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File Nos. 333-29337, 811-08257
As filed with the Securities and Exchange Commission on March 17, 1999
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [ ]
Pre-Effective Amendment No. [ ]
Post-Effective Amendment No. 5 [X]
and
REGISTRATION STATEMENT UNDER
THE INVESTMENT COMPANY ACT OF 1940 [ ]
Amendment No. 7 [X]
(Check appropriate box or boxes)
..................................................................
GE INSTITUTIONAL FUNDS
3003 Summer Street
Stamford, Connecticut 06905
(203) 326-4040
(Registrant's Exact Name, Address and Telephone Number)
...................................................................
Matthew J. Simpson, Esq.
Vice President, Associate General Counsel & Assistant Secretary
GE Investment Management Incorporated
3003 Summer Street
Stamford, Connecticut 06905
(Name and Address of Agent for Service)
...................................................................
Copy to:
Stephen E. Roth, Esq.
Sutherland Asbill & Brennan LLP
1275 Pennsylvania Avenue, N.W.
Washington, DC 20004-2404
Approximate Date of Proposed Public Offering: As soon as practicable after the
effective date of this
Registration Statement.
It Is Proposed That this Filing Will Become Effective (check appropriate box)
[ ] Immediately upon Filing Pursuant to Paragraph (b) of Rule 485
[X] on March 31, 1999 Pursuant to Paragraph (b) of Rule 485
[ ] 60 Days after Filing Pursuant to Paragraph (a)(1) of Rule 485
[ ] on (Date) Pursuant to Paragraph (a)(1) of Rule 485
[ ] 75 Days after Filing Pursuant to Paragraph (a)(2) of Rule 485
[ ] on (Date) Pursuant to Paragraph (a)(2) of Rule 485
If appropriate, check the following box:
[ ] This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
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This post-effective amendment is being filed to create a "stand-alone"
prospectus for one of the Registrant's series, the International Equity Fund.
Each of the Registrant's other series remain registered and are not affected by
this post-effective amendment.
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Prospectus
-------------------------
GE Institutional Funds
International Equity Fund
March 31, 1999
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Like all mutual funds, the Fund's 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.
GE [LOGO]
We bring good things to life.
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Contents
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GE Institutional Funds
International Equity Fund Prospectus
International Equity Fund ................................................. 2
The Strategy .............................................................. 2
The Risks ................................................................. 2
Fund Performance .......................................................... 3
Fund Expenses ............................................................. 4
More on Strategies and Risks .............................................. 6
Definition of Terms ....................................................... 6
More on Risks ............................................................. 6
Other Risk Considerations ................................................. 9
More on Investment Strategies ............................................. 10
About the Investment Adviser .............................................. 11
Investment Adviser and Administrator ...................................... 11
About the Fund's Portfolio Manager ........................................ 11
How to Invest ............................................................. 12
Dividends, Capital Gains and Other
Tax Information ......................................................... 13
Calculating Share Value ................................................... 14
Appendix: Financial Highlights ............................................ 15
Additional information regarding the International Equity Fund is contained in
the Statement of Additional Information for GE Institutional Funds dated March
31, 1999, which is incorporated by reference into (legally forms a part of) this
Prospectus.
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2 GE Institutional Funds International
International Equity Fund Prospectus Equity Fund
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The Strategy
Investment
Objective:
Seeks long-term
growth of
capital.
The International Equity Fund invests primarily in equity securities of
companies located in developed and developing countries other than the United
States. Equity securities may include common stocks, preferred stocks,
depositary receipts, convertible securities (convertible preferred stocks,
convertible bonds, convertible debentures, convertible notes), and rights and
warrants. Stock represents an ownership interest in a corporation.
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. Under certain
circumstances, the Fund may invest in securities of companies located in the
United States. The portfolio managers may use various investment techniques to
adjust the Fund's investment exposure, but there is no guarantee that these
techniques will work.
The Risks
The principal risks of investing in this Fund are stock market risk, foreign
exposure risk, style risk and emerging markets risk. To the extent that the
portfolio managers invest in debt securities, the Fund is subject to interest
rate risk and credit risk.
If you would like additional information regarding the investment strategies and
risks associated with this Fund, including a description of the terms in bold
type, please refer to "More on Strategies and Risks" later in this Prospectus.
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3
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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
[chart to come]
Average Annual Total Return
(as of December 31, 1998)
Since
1 Year Inception*
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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.
* 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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4 GE Institutional Funds Fund Expenses
International Equity Fund Prospectus
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Shareholder Transaction Expenses
The Fund imposes 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 the Investment Class shares of the Fund. Annual fund operating
expenses come out of the Fund's assets and are reflected in the Fund's share
price and dividends.
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Annual Fund
Operating
Expenses
(as a percentage
of average net
assets)
International Equity Fund
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Advisory and Administration Fees .75%*
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Distribution and Service (12b-1) fees None
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Other Expenses None
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Total Operating Expenses .75%
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* The advisory and administration fee shown is the maximum payable by the
Fund; this fee declines incrementally as the Fund's assets increase as
described under "About the Investment Adviser."
The nature of the services provided to, and the advisory and administration fee
paid by, the Fund are described under "About the Investment Adviser." The Fund's
advisory and administration fee is intended to be a "unitary" fee that includes
any other operating expenses payable by the Fund, except for fees paid to the
Fund's independent Trustees, brokerage fees, and expenses that are not normal
operating expenses of the Fund (such as extraordinary expenses, interest and
taxes). The amount shown as the advisory and administration fee for the Fund
reflects the highest fee payable, and does not reflect that the fee decreases
incrementally as Fund assets increase. "Other Expenses" include only Trustees'
fees payable to the Fund's independent Trustees, brokerage fees, and expenses
that are not normal operating expenses of the Fund. This amount is less than
.01%; therefore "Other Expenses" are reflected as "None."
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The Impact
of Fund
Expenses
This example is intended to help you compare the cost of investing in Investment
Class shares of the 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 the Fund. Actual expenses may be greater or less than those shown.
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Example
You would pay the following
expenses on a $10,000 investment,
assuming redemption:
1 Year 3 Years 5 Years 10 Years
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International Equity Fund:
Investment Class $77 $240 $417 $930
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6 GE Institutional Funds More on
International Equity Fund Prospectus Strategies
and Risks
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Definition of Terms
Convertible securities may be debt or equity securities that pay interest or
dividends or are sold at discount and that may be converted on specified terms
into the stock of the issuer.
Debt securities are bonds and other securities that are used by issuers to
borrow money from investors. Holders of debt securities have a higher priority
claim to assets than do equity holders. Typically, the debt issuer pays the
investor a fixed, variable or floating rate of interest and must repay the
borrowed amount at maturity. Some debt securities, such as zero coupon bonds,
are sold at a discount from their face values instead of paying interest.
Depositary receipts represent interests in an account at a bank or trust company
which holds equity securities. These interests may include American Depositary
Receipts (held at U.S. banks and traded in the United States), European
Depositary Receipts, Global Depositary Receipts or other similar instruments.
Preferred stocks 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.
Rights represent a preemptive right of stockholders to purchase additional
shares of a stock at the time of a new issuance, before the stock is offered to
the general public, allowing the stockholder to retain the same ownership
percentage after the new stock offering.
Warrants are securities that are usually issued together with a bond or
preferred stock, that permits the holder to buy a proportionate amount of common
stock at a specified price that is usually higher than the stock price at the
time of issue.
More on Risks
Like all mutual funds, investing in the International Equity Fund involves risk
factors and special considerations. The Fund's risk is defined primarily by its
principal investment strategies, which are described earlier in this Prospectus.
Investments in the Fund are not insured against loss of principal. As with any
mutual fund, there can be no assurance that the Fund will achieve its investment
objective. Investing in shares of the Fund should not be considered a complete
investment program. The share value of the International Equity Fund will rise
and fall.
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 -- 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 Fund, please see the
Statement of Additional Information (SAI), which is incorporated by reference
into this Prospectus.
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7
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Credit Risk: The price of a bond is affected by the issuer's or counterparty's
credit quality. Changes in financial condition and general economic conditions
can affect the ability to honor financial obligations and therefore lower credit
quality. Lower quality bonds are generally more sensitive to these changes than
higher quality bonds. Even within securities considered investment grade,
differences exist in credit quality and some investment grade debt securities
may have speculative characteristics. A security's price may be adversely
affected by the market's opinion of the security's credit quality level even if
the issuer or counterparty has suffered no degradation in ability to honor the
obligation.
Derivative Security 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 the Fund's
portfolio or a portion of its portfolio. Hedging involves using a security to
offset investment risk. Hedging may include reducing the risk of a position held
in the Fund's portfolio. Hedging and other investment techniques also may be
used to increase the 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 the 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 the 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.
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, the Fund when investing in
emerging markets countries may be required to establish special custody or other
arrangements before investing.
Foreign Exposure Risk: Investing in foreign securities, including depositary
receipts, or securities of U.S. entities with significant foreign operations,
involves additional risks which can affect the 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.
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8 GE Institutional Funds
International Equity Fund Prospectus
More on
Strategies and Risks
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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 the 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.
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: The 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. The Fund's investments in
common stocks and other equity securities are subject to stock market risk,
which is the risk that the value of equity securities may decline. Also, equity
securities are subject to the risk that a particular issuer's securities may
decline in value, even during periods when equity securities in general are
rising. Additional stock market risks may be introduced when a particular equity
security is traded on a foreign market. For more detail on the related risks
involved in foreign markets, see Foreign Exposure Risk.
Style Risk: Securities with different characteristics tend to shift in and out
of favor depending upon market and economic conditions as well as investor
sentiment. The Fund may underperform other funds that employ a different style.
The Fund also may employ a combination of styles that impact its risk
characteristics. Examples of different styles include growth and value
investing. 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.
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, such as the Fund, 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.
Institutional Investor Risk: Investors in the Fund may be materially affected by
the actions of other large institutional investors. For example, if a large
institutional investor withdraws an investment in the Fund, the Fund could
diminish in size by a substantial amount causing the remaining investors to
experience higher pro rata operating expenses, resulting in lower returns for
such investors. The purchase or withdrawal by a large investor may result in
significant portfolio trading expenses that are borne by other shareholders.
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9
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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 Fund. 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 Fund. 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 Fund's major service providers to address the issue. It is possible,
however, that the markets for securities in which the Fund invests 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,
the Fund could be adversely affected if the computer systems used by GE
Investment Management and its 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 the Fund's 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 Fund.
Furthermore, it is possible that the markets for securities in which the Fund
invests 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 the
Fund's investments that are more sensitive to these risks.
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10 GE Institutional Funds
International Equity Fund Prospectus
More on
Strategies and Risks
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More on Investment Strategies
The Fund is permitted to use other securities and investment strategies in
pursuit of its investment objective, subject to limits established by the Fund's
Board of Trustees. The Fund is under no 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 Fund to other risks
and considerations, which are discussed in the Fund's SAI.
Holding Cash and Temporary Defensive Positions: Under normal circumstances, the
Fund may hold cash and/or money market instruments (i) pending investment, (ii)
for cash management purposes, and (iii) to meet operating expenses. The Fund may
from time to time take temporary defensive positions when the portfolio managers
believe that adverse market, economic, political or other conditions exist. In
these circumstances, the portfolio managers may (i) without limit hold cash
and/or invest in money market instruments, or (ii) restrict the securities
markets in which the 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 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 the Fund holds cash or invests in money market instruments,
it may not achieve its investment objective.
Various investment techniques are utilized by the 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. 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 the Fund's portfolio
of investments and are not used for leverage. To the extent that the Fund
employs these techniques, the Fund would be subject to derivative securities
risk.
Other Permitted Investments: The International Equity Fund is permitted to
invest in the instruments listed below. Please note that percentage figures
refer to the percentage of the Fund's assets that may be invested in accordance
with the indicated policy.
o Repurchase Agreements
o Reverse Repurchase Agreements
o Non-Publicly Traded and Illiquid Securities
o Purchasing and Writing Securities Options
o Purchasing and Writing Securities Index Options
o Futures and Options on Futures
o Forward Currency Transactions
o Options on Foreign Currencies
o Maximum Investment in Debt Securities (35%)
o Maximum Investment in Below Investment-Grade Debt Securities (5%)
o Maximum Investment in Foreign Securities (100%)
o When-Issued and Delayed Delivery Securities
o Lending Portfolio Securities
o Rule 144A Securities
o Debt Obligations of Supranational Agencies
o Depositary Receipts
o Securities of Other Investment Funds
o Short Sales Against the Box
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GE Institutional Funds About the 11
International Equity Fund Prospectus Investment
Adviser
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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 the 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.
The 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 the 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
the Fund, and the relevant breakpoints, are stated in the schedule below (fees
are expressed as an annual rate) up to the maximum annual fee for investment
management services.
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About the Fund's Portfolio
Manager
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. He has served in that capacity since the Fund's commencement. Mr.
Layman joined GE Investment Management in 1991 as Executive Vice President for
International Investments.
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Investment Management and Administration Fees Payable to GE Investment
Management:
Average Daily Net
Assets of Fund
Name of Fund Annual Rate Percentage
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International Equity Fund First $25 million 0.75%
Next $50 million 0.65%
Over $75 million 0.55%
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From time to time, GEIM may waive or reimburse advisory or administrative fees
paid by the Fund.
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<PAGE>
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12 GE Institutional Funds How to Invest
International Equity Fund Prospectus
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The Funds offer two classes of shares -- Service Class and Investment Class. The
GE Savings and Security Program ("S&SP") International Equity investment option
invests in Investment Class of shares of the International Equity Fund of the GE
Institutional Funds. The S&SP purchases and redeems Investment Class shares of
the International Equity Fund for its International Equity investment option at
net asset value without sales or redemption charges.
Plan participants should consult the Summary Plan Description and other
materials describing S&SP for information about how to invest in the S&SP's
International Equity investment option.
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<PAGE>
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GE Institutional Funds Dividends, 13
International Equity Fund Prospectus Capital Gains
and Other Tax
Information
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Dividend and Capital Gains Distributions
The Fund intends to distribute substantially all of its net investment income
and substantially all of its net realized capital gains annually. All income
dividends and capital gains distributions made by the Fund to the S&SP are
reinvested in Investment Class shares of the Fund at the Fund's net asset value.
Taxes
For federal income tax purposes, the Fund is treated as a separate entity from
other funds of GE Institutional Funds. The Fund intends to qualify each year as
a "regulated investment company" under the Internal Revenue Code. By so
qualifying, the Fund is not subject to federal income taxes to the extent that
its net investment income and net realized capital gains are distributed to the
S&SP and other shareholders.
Since the S&SP holds shares of the Fund on behalf of Plan participants, no
discussion is included herein as to the federal income tax consequences to the
Plan or Plan participants. For information concerning the federal tax
consequences to Plan participants, consult the Summary Plan Description and
other materials describing S&SP tax matters.
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14 GE Institutional Funds Calculating
International Equity Fund Prospectus Share Value
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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 Investment Class share for the International Equity 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.
The 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. Short-term securities held by the Fund with
remaining maturities of sixty days or less are valued on the basis of amortized
cost. The Fund's written or purchased options are valued at the last sales price
of the day. If no sales occurred, the options are valued at the last traded bid
price. The 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 the
Institutional Fund's Board of Trustees that they believe accurately reflects
"fair value."
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<PAGE>
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GE Institutional Funds Financial 15
International Equity Fund Prospectus Highlights
Appendix
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The financial highlights table that follows is intended to help you understand
the International Equity Fund's financial performance for the period of the
Fund's operations. Certain information reflects financial results for a single
Investment Class share. The total returns in the table represent the rate that
an investor would have earned or lost on an investment in the Fund (assuming
reinvestment of all dividends and distributions). This information has been
audited by PricewaterhouseCoopers LLP, whose report, along with the Fund's
financial statements, are included in the Fund's Annual Report, which is
available upon request.
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International Equity Fund
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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 1.72%
Assets**
Portfolio Turnover Rate 53%
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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 Fund's 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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GE Institutional Funds International
International Equity Fund Prospectus Equity Fund
- --------------------------------------------------------------------------------
Investment Adviser
GE Investment Management Incorporated
3003 Summer Street
P.O. Box 7900
Stamford, CT 06904
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Transfer Agent
and Custodian
State Street Bank and Trust Company
225 Franklin Street
Boston, MA 02101
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Distributor
GE Investment Distributors, Inc.
777 Long Ridge Road, Building B
Stamford, CT 06927
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If you wish to know more
You will find additional information about the International Equity Fund in the
following documents:
Annual/Semi-Annual Reports to Shareholders: These reports detail the Fund's
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 Fund's last fiscal year.
Statement of Additional Information (SAI): The SAI contains additional
information about the Funds and its 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
Fund, 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 Fund's annual/semiannual report and
make shareholder inquiries by contacting:
GE Investment Distributors, Inc.
777 Long Ridge Road, Building B
Stamford, CT 06927
Telephone 1-800-242-0134
Website http://www.ge.com/mutualfunds
Investment Company Act file number: 811-08257
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GE INT-PRO-1
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
March 31, 1999
GE INSTITUTIONAL FUNDS
- ----------------------
3003 Summer Street, Stamford, Connecticut 06905
For information, call (800) 242-0134
* U.S. Equity Fund * Europe Equity Fund
* S&P 500 Index Fund * Emerging Markets Fund
* Premier Growth Equity Fund * Income Fund
* Value Equity Fund * Strategic Investment Fund
* Mid-Cap Growth Fund * Money Market Fund
* Mid-Cap Value Equity Fund * High Yield Fund
* Small-Cap Value Equity Fund * Small-Cap Growth Equity Fund
* International Equity Fund
This Statement of Additional Information ("SAI") supplements the
information contained in the current Prospectuses of GE Institutional Funds (the
"Trust") dated March 31, 1999 and January 28, 1999, respectively (the
"Prospectuses"), and should be read in conjunction with the relevant Prospectus.
This SAI, although not a prospectus, is incorporated in its entirety by
reference into the Prospectuses. Copies of the Prospectuses describing each
series of the Trust listed above ("Funds") may be obtained without charge by
calling the Trust at the telephone number listed above.
The Trust's financial statements for the fiscal periods ended September
30, 1998, and the Auditor's Report thereon, are incorporated herein 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 Prospectuses shall have the same
meanings in this SAI.
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<PAGE>
Table of Contents
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Page
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INVESTMENT STRATEGIES AND RISKS..........................................1
INVESTMENT RESTRICTIONS.................................................35
MANAGEMENT OF THE TRUST.................................................40
COMPENSATION TABLE......................................................42
PURCHASE, REDEMPTION AND EXCHANGE OF SHARES.............................49
NET ASSET VALUE.........................................................53
DIVIDENDS, DISTRIBUTIONS AND TAXES......................................55
THE FUNDS' PERFORMANCE..................................................58
PRINCIPAL STOCKHOLDERS..................................................63
FUND HISTORY AND ADDITIONAL INFORMATION.................................67
FINANCIAL STATEMENTS....................................................70
APPENDIX - DESCRIPTION OF RATINGS......................................A-1
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INVESTMENT STRATEGIES AND RISKS
The Prospectuses discuss 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
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<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").
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<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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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
Prospectuses and this SAI means debt obligations issued by, or on behalf of,
states, territories and possessions of the United States and the District of
Columbia and their political subdivisions, agencies and instrumentalities or
multistate agencies or authorities, the interest from which debt obligations is,
in the opinion of bond counsel to the issuer, excluded from gross income for
Federal income tax purposes. Municipal Obligations generally are understood to
include debt obligations issued to obtain funds for various public purposes,
including the construction of a wide range of public facilities, refunding of
outstanding obligations, payment of general operating expenses and extensions of
loans to public institutions and facilities. Private activity bonds that are
issued by or on behalf of public authorities to finance privately operated
facilities are considered to be Municipal Obligations if the interest paid on
them qualifies as excluded from gross income (but not necessarily from
alternative minimum taxable income) for Federal income tax purposes in the
opinion of bond counsel to the issuer.
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Opinions relating to the validity of Municipal Obligations and to the
exemption of interest on them from Federal income taxes are rendered by bond
counsel to the respective issuers at the time of issuance. Neither the Trust nor
the Investment Manager will review the proceedings relating to the issuance of
Municipal Obligations or the basis for opinions of counsel. The Strategic Fund
may invest without limit in debt obligations that are repayable out of revenues
generated from economically related projects or facilities or debt obligations
whose issuers are located in the same state. Sizable investments in these
obligations could involve an increased risk to the Funds should any of the
related projects or facilities experience financial difficulties.
Municipal Obligations may be issued to finance life care facilities,
which are an alternative form of long-term housing for the elderly that offer
residents the independence of a condominium life-style and, if needed, the
comprehensive care of nursing home services. Bonds to finance these facilities
have been issued by various state industrial development authorities. Because
the bonds are secured only by the revenues of each facility and not by state or
local government tax payments, they are subject to a wide variety of risks,
including a drop in occupancy levels, the difficulty of maintaining adequate
financial reserves to secure estimated actuarial liabilities, the possibility of
regulatory cost restrictions applied to health care delivery and competition
from alternative health care or conventional housing facilities.
Even though Municipal Obligations are interest-bearing investments that
promise a stable flow of income, their prices are inversely affected by changes
in interest rates and, therefore, are subject to the risk of market price
fluctuations. The values of Municipal Obligations with longer remaining
maturities typically fluctuate more than those of similarly rated Municipal
Obligations with shorter remaining maturities. The values of fixed income
securities also may be affected by changes in the credit rating or financial
condition of the issuing entities.
Tax legislation in recent years has included several provisions that
may affect the supply of, and the demand for, Municipal Obligations, as well as
the tax-exempt nature of interest paid on those obligations. Neither the Trust
nor the Investment Manager can predict with certainty the effect of recent tax
law changes upon the Municipal Obligation market, including the availability of
instruments for investment by a Fund. In addition, neither the Trust nor the
Investment Manager can predict whether additional legislation adversely
affecting the Municipal Obligation market will be enacted in the future. The
Trust monitors legislative developments and considers whether changes in the
objective or policies of a Fund need to be made in response to those
developments. If any laws are enacted that would reduce the availability of
Municipal Obligations for investment by the Tax-Exempt Fund so as to affect the
Fund's shareholders adversely, the Trust will reevaluate the Fund's investment
objective and policies and might submit possible changes in the Fund's structure
to the Fund's shareholders for their consideration. If legislation were enacted
that would treat a type of Municipal Obligation as taxable for Federal income
tax purposes, the Trust would treat the security as a permissible taxable money
market instrument for the Fund within the applicable limits set forth in the
Prospectuses.
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Municipal leases are Municipal Obligations that may take the form of a
lease or an installment purchase contract issued by state and local governmental
authorities to obtain funds to acquire a wide variety of equipment and
facilities such as fire and sanitation vehicles, computer equipment and other
capital assets. Interest payments on qualifying municipal leases are exempt from
Federal income taxes and state income taxes within the state of issuance.
Although municipal lease obligations do not normally constitute general
obligations of the municipality, a lease obligation is ordinarily backed by the
municipality's agreement to make the payments due under the lease obligation.
These obligations have evolved to make it possible for state and local
government authorities to acquire property and equipment without meeting
constitutional and statutory requirements for the issuance of debt. Thus,
municipal leases have special risks not normally associated with Municipal
Obligations. These obligations frequently contain "non-appropriation" clauses
that provide that the governmental issuer of the obligation has no obligation to
make future payments under the lease or contract unless money is appropriated
for those purposes by the legislative body on a yearly or other periodic basis.
In addition to the non-appropriation risk, municipal leases represent a type of
financing that has not yet developed the depth of marketability associated with
other Municipal Obligations. Some municipal lease obligations may be, and could
become, illiquid. Moreover, although municipal leases will be secured by the
leased equipment, the disposition of the equipment in the event of foreclosure
might prove to be difficult.
Municipal lease obligations may be deemed to be illiquid as determined
by or in accordance with methods adopted by the Board. In determining the
liquidity and appropriate valuation of a municipal lease obligation, the
following factors relating to the security are considered, among others: (i) the
frequency of trades and quotes; (ii) the number of dealers willing to purchase
or sell the security; (iii) the willingness of dealers to undertake to make a
market; (iv) the nature of the marketplace trades; and (v) the likelihood that
the obligation will continue to be marketable based on the credit quality of the
municipality or relevant obligor.
Municipal leases held by a Fund will be considered illiquid securities
unless the Board determines on an ongoing basis that the leases are readily
marketable. An unrated municipal lease with a non-appropriation risk that is
backed by an irrevocable bank letter of credit or an insurance policy issued by
a bank or insurer deemed by the Investment Manager to be of high quality and
minimal credit risk, will not be deemed to be illiquid solely because the
underlying municipal lease is unrated, if the Investment Manager determines that
the lease is readily marketable because it is backed by the letter of credit or
insurance policy.
Municipal leases that a Fund may acquire will be both rated and
unrated. Rated leases that may be held by a Fund include those rated investment
grade at the time of investment or those issued by issuers whose senior debt is
rated investment grade at the time of investment. A Fund may acquire unrated
issues that the Investment Manager deems to be comparable in quality to rated
issues in which a Fund is authorized to invest. A determination that an unrated
lease obligation is comparable in quality to a rated lease obligation and that
there is a reasonable
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likelihood that the lease will not be canceled will be subject to oversight and
approval by the Board.
To limit the risks associated with municipal leases, a Fund will invest
no more than 5% of its total assets in those leases. In addition, a Fund will
purchase lease obligations that contain non-appropriation clauses when the lease
payments will commence amortization of principal at an early date resulting in
an average life of five years or less for the lease obligation.
The Strategic Fund intends to invest in Municipal Obligations of a
broad range of issuers, consistent with prudent regional diversification.
Investors in certain states may be subject to state taxation on all or a portion
of the income and capital gains produced by such securities.
Floating and Variable Rate Instruments. Certain Funds may invest in
floating and variable rate instruments. Income securities may provide for
floating or variable rate interest or dividend payments. The floating or
variable rate may be determined by reference to a known lending rate, such as a
bank's prime rate, a certificate of deposit rate or the London InterBank Offered
Rate (LIBOR). Alternatively, the rate may be determined through an auction or
remarketing process. The rate also may be indexed to changes in the values of
interest rate or securities indexes, currency exchange rate or other
commodities. Variable and floating rate securities tend to be less sensitive
than fixed rate securities to interest rate changes and to have higher yields
when interest rates increase. However, during periods of rising interest rates,
changes in the interest rate of an adjustable rate security may lag changes in
market rates. The amount by which the rates paid on an income security may
increase or decrease may be subject to periodic or lifetime caps. Fluctuations
in interest rates above these caps could cause adjustable rate securities to
behave more like fixed rate securities in response to extreme movements in
interest rates.
Floating and variable rate income securities include securities whose
rates vary inversely with changes in market rates of interest. Such securities
may also pay a rate of interest determined by applying a multiple to the
variable rate. The extent of increases and decreases in the value of securities
whose rates vary inversely with changes in market rates of interest generally
will be larger than comparable changes in the value of an equal principal amount
of a fixed rate security having similar credit quality, redemption provisions
and maturity.
Certain Funds may purchase floating and variable rate demand bonds and
notes, which are Municipal Obligations ordinarily having stated maturities in
excess of one year but which permit their holder to demand payment of principal
at any time or at specified intervals. Variable rate demand notes include master
demand notes, which are obligations that permit a Fund to invest fluctuating
amounts, which may change daily without penalty, pursuant to direct arrangements
between the Fund, as lender, and the borrower. These obligations have interest
rates that fluctuate from time to time and frequently are secured by letters of
credit or other credit support arrangements provided by banks. Use of letters of
credit or other credit support arrangements will not adversely affect the
tax-exempt status of variable rate demand notes.
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<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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<PAGE>
required to assert through the custodian bank those rights as may exist
against the underlying issuers. Thus, in the event the underlying issuer fails
to pay principal and/or interest when due, a Fund may be subject to delays,
expenses and risks that are greater than those that would have been involved if
the Fund had purchased a direct obligation of the issuer. In addition, in the
event that the trust or custodial account in which the underlying security has
been deposited is determined to be an association taxable as a corporation,
instead of a non-taxable entity, the yield on the underlying security would be
reduced in recognition of any taxes paid.
Government Stripped Mortgage Related Securities. Certain Funds may
invest in government stripped mortgage related securities issued and guaranteed
by GNMA, FNMA or FHLMC. These securities represent beneficial ownership
interests in either periodic principal distributions ("principal-only") or
interest distributions ("interest-only") on mortgage related certificates issued
by GNMA, FNMA or FHLMC. The certificates underlying the government stripped
mortgage related securities represent all or part of the beneficial interest in
pools of mortgage loans. These Funds will invest in government stripped mortgage
related securities in order to enhance yield or to benefit from anticipated
appreciation in value of the securities at times when the Investment Manager
believes that interest rates will remain stable or increase. In periods of
rising interest rates, the expected increase in the value of government stripped
mortgage related securities may offset all or a portion of any decline in value
of the securities held by these Funds.
Investing in government stripped mortgage related securities involves
risks normally associated with investing in mortgage related securities issued
by government or government related entities. In addition, the yields on
government stripped mortgage related securities are extremely sensitive to the
prepayment experience on the mortgage loans underlying the certificates
collateralizing the securities. If a decline in the level of prevailing interest
rates results in a rate of principal prepayments higher than anticipated,
distributions of principal will be accelerated, thereby reducing the yield to
maturity on interest-only government stripped mortgage related securities and
increasing the yield to maturity on principal-only government stripped mortgage
related securities. Sufficiently high prepayment rates could result in these
Funds' not fully recovering their initial investment in an interest-only
government stripped mortgage related security. Under current market conditions,
these Funds expect that investments in government stripped mortgage related
securities will consist primarily of interest-only securities. The sensitivity
of an interest-only security that represents the interest portion of a
particular class, as opposed to the interest portion of an entire pool, to
interest rate fluctuations, may be increased because of the characteristics of
the principal portion to which they relate. Government stripped mortgage related
securities are currently traded in an over-the-counter market maintained by
several large investment banking firms. No assurance can be given that these
Funds will be able to effect a trade of a government stripped mortgage related
security at a desired time. These Funds will acquire government stripped
mortgage related securities only if a secondary market for the securities exists
at the time of acquisition. Except for government stripped mortgage related
securities based on fixed rate FNMA and FHLMC mortgage certificates that meet
certain liquidity criteria established by the Board, the Trust treats
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<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 CARs (SM) may be affected by early prepayment
of principal on the underlying vehicle sales contracts. If the letter of credit
is exhausted, these Funds may be prevented from realizing the full amount due on
a sales contract because of state law requirements and restrictions relating to
foreclosure sales of vehicles and the availability of deficiency judgments
following these sales, because of depreciation, damage or loss of a vehicle,
because of the application of Federal and state bankruptcy and insolvency laws
or other factors. As a result, certificate holders may experience delays in
payment if the letter of credit is exhausted. Consistent with each of these
Funds' investment objective and policies and subject to the review and approval
of the Board, these Funds may also invest in other types of asset-backed and
receivable-backed securities.
Mortgage Dollar Rolls. Certain Funds may, with respect to up to 25% of
their total assets, enter into mortgage "dollar rolls" in which the Fund sells
securities for delivery in the current month and simultaneously contracts with
the same counterparty to repurchase similar (same type, coupon and maturity) but
not identical securities on a specified future date. The Fund loses the right to
receive principal and interest paid on the securities sold. However, the Fund
would benefit to the extent of any price received for the securities sold and
the lower forward price for the future purchase (often referred to as the
"drop") or fee income plus the interest earned on the cash proceeds of the
securities sold until the settlement date of the forward purchase. Unless such
benefits exceed the income, capital appreciation and gain or loss due to
mortgage repayments that would have been realized on the securities sold as part
of the mortgage dollar roll, the use of this technique will diminish the
investment performance of the Fund compared with what such performance would
have been without the use of mortgage dollar rolls. The Fund will hold and
maintain in a segregated account until the settlement date cash or liquid assets
in an amount equal to the forward purchase price. The benefits derived from the
use of mortgage dollar rolls may depend upon the Investment Manager's ability to
predict correctly mortgage prepayments and interest rates. There is no assurance
that mortgage dollar rolls can be successfully employed.
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<PAGE>
For financial reporting and tax purposes, each of these Funds proposes
to treat mortgage dollar rolls as two separate transactions: one involving the
purchase of a security and a separate transaction involving a sale. The Funds do
not currently intend to enter into mortgage dollar rolls that are accounted for
as a financing.
Short Sales Against the Box. Certain Funds may sell securities "short
against the box." Whereas a short sale is the sale of a security a Fund does not
own, a short sale is "against the box" if at all times during which the short
position is open, the Fund owns at least an equal amount of the securities or
securities convertible into, or exchangeable without further consideration for,
securities of the same issue as the securities sold short.
WEBs and Other Index-related Securities. Each of the Emerging Markets
Fund, International Fund and Strategic Fund may invest in shares in a particular
series issued by Foreign Fund, Inc., an investment company whose shares also are
known as "World Equity Benchmark Shares" or "WEBS." WEBS have been listed for
trading on the American Stock Exchange, Inc. The Funds also may invest in shares
in a particular series issued by CountryBaskets Index Fund, Inc., or another
fund the shares of which are the substantial equivalent of WEBS. Each of the
U.S. Equity Fund, Premier Growth Fund, Value Fund and Strategic Fund may invest
in Standard & Poor's Depositary Receipts, or "SPDRs." SPDRs are securities that
represent ownership in a long-term unit investment trust that holds a portfolio
of common stocks designed to track the performance of the S&P 500 Index. A Fund
investing in a SPDR would be entitled to receive proportionate quarterly cash
distributions corresponding to the dividends that accrue to the S&P 500 stocks
in the underlying portfolio, less trust expenses.
INVESTMENT RESTRICTIONS
Each Fund is subject to fundamental and non-fundamental investment
policies and limitations. Under the 1940 Act, fundamental investment policies
and limitations may not be changed without the vote of a majority of the
outstanding voting securities (as defined in the 1940 Act) of the Fund.
The following policies and limitations supplement those described in
the Prospectuses and this SAI. Investment restrictions numbered 1 through 12
below have been adopted by the Trust as fundamental policies of all of the
Funds. Under the 1940 Act, a fundamental policy may not be changed with respect
to a Fund without the vote of a majority of the outstanding voting securities
(as defined in the 1940 Act) of the Fund. Investment restrictions 13 and 14 may
be changed by a vote of the Board of Trustees at any time.
1. No Fund may borrow money, except that a Fund may enter into reverse
repurchase agreements and may borrow from banks for temporary or emergency (not
leveraging) purposes, including the meeting of redemption requests and cash
payments of dividends and distributions that might otherwise require the
untimely disposition of securities, in an amount not to exceed 33 1/3%
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<PAGE>
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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<PAGE>
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.
<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.
</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>
*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.
John R. Costantino Trustee Age 52. Managing Director, Walden
150 East 58th Street Partners, Ltd., consultants and
New York, NY 10055 investors, since August 1992;
President, CMG Acquisition Corp.,
Inc., a holding company, since
1988; Vice Chairman, Acoustiguide
Holdings, Inc., a holding company,
since 1989; President CMG/IKH,
Inc., a holding company, since
1991; Director, Crossland Federal
Savings Bank, a financial
institution; 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
45 Shinnecock Road Salomon Brothers Inc; Director, GP
Quogue, NY 11959 Financial Corp., a holding company,
since 1994; Director, The
Greenpoint Savings Bank, a
financial institution, since 1987.
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Position(s) Held Age and Principal Occupation(s)
Name and Address With Trust During Past Five Years
- ---------------- ---------- ----------------------
<S> <C> <C>
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 Pricewaterhouse-
Coopers LLP.
Matthew J. Simpson Secretary Age 38. Vice President and General
Counsel, Investment Services Group
of GEFA since February 1997; Vice
President, Associate General Counsel
and Assistant Secretary of GEIM and
GEIC since October 1992.
</TABLE>
No employee of GE or any of its affiliates receives any compensation
from the Trust for acting as a Trustee or officer of the Trust. Each Trustee of
the Trust who is not a director, officer or employee of GEIM, GEID, GE, or any
affiliate of those companies, receives an annual fee of $5,000 for services as
Trustee. In addition, each Trustee receives $500 for each meeting of the Board
attended by the Trustee and is reimbursed for expenses incurred in connection
with attendance at Board meetings.
Trustees' Compensation
(for the fiscal year ended September 30, 1998)
COMPENSATION TABLE
- ----------------------------------------------------------------------------
Total Compensation from
Total Compensation Investment Companies
Name of Trustee From the Trust Managed by GEIM or GEIC
- ----------------------------------------------------------------------------
Michael J. Cosgrove None None+
- ----------------------------------------------------------------------------
Alan M. Lewis None None+
- ----------------------------------------------------------------------------
John R. Costantino $6,000 $25,000++
- ----------------------------------------------------------------------------
William J. Lucas $6,000 $25,000++
- ----------------------------------------------------------------------------
Robert P. Quinn $6,000 $25,000++
- ----------------------------------------------------------------------------
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- -----------------------
+ 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
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necessary to operate each Fund, and pays salaries and other employment-related
costs of employing these persons. GEIM furnishes the Trust and each Fund with
office space, facilities, and equipment and pays the day-to-day expenses related
to the operation of such space, facilities and equipment. GEIM, as
administrator, also: (a) maintains the books and records of each Fund; (b)
prepares reports to shareholders of each Fund; (c) prepares and files tax
returns for each Fund; (d) assists with the preparation and filing of reports
and the Trust's registration statement with the SEC; (e) provides appropriate
officers for the Trust; (f) provides administrative support necessary for the
Board of Trustees to conduct meetings; and (g) supervises and coordinates the
activities of other service providers, including independent auditors, legal
counsel, custodians, accounting service agents and transfer agents.
GEIM is generally responsible for employing sufficient staff and
consulting with other persons that it determines to be necessary or useful in
the performance of its obligations under each Advisory Agreement. Each Advisory
Agreement obligates GEIM to provide services in accordance with the relevant
Fund's investment objective, policies and restrictions as stated in the Trust's
current registration statement, as amended from time to time, and to keep the
Trust informed of developments materially affecting that Fund, including
furnishing the Trust with whatever information and reports the Board of Trustees
reasonably requests.
Each Advisory Agreement provides that GEIM may render similar advisory
and administrative services to other clients so long as when a Fund or any other
client served by GEIM are prepared to invest in or desire to dispose of the same
security, available investments or opportunities for sales will be allocated in
a manner believed by GEIM to be equitable to the Fund. The Advisory Agreements
also provide that GEIM shall not be liable for any error of judgment or mistake
of law or for any loss incurred by a Fund in connection with GEIM's services
pursuant to the Agreement, except for a loss resulting from willful misfeasance,
bad faith or gross negligence in the performance of its duties or from reckless
disregard of its obligations and duties under the Agreement.
Each Advisory Agreement is effective from its date of execution, and
continues in effect for an initial two-year term and will continue from year to
year thereafter so long as its continuance is approved annually by (a) the Board
of Trustees or (b) a vote of a majority of the relevant Fund's outstanding
voting securities, provided that in either event the continuance also is
approved by the vote of a majority of the Trustees who are not parties to the
Agreement or interested persons, as such term is defined in the 1940 Act, of any
party to the Agreement by a vote cast in person at meeting called for the
purpose of voting on such approval.
Each Advisory Agreement is not assignable and may be terminated without
penalty by 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
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<PAGE>
</TABLE>
<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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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 sub- adviser shall not be liable
for any error of judgment or mistake of law or for any loss incurred by the Fund
except for a loss resulting from willful misfeasance, bad faith or gross
negligence in the performance of its duties or from reckless disregard of its
obligations and duties under the Sub- Advisory Agreement.
Securities Activities of the Investment Manager
Securities held by the Funds also may be held by other funds or
separate accounts for which the Investment Manager or GEIC acts as an adviser.
Because of different investment objectives or other factors, a particular
security may be bought by the Investment Manager or GEIC for one or more of
their clients, when one or more other clients are selling the same security. If
purchases or sales of securities for a Fund or other client of the Investment
Manager or GEIC arise for consideration at or about the same time, transactions
in such securities will be
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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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<PAGE>
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").
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An investor may purchase shares through an Authorized Firm with the
assistance of a sales representative (an "Investment Professional"). The
Authorized Firm will be responsible for transmitting the investor's order
promptly to the transfer agent. Investors should contact their Investment
Professional for further instructions.
Investors also may purchase Service Class shares directly from the
transfer agent by wiring federal funds to: State Street Bank and Trust Company
(ABA # 0110-0002-8) For: GE Institutional Funds -- [Name of Fund] Account of:
[Investor's name, address and account number]. If a wire is received by the
close of regular trading on the NYSE on a Business Day, the shares will be
priced according to the net asset value of the Fund on that day. If a wire is
received after the close of regular trading on the NYSE, the shares will be
priced as of the time the Fund's net asset value per share is next determined.
Payment for orders that are not accepted will be returned to investors
promptly. An investor's financial institution may charge a fee for wiring its
account.
Purchases In-Kind. Investors may purchase Service Class shares in
amounts of $5 million or more with either cash or investment securities
acceptable to the appropriate Fund. The particular investment securities
acceptable to a Fund may vary over time and the Trust does not guarantee that
any particular investment securities will be accepted at any particular time or
at all. Investors interested in purchasing Service Class shares with investment
securities should contact their Investment Professional or GEID for information
about which securities a particular Fund will accept. The Trust reserves the
right to require GEID to suspend the offering of Service Class shares of the
Emerging Markets Fund or International Equity Fund for cash in amounts above $5
million and of the other non-money market Funds in amounts above $10 million.
Redemptions
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
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lesser of $250,000 or 1% of the Trust's net assets by a distribution in kind of
portfolio securities in lieu of cash. Redemptions failing to meet this threshold
must be made in cash. Portfolio securities issued in a distribution in kind will
be deemed by GEIM to be readily marketable. Shareholders receiving distributions
in kind of portfolio securities may incur brokerage commissions when
subsequently disposing of those securities.
Exchange Privilege
As described in the Prospectuses, a shareholder of the Investment Class
of a Fund may exchange such shares for Investment Class shares of another Fund
or for Service Class shares of the same or another Fund. Likewise, shareholders
of the Service Class shares of a Fund may exchange such shares for Service Class
shares of another Fund or for Investment Class shares of the same or another
Fund.
The exchange privilege described in the Prospectuses enables a
shareholder of a Fund to acquire shares in a Fund having a different investment
objective and policies when the shareholder believes that a shift between Funds
is an appropriate investment decision. Upon receipt of proper instructions and
all necessary supporting documents, and provided the Fund is an available
option, the shareholder meets the minimum investment requirement for the Fund
that is the "target" of the exchange, and such Fund may be legally sold in the
shareholder's state of residence, shares submitted for exchange are redeemed at
the then-current net asset value and the proceeds are immediately invested in
shares of the Fund being acquired. The Trust reserves the right to reject any
exchange request and may, upon 60 days' prior written notice to a Fund's
Shareholders, terminate the exchange privilege.
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.
-54-
<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
contracts) derived with respect to its business of investing in such stocks,
securities or currencies (the "90% Test").
-55-
<PAGE>
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 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
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<PAGE>
to market" certain types of the positions in its portfolio (that is, treat them
as if they were closed out) and (iii) may cause the Fund to recognize income
without receiving cash with which to make distributions in amounts necessary to
satisfy the distribution requirements for avoiding income and excise taxes
described above and in the Prospectuses. The Trust seeks to monitor transactions
of each Fund, will seek to make the appropriate tax elections on behalf of the
Fund and seeks to make the appropriate entries in the Fund's books and records
when the Fund acquires any option, futures contract or hedged investment, to
mitigate the effect of these rules and prevent disqualification of the Fund as a
regulated investment company. As a general rule, a shareholder's gain or
loss on a sale or redemption of shares of a Fund will be a long-term capital
gain or loss if the shareholder has held the shares for more than one year. The
gain or loss will be a short-term capital gain or loss if the shareholder has
held the shares for one year or less.
A Fund's net realized long-term capital gains are distributed as
described in the Prospectuses. The distributions ("capital gain dividends"), if
any, are taxable to a shareholder of a Fund as long-term capital gains,
regardless of how long a shareholder has held the shares, and will be designated
as capital gain dividends in a written notice mailed by the Trust to the
shareholders of the Fund after the close of the Fund's prior taxable year. If a
shareholder receives a capital gain dividend with respect to any share of a
Fund, and if the share is sold before it has been held by the shareholder for
six months or less, then any loss on the sale or exchange of the share, to the
extent of the capital gain dividend, will be treated as a long-term capital
loss. Investors considering buying shares of a Fund on or just prior to the
record date for a taxable dividend or capital gain distribution should be aware
that the amount of the dividend or distribution payment will be a taxable
dividend or distribution payment.
Special rules contained in the Code apply when a shareholder of a Fund
disposes of shares of the Fund through a redemption or exchange within 90 days
of purchase and subsequently acquires shares of a Fund on which a sales charge
normally is imposed without paying a sales charge in accordance with the
exchange privilege described in the Prospectuses. In these cases, any gain on
the disposition of the shares of the Fund will be increased, or loss decreased,
by the amount of the sales charge paid when the shares were acquired, and that
amount will increase the adjusted basis of the shares of the Fund subsequently
acquired. In addition, if shares of a Fund are purchased within 30 days of
redeeming shares at a loss, the loss will not be deductible and instead will
increase the basis of the newly purchased shares.
If a shareholder of a Fund fails to furnish the Trust with a correct
taxpayer identification number, fails to report fully dividend or interest
income, or fails to certify that he or she has provided a correct taxpayer
identification number and that he or she is not subject to "backup withholding,"
then the shareholder may be subject to a 31% "backup withholding" tax with
respect to (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
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<PAGE>
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 reinvested. The effective yield would be slightly higher than
the current yield because of the compounding effect of this presumed
reinvestment.
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<PAGE>
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)6-1]
---
cd
Where:
a = dividends and interest earned during the period.
b = expenses accrued for the period (net of reimbursement).
c = the average daily number of shares outstanding during the
period that
were entitled to receive dividends.
d = the maximum offering price per share on the last day of
the period.
For the purpose of determining the interest earned (variable "a" in the
formula) on debt obligations that were purchased by a Fund at a discount or
premium, the formula generally calls for amortization of the discount or
premium; the amortization schedule will be adjusted monthly to reflect changes
in the market values of the debt obligations.
Investors should recognize that, in periods of declining interest
rates, the yield will tend to be somewhat higher than prevailing market rates,
and in periods of rising interest rates the yield will tend to be somewhat
lower. In addition, when interest rates are falling, moneys received by a Fund
from the continuous sale of its shares will likely be invested in portfolio
instruments producing lower yields than the balance of the Fund's portfolio,
thereby reducing the current yield of the Fund. In periods of rising interest
rates, the opposite result can be expected to occur.
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<PAGE>
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:
P(1 + T)n = ERV
Where
P = a hypothetical initial payment of $1,000;
T = average annual total return;
n = number of years; and
ERV = Ending Redeemable Value of a hypothetical $1,000
investment made at the beginning of a 1-, 5- or
10-year period at the end of a 1-, 5- or 10-year
period (or fractional portion thereof), assuming
reinvestment of all dividends and distributions.
The ERV assumes 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 Fund 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
Prospectuses 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 Investment Class shares of the Premier Growth Fund, the Value Equity
Fund, the Strategic Fund and the Small Cap Value 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; (iii)
MRA Systems, Inc. owned more than 25% of the outstanding voting securities of
the Money Market Fund; and (iv) First Colony Life Insurance Company owned more
than 25% of the outstanding voting securities of the Europe Equity Fund. So long
as the above entities own more than 25% of the outstanding voting securities of
the Funds noted, they may be deemed to control these Funds, and may be able to
significantly influence the outcome of any shareholder vote. For purposes of
voting on matters submitted to shareholders, any person who owns more than 50%
of the outstanding shares of the Fund generally would be able to cast the
deciding vote.
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 March 1, 1999.
<TABLE>
<CAPTION>
Amount of
Ownership Percent of
Name and Address of Record Owner (In Shares) Class
-------------------------------- ----------- -----
<S> <C> <C>
Emerging Markets Fund (Investment Class)
Saxon & Co.
FBO Leaseway Transport
ABC Trust Institutional Service
200 Stevens Drive - Suite 260
Lester, PA 19113-1522 652,034.110 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%
International Fund (Investment Class)
AID Association for Lutherans
Ron Anderson Trustee
Attn: David J. Schnarsky
4321 N. Ballard Road
Appleton, WI 54919 7,622,936.17 66.62%
</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 3,211,205.295 28.06%
U.S. Equity Fund (Investment Class)
Saxon & Co.
FBO Leaseway Transport
ABC Trust Institutional Service
200 Stevens Drive - Suite 260
Lester, PA 19113-1522 8,442,088.796 77.94%
GELCO Corp. DBA GE Capital Fleet Svc.
Norwest Bank N.A.
Attn: Mutual Funds
510 Marquette, Suite 500
Minneapolis, MN 55402-1118 1,343,037.296 12.40%
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 859,790.644 7.94%
S&P 500 Index Fund (Investment Class)
Saxon & Co.
FBO Leaseway Transport
ABC Trust Institutional Service
200 Stevens Drive - Suite 260
Lester, PA 19113-1522 1,754,229.796 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
</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>
Income Fund (Investment Class)
Saxon & Co.
FBO Leaseway Transport
ABC Trust Institutional Services
200 Stevens Drive - Suite 260
Lester, PA 19113-1522 5,215,179.329 72.79%
GELCO Corp. DBA GE Capital Fleet Svc.
Norwest Bank N.A.
Attn: Mutual Funds
510 Marquette, Suite 500
Minneapolis, MN 55402-1118 1,046,888.406 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 750,596.942 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 4,672,242.050 64.46%
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 2,146,166.820 29.61%
Information Alliance Co.
Gary L. Kriechbaum
877 South Street
Pittsfield, MA 01201-8229 418,814.390 5.78%
</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>
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
Europe Equity Fund (Investment Class)
First Colony Life Insurance Company
601 Union Street, Suite 1400 1,000,000.000 100%
Seattle, WA 98101
</TABLE>
FUND HISTORY AND ADDITIONAL INFORMATION
The Trust is an open-end management investment company organized as an
unincorporated business trust under the laws of Delaware pursuant to a
Certificate of Trust dated May 23, 1997, as amended from time to time. The
Trust's Declaration of Trust, dated August 29, 1997 (the "Declaration of Trust")
permits the Trustees to issue an unlimited number of full and fractional shares
of beneficial interest of the Trust par value $.001 per share. Under the
Declaration of Trust, the Trustees have the authority to create and classify
shares of beneficial interest in separate series, without further action by
shareholders.
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<PAGE>
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 shall promptly call a meeting
for such purpose when requested to do so in writing by the record holders of not
less than 10% of the outstanding shares of the Trust.
Shareholder Liability. Generally, Delaware business trust shareholders
are not personally liable for obligations of the Delaware business trust under
Delaware law. The
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<PAGE>
Delaware Business Trust Act ("DBTA") provides that a shareholder of a Delaware
business trust shall be entitled to the same limitation of liability extended to
shareholders of private for-profit corporations. The Declaration expressly
provides that the Trust has been organized under the DBTA and that the
Declaration is to be governed by and interpreted in accordance with Delaware
law. It is nevertheless possible that a Delaware business trust, such as the
Trust, might become a party to an action in another state whose courts refuse to
apply Delaware law, in which case the Trust's shareholders could possibly be
subject to personal liability.
To guard against this risk, the Declaration: (a) contains an express
disclaimer of shareholder liability for acts or obligations of the Trust and
provides that notice of such disclaimer may be given in each agreement,
obligation and instrument entered into or executed by the Trust or its Trustees,
(b) provides for the indemnification out of Trust property of any shareholders
held personally liable for any obligations of the Trust or any Fund, and (c)
provides that the Trust shall, upon request, assume the defense of any claim
made against any shareholder for any act or obligation of the Trust and satisfy
any judgment thereon. Thus, the risk of a shareholder incurring financial loss
beyond his or her investment because of shareholder liability is limited to
circumstances in which all of the following factors are present: (a) a court
refuses to apply Delaware law; (b) the liability arose under tort law or, if
not, no contractual limitation of liability was in effect; and (c) the Trust
itself would be unable to meet its obligations. In the light of DBTA, the nature
of the Trust's business, and the nature of its assets, the risk of personal
liability to a shareholder is remote.
Limitation of Trustee and Officer Liability. The Declaration further
provides that the Trust shall indemnify each of its Trustees and officers
against liabilities and expenses reasonably incurred by them, in connection
with, or arising out of, any action, suit or proceeding, threatened
against or otherwise involving such Trustee or officer, directly or indirectly,
by reason of being or having been a Trustee or officer of the Trust. The
Declaration does not authorize the Trust to indemnify any Trustee or officer
against any liability to which he or she would otherwise be subject by reason of
or for willful misfeasance, bad faith, gross negligence or reckless disregard of
such person's duties.
Limitation of Interseries Liability. All persons dealing with a Fund
must look solely to the property of that particular Fund for the enforcement of
any claims against that Fund, as neither the Trustees, officers, agents or
shareholders assume any personal liability for obligations entered into on
behalf of a Fund or the Trust. No Fund is liable for the obligations of any
other Fund.
Voting. When issued, shares of a Fund will be fully paid and
non-assessable. Shares are freely transferable and have no preemptive,
subscription or conversion rights. Each of the Service Class and the Investment
Class represents an identical interest in a Fund's investment portfolio. As a
result, each Class has the same rights, privileges and preferences, except with
respect to: (i) the designation of each Class; (ii) the sales arrangement; (iii)
certain expenses allocable exclusively to each Class; and (iv) voting rights on
matters exclusively affecting a
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<PAGE>
single Class. The Board does not anticipate that there will be any conflicts
among the interests of the holders of the two Classes. The Trustees, on an
ongoing basis, will consider whether any conflict exists and, if so, take
appropriate action. Certain aspects of the shares may be changed, upon notice to
Fund shareholders, to satisfy certain tax regulatory requirements, if the
Trust's Board of Trustees deems the change necessary by the Board.
When matters are submitted for shareholder vote, each shareholder of
each Fund will have one vote for each full share held and proportionate,
fractional votes for fractional shares held. In general, shares of all Funds
vote as a single class on all matters except (1) a matter affecting the
interests of one or more of the Funds or Classes of a Fund, in which case only
shares of the affected Funds or Classes would be entitled to vote, or (2) when
the 1940 Act requires the vote of an individual Fund. Normally, no meetings of
shareholders of the Funds will be held for the purpose of electing Trustees of
the Trust unless and until such time as less than a majority of the Trustees
holding office have been elected by shareholders of the Trust, at which time the
Trustees then in office will call a shareholders' meeting for the election of
Trustees. Shareholders of record of no less than two-thirds of the outstanding
shares of the Trust may remove a Trustee through a declaration in writing or by
vote cast in person or by proxy at a meeting called for that purpose. A meeting
will be called for the purpose of voting on the removal of a Trustee at the
written request of holders of 10% of the Trust's outstanding shares.
Counsel. Sutherland Asbill & Brennan LLP, 1275 Pennsylvania Avenue,
N.W., Washington, D.C. 20004-2415 serves as counsel for the Trust.
Independent Accountants. PricewaterhouseCoopers LLP, 160 Federal
Street, Boston, Massachusetts 02110, serves as independent accountants of the
Trust.
FINANCIAL STATEMENTS
The Annual Report dated September 30, 1998, which either accompanies
this SAI or has previously been provided to the person to whom this SAI is being
sent, is incorporated herein by reference with respect to all information other
than the information set forth in the Letter to Shareholders included in the
Annual Report.
The Funds that are included in the Annual Report dated September 30,
1998 are the U.S. Equity Fund, the S&P 500 Index Fund, the Mid-Cap Growth Fund,
the International Equity Fund, the Emerging Markets Fund, the Income Fund and
the Money Market Fund. The Small- Cap Growth Equity Fund and High Yield Fund
have not yet commenced operations and have no assets as of the date of this SAI.
The remaining Funds did not have an operating history as of the date of the
annual report.
The 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. 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
<PAGE>
amendment number two to the Registration Statement, filed with
the Commission on November 7, 1997.
(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-1
<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 incorporated herein by reference to
Exhibit (d)(13) to post-effective amendment number four to the
Registration Statement, filed with the Commission on January
27, 1999.
(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 Fund, and GEIM, is
incorporated herein by reference to Exhibit (d)(15) to
post-effective amendment number four to the Registration
Statement, filed with the Commission on January 27, 1999.
(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 incorporated herein by reference to
Exhibit (d)(18) to post-effective amendment number four to the
Registration Statement, filed with the Commission on January
27, 1999. .
(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.
C-2
<PAGE>
(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.
(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) 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 incorporated herein by reference
to Exhibit (n) to post-effective amendment number four to the
Registration Statement, filed with the Commission on January
27, 1999.
(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.
(p) Power of Attorney is filed herewith.
C-3
<PAGE>
Item 24. Persons Controlled by or Under Common Control with Registrant
The list required by this Item 24 of persons controlled by or under
common control with Registrant, which includes the subsidiaries of General
Electric Company ("GE"), is incorporated herein by reference to Exhibit 21,
"Subsidiaries of Registrant," of the Form 10-K filed by GE pursuant to Section
13 or 15(d) of the Securities Exchange Act of 1934, as amended (SEC File No.
1-35) for the fiscal year ended December 31, 1997 (the "Form 10-K"). Additional
information about persons controlled by or under common control with Registrant
is incorporated herein by reference to pages 10-12 of the Form 10-K, beginning
under the caption "GECs Segments."
Item 25. Indemnification
As a Delaware business trust, the operations of Registrant are governed
by its Amended and Restated Declaration of Trust dated June 2, 1998 (the
"Declaration of Trust"). Generally, Delaware business trust shareholders are not
personally liable for obligations of the Delaware business trust under Delaware
law. The Delaware Business Trust Act (the DBTA) provides that a shareholder of a
trust shall be entitled to the same limitation of liability extended to
shareholders of private for-profit Delaware corporations. Registrant's
Declaration of Trust expressly provides that it has been organized under the
DBTA and that the Declaration of Trust is to be governed by Delaware law. It
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
C-4
<PAGE>
officer of Registrant. The Declaration of Trust does not authorize Registrant to
indemnify any Trustee or officer against any liability to which he or she would
otherwise be subject by reason of or for willful misfeasance, bad faith, gross
negligence or reckless disregard of such person's duties.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to Trustees, officers and controlling persons
pursuant to the foregoing provisions, or otherwise, Registrant has been advised
that in the opinion of the Securities and Exchange Commission such
indemnification may be against public policy as expressed in the Act and may be,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by Registrant of expenses incurred or
paid by a Trustee, officer or controlling person of Registrant in the successful
defense of any action, suit or proceeding) is asserted by such Trustee, officer
or controlling person in connection with the securities being registered,
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
Item 26. Business and Other Connections of Investment Adviser
Reference is made to "About the Investment Adviser" in the Prospectus
forming Part A, and "Management of the Trust" in the Statement of Additional
Information forming Part B, of this Registration Statement.
The list required by this Item 26 of officers and directors of GEIM,
the Funds' investment adviser, together with information as to any other
business, profession, vocation or employment of a substantial nature engaged in
by those officers and directors during the past two years, is incorporated
herein by reference to Schedules A and D of the Form ADV filed by GEIM pursuant
to the Investment Advisers Act of 1940, as amended (the "Advisers Act") (SEC
File No. 801-31947).
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).
C-5
<PAGE>
The list required by this Item 26 of officers and directors of NWQ
Investment Management Company ("NWQ"), the Mid-Cap Value Fund's sub-adviser,
together with information as to any other business, profession, vocation or
employment of a substantial nature engaged in by those officers and directors
during the past two years, is incorporated by reference to Schedules A and D of
the Form ADV filed by NWQ pursuant to the Advisers Act (SEC File No. 801-42159).
Item 27. Principal Underwriters
(a) GE Investment Distributors, Inc. ("GEID") also serves as
distributor for the investment portfolios of GE Institutional Funds, GE Funds,
GE Investments Funds, Inc. and GE LifeStyle Funds and for Elfun Tax-Exempt
Income Fund, Elfun Income Fund, Elfun Global Fund, Elfun Money Market Fund,
Elfun Trusts and Elfun Diversified Fund.
(b) The information required by this Item 27 with respect to each
director and officer of GEID is incorporated herein by reference to Schedule A
of Form BD filed by GEID pursuant to the Securities Exchange Act of 1934, as
amended (SEC File No. 8-45710).
(c) Inapplicable.
Item 28. Location of Accounts and Records
All accounts, books and other documents required to be maintained by
Registrant pursuant to Section 31(a) of the 1940 Act, and the rules thereunder,
are maintained at the offices of Registrant located at 3003 Summer Street,
Stamford, Connecticut 06905; 777 Long Ridge Road, Stamford, Connecticut 06927;
State Street, Registrant's custodian and transfer agent, located at 225 Franklin
Street, Boston, Massachusetts 02101; and National Financial Data Services Inc.,
an indirect subsidiary of State Street, located at P.O. Box 419631, Kansas, MO
64141-6631.
Item 29. Management Services
Inapplicable.
Item 30. Undertakings
Inapplicable.
C-6
<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 16th day of March, 1999.
By: /s/ Michael J. Cosgrove
-----------------------------------
Michael J. Cosgrove
President and Chairman of the Board
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Amendment to Registrant's Registration Statement on Form N-1A has been
signed below by the following persons in the capacities and on the dates
indicated.
Signature Title Date
- --------- ----- ----
/s/ Michael J. Cosgrove Trustee, President and 3/16/99
- ------------------------- Chairman of the Board
Michael J. Cosgrove (Chief Executive Officer)
/s/ John R. Costantino Trustee 3/16/99
- ------------------------
John R. Costantino*
/s/ Alan M. Lewis Trustee 3/16/99
- ------------------------
Alan M. Lewis
/s/ William J. Lucas Trustee 3/16/99
- ------------------------
William J. Lucas*
/s/ Robert P. Quinn Trustee 3/16/99
- ------------------------
Robert P. Quinn*
/s/ Jeffrey A. Groh Treasurer 3/16/99
- ------------------------ (Chief Financial and
Jeffrey A. Groh Accounting Officer)
* Signature affixed by Matthew J. Simpson pursuant to a power of attorney dated
December 9, 1998 and filed herewith.
/s/ Matthew J. Simpson
- ------------------------
Matthew J. Simpson
<PAGE>
EXHIBIT INDEX
EX-99.(i) Consent of Sutherland Asbill & Brennan LLP
EX-99.(j) Consent of PricewaterhouseCoopers LLP
EX-99.(p) Power of Attorney
<PAGE>
Exhibit 99.(i)
[Sutherland Asbill & Brennan LLP Letterhead]
CONSENT OF SUTHERLAND ASBILL & BRENNAN LLP
We consent to the reference to our firm under the heading "Fund
History and Additional Information -- Counsel" in the statement of additional
information included in Post- Effective Amendment No. 5 to the Registration
Statement on Form N-1A for GE Institutional Funds (File Nos. 333-29337,
811-08257). In giving this consent, we do not admit that we are in the category
of persons whose consent is required under Section 7 of the Securities Act of
1933.
SUTHERLAND ASBILL & BRENNAN LLP
By: /s/ Stephen E. Roth
----------------------------
Stephen E. Roth
Washington, D.C.
March 16, 1999
<PAGE>
Exhibit 99.(j)
CONSENT OF INDEPENDENT ACCOUNTANTS
----------------------------------
We hereby consent to the use in the Statement of Additional Information
constituting part of this Post-Effective Amendment No. 5 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 International Equity Fund, which appears in such
Statement of Additional Information, and to the incorporation by reference of
our report into the Prospectus which constitutes part of this Registration
Statement. We also consent to the references to us under the headings "Financial
Statements", and "Independent Accountants" in such Statement of Additional
Information and to the reference to us under the headings "Financial Highlights"
in such Prospectus.
PricewaterhouseCoopers LLP
Boston, Massachusetts
March 16, 1999
<PAGE>
Exhibit 99.(p)
POWER OF ATTORNEY
I, the undersigned Director and/or Trustee of GE Funds, GE
Institutional Funds, GE Lifestyles Funds and GE Investments Funds, Inc. plus any
other investment company for which GE Investment Management, Inc. or an
affiliate acts as investment adviser and for which the undersigned individual
serves as Director and/or Trustee (collectively, the "Funds"), hereby constitute
and apoint Michael J.Cosgrove, Matthew J. Simpson, Jeanne M. LaPorta and Marc R.
Bryant, each of them singly, my true and lawful attorneys-in-fact, with full
power and substitution, and with full power to each of them, to sign for me and
in my name in the appropriate capacities, all Registration Statements of the
Funds on Forms N-1A and N-8A or any successor(s) thereto, any and all subsequent
Amendments, Pre-Effective Amendments, or Post-Effective Amendments to said
Registration Statements, any Registration Statements on Form N-14, and any
supplements or other instruments in connection therewith, and generally to do
all such things in my name necessary or appropriate, to comply with the
provisions of the Securities Act of 1933 and the Investment Company Act of 1940,
and all related requirements of the Securities and Exchange Commission. I hereby
ratify and confirm all the said attorneys-in-fact or their substitutes may do or
cause to be done by virtue hereof. This power of attorney is effective for all
documents filed on or after the date hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney
as of the 9th day of December, 1998.
/s/ JOHN R. COSTANTINO
----------------------
John R. Costantino
<PAGE>
POWER OF ATTORNEY
I, the undersigned Director and/or Trustee of GE Funds, GE
Institutional Funds, GE Lifestyles Funds and GE Investments Funds, Inc. plus any
other investment company for which GE Investment Management, Inc. or an
affiliate acts as investment adviser and for which the undersigned individual
serves as Director and/or Trustee (collectively, the "Funds"), hereby constitute
and apoint Michael J.Cosgrove, Matthew J. Simpson, Jeanne M. LaPorta and Marc R.
Bryant, each of them singly, my true and lawful attorneys-in-fact, with full
power and substitution, and with full power to each of them, to sign for me and
in my name in the appropriate capacities, all Registration Statements of the
Funds on Forms N-1A and N-8A or any successor(s) thereto, any and all subsequent
Amendments, Pre-Effective Amendments, or Post-Effective Amendments to said
Registration Statements, any Registration Statements on Form N-14, and any
supplements or other instruments in connection therewith, and generally to do
all such things in my name necessary or appropriate, to comply with the
provisions of the Securities Act of 1933 and the Investment Company Act of 1940,
and all related requirements of the Securities and Exchange Commission. I hereby
ratify and confirm all the said attorneys-in-fact or their substitutes may do or
cause to be done by virtue hereof. This power of attorney is effective for all
documents filed on or after the date hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney
as of the 9th day of December, 1998.
/s/ WILLIAM J. LUCAS
----------------------
William J. Lucas
<PAGE>
POWER OF ATTORNEY
I, the undersigned Director and/or Trustee of GE Funds, GE
Institutional Funds, GE Lifestyles Funds and GE Investments Funds, Inc. plus any
other investment company for which GE Investment Management, Inc. or an
affiliate acts as investment adviser and for which the undersigned individual
serves as Director and/or Trustee (collectively, the "Funds"), hereby constitute
and apoint Michael J.Cosgrove, Matthew J. Simpson, Jeanne M. LaPorta and Marc R.
Bryant, each of them singly, my true and lawful attorneys-in-fact, with full
power and substitution, and with full power to each of them, to sign for me and
in my name in the appropriate capacities, all Registration Statements of the
Funds on Forms N-1A and N-8A or any successor(s) thereto, any and all subsequent
Amendments, Pre-Effective Amendments, or Post-Effective Amendments to said
Registration Statements, any Registration Statements on Form N-14, and any
supplements or other instruments in connection therewith, and generally to do
all such things in my name necessary or appropriate, to comply with the
provisions of the Securities Act of 1933 and the Investment Company Act of 1940,
and all related requirements of the Securities and Exchange Commission. I hereby
ratify and confirm all the said attorneys-in-fact or their substitutes may do or
cause to be done by virtue hereof. This power of attorney is effective for all
documents filed on or after the date hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney
as of the 9th day of December, 1998.
/s/ ROBERT P. QUINN
----------------------
Robert P. Quinn
