illustrate the short-term variability in the
Fund's performance and the Fund's returns relative to a common measure of
performance. The bar chart illustrates how the Fund's performance varies
from year to year over the periods shown.
Calendar Year Total Returns Chart
- --------------------------------------------------------------------------------
[ ] Class Shares
- --------------------------------------------------------------------------------
During the periods presented in the bar chart, the Fund's highest return for
a quarter was ___% for the quarter ended (date). The Fund's lowest return
for a quarter was ____% for the quarter ended (date). The Fund's
year-to-date return was ____% as of December 31, 1998.
The following table illustrates how the Fund's average annual returns for
different calendar periods compare to the returns of the Standard & Poor's
MidCap 400 Stock Index ("S&P MidCap Index"). The table reflects the impact of
the Fund's expenses and assumes that you sold your shares at the end of each
period.
Average Annual Total Return Table
Average Annual Total Return As of December 31, 1998
- --------------------------------------------------------------------------------
1 Year Since Inception*
Mid-Cap Growth Fund
Service Class
Investment Class
S&P MidCap Index
Both the bar chart and table assume reinvestment of dividends and
distributions. As with all mutual funds, past performance is not an
indication of future performance.
*Fund's Inception: November 25, 1997
[Sidebar]
All mutual funds use a standard formula to calculate total return. Total
return measures the price change in a share assuming the reinvestment of all
dividend income and capital gain distributions.
16
<PAGE>
MID-CAP VALUE EQUITY FUND
Investment Objective: Seeks long-term growth of capital.
The Strategy
The Mid-Cap Value Equity Fund invests primarily in equity securities of
mid-cap companies that the portfolio manager believes are undervalued by the
market and have above-average growth potential. The dollar-weighted median
market capitalization of the companies in the Fund's portfolio will fall
within the mid-range defined by the Morningstar rating agency, currently
being between $1 and $5 billion.
Stock selection is key to the performance of the Fund. The Fund is value
oriented and seeks to identify statistically undervalued companies where a
catalyst exists to recognize value or improve a company's profitability.
Examples of these catalysts are:
o new management
o industry consolidation
o company restructuring
o change in the company's Fundamentals
The Fund also may invest to a lesser extent in foreign securities and debt
securities. The portfolio manager may use various investment techniques to
adjust the Fund's investment exposure, but there is no guarantee that these
techniques will work.
The Risks
The principal risks of investing in this Fund are stock market risk and
style risk. To the extent that the portfolio manager invests in foreign
securities or debt securities, the Fund would be subject to foreign exposure
risk, interest rate risk and credit risk.
If you would like additional information regarding the risks associated with
this Fund, please refer to "More on Strategies and Risks" later in this
Prospectus.
17
<PAGE>
Manager's Prior Performance
The performance information provided below includes a composite of the
performance of certain private accounts and mutual funds ("Accounts")
managed by Jon Bosse, the portfolio manager primarily responsible for the
day-to-day management of the Mid-Cap Value Equity Fund. Each of the Accounts
included in the composite has objectives, policies and strategies
substantially similar to those of the Fund. The Accounts were managed by Mr.
Bosse while he was employed with NWQ, the sub-adviser of the Fund, since
October 1996 and during his previous employment with ARCO Investment
Management Company ("ARCO") since January 1990. As is the case with the
Fund, Mr. Bosse was primarily responsible for management of the Accounts and
no other person had a significant role in achieving the performance
described below.
Unlike management of the private accounts included in the composite, Mr.
Bosse's management of the Fund will be subject to certain legal restrictions
(e.g., limits on percentage of assets invested in a single issuer and
industry and requirements on distributing income to shareholders) that did
not apply to the private accounts. The Fund also will incur certain
operating expenses that were not borne by the private accounts. In addition,
the Fund will likely experience cash flows different from those of the
private accounts. All of these factors may adversely affect the performance
of the Fund and cause it to differ from that of the composite described
below.
[SIDEBAR: The Portfolio Manager Performance Composite represents the
performance of the Accounts, net of fees and other expenses, not the
performance of the Fund, and should not be considered an indication of
future performance of the Fund.]
Portfolio Manager Performance Composite
<TABLE>
<CAPTION>
Calendar Year Return
Period Composite S&P MidCap 400 Index
<S> <C> <C>
1998
1997 35.01% 32.25%
1996 27.83% 19.20%
1995 38.54% 30.95%
1994 8.59% -3.58%
1993 19.71% 13.95%
1992 30.25% 11.91%
1991 53.57% 50.10%
1990 0.74% -5.13%
<CAPTION>
Average Annual Return (as of 9/30/98)
Period Composite S&P MidCap 400 Index
<S> <C> <C>
1 Year -6.95% -6.30%
3 Years 18.83% 14.11%
5 Years 19.55% 13.68%
Since 1/1/90 22.54% 14.85%
</TABLE>
Note A -- Performance Results. Performance results provided in the composite
for the period from January 1, 1990 to August 31, 1996 reflect the
performance of a single private account managed by Mr. Bosse ("ARCO
Account") while he was employed as a portfolio manager at ARCO. Performance
results for the month of September 1996 reflect the performance during that
month of the portfolio of securities held in the ARCO Account
18
<PAGE>
at August 31, 1996 (when Mr. Bosse ceased employment at ARCO), assuming that
no changes in the portfolio were made through the end of the month and
dividend income from the portfolio securities was reinvested. Because no actual
portfolio of securities was managed during this one month period, performance
results for September 1996 should be considered hypothetical. Performance
results from October 1, 1996 (when Mr. Bosse commenced employment at NWQ and
purchased for an NWQ private account the same portfolio of securities held in
the ARCO Account at August 31, 1996), reflect the performance of Accounts
managed by Mr. Bosse while employed with NWQ.
Note B -- Composite. The performance results of the ARCO private account,
including the hypothetical performance for September 1996, have been
adjusted to reflect the maximum investment management fee of 1% per year
that is applicable to the NWQ private accounts. The composite performance is
compared to the performance of the S&P MidCap 400 Index, which is an
unmanaged index of 400 domestic stocks selected for market size, liquidity
and industry group representation. The information provided above for both
the composite and the Index reflect the reinvestment of dividends and
distributions. Unlike the Index performance information, however, the
performance of the composite is net of applicable fees and other expenses.
Expenses of the Mid-Cap Value Equity Fund are expected to differ from
those of the Accounts.
19
<PAGE>
SMALL-CAP VALUE EQUITY FUND
Investment Objective: Seeks long-term growth of capital.
The Strategy
The Small-Cap Value Equity Fund invests primarily in equity securities of
small-cap companies that are undervalued by the market but have solid growth
prospects. A company may be undervalued for reasons such as market
overreaction to recent company, industry or economic problems. The Fund
defines a small-cap company as one with a market capitalization within the
capitalization range of the Russell 2000 Index. As of (date), the market
capitalization of companies in the index ranged from ____ to ____. The
portfolio managers will not sell a stock merely because the market
capitalization of a company in the portfolio moves above or below the
maximum or minimum capitalization of the index. Stock selection is key to
the performance of the Fund.
The portfolio managers seek to identify securities of companies with
characteristics such as:
o high quality management
o attractive products or services
o appropriate capital structure
o strong competitive positions in their industries
o management focused on generating shareholder value
The Fund also may invest to a lesser extent in securities with
capitalizations outside the small-cap range, debt securities and foreign
securities. The Fund generally intends to hold its investments for a long
time, which results in a relatively low portfolio turnover rate. The
portfolio managers may use various investment techniques to adjust the
Fund's investment exposure, but there is no guarantee that these techniques
will work.
The Risks
The principal risks of investing in this Fund are stock market risk and
style risk. To the extent that the portfolio managers invest in foreign
securities or debt securities, the Fund would be subject to foreign exposure
risk, interest rate risk and credit risk.
If you would like additional information regarding the Fund's investment
strategies, please refer to "More on Strategies and Risks" later in this
Prospectus.
20
<PAGE>
Prior Performance of Similar Accounts
The performance information provided below includes a composite of the
performance of certain private accounts ("Accounts") managed by the
Investment Committee of Palisade Capital Management, L.L.C. ("Palisade"),
the sub-adviser of the Small-Cap Value Equity Fund. Each of the Accounts
included in the composite has objectives, policies and strategies
substantially similar to those of the Fund. The Accounts were managed by the
Investment Committee while at Palisade and during its previous employment
with Smith Barney, Inc. The Investment Committee, which has operated
together since September 1, 1993, consists of Jack Feiler, Martin L. Berman,
Steven E. Berman, Richard Meisenberg and Mark Degenhart. As is the case with
the Fund, Mr. Feiler was primarily responsible for management of the
Accounts and worked with the Investment Committee in developing and
executing the Accounts' investment programs. No person other than the
members of the Investment Committee had a significant role in achieving the
performance described below. Unlike management of the Accounts, the
Investment Committee's management of the Fund will be subject to certain
legal restrictions (e.g., limits on percentage of assets invested in a
single issuer and industry and requirements on distributing income to
shareholders) that did not apply to the Accounts. The Fund also will incur
certain operating expenses that were not borne by the Accounts. In addition,
the Fund will likely experience cash flows different from those of the
Accounts. All of these factors may adversely affect the performance of the
Fund and cause it to differ from that of the composite described below.
[SIDEBAR: The Investment Committee Performance Composite represents the
performance of the Accounts, net of fees and other expenses, not the
performance of the Fund, and should not be considered an indication of
future performance of the Fund.]
Investment Committee Performance Composite
<TABLE>
<CAPTION>
Calendar Year Return
Period Composite Russell 2000 Index
<S> <C> <C>
1998
1997 26.26% 22.37%
1996 23.17% 16.49%
1995 32.04% 28.44%
1994 3.59% -1.82%
1993* 5.77% 5.51%
</TABLE>
* Represents performance from 9/1/93 through 12/31/93.
Average Annual Return (as of 9/30/98)
<TABLE>
<CAPTION>
Period Composite Russell 2000 Index
<S> <C> <C>
1 Year 26.26% 22.37%
3 Years 27.11% 22.35%
5 Years
Since 9/1/93 20.94% 16.32%
</TABLE>
Note A -- Performance Results. Performance results provided above for the
period from September 1, 1993 to April 1, 1995 (commencement of Palisade's
operations) reflect the performance of the Accounts while the Investment
Committee was employed as a separate operating group within Smith Barney
Inc. Thereafter, performance results reflect the performance of the Accounts
managed by the Investment Committee while at Palisade.
Note B -- Composite. The composite performance is compared to the
performance of the Russell 2000 Index, which is an unmanaged index of
issuers with total market capitalizations between $[ ] million and $[ ]
billion as of September 30, 1998. The information provided above for both
the composite and the Index reflect the reinvestment of dividends and
distributions. Unlike the Index performance information, however, the
performance of the composite is net of fees and other expenses applicable to
the Accounts. Expenses of the GE Small-Cap Value Equity Fund are expected to
differ from those of the Accounts.
21
<PAGE>
INTERNATIONAL EQUITY FUND
Investment Objective: Seeks long-term growth of capital
The Strategy
The International Equity Fund invests primarily in equity securities of
companies in developed and developing countries, other than the United
States. The portfolio managers focus on companies that they expect to grow
faster than relevant markets and whose security price does not fully reflect
its potential growth. Under normal circumstances, the Fund's assets are
invested primarily in no fewer than three different countries. The portfolio
managers consider the following factors in determining where an issuer is
located: country of organization, primary securities trading market,
location of assets, or country where the issuer derives at least half of its
revenues and profits. Stock selection is key to the performance of the Fund.
The portfolio managers seek to identify securities of growth companies with
characteristics such as:
o low prices relative to their long-term cash earnings potential
o potential for significant improvement in the company's business
o financial strength
o sufficient liquidity
The Fund also may invest to a lesser extent in debt securities. The
portfolio managers may use various investment techniques to adjust the
Fund's investment exposure, but there is no guarantee that these techniques
will work.
The Risks
The principal risks of investing in this Fund are foreign exposure risk,
stock market risk, style risk and emerging markets risk. To the extent that
the portfolio managers invest in debt securities, the Fund would be subject
to interest rate risk and credit risk.
If you would like additional information regarding the investment strategies
and risks associated with this Fund, please refer to "More on Strategies and
Risks" later in this Prospectus.
22
<PAGE>
Fund Performance
The bar chart and table below illustrate the short-term variability in the
Fund's performance and the Fund's returns relative to a common measure of
performance. The bar chart illustrates how the Fund's performance varies
from year to year over the periods shown.
Calendar Year Total Returns Chart
- --------------------------------------------------------------------------------
[ ] Class Shares
- --------------------------------------------------------------------------------
During the periods presented in the bar chart, the Fund's highest return for
a quarter was ___% for the quarter ended (date). The Fund's lowest return
for a quarter was ____% for the quarter ended (date). The Fund's
year-to-date return was ____% as of December 31, 1998.
The following table illustrates how the Fund's average annual returns for
different calendar periods compare to the returns of the Morgan Stanley Capital
International EAFE Index ("MSCI EAFE Index"). The table reflects the impact of
the Fund's expenses and assumes that you sold your shares at the end of each
period.
Average Annual Total Return Table
Average Annual Total Return As of December 31, 1998
- --------------------------------------------------------------------------------
1 Year Since Inception*
International Equity Fund
Service Class
Investment Class
MSCI EAFE Index
Both the bar chart and table assume reinvestment of dividends and
distributions. As with all mutual funds, past performance is not an
indication of future performance.
*Fund's Inception: November 25, 1997
[Sidebar]
All mutual funds use a standard formula to calculate total return. Total
return measures the price change in a share assuming the reinvestment of all
dividend income and capital gain distributions.
23
<PAGE>
EUROPE EQUITY FUND
Investment Objective: Seeks long-term growth of capital.
The Strategy
The Europe Equity Fund invests primarily in equity securities of developed
European companies. The portfolio managers focus on companies that are
expected to grow faster than relevant markets and whose security price does
not fully reflect its potential growth. Under normal circumstances, the
Fund's assets are invested primarily in no fewer than three different
countries. The portfolio manager considers the following factors in
determining whether a company is located in Europe: country of organization,
primary securities trading market, location of assets, or country where the
issuer derives at least half of its revenues and profits. Stock selection is
key to the performance of the Fund.
[Sidebar: Europe includes Austria, Belgium, Denmark, Finland, France,
Germany, Greece, Ireland, Italy, Luxembourg, the Netherlands, Norway,
Portugal, Spain, Sweden, Switzerland and the United Kingdom.]
The portfolio managers seek to identify growth companies with
characteristics such as:
o low prices relative to their long-term cash earnings potential
o potential for significant improvement in the company's business
o financial strength
o sufficient liquidity
The Fund may also invest to a lesser extent in securities of companies
representing European emerging market countries, developed or emerging
countries outside of Europe (including the United States), and debt
securities. European emerging market countries include the Czech Republic,
Poland, Hungary, Turkey, Russia and other former republics of the Soviet
Union. The portfolio managers may use various investment techniques to
adjust the Fund's investment exposure, but there is no guarantee that these
techniques will work.
The Risks
The principal risks of investing in this Fund are stock market risk and
foreign exposure risk. To the extent that the portfolio managers invest in
securities of emerging market countries and debt securities, the Fund would
be subject to emerging markets risk, interest rate risk and credit risk.
Because the Fund targets a single region, investors should expect the Fund
to be more volatile than a more geographically diverse equity fund. Fund
performance is closely tied to economic and political conditions within
Europe.
If you would like additional information regarding the risks associated with
this Fund, please refer to "More on Strategies and Risks" later in this
Prospectus.
24
<PAGE>
Fund Background
Because the Fund is new, it does not have any performance history.
Performance information will be included in the Fund's next available annual
or semi-annual report.
25
<PAGE>
EMERGING MARKETS FUND
Investment Objective: Seeks long-term growth of capital.
The Strategy
The Emerging Markets Fund invests primarily in equity securities of
companies located in emerging markets. The portfolio manager focuses on
companies are expected to grow faster than relevant markets and whose
security price does not fully reflect its potential growth. Under normal
circumstances, the Fund's assets are invested in no fewer than three
different countries. The portfolio managers consider which emerging market
countries in which to invest based on certain factors, including investment
restrictions, tax barriers, local market cycles, economic outlook for
growth, currency exchange rates and the political environment. The portfolio
managers consider the following factors in determining whether a company is
located in an emerging market country: country of organization, primary
securities trading market, location of assets, or country where the issuer
derives at least half of its revenues and profits.
An emerging market 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 listed in the Morgan Stanley Capital International Emerging Markets
Index. Emerging market countries are located in regions such as Asia, Latin
America, the Middle East, Southern Europe, Eastern Europe (including the
former republics of the Soviet Union and the Eastern Bloc) and Africa.
The portfolio managers seek to identify growth companies with
characteristics such as:
o low prices relative to their long-term cash earnings potential
o potential for significant improvement in the company's business
o financial strength
o sufficient liquidity
The Fund may also invest to a lesser extent in securities of companies
located in countries other than emerging market countries (including the
United States) and debt securities. The portfolio managers may use various
investment techniques to adjust the Fund's investment exposure, but there is
no guarantee that these techniques will work.
The Risks
The principal risks of investing in this Fund are stock market risk, foreign
exposure risk and emerging markets risk. To the extent that the portfolio
managers invest in debt securities, the Fund would be subject to interest
rate risk and credit risk.
If you would like additional information regarding the risks associated with
this Fund, please refer to "More on Strategies and Risks" later in this
Prospectus.
26
<PAGE>
Investment Background
Because the Fund is new, it does not have any performance history.
Performance information will be included in the Fund's next available annual
or semi-annual report.
27
<PAGE>
INCOME FUNDS
WHO MAY WANT TO INVEST IN AN INCOME FUND
Income Funds may be appropriate for your investment portfolio if you:
o seek regular income
o seek lower volatility than equity funds over the long term
o want to diversify a portfolio composed mostly of equity
investments
Income Funds are not appropriate if you want:
o high potential capital appreciation
Income Funds generally invest in debt securities. Debt securities are bonds
and other securities that are used by issuers to borrow money from
investors. Holders of debt securities have a higher priority claim to assets
than do equity holders. Typically, the debt issuer pays the investor a
fixed, variable or floating rate of interest and must repay the borrowed
amount at maturity. Some debt securities, such as zero coupon bonds, are
sold at a discount from their face values instead of paying interest. Income
Funds provide regular income and some provide federally tax-exempt income.
The following are important definitions of various securities for you to
refer to as you read about Income Funds:
Asset-backed securities represent a participation in, or are secured by and
payable from, a stream of payments generated by particular assets, such as
credit card receivables or auto loans.
Cash and cash equivalents are highly liquid and highly rated instruments
such as commercial paper and bank deposits.
Corporate bonds are debt securities issued by companies.
Foreign debt securities are issued by foreign corporations or governments.
They may include the following:
o Eurodollar Bonds, which are dollar-denominated securities issued
outside the U.S. by foreign corporations and financial
institutions or by foreign branches of U.S. corporations and
financial institutions
o Yankee Bonds, which are dollar-denominated securities issued by
foreign issuers in the U.S.
o Securities denominated in currencies other than U.S. dollars.
o [Brady bonds]
High yield securities are debt securities of corporations, preferred stock
and convertible preferred stock that are rated Ba through C by Moody's or BB
through D by S&P or, if not rated by Moody's or S&P, are considered by
portfolio management to be of speculative quality. High yield securities
include bonds rated below investment grade, sometimes called "junk bonds,"
and may have speculative elements.
Investment grade securities are debt securities rated in one of the four
highest categories by Moody's, S&P or another nationally recognized
statistical rating organization.
28
<PAGE>
Mortgage-backed securities include securities issued by the Government
National Mortgage Association (Ginnie Mae), the Federal National Mortgage
Association (Fannie Mae), the Federal Home Loan Mortgage Corporation
(Freddie Mac) and other private issuers.
Money market securities are short-term debt securities of the U.S.
government, banks and corporations.
Municipal securities are debt obligations of local, state or regional
governments. Municipal securities include both municipal bonds (securities
with maturities of more than five years) and municipal notes (securities
with maturities of less than five years). They may be a general obligation
of the municipality that issued them or they may be secured by the revenues
of a special project or facility. Income derived from investments in
municipal securities is typically exempt from Federal income tax, however,
capital gains are subject to Federal tax.
Repurchase agreements (repos) are used to invest cash on a short-term basis.
A seller (bank or broker-dealer) sells securities, usually government
securities, to the Fund, agreeing to buy them back at a designated price and
time -- usually the next day. The Funds enter into only fully collateralized
repos.
U.S. Government Securities are issued or guaranteed by the U.S. Government
or one of its agencies or instrumentalities. Some U.S. Government securities
are backed by the full faith and credit of the federal government. Other U.S
Government securities are backed by the issuer's right to borrow from the
U.S. Treasury and some are backed only by the credit of the issuing
organization. All U.S. Government securities are considered highly
creditworthy.
[Sidebar:
Maturity - the date on which a debt security matures or when the issuer must
pay back the principal amount of the security.
Duration - a mathematical calculation of the average life of a bond [or
portfolio of bonds] that serves as a useful measure of its price risk. Each
year of duration approximates an expected one percent change in the bond's
price for every one percent change in the interest rate.
Average weighted maturity - the length of time in days or years until the
average security in a money market or bond fund will mature or be redeemed
by its issuer. The average maturity is weighted according to the dollar
invested in the various securities in the fund. This measure indicates an
income fund's sensitivity to changes in interest rates. In general, the
longer a fund's average weighted maturity, the more its share price will
fluctuate in response to changing interest rates.]
29
<PAGE>
INCOME FUND
Investment Objective: Seeks maximum income consistent with prudent
investment management and the preservation of capital.
The Strategy
The Income Fund invests primarily in a variety of debt securities, such as
mortgage-backed securities, corporate bonds and U.S. Government securities,
and money market instruments. The Fund normally has a maturity of
approximately five to ten years.
The portfolio managers seek to identify debt securities with
characteristics such as:
o attractive yields and prices
o the potential for capital appreciation
o reasonable credit quality
The Fund also may invest to a lesser extent in asset-backed securities and
foreign securities. The portfolio managers may use various investment
techniques to adjust the Fund's investment exposure, but there is no
guarantee that these techniques will work.
The Risks
The principal risks of investing in this Fund are interest rate risk, credit
risk and prepayment risk. To the extent that the portfolio managers invest
in foreign securities, the Fund would be subject to foreign exposure risk.
If you would like additional information regarding the risks associated with
this Fund, please refer to "More on Strategies and Risks" later in this
Prospectus.
30
<PAGE>
Fund Performance
The bar chart and table below illustrate the short-term variability in the
Fund's performance and the Fund's returns relative to a common measure of
performance. The bar chart illustrates how the Fund's performance varies
from year to year over the periods shown.
Calendar Year Total Returns Chart
- --------------------------------------------------------------------------------
[ ] Class Shares
- --------------------------------------------------------------------------------
During the periods presented in the bar chart, the Fund's highest return for
a quarter was ___% for the quarter ended (date). The Fund's lowest return
for a quarter was ____% for the quarter ended (date). The Fund's
year-to-date return was ____% as of December 31, 1998.
The following table illustrates how the Fund's average annual returns for
differentcalendar periods compare to the returns of the Lehman Brothers
Aggregate Bond Index ("LB Aggregate Bond Index"). The table reflects the impact
of the Fund's expenses and assumes that you sold your shares at the end of
each period.
Average Annual Total Return Table
Average Annual Total Return As of December 31, 1998
- --------------------------------------------------------------------------------
1 Year Since Inception*
Income Fund
Service Class
Investment Class
LB Aggregate Bond Index
Both the bar chart and table assume reinvestment of dividends and
distributions. As with all mutual funds, past performance is not an
indication of future performance.
*Fund's Inception: November 21, 1997
[Sidebar]
All mutual funds use a standard formula to calculate total return. Total
return measures the price change in a share assuming the reinvestment of all
dividend income and capital gain distributions.
31
<PAGE>
ASSET ALLOCATION FUNDS
WHO MAY INVEST IN AN ASSET ALLOCATION FUND?
The Strategic Investment Fund may be appropriate for your investment
portfolio if you:
o seek both capital appreciation and current income
o want a single diversified investment
Asset allocation funds are designed to meet the needs of investors who
prefer to have their asset allocation decisions made by professional money
managers. They provide an investor with a means to diversify by investing in
a core portfolio that holds both equity securities and debt securities.
Although an investor may achieve the same level of diversification by buying
individual Equity or Income Funds, the Strategic Investment Fund presents a
diversification alternative within one fund.
The following are important definitions for you to refer to as you read
about the Strategic Investment Fund:
Debt securities are bonds and other securities that are used by issuers to
borrow money from investors. Typically, the issuer pays the investor a
fixed, variable or floating rate of interest and must repay the borrowed
amount at maturity. Some debt securities, such as zero coupon bonds, are
sold at a discount from their face values instead of paying interest. For a
more complete list of debt securities, please see ____.
Equity securities may include common stocks, preferred stocks, Depositary
Receipts, convertible preferred stocks, convertible bonds, convertible
debentures, convertible notes, rights and warrants of U.S. and foreign
companies. Stocks represent an ownership interest in a corporation. For a
more complete list of equity securities, please see ____.
Foreign securities include interests in or obligations of entities located
outside of the United States. The determination of where an issuer of a
security 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. Foreign securities may be denominated in non-U.S.
currencies and traded outside the United States or may be in the form of
Depositary Receipts. Depositary Receipts represent an interest in an account
at a bank or trust company which holds equity securities. These may include
American Depositary Receipts (held at U.S. banks and traded in the United
States), European Depositary Receipts, Global Depositary Receipts or other
similar instruments.
32
<PAGE>
STRATEGIC INVESTMENT FUND
Investment Objective: Seeks to maximize total return, consisting of capital
appreciation and current income.
The Strategy
The Strategic Investment Fund invests in both equity securities and debt
securities. The portfolio managers follow an asset allocation process
established by GE Investment Management's Asset Allocation Committee to
diversify holdings across asset classes. It is likely that the Fund will
also maintain a weighting in U.S. equity securities, debt securities and
foreign securities based on the relative attractiveness of the asset
classes. The Fund invests in equity securities for their capital
appreciation potential and debt securities for their income potential.
Within each asset class, the portfolio managers use active security
selection to choose securities based on the merits of individual issuers.
The portfolio managers seek to identify equity securities of companies with
characteristics such as:
o strong earnings growth
o attractive prices
o a presence in successful industries
o high quality management
The portfolio managers seek to identify debt securities with characteristics
such as:
o attractive yields and prices
o the potential for capital appreciation
o reasonable credit quality
The Fund's asset allocation process may result in a high portfolio turnover
rate, which may cause the Fund to experience increased transaction costs and
shareholders to incur increased taxes on their investment in the Fund. The
portfolio managers may use various investment techniques to adjust the
Fund's investment exposure, but there is no guarantee that these techniques
will work.
The Risks
The principal risks of investing in this Fund are stock market risk, foreign
exposure risk, interest rate risk, credit risk and prepayment risk.
If you would like additional information regarding the Fund's investment
strategies and risks, please refer to "More on Strategies and Risks" later
in this Prospectus.
33
<PAGE>
Fund Performance
The bar chart and table below illustrate the short-term variability in the
Fund's performance. The bar chart illustrates how the Fund's performance
varies from year to year over the periods shown.
During the periods presented in the bar chart, the Fund's highest return for
a quarter was ___% for the quarter ended (date). The Fund's lowest return
for a quarter was ____% for the quarter ended (date). The Fund's
year-to-date return was ____% as of (the most recent calendar quarter).
Calendar-Year Total Returns Chart
- --------------------------------------------------------------------------------
[ ] Class Shares
- --------------------------------------------------------------------------------
The following table illustrates how the Fund's average annual returns for
different calendar periods compare to the return of the Standard & Poor's 500
Composite Stock Index ("S&P 500 Index") and the return of the Lehman Brothers
Aggregate Bond Index ("LB Aggregate Bond Index"). The table reflects the impact
of the Fund's expenses and assumes that you sold your shares at the end of each
period.
Average Annual Total Return Chart
Average Annual Total Return As of (date)
- --------------------------------------------------------------------------------
1 year 3 years*
Strategic Investment Fund
Service Class
Investment Class
S&P 500 Index
LB Aggregate Bond Index
S&P 500 Index & LB Aggregate Bond Index**
Both the bar chart and table assume reinvestment of dividends and
distributions. As with all mutual funds, past performance is not an
indication of future performance.
*Fund's inception: [ ]
**The S&P 500 Index and the LB Aggregate Bond Index simulates a blended
return which is representative of the approximate asset allocation mix of
the Strategic Investment Fund for the periods presented (composed of 60% S&P
500 Index, 40% LB Aggregate Bond Index). The actual asset allocation mix of
the Fund may have varied from time to time.
[Sidebar]
All mutual Funds must use the same formula to calculate total return. Total
return measures the price change in a share assuming the reinvestment of all
dividend income and capital gain distributions.
34
<PAGE>
MONEY MARKET FUNDS
Who May Want to Invest in the Money Market Fund
The Money Market Fund may be appropriate for your portfolio if you:
o want regular income
o are investing for a short-term goal
o want an investment that seeks to maintain a stable share price
The Money Market Fund is not appropriate if you:
o want a long-term investment
o seek capital appreciation
Money Market Funds invest in short-term, high quality debt securities. They
seek to provide stability of principal and regular income. The income
provided by a money market Fund varies with interest rate movements.
The following are important definitions for you to refer to as you read
about the Money Market Fund:
U.S. Government Securities in which money market Funds invest typically are
Treasury bills and notes maturing within 397 days and Federal agency
discount notes.
Bank Deposits are cash, check or drafts deposited in a financial institution
for credit to a customer's account. Banks differentiate between demand
deposits (checking accounts on which the customer may draw) and time
deposits, which pay interest and have a specified maturity or require 30
days' notice before withdrawal.
Certificates of Deposit include short-term debt securities issued by banks.
Eurodollar Deposits are deposits issued in U.S. dollars by foreign banks and
foreign branches of U.S. banks.
Variable Rate Securities carry interest rates that may be adjusted
periodically to market rates. Interest rate adjustments could increase or
decrease the income generated by the securities.
Commercial paper includes short-term debt securities issued by banks,
corporations and other borrowers.
Repurchase Agreements are transactions in which a security (usually a
government security) is purchased with a simultaneous commitment to sell it
back to the seller (a commercial bank or recognized securities dealer) at an
agreed upon price on an agreed upon date - usually the next day.
Foreign debt securities are issued by foreign corporations and governments.
They may include the following:
o Eurodollar Bonds, which are dollar-denominated securities issued
outside the U.S. by foreign corporations and financial
institutions and by foreign branches of U.S. corporations and
financial institutions
35
<PAGE>
MONEY MARKET FUND
o Yankee Bonds, which are dollar-denominated securities issued by
foreign issuers in the U.S.
o Securities denominated in currencies other than U.S. dollars.
Investment Objective: Seeks a high level of current income consistent with
the preservation of capital and maintenance of liquidity.
The Strategy
The Money Market Fund invests primarily in short-term, U.S.
dollar-denominated money market securities. The Fund's investments may
include government securities, repurchase agreements, commercial paper,
variable rate securities, foreign securities and deposits of domestic and
foreign banks. The portfolio manager limits investments to high quality
securities with maturities of up to 13 months and limits the average
maturity to 90 days.
The portfolio manager may use various investment techniques to adjust the
Fund's investment exposure, but there is no guarantee that these strategies
will work.
The Risks
The principal risks of investing in this Fund are interest rate risk, credit
risk and foreign exposure risk.
An investment in the Fund is not insured or guaranteed by the Federal
Deposit Insurance Corporation (FDIC) or any other government agency.
Although the Fund seeks to preserve the value of your investment at $1.00
per share, it is possible to lose money by investing in the Fund. The Fund's
yield will change due to movements in current short-term interest rates and
market conditions. A change in interest rates or default on the Fund's
investments could cause the Fund's share price to decline below $1.00.
If you would like additional information regarding the investment strategies
and risks associated with this Fund, please refer to "More on Strategies and
Risks" later in this Prospectus.
36
<PAGE>
Fund Performance
The bar chart and table below illustrate the short-term variability in the
Fund's performance and the Fund's returns relative to a common measure of
performance. The bar chart illustrates how the Fund's performance varies
from year to year over the periods shown.
Calendar Year Total Returns Chart
- --------------------------------------------------------------------------------
[ ] Class Shares
- --------------------------------------------------------------------------------
During the periods presented in the bar chart, the Fund's highest return for
a quarter was ___% for the quarter ended (date). The Fund's lowest return
for a quarter was ____% for the quarter ended (date). The Fund's
year-to-date return was ____% as of December 31, 1998.
The following table illustrates how the Fund's average annual returns for
different calendar periods compare to the returns of the 90 Day Treasury Bill
Rate ("90 Day T-Bill"). The table reflects the impact of the Fund's
expenses. It assumes that you sold your shares at the end of each period.
Average Annual Total Return Table
Average Annual Total Return As of December 31, 1998
- --------------------------------------------------------------------------------
1 Year 3 Year Since Inception*
Money Market Fund
7-Day Yield
90 Day T-Bill
Both the bar chart and table assume reinvestment of dividends and
distributions. As with all mutual funds, past performance is not an
indication of future performance.
*Fund's Inception: December 2, 1997
[Sidebar]
All mutual funds use a standard formula to calculate total return. Total
return measures the price change in a share assuming the reinvestment of all
dividend income and capital gain distributions.
37
<PAGE>
FUND EXPENSES
This summary shows what it will cost you directly or indirectly to invest in
a Fund. Fund expenses come out of the Fund's assets and are reflected in the
Fund's share price and dividends. Shareholder fees, if any, are paid
directly from your account and are not reflected in the share price. The
figures below show actual expenses during the fiscal periods ended September
30, 1998 for those Funds that commenced operations in 1997 and are
calculated as a percentage of average net assets.
For the Equity Funds, Income Strategic Investment Fund, and Money Market Fund:
Shareholder Transaction Expenses
The Funds impose no sales charge (load) on purchases or reinvested
dividends, contingent deferred sales charge, redemption fee or exchange fee.
Annual Fund Operating Expenses
(as a percentage of average net assets)
<TABLE>
<CAPTION>
S&P Premier Mid-Cap Small-Cap
U.S. 500 Growth Value Mid-Cap Value Value
Equity Index Equity Equity Growth Equity Equity
Fund Fund Fund Fund Fund Fund* Fund*
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Advisory and Administration fees*
Service Class .55%* .15% .55%* .55%* .55%* .65%* .70%
Investment Class .55%* .15% .55%* .55%* .55%* .65%* .70%
Distribution and Service (12b-1) fees
Service Class 25% .25% .25% .25% .25% .25% .25%
Other expenses
Service Class None None None** None** None None** None**
Investment Class None None None** None** None None** None**
Total Operating Expenses
Service Class .80% .40% .80% .80% .80% .90% .95%
Investment Class .55% .15% .55% .55% .55% .65% .70%
<CAPTION>
Europe Emerging Strategic Money
International Equity Markets Income Investment Market
Equity Fund Fund Fund Fund Fund Fund
----------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Advisory and Administration fees
Service Class .75%* .85%** 1.05%* .35%* .45%* .25%*
Investment Class .75%* .85%** 1.05%* .35%* .45%* .25%*
Distribution and Service (12b-1) fees
Service Class .25% .25% .25% .25% .25% .25%
Other expenses
Service Class None None** None None None** None
Investment Class None None** None None None** None
Total Operating Expenses
Service Class 1.00% 1.10% 1.30% .60% .70% .50%
Investment Class .75% .85% 1.05% .35% .45% .25%
</TABLE>
- --------------------------------------------------------------------------------
* The advisory and administration fee shown is the maximum payable by the
Fund; this fee declines incrementally as the Fund's asset increase as
described under "About the Investment Adviser."
38
<PAGE>
**Other Expenses are based on estimated amounts to be charged in the current
fiscal year.
- --------------------------------------------------------------------------------
THE IMPACT OF FUND EXPENSES
Examples
These example are intended to help you compare the cost of investing in a
Fund with the cost of investing in other mutual funds. Although actual costs
may be higher or lower, you would pay the following expenses on a $10,000
investment, assuming a 5% annual return and that the Fund's operating
expenses remain the same. The examples also assume that you either redeemed
all of your shares at the end of each period shown or you did not redeem
your shares. The examples 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.
<TABLE>
<CAPTION>
You would pay the following
expenses on a $10,000 investment,
assuming redemption:
1 Year 3 Years 5 Years 10 Years
--------------------------------------
<S> <C> <C> <C> <C>
U.S. Equity Fund:
Investment Class $6 $18 [ ] [ ]
---- ---
Service Class $8 $26 [ ] [ ]
--- ---
S&P 500 Index Fund:
Investment Class $2 $5 [ ] [ ]
---- ---
Service Class $8 $26 [ ] [ ]
--- ---
Premier Growth Equity Fund:
Investment Class $6 $18 [ ] [ ]
--- ---
Service Class $8 $26 [ ] [ ]
--- ---
Value Equity Fund:
Investment Class $6 $18 [ ] [ ]
--- ---
Service Class $8 $26 [ ] [ ]
--- ---
Mid-Cap Growth Fund:
Investment Class $6 $18 [ ] [ ]
--- ---
Service Class $8 $26 [ ] [ ]
--- ---
Mid-Cap Value Equity Fund:
Investment Class [ ] [ ] [ ] [ ]
--- --- --- ---
Service Class [ ] [ ] [ ] [ ]
--- --- --- ---
Small-Cap Value Equity Fund:
Investment Class $7 $22 [ ] [ ]
--- ---
Service Class $10 $30 [ ] [ ]
--- ---
International Equity Fund:
Investment Class $8 $24 [ ] [ ]
--- ---
Service Class $10 $32 [ ] [ ]
--- ---
</TABLE>
39
<PAGE>
<TABLE>
<CAPTION>
You would pay the following
expenses on a $10,000 investment,
assuming redemption:
1 Year 3 Years 5 Years 10 Years
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Europe Equity Fund:
Investment Class [ ] [ ] [ ] [ ]
--- --- --- ---
Service Class [ ] [ ] [ ] [ ]
--- --- --- ---
Emerging Markets Fund:
Investment Class $ 11 $ 33 [ ] [ ]
--- ---
Service Class $ 13 $ 41 [ ] [ ]
--- ---
Income Fund:
Investment Class $ 4 $ 11 [ ] [ ]
--- ---
Service Class $ 6 $ 19 [ ] [ ]
--- ---
Strategic Investment Fund:
Investment Class $ 5 $ 14 [ ] [ ]
--- ---
Service Class $ 7 $ 22 [ ] [ ]
--- ---
Money Market Fund:
Investment Class $ 3 $ 8 [ ] [ ]
--- ---
Service Class $ 5 $ 16 [ ] [ ]
--- ---
</TABLE>
40
<PAGE>
MORE ON STRATEGIES AND RISKS
Like all mutual funds, investing in the GE Institutional Funds involves risk
factors and special considerations. A Fund's risk is defined primarily by
its principal investment strategies, which are described earlier in this
Prospectus. A Fund is permitted to use other securities and investment
strategies in pursuit of its investment objective, subject to limits
established by the Fund's Board of Trustees. Our table below summarizes each
Fund's investment policies and limitations.
Investments in a Fund are not insured against loss of principal. As with any
mutual fund, there can be no assurance that a Fund will achieve its
investment objective. Investing in shares of a Fund should not be considered
a complete investment program. For more information about the risks
associated with the Funds, please see the Statement of Additional
Information (SAI), which is incorporated herein by reference.
MORE ON RISKS
Credit Risk: The price of a bond is affected by the issuer's or
counterparty's credit quality. Changes in financial condition and in general
economic conditions can affect credit quality and therefore the ability to
honor financial obligations. Lower quality bonds are generally more
sensitive to these changes than higher quality bonds. Even within securities
considered investment grade, differences exist in credit quality and some
investment grade debt securities may have speculative characteristics. A
security's price may be adversely affected by the market's opinion of the
security's credit quality level even if the issuer or counterparty has
suffered no degradation in ability to honor the obligation.
Below investment-grade securities, sometimes called "junk bonds," are
considered speculative. These securities have greater risk of default than
higher rated securities. The market value of below investment-grade
securities is more sensitive to individual corporate developments and
economic changes than higher rated securities. The market for below
investment-grade securities may be less active than for higher rated
securities, which can adversely affect the price at which these securities
may be sold. Less active markets may diminish a Fund's ability to obtain
accurate market quotations when valuing the portfolio securities and
calculating a Fund's net asset value. In addition, a Fund may incur
additional expenses if a holding defaults and a Fund has to seek recovery of
its principal investment.
Emerging Markets Risk: Emerging markets securities are a type of foreign
securities and bear all foreign exposure risks discussed below. In addition,
there are greater risks involved in investing in emerging markets than in
developed foreign markets. Specifically, the economic structures in emerging
markets countries are less diverse and mature than those in developed
countries, and their political systems are less stable. Investments in
emerging markets countries may be affected by national policies that
restrict foreign investment. Emerging markets countries may have less
developed legal structures, and the small size of their securities markets
and low trading volumes can make investments illiquid and more volatile than
investments in developed countries. As a result, a Fund investing in
emerging markets countries may be required to establish special custody or
other arrangements before investing.
Foreign Exposure Risk: Investing in foreign securities, including depositary
receipts, or securities of U.S. entities with significant foreign
operations, involves additional risks which can affect a Fund's performance.
Foreign markets, particularly emerging markets, may be less liquid, more
volatile and subject to less government supervision than U.S. markets There
may be difficulties enforcing contractual obligations, and it may take more
time for transactions to clear and settle. Less information may be available
about foreign entities. The costs of
41
<PAGE>
buying and selling foreign securities, including tax, brokerage and custody
costs, generally are higher than those involving domestic transactions. The
specific risks of investing in foreign securities include:
Currency Risk: The values of foreign investments may be affected
by changes in currency rates or exchange control regulations. If
the local currency gains strength against the U.S. dollar, the
value of the foreign security increases in U.S. dollar terms.
Conversely, if the local currency weakens against the U.S. dollar,
the value of the foreign security declines in U.S. dollar terms.
U.S. dollar-denominated securities of foreign issuers, including
Depositary Receipts, also are subject to currency risk based on
their related investments.
Political/Economic Risk: Changes in economic, tax or foreign
investment policies, government stability, war or other political
or economic actions may have an adverse effect on a Fund's foreign
investments.
Regulatory Risk: Foreign companies often are not subject to
uniform accounting, auditing and financial reporting standards or
to other regulatory practices and requirements common to U.S.
companies.
Style Risk: Stocks with different characteristics tend to shift in and out
of favor depending upon market and economic conditions as well as investor
sentiment. A Fund may under perform other equity funds that employ a
different style. Examples of different styles include growth and value
investing, as well as those focusing on large, medium, or small company
stocks.
Growth investing risk: Growth oriented funds will typically under
perform when value investing is in favor.
Value investing risk: Value oriented funds will typically
underperform when growth investing is in favor.
Mid-Cap Company Risk: Investments in securities of mid-cap
companies entails greater risks than investments in larger, more
established companies. Mid-cap companies tend to have more narrow
product lines, more limited financial resources and a more limited
trading market for their stocks, as compared with larger
companies. As a result, their stock prices may decline
significantly as market conditions change.
Small Company Risk: Investing in securities of
small-capitalization companies may involve greater risks than
investing in larger, more established issuers. Smaller companies
may have limited product lines, markets or financial resources.
Their securities may trade less frequently and in more limited
volume than the securities of larger, more established companies.
In addition, smaller companies are typically subject to a greater
changes in earnings and business prospects than are larger
companies. Consequently, the prices of small company stocks tend
to rise and fall in value more than other stocks. Although
investing in small- and medium-capitalization companies offers
potential for above-average returns, the companies may not succeed
and the value of stock shares could decline significantly.
Derivative Securities Risk: Derivative securities (securities whose values
are based on other securities, currencies or indices) include options (on
stocks, indices, currencies, futures contracts or bonds), forward currency
exchange contracts, futures contracts, swaps and structured securities.
Derivative securities may be used as a direct investment or as a hedge for a
Fund's portfolio or a portion of a portfolio. Hedging involves using a
security to offset investment risk. Hedging may include reducing the risk of
a position held in a portfolio. Hedging and other
42
<PAGE>
investment techniques also may be used to increase a Fund's exposure to a
particular investment strategy. If the portfolio managers' judgment of
market conditions proves incorrect or the strategy does not correlate well
with a Fund's investments, the use of derivatives could result in a loss
regardless of whether the intent was to reduce risk or increase return and
may increase a Fund's volatility. In addition, in the event that
non-exchange traded derivatives are used, these derivatives could result in
a loss if the counterparty to the transaction does not perform as promised.
Illiquid Securities Risk: Illiquid securities may be difficult to resell in
the ordinary course of business in seven days or less. When investments
cannot be sold readily at the desired time or price, a Fund may have to
accept a lower price or may not be able to sell the security at all, or
forego other investment opportunities, all of which may have an impact on
the Fund.
Interest Rate Risk: Bond prices rise when interest rates decline and decline
when interest rates rise. The longer the duration of a bond, the more a
change in interest rates affects the bond's price. Short-term and long-term
interest rates may not move the same amount and may not move in the same
direction.
Stock Market Risk: A Fund's share price will move up and down in reaction to
stock market movements. Stock prices change daily in response to company
activity and general economic and market conditions. 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 equity securities may decline. Also,
equity securities are subject to the risk that a particular issuer's
securities may decline in value, even during periods when equity securities
in general are rising. Additional stock market risks may be introduced when
a particular equity security is traded on a foreign market. For more detail
on the related risks involved in foreign markets, see Foreign Exposure Risk.
Municipal Securities Risk: Municipal securities are backed by the entities
that issue them and/or other revenue streams. Like other debt securities,
prices of municipal debt securities are affected inversely by changes in
interest rates and by changes in the credit rating or financial condition of
the issuer. Income derived from investments in municipal securities
typically is exempt from Federal income tax, however capital gains are
subject to Federal tax. Some municipal securities are insured and guarantee
the timely payment of interest and repayment of principal.
Prepayment Risk: Prices and yields of mortgage-backed securities assume the
securities will be redeemed at a given time. When interest rates decline,
mortgage-backed securities experience higher prepayments because the
underlying mortgages are repaid earlier than expected. A Fund's portfolio
manager invests the proceeds from prepaid mortgage-backed securities at
lower rates, which results in a lower return for the Fund. When interest
rates increase, mortgage-backed securities experience lower prepayments
because the underlying mortgages may be repaid later than expected. This
typically reduces the value of the underlying securities.
Repurchase and Reverse Repurchase Agreements Risk: A Fund entering into a
repurchase agreement may suffer a loss if the other party to the transaction
defaults on its obligations and could be delayed or prevented from
exercising its rights to dispose of the underlying securities. The value of
the underlying securities might decline while the Fund seeks to assert its
rights. The Fund could incur additional expenses in asserting its rights or
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 at a higher price under the agreement.
43
<PAGE>
Restricted Securities Risk: Restricted securities may be subject to legal
restraints and, therefore, are less liquid than other securities. The prices
received 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 same investor
protection requirements as publicly traded securities.
Institutional Investor Risk: 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
insignificant portfolio liquidation expenses that are borne by remaining
shareholders.
OTHER RISK CONSIDERATIONS:
EURO Conversion: On January 1, 1999, eleven of the fifteen member countries
of the European Economic and Monetary Union (Participating Countries)
established fixed conversion rates between their existing sovereign
currencies and the EURO, a new common currency in Europe.
The introduction of the EURO may result in uncertainties for securities of
European companies, European markets and the operation of the Funds. The
redenomination of certain European debt and equity securities over a period
of time may result in differences in various accounting, tax and/or legal
treatments that would not otherwise occur. Market disruptions may occur that
could adversely affect the value of European securities and currencies held
by the Funds. Other risks relate to the ability of financial institution
systems to process EURO transactions.
GE Investment Management is working to address EURO conversion issues in a
broad range of areas, including internal business applications, trading
systems and accounting systems. In addition, GE Investment Management has
worked closely with the Funds' major service providers to address the issue.
It is possible, however, that the markets for securities in which certain
Funds invest may be adversely affected by the conversion to the EURO.
Furthermore, individual issuers may suffer increased costs and decreased
earnings due to the long-term impact of EURO conversion.
Year 2000
Like other business organizations and individuals around the world, each of
the Funds could be adversely affected if the computer systems used by its
Investment Managers and external service providers do not properly process
and calculate date-related information from and after January 1, 2000. This
is commonly known as the "Year 2000 Problem." GE Investment Management is
engaged in a multi-year effort to address the Year 2000 Problem in a broad
range of areas, including internal business applications, process-enabling
systems and facilities. In addition, efforts are underway to track each of
the Funds' major service providers to see what they have completed, or is
being undertaken to address the Year 2000 Problem. At this time, however,
there can be no assurance that these steps will be sufficient to avoid any
adverse impact on the Funds.
Furthermore, 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. 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
44
<PAGE>
been reported that foreign institutions have made less progress in
addressing the Year 2000 Problem than major U.S. entities, which could have
a greater impact on certain GE Institutional Funds' investments that are
more sensitive to these risks.
45
<PAGE>
MORE ON INVESTMENT STRATEGIES
A Fund is permitted to use other securities and investment strategies in
pursuit of its investment objective, subject to limits established by the
Funds' Board of Trustees. Certain instruments and investment strategies may
expose the Funds to other risks and considerations, which are discussed in
the Funds' SAI.
Holding Cash and Temporary Defensive Positions: Under normal circumstances,
each Fund may hold cash and/or money market instruments (i) pending
investment, (ii) for cash management purposes, and (iii) to meet operating
expenses. A Fund may from time to time take temporary defensive positions
when the portfolio manager believes that adverse market, economic, political
or other conditions exist. In these circumstances, the portfolio manager may
(i) hold cash and/or invest in money market instruments, or (ii) restrict
the securities markets in which a Fund's assets are invested by investing
those assets in securities markets deemed to be conservative in light of the
Fund's investment objective and strategies. To the extent that a Fund, other
than the GE Money Market Fund, holds cash or invests in money market
instruments, it may not achieve its investment objective.
The following tables summarize each Fund's investment policies and
limitations. Percentage figures refer to the percentage of a Fund's assets
that may be invested in accordance with the indicated policy.
<TABLE>
<CAPTION>
Repurchase Reverse Non-Publicly Structured Purchasing Purchasing and
Agreements Repurchase Traded and and and Writing Writing
Agreements Illiquid Indexed Securities Securities
Securities Securities Options Index Options
<S> <C> <C> <C> <C> <C> <C>
- ------------------------------ ------------ --------------- ------------- ------------ ------------- ----------------
U.S. Equity Fund Yes Yes Yes No Yes Yes
- ------------------------------ ------------ --------------- ------------- ------------ ------------- ----------------
S & P 500 Index Fund Yes Yes Yes No Yes Yes
- ------------------------------ ------------ --------------- ------------- ------------ ------------- ----------------
Premier Growth Equity Fund Yes Yes Yes No Yes Yes
- ------------------------------ ------------ --------------- ------------- ------------ ------------- ----------------
Value Equity Fund Yes Yes Yes No Yes Yes
- ------------------------------ ------------ --------------- ------------- ------------ ------------- ----------------
Mid-Cap Growth Fund Yes Yes Yes No Yes Yes
- ------------------------------ ------------ --------------- ------------- ------------ ------------- ----------------
Mid-Cap Value Equity Fund Yes No Yes Yes Yes Yes
- ------------------------------ ------------ --------------- ------------- ------------ ------------- ----------------
Small-Cap Value Equity Fund Yes Yes Yes No Yes Yes
- ------------------------------ ------------ --------------- ------------- ------------ ------------- ----------------
International Equity Fund Yes Yes Yes No Yes Yes
- ------------------------------ ------------ --------------- ------------- ------------ ------------- ----------------
Europe Equity Fund Yes Yes Yes Yes Yes Yes
- ------------------------------ ------------ --------------- ------------- ------------ ------------- ----------------
Emerging Markets Fund Yes Yes Yes No Yes Yes
- ------------------------------ ------------ --------------- ------------- ------------ ------------- ----------------
Income Fund Yes Yes Yes Yes Yes Yes
- ------------------------------ ------------ --------------- ------------- ------------ ------------- ----------------
Strategic Investment Fund Yes Yes Yes Yes Yes Yes
- ------------------------------ ------------ --------------- ------------- ------------ ------------- ----------------
Money Market Fund Yes Yes No No No No
- ------------------------------ ------------ --------------- ------------- ------------ ------------- ----------------
</TABLE>
- --------------------------------------------------------------------------------
* This limitation excludes ADRs and U.S. Listed Securities and Nasdaq
Traded Securities.
46
<PAGE>
<TABLE>
<CAPTION>
Futures Forward Options Maximum Maximum Maximum When-Issued
and Currency on Investment in Investment in Investment and
Options Transactions Foreign Debt Securities Below-Investment in Delayed
on Futures Currencies Grade Debt Foreign Delivery
Securities Securities Securities
<S> <C> <C> <C> <C> <C> <C> <C>
- -------------------- ----------- ------------ ----------- ----------------- ----------------- ----------- -----------
U.S. Equity Fund Yes Yes Yes 35% 5% 15%* Yes
- -------------------- ----------- ------------ ----------- ----------------- ----------------- ----------- -----------
S&P 500 Index Fund Yes Yes Yes 35% 5% 35%* Yes
- -------------------- ----------- ------------ ----------- ----------------- ----------------- ----------- -----------
Premier Growth Yes Yes No 35% 5% 25%* Yes
Equity Fund
- -------------------- ----------- ------------ ----------- ----------------- ----------------- ----------- -----------
Value Equity Fund Yes Yes Yes 35% 5% 25%* Yes
- -------------------- ----------- ------------ ----------- ----------------- ----------------- ----------- -----------
Mid-Cap Growth Fund Yes Yes Yes 35%(maximum of 10% in BB or B 35%* Yes
25% in BBB by by S&P or Ba or
S&P, Baa by B by Moody's or
Moody's or equivalent
equivalent)
- -------------------- ----------- ------------ ----------- ----------------- ----------------- ----------- -----------
Mid-Cap Value Yes Yes Yes 35% 15% in 15% Yes
Equity Fund securities
rated BBB or
below by S&P or
Baa or below by
Moody's or
equivalent
- -------------------- ----------- ------------ ----------- ----------------- ----------------- ----------- -----------
Small-Cap Value No No No 35% 10% 10%* Yes
Equity Fund
- -------------------- ----------- ------------ ----------- ----------------- ----------------- ----------- -----------
International Yes Yes Yes 35% 5% No limit Yes
Equity Fund
- -------------------- ----------- ------------ ----------- ----------------- ----------------- ----------- -----------
Europe Equity Fund Yes Yes Yes 35% 15% No limit Yes
- -------------------- ----------- ------------ ----------- ----------------- ----------------- ----------- -----------
Emerging Markets Yes Yes Yes 35% (maximum of 10% in BB or B No limit Yes
Fund 25% in BBB by by S&P or Ba or
S&P, Ba by B by Moody's or
Moody's or equivalent
equivalent
- -------------------- ----------- ------------ ----------- ----------------- ----------------- ----------- -----------
Income Fund Yes Yes Yes 100% (maximum 10% in BB or B 35%* Yes
of 25% BBB by by S&P or Ba or
S&P or Baa by B by Moody's or
Moody's or equivalent
equivalent)
- -------------------- ----------- ------------ ----------- ----------------- ----------------- ----------- -----------
Strategic Yes Yes Yes 100% (maximum 10% in BB or B 30%* Yes
Investment Fund of 25% BBB by by S&P or Ba or
S&P or Baa by B by Moody's or
Moody's or equivalent
equivalent)
- -------------------- ----------- ------------ ----------- ----------------- ----------------- ----------- -----------
Money Market Fund No No No 100% None 25%* Yes
- -------------------- ----------- ------------ ----------- ----------------- ----------------- ----------- -----------
</TABLE>
* This limitation excludes ADRs and U.S. Listed Securities and Nasdaq
Traded Securities.
47
<PAGE>
<TABLE>
<CAPTION>
Lending Rule Debt Depositary Securities Municipal Floating Participation
Portfolio 144A Obligations Receipts of Other Leases and Interests
Securities Securities of Investment Variable in
Supranational Funds Rate Municipal
Agencies Instruments Obligations
- ------------------- ---------- ---------- ------------- ----------- ------------ --------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Equity Fund Yes Yes Yes Yes No No No No
- -------------------- ---------- ---------- ------------- ----------- ------------ --------- ------------ ------------
S&P 500 Index Fund Yes Yes Yes Yes Yes No No No
- -------------------- ---------- ---------- ------------- ----------- ------------ --------- ------------ ------------
Premier Growth Yes Yes Yes Yes Yes No No No
Equity Fund
- -------------------- ---------- ---------- ------------- ----------- ------------ --------- ------------ ------------
Value Equity Fund Yes Yes Yes Yes Yes No No No
- -------------------- ---------- ---------- ------------- ----------- ------------ --------- ------------ ------------
Mid-Cap Growth Fund Yes Yes Yes Yes Yes No No No
- -------------------- ---------- ---------- ------------- ----------- ------------ --------- ------------ ------------
Mid-Cap Value Yes Yes Yes Yes Yes No No No
Equity Fund
- -------------------- ---------- ---------- ------------- ----------- ------------ --------- ------------ ------------
Small-Cap Value Yes Yes Yes Yes Yes No No No
Equity Fund
- -------------------- ---------- ---------- ------------- ----------- ------------ --------- ------------ ------------
International Yes Yes Yes Yes Yes No No No
Equity Fund
- -------------------- ---------- ---------- ------------- ----------- ------------ --------- ------------ ------------
Europe Equity Fund Yes Yes Yes Yes Yes No Yes No
- -------------------- ---------- ---------- ------------- ----------- ------------ --------- ------------ ------------
Emerging Markets Yes Yes Yes Yes Yes No No No
- -------------------- ---------- ---------- ------------- ----------- ------------ --------- ------------ ------------
Income Fund Yes Yes Yes Yes Yes No Yes No
- -------------------- ---------- ---------- ------------- ----------- ------------ --------- ------------ ------------
Strategic Yes Yes Yes Yes Yes Yes Yes Yes
Investment Fund
- -------------------- ---------- ---------- ------------- ----------- ------------ --------- ------------ ------------
Money Market Yes Yes Yes Yes Yes No No No
Fund
- -------------------- ---------- ---------- ------------- ----------- ------------ --------- ------------ ------------
</TABLE>
48
<PAGE>
<TABLE>
<CAPTION>
Zero Municipal Custodial Mortgage Government Asset Mortgage Short
Coupon Obligation Receipts on Related Stripped Backed Dollar Sales
Obligations Components Municipal Securities, Mortgage Securities Rolls Against
Obligations including Related and the Box
CMOs Securities Receivable-
Backed
Securities
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- -------------------- ----------- ------------ ------------- ---------- ------------ ------------- ---------- --------
U.S. Equity Fund Yes No No No No No No No
- -------------------- ----------- ------------ ------------- ---------- ------------ ------------- ---------- --------
S&P 500 Index Fund No No No No No No No No
- -------------------- ----------- ------------ ------------- ---------- ------------ ------------- ---------- --------
Premier Growth No No No No No No No No
Equity Fund
- -------------------- ----------- ------------ ------------- ---------- ------------ ------------- ---------- --------
Value Equity Fund No No No No No No No Yes
- -------------------- ----------- ------------ ------------- ---------- ------------ ------------- ---------- --------
Mid-Cap Growth Fund No No No No No No No Yes
- -------------------- ----------- ------------ ------------- ---------- ------------ ------------- ---------- --------
Mid-Cap Value Yes No No No No No No Yes
Equity Fund
- -------------------- ----------- ------------ ------------- ---------- ------------ ------------- ---------- --------
Small-Cap Value No No No No No No No Yes
Equity Fund
- -------------------- ----------- ------------ ------------- ---------- ------------ ------------- ---------- --------
International No No No No No No No Yes
Equity Fund
- -------------------- ----------- ------------ ------------- ---------- ------------ ------------- ---------- --------
Europe Equity Fund No No No No No No No Yes
- -------------------- ----------- ------------ ------------- ---------- ------------ ------------- ---------- --------
Emerging Markets No No No No No No No Yes
Fund
- -------------------- ----------- ------------ ------------- ---------- ------------ ------------- ---------- --------
Income Fund Yes No No Yes Yes Yes Yes No
- -------------------- ----------- ------------ ------------- ---------- ------------ ------------- ---------- --------
Strategic Yes Yes Yes Yes Yes Yes Yes No
Investment Fund
- -------------------- ----------- ------------ ------------- ---------- ------------ ------------- ---------- --------
Money Market Fund No No No No No No No No
- -------------------- ----------- ------------ ------------- ---------- ------------ ------------- ---------- --------
</TABLE>
49
<PAGE>
ABOUT THE INVESTMENT ADVISER
Investment Adviser and Administrator
GE Investment Management Incorporated, located at 3003 Summer Street, P.O.
Box 7900, Stamford, Connecticut 06904, is the investment adviser and
administrator of each Fund. GEIM is a wholly-owned subsidiary of GE and a
registered investment adviser. GE Investment Management's principal
officers, directors and portfolio managers hold similar positions with
General Electric Investment Corporation (GEIC), a wholly-owned subsidiary of
GE. Today, GE Investment Management and GEIC manage roughly $[ ] billion in
assets, including $15 billion in mutual funds.
Each Fund pays GE Investment Management 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) up to the following maximum
annual fee for investment management services.
Investment Management and Administration Fees Paid to GE Investment Management
<TABLE>
<CAPTION>
Name of Fund Average Daily Net Assets of Fund Annual Rate
Percentage (%)
<S> <C> <C>
U.S. Equity Fund First $25 million .55
Premier Growth Equity Fund Next $25 million .45
Value Equity Fund Over $50 million .35
Mid-Cap Growth Fund
S&P 500 Index Fund All assets .15
Mid-Cap First $25 million .65
Value Next $25 million .60
Equity Fund Over $50 million .55
Small-Cap Value Equity Fund First $25 million .70
Next $25 million .65
Over $50 million .60
International Equity Fund First $25 million .75
Next $25 million .65
Over $75 million .55
Europe Equity Fund First $25 million .85
Next $25 million .75
Over $50 million .65
Emerging Markets Fund First $50 million 1.05
Over $50 million .95
.35
Income Fund First $25 million .30
Next $25 million .25
Next $50 million .20
Over $100 million
Strategic Investment Fund First $25 million .45
Next $25 million .40
Over $50 million .35
</TABLE>
50
<PAGE>
<TABLE>
<S> <C> <C>
Money Market Fund First $25 million .25
Next $25 million .20
Next $50 million .15
Over $100 million .10
</TABLE>
From time to time, GEIM may waive or reimburse advisory or administrative
fees paid by a Fund.
51
<PAGE>
About The Funds' Portfolio Managers
Eugene Bolton is Director and Executive Vice President of GE Investment
Management. He manages the overall U.S. equity investments. He leads a team
of portfolio managers for U.S. Equity Fund and Mid-Cap Growth Fund. He as
served in those capacities since each Fund's inception. Mr. Bolton joined GE
Investment Management in 1984 as Chief Financial Officer and has been a
portfolio manager since 1986.
David B. Carlson is Senior Vice President of GE Investment Management. He is
portfolio manager for Premier Fund and manages equity investments for
Strategic Investment Fund. He has served in those capacities since each
Fund's inception. Since joining GE Investment Management in 1982, Mr.
Carlson has held several positions.
Peter J. Hathaway is Senior Vice President of GE Investment Management and
portfolio manager for Value Equity Fund. Mr. Hathaway has served in that
capacity since the Fund's inception and has over 36 years of investment
experience. He has held several positions since joining GE Investment
Management in 1985.
Ralph R. Layman is Director and Executive Vice President of GE Investment
Management. Mr. Layman leads a team of portfolio managers for International
Equity Fund and Emerging Markets Fund. He manages the international equity
investments for Strategic Investment Fund. He has served in those capacities
since each Fund's inception. Mr. Layman joined GE Investment Management in 1991
as Executive Vice President for International Investments.
Robert A. MacDougall is Director and Executive Vice President of GE
Investment Management. He leads a team of portfolio managers for Income Fund
and Money Market Fund. Mr. MacDougall also manages fixed income investments
for Strategic Investment Fund. He has served in those capacities since each
Fund's inception. Mr. MacDougall joined GE Investment Management in 1986 as
Vice President.
Elaine G. Harris is Senior Vice President of GE Investment Management and
portfolio manager of Mid-Cap Growth Fund and Mid-Cap Value Equity Fund. She
has served in those capacities since each Fund's inception. Ms. Harris has
over 14 years of investment experience and has held several positions since
joining GE Investment Management in 1993.
Michael J. Solecki is Vice President of GE Investment Management and portfolio
manager of Europe Equity Fund. He has served in that capacity since inception.
He has held several positions since joining GE Investment Management in 1990.
52
<PAGE>
About the Sub-Advisers
GE Investment Management believes that it has the responsibility to make the
best managers available to our Fund shareholders at all times. Whether that
means accessing GE Investment Management's wealth of internal talent or
using external talent (Sub-Advisers), GE Investment Management closely
monitors all portfolio management teams to be certain that it is delivering
the best investment management possible to Fund shareholders. When GE
Investment Management feels the need to access specialists outside, it
carefully investigates and engages Sub-Advisers with strong performance
records and styles that match the investment objectives of the Funds. GE
Investment Management is proud to engage the following Sub-Advisers to
conduct the investment programs for the following Funds.
S&P 500 Index Fund
Two International Place
Boston, MA 02110
SSGA has served as the sub-adviser of S&P 500 Index Fund since its
inception. SSGA, a division of State Street Bank and Trust Company, is a
wholly-owned subsidiary of State Street Corporation, a publicly held bank
holding company. State Street manages more than $[ ] billion in assets as of
December 31, 1998. State Street 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.
Small-Cap Value Equity Fund
Palisade Capital Management, L.L.C. (Palisade)
One Bridge Plaza
Fort Lee, NJ 07024
Palisade Capital Management has a history of managing small-cap equity
portfolios and for several years has provided pension fund services to GE
Investment Management. The company has managed various institutional and
private accounts with total assets in excess of $[ ] billion as of December
31, 1998. Palisade has managed the Small-Cap Value Equity Fund since
inception. Although Palisade has no previous experience managing mutual fund
portfolios, Palisade translates its experience from various institutional
and private accounts to mutual funds.
The Fund is managed by an investment advisory committee (the "Investment
Committee") composed of the following members: Jack Feiler, Martin L.
Berman, Steven E. Berman, Richard Meisenberg and Mark Degenhart. Mr. Feiler,
Chief Investment Officer at Palisade, has day-to-day responsibility for
managing the Fund and works with the Investment Committee in developing and
executing the Fund's investment program. 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.
53
<PAGE>
Mid-Cap Value Equity Fund
NWQ Investment Management Company (NWQ)
2049 Century Park East - 4th Floor
Los Angeles, CA 90067
NWQ is a wholly-owned subsidiary of United Asset Management Corporation, a
company whose principal business is managing investments for institutional
clients through 50 operating subsidiaries and acquiring investment
management firms. NWQ is a manager of domestic investment portfolios for
individual, union, corporate, municipal, endowment and foundation clients
with [17] years of experience. As of December 31, 1998, NWQ had in excess of
$[ ] billion of assets under management.
Jon D. Bosse is the Fund's portfolio manager and has served in that capacity
since the Fund's inception. Mr. Bosse has more than 12 years of investment
experience and has held the position of Director of Equity Research and
Managing Director at NWQ since 1996. Prior to his joining NWQ, he spent ten
years with ARCO Investment Management Company where he was director of
equity research and managed a value-oriented fund. Previous to this, he
spent four years in the corporate finance department of ARCO. Mr. Bosse is a
Chartered Financial Analyst and a member of the Association for Investment
Management and Research and the Los Angeles Society of Financial Analysts.
Shareholder Servicing and Distribution Plan
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 GE
Investment Management, 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 GE Investment Management, or
enable GE Investment Management to compensate other persons ("Service
Providers"), for providing ongoing service and/or maintenance of the
accounts of shareholders of the Fund ("Shareholder Services") and to
compensate GE Investment Management, or enable GE Investment Management 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"). Because these fees are paid out of a Fund's assets on an
on-going basis, over time these fees will increase the cost of your
investment and may cost you more than paying other types of sales charges.
54
<PAGE>
HOW TO INVEST
The GE Institutional Funds are designed primarily for institutional
investors, such as corporations, foundations, endowments and trusts that
manage various types of employee benefit plans as well as charitable,
religious and educational institutions. The Funds offer two classes of
shares - Service Class and Investment Class.
The Service Class and the Investment Class are identical except that the
Service Class shares bear a 0.25% shareholder servicing and distribution fee
under plan adopted pursuant to Rule 12b-1 ("12b-1 fee"), which requires fees
be paid out of the assets of the class. The 12b-1 fee is intended to pay for
the cost of promoting the Service Class shares and servicing your
shareholder account. Over time the fees will increase your cost of investing
and may exceed the cost of paying other types of sales charges.
Requests received in good order will be executed at the net asset value next
calculated after receipt of an investment or transaction instructions.
Purchase and redemption orders are executed only on days when the NYSE is
open for trading. If the NYSE closes early, the deadlines for purchase and
redemption orders will be accelerated to the earlier closing time.
Opening an Account
Investors must open an account before purchasing Fund shares. Investors may
open an account by submitting an account application to the Distributor, the
transfer agent or a broker-dealer, financial institution or investment
adviser that has entered into a sales agreement with the Distributor
("Authorized Firms").
Investors may obtain an account application by calling the Funds at (800)
493-3042 or by writing to the Funds at:
GE Institutional Funds
P.O. Box 120065
Stamford, CT 06912-0065
For overnight package delivery, send to:
GE Institutional Funds
c/o National Financial Data Services Inc.
1004 Baltimore
Kansas City, MO 64105
How to Buy Shares
Once an account has been opened, an investor may purchase Fund shares from
the Distributor or through an Authorized Firm. The Authorized Firm will be
responsible for transmitting the investor's order to the transfer agent.
Investors should contact their Authorized Firm for 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].
55
<PAGE>
Investment Minimums
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 as defined in the Investment Company Act of
1940. Once an account has been established, there is no minimum subsequent
investment amount. The following table summarizes the circumstances in which
the minimum investment requirements may be waived.
Minimum Investment Waivers
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Invest Up To In At least
<S> <C> <C>
$100 million One or more GE Mutual Funds $35 million in GE Institutional Funds
</TABLE>
Minimum Balance
GE Institutional Funds may refuse to sell additional shares to investors
whose balances fall below $100 million in the GE Funds, or $35 million in
the GE Institutional Funds for more than 120 days.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
The minimum investment requirement is
waived for up to three years for
investors that invest at least Time Period In
<S> <C> <C>
$100 million Within six months of initial purchase One Fund
- --------------------------------------- -------------------------------------- --------------------------------------
$200 million Within six months of initial purchase One or two Funds
- --------------------------------------- -------------------------------------- --------------------------------------
$500 million Within six months of initial purchase Any number of Funds
- --------------------------------------- -------------------------------------- --------------------------------------
</TABLE>
Minimum Balance
GE Institutional Funds may refuse to sell additional shares to investors
whose balances fall below:
o the minimum requirements at the end of six months
o $35 million for more than 120 days.
- --------------------------------------------------------------------------------
If the value of an investor's investment in a Fund falls below $35 million
for more than 120 days due to redemptions (rather than market fluctuations),
the Distributor may refuse additional purchase orders from such investor.
Investors that cannot meet the Funds' investment minimums may qualify to
purchase Class A shares or Class D shares of the GE Funds. Ask your
Investment Professional or call the Distributor for a GE Funds prospectus.
Purchases in-Kind
Investors may purchase shares in amounts of $5 million or more with either
cash or investment securities acceptable to the appropriate Fund. The Funds'
Distributor would inform you of the securities acceptable to the Fund. The
securities would be accepted by the Fund at their market value in return for
Fund shares of equal value. The Funds reserve the right to require the
Distributor to suspend the offering of shares of the Emerging Markets Fund
or International Equity Fund for cash in amounts greater than $5 million and
of the other non-money market Funds in amounts above $10 million
56
<PAGE>
How To Redeem Shares
An investor may redeem all or a portion of the shares on any day that the
Fund is open for business. Redemption requests received in good order on
that day will be effected at the net asset value next determined after the
close of regular trading on the NYSE. Redemption requests received in proper
form after the close of business of the NYSE will be effected at the net
asset value as next determined. An investor must specify the class of shares
to be redeemed if they hold both Service Class and Investment Class shares
of a Fund.
If You Invested With an Investment Professional
Shares purchased with the assistance of an Authorized Firm may be redeemed
either by the Authorized Firm or the shareholder of record. Please see your
account statement for the telephone number of your Authorized Firm. Or call the
Distributor directly at [ ].
57
<PAGE>
Redemptions by Mail
If an investor is the shareholder of record, he or she may redeem shares by
written redemption request. Your written request should:
o state the Fund to be redeemed, share class, number of shares or
specific dollar amount
o state your account number
o be signed by an authorized person exactly as registered
o state the Fund to be redeemed, share class, number of shares or
specific dollar amount
o contain a signature guarantee for redemptions of more than $50,000
that are:
1. mailed to a different address from that on record
2. paid to someone other than the shareholder of record
3. to be wired to a financial institution; or
4. to be mailed to an address that was changed within the past
30 days
Mail your request to the appropriate address:
Regular Mail: GE Institutional Funds
P.O. Box 120065
Stamford, CT 06912-0065
Overnight Delivery: GE Institutional Funds
c/o National Financial Data Services Inc.
1004 Baltimore
Kansas City, MO 64105
How To Exchange Shares
You may exchange shares of one GE Institutional Fund for the same class of
another GE Institutional Fund or for a different class of the same or
another GE Institutional Fund. Exchanges are permitted provided that the
acquired Fund is an investment option available to the investor requesting
the exchange and the investor meets the minimum investment requirement. The
Funds may terminate the exchange privilege upon 60 days written notice to
shareholders.
An exchange is a sale and purchase of shares for tax purposes. You may have
a taxable gain or loss when you exchange your shares. You may exchange
shares by writing the Funds at the appropriate address listed above.
Redemptions in Kind
Large redemptions that exceed $250,000 or 1% of a Fund's assets may be
considered detrimental to the Fund's existing shareholders. Therefore, the Fund
may require that you take a "distribution in kind" upon redemption and may give
you portfolio securities instead of cash proceeds. Such Fund portfolio
securities will have to be sold through a broker and you may incur transaction
costs when you sell them. The Funds will redeem shares in kind at your request.
58
<PAGE>
Signature Guarantees
All signature guarantees must be executed by a commercial bank, trust
company, broker, dealer credit union, national securities exchange or
registered association, clearing agency or savings association. The Funds
may require additional information for redemptions made by corporations,
executors, administrators, trustees, guardians or persons utilizing a power
of attorney. A redemption request will not be deemed received in good order
until the Trust has received all information typically required to assure
the security of a particular account.
59
<PAGE>
DIVIDENDS, CAPITAL GAINS AND OTHER TAX INFORMATION
Most GE Institutional Funds pay dividends from net investment income and
from net capital gains once each year. Unless you instruct a Fund to mail
dividends from net investment income and net capital gains to you, they will
be reinvested in your account. There are no fees or charges to reinvest
dividends.
<TABLE>
<CAPTION>
Fund Distribution Schedule
<S> <C>
U.S. Equity Fund o Dividends are declared and paid annually.
S&P 500 Index Fund
Premier Equity Fund o Short-term and long-term capital gains,
Value Equity Fund if any, are paid annually.
Mid-Cap Growth Fund
Mid-Cap Value Equity Fund
Small-Cap Value Equity Fund
International Equity Fund
Europe Equity Fund
Emerging Markets Fund
Strategic Investment Fund
Income Fund o Dividends are declared daily and paid monthly.
Money Market Fund o Short-term and long-term capital gains, if any, are paid
annually.
</TABLE>
The Funds are subject to a 4% excise tax on undistributed net investment
income and net capital gains. To avoid this tax, or in the best interest of
shareholders, the Funds may pay dividends from net investment income and net
capital gains more frequently.
As a result of the different service fees applicable to the Funds' classes,
dividends and distributions for each class will differ.
Taxes
Tax issues can be complicated. We suggest you see your investment
professional or tax advisor for any questions you may have.
Except for investments in tax-deferred accounts, dividends and distributions
from net investment income and short-term capital gains are taxed as
ordinary income. Long-term capital gains are taxed at the long-term capital
gains rate, whether you reinvest your dividends or distributions or have it
paid to you. Distributions are taxable at different rates depending on the
length of time a Fund holds its investments. Distributions will be taxed,
regardless of whether they are received in cash or reinvested.
Tax Statement
You will receive an annual statement summarizing your dividend and capital
gains distributions. Please consult a tax advisor if you have questions
about your specific tax situation.
Backup Withholding
If you do not provide complete and certified taxpayer identification
information, each Fund is obligated by law to withhold 31% of Fund
distributions.
60
<PAGE>
CALCULATING SHARE VALUE
Fund shares are sold at net asset value ("NAV"). The NAV of each share class
is calculated at the close of regular trading on the New York Stock Exchange
("NYSE"), normally 4:00 p.m. Eastern time, each day the NYSE is open for
trading. The NAV per share class for Funds (other than the Money Market
Fund) is determined by adding the value of the Fund's investments, cash, and
other assets attributable to that class, subtracting its liabilities, and
then dividing the result by the number of that class' outstanding shares.
A Fund's portfolio securities are valued most often on the basis of market
quotations. Foreign securities are valued on the basis of quotations from
the primary market in which they are traded. Some debt securities are valued
using dealers and pricing services. Municipal bond valuations are based on
prices supplied by a qualified municipal pricing service. The prices are
composed of the mean average of the bid and ask prices on the secondary
market. All portfolio securities of the Money Market Fund and any short-term
securities held by any other Fund with remaining maturities of sixty days or
less are valued on the basis of amortized cost. A Fund's written or
purchased options are valued at the last sales price of the day. If no sales
occurred, the options are valued at the last traded bid price. A Fund's NAV
may change on days when shareholders will not be able to purchase or redeem
the Fund's shares.
If quotations are not readily available for any security, or if the value of
a security has been materially affected by events occurring after the
closing of a market, the security may be valued by using procedures approved
by a Fund's Board of Trustees that they believe accurately reflects "fair
value".
61
<PAGE>
APPENDIX
Financial Highlights
The financial highlights tables that follow are intended to help you
understand a Fund's financial performance for the period of the Fund's
operations. Certain information reflects financial results for a single Fund
share. The total returns in the table represent the rate that an investor
would have earned or lost on an investment in the Fund (assuming
reinvestment of all dividends and distributions). This information has been
audited by __________, whose report, along with the Funds' financial
statements, are included in the Funds' Annual Report, which is available
upon request.
U.S. Equity Fund
Net Asset Value, Beginning of the period
Income from Investment Operations
Net Investment Income
Net Gains or Losses on Securities (both realized and unrealized)
Total From Investment Operations
Less Distributions
Dividends (from net investment income)
Distributions (from capital gains)
Returns of Capital
Total Distributions
Net Asset Value, End of Period
Total Return
Ratio/Supplemental Data
Net Assets, End of Period
Ratio of Expenses to Average Net Assets
Ratio of Net income to Average Net Assets
Portfolio Turnover Rate
S&P 500 Index Fund
Net Asset Value, Beginning of the period
Income from Investment Operations
Net Investment Income
Net Gains or Losses on Securities (both realized and unrealized)
Total From Investment Operations
Less Distributions
Dividends (from net investment income)
Distributions (from capital gains)
Returns of Capital
Total Distributions
Net Asset Value, End of Period
Total Return
Ratio/Supplemental Data
Net Assets, End of Period
Ratio of Expenses to Average Net Assets
Ratio of Net income to Average Net Assets
Portfolio Turnover Rate
62
<PAGE>
Premier Growth Equity Fund
Net Asset Value, Beginning of the period
Income from Investment Operations
Net Investment Income
Net Gains or Losses on Securities (both realized and unrealized)
Total From Investment Operations
Less Distributions
Dividends (from net investment income)
Distributions (from capital gains)
Returns of Capital
Total Distributions
Net Asset Value, End of Period
Total Return
Ratio/Supplemental Data
Net Assets, End of Period
Ratio of Expenses to Average Net Assets
Ratio of Net income to Average Net Assets
Portfolio Turnover Rate
Value Equity Fund
Net Asset Value, Beginning of the period
Income from Investment Operations
Net Investment Income
Net Gains or Losses on Securities (both realized and unrealized)
Total From Investment Operations
Less Distributions
Dividends (from net investment income)
Distributions (from capital gains)
Returns of Capital
Total Distributions
Net Asset Value, End of Period
Total Return
Ratio/Supplemental Data
Net Assets, End of Period
Ratio of Expenses to Average Net Assets
Ratio of Net income to Average Net Assets
Portfolio Turnover Rate
Mid-Cap Growth Fund
Net Asset Value, Beginning of the period
Income from Investment Operations
Net Investment Income
Net Gains or Losses on Securities (both realized and unrealized)
Total From Investment Operations
Less Distributions
Dividends (from net investment income)
Distributions (from capital gains)
Returns of Capital
Total Distributions
Net Asset Value, End of Period
63
<PAGE>
Total Return
Ratio/Supplemental Data
Net Assets, End of Period
Ratio of Expenses to Average Net Assets
Ratio of Net income to Average Net Assets
Portfolio Turnover Rate
Mid-Cap Value Equity Fund
Net Asset Value, Beginning of the period
Income from Investment Operations
Net Investment Income
Net Gains or Losses on Securities (both realized and unrealized)
Total From Investment Operations
Less Distributions
Dividends (from net investment income)
Distributions (from capital gains)
Returns of Capital
Total Distributions
Net Asset Value, End of Period
Total Return
Ratio/Supplemental Data
Net Assets, End of Period
Ratio of Expenses to Average Net Assets
Ratio of Net income to Average Net Assets
Portfolio Turnover Rate
Small-Cap Value Equity Fund
Net Asset Value, Beginning of the period
Income from Investment Operations
Net Investment Income
Net Gains or Losses on Securities (both realized and unrealized)
Total From Investment Operations
Less Distributions
Dividends (from net investment income)
Distributions (from capital gains)
Returns of Capital
Total Distributions
Net Asset Value, End of Period
Total Return
Ratio/Supplemental Data
Net Assets, End of Period
Ratio of Expenses to Average Net Assets
Ratio of Net income to Average Net Assets
Portfolio Turnover Rate
64
<PAGE>
International Equity Fund
Net Asset Value, Beginning of the period
Income from Investment Operations
Net Investment Income
Net Gains or Losses on Securities (both realized and unrealized)
Total From Investment Operations
Less Distributions Dividends (from net investment income)
Distributions (from capital gains)
Returns of Capital
Total Distributions
Net Asset Value, End of Period
Total Return
Ratio/Supplemental Data
Net Assets, End of Period
Ratio of Expenses to Average Net Assets
Ratio of Net income to Average Net Assets
Portfolio Turnover Rate
Europe Equity Fund
Net Asset Value, Beginning of the period
Income from Investment Operations
Net Investment Income
Net Gains or Losses on Securities (both realized and unrealized)
Total From Investment Operations
Less Distributions
Dividends (from net investment income)
Distributions (from capital gains)
Returns of Capital
Total Distributions
Net Asset Value, End of Period
Total Return
Ratio/Supplemental Data
Net Assets, End of Period
Ratio of Expenses to Average Net Assets
Ratio of Net income to Average Net Assets
Portfolio Turnover Rate
Emerging Markets Fund
Net Asset Value, Beginning of the period
Income from Investment Operations
Net Investment Income
Net Gains or Losses on Securities (both realized and unrealized)
Total From Investment Operations
Less Distributions
Dividends (from net investment income)
Distributions (from capital gains)
Returns of Capital
Total Distributions
Net Asset Value, End of Period
Total Return
65
<PAGE>
Ratio/Supplemental Data
Net Assets, End of Period
Ratio of Expenses to Average Net Assets
Ratio of Net income to Average Net Assets
Portfolio Turnover Rate
Income Fund
Net Asset Value, Beginning of the period
Income from Investment Operations
Net Investment Income
Net Gains or Losses on Securities (both realized and unrealized)
Total From Investment Operations
Less Distributions
Dividends (from net investment income)
Distributions (from capital gains)
Returns of Capital
Total Distributions
Net Asset Value, End of Period
Total Return
Ratio/Supplemental Data
Net Assets, End of Period
Ratio of Expenses to Average Net Assets
Ratio of Net income to Average Net Assets
Portfolio Turnover Rate
Strategic Investment Fund
Net Asset Value, Beginning of the period
Income from Investment Operations
Net Investment Income
Net Gains or Losses on Securities (both realized and unrealized)
Total From Investment Operations
Less Distributions
Dividends (from net investment income)
Distributions (from capital gains)
Returns of Capital
Total Distributions
Net Asset Value, End of Period
Total Return
Ratio/Supplemental Data
Net Assets, End of Period
Ratio of Expenses to Average Net Assets
Ratio of Net income to Average Net Assets
Portfolio Turnover Rate
66
<PAGE>
Money Market Fund
Net Asset Value, Beginning of the period
Income from Investment Operations
Net Investment Income
Net Gains or Losses on Securities (both realized and unrealized)
Total From Investment Operations
Less Distributions
Dividends (from net investment income)
Distributions (from capital gains)
Returns of Capital
Total Distributions
Net Asset Value, End of Period
Total Return
Ratio/Supplemental Data
Net Assets, End of Period
Ratio of Expenses to Average Net Assets
Ratio of Net income to Average Net Assets
Portfolio Turnover Rate
67
<PAGE>
[Back Cover]
Investment Adviser Transfer Agent and Custodian
GE Investment Management Incorporated State Street Bank and Trust Company
3003 Summer Street 225 Franklin Street
P.O. Box 7900 Boston, MA 02101
Stamford, CT 06904
Distributor
GE Investment Distributors, Inc.
777 Long Ridge Road
Stamford, CT 06927
If you wish to know more, you will find additional information about the
Institutional Funds in the following documents:
Annual/Semi-Annual Reports to Shareholders:
These reports detail the Funds' actual investments as of the report date.
Reports usually include performance numbers, a discussion of market
conditions and investment strategies that affected Fund performance during
the Funds' last fiscal year.
Statement of Additional Information (SAI):
The SAI contains additional information about the Funds and their investment
strategies and policies and is incorporated by reference (legally considered
part of the prospectus). The SAI is on file with the Securities and Exchange
Commission (SEC).
You may visit the SEC's Internet Website (http://www.sec.gov) to view the
SAI and other information. Also, you can obtain copies of this information
by sending your request and duplicating fee to the SEC's Public Reference
Section, Washington, D.C. 20549-6009. You may review and copy information
about the Funds, including the SAI, at the SEC's Public Reference Room in
Washington, D.C. To find out more about the public reference room, call the
SEC at 1-800-SEC-0330.
You may obtain a free copy of the SAI or the Funds' annual/semiannual report
and make shareholder inquiries by contacting [your investment professional]
or:
GE Investment Distributors, Inc.
777 Long Ridge Road, Building B
Stamford, CT 06927
Telephone:
Website: http://www.ge.com/mutualfunds
Investment Company Act file number : 811-08257
<PAGE>
The information in this Statement of Additional Information is not complete
and may be changed. We may not sell these securities until the registration
statement filed with the Securities and Exchange Commission is effective. This
Statement of Additional Information is not an offer to sell these securities and
is not soliciting an offer to buy these securities in any state where the offer
or sale is not permitted.
STATEMENT OF ADDITIONAL INFORMATION
January [ ], 1999
GE INSTITUTIONAL FUNDS
3003 Summer Street, Stamford, Connecticut 06905
For information, call (800) 242-0134
* U.S. Equity Fund * Europe Equity Fund
* S&P 500 Index Fund * Emerging Markets Fund
* Premier Growth Equity Fund * Income Fund
* Value Equity Fund * Strategic Investment Fund
* Mid-Cap Growth Fund * Money Market Fund
* Mid-Cap Value Equity Fund * High Yield Fund
* Small-Cap Value Equity Fund * Small-Cap Growth Equity Fund
* International Equity Fund
This Statement of Additional Information ("SAI") supplements the
information contained in the current Prospectus of GE Institutional Funds (the
"Trust") dated January [ ], 1999 (the "Prospectus"), and should be read in
conjunction with the Prospectus. This SAI, although not a prospectus, is
incorporated in its entirety by reference into the Prospectus. Copies of the
Prospectus describing each series of the Trust listed above ("Funds") may be
obtained without charge by calling the Trust at the telephone number listed
above.
The Trust's financial statements for the fiscal periods ended September
30, 1998, and the Auditor's Report thereon, are incorporated by reference to the
Trust's Annual Report, which 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. Terms that are defined in the Prospectus shall have the same
meanings in this SAI.
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Table of Contents
Page
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Investment Strategies and Risks . . . . . . . . . . . .1
Investment Restrictions . . . . . . . . . . . . . . . 34
Management of the Trust . . . . . . . . . . . . . . . 38
Compensation Table. . . . . . . . . . . . . . . . . . 42
Purchase, Redemption and Exchange of Shares . . . . . 49
Net Asset Value . . . . . . . . . . . . . . . . . . . 53
Dividends, Distributions and Taxes. . . . . . . . . . 54
The Funds' Performance. . . . . . . . . . . . . . . . 57
Principal Stockholders. . . . . . . . . . . . . . . . 63
Fund History and Additional Information . . . . . . . 65
Financial Statements. . . . . . . . . . . . . . . . . 68
Appendix. . . . . . . . . . . . . . . . . . . . . . .A-1
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INVESTMENT STRATEGIES AND RISKS
The Funds' Prospectus discusses the investment objectives and principal
investment strategies of the following diversified open-end funds ("Funds"): the
U.S. Equity Fund, the S&P 500 Index Fund, the Premier Growth Equity Fund (the
"Premier Growth Fund"), the Value Equity Fund, the Mid-Cap Growth Fund, the
Mid-Cap Value Equity Fund (the "Mid-Cap Value Fund"), the Small-Cap Value Equity
Fund (the "Small-Cap Value Fund"), the International Equity Fund (the
"International Fund"), the Europe Equity Fund, the Emerging Markets Fund, the
Income Fund, the Strategic Investment Fund (the "Strategic Fund"), and the Money
Market Fund. The Small Cap Growth Equity Fund (the "Small-Cap Growth Fund") and
the High Yield Fund, each an additional series of the Trust, are not currently
being offered by the Trust.
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. In pursuing its objective, the Fund, under
normal conditions, will invest at least 65% of its assets in equity securities.
S&P 500 Index Fund
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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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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 Standard and Poor's 500 Composite Stock Price Index. The Fund seeks to
achieve this objective by investing in common stocks comprising that Index.
Premier Growth Equity Fund
The investment objective of the Premier Growth 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 growth-oriented equity
securities which, under normal market conditions, will represent at least 65% of
the Fund's assets.
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 capitalizations
("mid-cap") that have the potential for above-average growth. The Fund, under
normal market conditions, will invest at least 65% of its total assets in a
portfolio of equity securities of mid-cap companies traded on U.S. securities
exchanges or in the U.S. over-the-counter market.
Mid-Cap Value Equity Fund
The investment objective of the Mid-Cap Value Equity Fund is long-term
growth of capital. In seeking its investment objective, the Fund will invest
primarily in equity securities of mid-cap companies that the portfolio manager
believes are undervalued by the market and have above-average growth potential.
Small-Cap Value Equity Fund
The investment objective of the Small-Cap Value Equity Fund is
long-term growth of capital. The Fund seeks to achieve its investment objective
by investing, under normal market conditions, at least 65% of its 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.
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 its objective by investing primarily in equity securities of companies
with large sized market capitalizations that GE Investment Management
Incorporated ("GEIM") 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
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common stocks, preferred stocks, convertible bonds, convertible debentures,
convertible notes, convertible preferred stocks, and warrants or rights issued
by U.S. and foreign companies.
Small-Cap Growth Equity Fund
The investment objective of the Small-Cap Growth Equity 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.
International Equity Fund
The investment objective of the International Equity Fund is long-term
growth of capital. The Fund seeks to achieve its 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. 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 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.
Europe Equity Fund
The investment objective of the Europe Equity Fund is long-term growth
of capital. In seeking its investment objective, the Fund will invest primarily
in equity securities of European Countries.
Emerging Markets Fund
The investment objective of the Emerging Markets Fund is long-term
growth of capital. In seeking its investment objective, the Fund invests
primarily in equity securities of emerging markets companies.
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.
High Yield Fund
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The investment objective of the High Yield Fund is to maximize total
return, consistent with the preservation of capital and prudent investment
management. In seeking to achieve its investment objective, the Fund will invest
primarily in high yield securities (including bonds rated below investment
grade, sometimes called "junk bonds").
Strategic Investment Fund
The investment objective of the Strategic Investment Fund is to
maximize total return, consisting of capital appreciation and current income. In
seeking its objective, the Fund follows an asset allocation strategy that
provides diversification across a range of asset classes and contemplates shifts
among them from time to time.
GEIM has broad latitude in selecting the classes of investments to
which the Strategic Investment 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.
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. In seeking its objective, the Fund invests in the
following U.S. dollar denominated, short-term money market instruments: (1)
Government Securities; (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.
Supplemental information 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 are discussed below.
Some or all of the Funds may invest in the types of instruments and
engage in the types of strategies described in detail below. A Fund will not
purchase all of the following types of securities or employ all of the following
strategies unless doing so is consistent with its investment objective.
Money Market Instruments. The types of money market instruments in
which each Fund, other than the Money Market Fund, may invest directly or
indirectly through its investment in the GEI Short-Term Investment Fund (the
"Investment Fund"), described below, are as follows: (i) securities issued or
guaranteed by the U.S. Government or one of its agencies
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or instrumentalities ("Government Securities"), (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
supranational entities, (vi) debt securities issued by foreign issuers and (vii)
repurchase agreements.
Each Fund, other than the Money Market Fund, may also invest in the
Investment Fund, an investment fund created specifically to serve as a vehicle
for the collective investment of cash balances of the Funds (other than the
Money Market Fund) and other accounts advised by GEIM or its affiliate, General
Electric Investment Corporation ("GEIC"). The Investment Fund invests
exclusively in the money market instruments described in (i) through (vii)
above. The Investment Fund is advised by GEIM. No advisory fee is charged by
GEIM to the Investment Fund, nor will a Fund incur any sales charge, redemption
fee, distribution fee or service fee in connection with its investments in the
Investment Fund. Each Fund, other than the Money Market Fund, may invest up to
25% of its assets in the Investment Fund.
Each of the Funds may invest in the following types of Government
Securities: debt obligations of varying maturities issued by the U.S. Treasury
or issued or guaranteed by the Federal Housing Administration, Farmers Home
Administration, Export-Import Bank of the United States, Small Business
Administration, Government National Mortgage Association ("GNMA"), General
Services Administration, Central Bank for Cooperatives, Federal Farm Credit
Banks Funding Corporation, Federal Home Loan Banks, Federal Home Loan Mortgage
Corporation ("FHLMC"), Federal Intermediate Credit Banks, Federal Land Banks,
Federal National Mortgage Association ("FNMA"), Federal Deposit Insurance
Corporation, Maritime Administration, Tennessee Valley Authority, District of
Columbia Armory Board, Student Loan Marketing Association and Resolution Trust
Corporation. Direct obligations of the U.S. Treasury include a variety of
securities that differ in their interest rates, maturities and dates of
issuance. Certain of the Government Securities that may be held by the Funds are
instruments that are supported by the full faith and credit of the United
States, whereas other Government Securities that may be held by the Funds are
supported by the right of the issuer to borrow from the U.S. Treasury or are
supported solely by the credit of the instrumentality. Because the U.S.
Government is not obligated by law to provide support to an instrumentality that
it sponsors, a Fund will invest in obligations issued by an instrumentality of
the U.S. Government only if the Investment Manager(2) determines that the
instrumentality's credit risk does not make its securities unsuitable for
investment by the Fund.
Each Fund, other than the Money Market Fund, may invest in money market
instruments issued or guaranteed by foreign governments or by any of their
political subdivisions, authorities, agencies or instrumentalities. Money market
instruments held by a Fund, other than the Money Market Fund, may be rated no
lower than A-2 by Standard & Poor's ("S&P") or Prime-2 by Moody's Investor's
Service ("Moody's") or the equivalent from another NRSRO, or if unrated, must be
issued by an issuer having an outstanding unsecured debt issue then rated within
the
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2 As used in this SAI, the term "Investment Manager" shall refer to GE
Investment Management Incorporated ("GEIM"), the Funds' investment adviser
and administrator, Palisade Capital Management, L.L.C., the sub-investment
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.
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three highest categories. A description of the rating systems of Moody's and S&P
is contained in the Appendix. At no time will the investments of a Fund, other
than the Money Market Fund, in bank obligations, including time deposits, exceed
25% of the value of the Fund's assets.
Temporary Defensive Positions. During periods when the Investment
Manager believes there are unstable market, economic, political or currency
conditions domestically or abroad, the Investment Manager may assume, on behalf
of a Fund, a temporary defensive posture and (i) without limitation hold cash
and/or invest in money market instruments, or (ii) restrict the securities
markets in which the Fund's assets will be invested by investing those assets in
securities markets deemed by the Investment Manager to be conservative in light
of the Fund's investment objective and policies. Under normal circumstances,
each Fund may invest a portion of its total assets in cash and/or money market
instruments for cash management purposes, pending investment in accordance with
the Fund's investment objective and policies and to meet operating expenses. To
the extent that a Fund, other than the Money Market Fund, holds cash or invests
in money market instruments, it may not achieve its investment objective. For
temporary defensive purposes, the Premier Growth Equity Fund may invest in fixed
income securities without limitation.
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 U.S. banks. Obligations
of foreign branches of U.S. banks and foreign banks are subject to the risks
associated with investing in foreign securities generally. These obligations
entail risks that are different from those of investments in obligations in
domestic banks, including foreign economic and political developments outside
the United States, foreign governmental restrictions that may adversely affect
payment of principal and interest on the obligations, foreign exchange controls
and foreign withholding or other taxes on income.
A U.S. branch of a foreign bank may or may not be subject to reserve
requirements imposed by the Federal Reserve System or by the state in which the
branch is located if the branch is licensed in that state. In addition, branches
licensed by the Comptroller of the Currency and branches licensed by certain
states ("State Branches") may or may not be required to: (1) pledge to the
regulator by depositing assets with a designated bank within the state, an
amount of its assets equal to 5% of its total liabilities; and (2) maintain
assets within the state in an amount equal to a specified percentage of the
aggregate amount of liabilities of the foreign bank payable at or through all of
its agencies or branches within the state. The deposits of State
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<PAGE>
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.
Debt Instruments. A debt instrument held by a Fund will be affected by
general changes in interest rates that will in turn result in increases or
decreases in the market value of those obligations. The market value of debt
instruments in a Fund's portfolio can be expected to vary inversely to changes
in prevailing interest rates. In periods of declining interest rates, the yield
of a Fund holding a significant amount of debt instruments will tend to be
somewhat higher than prevailing market rates, and in periods of rising interest
rates, the Fund's yield will tend to be somewhat lower. In addition, when
interest rates are falling, money received by such a Fund from the continuous
sale of its 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.
Ratings as Investment Criteria. The ratings of nationally recognized
statistical rating organizations ("NRSROs") such as S&P or Moody's represent the
opinions of those organizations as to the quality of securities that they rate.
Although these ratings, which are relative and subjective and are not absolute
standards of quality, are used by the Investment Manager as initial criteria for
the selection of portfolio securities on behalf of the Funds, the Investment
Manager also relies upon its own analysis to evaluate potential investments.
Subsequent to its purchase by a Fund, an issue of securities may cease
to be rated or its rating may be reduced below the minimum required for purchase
by the Fund. Although neither event will require the sale of the securities by a
Fund, other than the Money Market Fund, the Investment Manager will consider the
event in its determination of whether the Fund should continue to hold the
securities. In the event the rating of a security held by the Money Market Fund
falls below the minimum acceptable rating or the issuer of the security
defaults, the Money Market Fund will dispose of the security as soon as
practicable, unless the Board determines that disposal of the security would not
be in the best interests of the Money Market Fund. To the extent that a NRSRO's
ratings change as a result of a change in the NRSRO or its rating system, the
Funds will attempt to use comparable ratings as standards for their investments
in accordance with their investment objectives and policies.
Certain Investment Grade Debt Obligations. Although obligations rated
BBB by S&P or Baa by Moody's are considered investment grade, they may be viewed
as being subject to greater risks than other 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 Debt Securities. Certain Funds are authorized to invest in
securities rated lower than investment grade (sometimes referred to as "junk
bonds"). Low- rated and comparable unrated securities (collectively referred to
as "low-rated" securities) likely have quality and protective characteristics
that, in the judgment of a rating organization, are
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outweighed by large uncertainties or major risk exposures to adverse conditions,
and are predominantly speculative with respect to the issuer's capacity to pay
interest and repay principal in accordance with the terms of the obligation.
Securities in the lowest rating categories may be in default or may present
substantial risks of default.
The market values of certain low-rated securities tend to be more
sensitive to individual corporate developments and changes in economic
conditions than higher-rated securities. In addition, low-rated securities
generally present a higher degree of credit risk. Issuers of low-rated
securities are often highly leveraged and may not have more traditional methods
of financing available to them, so that their ability to service their debt
obligations during an economic downturn or during sustained periods of rising
interest rates may be impaired. The risk of loss due to default by these issuers
is significantly greater because 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 in the payment of principal or interest on its portfolio
holdings. The existence of limited markets for low-rated securities may diminish
the Trust's ability to obtain accurate market quotations for purposes of valuing
the securities held by a Fund and calculating the Fund's net asset value.
Repurchase and Reverse Repurchase Agreements. Each Fund may engage in
repurchase agreement transactions with respect to instruments in which the Fund
is authorized to invest. The Funds may engage in repurchase agreement
transactions with certain member banks of the Federal Reserve System and with
certain dealers listed on the Federal Reserve Bank of New York's list of
reporting dealers. Under the terms of a typical repurchase agreement, which is
deemed a loan for purposes of the Investment Company Act of 1940, as amended
("1940 Act"), a Fund would acquire an underlying obligation for a relatively
short period (usually from one to seven days) subject to an obligation of the
seller to repurchase, and the Fund to resell, the obligation at an agreed-upon
price and time, thereby determining the yield during the Fund's holding period.
This arrangement results in a fixed rate of return that is not subject to market
fluctuations during the Fund's holding period. The value of the securities
underlying a repurchase agreement of a Fund are monitored on an ongoing basis by
the Investment Manager to ensure that the value is at least equal at all times
to the total amount of the repurchase obligation, including interest. The
Investment Manager also monitors, on an ongoing basis to evaluate potential
risks, the creditworthiness of those banks and dealers with which a Fund enters
into repurchase agreements.
The Small-Cap Value Fund, the Value Equity Fund, the Emerging Markets
Fund, the High Yield Fund, and the Money Market Fund may engage in reverse
repurchase agreements, subject to their investment restrictions. A reverse
repurchase agreement, which is considered a borrowing by a Fund, involves a sale
by the Fund of securities that it holds concurrently with an agreement by the
Fund to repurchase the same securities at an agreed upon price and date. A Fund
uses the proceeds of reverse repurchase agreements to provide liquidity to meet
redemption requests and to make cash payments of dividends and distributions
when the sale of the Fund's securities is considered to be disadvantageous.
Cash, Government Securities or other liquid
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assets equal in value to a Fund's obligations with respect to reverse repurchase
agreements are segregated and maintained with the Trust's custodian or
designated sub-custodian.
A Fund entering into a repurchase agreement will bear a risk of loss in
the event that 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. The Fund will be, in particular, subject to the risk
of a possible decline in the value of the underlying securities during the
period in which the Fund seeks to assert its right to them, the risk of
incurring expenses associated with asserting those rights and the risk of losing
all or a 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, a 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.
Non-publicly Traded and Illiquid Securities. Each Fund, other than the
Money Market Fund, may invest up to 10% of its assets in non-publicly traded
securities. Non-publicly traded securities are securities that are subject to
contractual or legal restrictions on transfer, excluding for purposes of this
restriction, Rule 144A Securities that have been determined to be liquid by the
Board based upon the trading markets for the securities. In addition, each Fund,
other than the Money Market Fund, may invest up to 15% of its assets in
"illiquid securities"; the Money Market Fund may not, under any circumstance,
invest in illiquid securities. 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. Illiquid
securities that are held by a Fund may take the form of options traded
over-the-counter, repurchase agreements maturing in more than seven days,
certain mortgage related securities and securities subject to restrictions on
resale that the Investment Manager has determined are not liquid under
guidelines established by the Board.
Non-publicly traded securities may be less liquid than publicly traded
securities. Although these securities may be resold in privately negotiated
transactions, the prices realized from these sales could be less than those
originally paid by a Fund. In addition, companies whose securities are not
publicly traded are not subject to the disclosure and other investor protection
requirements that may be applicable if their securities were publicly traded. A
Fund's investments in illiquid securities are subject to the risk that should
the Fund desire to sell any of these securities when a ready buyer is not
available at a price that the Investment Manager deems representative of their
value, the value of the Fund's net assets could be adversely affected.
Rule 144A Securities. Each of the Funds may purchase Rule 144A
Securities. Certain Rule 144A Securities may be considered illiquid and
therefore subject to a Fund's limitation on the purchase of illiquid securities,
unless the Board determines on an ongoing basis that an adequate trading market
exists for the Rule 144A Securities. A Fund's purchase of Rule 144A
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Securities could have the effect of increasing the level of illiquidity in the
Fund to the extent that qualified institutional buyers become uninterested for a
time in purchasing Rule 144A Securities held by the Fund. The Board has
established standards and procedures for determining the liquidity of a Rule
144A Security and monitors the Investment Manager's implementation of the
standards and procedures. The ability to sell to qualified institutional buyers
under Rule 144A is a recent development and GEIM cannot predict how this market
will develop.
When-Issued and Delayed-Delivery Securities. To secure prices or yields
deemed advantageous at a particular time, a Fund may purchase securities on a
when-issued or delayed-delivery basis, in which case, delivery of the securities
occurs beyond the normal settlement period; no payment for or delivery of the
securities is made by, and no income accrues to, the Fund, however, prior to the
actual delivery or payment by the other party to the transaction. Each Fund will
enter into when-issued or delayed-delivery transactions for the purpose of
acquiring securities 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 under which the issuance of the securities depends on the
occurrence of a subsequent event, such as approval of a merger, corporate
reorganization or debt restructuring. Cash or other liquid assets in an amount
equal to the amount of each Fund's when-issued or delayed-delivery purchase
commitments will be segregated with the Trust's custodian, or with a designated
subcustodian, in order to avoid or limit any leveraging effect that may arise in
the purchase of a security pursuant to such a commitment.
Securities purchased on a when-issued or delayed-delivery basis may
expose a Fund to risk because the securities may experience fluctuations in
value prior to their delivery. Purchasing securities on a when-issued or
delayed- delivery basis can involve the additional risk that the return
available in the market when the delivery takes place may be higher than that
applicable at the time of the purchase. This characteristic of when-issued and
delayed-delivery securities could result in exaggerated movements in a Fund's
net asset value.
When a Fund engages in when-issued or delayed-delivery securities
transactions, it relies on the selling party to consummate the trade. Failure of
the seller to do so may result in the Funds incurring a loss or missing an
opportunity to obtain a price considered to be advantageous.
Warrants. Because a warrant, which is a security permitting, but not
obligating, its holder to subscribe for another security, does not carry with it
the right to dividends or voting rights with respect to the securities that the
warrant holder is entitled to purchase, and because a warrant does not represent
any rights to the assets of the issuer, 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. The investment by a Fund in warrants valued at the lower of
cost or market, may not exceed 5% of the value of the Fund's net assets.
Warrants acquired by a Fund in units or attached to securities may be deemed to
be without value.
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Smaller Capitalization Companies. Investing in securities of small- and
medium-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, the
risk exists that the companies will not succeed and the prices of the companies'
shares could significantly decline in value.
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. 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 comparable to those applicable to U.S. companies. The
values of foreign investments are affected by changes in currency rates or
exchange control regulations, restrictions or prohibitions on the repatriation
of foreign currencies, application of foreign tax laws, including withholding
taxes, changes in governmental administration or economic or monetary policy (in
the United States or abroad) or changed circumstances in dealings between
nations. Costs are also incurred in connection with conversions between various
currencies. In addition, foreign brokerage commissions are generally higher than
those charged in the United States and foreign securities markets may be less
liquid, more volatile and less subject to governmental supervision than in the
United States. Investments in foreign countries could be affected by other
factors not present in the United States, including expropriation, confiscatory
taxation, lack of uniform accounting and auditing standards, limitations on the
use or removal of funds or other assets (including the withholding of
dividends), and potential difficulties in enforcing contractual obligations, and
could be subject to extended clearance and settlement periods.
Certain Funds may invest in securities of foreign issuers in the form
of ADRs and European Depositary Receipts ("EDRs"), which are sometimes referred
to as Continental Depositary Receipts ("CDRs"). ADRs are publicly traded on
exchanges or over-the-counter in the United States and are issued through
"sponsored" or "unsponsored" arrangements. In a sponsored ADR arrangement, the
foreign issuer assumes the obligation to pay some or all of the depositary's
transaction fees, whereas under an unsponsored arrangement, the foreign issuer
assumes no obligations and the depositary's transaction fees are paid directly
by the ADR holders. In addition, less information is available in the United
States about an unsponsored ADR than about a sponsored ADR. Each of these Funds
may invest in ADRs through both sponsored and unsponsored arrangements. EDRs and
CDRs are generally issued by foreign banks and evidence ownership of either
foreign or domestic securities.
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The recent introduction of a single European currency, the EURO, on
January 1, 1999 for participating European countries in the Economic and
Monetary Union ("Participating Countries") presents unique risks and
uncertainties for investors in those countries, including (i) whether the
payment and operational systems of banks and other financial institutions will
be ready by the scheduled launch date; (ii) the creation of suitable clearing
and settlement payment schemes for the EURO; (iii) the legal treatment of
outstanding financial contracts after January 1, 1999 that refer to existing
currencies rather than the EURO; (iv) the fluctuation of the EURO relative to
non-EURO currencies during the transition period from January 1, 1999 to
December 31, 2000 and beyond; and (v) whether the interest rate, tax and labor
regimes of the Participating Countries will converge over time. Further, the
conversion of the currencies of other Economic and Monetary Union countries,
such as the United Kingdom, and the admission of other countries, including
Central and Eastern European countries, to the Economic and Monetary Union could
adversely affect the EURO. These or other factors may cause market disruptions
before or after the introduction of the EURO and could adversely affect the
value of European securities and currencies held by the Funds.
Currency Exchange Rates. A Fund's share value may change significantly
when the currencies, other than the U.S. dollar, in which the Fund's portfolio
investments are denominated, strengthen or weaken against the U.S. dollar.
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.
Investing in Developing Countries. Investing in securities issued by
companies located in developing countries involves not only the risks described
above with respect to investing in foreign securities, but also other risks,
including exposure to economic structures that are generally less diverse and
mature than, and to political systems that can be expected to have less
stability than, those of developed countries. 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 typically small size of the markets for securities issued by
companies located in developing countries and the possibility of a low or
nonexistent volume of trading in those securities may also result in a lack of
liquidity and in price volatility of those securities.
Lending Portfolio Securities. Each Fund is authorized to lend its
portfolio securities to well-known and recognized U.S. and foreign brokers,
dealers and banks. These loans, if and when made, may not exceed 30% of a Fund's
assets taken at value. The Fund's loans of securities will be collateralized by
cash, letters of credit or Government Securities. Cash or instruments
collateralizing a Fund's loans of securities are segregated and maintained at
all times with the Trust's custodian, or with a designated sub-custodian, in an
amount at least equal to the
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current market value of the loaned securities. In lending securities, a Fund
will be subject to risks, which, like those associated with other extensions of
credit, include possible loss of rights in the collateral should the borrower
fail financially.
If a Fund loans its portfolio securities, it will adhere to the
following conditions whenever its portfolio securities are loaned: (1) the Fund
must receive at least 100% cash collateral or equivalent securities from the
borrower; (2) the borrower must increase the collateral whenever the market
value of the securities loaned rises above the level of the collateral; (3) the
Fund must be able to terminate the loan at any time; (4) 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; (5)
the Fund may pay only reasonable custodian fees in connection with the loan; and
(6) 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 (the "Board") 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."
Securities of Other Investment Companies. Certain Funds may invest in
investment funds that invest principally in securities in which the Fund is
authorized to invest. Currently, under the 1940 Act, a Fund may hold securities
of another investment company in amounts which (a) do not exceed 3% of the total
outstanding voting stock of such company, (b) do not exceed 5% of the value of
the Fund's total assets and (c) when added to all other investment company
securities held by the Fund, do not exceed 10% of the value of the Fund's total
assets. Investments by a Fund (other than the Money Market Fund) in the
Investment Fund are not considered an investment in another investment company
for purposes of this restriction. To the extent a Fund invests in other
investment companies, the Fund's shareholders will incur certain duplicative
fees and expenses, including investment advisory fees.
Purchasing Put and Call Options on Securities. Each Fund, other than
the Money Market Fund, may purchase put and call options that are traded on a
U.S. or foreign securities exchange or in the over-the-counter market. A Fund
may utilize up to 10% of its assets to purchase put options on portfolio
securities and may do so at or about the same time that it purchases the
underlying security or at a later time. By buying a put, a Fund will seek to
limit its risk of loss from a decline in the market value of the security until
the put expires. Any appreciation in the value of the underlying security,
however, will be partially offset by the amount of the premium paid for the put
option and any related transaction costs. A Fund may utilize up to 10% of its
assets to purchase call options on portfolio securities. Call options may be
purchased by a Fund in order to acquire the underlying securities for a price
that avoids any additional cost that would result from a substantial increase in
the market value of a security. A Fund may also purchase call options to
increase its return at a time when the call is expected to increase in value due
to anticipated appreciation of the underlying security. Prior to their
expirations, put and call options may be sold by a Fund in closing sale
transactions, which are sales by the Fund, prior to the exercise of options that
it has purchased, of options of the same
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series. Profit or loss from the sale will depend on whether the amount received
is more or less than the premium paid for the option plus the related
transaction costs. 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 a Fund. In addition, the premiums paid
by a Fund in purchasing options on securities, options on securities indices,
options on foreign currencies and options on futures contracts will not exceed
20% of the Fund's net assets.
Covered Option Writing. Each Fund, other than the Money Market Fund,
may write covered put and call options on securities. A Fund will realize fees
(referred to as "premiums") for granting the rights evidenced by the options. A
put option embodies the right of its purchaser to compel the writer of the
option to purchase from the option holder an underlying security at a specified
price at any time during the option period. In contrast, a call option embodies
the right of its purchaser to compel the writer of the option to sell to the
option holder an underlying security at a specified price at any time during the
option period.
The Funds with option-writing authority will write only options that
are covered. A call option written by a Fund will be deemed covered (1) if the
Fund owns the securities underlying the call or has an absolute and immediate
right to acquire those securities without additional cash consideration upon
conversion or exchange of other securities held in its portfolio, (2) if the
Fund holds a call at the same exercise price for the same exercise period and on
the same securities as the call written, (3) in the case of a call option on a
stock index, if the Fund owns a portfolio of securities substantially
replicating the movement of the index underlying the call option, or (4) if at
the time the call is written, an amount of cash, Government Securities or other
liquid assets equal to the fluctuating market value of the optioned securities,
is segregated with the Trust's custodian or with a designated sub-custodian. A
put option will be deemed covered (1) if, at the time the put is written, an
amount of cash, Government Securities or other liquid assets having a value at
least equal to the exercise price of the underlying securities is segregated
with the Trust's custodian or with a designated sub-custodian, or (2) if the
Fund continues to own an equivalent number of puts of the same "series" (that
is, puts on the same underlying securities having the same exercise prices and
expiration dates as those written by the Fund), or an equivalent number of puts
of the same "class" (that is, puts on the same underlying securities) with
exercise prices greater than those that it has written (or if the exercise
prices of the puts it holds are less than the exercise prices of those it has
written, the difference is segregated with the Trust's custodian or with a
designated sub-custodian).
The principal reason for writing covered call options on a securities
portfolio is to attempt to realize, through the receipt of premiums, a greater
return 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
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institutions, including other investment companies, engage in or increase their
option-writing activities.
Options written by a Fund will normally have expiration dates between
one and nine months from the date written. The exercise price of the options may
be below, equal to or above the market values of the underlying securities at
the times the options are written. In the case of call options, these exercise
prices are referred to as "in-the-money," "at-the-money" and "out-of-the-money,"
respectively.
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.
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 permitting
its sale or the writing of a new option on the security prior to the outstanding
option's expiration). To effect a closing purchase transaction, a Fund would
purchase, prior to the holder's exercise of an option that the Fund has written,
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. 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 Government Securities, only on national securities
exchanges. Options on Government Securities 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, for example, 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
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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.
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. In addition to writing covered put and call options to generate current
income, a Fund may enter into options transactions as hedges to reduce
investment risk, generally by making an investment expected to move in the
opposite direction of a portfolio position. A hedge is designed to offset a loss
on a portfolio position with a gain on the hedge position; at the same time,
however, a properly correlated hedge will result in a gain on the portfolio's
position being offset by a loss on the hedge position.
A Fund will engage in hedging transactions only when deemed advisable
by the Investment Manager. Successful use by a Fund of options will depend on
the Investment Manager's ability to predict correctly movements in the direction
of the securities underlying the option used as a hedge. Losses incurred in
hedging transactions and the costs of these transactions will affect a Fund's
performance.
Securities Index Options. In seeking to hedge all or a portion of its
investments, each Fund, other than the Money Market Fund, may purchase and write
put and call options on securities indices listed on U.S. or foreign securities
exchanges or traded in the over-the-counter market, which indices include
securities held in the Fund's portfolio. The Funds with such option writing
authority may write only covered options. A Fund may also use securities index
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.
Options on securities indexes are generally similar to options on specific
securities. Unlike options on securities, however, options on securities indices
do not involve the delivery of an underlying security; the option in the case of
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. A Fund
may purchase and write put and call options on securities indexes or securities
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 securities index fluctuates with changes in the market values of
the securities included in the index. Securities index options may be based on a
broad or narrow market index or on an industry or market segment.
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The delivery requirements of options on securities indices differ from
options on securities. Unlike a securities option, which contemplates the right
to take or make delivery of securities at a specified price, an option on a
securities index gives the holder the right to receive a cash "exercise
settlement amount" equal to (1) the amount, if any, by which the fixed exercise
price of the option exceeds (in the case of a put) or is less than (in the case
of a call) the closing value of the underlying index on the date of exercise,
multiplied by (2) a fixed "index multiplier." Receipt of this cash amount will
depend upon the closing level of the securities 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 securities index options
prior to expiration by entering into a closing transaction on an exchange or it
may allow the option to expire unexercised.
The effectiveness of purchasing or writing securities 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 securities 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
security, 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 prices in the market
generally or, in the case of certain indices, in an industry or market segment,
rather than movements in the price of a particular security. As a result,
successful use by a Fund of options on securities indices is subject to the
Investment Manager's ability to predict correctly movements in the direction of
the 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 securities.
Securities index options are subject to position and exercise limits
and other regulations imposed by the exchange on which they are traded. The
ability of a Fund to engage in closing purchase transactions with respect to
securities index options depends on 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 some
future date, for some options. No assurance can be given that a closing purchase
transaction can be effected when the Investment Manager desires that a Fund
engage in such a transaction.
Over-the-Counter ("OTC") Options. Certain 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
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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 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 and Related Options. Each Fund, other than the Small-Cap Value
Fund and the Money Market 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 Commodity Futures
Trading Commission or in the over-the-counter market. If entered into, these
transactions will be made solely for the purpose of hedging 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.
An interest rate futures contract provides for the future sale by one
party and the purchase by the other party of a specified amount of a particular
financial instrument (debt security) at a specified price, date, time and place.
Financial futures contracts are contracts that 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. A municipal bond index futures contract is based on an index of
long-term, tax-exempt municipal bonds and a corporate bond index futures
contract is based on an index of corporate bonds. Stock index futures contracts
are based on indices that reflect the market value of common stock of the
companies included in the indices. An index futures contract is an agreement
pursuant to which two parties agree 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. An option on an interest rate or index futures contract
generally gives the purchaser the
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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.
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 staff of the
Securities and Exchange Commission ("SEC") is that a Fund's long and short
positions in futures contracts as well as put and call options on futures
written by it must be collateralized with cash or other liquid assets and
segregated with the Trust's custodian or a designated sub-custodian or "covered"
in a manner similar to that for covered options on securities.
No consideration is paid or received by a Fund upon trading a futures
contract. Upon entering into a futures contract, cash, short-term Government
Securities 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 that 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
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of securities may, but will not necessarily, be at increased prices that reflect
the decline in interest rates.
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.
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. Losses incurred in hedging
transactions and the costs of these transactions will affect a Fund's
performance.
Forward Currency Transactions. Each Fund, other than the Small-Cap
Value Fund, and the Money Market Fund, may hold currencies to meet settlement
requirements for foreign securities and each Fund, other than the Premier Fund,
the Small-Cap Value Fund, the Mid-Cap Value Fund, and the Money Market Fund, may
engage in currency exchange transactions to protect against uncertainty in the
level of future exchange rates between a particular foreign currency and the
U.S. dollar or between foreign currencies in which the Fund's securities are or
may be denominated. No Fund will enter into forward currency transactions for
speculative purposes.
Forward currency contracts are agreements to exchange one currency for
another at a future date. The date (which may be any agreed-upon fixed number of
days in the future), the amount of currency to be exchanged and the price at
which the exchange will take place will be negotiated and fixed for the term of
the contract at the time that a Fund enters into the contract. Forward currency
contracts (1) are traded in a market conducted directly between currency traders
(typically, commercial banks or other financial institutions) and their
customers, (2) generally have no deposit requirements and (3) 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
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segregated with the Trust's custodian or a designated sub-custodian in an amount
at all times equal to or exceeding the Fund's commitment with respect to the
contracts.
Upon maturity of a forward currency contract, a Fund may (1) pay for
and receive the underlying currency, (2) negotiate with the dealer to roll over
the contract into a new forward currency contract with a new future settlement
date or (3) negotiate with the dealer to terminate the forward contract into an
offset with the currency trader providing for the Fund's paying or receiving the
difference between the exchange rate fixed in the contract and the then current
exchange rate. The Trust may also 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.
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 Code for a given year.
In entering into forward currency contracts, a Fund will be subject to
a number of risks and special considerations. The market for forward currency
contracts, for example, may be limited with respect to certain currencies. The
existence of a limited market may in turn restrict the Fund's ability to hedge
against the risk of devaluation of currencies in which the Fund holds a
substantial quantity of securities. The successful use of forward currency
contracts as a hedging technique draws upon the Investment Manager's special
skills and experience with respect to those instruments and will usually depend
upon the Investment Manager's ability 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
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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 ability to dispose of a Fund's positions in forward currency
contracts depends on the availability of active markets in those instruments,
and the Investment Manager cannot predict the amount of trading interest that
may exist in the future in forward currency contracts. 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. Each Fund, other than the Premier Fund,
the Small-Cap Value Fund, the Mid-Cap Value Fund and the Money Market Fund, may
purchase and write put and call options on foreign currencies for the purpose of
hedging against declines in the U.S. dollar value of foreign currency
denominated securities and against increases in the U.S. dollar cost of
securities to be acquired by the Fund. The Funds with such option writing
authority may write only covered options. No Fund will enter into a transaction
involving options on foreign currencies for speculative purposes. Options on
foreign currencies to be written or purchased by a Fund 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.
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 SEC, as are other securities traded on those exchanges. As a
result, many of the protections provided to traders on organized exchanges will
be available with respect to those transactions. In particular, all foreign
currency option positions entered into on a national securities exchange are
cleared and guaranteed by the Clearing Corporation, thereby reducing the risk of
counterparty default. In addition, a liquid secondary market in options traded
on a national securities exchange may exist, potentially permitting a Fund to
liquidate open positions at a profit prior to exercise or expiration, or to
limit losses in the event of adverse market movements.
The purchase and sale of exchange-traded foreign currency options are
subject to the risks of the availability of a liquid secondary market as
described above, as well as the risks regarding adverse market movements,
margining of options written, the nature of the foreign currency market,
possible intervention by governmental authorities and the effects of other
political and economic events. In addition, exercise and settlement of
exchange-traded foreign currency options must be made exclusively through the
Clearing Corporation, which has established banking relationships in applicable
foreign countries for this purpose. As a result, the Clearing Corporation may,
if it determines that foreign governmental restrictions or taxes would prevent
the orderly settlement of foreign currency option exercises, or would result in
undue burdens on the Clearing Corporation or its clearing members, impose
special procedures on exercise and settlement, such as technical changes in the
mechanics of delivery of currency, the fixing of dollar settlement prices or
prohibitions on exercise.
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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.
Options on foreign currencies may be traded on foreign exchanges, to
the extent permitted by the CFTC. These transactions are subject to the risk of
governmental actions affecting trading in or the prices of foreign currencies or
securities. The value of these positions could also be adversely affected by (1)
other complex foreign political and economic factors, (2) lesser availability of
data on which to make trading decisions than in the United States, (3) delays in
a Fund's ability to act upon economic events occurring in foreign markets during
non-business hours in the United States, (4) the imposition of different
exercise and settlement terms and procedures and margin requirements than in the
United States and (5) lesser trading volume.
Structured and Indexed Securities. Certain Funds may also invest in
structured and indexed securities, the value of which is linked to currencies,
interest rates, commodities, indexes or other financial indicators ("reference
instruments"). The interest rate or the principal amount payable at maturity or
redemption may be increased or decreased depending on changes in the value of
the reference instrument. Structured or indexed securities may be positively or
negatively indexed, so that appreciation of the reference instrument may produce
an increase or a decrease in interest rate or value at maturity of the security.
In addition, the change in the interest rate or value at maturity of the
security may be some multiple of the change in value of the reference
instrument. Thus, in addition to the credit risk of the security's issuer, the
Funds will bear the market risk of the reference instrument.
Mortgage Related Securities. Certain Funds may invest in mortgage
related securities which represent pools of mortgage loans assembled for sale to
investors by various governmental agencies, such as GNMA, by government related
organizations, such as FNMA and FHLMC, as well as by private issuers, such as
commercial banks, savings and loan institutions, mortgage bankers and private
mortgage insurance companies.
The average maturity of pass-through pools of mortgage related
securities in which certain of the Funds may invest varies with the maturities
of the underlying mortgage instruments. In addition, a pool's stated maturity
may be shortened by unscheduled payments on the underlying mortgages. Factors
affecting mortgage prepayments include the level of interest rates, general
economic and social conditions, the location of the mortgaged property and age
of the mortgage. Because prepayment rates of individual mortgage pools vary
widely, the average life of a particular pool cannot be predicted accurately.
Mortgage related securities may be classified as private, governmental
or government-related, depending on the issuer or guarantor. Private mortgage
related securities
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represent pass-through pools consisting principally of conventional residential
mortgage loans created by non-governmental issuers, such as commercial banks,
savings and loan associations and private mortgage insurance companies.
Governmental mortgage related securities are backed by the full faith and credit
of the United States. GNMA, the principal U.S. guarantor of these securities, is
a wholly-owned U.S. government corporation within the Department of Housing and
Urban Development. Government-related mortgage related securities are not backed
by the full faith and credit of the United States. Issuers include FNMA and
FHLMC. FNMA is a government-sponsored corporation owned entirely by private
stockholders, which is subject to general regulation by the Secretary of Housing
and Urban Development. Pass-through securities issued by FNMA are guaranteed as
to timely payment of principal and interest by FNMA. FHLMC is a corporate
instrumentality of the United States, the stock of which is owned by the Federal
Home Loan Banks. Participation certificates representing interests in mortgages
from FHLMC's national portfolio are guaranteed as to the timely payment of
interest and ultimate collection of principal by FHLMC.
Private, governmental or government-related entities may create
mortgage loan pools offering pass-through investments in addition to those
described above. The mortgages underlying these securities may be alternative
mortgage instruments, that is, mortgage 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.
Several risks are associated with mortgage related securities
generally. The monthly cash inflow from the underlying loans, for example, may
not be sufficient to meet the monthly payment requirements of the mortgage
related security. Prepayment of principal by mortgagors or mortgage foreclosures
will shorten the term of the underlying mortgage pool for a mortgage related
security. Early returns of principal will affect the average life of the
mortgage related securities remaining in these Funds. The occurrence of mortgage
prepayments is affected by factors including the level of interest rates,
general economic conditions, the location and age of the mortgage and other
social and demographic conditions. In periods of rising interest rates, the rate
of prepayment tends to decrease, thereby lengthening the average life of a pool
of mortgage related securities. Conversely, in periods of falling interest rates
the rate of prepayment tends to increase, thereby shortening the average life of
a pool. Reinvestment of prepayments may occur at higher or lower interest rates
than the original investment, thus affecting the yield of these Funds. Because
prepayments of principal generally occur when interest rates are declining, the
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, although those
other fixed income securities may have a comparable risk of decline in market
value in periods of rising interest rates. To the extent that these Funds
purchase mortgage related securities at a premium, unscheduled prepayments,
which are made at par, will result in a loss equal to any unamortized premium.
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Adjustable rate mortgage related securities ("ARMs") have interest
rates that reset at periodic intervals, thereby allowing certain Funds to
participate in increases in interest rates through periodic adjustments in the
coupons of the underlying mortgages, resulting in both higher current yields and
lower price fluctuation than would be the case with more traditional long-term
debt securities. Furthermore, if prepayments of principal are made on the
underlying mortgages during periods of rising interest rates, these Funds
generally will be able to reinvest these amounts in securities with a higher
current rate of return. None of these Funds, however, will benefit from
increases in interest rates to the extent that interest rates rise to the point
at which they cause the current yield of ARMs to exceed the maximum allowable
annual or lifetime reset limits (or "caps") for a particular mortgage. In
addition, fluctuations in interest rates above these caps could cause ARMs to
behave more like long-term fixed rate securities in response to extreme
movements in interest rates. As a result, during periods of volatile interest
rates, these Funds' net asset values may fluctuate more than if they did not
purchase ARMs. Moreover, during periods of rising interest rates, changes in the
coupon of the adjustable rate mortgages will slightly lag changes in market
rates, creating the potential for some principal loss for shareholders who
redeem their shares of these Funds before the interest rates on the underlying
mortgages are adjusted to reflect current market rates.
Collateralized mortgage related securities ("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
these Funds invest, the investment may be subject to a greater or lesser risk of
prepayment than other types of mortgage related securities.
Mortgage related securities may not be readily marketable. To the
extent any of these securities are not readily marketable in the judgment of the
Investment Manager, each of these Funds limits its investments in these
securities, together with other illiquid instruments, to not more than 15% of
the value of its net assets.
Supranational Agencies. Each Fund may invest up to 10% of its assets in
debt obligations of supranational agencies such as: 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
supranational agencies are not considered Government Securities and are not
supported, directly or indirectly, by the U.S.
Government.
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Municipal Obligations. The term "Municipal Obligations" as used in the
Prospectus and this SAI 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.
Opinions relating to the validity of Municipal Obligations and to the
exemption of interest on them from Federal income taxes are rendered by bond
counsel to the respective issuers at the time of issuance. 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 Strategic Fund
may invest without limit in debt obligations that are repayable out of revenues
generated from economically related projects or facilities or debt obligations
whose issuers are located in the same state. Sizable investments in these
obligations could involve an increased risk to the Funds should any of the
related projects or facilities experience financial difficulties.
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.
Even though Municipal Obligations are interest-bearing investments that
promise a stable flow of income, 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.
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
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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. If any laws are enacted that would reduce the availability
of Municipal Obligations for investment by the Tax-Exempt Fund so as to affect
the Fund's shareholders adversely, the Trust will reevaluate the Fund's
investment objective and policies and might submit possible changes in the
Fund's structure to the Fund's shareholders for their consideration. If
legislation were enacted that would treat a type of Municipal Obligation as
taxable for Federal income tax purposes, the Trust would treat the security as a
permissible taxable money market instrument for the Fund within the applicable
limits set forth in the Prospectus.
Municipal leases are Municipal Obligations that may take the form of a
lease or an installment purchase contract issued by state and local governmental
authorities to obtain funds to acquire a wide variety of equipment and
facilities such as fire and sanitation vehicles, computer equipment and other
capital assets. Interest payments on qualifying municipal leases are exempt from
Federal income taxes and state income taxes within the state of issuance.
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: (1) the
frequency of trades and quotes; (2) the number of dealers willing to purchase or
sell the security; (3) the willingness of dealers to undertake to make a market;
(4) the nature of the marketplace trades; and (5) the likelihood that the
obligation will continue to be marketable based on the credit quality of the
municipality or relevant obligor.
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Municipal leases held by a Fund will be considered illiquid securities
unless the Board determines on an ongoing basis that the leases are readily
marketable. An unrated municipal lease with a non-appropriation risk that is
backed by an irrevocable bank letter of credit or an insurance policy issued by
a bank or insurer deemed by the Investment Manager to be of high quality and
minimal credit risk, will not be deemed to be illiquid solely because the
underlying municipal lease is unrated, if the Investment Manager determines that
the lease is readily marketable because it is backed by the letter of credit or
insurance policy.
Municipal leases that a Fund may acquire will be both rated and
unrated. Rated leases that may be held by a Fund include those rated investment
grade at the time of investment or those issued by issuers whose senior debt is
rated investment grade at the time of investment. A Fund may acquire unrated
issues that the Investment Manager deems to be comparable in quality to rated
issues in which a Fund is authorized to invest. A determination that an unrated
lease obligation is comparable in quality to a rated lease obligation and that
there is a reasonable likelihood that the lease will not be canceled will be
subject to oversight and approval by the Board.
To limit the risks associated with municipal leases, a Fund will invest
no more than 5% of its total assets in those leases. In addition, a Fund will
purchase lease obligations that contain non-appropriation clauses when the lease
payments will commence amortization of principal at an early date resulting in
an average life of five years or less for the lease obligation.
The Strategic Fund intends to invest in Municipal Obligations of a
broad range of issuers, consistent with prudent regional diversification.
Investors in certain states may be subject to state taxation on all or a portion
of the income and capital gains produced by such securities.
Floating and Variable Rate Instruments. Certain Funds may invest in
floating and variable rate instruments. Income securities may provide for
floating or variable rate interest or dividend payments. The floating or
variable rate may be determined by reference to a known lending rate, such as a
bank's prime rate, a certificate of deposit rate or the London InterBank Offered
Rate (LIBOR). Alternatively, the rate may be determined through an auction or
remarketing process. The rate also may be indexed to changes in the values of
interest rate or securities indexes, currency exchange rate or other
commodities. Variable and floating rate securities tend to be less sensitive
than fixed rate securities to interest rate changes and to have higher yields
when interest rates increase. However, during periods of rising interest rates,
changes in the interest rate of an adjustable rate security may lag changes in
market rates. The amount by which the rates paid on an income security may
increase or decrease may be subject to periodic or lifetime caps. 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.
Floating and variable rate income securities include securities whose
rates vary inversely with changes in market rates of interest. Such securities
may also pay a rate of interest
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determined by applying a multiple to the variable rate. The extent of 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.
Certain Funds 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 are obligations that permit a 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, a 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 a Fund will meet the quality criteria established by the Investment
Manager for the purchase of Municipal Obligations. The Investment Manager
considers on an ongoing basis the creditworthiness of the issuers of the
floating and variable rate demand obligations in the relevant Fund's portfolio.
Participation Interests. Certain Funds may purchase from financial
institutions participation interests in certain Municipal Obligations. 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 a Fund, the participation interest will be backed by an irrevocable
letter of credit or guarantee of a bank that the Board has determined meets
certain quality standards, or the payment obligation otherwise will be
collateralized by Government Securities. A 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 a
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. A Fund will invest no more than 5% of the value of its
total assets in participation interests.
Zero Coupon Obligations. Certain Funds may invest in zero coupon
obligations. Zero coupon securities generally pay no cash interest (or dividends
in the case of preferred stock) to their holders prior to maturity. Accordingly,
such securities usually are issued and traded at a deep discount from their face
or par value and generally are subject to greater fluctuations of
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market value in response to changing interest rates than securities of
comparable maturities and credit quality that pay cash interest (or dividends in
the case of preferred stock) on a current basis. Although each of these Funds
will receive no payments on its zero coupon securities prior to their maturity
or disposition, it will be required for federal income tax purposes generally to
include in its dividends each year an amount equal to the annual income that
accrues on its zero coupon securities. Such dividends will be paid from the cash
assets of the Fund, from borrowings or by liquidation of portfolio securities,
if necessary, at a time that the Fund otherwise would not have done so. To the
extent these Funds are required to liquidate thinly traded securities, the Funds
may be able to sell such securities only at prices lower than if such securities
were more widely traded. The risks associated with holding securities that are
not readily marketable may be accentuated at such time. To the extent the
proceeds from any such dispositions are used by these Funds to pay
distributions, each of those Funds will not be able to purchase additional
income-producing securities with such proceeds, and as a result its current
income ultimately may be reduced.
The High Yield Fund and the Strategic Fund may each invest up to 10% of
its assets in zero coupon Municipal Obligations. Zero coupon Municipal
Obligations are generally divided into two categories: "Pure Zero Obligations,"
which are those that 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. Certain Funds 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. A
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 decrease as the Auction
Component's rate increases. 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.
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Custodial Receipts. Certain Funds may acquire custodial receipts or
certificates underwritten by securities dealers or banks that evidence ownership
of future interest payments, principal payments, or both, on certain Municipal
Obligations. The underwriter of these certificates or receipts typically
purchases Municipal Obligations and deposits the obligations in an irrevocable
trust or custodial account with a custodian bank, which then issues receipts or
certificates that evidence ownership of the periodic unmatured coupon payments
and the final principal payment on the obligations. Custodial 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 custodial receipt a 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 those rights as may exist
against the underlying issuers. Thus, in the event the underlying issuer fails
to pay principal and/or interest when due, a 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. In addition, in the
event that the trust or custodial account in which the underlying security has
been deposited is determined to be an association taxable as a corporation,
instead of a non-taxable entity, the yield on the underlying security would be
reduced in recognition of any taxes paid.
Government Stripped Mortgage Related Securities. Certain Funds may
invest in government stripped mortgage related securities 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 issued
by GNMA, FNMA or FHLMC. The certificates underlying the government stripped
mortgage related securities represent all or part of the beneficial interest in
pools of mortgage loans. These Funds 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 the Investment Manager
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 securities held by these Funds.
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 these
Funds' not fully recovering their initial investment in an interest-only
government stripped mortgage related security. Under current market conditions,
these Funds expect that investments in government stripped mortgage related
securities will consist primarily of interest-only securities. The sensitivity
of an interest-only security that represents the interest portion of a
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particular class, as opposed to the interest portion of an entire pool, to
interest rate fluctuations, may be increased because of the characteristics of
the principal portion to which they relate. Government stripped mortgage related
securities are currently traded in an over-the-counter market maintained by
several large investment banking firms. No assurance can be given that these
Funds will be able to effect a trade of a government stripped mortgage related
security at a desired time. These Funds will acquire government stripped
mortgage related securities only if a secondary market for the securities exists
at the time of acquisition. Except for government stripped mortgage related
securities based on fixed rate FNMA and FHLMC mortgage certificates that meet
certain liquidity criteria established by the Board, 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. Certain Funds may invest
in 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, these Funds may be prevented from realizing the full amount due on a
sales contract because of state law requirements and restrictions relating to
foreclosure sales of vehicles and the availability of deficiency judgments
following these sales, because of depreciation, damage or loss of a vehicle,
because of the application of Federal and state bankruptcy and insolvency laws
or other factors. As a result, certificate holders may experience delays in
payment if the letter of credit is exhausted. Consistent with each of these
Funds' investment objective and policies and subject to the review and approval
of the Board, these Funds may also invest in other types of asset-backed and
receivable-backed securities.
Mortgage Dollar Rolls. Certain Funds may, with respect to up to 25% of
their total assets, enter into mortgage "dollar rolls" in which the Fund sells
securities for delivery in the current month and simultaneously contracts with
the same counterparty to repurchase similar (same type, coupon and maturity) but
not identical securities on a specified future date. The Fund loses the right to
receive principal and interest paid on the securities sold. However, the Fund
would benefit to the extent of any price received for the securities sold and
the lower forward price for the future purchase (often referred to as the
"drop") or fee income plus the interest earned on the cash proceeds of the
securities sold until the settlement date of the forward purchase. Unless such
benefits exceed the income, capital appreciation and gain or loss due to
mortgage repayments that would have been realized on the securities sold as part
of the mortgage
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dollar roll, the use of this technique will diminish the investment performance
of the Fund compared with what such performance would have been without the use
of mortgage dollar rolls. The Fund will hold and maintain in a segregated
account until the settlement date cash or liquid assets in an amount equal to
the forward purchase price. The benefits derived from the use of mortgage dollar
rolls may depend upon the Investment Manager's ability to predict correctly
mortgage prepayments and interest rates. There is no assurance that mortgage
dollar rolls can be successfully employed.
For financial reporting and tax purposes, each of these Funds proposes
to treat mortgage dollar rolls as two separate transactions: one involving the
purchase of a security and a separate transaction involving a sale. The Funds do
not currently intend to enter into mortgage dollar rolls that are accounted for
as a financing.
Short Sales Against the Box. Certain Funds may sell securities "short
against the box." Whereas a short sale is the sale of a security a Fund does not
own, a short sale is "against the box" if at all times during which 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.
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 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.
INVESTMENT RESTRICTIONS
Each Fund is subject to fundamental and non-fundamental investment
policies and limitations. Under the 1940 Act, fundamental investment policies
and limitations may not be changed without the vote of a majority of the
outstanding voting securities (as defined in the 1940 Act) of the Fund.
The following policies and limitations supplement those described in
the Prospectus and this SAI. 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.
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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 Government Securities) 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
Government Securities 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.
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.
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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.
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
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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.
Notes to Investment Restrictions
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 Board. 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. Government Securities generally
will be purchased on behalf of a Fund from underwriters or dealers, although
certain newly issued Government Securities 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
("best execution"). 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 GEIM relating to each Fund authorizes the Investment Manager, on
behalf of the Fund, in selecting brokers or 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
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1934) provided to the Fund and/or other accounts over which the Investment
Manager or its affiliates exercise investment discretion. The fees under the
investment advisory agreement relating to a Fund will not be reduced by reason
of the Fund's receiving brokerage and research services. The Board 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 Government Securities, 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. All brokerage transaction commissions paid to
affiliates will be fair and reasonable to the shareholders.
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 higher brokerage commissions.
During the fiscal period ended September 30, 1998, the Emerging Markets
Fund, the International Fund, the S&P 500 Index Fund, the U.S. Equity Fund, the
Mid-Cap Growth Fund, the Income Fund and the Money Market Fund paid $________,
$________, $________, $________, $________, $________ and $_________,
respectively in commissions to broker-dealers for execution of portfolio
transactions. Of these amounts, $______, $______, $_____, $_____, $_____, $_____
and $_____ in brokerage transactions was paid by the Emerging Markets Fund, the
International Fund, the S&P 500 Index Fund, the U.S. Equity Fund, the Mid-Cap
Growth Fund, the Income Fund and the Money Market Fund, respectively, to a
broker that provided research services during that fiscal year. The Trust
commenced operations in November 1997; accordingly, no Fund paid commissions to
broker-dealers prior to the fiscal period ended September 30, 1998.
MANAGEMENT OF THE TRUST
Trustees and Officers
The Board of Trustees oversees the business affairs of the Trust. 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.
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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. Each person named as a Trustee also may
serve in a similar capacity for other Funds advised by GEIM or GEIC. 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. The business
address of each Trustee and executive officer who is an "interested person" (as
defined in the 1940 Act) is 3003 Summer Street, Stamford, Connecticut 06905.
Position(s) Held Age and Principal Occupation(s)
Name and Address With Trust During Past Five Years
- ---------------- ---------- -----------------------
*Michael J. Cosgrove Chairman of the Board Age 49. President, GE
and President Investment Services Group 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 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 GEIM
since 1988; from 1988 until
1993, Mr. Cosgrove served as
Executive Vice President -
Finance and Administration of
GEIM and GEIC; Chairman of the
Board, Chief-Executive Officer
and President of GE Investment
Distributors, Inc., a
registered broker-dealer, since
19__; Chairman of the Board and
Chief Executive Officer of GE
Investment Retirement Services,
Inc., since 19__.
*Alan M. Lewis Trustee and Executive Age 52. Executive Vice
Vice President President, General Counsel and
Secretary of GEIM since 1988
and of GEIC since October 1987.
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<PAGE>
Position(s) Held Age and Principal Occupation(s)
Name and Address With Trust During Past Five Years
- ---------------- ---------- -----------------------
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.
William J. Lucas Trustee Age 51. Vice President and
Fairfield University Treasurer of Fairfield
North Benson Road University since 1983.
Fairfield, CT 06430
Robert P. Quinn Trustee Age 62. Retired since 1983 from
45 Shinnecock Road Salomon Brothers Inc; Director,
Quogue, NY 11959 GP Financial Corp., a holding
company, since 1994; Director,
The Greenpoint Savings Bank, a
financial institution, since
1987.
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<PAGE>
Position(s) Held Age and Principal Occupation(s)
Name and Address With Trust During Past Five Years
- ---------------- ---------- -----------------------
Jeffrey A. Groh Treasurer Age 36. Vice President-
Operations of GEIM and GEIC
since January 1997 and
Treasurer and Controller of
GEIM and GEIC since August
1994; prior to August 1994, was
a Senior Manager in Investment
Company Services Group and
certified public accountant
with Price Waterhouse LLP.
Matthew J. Simpson Secretary Age 37. Vice President and
General Counsel, Investment
Services Group of GEFA since
February 1997; Vice President,
Associate General Counsel and
Assistant Secretary of GEIM and
GEIC since October 1992.
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, GEID, 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 Board
attended by the Trustee and is reimbursed for expenses incurred in connection
with attendance at Board meetings.
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Trustees' Compensation
(for the fiscal year ended September 30, 1998)
COMPENSATION TABLE
Total Compensation from
Total Compensation Investment Companies
Name of Trustee From the Trust Managed by GEIM 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++
- -----------------------
+ As of September 30, 1998, Mr. Cosgrove served as Trustee or Director of four
investment companies advised by GEIM and of eight investment companies advised
by GEIC. Mr. Lewis serves as Trustee of three investment companies advised by
GEIM and 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.
++ As of September 30, 1998, Messrs. Costantino, Lucas and Quinn served as
Trustees or Directors of four investment companies advised by GEIM and the
compensation is for their services as Trustees or Directors of these companies.
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. GE is a highly diversified conglomerate comprised of 12
global manufacturing and service sector businesses. GE's businesses include
aircraft engines, appliances, capital services, lighting, medical systems,
broadcasting, plastic manufacturing, power systems, electrical distribution and
control systems, industrial control systems, information services and
transportation systems. 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
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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
$[_____] billion as of September 30, 1998, of which more than $[____] billion
was invested in mutual fund assets.
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.
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
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<PAGE>
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.
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:
Average Daily Annual Rate
Name of Fund Net Assets of Fund Percentage (%)*
- ------------ ------------------ ---------------
U.S. Equity Fund First $25 million .55
Premier Growth Equity Fund Next $25 million .45
Value Equity Fund Over $50 million .35
Mid-Cap Growth Fund
S&P 500 Index Fund All assets .15
Mid-Cap Value Equity Fund First $25 million .65
Next $25 million .60
Over $50 million .55
Small-Cap Value Equity Fund First $25 million .70
Small-Cap Growth Equity Fund Next $25 million .65
Over $50 million .60
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Average Daily Annual Rate
Name of Fund Net Assets of Fund Percentage (%)*
- ------------ ------------------ ---------------
International Equity Fund First $25 million .75
Next $50 million .65
Over $75 million .55
Europe Equity Fund First $25 million .85
Next $25 million .75
Over $50 million .65
Emerging Markets Fund First $50 million 1.05
Over $50 million .95
Income Fund First $25 million .35
Next $25 million .30
Next $50 million .25
Over $100 million .20
Strategic Investment Fund First $25 million .45
High Yield Fund Next $25 million .40
Over $100 million .35
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.
During the fiscal period ended September 30, 1998, the Emerging Markets
Fund, the International Fund, the Mid-Cap Growth Fund, the S&P 500 Index Fund,
the U.S. Equity Fund, the Income Fund, and the Money Market Fund paid $______,
$______, $______, $______, $______, $______ and $______, respectively, for
investment advisory and administration services.
During the fiscal period ended September 30, 1998, GEIM waived a total
of $______, $______, $______, $______, $______, $______, and $______ of expenses
of the Emerging Markets Fund, the International Fund, the Mid-Cap Growth Fund,
the S&P 500 Index Fund, the U.S. Equity Fund, the Income Fund, and the Money
Market Fund, respectively.
The Trust commenced operations in November 1997. Accordingly, no Fund
paid investment advisory and administration fees prior to the fiscal period
ended September 30, 1998.
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Sub-Investment Advisers
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. GEIM has engaged the following sub-advisers to manage
certain of the Funds.
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
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 $[____] billion under management as of [date], 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.
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 sub-investment adviser of the Small-Cap Value Fund. Pursuant to
the sub-investment advisory agreement between Palisade and GEIM, Palisade bears
all expenses in connection with the performance of its services as the Small-Cap
Value Fund's sub-investment adviser. Although Palisade has no previous
experience managing mutual fund portfolios, Palisade has managed various
institutional and private accounts.
High Yield Fund. Miller Anderson & Sherrerd, LLP ("MAS"), located at
One Tower Bridge, West Conshohocken, PA 19428, has been retained to act as
sub-investment adviser of the High Yield Fund. MAS is wholly-owned by indirect
subsidiaries of Morgan Stanley Dean Witter & Co. Pursuant to the sub-investment
advisory agreement between MAS and GEIM, MAS bears all expenses in connection
with the performance of its services as the High Yield Fund's sub-investment
adviser.
Mid-Cap Value Equity Fund. NWQ, located at 2049 Century Park East, Los
Angeles, CA 90067, has been retained to act as sub-investment adviser of the
Mid-Cap Value Equity Fund. NWQ is a wholly-owned subsidiary of United Asset
Management Corporation, a company whose principal business is managing
investments for institutional clients. Pursuant to the sub-investment advisory
agreement between NWQ and GEIM, NWQ bears all expenses in connection with the
performance of its services as the Mid-Cap Value Equity Fund's sub-investment
adviser.
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Sub-Advisory Agreements
SSGA, Palisade, MAS and NWQ serve as sub-advisers to the S&P 500 Index
Fund, the Small-Cap Value Fund, the High Yield Fund and the Mid-Cap Value Equity
Fund, respectively, pursuant to 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 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 sub-adviser. The Sub-Advisory Agreements provide
that the 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 sub-adviser shall not
be liable for any error of judgment or mistake of law or for any loss incurred
by the Fund 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.
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
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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 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).
[During the fiscal period ended September 30, 1998, $[___] was paid to
GEIM for compensation of sales personnel, and $[___] was paid to GEIM to enable
GEIM to compensate Service Providers.]
Custodian and Transfer Agent
State Street Bank and Trust Company ("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
subcustodians of assets owned by each Fund. For its custody services, State
Street receives monthly fees 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. ("GEID"), located at 777 Long Ridge
Road, Building B, Stamford, Connecticut 06927, serves as the distributor of Fund
shares on a continuing best efforts basis. Michael J. Cosgrove, a member of the
Trust's board of trustees, is the Chairman of the board, Chief Executive Officer
and President of GEID.
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PURCHASE, REDEMPTION AND EXCHANGE OF SHARES
Purchases
Shares are offered to investors at the offering price, based on the NAV
next determined after receipt of an investment in good order by State Street
Bank and Trust Company, the Trust's custodian and transfer agent. The offering
price is equal to NAV plus any applicable initial sales charge imposed at the
time of purchase, as described below.
GEID and other persons remunerated on the basis of sales of shares may
receive different levels of compensation for selling one Class of shares over
another. In addition, trail commissions of up to 0.25% may be paid to authorized
broker-dealers, financial institutions or investment advisers which have entered
into sales agreements with GEID ("Authorized Firms") for providing on-going
services with respect to Service Class shares.
GEID offers shares of each class 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. GEID 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)), GEID may, in its sole discretion, refuse
to sell additional Fund shares to such investor (other than reinvestment of
dividends and capital gains).
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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), GEID 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,
GEID 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, GEID 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.
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
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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 GEID ("Authorized Firms").
An investor may purchase shares through an Authorized Firm with the
assistance of a sales representative (an "Investment Professional"). The
Authorized Firm will be responsible for transmitting the investor's order
promptly to the transfer agent. Investors should contact their Investment
Professional 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.
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 Investment Professional or GEID for information
about which securities a particular Fund will accept. The Trust reserves the
right to require GEID 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.
Redemptions
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The right of redemption of shares of a Fund may be suspended or the
date of payment postponed (1) for any periods during which the NYSE is closed
(other than for customary weekend and holiday closings), (2) when trading in the
markets the Fund normally utilizes is restricted, or an emergency, as defined by
the rules and regulations of the SEC, exists, making disposal of a Fund's
investments or determination of its net asset value not reasonably practicable
or (3) for such other periods as the SEC by order may permit for the protection
of the Fund's shareholders. A shareholder who pays for Fund shares by personal
check will receive the proceeds of a redemption of those shares when the
purchase check has been collected, which may take up to 15 days or more.
Shareholders who anticipate the need for more immediate access to their
investment should purchase shares with Federal funds or bank wire or by a
certified or cashier's check.
Distributions-in-Kind. If the Board 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 Trust'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.
Exchange Privilege
As described in the Prospectus, 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. 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.
The exchange privilege described in the Prospectus enables a
shareholder of a Fund to acquire shares in a Fund having a different investment
objective and policies when the shareholder believes that a shift between Funds
is an appropriate investment decision. 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 exchange, and such Fund may be legally sold in the
shareholder's state of residence, shares submitted for exchange are redeemed at
the then-current net asset value and the proceeds are immediately invested in
shares of the Fund being acquired. The Trust reserves the right to reject any
exchange request and may, upon 60 days' prior written notice to a Fund's
Shareholders, terminate the exchange privilege.
NET ASSET VALUE
The Trust will not calculate net asset value on days that 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.
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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 Board. In carrying out the Board's
valuation policies, GEIM may consult with one or more independent pricing
services ("Pricing Service") retained by the Trust.
Debt securities of U.S. issuers (other than Government Securities 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. The procedures of the Pricing
Service are reviewed periodically by GEIM under the general supervision and
responsibility of the Board .
The valuation of the portfolio securities of the Money Market Fund is
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 adopted by the SEC.
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 calendar days or less, and invest only in "eligible
securities" as defined in the rule, which are determined by GEIM to present
minimal credit risks. Pursuant to the rule, GEIM has established procedures
designed to stabilize, to the extent reasonably possible, the Fund's price per
share as computed for the purpose of sales and redemptions at $1.00. These
procedures include review of the Money Market Fund's portfolio holdings at such
intervals as GEIM may deem appropriate, to determine whether the Fund's net
asset value calculated by using available market quotations or market
equivalents deviates from $1.00 per share based on amortized cost.
The rule regarding amortized cost valuation provides that the extent of
certain significant deviations 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
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must be examined by the Board. In the event the Board 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 must, in
accordance with the rule, cause the Fund to take such corrective action as the
Board 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 Sub-Chapter M of the Code. If a Fund (1) is
a regulated investment company and (2) distributes to its shareholders at least
90% of its net investment income (including for this purpose its net realized
short-term capital gains) and 90% of its tax-exempt interest income (reduced by
certain expenses), the Fund will not be liable for Federal income taxes 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 1-year period ending generally on October 31 of
such calendar year. One requirement for qualification as a regulated investment
company is that each Fund must diversify its holdings so that, at the end of
each quarter, (i) at least 50% of the market value of the Fund's assets is
represented by cash and cash items, securities of other regulated investment
companies, U.S. government securities and other securities, with such other
securities limited for purposes of this calculation in respect of any one issuer
to an amount not greater than 5% of the value of the Fund's assets and not
greater than 10% of the outstanding voting securities of such issuer, and (ii)
not more than 25% of the value of its total assets is invested in the securities
of any one issuer or of two or more issuers that are controlled by the Fund
(within the meaning of Section 851(b)(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 securities or the securities of other regulated investment
companies).
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Another requirement for qualification as a regulated investment company
is that each 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% Test").
If for any taxable year a Fund does not qualify for the special Federal
income tax treatment afforded regulated investment companies, all of its taxable
income will be subject to Federal income tax at regular corporate rates (without
any deduction for distributions to its shareholders). In such event, dividend
distributions, including amounts derived from interest on tax-exempt
obligations, would be taxable to shareholders to the extent of current and
accumulated earnings and profits, and would be eligible for the dividends
received deduction for corporations in the case of corporate shareholders.
Each Fund would cease to qualify for pass-through tax treatment under
Sub-chapter M if it is unable to comply with the diversification or distribution
requirements contained in Subchapter M of the Code, or if it ceases to qualify
as a regulated investment company under the Code. Each such Fund also could be
subject to a 4% excise tax if it fails to make certain distributions.
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, the Europe Fund and the Emerging Markets
Fund each anticipates that it may 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 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.
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A Fund's transactions in options and futures contracts are subject to
special provisions of the Code that, among other things, may affect the
character of gains and losses realized by the Fund (that is, may affect whether
gains or losses are ordinary or capital), accelerate recognition of income to
the Fund and defer losses of the Fund. These rules (1) could affect the
character, amount and timing of distributions to shareholders of a Fund, (2)
will require the Fund to "mark to market" certain types of the positions in its
portfolio (that is, treat them as if they were closed out) and (3) may cause the
Fund to recognize income without receiving cash with which to make distributions
in amounts necessary to satisfy the distribution requirements for avoiding
income and excise taxes described above and in the Prospectus. The Trust seeks
to monitor transactions of each Fund, will seek to make the appropriate tax
elections on behalf of the Fund and seeks to make the appropriate entries in the
Fund's books and records when the Fund acquires any option, futures contract or
hedged investment, to mitigate the effect of these rules and prevent
disqualification of the Fund as a regulated investment company.
As a general rule, a shareholder's gain or loss on a sale or redemption
of shares of a Fund will be a long-term capital gain or loss if the shareholder
has held the shares for more than one year. The gain or loss will be a
short-term capital gain or loss if the shareholder has held the shares for one
year or less.
A Fund's net realized long-term capital gains are distributed as
described in the Prospectus. The distributions ("capital gain dividends"), if
any, are taxable to a shareholder of a Fund as long-term capital gains,
regardless of how long a shareholder has held the shares, and will be designated
as capital gain dividends in a written notice mailed by the Trust to the
shareholders of the Fund after the close of the Fund's prior taxable year. If a
shareholder receives a capital gain dividend with respect to any share of a
Fund, and if the share is sold before it has been held by the shareholder for
six months or less, then any loss on the sale or exchange of the share, to the
extent of the capital gain dividend, will be treated as a long-term capital
loss. Investors considering buying shares of a Fund on or just prior to the
record date for a taxable dividend or capital gain distribution should be aware
that the amount of the dividend or distribution payment will be a taxable
dividend or distribution payment.
Special rules contained in the Code apply when a shareholder of a Fund
disposes of shares of the Fund through a redemption or exchange within 90 days
of purchase and subsequently acquires shares of a Fund on which a sales charge
normally is imposed without paying a sales charge in accordance with the
exchange privilege described in the Prospectus. In these cases, any gain on the
disposition of the shares of the Fund will be increased, or loss 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
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withholding," then the shareholder may be subject to a 31% "backup withholding"
tax with respect to (1) taxable dividends and distributions from the Fund and
(2) the proceeds of any redemptions of shares of the Fund (other than the Money
Market 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 a Fund or in advertising material. Additional information
regarding the manner in which performance figures are calculated is provided
below.
As of the date of this SAI, General Electric Assurance Capital Company
("GECA"), an indirect subsidiary of GE, owned 100% of the outstanding Service
Class shares of each of the Funds (other than the Europe Fund and the Small-Cap
Value Equity Fund). The shares were issued to GECA for providing the initial
seed capital to the Funds. Because the Service Class shares of each Fund lack an
operating history, no performance figures are provided below for the Service
Class shares of the Funds.
The charts below show the historical performance of the Investment
Class shares of certain 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 Fund, the Value Equity Fund, the Mid-Cap Value Fund, the
Small-Cap Value Fund, the Europe Equity Fund, the Strategic Investment Fund, the
Small-Cap Growth Fund and the High Yield Fund because each of these Funds lacks
an operating history as of the date of this SAI.
Yield for the Money Market Fund
The Trust may, from time to time, include the yield and effective yield
of 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
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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 (1) determining the
net change in the value of a hypothetical pre-existing account in the Fund
having a balance of one share at the beginning of a seven-calendar-day period
for which yield is to be quoted, (2) dividing the net change by the value of the
account at the beginning of the period to obtain the base period return, and (3)
annualizing the results (that is, multiplying the base period return by 365/7).
The net change in the value of the account reflects the value of additional
shares purchased with dividends declared on the original share and any such
additional shares less a hypothetical charge reflecting deductions from
shareholder accounts, but does not include realized gains and losses or
unrealized appreciation and depreciation. In addition, the Trust may calculate a
compounded effective annualized yield by adding one to the base period return
(calculated as described above), raising the sum to a power equal to 365/7 and
subtracting one.
The seven-day current yield and effective seven-day yield as of
September 30, 1998, for the Investment Class shares of the Money Market Fund
were [___] and [___], respectively.
30-day yield
From time to time, the Trust may advertise a Fund's 30-day yield. The
30-day yield figures are calculated for a Class or Fund according to a formula
prescribed by the SEC. The
formula can be expressed as follows:
6
Yield = 2[(a-b + 1) -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
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calls for amortization of the discount or premium; the amortization schedule
will be adjusted monthly to reflect changes in the market values of the debt
obligations.
Investors should recognize that, in periods of declining interest
rates, the yield will tend to be somewhat higher than prevailing market rates,
and in periods of rising interest rates the yield will tend to be somewhat
lower. In addition, when interest rates are falling, moneys received by a Fund
from the continuous sale of its shares will likely be invested in portfolio
instruments producing lower yields than the balance of the Fund's portfolio,
thereby reducing the current yield of the Fund. In periods of rising interest
rates, the opposite result can be expected to occur.
Yield information is useful in reviewing the performance of a Fund, but
because yields fluctuate, this information cannot necessarily be used to compare
an investment in shares of the Fund with bank deposits, savings accounts and
similar investment alternatives that often provide an agreed or guaranteed fixed
yield for a stated period of time. Shareholders of a Fund should remember that
yield is a function of the kind and quality of the instruments in the Fund's
portfolio, portfolio maturity, operating expenses and market conditions.
The 30-day yield for the period ended September 30, 1998, for the
Investment Class shares of each Fund was as follows:
30-Day Yield
------------
Emerging Markets Fund [-----]
Mid-Cap Growth Fund [-----]
International Equity Fund [-----]
U.S. Equity Fund [-----]
S&P 500 Index Fund [-----]
Income Fund [-----]
Money Market Fund [-----]
Average Annual 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 Class from the beginning date of the measuring period to the ending date
of the period. The figure 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
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during the period are reinvested in shares of the same Class. 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 "average annual total return" figures for the Funds described below
are computed for a Class according to a formula prescribed by the SEC. The
formula can be expressed as follows:
n
P(1 + T) = ERV
Where
P = a hypothetical initial payment of $1,000;
T = average annual total return;
n = number of years; and
ERV = Ending Redeemable Value of a hypothetical $1,000
investment made at the beginning of a 1-, 5- or 10-year
period at the end of a 1-, 5- or 10-year period (or
fractional portion thereof), assuming reinvestment of
all dividends and distributions.
The ERV assumes the maximum applicable sales load is deducted from the
initial investment or redemption amount, in the case of CDSC, complete
redemption of the hypothetical investment at the end of the measuring period.
The average annual total return for the period ended September 30,
1998, for the Investment Class shares of each Fund was as follows:
Average Annual Return
----------------------
Emerging Markets Fund [-----]%
Mid-Cap Growth Fund [-----]%
International Equity Fund [-----]%
U.S. Equity Fund [-----]%
S&P 500 Index Fund [-----]%
Income Fund [-----]%
Money Market Fund [-----]%
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Aggregate Total Return
The Trust may use "aggregate total return" figures in advertisements,
which represent 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.
The "aggregate total return" figures for the Funds 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.
The Trust also may advertise the actual annual and annualized total
return performance data for various periods of time, which may be shown by means
of schedules, charts or graphs. Actual annual or annualized total return data
generally will be lower than average annual total return data, because the
latter reflects compounding of return. Yield and total return figures are based
on historical earnings and are not intended to indicate future performance.
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<PAGE>
Aggregate Total Return*
-----------------------
Emerging Markets Fund [_____]% (11/25/97)
Mid-Cap Growth Fund [_____]% (11/25/97)
International Equity Fund [_____]% (11/25/97)
U.S. Equity Fund [_____]% (11/25/97)
S&P 500 Index Fund [_____]% (11/25/97)
Income Fund [_____]% (11/21/97)
Money Market Fund [_____]% (12/02/97)
- --------------------------------
*From commencement of operations (as indicated in parenthesis) to September 30,
1998.
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 included in the
Prospectus and otherwise quoted in sales and advertising materials, the Trust
may 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 indices, including the Russell Index, S&P 500 Index, and
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the Dow Jones Industrial Average or (c) other appropriate indices of investment
securities or with data developed by GEIM derived from those indices.
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 SAI, 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.
As of [date], (i) the current Trustees and officers of each Fund, as a
group, beneficially owned less than 1% of each Fund's outstanding shares; (ii)
[____________], a [_____] corporation, owned [____]%, of the outstanding shares
of the [____] Fund; (iii) [___________], a [_____] corporation, owned [____]% of
the outstanding shares of the [_________] Fund; and (iv) [_________], a
[_________] corporation, owned [____]% of the outstanding shares of the
[__________] 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, and may be able to significantly influence the outcome of any shareholder
vote. For purposes of voting on matters submitted to shareholders, any person
who owns more than 50% of the outstanding shares of the Fund generally would be
able to cast the deciding vote.
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 [date]:
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Amount of
Name and Address of Record Owner Ownership Percent of Class
- -------------------------------- ---------- ----------------
Emerging Markets Fund (Investment Class)
[Name of Entity] [_______] shares [______]%
Mid-Cap Growth Fund (Investment Class)
[Name of Entity] [_______] shares [______]%
International Fund (Investment Class)
[Name of Entity] [_______] shares [______]%
U.S. Equity Fund (Investment Class)
[Name of Entity] [_______] shares [______]%
Income Fund (Investment Class)
[Name of Entity] [_______] shares [______]%
Money Market Fund (Investment Class)
[Name of Entity] [_______] shares [______]%
FUND HISTORY AND ADDITIONAL INFORMATION
The Trust is an open-end management investment company organized as an
unincorporated business trust under the laws of Delaware pursuant to a
Certificate of Trust dated May 23, 1997, as amended from time to time. The
Trust'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
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Declaration of Trust, the Trustees have the authority to create and classify
shares of beneficial interest in separate series, without further action by
shareholders.
Currently, there are fifteen Funds in the Trust: 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 on May 8, 1998. [The Europe Fund
was added as series of the Trust on [date].] Additional series may be added in
the future.
The Declaration of Trust also authorizes the Trustees to classify and
reclassify the shares of the Trust, or new series of the Trust, into one or more
classes. As of the date of this SAI, the Trustees have authorized the issuance
of two classes of shares of the Funds, designated as the Investment Class shares
and the Service Class shares. State Street maintains a record of each
shareholder's ownership of shares of a Fund. The shares of each class of each
Fund represent an equal proportionate interest in the aggregate net assets
attributable to that class of that Fund. Holders of Service Class shares have
certain exclusive voting rights on matters relating to the Plan. The different
classes of the 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. State Street maintains a record of
each shareholder's ownership of shares of a Fund.
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.
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Shareholder Liability. Generally, Delaware business trust shareholders
are not personally liable for obligations of the Delaware business trust under
Delaware law. The Delaware Business Trust Act ("DBTA") provides that a
shareholder of a Delaware business trust shall be entitled to the same
limitation of liability extended to shareholders of private for-profit
corporations. The Declaration expressly provides that the Trust has been
organized under the DBTA and that the Declaration is to be governed by and
interpreted in accordance with Delaware law. It is nevertheless possible that a
Delaware business trust, such as the Trust, might become a party to an action in
another state whose courts refuse to apply Delaware law, in which case the
Trust's shareholders could possibly be subject to personal liability.
To guard against this risk, the Declaration: (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.
Voting. When 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, each Class has the same rights, privileges and preferences, except with
respect to: (1) the designation of each Class; (2) the sales arrangement; (3)
certain expenses
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allocable exclusively to each Class; and (4) voting rights on matters
exclusively affecting a single Class. The Board 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 by the Board.
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 all Funds
vote as a single class on all matters except (1) a matter affecting the
interests of one or more of the Funds or Classes of a Fund, in which case only
shares of the affected Funds or Classes would be entitled to vote, or (2) when
the 1940 Act requires the vote of an individual Fund. Normally, no meetings of
shareholders of the Funds will be held for the purpose of electing Trustees of
the Trust 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.
Counsel. Sutherland, Asbill & Brennan LLP, 1275 Pennsylvania Avenue,
N.W., Washington, D.C. 20004-2404 serves as counsel for the Trust.
Independent Accountants. PricewaterhouseCoopers LLP, 160 Federal
Street, Boston, Massachusetts 02110, serves as independent accountants of the
Trust.
FINANCIAL STATEMENTS
The Annual Report dated September 30, 1998, which either accompanies
this SAI or has previously been provided to the person to whom this SAI is being
sent, is incorporated herein by reference with respect to all information other
than the information set forth in the Letter to Shareholders included in the
Annual Report. The Mid-Cap Value Fund and the Europe Fund commenced operations
as of the date of this SAI. The Small-Cap Growth Equity Fund and High Yield Fund
have not yet commenced operations and have no assets as of the date of this SAI.
The Trust will furnish, without charge, a copy of the Financial Reports, upon
request to the Trust at P.O. Box 120065, Stamford, CT 06912-0065, (800)
242-0134.
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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.
A-1
<PAGE>
Fitch Investors Services, Inc. employs the rating F-1+ to indicate
issues regarded as having the strongest degree of assurance of timely payment.
The rating F-1 reflects an assurance of timely payment only slightly less in
degree than issues rated F-1+, while the rating F-2 indicates a satisfactory
degree of assurance of timely payment although the margin of safety is not as
great as indicated by the F-1+ and F-1 categories.
Duff & Phelps Inc. employs the designation of Duff 1 with respect to
top grade commercial paper and bank money instruments. Duff 1+ indicates the
highest certainty of timely payment: short-term liquidity is clearly outstanding
and safety is just below risk-free U.S. Treasury short-term obligations. Duff 1-
indicates high certainty of timely payment. Duff 2 indicates good certainty of
timely payment; liquidity factors and company fundamentals are sound.
Thomson 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.
A-2
<PAGE>
BB, B and CCC -- Bonds rated BB and B are regarded, on balance, as
predominately speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligation. BB represents a
lower degree of speculation than B, and CCC the highest degree of
speculation. While such bonds will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or major risk
exposures to adverse conditions.
To provide more detailed indications of credit quality, the ratings
from AA to B may be modified by the addition of a plus or minus sign to show
relative standing within this major rating category.
Description of Moody's Corporate Bond Ratings
Aaa -- Bonds that are rated Aaa are judged to be of the best quality.
They carry the smallest degree of investment risk and are generally referred to
as "gilt edge." Interest payments are protected by a large or exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
Aa -- Bonds that are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present that
make the long-term risks appear somewhat larger than in Aaa securities.
A -- Bonds that are rated A possess favorable investment attributes and
are to be considered as upper medium grade obligations. Factors giving security
to principal and interest are considered adequate, but elements may be present
that suggest a susceptibility to impairment sometime in the future.
Baa -- Bonds that are rated Baa are considered as medium-grade
obligations, that is, they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
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.
A-3
<PAGE>
Caa -- Bonds that are rated Caa are of poor standing. These issues may
be in default, or present elements of danger may exist with respect to principal
or interest.
Moody's applies numerical modifiers (1, 2 and 3) with respect to the
bonds rated Aa through B, The modifier 1 indicates that the bond being rated
ranks in the higher end of its generic rating category; the modifier 2 indicates
a mid-range ranking; and the modifier 3 indicates that the bond ranks in the
lower end of its generic rating category.
Description of S&P Municipal Bond Ratings
AAA -- Prime -- These are obligations of the highest quality. They have
the strongest capacity for timely payment of debt service.
General Obligation Bonds -- In a period of economic stress, the issuers
will suffer the smallest declines in income and will be least susceptible to
autonomous decline. Debt burden is moderate. A strong revenue structure appears
more than adequate to meet future expenditure requirements. Quality of
management appears superior.
Revenue Bonds -- Debt service coverage has been, and is expected to
remain, substantial. Stability of the pledged revenues is also exceptionally
strong due to the competitive position of the municipal enterprise or to the
nature of the revenues. Basic security provisions (including rate covenant,
earnings test for issuance of additional bonds, debt service reserve
requirements) are rigorous. There is evidence of superior management.
AA -- High Grade -- The investment characteristics of bonds in this
group are only slightly less marked than those of the prime quality issues.
Bonds rated AA have the second strongest capacity for payment of debt service.
A -- Good Grade -- Principal and interest payments on bonds in this
category are regarded as safe although the bonds are somewhat more susceptible
to the adverse effects of changes in circumstances and economic conditions than
bonds in higher rated categories. This rating 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.
A-4
<PAGE>
BBB -- Medium Grade -- Of the investment grade ratings, this is the
lowest. Bonds in this group are regarded as having an adequate capacity to pay
interest and repay principal. Adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay interest and
repay principal for bonds in this category (even though they normally exhibit
adequate protection parameters) than for bonds in higher rated categories.
General Obligation Bonds -- Under certain adverse conditions, several
of the above factors could contribute to a lesser capacity for payment of debt
service. The difference between A and BBB ratings is that the latter shows more
than one fundamental weakness, or one very substantial fundamental weakness,
whereas, the former shows only one deficiency among the factors considered.
Revenue Bonds -- Debt coverage is only fair. Stability of the pledged
revenues could show substantial variations, with the revenue flow possibly being
subject to erosion over time. Basic security provisions are no more than
adequate. Management performance could be stronger.
BB, B, CCC and CC -- Bonds rated BB, B, CCC and CC are regarded, on
balance, as predominately speculative with respect to capacity to pay interest
and repay principal in accordance with the terms of the obligation. BB includes
the lowest degree of speculation and CC the highest degree of speculation. While
these bonds will likely have some quality and protective characteristics, these
characteristics are outweighed by large uncertainties or major risk exposures to
adverse conditions.
C -- The rating C is reserved for income bonds on which no interest is
being paid.
D -- Bonds rated D are in default, and payment of interest and/or
repayment of principal is in arrears.
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
A-5
<PAGE>
Aaa -- Bonds that are rated Aaa are judged to be the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edge." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
Aa -- Bonds that are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities, or fluctuation of
protective elements may be of greater amplitude, or there may be other elements
present that make the long-term risks appear somewhat larger than in Aaa
securities.
A -- Bonds that are rated A possess many favorable investment
attributes and are to be considered as upper medium grade obligations. Factors
giving security to principal and interest are considered adequate, but elements
may be present that suggest a susceptibility to impairment sometime in the
future.
Baa -- Bonds that are rated Baa are considered as medium grade
obligations, that is, they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
Ba -- Bonds that are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate and thereby not well
safeguarded during both good and bad times over the future.
Uncertainty of position characterize bonds in this class.
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.
A-6
<PAGE>
Description of Moody's Municipal Note Ratings
Moody's ratings for state and municipal notes and other short-term
loans are designated Moody's Investment Grade (MIG) and for variable rate demand
obligations are designated Variable Moody's Investment Grade (VMIG). This
distinction recognizes the differences between short-term credit risk and
long-term risk. Loans bearing the designation MIG 1/VMIG 1 are the best quality,
enjoying strong protection from established cash flows of funds for their
servicing or from established and broad-based access to the market for
refinancing, or both. Loans bearing the designation MIG 2/VMIG 2 are of high
quality, with margins of protection ample, although not as large as the
preceding group. Loans bearing the designation MIG 3/VMIG3 are of favorable
quality, with all security elements accounted for but lacking the undeniable
strength of the higher grades. Market access for refinancing, in particular, is
likely to be less well established. Loans bearing the designation MIG 4/VMIG 4
are of adequate quality. Protection commonly regarded as required of an
investment security is present and although not distinctly or predominantly
speculative, there is specific risk.
A-7
<PAGE>
PART C
OTHER INFORMATION
Item 23. Financial Statements and Exhibits
Financial Statements:
Included in Part A (to be filed by amendment):
Financial Highlights for the fiscal period ended September
30, 1998 for the Investment Class shares of certain of the
Funds will be filed by amendment.
Included in Part B (to be filed by amendment):
(1) Financial Highlights for the periods ended September 30,
1998 (Investment Class shares only).*
(2) Statements of Assets and Liabilities at September 30,
1998 (Investment Class shares only).*
(3) Statements of Operations for the periods ended
September 30, 1998 (Investment Class shares only).*
(4) Statements of Changes in Net Assets for the periods
ended September 30, 1998 (Investment Class shares only).*
(5) Schedules of Investments at September 30, 1998.*
(6) Report of Independent Accountants dated [__, 1999].
- -------------------
* To be incorporated into the Statement of Additional Information by reference
to GE Institutional Funds' Annual Report dated September 30, 1998.
C-1
<PAGE>
<TABLE>
<CAPTION>
(b) Exhibits:
<S> <C> <C>
Exhibit No. Description of Exhibit
(a)(1) Certificate of Trust, incorporated herein by
reference to Exhibit 1(a) 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.
(a)(2) Amended and Restated Declaration of Trust,
incorporated herein by reference to Exhibit
1(b) to post-effective amendment number two
to the Registration Statement filed with the
Commission on July 24, 1998.
(b) Inapplicable.
(c) Inapplicable.
(d)(1) Investment Advisory and Administration
Agreement between Registrant, on behalf of the
Emerging Markets Fund, and GE Investment
Management Incorporated ("GEIM"), is
incorporated herein by reference to Exhibit
5(a) to pre-effective amendment number two to
the Registration Statement, filed with the
Commission on November 7, 1997.
(d)(2) Investment Advisory and Administration
Agreement between Registrant, on behalf of the
Premier Growth Equity Fund, and GEIM,
incorporated herein by reference to Exhibit
5(b) to pre-effective amendment number two to
the Registration Statement, filed with the
Commission on November 7, 1997.
(d)(3) Investment Advisory and Administration
Agreement between Registrant, on behalf of the
Mid-Cap Growth Fund, and GEIM, is incorporated
herein by reference to Exhibit 5(c) to
pre-effective amendment number two to the
Registration Statement, filed with the
Commission on November 7, 1997.
(d)(4) Investment Advisory and Administration
Agreement between Registrant, on behalf of the
International Equity Fund, and GEIM, is
incorporated herein by reference to Exhibit
5(d) to pre-effective amendment number two to
the Registration Statement, filed with the
Commission on November 7, 1997.
</TABLE>
C-2
<PAGE>
<TABLE>
<S> <C> <C>
(d)(5) Investment Advisory and Administration
Agreement between Registrant, on behalf of the
Value Equity Fund, and GEIM, is incorporated
herein by reference to Exhibit 5(e) to
pre-effective amendment number two to the
Registration Statement, filed with the
Commission on November 7, 1997.
(d)(6) Investment Advisory and Administration
Agreement between Registrant, on behalf of the
U.S. Equity Fund, and GEIM, is incorporated
herein by reference to Exhibit 5(f) to
pre-effective amendment number two to the
Registration Statement, filed with the
Commission on November 7, 1997.
(d)(7) Investment Advisory and Administration
Agreement between Registrant, on behalf of the
S&P 500 Index Fund, and GEIM, is incorporated
herein by reference to Exhibit 5(g) to
pre-effective amendment number two to the
Registration Statement, filed with the
Commission on November 7, 1997.
(d)(8) Investment Advisory and Administration
Agreement between Registrant, on behalf of the
Strategic Investment Fund, and GEIM, is
incorporated herein by reference to Exhibit
5(h) to pre-effective amendment number two to
the Registration Statement, filed with the
Commission on November 7, 1997.
(d)(9) Investment Advisory and Administration
Agreement between Registrant, on behalf of the
Income Fund, and GEIM, is incorporated herein
by reference to Exhibit 5(i) to pre-effective
amendment number two to the Registration
Statement, filed with the Commission on
November 7, 1997.
(d)(10) Investment Advisory and Administration
Agreement between Registrant, on behalf of the
Money Market Fund, and GEIM, is incorporated
herein by reference to Exhibit 5(j) to
pre-effective amendment number two to the
Registration Statement, filed with the
Commission on November 7, 1997.
(d)(11) Investment Advisory and Administration
Agreement between Registrant, on behalf of the
Small-Cap Growth Equity Fund, and GEIM,
incorporated herein by reference to Exhibit
5(k) to post-effective amendment number two
to the Registration Statement, filed with the
Commission on July 24, 1998.
(d)(12) Investment Advisory and Administration Agreement
between
</TABLE>
C-3
<PAGE>
<TABLE>
<S> <C> <C>
Registrant, on behalf of the Small-Cap Value
Equity Fund, and GEIM, incorporated herein by
reference to Exhibit 5(l) to post-effective
amendment number two to the Registration
Statement, filed with the Commission on July
24, 1998.
(d)(13) Investment Advisory and Administration
Agreement between Registrant, on behalf of the
Mid-Cap Value Equity Fund, and GEIM,
incorporated herein by reference to Exhibit
5(m) to post-effective amendment number two
to the Registration Statement, filed with the
Commission on July 24, 1998.
(d)(14) Investment Advisory and Administration
Agreement between Registrant, on behalf of the
High Yield Fund and GEIM, incorporated herein
by reference to Exhibit 5(n) to post-effective
amendment number two to the Registration
Statement, filed with the Commission on July
24, 1998.
(d)(15) Sub-Advisory Agreement between GEIM and State
Street Bank and Trust Company ("State Street"),
incorporated herein by reference to Exhibit
5(k) to pre-effective amendment number two to
the Registration Statement, filed with the
Commission on November 7, 1997.
(d)(16) Investment Advisory and Administration
Agreement between Registrant, on behalf of the
Europe Fund, and GEIM, to be filed by
amendment.
(d)(17) Sub-Advisory Agreement between GEIM and
Palisade Capital Management, L.L.C.,
incorporated herein by reference to Exhibit
5(p) to post-effective amendment number three
to the Registration Statement, filed with the
Commission on July 24, 1998.
(d)(18) Sub-Advisory Agreement between GEIM and Miller
Anderson & Sherrerd, LLP to be filed by
amendment.
(d)(19) Sub-Advisory Agreement between GEIM and NWQ to
be filed by Amendment.
(e)(1) Distribution Agreement between Registrant and
GE Investment Services Inc., incorporated
herein by reference to Exhibit 6(a) to
pre-effective amendment number two to the
Registration Statement, filed
</TABLE>
C-4
<PAGE>
<TABLE>
<S> <C> <C>
with the Commission on November 7, 1997.
(e)(2) Shareholder Servicing and Distribution
Agreement between Registrant and GEIM,
incorporated herein by reference to Exhibit
6(b) to pre-effective amendment number two to
the Registration Statement, filed with the
Commission on November 7, 1997.
(f) Inapplicable.
(g) 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.
(h) Transfer Agency and Service Agreement between
Registrant and State Street, incorporated herein
by reference to Exhibit 9 to pre-effective
amendment number two to the Registration
Statement, filed with the Commission on
November 7, 1997.
(i) Opinion and consent of Sutherland, Asbill &
Brennan L.L.P. will be filed by amendment.
(j) Consent of PricewaterhouseCoopers LLP will be
filed by amendment.
(k) Inapplicable.
(l) Purchase Agreement between Registrant and
General Electric Capital Assurance Company,
incorporated herein by reference to Exhibit 13
to pre-effective amendment number two to the
Registration Statement, filed with the
Commission on November 7, 1997.
(m) 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 Exhibit 15 to pre-effective amendment number
two to the Registration Statement, filed with
the Commission on November 7, 1997.
(n) Financial Data Schedules will be filed by
amendment.
(o) Multiple Class Plan for Registrant adopted
pursuant to Rule 18f-3 under the 1940 Act,
incorporated herein by reference to Exhibit 18
to pre-effective amendment number two to the
Registration Statement,
</TABLE>
C-5
<PAGE>
filed with the Commission on November 7, 1997.
Item 24. Persons Controlled by or Under Common Control with Registrant
The list required by this Item 24 of persons controlled by or under
common control with Registrant, which includes the subsidiaries of General
Electric Company ("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 25. Indemnification
As a Delaware business trust, the operations of Registrant are
governed by its Amended and Restated Declaration of Trust dated June 2, 1998
(the "Declaration of Trust"). Generally, Delaware business trust shareholders
are not personally liable for obligations of the Delaware business trust under
Delaware law. The Delaware Business Trust Act (the DBTA) provides that a
shareholder of a trust shall be entitled to the same limitation of liability
extended to shareholders of private for-profit Delaware corporations.
Registrant's Declaration of Trust expressly provides that it has been
organized under the DBTA and that the Declaration of Trust is to be governed
by Delaware law. It is nevertheless possible that a Delaware business trust,
such as Registrant, might become a party to an action in another state whose
courts refuse to apply Delaware law, in which case Registrant's shareholders
could be subject to personal liability.
To protect Registrant's shareholders against the risk of personal
liability, the Declaration of Trust: (i) contains an express disclaimer of
shareholder liability for acts or obligations of Registrant and provides that
notice of such disclaimer may be given in each agreement, obligation and
instrument entered into or executed by Registrant or its Trustees; (ii)
provides for the indemnification out of Trust property of any shareholders
held personally liable for any obligations of Registrant or any series of
Registrant; and (iii) provides that Registrant shall, upon request, assume the
defense of any claim made against any shareholder for any act or obligation of
Registrant and satisfy any judgment thereon. Thus, the risk of a shareholder
incurring financial loss beyond his or her investment because of shareholder
liability is limited to circumstances in which all of the following factors
are present: (i) a court refuses to apply Delaware law; (ii) the liability
arose under tort law or, if not, no contractual limitation of liability was in
effect; and (iii) Registrant itself would be unable to meet its obligations.
In the light of Delaware law, the nature of Registrant's business and the
nature of its assets, the risk of personal
C-6
<PAGE>
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.
Item 26. Business and Other Connections of Investment Adviser
Reference is made to "About the Investment Adviser" 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 26 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 (the "Advisers
Act") (SEC File No. 801-31947).
The list required by this Item 26 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 Advisers
Act (SEC File No.801-49368).
C-7
<PAGE>
The list required by this Item 26 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 Advisers Act (SEC File No. 801-48401).
The list required by this Item 26 of officers and directors of NWQ,
the Mid-Cap Value Fund's sub-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 by reference to Schedules A and D of the Form ADV filed by NWQ
pursuant to the Advisers Act (SEC File No. 801-42159).
/R>
The list required by this Item 26 of partners and officers of Miller
Anderson & Sherrerd, LLP ("MAS"), the High Yield Fund's sub-adviser, together
with information as to any other business, profession, vocation or employment
of a substantial nature engaged in by those partners and officers during the
past two years, is incorporated by reference to Schedules B and D of the Form
ADV filed by MAS pursuant to the Advisers Act (SEC File No. 801-10437).
Item 27. 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 27 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 28. 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 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.
C-8
<PAGE>
Item 29. Management Services
Item 30. Undertakings
Inapplicable.
C-9
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as
amended, and the Investment Company Act of 1940, as amended, Registrant has
duly caused this Amendment to the Registration Statement be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Stamford,
State of Connecticut, on this 12th day of November, 1998.
By: /s/ Michael J. Cosgrove
-----------------------------
Michael J. Cosgrove
President and Chairman of the Board
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, as
amended, this Amendment to Registrant's Registration Statement on Form N-1A
has been signed below by the following persons in the capacities and on the
dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
/s/ Michael J. Cosgrove Trustee, President and 11/12/98
- ----------------------- Chairman of the Board
Michael J. Cosgrove (Chief Executive Officer)
/s/ John R. Costantino Trustee 11/12/98
- ----------------------
John R. Costantino
/s/ Alan M. Lewis Trustee 11/12/98
- -----------------
Alan M. Lewis
/s/ William J. Lucas Trustee 11/12/98
- --------------------
William J. Lucas
/s/ Robert P. Quinn Trustee 11/12/98
- -------------------
Robert P. Quinn
/s/ Jeffrey A. Groh Treasurer 11/12/98
- ------------------- (Chief Financial and
Jeffrey A. Groh Accounting Officer)
</TABLE>
