<PAGE>
File Nos. 333-29337, 811-08257
As filed with the Securities and Exchange Commission on January 27, 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. 4 / X /
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and
REGISTRATION STATEMENT UNDER
THE INVESTMENT COMPANY ACT OF 1940 / /
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Amendment No. 6 / 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:
Stephen E. Roth, Esq.
Sutherland Asbill & Brennan LLP
1275 Pennsylvania Avenue, N.W.
Washington, DC 20004-2404
Approximate Date of Proposed Public Offering: As soon as practicable after the
effective date of this
Registration Statement.
It Is Proposed That this Filing Will Become Effective (check appropriate box)
[X] Immediately upon Filing Pursuant to Paragraph (b) of Rule 485
[ ] on (Date) Pursuant to Paragraph (b) of Rule 485
[ ] 60 Days after Filing Pursuant to Paragraph (a)(1) of Rule 485
[ ] on (Date) Pursuant to Paragraph (a)(1) of Rule 485
[ ] 75 Days after Filing Pursuant to Paragraph (a)(2) of Rule 485
[ ] on (Date) Pursuant to Paragraph (a)(2) of Rule 485
If appropriate, check the following box:
[ ] This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
Title of Securities Being Registered: Shares of Beneficial Interest.
<PAGE>
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Prospectus GE Institutional Funds
January 28, 1999
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Equity Funds
U.S. Equity Fund
S&P 500 Index
Mid-Cap Growth Fund
Mid-Cap Value Equity Fund
Small-Cap Value Equity Fund
International Equity Fund
Emerging Markets Fund
Premier Growth Equity Fund
Value Equity Fund
Europe Equity 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.
[LOGO] We bring good things to life.
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Contents
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GE Institutional Funds Prospectus
Equity Funds 2
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
Income Fund 22
Asset Allocation Funds 24
Strategic Investment Fund 26
Money Market Funds 28
Money Market Fund 30
Fund Expenses 32
More on Strategies and Risks 36
More on Risks 36
Other Risk Considerations 40
More on Investment Strategies 41
About the Investment Adviser 46
About the Funds' Portfolio Managers 47
About the Sub-Advisers 48
Prior Performance Information 52
How to Invest 54
How to Buy Shares 54
How to Redeem Shares 56
How to Exchange Shares 57
Dividends, Capital Gains and Other
Tax Information 58
Calculating Share Value 59
Appendix: Financial Highlights 60
Additional information regarding GE Institutional Funds is contained in the
Statement of Additional Information dated January 28, 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. Investment in the Equity Funds is subject to risk, including
possible loss of principal invested.
Equity funds generally invest in equity securities. Equity securities may
include common stocks, preferred stocks, depositary receipts, convertible
preferred stocks, convertible bonds, convertible debentures, convertible notes,
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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The following are important definitions that may be unfamiliar to an investor
reading about the Equity Funds:
Foreign securities include interests in or obligations of entities located
outside of the United States. The determination of where an issuer of a security
is located will be made by reference to the country in which the issuer (a) is
organized, (b) derives at least 50% of its revenues or profits from goods
produced or sold, investments made or services performed, (c) has at least 50%
of its assets situated or (d) has the principal trading market for its
securities. Foreign securities may be denominated in non-U.S. currencies and
traded outside the United States or may be in the form of depositary receipts.
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.
Debt securities are bonds and other securities that are used by issuers to
borrow money from investors. Holders of debt securities have a higher priority
claim to assets than do equity holders. Typically, the debt issuer pays the
investor a fixed, variable or floating rate of interest and must repay the
borrowed amount at maturity. Some debt securities, such as zero coupon bonds,
are sold at a discount from their face values instead of paying interest.
Convertible securities may be debt or equity securities that pay interest or
dividends and that may be converted on specified terms into the stock of the
issuer.
Preferred securities are classes of stock that pay dividends at a specified
rate. Dividends are paid on preferred stocks before they are paid on common
stocks. In addition, preferred stockholders have priority over common
stockholders as to the proceeds from the liquidation of a company's assets.
Types of investment styles the Equity Funds may use
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 value stocks and the market averages.
Value investing involves buying stocks that are out of favor and/or undervalued
in comparison to their peers and/or their prospects for growth. Generally, value
stock valuation levels are lower than growth stocks.
The above definitions should be read together with the fund summaries on the
following pages to the extent applicable.
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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(Registered) investment strategy that
combines growth and value investment management styles. As a result, the
portfolio has characteristics similar to the Standard & Poor's 500 Composite
Stock Index, 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. To the extent that the portfolio managers invest in foreign securities or
debt securities, the Fund would be subject to foreign exposure risk, interest
rate risk and credit risk.
If you would like additional information regarding the Fund's investment
strategies and risks, please refer to "More on Strategies and Risks" later in
this Prospectus.
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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 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 (Registered). 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*
[BAR CHART]
1998
24%
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
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(Registered)).* The portfolio manager seeks to replicate the return of
the S&P 500 Index while holding transaction costs low and minimizing portfolio
turnover. The portfolio manager uses a passive management approach to select a
representative group of stocks within the S&P 500 Index. The portfolio manager
also may use statistical selection to determine which securities within the
Index to purchase or sell for the Fund. The Fund generally will not hold all
the securities that comprise the Index and, in some cases, the Fund's
weightings in particular industry segments represented in the Index may differ
significantly from those of the Index.
The Fund also may invest to a lesser extent in securities that are not in the
S&P 500 Index, foreign securities and debt securities. The Fund generally
intends to hold its investments for a long time, which results in a relatively
low portfolio turnover rate. The portfolio managers may use 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, please refer to "More on Strategies and Risks" later in
this Prospectus.
* Standard & Poor's(Registered), S&P(Registered), and S&P 500(Registered) 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 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(Registered)). The table reflects the impact
of the Fund's expenses and assumes that you sold your shares at the end of each
period.
Calendar Year Total Returns
Investment Class Shares*
[BAR CHART]
1998
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29%
Average Annual Total Return
(as of December 31, 1998)
Since
1 Year Inception**
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S&P 500 Index Funds
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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8 GE Institutional
Funds Prospectus
Equity Funds
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Premier
Growth
Equity Fund
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 financial strength
o leadership in their respective industries
o high quality management focused on generating shareholder value
The Fund also may invest to a lesser extent in foreign securities and debt
securities. The Fund generally intends to hold its investments for a long
time, which results in a relatively low portfolio turnover rate. The portfolio
manager may use various investment techniques to adjust the Fund's investment
exposure, but there is no guarantee that these techniques will work.
The Risks
The principal risks of investing in this Fund are stock market risk and style
risk. To the extent that the portfolio manager invests in foreign securities
or debt securities, the Fund would be subject to foreign exposure risk,
interest rate risk and credit risk.
If you would like additional information regarding the Fund's investment
strategies and risks, please refer to "More on Strategies and Risks" later in
this Prospectus.
Fund Background
No performance figures are shown because the Fund lacks an operating history
as of the date of this Prospectus.
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9
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Value
Equity Fund
Investment
Objective:
Seeks long-term
growth of
capital and
future income.
The Strategy
The Value Equity Fund invests primarily in equity securities of large U.S.
companies that are undervalued by the market but have solid growth prospects.
A company may be undervalued for reasons such as market overreaction to recent
company, industry or economic problems. Stock selection is key to the
performance of the Fund.
The portfolio manager seeks to identify securities of companies with
characteristics such as:
o low prices in relation to their peers and the overall market
o the potential for long-term earnings growth
o higher-than-average dividend yields
o strong management
o financial strength
o attractive upside potential and limited downside risk
The Fund also may invest to a lesser extent in foreign securities and debt
securities. The Fund generally intends to hold its investments for a long
time, which results in a relatively low portfolio turnover rate. The portfolio
manager may use various investment techniques to adjust the Fund's investment
exposure, but there is no guarantee that these techniques will work.
The Risks
The principal risks of investing in this Fund are stock market risk and style
risk. To the extent that the portfolio manager invests in foreign securities
or debt securities, the Fund would be subject to foreign exposure risk,
interest rate risk and credit risk.
If you would like additional information regarding the Fund's investment
strategies and risks, please refer to "More on Strategies and Risks" later in
this Prospectus.
Fund Background
No performance figures are shown because the Fund lacks an operating history
as of the date of this Prospectus.
<PAGE>
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10 GE Institutional
Funds Prospectus
Equity Funds
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Mid-Cap
Growth
Fund
Investment
Objective:
Seeks long-term
growth of
capital.
The Strategy
The Mid-Cap Growth Fund invests primarily in equity securities of mid-cap
companies with above-average growth potential. The Fund defines a mid-cap
company as one with a market capitalization within the capitalization range of
the Standard & Poor's MidCap 400 Stock Index. As of January 6, 1999, the
market capitalization of companies in the index ranged from $271 million to
$11.4 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 reasonable valuation
o attractive products or services
o financial strength
o strong competitive positions within their industries
o high quality management focused on generating shareholder value
The Fund also may invest to a lesser extent in securities with capitalizations
outside the mid-cap range, foreign securities and debt securities. The
portfolio manager may use various investment techniques to adjust the Fund's
investment exposure, but there is no guarantee that these techniques will
work.
The Risks
The principal risks of investing in this Fund are stock market risk and style
risk. To the extent that the portfolio manager invests in foreign securities
or debt securities, the Fund would be subject to foreign exposure risk,
interest rate risk and credit risk.
If you would like additional information regarding the Fund's investment
strategies and risks, please refer to "More on Strategies and Risks" later in
this Prospectus.
<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 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.
Calendar Year Total Returns
Investment Class Shares*
[BAR CHART]
1998
----
5%
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 18.78% 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.
<PAGE>
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12 GE Institutional
Funds Prospectus
Equity Funds
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Mid-Cap
Value Equity
Fund
Investment
Objective:
Seeks long-term
growth of
capital.
The Strategy
The Mid-Cap Value Equity Fund invests primarily in equity securities of
mid-cap companies that the portfolio manager believes are undervalued by the
market and have above-average growth potential. The dollar-weighted median
market capitalization of the companies in the Fund's portfolio will fall within
the mid-cap range defined by the Morningstar rating agency, between $1.3 and
$8.4 billion as of December 31, 1998. 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. To the extent that the portfolio manager invests in foreign securities
or debt securities, the Fund would be subject to foreign exposure risk,
interest rate risk and credit risk.
If you would like additional information regarding the risks associated with
this Fund, please refer to "More on Strategies and Risks" later in this
Prospectus.
- --------------------
Fund Background
The Fund does not have any performance history as of the date of this
Prospectus. Performance information will be included in the Fund's next
available annual or semi-annual report.
Prior performance information of Jon Bosse, the Fund's portfolio manager, can
be found under "Prior Performance Information" beginning on page 52.
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13
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Small-Cap
Value
Equity Fund
Investment
Objective:
Seeks long-term
growth of
capital.
The Strategy
The Small-Cap Value Equity Fund invests primarily in equity securities of
small-cap companies that are undervalued by the market but have solid growth
prospects. A company may be undervalued for reasons such as market
overreaction to recent company, industry or economic problems. The Fund
defines a small-cap company as one with a market capitalization within the
capitalization range of the Russell 2000 Index. As of December 31, 1998, the
market capitalization of companies in the index ranged from $4.4 million to
$3.4 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. To the extent that the portfolio managers invest in foreign securities
or debt securities, the Fund would be subject to foreign exposure risk,
interest rate risk and credit risk.
If you would like additional information regarding the Fund's investment
strategies, please refer to "More on Strategies and Risks" later in this
Prospectus.
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Fund Background
Because the Fund recently commenced operations, no performance figures are
shown. Performance information will be included in the Fund's next available
annual or semi-annual report.
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" beginning on page 50.
<PAGE>
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14 GE Institutional
Funds Prospectus
Equity Funds
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International Equity Fund
Investment Objective:
Seeks long-term growth of capital.
The Strategy
The International Equity Fund invests primarily in equity securities of
companies in developed and developing countries other than the United States.
The portfolio managers focus on companies that they expect will grow faster
than relevant markets and whose security price does not fully reflect their
potential 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
o sufficient liquidity
The Fund also may invest to a lesser extent in debt securities. The portfolio
managers may use various investment techniques to adjust the Fund's investment
exposure, but there is no guarantee that these techniques will work.
The Risks
The principal risks of investing in this Fund are stock market risk, foreign
exposure risk, style risk and emerging markets risk. To the extent that the
portfolio managers invest in debt securities, the Fund would be subject to
interest rate risk and credit risk.
If you would like additional information regarding the investment strategies
and risks associated with this Fund, please refer to "More on Strategies and
Risks" later in this Prospectus.
<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 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.
Calendar Year Total Returns
Investment Class Shares*
[BAR CHART]
1998
- ----
17%
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 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 revenues and profits. Stock selection is
key to the performance of the Fund.
The portfolio managers seek to identify securities of growth companies with
characteristics such as:
o low prices relative to their long-term cash earnings potential
o potential for significant improvement in the company's business
o financial strength
o sufficient liquidity
The Fund 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. 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 risks associated with
this Fund, please refer to "More on Strategies and Risks" later in this
Prospectus.
Fund Background
Because the Fund is new, it does not have any performance history. Performance
information will be included in the Fund's next available annual or
semi-annual report.
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17
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18 GE Institutional
Funds Prospectus
Equity Funds
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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 markets. 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 growth. Under normal circumstances, the
Fund's assets are invested in no fewer than three different countries. The
portfolio managers consider which emerging market countries in which to invest
based on certain factors, including investment restrictions, tax barriers,
local market cycles, economic outlook for growth, currency exchange rates and
the political environment. The portfolio managers consider the following
factors in determining whether 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 business
o financial strength
o sufficient liquidity
The Fund may also invest to a lesser extent in securities of companies located
in countries other than emerging market countries (including the United States)
and debt securities. The portfolio managers may use various investment
techniques to adjust the Fund's investment exposure, but there is no guarantee
that these techniques will work.
The Risks
The principal risks of investing in this Fund are stock market risk, foreign
exposure risk, emerging markets risk and style risk. To the extent that the
portfolio managers invest in debt securities, the Fund would be subject to
interest rate risk and credit risk.
If you would like additional information regarding the risks associated with
this Fund, please refer to "More on Strategies and Risks" later in this
Prospectus.
<PAGE>
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19
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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 19.93% 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 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.
Calendar Year Total Returns
Investment Class Shares*
[BAR CHART]
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>
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20 GE Institutional Income Funds
Funds Prospectus
- --------------------------------------------------------------------------------
An investment in the 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. Investment in the 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. Income funds provide regular
income and some provide federally tax-exempt income.
The following are important definitions that may be unfamiliar to an investor
reading about the Income Fund:
Asset-backed securities represent a participation in, or are secured by and
payable from, a stream of payments generated by particular assets, such as
credit card receivables or auto loans.
Cash and cash equivalents are highly liquid and highly rated instruments such
as commercial paper and bank deposits.
Corporate bonds are debt securities issued by companies.
Foreign debt securities are issued by foreign corporations or governments. They
may include the following:
o Eurodollar Bonds, which are dollar-denominated securities issued outside the
U.S. by foreign corporations and financial institutions or by foreign branches
of U.S. corporations and financial institutions
o Yankee Bonds, which are dollar-denominated securities issued by foreign
issuers in the U.S.
o Securities denominated in currencies other than U.S. dollars.
<PAGE>
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21
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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 are 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.
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 ("CMOs") which are derivative securities
that are fully collateralized by a portfolio of mortgages.
Money market securities are short-term debt securities of the U.S. government,
banks and corporations. The Fund 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 securities are debt obligations of local, state or regional
governments. Municipal securities generally include both municipal bonds
(securities with maturities of more than one year) and municipal notes
(typically, securities with maturities of one year or less). They may be a
general obligation of the municipality that issued them or they may be secured
by the revenues of a special project or facility. Income derived from
investments in municipal securities is typically exempt from Federal income
tax, however, capital gains are subject to Federal tax.
Repurchase agreements (repos) are used to invest cash on a short-term basis. A
seller (bank or broker-dealer) sells securities, usually government
securities, to the Fund, agreeing to buy them back at a designated price and
time -- usually the next day.
U.S. Government securities are issued or guaranteed by the U.S. Government or
one of its agencies or instrumentalities. Some U.S. Government securities are
backed by the full faith and credit of the federal government. Other U.S
Government securities are backed by the issuer's right to borrow from the U.S.
Treasury and some are backed only by the credit of the issuing organization.
All U.S. Government securities are considered highly creditworthy.
Derivative Securities (securities whose values are based on other securities,
currencies or indices) include options (on stocks, indices, currencies,
futures contracts or bonds), forward currency exchange contracts, futures
contracts, swaps, interest-only and principal-only debt securities, certain
mortgage-backed securities like CMOs, and structured securities.
Maturity -- the date on which a debt security matures or when the issuer must
pay back the principal amount of the security.
Weighted average maturity -- the length of time in days or years until the
average security in a money market or bond fund will mature or be redeemed by
its issuer. The average maturity is weighted according to the dollar 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.
Duration -- a mathematical calculation of the average life of a bond (or
portfolio of bonds) 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.
The above definitions should be read together with the fund summary on the
following pages to the extent applicable.
<PAGE>
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22 GE Institutional
Funds Prospectus
Income Funds
- --------------------------------------------------------------------------------
Income Fund
Investment Objective: Seeks maximum income consistent with prudent investment
management and the preservation of capital.
The Strategy
The Income Fund invests primarily in a variety of debt securities, such as
mortgage-backed securities, corporate bonds, 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 risks associated with
this Fund, please refer to "More on Strategies and Risks" later in this
Prospectus.
<PAGE>
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23
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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 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 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.
Calendar Year Total Returns
Investment Class Shares*
[BAR CHART]
1998
- ----
8.46%
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>
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24 GE Institutional Asset
Funds Prospectus Allocation
Funds
- --------------------------------------------------------------------------------
An investment in the 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. Investment in the 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, the Strategic Investment Fund presents a
diversification alternative within one fund.
<PAGE>
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25
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The following are important definitions that may be unfamiliar to an investor
reading about the Strategic Investment Fund:
Debt securities are bonds and other securities that are used by issuers to
borrow money from investors. Typically, the issuer pays the investor a fixed,
variable or floating rate of interest and must repay the borrowed amount at
maturity. Some debt securities, such as zero coupon bonds, are sold at a
discount from their face values instead of paying interest.
Equity securities may include common stocks, preferred stocks, depositary
receipts, convertible preferred stocks, convertible bonds, convertible
debentures, convertible notes, and rights and warrants of U.S. and foreign
companies. Stocks represent an ownership interest in a corporation.
Foreign securities include interests in or obligations of entities located
outside of the United States. The determination of where an issuer of a
security is located will be made by reference to the country in which the
issuer (a) is organized, (b) derives at least 50% of its revenues or profits
from goods produced or sold, investments made or services performed, (c) has
at least 50% of its assets situated or (d) has the principal trading market
for its securities. Foreign securities may be denominated in non-U.S.
currencies and traded outside the United States or may be in the form of
depositary receipts. Depositary receipts represent 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.
The above definitions should be read together with the fund summary on the
following page.
<PAGE>
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26 GE Institutional
Funds Prospectus
Asset Allocation Funds
- --------------------------------------------------------------------------------
Strategic Investment Fund
Investment Objective:
Seeks to maximize total return, consisting of capital appreciation and current
income.
The Strategy
The Strategic Investment Fund invests in both equity securities and debt
securities. The portfolio managers follow an asset allocation process
established by GE Investment Management's Asset Allocation Committee to
diversify holdings across asset classes. It is likely that the Fund will
maintain a weighting in U.S. equity securities, debt securities and foreign
securities based on the relative attractiveness of the asset classes. The Fund
invests in equity securities 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 apresence 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 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. 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, please refer to "More on Strategies and Risks" later in
this Prospectus.
Fund Background
No performance figures are shown because the Fund lacks an operating history
as of the date of this Prospectus.
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27
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28 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>
----------
29
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The following are important definitions that may be unfamiliar to an investor
reading about the Money Market Fund:
U.S. Government securities are issued or guaranteed by the U.S. Government or
one of its agencies or instrumentalities. Some U.S, Government securities are
backed by the full faith and credit of the federal government. Other U.S.
Government securities are backed by the issuer's right to borrow from the U.S.
Treasury and some are backed only by the credit of the issuing organization.
All U.S. Government securities are considered highly creditworthy.
Bank Deposits are cash, check or drafts deposited in a financial institution
for credit to a customer's account. Banks differentiate between demand
deposits (checking accounts on which the customer may draw) and time deposits,
which pay interest and have a specified maturity or require 30 days' notice
before withdrawal.
Certificates of Deposit include short-term debt securities issued by banks.
Eurodollar Deposits are deposits issued in U.S. dollars by foreign banks and
foreign branches of U.S. banks.
Variable Rate Securities carry interest rates that may be adjusted
periodically to market rates. Interest rate adjustments could increase or
decrease the income generated by the securities.
Commercial paper includes short-term debt securities issued by banks,
corporations and other borrowers.
Repurchase Agreements (repos) are transactions in which a security (usually a
government security) is purchased with a simultaneous commitment to sell it
back to the seller (a commercial bank or recognized securities dealer) at an
agreed upon price on an agreed upon date -- usually the next day.
Foreign debt securities are issued by foreign corporations and governments.
They may include the following:
o Eurodollar Bonds, which are dollar-denominated securities issued outside the
U.S. by foreign corporations and financial institutions and by foreign
branches of U.S. corporations and financial institutions
o Yankee Bonds, which are dollar-denominated securities issued by foreign
issuers in the U.S.
The above definitions should be read together with the fund summary on the
following pages.
<PAGE>
30 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 government
securities, repurchase agreements, commercial paper, variable rate securities,
foreign securities and deposits of domestic and foreign banks. The portfolio
manager limits investments to high quality securities with maturities of up to
13 months and limits the average maturity to 90 days.
The Fund invests consistent with regulatory standards governing security
quality, maturity and portfolio diversification. 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 preserve the value of your
investment at $1.00 per share, it is possible to lose money by investing in
the Fund.
The Fund's yield will change due to movements in current short-term interest
rates and market conditions. A change in interest rates or default on the
Fund's investments could cause the Fund's share price to decline below $1.00.
If you would like additional information regarding the investment strategies
and risks associated with this Fund, please refer to "More on Strategies and
Risks" later in this Prospectus
<PAGE>
-----------
31
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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 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.
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.
Calendar Year Total Returns
Investment Class Shares*
[BAR CHART]
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>
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32 GE Institutional Fund Expenses
Funds Prospectus
- --------------------------------------------------------------------------------
Shareholder Transaction Expenses
The Funds impose no sales charge (load) on purchases or reinvested dividends,
contingent deferred sales charge, redemption fee or exchange fee.
This following table shows what it will cost you directly or indirectly to
invest in 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>
Advisory and Administration 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 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 asset increase as
described under "About the Investment Adviser."
** The .25% shareholder servicing and distribution fee is intended to
compensate GE Investment Management, the Trust's investment adviser and
administrator, 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 1997, "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>
----------
33
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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.
International Europe Emerging Strategic Money
Equity Equity Markets Income Investment Market
Fund Fund Fund Fund Fund Fund
.75%* .75%* 1.05%* .35%* .45%* .25%*
.25% .25% .25% .25% .25% .25%
None None None None None None
.75% .75% 1.05% .35% .45% .25%
1.00% 1.00% 1.30% .60% .70% .50%
<PAGE>
- -----------------------------------------------------
34 GE Institutional Fund Expenses
Funds Prospectus
- --------------------------------------------------------------------------------
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.
The example should not be considered to be a representation of past or future
expenses of a Fund. Actual expenses may be greater or less than those shown.
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 $1108
Small-Cap Value Equity Fund:
Investment Class $72 $224 $390 $871
Service Class $97 $303 $525 $1166
International Equity Fund:
Investment Class $77 $240 $417 $930
Service Class $102 $318 $552 $1225
Europe Equity Fund:
Investment Class $77 $240 $417 $930
Service Class $102 $318 $552 $1225
Emerging Markets Fund:
Investment Class $107 $334 $579 $1283
Service Class $132 $412 $713 $1568
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
<PAGE>
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35
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36 GE Institutional More on
Funds Prospectus Strategies
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.
For more information about the risks associated with the Funds, please see the
Statement of Additional Information (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.
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.
Emerging Markets Risk: Emerging markets 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 markets countries are less diverse and
mature than those in developed countries, and their political systems are less
stable. Investments in emerging markets countries may be affected by national
policies that restrict foreign investment. Emerging markets countries may have
less developed legal structures, and the small size of their securities markets
and low trading volumes can make investments illiquid and more volatile than
investments in developed countries. As a result, a Fund investing in emerging
markets countries may be required to establish special custody or other
arrangements before investing.
<PAGE>
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37
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Foreign Exposure Risk: Investing in foreign securities, including depositary
receipts, or securities of U.S. entities with significant foreign operations,
involves additional risks which can affect a Fund's performance. Foreign
markets, particularly emerging markets, may be less liquid, more volatile and
subject to less government supervision than U.S. markets. There may be
difficulties enforcing contractual obligations, and it may take more time for
transactions to clear and settle. Less information may be available about
foreign entities. The costs of 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.
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 stock may not realized their perceived value
for extended periods of time. 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 the value of stock shares could decline significantly.
<PAGE>
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38 GE Institutional
Funds Prospectus
More on
Strategies
and Risks
- --------------------------------------------------------------------------------
Derivative Securities Risk: Derivative securities (securities whose values are
based on other securities, currencies or indices) include options (on stocks,
indices, currencies, futures contracts or bonds), forward currency exchange
contracts, futures contracts, swaps and structured securities. Derivative
securities may be used as a direct investment or as a hedge for a Fund's
portfolio or a portion of a portfolio. Hedging involves using a security to
offset investment risk. Hedging may include reducing the risk of a position held
in a portfolio. Hedging and other 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.
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 rise when interest rates decline and decline
when interest rates rise. The longer the duration of a bond, the more a change
in interest rates affects the bond's price. Short-term and long-term interest
rates may not move the same amount and may not move in the same direction.
Stock Market Risk: A Fund's share price will move up and down in reaction to
stock market movements. Stock prices change daily in response to company
activity and general economic and market conditions. A Fund's investments in
common stocks and other equity securities are subject to stock market risk,
which is the risk that the value of equity securities may decline. Also, equity
securities are subject to the risk that a particular issuer's securities may
decline in value, even during periods when equity securities in general are
rising. Additional stock market risks may be introduced when a particular equity
security is traded on a foreign market. For more detail on the related risks
involved in foreign markets, see Foreign Exposure Risk.
Municipal Securities Risk: Municipal securities are backed by the entities that
issue them and/or other revenue streams. Like other debt securities, prices of
municipal debt securities are affected inversely by changes in interest rates
and by changes in the credit rating or financial condition of the issuer. Income
derived from investments in municipal securities typically is exempt from
Federal income tax, however capital gains are subject to Federal tax. Some
municipal securities are insured and guarantee the timely payment of interest
and repayment of principal.
<PAGE>
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39
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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 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 may be subject to legal
restraints 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.
Institutional Investor Risk: Investors may be materially affected by the actions
of other large institutional investors. For example, if a large institutional
investor withdraws an investment in a Fund, the Fund could diminish in size by a
substantial amount causing the remaining investors to experience higher pro rata
operating expenses, resulting in lower returns for such investors. The
withdrawal by a large investor also may result insignificant portfolio
liquidation expenses that are borne by remaining shareholders.
<PAGE>
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40 GE Institutional
Funds Prospectus
More on
Strategies
and Risks
- --------------------------------------------------------------------------------
Other Risk Considerations
EURO Conversion: On January 1, 1999, eleven of the fifteen member countries of
the European Economic and Monetary Union (Participating Countries) established
fixed conversion rates between their existing sovereign currencies and the EURO,
a new common currency in Europe. The introduction of the EURO may result in
uncertainties for securities of European companies, European markets and the
operation of the Funds. The redenomination of certain European debt and equity
securities over a period of time may result in differences in various
accounting, tax and/or legal treatments that would not otherwise occur. Market
disruptions may occur that could adversely affect the value of European
securities and currencies held by the Funds. Other risks relate to the ability
of financial institution systems to process EURO transactions.
GE Investment Management has addressed EURO conversion issues in a broad range
of areas, including internal business applications, trading systems and
accounting systems. In addition, GE Investment Management has worked closely
with the Funds' major service providers to address the issue. It is possible,
however, that the markets for securities in which certain Funds invest may be
adversely affected by the conversion to the EURO. Furthermore, individual
issuers may suffer increased costs and decreased earnings due to the long-term
impact of EURO conversion.
Year 2000: Like other business organizations and individuals around the world,
each of the Funds could be adversely affected if the computer systems used by
its Investment Managers and external service providers do not properly process
and calculate date-related information from and after January 1, 2000. This is
commonly known as the "Year 2000 Problem." GE Investment Management is engaged
in a multi-year effort to address the Year 2000 Problem in a broad range of
areas, including internal business applications, process-enabling systems and
facilities. In addition, efforts are underway to track each of the Funds' major
service providers to see what they have completed, or 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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41
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More on Investment Strategies
A Fund is permitted to use other securities and investment strategies in pursuit
of its investment objective, subject to limits established by the Funds' Board
of Trustees. No Fund is under any obligation to use any of the 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 in the Funds' SAI.
Holding Cash and Temporary Defensive Positions: Under normal circumstances, each
Fund may hold cash and/or money market instruments (i) pending investment, (ii)
for cash management purposes, and (iii) to meet operating expenses. A Fund may
from time to time take temporary defensive positions when the portfolio manager
believes that adverse market, economic, political or other conditions exist. In
these circumstances, the portfolio manager may (i) 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
securities 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 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.
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 securities and 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. To the extent
that a Fund employs these techniques, the Fund would be subject to derivative
securities risk.
The following tables summarize each Fund's investment policies and limitations.
Percentage figures refer to the percentage of a Fund's assets that may be
invested in accordance with the indicated policy.
<PAGE>
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42 GE Institutional
Funds Prospectus
More on Strategies
and Risks
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Non-Publicly Purchasing and Purchasing and
Reverse Traded and Structured and Writing Writing
Repurchase Repurchase Illiquid Indexed Securities Securities
Agreements Agreements Securities Securities Options Index Options
<S> <C> <C> <C> <C> <C> <C>
U.S. Equity Fund Yes Yes Yes No Yes Yes
S & P 500 Index Fund Yes Yes Yes No Yes Yes
Premier Growth Equity Fund Yes Yes Yes No Yes Yes
Value Equity Fund Yes Yes Yes No Yes Yes
Mid-Cap Growth Fund Yes Yes Yes No Yes Yes
Mid-Cap Value Equity Fund Yes Yes Yes Yes Yes Yes
Small-Cap Value Equity Fund Yes Yes Yes No Yes Yes
International Equity Fund Yes Yes Yes No Yes Yes
Europe Equity Fund Yes Yes Yes Yes Yes Yes
Emerging Markets Fund Yes Yes Yes No Yes Yes
Income Fund Yes Yes Yes Yes Yes Yes
Strategic Investment Fund Yes Yes Yes Yes Yes Yes
Money Market Fund Yes Yes No No No No
</TABLE>
<PAGE>
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43
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Maximum
Investment in Maximum When-Issued
Futures and Forward Options Maximum Below-Investment Investment in and Delayed
Options on Currency on Foreign Investment in Grade Debt Foreign Delivery
Futures Transactions Currencies Debt Securities Securities Securities Securities
<S> <C> <C> <C> <C> <C> <C> <C>
U.S. Equity Fund Yes Yes Yes 35% 5% 15%* Yes
S&P 500 Index Fund Yes Yes Yes 35% 5% 35%* Yes
Premier Growth
Equity Fund Yes Yes No 35% 5% 25%* Yes
Value Equity Fund Yes Yes Yes 35% 5% 25%* Yes
Mid-Cap Growth
Fund Yes Yes Yes 35% (maximum 10% in BB or 35%* Yes
of 25% in B by S&P or
BBB by S&P, Ba or B by
Baa by Moody's Moody's or
or equivalent) equivalent
Mid-Cap Value
Equity Fund Yes Yes Yes 35% 15% in 15%* Yes
securities
rated BBB or
below by S&P
or Baa or
below by
Moody's or
equivalent
Small-Cap Value
Equity Fund No No No 35% 10% 10%* Yes
International
Equity Fund Yes Yes Yes 35% 5% 100% Yes
Europe Equity Fund Yes Yes Yes 35% 15% 100% Yes
Emerging Markets
Fund Yes Yes Yes 35% (maximum 10% in BB or 100% Yes
of 25% in B by S&P or
BBB by S&P, Ba or B by
Baa by Moody's Moody's or
or equivalent) equivalent
Income Fund Yes Yes Yes 100% (maximum 10% in BB or
of 25% B by S&P or 35%* Yes
BBB by S&P or Ba or B by
Baa by Moody's Moody's or
or equivalent) equivalent)
Strategic
Investment Fund Yes Yes Yes 100% (maximum 10% in BB or 30%* Yes
of 25% B by S&P or
BBB by S&P, or Ba or B by
Baa by Moody's Moody's or
or equivalent) equivalent
Money Market
Fund No No No 100% 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 trade on the Nasdaq National
Market or the Nasdaq Small-Cap Market.
<PAGE>
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44 GE Institutional
Funds Prospectus
More on Strategies
and Risks
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Debt Securities Participation
Lending Obligations of of Other Floating and Interests
Portfolio Rule 144A Supranational Depositary Investment Municipal Variable Rate in 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>
* Exludes commercial paper and notes with variable and floating rates of
interest
<PAGE>
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45
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<TABLE>
<CAPTION>
Mortgage Government Asset Backed
Custodial Related Stripped Securities and Short
Zero Municipal Receipts on Securities, Mortgage Receivable- Mortgage Sales
Coupon Obligations Municipal including Related Backed Dollar Against
Obligation 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>
- ------------------------------------------------
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.
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. As of December 31, 1998, GE's investment advisers manage
roughly $78 billion in individual and institutional assets, with over $15
billion in mutual funds alone.
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.
Investment Management and Administration Fees Payable to GE Investment
Management:
Average Daily Net Assets of Fund
Name of Fund Annual Rate 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%
Next $50 million 0.65%
Over $75 million 0.55%
Europe Equity Fund First $25 million 0.75%
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, GEIM may waive or reimburse advisory or administrative fees
paid by a Fund.
<PAGE>
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47
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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. Since joining GE Investment
Management in 1982, Mr. Carlson has held several positions.
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 has held several positions since joining GE Investment
Management in 1985.
Ralph R. Layman is a Director and Executive Vice President of 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 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.
Ralph E. Whitman is a 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 and has held positions with GE Investments since 1987.
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 commencement. He has held several positions since joining GE Investment
Management in 1990.
<PAGE>
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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
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 $441 billion in assets as of September 30,
1998. State Street provides complete global investment management services
from offices in the United States, London, Sydney, Hong Kong, Tokyo, Toronto,
Montreal, Luxembourg, Melbourne, Paris, Dubai, Munich and Brussels.
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 December 31, 1998. Palisade has managed the Small-Cap Value
Equity Fund since inception. Although Palisade has no previous experience
managing mutual fund portfolios, Palisade translates its experience from
various institutional and private accounts to mutual funds.
The Fund is managed by an investment advisory committee (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>
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49
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Mid-Cap Value Fund
NWQ Investment Management Company (NWQ)
2049 Century Park East - 4th Floor
Los Angeles, CA 90067
NWQ is a wholly-owned subsidiary of United Asset Management Corporation, a
company whose principal business is managing investments for institutional
clients through 50 operating subsidiaries and acquiring investment management
firms. NWQ is a manager of domestic investment portfolios for individual,
union, corporate, municipal, endowment and foundation clients with 17 years of
experience. As of December 31, 1998, NWQ had in excess of $8.13 billion of
assets under management.
Jon D. Bosse is the Fund's portfolio manager and has served in that capacity
since the Fund's inception. Mr. Bosse has more than 12 years of investment
experience and has held the position of Director of Equity Research and
Managing Director at NWQ since 1996. Prior to his joining NWQ, he spent ten
years with ARCO Investment Management Company where he was director of equity
research and managed a value-oriented 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>
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50 GE Institutional
Funds Prospectus
About the Investment
Adviser
- -------------------------------------------------------------------------------
Prior Performance Information
Senior Investment Committee
of Palisade Capital Management,
L.L.C. (Sub-adviser to the Small-
Cap Value Equity Fund)
This performance information includes a composite of the performance 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.
<PAGE>
----------
51
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Unlike management of the Accounts, the Senior Investment Committee's
management of the Small-Cap 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 Accounts. The Fund also will incur
certain operating expenses that were not borne by the Accounts. In addition,
the Fund will likely experience cash flows different from those of the
Accounts. All of these factors may adversely affect the performance of the
Fund and cause it to differ from that of the composite described opposite.
Calendar Year Total Return
Investment Committee Performance Composite
[BAR CHART]
Composite Russell 2000 Index
1993* 10% 12%
1994 4% -2%
1995 32% 28%
1996 23% 16%
1997 26% 22%
1998 -3% -5%
* Represents performance from 7/1/93 through 12/31/93
Average Annual Total Return
(as of December 31, 1998)
Russell
Period Composite 2000 Index
1 Year -2.55% -4.96%
3 Years 13.91% 11.58%
5 Years 15.12% 11.86%
Since 7/1/93 15.65% 12.96%
Note A -- Performance Results. 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, performance results reflect the performance of the
Accounts managed by the Senior Investment Committee while at Palisade.
Note B -- Composite. The composite performance is compared to the performance of
the Russell 2000 Index, which is an unmanaged index of issuers with total market
capitalizations between $4.4 million and $3.21 billion as of December 31, 1998.
The information provided above for both the composite and the Index reflect the
reinvestment of dividends and distributions. Unlike the Index performance
information, however, the performance of the composite is net of fees and other
expenses applicable to the Accounts. Expenses of the Small-Cap Value Equity Fund
are expected to differ from those of the Accounts.
The Senior Investment Committee Performance Composite represents 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>
- ------------------------------------------------
52 GE Institutional
Funds Prospectus
About the Investment
Adviser
- -------------------------------------------------------------------------------
Prior Performance Information
Jon Bosse
(Portfolio Manager of the
Mid-Cap Value Equity Fund)
This performance information includes a composite of the performance of
certain private accounts and mutual funds ("Accounts") managed by Jon Bosse,
the portfolio manager primarily responsible for the day-to-day management of
the Mid-Cap Value Equity Fund. Each of the Accounts included in the composite
has objectives, policies and strategies substantially similar to those of the
Fund. The Accounts were managed by Mr. Bosse while he was employed with NWQ
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.
<PAGE>
----------
53
- ------------------------------------------------------------------------------
Unlike management of the private accounts included in the composite, Mr.
Bosse's management of the Mid-Cap 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. The Fund also will
incur certain operating expenses that were not borne by the private accounts.
In addition, the Fund will likely experience cash flows different from those
of the private accounts. All of these factors may adversely affect the
performance of the Fund and cause it to differ from that of the composite
described opposite.
Calendar Year Total Return
Portfolio Manager Performance Composite
[BAR CHART]
Composite S&P MidCap 400 Index
1990 1% -5%
1991 54% 50%
1992 30% 12%
1993 20% 14%
1994 9% -4%
1995 39% 31%
1996 30% 19%
1997 35% 32%
1998 9% 19%
Average Annual Total Return
(as of December 31, 1998)
S&P MidCap
Period Composite 400 Index
1 Year 8.34% 19.1%
3 Years 23.43% 23.4%
5 Years 23.12% 18.8%
Since 1/1/90 23.79% 17.6%
Note A -- Performance Results. Performance results provided in the composite
for the period from January 1, 1990 to August 31, 1996 reflect the performance
of a single private account managed by Mr. Bosse ("ARCO Account") while he was
employed as a portfolio manager at ARCO. Performance results for the month of
September 1996 reflect the performance during that month of the portfolio of
securities held in the ARCO Account 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. 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.
Note B -- Composite. The performance results of the ARCO private account,
including the hypothetical performance for September 1996, have been adjusted to
reflect the maximum investment management fee of 1% per year that is applicable
to the NWQ private accounts. The composite performance is compared to the
performance of the S&P MidCap 400 Index, which is an unmanaged index of 400
domestic stocks selected for market size, liquidity and industry group
representation. The information provided above for both the composite and the
Index reflect the reinvestment of dividends and distributions. Unlike the Index
performance information, however, the performance of the composite is net of
applicable fees and other expenses. Expenses of the Mid-Cap Value Equity Fund
are expected to differ from those of the Accounts.
The Portfolio Manager Performance Composite represents 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>
- --------------------------------------------------
54 GE Institutional How to Invest
Funds Prospectus
- --------------------------------------------------------------------------------
Investor Advantages
The GE Institutional Funds are designed primarily for institutional investors,
such as corporations, foundations, endowments and trusts that manage various
types of employee benefit plans as well as charitable, religious and educational
institutions. The Funds offer two classes of shares - Service Class and
Investment Class.
The Service Class and the Investment Class are identical except that the
Service Class shares bear a 0.25% shareholder servicing and distribution fee
under plan adopted pursuant to Rule 12b-1 ("12b-1 fee"), which requires fees
be paid out of the assets of the class. The 12b-1 fee is intended to pay for
the cost of promoting the Service Class shares and servicing your shareholder
account.
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>
----------
55
- --------------------------------------------------------------------------------
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 457of 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 Requirement
The minimum initial investment in each Fund is $35 million for each investor or
group of related investors. Related investors are investors that are affiliated
persons of each other within the meaning of the 1940 Act except that a defined
contribution plan that seeks recordkeeping, administration, investment education
and communication services provided or paid by GE Financial Assurance Holdings,
Inc. directly or indirectly through its wholly-owned subsidiary (a "full-service
defined contribution plan") will not be considered a related investor of any
other investor in GE Institutional Funds. That is, a full-service defined
contribution plan must individually meet the minimum investment requirement.
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.
There is no minimum investment requirement for subsequent purchases. If the
value of an investor's, or group of related investors', investment in a Fund
falls below $35 million for more than 120 days because of redemptions (and not
because of market fluctuations or exchanges), the Distributor may, in its sole
discretion, refuse to sell additional Fund shares to such investor (other than
reinvestment of dividends and capital gains distributions). 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 (i) $100 million in one or
more investment portfolios or accounts that are advised by GE Investment
Management and/or GEIC and at least $35 million of this $100 million amount is
invested in GE Institutional Funds or (ii) $5 billion in one or more investment
portfolio or accounts that are advised by GE Investment Management and/or GEIC.
If the value of such investor's, or group of related investors', investment
portfolios and accounts that are advised by GE Investment Management and /or
GEIC or investment in GE Institutional Funds falls below the required amount for
more than 120 days because of redemptions (and not because of market
fluctuations or exchanges), the Distributor may, in its sole discretion, refuse
to sell additional Fund shares to such investor (other than reinvestment of
dividends and capital gains distributions). 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
<PAGE>
- --------------------------------------------------
56 GE Institutional
Funds Prospectus
How to Invest
- --------------------------------------------------------------------------------
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. If such an investor does not have the applicable
amount of investment assets within the six-month period, the Distributor may, in
its sole discretion, refuse to sell additional Fund shares to such investor
(other than reinvestment of dividends and capital gains distributions). Even if
the investor has the applicable amount of investment assets within the six-month
period, the Distributor may refuse to sell to such investor additional Fund
shares (other than reinvestment of dividends and capital gains distributions),
if such investor has not satisfied the $35 million minimum investment
requirement within three years.
For a bank, insurance company, broker-dealer, investment adviser or other
financial intermediary 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.
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>
----------
57
- --------------------------------------------------------------------------------
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
How to Exchange Shares
You may exchange shares of one GE Institutional Fund for the same class of
another GE Institutional Fund or for a different class of the same or another GE
Institutional Fund. Exchanges are permitted provided that the acquired Fund is
an investment option available to the investor requesting the exchange and the
investor meets the minimum investment requirement. The Funds may terminate the
exchange privilege upon 60 days written notice to shareholders.
An exchange is a sale and purchase of shares for tax purposes. You may have a
taxable gain or loss when you exchange your shares. You may exchange shares by
writing the Funds at the appropriate address listed above.
Redemptions in Kind
Large redemptions that exceed $250,000 or 1% of a Fund's assets may be
considered detrimental to the Fund's existing shareholders. Therefore, the Fund
may require that you take a "distribution in kind" upon redemption and may give
you portfolio securities instead of cash proceeds. Such Fund portfolio
securities will have to be sold through a broker and you may incur transaction
costs when you sell them. The Funds will redeem shares in kind at your request.
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>
- --------------------------------------------------------------
58 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. Unless you instruct a Fund to mail dividends
from net investment income and net capital gains to you, they will be reinvested
in your account. There are no fees or charges to reinvest dividends.
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.
Taxes
Tax issues can be complicated. We suggest you see your investment professional
or tax advisor for any questions you may have.
Except for investments in tax-deferred accounts, dividends and distributions
from net investment income and short-term capital gains are taxed as ordinary
income. Long-term capital gains are taxed at the long-term capital gains rate,
whether you reinvest your dividends or distributions or have it paid to you.
Distributions are taxable at different rates depending on the length of time a
Fund holds its investments. Distributions will be taxed, regardless of whether
they are received in cash or reinvested.
Fund Distribution Schedule
- ----------------------------------------------------------------------------
U.S. Equity Fund o Dividends are declared and paid annually.
S&P 500 Index Fund o Short-term and long-term capital gains,
if any, are declared and paid annually.
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
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 declared and paid annually.
<PAGE>
----------
59
- --------------------------------------------------------------------------------
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.
Calculating Share Value
Fund shares are sold at net asset value (NAV). The NAV of each share class is
calculated at the close of regular trading on the New York Stock Exchange
(NYSE), normally 4:00 p.m. Eastern time, each day the NYSE is open for trading.
The NAV per share class for Funds (other than the Money Market Fund) is
determined by adding the value of the Fund's investments, cash, and other assets
attributable to that class, subtracting its liabilities, and then dividing the
result by the number of that class' outstanding shares.
A Fund's portfolio securities are valued most often on the basis of market
quotations. Foreign securities are valued on the basis of quotations from the
primary market in which they are traded. Some debt securities are valued using
dealers and pricing services. Municipal bond valuations are based on prices
supplied by a qualified municipal pricing service. The prices are composed of
the mean average of the bid and ask prices on the secondary market. All
portfolio securities of the Money Market Fund and any short-term securities held
by any other Fund with remaining maturities of sixty days or less are valued on
the basis of amortized cost. A Fund's written or purchased options are valued at
the last sales price of the day. If no sales occurred, the options are valued at
the last traded bid price. A Fund's NAV may change on days when shareholders
will not be able to purchase or redeem the Fund's shares.
If quotations are not readily available for any security, or if the value of a
security has been materially affected by events occurring after the closing of a
market, the security may be valued by using procedures approved by a Fund's
Board of Trustees that they believe accurately reflects "fair value."
<PAGE>
- -----------------------------------------------
60 GE Institutional Financial
Funds Prospectus Highlights
Appendix
- -------------------------------------------------------------------------------
The financial highlights tables that follow are intended to help you
understand a Fund's financial performance for the period of the Fund's
operations. Certain information reflects financial results for a single Fund
share. The total returns in the table represent the rate that an investor
would have earned or lost on an investment in the Fund (assuming reinvestment
of all dividends and distributions). This information has been audited by
PricewaterhouseCoopers LLP, whose report, along with the Funds' financial
statements, are included in the Funds' Annual Report, which is available upon
request.
U.S. Equity Fund
9/30/98*
Inception date 11/25/97
Net Asset Value, Beginning of Period $10.00
Income from Investment Operations:
Net Investment Income (Loss) 0.11
Net Gains (Losses) on Investments (both realized and unrealized) 0.52
Total Income (Loss) From Investment Operations 0.63
Less Distributions:
Dividends (from net investment income) 0.01
Total Distributions 0.01
Net Asset Value, End of Period $10.62
Total Return (a) 6.28%
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands) $114,553
Ratio of Net Expenses to Average Net Assets** 0.42%
Ratio of Net Investment Income to Average Net Assets** 1.21%
Portfolio Turnover Rate 29%
<PAGE>
----------
61
- ------------------------------------------------------------------------------
S&P 500 Index
Fund
9/30/98*
Inception date 11/25/97
Net Asset Value, Beginning of Period $10.00
Income from Investment Operations:
Net Investment Income (Loss) 0.14
Net Gains (Losses) on Investments (both realized and unrealized) 0.72
Total Income (Loss) From Investment Operations 0.86
Less Distributions:
Dividends (from net investment income) 0.01
Total Distributions 0.01
Net Asset Value, End of Period $10.85
Total Return (a) 8.63%
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands) $20,186
Ratio of Net Expenses to Average Net Assets** 0.15%
Ratio of Net Investment Income to Average Net Assets** 1.57%
Portfolio Turnover Rate 1%
Mid-Cap
Growth Fund
9/30/98*
Inception date 11/25/97
Net Asset Value, Beginning of Period $10.00
Income from Investment Operations:
Net Investment Income (Loss) 0.04
Net Gains (Losses) on Investments (both realized and unrealized) (1.16)
Total Income (Loss) From Investment Operations: (1.12)
Less Distributions
Dividends (from net investment income) 0.01
Total Distributions 0.01
Net Asset Value, End of Period $8.87
Total Return (a) (11.25%)
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands) $13,208
Ratio of Net Expenses to Average Net Assets** 0.55%
Ratio of Net Investment Income to Average Net Assets** 0.53%
Portfolio Turnover Rate 14%
<PAGE>
- -----------------------------------------------
62 GE Institutional Financial
Funds Prospectus Highlights
Appendix
- -------------------------------------------------------------------------------
Small-Cap
Value Equity Fund
9/30/98*
Inception date 8/3/98
Net Asset Value, Beginning of Period $10.00
Income from Investment Operations:
Net Investment Income (Loss) 0.02
Net Gains (Losses) on Investments (both realized and unrealized) (1.11)
Total Income (Loss) From Investment Operations (1.09)
Less Distributions:
Dividends (from net investment income) 0.00
Total Distributions 0.00
Net Asset Value, End of Period $8.91
Total Return (a) (10.90%)
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands) $9,056
Ratio of Net Expenses to Average Net Assets** 0.70%
Ratio of Net Investment Income to Average Net Assets** 1.68%
Portfolio Turnover Rate 19%
International Equity Fund 9/30/98*
Inception date 11/25/97
Net Asset Value, Beginning of Period $10.00
Income from Investment Operations:
Net Investment Income (Loss) 0.14(b)
Net Gains (Losses) on Investments (both realized and unrealized) (0.07)(b)
Total Income (Loss) From Investment Operations 0.07
Less Distributions:
Dividends (from net investment income) 0.01
Total Distributions 0.01
Net Asset Value, End of Period $10.06
Total Return (a) 0.66%
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands) $114,414
Ratio of Net Expenses to Average Net Assets** 0.64%
Ratio of Net Investment Income to Average Net Assets** 1.72%
Portfolio Turnover Rate 53%
<PAGE>
----------
63
- ------------------------------------------------------------------------------
Emerging Markets
Fund
9/30/98*
Inception date 11/25/97
Net Asset Value, Beginning of Period $10.00
Income from Investment Operations:
Net Investment Income (Loss) 0.07
Net Gains (Losses) on Investments (both realized and unrealized) (3.26)
Total Income (Loss) From Investment Operations (3.19)
Less Distributions:
Dividends (from net investment income) 0.03
Total Distributions 0.03
Net Asset Value, End of Period $6.78
Total Return (a) (31.96%)
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands) $5,063
Ratio of Net Expenses to Average Net Assets** 0.82%
Ratio of Net Investment Income to Average Net Assets** 1.05%
Portfolio Turnover Rate 77%
Income Fund
9/30/98*
Inception date 11/21/97
Net Asset Value, Beginning of Period $10.00
Income from Investment Operations:
Net Investment Income (Loss) 0.51
Net Gains (Losses) on Investments (both realized and unrealized) 0.39
Total Income (Loss) From Investment Operations 0.90
Less Distributions:
Dividends (from net investment income) 0.51
Total Distributions 0.51
Net Asset Value, End of Period $10.39
Total Return (a) 9.21%
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands) $71,444
Ratio of Net Expenses to Average Net Assets** 0.31%
Ratio of Net Investment Income to Average Net Assets** 5.81%
Portfolio Turnover Rate 323%
<PAGE>
- -----------------------------------------------
64 GE Institutional Financial
Funds Prospectus Highlights
Appendix
- -------------------------------------------------------------------------------
Money Market
Fund
9/30/98*
Inception date 12/2/97
Net Asset Value, Beginning of Period $1.00
Income from Investment Operations:
Net Investment Income (Loss) 0.04
Net Gains (Losses) on Investments (both realized and unrealized) 0.00
Total Income (Loss) From Investment Operations 0.04
Less Distributions:
Dividends (from net investment income) 0.04
Total Distributions 0.04
Net Asset Value, End of Period $1.00
Total Return(a) 4.53%
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands) $7,102
Ratio of Net Expenses to Average Net Assets** 0.25%
Ratio of Net Investment Income to Average Net Assets** 5.33%
Portfolio Turnover Rate N/A
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.
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<PAGE>
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GE Institutional Funds
Prospectus
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<TABLE>
<S> <C>
Investment Adviser GE Investment Management Incorporated
3003 Summer Street
P.O. Box 7900
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 usually include performance
numbers, a discussion of market conditions and
investment strategies that affected Fund performance
during the Funds' last fiscal year.
Statement of Additional Information (SAI): The SAI
contains additional information about the Funds and
their investment strategies and policies and is
incorporated by reference (legally considered part of
the prospectus). The SAI is on file with the Securities
and Exchange Commission (SEC).
You may visit the SEC's Internet Website
(http://www.sec.gov) to view the SAI and other
information. Also, you can obtain copies of this
information by sending your request and duplicating
fee to the SEC's Public Reference Section,
Washington, D.C. 20549-6009. You may review and copy
information about the Funds, including the SAI, at
the SEC's Public Reference Room in Washington, D.C.
To find out more about the public reference room,
call the SEC at 1-800-SEC-0330.
You may obtain a free copy of the SAI or the Funds'
annual/semiannual report and make shareholder
inquiries by contacting:
GE Investment Distributors, Inc.
777 Long Ridge Road, Building B
Stamford, CT 06927
Telephone 1-800-493-3042
Website http://www.ge.com/mutualfunds
</TABLE>
Investment Company Act file number: 811-08257
GE INST-PRO-1
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
January 28, 1999
GE INSTITUTIONAL FUNDS
3003 Summer Street, Stamford, Connecticut 06905
For information, call (800) 242-0134
* U.S. Equity Fund
* S&P 500 Index Fund
* Premier Growth Equity Fund
* Value Equity Fund
* Mid-Cap Growth Fund
* Mid-Cap Value Equity Fund
* Small-Cap Value Equity Fund
* International Equity Fund
* Europe Equity Fund
* Emerging Markets Fund
* Income Fund
* Strategic Investment Fund
* Money Market Fund
* High Yield Fund
* Small-Cap Growth Equity Fund
This Statement of Additional Information ("SAI") supplements the
information contained in the current Prospectus of GE Institutional Funds (the
"Trust") dated January 28, 1999 (the "Prospectus"), and should be read in
conjunction with the Prospectus. This SAI, although not a prospectus, is
incorporated in its entirety by reference into the Prospectus. Copies of the
Prospectus describing each series of the Trust listed above ("Funds") may be
obtained without charge by calling the Trust at the telephone number listed
above.
The Trust's financial statements for the fiscal periods ended
September 30, 1998, and the Auditor's Report thereon, are incorporated by
reference to the Trust's Annual Report, which may be obtained without charge
by calling the Trust at the telephone number listed above. Information
regarding the status of shareholder accounts may be obtained by calling the
Trust at the telephone number listed above or by writing to the Trust at P.O.
Box 120065, Stamford, CT 06912-0065. Terms that are defined in the Prospectus
shall have the same meanings in this SAI.
<PAGE>
Table of Contents
Investment Restrictions.................................................. -35-
Management of the Trust.................................................. -40-
Compensation Table....................................................... -43-
Purchase, Redemption and Exchange of Shares.............................. -50-
Net Asset Value.......................................................... -54-
Dividends, Distributions and Taxes....................................... -56-
The Funds' Performance................................................... -59-
Principal Stockholders................................................... -64-
Fund History and Additional Information.................................. -68-
Independent Accountants.................................................. -71-
Financial Statements..................................................... -71-
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<PAGE>
INVESTMENT STRATEGIES AND RISKS
The Funds' Prospectus discusses the investment objectives and
principal investment strategies of the following diversified open-end funds
("Funds"): the U.S. Equity Fund, the S&P 500 Index Fund,(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.
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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.
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<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
will invest primarily in equity securities of mid-cap companies that the
portfolio manager believes are undervalued by the market and have
above-average growth potential.
Small-Cap Value Equity Fund
The investment objective of the Small-Cap Value Equity Fund is
long-term growth of capital. The Fund seeks to achieve its investment
objective by investing, under normal market conditions, at least 65% of
its assets in a portfolio of equity securities of small-capitalization
companies traded on U.S. securities exchanges or in the U.S.
over-the-counter market.
Value Equity Fund
The investment objective of the Value Equity Fund is long-term growth
of capital and future income. 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 will invest at
least 65% of its assets in common stocks, preferred stocks, convertible
bonds, convertible debentures, convertible notes, convertible preferred
stocks, and warrants or rights issued by U.S. and foreign companies.
Small-Cap Growth Equity Fund
The investment objective of the Small-Cap Growth Equity Fund is
long-term growth of capital. The Fund seeks to achieve its objective by
investing primarily in equity securities of companies with small-sized
market capitalizations that GEIM believes have the potential for
above-average growth.
International Equity Fund
The investment objective of the International Equity Fund is
long-term growth of capital. The Fund seeks to achieve its objective by
investing primarily in foreign equity securities. The Fund may invest in
securities of companies and governments located in developed and
developing countries outside the United States. The Fund intends to
position itself broadly among countries and, under normal circumstances,
at least 65% of the Fund's total assets will be invested in securities of
issuers collectively in no fewer than three different countries other than
the United States. The International Fund, under normal conditions,
invests at least 65% of its assets in common stocks, preferred stocks,
convertible debentures, convertible notes, convertible preferred stocks
and warrants or rights issued by companies believed by GEIM to have a
potential for superior growth in sales and earnings.
Europe Equity Fund
The investment objective of the Europe Equity Fund is long-term
growth of capital. In seeking its investment objective, the Fund will
invest, 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 will
invest, 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.
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<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; (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
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<PAGE>
securities or employ all of the following strategies unless doing so is
consistent with its investment objective.
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 "Non-Publicly Traded and Illiquid Securities").
-5-
<PAGE>
Money Market Instruments. The types of money market instruments in
which each Fund, other than the Money Market Fund, may invest directly or
indirectly through its investment in the GEI Short-Term Investment Fund
(the "Investment Fund"), described below, are as follows: (i) securities
issued or guaranteed by the U.S. Government or one of its agencies 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
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<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 as
applicable.
-7-
<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.
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<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
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<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.
Non-publicly Traded and Illiquid Securities. Each Fund, other than
the Money Market Fund, may invest up to 10% of its assets in non-publicly
traded securities. Non-publicly traded securities are securities that are
subject to contractual or legal restrictions on transfer, excluding for
purposes of this restriction, Rule 144A Securities that have been
determined to be liquid by the Board based upon the trading markets for
the securities. In addition, each Fund, other than the Money Market Fund,
may invest up to 15% of its assets in "illiquid securities"; the Money
Market Fund may not, under any circumstance, invest in illiquid
securities. Illiquid securities are securities that cannot be disposed of
by a Fund within seven days in the ordinary course of business at
approximately the amount at which the Fund has valued the securities.
Illiquid securities that are held by a Fund may take the form of options
traded over-the-counter, repurchase agreements maturing in more than seven
days, certain mortgage related securities and securities subject to
restrictions on resale that the Investment Manager has determined are not
liquid under guidelines established by the Board.
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Non-publicly traded securities may be less liquid than publicly
traded securities. Although these securities may be resold in privately
negotiated transactions, the prices realized from these sales could be
less than those originally paid by a Fund. In addition, companies whose
securities are not publicly traded are not subject to the disclosure and
other investor protection requirements that may be applicable if their
securities were publicly traded. A Fund's investments in illiquid
securities are subject to the risk that should the Fund desire to sell any
of these securities when a ready buyer is not available at a price that
the Investment Manager deems representative of their value, the value of
the Fund's net assets could be adversely affected.
Rule 144A Securities. Each of the Funds may purchase Rule 144A
Securities. Certain Rule 144A Securities may be considered illiquid and
therefore subject to a Fund's limitation on the purchase of illiquid
securities, unless the Board determines on an ongoing basis that an
adequate trading market exists for the Rule 144A Securities. A Fund's
purchase of Rule 144A 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 Prospectus and this SAI means debt obligations issued by, or on behalf
of, states, territories and possessions of the United States and the
District of Columbia and their political subdivisions, agencies and
instrumentalities or multistate agencies or authorities, the interest from
which debt obligations is, in the opinion of bond counsel to the issuer,
excluded from gross income for Federal income tax purposes. Municipal
Obligations generally are understood to include debt obligations issued to
obtain funds for various public purposes, including the construction of a
wide range of public facilities, refunding of outstanding obligations,
payment of general operating expenses and extensions of loans to public
institutions and facilities. Private activity bonds that are issued by or
on behalf of public authorities to finance privately operated facilities
are considered to be Municipal Obligations if the interest paid on them
qualifies as excluded from gross income (but not necessarily from
alternative minimum taxable income) for Federal income tax purposes in the
opinion of bond counsel to the issuer.
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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 Prospectus.
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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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<PAGE>
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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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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<PAGE>
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 Prospectus and this SAI. Investment restrictions numbered 1 through 12
below have been adopted by the Trust as fundamental policies of all of the
Funds. Under the 1940 Act, a fundamental policy may not be changed with
respect to a Fund without the vote of a majority of the outstanding voting
securities (as defined in the 1940 Act) of the Fund. Investment
restrictions 13 and 14 may be changed by a vote of the Board of Trustees
at any time.
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
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<PAGE>
1/3% of the value of the Fund's total assets (including the amount
borrowed) valued at market less liabilities (not including the amount
borrowed) at the time the borrowing is made. Whenever borrowings,
including reverse repurchase agreements, of 5% or more of a Fund's total
assets are outstanding, the Fund will not make any additional investments.
2. No Fund may lend its assets or money to other persons, except through
(a) purchasing debt obligations, (b) lending portfolio securities in an
amount not to exceed 30% of the Fund's total assets taken at market value,
(c) entering into repurchase agreements, (d) trading in financial futures
contracts, index futures contracts, securities indexes and options on
financial futures contracts, options on index futures contracts, options
on securities and options on securities indexes and (e) entering into
variable rate demand notes.
3. No Fund may purchase securities (other than Government Securities) of
any issuer if, as a result of the purchase, more than 5% of the Fund's
total assets would be invested in the securities of the issuer, except
that (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,
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<PAGE>
mortgages or interests in real estate or mortgages, (c) engage in the
purchase and sale of real estate as necessary to provide it with an office
for the transaction of business or (d) acquire real estate or interests in
real estate securing an issuer's obligations in the event of a default by
that issuer.
8. No Fund may make short sales of securities or maintain a short
position, unless at all times when a short position is open, the Fund owns
an equal amount of the securities or securities convertible into or
exchangeable for, without payment of any further consideration, securities
of the same issue as, and equal in amount to, the securities sold short.
9. No Fund may purchase securities on margin, except that a Fund may
obtain any short-term credits necessary for the clearance of purchases and
sales of securities. For purposes of this restriction, the deposit or
payment of initial or variation margin in connection with futures
contracts, financial futures contracts or related options, and options on
securities, options on securities indexes and options on currencies will
not be deemed to be a purchase of securities on margin by a Fund.
10. No Fund may invest in commodities, except that each non-money market
Fund may invest in futures contracts (including financial futures
contracts, index futures contracts or securities index futures contracts)
and related options and other similar contracts (including foreign
currency forward, futures and options contracts) as described in this
Statement of Additional Information and in each Prospectus.
11. No Fund may invest in companies for the purpose of exercising control
or management.
12. No Fund may issue senior securities except as otherwise permitted by
the 1940 Act and as otherwise permitted herein.
13. No Fund may purchase illiquid securities if more than 15% of the net
assets of the Fund would be invested in illiquid securities; the Money
Market Fund will not purchase illiquid securities. For purposes of this
restriction, illiquid securities are securities that cannot be disposed of
by a Fund within seven days in the ordinary course of business at
approximately the amount at which the Fund has valued the securities.
14. No Fund may purchase restricted securities if more than 10% of the
total assets of the Fund would be invested in restricted securities.
Restricted securities are securities that are subject to contractual or
legal restrictions on transfer, excluding for purposes of this
restriction, restricted securities that are eligible for resale pursuant
to Rule 144A under the Securities Act of 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.
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Notes to Investment Restrictions
The Trust may make commitments more restrictive than the restrictions
listed above with respect to a Fund to permit the sale of shares of the
Fund in certain states. Should the Trust determine that any such
commitment is no longer in the best interests of a Fund and its
shareholders, the Trust will revoke the commitment by terminating the sale
of shares of the Fund in the state involved or may otherwise modify its
commitment based on a change in the state's restrictions.
The percentage limitations in the restrictions listed above apply at
the time of purchases of securities. For purposes of investment
restriction number 5, the Trust may use the industry classifications
reflected by the S&P 500 Composite Stock Index, if applicable at the time
of determination. For all other portfolio holdings, the Trust may use the
Directory of Companies Required to File Annual Reports with the SEC and
Bloomberg Inc. In addition, the Trust may select its own industry
classifications, provided such classifications are reasonable.
Portfolio Transactions and Turnover
Decisions to buy and sell securities for each Fund are made by the
Investment Manager, subject to review by the Board. Transactions on
domestic stock exchanges and some foreign stock exchanges involve the
payment of negotiated brokerage commissions. On exchanges on which
commissions are negotiated, the cost of transactions may vary among
different brokers. On most foreign exchanges, commissions are fixed. No
stated commission will be generally applicable to securities traded in
U.S. over-the-counter markets, but the prices of those securities include
undisclosed commissions or mark-ups. The cost of securities purchased from
underwriters include an underwriting commission or concession, and the
prices at which securities are purchased from and sold to dealers include
a dealer's mark-up or mark-down. Government Securities generally will be
purchased on behalf of a Fund from underwriters or dealers, although
certain newly issued Government Securities may be purchased directly from
the U.S. Treasury or from the issuing agency or instrumentality.
In selecting brokers or dealers to execute securities transactions on
behalf of a Fund, the Investment Manager seeks the best overall terms
available ("best execution"). In assessing the best overall terms
available for any transaction, the Investment Manager considers factors
that it deems relevant, including the breadth of the market in the
security, the price of the security, the financial condition and execution
capability of the broker or dealer and the reasonableness of the
commission, if any, for the specific transaction and on a continuing
basis. In addition, the investment advisory agreement between the Trust
and GEIM relating to each Fund authorizes the Investment Manager, on
behalf of the Fund, in selecting brokers or dealers to execute a
particular transaction, and in evaluating the best overall terms
available, to consider the brokerage and research services (as those terms
are defined in Section 28(e) of the Securities Exchange Act of 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
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<PAGE>
relating to a Fund will not be reduced by reason of the Fund's receiving
brokerage and research services. The Board periodically reviews the
commissions paid by a Fund to determine if the commissions paid over
representative periods of time were reasonable in relation to the benefits
inuring to the Fund. Over-the-counter purchases and sales on behalf of the
Funds will be transacted directly with principal market makers except in
those cases in which better prices and executions may be obtained
elsewhere. A Fund will not purchase any security, including Government
Securities, during the existence of any underwriting or selling group
relating to the security of which any affiliate of the Fund or the
Investment Manager is a member, except to the extent permitted under
rules, interpretations or exemptions of the SEC. The Investment Manager
may select broker-dealers who are affiliated with the Trust or the
Investment Manager. All brokerage transaction commissions paid to
affiliates will be fair and reasonable to the shareholders.
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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<PAGE>
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 49. 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 52. 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 52. Managing Director, Walden Partners, Ltd.,
150 East 58th Street consultants and investors, since August 1992;
New York, NY 10055 President, CMG Acquisition Corp., Inc., a
holding company, since 1988; Vice Chairman,
Acoustiguide Holdings, Inc., a holding company,
since 1989; President CMG/IKH, Inc., a holding
company, since 1991; Director, Crossland Federal
Savings Bank, a financial institution; Director,
Brooklyn Bankcorp, Inc., a financial
institution; Director, IK Holdings, Inc., a
holding company since 1991; Director, I.
Kleinfeld & Son, Inc., a retailer, since 1991;
Director, High Performance Appliances, Inc., a
distributor of kitchen appliances ("HPA"), since
1991; Director, HPA Hong Kong, Ltd., a service
subsidiary of HPA, since 1991; Director, Lancit
Media Productions, Ltd., a children's and family
television film and videotape production
company, since 1995.
William J. Lucas Trustee Age 51. Vice President and Treasurer
Fairfield University of Fairfield University since 1983.
North Benson Road
Fairfield, CT 06430
Robert P. Quinn Trustee Age 62. Retired since 1983 from Salomon Brothers
45 Shinnecock Road Inc; Director, GP Financial Corp., a holding company,
Quogue, NY 11959 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>
Jeffrey A. Groh Treasurer Age 36. Vice President - Operations
of GEIM and GEIC since January 1997 and
Treasurer and Controller of GEIM and GEIC since
August 1994; prior to August 1994, was a Senior
Manager in Investment Company Services Group and
certified public accountant with
PricewaterhouseCoopers LLP.
Matthew J. Simpson Secretary Age 37. Vice President and General
Counsel, Investment Services Group
of GEFA since February 1997; Vice
President, Associate General Counsel
and Assistant Secretary of GEIM and
GEIC since October 1992.
</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++
William J. Lucas $6,000 $25,000++
Robert P. Quinn $6,000 $25,000++
- ----------------------
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<PAGE>
+ 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 $78.9 billion as of December 31, 1998, of which more than $15.8
billion was invested in mutual fund assets.
GEIM Investment Advisory and Administration Agreements
The duties and responsibilities of GEIM are specified in investment
advisory and administration agreements (each, an "Advisory Agreement" and
collectively, the "Advisory Agreements") between GEIM and the Trust on
behalf of the respective Funds. Under each Advisory Agreement, GEIM,
subject to the supervision of the Trust's Board of Trustees, provides a
continuous investment program for the relevant Fund's assets, including
investment research and management. GEIM determines from time to time what
investments are purchased, retained or sold by the Fund and places
purchase and sale orders for the Fund's investments. GEIM provides the
Trust with all executive, administrative, clerical and other personnel
necessary to operate each Fund, and pays salaries and other
employment-related costs of
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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 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.
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<PAGE>
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:
<TABLE>
<CAPTION>
Average Daily Annual Rate
Name of Fund Net Assets of Fund Percentage (%)*
- ------------ ------------------ ---------------
<S> <C> <C>
U.S. Equity Fund First $25 million .55
Premier Growth Equity Fund Next $25 million .45
Value Equity Fund Over $50 million .35
Mid-Cap Growth Fund
S&P 500 Index Fund All assets .15
Mid-Cap 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
Strategic Investment Fund First $25 million .45
High Yield Fund Next $25 million .40
Over $50 million .35
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Average Daily Annual Rate
Name of Fund Net Assets of Fund Percentage (%)*
- ------------ ------------------ ---------------
<S> <C> <C>
Money Market Fund First $25 million .25
Next $25 million .20
Next $50 million .15
Over $100 million .10
</TABLE>
- -----------------------------
* From time to time, GEIM may waive 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. State Street, with over $441 billion
under management as of September 30, 1998, provides complete global
investment management services from offices in the United States, London,
Sydney, Hong Kong, Tokyo, Montreal, Luxembourg, Melbourne, Paris, Dubai,
Munich and Brussels.
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-
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<PAGE>
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 .45% of the first $25 million of the
Fund's average daily net assets, .40% of the next $50 million, .375% of the
next $100 million and .35% of amounts in excess of $175 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, MAS and NWQ serve as sub-advisers to the S&P 500
Index Fund, the Small-Cap Value Fund, the High Yield Fund and the Mid-Cap
Value 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 subadviser shall not be liable for any
error of judgment or mistake of law or for any loss incurred by the Fund
except for a loss resulting from willful misfeasance, bad faith or gross
negligence in the performance of its duties or from reckless disregard of
its obligations and duties under the Sub-Advisory Agreement.
Securities Activities of the Investment Manager
Securities held by the Funds also may be held by other funds or
separate accounts for which the Investment Manager or GEIC acts as an
adviser. Because of different investment objectives or other factors, a
particular security may be bought by the Investment Manager or GEIC for
one or more of their clients, when one or more other clients are selling
the same security. If purchases or sales of securities for a Fund or other
client of the Investment Manager or GEIC arise for consideration at or
about the same time, transactions in such securities will be
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<PAGE>
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 Class shares of that
Fund (as defined in the 1940 Act).
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<PAGE>
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 plus any applicable initial sales
charge imposed at the time of purchase, as described below.
GEID and other persons remunerated on the basis of sales of shares
may receive different levels of compensation for selling one Class of
shares over another. In addition, trail commissions of up to 0.25% may be
paid to authorized broker-dealers, financial institutions or investment
advisers which have entered into sales agreements with GEID ("Authorized
Firms") for providing on-going services with respect to Service Class
shares.
GEID offers shares of each class to certain investors that meet the
minimum investment requirements. The Trust was designed to appeal to
institutional investors such as corporations, foundations, endowments and
trusts established to fund employee benefit plans of various types as well
as charitable, religious and educational institutions. The Trust expects
that most of the time each Fund will have relatively few shareholders (as
compared with most mutual funds) but that these shareholders will invest
substantial amounts in a Fund. Typical institutional investors may include
banks, insurance companies, broker-dealers, investment advisers, trusts
that fund qualified pension and profit-sharing plans (Section 401 of the
Code), trusts that fund government employer non-qualified deferred
compensation obligations (Section 457 of the Code), trusts that fund
charitable, religious and educational institutions (Section 501(c)(9) of
the Code), non-
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<PAGE>
government employers seeking to fund non-qualified deferred compensation
obligations, and investment companies that are not affiliated persons of
the Trust (or affiliated persons of such persons).
Minimum Investment Requirement. The minimum initial investment in
each Fund is $35 million for each investor or group of related investors.
Related investors are investors that are affiliated persons of each other
within the meaning of the 1940 Act "except that a defined contribution
plan that seeks recordkeeping, administration, investment education and
communication services provided or paid by GE Financial Assurance
Holdings, Inc. directly or indirectly through its wholly-owned subsidiary
(a "full-service defined contribution plan") will not be considered a
related investor of any other investor in the Institutional Funds. That
is, a full-service defined contribution plan must individually meet the
minimum investment requirement." Common trust funds and collective trust
funds of the same bank (or of affiliated banks) are considered related
investors of each other and their bank(s). Likewise, separate accounts of
the same insurance company (or of affiliated insurance companies) are
related investors of each other and their insurance company or companies
and clients whose assets are managed on a discretionary basis by the same
bank, insurance company, investment adviser or broker-dealer are related
investors of each other and their manager. GEID also may treat clients of
other financial intermediaries as related persons where shares of a Fund
are held by that intermediary in an omnibus account for its institutional
clients. There is no minimum investment requirement for subsequent
purchases. If the value of an investor's, or a group of related
investors', investment in a Fund falls below $35 million for more than 120
days because of redemptions (and not because of market fluctuations or
exchanges), GEID may, in its sole discretion, refuse to sell additional
Fund shares to such investor (other than reinvestment of dividends and
capital gains).
The minimum investment requirement is waived for each investor or
group of related investors so long as such person or group has invested at
least (i) $100 million in one or more investment portfolios or accounts
that are advised by GEIM and/or GEIC and at least $35 million of this $100
million amount is invested in the Trust or (ii) $5 billion in one or more
investment portfolio or accounts that are advised by GEIM and/or GEIC. If
the value of such investor's, or group of related investors', investment
portfolios and accounts that are advised by GEIM and/or GEIC or investment
in the Trust falls below the required amount because of redemptions (and
not because of market fluctuations or exchanges), GEID may, in its sole
discretion, refuse to sell additional Fund shares to such investor (other
than reinvestment of dividends and capital gains).
The minimum investment requirement is waived for up to three years
from the date of initial purchase of Fund shares for certain investors or
groups of related investors having: (a) at least $100 million of
investment assets within six months from the date of the initial purchase
of Fund shares, provided they invest in only one Fund, (b) at least $200
million of investment assets within six months from the date of the
initial purchase of Fund shares, provided they invest in no more than two
Funds, and (c) at least $500 million of investment assets within six
months from the date of the initial purchase of Fund shares, for which
they may invest in any number of
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Funds. If such an investor does not have the applicable amount of
investment assets within the six-month period, GEID may, in its sole
discretion, refuse to sell additional Fund shares to such investor (other
than reinvestment of dividends and capital gains distributions). Even if
the investor has the applicable amount of investment assets within the
six-month period, GEID may refuse to sell to such investor additional Fund
shares (other than reinvestment of dividends and capital gains
distributions), if such investor has not satisfied the $35 million minimum
investment requirement within three years.
For a bank, insurance company, broker-dealer, investment adviser or
other financial intermediary investing in an omnibus account for its
clients, the amount of investment assets is determined either by (i)
aggregating Client Assets (defined below) over which it has investment
discretion or (ii) aggregating Client Assets of any entity described under
"Eligible Investors" which are managed by the financial intermediary on a
non-discretionary basis or for which it (or its affiliates) provides
recordkeeping, shareholder servicing or other administrative services.
"Client Assets" means the assets of any client of a financial intermediary
that has invested in the Trust.
How to Open an Account. Investors must establish an account before
purchasing shares, and may do so either by submitting an account
application to the Distributor or the transfer agent or through an
Authorized Firm (defined below). Investors may obtain an account
application by telephoning the Trust at (800) 493-3042 or by writing to
the Trust at:
GE Institutional Funds
P.O. Box 120065
Stamford, CT 06912-0065
For overnight package delivery:
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 the
Distributor or through brokers, dealers, financial institutions or
investment advisers that have entered into sales agreements with GEID
("Authorized Firms").
An investor may purchase shares through an Authorized Firm with the
assistance of a sales representative (an "Investment Professional"). The
Authorized Firm will be responsible for
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transmitting the investor's order promptly to the transfer agent.
Investors should contact their Investment Professional for further
instructions.
Investors also may purchase Service Class shares directly from the
transfer agent by wiring federal funds to: State Street Bank and Trust
Company (ABA # 0110-0002-8) For: GE Institutional Funds -- [Name of Fund]
Account of: [Investor's name, address and account number]. If a wire is
received by the close of regular trading on the NYSE on a Business Day,
the shares will be priced according to the net asset value of the Fund on
that day. If a wire is received after the close of regular trading on the
NYSE, the shares will be priced as of the time the Fund's net asset value
per share is next determined.
Payment for orders that are not accepted will be returned to
investors promptly. An investor's financial institution may charge a fee
for wiring its account.
Purchases In-Kind. Investors may purchase Service Class shares in
amounts of $5 million or more with either cash or investment securities
acceptable to the appropriate Fund. The particular investment securities
acceptable to a Fund may vary over time and the Trust does not guarantee
that any particular investment securities will be accepted at any
particular time or at all. Investors interested in purchasing Service
Class shares with investment securities should contact their Investment
Professional or GEID for information about which securities a particular
Fund will accept. The Trust reserves the right to require GEID to suspend
the offering of Service Class shares of the Emerging Markets Fund or
International Equity Fund for cash in amounts above $5 million and of the
other non-money market Funds in amounts above $10 million.
Redemptions
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.
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
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securities issued in a distribution in kind will be deemed by GEIM to be
readily marketable. Shareholders receiving distributions in kind of
portfolio securities may incur brokerage commissions when subsequently
disposing of those securities.
Exchange Privilege
As described in the Prospectus, a shareholder of the Investment Class
of a Fund may exchange such shares for Investment Class shares of another
Fund or for Service Class shares of the same or another Fund. Likewise,
shareholders of the Service Class shares of a Fund may exchange such
shares for Service Class shares of another Fund or for Investment Class
shares of the same or another Fund.
The exchange privilege described in the Prospectus enables a
shareholder of a Fund to acquire shares in a Fund having a different
investment objective and policies when the shareholder believes that a
shift between Funds is an appropriate investment decision. Upon receipt of
proper instructions and all necessary supporting documents, and provided
the Fund is an available option, the shareholder meets the minimum
investment requirement for the Fund that is the "target" of the exchange,
and such Fund may be legally sold in the shareholder's state of residence,
shares submitted for exchange are redeemed at the then-current net asset
value and the proceeds are immediately invested in shares of the Fund
being acquired. The Trust reserves the right to reject any exchange
request and may, upon 60 days' prior written notice to a Fund's
Shareholders, terminate the exchange privilege.
NET ASSET VALUE
The Trust will not calculate net asset value on days that the NYSE is
closed. On those days, securities held by a Fund may nevertheless be
actively traded, and the value of the Fund's shares could be significantly
affected.
Because of the need to obtain prices as of the close of trading on
various exchanges throughout the world, the calculation of the net asset
value of a class of a Fund may not take place contemporaneously with the
determination of the prices of many of its portfolio securities used in
the calculation. A security that is listed or traded on more than one
exchange is valued at the quotation on the exchange determined to be the
primary market for the security. All assets and liabilities of the Funds
initially expressed in foreign currency values will be converted into U.S.
dollar values at the mean between the bid and offered quotations of the
currencies against U.S. dollars as last quoted by any recognized dealer.
If these quotations are not available, the rate of exchange will be
determined in good faith by the Board. In carrying out the Board's
valuation policies, GEIM may consult with one or more independent pricing
services ("Pricing Service") retained by the Trust.
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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 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.
-55-
<PAGE>
DIVIDENDS, DISTRIBUTIONS AND TAXES
Set forth below is a summary of certain Federal income tax
considerations generally affecting the Funds and their shareholders. The
summary is not intended as a substitute for individual tax planning, and
shareholders are urged to consult their tax advisors regarding the
application of Federal, state, local and foreign tax laws to their
specific tax situations.
Tax Status of the Funds and their Shareholders
Each Fund is treated as a separate entity for Federal income tax
purposes. Each Fund's net investment income and capital gains
distributions are determined separately from any other series that the
Trust may designate.
The Trust intends for each Fund to continue to qualify each year as a
"regulated investment company" under Sub-Chapter M of the Code. If a Fund
(i) is 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).
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
-56-
<PAGE>
contracts) derived with respect to its business of investing in such
stocks, securities or currencies (the "90% Test").
If for any taxable year a Fund does not qualify for the special
Federal income tax treatment afforded regulated investment companies, all
of its taxable income will be subject to Federal income tax at regular
corporate rates (without any deduction for distributions to its
shareholders). In such event, dividend distributions, including amounts
derived from interest on tax-exempt obligations, would be taxable to
shareholders to the extent of current and accumulated earnings and
profits, and would be eligible for the dividends received deduction for
corporations in the case of corporate shareholders.
Each Fund would cease to qualify for pass-through tax treatment under
Sub-chapter M if it is unable to comply with the diversification or
distribution requirements contained in Subchapter M of the Code, or if it
ceases to qualify as a regulated investment company under the Code. Each
such Fund also could be subject to a 4% excise tax if it fails to make
certain distributions.
Net investment income or capital gains earned by the Funds investing
in foreign securities may be subject to foreign income taxes withheld at
the source. The United States has entered into tax treaties with many
foreign countries that entitle the Funds to a reduced rate of tax or
exemption from tax on this related income and gains. The effective rate of
foreign tax cannot be determined at this time since the amount of these
Funds' assets to be invested within various countries is not now known.
The Trust intends that the Funds seek to operate so as to qualify for
treaty-reduced rates of tax when applicable. In addition, if a Fund
qualifies as a regulated investment company under the Code, if certain
distribution requirements are satisfied, and if more than 50% of the value
of the Fund's assets at the close of the taxable year consists of stocks
or securities of foreign corporations, the Trust may elect, for U.S.
Federal income tax purposes, to treat foreign income taxes paid by the
Fund that can be treated as income taxes under U.S. income tax principles
as paid by its shareholders. The International Fund, the Europe Fund and
the Emerging Markets Fund each anticipates that it may qualify for and
make this election in most, but not necessarily all, of its taxable years.
If a Fund were to make an election an amount equal to the foreign income
taxes paid by the Fund would be included in the income of its shareholders
and the shareholders would be entitled to credit their portions of this
amount against their U.S. tax liabilities, if any, or to deduct those
portions from their U.S. taxable income, if any. Shortly after any year
for which it makes an election, the Trust will report to the shareholders
of the Fund, in writing, the amount per share of foreign tax that must be
included in each shareholder's gross income and the amount that will be
available as a deduction or credit. No deduction for foreign taxes may be
claimed by a shareholder who does not itemize deductions. Certain
limitations will be imposed on the extent to which the credit (but not the
deduction) for foreign taxes may be claimed.
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
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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 Prospectus. The Trust
seeks to monitor transactions of each Fund, will seek to make the
appropriate tax elections on behalf of the Fund and seeks to make the
appropriate entries in the Fund's books and records when the Fund acquires
any option, futures contract or hedged investment, to mitigate the effect
of these rules and prevent disqualification of the Fund as a regulated
investment company.
As a general rule, a shareholder's gain or loss on a sale or
redemption of shares of a Fund will be a long-term capital gain or loss if
the shareholder has held the shares for more than one year. The gain or
loss will be a short-term capital gain or loss if the shareholder has held
the shares for one year or less.
A Fund's net realized long-term capital gains are distributed as
described in the Prospectus. The distributions ("capital gain dividends"),
if any, are taxable to a shareholder of a Fund as long-term capital gains,
regardless of how long a shareholder has held the shares, and will be
designated as capital gain dividends in a written notice mailed by the
Trust to the shareholders of the Fund after the close of the Fund's prior
taxable year. If a shareholder receives a capital gain dividend with
respect to any share of a Fund, and if the share is sold before it has
been held by the shareholder for six months or less, then any loss on the
sale or exchange of the share, to the extent of the capital gain dividend,
will be treated as a long-term capital loss. Investors considering buying
shares of a Fund on or just prior to the record date for a taxable
dividend or capital gain distribution should be aware that the amount of
the dividend or distribution payment will be a taxable dividend or
distribution payment.
Special rules contained in the Code apply when a shareholder of a
Fund disposes of shares of the Fund through a redemption or exchange
within 90 days of purchase and subsequently acquires shares of a Fund on
which a sales charge normally is imposed without paying a sales charge in
accordance with the exchange privilege described in the Prospectus. In
these cases, any gain on the disposition of the shares of the Fund will be
increased, or loss decreased, by the amount of the sales charge paid when
the shares were acquired, and that amount will increase the adjusted basis
of the shares of the Fund subsequently acquired. In addition, if shares of
a Fund are purchased within 30 days of redeeming shares at a loss, the
loss will not be deductible and instead will increase the basis of the
newly purchased shares.
If a shareholder of a Fund fails to furnish the Trust with a correct
taxpayer identification number, fails to report fully dividend or interest
income, or fails to certify that he or she has provided a correct taxpayer
identification number and that he or she is not subject to "backup
withholding," then the shareholder may be subject to a 31% "backup
withholding" tax with
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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 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 the Service Class shares of the Funds.
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 Mid-Cap Value Fund, the Europe
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. The Small-Cap Value Fund recently commenced
operations, and therefore no operating history is shown below.
Yield for the Money Market Fund
The Trust may, from time to time, include the yield and effective
yield of each class of shares of the Money Market Fund in advertisements
or reports to shareholders or prospective investors. "Current yield" will
be based upon the income that a hypothetical investment in a class of
shares of the Fund would earn over a stated seven-day period. This amount
would then be "annualized," which means the amount of income generated
over that week is assumed to be generated each week over a 52-week period
and is shown as a percentage of the investment. The Money Market Fund's
"effective yield" will be calculated similarly, but, when annualized, the
income earned by an investment in the Fund is assumed to be
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<PAGE>
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
September 30, 1998, for the Investment Class shares of the Money Market
Fund were 4.93 and 5.06, 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:
Yield = 2[(a - b + 1)[to the 6th power] - 1]
-----
cd
Where:
a = dividends and interest earned during the period.
b = expenses accrued for the period (net of reimbursement).
c = the average daily number of shares outstanding during
the period that were entitled to receive dividends.
d = the maximum offering price per share on the last day
of the period.
For the purpose of determining the interest earned (variable "a" in
the formula) on debt obligations that were purchased by a Fund at a
discount or premium, the formula generally calls for amortization of the
discount or premium; the amortization schedule will be adjusted monthly to
reflect changes in the market values of the debt obligations.
Investors should recognize that, in periods of declining interest
rates, the yield will tend to be somewhat higher than prevailing market
rates, and in periods of rising interest rates the yield will tend to be
somewhat lower. In addition, when interest rates are falling, moneys
received by a Fund from the continuous sale of its shares will likely be
invested in portfolio instruments producing lower yields than the balance
of the Fund's portfolio, thereby reducing
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<PAGE>
the current yield of the Fund. In periods of rising interest rates, the
opposite result can be expected to occur.
Yield information is useful in reviewing the performance of a Fund,
but because yields fluctuate, this information cannot necessarily be used
to compare an investment in shares of the Fund with bank deposits, savings
accounts and similar investment alternatives that often provide an agreed
or guaranteed fixed yield for a stated period of time. Shareholders of a
Fund should remember that yield is a function of the kind and quality of
the instruments in the Fund's portfolio, portfolio maturity, operating
expenses and market conditions.
The 30-day yield for the period ended September 30, 1998, for the
Investment Class shares of the Income Fund was 5.71%.
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
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.
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<PAGE>
The average annual total return for the one-year period ended
December 31, 1998, for the Investment Class shares of each Fund was as
follows:
Average Annual Return
U.S. Equity Fund 23.75%
S&P 500 Index Fund 29.24%
Mid-Cap Growth Fund 4.64%
International Equity Fund 17.32%
Emerging Markets Fund -20.13%
Income Fund 8.46%
Money Market Fund 5.38%
Aggregate Total Return
The Trust may use "aggregate total return" figures in advertisements,
which represent the cumulative change in value of an investment in a Class
of shares of a Fund for a specific period, and which reflects changes in
the Fund's share price and reinvestment of dividends and distributions.
Aggregate total return may be shown by means of schedules, charts or
graphs, and may indicate subtotals of the various components of total
return (that is, the change in value of initial investment, income
dividends and capital gains distributions). Because there is a .25%
shareholder servicing fee imposed on the Service Class shares, the total
returns for each of the Investment Class and the Service Class will
differ. Aggregate total return data reflects compounding over a longer
period of time than does annual total return data, and therefore aggregate
total return will be higher.
The Trust also may advertise the actual annual and annualized total
return performance data for various periods of time, which may be shown by
means of schedules, charts or graphs. Actual annual or annualized total
return data generally will be lower than average annual total return data,
because the latter reflects compounding of return.
The "aggregate total return" figures for the Funds represent the
cumulative change in the value of an investment in a Class for the
specified period are computed by the following formula:
Aggregate Total Return = ERV - P
-------
P
Where P = a hypothetical initial payment of $1,000; and
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<PAGE>
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.
Aggregate Total Return*
Emerging Markets Fund -31.96% (11/25/97)
Mid-Cap Growth Fund -11.25% (11/25/97)
International Equity Fund .66% (11/25/97)
U.S. Equity Fund 6.28% (11/25/97)
S&P 500 Index Fun 8.63% (11/25/97)
Income Fund 9.21% (11/21/97)
Money Market Fund 4.53% (12/02/97)
--------------------------------
*From commencement of operations (as indicated in parenthesis) to
September 30, 1998.
Yield and total 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.
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<PAGE>
Comparative Performance Information
In addition to the comparative performance information included in
the Prospectus and otherwise quoted in sales and advertising materials,
the Trust may compare the Fund's performance with (a) the performance of
other mutual funds as listed in the rankings prepared by Lipper Analytical
Services, Inc. or similar independent services that monitor the
performance of mutual funds, (b) various unmanaged indices, including the
Russell Index, S&P 500 Index, and the Dow Jones Industrial Average or (c)
other appropriate indices of investment securities or with data developed
by GEIM derived from those indices.
Performance information also may include evaluations of a Fund
published by nationally recognized ranking services and by financial
publications that are nationally recognized, such as Barron's, Business
Week, Forbes, Fortune, Institutional Investor, Kiplinger's Personal
Finance, Money, Morningstar Mutual Fund Values, The New York Times, The
Wall Street Journal and USA Today. These ranking services or publications
may compare a Fund's performance to, or rank it within, a universe of
mutual funds with investment objectives and policies similar, but not
necessarily identical to, the Fund's. Such comparisons or rankings are
made on the basis of several factors, including the size of the Fund,
objectives and policies, management style and strategy, and portfolio
composition, and may change over time if any of those factors change.
PRINCIPAL STOCKHOLDERS
As of the date of this SAI, GECA, located at 6604 West Broad Street,
Richmond, Virginia 23230, an indirect subsidiary of GE, owned 100% of the
outstanding shares of the Premier Growth Fund, the Value Equity Fund and
the Strategic Fund and 100% of the Service Class shares of the remaining
Funds. The shares were issued to GECA for providing the initial seed
capital to these Funds. 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; and (iii)
MRA Systems, Inc. owned more than 25% of the outstanding voting securities
of the Money Market Fund. So long as the above entities own more than 25%
of the outstanding voting securities of the Funds noted, they may be
deemed to control these Funds, and may be able to significantly influence
the outcome of any shareholder vote. For purposes of voting on matters
submitted to shareholders, any person who owns more than 50% of the
outstanding shares of the Fund generally would be able to cast the
deciding vote.
The current Trustees and officers of each Fund, as a group,
beneficially owned less than 1% of each Fund's outstanding shares;
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<PAGE>
The following person are the only persons known by the Trust to hold
beneficially more than 5% of the outstanding Investment Class shares of
the following Funds as of December 31, 1998.
<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 652,034.110 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 77,261.201 10.32%
Mid-Cap Growth Fund (Investment Class)
Saxon & Co.
FBO Leaseway Transport
ABC Trust Institutional Service
200 Stevens Drive - Suite 260
Lester, PA 19113-1522 1,302,433.789 86.95%
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 151,730.794 10.13%
</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>
International Fund (Investment Class)
AID Association for Lutherans
Ron Anderson Trustee
Attn: David J. Schnarsky 7,622,936.17 42.64%
4321 N. Ballard Road
Appleton, WI 54919
Saxon & Co.
FBO Leaseway Transport
ABC Trust Institutional Service
200 Stevens Drive - Suite 260
Lester, PA 19113-1522 3,211,205.295 27.06%
U.S. Equity Fund (Investment Class)
Saxon & Co.
FBO Leaseway Transport
ABC Trust Institutional Service
200 Stevens Drive - Suite 260
Lester, PA 19113-1522 8,549,260.908 78.00%
GELCO Corp. DBA GE Capital Fleet Svc.
Norwest Bank N.A.
Attn: Mutual Funds
510 Marquette, Suite 500
Minneapolis, MN 55402-1118 1,360,933.522 12.42%
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 863,836.857 7.88%
S&P 500 Index Fund (Invesment Class)
</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>
Saxon & Co.
FBO Leaseway Transport
ABC Trust Institutional Service
200 Stevens Drive - Suite 260
Lester, PA 19113-1522 1,754,229.796 93.02%
Defined Benefit Plans Master Trust
Agreement Between MRA Sys. Inc. &
State Street Bank & Trust
c/o Joe Mays
1 Newmann Way J-103 106,379.564 5.64%
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 5,165,641.507 72.79%
GELCO Corp. DBA GE Capital Fleet Svc.
Norwest Bank N.A.
Attn: Mutual Funds
510 Marquette, Suite 500
Minneapolis, MN 55402-1118 1,036,944.247 14.61%
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 743,467.186 10.48%
Money Market Fund (Investment Class)
Saxon & Co.
FBO Leaseway Transport
ABC Trust Institutional Service
200 Stevens Drive - Suite 260
Lester, PA 19113-1522 4,635,606.930 64.46%
</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 Newman Way J-103
Evendale, OH 45215 2,129,338.690 29.61%
Information Alliance Co.
Gary L. Kriechbaum
877 South Street
Pittsfield, MA 01201-8229 415,530.520 5.78%
Strategic Investment Fund (Investment Class)
GE Capital Assurance
6604 West Broad Street
Richmond, VA 23230-1702 1,000.000 100%
Premier Growth Equity Fund (Investment Class)
GE Capital Assurance
6604 West Broad Street
Richmond, VA 23230-1702 1,000.000 100%
Value Equity Fund (Investment Class)
GE Capital Assurance
6604 West Broad Street
Richmond, VA 23230-1702 1,000.000 100%
Small-Cap Value Fund (Investment Class)
GE Capital Assurance
2 Union Square, Suite 1400
601 Union Street 1,017,643.789 99.80%
Seattle, WA 98101-2321
</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 Declaration of Trust, dated August
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29, 1997 (the "Declaration of Trust") permits the Trustees to issue an
unlimited number of full and fractional shares of beneficial interest of
the Trust par value $.001 per share. Under the Declaration of Trust, the
Trustees have the authority to create and classify shares of beneficial
interest in separate series, without further action by shareholders.
Currently, there are fifteen Funds in the Trust: the Emerging Markets
Fund, Premier Growth Fund, Mid-Cap Growth Fund, International Fund, Value
Equity Fund, U.S. Equity Fund, S&P 500 Index Fund, Strategic Fund, Income
Fund and Money Market Fund were established as series of the Trust on
November 13, 1997. The Small-Cap Value Fund, Small-Cap Growth Fund,
Mid-Cap Value Fund and High Yield Fund were added as series of the Trust
on May 8, 1998. The Europe Fund was added as series of the Trust on
November 6, 1998. Additional series may be added in the future.
The Declaration of Trust also authorizes the Trustees to classify and
reclassify the shares of the Trust, or new series of the Trust, into one
or more classes. As of the date of this SAI, the Trustees have authorized
the issuance of two classes of shares of the Funds, designated as the
Investment Class shares and the Service Class shares. State Street
maintains a record of each shareholder's ownership of shares of a Fund.
The shares of each class of each Fund represent an equal proportionate
interest in the aggregate net assets attributable to that class of that
Fund. Holders of Service Class shares have certain exclusive voting rights
on matters relating to the Plan. The different classes of the Fund may
bear different expenses relating to the cost of holding shareholder
meetings necessitated by the exclusive voting rights of any class of
shares.
In the interest of economy and convenience, certificates representing
shares of a Fund are not physically issued. State Street maintains a
record of each shareholder's ownership of shares of a Fund.
Dividends paid by each Fund, if any, with respect to each class of
shares will be calculated in the same manner, at the same time and on the
same day and will be in the same amount, except for differences resulting
from the facts that: (a) the distribution and service fees relating to
Service Class shares will be borne exclusively by that class; and (b) each
of the Service Class shares and the Investment Class shares will bear any
other class expenses properly allocable to such class of shares, subject
to the requirements imposed by the Internal Revenue Service on funds
having a multiple-class structure. Similarly, the NAV per share may vary
depending on whether Service Class shares or Investment Class shares are
purchased. In the event of liquidation, shareholders of each class of each
Fund are entitled to share pro rata in the net assets of the class of the
Fund available for distribution to these shareholders. Shares entitle
their holders to one vote per share, are freely transferable and have no
preemptive, subscription or conversion rights. When issued, shares are
fully paid and non-assessable.
Unless otherwise required by the 1940 Act or the Declaration of
Trust, the Trust has no intention of holding annual meetings of
shareholders. Fund shareholders may remove a Trustee by the affirmative
vote of at least two-thirds of the Trust's outstanding shares and the
Trustees
-69-
<PAGE>
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 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
-70-
<PAGE>
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
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 Europe Fund commenced
operations as of the date of this SAI. The Small-Cap Growth Equity Fund
and High Yield Fund have not yet commenced operations and have no assets
as of the date of this SAI. The Funds that have commenced operations and
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 remaining Funds do not yet have an operating
history. 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.
A - 1
<PAGE>
Fitch Investors Services, Inc. employs the rating F-1+ to indicate
issues regarded as having the strongest degree of assurance of timely
payment. The rating F-1 reflects an assurance of timely payment only
slightly less in degree than issues rated F-1+, while the rating F-2
indicates a satisfactory degree of assurance of timely payment although
the margin of safety is not as great as indicated by the F-1+ and F-1
categories.
Duff & Phelps Inc. employs the designation of Duff 1 with respect to
top grade commercial paper and bank money instruments. Duff 1+ indicates
the highest certainty of timely payment: short-term liquidity is clearly
outstanding and safety is just below risk-free U.S. Treasury short-term
obligations. Duff 1- indicates high certainty of timely payment. Duff 2
indicates good certainty of timely payment; liquidity factors and company
fundamentals are sound.
Thomson BankWatch Inc. employs the rating 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.
A - 2
<PAGE>
BB, B and CCC -- Bonds rated BB and B are regarded, on balance, as
predominately speculative with respect to capacity to pay interest and
repay principal in accordance with the terms of the obligation. BB
represents a lower degree of speculation than B, and CCC the highest
degree of speculation. While such bonds will likely have some quality and
protective characteristics, these are outweighed by large uncertainties or
major risk exposures to adverse conditions.
To provide more detailed indications of credit quality, the ratings
from AA to B may be modified by the addition of a plus or minus sign to
show relative standing within this major rating category.
Description of Moody's Corporate Bond Ratings
Aaa -- Bonds that are rated Aaa are judged to be of the best quality.
They carry the smallest degree of investment risk and are generally
referred to as "gilt edge." Interest payments are protected by a large or
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be
visualized are most unlikely to impair the fundamentally strong position
of such issues.
Aa -- Bonds that are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally
known as high grade bonds. They are rated lower than the best bonds
because margins of protection may not be as large as in Aaa securities or
fluctuation of protective elements may be of greater amplitude or there
may be other elements present that make the long-term risks appear
somewhat larger than in Aaa securities.
A -- Bonds that are rated A possess favorable investment attributes
and are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate, but elements
may be present that suggest a susceptibility to impairment sometime in the
future.
Baa -- Bonds that are rated Baa are considered as medium-grade
obligations, that is, they are neither highly protected nor poorly
secured. Interest payments and principal security appear adequate for the
present but certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such bonds
lack outstanding investment characteristics and in fact have speculative
characteristics as well.
Ba -- Bonds that are rated Ba are judged to have speculative
elements; their future cannot be considered as well assured. Often the
protection of interest and principal payments may be very moderate and
thereby not well safeguarded during both good and bad times over the
future. Uncertainty of position characterizes bonds in this class.
A - 3
<PAGE>
B -- Bonds that are rated B generally lack characteristics of
desirable investments. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time
may be small.
Caa -- Bonds that are rated Caa are of poor standing. These issues
may be in default, or present elements of danger may exist with respect to
principal or interest.
Moody's applies numerical modifiers (1, 2 and 3) with respect to the
bonds rated Aa through B, The modifier 1 indicates that the bond being
rated ranks in the higher end of its generic rating category; the modifier
2 indicates a mid-range ranking; and the modifier 3 indicates that the
bond ranks in the lower end of its generic rating category.
Description of S&P Municipal Bond Ratings
AAA -- Prime -- These are obligations of the highest quality. They
have the strongest capacity for timely payment of debt service.
General Obligation Bonds -- In a period of economic stress, the
issuers will suffer the smallest declines in income and will be least
susceptible to autonomous decline. Debt burden is moderate. A strong
revenue structure appears more than adequate to meet future expenditure
requirements. Quality of management appears superior.
Revenue Bonds -- Debt service coverage has been, and is expected to
remain, substantial. Stability of the pledged revenues is also
exceptionally strong due to the competitive position of the municipal
enterprise or to the nature of the revenues. Basic security provisions
(including rate covenant, earnings test for issuance of additional bonds,
debt service reserve requirements) are rigorous. There is evidence of
superior management.
AA -- High Grade -- The investment characteristics of bonds in this
group are only slightly less marked than those of the prime quality
issues. Bonds rated AA have the second strongest capacity for payment of
debt service.
A -- Good Grade -- Principal and interest payments on bonds in this
category are regarded as safe although the bonds are somewhat more
susceptible to the adverse effects of changes in circumstances and
economic conditions than bonds in higher rated categories. This rating
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.
A - 4
<PAGE>
Revenue Bonds -- Debt service coverage is good, but not exceptional.
Stability of the pledged revenues could show some variations because of
increased competition or economic influences on revenues. Basic security
provisions, while satisfactory, are less stringent. Management performance
appears adequate.
BBB -- Medium Grade -- Of the investment grade ratings, this is the
lowest. Bonds in this group are regarded as having an adequate capacity to
pay interest and repay principal. Adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for bonds in this category (even though they
normally exhibit adequate protection parameters) than for bonds in higher
rated categories.
General Obligation Bonds -- Under certain adverse conditions, several
of the above factors could contribute to a lesser capacity for payment of
debt service. The difference between A and BBB ratings is that the latter
shows more than one fundamental weakness, or one very substantial
fundamental weakness, whereas, the former shows only one deficiency among
the factors considered.
Revenue Bonds -- Debt coverage is only fair. Stability of the pledged
revenues could show substantial variations, with the revenue flow possibly
being subject to erosion over time. Basic security provisions are no more
than adequate. Management performance could be stronger.
BB, B, CCC and CC -- Bonds rated BB, B, CCC and CC are regarded, on
balance, as predominately speculative with respect to capacity to pay
interest and repay principal in accordance with the terms of the
obligation. BB includes the lowest degree of speculation and CC the
highest degree of speculation. While these bonds will likely have some
quality and protective characteristics, these characteristics are
outweighed by large uncertainties or major risk exposures to adverse
conditions.
C -- The rating C is reserved for income bonds on which no interest
is being paid.
D -- Bonds rated D are in default, and payment of interest and/or
repayment of principal is in arrears.
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.
A - 5
<PAGE>
Those issues determined to possess overwhelming safety characteristics are
given the designation of SP-1+. Notes rated SP-2 have satisfactory
capacity to pay principal and interest.
Description of Moody's Municipal Bond Ratings
Aaa -- Bonds that are rated Aaa are judged to be the best quality.
They carry the smallest degree of investment risk and are generally
referred to as "gilt edge." Interest payments are protected by a large or
by an exceptionally stable margin and principal is secure. While the
various protective elements are likely to change, such changes as can be
visualized are most unlikely to impair the fundamentally strong position
of such issues.
Aa -- Bonds that are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally
known as high grade bonds. They are rated lower than the best bonds
because margins of protection may not be as large as in Aaa securities, or
fluctuation of protective elements may be of greater amplitude, or there
may be other elements present that make the long-term risks appear
somewhat larger than in Aaa securities.
A -- Bonds that are rated A possess many favorable investment
attributes and are to be considered as upper medium grade obligations.
Factors giving security to principal and interest are considered adequate,
but elements may be present that suggest a susceptibility to impairment
sometime in the future.
Baa -- Bonds that are rated Baa are considered as medium grade
obligations, that is, they are neither highly protected nor poorly
secured. Interest payments and principal security appear adequate for the
present but certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such bonds
lack outstanding investment characteristics and in fact have speculative
characteristics as well.
Ba -- Bonds that are rated Ba are judged to have speculative
elements; their future cannot be considered as well assured. Often the
protection of interest and principal payments may be very moderate and
thereby not well safeguarded during both good and bad times over the
future.
Uncertainty of position characterize bonds in this class.
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.
A - 6
<PAGE>
C -- Bonds that are rated C are the lowest rated class of bonds, and
issues so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.
Moody's applies the numerical modifiers 1, 2 and 3 in each generic
rating classification from Aa through B. The modifier 1 indicates that the
security ranks in the higher end of its generic ratings category; the
modifier 2 indicates a mid-range ranking; and the modifier 3 indicates
that the issue ranks in the lower end of its generic ratings category.
Description of Moody's Municipal Note Ratings
Moody's ratings for state and municipal notes and other short-term
loans are designated Moody's Investment Grade (MIG) and for variable rate
demand obligations are designated Variable Moody's Investment Grade
(VMIG). This distinction recognizes the differences between short-term
credit risk and long-term risk. Loans bearing the designation MIG 1/VMIG 1
are the best quality, enjoying strong protection from established cash
flows of funds for their servicing or from established and broad-based
access to the market for refinancing, or both. Loans bearing the
designation MIG 2/VMIG 2 are of high quality, with margins of protection
ample, although not as large as the preceding group. Loans bearing the
designation MIG 3/VMIG3 are of favorable quality, with all security
elements accounted for but lacking the undeniable strength of the higher
grades. Market access for refinancing, in particular, is likely to be less
well established. Loans bearing the designation MIG 4/VMIG 4 are of
adequate quality. Protection commonly regarded as required of an
investment security is present and although not distinctly or
predominantly speculative, there is specific risk.
A - 7
<PAGE>
PART C
------
OTHER INFORMATION
Item 23. Financial Statements and Exhibits
- -------- ---------------------------------
Financial Statements:
---------------------
Included in Part A:
Financial Highlights for the fiscal period ended September 30,
1998 for the Investment Class shares of certain of the Funds.
Included in Part B:
(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.*
- -------------------
* Incorporated into the Statement of Additional Information by reference
to GE Institutional Funds' Annual Report dated September 30, 1998.
<PAGE>
(b) 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.
(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.
(b) Inapplicable.
(c) Inapplicable.
(d)(1) Investment Advisory and Administration Agreement
between Registrant, on behalf of the Emerging
Markets Fund, and GE Investment Management
Incorporated ("GEIM"), is incorporated herein by
reference to Exhibit 5(a) to pre-effective
amendment number two to the Registration Statement,
filed with the Commission on November 7, 1997.
(d)(2) Investment Advisory and Administration Agreement
between Registrant, on behalf of the Premier Growth
Equity Fund, and GEIM, 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.
(d)(3) Investment Advisory and Administration Agreement
between Registrant, on behalf of the Mid-Cap Growth
Fund, and GEIM, is incorporated herein by reference
to Exhibit 5(c) to pre-effective amendment number
two to the Registration Statement, filed with the
Commission on November 7, 1997.
(d)(4) Investment Advisory and Administration Agreement
between Registrant, on behalf of the International
Equity Fund, and GEIM, is incorporated herein by
reference to Exhibit 5(d) to pre-effective
amendment number two to the Registration Statement,
filed with the Commission on November 7, 1997.
C-1
<PAGE>
(d)(5) Investment Advisory and Administration Agreement
between Registrant, on behalf of the Value Equity
Fund, and GEIM, is incorporated herein by reference
to Exhibit 5(e) to pre-effective amendment number
two to the Registration Statement, filed with the
Commission on November 7, 1997.
(d)(6) Investment Advisory and Administration Agreement
between Registrant, on behalf of the U.S. Equity
Fund, and GEIM, is incorporated herein by reference
to Exhibit 5(f) to pre-effective amendment number
two to the Registration Statement, filed with the
Commission on November 7, 1997.
(d)(7) Investment Advisory and Administration Agreement
between Registrant, on behalf of the S&P 500 Index
Fund, and GEIM, is incorporated herein by reference
to Exhibit 5(g) to pre-effective amendment number
two to the Registration Statement, filed with the
Commission on November 7, 1997.
(d)(8) Investment Advisory and Administration Agreement
between Registrant, on behalf of the Strategic
Investment Fund, and GEIM, is incorporated herein
by reference to Exhibit 5(h) to pre-effective
amendment number two to the Registration Statement,
filed with the Commission on November 7, 1997.
(d)(9) Investment Advisory and Administration Agreement
between Registrant, on behalf of the Income Fund,
and GEIM, is incorporated herein by reference to
Exhibit 5(i) to pre-effective amendment number two
to the Registration Statement, filed with the
Commission on November 7, 1997.
(d)(10) Investment Advisory and Administration Agreement
between Registrant, on behalf of the Money Market
Fund, and GEIM, is incorporated herein by reference
to Exhibit 5(j) to pre-effective amendment number
two to the Registration Statement, filed with the
Commission on November 7, 1997.
(d)(11) Investment Advisory and Administration Agreement
between Registrant, on behalf of the Small-Cap
Growth Equity Fund, and GEIM, 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.
C-2
<PAGE>
(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.
(d)(13) Amended and Restated Investment Advisory and
Administration Agreement between Registrant, on
behalf of the Mid-Cap Value Equity Fund, and GEIM,
is filed herewith.
(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.
(d)(15) Investment Advisory and Administration Agreement
between Registrant, on behalf of the Europe Equity
Fund, and GEIM, is filed herewith.
(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.
(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.
(d)(18) Sub-Advisory Agreement between GEIM and NWQ
Investment Management Company, is filed herewith.
(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.
(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.
C-3
<PAGE>
(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.
(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.
(i) Opinion and 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.
(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.
(n) Financial Data Schedules are filed herewith.
(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.
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
C-4
<PAGE>
pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934, as
amended (SEC File No. 1-35) for the fiscal year ended December 31, 1997 (the
"Form 10-K"). Additional information about persons controlled by or under common
control with Registrant is incorporated herein by reference to pages 10-12 of
the Form 10-K, beginning under the caption "GECs Segments."
Item 25. Indemnification
- -------- ---------------
As a Delaware business trust, the operations of Registrant are governed
by its Amended and Restated Declaration of Trust dated June 2, 1998 (the
"Declaration of Trust"). Generally, Delaware business trust shareholders are not
personally liable for obligations of the Delaware business trust under Delaware
law. The Delaware Business Trust Act (the DBTA) provides that a shareholder of a
trust shall be entitled to the same limitation of liability extended to
shareholders of private for-profit Delaware corporations. Registrant's
Declaration of Trust expressly provides that it has been organized under the
DBTA and that the Declaration of Trust is to be governed by Delaware law. It
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
Delaware law, the nature of Registrant's business and the nature of its assets,
the risk of personal liability to a shareholder is remote.
The Declaration of Trust further provides that Registrant shall
indemnify each of its Trustees and officers against liabilities and expenses
reasonably incurred by them, in connection with, or arising out of, any action,
suit or proceeding, threatened against or otherwise involving such Trustee or
officer, directly or indirectly, by reason of being or having been a Trustee or
officer of Registrant. The Declaration of Trust does not authorize Registrant to
indemnify any Trustee or officer against any liability to which he or she would
otherwise be subject by reason of or for willful misfeasance, bad faith, gross
negligence or reckless disregard of such person's duties.
C-5
<PAGE>
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).
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
C-6
<PAGE>
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.
Item 29. Management Services
- -------- -------------------
Inapplicable.
Item 30. Undertakings
- -------- ------------
Inapplicable.
C-7
<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 22nd day of January, 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.
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
/s/ Michael J. Cosgrove Trustee, President and 1/22/99
- -------------------------- Chairman of the Board
Michael J. Cosgrove (Chief Executive Officer)
/s/ John R. Costantino Trustee 1/22/99
- --------------------------
John R. Costantino
/s/ Alan M. Lewis Trustee 1/22/99
- --------------------------
Alan M. Lewis
/s/ William J. Lucas Trustee 1/22/99
- --------------------------
William J. Lucas
/s/ Robert P. Quinn Trustee 1/22/99
- --------------------------
Robert P. Quinn
/s/ Jeffrey A. Groh Treasurer 1/22/99
- -------------------------- (Chief Financial and
Jeffrey A. Groh Accounting Officer)
</TABLE>
<PAGE>
EXHIBIT INDEX
EX-99.(d)(13) Amended and Restated Investment Advisory and
Administration Agreement between Registrant, on behalf
of the Mid-Cap Value Equity Fund, and GEIM
EX-99.(d)(15) Investment Advisory and Administration Agreement between
Registrant, on behalf of the Europe Equity Fund, and
GEIM
EX-99.(d)(18) Sub-Advisory Agreement between GEIM and NWQ Investment
Management Company
EX-99.(i) Opinion and Consent of Sutherland Asbill & Brennan LLP
EX-99.(j) Consent of PricewaterhouseCoopers LLP
EX-27.1 Financial Data Schedule
<PAGE>
AMENDED AND RESTATED
INVESTMENT ADVISORY AND ADMINISTRATION AGREEMENT
GE INSTITUTIONAL FUNDS
MID-CAP VALUE EQUITY FUND
GE INVESTMENT MANAGEMENT INCORPORATED
Agreement made as of December 9, 1998 between GE INVESTMENT
MANAGEMENT INCORPORATED ("GEIM") and GE INSTITUTIONAL FUNDS (the "Trust") on
behalf of its Mid-Cap Value Equity Fund (the "Fund").
RECITALS
The Trust is a business trust organized under the laws of the
State of Delaware on May 23, 1997 and registered under the Investment Company
Act of 1940, as amended (the "1940 Act"). The Trust is authorized to divide
shares of beneficial interests in the Trust into two or more separate series
and to divide each such series into two or more classes of Shares. The Fund is
a series of the Trust.
GEIM is a Delaware corporation registered as an investment
adviser under the Investment Advisers Act of 1940 (the "Advisers Act").
The Trust wishes to retain GEIM to serve as investment
adviser and administrator to the Fund and GEIM wishes to serve in this
capacity.
Section 1. Appointment
The Trust hereby appoints GEIM as investment adviser and
administrator with respect to the Fund's assets for the period and on the terms
set forth in this Agreement. GEIM accepts this appointment and hereby agrees to
render the services herein set forth for the compensation herein provided.
Subject to the approval of the Board and to other applicable
legal requirements, GEIM may enter into any advisory or sub-advisory agreement
or contract with another affiliated or unaffiliated entity pursuant to which
such entity will carry out some or all of GEIM's responsibilities listed
herein.
<PAGE>
Section 2. Services as Investment Adviser and Administrator
(a) Subject to the oversight and supervision of the Trust's
board of trustees (the "Board"), GEIM agrees to provide a continuous investment
program for the Fund's assets, including investment research and management.
GEIM will determine from time to time what investments will be purchased,
retained or sold by the Fund. GEIM will place purchase and sale orders for the
Fund's investments. GEIM will provide services under this Agreement in
accordance with the Fund's investment objectives, policies and restrictions as
stated in the Trust's current Registration Statement on Form N-1A, as amended
from time to time (the "Registration Statement").
(b) The Trust has furnished or will furnish GEIM with copies
of the Registration Statement, its articles of incorporation and by-laws, if
any, as currently in effect and agrees during the continuance of this agreement
to furnish GEIM with copies of any amendment or supplements thereto before or
at the time such amendments or supplements become effective. GEIM may rely on
all documents furnished to it by the Trust.
(c) Subject to the oversight and supervision of the Board,
GEIM agrees to serve as administrator to the Trust and the Fund and, in this
capacity, will: (i) insure the maintenance of the books and records of the Fund
(including those required to be maintained or preserved by Rules 31a-1 and
31a-2 under the 1940 Act); (ii) prepare reports to shareholders of the Fund,
(iii) prepare and file tax returns for the Fund, (iv) assist with the
preparation and filing of reports and the Registration Statement with the
Securities and Exchange Commission (the "Commission"), (v) provide appropriate
officers for the Trust, including a Secretary or Assistant Secretary, (vi)
provide administrative support necessary for the Board to conduct meetings, and
(vii) supervise and coordinate the activities of other service providers,
including independent auditors, legal counsel, custodians, accounting service
agents, and transfer agents.
(d) GEIM will, at its own expense, maintain sufficient staff,
and employ or retain sufficient personnel and consult with any other persons
that it determines may be necessary or useful to the performance of its
obligations under this agreement.
(e) GEIM will keep the Trust informed of developments
materially affecting the Fund, and will, on its own initiative, furnish the
Trust from time to time with whatever information and reports that the Board
reasonably requests as appropriate for this purpose.
Section 3. Selection of Investments on Behalf of the Fund.
Unless otherwise set forth in the Registration Statement or
directed by the Trust, GEIM will, in selecting brokers or dealers to effect
transactions on behalf of the Fund select the best overall terms available. In
so doing, GEIM may consider the breadth of the market on the investment, the
price of the security, the size and difficulty of the order , the willingness
of the broker or dealer to position, the reliability, financial condition and
execution and operational capabilities of the broker or dealer, and the
reasonableness of the commission or size of the dealer's "spread", if any, for
the specific transaction and on a continuing basis. GEIM may also
-2-
<PAGE>
consider brokerage and research services provided to the Fund and /or other
accounts over which GEIM or its affiliates exercise investment discretion. The
Trust recognizes the desirability of GEIM's having access to supplemental
investment and market research and security and economic analyses provided by
brokers and that those brokers may execute brokerage transactions at a higher
cost to the Trust than would be the case if the transactions were executed on
the basis of the most favorable price and efficient execution. The Trust, thus,
authorizes GEIM, to the extent permitted by applicable law and regulations, to
pay higher brokerage commissions or dealer spreads for the purchase and sale of
securities for the Fund to brokers who provide supplemental investment and
market research and security and economic analyses, subject to GEIM's
determining in good faith that such commissions are reasonable in terms either
of the particular transaction or of the overall responsibility of GEIM to the
Fund and its other clients and that the total commissions paid by the Fund will
be reasonable in relation to the benefits to the Fund over the long term. In no
instance will portfolio securities be purchased from or sold to GEIM, or any
affiliated person thereof or any investment advisory client thereof, except in
accordance with the federal securities laws and the rules and regulations
thereunder.
Section 4. Costs and Expenses.
GEIM will bear the cost of rendering the services it is
obligated to provide under this Agreement and will provide the Trust with all
executive, administrative, clerical and other personnel necessary for the
investment and administrative operations of the Fund and will pay salaries and
other employment-related costs of employing these persons. GEIM will furnish
the Trust and the Fund with office space, facilities, and equipment and will
pay the day-to-day expenses related to the operation of such space, facilities
and equipment.
Except for those expenses assumed by the Fund as provided
below, GEIM shall bear all of the Fund's expenses, including, but not limited
to: charges and expenses of any registrar, the costs of custody, transfer
agency and recordkeeping services in connection with the Fund; registration
costs of the Fund and its shares under Federal and state securities laws; the
cost and expense of printing, including typesetting, and distributing of
prospectuses describing the Fund and supplements to those prospectuses to
regulatory authorities and the Fund's shareholders; all expenses incurred in
conducting meetings of the Fund's shareholders and meetings of the Board
relating to the Fund, excluding fees paid to members of the Board who are not
affiliated with GEIM or any of its affiliates; all expenses incurred in
preparing, printing and mailing proxy statements and reports to shareholders of
the Fund; all expenses incident to any dividend, withdrawal or redemption
options provided to Fund shareholders (except for purchase premiums and
redemption fees, if any, charged directly to shareholders); charges and
expenses of any outside service used for pricing the Fund's portfolio
securities and calculating the net asset value of the Fund's shares; fees and
expenses of legal counsel, including counsel to the members of the Board who
are not interested persons of the Fund, or GEIM, and independent auditors;
membership dues of industry associations; postage; insurance premiums on
property or personnel (including officers and Trustees) of the Trust that inure
to their benefit; and all other costs of the Fund's operations.
-3-
<PAGE>
The Fund will bear the following expenses: advisory and
administration fees as described in Section 5 of this Agreement; shareholder
servicing and distribution fees under the terms of the shareholder servicing
and distribution plan adopted by the Trust with respect to the Fund pursuant to
Rule 12b-1 (the "Plan") under the 1940 Act; brokerage fees and commissions and
other expenses incurred in the acquisition or disposition of any securities or
other invest-ments; fees and travel expenses of members of the Board or members
of any advisory board or committee who are not affiliated with GEIM, or any of
its affiliates; and expenses that are not normal operating expenses of the Fund
(such as extraordinary expenses, interest and taxes).
Section 5. Compensation.
In consideration of services rendered and the expenses paid
by GEIM pursuant to this Agreement, the Trust will pay GEIM on the first
business day of each month a fee calculated as a percentage of the average
daily net assets of the Fund during the previous month at the following annual
rates:
Average Daily Net Assets Annual Rate Percentage of Fund (%)
------------------------ ----------------------------------
First $25 million .65
Next $25 million .60
Over $50 million .55
For the purpose of determining fees payable to GEIM under this Agreement, the
value of the Fund's net assets will be computed in the manner described in the
Registration Statement.
Section 6. Services to Other Companies or Accounts.
(a) The Trust understands and acknowledges that GEIM now acts
and will continue to act as investment manager or adviser to various fiduciary
or other managed accounts ("Other Accounts") and the Trust has no objection to
GEIM's so acting, so long as that when the Fund and any Other Account 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 and the Other Account. In
addition, the Trust understands and acknowledges that GEIM may, to the extent
permitted by applicable laws and regulations, aggregate securities to be sold
or purchased for the Trust with those to be sold or purchased for Other
Accounts so long as the securities purchased or sold, as well as the expenses
incurred in the transaction, are allocated in a manner believed by GEIM to be
equitable to the Trust and the Other Accounts. The Trust recognizes that, in
some cases, the above procedures may adversely affect the price paid or
received by the Fund or the size of the position obtained or disposed of by the
Fund.
-4-
<PAGE>
(b) It is agreed that GEIM may use any supplemental
investment research and other services provided by brokers or dealer obtained
for the benefit of the Fund or the Trust in providing investment advice to
Other Accounts.
(c) The Trust understands and acknowledges that the persons
employed by GEIM to assist in the performance of its duties under this
Agreement will not devote their full time to that service and agrees that
nothing contained in this Agreement will be deemed to limit or restrict the
right of GEIM or any affiliate of GEIM to engage in and devote time and
attention to other businesses or to render services of whatever kind or nature.
Section 7. Continuance and Termination of the Agreement.
(a) This Agreement will become effective as of the date
hereof and will continue for an initial two-year term and will continue
thereafter so long as the continuance is specifically approved at least
annually (a) by the Board or (b) by a vote of a majority of the Fund's
outstanding voting securities, as defined in the 1940 Act, provided that in
either event the continuance is also approved by a majority of the Trustees who
are not parties to this Agreement or "interested persons" (as defined in the
1940 Act) of any party to this Agreement, by vote cast in person at a meeting
called for the purpose of voting on the approval.
(b) This Agreement is terminable without penalty, by the
Trust on not more than 60 nor less than 30 days' written notice to GEIM, by
vote of holders of a majority of the Fund's outstanding voting securities, as
defined in the 1940 Act, or by GEIM on not more than 60 nor less than 30 days'
notice to the Trust.
(c) This Agreement will terminate automatically in the event
of its assignment (as defined in the 1940 Act or in rules adopted under the
1940 Act).
Section 8. Limitation of Liability.
(a) GEIM will exercise its best judgment in rendering the
services described in this Agreement, except that GEIM will not be liable for
any error of judgment or mistake of law or for any loss suffered by the Fund in
connection with the matters to which this Agreement relates, other than a loss
resulting from willful misfeasance, bad faith or gross negligence on the part
of GEIM in the performance of its duties or from reckless disregard by it of
its obligations and duties under this Agreement or to the extent specified in
Section 36(b) of the 1940 Act concerning loss resulting from a breach of
fiduciary duty with respect to the receipt of compensation for services. Any
person, even though also an officer, director, employee or agent of GEIM, who
may be or become an officer, Trustee, employee or agent of the Trust, will be
deemed, when rendering services to the Trust or acting on any business of the
Trust, to be rendering services to, or acting solely for, the Trust and not as
an officer, director, employee or agent, or one under the control or direction
of, GEIM even though paid by GEIM.
-5-
<PAGE>
(b) The Trust and GEIM agree that the obligations of the
Trust under this Agreement will not be binding upon any of the Trustees,
shareholders, nominees, officers, employees or agents, whether past, present or
future, of the Trust, individually, but are binding only upon the assets and
property of the Fund, as provided in the Declaration of Trust. The execution
and delivery of this Agreement have been authorized by the Trustees of the
Trust, and signed by an authorized officer of the Trust, acting as such, and
neither the authorization by the Trustees nor the execution and delivery by the
officer will be deemed to have been made by any of them individually or to
impose any liability on any of them personally, but will bind only the trust
property of the Trust as provided in the Declaration of Trust. No series of the
Trust, including the Fund, will be liable for any claims against any other
series.
Section 9. Miscellaneous.
The Trust recognizes that trustees, officers and employees of GEIM and
its affiliates may from time to time serve as trustees, trustees, officers and
employees of corporations, partnerships, group trusts and business trusts
(including other investment companies) and that such other entities may include
the initials "GE" or the words "General Electric" as part of their name, and
that GEIM or its affiliates may enter into distribution, investment advisory or
other agreements with such other corporations and trusts. If GEIM ceases to act
as the investment adviser to the Trust, the Trust agrees that, at GEIM's
request, any license granted to the Trust for the use of the initials "GE" will
terminate and that the Trust will cease and discontinue completely further use
of such initials and will take all necessary action to change the name of the
Trust and the Fund to a name not including the initials of "GE."
* * * * *
IN WITNESS WHEREOF, the parties hereto have caused this
instrument to be executed by their duly authorized signatories as of the date
and year first above written.
GE INSTITUTIONAL FUNDS
By: S/MICHAEL J. COSGROVE
-----------------------------
Name: Michael J. Cosgrove
Title: Chairman of the Board
and President
GE INVESTMENT MANAGEMENT
INCORPORATED
By: S/ALAN M. LEWIS
-----------------------------
Name: Alan M. Lewis
Title: Executive Vice President
6
<PAGE>
INVESTMENT ADVISORY AND ADMINISTRATION AGREEMENT
GE INSTITUTIONAL FUNDS
EUROPE EQUITY FUND
GE INVESTMENT MANAGEMENT INCORPORATED
Agreement made as of December 9, 1998 between GE INVESTMENT
MANAGEMENT INCORPORATED ("GEIM") and GE INSTITUTIONAL FUNDS (the "Trust") on
behalf of its Europe Equity Fund (the "Fund").
RECITALS
The Trust is a business trust organized under the laws of the
State of Delaware on May 23, 1997 and registered under the Investment Company
Act of 1940, as amended (the "1940 Act"). The Trust is authorized to divide
shares of beneficial interests in the Trust into two or more separate series
and to divide each such series into two or more classes of Shares. The Fund is
a series of the Trust.
GEIM is a Delaware corporation registered as an investment
adviser under the Investment Advisers Act of 1940 (the "Advisers Act").
The Trust wishes to retain GEIM to serve as investment
adviser and administrator to the Fund and GEIM wishes to serve in this
capacity.
Section 1. Appointment
The Trust hereby appoints GEIM as investment adviser and
administrator with respect to the Fund's assets for the period and on the terms
set forth in this Agreement. GEIM accepts this appointment and hereby agrees to
render the services herein set forth for the compensation herein provided.
Subject to the approval of the Board and to other applicable
legal requirements, GEIM may enter into any advisory or sub-advisory agreement
or contract with another affiliated or unaffiliated entity pursuant to which
such entity will carry out some or all of GEIM's responsibilities listed
herein.
Section 2. Services as Investment Adviser and Administrator
(a) Subject to the oversight and supervision of the Trust's
board of trustees (the "Board"), GEIM agrees to provide a continuous investment
program for the Fund's assets, including investment research and management.
GEIM will determine from time to time what
1
<PAGE>
investments will be purchased, retained or sold by the Fund. GEIM will place
purchase and sale orders for the Fund's investments. GEIM will provide services
under this Agreement in accordance with the Fund's investment objectives,
policies and restrictions as stated in the Trust's current Registration
Statement on Form N-1A, as amended from time to time (the "Registration
Statement").
(b) The Trust has furnished or will furnish GEIM with copies
of the Registration Statement, its articles of incorporation and by-laws, if
any, as currently in effect and agrees during the continuance of this agreement
to furnish GEIM with copies of any amendment or supplements thereto before or
at the time such amendments or supplements become effective. GEIM may rely on
all documents furnished to it by the Trust.
(c) Subject to the oversight and supervision of the Board,
GEIM agrees to serve as administrator to the Trust and the Fund and, in this
capacity, will: (i) insure the maintenance of the books and records of the Fund
(including those required to be maintained or preserved by Rules 31a-1 and
31a-2 under the 1940 Act); (ii) prepare reports to shareholders of the Fund,
(iii) prepare and file tax returns for the Fund, (iv) assist with the
preparation and filing of reports and the Registration Statement with the
Securities and Exchange Commission (the "Commission"), (v) provide appropriate
officers for the Trust, including a Secretary or Assistant Secretary, (vi)
provide administrative support necessary for the Board to conduct meetings, and
(vii) supervise and coordinate the activities of other service providers,
including independent auditors, legal counsel, custodians, accounting service
agents, and transfer agents.
(d) GEIM will, at its own expense, maintain sufficient staff,
and employ or retain sufficient personnel and consult with any other persons
that it determines may be necessary or useful to the performance of its
obligations under this agreement.
(e) GEIM will keep the Trust informed of developments
materially affecting the Fund, and will, on its own initiative, furnish the
Trust from time to time with whatever information and reports that the Board
reasonably requests as appropriate for this purpose.
Section 3. Selection of Investments on Behalf of the Fund.
Unless otherwise set forth in the Registration Statement or
directed by the Trust, GEIM will, in selecting brokers or dealers to effect
transactions on behalf of the Fund select the best overall terms available. In
so doing, GEIM may consider the breadth of the market on the investment, the
price of the security, the size and difficulty of the order , the willingness
of the broker or dealer to position, the reliability, financial condition and
execution and operational capabilities of the broker or dealer, and the
reasonableness of the commission or size of the dealer's "spread", if any, for
the specific transaction and on a continuing basis. GEIM may also consider
brokerage and research services provided to the Fund and /or other accounts
over which GEIM or its affiliates exercise investment discretion. The Trust
recognizes the desirability of GEIM's having access to supplemental investment
and market research and security and
2
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economic analyses provided by brokers and that those brokers may execute
brokerage transactions at a higher cost to the Trust than would be the case if
the transactions were executed on the basis of the most favorable price and
efficient execution. The Trust, thus, authorizes GEIM, to the extent permitted
by applicable law and regulations, to pay higher brokerage commissions or
dealer spreads for the purchase and sale of securities for the Fund to brokers
who provide supplemental investment and market research and security and
economic analyses, subject to GEIM's determining in good faith that such
commissions are reasonable in terms either of the particular transaction or of
the overall responsibility of GEIM to the Fund and its other clients and that
the total commissions paid by the Fund will be reasonable in relation to the
benefits to the Fund over the long term. In no instance will portfolio
securities be purchased from or sold to GEIM, or any affiliated person thereof
or any investment advisory client thereof, except in accordance with the
federal securities laws and the rules and regulations thereunder.
Section 4. Costs and Expenses.
GEIM will bear the cost of rendering the services it is
obligated to provide under this Agreement and will provide the Trust with all
executive, administrative, clerical and other personnel necessary for the
investment and administrative operations of the Fund and will pay salaries and
other employment-related costs of employing these persons. GEIM will furnish
the Trust and the Fund with office space, facilities, and equipment and will
pay the day-to-day expenses related to the operation of such space, facilities
and equipment.
Except for those expenses assumed by the Fund as provided
below, GEIM shall bear all of the Fund's expenses, including, but not limited
to: charges and expenses of any registrar, the costs of custody, transfer
agency and recordkeeping services in connection with the Fund; registration
costs of the Fund and its shares under Federal and state securities laws; the
cost and expense of printing, including typesetting, and distributing of
prospectuses describing the Fund and supplements to those prospectuses to
regulatory authorities and the Fund's shareholders; all expenses incurred in
conducting meetings of the Fund's shareholders and meetings of the Board
relating to the Fund, excluding fees paid to members of the Board who are not
affiliated with GEIM or any of its affiliates; all expenses incurred in
preparing, printing and mailing proxy statements and reports to shareholders of
the Fund; all expenses incident to any dividend, withdrawal or redemption
options provided to Fund shareholders (except for purchase premiums and
redemption fees, if any, charged directly to shareholders); charges and
expenses of any outside service used for pricing the Fund's portfolio
securities and calculating the net asset value of the Fund's shares; fees and
expenses of legal counsel, including counsel to the members of the Board who
are not interested persons of the Fund, or GEIM, and independent auditors;
membership dues of industry associations; postage; insurance premiums on
property or personnel (including officers and Trustees) of the Trust that inure
to their benefit; and all other costs of the Fund's operations.
The Fund will bear the following expenses: advisory and
administration fees as described in Section 5 of this Agreement; shareholder
servicing and distribution fees under the
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terms of the shareholder servicing and distribution plan adopted by the Trust
with respect to the Fund pursuant to Rule 12b-1 (the "Plan") under the 1940
Act; brokerage fees and commissions and other expenses incurred in the
acquisition or disposition of any securities or other invest-ments; fees and
travel expenses of members of the Board or members of any advisory board or
committee who are not affiliated with GEIM, or any of its affiliates; and
expenses that are not normal operating expenses of the Fund (such as
extraordinary expenses, interest and taxes).
Section 5. Compensation.
In consideration of services rendered and the expenses paid
by GEIM pursuant to this Agreement, the Trust will pay GEIM on the first
business day of each month a fee calculated as a percentage of the average
daily net assets of the Fund during the previous month at the following annual
rates:
Average Daily Net Assets Annual Rate Percentage of Fund (%)
------------------------ ----------------------------------
First $25 million .75
Next $50 million .65
Over $75 million .55
For the purpose of determining fees payable to GEIM under this Agreement, the
value of the Fund's net assets will be computed in the manner described in the
Registration Statement.
Section 6. Services to Other Companies or Accounts.
(a) The Trust understands and acknowledges that GEIM now acts
and will continue to act as investment manager or adviser to various fiduciary
or other managed accounts ("Other Accounts") and the Trust has no objection to
GEIM's so acting, so long as that when the Fund and any Other Account 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 and the Other Account. In
addition, the Trust understands and acknowledges that GEIM may, to the extent
permitted by applicable laws and regulations, aggregate securities to be sold
or purchased for the Trust with those to be sold or purchased for Other
Accounts so long as the securities purchased or sold, as well as the expenses
incurred in the transaction, are allocated in a manner believed by GEIM to be
equitable to the Trust and the Other Accounts. The Trust recognizes that, in
some cases, the above procedures may adversely affect the price paid or
received by the Fund or the size of the position obtained or disposed of by the
Fund.
(b) It is agreed that GEIM may use any supplemental
investment research and other services provided by brokers or dealer obtained
for the benefit of the Fund or the Trust in providing investment advice to
Other Accounts.
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(c) The Trust understands and acknowledges that the persons
employed by GEIM to assist in the performance of its duties under this
Agreement will not devote their full time to that service and agrees that
nothing contained in this Agreement will be deemed to limit or restrict the
right of GEIM or any affiliate of GEIM to engage in and devote time and
attention to other businesses or to render services of whatever kind or nature.
Section 7. Continuance and Termination of the Agreement.
(a) This Agreement will become effective as of the date
hereof and will continue for an initial two-year term and will continue
thereafter so long as the continuance is specifically approved at least
annually (a) by the Board or (b) by a vote of a majority of the Fund's
outstanding voting securities, as defined in the 1940 Act, provided that in
either event the continuance is also approved by a majority of the Trustees who
are not parties to this Agreement or "interested persons" (as defined in the
1940 Act) of any party to this Agreement, by vote cast in person at a meeting
called for the purpose of voting on the approval.
(b) This Agreement is terminable without penalty, by the
Trust on not more than 60 nor less than 30 days' written notice to GEIM, by
vote of holders of a majority of the Fund's outstanding voting securities, as
defined in the 1940 Act, or by GEIM on not more than 60 nor less than 30 days'
notice to the Trust.
(c) This Agreement will terminate automatically in the event
of its assignment (as defined in the 1940 Act or in rules adopted under the
1940 Act).
Section 8. Limitation of Liability.
(a) GEIM will exercise its best judgment in rendering the
services described in this Agreement, except that GEIM will not be liable for
any error of judgment or mistake of law or for any loss suffered by the Fund in
connection with the matters to which this Agreement relates, other than a loss
resulting from willful misfeasance, bad faith or gross negligence on the part
of GEIM in the performance of its duties or from reckless disregard by it of
its obligations and duties under this Agreement or to the extent specified in
Section 36(b) of the 1940 Act concerning loss resulting from a breach of
fiduciary duty with respect to the receipt of compensation for services. Any
person, even though also an officer, director, employee or agent of GEIM, who
may be or become an officer, Trustee, employee or agent of the Trust, will be
deemed, when rendering services to the Trust or acting on any business of the
Trust, to be rendering services to, or acting solely for, the Trust and not as
an officer, director, employee or agent, or one under the control or direction
of, GEIM even though paid by GEIM.
(b) The Trust and GEIM agree that the obligations of the
Trust under this Agreement will not be binding upon any of the Trustees,
shareholders, nominees, officers, employees or agents, whether past, present or
future, of the Trust, individually, but are binding only upon the assets and
property of the Fund, as provided in the Declaration of Trust. The execution
and delivery of this Agreement have been authorized by the Trustees of the
Trust, and
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signed by an authorized officer of the Trust, acting as such, and neither the
authorization by the Trustees nor the execution and delivery by the officer
will be deemed to have been made by any of them individually or to impose any
liability on any of them personally, but will bind only the trust property of
the Trust as provided in the Declaration of Trust. No series of the Trust,
including the Fund, will be liable for any claims against any other series.
Section 9. Miscellaneous.
The Trust recognizes that trustees, officers and employees of GEIM and
its affiliates may from time to time serve as trustees, trustees, officers and
employees of corporations, partnerships, group trusts and business trusts
(including other investment companies) and that such other entities may include
the initials "GE" or the words "General Electric" as part of their name, and
that GEIM or its affiliates may enter into distribution, investment advisory or
other agreements with such other corporations and trusts. If GEIM ceases to act
as the investment adviser to the Trust, the Trust agrees that, at GEIM's
request, any license granted to the Trust for the use of the initials "GE" will
terminate and that the Trust will cease and discontinue completely further use
of such initials and will take all necessary action to change the name of the
Trust and the Fund to a name not including the initials of "GE."
* * * * *
IN WITNESS WHEREOF, the parties hereto have caused this
instrument to be executed by their duly authorized signatories as of the date
and year first above written.
GE INSTITUTIONAL FUNDS
By: S/MICHAEL J. COSGROVE
-----------------------------
Name: Michael J. Cosgrove
Title: Chairman of the Board
and President
GE INVESTMENT MANAGEMENT
INCORPORATED
By: S/ALAN M. LEWIS
-----------------------------
Name: Alan M. Lewis
Title: Executive Vice President
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GE INSTITUTIONAL FUNDS
MID-CAP VALUE EQUITY FUND
SUB-ADVISORY AGREEMENT
This agreement ("Agreement") is made as of December 30, 1998,
between GE INVESTMENT MANAGEMENT INCORPORATED ("GEIM"), a Delaware corporation,
GE INSTITUTIONAL FUNDS, a Massachusetts business trust ("Company"), on behalf
of the MID-CAP VALUE EQUITY FUND ("Fund"), a series of the Company, solely with
respect to Section 5(b) of this Agreement, and NWQ INVESTMENT MANAGEMENT
COMPANY, a Massachusetts corporation ("Sub-Adviser").
RECITALS
GEIM has entered into an Investment Advisory and
Administration Agreement dated December 9, 1998 ("Advisory Agreement") with the
Company, an open-end management investment company registered under the
Investment Company Act of 1940, as amended ("1940 Act"), with respect to the
Fund, a series of the Company;
Pursuant to Section 1 of the Advisory Agreement, GEIM is
authorized to delegate its investment advisory responsibilities to other
investment advisers, subject to the requirements of the 1940 Act;
GEIM wishes to retain the Sub-Adviser to furnish certain
investment advisory services to GEIM and the Fund, and the Sub-Adviser is
willing to furnish those services; and
GEIM intends that this Agreement will become effective when
approved in accordance with Section 15 of the 1940 Act;
NOW, THEREFORE, in consideration of the premises and mutual
covenants herein contained, the parties agree as follows:
1. Appointment. GEIM hereby appoints the Sub-Adviser as an
investment sub-adviser with respect to the Fund's assets for the period and on
the terms set forth in this Agreement. The Sub-Adviser accepts that appointment
and agrees to render the services herein set forth, for the compensation herein
provided.
2. Duties as Sub-Adviser.
(a) Subject to the oversight and supervision of GEIM and the
Board of Trustees of the Company ("Board"), the Sub-Adviser will provide a
continuous investment program for the Fund's assets, including investment
research and management. The Sub-Adviser will determine from time to time what
investments will be purchased, retained or sold by the Fund. The Sub-Adviser
will be responsible for placing purchase and sell orders for Fund investments.
The Sub-Adviser will consult with GEIM from time to time regarding matters
pertaining to the Fund,
<PAGE>
including market strategy and portfolio characteristics. The Sub-Adviser will
provide services under this Agreement in accordance with the Fund's investment
objective, policies and restrictions as stated in the Company's current
Registration Statement on Form N-1A and any amendments or supplements thereto
("Registration Statement") and the Company's Declaration of Trust and By-Laws,
if any, ("Constituent Documents"). In this connection and in connection with
the further duties set forth in paragraphs 2(b) - (k) below, the Sub-Adviser
shall provide GEIM and the Board with such periodic reports and documentation
as GEIM or the Board shall reasonably request regarding the Sub-Adviser's
management of the Fund's assets, compliance with applicable laws and rules and
the Registration Statement and all requirements hereunder.
(b) The Sub-Adviser shall carry out its responsibilities
under this Agreement in compliance with: (1) the Fund's investment objective,
policies and restrictions as set forth in the Registration Statement, (2) the
Constituent Documents, (3) all investment guidelines, policies, procedures or
directives of the Company or GEIM provided to the Sub-Adviser, (4) the 1940 Act
and the rules promulgated thereunder, and (5) other applicable federal and
state laws and related regulations. In particular, in carrying out its duties
as Sub-Adviser, Sub-Adviser shall, to the extent within its control, make every
effort to ensure that the Fund continuously qualifies as a regulated investment
company under sub-chapter M of the Internal Revenue Code of 1986, as amended
("Code") and the regulations promulgated thereunder. GEIM shall promptly notify
the Sub-Adviser of changes to (1), (2) or (3) above and shall consult with
Sub-Adviser before making any changes relating solely to the Fund's investment
objective, policies and restrictions as set forth in the Registration
Statement.
(c) The Sub-Adviser shall take all actions which it considers
necessary to implement the investment objectives and policies of the Fund, and
in particular, to place all orders for the purchase or sale of securities or
other investments for the Fund with brokers or dealers selected by it, and to
that end, the Sub-Adviser is authorized as the agent of the Company to give
instructions to the Company's custodian(s) as to deliveries of securities or
other investments and payments of cash for the account of the Fund. In
connection with the selection of brokers or dealers and the placing of purchase
and sale orders with respect to investments of the Fund, the Sub-Adviser is
directed at all times to seek to obtain best execution and price within the
policy guidelines determined by the Board.
In addition to seeking the best price and execution, to the
extent covered by Section 28(e) of the Securities Exchange Act of 1934, as
amended ("1934 Act"), the Sub-Adviser is also authorized to take into
consideration research and statistical information and wire and other quotation
services provided by brokers and dealers to the Sub-Adviser. The Sub-Adviser is
also authorized to effect individual securities transactions at commission
rates in excess of the minimum commission rates available, if it determines in
good faith that such amount of commission is reasonable in relation to the
value of the brokerage and research services provided by such broker or dealer,
viewed in terms of either that particular transaction or the Sub-Adviser's
overall responsibilities with respect to the Fund. The policies with respect to
brokerage allocation, determined from time to time by the Board, are disclosed
in the Registration Statement. The Sub-Adviser will periodically evaluate the
statistical data, research and other investment services provided to it by
brokers and dealers. Such services may be used by the Sub-Adviser in connection
with the performance of its obligations under this Agreement or in connection
with other advisory
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<PAGE>
or investment operations, including using such information in managing its own
accounts. The Sub-Adviser is also authorized to use soft-dollar services as
requested by the Board from time to time. Whenever the Sub-Adviser
simultaneously places orders to purchase or sell the same security on behalf of
the Fund and one or more other accounts advised by the Sub-Adviser, the orders
will be allocated as to price and amount among all such accounts in a manner
believed to be equitable by the Sub-Adviser to each account.
(d) Subject to: (1) the requirement that the Sub-Adviser seek
to obtain best execution and price within the policy guidelines determined by
the Board and set forth in the Registration Statement, (2) the provisions of
the 1940 Act and the Investment Advisers Act of 1940, as amended ("Advisers
Act"), (3) the provisions of the 1934 Act, and (4) other applicable provisions
of law, the Sub-Adviser or an affiliated person of the Sub-Adviser or of GEIM
may act as broker for the Fund in connection with the purchase or sale of
securities or other investments for the Fund. Such brokerage services are not
within the scope of the duties of the Sub-Adviser under this Agreement. Subject
to the requirements of applicable law and any procedures adopted by the Board,
the Sub-Adviser or its affiliated persons may receive brokerage commissions,
fees or other remuneration from the Fund or the Company for such services in
addition to the Sub-Adviser's fees for services under this Agreement.
(e) The Sub-Adviser will maintain all books and records
required to be maintained by the Company pursuant to the 1940 Act and the rules
and regulations promulgated thereunder with respect to transactions on behalf
of the Fund, and will furnish the Board and GEIM with such periodic and special
reports as the Board or GEIM reasonably may request. The Sub-Adviser shall
permit the books and records maintained with respect to the Fund to be
inspected and audited by the Company, GEIM or their respective agents at all
reasonable times during normal business hours upon reasonable notice. In
compliance with the requirements of Rule 3la-3 under the 1940 Act, the
Sub-Adviser hereby agrees that all records which it maintains for the Fund are
the property of the Company, agrees to preserve for the periods prescribed by
Rule 31a-2 under the 1940 Act any records which it maintains for the Company
and which are required to be maintained by Rule 31a-1 under the 1940 Act, and
further agrees to surrender promptly to the Company any records which it
maintains for the Company upon request by the Company.
(f) At such times as shall reasonably be requested, the
Sub-Adviser will provide to the Board and GEIM economic and investment analyses
and reports, information required in the Registration Statement and information
necessary for GEIM and the Board to review the Fund or discuss the management
of it. The Sub-Adviser will provide quarterly reports setting forth the Fund's
performance and the Sub-Adviser's private account composite performance and
will complete on a quarterly basis the checklist provided to it by GEIM
regarding the Fund's investments and transactions. The Sub-Adviser shall make
available to the Board and GEIM any economic, statistical and investment
services normally available to institutional or other customers of the
Sub-Adviser. The Sub-Adviser will make available its officers and employees to
meet with the Board on reasonable notice to review the Fund's investments.
(g) In accordance with procedures adopted by the Board, as
amended from time to time, the Sub-Adviser is responsible for assisting the
Board in determining the fair valuation of
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<PAGE>
any illiquid portfolio securities and will assist the Company's accounting
services agent or GEIM to obtain independent sources of market value for all
other portfolio securities.
(h) At such times as shall be reasonably requested by GEIM,
the Sub-Adviser shall review and certify in writing that the information stated
in the Company's Registration Statement relating to the Sub-Adviser, its
management of the Fund, including investment objectives, strategies and related
risks, and its performance history is true, correct and complete.
(i) The Sub-Adviser will promptly notify GEIM of any change
of control of the Sub-Adviser, including any change of its general partners or
25% shareholders or members, as applicable, and any changes in the key
personnel of the Sub-Adviser, including without limitation portfolio management
personnel responsible for the Fund's assets, in each case prior to or promptly
after such change. Notwithstanding the foregoing, the Sub-Adviser will promptly
notify GEIM of any existing agreement, or upon entering into any agreement,
that may result in a change of control of the Sub-Adviser, including without
limitation the retention of an agent to assist in the sale of all, or a
significant portion, of the business of the Sub-Adviser.
(j) The Sub-Adviser will calculate its private account
composite performance in compliance with the Performance Presentation Standards
of the Association for Investment Management Research.
(k) Within fifteen days of the end of the last calendar
quarter of each year that this Agreement is in effect, the president or a vice
president of the Sub-Adviser shall certify to GEIM that the Sub-Adviser has
complied with the requirements of Rule 17j-1 during the previous year and that
there has been no violation of the Sub-Adviser's code of ethics or, if such a
violation has occurred, that appropriate action was taken in response to such
violation. Upon the written request of GEIM, the Sub-Adviser shall permit GEIM,
its employees or its agents to examine the reports required to be made to the
Sub-Adviser by Rule 17j-1(c)(1) and all other records relevant to the
Sub-Adviser's code of ethics.
3. Expenses. During the term of this Agreement, the
Sub-Adviser will bear all expenses incurred by it in connection with its
investment sub-advisory services under this Agreement.
4. Compensation.
For the services rendered, the facilities furnished and the
expenses assumed by the Sub-Adviser, GEIM shall pay the Sub-Adviser no later
than the twentieth (20th) business day following the end of each calendar month
a fee based on the average daily net assets of the Fund at the following annual
rates:
.450% of the first $50,000,000; and .375% of amounts in
excess of $50,000,000.
The Sub-Adviser's fee shall be paid by GEIM out of GEIM's
advisory fee to the extent such fee is received by GEIM pursuant to the
Advisory Agreement. To the extent that
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<PAGE>
GEIM determines to waive, or to reimburse the Fund for, all or a portion of its
advisory fee, the Sub-Adviser agrees to a reduction of its fee pro-rata.
The Sub-Adviser's fee shall be accrued daily at 1/365th of
the applicable annual rate set forth above. For the purpose of accruing
compensation, the net assets of the Fund shall be determined in the manner and
on the dates set forth in the current prospectus of the Company, and, on dates
on which the net assets are not so determined, the net asset value computation
to be used shall be as determined on the next day on which the net assets shall
have been determined. In the event of termination of this Agreement, all
compensation due through the date of termination will be calculated on a
pro-rated basis through the date of termination and paid within thirty (30)
business days of the date of termination.
During any period when the determination of net asset value
is suspended, the net asset value of the Fund as of the last business day prior
to such suspension shall for this purpose be deemed to be the net asset value
at the close of each succeeding business day until it is again determined.
5. Indemnification.
(a) GEIM agrees to indemnify and hold the Sub-Adviser, its
officers and directors, and any person who controls the Sub-Adviser within the
meaning of Section 15 of the Securities Act of 1933, as amended ("1933 Act")
harmless from any and all direct or indirect liabilities, losses or damages
(including reasonable attorneys' fees) suffered by Sub-Adviser resulting from
(i) GEIM's breach of its duties under the Advisory Agreement or (ii) bad faith,
willful misfeasance, reckless disregard or gross negligence on the part of GEIM
or any of its directors, officers or employees in the performance of GEIM's
duties and obligations under this Agreement, except to the extent such loss
results from the Sub-Adviser's own willful misfeasance, bad faith, reckless
disregard or gross negligence in the performance of Sub-Adviser's duties and
obligations under this Agreement.
(b) The Fund agrees to indemnify and hold the Sub-Adviser,
its officers and directors, and any person who controls the Sub-Adviser within
the meaning the 1933 Act harmless from any and all direct or indirect
liabilities, losses or damages (including reasonable attorneys' fees) suffered
by Sub-Adviser resulting from any misrepresentation of a material fact in the
Registration Statement or the omission of a fact necessary to make information
contained in the Registration Statement not misleading, except to the extent
that such loss results from information in the Registration Statement that was
provided by Sub-Adviser.
(c) The Sub-Adviser agrees to indemnify and hold GEIM, its
officers and directors, and any person who controls GEIM within the meaning of
Section 15 of the 1933 Act, and the Company harmless from any and all direct or
indirect liabilities, losses or damages (including reasonable attorneys' fees)
suffered by GEIM, its officers and directors, and any person who controls GEIM
within the meaning of Section 15 of the 1933 Act, and the Company resulting
from (i) Sub-Adviser's breach of its duties hereunder or (ii) bad faith,
willful misfeasance, reckless disregard or gross negligence on the part of the
Sub-Adviser or any of its directors, officers or employees in the performance
of the Sub-Adviser's duties and obligations under this Agreement,
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<PAGE>
except to the extent such loss results from the Company's or GEIM's own willful
misfeasance, bad faith, reckless disregard or gross negligence in the
performance of their respective duties and obligations under the Advisory
Agreement or this Agreement.
6. Representations and Warranties of Sub-Adviser. The
Sub-Adviser represents, warrants and agrees as follows:
(a) The Sub-Adviser (i) is registered as an investment
adviser under the Advisers Act and will continue to be so registered for so
long as this Agreement remains in effect; (ii) is not prohibited by the 1940
Act or the Advisers Act from performing the services contemplated by this
Agreement; (iii) has met, and will seek to continue to meet for so long as this
Agreement remains in effect, any other applicable federal or state
requirements, or the applicable requirements of any regulatory or industry
self-regulatory agency, necessary to be met in order to perform the services
contemplated by the Advisory Agreement; (iv) has the authority to enter into
and perform the services contemplated by this Agreement and the execution,
delivery and performance by the Sub-Adviser of this Agreement does not
contravene or constitute a default under any agreement binding upon the
Sub-Adviser; (v) will promptly notify GEIM of the occurrence of any event that
would disqualify it from serving as an investment adviser of an investment
company pursuant to Section 9(a) of the 1940 Act or otherwise; (vi) has filed a
notice of exemption pursuant to Rule 4.14 under the Commodity Exchange Act with
the Commodity Futures Trading Commission and the National Futures Association,
or is not required to file such exemption; and (vii) is duly organized and
validly existing under the laws of the state in which it was organized with the
power to own and possess its assets and carry on its business as it is now
being conducted.
(b) The Sub-Adviser has adopted a written code of ethics
complying with the requirements of Rule 17j-1 under the 1940 Act and will
provide GEIM and the Board with a copy of that code of ethics, together with
evidence of its adoption.
(c) The Sub-Adviser certifies that the information stated in
Post-Effective Amendment No. 3 to the Company's Registration Statement relating
to the Sub-Adviser, its management of the Fund and its performance history is
true, correct and complete to the best of its knowledge.
(d) The Sub-Adviser's performance under this Agreement will
not be materially affected by any problems related to Year 2000 compliance. For
this purpose, Year 2000 compliance shall mean that computer systems (1) shall
be capable of accurately processing date-related data for dates earlier and
later than January 1, 2000 (including calculating, comparing, sorting and
sequencing), (2) shall have the ability to provide proper date recognition for
any data element, including date-related data represented without a century
designation, date-related data whose year is represented by only two digits,
and date fields assigned special values or as default fields, and (3) shall
have the ability to recognize all leap years, and all valid dates therein.
7. Representations and Warranties of GEIM. GEIM represents,
warrants and agrees that GEIM (i) is registered as an investment adviser under
the Advisers Act and will continue to be so registered for so long as this
Agreement remains in effect; (ii) is not prohibited by the 1940 Act or the
Advisers Act from performing the services contemplated by the Advisory
Agreement; (iii)
6
<PAGE>
has met, and will seek to continue to meet for so long as this Agreement
remains in effect, any other applicable federal or state requirements, or the
applicable requirements of any regulatory or industry self-regulatory agency,
necessary to be met in order to perform the services contemplated by the
Advisory Agreement; (iv) has the authority to enter into and perform the
services contemplated by the Advisory Agreement and the execution, delivery and
performance by GEIM of the Advisory Agreement does not contravene or constitute
a default under any agreement binding upon GEIM; (v) will promptly notify the
Sub-Adviser of the occurrence of any event that would disqualify GEIM from
serving as an investment adviser of an investment company pursuant to Section
9(a) of the 1940 Act or otherwise; (vi) has filed a notice of exemption
pursuant to Rule 4.14 under the Commodity Exchange Act with the Commodity
Futures Trading Commission and the National Futures Association, or is not
required to file such exemption; (vii) is duly organized and validly existing
under the Laws of the State of Delaware with the power to own and possess its
assets and carry on its business as it is now being conducted; and (viii) it
has furnished the Sub-Adviser with true and complete copies of the Constituent
Documents and the Registration Statement and will provide to the Sub-Adviser
copies of any amendments or supplements to any of these materials as soon as
practicable after such materials become available.
8. Survival of Representations and Warranties; Duty to Update
Information. All representations and warranties made by the Sub-Adviser and
GEIM pursuant to Sections 6 and 7, respectively, shall survive for the duration
of this Agreement and the parties hereto shall promptly notify each other in
writing upon becoming aware that any of the foregoing representations and
warranties are no longer true.
9. Duration and Termination.
(a) This Agreement shall become effective upon the date first
above written and will continue for an initial two-year term and will continue
thereafter so long as the continuance is specifically approved at least
annually (a) by the Board or (b) by a vote of a majority of the Fund's
outstanding voting securities, as defined in the 1940 Act, provided that in
either event the continuance is also approved by a majority of the Board who
are not parties to this Agreement or "interested persons" (as defined in the
1940 Act) of any party to this Agreement, by vote cast in person at a meeting
called for the purpose of voting on the approval.
(b) This Agreement may be terminated at any time without the
payment of any penalty, by the Board, or by vote of a majority of the Fund's
outstanding voting securities, on 60 days' written notice to the Sub-Adviser.
This Agreement may also be terminated, without the payment of any penalty, by
GEIM: (i) upon 60 days' written notice to the Sub-Adviser; (ii) upon material
breach by the Sub-Adviser of any of the representations and warranties set
forth in Paragraph 8 of this Agreement; or (iii) if the Sub-Adviser becomes
unable to discharge its duties and obligations under this Agreement, including
circumstances such as financial insolvency of the Sub-Adviser or other
circumstances that could adversely affect the Fund. The Sub-Adviser may
terminate this Agreement at any time, without the payment of a penalty, on 60
days' written notice to GEIM. This Agreement will terminate automatically in
the event of its assignment, including without limitation, a change of control
of the Sub-Adviser, or upon termination of the Advisory Agreement.
7
<PAGE>
10. Change of Control and Change of Portfolio Management. The
Sub-Adviser will be liable to the Company and GEIM for all direct and indirect
costs resulting from (i) a change of control of the Sub-Adviser or (ii) Jon
Bosse's resignation or the termination of Jon Bosse's employment by the
Sub-Adviser, provided, however, that such resignation or termination occurs
within five years from the date of this Agreement. For purposes of this Section
10, direct and indirect costs shall include without limitation all costs
associated with proxy solicitations, Board meetings, revisions to prospectuses,
statements of additional information and marketing materials, and the hiring of
another sub-adviser to the Fund in an amount not to exceed fees paid by GEIM to
the Sub-Adviser pursuant to Section 4 of this Agreement for three months
preceding the date of such change of control, resignation or termination of
employment. The understandings and obligations set forth in this Section 10
shall survive the termination of this Agreement and shall be binding upon the
Sub-Adviser's successor(s) and/or assign(s).
11. Exclusivity. During the term of the Agreement and so long
as the Fund is being offered to the public, the Sub-Adviser shall not, without
the written consent of GEIM and the Board, serve as investment adviser or
investment sub-adviser to any management investment company registered under
the 1940 Act (or series thereof) with substantially similar investment
objectives, policies and restrictions as those of the Fund (a "Mutual Fund")
other than a Mutual Fund that is advised by GEIM. At such time as the Fund is
no longer available to the public, the Sub-Adviser shall not serve as
investment adviser or investment sub-adviser to any other Mutual Fund without
having first offered in writing to serve as investment sub-adviser to a Mutual
Fund advised by GEIM for an investment sub-advisory fee not to exceed the
amount set forth in Section 4 of this Agreement (the "Offer"). The Offer shall
be valid for sixty (60) days from the date of its receipt by GEIM. If GEIM
accepts the Offer, the Sub-Adviser shall not serve as investment adviser or
investment sub-adviser to any Mutual Fund, unless the Board does not approve
the sub-advisory agreement with GEIM or the amount of the sub-advisory fee
contemplated.
12. Amendment of this Agreement. No provision of this
Agreement may be changed, waived, discharged or terminated orally, but only by
an instrument in writing signed by the party against which enforcement of the
change, waiver, discharge or termination is sought, and no material amendment
to the terms of this Agreement shall be effective until approved by a vote of a
majority of the Fund's outstanding voting securities (unless the Company
receives an SEC order or opinion of counsel, or the issue is the subject of a
position of the SEC or its staff, permitting it to modify the Agreement without
such vote).
13. Governing Law. This Agreement shall be construed in
accordance with the 1940 Act and the laws of the State of New York, without
giving effect to the conflicts of laws principles thereof. To the extent that
the applicable laws of the State of New York conflict with the applicable
provisions of the 1940 Act, the latter shall control.
8
<PAGE>
14. Miscellaneous. The captions in this Agreement are
included for convenience of reference only and in no way define or delimit any
of the provisions hereof or otherwise affect their construction or effect. If
any provision of this Agreement shall be held or made invalid by a court
decision, statute, rule or otherwise, the remainder of this Agreement shall not
be affected thereby. This Agreement shall be binding upon and shall inure to
the benefit of the parties hereto. As used in this Agreement, the terms
"majority of the outstanding voting securities," "affiliated person,"
"interested person," "assignment," "broker," "investment adviser," "net
assets," "sale," "sell" and "security" shall have the same meaning as such
terms have in the 1940 Act, subject to such exemption as may be granted by the
SEC by any rule, regulation or order. Where the effect of a requirement of the
federal securities laws reflected in any provision of this Agreement is made
less restrictive by rule, regulation or order of the SEC, whether of special or
general application, such provision shall be deemed to incorporate the effect
of such rule, regulation or order. This Agreement may be signed in counterpart.
IN WITNESS WHEREOF, the parties hereto have caused this
instrument to be executed by their duly authorized signatories as of the date
and year first above written.
GE INVESTMENT MANAGEMENT INCORPORATED
BY: S/MICHAEL J. COSGROVE
----------------------------------
Name: Michael J. Cosgrove
Title: Executive Vice President
GE INSTITUTIONAL FUNDS, ON BEHALF OF
MID-CAP VALUE EQUITY FUND, A SERIES OF GE
INSTITUTIONAL FUNDS, SOLELY WITH RESPECT
TO SECTION 5(b) OF THIS AGREEMENT
BY: S/MICHAEL J. COSGROVE
----------------------------------
Name: Michael J. Cosgrove
Title: President
NWQ INVESTMENT MANAGEMENT COMPANY
BY: S/MARY-GENE SLAVEN
----------------------------------
Name: Mary-Gene Slaven
Title: Managing Director
9
<PAGE>
[SUTHERLAND ASBILL & BRENNAN LLP LETTERHEAD]
DAVID S. GOLDSTEIN
DIRECT LINE: 202.383.0606
Internet: [email protected]
January 26, 1999
Board of Trustees
GE Institutional Funds
3003 Summer Street
Stamford, CT 06905
RE: Post-Effective Amendment Number 4
GE Institutional Funds
(File Nos. 333-29337, 811-08257)
----------------------------------
Dear Trustees:
We have acted as counsel to GE Institutional Funds (the "Trust"), a
business trust organized under the laws of the State of Delaware, in connection
with its registration of an indefinite number of shares of beneficial interest
in the Europe Equity Fund, an investment portfolio of the Trust (the "Shares")
under the Securities Act of 1933, as amended (the "1933 Act"). In this
connection, we have prepared post-effective amendment number 4 to the
registration statement to be filed by you with the Securities and Exchange
Commission on Form N-1A (File No. 333-29337) (the "registration statement"). We
also are familiar with the actions taken by you by at the board of trustees
meetings on November 6, 1998 and December 9, 1998, in connection with the
authorization, issuance and sale of the Shares.
We have examined such Trust records, certificates and other documents
and reviewed such questions of law as we have considered necessary or
appropriate for purposes of this opinion. In our examination of such materials,
we have assumed the genuineness of all signatures and the conformity to the
original documents of all copies submitted to us. As to certain questions of
fact material to our opinion, we have relied upon statements of officers of the
Trust and upon representations of the Trust made in the registration statement.
Based upon the foregoing, we are of the opinion that the Shares, when
issued and sold in the manner described in the registration statement, will be
legally issued, fully paid and non-assessable.
<PAGE>
Board of Trustees
January 26, 1999
Page 2
We are attorneys licensed to practice only in the State of Georgia and
the District of Columbia.
We hereby consent to the reference to our name in the prospectus and
statement of additional information filed as part of the registration statement.
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 1933 Act.
Very truly yours,
SUTHERLAND ASBILL & BRENNAN LLP
By: /s/ David S. Goldstein
---------------------------------------
David S. Goldstein
<PAGE>
[Letterhead of PricewaterhouseCoopers LLP]
CONSENT OF INDEPENDENT ACCOUNTANTS
----------------------------------
We hereby consent to the use in the Statement of Additional Information
constituting part of this Post-Effective Amendment No. 4 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
of The GE Institutional Funds, which appears in such Statement of Additional
Information, and to the incorporation by reference of out report into the
Prospectus which constitutes part of this Registration Statement. We also
consent to the references to us under the headings "Financial Statement," and
"Independent Accountants" in such Statement of Additional Information and to the
reference to us under the headings "Financial Highlights" in such Prospectus.
/s/ PricewaterhouseCoopers LLP
Boston, Massachusetts
January 26, 1999
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</TABLE>
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<NAME> GE INSTITUTIONAL S & P 500 INDEX FUND
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<NAME> GE INSTITUTIONAL INCOME FUND
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<OVERDIST-NET-GAINS-PRIOR> 0
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<GROSS-EXPENSE> 173
<AVERAGE-NET-ASSETS> 64066
<PER-SHARE-NAV-BEGIN> 10.000
<PER-SHARE-NII> 0.510
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<PER-SHARE-DIVIDEND> (0.510)
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<EXPENSE-RATIO> 0.31
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<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 101
<NAME> GE INSTITUTIONAL MONEY MARKET FUND
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 10-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> DEC-02-1997
<PERIOD-END> SEP-30-1998
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<INVESTMENTS-AT-VALUE> 7087
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