<PAGE>
File Nos. 333-29337, 811-08257
As filed with the Securities and Exchange Commission on September 24, 1999
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 / /
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Pre-Effective Amendment No. / /
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Post-Effective Amendment No. 8 / X /
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and
REGISTRATION STATEMENT UNDER
THE INVESTMENT COMPANY ACT OF 1940 / /
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Amendment No. 10 / X /
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(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:
David S. Goldstein, 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
[ X ] on September 30, 1999 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
[ ] 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.
<PAGE>
[GRAPHIC OMITTED]
Prospectus ----------------------
GE Institutional Funds
September 30, 1999
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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
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Income Funds
Income Fund
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Asset Allocation Funds
Strategic Investment Fund
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Money Market Funds
Money Market Fund
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Like all mutual funds, the Funds' shares 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.
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[GE LOGO]
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We bring good things to life.
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Contents
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GE Institutional
Funds Prospectus
Equity Funds 2
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U.S. Equity Fund 4
S&P 500 Index Fund 6
Premier Growth Equity Fund 8
Value Equity Fund 9
Mid-Cap Growth Fund 10
Mid-Cap Value Equity Fund 12
Small-Cap Value Equity Fund 13
International Equity Fund 14
Europe Equity Fund 16
Emerging Markets Fund 18
Income Funds 20
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Income Fund 22
Asset Allocation Funds 24
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Strategic Investment Fund 25
Money Market Funds 26
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Money Market Fund 28
Fund Expenses 30
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More on Strategies and Risks 34
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Important Definitions 34
More on Investment Strategies 36
More on Risks 42
Other Risk Considerations 45
About the Investment Adviser 46
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Investment Adviser
and Administrator 46
About the Funds' Portfolio Managers 47
About the Sub-Advisers 48
Prior Performance Information 50
How to Invest 62
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Investment Choices 62
Opening an Account 62
How to Buy Shares 62
Eligible Investors 63
Minimum Investment
Requirements 63
How to Redeem Shares 64
How to Exchange Shares 65
Signature Guarantees 65
Shareholder Servicing
and Distribution Plan 65
Dividends, Capital Gains and Other
Tax Information 66
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Calculating Share Value 68
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Financial Highlights 69
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Additional information regarding GE Institutional Funds is contained in the
Statement of Additional Information dated September 30, 1999, which is
incorporated by reference into (legally forms a part of) this Prospectus.
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2 GE Institutional Equity Funds
Funds Prospectus
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An investment in an Equity Fund is not a deposit of any bank and is not insured
or guaranteed by the Federal Deposit Insurance Corporation or any other
government agency. An investment in an Equity Fund is subject to risk, including
possible loss of principal invested.
Equity funds generally invest in equity securities. Equity securities may
include common stocks, preferred securities, depositary receipts, convertible
securities and 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 greater risk.
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3
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4 GE Institutional
Funds Prospectus
Equity Funds
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U.S. Equity Fund
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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(R) 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,
including capital appreciation and income. 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 risks of investing in this Fund are stock market risk and style
risk (growth investing risk and value investing 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, including a description of the terms in bold type, please
refer to "More on Strategies and Risks" later in this Prospectus.
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5
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Fund Performance
The bar chart and table opposite 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. During the period presented in the bar chart, the Fund's
highest return for a quarter was 19.90% for the quarter ended December 31, 1998.
The Fund's lowest return for a quarter was -10.08% for the quarter ended
September 30, 1998. The Fund's year-to-date return was 14.27% as of June 30,
1999.
The table opposite 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(R)). The table reflects the impact of the
Fund's expenses and assumes that you sold your shares at the end of each period.
Prior Performance Information
Prior performance information of GE Investment Management, the Fund's investment
adviser, can be found under "Prior Performance Information" later in this
Prospectus.
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Calendar Year Total Returns
Investment Class Shares*
[The following table was depicted as a bar chart in the printed material.]
1998........................ 24%
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Average Annual Total Return
(as of December 31, 1998)
Since
1 Year Inception**
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U.S. Equity Fund
Investment Class 23.75% 24.62%
S&P 500 Index 28.70% 28.36%
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.
* As of the date of this Prospectus, Service Class shares have no operating
history and therefore performance information is not available. Service Class
shares of the Fund pay a shareholder service and distribution fee, which would
lower their returns.
** Inception date (commencement of operations): November 25, 1997
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.
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6 GE Institutional
Funds Prospectus
Equity Funds
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S&P 500 Index Fund
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Investment Objective: Seeks growth of capital and accumulation of income that
corresponds to the investment return of the Standard & Poor's 500 Composite
Stock 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(R)).* The portfolio manager seeks to replicate the return of the S&P 500
Index while holding transaction costs low and minimizing portfolio turnover and
attempts to achieve a correlation between its total return and that of the S&P
500 Index of at least .95, without taking expenses into account. 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 debt securities, foreign
securities and other securities that are not in the S&P 500 Index. Except for
debt securities, which are used to manage cash flows, all securities held by the
Fund are acquired to fulfill its investment objective. 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 Fund will not adopt a temporary defensive
strategy in times of declining stock prices and therefore you will bear the risk
of such declines.
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 exposure risk, interest rate
risk and credit risk.
If you would like additional information regarding the Fund's investment
strategies and risks, including a description of the terms in bold type, please
refer to "More on Strategies and Risks" later in this Prospectus.
* Standard & Poor's(R), S&P(R), and S&P 500(R) are trademarks of the The
McGraw-Hill Companies, Inc. and have been licensed for use. The S&P 500 Index
Fund is not sponsored, endorsed, sold or promoted by Standard & Poor's, and
Standard & Poor's 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. Please see the
statement of additional information for additional disclaimers and liabilities
regarding Standard & Poor's.
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7
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Fund Performance
The bar chart and table opposite 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. During the period presented in the bar chart, the Fund's
highest return for a quarter was 21.50% for the quarter ended December 31, 1998.
The Fund's lowest return for a quarter was -9.81% for the quarter ended
September 30, 1998. The Fund's year-to-date return was 12.06% as of June 30,
1999.
The table opposite 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(R)). The table reflects the impact of the
Fund's expenses and assumes that you sold your shares at the end of each period.
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Calendar Year Total Returns
Investment Class Shares*
[The following table was depicted as a bar chart in the printed material.]
1998 .................... 29%
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Average Annual Total Return
(as of December 31, 1998)
Since
1 Year Inception**
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S&P 500 Index Fund
Investment Class 29.24% 28.65%
S&P 500 Index 28.70% 28.36%
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.
* As of the date of this Prospectus, Service Class shares have no operating
history and therefore performance information is not available. Service Class
shares of the Fund pay a shareholder service and distribution fee, which would
lower their returns.
** Inception date (commencement of operations): November 25, 1997
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.
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<PAGE>
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8 GE Institutional
Funds Prospectus
Equity Funds
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Premier Growth Equity Fund
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Investment Objective: Seeks long-term growth of capital and future 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/or growth potential. The portfolio manager chooses equity
securities from a number of industries based on the merits of individual
companies. Stock selection is key to the performance of the Fund.
The portfolio manager seeks to identify stocks of growth companies with
characteristics such as:
o above-average annual growth rates
o expectation of income in future periods
o financial strength n 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 and style
risk (growth investing 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, including a description of the terms in bold type, please
refer to "More on Strategies and Risks" later in this Prospectus.
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Fund Background
No performance figures are shown because the Fund has no operating history as of
the date of this Prospectus.
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Prior Performance Information
Prior performance information of GE Investment Management, the Fund's investment
adviser, can be found under "Prior Performance Information" later in this
Prospectus.
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9
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Value Equity Fund
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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 above-average dividend yields
o expectation of income in future periods
o strong management n financial strength n 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 (value investing 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, including a description of the terms in bold type, please
refer to "More on Strategies and Risks" later in this Prospectus.
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Fund Background
No performance figures are shown because the Fund has no operating history as
of the date of this Prospectus.
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Prior Performance Information
Prior performance information of GE Investment Management, the Fund's investment
adviser, can be found under "Prior Performance Information" later in this
Prospectus.
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<PAGE>
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10 GE Institutional
Funds Prospectus
Equity Funds
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Mid-Cap Growth Fund
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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 Stock Index. As of June 30, 1999, the market
capitalization of companies in the index ranged from $244 million to $21.6
billion. 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
o reasonable valuation
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 (growth investing risk and mid-cap company 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, including a description of the terms in bold type, please
refer to "More on Strategies and Risks" later in this Prospectus.
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<PAGE>
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11
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Fund Performance
The bar chart and table opposite 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. During the period presented in the bar chart, the Fund's
highest return for a quarter was 19.50% for the quarter ended December 31, 1998.
The Fund's lowest return for a quarter was -18.25% for the quarter ended
September 30, 1998. The Fund's year-to-date return was 8.73% as of June 30,
1999.
The table opposite 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.
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Calendar Year Total Returns
Investment Class Shares*
[The following table was depicted as a bar chart in the printed material.]
1998...................... 5%
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Average Annual Total Return
(as of December 31, 1998)
Since
1 Year Inception**
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Mid-Cap Growth Fund
Investment Class 4.64% 5.49%
S&P MidCap Index 18.66% 21.59%
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.
* As of the date of this Prospectus, Service Class shares have no operating
history and therefore performance information is not available. Service Class
shares of the Fund pay a shareholder service and distribution fee, which would
lower their returns.
** Inception date (commencement of operations): November 25, 1997
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.
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<PAGE>
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12 GE Institutional
Funds Prospectus
Equity Funds
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Mid-Cap Value Equity Fund
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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-cap range defined by the Morningstar rating agency, between $1.49 and $9.64
billion as of June 30, 1999. Stock selection is key to the performance of the
Fund.
The Fund is value oriented and seeks to identify 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 (value investing risk and mid-cap company 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, including a description of the terms in bold type, please
refer to "More on Strategies and Risks" later in this Prospectus.
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Fund Background
Because the Fund recently commenced investment operations, please refer to
"Financial Highlights" later in this Prospectus or the Fund's semi-annual report
for performance information.
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Prior Performance Information
Prior performance information of Jon Bosse, the Fund's portfolio manager, can be
found under "Prior Performance Information" later in this Prospectus.
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13
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Small-Cap Value Equity Fund
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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 June 30, 1999 the market capitalization of
companies in the index ranged from $83 million to $2.59 billion. 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 (value investing risk and small-cap company 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, including a description of the terms in bold type, please
refer to "More on Strategies and Risks" later in this Prospectus.
- --------------------------------------------------------------------------------
Fund Background
Because the Fund recently commenced investment operations, please refer to
"Financial Highlights" later in this Prospectus or the Fund's semi-annual report
for performance information.
- --------------------------------------------------------------------------------
Prior Performance Information
Prior Performance information of the Senior Investment Commitee of Palisade
Capital Management, L.L.C., the Fund's sub-adviser, can be found under "Prior
Performance Information" later in this Prospectus.
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14 GE Institutional
Funds Prospectus
Equity Funds
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International Equity Fund
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Investment Objective: Seeks long-term growth of capital.
The Strategy
The International Equity Fund invests primarily in equity securities of
companies located in developed and developing countries other than the United
States. The portfolio managers focus on companies that they expect will grow
faster than relevant markets and whose security price does not fully reflect
their potential for growth. Under normal circumstances, the Fund's assets are
invested 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 n sufficient liquidity
The Fund also may invest to a lesser extent in debt securities. Under certain
circumstances, the Fund may invest in securities of companies located in the
United States. 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, style risk (growth investing 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 Fund's investment
strategies and risks, including a description of the terms in bold type, please
refer to "More on Strategies and Risks" later in this Prospectus.
- --------------------------------------------------------------------------------
<PAGE>
----------
15
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Fund Performance
The bar chart and table opposite 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. During the period presented in the bar chart, the Fund's
highest return for a quarter was 19.65% for the quarter ended December 31, 1998.
The Fund's lowest return for a quarter was -17.74% for the quarter ended
September 30, 1998. The Fund's year-to-date return was 6.67% as of June 30,
1999.
The table opposite illustrates how the Fund's average annual returns for
different calendar periods compare to the returns of the Morgan Stanley Capital
International Europe Australasia Far East 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.
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Prior Performance Information
Prior performance information of GE Investment Management, the Fund's investment
adviser, can be found under "Prior Performance Information" later in this
Prospectus.
- --------------------------------------------------------------------------------
Calendar Year Total Returns
Investment Class Shares*
[The following table was depicted as a bar chart in the printed material.]
1998 ..................... 17%
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Average Annual Total Return
(as of December 31, 1998)
Since
1 Year Inception**
------ -----------
International Equity Fund
Investment Class 17.32% 18.40%
MSCI EAFE Index 20.00% 20.28%
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.
* As of the date of this Prospectus, Service Class shares have no operating
history and therefore performance information is not available. Service Class
shares of the Fund pay a shareholder service and distribution fee, which would
lower their returns.
** Inception date (commencement of operations): November 25, 1997
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.
- --------------------------------------------------------------------------------
<PAGE>
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16 GE Institutional
Funds Prospectus
Equity Funds
- --------------------------------------------------------------------------------
Europe Equity Fund
- --------------------
Investment Objective: Seeks long-term growth of capital.
Developed European countries currently include:
Austria
Belgium
Denmark
Finland
France
Germany
Greece
Ireland
Italy
Luxembourg
the Netherlands
Norway
Portugal
Spain
Sweden
Switzerland
United Kingdom
The Strategy
The Europe Equity Fund invests primarily in equity securities of issuers located
in developed European countries. The portfolio managers focus on countries that
are expected to grow faster than relevant markets and whose security price does
not fully reflect their potential for growth. Under normal circumstances, the
Fund's assets are invested in no fewer than three different countries. The
portfolio managers consider 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 revenue 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 n 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, foreign
exposure risk and style risk (growth investing 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 diversified equity fund. Fund
performance is closely tied to economic and political conditions within Europe.
If you would like additional information regarding the Fund's investment
strategies and risks, including a description of the terms in bold type, please
refer to "More on Strategies and Risks" later in this Prospectus.
- --------------------------------------------------------------------------------
Fund Background
Because the Fund recently commenced investment operations, please refer to
"Financial Highlights" later in the Prospectus or the Fund's semi-annual report
for performance information.
- --------------------------------------------------------------------------------
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----------
17
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<PAGE>
- --------------------
18 GE Institutional
Funds Prospectus
Equity Funds
- --------------------------------------------------------------------------------
Emerging Markets Fund
- --------------------
Investment Objective: Seeks long-term growth of capital.
The Strategy
The Emerging Markets Fund invests primarily in equity securities of issuers
located in emerging market countries. The portfolio managers focus on companies
that are expected to grow faster than relevant markets and whose security price
does not fully reflect their potential for growth. Under normal circumstances,
the Fund's assets are invested in issuers located 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 an issuer 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 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 businesso
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, emerging markets risk and style risk (growth investing 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 Fund's investments
strategies and risks, including a description of the terms in bold type, please
refer to "More on Strategies and Risks" later in this Prospectus.
- --------------------------------------------------------------------------------
<PAGE>
----------
19
- --------------------------------------------------------------------------------
Fund Performance
The bar chart and table opposite 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. During the period presented in the bar chart, the Fund's
highest return for a quarter was 19.93% for the quarter ended December 31, 1998.
The Fund's lowest return for a quarter was -27.56% for the quarter ended
September 30, 1998. The Fund's year-to-date return was 37.98% as of June 30,
1999.
The table opposite illustrates how the Fund's average annual returns for
different calendar periods compare to the returns of the Morgan Stanley Emerging
Markets Free Index (MSCI EMF Index). The table reflects the impact of the Fund's
expenses and assumes that you sold your shares at the end of each period.
- --------------------------------------------------------------------------------
Prior Performance Information
Prior performance information of GE Investment Management, the Fund's investment
adviser, can be found under "Prior Performance Information" later in this
Prospectus.
- --------------------------------------------------------------------------------
Calendar Year Total Returns
Investment Class Shares*
[The following table was depicted as a bar chart in the printed material.]
1998...................... -20%
- --------------------------------------------------------------------------------
Average Annual Total Return
(as of December 31, 1998)
Since
1 Year Inception**
------ -----------
Emerging Markets Fund
Investment Class -20.13% -16.86%
MSCI EMF Index -25.34% -20.84%
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.
* As of the date of this Prospectus, Service Class shares have no operating
history and therefore performance information is not available. Service Class
shares of the Fund pay a shareholder service and distribution fee, which would
lower their returns.
** Inception date (commencement of operations): November 25, 1997
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.
- --------------------------------------------------------------------------------
<PAGE>
- -----------------------------------------------
20 GE Institutional Income Funds
Funds Prospectus
- --------------------------------------------------------------------------------
An investment in an Income Fund is not a deposit of any bank and is not insured
or guaranteed by the Federal Deposit Insurance Corporation or any other
government agency. An investment in an Income Fund is subject to risk, including
possible loss of principal invested.
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.
- --------------------------------------------------------------------------------
<PAGE>
----------
21
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<PAGE>
- --------------------
22 GE Institutional
Funds Prospectus
- --------------------------------------------------------------------------------
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 investment-grade debt
securities, such as mortgage-backed securities, corporate bonds, U.S. Government
securities, and money market instruments. The Fund normally has a weighted
average 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 Fund's investment strategy 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 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. Certain
portfolio securities are derivative securities that carry derivative securities
risk.
If you would like additional information regarding the Fund's investment
strategies and risks, including a description of the terms in bold type, please
refer to "More on Strategies and Risks" later in this Prospectus.
- --------------------------------------------------------------------------------
<PAGE>
----------
23
- --------------------------------------------------------------------------------
Fund Performance
The bar chart and table opposite 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. During the period presented in the bar chart, the Fund's
highest return for a quarter was 3.57% for the quarter ended September 30, 1998.
The Fund's lowest return for a quarter was 0.43% for the quarter ended December
31, 1998. The Fund's year-to-date return was -1.68% as of June 30, 1999.
The table opposite illustrates how the Fund's average annual returns for
different calendar 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.
- --------------------------------------------------------------------------------
Prior Performance Information
Prior performance information of GE Investment Management, the Fund's investment
adviser, can be found under "Prior Performance Information" later in this
Prospectus.
- --------------------------------------------------------------------------------
Calendar Year Total Returns
Investment Class Shares*
[The following table was depicted as a bar chart in the printed material.]
1998................... 8%
- --------------------------------------------------------------------------------
Average Annual Total Return
(as of December 31, 1998)
Since
1 Year Inception**
------ -----------
Income Fund
Investment Class 8.46% 8.66%
LB Aggregate Bond Index 8.67% 8.97%
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.
* As of the date of this Prospectus, Service Class shares have no operating
history and therefore performance information is not available. Service Class
shares of the Fund pay a shareholder service and distribution fee, which would
lower their returns.
** Inception date (commencement of operations): November 21,1997
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.
- --------------------------------------------------------------------------------
<PAGE>
- -------------------------------------------------
24 GE Institutional Asset
Funds Prospectus Allocation
Funds
- --------------------------------------------------------------------------------
An investment in an Asset Allocation Fund is not a deposit of any bank and is
not insured or guaranteed by the Federal Deposit Insurance Corporation or any
other agency. An investment in an Asset Allocation Fund is subject to risk,
including possible loss of principal invested.
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 typically holds both equity securities and debt securities. Although an
investor may achieve the same level of diversification by buying individual
Equity or Income Funds, an asset allocation fund presents a diversification
alternative within one fund. An investor should not expect capital appreciation
or current income levels comparable to funds for which either capital
appreciation or current income is their sole objective.
- --------------------------------------------------------------------------------
<PAGE>
------------
25
- --------------------------------------------------------------------------------
Strategic Investment Fund
- --------------------
Investment Objective: Seeks to maximize total return.
The Strategy
The Strategic Investment Fund invests primarily in a combination of equity
securities and investment-grade 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. The Fund
adjusts its weightings among U.S. equity securities, debt securities and foreign
securities based on the relative attractiveness of the asset classes. The Fund
invests in equity securities principally for their capital appreciation
potential and debt securities principally 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 portion of the Fund invested in debt securities normally has a weighted
average maturity of approximately five to ten years.
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 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 Risks
The principal risks of investing in this Fund are stock market risk, foreign
exposure risk, interest rate risk, credit risk and prepayment risk. To the
extent the portfolio manager invests in high yield securities, the Fund would be
subject to high yield securities risk. Certain portfolio securities are
derivative securities that carry derivative securities risk.
If you would like additional information regarding the Fund's investment
strategies and risks, including a description of the terms in bold type, please
refer to "More on Strategies and Risks" later in this Prospectus.
- --------------------------------------------------------------------------------
Fund Background
No performance figures are shown because the Fund has no operating his-tory as
of the date of this Prospectus.
- --------------------------------------------------------------------------------
Prior Performance Information
Prior performance information of GE Investment Management, the Fund's investment
adviser, can be found under "Prior Performance Information" later in this
Prospectus.
- --------------------------------------------------------------------------------
<PAGE>
- -------------------------------------------------------
26 GE Institutional Money
Funds Prospectus Market
Funds
- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
<PAGE>
------------
27
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<PAGE>
- --------------------
28 GE Institutional
Funds Prospectus
Money
Market Funds
- --------------------------------------------------------------------------------
Money Market Fund
- --------------------
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 instruments. The Fund's investments may include U.S. government
securities, repurchase agreements, commercial paper, variable rate securities,
foreign securities and domestic and foreign bank deposits.
The Fund invests consistent with regulatory standards governing security
quality, maturity and portfolio diversification. For example, 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 Fund may invest more
than 25% of its total assets in the banking services industry. Changes in
banking regulations or the economy can have a significant negative impact on the
banking industry.
All of the Fund's assets are rated in the two highest short-term rating
categories (or their unrated equivalents), and 95% of its assets are rated in
the highest rating category (or its unrated equivalent) by a nationally
recognized statistical rating organization. Additional information about the
money market securities in which the Fund may invest, including rating
categories, is contained in the statement of additional information.
The Risk
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 a bank deposit and is not insured or guaranteed
by the Federal Deposit Insurance Corporation (FDIC) or any other government
agency. Although the Fund seeks to maintain a net asset value of $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 Fund's investment
strategies and risks, including a description of the terms in bold type, please
refer to "More on Strategies and Risks" later in this Prospectus.
- --------------------------------------------------------------------------------
<PAGE>
------------
29
- --------------------------------------------------------------------------------
Fund Performance
The bar chart and table opposite 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. During the period presented in the bar chart, the Fund's
highest return for a quarter was 1.35% for the quarter ended September 30, 1998.
The Fund's lowest return for a quarter was 1.26% for the quarter ended December
31, 1998. The Fund's seven day yield was 4.93% and the effective seven day yield
was 5.06% as of December 31, 1998. "Effective yield" reflects the compounding
effect of earnings on reinvested dividends. The Fund's year-to-date return was
2.35% as of June 30, 1999.
The table opposite illustrates how the Fund's average annual returns for
different calendar periods compare to the return 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.
- --------------------------------------------------------------------------------
Prior Performance Information
Prior performance information of GE Investment Management, the Fund's investment
adviser, can be found under "Prior Performance Information" later in this
Prospectus.
- --------------------------------------------------------------------------------
Calendar Year Total Returns
Investment Class Shares*
[The following table was depicted as a bar chart in the printed material.]
1998 ................... 5%
- --------------------------------------------------------------------------------
Average Annual Total Return
(as of December 31, 1998)
Since
1 year Inception**
------ -----------
Money Market Fund
Investment Class 5.38% 5.40%
90 Day T-Bill 4.88% 4.92%
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.
* As of the date of this Prospectus, Service Class shares have no operating
history and therefore performance information is not available. Service Class
shares of the Fund pay a shareholder service and distribution fee, which would
lower their returns.
** Inception Date (commencement of operations): December 2, 1997
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.
- --------------------------------------------------------------------------------
<PAGE>
- -------------------------------------------------------
30 GE Institutional Fund Expenses
Funds Prospectus
- --------------------------------------------------------------------------------
Shareholder Fees
The Funds impose no sales charge (load) on purchases or reinvested dividends,
contingent deferred sales charge, redemption fee or exchange fee.
The following table describes the fees and expenses that you may pay if you buy
and hold shares of a Fund. Annual fund operating expenses come out of a Fund's
assets and are reflected in the Fund's share price and dividends.
- --------------------------------------------------------------------------------
Annual Fund Operating Expenses
(as a percentage of average net assets)
<TABLE>
<CAPTION>
Premier Mid-Cap Small-Cap
U.S. S&P 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>
Management Fees
Investment and Service 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
Investment and Service Class None None None None None None None
- --------------------------------------------------------------------------------------------------------------
Total Annual Fund Operating Expenses
Investment Class .55% .15% .55% .55% .55% .65% .70%
Service Class .80% .40% .80% .80% .80% .90% .95%
- --------------------------------------------------------------------------------------------------------------
</TABLE>
* The advisory and administration fee shown is the maximum payable by the
Fund; this fee declines incrementally as the Fund's assets increase as
described under "About the Investment Adviser."
** The .25% shareholder servicing and distribution fee is intended to
compensate GE Investment Management,or enable GE Investment Management to
compensate other persons, for expenditures made on behalf of each Fund.
The nature of the services provided to, and the advisory and administration fee
paid by, each Fund are described under "About the Investment Adviser." A Fund's
advisory and administration fee is intended to be a "unitary" fee that includes
any other operating expenses payable by a Fund, except for fees paid to GE
Institutional Funds' independent Trustees, shareholder servicing and
distribution fees, brokerage fees, and expenses that are not normal operating
expenses of the Funds (such as extraordinary expenses, interest and taxes). The
amount shown as the advisory and administration fee for a Fund reflects the
highest fee payable, and does not reflect that the fee decreases incrementally
as Fund assets increase. For the Funds that did not commence operations in 1998,
"Other Expenses" are based on estimated amounts for the current fiscal year.
"Other Expenses" include only Trustees' fees payable to GE Institutional Funds'
independent Trustees, brokerage fees, and expenses that are not normal operating
expenses of the Funds. This amount is less than .01%; therefore "Other Expenses"
are reflected as "None." Long-term shareholders of the Service Class shares may
pay more than the economic equivalent of the maximum front-end sales charge
currently permitted by the rules of the National Association of Securities
Dealers, Inc. governing investment company sales charges.
- --------------------------------------------------------------------------------
<PAGE>
------------
31
- --------------------------------------------------------------------------------
Shareholder transaction expenses, 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.
<TABLE>
<CAPTION>
International Europe Emerging Strategic Money
Equity Equity Markets Income Investment Market
Fund Fund Fund Fund Fund Fund
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Management Fees
Investment and Service Class .75%* .75%* 1.05%* .35%* .45%* .25%*
- ------------------------------------------------------------------------------------------------------------
Distribution and Service (12b-1) fees:
Service Class** .25% .25% .25% .25% .25% .25%
- ------------------------------------------------------------------------------------------------------------
Other Expenses
Investment and Service Class None None None None None None
- ------------------------------------------------------------------------------------------------------------
Total Annual Fund Operating Expenses
Investment Class .75% .75% 1.05% .35% .45% .25%
Service Class 1.00% 1.00% 1.30% .60% .70% .50%
- ------------------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
<PAGE>
- --------------------
32 GE Institutional
Funds Prospectus
Fund Expenses
- --------------------------------------------------------------------------------
The Impact of Fund Expenses
This example is 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. This example also assumes the maximum advisory and administration fee
payable by a Fund. This fee declines incrementally as the Fund's assets
increase.
- --------------------------------------------------------------------------------
Example
You would pay the following
expenses on a $10,000 investment,
assuming redemption:
1 Year 3 Years 5 Years 10 Years
- --------------------------------------------------------------------------------
U.S. Equity Fund:
Investment Class $56 $176 $307 $689
Service Class $82 $255 $444 $990
- --------------------------------------------------------------------------------
S&P 500 Index Fund:
Investment Class $15 $48 $85 $192
Service Class $41 $128 $224 $505
- --------------------------------------------------------------------------------
Premier Growth Equity Fund:
Investment Class $56 $176 $307 $689
Service Class $82 $255 $444 $990
- --------------------------------------------------------------------------------
Value Equity Fund:
Investment Class $56 $176 $307 $689
Service Class $82 $255 $444 $990
- --------------------------------------------------------------------------------
Mid-Cap Growth Fund:
Investment Class $56 $176 $307 $689
Service Class $82 $255 $444 $990
- --------------------------------------------------------------------------------
Mid-Cap Value Equity Fund:
Investment Class $66 $208 $362 $810
Service Class $92 $287 $498 $1,108
- --------------------------------------------------------------------------------
Small-Cap Value Equity Fund:
Investment Class $72 $224 $390 $871
Service Class $97 $303 $525 $1,166
- --------------------------------------------------------------------------------
International Equity Fund:
Investment Class $77 $240 $417 $930
Service Class $102 $318 $552 $1,225
- --------------------------------------------------------------------------------
Europe Equity Fund:
Investment Class $77 $240 $417 $930
Service Class $102 $318 $552 $1,225
- --------------------------------------------------------------------------------
Emerging Markets Fund:
Investment Class $107 $334 $579 $1,283
Service Class $132 $412 $713 $1,568
- --------------------------------------------------------------------------------
Income Fund:
Investment Class $36 $113 $197 $443
Service Class $61 $192 $335 $750
- --------------------------------------------------------------------------------
Strategic Investment Fund:
Investment Class $46 $144 $252 $567
Service Class $72 $224 $390 $871
- --------------------------------------------------------------------------------
Money Market Fund:
Investment Class $26 $80 $141 $318
Service Class $51 $160 $280 $628
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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33
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34 GE Institutional More on
Funds Prospectus Strategies
and Risks
- --------------------------------------------------------------------------------
Important Definitions
This section defines important terms that may be unfamiliar to an investor
reading about the 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.
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.
Cash and cash equivalents are highly liquid and highly rated instruments such as
commercial paper and bank deposits.
Certificates of Deposit include short-term debt securities issued by banks.
Commercial paper includes short-term debt securities issued by banks,
corporations and other borrowers.
Corporate bonds are debt securities issued by companies.
Convertible securities may be debt or equity securities that pay interest or
dividends or are sold at a discount and that may be converted on specified terms
into the stock of the issuer.
Debt Obligations of Supranational Agencies are obligations of
multi-jurisdictional agencies that operate across national borders (e.g., the
World Bank).
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.
Depositary receipts represent interests in an account at a bank or trust company
which holds equity securities. These interests 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.
Derivative Securities are securities whose values are based on other securities,
currencies or indices, and include options (on stocks, indices, currencies,
futures contracts or bonds), forward currency exchange contracts, futures
contracts, swaps, interest-only and principal-only debt securities, certain
mortgage-backed securities like collateralized mortgage obligations (CMOs), and
structured securities.
Duration represents a mathematical calculation of the average life of a bond (or
portfolio of bonds) based on cash flows that serves as a useful measure of the
security's sensitivity to changes in interest rates. Each year of duration
approximates an expected one percent change in the bond's price for every one
percent change in the interest rate.
Equity securities may include common stocks, preferred securities, depositary
receipts, convertible securities, and rights and warrants of U.S. and foreign
companies. Stocks represent an ownership interest in a corporation.
Eurodollar Deposits are deposits issued in U.S. dollars by foreign banks and
foreign branches of U.S. banks.
Floating and Variable Rate Instruments are securities with floating or variable
rates of interest or dividend payments.
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.
- --------------------------------------------------------------------------------
<PAGE>
------------
35
- --------------------------------------------------------------------------------
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.
Forward Currency Transactions involve agreements to exchange one currency for
another at a future date.
Futures are agreements to buy or sell a specific amount of a commodity,
financial instrument or index at a particular price and future date. Options on
Futures give the purchaser the right, in return for the premium paid, to assume
a position in a futures contract at a specified exercise price at any time prior
to the expiration date of the option.
Growth investing involves buying stocks with above-average growth rates.
Typically, growth stocks are the stocks of faster growing companies in more
rapidly growing sectors of the economy. Generally, growth stock valuation levels
will be higher than those of value stocks and the market averages.
High yield securities are debt securities of corporations, preferred stock and
convertible bonds and convertible preferred stock rated Ba through C by Moody's
or BB through D by S&P (or comparably rated by another nationally recognized
statistical rating organization) or, if not rated by Moody's or S&P, are
considered by portfolio management to be of equivalent quality. High yield
securities include bonds rated below investment grade, sometimes called "junk
bonds," and are considered speculative by the major credit rating agencies.
Investment grade securities are rated Baa or better by Moody's and BBB or better
by S&P (or comparably rated by another nationally recognized statistical rating
organization), or, if not rated, are of similar quality to such securities.
Securities rated in the fourth highest grade have some speculative elements.
Maturity represents the date on which a debt security matures or when the issuer
must pay back the principal amount of the security.
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
government agencies and private issuers. They may also include collateralized
mortgage obligations which are derivative securities that are fully
collateralized by a portfolio of mortgages. Government Stripped Mortgage-related
Securities are mortgage-backed securities that have been stripped into their
interest and principal components. They represent interests in distributions of
interest on or principal underlying mortgage-backed certificates. Mortgage
Dollar Rolls are transactions involving the sale of a mortgage-backed security
with a simultaneous contract (with the purchaser) to buy similar, but not
identical, securities at a future date.
Money market securities are short-term debt securities of the U.S. government,
banks and corporations. Certain Funds may invest in money market securities
through investments in the GEI Short-Term Investment Fund (Investment Fund). The
Investment Fund is advised by GE Investment Management, which charges no
advisory fee for such services.
Municipal Obligations are debt obligations issued by or on behalf of states,
territories and possessions of the United States and the District of Columbia
and their political subdivisions, agencies and instrumentalities, or multi-state
agencies or authorities. They include: (i) Municipal Leases, which pay interest
that is exempt from federal, and in certain cases, state, income tax; (ii)
Participation Interests in Municipal Obligations, which are proportionate,
undivided interests in Municipal Obligations; (iii) Municipal Obligation
Components,
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36 GE Institutional
Funds Prospectus
More on Strategies
and Risks
- --------------------------------------------------------------------------------
More on Investment Strategies
which are Municipal Obligations that have been divided into two components (one
component pays interest at a rate adjusted periodically through an auction
process, the second pays the residual rate after the auction rate is deducted
from total interest payable); and (iv) Custodial Receipts on Municipal
Obligations, which evidence ownership of future interest payments, principal
payments, or both, on certain Municipal Obligations.
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.
Purchasing and Writing Options are permitted investment strategies for certain
Funds. An option is the right to buy (i.e., a "call") or sell (i.e., a "put")
securities or other interests for a predetermined price on or before a fixed
date. An option on a securities index represents the option holder's right to
obtain from the seller, 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 securities index on the exercise date. An option
on a foreign currency represents the right to buy or sell a particular amount of
that currency for a predetermined price on or before a fixed date.
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.
Restricted Securities (which include Rule 144A Securities) may have contractual
restrictions on resale, or cannot be resold publicly until registered. Illiquid
Securities may be difficult or impossible to sell when a Fund wants to sell them
at a price at which the Fund values them. Certain restricted securities may be
illiquid. Rule 144A Securities are restricted securities that may be sold to
certain institutional purchasers under Rule 144A.
Reverse Repurchase Agreements involve selling securities held and concurrently
agreeing to repurchase the same securities at a specified price and future date.
Rights represent a preemptive right of stockholders to purchase additional
shares of a stock at the time of a new issuance, before the stock is offered to
the general public, allowing the stock-holder to retain the same ownership
percentage after the new stock offering.
Short Sales Against the Box involve selling short securities actually owned or
otherwise covered at all times during the period the short position is open.
Structured and Indexed Securities are securities whose prinicpal and/or interest
rate is determined by reference to changes in the value of one or more specific
currencies, interest rates, commodities, indices or other financial indicators.
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 those of growth stocks.
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.
Various investment techniques are utilized by a Fund to increase or decrease its
exposure to changing security prices, interest rates, currency exchange rates,
commodity prices or other factors that affect security values. For certain
Funds, these techniques may involve derivative transactions such as buying and
selling options and futures contracts, entering into currency exchange contracts
or swap agreements and purchasing indexed securities. These techniques are
designed to adjust the risk and return characteristics of a Fund's portfolio of
investments and are not used for leverage. No Fund is under any obligation to
use any of these techniques at any given time or under any particular economic
condition. To the
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37
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extent that a Fund employs these techniques, the Fund would be subject to
derivative securities risk.
Weighted average maturity represents 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 amounts
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.
Warrants are securities that are usually issued together with a bond or
preferred stock, that permit the holder to buy a proportionate amount of common
stock at a specified price that is usually higher than the stock price at the
time of issue.
When-Issued and Delayed Delivery Securities are securities that are purchased or
sold for delivery and payment at a future date, i.e., beyond normal settlement
date.
Zero Coupon Obligations pay no interest to their holders prior to maturity.
Instead, interest is paid in a lump sum at maturity. They are purchased at a
deep discount from par value, and generally are more volatile than other fixed
income securities.
In addition to each Fund's principal investment strategies described earlier in
this Prospectus, a Fund is permitted to use other securities and investment
strategies in pursuit of its investment objective, No Fund is under any
obligation to use any of these techniques or strategies at any given time or
under any particular economic condition. Certain instruments and investment
strategies may expose the Funds to other risks and considerations, which are
discussed later in this Prospectus or in the Funds' Statement of Additional
Information (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
(other than the S&P 500 Index 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) without limit 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 securi-ties markets deemed to be
conservative in light of the Fund's investment objective and strategies. The
Funds, other than the Money Market Fund, may invest in money market instruments
directly or indirectly through investment in the GEI Short-Term Investment Fund
(Investment Fund). The Investment Fund is advised by GE Investment Management,
which charges no advisory fee to the Investment Fund. 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.
The following tables summarize the investment techniques that may be employed by
a Fund. Certain techniques and limitations may be changed at the discretion of
GE Investment Management. Percentage figures refer to the percentage of a Fund's
assets that may be invested in accordance with the indicated technique.
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38 GE Institutional
Funds Prospectus
More on Strategies
and Risks
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
Purchasing Purchasing
Reverse Restricted Structured and Writing and Writing
Repurchase Repurchase and Illiquid and Indexed Securities Securities
Borrowing Agreements Agreements Securities Securities Options Index Options
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
U.S. Equity Fund 33 1/3% Yes Yes Yes No Yes Yes
- --------------------------------------------------------------------------------------------------------------------------------
S & P 500 Index Fund 33 1/3% Yes Yes Yes No Yes Yes
- --------------------------------------------------------------------------------------------------------------------------------
Premier Growth Equity Fund 33 1/3% Yes Yes Yes No Yes Yes
- --------------------------------------------------------------------------------------------------------------------------------
Value Equity Fund 33 1/3% Yes Yes Yes No Yes Yes
- --------------------------------------------------------------------------------------------------------------------------------
Mid-Cap Growth Fund 33 1/3% Yes Yes Yes No Yes Yes
- --------------------------------------------------------------------------------------------------------------------------------
Mid-Cap Value Equity Fund 33 1/3% Yes Yes Yes Yes Yes Yes
- --------------------------------------------------------------------------------------------------------------------------------
Small-Cap Value Equity Fund 33 1/3% Yes Yes Yes No Yes Yes
- --------------------------------------------------------------------------------------------------------------------------------
International Equity Fund 33 1/3% Yes Yes Yes No Yes Yes
- --------------------------------------------------------------------------------------------------------------------------------
Europe Equity Fund 33 1/3% Yes Yes Yes Yes Yes Yes
- --------------------------------------------------------------------------------------------------------------------------------
Emerging Markets Fund 33 1/3% Yes Yes Yes No Yes Yes
- --------------------------------------------------------------------------------------------------------------------------------
Income Fund 33 1/3% Yes Yes Yes Yes Yes Yes
- --------------------------------------------------------------------------------------------------------------------------------
Strategic Investment Fund 33 1/3% Yes Yes Yes Yes Yes Yes
- --------------------------------------------------------------------------------------------------------------------------------
Money Market Fund 33 1/3% Yes Yes No No No No
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
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<PAGE>
------------
39
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
Maximum
Futures and Forward Options Investment
Options on Currency on Foreign in Debt
Futures Transactions Currencies Securities
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Equity Fund Yes Yes Yes 35%
- -------------------------------------------------------------------------------------------------
S&P 500 Index Fund Yes Yes Yes 35%
- -------------------------------------------------------------------------------------------------
Premier Growth Equity Fund Yes Yes No 35%
- -------------------------------------------------------------------------------------------------
Value Equity Fund Yes Yes Yes 35%
- -------------------------------------------------------------------------------------------------
Mid-Cap Growth Fund Yes Yes Yes 35% (maximum of
25% in BBB by S&P,
Baa by Moody's or
equivalent)
- -------------------------------------------------------------------------------------------------
Mid-Cap Value Equity Fund Yes Yes Yes 35%
- -------------------------------------------------------------------------------------------------
Small-Cap Value Equity Fund No No No 35%
- -------------------------------------------------------------------------------------------------
International Equity Fund Yes Yes Yes 35%
- -------------------------------------------------------------------------------------------------
Europe Equity Fund Yes Yes Yes 35%
- -------------------------------------------------------------------------------------------------
Emerging Markets Fund Yes Yes Yes 35% (maximum of
25% in BBB by S&P,
Baa by Moody's or
equivalent)
- -------------------------------------------------------------------------------------------------
Income Fund Yes Yes Yes 100% (maximum of
25% in BBB by S&P
or Baa by Moody's
or equivalent)
- -------------------------------------------------------------------------------------------------
Strategic Investment Fund Yes Yes Yes 100% (maximum of
25% in BBB by S&P
or Baa by Moody's
or equivalent)
- -------------------------------------------------------------------------------------------------
Money Market Fund No No No 100%
- -------------------------------------------------------------------------------------------------
<CAPTION>
- --------------------------------------------------------------------------------------
Maximum
Investment in Maximum When-Issued
Below-Investment Investment and Delayed
Grade Debt in Foreign Delivery
Securities Securities Securities
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. Equity Fund 5% 15%* Yes
- --------------------------------------------------------------------------------------
S&P 500 Index Fund 5% 35%* Yes
- --------------------------------------------------------------------------------------
Premier Growth Equity Fund 5% 25%* Yes
- --------------------------------------------------------------------------------------
Value Equity Fund 5% 25%* Yes
- --------------------------------------------------------------------------------------
Mid-Cap Growth Fund 10% in BB or B by 35%* Yes
S&P or Ba or B by
Moody's or equivalent
- --------------------------------------------------------------------------------------
Mid-Cap Value Equity Fund 15% in securities 15%* Yes
rated BBB or below
by S&P or Baa or
below by Moody's or
equivalent
- --------------------------------------------------------------------------------------
Small-Cap Value Equity Fund 10% 10%* Yes
- --------------------------------------------------------------------------------------
International Equity Fund 5% 100% Yes
- --------------------------------------------------------------------------------------
Europe Equity Fund 15% 100% Yes
- --------------------------------------------------------------------------------------
Emerging Markets Fund 10% in BB or B by 100% Yes
S&P or Ba or B by
Moody's or equivalent
- --------------------------------------------------------------------------------------
Income Fund 10% in BB or B by
S&P or Ba or B by 35%* Yes
Moody's or equivalent
- --------------------------------------------------------------------------------------
Strategic Investment Fund 10% in BB or B by 30%* Yes
S&P or Ba or B by
Moody's or equivalent
- --------------------------------------------------------------------------------------
Money Market Fund None 25%* Yes
- --------------------------------------------------------------------------------------
</TABLE>
* This limitation excludes ADRs, and securities of a foreign issuer with a class
of securities reqistered with the Securities and Exchange Commission and listed
on a U.S. national securities exchange or traded on the Nasdaq National Market
or the Nasdaq Small-Cap Market.
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40 GE Institutional
Funds Prospectus
More on Strategies
and Risks
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Debt Securities Participation
Lending Obligations of of Other Floating and Interests in
Portfolio Rule 144A Supranational Depositary Investment Municipal Variable Rate Municipal
Securities Securities Agencies Receipts Funds Leases 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 Equity Fund Yes Yes Yes Yes Yes No No* No
- ------------------------------------------------------------------------------------------------------------------------------------
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 Equity Fund Yes Yes Yes Yes Yes No No* No
- ------------------------------------------------------------------------------------------------------------------------------------
Small-Cap Value Equity Fund Yes Yes Yes Yes Yes No No* No
- ------------------------------------------------------------------------------------------------------------------------------------
International Equity Fund Yes Yes Yes Yes Yes No No* No
- ------------------------------------------------------------------------------------------------------------------------------------
Europe Equity Fund Yes Yes Yes Yes Yes No Yes No
- ------------------------------------------------------------------------------------------------------------------------------------
Emerging Markets Fund Yes Yes Yes Yes Yes No No* No
- ------------------------------------------------------------------------------------------------------------------------------------
Income Fund Yes Yes Yes Yes Yes No Yes No
- ------------------------------------------------------------------------------------------------------------------------------------
Strategic Investment Fund Yes Yes Yes Yes Yes Yes Yes Yes
- ------------------------------------------------------------------------------------------------------------------------------------
Money Market Fund Yes Yes Yes No No No Yes No
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Excludes commercial paper and notes with variable and floating rates of
interest.
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<PAGE>
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41
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Mortgage Government
Custodial Related Stripped Asset Backed Short
Zero Municipal Receipts on Securities, Mortgage Securities and Mortgage Sales
Coupon Obligations Municipal including Related Receivable-Backed Dollar Against
Obligations Components Obligations CMOs Securities Securities Rolls the Box
- ------------------------------------------------------------------------------------------------------------------------------------
<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 Equity Fund No No No No No No No No
- ------------------------------------------------------------------------------------------------------------------------------------
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 Equity Fund Yes No No No No No No Yes
- ------------------------------------------------------------------------------------------------------------------------------------
Small-Cap Value Equity Fund No No No No No No No Yes
- ------------------------------------------------------------------------------------------------------------------------------------
International Equity Fund No No No No No No No Yes
- ------------------------------------------------------------------------------------------------------------------------------------
Europe Equity Fund No No No No No No No Yes
- ------------------------------------------------------------------------------------------------------------------------------------
Emerging Markets Fund No No No No No No No Yes
- ------------------------------------------------------------------------------------------------------------------------------------
Income Fund Yes No No Yes Yes Yes Yes No
- ------------------------------------------------------------------------------------------------------------------------------------
Strategic Investment Fund Yes Yes Yes Yes Yes Yes Yes No
- ------------------------------------------------------------------------------------------------------------------------------------
Money Market Fund No No No No No No No No
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
<PAGE>
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42 GE Institutional More on Strategies
Funds Prospectus and Risks
- --------------------------------------------------------------------------------
More On 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.
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. The share value of the Equity Funds, the Income Fund and the
Asset Allocation Fund will rise and fall. Although the Money Market 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.
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.
The primary risks of particular investments are summarized below. For more
information about the risks associated with the Funds, please see the SAI, which
is incorporated by reference into this Prospectus.
Credit Risk: The price of a bond is affected by the issuer's or counterparty's
credit quality. Changes in financial condition and general economic conditions
can affect the ability to honor financial obligations and therefore lower credit
quality. 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.
Derivative Securities Risk: A Fund's use of various investment techniques to
increase or decrease its exposure to changing security prices, interest rates,
currency exchange rates, commodity prices, or other factors that affect security
values may involve derivative securities and contracts. Derivative securities
and contracts (securities and contracts whose values are based on other
securities, currencies or indices) include option contracts (on stocks, indices,
currencies, futures contracts or bonds), forward currency exchange contracts,
futures contracts, currency and interest rate swap contracts and structured
securities. Derivative securities and contracts 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 or contract to offset investment risk. Hedging
may include reducing the risk of a position held in a portfolio. Hedging and
other investment techniques also may be used to increase a Fund's exposure to a
particular investment strategy. If the portfolio manager's 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. A Fund is not
obligated to pursue any hedging strategy. In addition, hedging techniques may
not be available, may be too costly to be used effectivily or may be unable to
be used for other reasons. These investments may be considered speculative.
Emerging Markets Risk: Emerging market securities bear most 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 market countries are less diverse and mature
than those in developed countries, and their political systems are less stable.
Investments in emerging market countries may be affected by national policies
that restrict foreign investment. Emerging market countries may have less
developed legal structures, and the small size of their securities markets and
low trading volumes can make
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<PAGE>
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43
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investments illiquid and more volatile than investments in developed countries.
As a result, a Fund investing in emerging market 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 in foreign countries than in the U.S. Less
information may be available about foreign issuers. The costs of 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:
o 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.
o 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.
o 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.
High Yield Securities Risk: 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.
Below investment-grade securities may also present risks based on payment
expectations. For example, these securities may contain redemption or call
provisions. If an issuer exercises these provisions in a declining interest rate
market the Fund would have to replace the security with a lower yielding
security resulting in a decreased return for investors.
Illiquid Securities Risk: Illiquid securities may be difficult to resell at
approximately the price they were valued 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 generally 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.
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 may be
forced to invest the proceeds from prepaid mortgage-backed securities at lower
rates, which results in a lower return for the
- --------------------------------------------------------------------------------
<PAGE>
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44 GE Institutional
Funds Prospectus
More on Strategies
and Risks
- --------------------------------------------------------------------------------
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.
Restricted Securities Risk: Restricted securities (including Rule 144A
securities) may be subject to legal restraints on resale and, therefore, are
typically 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.
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.
Style Risk: Securities 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 underperform other funds that employ a different style. A
Fund also may employ a combination of styles that impact its risk
characteristics. Examples of different styles include growth and value
investing, as well as those focusing on large, medium, or small company
securities.
o Growth Investing Risk: Growth stocks may be more volatile than other stocks
because they are more sensitive to investor perceptions of the issuing company's
growth potential. Growth oriented funds will typically underperform when value
investing is in favor.
o Value Investing Risk: Undervalued stocks may not realize their perceived value
for extended periods of time or may never realize their perceived value. Value
stocks may respond differently to market and other developments than other types
of stocks. Value oriented funds will typically underperform when growth
investing is in favor.
o Mid-Cap Company Risk: Investments in securities of mid-cap companies entail
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.
o Small-Cap Company Risk: Investing in securities of small-cap 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-cap companies offers potential for above-average returns, the companies
may not succeed and their stock prices could decline significantly.
- --------------------------------------------------------------------------------
<PAGE>
------------
45
- --------------------------------------------------------------------------------
Other Risk Considerations
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 purchase
or withdrawal by a large investor may result in significant portfolio trading
expenses that are borne by other shareholders.
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 has addressed ongoing 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 Euro conversion issues. 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 have 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 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.
- --------------------------------------------------------------------------------
<PAGE>
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46 GE Institutional About the
Funds Prospectus 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. GE Investment Management is a wholly-owned subsidiary of General
Electric Company (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. As of June 30, 1999, GE's investment advisers managed roughly
$82 billion in individual and institutional assets, with over $17 billion in
mutual funds alone.
For many years, GE's tradition of ingenuity and customer focus has included
financial services. In the late 1920s, through a desire to promote the financial
well-being of its employees, GE began managing assets for its employee pension
plan. By the mid-1930s, GE pioneered some of the nation's earliest mutual funds,
the Elfun Funds -- to be followed years later 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.
GE Investment Management 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. Its 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.
Each Fund pays GE Investment Management a combined fee for advisory and
administrative services that is accrued daily and paid monthly. The advisory and
administration fee for each Fund, except the S&P 500 Index Fund, declines
incrementally as Fund assets increase. This means that investors pay a reduced
fee with respect to Fund assets over a certain level, or "breakpoint." The
advisory and administration fee or fees for each Fund, and the relevant
breakpoints, are stated in the schedule opposite (fees are expressed as an
annual rate) up to the maximum annual fee for investment management services.
For their services, GE Investment Management pays (out of the advisory fee that
it receives) SSGA, Palisade and NWQ monthly compensation in the form of an
investment sub-advisory fee. The fee is paid by GE Investment Management monthly
and is based upon the average daily net assets of the Fund that each sub-adviser
manages.
- --------------------------------------------------------------------------------
Investment Management and Administration Fees:
Each Fund pays GE Investment Management an investment management fee. The fee is
accrued daily and paid monthly at the following rates:
Annual Rate
Name of Fund Average Daily Net Assets of Fund Percentage
- --------------------------------------------------------------------------------
U.S. Equity Fund First $25 million 0.55%
Premier Growth Equity Fund Next $25 million 0.45%
Value Equity Fund Over $50 million 0.35%
Mid-Cap Growth Fund
- --------------------------------------------------------------------------------
S&P 500 Index Fund All Assets 0.15%
- --------------------------------------------------------------------------------
Mid-Cap Value Equity Fund First $25 million 0.65%
Next $25 million 0.60%
Over $50 million 0.55%
- --------------------------------------------------------------------------------
Small-Cap Value Equity Fund First $25 million 0.70%
Next $25 million 0.65%
Over $50 million 0.60%
- --------------------------------------------------------------------------------
International Equity Fund First $25 million 0.75%
Europe Equity Fund Next $50 million 0.65%
Over $75 million 0.55%
- --------------------------------------------------------------------------------
Emerging Markets Fund First $50 million 1.05%
Over $50 million 0.95%
- --------------------------------------------------------------------------------
Income Fund First $25 million 0.35%
Next $25 million 0.30%
Next $50 million 0.25%
Over $100 million 0.20%
- --------------------------------------------------------------------------------
Strategic Investment Fund First $25 million 0.45%
Next $25 million 0.40%
Over $50 million 0.35%
- --------------------------------------------------------------------------------
Money Market Fund First $25 million 0.25%
Next $25 million 0.20%
Next $50 million 0.15%
Over $100 million 0.10%
- --------------------------------------------------------------------------------
From time to time, GE Investment Management may waive or reimburse advisory or
administrative fees paid by a Fund.
- --------------------------------------------------------------------------------
<PAGE>
------------
47
- --------------------------------------------------------------------------------
About the Funds' Portfolio Managers
Eugene Bolton is a Director and Executive Vice President of GE Investment
Management. He manages the overall U.S. equity investments for GE Investment
Management. He leads a team of portfolio managers for the U.S. Equity Fund. He
has served in this capacity since commencement. Mr. Bolton joined GE Investment
Management in 1984 as Chief Financial Officer and has been a portfolio manager
since 1986.
David B. Carlson is a Senior Vice President of GE Investment Management. He is
portfolio manager for the Premier Growth Equity Fund and manages equity
investments for the Strategic Investment Fund. He has served in those capacities
since each Fund's commencement. Mr. Carlson joined GE Investment Management in
1982 as a Securities Analyst for Investment Operations. He became a Vice
President for Mutual Fund Portfolios in 1987 and a Senior Vice President in
1989.
Peter J. Hathaway is a Senior Vice President of GE Investment Management and
portfolio manager for the Value Equity Fund. Mr. Hathaway has served in that
capacity since the Fund's commencement and has over 36 years of investment
experience. He joined GE Investment Management in 1985 as a Vice President for
Pension Fund Portfolios. He became a Senior Vice President in 1987.
Ralph R. Layman is a Director and Executive Vice President of GE Investment
Management. He manages the overall international equity investments for GE
Investment Management. Mr. Layman leads a team of portfolio managers for the
International Equity Fund and the Emerging Markets Fund. He manages the
international equity investments for the Strategic Investment Fund. He has
served in those capacities since each Fund's commencement. Mr. Layman joined GE
Investment Management in 1991 as Executive Vice President for International
Investments.
Robert A. MacDougall is a Director and Executive Vice President of GE Investment
Management. He manages the overall fixed income investments for GE Investment
Management. He leads a team of portfolio managers for the Income Fund and the
Money Market Fund. Mr. MacDougall also manages fixed income investments for the
Strategic Investment Fund. He has served in those capacities since each Fund's
commencement. Mr. MacDougall joined GE Investment Management in 1986 as Vice
President. He became a Senior Vice President of Fixed Income in 1993, a director
and Executive Vice President of Fixed Income in 1997.
Ralph E. Whitman is a Senior Vice President of GE Investment Management and
Portfolio Manager of the Mid-Cap Growth Fund. He has served in that capacity
since December 1998. Mr. Whitman has more than 11 years of investment
experience. He joined GE Investment Management in 1987 as an Equity Analyst. He
became a Vice President for U.S. Equity Investments in 1995 and a Senior Vice
President for U.S. Equity Portfolios in 1998.
Michael J. Solecki is a Vice President of GE Investment Management and portfolio
manager of the Europe Equity Fund. He has served in that capacity since the
Fund's commencement. Mr Solecki joined GE Investment Management in 1990 as an
International Equity Analyst. He became a Vice President for International
Equity Portfolios in 1996.
- --------------------------------------------------------------------------------
<PAGE>
- --------------------
48 GE Institutional
Funds Prospectus
About the Investment
Adviser
- --------------------------------------------------------------------------------
About the Sub-Advisers
GE Investment Management believes that it has the responsibility to make the
best managers available to Fund shareholders at all times, whether that means
accessing GE Investment Management's wealth of internal talent or using external
talent (Sub-Advisers). 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
State Street Global Advisors (SSGA)
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 managed more than $574.7 billion in assets as of June 30, 1999.
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.
The Fund is managed by a team of portfolio managers led by James B. May. Mr. May
has been an investment officer and portfolio manager in the U.S. Structured
Products Group of State Street since 1994.
- --------------------------------------------------------------------------------
Small-Cap Value Equity Fund
Palisade Capital Management, L.L.C. (Palisade)
One Bridge Plaza
Fort Lee, NJ 07024
Palisade has a history of managing small-cap equity portfolios and for several
years has provided pension fund services to GE. The company has managed various
institutional and private accounts with total assets in excess of $2.7 billion
as of June 30, 1999. 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 (Senior Investment
Committee) composed of the following members: Jack Feiler, Martin L. Berman,
Steven E. Berman and Richard Meisenberg. Mr. Feiler, Chief Investment Officer at
Palisade, has day-to-day responsibility for managing the Fund and works with the
Senior 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.
- --------------------------------------------------------------------------------
<PAGE>
------------
49
- --------------------------------------------------------------------------------
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 June 30, 1999, NWQ had in excess of $7.3 billion of assets
under management.
Jon D. Bosse is the portfolio manager of the GE Mid-Cap Value Equity Fund 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 in 1996, he spent ten years with ARCO Investment Management Company where he
was director of equity research and managed a value-oriented portfolio. 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.
- --------------------------------------------------------------------------------
<PAGE>
- --------------------
50 GE Institutional
Funds Prospectus
About the Investment
Adviser
- --------------------------------------------------------------------------------
Prior Performance Information of GE Investment Management Incorporated
(Investment Adviser to the U.S. Equity Fund)
The bar chart and table opposite illustrate the performance of a composite of
certain private and mutual fund accounts ("Accounts") managed by GE Investment
Management, the investment adviser to the U.S. Equity Fund and GEIC, its sister
company having the same investment personnel. See "About the Investment
Adviser." Each of the Accounts included in the composite has objectives,
policies and strategies substantially similar to those of the Fund.
Unlike management of the private accounts included in the composite, GE
Investment Management's management of the U.S. Equity Fund is subject to certain
regulatory restrictions (e.g., limits on percentage of assets invested in a
single issuer and industry and requirements on distributing income to
shareholders) that do not apply to the private accounts. In addition, the Fund
generally experiences cash flows that are 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 opposite.
GE Investment Management composite results represent the performance of the
Accounts, net of the annual rate of total operating expenses of the U.S. Equity
Fund; the composite results do not represent the performance of the U.S. Equity
Fund, and should not be considered an indication of future performance of the
Fund.
- --------------------------------------------------------------------------------
Calendar Year Total Return
[The following table was represented as a bar chart in the printed material.]
Composite(2) US Equity Fund(3) S&P 500 Index
------------ ----------------- -------------
1992 9% 8%
1993 11% 10%
1994 -2% 1%
1995 36% 37%
1996 22% 23%
1997 33% 33%
1998 23% 24% 29%
1999(1) 14% 14% 12%
- --------------------------------------------------------------------------------
Average Annual Total Return
(as of June 30, 1999)
Composite -- Composite -- U.S. Equity S&P 500
Period Investment Class(4) Service Class(2) Fund(3) Index
------------------- ---------------- ----------- -------
Year-to-Date 13.93% 13.79% 14.27% 12.26%
1 Year 22.92% 22.61% 23.21% 22.71%
3 Years 27.75% 27.44% -- 29.10%
5 Years 26.24% 25.93% -- 27.87%
Since 1/1/92 19.07% 18.78% -- 19.95%
(1) Represents performance from 1/1/99 through 6/30/99.
(2) The composite performance results shown reflect the deduction of the
annual rate of total operating expenses of the Fund - Service Class
shares.
(3) Represents the performance of U.S. Equity Fund - Investment Class shares.
As of the date of this Prospectus, Service Class shares have no operating
history and therefore performance information is not available. Service
Class shares of the Fund pay a shareholder service and distribution fee,
which would lower their returns.The Fund's Investment Class commenced
operations 11/25/97. Fund performance information is shown in the Calendar
Year Total Return Chart from January 1st of the year following its
inception. The Fund performance information is net of applicable fees and
other expenses. As with all mutual funds, past performance is not an
indication of future performance.
(4) The composite performance results shown reflect the deduction of the
annual rate of total operating expenses of the Fund - Investment Class
shares.
Note A. GE stock has been held in substantially all of the private accounts in
the composite since October 1996. GE stock is not actively traded by the private
accounts and is held at a weight substantially approximating the weight of GE in
the S&P500 Index, with quarterly rebalancing. GE stock is not held by any mutual
fund. Private accounts that do not hold GE stock and mutual funds in the
composite typically hold a GE substitute (a basket of securities that are
intended to represent, on a collective basis, the principal industries in which
GE conducts business).
Note B. The composite performance results shown reflect the deduction of the
annual rate of total operating expenses, including the maximum advisory and
administration fee, of the Fund; actual expenses of the Accounts may have been
more or less than those of the Fund. As of June 30, 1999, the total assets in
the composite was $13.45 billion. The composite performance is compared to the
performance of the S&P 500 Index, which is a composite of the price and dividend
performance of 500 widely held U.S. stocks recognized by many investors to be
representative of the stock market in general. The information provided above
for the composite, the Fund and the Index reflects the reinvestment of dividends
and distributions.
- --------------------------------------------------------------------------------
<PAGE>
------------
51
- --------------------------------------------------------------------------------
Prior Performance Information of GE Investment Management Incorporated
(Investment Adviser to the Premier Growth Equity Fund)
The bar chart and table opposite illustrate the performance of a composite of
certain private and mutual fund accounts ("Accounts") managed by GE Investment
Management, the investment adviser to the Premier Growth Equity Fund and GEIC,
its sister company having the same investment personnel. See "About the
Investment Adviser." Each of the Accounts included in the composite has
objectives, policies and strategies substantially similar to those of the Fund.
Unlike management of the private accounts included in the composite, GE
Investment Management's management of the Premier Growth Equity Fund will be
subject to certain regulatory 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. 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 opposite.
GE Investment Management composite results represent the performance of the
Accounts, net of the annual rate of total operating expenses of the Premier
Growth Equity Fund; the composite results do not represent the performance of
the Premier Growth Equity Fund, and should not be considered an indication of
future performance of the Fund.
- --------------------------------------------------------------------------------
Calendar Year Total Return(1)
[The following table was represented as a bar chart in the printed material.]
Composite(3) S&P 500 Index
------------ -------------
1997 27% 33%
1998 36% 29%
1999(2) 19% 12%
- --------------------------------------------------------------------------------
Average Annual Total Return(1)
(as of June 30, 1999)
Composite -- Composite -- S&P 500
Period Investment Class(4) Service Class(3) Index
------------------- ---------------- -------
Year-to-Date 19.62% 19.47% 12.26%
1 Year 38.40% 38.07% 22.71%
Since 1/1/97 33.91% 33.58% 30.03%
(1) No performance figures are shown for the Premier Growth Equity Fund
because the Fund has no operating history as of the date of this
Prospectus.
(2) Represents performance from 1/1/99 through 6/30/99.
(3) The composite performance results shown reflect the deduction of the
annual rate of total operating expenses of the Fund - Service Class
shares.
(4) The composite performance results shown reflect the deduction of the
annual rate of total operating expenses of the Fund - Investment Class
shares.
Note A. The composite performance results shown reflect the deduction of the
annual rate of total operating expenses, including the maximum advisory and
administration fee, of the Fund; actual expenses of the Accounts may have been
more or less than those of the Fund. As of June 30, 1999, the total assets in
the composite was $158 million. The composite performance is compared to the
performance of the S&P 500 Index, which is a composite of the price and dividend
performance of 500 widely held U.S. stocks recognized by many investors to be
representative of the stock market in general. The information provided above
for the composite and the Index reflects the reinvestment of dividends and
distributions.
- --------------------------------------------------------------------------------
<PAGE>
- --------------------
52 GE Institutional
Funds Prospectus
About the Investment
Adviser
- --------------------------------------------------------------------------------
Prior Performance Information of GE Investment Management Incorporated
(Investment Adviser to the Value Equity Fund)
The bar chart and table opposite illustrate the performance of a composite of
certain private and mutual fund accounts ("Accounts") managed by GE Investment
Management, the investment adviser to the Value Equity Fund and GEIC, its sister
company having the same investment personnel. See "About the Investment
Adviser." Each of the Accounts included in the composite has objectives,
policies and strategies substantially similar to those of the Fund.
Unlike management of the private accounts included in the composite, GE
Investment Management's management of the Value Equity Fund will be subject to
certain regulatory 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. 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 opposite.
GE Investment Management composite results represent the performance of the
Accounts, net of the annual rate of total operating expenses of the Value Equity
Fund; the composite results do not represent the performance of the Value Equity
Fund, and should not be considered an indication of future performance of the
Fund.
- --------------------------------------------------------------------------------
Calendar Year Total Return(1)
[The following table was represented as a bar chart in the printed material.]
Composite(3) S&P 500/Barra Value Index
--------- -------------------------
1992 10% 8%
1993 14% 10%
1994 -1% 1%
1995 37% 37%
1996 22% 23%
1997 34% 33%
1998 26% 29%
1999(2) 13% 12%
- --------------------------------------------------------------------------------
Average Annual Total Return(1)
(as of June 30, 1999)
Composite -- Composite -- S&P 500/Barra
Period Investment Class(4) Service Class(3) Value Index
------------------- ---------------- -------------
Year-to-Date 12.94% 12.80% 13.95%
1 Year 22.35% 22.05% 16.54%
3 Years 28.57% 28.26% 24.04%
5 Years 26.86% 26.55% 23.64%
Since 1/1/92 20.24% 19.94% 19.04%
(1) No performance figures are shown for the Value Equity Fund because the
Fund has no operating history as of the date of this Prospectus.
(2) Represents performance from 1/1/99 through 6/30/99.
(3) The composite performance results shown reflect the deduction of the
annual rate of total operating expenses of the Fund - Service Class
shares.
(4) The composite performance results shown reflect the deduction of the
annual rate of total operating expenses of the Fund - Investment Class
shares.
Note A. Performance results provided in the composite for the period from
January 1, 1992 to September 30, 1997 reflect the performance of a single
private account consisting only of General Electric Pension Trust assets. GE
stock has been held in substantially all of the private accounts in the
composite since October 1996. GE stock is not actively traded by the private
accounts and is held at a weight substantially approximating the weight of GE in
the S&P 500 Index, with quarterly rebalancing. GE stock is not held by any
mutual fund. Private accounts that do not hold GE stock and mutual funds in the
composite typically hold a GE substitute (a basket of securities that are
intended to represent, on a collective basis, the principal industries in which
GE conducts business).
Note B. The composite performance results shown reflect the deduction of the
annual rate of total operating expenses, including the maximum advisory and
administration fee, of the Fund; actual expenses of the Accounts may have been
more or less than those of the Fund. As of June 30, 1999, the total assets in
the composite was $4.41 billion. The composite performance is compared to the
performance of the S&P 500/Barra Value Index, which is a capitalization-weighted
index of all of the stocks in the S&P 500 that have low price-to-book ratios.
The information provided above for the composite and the Index reflects the
reinvestment of dividends and distributions.
- --------------------------------------------------------------------------------
<PAGE>
------------
53
- --------------------------------------------------------------------------------
Prior Performance Information of GE Investment Management Incorporated
(Investment Adviser to the International Equity Fund)
The bar chart and table opposite illustrate the performance of a composite of
certain private and mutual fund accounts ("Accounts") managed by GE Investment
Management, the investment adviser to the International Equity Fund and GEIC,
its sister company having the same investment personnel. See "About the
Investment Adviser." Each of the Accounts included in the composite has
objectives, policies and strategies substantially similar to those of the Fund.
Unlike management of the private accounts included in the composite, GE
Investment Management's management of the International Equity Fund is subject
to certain regulatory restrictions (e.g., limits on percentage of assets
invested in a single issuer and industry and requirements on distributing income
to shareholders) that do not apply to the private accounts. In addition, the
Fund generally experiences cash flows that are 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 opposite.
GE Investment Management composite results represent the performance of the
Accounts, net of the annual rate of total operating expenses of the
International Equity Fund; the composite results do not represent the
performance of the International Equity Fund, and should not be considered an
indication of future performance of the Fund.
- --------------------------------------------------------------------------------
Calendar Year Total Return
[The following table was represented as a bar chart in the printed material.]
Composite(2) International Equity Fund(3) MSCI EAFE Index
------------ ---------------------------- ---------------
1989 16% 11%
1990 -16% -23%
1991 8% 12%
1992 -5% -12%
1993 39% 33%
1994 0% 8%
1995 12% 11%
1996 14% 6%
1997 7% 2%
1998 17% 17% 20%
1999(1) 7% 7% 4%
- --------------------------------------------------------------------------------
Average Annual Total Return
(as of June 30, 1999)
Composite -- Composite -- International MSCI EAFE
Period Investment Class(4) Service Class(2) Equity Fund(3) Index
------------------- ---------------- -------------- ---------
Year-to-Date 6.79% 6.66% 6.67% 3.97%
1 Year 4.96% 4.70% 4.99% 7.62%
3 Years 12.50% 12.22% -- 8.81%
5 Years 11.61% 11.33% -- 8.21%
10 Years 9.63% 9.36% -- 6.60%
Since 1/1/86 13.39% 13.10% -- 12.37%
(1) Represents performance from 1/1/99 through 6/30/99.
(2) The composite performance results shown reflect the deduction of the
annual rate of total operating expenses of the Fund - Service Class
shares.
(3) Represents the performance of International Equity Fund- Investment Class
shares. As of the date of this Prospectus, Service Class shares have no
operating history and therefore performance information is not available.
Service Class shares of the Fund pay a shareholder service and
distribution fee, which would lower their returns. The Fund's Investment
Class commenced operations 11/25/97. Fund performance information is shown
in the Calendar Year Total Return Chart from January 1st of the year
following its inception. The Fund performance information is net of
applicable fees and other expenses. As with all mutual funds, past
performance is not an indication of future performance.
(4) The composite performance results shown reflect the deduction of the
annual rate of total operating expenses of the Fund - Investment Class
shares.
Note A. The composite performance results shown reflect the deduction of the
annual rate of total operating expenses, including the maximum advisory and
administration fee, of the Fund; actual expenses of the Accounts may have been
more or less than those of the Fund. As of June 30, 1999, the total assets in
the composite was $7.44 billion. The composite performance is compared to the
performance of the MSCI EAFE Index, which is a composite of foreign securities
traded in 22 developed markets in Europe, Australasia, and Far East. The
information provided above for the composite, the Fund and the Index reflects
the reinvestment of dividends and distributions.
- --------------------------------------------------------------------------------
<PAGE>
- --------------------
54 GE Institutional
Funds Prospectus
About the Investment
Adviser
- --------------------------------------------------------------------------------
Prior Performance Information of GE Investment Management Incorporated
(Investment Adviser to the Emerging Markets Fund)
The bar chart and table opposite illustrate the performance of a composite of
certain private and mutual fund accounts ("Accounts") managed by GE Investment
Management, the investment adviser to the Emerging Markets Fund and GEIC, its
sister company having the same investment personnel. See "About the Investment
Adviser." Each of the Accounts included in the composite has objectives,
policies and strategies substantially similar to those of the Fund.
Unlike management of the private accounts included in the composite, GE
Investment Management's management of the Emerging Markets Fund is subject to
certain regulatory restrictions (e.g., limits on percentage of assets invested
in a single issuer and industry and requirements on distributing income to
shareholders) that do not apply to the private accounts. In addition, the Fund
generally experiences cash flows that are 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 opposite.
GE Investment Management composite results represent the performance of the
Accounts, net of the annual rate of total operating expenses of the Emerging
Markets Fund; the composite results do not represent the performance of the
Emerging Markets Fund, and should not be considered an indication of future
performance of the Fund.
- --------------------------------------------------------------------------------
Calendar Year Total Return
[The following table was represented as a bar chart in the printed material.]
Composite(3) Emerging Markets Fund(4) MSCI EMF Index
------------ ------------------------ --------------
1996(1) -1% -4%
1997 -13% -12%
1998 -20% -20% -25%
1999(2) 36% 38% 40%
- --------------------------------------------------------------------------------
Average Annual Total Return
(as of June 30, 1999)
Composite -- Composite -- Emerging MSCI
Period Investment Class(5) Services Class(3) Markets Fund(4) EMF Index
------------------- ----------------- --------------- ---------
Year-to-Date 36.37% 36.20% 37.98% 39.87%
1 Year 16.01% 15.72% 19.86% 28.71%
Since 7/1/96 -1.92% -2.16% -- -4.00%
(1) Represents performance from 7/1/96 through 12/31/96.
(2) Represents performance from 1/1/99 through 6/30/99.
(3) The composite performance results shown reflect the deduction of the
annual rate of total operating expenses of the Fund - Service Class
shares.
(4) Represents the performance of Emerging Markets Fund-Investment Class
shares. As of the date of this Prospectus, Service Class shares have no
operating history and therefore performance information is not available.
Service Class shares of the Fund pay a shareholder service and
distribution fee, which would lower their returns. The Fund's Investment
Class commenced operations 11/25/97. Fund performance information is shown
in the Calendar Year Total Return Chart from January 1st of the year
following its inception. The Fund performance information is net of
applicable fees and other expenses. As with all mutual funds, past
performance is not an indication of future performance.
(5) The composite performance results shown reflect the deduction of the
annual rate of total operating expenses of the Fund - Investment Class
shares.
Note A. The composite performance results shown reflect the deduction of the
annual rate of total operating expenses, including the maximum advisory and
administration fee, of the Fund; actual expenses of the Accounts may have been
more or less than those of the Fund. As of June 30, 1999, the total assets in
the composite was $683.9 million. The composite performance is compared to the
performance of the MSCI Emerging Markets Free Index, which is a composite of
securities available to non-domestic investors traded in 25 emerging markets.
The information provided above for the composite, the Fund and the Index
reflects the reinvestment of dividends and distributions.
- --------------------------------------------------------------------------------
<PAGE>
------------
55
- --------------------------------------------------------------------------------
Prior Performance Information of GE Investment Management Incorporated
(Investment Adviser to the Income Fund)
The bar chart and table opposite illustrate the performance of a composite of
certain private and mutual fund accounts ("Accounts") managed by GE Investment
Management, the investment adviser to the Income Fund and GEIC, its sister
company having the same investment personnel. See "About the Investment
Adviser." Each of the Accounts included in the composite has objectives,
policies and strategies substantially similar to those of the Fund.
Unlike management of the private accounts included in the composite, GE
Investment Management's management of the Income Fund is subject to certain
regulatory restrictions (e.g., limits on percentage of assets invested in a
single issuer and industry and requirements on distributing income to
shareholders) that do not apply to the private accounts. In addition, the Fund
generally experiences cash flows that are 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 opposite.
GE Investment Management composite results represent the performance of the
Accounts, net of the annual rate of total operating expenses of the Income Fund;
the composite results do not represent the performance of the Income Fund, and
should not be considered an indication of future performance of the Fund.
- --------------------------------------------------------------------------------
Calendar Year Total Return
[The following table was represented as a bar chart in the printed material.]
Lehman Brothers
Composite(2) Income Fund(3) Aggregate Bond Index
------------ -------------- --------------------
1992 6% 7%
1993 9% 10%
1994 -3% -3%
1995 18% 18%
1996 4% 4%
1997 9% 10%
1998 8% 8% 9%
1999(1) -2% -2% -1%
- --------------------------------------------------------------------------------
Average Annual Total Return
(as of June 30, 1999)
Lehman
Brothers
Composite -- Composite -- Aggregate
Period Investment Class(4) Service Class(2) Income fund(3) Bond Index
------------------- ---------------- -------------- ----------
Year-to-Date -1.57% -1.70% -1.68% -1.38%
1 Year 2.36% 2.11% 2.27% 3.13%
3 Years 7.10% 6.83% -- 7.23%
5 Years 7.66% 7.39% -- 7.82%
Since 1/1/92 6.71% 6.45% -- 6.91%
(1) Represents performance from 1/1/99 through 6/30/99.
(2) The composite performance results shown reflect the deduction of the
annual rate of total operating expenses of the Fund - Service Class
shares.
(3) Represents the performance of Income Fund-Investment Class shares. As of
the date of this Prospectus, Service Class shares have no operating
history and therefore performance information is not available. Service
Class shares of the Fund pay a shareholder service and distribution fee,
which would lower their returns. The Fund's Investment Class commenced
operations 11/21/97. Fund performance information is shown in the Calendar
Year Total Return Chart from January 1st of the year following its
inception. The Fund performance information is net of applicable fees and
other expenses. As with all mutual funds, past performance is not an
indication of future performance.
(4) The composite performance results shown reflect the deduction of the
annual rate of total operating expenses of the Fund - Investment Class
shares.
Note A -- The composite performance results shown reflect the deduction of the
annual rate of total operating expenses, including the maximum advisory and
administration fee, of the Fund; actual expenses of the Accounts may have been
more or less than those of the Fund. As of June 30, 1999, the total assets in
the composite was $12.56 billion. The composite performance is compared to the
performance of the Lehman Brothers Aggregate Bond Index, which is a composite of
short-, medium-, and long-term bond performance and is widely recognized as a
barometer of the bond market in general. The information provided above for the
composite, the Fund and the Index reflects the reinvestment of dividends and
distributions.
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<PAGE>
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56 GE Institutional
Funds Prospectus
About the Investment
Adviser
- --------------------------------------------------------------------------------
Prior Performance Information of GE Investment Management Incorporated
(Investment Adviser to the Strategic Investment Fund)
The bar chart and table opposite illustrate the performance of a composite
of certain mutual fund accounts ("Accounts") managed by GE Investment
Management, the investment adviser to the Strategic Investment Fund and GEIC,
its sister company having the same investment personnel. See "About the
Investment Adviser." Each of the Accounts included in the composite has
objectives, policies and strategies substantially similar to those of the Fund.
GE Investment Management composite results represent the performance of the
Accounts, net of the annual rate of total operating expenses of the Strategic
Investment Fund; the composite results do not represent the performance of the
Strategic Investment Fund, and should not be considered an indication of future
performance of the Fund.
- --------------------------------------------------------------------------------
Calendar Year Total Return(1)
[The following table was represented as a bar chart in the printed material.]
Composite(3) Composite Index(4)
------------ ------------------
1989 22% 25%
1990 5% 2%
1991 18% 25%
1992 9% 8%
1993 9% 10%
1994 -1% 0%
1995 27% 30%
1996 14% 15%
1997 18% 24%
1998 17% 21%
1999(2) 7% 7%
- --------------------------------------------------------------------------------
Average Annual Total Return(1)
(as of June 30, 1999)
Lehman Brothers
Composite -- Composite -- S&P 500 Aggregate
Period Investment Class(5) Service Class(3) Index Bond Index
- ------ ------------------- ---------------- ------- ---------------
Year-to-Date 6.98% 6.85% 12.26% -1.38%
1 Year 12.80% 12.52% 22.71% 3.13%
3 Years 16.99% 16.71% 29.10% 7.23%
5 Years 17.26% 16.97% 27.87% 7.82%
10 Years 13.12% 12.84% 18.77% 8.15%
Since 1/1/88 13.18% 12.90% 19.27% 8.58%
(1) No performance figures are shown for the Strategic Investment Fund because
the Fund has no operating history as of the date of this Prospectus.
(2) Represents performance from 1/1/99 through 6/30/99.
(3) The composite performance results shown reflect the deduction of the
annual rate of total operating expenses of the Fund - Service Class
shares.
(4) The Composite Index return is a blended return composed of 60% S&P 500
Index and 40% Lehman Brothers Aggregate Bond Index.
(5) The composite performance results shown reflect the deduction of the
annual rate of total operating expenses of the Fund - Investment Class
shares.
Note A. The composite performance results shown reflect the deduction of the
annual rate of total operating expenses, including the maximum advisory and
administration fee, of the Fund; actual expenses of the Accounts may have been
more or less than those of the Fund. As of June 30, 1999, the toal assets in the
composite was $473 million. The composite performance is compared to the
performance of the S&P 500 Index and the Lehman Brothers Aggregate Bond Index,
S&P 500 Index is a composite of the price and dividend performace of 500 widely
held U.S. stocks recognized by many investors to be representative of the stock
market in general. Lehman Brothers Aggregate Bond Index is a composite of
short-, medium- and long-term bond performance and is widely recognized as a
barometer of the bond market in general. The information provided above for the
composite and the Index reflects the reinvestment of dividends and
distributions.
- --------------------------------------------------------------------------------
<PAGE>
------------
57
- --------------------------------------------------------------------------------
Prior Performance Information of GE Investment Management Incorporated
(Investment Adviser to the Money Market Fund)
The bar chart and table opposite illustrate the performance of a composite of
certain private and mutual fund accounts ("Accounts") managed by GE Investment
Management, the investment adviser to the Money Market Fund and GEIC, its sister
company having the same investment personnel. See "About the Investment
Adviser." Each of the Accounts included in the composite has objectives,
policies and strategies substantially similar to those of the Fund.
Unlike management of the private accounts included in the composite, GE
Investment Management's management of the Money Market Fund is subject to
certain regulatory restrictions (e.g., limits on percentage of assets invested
in a single issuer and industry and requirements on distributing income to
shareholders) that do not apply to the private accounts. In addition, the Fund
generally experiences cash flows that are 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 opposite.
GE Investment Management composite results represent the performance of the
Accounts, net of the annual rate of total operating expenses of the Money Market
Fund; the composite results do not represent the performance of the Money Market
Fund, and should not be considered an indication of future performance of the
Fund.
- --------------------------------------------------------------------------------
Calendar Year Total Return
[The following table was represented as a bar chart in the printed material.]
Composite(2) Money Market Fund(3) 90-day Treasury Bill
------------ -------------------- --------------------
1990 8% 8%
1991 6% 6%
1992 3% 4%
1993 3% 3%
1994 4% 4%
1995 6% 6%
1996 5% 5%
1997 5% 5%
1998 5% 5% 5%
1999(1) 2% 2% 2%
- --------------------------------------------------------------------------------
Average Annual Total Return
(as of June 30, 1999)
90-day
Composite -- Composite -- Money Treasury
Period Investment Class(4) Service Class(2) Market Fund(3) Bill
- ------ ------------------- ---------------- -------------- --------
Year-to-Date 2.35% 2.22% 2.35% 2.28%
1 Year 5.01% 4.75% 5.04% 4.62%
3 Years 5.27% 5.00% -- 4.99%
5 Years 5.34% 5.08% -- 5.14%
Since 1/1/90 5.22% 4.96% -- 4.98%
(1) Represents performance from 1/1/99 through 6/30/99.
(2) The composite performance results shown reflect the deduction of the
annual rate of total operating expenses of the Fund - Service Class
shares.
(3) Represents the performance of Money Market Fund-Investment Class shares.
As of the date of this Prospectus, Service Class shares have no operating
history and therefore performance information is not available. Service
Class shares of the Fund pay a shareholder service and distribution fee,
which would lower their returns. The Fund's Investment Class commenced
operations 12/2/97. Fund performance information is shown in the Calendar
Year Total Return Chart from January 1st of the year following its
inception. The Fund performance information is net of applicable fees and
other expenses. As with all mutual funds, past performance is not an
indication of future performance. Although the Money Market Fund attempts
to maintain a stable $1.00 per share value, there is no guarantee it will
be able to do so. It is possible to lose money investing in the Money
Market Fund. Shares of the Money Market Fund are not FDIC insured.
(4) The composite performance results shown reflect the deduction of the
annual rate of total operating expenses of the Fund - Investment Class
shares.
Note A. The composite performance results shown reflect the deduction of the
annual rate of total operating expenses, including the maximum advisory and
administration fee, of the Fund; actual expenses of the Accounts may have been
more or less than those of the Fund. As of June 30, 1999, the total assets in
the composite was $2.26 billion. The composite performance is compared to the
performance of the 90-day Treasury Bill which is the average return on three
month U.S. Treasury Bills. The information provided above for the composite, the
Fund and the Index reflects the reinvestment of dividends and distributions.
- --------------------------------------------------------------------------------
<PAGE>
- --------------------
58 GE Institutional
Funds Prospectus
About the Investment
Adviser
- --------------------------------------------------------------------------------
Prior Performance Information of the Senior Investment Committee of Palisade
Capital Management, L.L.C.
(Sub-Adviser to the Small-Cap Value Equity Fund)
The bar chart and table opposite illustrate the performance of a composite of
certain private accounts ("Accounts") managed by the Senior 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 Senior Investment Committee while at Palisade and during its previous
employment with Smith Barney, Inc.
The Senior Investment Committee, which has operated together since July 1, 1993,
consists of Jack Feiler, Martin L. Berman, Steven E. Berman and Richard
Meisenberg. As is the case with the Small-Cap Value Equity Fund, Mr. Feiler was
primarily responsible for management of the Accounts and worked with the Senior
Investment Committee in developing and executing the Accounts' investment
programs. No person other than the members of the Senior Investment Committee
had a significant role in achieving the performance described.
Unlike management of the Accounts, the Senior Investment Committee's management
of the Small-Cap Value Equity Fund is subject to certain regulatory restrictions
(e.g., limits on percentage of assets invested in a single issuer and industry
and requirements on distributing income to shareholders) that do not apply to
the Accounts. The Fund also incurs certain operating expenses that are not borne
by the Accounts. In addition, the Fund generally experiences cash flows that are
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 opposite.
- --------------------------------------------------------------------------------
<PAGE>
------------
59
- --------------------------------------------------------------------------------
Calendar Year Total Return
[The following table was represented as a bar chart in the printed material.]
Small-Cap
Composite Value Equity Fund(3) Russell 2000 Index
--------- -------------------- ------------------
1993(1) 10% 12%
1994 4% -2%
1995 32% 28%
1996 23% 16%
1997 26% 22%
1998 -3% -5%
1999(2) -2% 3% 9%
- --------------------------------------------------------------------------------
Average Annual Total Return
(as of June 30, 1999)
Small-Cap Value Russell
Period Composite Equity Fund(3) 2000 Index
--------- -------------- ----------
Year-to-Date -2.29% 3.21% 9.28%
1 Year -10.83% -- 1.50%
3 Years 8.69% -- 11.22%
5 Years 15.52% -- 15.40%
Since 7/1/93 13.82% -- 13.49%
(1) Represents performance from 7/1/93 through 12/31/93.
(2) Represents performance from 1/1/99 through 6/30/99.
(3) Represents the performance of Small-Cap Value Equity Fund-Investment Class
shares. As of the date of this Prospectus, Service Class shares have no
operating history and therefore performance information is not available.
Service Class shares of the Fund pay a shareholder service and
distribution fee, which would lower their returns. The Fund's Investment
Class commenced operations 8/3/98. Fund performance information is shown
in the Calendar Year Total Return Chart from January 1st of the year
following its inception. The Fund performance information is net of fees
and other expenses. As with all mutual funds, past performance is not an
indication of future performance.
Note A. The composite performance results provided above for the period from
July 1, 1993 to April 1, 1995 (commencement of Palisade's operations) reflect
the performance of the Accounts while the Senior Investment Committee was
employed as a separate operating group within Smith Barney Inc. Thereafter, the
composite performance results reflect the performance of the Accounts managed by
the Senior Investment Committee while at Palisade.
Note B. As of June 30,1999, the toal assets in the composite was $1.61 billion.
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 $83 million and $2.59 billion as of June 30, 1999. The information
provided above for the composite, the Fund 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 Small-Cap Value Equity Fund
are expected to differ from those of the Accounts.
The Senior Investment Committee composite results represent the performance of
the Accounts, net of fees and other expenses, not the performance of the
Small-Cap Value Equity Fund, and should not be considered an indication of
future performance of the Fund.
- --------------------------------------------------------------------------------
<PAGE>
- --------------------
60 GE Institutional
Funds Prospectus
About the Investment
Adviser
- --------------------------------------------------------------------------------
Prior Performance Information of Jon Bosse
(Portfolio Manager of the Mid-Cap Value Equity Fund)
The bar chart and table opposite illustrate the performance of a composite of
certain private and mutual fund accounts ("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 Investment Management Company
("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.
Unlike management of the private accounts included in the composite, Mr. Bosse's
management of the Mid-Cap Value Equity Fund is subject to certain regulatory
restrictions (e.g., limits on percentage of assets invested in a single issuer
and industry and requirements on distributing income to shareholders) that do
not apply to the private accounts. The Fund also incurs certain operating
expenses that are not borne by the private accounts. In addition, the Fund
generally experiences cash flows that are 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 opposite.
- --------------------------------------------------------------------------------
<PAGE>
------------
61
- --------------------------------------------------------------------------------
Calendar Year Total Return
[The following table was represented as a bar chart in the printed material.]
Mid-Cap
Composite Value Equity Fund(2) S&P MidCap 400 Index
--------- -------------------- --------------------
1990 1% -5%
1991 54% 50%
1992 30% 12%
1993 20% 14%
1994 9% -4%
1995 39% 31%
1996 29% 19%
1997 35% 32%
1998 8% 19%
1999(1) 21% 16% 16%
- --------------------------------------------------------------------------------
Average Annual Total Return
(as of June 30, 1999)
Mid-Cap Value S&P MidCap
Period Composite Equity Fund(2) 400 Index
--------- -------------- ----------
Year-to-Date 21.38% 15.50% 6.87%
1 Year 14.39% -- 17.18%
3 Years 27.17% -- 22.48%
5 Years 27.29% -- 22.28%
Since 1/1/90 24.94% -- 17.43%
(1) Represents the performance from 1/1/99 through 6/30/99.
(2) Represents the performance of Mid-Cap Value Equity Fund-Investment Class
Shares. As of the date of this Prospectus, Service Class shares have no
operating history and therefore performance information is not available.
Service Class shares of the Fund pay a shareholder service and
distribution fee which would lower their returns. The Fund's Investment
Class commenced operations 12/31/98. Fund performance information is shown
in the Calendar Year Total Return Chart from January 1st of the year
following its inception. The Fund performance information is net of fees
and expenses. As with all mutual funds, past performance is not an
indication of future performance.
Note A. 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 provided in the composite for the
month of September 1996 reflect the performance during that month of the
portfolio of securities held in the ARCO Account at August 31, 1996 (when Mr.
Bosse ceased managing the ARCO Account), assuming that no changes in the
portfolio were made through the end of the month and dividend income from the
portfolio securities was received. Because no actual portfolio of securities was
managed during this one month period, performance results for September 1996
should be considered hypothetical. Composite performance results from October 1,
1996 (when Mr. Bosse commenced employment at NWQ and purchased for an NWQ
private account substantially 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. 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.
Note B. As of June 30, 1999, the total assets in the composite was $476.5
million. 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 the composite, the Fund 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.
The Portfolio Manager composite results represent the performance of the
Accounts, net of fees and other expenses, not the performance of the Mid-Cap
Value Equity Fund, and should not be considered an indication of future
performance of the Fund.
- --------------------------------------------------------------------------------
<PAGE>
- -----------------------------------------------------
62 GE Institutional How To Invest
Funds Prospectus
- --------------------------------------------------------------------------------
Investment Choices
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
dopted 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.
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.
330 West 9th Street
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].
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.
- --------------------------------------------------------------------------------
<PAGE>
------------
63
- --------------------------------------------------------------------------------
Eligible Investors
The Distributor offers Fund shares to certain investors that meet the minimum
investment requirements. The GE Institutional Funds are 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. GE Institutional Funds
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 GE Institutional Funds
(or affiliated persons of such persons).
- --------------------------------------------------------------------------------
Minimum Investment Requirements
Full-Service Defined Contribution Plan Investors: A full-service defined
contribution plan may invest in the GE Institutional Funds so long as it has
invested at least $100 million in one or more investment portfolios or accounts
that are advised by GE Investment Management and/or GEIC. A full service defined
contribution plan is a defined contribution plan that receives recordkeeping,
administration, investment education and communication services provided or paid
by GE Financial Assurance Holdings, Inc. or its subsidiaries. A full-service
defined contribution plan generally must individually meet the minimum
investment requirements and will not be considered a related investor of any
other investor in GE Institutional Funds.
All Other Investors: The minimum initial investment in each Fund is $35 million
for each investor or group of related investors. There is no minimum investment
requirement for subsequent purchases.
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 GE
Investment Management and/or GEIC.
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 (i) 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, (ii) 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 (iii) 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.
For a bank, insurance company, broker-dealer, investment adviser or other
financial intermediary establishing an omnibus account for investment in the
Funds by 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 institution described under
"Eligible Investors" which are managed by it 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.
Failure to Meet Minimum Investment Requirements: If the value of an investor's
(or a group of related investors`) investment in a Fund or other investment
portfolios falls below the required amount for more than 120 days because of
redemptions (and not because of market fluctuations or exchanges) or if an
investor (or group of related investors) fail to meet the minimum investment
requirements within the specified time period, the Distributor may, in its sole
discretion, refuse to sell additional Fund shares to
- --------------------------------------------------------------------------------
<PAGE>
- --------------------
64 GE Institutional
Funds Prospectus
How To Invest
- --------------------------------------------------------------------------------
such investor (other than reinvestment of dividends and capital gains
distributions).
For those investors who intend to meet the minimum investment requirements
within three years of the date of initial purchase, the Distributor may refuse
to sell to such investor additional Fund shares (other than reinvestment of
dividends and capital gains distributions), if such investor has not satisfied
the $35 million minimum investment requirement within three years, even if the
investor had the applicable amount of investment assets within the initial
six-month period.
Related Investors: Related investors are investors that are affiliated persons
of each other within the meaning of the 1940 Act. 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 their
manager. The Distributor also may treat institutional clients of a financial
intermediary whose assets are managed on a non-discretionary basis or who are
otherwise served by the intermediary (or its affiliate) as related investors of
their manager or service provider where Fund shares are held by that
intermediary in an omnibus account for its clients.
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.
- --------------------------------------------------------------------------------
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. Investors 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 investment professional may be redeemed either by the
investment professional or the shareholder of record. Please see your account
statement for the telephone number of your investment professional. Or call
Shareholder Services directly at (800) 493-3042.
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 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
- --------------------------------------------------------------------------------
<PAGE>
------------
65
- --------------------------------------------------------------------------------
Mail your request to the appropriate address:
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.
330 West 9th Street
Kansas City, MO 64105
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.
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 for the same class of another GE Institutional Fund 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.
- --------------------------------------------------------------------------------
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 GE
Institutional Funds has received all information typically required to assure
the security of a particular account.
Shareholder Servicing and Distribution Plan
GE Institutional Funds 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, GE Institutional Funds 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.
- --------------------------------------------------------------------------------
<PAGE>
- -------------------------------------------------------
66 GE Institutional Dividends, Capital Gains
Funds Prospectus and Other Tax Information
- --------------------------------------------------------------------------------
Most GE Institutional Funds pay dividends from net investment income and from
net capital gains once each year. Dividends and capital gain distributions will
be automatically reinvested in your account. There are no fees or charges to
reinvest dividends.
The Funds are subject to a 4% excise tax on undistributed net investment income
and net capital gains. To avoid this tax, 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.
- --------------------------------------------------------------------------------
Fund Distribution Schedule
- --------------------------------------------------------------------------------
U.S. Equity Fund o Dividends are typically declared and paid
annually.
S&P 500 Index Fund
o Short-term and long-term capital gains, if any,
Premier Growth Equity Fund are typically declared and paid annually.
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
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 typically declared and paid annually.
- --------------------------------------------------------------------------------
<PAGE>
------------
67
- --------------------------------------------------------------------------------
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, you generally will owe taxes on
amounts distributed to you. 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. Distributions
generally will be taxed in the same manner whether they are received in cash or
reinvested.
In addition, if you sell or redeem Fund shares, you generally will realize a
capital gain or loss, which will be long-term or short-term, depending upon how
long you held those shares. If you exchange shares for the same class of another
GE Institutional Fund, the exchange will be treated as a sale and purchase of
shares for tax purposes.
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.
- --------------------------------------------------------------------------------
<PAGE>
- -------------------------------------------------------
68 GE Institutional Calculating Share Value
Funds Prospectus
- --------------------------------------------------------------------------------
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. The value of the portfolio securities held by each
Fund 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."
- --------------------------------------------------------------------------------
<PAGE>
------------------------------------------------------------
Financial GE Institutional 69
Highlights Funds Prospectus
- --------------------------------------------------------------------------------
The financial highlights tables that follow are intended to help you understand
a Fund's financial performance for the fiscal years ended September 30, unless
otherwise noted. Certain information reflects financial results for a single
Fund Investment Class 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). Fiscal year end information has been audited by
PricewaterhouseCoopers LLP, whose report, along with the Funds' financial
statements, are included in the Fund's Annual Report, which is available upon
request.
- --------------------------------------------------------------------------------
U.S. Equity Fund
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
3/31/99 9/30/98*
- ------------------------------------------------------------------------------------------
<S> <C> <C>
Inception date 11/25/97
- ------------------------------------------------------------------------------------------
Net Asset Value, Beginning of Period $10.62 $10.00
- ------------------------------------------------------------------------------------------
Income (Loss) from Investment Operations:
Net Investment Income (Loss) 0.05 0.11
- ------------------------------------------------------------------------------------------
Net Gains (Losses) on Investments (both realized and unrealized) 2.74 0.52
- ------------------------------------------------------------------------------------------
Total Income (Loss) From Investment Operations 2.79 0.63
- ------------------------------------------------------------------------------------------
Less Distributions:
Dividends (from net investment income) 0.13 0.01
- ------------------------------------------------------------------------------------------
Dividends (from net realized gains) 0.25 0.00
- ------------------------------------------------------------------------------------------
Total Distributions 0.38 0.01
- ------------------------------------------------------------------------------------------
Net Asset Value, End of Period $13.03 $10.62
- ------------------------------------------------------------------------------------------
Total Return (a) 26.71% 6.28%
- ------------------------------------------------------------------------------------------
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands) $161,062 $114,553
- ------------------------------------------------------------------------------------------
Ratio of Net Expenses to Average Net Assets** 0.43% 0.42%
- ------------------------------------------------------------------------------------------
Ratio of Net Investment Income to Average Net Assets** 0.97% 1.21%
- ------------------------------------------------------------------------------------------
Portfolio Turnover Rate 28% 29%
- ------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
<PAGE>
- --------------------
70 GE Institutional
Funds Prospectus
Financial
Highlights
- --------------------------------------------------------------------------------
S&P 500 Index Fund
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
3/31/99 9/30/98*
- ------------------------------------------------------------------------------------------
<S> <C> <C>
Inception date 11/25/97
- ------------------------------------------------------------------------------------------
Net Asset Value, Beginning of Period $10.85 $10.00
- ------------------------------------------------------------------------------------------
Income (Loss) from Investment Operations:
Net Investment Income (Loss) 0.09 0.14
- ------------------------------------------------------------------------------------------
Net Gains (Losses) on Investments (both realized and unrealized) 2.91 0.72
- ------------------------------------------------------------------------------------------
Total Income (Loss) From Investment Operations 3.00 0.86
- ------------------------------------------------------------------------------------------
Less Distributions:
Dividends (from net investment income) 0.17 0.01
- ------------------------------------------------------------------------------------------
Total Distributions 0.17 0.01
- ------------------------------------------------------------------------------------------
Net Asset Value, End of Period $13.68 $10.85
- ------------------------------------------------------------------------------------------
Total Return (a) 27.85% 8.63%
- ------------------------------------------------------------------------------------------
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands) $25,803 $20,186
- ------------------------------------------------------------------------------------------
Ratio of Net Expenses to Average Net Assets** 0.15% 0.15%
- ------------------------------------------------------------------------------------------
Ratio of Net Investment Income to Average Net Assets** 1.38% 1.57%
- ------------------------------------------------------------------------------------------
Portfolio Turnover Rate 2% 1%
- ------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
Mid-Cap Growth Fund
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
3/31/99 9/30/98*
- ------------------------------------------------------------------------------------------
<S> <C> <C>
Inception date 11/25/97
- ------------------------------------------------------------------------------------------
Net Asset Value, Beginning of Period $8.87 $10.00
- ------------------------------------------------------------------------------------------
Income (Loss) from Investment Operations:
Net Investment Income (Loss) 0.03 0.04
- ------------------------------------------------------------------------------------------
Net Gains (Losses) on Investments (both realized and unrealized) 1.68 (1.16)
- ------------------------------------------------------------------------------------------
Total Income (Loss) From Investment Operations: 1.71 (1.12)
- ------------------------------------------------------------------------------------------
Less Distributions:
Dividends (from net investment income) 0.05 0.01
- ------------------------------------------------------------------------------------------
Total Distributions 0.05 0.01
- ------------------------------------------------------------------------------------------
Net Asset Value, End of Period $10.53 $8.87
- ------------------------------------------------------------------------------------------
Total Return (a) 19.39% (11.25%)
- ------------------------------------------------------------------------------------------
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands) $15,774 $13,208
- ------------------------------------------------------------------------------------------
Ratio of Net Expenses to Average Net Assets** 0.55% 0.55%
- ------------------------------------------------------------------------------------------
Ratio of Net Investment Income to Average Net Assets** 0.64% 0.53%
- ------------------------------------------------------------------------------------------
Portfolio Turnover Rate 44% 14%
- ------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
<PAGE>
------------
71
- --------------------------------------------------------------------------------
Mid-Cap Value Equity Fund
- ----------------------------------------------------------------------------
3/31/99***
- ----------------------------------------------------------------------------
Inception date 12/31/98
- ----------------------------------------------------------------------------
Net Asset Value, Beginning of Period $10.00
- ----------------------------------------------------------------------------
Income (Loss) from Investment Operations:
Net Investment Income (Loss) 0.03
- ----------------------------------------------------------------------------
Net Gains (Losses) on Investments (both realized and unrealized) 0.09
- ----------------------------------------------------------------------------
Total Income (Loss) From Investment Operations 0.12
- ----------------------------------------------------------------------------
Less Distributions:
Dividends (from net investment income) 0.00
- ----------------------------------------------------------------------------
Total Distributions 0.00
- ----------------------------------------------------------------------------
Net Asset Value, End of Period $10.12
- ----------------------------------------------------------------------------
Total Return (a) 1.20%
- ----------------------------------------------------------------------------
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands) $10,117
- ----------------------------------------------------------------------------
Ratio of Net Expenses to Average Net Assets** 0.65%
- ----------------------------------------------------------------------------
Ratio of Net Investment Income to Average Net Assets** 1.30%
- ----------------------------------------------------------------------------
Portfolio Turnover Rate 7%
- ----------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Small-Cap Value Equity Fund
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
3/31/99 9/30/98*
- ------------------------------------------------------------------------------------------
<S> <C> <C>
Inception date 8/3/98
- ------------------------------------------------------------------------------------------
Net Asset Value, Beginning of Period $8.91 $10.00
- ------------------------------------------------------------------------------------------
Income (Loss) from Investment Operations:
Net Investment Income (Loss) 0.01 0.02
- ------------------------------------------------------------------------------------------
Net Gains (Losses) on Investments (both realized and unrealized) (0.24) (1.11)
- ------------------------------------------------------------------------------------------
Total Income (Loss) From Investment Operations (0.23) (1.09)
- ------------------------------------------------------------------------------------------
Less Distributions:
Dividends (from net investment income) 0.03 0.00
- ------------------------------------------------------------------------------------------
Total Distributions 0.03 0.00
- ------------------------------------------------------------------------------------------
Net Asset Value, End of Period $8.65 $8.91
- ------------------------------------------------------------------------------------------
Total Return (a) (2.57%) (10.90%)
- ------------------------------------------------------------------------------------------
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands) $8,806 $9,056
- ------------------------------------------------------------------------------------------
Ratio of Net Expenses to Average Net Assets** 0.70% 0.70%
- ------------------------------------------------------------------------------------------
Ratio of Net Investment Income to Average Net Assets** 0.23% 1.68%
- ------------------------------------------------------------------------------------------
Portfolio Turnover Rate 117% 19%
- ------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
<PAGE>
- --------------------
72 GE Institutional
Funds Prospectus
Financial
Highlights
- --------------------------------------------------------------------------------
International Equity Fund
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
3/31/99 9/30/98*
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
Inception date 11/25/97
- ---------------------------------------------------------------------------------------------
Net Asset Value, Beginning of Period $10.06 $10.00
- ---------------------------------------------------------------------------------------------
Income (Loss) from Investment Operations:
Net Investment Income (Loss) 0.02 0.14(b)
- ---------------------------------------------------------------------------------------------
Net Gains (Losses) on Investments (both realized and unrealized) 2.34 (0.07)(b)
- ---------------------------------------------------------------------------------------------
Total Income (Loss) From Investment Operations 2.36 0.07
- ---------------------------------------------------------------------------------------------
Less Distributions:
Dividends (from net investment income) 0.12 0.01
- ---------------------------------------------------------------------------------------------
Dividends (from net realized gains) 0.35 0.00
- ---------------------------------------------------------------------------------------------
Total Distributions 0.47 0.01
- ---------------------------------------------------------------------------------------------
Net Asset Value, End of Period $11.95 $10.06
- ---------------------------------------------------------------------------------------------
Total Return (a) 23.90% 0.66%
- ---------------------------------------------------------------------------------------------
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands) $136,761 $114,414
- ---------------------------------------------------------------------------------------------
Ratio of Net Expenses to Average Net Assets** 0.63% 0.64%
- ---------------------------------------------------------------------------------------------
Ratio of Net Investment Income to Average Net Assets** 0.29% 1.72%
- ---------------------------------------------------------------------------------------------
Portfolio Turnover Rate 27% 53%
- ---------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
Europe Equity Fund
- ----------------------------------------------------------------------------
3/31/99***
- ----------------------------------------------------------------------------
Inception date 1/29/99
- ----------------------------------------------------------------------------
Net Asset Value, Beginning of Period $10.00
- ----------------------------------------------------------------------------
Income (Loss) from Investment Operations:
Net Investment Income 0.02
- ----------------------------------------------------------------------------
Net Gains (Losses) on Investments (both realized and unrealized) (0.40)
- ----------------------------------------------------------------------------
Total Income (Loss) From Investment Operations (0.38)
- ----------------------------------------------------------------------------
Less Distributions:
Dividends (from net investment income) 0.00
- ----------------------------------------------------------------------------
Total Distributions 0.00
- ----------------------------------------------------------------------------
Net Asset Value, End of Period $9.62
- ----------------------------------------------------------------------------
Total Return (a) (3.80%)
- ----------------------------------------------------------------------------
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands) $9,619
- ----------------------------------------------------------------------------
Ratio of Net Expenses to Average Net Assets** 0.75%
- ----------------------------------------------------------------------------
Ratio of Net Investment Income to Average Net Assets** 1.33%
- ----------------------------------------------------------------------------
Portfolio Turnover Rate 19%
- ----------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
------------
73
- --------------------------------------------------------------------------------
Emerging Markets Fund
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------
3/31/99 9/30/98*
- -------------------------------------------------------------------------------------------
<S> <C> <C>
Inception date 11/25/97
- -------------------------------------------------------------------------------------------
Net Asset Value, Beginning of Period $6.78 $10.00
- -------------------------------------------------------------------------------------------
Income (Loss) from Investment Operations:
Net Investment Income (Loss) 0.02 0.07
- -------------------------------------------------------------------------------------------
Net Gains (Losses) on Investments (both realized and unrealized) 2.63 (3.26)
- -------------------------------------------------------------------------------------------
Total Income (Loss) From Investment Operations 2.65 (3.19)
- -------------------------------------------------------------------------------------------
Less Distributions:
Dividends (from net investment income) 0.02 0.03
- -------------------------------------------------------------------------------------------
Total Distributions 0.02 0.03
- -------------------------------------------------------------------------------------------
Net Asset Value, End of Period $9.41 $6.78
- -------------------------------------------------------------------------------------------
Total Return (a) 39.15% (31.96%)
- -------------------------------------------------------------------------------------------
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands) $7,049 $5,063
- -------------------------------------------------------------------------------------------
Ratio of Net Expenses to Average Net Assets** 1.05% 1.05%
- -------------------------------------------------------------------------------------------
Ratio of Net Investment Income to Average Net Assets** 0.56% 0.82%
- -------------------------------------------------------------------------------------------
Portfolio Turnover Rate 53% 77%
- -------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
Income Fund
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
3/31/99 9/30/98*
- ------------------------------------------------------------------------------------------
<S> <C> <C>
Inception date 11/21/97
- ------------------------------------------------------------------------------------------
Net Asset Value, Beginning of Period $10.39 $10.00
- ------------------------------------------------------------------------------------------
Income (Loss) from Investment Operations:
Net Investment Income (Loss) 0.28 0.51
- ------------------------------------------------------------------------------------------
Net Gains (Losses) on Investments (both realized and unrealized) (0.29) 0.39
- ------------------------------------------------------------------------------------------
Total Income (Loss) From Investment Operations (0.01) 0.90
- ------------------------------------------------------------------------------------------
Less Distributions:
Dividends (from net investment income) 0.29 0.51
- ------------------------------------------------------------------------------------------
Dividends (from net realized gains) 0.18 0.00
- ------------------------------------------------------------------------------------------
Total Distributions 0.47 0.51
- ------------------------------------------------------------------------------------------
Net Asset Value, End of Period $9.91 $10.39
- ------------------------------------------------------------------------------------------
Total Return (a) (0.15%) 9.21%
- ------------------------------------------------------------------------------------------
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands) $71,322 $71,444
- ------------------------------------------------------------------------------------------
Ratio of Net Expenses to Average Net Assets** 0.31% 0.31%
- ------------------------------------------------------------------------------------------
Ratio of Net Investment Income to Average Net Assets** 5.69% 5.81%
- ------------------------------------------------------------------------------------------
Portfolio Turnover Rate 120% 323%
- ------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
<PAGE>
- --------------------
74 GE Institutional
Funds Prospectus
Financial
Highlights
- --------------------------------------------------------------------------------
Money Market Fund
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
3/31/99 9/30/98*
- ------------------------------------------------------------------------------------------
<S> <C> <C>
Inception date 12/2/97
- ------------------------------------------------------------------------------------------
Net Asset Value, Beginning of Period $1.00 $1.00
- ------------------------------------------------------------------------------------------
Income (Loss) from Investment Operations:
Net Investment Income (Loss) 0.02 0.04
- ------------------------------------------------------------------------------------------
Net Gains (Losses) on Investments (both realized and unrealized) 0.00 0.00
- ------------------------------------------------------------------------------------------
Total Income (Loss) From Investment Operations 0.02 0.04
- ------------------------------------------------------------------------------------------
Less Distributions:
Dividends (from net investment income) 0.02 0.04
- ------------------------------------------------------------------------------------------
Total Distributions 0.02 0.04
- ------------------------------------------------------------------------------------------
Net Asset Value, End of Period $1.00 $1.00
- ------------------------------------------------------------------------------------------
Total Return (a) 2.45% 4.53%
- ------------------------------------------------------------------------------------------
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands)(a) $7,274 $7,102
- ------------------------------------------------------------------------------------------
Ratio of Net Expenses to Average Net Assets** 0.25% 0.25%
- ------------------------------------------------------------------------------------------
Ratio of Net Investment Income to Average Net Assets** 4.86% 5.33%
- ------------------------------------------------------------------------------------------
Portfolio Turnover Rate N/A N/A
- ------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
Notes to Financial Highlights
(a) Total returns are historical and assume changes in share price,
reinvestment of dividends and capital gains, and assume no sales charge.
Periods less than one year are not annualized.
(b) As a result of the timing of purchases and sales of Fund shares, per share
amounts do not accord with aggregate amounts appearing in the Statement of
Changes in the Funds' Annual Report.
* Information is for the period from Inception date through September 30,
1998.
** Annualized for periods less than one year.
*** Information is for the period from Inception date through March 31, 1999.
- --------------------------------------------------------------------------------
<PAGE>
[This page intentionally left blank.]
<PAGE>
[This page intentionally left blank.]
<PAGE>
[This page intentionally left blank.]
<PAGE>
GE Institutional
Funds Prospectus
- --------------------------------------------------------------------------------
Investment Adviser
GE Investment Management Incorporated
P.O. Box 7900
3003 Summer Street
Stamford, CT 06904
- --------------------------------------------------------------------------------
Transfer Agent and Custodian
State Street Bank and Trust Company
225 Franklin Street
Boston, MA 02101
- --------------------------------------------------------------------------------
Distributor
GE Investment Distributors, Inc.
777 Long Ridge Road, Building B
Stamford, CT 06927
- --------------------------------------------------------------------------------
If you wish to know more
You will find additional information about the GE 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 include performance numbers
and a discussion of market conditions and investment strategies that
significantly 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:
GE Investment Distributors, Inc.
P.O. Box 7900
3003 Summer Street
Stamford, CT 06904
Telephone 1-800-493-3042
Website http://www.ge.com/mutualfunds
Investment Company Act file number: 811-08257
- --------------------------------------------------------------------------------
GE-INSTPRO-1
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
September 30, 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 Prospectuses of GE Institutional Funds (the
"Trust") dated March 31, 1999 and September 30, 1999, respectively (the
"Prospectuses"), and should be read in conjunction with the relevant Prospectus.
This SAI, although not a prospectus, is incorporated in its entirety by
reference into the Prospectuses. Copies of the Prospectuses 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 year ended September
30, 1998, and the Auditor's Reports thereon, are incorporated herein by
reference to the Trust's Annual Report dated September 30, 1998. The Trust's
unaudited financial statements for the fiscal period ended March 31, 1999 are
incorporated herein by reference to the Trust's Semi-Annual Report dated March
31, 1999. Each of the Annual and the Semi-Annual Report 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 Prospectuses shall have the same meanings in this SAI.
<PAGE>
Table of Contents
<TABLE>
<CAPTION>
Page
----
<S> <C>
INVESTMENT STRATEGIES AND RISKS...............................................1
INVESTMENT RESTRICTIONS......................................................39
MANAGEMENT OF THE TRUST......................................................44
COMPENSATION TABLE...........................................................47
PURCHASE, REDEMPTION AND EXCHANGE OF SHARES..................................54
NET ASSET VALUE..............................................................58
DIVIDENDS, DISTRIBUTIONS AND TAXES...........................................60
THE FUNDS' PERFORMANCE.......................................................63
PRINCIPAL STOCKHOLDERS.......................................................68
FUND HISTORY AND ADDITIONAL INFORMATION......................................74
FINANCIAL STATEMENTS.........................................................77
APPENDIX -- DESCRIPTION OF RATINGS......................................... A-1
</TABLE>
-ii-
<PAGE>
INVESTMENT STRATEGIES AND RISKS
The Prospectuses discuss the investment objectives and principal
investment strategies of the following diversified open-end funds: the U.S.
Equity Fund, the S&P 500 Index Fund,(1) 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.
- --------
(1) The S&P 500 Index Fund is not sponsored, endorsed, sold or promoted by
Standard & Poor's, a division of the McGraw-Hill Companies, Inc. ("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.
-1-
<PAGE>
S&P 500 Index Fund
The investment objective of the S&P 500 Index Fund is to provide growth
of capital and accumulation of income that corresponds to the investment
return of the Standard and Poor's 500 Composite Stock 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. 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 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.
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. 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
-2-
<PAGE>
those selling for low prices given the fundamental characteristics of their
issuers. During normal market conditions, the Fund invests at least 65% of
its assets in common stocks, preferred stocks, convertible bonds,
convertible debentures, convertible notes, convertible preferred stocks, and
warrants or rights issued by 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 invests, under
normal conditions, at least 65% of its total assets in equity securities of
companies located in developed 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,
under normal conditions, at least 65% of its total assets in equity
securities of issuers that are located in emerging market countries.
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.
-3-
<PAGE>
High Yield Fund
The investment objective of the High Yield Fund is to maximize total
return, consistent with the preservation of capital and prudent investment
management. 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: (i)
Government Securities (defined below); (ii) debt obligations of banks,
savings and loan institutions, insurance companies and mortgage bankers;
(iii) commercial paper and notes, including those with floating or variable
rates of interest; (iv) debt obligations of foreign branches of U.S. banks,
U.S. branches of foreign banks and foreign branches of foreign banks; (v)
debt obligations issued or guaranteed by one or more foreign governments or
any of their political subdivisions, agencies or instrumentalities,
including obligations of supra-national entities; (vi) debt securities
issued by foreign issuers; and (vii) repurchase agreements.
* * *
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.
-4-
<PAGE>
The following tables summarize the investment techniques that may be
employed by a Fund. Certain techniques and limitations may be changed at the
discretion of GE Investment Management. Percentage figures refer to the
percentage of a Fund's assets that may be invested in accordance with the
indicated technique.
<TABLE>
<CAPTION>
Purchasing Purchasing and
Reverse Restricted and Structured and Writing Writing
Repurchase Repurchase Illiquid and Indexed Securities Securities
Borrowing Agreements Agreements Securities Securities Options Index Options
--------- ---------- ---------- ---------- ---------- ------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
U.S. Equity Fund 33 1/3% Yes Yes Yes No Yes Yes
S&P 500 Index Fund 33 1/3% Yes Yes Yes No Yes Yes
Premier Growth Equity Fund 33 1/3% Yes Yes Yes No Yes Yes
Value Equity Fund 33 1/3% Yes Yes Yes No Yes Yes
Mid-Cap Growth Fund 33 1/3% Yes Yes Yes No Yes Yes
Mid-Cap Value Equity Fund 33 1/3% Yes Yes Yes Yes Yes Yes
Small-Cap Value Equity Fund 33 1/3% Yes Yes Yes No Yes Yes
International Equity Fund 33 1/3% Yes Yes Yes No Yes Yes
Europe Equity Fund 33 1/3% Yes Yes Yes Yes Yes Yes
Emerging Markets Fund 33 1/3% Yes Yes Yes No Yes Yes
Income Fund 33 1/3% Yes Yes Yes Yes Yes Yes
Strategic Investment Fund 33 1/3% Yes Yes Yes Yes Yes Yes
Money Market Fund 33 1/3% Yes Yes No No No No
</TABLE>
-5-
<PAGE>
<TABLE>
<CAPTION>
Futures
and Forward Options on
Options on Currency Foreign Maximum Investment in
Futures Transactions Currencies Debt Securities
------- ------------ ---------- ---------------
<S> <C> <C> <C> <C>
U.S. Equity Fund Yes Yes Yes 35%
S&P 500 Index Fund Yes Yes Yes 35%
Premier Growth Equity Yes Yes No 35%
Fund
Value Equity Fund Yes Yes Yes 35%
Mid-Cap Growth Fund Yes Yes Yes 35% (maximum of 25%
in BBB by S&P, Baa
by Moody's or
equivalent)
Mid-Cap Value Equity Yes Yes Yes 35%
Fund
Small-Cap Value Equity No No No 35%
Fund
International Equity Fund Yes Yes Yes 35%
Europe Equity Fund Yes Yes Yes 35%
Emerging Markets Fund Yes Yes Yes 35% (maximum of 25%
in BBB by S&P, Baa by
Moody's or equivalent)
Income Fund Yes Yes Yes 100% (maximum of
25% in BBB by S&P or
Baa by Moody's or
equivalent)
Strategic Investment Fund Yes Yes Yes 100% (maximum of
25% in BBB by S&P or
Baa by Moody's or
equivalent)
Money Market Fund No No No 100%
<CAPTION>
Maximum When-Issued
Maximum Investment Investment in and Delayed
in Below-Investment Foreign Delivery
Grade Debt Securities Securities Securities
--------------------- ---------- ----------
<S> <C> <C> <C>
U.S. Equity Fund 5% 15%* Yes
S&P 500 Index Fund 5% 35%* Yes
Premier Growth Equity 5% 25%* Yes
Fund
Value Equity Fund 5% 25%* Yes
Mid-Cap Growth Fund 10% in BB or B by 35%* Yes
S&P or Ba or B by
Moody's or equivalent
Mid-Cap Value Equity 15% in securities rated 15%* Yes
Fund BBB or below by S&P
or Baa or below by
Moody's or equivalent
Small-Cap Value Equity 10% 10%* Yes
Fund
International Equity Fund 5% 100% Yes
Europe Equity Fund 15% 100% Yes
Emerging Markets Fund 10% in BB or B by 100% Yes
S&P or Ba or B by
Moody's or equivalent
Income Fund 10% in BB or B by 35%* Yes
S&P or Ba or B by
Moody's or equivalent
Strategic Investment Fund 10% in BB or B by 30%* Yes
S&P or Ba or B by
Moody's or equivalent
Money Market Fund None 25%* Yes
</TABLE>
- ----------
* This limitation excludes ADRs, and securities of a foreign issuer with a
class of securities registered with the Securities and Exchange Commission
and listed on a U.S. national securities exchange or traded on the Nasdaq
National Market or the Nasdaq Small-Cap Market.
-6-
<PAGE>
<TABLE>
<CAPTION>
Debt Securities of
Lending Rule Obligations of Other
Portfolio 144A Supranational Depositary Investment Municipal
Securities Securities Agencies Receipts Funds Leases
---------- ---------- -------- -------- ----- ------
<S> <C> <C> <C> <C> <C> <C>
U.S. Equity Fund Yes Yes Yes Yes No No
S&P 500 Index Fund Yes Yes Yes Yes Yes No
Premier Growth Equity Fund Yes Yes Yes Yes Yes No
Value Equity Fund Yes Yes Yes Yes Yes No
Mid-Cap Growth Fund Yes Yes Yes Yes Yes No
Mid-Cap Value Equity Fund Yes Yes Yes Yes Yes No
Small-Cap Value Equity Fund Yes Yes Yes Yes Yes No
International Equity Fund Yes Yes Yes Yes Yes No
Europe Equity Fund Yes Yes Yes Yes Yes No
Emerging Markets Fund Yes Yes Yes Yes Yes No
Income Fund Yes Yes Yes Yes Yes No
Strategic Investment Fund Yes Yes Yes Yes Yes Yes
Money Market Fund Yes Yes Yes No No No
<CAPTION>
Participation
Floating and Interests in
Variable Rate Municipal
Instruments Obligations
----------- -----------
<S> <C> <C>
U.S. Equity Fund No* No
S&P 500 Index Fund No* No
Premier Growth Equity Fund No* No
Value Equity Fund No* No
Mid-Cap Growth Fund No* No
Mid-Cap Value Equity Fund No* No
Small-Cap Value Equity Fund No* No
International Equity Fund No* No
Europe Equity Fund Yes No
Emerging Markets Fund No* No
Income Fund Yes No
Strategic Investment Fund Yes Yes
Money Market Fund Yes No
</TABLE>
- ----------
* Excludes commercial paper and notes with variable and floating rates of
interest.
-7-
<PAGE>
<TABLE>
<CAPTION>
Mortgage Government
Custodial Related Stripped
Municipal Receipts on Securities, Mortgage
Zero Coupon Obligations Municipal including Related
Obligations Components Obligations CMOs Securities
----------- ---------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C>
U.S. Equity Fund Yes No No No No
S&P 500 Index Fund No No No No No
Premier Growth Equity Fund No No No No No
Value Equity Fund No No No No No
Mid-Cap Growth Fund No No No No No
Mid-Cap Value Equity Fund Yes No No No No
Small-Cap Value Equity Fund No No No No No
International Equity Fund No No No No No
Europe Equity Fund No No No No No
Emerging Markets Fund No No No No No
Income Fund Yes No No Yes Yes
Strategic Investment Fund Yes Yes Yes Yes Yes
Money Market Fund No No No No No
<CAPTION>
Asset-Backed
Securities and
Receivable-
Backed Mortgage Short Sales
Securities Dollar Rolls Against the Box
---------- ------------ ---------------
<S> <C> <C> <C>
U.S. Equity Fund No No No
S&P 500 Index Fund No No No
Premier Growth Equity Fund No No No
Value Equity Fund No No Yes
Mid-Cap Growth Fund No No Yes
Mid-Cap Value Equity Fund No No Yes
Small-Cap Value Equity Fund No No Yes
International Equity Fund No No Yes
Europe Equity Fund No No Yes
Emerging Markets Fund No No Yes
Income Fund Yes Yes No
Strategic Investment Fund Yes Yes No
Money Market Fund No No No
</TABLE>
-8-
<PAGE>
Money Market Fund Investments. The Money Market Fund limits its
portfolio investments to securities that the Trust's Board of Trustees
determines present minimal credit risk and that are "Eligible Securities" at
the time of acquisition by the Fund. "Eligible Securities" as used in this
SAI means securities rated by the requisite nationally recognized
statistical rating organizations ("NRSROs") in one of the two highest
short-term rating categories, consisting of issuers that have received these
ratings with respect to other short-term debt securities and comparable
unrated securities. "Requisite NRSROs" means (i) any two NRSROs that have
issued ratings with respect to a security or class of debt obligations of an
issuer or (ii) one NRSRO, if only one NRSRO has issued such a rating at the
time that the Fund acquires the security. Currently, five organizations are
NRSROs: S&P, Moody's Investors Service, Inc. ("Moody's"), Fitch Investors
Service, Inc., Duff and Phelps, Inc. and Thomson BankWatch Inc. A discussion
of the ratings categories is contained in the appendix to this SAI. By
limiting its investments to Eligible Securities, the Fund may not achieve as
high a level of current income as a fund investing in lower-rated
securities.
The Money Market Fund may not invest more than 5% of its total assets
in the securities of any one issuer, except for Government Securities and
except to the extent permitted under rules adopted by the Securities and
Exchange Commission ("SEC") under the 1940 Act. In addition, the Fund may
not invest more than 5% of its total assets in Eligible Securities that have
not received the highest short-term rating for debt obligations and
comparable unrated securities (collectively, "Second Tier Securities"), and
may not invest more than the greater of $1,000,000 or 1% of its total assets
in the Second Tier Securities of any one issuer. The Fund may invest more
than 5% (but not more than 25%) of the then-current value of the Fund's
total assets in the securities of a single issuer for a period of up to
three business days, so long as (i) the securities either are rated by the
requisite NRSROs in the highest short-term rating category or are securities
of issuers that have received such ratings with respect to other short-term
debt securities or are comparable unrated securities and (ii) the Fund does
not make more than one such investment at any one time. Determinations of
comparable quality for purchases of unrated securities are made by GEIM in
accordance with procedures established by the Board of Trustees. The Fund
invests only in instruments that have (or, pursuant to regulations adopted
by the SEC, are deemed to have) remaining maturities of 13 months or less at
the date of purchase (except securities subject to repurchase agreements),
determined in accordance with a rule promulgated by the SEC. Up to 25% of
the Fund's total assets may be invested in foreign securities, excluding,
for purposes of this limitation, ADRs, and securities of a foreign issuer
with a class of securities registered with the SEC and listed on a U.S.
national securities exchange or traded on the Nasdaq National Market or the
Nasdaq SmallCap Market. The Fund will maintain a dollar-weighted average
portfolio maturity of 90 days or less. The assets of the Fund are valued on
the basis of amortized cost, as described below under "Net Asset Value." The
Fund also may hold liquid Rule 144A Securities (see "Restricted and Other
Illiquid Securities").
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
-9-
<PAGE>
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 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
-10-
<PAGE>
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 S&P or Prime-2 by 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 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
--------
(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 Fund, State Street Global
Advisors, the investment sub-adviser to the S&P 500 Index Fund, or NWQ
Investment Management Company, the sub-adviser to the Mid-Cap Value
Fund, as applicable.
-11-
<PAGE>
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: (i)
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
(ii) maintain assets within the state in an amount equal to a specified
percentage of the aggregate amount of liabilities of the foreign bank
payable at or through all of its agencies or branches within the state. The
deposits of State Branches may not necessarily be insured by the FDIC. In
addition, less information may be available to the public about a U.S.
branch of a foreign bank than about a U.S. bank.
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 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.
-12-
<PAGE>
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
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
-13-
<PAGE>
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.
Each 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 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.
Restricted and Other Illiquid Securities. Each Fund, other than the
Money Market Fund, may invest up to 10% of its assets in restricted
securities. Restricted 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.
-14-
<PAGE>
Restricted 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 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
the Investment Manager 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.
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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.
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
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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.
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.
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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 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: (i) the
Fund must receive at least 100% cash collateral or equivalent securities
from the borrower; (ii) the borrower must increase the collateral whenever
the market value of the securities loaned rises above the level of the
collateral; (iii) the Fund must be able to terminate the loan at any time;
(iv) 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; (v) the Fund may pay only reasonable custodian
fees in connection with the loan; and (vi) 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
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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 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 (i) 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, (ii) 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, (iii)
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 (iv) 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
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the Trust's custodian or with a designated sub-custodian. A put option will
be deemed covered (i) 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 (ii) 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 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
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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 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
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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.
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 (i) 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 (ii) 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
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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 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
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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 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 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,
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known as "variation margin," to and from the broker, will be made daily as
the price of the securities underlying the futures contract fluctuates,
making the long and short positions in the contract more or less valuable, a
process known as "marking-to-market." At any time prior to the expiration of
a futures contract, a Fund may elect to close a position by taking an
opposite position, which will operate to terminate the Fund's existing
position in the contract.
Although the Trust intends that the Funds enter into futures contracts
only if an active market exists for the contracts, no assurance can be given
that an active market will exist for the contracts at any particular time.
Most U.S. futures exchanges and boards of trade limit the amount of
fluctuation permitted in futures contract prices during a single trading
day. Once the daily limit has been reached in a particular contract, no
trades may be made on that day at a price beyond that limit. Futures
contract prices may move to the daily limit for several consecutive trading
days with little or no trading, thereby preventing prompt liquidation of
futures positions and subjecting some futures traders to substantial losses.
In such a case, and in the event of adverse price movements, a Fund would be
required to make daily cash payments of variation margin. In such
circumstances, an increase in the value of the portion of the portfolio
being hedged, if any, may partially or completely offset losses on the
futures contract.
If a Fund has hedged against the possibility of an increase in interest
rates and rates decrease instead, the Fund will lose part or all of the
benefit of the increased value of securities that it has hedged because it
will have offsetting losses in its futures positions. In addition, in such
situations, if the Fund had insufficient cash, it may have to sell
securities to meet daily variation margins requirements at a time when it
may be disadvantageous to do so. These sales of securities may, but will not
necessarily, be at increased prices that reflect the decline in interest
rates.
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
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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 (i) are traded in a market conducted
directly between currency traders (typically, commercial banks or other
financial institutions) and their customers, (ii) generally have no deposit
requirements and (iii) are typically consummated without payment of any
commissions. A Fund, however, may enter into forward currency contracts
requiring deposits or involving the payment of commissions. To assure that a
Fund's forward currency contracts are not used to achieve investment
leverage, cash or other liquid assets will be segregated with 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 (i) pay for
and receive the underlying currency, (ii) negotiate with the dealer to roll
over the contract into a new forward currency contract with a new future
settlement date or (iii) 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.
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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 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.
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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 counter party 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.
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 (i) other complex foreign political and economic
factors, (ii) lesser availability of data on which to make trading decisions
than in the United States, (iii) delays in a Fund's ability to act upon
economic events occurring in foreign markets during non-business hours in
the United States, (iv) the imposition of different exercise and settlement
terms and procedures and margin requirements than in the United States and
(v) lesser trading volume.
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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 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.
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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.
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,
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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.
Municipal Obligations. The term "Municipal Obligations" as used in the
Prospectuses 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.
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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 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
Prospectuses.
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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: (i)
the frequency of trades and quotes; (ii) the number of dealers willing to
purchase or sell the security; (iii) the willingness of dealers to undertake
to make a market; (iv) the nature of the marketplace trades; and (v) the
likelihood that the obligation will continue to be marketable based on the
credit quality of the municipality or relevant obligor.
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
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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 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.
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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 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
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<PAGE>
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.
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
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<PAGE>
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 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
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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 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.
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<PAGE>
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 Prospectuses 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.
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%
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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 (a) up
to 25% of the value of the total assets of each non-money market Fund may be
invested without regard to this limitation, and (b) the Money Market Fund
may hold more than 5% of its total assets in the securities of an issuer to
the extent permitted by Rule 2a-7 under the 1940 Act. 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.
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
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<PAGE>
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 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
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determine that any such commitment is no longer in the best interests of a
Fund and its shareholders, the Trust will revoke the commitment by
terminating the sale of shares of the Fund in the state involved or may
otherwise modify its commitment based on a change in the state's
restrictions.
The percentage limitations in the restrictions listed above apply at
the time of purchases of securities. For purposes of investment restriction
number 5, the Trust may use the industry classifications reflected by the
S&P 500 Composite Stock Index, if applicable at the time of determination.
For all other portfolio holdings, the Trust may use the Directory of
Companies Required to File Annual Reports with the SEC and Bloomberg Inc. In
addition, the Trust may select its own industry classifications, provided
such classifications are reasonable.
Portfolio Transactions and Turnover
Decisions to buy and sell securities for each Fund are made by 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 most favorable terms
available under the circumstances ("best execution"). In assessing the
overall terms available to ensure best execution 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 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. In addition, subject to
the overall policy of best execution, the Investment Manager may consider
sales of Fund shares in selecting brokers or dealers to execute securities
transactions on behalf of a Fund. The
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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.
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
and the Mid-Cap Growth Fund paid $60,902, $311,499, $12,381, $146,766, and
$27,664, respectively in commissions to broker-dealers for execution of
portfolio transactions. Of these amounts, $2,140, $6,437, $10,863 and $1,077
in brokerage transactions was paid by the Emerging Markets Fund, the
International Fund, the U.S. Equity Fund and the Mid-Cap Growth 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.
A 100% annual turnover rate would occur if all of a Fund's securities
were replaced one time during a period of one year. Higher portfolio
turnover rates can result in corresponding increases in brokerage
commissions. The Investment Manager does not consider portfolio turnover
rate a limiting factor in making investment decisions on behalf of any Fund
consistent with the Fund's investment objective and policies.
Certain of the Funds' investment strategies may result in the Fund
having a high portfolio turnover rate. Higher portfolio turnover may cause a
Fund to experience increased transaction costs, brokerage expenses and other
acquisition costs, and shareholders to incur increased taxes on their
investment in the Fund.
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.
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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.
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.
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<PAGE>
<TABLE>
<CAPTION>
Position(s) Held Age and Principal Occupation(s)
Name and Address With Trust During Past Five Years
---------------- ---------- ----------------------
<S> <C> <C>
Michael J. Cosgrove* Chairman of the Board Age 50. President, GE Investment
and President 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 1993;
Chairman of the Board and Chief
Executive Officer of GE
Investment Retirement Services,
Inc., since 1998.
*Alan M. Lewis Trustee and Executive Age 53. Executive Vice President,
Vice President General Counsel and Secretary of
GEIM since 1988 and of GEIC since
October 1987.
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Position(s) Held Age and Principal Occupation(s)
Name and Address With Trust During Past Five Years
---------------- ---------- ----------------------
<S> <C> <C>
John R. Costantino Trustee Age 53. 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 52. Vice President and
Fairfield University Treasurer of Fairfield
North Benson Road University since 1983.
Fairfield, CT 06430
Robert P. Quinn Trustee Age 63. 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.
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Position(s) Held Age and Principal Occupation(s)
Name and Address With Trust During Past Five Years
---------------- ---------- ----------------------
<S> <C> <C>
Michael Tansley Treasurer Age 35. Manager of Fund
Administration at GEIM and GEIC
since May 1998; from 1990 to May
1998, Mr. Tansley held various
progressive positions leading to
senior manager in July 1996, in
the Investment Company Services
Group of Pricewaterhouse- Coopers
LLP (formerly Price Waterhouse
LLP).
Matthew J. Simpson Secretary Age 38. 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.
</TABLE>
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.
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 $6,000 $25,000++
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Total Compensation from
Total Compensation Investment Companies
Name of Trustee From the Trust Managed by GEIM or GEIC
--------------- -------------- -----------------------
William J. Lucas $6,000 $25,000++
Robert P. Quinn $6,000 $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 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 $82 billion as of June 30,
1999, of which more than $17 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
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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 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
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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
International Equity Fund First $25 million .75
Next $50 million .65
Over $75 million .55
Europe Equity Fund First $25 million .75
Next $50 million .65
Over $75 million .55
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
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Average Daily Annual Rate
Name of Fund Net Assets of Fund Percentage (%)*
------------ ------------------ ---------------
Strategic Investment Fund First $25 million .45
High Yield Fund Next $25 million .40
Over $50 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, the Small-Cap Value Fund, and
the Money Market Fund paid $60,291, $555,236, $67,792, $25,543, $406,706,
$169,642, $9,766, and $22,488, respectively, for investment advisory and
administration services.
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.
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. For SSGA's services, GEIM (and not the Fund) pays
SSGA monthly compensation in the form of an investment sub-advisory fee. The
fee is paid by GEIM monthly and is a percentage of the average daily net
assets of the Fund at the annual rate
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of .05% of the first $100 million, .04% of the next $200 million and .03%
for all amounts over $300 million.
Small-Cap Value Fund. Palisade Capital Management, L.L.C. ("Palisade"),
located at One Bridge Plaza, Fort Lee, New Jersey 07024, has been retained
by GEIM to act as 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. For its
services as sub-investment adviser to the Small-Cap Value Fund, GEIM (and
not the Fund) pays Palisade a fee equal to an annual rate of .35% of the
first $200 million, .325% of the next $100 million and .30% of amounts in
excess of $300 million.
Mid-Cap Value Fund. NWQ Investment Management ("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 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 Fund's sub-investment adviser. For its services as sub-investment
adviser to the Mid-Cap Value Fund, GEIM (and not the Fund) pays NWQ a fee
equal to an annual rate of .45% of the first $50 million of the Fund's
average daily net assets and .375% of amounts thereafter.
Sub-Advisory Agreements
SSGA, Palisade, and NWQ serve as sub-advisers to the S&P 500 Index
Fund, the Small-Cap Value Fund, and the Mid-Cap Value 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
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other factors, a particular security may be bought by the Investment Manager
or GEIC for one or more of their clients, when one or more other clients are
selling the same security. If purchases or sales of securities for a Fund or
other client of the Investment Manager or GEIC arise for consideration at or
about the same time, transactions in such securities will be made, insofar
as feasible, for the Fund and other clients in a manner deemed equitable to
all. To the extent that transactions on behalf of more than one client of
the Investment Manager or GEIC during the same period may increase the
demand for securities being purchased or the supply of securities being
sold, there may be an adverse effect on price.
On occasions when the Investment Manager (under the supervision of the
Board of Trustees) deems the purchase or sale of a security to be in the
best interests of the Trust as well as other funds or accounts it may, to
the extent permitted by applicable laws and regulations, but will not be
obligated to, aggregate the securities to be sold or purchased for the Trust
with those to be sold or purchased for other funds or accounts in order to
obtain favorable execution and low brokerage commissions. In that event,
allocation of the securities purchased or sold, as well as the expenses
incurred in the transaction, will be made by the Investment Manager in the
manner it considers to be most equitable and consistent with its fiduciary
obligations to the Trust and to such other funds or accounts. In some cases
this procedure may adversely affect the size the position obtainable for a
Fund.
Shareholder Servicing and Distribution Plan
The Trust's Board of Trustees adopted a Shareholder Servicing and
Distribution Plan with respect to the Trust's Service Class shares pursuant
to Rule 12b-1 under the 1940 Act (the "Plan"). Under the Plan, the Trust
pays GEIM, with respect to the Service Class shares of each Fund, an annual
fee of .25% of the value of the average daily net assets attributed to such
Service Class shares. The shareholder servicing and distribution fee is
intended to (a) compensate GEIM, or enable GEIM to compensate other persons
("Service Providers"), for providing ongoing servicing and/or maintenance of
the accounts of Service Class shareholders of a Fund and (b) compensate
GEIM, or enable GEIM to compensate Service Providers (including any
distributor of Service Class shares of the Fund), for providing services
primarily intended to result in, or are primarily attributable to, the sale
of Service Class shares.
The Plan was approved by the sole initial shareholder of the Trust.
Under its terms, the Plan continues from year to year, provided its
continuance is approved annually by vote of the Trust's full Board of
Trustees, as well as by a majority of the Trustees who are not interested
persons of the Trust and who have no direct or indirect financial interest
in the operation of the Plan or in any agreements related to the Plan
("Independent Trustees"). The Plan may not be amended to increase materially
the amount of the fees paid under the Plan with respect to a Fund without
approval of Service Class shareholders of the Fund. In addition, all
material amendments of the Plan must be approved by the Trustees and
Independent Trustees in the manner described above. The Plan may be
terminated with 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
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Class shares of that Fund (as defined in the 1940 Act).
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 subscriptions and redemptions.
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.
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, 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
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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 Requirements
Full-Service Defined Contribution Plan Investors. A full-service
defined contribution play man invest in the GE Institutional Funds so long
as it has invested at least $100 million in one or more investment
portfolios or accounts that are advised by GE Investment Management and/or
GEIC. A full-service defined contribution plan is a defined contribution
plan that receives recordkeeping, administration, investment education and
communication services provided or paid by GE Financial Assurance Holdings,
Inc. or its subsidiaries. A full-service defined contribution plan generally
must individually meet the minimum investment requirements and will not be
considered a related investor of any other investor in GE Institutional
Funds.
All Other Investors. The minimum initial investment in each Fund is $35
million for each investor or group of related investors. There is no minimum
investment requirement for subsequent purchases.
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. 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.
For a bank, insurance company, broker-dealer, investment adviser or
other financial intermediary establishing an omnibus account for investment
in the Funds by its clients, the amount of investment assets is determined
either by (a) aggregating Client Assets (defined below) over which it has
investment discretion or (b) aggregating Client Assets of any institution
described under "Eligible Investors" in the Prospectuses which are managed
by it 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.
Failure to Meet Minimum Investment Requirements. If the value of an
investor's (or a group of related investors') investment in a Fund or other
investment portfolios falls below the required amount for more than 120 days
because of redemptions (and not because of market fluctuations or exchanges)
or if an investor (or group of related investors) fail to meet the
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minimum investment requirements within the specified time 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).
For those investors who intend to meet the minimum investment
requirements within three years of the date of initial purchase, GEIM 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, even if the investor had the applicable amount of investment
assets within the initial six-month period.
Related Investors. Related investors are investors that are affiliated
persons of each other within the meaning of the 1940 Act. 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
institutional clients of a financial intermediary whose assets are managed
on a non-discretionary basis or who are otherwise served by the intermediary
(or its affiliate) as related investors of their manager or service provider
where Fund shares are held by that intermediary in an omnibus account for
its clients.
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 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 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 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.
How to Open an Account. Investors must establish an account before
purchasing shares, and may do so either by submitting an account application
to GEID or the transfer agent or through an Authorized Firm (defined below).
Investors may obtain an account application by telephoning the Trust at
(800) 493-3042 or by writing to the Trust at:
GE Institutional Funds
P.O. Box 120065
Stamford, CT 06912-0065
For overnight package delivery:
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GE Institutional Funds
c/o National Financial Data Services Inc.
330 West 9th Street
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 GEID 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 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.
Redemptions
The right of redemption of shares of a Fund may be suspended or the
date of payment postponed (i) for any periods during which the NYSE is
closed (other than for customary weekend and holiday closings), (ii) 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 (iii) 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.
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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 Prospectuses, a shareholder of the Investment Class
of a Fund may exchange such shares for Investment Class shares of another
Fund or for Service Class shares of the same or another Fund. 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 Prospectuses 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.
An exchange for the same class of another Fund is a sale and purchase
of shares for tax purposes. An investor may have a taxable gain or loss when
he or she exchanges shares.
NET ASSET VALUE
An exchange for the same class of another GE Institutional Fund is a
sale and purchase of shares for tax purposes. An investor may have a taxable
gain or loss when he or she exchanges shares.
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.
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
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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 must be examined by
the Board. In the event the Board determines that a deviation exists that
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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 each year to qualify and to
elect to be treated as a "regulated investment company" under Sub-Chapter M
of the Code. If a Fund (i) is treated as a regulated investment company and
(ii) 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 net long term capital gains 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 Equity 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
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deduction) for foreign taxes may be claimed.
A Fund's transactions in options and futures contracts are subject to
special provisions of the Code that, among other things, may affect the
character of gains and losses realized by the Fund (that is, may affect
whether gains or losses are ordinary or capital), accelerate recognition of
income to the Fund and defer losses of the Fund. These rules (i) could
affect the character, amount and timing of distributions to shareholders of
a Fund, (ii) 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 (iii) may cause the Fund to recognize income without receiving cash with
which to make distributions in amounts necessary to satisfy the distribution
requirements for avoiding income and excise taxes described above and in the
Prospectuses. The Trust seeks to monitor transactions of each Fund, seeks to
make the appropriate tax elections on behalf of the Fund and seeks to make
the appropriate entries in the Fund's books and records when the Fund
acquires any option, futures contract or hedged investment, to mitigate the
effect of these rules and prevent disqualification of the Fund as a
regulated investment company.
As a general rule, a shareholder's gain or loss on a sale or redemption
of shares of a Fund will be a long-term capital gain or loss if the
shareholder has held the shares for more than one year. The gain or loss
will be a short-term capital gain or loss if the shareholder has held the
shares for one year or less.
A Fund's net realized long-term capital gains are distributed as
described in the Prospectuses. The distributions ("capital gain dividends"),
if any, are taxable to a shareholder of a Fund as long-term capital gains,
regardless of how long a shareholder has held the shares, and will be
designated as capital gain dividends in a written notice mailed by the Trust
to the shareholders of the Fund after the close of the Fund's prior taxable
year. If a shareholder receives a capital gain dividend with respect to any
share of a Fund, and if the share is sold before it has been held by the
shareholder for six months or less, then any loss on the sale or exchange of
the share, to the extent of the capital gain dividend, will be treated as a
long-term capital loss. Investors considering buying shares of a Fund on or
just prior to the record date for a taxable dividend or capital gain
distribution should be aware that the amount of the dividend or distribution
payment will be a taxable dividend or distribution payment.
Special rules contained in the Code apply when a shareholder of a Fund
disposes of shares of the Fund through a redemption or exchange within 90
days of purchase and subsequently acquires shares of a Fund on which a sales
charge normally is imposed without paying a sales charge in accordance with
the exchange privilege described in the Prospectuses. 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.
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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 the shareholder has provided a correct
taxpayer identification number and that the shareholder is not subject to
"backup withholding," then the shareholder may be subject to a 31% "backup
withholding" tax with respect to (i) taxable dividends and distributions
from the Fund and (ii) 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 Equity Fund
and the Small-Cap Value 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 those shares.
The performance figures for the Investment Class shares of certain
Funds are reflected below. These figures are net of fees and expenses
attributable to such 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 Small-Cap Growth Fund, the High
Yield Fund and the Strategic 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
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assumed to be generated each week over a 52-week period and is shown as a
percentage of the investment. The Money Market Fund's "effective yield" will
be calculated similarly, but, when annualized, the income earned by an
investment in the Fund is assumed to be reinvested. The effective yield
would be slightly higher than the current yield because of the compounding
effect of this presumed reinvestment.
The yield for the Money Market Fund is computed by (i) 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, (ii) dividing the net change by the
value of the account at the beginning of the period to obtain the base
period return, and (iii) 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 March
31, 1999, for the Investment Class shares of the Money Market Fund were
4.63% and 4.74%, 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 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
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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 March 31, 1999 for the Investment
Class shares of the Income Fund was 6.12%.
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 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
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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 Investment Class shares of each
Fund was as follows:
Average Annual Return
Six Month
Period Ended
Name of Fund 3/31/99 One Year Since Inception*
------------ ------- -------- ----------------
U.S. Equity Fund 26.71% 16.81% 24.71% (11/25/97)
S&P 500 Index Fund 27.85% 19.28% 27.59% (11/25/97)
Mid-Cap Growth Fund 19.39% -6.04% 4.39% (11/25/97)
International Equity Fund 23.90% 3.70% 17.81% (11/25/97)
Emerging Markets Fund 39.15% -14.46% -3.97% (11/25/97)
Income Fund - 0.15 5.97% 6.58% (11/21/97)
Money Market Fund 2.45% 5.21% 5.29% (12/02/97)
----------
* Inception Date in parentheses
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.
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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 and are computed by the following formula:
Aggregate Total Return = ERV - P
-------
P
Where P = a hypothetical initial payment of $1,000; and
ERV = Ending Redeemable Value of a hypothetical $1,000
investment made at the beginning of a 1-, 5- or
10-year period at the end of the 1-, 5- or 10-year
period (or fractional portion thereof), assuming
reinvestment of all dividends and distributions.
.
Yield and return figures are based on historical earnings and are not
intended to indicate future performance.
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
Prospectuses and otherwise quoted in sales and advertising materials, the
Trust may compare the Fund's
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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 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 Investment Class shares of the Premier Growth Fund, the Value
Equity Fund, the Small Cap Value Fund, and the Strategic Fund and 100% of
the outstanding Service Class shares of each of the Funds (other than the
Europe Equity Fund and the Small Cap Value Fund). First Colony Life
Insurance Company, located at 700 Main Street, Lynchburg, Virginia 24505, an
indirect subsidiary of GE, owned 100% of the outstanding Investment Class
shares of the Europe Equity Fund. Union Fidelity Life Insurance Company, 601
Union Street, Suite 1400, Seattle, Washington 98101, an indirect subsidiary
of GE, owned 100% of the outstanding Investment Class shares of the MidCap
Value Fund. The shares were issued in exchange for providing the initial
seed capital to these Funds.
In addition, as of that date, (i) Leaseway Transportation Corp. owned
more than 25% of the outstanding voting securities of the Emerging Markets
Fund, Mid-Cap Growth Fund, International Fund, U.S. Equity Fund, S&P 500
Index Fund, Income Fund and Money Market Fund; (ii) AID Association for
Lutherans owned more than 25% of the outstanding voting securities of the
International Fund; (iii) MRA Systems, Inc. owned more than 25% of the
outstanding voting securities of the Money Market Fund; and (iv) First
Colony Life Insurance Company owned more than 25% of the outstanding voting
securities of the Europe Equity Fund. So long as the above entities own more
than 25% of the outstanding voting securities of the Funds noted, they may
be deemed to control these Funds, 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.
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The current Trustees and officers of each Fund, as a group,
beneficially owned less than 1% of each Fund's outstanding shares;
The following persons 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 September 17, 1999.
<TABLE>
<CAPTION>
Amount of
Ownership Percent of
Name and Address of Record Owner (In Shares) Class
-------------------------------- ----------- -----
<S> <C> <C>
Emerging Markets Fund (Investment Class)
Saxon & Co.
FBO Leaseway Transport
ABC Trust Institutional Service
200 Stevens Drive - Suite 260
Lester, PA 19113-1522 652,034.11 87.05%
Defined Benefit Plans Master Trust
Agreement between MRA Sys. Inc. &
State Street Bank & Trust
c/o Joe Mays
1 Newman Way J-103
Evendale, OH 45215 77,261.200 10.31%
Mid-Cap Growth Fund (Investment Class)
Saxon & Co.
FBO Leaseway Transport
ABC Trust Institutional Service
200 Stevens Drive - Suite 260
Lester, PA 19113-1522 1,302,433.79 86.44%
Defined Benefit Plans Master Trust
Agreement between MRA Sys. Inc. &
State Street Bank & Trust
c/o Joe Mays
1 Newmann Way J-103
Evendale, OH 45215 160,525.87 10.35%
</TABLE>
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<TABLE>
<CAPTION>
Amount of
Ownership Percent of
Name and Address of Record Owner (In Shares) Class
-------------------------------- ----------- -----
<S> <C> <C>
International Equity Fund (Investment Class)
AID Association for Lutherans
Ron Anderson Trustee
Attn: David J. Schnarsky
4321 N. Ballard Road
Appleton, WI 54919 7,622,936.17 48.24%
Saxon & Co.
FBO Leaseway Transport
ABC Trust Institutional Service
200 Stevens Drive - Suite 260
Lester, PA 19113-1522 3,211,205.30 20.32%
S&S International Trust Account
Attn: Mark Buccigross
3003 Summer Street
Stamford, CT 06905-4316 4,358,770.74 27.58%
U.S. Equity Fund (Investment Class)
Saxon & Co.
FBO Leaseway Transport
ABC Trust Institutional Service
200 Stevens Drive - Suite 260
Lester, PA 19113-1522 8,136,644.19 66.66%
The Meade Corporation
Attn: Kathryn Strawn
Courthouse Plaza NE
Dayton, OH 45463 1,599,992.27 13.10%
GELCO Corp. DBA GE Capital Fleet Svc.
Norwest Bank N.A.
Attn: Mutual Funds
510 Marquette, Suite 500
Minneapolis, MN 55402-1118 1,414,556.26 11.59%
</TABLE>
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<TABLE>
<CAPTION>
Amount of
Ownership Percent of
Name and Address of Record Owner (In Shares) Class
-------------------------------- ----------- -----
<S> <C> <C>
Defined Benefit Plans Master Trust
Agreement between MRA Sys. Inc. &
State Street Bank & Trust
c/o Joe Mays
1 Newmann Way J-103
Evendale, OH 45215 866,995.26 7.10%
</TABLE>
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<TABLE>
<CAPTION>
Amount of
Ownership Percent of
Name and Address of Record Owner (In Shares) Class
-------------------------------- ----------- -----
<S> <C> <C>
S&P 500 Index Fund (Investment Class)
Saxon & Co.
FBO Leaseway Transport
ABC Trust Institutional Service
200 Stevens Drive - Suite 260
Lester, PA 19113-1522 1,754,229.80 91.42%
Defined Benefit Plans Master Trust
Agreement Between MRA Sys. Inc. &
State Street Bank & Trust
c/o Joe Mays
1 Newmann Way J-103 139,345.16 7.26%
Evendale, OH 45215
Income Fund (Investment Class)
Saxon & Co.
FBO Leaseway Transport
ABC Trust Institutional Services
200 Stevens Drive - Suite 260
Lester, PA 19113-1522 5,366,056.27 54.04%
Metal Trades
Branch Local 638 Pension Fund
c/o Kevin J. Driscoll
Steamfitters Ind Fund Office
5 Penn. Plaza
New York, NY 10001-1810 2,190,553.62 22.10%
GELCO Corp. DBA GE Capital Fleet Svc.
Norwest Bank N.A.
Attn: Mutual Funds
510 Marquette, Suite 500
Minneapolis, MN 55402-1118 1,390,417.81 14.00%
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Amount of
Ownership Percent of
Name and Address of Record Owner (In Shares) Class
-------------------------------- ----------- -----
<S> <C> <C>
Defined Benefit Plans Master Trust
Agreement between MRA Sys. Inc. &
State Street Bank & Trust
c/o Joe Mays
1 Newmann Way J-103
Evendale, OH 45215 824,618.47 8.30%
Money Market Fund (Investment Class)
Saxon & Co.
FBO Leaseway Transport
ABC Trust Institutional Service
200 Stevens Drive - Suite 260
Lester, PA 19113-1522 4,782,109.19 77.32%
Defined Benefit Plans Master Trust
Agreement Between MRA Sys. Inc. &
State Street Bank & Trust
c/o Joe Mays
1 Newman Way J-103
Evendale, OH 45215 962,358.16 15.56%
Information Alliance Co.
Gary L. Kriechbaum
877 South Street
Pittsfield, MA 01201-8229 428,662.71 6.93%
Strategic Investment Fund (Investment Class)
GE Capital Assurance
6604 West Broad Street
Richmond, VA 23230-1702 1,000.01 100%
Premier Growth Equity Fund (Investment Class)
GE Capital Assurance
6604 West Broad Street
Richmond, VA 23230-1702 1,000.01 100%
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Amount of
Ownership Percent of
Name and Address of Record Owner (In Shares) Class
-------------------------------- ----------- -----
<S> <C> <C>
Value Equity Fund (Investment Class)
GE Capital Assurance
6604 West Broad Street
Richmond, VA 23230-1702 1,000.01 100%
Small-Cap Value Fund (Investment Class)
GE Capital Assurance
2 Union Square, Suite 1400
601 Union Street 1,016,690.04 100%
Seattle, WA 98101-2321
Europe Equity Fund (Investment Class)
First Colony Life Insurance Company
601 Union Street, Suite 1400 1,010,546.50 100%
Seattle, WA 98101
GE Mid-CapValue Equity Fund (Investment Class)
Union Fidelity Life Insurance Company 1,027,644.68 100%
Attn: Jerry Fulps
601 Union Street
Suite 1400
Seattle, Washington 98101
</TABLE>
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 Amended and Restated Declaration of Trust, dated July 24, 1998, as
amended from time to time (the "Declaration") permits the Trustees to issue
an unlimited number of full and fractional shares of beneficial interest of
the Trust par value $.001 per share. Under the Declaration, the Trustees
have the authority to create and classify shares of beneficial interest in
separate series, without further action by shareholders.
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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 Equity Fund was added as series of the Trust on November 6,
1998. Additional series may be added in the future.
The Declaration 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, 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.
Shareholder Liability. Generally, Delaware business trust shareholders
are not personally liable for obligations of the Delaware business trust
under Delaware law. The
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<PAGE>
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: (i) the designation of each Class; (ii)
the sales arrangement; (iii) certain expenses allocable exclusively to each
Class; and (iv) voting rights on matters exclusively affecting a
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<PAGE>
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. 20004-2415 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 Funds that are included in the Annual Report dated September 30,
1998 are the U.S. Equity Fund, the S&P 500 Index Fund, the Mid-Cap Growth
Fund, the International Equity Fund, the Emerging Markets Fund, the Income
Fund and the Money Market Fund. 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 remaining Funds did not have an operating history as
of the date of the Annual Report.
The Semi-Annual Report dated March 31, 1999, which either accompanies
this SAI or has previously been provided to the person to whom this SAI is
being sent, is incorporated herein
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<PAGE>
by reference with respect to all information other than the information set
forth in the Letter to Shareholders included in the Semi-Annual Report.
The Funds that are included in the Semi-Annual Report dated March 31,
1999 are the U.S. Equity Fund, the S&P 500 Index Fund, the Mid-Cap Growth
Fund, the International Equity Fund, the Emerging Markets Fund, the Income
Fund, Money Market Fund, the Mid-Cap Value Fund, the Small-Cap Value Fund,
and the Europe Equity Fund. 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 remaining Funds did not have a sufficient operating history as
of the date of the Semi-Annual Report to be included in that Report.
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 ICA
Limited or its affiliate ICA Inc. are obligations supported by the highest
capacity for timely repayment. Obligations rated A-1 have a very strong
capacity for timely repayment. Obligations rated A-2 have a strong capacity
for timely repayment, although that capacity may be susceptible to adverse
changes in business, economic and financial conditions.
Fitch Investors Services, Inc. employs the rating F-1+ to indicate
issues regarded as
A - 1
<PAGE>
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 TAW-1 to indicate issues
having a very high degree of likelihood of timely payment. TAW-2 indicates a
strong degree of safety regarding timely payment, however, the relative
degree of safety is not as high as for issues rated TAW-1. While the rating
TAW-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 TAW-4; this rating is regarded as non-investment grade and,
therefore, speculative.
Various NRSROs utilize rankings within ratings categories indicated by
a plus or minus sign. The Funds, in accordance with industry practice,
recognize such ratings within categories or gradations, viewing for example
S&P's ratings of A-1+ and A-1 as being in S&P's highest rating category.
Description of S&P Corporate Bond Ratings
AAA -- This is the highest rating assigned by S&P to a bond and
indicates an extremely strong capacity to pay interest and repay principal.
AA -- Bonds rated AA have a very strong capacity to pay interest and
repay principal and differ from AAA issues only in small degree.
A -- Bonds rated A have a strong capacity to pay interest and repay
principal although they are somewhat more susceptible to the adverse effects
of changes in circumstances and economic conditions than debt in higher
rated categories.
BBB -- Bonds rated BBB have an adequate capacity to pay interest and
repay principal. Adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity to pay interest and repay
principal for bonds in this category (even though they normally exhibit
adequate protection parameters) than for bonds in higher rated categories.
BB, B and CCC -- Bonds rated BB and B are regarded, on balance, as
predominately
A - 2
<PAGE>
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.
A - 5
<PAGE>
Description of Moody's Municipal Bond Ratings
Aaa -- Bonds that are rated Aaa are judged to be the best quality. They
carry the smallest degree of investment risk and are generally referred to
as "gilt edge." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized
are most unlikely to impair the fundamentally strong position of such
issues.
Aa -- Bonds that are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally
known as high grade bonds. They are rated lower than the best bonds because
margins of protection may not be as large as in Aaa securities, or
fluctuation of protective elements may be of greater amplitude, or there may
be other elements present that make the long-term risks appear somewhat
larger than in Aaa securities.
A -- Bonds that are rated A possess many favorable investment
attributes and are to be considered as upper medium grade obligations.
Factors giving security to principal and interest are considered adequate,
but elements may be present that suggest a susceptibility to impairment
sometime in the future.
Baa -- Bonds that are rated Baa are considered as medium grade
obligations, that is, they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding
investment characteristics and in fact have speculative characteristics as
well.
Ba -- Bonds that are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterize bonds in this class.
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.
A - 6
<PAGE>
Moody's applies the numerical modifiers 1, 2 and 3 in each generic
rating classification from Aa through B. The modifier 1 indicates that the
security ranks in the higher end of its generic ratings category; the
modifier 2 indicates a mid-range ranking; and the modifier 3 indicates that
the issue ranks in the lower end of its generic ratings category.
Description of Moody's Municipal Note Ratings
Moody's ratings for state and municipal notes and other short-term
loans are designated Moody's Investment Grade (MIG) and for variable rate
demand obligations are designated Variable Moody's Investment Grade (VMIG).
This distinction recognizes the differences between short-term credit risk
and long-term risk. Loans bearing the designation MIG 1/VMIG 1 are the best
quality, enjoying strong protection from established cash flows of funds for
their servicing or from established and broad-based access to the market for
refinancing, or both. Loans bearing the designation MIG 2/VMIG 2 are of high
quality, with margins of protection ample, although not as large as the
preceding group. Loans bearing the designation MIG 3/VMIG3 are of favorable
quality, with all security elements accounted for but lacking the undeniable
strength of the higher grades. Market access for refinancing, in particular,
is likely to be less well established. Loans bearing the designation MIG
4/VMIG 4 are of adequate quality. Protection commonly regarded as required
of an investment security is present and although not distinctly or
predominantly speculative, there is specific risk.
A - 7
<PAGE>
Item 22. Financial Statements
The following financial statements are incorporated herein by reference
to Registrant's Annual Report dated September 30, 1998, filed with the
Securities and Exchange Commission on November 30, 1998 (Accession No.
0001010410-98-000153):
(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 November 9,
1998.
The following unaudited financial statements are incorporated herein by
reference to Registrant's Semi-Annual Report dated March 31, 1999, filed with
the Securities and Exchange Commission on May 28, 1999 (Accession No.
0001082416-99-000007):
(1) Financial Highlights for the periods ended March 31,
1999 (Investment Class shares only).
(2) Statements of Assets and Liabilities at March 31, 1999
(Investment Class shares only).
(3) Statements of Operations for the periods ended March
31, 1999 (Investment Class shares only).
(4) Statements of Changes in Net Assets for the periods
ended March 31, 1999 (Investment Class shares only).
(5) Schedules of Investments at March 31, 1999.
PART C
OTHER INFORMATION
Item 23. Exhibits
Exhibit No. Description of Exhibit
(a)(1) Certificate of Trust is 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 (Accession Number
0001010410-97-000104).
(a)(2) Amended and Restated Declaration of Trust is
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 (Accession Number
0001010410-98-000119).
(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 (Accession Number 0001010410-97-000161).
(d)(2) Investment Advisory and Administration Agreement
between Registrant, on behalf of the Premier
Growth Equity Fund, and GEIM, is 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 (Accession Number
0001010410-97-000161).
(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 (Accession Number
0001010410-97-000161).
<PAGE>
(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 (Accession Number
0001010410-97-000161).
(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 (Accession Number
0001010410-97-000161).
(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 (Accession Number
0001010410-97-000161).
(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 (Accession Number
0001010410-97-000161).
(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 (Accession Number
0001010410-97-000161).
(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 (Accession Number
0001010410-97-000161).
C-1
<PAGE>
(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 (Accession Number
0001010410-97-000161).
(d)(11) Investment Advisory and Administration Agreement
between Registrant, on behalf of the Small-Cap
Growth Equity Fund, and GEIM, is 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 (Accession Number
0001010410-98-000119).
(d)(12) Investment Advisory and Administration Agreement
between Registrant, on behalf of the Small-Cap
Value Equity Fund, and GEIM, is 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 (Accession Number
0001010410-98-000119).
(d)(13) Amended and Restated Investment Advisory and
Administration Agreement between Registrant, on
behalf of the Mid-Cap Value Equity Fund, and
GEIM, is incorporated herein by reference to
Exhibit (d)(13) to post-effective amendment
number four to the Registration Statement, filed
with the Commission on January 27, 1999
(Accession Number 0000889812-99-000221).
(d)(14) Investment Advisory and Administration Agreement
between Registrant, on behalf of the High Yield
Fund, and GEIM, is 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 (Accession Number
0001010410-98-000119).
(d)(15) Investment Advisory and Administration Agreement
between Registrant, on behalf of the Europe Fund,
and GEIM, is incorporated herein by reference to
Exhibit (d)(15) to post-effective amendment
number four to the Registration Statement, filed
with the Commission on January 27, 1999
(Accession Number 0000889812-99-000221).
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(d)(16) Sub-Advisory Agreement between GEIM and State
Street Bank and Trust Company ("State Street"),
through State Street Global Advisors, Inc., is
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 (Accession Number
0001010410-97-000161).
(d)(17) Sub-Advisory Agreement between GEIM and Palisade
Capital Management, L.L.C. is incorporated herein
by reference to Exhibit 5(p) to post-effective
amendment number two to the Registration
Statement, filed with the Commission on July 24,
1998 (Accession Number 0001010410-98-000119).
(d)(18) Sub-Advisory Agreement between GEIM and NWQ
Investment Management Company is incorporated
herein by reference to Exhibit (d)(18) to
post-effective amendment number four to the
Registration Statement, filed with the Commission
on January 27, 1999 (Accession Number
0000889812-99-000221).
(e)(1) Distribution Agreement between Registrant and GE
Investment Services Inc. is incorporated herein
by reference to Exhibit 6(a) to pre- effective
amendment number two to the Registration
Statement, filed with the Commission on November
7, 1997 (Accession Number 0001010410-97-000161).
(e)(2) Shareholder Servicing and Distribution Agreement
between Registrant and GEIM is 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 (Accession Number
0001010410-97-000161).
(f) Inapplicable.
(g) Custodian Contract is 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 (Accession Number 0001010410-97-000148).
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<PAGE>
(h) Transfer Agency and Service Agreement between
Registrant and State Street is 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 (Accession Number
0001010410-97-000161).
(i) Consent of Sutherland Asbill & Brennan LLP is
filed herewith.
(j) Consent of PricewaterhouseCoopers LLP is filed
herewith.
(k) Inapplicable.
(l) Purchase Agreement between Registrant and General
Electric Capital Assurance Company is
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 (Accession Number
0001010410-97-000161).
(m) Shareholder Servicing and Distribution Plan
adopted pursuant to Rule 12b-1 under the
Investment Company Act of 1940, as amended (the
"1940 Act") is 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 (Accession Number
0001010410-97-000161).
(n)(1) Financial Data Schedules for Annual Report are
incorporated herein by reference to Exhibit (n)
to post-effective amendment number four to the
Registration Statement, filed with the Commission
on January 27, 1999 (Accession Number
0000889812-99-000221).
(n)(2) Financial Data Schedules for Semi-Annual Report
are incorporated herein by reference to
Registrant's Form NSAR filed on May 27, 1999
(Accession Number 0001040061-99-000002).
(o) Multiple Class Plan for Registrant adopted
pursuant to Rule 18f-3 under the 1940 Act is
incorporated herein by reference to Exhibit 18 to
pre-effective amendment number two to the
Registration Statement, filed with the Commission
on November 7, 1997 (Accession Number
0001010410-97-000161).
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<PAGE>
(p) Power of Attorney is incorporated herein by
reference to Exhibit 99(o) to post-effective
amendment number five to the Registration
Statement, filed with the Commission on March 17,
1999 (Accession Number 0000889812-99-000857).
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, 1998 (the "Form 10-K"). Additional
information about persons controlled by or under common control with Registrant
is incorporated herein by reference to pages 10-16 of the Form 10-K, beginning
under the caption "GECS."
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
nevertheless is 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
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<PAGE>
Delaware law, the nature of Registrant's business and the nature of its assets,
the risk of personal liability to a shareholder is remote.
The Declaration of Trust further provides that Registrant shall
indemnify each of its Trustees and officers against liabilities and expenses
reasonably incurred by them, in connection with, or arising out of, any action,
suit or proceeding, threatened against or otherwise involving such Trustee or
officer, directly or indirectly, by reason of being or having been a Trustee or
officer of Registrant. The Declaration of Trust does not authorize Registrant to
indemnify any Trustee or officer against any liability to which he or she would
otherwise be subject by reason of or for willful misfeasance, bad faith, gross
negligence or reckless disregard of such person's duties.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to Trustees, officers and controlling persons
pursuant to the foregoing provisions, or otherwise, Registrant has been advised
that in the opinion of the Securities and Exchange Commission such
indemnification may be against public policy as expressed in the Act and may be,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by Registrant of expenses incurred or
paid by a Trustee, officer or controlling person of Registrant in the successful
defense of any action, suit or proceeding) is asserted by such Trustee, officer
or controlling person in connection with the securities being registered,
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
Item 26. Business and Other Connections of Investment Adviser
Reference is made to "About the Investment Adviser" in the Prospectus
forming Part A, and "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).
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<PAGE>
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).
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
Investment Management Company ("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).
Item 27. Principal Underwriters
(a) GE Investment Distributors, Inc. ("GEID") also serves as
distributor for the investment portfolios of GE Institutional Funds, 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.
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<PAGE>
Item 29. Management Services
Inapplicable.
Item 30. Undertakings
Inapplicable.
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<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
and the Investment Company Act of 1940, as amended, Registrant certifies that it
meets all of the requirements for effectiveness of this Amendment to the
Registration Statement pursuant to Rule 485(b) under the Securities Act of 1933,
as amended, and has duly caused this Amendment to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Stamford, State of
Connecticut on this 24th day of September, 1999.
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.
Signature Title Date
/s/ Michael J. Cosgrove Trustee, President and 9/24/99
- --------------------------- Chairman of the Board
Michael J. Cosgrove (Chief Executive Officer)
/s/ John R. Costantino Trustee 9/24/99
- ---------------------------
John R. Costantino
/s/ Alan M. Lewis Trustee 9/24/99
- ---------------------------
Alan M. Lewis
/s/ William J. Lucas Trustee 9/24/99
- ---------------------------
William J. Lucas*
/s/ Robert P. Quinn Trustee 9/24/99
- ---------------------------
Robert P. Quinn*
/s/ Michael Tansley Treasurer 9/24/99
- --------------------------- (Chief Financial and
Michael Tansley Accounting Officer)
* Signature affixed by Matthew J. Simpson pursuant to a power of
attorney dated December 9, 1998 and incorporated by reference to
Exhibit 99(o) to post-effective amendment number five to the
Registration Statement, filed with the Commission on March 17,
1999.
/s/ Matthew J. Simpson
-----------------------------
Matthew J. Simpson
<PAGE>
EXHIBIT INDEX
EX-99.(i) Consent of Sutherland Asbill & Brennan LLP
EX-99.(j) Consent of PricewaterhouseCoopers LLP
<PAGE>
EX-99(i)
CONSENT OF SUTHERLAND ASBILL & BRENNAN LLP
We consent to the reference to our firm under the heading
"Fund History and Additional Information -- Counsel" in the statement of
additional information included in Post- Effective Amendment No. 8 to the
Registration Statement on Form N-1A for GE Institutional Funds (File Nos.
333-29337, 811-08257). In giving this consent, we do not admit that we are in
the category of persons whose consent is required under Section 7 of the
Securities Act of 1933.
SUTHERLAND ASBILL & BRENNAN LLP
By: /s/ David S. Goldstein
--------------------------------
David S. Goldstein
Washington, D.C.
September 22, 1999
<PAGE>
EX-99(j)
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus and
Statement of Additional Information constituting part of this Post-Effective
Amendment No. 8 to the registration statement on Form N-1A (the "Registration
Statement") of our report dated November 9, 1998, relating to the financial
statements and financial highlights appearing in the September 30, 1998 Annual
Report to the Shareholders of The GE Institutional Funds, which is also
incorporated by reference into the Registration Statement. We also consent to
the reference to us under the heading "Independent Accountants" in such
Statement of Additional Information and to the reference to us under the heading
"Financial Highlights" in such Prospectus.
PricewaterhouseCoopers LLP
Boston, Massachusetts
September 24, 1999
