<PAGE>
File Nos. 2-91369 811-04041
As filed with the Securities and Exchange Commission on April 28, 2000
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. 27 / X /
and
REGISTRATION STATEMENT UNDER
THE INVESTMENT COMPANY ACT OF 1940 / /
Amendment No. 28 / X /
(Check appropriate box or boxes)
..................................................................
GE INVESTMENTS FUNDS, INC.
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 Asset Management Incorporated
3003 Summer Street
Stamford, Connecticut 06905
(Name and Address of Agent for Service)
...................................................................
Copy to:
David S. Goldstein, Esq.
Sutherland Asbill & Brennan LLP
1275 Pennsylvania Avenue, N.W.
Washington, DC 20004-2404
It Is Proposed That this Filing Will Become Effective (check appropriate box)
[ ] Immediately upon Filing Pursuant to Paragraph (b) of Rule 485
[ X ] on May 1, 2000 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 May 1, 2000 Pursuant to Paragraph (a)(2) of Rule 485
If appropriate, check the following box:
[ ] This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
Title of Securities Being Registered: Shares of Common stock
<PAGE>
Prospectus
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GE Investments
Funds, Inc.
May 1, 2000
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Equity Funds
U.S. Equity Fund
S&P 500 Index Fund
Premier Growth Equity Fund
Value Equity Fund
Mid-Cap Value Equity Fund
(formerly named Value Equity Fund)
Small-Cap Value Equity Fund
International Equity Fund
Europe Equity Fund
Emerging Markets Fund
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Income Funds
Income Fund
Global Income Fund
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Asset Allocation Funds
Total Return Fund
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Money Market Funds
Money Market Fund
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Other Funds
Real Estate Securities Fund
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Like all mutual funds, shares of the GE Investments Funds have not been approved
or disapproved by the Securities and Exchange Commission, nor has the Securities
and Exchange Commission passed upon the accuracy or adequacy of this prospectus.
Any representation to the contrary is a criminal offense.
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[GE LOGO]
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We bring good things to life.
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Contents
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GE Investments
Funds, Inc.
Prospectus
Equity Funds 3
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U.S. Equity Fund 4
S&P 500 Index Fund 6
Premier Growth Equity Fund 8
Value Equity Fund 10
Mid-Cap Value Equity Fund 12
Small-Cap Value Equity Fund 14
International Equity Fund 16
Europe Equity Fund 18
Emerging Markets Fund 19
Income Funds 21
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Income Fund 22
Global Income Fund 24
Asset Allocation Funds 27
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Total Return Fund 28
Money Market Funds 31
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Money Market Fund 32
Other Funds 35
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Real Estate Securities Fund 36
More on Strategies and Risks 38
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Important Definitions 38
More on Investment Strategies 41
More on Risks 46
Other Risk Considerations 49
About the Investment Adviser 50
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Investment Adviser and
Administrator 50
About the Portfolio Managers 51
About the Sub-Advisers 52
Purchase and Redemption
of Shares 56
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Dividend, Distributions
and Tax Information 58
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Calculating Share Value 59
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Financial Highlights 60
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Additional information regarding the GE Investments Funds, Inc. (the "Funds") is
contained in the Statement of Additional Information ("SAI") dated May 1, 2000
(or a subsequent date in 2000), which is incorporated by reference into (legally
forms a part of) this Prospectus.
Shares of the Funds are available only through the purchase of certain variable
annuity and variable life insurance contracts issued by various life insurance
companies, some of which may be affiliated persons of the Funds.
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Equity Funds GE Investments 3
Funds, Inc.
Prospectus
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An investment in a GE Investments Equity Fund is not a deposit of any bank and
is not insured by the Federal Deposit Insurance Corporation or any other
government agency. An investment in a GE Investments Equity Fund is subject to
risk, including possible loss of principal invested.
Who may want to invest in a GE Investments Equity Fund?
The GE Investments Equity Funds may be appropriate to support your variable
contract if you:
o have a long-term investment goal
o are willing to accept higher short-term risk for potential long-term returns
o want to diversify a portfolio composed mostly of other types of funds
The GE Investments Equity Funds may not be appropriate to support your variable
contract if you want:
o to avoid potentially significant changes in the value of your investment
o a stable return on your investment
Equity funds generally invest in equity securities. Equity securities may
include common stocks, preferred securities, depositary receipts, convertible
preferred securities, convertible bonds, convertible debentures, convertible
notes and rights and warrants of U.S. and foreign companies. Stocks represent an
ownership interest in a corporation. Equity funds have more potential for
capital growth than other funds, but they have greater risk.
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4 GE Investments
Funds, Inc.
Prospectus
Equity Funds
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U.S. Equity Fund
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Investment Objective: Long-term growth of capital.
The Strategy
The U.S. Equity Fund invests primarily in equity securities of U.S. companies.
The portfolio managers use a Multi-Style(R) investment strategy that combines
growth and value investment management styles. As a result, the portfolio has
characteristics similar to the Standard & Poor's 500 Composite Stock Index ("S&P
500 Index"), including capital appreciation and income potential. Stock
selection is key to the performance of the Fund.
Through fundamental company research, the portfolio managers seek to identify
securities of large companies with characteristics such as:
o attractive valuations
o financial strength
o high quality management focused on generating shareholder value
The Fund also may invest to a lesser extent in foreign securities and debt
securities. The portfolio managers may use various investment techniques to
adjust the Fund's investment exposure, but there is no guarantee that these
techniques will work.
The Risks
The principal risk of investing in the Fund is stock market risk. To the extent
that the portfolio managers invest in foreign securities or debt securities, the
Fund would be subject to foreign exposure risk or interest rate risk and credit
risk.
If you would like additional information regarding the Fund's investment
strategies and risks, including a description of the terms in bold type, please
refer to "More on Strategies and Risks" later in this Prospectus.
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5
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Fund Performance
The bar chart and table opposite illustrate the short-term variability in the
Fund's performance and the Fund's returns relative to a common measure of
performance.
The bar chart illustrates how the Fund's performance varies from year to year
over the periods shown. During the periods presented in the bar chart, the
Fund's highest return for a quarter was 19.89% for the quarter ended December
31, 1998. The Fund's lowest return for a quarter was -10.17% for the quarter
ended September 30, 1998. The Fund's year-to-date return was 2.03% as of March
31, 2000.
The table opposite illustrates how the Fund's average annual returns for
different calendar periods compare to the returns of the S&P 500 Index. The
table presents returns net of Fund expenses. It assumes that you redeem your
investment in the Fund at the end of each period.
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Calendar Year Total Returns
[BAR CHART]
1996 21.72%
1997 32.13%
1998 23.41%
1999 19.61%
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Average Annual Total Return
(as of December 31, 1999)
Since
1 Year Inception*
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U.S. Equity Fund 19.61% 26.37%
S&P 500 Index 21.07% 28.59%
Both the bar chart and table assume reinvestment of dividends and distributions.
If GE Asset Management had not reduced certain expenses during certain of the
periods shown, the Fund's total returns would have been lower. The performance
information presented does not include the fees and charges associated with the
variable contracts, and returns would have been lower if those fees and charges
were included. As with all mutual funds, past performance is not an indication
of future performance.
*Inception date (commencement of investment operations): January 3, 1995
All mutual funds use a standard formula to calculate total return. Total return
measures the price change in a share assuming the reinvestment of all dividend
income and capital gain distributions.
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6 GE Investments
Funds, Inc.
Prospectus
Equity Funds
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S&P 500 Index Fund
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Investment Objective: Growth of capital and accumulation of income that
corresponds to the investment return of the Standard & Poor's 500 Composite
Stock Index.
The Strategy
The S&P 500 Index Fund invests primarily in equity securities of companies
contained in the S&P 500 Index.* The portfolio manager seeks to replicate the
return of the S&P 500 Index while holding transaction costs low and minimizing
portfolio turnover. The portfolio manager attempts to achieve a correlation of
at least 0.95 between the Fund's total return and that of the S&P 500 Index,
without taking expenses into account.
The portfolio manager uses a passive management approach to select a
representative group of stocks within the S&P 500 Index. The portfolio manager
also may use statistical selection to determine which securities within the
Index to purchase or sell for the Fund. The Fund generally will hold all the
securities that comprise the S&P 500 Index, however, in some cases, the Fund's
weightings in particular industry segments represented in the S&P 500 Index may
differ significantly from those of the Index.
The Fund also may invest to a lesser extent in debt securities, foreign
securities and other securities that are not in the S&P 500 Index. Except for
debt securities, which are used to manage cash flows, all securities held by the
Fund are aquired to fulfill its investment objective. The portfolio managers may
use various investment techniques to adjust the Fund's investment exposure, but
there is no guarantee that these techniques will work. The Fund will not adopt a
temporary defensive strategy in times of declining stock prices and therefore
you will bear the risk of such declines.
The Risks
The principal risks of investing in the Fund are stock market risk and the risk
that the Fund's return may not correlate exactly with that of the S&P 500 Index.
To the extent that the portfolio manager invests in foreign securities and debt
securities, the Fund would be subject to foreign exposure risk or interest rate
risk and credit risk.
If you would like additional information regarding the Fund's investment
strategies and risks, including a description of the terms in bold type, please
refer to "More on Strategies and Risks" later in this Prospectus.
* "Standard & Poor's(R)", "S&P(R)", and "S&P 500(R)" "Standard & Poor's 500" and
"500" are marks of The McGraw-Hill Companies, Inc. and have been licensed for
use by GE Asset Management. The S&P 500 Index Fund is not sponsored, endorsed,
sold or promoted by Standard & Poor's, and Standard & Poor's makes no
representation regarding the advisability of investing in the Fund. Please see
the SAI for additional disclaimers and liabilities regarding Standard & Poor's.
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7
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Fund Performance
The bar chart and table opposite illustrate the short-term variability in the
Fund's performance and the Fund's returns relative to a common measure of
performance.
The bar chart illustrates how the Fund's performance varies from year to year
over the periods shown. During the periods presented in the bar chart, the
Fund's highest return for a quarter was 21.24% for the quarter ended December
31, 1998. The Fund's lowest return for a quarter was -15.99% for the quarter
ended September 30, 1990. The Fund's year-to-date return was 2.21% as of March
31, 2000.
The table opposite illustrates how the Fund's average annual returns for
different calendar periods compare to the returns of the S&P 500 Index. The
table presents returns net of Fund expenses and assumes that you redeem your
investment in the Fund at the end of each period.
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Calendar Year Total Returns
[BAR CHART]
1990 -10.23%
1991 34.37%
1992 8.38%
1993 14.52%
1994 -0.06%
1995 36.14%
1996 24.51%
1997 30.33%
1998 28.24%
1999 20.61%
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Average Annual Total Return
(as of December 31, 1999)
1 Year 5 Years 10 Years
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S&P 500 Index Fund 20.61% 27.86% 17.71%
S&P 500 Index 21.07% 28.59% 18.23%
Both the bar chart and table assume reinvestment of dividends and distributions.
The performance information presented does not include the fees and charges
associated with the variable contracts, and returns would have been lower if
those fees and charges were included. As with all mutual funds, past performance
is not an indication of future performance.
All mutual funds use a standard formula to calculate total return. Total return
measures the price change in a share assuming the reinvestment of all dividend
income and capital gain distributions.
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<PAGE>
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8 GE Investments
Funds, Inc.
Prospectus
Equity Funds
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Premier Growth Equity Fund
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Investment Objective: Long-term growth of capital and future income rather than
current income.
The Strategy
The Premier Growth Equity Fund invests primarily in a limited number of equity
securities of large- and medium-sized companies that the portfolio manager
believes have above-average growth histories and/or growth potential. The
portfolio manager chooses equity securities from a number of industries based on
the merits of individual companies. Stock selection is key to the performance of
the Fund.
The portfolio manager seeks to identify stocks of growth companies with
characteristics such as:
o above-average annual growth rates
o financial strength
o leadership in their respective industries
o high quality management focused on generating shareholder value
The Fund also may invest to a lesser extent in foreign securities and debt
securities. The portfolio manager may use various investment techniques to
adjust the Fund's investment exposure, but there is no guarantee that these
techniques will work.
The Risks
The principal risks of investing in the Fund are diversification risk, stock
market risk and style risk (growth investing risk and mid-cap company risk). To
the extent that the portfolio manager invests in foreign securities or debt
securities, the Fund would be subject to foreign exposure risk or interest rate
risk and credit risk.
If you would like additional information regarding the Fund's investment
strategies and risks, including a description of the terms in bold type, please
refer to "More on Strategies and Risks" later in this Prospectus.
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<PAGE>
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9
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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 periods presented in the bar chart, the
Fund's highest return for a quarter was 23.96% for the quarter ended December
31, 1998. The Fund's lowest return for a quarter was -6.54% for the quarter
ended September 30, 1998. The Fund's year-to-date return was 3.70% as of March
31, 2000.
The table opposite illustrates how the Fund's average annual returns for
different calendar periods compare to the returns of the S&P 500 Index. The
table presents returns net of Fund expenses. It assumes that you redeem your
investment in the Fund at the end of each period.
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Calendar Year Total Returns
[BAR CHART]
1998 36.53%
1999 36.26%
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Average Annual Total Return
(as of December 31, 1999)
Since
1 Year Inception*
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Premier Growth Equity Fund 36.26% 35.53%
S&P 500 Index 21.07% 24.73%
Both the bar chart and table assume reinvestment of dividends and distributions.
If GE Asset Management had not reduced certain expenses during certain of the
periods shown, the Fund's total returns would have been lower. The performance
information presented does not include the fees and charges associated with the
variable contracts, and returns would have been lower if those fees and charges
were included. As with all mutual funds, past performance is not an indication
of future performance.
* Inception date (commencement of investment operations): December 12, 1997
All mutual funds use a standard formula to calculate total return. Total return
measures the price change in a share assuming the reinvestment of all dividend
income and capital gain distributions.
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<PAGE>
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10 GE Investments
Funds, Inc.
Prospectus
Equity Funds
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Value Equity Fund
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Investment Objective: Long-term growth of capital and future income.
The Strategy
The Value Equity Fund invests primarily in equity securities of large U.S.
companies that the portfolio manager believes are undervalued by the market but
have solid growth prospects. A company may be undervalued for reasons such as
market overreaction to recent company, industry or economic problems. Stock
selection is key to the performance of the Fund.
The portfolio manager seeks to identify securities of companies with
characteristics such as:
o low prices in relation to their peers and the overall market
o the potential for long-term earnings growth
o above average dividend yields
o expectation of income in future periods
o strong management
o financial strength
o attractive upside potential and limited downside risk
The Fund also may invest to a lesser extent in foreign securities and debt
securities. The portfolio manager may use various investment techniques to
adjust the Fund's investment exposure, but there is no guarantee that these
techniques will work.
The Risks
The principal risks of investing in the Fund are stock market risk, and style
risk (value investing risk). To the extent that the portfolio manager invests in
foreign securities or debt securities, the Fund would be subject to foreign
exposure risk or interest rate risk and credit risk.
If you would like additional information regarding the Fund's investment
strategies and risks, including a description of the terms in bold type, please
refer to "More on Strategies and Risks" later in this Prospectus.
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Fund Background
This is a new Fund first being offered by this Prospectus. Another Fund, the
Mid-Cap Value Equity Fund, which is described on page 12 of this Prospectus,
previously was called the Value Equity Fund.
No performance figures are shown because the Fund has no operating history as of
the date of this Prospectus.
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11
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12 GE Investments
Funds, Inc.
Prospectus
Equity Funds
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Mid-Cap Value Equity Fund
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Investment Objective: Long-term growth of capital and future income.
The Strategy
The Mid-Cap Value Equity Fund (formerly named the Value Equity Fund) invests
primarily in equity securities of mid-cap companies that the portfolio manager
believes are undervalued by the market and have above-average growth potential.
The dollar weighted median market capitalization of the companies in the Fund's
portfolio generally will fall within the mid-cap range defined by the
Morningstar rating agency, between $1.7 and $10.7 billion as of December 31,
1999. The Fund's median market capitalization is calculated in accordance with
Morningstar rating agency's trimmed median formula. The portfolio manager will
not sell a stock merely because the market capitalization of a company in the
portfolio moves above or below the maximum or minimum capitalization range
defined by Morningstar. Stock selection is key to the performance of the Fund.
The Portfolio manager also invests in companies that are considered "special
situation companies" where due to management turnaround, corporate or asset
restructuring or significantly undervalued assets, their securities may not have
performed well in the recent past, but appear to have potential for significant
future earnings growth.
The Fund is value-oriented and seeks to identify undervalued companies where a
catalyst exists to recognize value or improve a company's profitability.
Examples of these catalysts are:
o new management
o industry consolidation
o company restructuring
o change in the company's fundamentals
The Fund also may invest to a lesser extent in foreign securities and debt
securities. The portfolio manager may use various investment techniques to
adjust the Fund's investment exposure, but there is no guarantee that these
techniques will work.
In prior Prospectuses, this Fund was called the Value Equity Fund. We have
renamed it the Mid-Cap Value Equity Fund to better reflect its investment style.
In additon, a new Fund called the Value Equity Fund is being offered. Please see
page 10 of this Prospectus for a description of that Fund.
The Risks
The principal risks of investing in the Fund are stock market risk and style
risk (value investing risk and mid-cap company risk). To the extent that the
portfolio manager invests in foreign securities or debt securities, the Fund
would be subject to foreign exposure risk or interest rate risk and credit risk.
If you would like additional information regarding the Fund's investment
strategies and risks, including a description of the terms in bold type, please
refer to "More on Strategies and Risks" later in this Prospectus.
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<PAGE>
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13
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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 periods presented in the bar chart, the
Fund's highest return for a quarter was 16.33% for the quarter ended September
30, 1997. The Fund's lowest return for a quarter was -17.15% for the quarter
ended September 30, 1998. The Fund's year-to-date return was 1.20% as of March
31, 2000.
The table opposite illustrates how the Fund's average annual returns for
different calendar periods compare to the returns of the S&P 500 Index and the
Standard & Poor's MidCap 400 Stock Index ("S&P MidCap Index"). The table
presents returns net of Fund expenses. It assumes that you redeem your
investment in the Fund at the end of each period.
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Calendar Year Total Returns
[BAR CHART]
1198 6.69%
1999 17.26%
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Average Annual Total Return
(as of December 31, 1999)
Since
1 Year Inception*
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Mid-Cap Value Equity Fund 17.26% 20.85%
S&P 500 Index 21.07% 27.44%
S&P MidCap Index 14.77% 24.26%
Both the bar chart and table assume reinvestment of dividends and distributions.
If GE Asset Management had not reduced certain expenses during certain of the
periods shown, the Fund's total returns would have been lower. The performance
information presented does not include the fees and charges associated with the
variable contracts, and returns would have been lower if those fees and charges
were included. As with all mutual funds, past performance is not an indication
of future performance.
* Inception date (commencement of investment operations): May 1, 1997
All mutual funds use a standard formula to calculate total return. Total return
measures the price change in a share assuming the reinvestment of all dividend
income and capital gain distributions.
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<PAGE>
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14 GE Investments
Funds, Inc.
Prospectus
Equity Funds
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Small-Cap Value Equity Fund
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Investment Objective: Long-term growth of capital.
The Strategy
The Small-Cap Value Equity Fund invests primarily in equity securities of
small-cap companies that the portfolio managers believe are undervalued by the
market but have solid growth prospects. A company may be undervalued for reasons
such as market overreaction to recent company, industry or economic problems.
The Fund defines a small-cap company as one with a market capitalization within
the capitalization range of the Russell 2000 Index. As of December 31, 1999 the
market capitalization of companies in the index ranged from $10 million to
$13.04 billion. The portfolio managers will not sell a stock merely because the
market capitalization of a company in the portfolio moves above or below the
maximum or minimum capitalization of the index. Stock selection is key to the
performance of the Fund.
The portfolio managers seek to identify securities of companies with
characteristics such as:
o high quality management
o attractive products or services
o appropriate capital structure
o strong competitive positions in their industries
o management focused on generating shareholder value
The Fund also may invest to a lesser extent in securities with capitalizations
outside the Fund's small-cap range, debt securities and foreign securities. The
portfolio managers may use various investment techniques to adjust the Fund's
investment exposure, but there is no guarantee that these techniques will work.
The Risks
The principal risks of investing in the Fund are stock market risk and style
risk (value investing risk and small-cap company risk). To the extent that the
portfolio managers invest in foreign securities or debt securities, the Fund
would be subject to foreign exposure risk or interest rate risk and credit risk.
If you would like additional information regarding the Fund's investment
strategies, including a description of the terms in bold type, please refer to
"More on Strategies and Risks" later in this Prospectus.
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Fund Background
No performance figures are shown because the Fund has no operating history as of
the date of this Prospectus.
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15
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16 GE Investments
Funds, Inc.
Prospectus
Equity Funds
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International Equity Fund
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Investment Objective: Long-term growth of capital.
The Strategy
The International Equity Fund invests primarily in equity securities of
companies located in developed and developing countries other than the United
States. The portfolio managers focus on companies that they believe will grow
faster than relevant markets and whose security prices do not fully reflect
their potential for growth. Under normal circumstances, the Fund's assets are
invested in foreign securities of companies representing at least three
different countries. 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 and 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 the Fund are stock market risk, foreign
exposure risk, style risk (growth investing risk and mid-cap company risk) and
emerging markets risk. To the extent that the portfolio managers invest in debt
securities, the Fund would be subject to interest rate risk and credit risk.
If you would like additional information regarding the investment strategies and
risks associated with this Fund, including a description of the terms in bold
type, please refer to "More on Strategies and Risks" later in this Prospectus.
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<PAGE>
------------
17
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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 periods presented in the bar chart, the
Fund's highest return for a quarter was 21.44% for the quarter ended December
31, 1999. The Fund's lowest return for a quarter was -17.55% for the quarter
ended September 30, 1998. The Fund's year-to-date return was 3.59% as of March
31, 2000.
The following table illustrates how the Fund's average annual returns for
different calendar periods compare to the returns of the Morgan Stanley Capital
International Europe Australasia Far East Index ("MSCI EAFE Index"). The table
presents returns net of Fund expenses. It assumes that you redeem your
investment in the Fund at the end of each period.
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Calendar Year Total Returns
[BAR CHART]
1996 9.91%
1997 10.17%
1998 17.45%
1999 30.33%
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Average Annual Total Return
(as of December 31, 1999)
Since
1 Year Inception*
------ ----------
International Equity Fund 30.33% 15.72%
MSCI EAFE Index 26.96% 12.45%
Both the bar chart and table assume reinvestment of dividends and distributions.
If GE Asset Management had not reduced certain expenses during certain of the
periods shown, the Fund's total returns would have been lower. The performance
information presented does not include the fees and charges associated with the
variable contracts, and returns would have been lower if those fees and charges
were included. As with all mutual funds, past performance is not an indication
of future performance.
* Inception date (commencement of investment operations): May 1, 1995
All mutual funds use a standard formula to calculate total return. Total return
measures the price change in a share assuming the reinvestment of all dividend
income and capital gain distributions.
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<PAGE>
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18 GE Investments
Funds, Inc.
Prospectus
Equity Funds
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Europe Equity Fund
- -------------------
Investment Objective: Long-term growth of capital.
- -------------------
Developed European countries currently include:
Austria
Belgium
Denmark
Finland
France
Germany
Greece
Ireland
Italy
Luxembourg
The Netherlands
Norway
Portugal
Spain
Sweden
Switzerland
United Kingdom
The Strategy
The Europe Equity Fund invests primarily in equity securities of issuers located
in developed European countries. The portfolio managers focus on companies that
they believe will grow faster than relevant markets and whose security prices do
not fully reflect their potential for growth. Under normal circumstances, the
Fund's assets are invested in foreign securities of companies representing at
least three different countries. 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 securities of companies
representing European emerging market countries, developed or emerging countries
outside of Europe (including the United States) and debt securities. European
emerging market countries include the Czech Republic, Poland, Hungary, Turkey,
Russia and other former republics of the Soviet Union. The portfolio managers
may use various investment techniques to adjust the Fund's investment exposure,
but there is no guarantee that these techniques will work.
The Risks
The principal risks of investing in the Fund are stock market risk, foreign
exposure risk and style risk (mid-cap company risk and growth investing risk).
To the extent that the portfolio managers invest in securities of emerging
market countries and debt securities, the Fund would be subject to emerging
markets risk, interest rate risk and credit risk.
Because the Fund targets a single region, investors should expect the Fund to be
more volatile than a more geographically diversified equity fund. Fund
performance is closely tied to economic and political conditions within Europe.
If you would like additional information regarding the Fund's investment
strategies and risks, including a description of the terms in bold type, please
refer to "More on Strategies and Risks" later in this Prospectus.
- --------------------------------------------------------------------------------
Fund Background
No performance figures are shown because the Fund has no operating history as of
the date of this Prospectus.
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<PAGE>
------------
19
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Emerging Markets Fund
- ------------
Investment Objective: Long-term growth of capital.
The Strategy
The Emerging Markets Fund invests primarily in equity securities of issuers
located in emerging markets. The portfolio managers focus on companies that they
believe will grow faster than relevant markets and whose security prices do not
fully reflect their potential for growth. Under normal circumstances, the Fund's
assets are invested in foreign securities of companies representing at least
three different countries. The portfolio managers consider emerging market
countries in which to invest based on certain factors, including investment
restrictions, tax barriers, local market cycles, economic outlook for growth,
currency exchange rates and the political environment. The portfolio managers
consider the following factors in determining whether an issuer is located in an
emerging market country: country of organization, primary securities trading
market, location of assets, or country where the issuer derives at least half of
its revenues and profits.
An emerging market country is any country having an economy and market that are
(or would be) considered by the World Bank to be emerging or developing, or
listed in the Morgan Stanley Capital International Emerging Markets Index.
Emerging market countries are located in regions such as Asia, Latin America,
the Middle East, Southern Europe, Eastern Europe (including the former republics
of the Soviet Union and the Eastern Bloc) and Africa.
The portfolio managers seek to identify securities of growth companies with
characteristics such as:
o low prices relative to their long-term cash earnings potential
o potential for significant improvement in the company's business
o financial strength
o sufficient liquidity
The Fund may also invest to a lesser extent in securities of companies located
in countries other than emerging market countries (including the United States)
and debt securities. The portfolio managers may use various investment
techniques to adjust the Fund's investment exposure, but there is no guarantee
that these techniques will work.
The Risks
The principal risks of investing in this Fund are stock market risk, foreign
exposure risk, emerging markets risk and style risk (growth investing risk and
small-cap company risk). To the extent that the portfolio managers invest in
debt securities, the Fund would be subject to interest rate risk and credit
risk.
If you would like additional information regarding the Fund's investment
strategies and risks, including a description of the terms in bold type, please
refer to "More on Strategies and Risks" later in this Prospectus.
- --------------------------------------------------------------------------------
Fund Background
No performance figures are shown because the Fund has no operating history as of
the date of this Prospectus.
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<PAGE>
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20
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--------------------------------------------
Income GE Investments 21
Funds Funds, Inc.
Prospectus
- --------------------------------------------------------------------------------
An investment in a GE Investments Income Fund is not a deposit of any bank and
is not insured or guaranteed by the Federal Deposit Insurance Corporation or any
other government agency. An investment in a GE Investments Income Fund is
subject to risk, including possible loss of principal invested.
Who may want to invest in a GE Investments Income Fund?
The GE Investments Income Funds may be appropriate to support your variable
contract if you:
o seek an investment derived from income bearing securities
o seek lower potential volatility than equity funds over the long term
o want to diversify a portfolio composed mostly of equity funds
The GE Investments Income Funds may not be appropriate to support your variable
contract if you want:
o high potential capital appreciation
Income funds generally invest in debt securities. Debt securities are bonds and
other securities that are used by issuers to borrow money from investors.
Holders of debt securities have a higher priority claim to assets than do equity
holders. Typically, the debt issuer pays the investor a fixed, variable or
floating rate of interest and must repay the borrowed amount at maturity. Some
debt securities, such as zero coupon bonds, are sold at a discount from their
face values instead of paying interest.
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<PAGE>
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22 GE Investments
Funds, Inc.
Prospectus
Income Funds
- --------------------------------------------------------------------------------
Income Fund
- -------------------
Investment Objective: Maximum income consistent with prudent investment
management and the preservation of capital.
The Strategy
The Income Fund invests primarily in a variety of investment grade debt
securities, such as mortgage-backed securities, corporate bonds, U.S. Government
securities, and money market instruments. The Fund normally has a weighted
average maturity of approximately five to ten years.
The portfolio managers seek to identify debt securities with characteristics
such as:
o attractive yields and prices
o the potential for capital appreciation
o reasonable credit quality
The Fund also may invest to a lesser extent in asset-backed securities and
foreign securities. The portfolio managers may use various investment techniques
to adjust the Fund's investment exposure, but there is no guarantee that these
techniques will work.
The Fund's investment strategy may result in a high portfolio turnover rate,
which may cause the Fund to experience increased transaction costs.
The Risks
The principal risks of investing in the Fund are interest rate risk, credit risk
and prepayment risk. To the extent that the portfolio managers invest in foreign
securities, the Fund would be subject to foreign exposure risk. Certain
portfolio securities are derivative securities that carry derivative securities
risk.
If you would like additional information regarding the risks associated with
this Fund, including a description of the terms in bold type, please refer to
"More on Strategies and Risks" later in this Prospectus.
- --------------------------------------------------------------------------------
<PAGE>
-------------
23
- --------------------------------------------------------------------------------
Fund Performance
The bar chart and table opposite illustrate the short-term variability in the
Fund's performance and the Fund's returns relative to a common measure of
performance.
The bar chart illustrates how the Fund's performance varies from year to year
over the periods shown. During the periods presented in the bar chart, the
Fund's highest return for a quarter was 3.55% for the quarter ended June 30,
1997. The Fund's lowest return for a quarter was -2.03% for the quarter ended
March 31, 1996. The Fund's year-to-date return was 2.00% as of March 31, 2000.
The table opposite illustrates how the Fund's average annual returns for
different calendar periods compare to the returns of the Lehman Brothers
Aggregate Bond Index ("LB Aggregate Bond Index"). The table presents return net
of Fund expenses. It assumes that you redeem your investment in the Fund at the
end of each period.
- --------------------------------------------------------------------------------
Calendar Year Total Returns
[BAR CHART]
1996 2.92%
1997 9.00%
1998 7.95%
1999 -1.43%
- --------------------------------------------------------------------------------
Average Annual Total Return
(as of December 31, 1999)
Since
1 Year Inception*
------ ----------
Income Fund -1.43% 6.89%
LB Aggregate Bond Index -0.83% 7.73%
Both the bar chart and table assume reinvestment of dividends and distributions.
If GE Asset Management had not reduced certain expenses during certain of the
periods shown, the Fund's total returns would have been lower. The performance
information presented does not include the fees and charges associated with the
variable contracts, and returns would have been lower if those fees and charges
were included. As with all mutual funds, past performance is not an indication
of future performance.
* Inception date (commencement of investment operations): January 3, 1995
All mutual funds use a standard formula to calculate total return. Total return
measures the price change in a share assuming the reinvestment of all dividend
income and capital gain distributions.
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<PAGE>
- -------------------
24 GE Investments
Funds, Inc.
Prospectus
Income Funds
- --------------------------------------------------------------------------------
Global Income Fund
- -------------------
Investment Objective: High return, emphasizing current income and, to a lesser
extent, capital appreciation.
The Strategy
The Global Income Fund invests primarily in a combination of foreign and
domestic debt securities, with an emphasis in foreign debt securities. Under
normal circumstances, the Fund's assets are invested in securities of companies
or governments representing at least three different countries.
Particular types of securities in which the Fund invests include foreign
government securities, foreign and domestic corporate bonds, U.S. Government
securities, and money market instruments.
In selecting investments for the Fund, the portfolio manager considers such
factors as:
o currency and interest rate trends
o the instrument's duration
o yield
o issuer credit quality
o prospects for capital appreciation
The Fund also may invest to a lesser extent in mortgage-backed securities,
asset-backed securities, certificates of deposit, bankers' acceptances or time
deposits of U.S. and foreign banks having total assets of more than $1
billion,and equity securities. The portfolio managers may use various investment
techniques to adjust the Fund's investment exposure, but there is no guarantee
that these techniques will work.
The Global Income Fund is not "diversified" as defined by the Investment Company
Act of 1940 ("1940 Act"). Therefore the Fund may invest a greater percentage of
its assets in a particular issuer than diversified Funds making it subject to
diversification risk. Nonetheless, the Fund is subject to diversification
requirements arising under the federal tax laws and a limitation on
concentration of investments in a single industry.
The Risks
The principal risks of investing in the Fund are interest rate risk, credit
risk, foreign exposure risk, diversification risk and emerging markets risk. To
the extent that the portfolio managers invest in equity securities, the Fund
would be subject to stock market risk. Certain portfolio securities are
derivative securities that carry derivative securities risk.
If you would like additional information regarding the Fund's investment
strategies and risks, including a description of the terms in bold type, please
refer to "More on Strategies and Risks" later in this Prospectus.
- --------------------------------------------------------------------------------
<PAGE>
-----------
25
- --------------------------------------------------------------------------------
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 periods presented in the bar chart, the
Fund's highest return for a quarter was 7.34% for the quarter ended September
30, 1998. The Fund's lowest return for a quarter was -3.08% for the quarter
ended June 30, 1999. The Fund's year-to-date return was -1.04% as of March 31,
2000.
The table opposite illustrates how the Fund's average annual returns for
different calendar periods compare to the returns of the JP Morgan Global Bond
Index ("JPM Global Bond Index") and the Salomon Brothers World Government Bond
Index ("Salomon World Bond Index"). The Fund changed its benchmark index during
fiscal year-end December 31, 1999 from the JPM Global Bond Index to the Salomon
World Bond Index, which the portfolio manager believes is a more appropriate
index. The table presents returns net of Fund expenses. It assumes that you
redeem your investment in the Fund at the end of each period.
- --------------------------------------------------------------------------------
Calendar Year Total Returns
[BAR CHART]
1998 13.33%
1999 -7.49%
- --------------------------------------------------------------------------------
Average Annual Total Return
(as of December 31, 1999)
Since
1 Year Inception*
------ ----------
Global Income Fund -7.49% 3.07%
JPM Global Bond Index -5.08% 5.39%
Salomon World Bond Index -4.26% 5.84%
Both the bar chart and table assume reinvestment of dividends and distributions.
The performance information presented does not include the fees and charges
associated with the variable contracts, and returns would have been lower if
those fees and charges were included. As with all mutual funds, past performance
is not an indication of future performance.
* Inception date (commencement of investment operations): May 1, 1997
All mutual funds use a standard formula to calculate total return. Total return
measures the price change in a share assuming the reinvestment of all dividend
income and capital gain distributions.
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<PAGE>
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26
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<PAGE>
---------------------------------------
Asset GE Investments 27
Allocation Funds, Inc.
Funds Prospectus
- --------------------------------------------------------------------------------
An investment in a GE Investments Asset Allocation Fund is not a deposit of any
bank and is not insured by the Federal Deposit Insurance Corporation or any
other government agency. An investment in the GE Investments Total Return Fund
is subject to risk, including possible loss of principal invested
Who may want to invest in a GE Investment Asset Allocation Fund?
The Total Return Fund may be appropriate to support your variable contract if
you:
o seek an investment derived from both capital appreciation and current income
o want a long-term investment and do not care whether investment returns are
derived from capital appreciation or income
The Total Return Fund is designed to meet the needs of investors who prefer to
have their asset allocation decisions made by professional money managers. They
provide an investor with a means to seek total return by investing in a core
portfolio that typically holds both equity securities and debt securities.
Although an investor may achieve the same mix of capital appreciation potential
and income by investing in various combinations of individual Equity or Income
Funds, the Total Return Fund offers the opportunity to pursue a total return
strategy by investing in a single fund. An investor in the Total Return Fund
should not expect capital appreciation or current income levels comparable to
funds for which either capital appreciation or current income is their sole
objective.
- --------------------------------------------------------------------------------
<PAGE>
- --------------------
28 GE Investments
Funds, Inc.
Prospectus
Asset Allocation Funds
- --------------------------------------------------------------------------------
Total Return Fund
- --------------------
Investment Objective: The highest total return, composed of current income and
capital appreciation, as is consistent with prudent investment risk.
The Strategy
The Total Return Fund invests in a combination of equity securities and
investment grade debt securities. The portfolio managers follow an asset
allocation process established by GE Asset Management's Asset Allocation
Committee to diversify holdings across asset classes. The Fund adjusts its
weightings among U.S. equity securities, debt securities and foreign securities
based on the relative attractiveness of the asset classes. The Fund invests in
equity securities principally for their capital appreciation potential and debt
securities principally for their income potential. Within each asset class, the
portfolio managers use active security selection to choose securities based on
the merits of individual issuers.
The portfolio managers seek to identify equity securities of companies with
characteristics such as:
o strong earnings growth
o attractive prices
o a presence in successful industries
o high quality management
The portfolio managers seek to identify debt securities with characteristics
such as:
o attractive yields and prices
o the potential for capital appreciation
o reasonable credit quality
The portion of the Fund invested in debt securities normally has a weighted
average maturity of approximately five to ten years.
The portfolio managers may use various investment techniques to adjust the
Fund's investment exposure, but there is no guarantee that these techniques will
work.
The Fund's asset allocation process may result in a high portfolio turnover
rate, which may cause the Fund to experience increased transaction costs and
shareholders to incur increased taxes on their investment in the Fund.
The Risks
The principal risks of investing in the Fund are stock market risk, foreign
exposure risk, interest rate risk, credit risk, municipal securities risk and
prepayment risk. To the extent the portfolio managers invest in high yield
securities, the Fund would be subject to high yield securities risk. Certain
portfolio securities are derivative securities that carry derivative securities
risk.
If you would like additional information regarding the Fund's investment
strategies and risks, including a description of the terms in bold type, please
refer to "More on Strategies and Risks" later in this Prospectus.
- --------------------------------------------------------------------------------
<PAGE>
----------
29
- --------------------------------------------------------------------------------
Fund Performance
The bar chart and table opposite illustrate the short-term variability in the
Fund's performance.
The bar chart illustrates how the Fund's performance varies from year to year
over the periods shown. During the periods presented in the bar chart, the
Fund's highest return for a quarter was 11.77% for the quarter ended December
31,1998. The Fund's lowest return for a quarter was -9.91% for the quarter ended
September 30,1990. The Fund's year-to-date return was 2.84% as of March 31,
2000.
The table opposite illustrates how the Fund's average annual returns for
different calendar periods compare to the return of the S&P 500 Index and the
return of the Lehman Brothers Aggregate Bond Index ("LB Aggregate Bond Index").
The table presents returns net of Fund expenses. It assumes that you redeem your
investment in the Fund at the end of each period.
- --------------------------------------------------------------------------------
Calendar Year Total Returns
[BAR CHART]
1990 -0.38%
1991 27.35%
1992 7.48%
1993 13.55%
1994 2.54%
1995 28.07%
1996 10.60%
1997 17.99%
1998 17.10%
1999 13.25%
- --------------------------------------------------------------------------------
Average Annual Total Return
(as of December 31, 1999)
1 Year 5 Years 10 Years
------ ------- --------
Total Return Fund 13.25% 17.25% 13.41%
S&P 500 Index 21.07% 28.59% 18.23%
LB Aggregate Bond Index -0.83% 7.73% 7.69%
Both the bar chart and table assume reinvestment of dividends and distributions.
The performance information presented does not include the fees and charges
associated with the variable contracts, and returns would have been lower if
those fees and charges were included. As with all mutual funds, past performance
is not an indication of future performance.
All mutual funds use the same formula to calculate total return. Total return
measures the price change in a share assuming the reinvestment of all dividend
income and capital gain distributions.
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<PAGE>
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30
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-----------------------------------------
Money GE Investments 31
Market Funds Funds, Inc.
Prospectus
- --------------------------------------------------------------------------------
Who may want to invest in the GE Investments Money Market Fund?
The GE Investments Money Market Fund may be appropriate to support your variable
contract if you:
o want an investment derived from modest but regular income
o are investing for a short period of time
o want a stable investment
The GE Investments Money Market Fund may not be appropriate to support your
variable contract if you:
o want a long-term investment
o want capital appreciation
Money market funds invest in short-term, high quality debt securities. They seek
to provide stability of principal and regular income. The income provided by a
money market fund varies with interest rate movements.
- --------------------------------------------------------------------------------
<PAGE>
- ---------------------
32 GE Investments
Funds, Inc.
Prospectus
Money Market Funds
- --------------------------------------------------------------------------------
Money Market Fund
- ---------------------
Investment Objective: High level of current income consistent with the
preservation of capital and maintenance of liquidity.
The Strategy
The Money Market Fund invests primarily in short-term, U.S. dollar-denominated
money market instruments. The Fund's investments may include U.S. Government
securities, repurchase agreements, commercial paper, certificates of deposit,
variable rate securities, foreign debt securities, Eurodollar deposits and
domestic and foreign bank deposits.
The Fund invests consistent with industry standards governing security quality,
maturity and portfolio diversification. For example, the portfolio manager
limits investments to high quality securities with maturities of up to 13 months
and limits the weighted average maturity of the Fund's portfolio to 90 days. The
Fund may invest more than 25% of its total assets in the banking industry.
Changes in banking regulations or the economy can have a significant negative
impact on the banking industry.
All of the Fund's assets are rated in the two highest short-term rating
categories (or their unrated equivalents), and at least 95% of its assets are
rated in the highest rating category (or its unrated equivalent) by a nationally
recognized statistical rating organization. Additional information about the
money market instruments in which the Fund may invest, including rating
categories, is contained in the SAI.
The Risks
The principal risks of investing in the Fund are interest rate risk, credit risk
and foreign exposure risk.
An investment in the Fund is not insured or guaranteed by the Federal Deposit
Insurance Corporation (FDIC) or any other government agency. Although the Fund
seeks to maintain a net asset value of $1.00 per share, it is possible to lose
money by investing in the Fund. The Fund's yield will change due to movements in
current short-term interest rates and market conditions. A change in interest
rates or default on the Fund's investments could cause the Fund's share price to
decline below $1.00.
If you would like additional information regarding the 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.
- --------------------------------------------------------------------------------
<PAGE>
-----------
33
- --------------------------------------------------------------------------------
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 periods presented in the bar chart, the
Fund's highest return for a quarter was 1.93% for the quarter ended June 30,
1990. The Fund's lowest return for a quarter was 0.51% for the quarter ended
December 31, 1992. The Fund's year-to-date return was 1.42% as of March 31,
2000. The Fund's seven day current yield was 5.71% and the seven day effective
yield was 5.87% as of December 31, 1999. "Effective yield" reflects the
compounding effect of earnings on reinvested dividends.
The table opposite illustrates how the Fund's average annual returns for
different calendar periods compare to the returns of the 90 Day Treasury Bill
Rate ("90 Day T-Bill"). The table presents returns net of Fund expenses. It
assumes that you redeemed your investment in the Fund at the end of each period.
- --------------------------------------------------------------------------------
Calendar Year Total Returns
[BAR CHART]
1990 7.14%
1991 5.29%
1992 3.02%
1993 2.39%
1994 3.77%
1995 5.90%
1996 5.41%
1997 5.41%
1998 5.26%
1999 5.00%
- --------------------------------------------------------------------------------
Average Annual Total Return
(as of December 31, 1999)
1 Year 5 Years 10 Years
------ ------- --------
Money Market Fund 5.00% 5.40% 4.84%
90 Day T-Bill 4.83% 5.14% 4.99%
Both the bar chart and table assume reinvestment of dividends and distributions.
If GE Asset Management had not reduced certain expenses during certain of the
periods shown, the Fund's total returns would have been lower. The performance
information presented does not include the fees and charges associated with the
variable contracts, and returns would have been lower if those fees and charges
were included. As with all mutual funds, past performance is not an indication
of future performance.
All mutual funds use a standard formula to calculate total return. Total return
measures the price change in a share assuming the reinvestment of all dividend
income and capital gain distributions.
- --------------------------------------------------------------------------------
<PAGE>
- -----------
34
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<PAGE>
---------------------------------------------
Other GE Investments 35
Funds Funds, Inc.
Prospectus
- --------------------------------------------------------------------------------
An investment in the Real Estate Securities Fund is not a deposit of any bank
and is not insured or guaranteed by the Federal Deposit Insurance Corporation or
any other agency. Investment in this Fund is subject to risk, including possible
loss of principal invested.
Who May Want to Invest in the Real Estate Securities Fund?
The Real Estate Securities Fund may be appropriate to support your variable
contract if you:
o seek an investment derived from both current income and capital appreciation
o are willing to ride out market fluctuations in pursuit of potential long-term
returns
The Real Estate Securities Fund may not be an appropriate investment to support
your variable contract if you:
o want any degree of market sector diversification in your investment
o are unwilling to accept potentially significant losses on your investment
during periods (possibly extended periods) when real estate values or the
fortunes of the real estate industry are in decline or depressed
The Real Estate Securities Fund is designed for investors who seek to allocate a
portion of their variable contract investment to a fund that concentrates in
investments in a wide range of equity securities and debt securities of issuers
in the real estate industry.
- --------------------------------------------------------------------------------
<PAGE>
- --------------------
36 GE Investments
Funds, Inc.
Prospectus
Other Funds
- --------------------------------------------------------------------------------
Real Estate Securities Fund
- --------------------
Investment Objective: Maximum total return through current income and capital
appreciation.
The Strategy
The Real Estate Securities Fund invests primarily in equity securities and debt
securities of U.S. issuers that are principally engaged in or related to the
real estate industry, including those that own significant real estate assets --
real estate securities. The Fund does not invest directly in real estate.
The portfolio manager considers an issuer to be "principally engaged in" or
"principally related to" the real estate industry if at least 50% of its assets
(marked-to-market), gross income or net profits are attributable to ownership,
construction, management or sale of residential, commercial or industrial real
estate, or to products or services related to the real estate industry. Issuers
engaged in the real estate industry include equity REITs, mortgage REITs, real
estate brokers and developers, companies that manage real estate and companies
that own substantial amounts of real estate. Issuers in businesses related to
the real estate industry include manufacturers and distributors of building
supplies and financial institutions that issue or service mortgages.
The Fund also may invest to a lesser extent in equity securities and debt
securities of issuers outside the real estate industry as well as foreign
securities. The Fund also may invest in high yield securities. The portfolio
managers may use various investment techniques to adjust the Fund's investment
exposure, but there is no guarantee that these techniques will work.
The Risks
The principal risks of investing in the Fund are stock market risk,
concentration risk, REIT-specific risk and real estate securities risk. To the
extent that the portfolio manager invests in foreign securities or debt
securities, the Fund would be subject to foreign exposure risk, interest rate
risk and credit risk. To the extent that the portfolio manager invests in high
yield securities, the Fund would be subject high yield securities risk.
If you would like additional information regarding the Fund's investment
strategies and risks, including a description of the terms in bold type. please
refer to "More on Strategies and Risks" later in this Prospectus.
- --------------------------------------------------------------------------------
<PAGE>
------------
37
- --------------------------------------------------------------------------------
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 periods presented in the bar chart, the
Fund's highest return for a quarter was 19.11% for the quarter ended December
31, 1996. The Fund's lowest return for a quarter was -10.17% for the quarter
ended September 30, 1998. The Fund's year-to-date return was 5.06% as of March
31, 2000. .
The table opposite illustrates how the Fund's average annual returns for
different calendar periods compare to the returns of the Wilshire Real Estate
Securities Index ("Wilshire RES Index"). The table presents returns net of Fund
expenses. It assumes that you redeem your investment in the Fund at the end of
each period.
- --------------------------------------------------------------------------------
Calendar Year Total Returns Chart
[BAR CHART]
1996 36.24%
1997 19.49%
1998 -17.68%
1999 -0.22%
- --------------------------------------------------------------------------------
Average Annual Total Return
(as of December 31, 1999)
Since
1 Year Inception*
------ ----------
Real Estate Securities Fund -0.22% 10.06%
Wilshire RES Index -3.19% 8.99%
Both the bar chart and table assume reinvestment of dividends and distributions.
If GE Asset Management had not reduced certain expenses during certain of the
periods shown, the Fund's total return would have been lower. The performance
information presented does not include the fees and charges associated with the
variable contracts, and returns would have been lower if those fees and charges
were included. As with all mutual funds, past performance is not an indication
of future performance.
*Inception date (commencement of investment operations): May 1, 1995
All mutual funds use a standard formula to calculate total return. Total return
measures the price change in a share assuming the reinvestment of all dividend
income and capital gain distributions.
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------
38 GE Investments More on
Funds, Inc. Strategies
Prospectus and Risks
- --------------------------------------------------------------------------------
Important Definitions
This section defines important terms that may be unfamiliar to an investor
reading about the Funds:
Asset-backed securities represent a participation in, or are secured by and
payable from, a stream of payments generated by particular assets, such as
credit card receivables or auto loans.
Bank deposits are cash, checks or drafts deposited in a financial institution
for credit to a customer's account. Banks differentiate between demand deposits
(checking accounts on which the customer may draw) and time deposits, which pay
interest and have a specified maturity or require 30 days' notice before
withdrawal.
Cash and cash equivalents are highly liquid and highly rated instruments such as
commercial paper and bank deposits.
Certificates of deposit include short-term debt securities issued by banks.
Commercial paper includes short-term debt securities issued by banks,
corporations and other borrowers.
Convertible securities may be debt or equity securities that pay interest or
dividends or are sold at a discount and that may be converted on specified terms
into the stock of the issuer.
Corporate bonds are debt securities issued by companies.
Debt obligations of supranational agencies are obligations of
multi-jurisdictional agencies that operate across national borders (e.g., the
World Bank).
Debt securities are bonds and other securities that are used by issuers to
borrow money from investors. Holders of debt securities have a higher priority
claim to assets than do equity holders. Typically, the debt issuer pays the
investor a fixed, variable or floating rate of interest and must repay the
borrowed amount at maturity. Some debt securities, such as zero coupon bonds,
are sold at a discount from their face values instead of paying interest.
Depositary receipts represent interests in an account at a bank or trust company
which holds equity securities. These interests may include American Depositary
Receipts (held at U.S. banks and traded in the United States), European
Depositary Receipts, Global Depositary Receipts or other similar instruments.
Derivative securities are securities whose values are based on other securities,
currencies or indices and include futures contracts, options (on stocks,
indices, currencies, futures contracts or bonds), forward foreign currency
exchange contracts, swap agreements or contracts, interest-only and
principal-only debt securities, certain mortgage-backed securities like
collateralized mortgage obligations ("CMOs"), and structured securities.
Duration represents a mathematical calculation of the average life of a bond (or
portfolio of bonds) based on its cash flows that serves as a useful measure of
the bond's sensitivity to changes in interest rates. Each year of duration
approximates an expected one percent change in the bond's price for every one
percent change in the interest rate.
Equity securities may include common stocks, preferred securities, depositary
receipts, convertible securities and rights and warrants of U.S. and foreign
companies. Stocks represent an ownership interest in a corporation.
Eurodollar deposits are deposits issued in U.S. dollars by foreign banks and
foreign branches of U.S. banks.
Foreign debt securities are issued by foreign corporations or governments. They
may include the following:
o Eurodollar Bonds, which are dollar-denominated securities issued outside the
United States by foreign corporations and financial institutions or by foreign
branches of U.S. corporations and financial institutions
o Yankee Bonds, which are dollar-denominated securities issued by foreign
issuers in the United States.
o Securities denominated in currencies other than U.S. dollars
Foreign government securities include securities that are issued or guaranteed
by a government other than the United States or by such government's agencies or
intrumentalities.
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39
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Foreign securities include interests in or obligations of entities located
outside the United States. The determination of where an issuer of a security is
located will be made by reference to the country in which the issuer (i) is
organized, (ii) derives at least 50% of its revenues or profits from goods
produced or sold, investments made or services performed, (iii) has at least 50%
of its assets situated, or (iv) has the principal trading market for its
securities. Foreign securities may be denominated in non-U.S. currencies and
traded outside the United States or may be in the form of depositary receipts.
Forward foreign currency exchange transactions involve agreements to exchange
one currency for another at a future date.
Futures are agreements to buy or sell a specific amount of a commodity,
financial instrument or index at a particular price and future date. Options on
futures give the purchaser the right, in return for the premium paid, to assume
a position in a futures contract at a specified exercise price at any time prior
to the expiration date of the option.
Growth investing involves buying stocks with above-average growth rates.
Typically, growth stocks are the stocks of faster growing companies in more
rapidly growing sectors of the economy. Generally, growth stock valuation levels
will be higher than those of value stocks and the market averages.
High yield securities are debt securities of corporations, preferred stock and
convertible bonds and convertible preferred stock that are rated Ba through C by
Moody's or BB through D by S&P (or comparably rated by another nationally
recognized statistical rating organization) or, if not rated by Moody's or S&P,
are considered by portfolio management to be of equivalent quality. High yield
securities include bonds rated below investment-grade, sometimes called "junk
bonds" and are considered speculative by the major credit rating agencies.
Investment grade securities are rated Baa or better by Moody's and BBB or better
by S&P or are comparably rated by another nationally recognized statistical
rating organization, or, if not rated, are considered by portfolio management to
be of equivalent quality to such securities. Securities rated in the fourth
highest grade have some speculative elements.
Maturity represents the date on which a debt security matures or when the issuer
must pay back the principal amount of the security.
Money market instruments are short-term debt securities of the U.S. government,
banks and corporations. The Funds may invest in money market instruments
directly or through investments in the GEI Short-Term Investment Fund
(Investment Fund). The Investment Fund is advised by GE Asset Management, which
charges no advisory fee for such services.
Mortgage-backed securities include securities issued by the Government National
Mortgage Association ("Ginnie Mae"), the Federal National Mortgage Association
("Fannie Mae"), the Federal Home Loan Mortgage Corporation ("Freddie Mac") and
other government agencies and private issuers. They may also include
collateralized mortgage obligations which are derivative securities that are
fully collateralized by a portfolio of mortgages. Government stripped
mortgage-related securities are mortgage-backed securities that have been
stripped into their interest and principal components. They represent interests
in distributions of interest on or principal underlying mortgage-backed
certificates. Mortgage dollar rolls are transactions involving the sale of a
mortgage-backed security with a simultaneous contract (with the purchaser) to
buy similar, but not identical, securities at a future date.
Municipal obligations are debt obligations issued by or on behalf of states,
territories and possessions of the United States and the District of Columbia
and their political subdivisions, agencies and instrumentalities, or multi-state
agencies or authorities. They include: (i) municipal leases, which pay interest
that is exempt from federal, and in certain cases, state, income tax; (ii)
participation interests in municipal obligations, which are proportionate,
undivided interests in municipal obligations; (iii) municipal obligation
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40 GE Investments
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components, which are municipal obligations that have been divided into two
components (one component pays interest at a rate adjusted periodically through
an auction process, the second pays the residual rate after the auction rate is
deducted from total interest payable); and (iv) custodial receipts on municipal
obligations, which evidence ownership of future interest payments, principal
payments, or both, on certain municipal obligations.
Preferred securities are classes of stock that pay dividends at a specified
rate. Dividends are paid on preferred stocks before they are paid on common
stocks. In addition, preferred stockholders have priority over common
stockholders as to the proceeds from the liquidation of a company's assets.
Purchasing and writing options are permitted investment strategies for certain
Funds. An option is the right to buy (i.e., a "call") or sell (i.e., a "put")
securities or other interests for a predetermined price on or before a fixed
date. An option on a securities index represents the option holder's right to
obtain from the seller, in cash, a fixed multiple of the amount by which the
exercise price exceeds (in the case of a call) or is less than (in the case of a
put) the closing value of the securities index on the exercise date. An option
on a foreign currency represents the right to buy or sell a particular amount of
that currency for a predetermined price on or before a fixed date.
Real Estate Investment Trusts (REITs) are pooled investment vehicles that invest
primarily in income producing real estate or real estate related loans or
interests therein. REITs are generally classified as Equity REITs or Mortgage
REITs or a combination of Equity or Mortgage REITs. Equity REITs invest a
majority of their assets directly in real property and derive income primarily
from the collection of rents. Equity REITs can also realize capital gains by
selling properties that have appreciated in value. Mortgage REITs invest the
majority of their assets in real estate mortgages and derive income from the
collection of interest payments.
Repurchase agreements (repos) are used to invest cash on a short-term basis. A
seller (bank or broker-dealer) sells securities, usually government securities,
to the Fund, agreeing to buy them back at a designated price and time -- usually
the next day.
Restricted securities (which include Rule 144A Securities) may have contractual
restrictions on resale, or cannot be resold publicly until registered. Certain
restricted securities may be illiquid. Illiquid securities may be difficult or
impossible to sell when a Fund wants to sell them at a price at which the Fund
values them. Rule 144A securities are restricted securities that are liquid
because they may be sold to certain institutional purchasers under Rule 144A.
Reverse repurchase agreements involve a Fund selling securities held and
concurrently agreeing to repurchase the same securities at a specified price and
future date.
Rights represent a preemptive right of stockholders to purchase additional
shares of a stock at the time of a new issuance, before the stock is offered to
the general public, allowing the stockholder to retain the same ownership
percentage after the new stock offering.
Short sales against the box involve selling short securities actually owned or
otherwise covered at all times during the period the short position is open.
Structured and indexed securities are securities whose prinicpal and/or interest
rate is determined by reference to changes in the value of one or more specific
currencies, interest rates, commodities, indices or other financial indicators.
U.S. Government securities are issued or guaranteed by the U.S. Government or
one of its agencies or instrumentalities. Some U.S. Government securities are
backed by the full faith and credit of the federal government. Other U.S.
Government securities are backed by the issuer's right to borrow from the U.S.
Treasury and some are backed only by the credit of the issuing organization. All
U.S. Government securities are considered highly creditworthy.
Value investing involves buying stocks that are out of favor and/or undervalued
in comparison to their peers and/or their prospects for growth. Generally, value
stock valuation levels are lower than those of growth stocks.
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Variable rate securities carry interest rates that may be adjusted periodically
to market rates. Interest rate adjustments could increase or decrease the income
generated by the securities.
Various investment techniques are utilized by a Fund to increase or decrease its
exposure to changing security prices, interest rates, currency exchange rates,
commodity prices or other factors that affect security values. For certain
Funds, these techniques may involve derivative securities and transactions such
as buying and selling options and futures contracts, entering into forward
foreign currency exchange contracts or swap agreements and purchasing indexed
securities. These techniques are designed to adjust the risk and return
characteristics of a Fund's portfolio of investments and are not used for
leverage. No Fund is under any obligation to use any of these techniques at any
given time or under any particular economic condition. To the extent that a Fund
employs these techniques, the Fund would be subject to derivative securities
risk.
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.
Weighted average maturity represents the length of time in days or years until
the average security in a money market or bond fund will mature or be redeemed
by its issuer. The average maturity is weighted according to the dollar amounts
invested in the various securities in the fund. This measure indicates an income
fund's sensitivity to changes in interest rates. In general, the longer a fund's
average weighted maturity, the more its share price will fluctuate in response
to changing interest rates.
When-issued and delayed delivery securities are securities that are purchased or
sold for delivery and payment at a future date, i.e.,beyond normal settlement
date.
Zero coupon obligations pay no interest to their holders prior to maturity.
Instead, interest is paid in a lump sum at maturity. They are purchased at a
deep discount from par value, and generally are more volatile than other fixed
income securities.
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More on Investment Strategies
In addition to each Fund's principal investment strategies described earlier in
this Prospectus, a Fund is permitted to use other investment strategies and
techniques in pursuit of its investment objective. No Fund is under any
obligation to use any of these strategies or techniques at any given time or
under any particular economic condition. Certain investment strategies or
techniques may expose the Funds to other risks and considerations, which are
discussed later in this Prospectus or in the SAI.
Holding Cash and Temporary Defensive Positions: Under normal circumstances, each
Fund may hold cash and/or money market instruments (i) pending investment, (ii)
for cash management purposes, and (iii) to meet operating expenses. A Fund
(other than the S&P 500 Index Fund) may from time to time take temporary
defensive positions when the portfolio manager believes that adverse market,
economic, political or other conditions exist. In these circumstances, the
portfolio manager may (i) without limit hold cash and/or invest in money market
instruments, or (ii) restrict the securities markets in which a Fund's assets
are invested by investing those assets in securities markets deemed to be
conservative in light of the Fund's investment objective and strategies. The
Funds, other than the Money Market Fund, may invest in money market instruments
directly or indirectly through investment in the GEI Short-Term Investment Fund
(Investment Fund). The Investment Fund is advised by GE Asset Management, which
charges no advisory fee to the Fund.
To the extent that a Fund, other than the Money Market Fund, holds cash or
invests in money market instruments, it may not achieve its investment
objective.
The following tables summarize the investment techniques that may be employed by
a Fund. Certain techniques and limitations may be changed at the discretion of
GE Asset Management. Percentage figures refer to the percentage of a Fund's
assets that may be invested in accordance with the indicated technique.
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42 GE Investments
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<TABLE>
<CAPTION>
Purchasing Purchasing
Reverse Restricted and Structured and Writing and Writing
Repurchase Repurchase Illiquid and Indexed Securities Securities
Borrowing Agreements Agreements Securities Securities Options Index Options
--------- ---------- ---------- -------------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
U.S. Equity Fund 33 1/3% Yes Yes Yes No Yes Yes
- ---------------------------------------------------------------------------------------------------------------------------------
S&P 500 Index Fund 20% Yes No Yes No Yes Yes
- ---------------------------------------------------------------------------------------------------------------------------------
Premier Growth Equity Fund 33 1/3% Yes Yes Yes No Yes Yes
- ---------------------------------------------------------------------------------------------------------------------------------
Value Equity Fund 33 1/3% Yes Yes Yes No Yes Yes
- ---------------------------------------------------------------------------------------------------------------------------------
Mid-Cap Value Equity Fund 10% Yes No Yes No Yes Yes
- ---------------------------------------------------------------------------------------------------------------------------------
Small-Cap Value Equity Fund 33 1/3% Yes Yes Yes No Yes Yes
- ---------------------------------------------------------------------------------------------------------------------------------
International Equity Fund 10% Yes No Yes No Yes Yes
- ---------------------------------------------------------------------------------------------------------------------------------
Europe Equity Fund 33 1/3% Yes Yes Yes Yes Yes Yes
- ---------------------------------------------------------------------------------------------------------------------------------
Emerging Markets Fund 33 1/3% Yes Yes Yes No Yes Yes
- ---------------------------------------------------------------------------------------------------------------------------------
Income Fund 33 1/3% Yes Yes Yes Yes Yes Yes
- ---------------------------------------------------------------------------------------------------------------------------------
Global Income Fund 10% Yes No Yes Yes Yes Yes
- ---------------------------------------------------------------------------------------------------------------------------------
Total Return Fund 10% Yes No Yes Yes Yes Yes
- ---------------------------------------------------------------------------------------------------------------------------------
Money Market Fund 10% Yes No Yes No No No
- ---------------------------------------------------------------------------------------------------------------------------------
Real Estate Securities Fund 10% Yes No Yes Yes Yes Yes
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
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43
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<TABLE>
<CAPTION>
Maximum
Futures and Forward Options on Investment
Options on Currency Foreign in Debt
Futures Transactions Currencies Securities
----------- ------------ ---------- ----------
<S> <C> <C> <C> <C>
U.S. Equity Fund Yes Yes Yes 35%
- -----------------------------------------------------------------------------------------------------------
S&P 500 Index Fund Yes No No 35%
- -----------------------------------------------------------------------------------------------------------
Premier Growth Equity Fund Yes No No 35%
- -----------------------------------------------------------------------------------------------------------
Value Equity Fund Yes Yes Yes 35%
- -----------------------------------------------------------------------------------------------------------
Mid-Cap Value Equity Fund Yes No No 35%
- -----------------------------------------------------------------------------------------------------------
Small-Cap Value Equity Fund No No No 35%
- -----------------------------------------------------------------------------------------------------------
International Equity Fund Yes Yes Yes 35%
- -----------------------------------------------------------------------------------------------------------
Europe Equity Fund Yes Yes Yes 35%
- -----------------------------------------------------------------------------------------------------------
Emerging Markets Fund Yes Yes Yes 35%
- -----------------------------------------------------------------------------------------------------------
Income Fund Yes Yes Yes 100% (maximum
of 25% BBB
by S&P or Baa by
Moody's or equivalent)
- -----------------------------------------------------------------------------------------------------------
Global Income Fund Yes Yes Yes 100%
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Total Return Yes Yes Yes 100%
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Money Market Fund No No No 100%
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Real Estate Securities Fund Yes No No 100%
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<CAPTION>
Maximum Maximum When-Issued
Investment in Investment and Delayed
High Yield in Foreign Delivery
Securities Securities Securities
------------- ---------- -----------
<S> <C> <C> <C>
U.S. Equity Fund 5% 15%* Yes
- ------------------------------------------------------------------------------------------------------
S&P 500 Index Fund None 35% Yes
- ------------------------------------------------------------------------------------------------------
Premier Growth Equity Fund 5% 25%* Yes
- ------------------------------------------------------------------------------------------------------
Value Equity Fund 5% 25%* Yes
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Mid-Cap Value Equity Fund 15% 35% Yes
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Small-Cap Value Equity Fund 10% 10%* Yes
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International Equity Fund 5% 100% Yes
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Europe Equity Fund 15% 100% Yes
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Emerging Markets Fund 10% in BB or B by 100% Yes
S&P or Ba or B by
Moody's or
equivalent
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Income Fund 10% in BB or B 35%* Yes
by S&P or Ba or B
by Moody's or
equivalent
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Global Income Fund 25% in BB and B 100% Yes
by S&P or Ba and B
by Moody's,
and 10% in B
by S&P or by Moody's
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Total Return 30% 35% Yes
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Money Market Fund None 20%* Yes
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Real Estate Securities Fund 30% 20% Yes
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</TABLE>
* This limitation excludes ADRs and securities of a foreign issuer with a
class of securities registered with the Securities and Exchange Commission
and listed on a U.S. national securities exchange or traded on the Nasdaq
National Market or the Nasdaq Small Cap Market.
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44 GE Investments
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<TABLE>
<CAPTION>
Debt Securities Floating Participation
Lending Obligations of of Other and Variable Interests in
Portfolio Rule 144A Supranational Depositary Investment Municipal Rate Municipal
Securities Securities Agencies Receipts Funds Leases Instruments Obligations
---------- ---------- -------------- --------- ---------- --------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Equity Fund Yes Yes Yes Yes Yes No No* No
- -----------------------------------------------------------------------------------------------------------------------------------
S&P 500 Index Fund Yes No No Yes Yes No Yes No
- -----------------------------------------------------------------------------------------------------------------------------------
Premier Growth
Equity Fund Yes Yes Yes Yes Yes No No* No
- -----------------------------------------------------------------------------------------------------------------------------------
Value Equity Fund Yes Yes Yes Yes Yes No No* No
- -----------------------------------------------------------------------------------------------------------------------------------
Mid-Cap Value
Equity Fund Yes Yes Yes Yes Yes No No* No
- -----------------------------------------------------------------------------------------------------------------------------------
Small-Cap Value
Equity Fund Yes Yes Yes Yes Yes No No* No
- -----------------------------------------------------------------------------------------------------------------------------------
International Equity
Fund Yes Yes Yes Yes Yes No No* No
- -----------------------------------------------------------------------------------------------------------------------------------
Europe Equity Fund Yes Yes Yes Yes Yes No Yes No
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Emerging Markets Fund Yes Yes Yes Yes Yes No No* No
- -----------------------------------------------------------------------------------------------------------------------------------
Income Fund Yes Yes Yes Yes Yes No Yes No
- -----------------------------------------------------------------------------------------------------------------------------------
Global Income Fund Yes Yes Yes Yes Yes No Yes No
- -----------------------------------------------------------------------------------------------------------------------------------
Total Return Fund Yes No Yes Yes Yes No Yes No
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Money Market Fund Yes No Yes No Yes No Yes No
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Real Estate Securities
Fund Yes Yes Yes Yes Yes No Yes No
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</TABLE>
* Excludes commercial paper and notes with variable and floating rates of
interest.
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45
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<TABLE>
<CAPTION>
Government Asset Backed
Custodial Mortgage Stripped Securities and Short
Zero Municipal Receipts on Related Mortgage Receivable- Mortgage Sales
Coupon Obligation Municipal Securities, Related Backed Dollar Against
Obligations Components Obligations including CMOs Securities Securities Rolls the Box
----------- ---------- ----------- -------------- ---------- -------------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Equity Fund Yes No No No No No No Yes
- ------------------------------------------------------------------------------------------------------------------------------------
S&P 500 Index Fund No No No No No No No Yes
- ------------------------------------------------------------------------------------------------------------------------------------
Premier Growth Equity Fund No No No No No No No Yes
- ------------------------------------------------------------------------------------------------------------------------------------
Value Equity Fund No No No No No No No Yes
- ------------------------------------------------------------------------------------------------------------------------------------
Mid-Cap Value Equity Fund Yes No No Yes Yes Yes Yes Yes
- ------------------------------------------------------------------------------------------------------------------------------------
Small-Cap Value Equity Fund No No No No No No No Yes
- ------------------------------------------------------------------------------------------------------------------------------------
International Equity Fund No No No No No No No Yes
- ------------------------------------------------------------------------------------------------------------------------------------
Europe Equity Fund No No No No No No No Yes
- ------------------------------------------------------------------------------------------------------------------------------------
Emerging Markets Fund No No No No No No No Yes
- ------------------------------------------------------------------------------------------------------------------------------------
Income Fund Yes No No Yes Yes Yes Yes Yes
- ------------------------------------------------------------------------------------------------------------------------------------
Global Income Fund Yes No No Yes Yes Yes Yes Yes
- ------------------------------------------------------------------------------------------------------------------------------------
Total Return Fund Yes Yes Yes Yes Yes Yes Yes Yes
- ------------------------------------------------------------------------------------------------------------------------------------
Money Market Fund No No No No No No No No
- ------------------------------------------------------------------------------------------------------------------------------------
Real Estate Securities Fund No No No Yes Yes Yes Yes Yes
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
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46 GE Investments
Funds, Inc.
Prospectus
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More on Risks
Like all mutual funds, investing in the GE Investments Funds involves risk
factors and special considerations. A Fund`s risk is defined primarily by its
principal investment strategies, which are described earlier in this Prospectus.
Investments in a Fund are not insured against loss of principal. As with any
mutual fund, there can be no assurance that a Fund will achieve its investment
objective. Investing in shares of a Fund should not be considered a complete
investment program. The share value of the Equity Funds, Income Funds, Total
Return Fund and Real Estate Securities Fund will rise and fall. Although the
Money Market Fund seeks to preserve the value of your investment at $1.00 per
share, it is possible to lose money by investing in the Fund.
One of your most important investment considerations should be balancing risk
and return. Different types of investments tend to respond differently to shifts
in the economic and financial environment. So, diversifying your investments
among different asset classes -- such as stocks, bonds and cash -- and within an
asset class -- such as small-cap and large-cap stocks -- can help you manage
risk and achieve the results you need to comfortably reach your financial goals.
The primary risks of particular investments are summarized below. For more
information about the risks associated with the Funds, please see the SAI.
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 credit
quality. Lower quality bonds are generally more sensitive to these changes than
higher quality bonds. Even within securities considered investment grade,
differences exist in credit quality and some investment grade debt securities
may have speculative characteristics. A security's price may be adversely
affected by the market's opinion of the security's credit quality level even if
the issuer or counterparty has suffered no degradation in ability to honor the
obligation.
Derivative Securities Risk: A Fund's use of various investment techniques to
increase or decrease its exposure to changing security prices, interest rates,
currency exchange rates, commodity prices or other factors that affect security
values may involve derivative securities and contracts. Derivative securities
and contracts may be used as a direct investment or as a hedge for a Fund's
portfolio or a portion of a portfolio. Hedging involves using a security or
contract to offset investment risk. Hedging may include reducing the risk of a
position held in a portfolio. Hedging and other investment techniques also may
be used to increase a Fund's exposure to a particular investment strategy. If
the portfolio managers' judgment of market conditions proves incorrect or the
strategy does not correlate well with a Fund's investments, the use of
derivatives could result in a loss, regardless of whether the intent was to
reduce risk or increase return, and may increase a Fund's volatility. In
addition, if non-exchange traded derivatives are used, these derivatives could
result in a loss if the counterparty to the transaction does not perform as
promised.
A Fund is not obligated to pursue any hedging strategy. In addition, hedging
techniques may not be available, may be too costly to be used effectively or may
be unable to be used for other reasons. These investments may be considered
speculative.
Diversification Risk: A non-diversified Fund, such as Global Income Fund, or, to
a lesser extent, a "Premier" Fund, may invest in securities of a limited number
of issuers to achieve a potentially greater investment return than a Fund that
invests in a larger number of issuers. As a result, price movements of a single
issuer's securities will have a greater impact on such Fund's net asset value
causing it to fluctuate more than that of a more widely diversified Fund.
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47
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Emerging Markets Risk: Emerging market securities bear most foreign exposure
risks discussed below. In addition, there are greater risks involved in
investing in emerging markets than in developed foreign markets. Specifically,
the economic structures in emerging market countries are less diverse and mature
than those in developed countries, and their political systems are less stable.
Investments in emerging market countries may be affected by national policies
that restrict foreign investment. Emerging market countries may have less
developed legal structures, and the small size of their securities markets and
low trading volumes can make investments illiquid and more volatile than
investments in developed countries. As a result, a Fund investing in emerging
market countries may be required to establish special custody or other
arrangements before investing.
Foreign Exposure Risk: Investing in foreign securities, including depositary
receipts, or securities of U.S. entities with significant foreign operations,
involves additional risks which can affect a Fund's performance. Foreign
securities markets, particularly emerging markets, may be less liquid, more
volatile and subject to less government supervision than U.S. markets. There may
be difficulties enforcing contractual obligations, and it may take more time for
transactions to clear and settle in foreign countries than in the United States.
Less information may be available about foreign issuers. The costs of buying and
selling foreign securities, including tax, brokerage and custody costs,
generally are higher than those involving domestic transactions. The specific
risks of investing in foreign securities include:
o Currency Risk: The values of foreign investments may be affected by changes in
currency exchange 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. In contrast, if the local currency weakens
against the U.S. dollar, the value of the foreign security declines in U.S.
dollar terms. U.S. dollar-denominated securities of foreign issuers, including
depositary receipts, also are subject to currency risk based on their related
investments.
o Political/Economic Risk: Changes in economic, tax or foreign investment
policies, government stability, war or other political or economic actions may
have an adverse effect on a Fund's foreign investments.
o Regulatory Risk: Foreign companies often are not subject to uniform
accounting, auditing and financial reporting standards or to other regulatory
practices and requirements common to U.S. companies.
High Yield Securities Risk: Below investment-grade securities, sometimes called
"junk bonds," are considered speculative. These securities have greater risk of
default than higher rated securities. The market value of below investment-grade
securities is more sensitive to individual corporate developments and economic
changes than higher rated securities. The market for below investment-grade
securities may be less active than for higher rated securities, which can
adversely affect the price at which these securities may be sold. Less active
markets may diminish a Fund`s ability to obtain accurate market quotations when
valuing the portfolio securities and calculating a Fund's net asset value. In
addition, a Fund may incur additional expenses if a holding defaults and a Fund
has to seek recovery of its principal investment. Below investment-grade
securities may also present risks based on payment expectations. For example,
these securities may contain redemption or call provisions. If an issuer
exercises these provisions in a declining interest rate market the Fund would
have to replace the security with a lower yielding security resulting in a
decreased return for investors.
Illiquid Securities Risk: Illiquid securities may be difficult to resell at
approximately the price they are valued in the
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48 GE Investments
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ordinary course of business in seven days or less. When investments cannot be
sold readily at the desired time or price, a Fund may have to accept a lower
price or may be unable to sell the security at all, or forego other investment
opportunities, all of which may have an impact on the Fund.
Interest Rate Risk: Bond prices rise when interest rates decline and decline
when interest rates rise. The longer the duration of a bond, the more a change
in interest rates affects the bond's price. Short-term and long-term interest
rates may not move the same amount and may not move in the same direction.
Municipal Securities Risk: Municipal securities are backed by the entities that
issue them and/or other revenue streams. Like other debt securities, prices of
municipal debt securities are affected inversely by changes in interest rates
and by changes in the credit rating or financial condition of the issuer. The
municipal securities market is volatile and may be significantly affected by
tax, legislative or political changes. Some municipal securities are insured and
guarantee the timely payment of interest and repayment of principal.
Prepayment Risk: Prices and yields of mortgage-backed securities assume the
securities will be redeemed at a given time. When interest rates decline,
mortgage-backed securities experience higher prepayments because the underlying
mortgages are repaid earlier than expected. A Fund's portfolio manager may be
forced to invest the proceeds from prepaid mortgage-backed securities at lower
rates, which results in a lower return for the Fund. When interest rates
increase, mortgage-backed securities experience lower prepayments because the
underlying mortgages may be repaid later than expected. This typically reduces
the value of the underlying securities.
Real Estate Securities Risk: The securities of issuers that own, construct,
manage or sell residential, commercial or industrial real estate are subject to
risks in addition to those of other issuers. Such risks include: changes in real
estate values and property taxes, overbuilding, variations in rental income,
interest rates and changes in tax and regulatory requirements, such as those
relating to the environment. Performance of a particular real estate security
also may depend on the structure, cash flow, and management skill of the
particular company.
REIT-Specific Risk: Equity REITs may be affected by changes in the value of the
underlying property owned by the trusts, while mortgage REITs may be affected by
the quality of any credit extended. Further, equity and mortgage REITs are
dependent upon management skill and are not diversified. Such trusts are also
subject to heavy cash flow dependency, defaults by borrowers, self-liquidation,
and the possibility of failing to qualify for special tax treatment under
Subchapter M of the Internal Revenue Code and to maintain an exemption under the
1940 Act. For example, because the Fund may acquire debt securities of issuers
primarily engaged in or related to the real estate industry, it also could
conceivably own real estate directly as a result of a default on such
securities. Any rental income or income from the disposition of such real estate
could adversely affect its ability to retain its tax status as a regulated
investment company, which would have adverse tax consequences on its
shareholders. Finally, certain REITs may be self-liquidating in that a specific
term of existence is provided for in the trust document. Such trusts run the
risk of liquidating at an economically inopportune time.
Repurchase and Reverse Repurchase Agreements Risk: A Fund entering into a
repurchase agreement may suffer a loss if the other party to the transaction
defaults on its obligations and could be delayed or prevented from exercising
its rights to dispose of the underlying securities. The value of the underlying
securities might decline while the Fund seeks to assert its rights. The Fund
could incur additional expenses in asserting its rights or may lose all or part
of the income from the agreement. A reverse repurchase agreement involves the
risk that the market value of the securities retained by a Fund may decline
below the price of the securities the Fund has sold but is obligated to
repur-
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49
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chase at a higher price under the agreement.
Restricted Securities Risk: Restricted securities (including Rule 144A
securities) may be subject to legal restraints on resale and, therefore, are
typically less liquid than other securities. The prices received from reselling
restricted securities in privately negotiated transactions may be less than
those originally paid by a Fund. Companies whose securities are restricted are
not subject to the same investor protection requirements as publicly traded
securities.
Stock Market Risk: Stock market risk is the risk that the value of equity
securities may decline. Stock prices change daily in response to company
activity and general economic and market conditions. Stock prices may decline in
value even during periods when equity securities in general are rising or may
not perform as well as the market in general. Additional stock market risk 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" above.
Style Risk: Securities with different characteristics tend to shift in and out
of favor depending upon market and economic conditions as well as investor
sentiment. A Fund may underperform other equity funds that employ a different
style. A Fund also may employ a combination of styles that impact its risk
characteristics. Examples of different styles include growth and value
investing, as well as those focusing on large, medium, or small company 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 will typically underperform when value
investing is in favor.
o Mid-cap company risk: Investments in securities of mid-cap companies entail
greater risks than investments in larger, more established companies. Mid-cap
companies tend to have more narrow product lines, more limited financial
resources and a more limited trading market for their stocks, as compared with
larger companies. As a result, their stock prices may decline significantly as
market conditions change.
o Value investing risk: Undervalued stocks may not realize their perceived value
for extended periods of time or may never realize their perceived value. Value
stocks may respond differently to market and other developments than other types
of stocks. Value oriented funds typically will underperform when growth
investing is in favor.
Other Risk Considerations
EURO Conversion: The introduction of the EURO, a new common currency in Europe,
may result in uncertainties for European companies and markets, Individual
issuers may suffer increased costs and decreased earnings due to the long-term
impact of EURO conversion. Market disruptions may occur that could adversely
affect the value of European securities and currencies.
Year 2000: The inability of computer systems worldwide to process correctly
date-related information from before, on, and after January 1, 2000 could cause
difficulties for systems' users (the "Year 2000 Issue"). The impact of failures
by companies, markets, or governments of countries in which a Fund invests to
address effectively the Year 2000 Issue may be felt well after January 1, 2000
and may negatively impact a Fund's performance. In addition, a Fund could be
adversely affected if the computer systems used by its investment manager or
external service providers do not correctly process such date-related
information.
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<PAGE>
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50 GE Investments About the
Funds, Inc. Investment
Prospectus Adviser
- --------------------------------------------------------------------------------
Investment Adviser and Administrator
GE Asset Management Incorporated ("GE Asset Management"), located at 3003 Summer
Street, P.O. Box 7900, Stamford, Connecticut 06904, is the investment adviser
and administrator of each Fund. GE Asset Management is a wholly-owned subsidiary
of General Electric Company ("GE") and a registered investment adviser. As of
December 31, 1999, GE Asset Management oversaw $115.8 billion and managed
individual and institutional assets of $91.7 billion, of which more than $18.2
billion was invested in mutual funds.
For many years, GE's tradition of ingenuity and customer focus has included
financial services. In the late 1920s, through a desire to promote the financial
well-being of its employees, GE began managing assets for its employee pension
plan. By the mid-1930s, GE pioneered some of the nation's earliest mutual funds,
the Elfun Funds -- to be followed years later by the GE Savings and Security
Program Funds. The success of these Funds spurred growth; eventually GE expanded
its mutual fund offerings to include a wide variety of investment products
called the GE Family of Funds, created specifically for the general public.
GE Asset Management bases its investment philosophy on two enduring principles.
First, GE Asset 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 Asset 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.
For their services, GE Asset Management pays (out of the advisory fee that it
receives) GEAML, NWQ, Palisade, Seneca, and SSGA compensation in the form of an
investment sub-advisory fee. The fee is paid by GE Asset Management monthly and
is based upon the average daily net assets of the Fund that each sub-adviser
manages. The fees payable to GE Asset Management in connection with the Money
Market Fund, Total Return Fund, International Equity Fund, and Real Estate
Securities Fund are graduated so that increases in the respective Fund's average
annual net assets may result in a lower fee and decreases in a Fund's average
annual net assets may increase the fee.
- --------------------------------------------------------------------------------
Investment Management Fee:
Each Fund pays GE Asset Management an investment management fee. The fee is
accrued daily and paid monthly up to the following maximum annual fee rates:
<TABLE>
<S> <C>
U.S. Equity Fund 0.55%
- --------------------------------------------------------------------------------
S&P 500 Index Fund 0.35%
- --------------------------------------------------------------------------------
Premier Growth Equity Fund 0.65%
- --------------------------------------------------------------------------------
Value Equity Fund 0.65%
- --------------------------------------------------------------------------------
Mid-Cap Value Equity Fund 0.65%
- --------------------------------------------------------------------------------
Small-Cap Value Equity Fund 0.80%
- --------------------------------------------------------------------------------
International Equity Fund 1.00%
- --------------------------------------------------------------------------------
Europe Equity Fund 1.15%
- --------------------------------------------------------------------------------
Emerging Markets Fund 1.30%
- --------------------------------------------------------------------------------
Income Fund 0.50%
- --------------------------------------------------------------------------------
Global Income Fund 0.60%
- --------------------------------------------------------------------------------
Total Return Fund 0.50%
- --------------------------------------------------------------------------------
Money Market Fund 0.50%*
- --------------------------------------------------------------------------------
Real Estate Securities Fund 0.85%
- --------------------------------------------------------------------------------
</TABLE>
*GE Asset Management has voluntarily waived a portion of the investment
management fee such that the fee paid by the Money Market Fund for the period
ended December 31, 1999 was equal to 0.25%. Effective May 1, 2000, GE Asset
Management will voluntarily waive a portion of such fee so that the fee paid
will be 0.30%.
- --------------------------------------------------------------------------------
<PAGE>
------------
51
- --------------------------------------------------------------------------------
About the Portfolio Managers
Eugene K. Bolton is Director and Executive Vice President of GE Asset
Management. He manages the overall U.S. equity investments for GE Asset
Management. He leads a team of portfolio managers for the U.S. Equity Fund. He
has served in that capacity since the Fund's inception. Mr. Bolton joined GE
Asset Management in 1984 as Chief Financial Officer and has been a portfolio
manager since 1986.
David B. Carlson is a Senior Vice President of GE Asset Management and portfolio
manager for the Premier Growth Equity Fund. Mr. Carlson is also responsible for
the domestic equity portion of the Total Return Fund. He has served in those
capacities since each Fund's inception. Mr. Carlson joined GE Asset Management
in 1982 as a Securities Analyst for Investment Operations. He became a Vice
President for Mutual Fund Portfolios in 1987 and a Senior Vice President in
1989.
Peter J. Hathaway is a Senior Vice President of GE Asset Management and
portfolio manager for Value Equity Fund. Mr. Hathaway has served in that
capacity since September 1997 and has over 36 years of investment experience. He
joined GE Asset Management in 1985 as a Vice President for Pension Fund
Portfolios. He became a Senior Vice President in 1987.
Ralph R. Layman is a Director and Executive Vice President of GE Asset
Management. He manages the overall international equity investments for GE Asset
Management. Mr. Layman leads a team of portfolio managers for the International
Equity Fund and Emerging Markets Fund. He is also responsible for the
international equity portion of the Total Return Fund. He has served in those
capacities since each Fund's inception. Mr. Layman joined GE Asset Management in
1991 as Executive Vice President for International Investments.
Robert A. MacDougall is a Director and Executive Vice President of GE Asset
Management. He manages the overall fixed income investments for GE Asset
Management. He leads a team of portfolio managers for the Income Fund and the
Money Market Fund. Mr. MacDougall is also responsible for the fixed income
portion of the Total Return Fund. He has served in those capacities since each
Fund's inception. Mr. MacDougall joined GE Asset Management in 1986 as Vice
President. He became a Senior Vice President of Fixed Income in 1993 and a
Director and Executive Vice President of Fixed Income in 1997.
Michael J. Solecki is a Senior Vice President of GE Asset Management, and
portfolio manager of Europe Equity Fund. He has served in that capacity since
the Fund's commencement. He joined GE Asset Management in 1990 as an
International Equity Analyst. He became a Vice President for International
Equity Portfolios in 1996 and Senior Vice President since 2000.
- --------------------------------------------------------------------------------
<PAGE>
- ---------------------
52 GE Investments
Funds, Inc.
Prospectus
About the
Investment Adviser
- --------------------------------------------------------------------------------
About the Sub-Advisers
GE Asset Management believes that it has the responsibility to make the best
managers available to Fund shareholders at all times, whether that means
accessing GE Asset Management's wealth of internal talent or using external
talent (Sub-Advisers). When GE Asset Management feels the need to access
specialists outside, it carefully investigates and engages Sub-Advisers with
strong performance records and styles that match the investment objectives of
the Funds. GE Asset Management is proud to engage the following Sub-Advisers to
conduct the investment programs for the following Funds.
S&P 500 Index Fund
State Street Global Advisors ("SSGA")
Two International Place
Boston, MA 02110
SSGA is a division of State Street Bank and Trust Company ("State Street").
State Street is a wholly-owned subsidiary of State Street Corporation, a
publicly held bank holding company. State Street, approximately 672.4 billion in
assets under management as of December 31, 1999, provides complete global
investment management services from offices in the United States, London,
Sydney, Hong Kong, Tokyo, Toronto, Montreal, Luxembourg, Melbourne, Paris,
Dubai, Munich and Brussels.
The Fund is managed by a team of portfolio managers led by James b. May, CFA.
Mr. May is a Principal of State Street Global Advisors and a Senior Portfolio
Manager in the firm's U.S. Passive Equity Group. He joined the firm in 1991.
Before joining the U.S. Passive Equity Group, Mr. May worked in the fim's
Passive U.S. Equity Operations department as a Senior Analyst. He has been
working in the investment management field since 1989 when he joined State
Street's Custody operation. Mr. May holds an MBA from Boston Colloge and a BS in
Finance from Bently College. He is a member of the Boston Security Analysts
Society and the Association for Investment Management and Research (AIMR).
- --------------------------------------------------------------------------------
Mid-Cap Value Equity Fund
NWQ Investment Management Company ("NWQ")
2049 Century Park East - 4th Floor
Los Angeles, CA 90067
NWQ is a wholly owned subsidiary of United Asset Management Corporation, a
company whose principal business is managing investments for institutional
clients through 50 operating subsidiaries and acquiring investment management
firms. NWQ is an investment adviser with 18 years of experience managing
domestic investment portfolios for individual, union, corporate, municipal,
endowment and foundation clients. As of December 31, 1999, NWQ had in excess of
$6.0 billion of assets under management.
Jon D. Bosse is the portfolio manager of the Mid-Cap Value Equity Fund and has
served in that capacity since the Fund's inception. Mr. Bosse has more than 13
years of investment experience and has held the position of Director of Equity
Research and Managing Director at NWQ since 1996. Prior to his joining NWQ, he
spent ten years with ARCO Investment Management Company where he was director of
equity research and managed a value-oriented portfolio. Previous to this, he
spent four years in the corporate finance department of ARCO. Mr. Bosse earned
his MBA from Wharton Business School, University of Pennsylvania, and is a
Chartered Financial Analyst and a member of the Association for Investment
Management and Research (AIMR) and the Los Angeles Society of Financial
Analysts.
- --------------------------------------------------------------------------------
<PAGE>
---------
53
- --------------------------------------------------------------------------------
Small-Cap Value Equity Fund
Palisade Capital Management, L.L.C. ("Palisade")
One Bridge Plaza
Fort Lee, NJ 07024
Palisade has a history of managing small-cap equity portfolios and for several
years has provided pension fund services to GE. The company has managed various
institutional and private accounts with total assets in excess of $2.1 billion
as of December 31, 1999. Palisade has managed another small-cap value equity
portfolio offered by a different GE mutual fund since September 30, 1998.
Although Palisade has no further prior experience managing mutual fund
portfolios, Palisade translates its experience from various institutional and
private accounts to mutual funds.
The Fund is managed by an investment advisory committee (Senior Investment
Committee) composed of the following members: Jack Feiler, Martin L. Berman,
Steven E. Berman and Richard Meisenberg. Mr. Feiler, Chief Investment Officer at
Palisade, has day-to-day responsibility for managing the Fund and works with the
Senior Investment Committee in developing and executing the Fund's investment
program. Mr. Feiler has more than 30 years of investment experience and has
served as the principal small-cap portfolio manager at Palisade since the
commencement of Palisade's operations in April 1995. Prior to joining Palisade,
Mr. Feiler was a Senior Vice President-Investments at Smith Barney from 1990 to
1995.
- --------------------------------------------------------------------------------
Global Income Fund
GE Asset Management Limited ("GEAML")
Aldwych House
71-91 Aldwych
London, WC2B 4HL, England
GEAML is a wholly owned subsidiary of GE and is considered under common control
with GE Asset Management. GEAML has been the investment sub-adviser for the Fund
since May 1, 1997. Although GEAML had no prior experience advising a U.S. mutual
fund, as of December 31, 1999, it managed approximately $700 million in assets.
Esther M. Baroudy is the portfolio manager of the Global Income Fund, a position
she assumed in 2000. Prior to assuming this position, as a Senior Analyst,
International Fixed Income Portfolios, since 1996, she assisted in managing the
Fund. From 1988 to 1996, Ms. Baroudy was a Senior Economist with Credit Lyonnais
Capital Markets, London and Paris.
- --------------------------------------------------------------------------------
<PAGE>
- ------------------------
54 GE Investments
Funds, Inc.
Prospectus
About the
Investment Adviser
- --------------------------------------------------------------------------------
Real Estate Securities Fund
Seneca Capital Management ("Seneca")
909 Montgomery Street
San Francisco, CA 94133
Seneca is a limited liability company and a majority owned subsidiary of Phoenix
Investment Partners ("Phoenix"). Forty per cent of the stock of Phoenix is
publicly held and traded on the New York Stock Exchange while the remaining
sixty per cent is owned by a wholly owned subsidiary of Phoenix Home Life Mutual
Insurance Company. Seneca is an investment adviser that provides investment
management services to foundations, endowments, corporations, mutual funds and
private clients. As of December 31, 1999, Seneca managed approximately $10
billion in equity, fixed income and real estate assets.
David A. Shapiro, portfolio manager of the Real Estate Securities Fund, joined
Seneca as a portfolio manager in 1995. In 1992, Mr. Shapiro became and still
remains a principal of Asset Holdings Group. From 1982 to 1992 he was a Managing
Director of The Adco Group, a real estate development and finance company.
- --------------------------------------------------------------------------------
<PAGE>
----------
55
- --------------------------------------------------------------------------------
[This page intentionally left blank.]
- --------------------------------------------------------------------------------
<PAGE>
- ----------------------------------------
56 GE Investments Purchase
Funds, Inc. and
Prospectus Redemption
of Shares
- --------------------------------------------------------------------------------
GE Investments Funds, Inc. (the Company) does not offer its stock directly to
the general public. The Company currently offers each class of its capital stock
to separate accounts (the Accounts) of various life insurance companies as
funding vehicles for certain variable annuity contracts and variable life
insurance contracts (variable contracts) issued through the Accounts by such
life insurance companies. Certain of those life insurance companies may be
affiliates of the Company or GE Asset Management. All but one of the Accounts
currently is registered as an investment company with the SEC. When shares of
the Company are offered as a funding vehicle for such variable contracts, a
separate prospectus describing the particular Account and variable contract
being offered through that Account will accompany this prospectus. When shares
of the Company are offered as a funding vehicle for those variable contracts
that are offered through the Account that is not registered as an investment
company, a separate disclosure document (rather than a prospectus) describing
that Account and the variable contracts being offered through that Account will
accompany this prospectus. The Company may, in the future, offer any class of
its capital stock directly to qualified pension and retirement plans.
Shares of the Funds are sold in a continuous offering to the Accounts to support
the variable contracts. Net purchase payments under the variable contracts are
placed in one or more subaccounts of the Accounts and the assets of each such
subaccount are invested in the shares of the Fund corresponding to that
subaccount. The Accounts purchase and redeem shares of the Funds for their
subaccounts at a net asset value without sales or redemption charges.
For each day on which a Fund's net asset value is calculated, the Accounts
transmit to the Funds any orders to purchase or redeem shares of the Funds based
on the net purchase payments, redemption (surrender) requests, and transfer
requests from variable contract owners, annuitants and beneficiaries that have
been processed on that day. Similarly, qualified pension and retirement plans
may in the future transmit to the Funds any orders to purchase or redeem shares
of the Fund(s) based on the instructions of plan trustees or participants. The
Account purchases and redeems shares of each Fund at the Fund's net asset value
per share calculated as of the day the Funds receive the order, although such
purchases and redemptions may be executed the next morning. Money received by GE
Asset Management from the Accounts for the purchase of shares of the
International Equity Fund or Global Income Fund may be invested by the Funds on
the day following the execution of such purchases. Payment for shares redeemed
will be made within seven days after receipt of a proper notice of redemption,
except that the right of redemption may be suspended or payments postponed when
permitted by applicable laws and regulations.
A potential for certain conflicts exists between the interests of variable
annuity contract owners and variable life insurance contract owners. A potential
for certain conflicts would also exist between the interests of any of these
investors and participants in a qualified pension and retirement plan that might
invest in the Funds. To the extent that such classes of investors are invested
in the same Fund when a conflict of interest arises that might involve the Fund,
one or more such classes of investors could be disadvantaged. The Company
currently does not foresee any such disadvantage to owners of variable contracts
or to plan participants. Nonetheless, the board of directors of the Company will
monitor the Funds for the existence of any irreconcilable material conflicts of
interest. If such a conflict affecting owners of variable contracts is
determined to exist, the life insurers investing in the Company will, to the
extent reasonably practicable, take such action as is necessary to remedy or
eliminate the conflict. If such a conflict were to occur, one or more of the
Accounts might be required to withdraw its investment in
- --------------------------------------------------------------------------------
<PAGE>
-----------
57
- --------------------------------------------------------------------------------
one or more Funds or it may substitute shares of one Fund for another. This
might force a Fund to sell its portfolio securities at a disadvantageous price.
- --------------------------------------------------------------------------------
Special Compensation Arrangements
GE Asset Management may pay amounts, from its own resources, to insurance
companies whose separate accounts invest in shares of the Funds. These payments
are meant to compensate the insurance company for part of the administrative
expense of maintaining accounts for and communicating with owners of variable
annuity and variable life insurance contracts.
Contract Owner Voting Rights
With regard to Fund matters for which the 1940 Act requires a shareholder vote,
life insurance companies sponsoring an Account holding shares of a Fund vote
such shares in accordance with instructions received from the owners of variable
contracts (or annuitants or beneficiaries thereunder) having a voting interest
in that Account. Each share has one vote and votes are counted on an aggregate
basis except as to matters where the interests of Funds differ (such as approval
of an investment advisory agreement or a change in a Fund's fundamental
investment policies). In such a case, the voting is on a Fund-by-Fund basis.
Fractional shares are counted. Shares held by an Account for which no
instructions are received are voted by their insurance company sponsors for or
against any propositions, or in abstention, in the same proportion as the shares
for which instructions have been received.
Plan Participant Voting Rights
With regard to matters for which the 1940 Act requires a shareholder vote,
trustees of qualified pension and retirement plans are expected to vote Fund
shares held by their plans either in their own discretion or in accordance with
instructions received from participants in such plans.
- --------------------------------------------------------------------------------
<PAGE>
- ------------------------------------------------
58 GE Investments Dividend,
Funds, Inc. Distributions
Prospectus and Tax
Information
- --------------------------------------------------------------------------------
Dividend and Capital Gains Distribution
Each Fund intends to distribute substantially all of its net investment income
annually. Each Fund also intends to distribute substantially all of its net
realized capital gains annually. All income dividends and capital gains
distributions made by a Fund are reinvested in shares of that Fund at that
Fund's net asset value.
Taxes
For federal income tax purposes, each Fund is treated as a separate entity. Each
Fund intends to qualify each year as a "regulated investment company" under the
Internal Revenue Code of 1986 as amended ("Code"). By so qualifying, a 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 Accounts or to qualified
pension and retirement plans.
Since the Accounts are the only shareholders of the Funds, no discussion is
included herein as to the federal income tax consequences at the shareholder
level. For information concerning the federal tax consequences to the purchasers
of variable contracts, see the attached prospectus for such contract.
- --------------------------------------------------------------------------------
<PAGE>
-------------------------------------------
Calculating GE Investments 59
Share Value Funds, Inc.
Prospectus
- --------------------------------------------------------------------------------
Fund shares are sold at net asset value ("NAV"). The NAV of each Fund is
calculated at the close of regular trading on the New York Stock Exchange
("NYSE"), normally 4:00 p.m. Eastern time, each day the NYSE is open for
trading. The NAV per share for Funds (other than the Money Market Fund) is
determined by adding the value of the Fund's investments, cash, and other
assets, subtracting its liabilities, and then dividing the result by the number
of that Fund's outstanding shares.
A Fund's portfolio securities are valued most often on the basis of market
quotations. Foreign securities generally are valued on the basis of quotations
from the primary market in which they are traded. Some debt securities are
valued using dealers and pricing services. Municipal bond valuations are based
on prices supplied by a qualified municipal pricing service. Those prices are
composed of the mean average of the bid and ask prices on the secondary market.
All portfolio securities of the Money Market Fund and any short-term securities
held by any other Fund with remaining maturities of sixty days or less are
valued on the basis of amortized cost or original cost plus accrued interest. A
Fund's written or purchased options are valued at the last sales price, or if no
sales occurred that day, at the last traded bid price. A Fund's NAV may change
on days when shareholders will not be able to purchase or redeem the Fund's
shares.
If quotations are not readily available for any security, or if the value of a
security has been materially affected by events occurring after the closing of a
market, the security may be valued by using procedures approved by a Fund's
Board of Directors that it believes accurately reflects "fair value."
- --------------------------------------------------------------------------------
<PAGE>
- -------------------------------------
60 GE Investments Financial
Funds, Inc. Highlights
Prospectus
- --------------------------------------------------------------------------------
The financial highlights tables that follow are intended to help you understand
a Fund's financial performance for the fiscal years ended December 31. Certain
information reflects financial results for a single Fund share. The total
returns in the table represent the rate that an investor would have earned or
lost on an investment in the Fund (assuming reinvestment of all dividends and
distributions). Fiscal year end information has been audited by KPMG LLP, whose
report, along with the Funds' financial statements, are included in the Funds'
Annual Report, which is available on request.
- --------------------------------------------------------------------------------
<PAGE>
-------------
61
- --------------------------------------------------------------------------------
US Equity Fund
<TABLE>
<CAPTION>
Years ended December 31 1999 1998 1997(c) 1996 1995(h)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Inception date -- -- -- -- 01/03/95
- ------------------------------------------------------------------------------------------------------------------------------
Net Asset Value, Beginning of Period $33.50 $27.88 $21.11 $19.27 $15.00
- ------------------------------------------------------------------------------------------------------------------------------
Income (Loss) from Investment Operations
- ------------------------------------------------------------------------------------------------------------------------------
Net Investment Income 0.22 0.28 0.24 0.34 0.46
- ------------------------------------------------------------------------------------------------------------------------------
Net Realized and Unrealized Gains
(Losses) on Investments 6.30 6.23 6.54 3.90 4.87
- ------------------------------------------------------------------------------------------------------------------------------
Total Income (Loss) From Investment Operations 6.52 6.51 6.78 4.24 5.33
- ------------------------------------------------------------------------------------------------------------------------------
Less Distributions
- ------------------------------------------------------------------------------------------------------------------------------
Dividends (from net investment income) 0.22 0.28 0.00 0.35 0.47
- ------------------------------------------------------------------------------------------------------------------------------
Distributions (from capital gains) 1.90 0.61 0.01 2.05 0.59
- ------------------------------------------------------------------------------------------------------------------------------
Total Distributions 2.12 0.89 0.01 2.40 1.06
- ------------------------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Period $37.90 $33.50 $27.88 $21.11 $19.27
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
Total Return (a) 19.61% 23.41% 32.13% 21.72% 35.58%
- ------------------------------------------------------------------------------------------------------------------------------
Ratios/Supplemental Data:
- ------------------------------------------------------------------------------------------------------------------------------
Net Assets, End of Period (in thousands) $72,794 $31,160 $23,917 $18,027 $9,071
- ------------------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
- ------------------------------------------------------------------------------------------------------------------------------
Net Investment Income* 0.86% 0.95% 0.94% 1.80% 2.10%
- ------------------------------------------------------------------------------------------------------------------------------
Net Expenses* 0.61% 0.69% 0.80% 0.80% 0.80%
- ------------------------------------------------------------------------------------------------------------------------------
Gross Expenses* 0.61% 0.69% 0.86% 0.88% 1.03%
- ------------------------------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 35% 41% 33% 35% 71%
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
S&P 500 Index Fund
<TABLE>
<CAPTION>
Years ended December 31 1999 1998 1997(b,c) 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Inception date -- -- -- -- 04/15/85
- ------------------------------------------------------------------------------------------------------------------------------
Net Asset Value, Beginning of Period $23.71 $19.23 $15.14 $20.99 $15.72
- ------------------------------------------------------------------------------------------------------------------------------
Income (Loss) from Investment Operations
- ------------------------------------------------------------------------------------------------------------------------------
Net Investment Income 0.20 0.21 0.23 0.78 0.27
- ------------------------------------------------------------------------------------------------------------------------------
Net Realized and Unrealized Gains
(Losses) on Investments 4.68 5.20 4.36 4.36 5.41
- ------------------------------------------------------------------------------------------------------------------------------
Total Income (Loss) From Investment Operations 4.88 5.41 4.59 5.14 5.68
- ------------------------------------------------------------------------------------------------------------------------------
Less Distributions from
- ------------------------------------------------------------------------------------------------------------------------------
Dividends (from net investment income) 0.21 0.21 0.23 0.77 0.27
- ------------------------------------------------------------------------------------------------------------------------------
Distributions (from capital gains) 0.28 0.72 0.27 10.22 0.14
- ------------------------------------------------------------------------------------------------------------------------------
Total Distributions 0.49 0.93 0.50 10.99 0.41
- ------------------------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Period $28.10 $23.71 $19.23 $15.14 $20.99
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
Total Return (a) 20.61% 28.24% 30.33% 24.51% 36.14%
- ------------------------------------------------------------------------------------------------------------------------------
Ratios/Supplemental Data
- ------------------------------------------------------------------------------------------------------------------------------
Net Assets, End of Period (in thousands) $652,144 $326,961 $164,294 $35,522 $66,017
- ------------------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
- ------------------------------------------------------------------------------------------------------------------------------
Net Investment Income* 1.00% 1.20% 1.70% 1.91% 1.98%
- ------------------------------------------------------------------------------------------------------------------------------
Expenses* 0.39% 0.45% 0.46% 0.48% 0.66%
- ------------------------------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 3% 13% 6% 63% 15%
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Highlights
- --------------------------------------------------------------------------------
<PAGE>
- -------------------
62 GE Investments
Funds, Inc.
Prospectus
Financial
Highlights
- --------------------------------------------------------------------------------
Premier Growth Equity Fund
<TABLE>
<CAPTION>
Years ended December 31 1999 1998 1997(d)
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Inception date -- -- 12/12/97
- ------------------------------------------------------------------------------------------------------------
Net Asset Value, Beginning of Period $67.22 $51.48 $49.79
- ------------------------------------------------------------------------------------------------------------
Income (Loss) from Investment Operations
- ------------------------------------------------------------------------------------------------------------
Net Investment Income 0.08 0.25 0.03
- ------------------------------------------------------------------------------------------------------------
Net Realized and Unrealized Gains (Losses) on Investments 24.18 18.43 1.69
- ------------------------------------------------------------------------------------------------------------
Total Income (Loss) From Investment Operations 24.26 18.68 1.72
- ------------------------------------------------------------------------------------------------------------
Less Distributions from
- ------------------------------------------------------------------------------------------------------------
Dividends (from net investment income) 0.08 0.24 0.03
- ------------------------------------------------------------------------------------------------------------
Distributions (from capital gains) 2.75 2.70 0.00
- ------------------------------------------------------------------------------------------------------------
Total Distributions 2.83 2.94 0.03
- ------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Period $88.65 $67.22 $51.48
- ------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------
Total Return (a) 36.26% 36.53% 3.46%
- ------------------------------------------------------------------------------------------------------------
Ratios/Supplemental Data:
- ------------------------------------------------------------------------------------------------------------
Net Assets, End of Period (in thousands) $53,720 $19,879 $16,237
- ------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
- ------------------------------------------------------------------------------------------------------------
Net Investment Income* 0.18% 0.41% 1.04%
- ------------------------------------------------------------------------------------------------------------
Net Expenses* 0.68% 0.82% 0.69%
- ------------------------------------------------------------------------------------------------------------
Gross Expenses* 0.72% 0.82% 0.69%
- ------------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 27% 34% 3%
- ------------------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
Mid-Cap Value Equity Fund
<TABLE>
<CAPTION>
Years ended December 31 1999 1998 1997(g)
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Inception date -- -- 05/01/97
- ------------------------------------------------------------------------------------------------------------
Net Asset Value, Beginning of Period $13.57 $13.11 $10.00
- ------------------------------------------------------------------------------------------------------------
Income (Loss) from Investment Operations
- ------------------------------------------------------------------------------------------------------------
Net Investment Income 0.12 0.07 0.02
- ------------------------------------------------------------------------------------------------------------
Net Realized and Unrealized Gains (Losses) on Investments 2.21 0.79 3.23
- ------------------------------------------------------------------------------------------------------------
Total Income (Loss) From Investment Operations 2.33 0.86 3.25
- ------------------------------------------------------------------------------------------------------------
Less Distributions from
- ------------------------------------------------------------------------------------------------------------
Dividends (from net investment income) 0.12 0.07 0.02
- ------------------------------------------------------------------------------------------------------------
Distributions (from capital gains) 0.00 0.33 0.12
- ------------------------------------------------------------------------------------------------------------
Total Distributions 0.12 0.40 0.14
- ------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Period $15.78 $13.57 $13.11
- ------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------
Total Return (a) 17.26% 6.69% 32.56%
- ------------------------------------------------------------------------------------------------------------
Ratios/Supplemental Data
- ------------------------------------------------------------------------------------------------------------
Net Assets, End of Period (in thousands) $90,561 $53,643 $30,856
- ------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
- ------------------------------------------------------------------------------------------------------------
Net Investment Income* 0.94% 0.59% 0.38%
- ------------------------------------------------------------------------------------------------------------
Expenses* 0.71% 0.75% 0.69%
- ------------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 30% 14% 18%
- ------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Highlights
- --------------------------------------------------------------------------------
<PAGE>
----------
63
- --------------------------------------------------------------------------------
International Equity Fund
<TABLE>
<CAPTION>
Years ended December 31 1999 1998 1997(c) 1996 1995(f)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Inception date -- -- -- -- 05/01/95
- -----------------------------------------------------------------------------------------------------------------------------------
Net Asset Value, Beginning of Period $11.89 $10.68 $10.83 $10.47 $10.00
- -----------------------------------------------------------------------------------------------------------------------------------
Income (Loss) from Investment Operations
- -----------------------------------------------------------------------------------------------------------------------------------
Net Investment Income 0.06 0.08 0.02 0.03 0.20
- -----------------------------------------------------------------------------------------------------------------------------------
Net Realized and Unrealized Gains on Investments 3.50 1.77 1.10 1.01 0.47
- -----------------------------------------------------------------------------------------------------------------------------------
Total Income (Loss) From Investment Operations 3.56 1.85 1.12 1.04 0.67
- -----------------------------------------------------------------------------------------------------------------------------------
Less Distributions from
- -----------------------------------------------------------------------------------------------------------------------------------
Dividends (from net investment income) 0.04 0.07 0.08 0.03 0.20
- -----------------------------------------------------------------------------------------------------------------------------------
Distributions (from capital gains) 0.94 0.57 1.19 0.65 0.00
- -----------------------------------------------------------------------------------------------------------------------------------
Total Distributions: 0.98 0.64 1.27 0.68 0.20
- -----------------------------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Period $14.47 $11.89 $10.68 $10.83 $10.47
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
Total Return (a) 30.33% 17.45% 10.17% 9.91% 6.70%
- -----------------------------------------------------------------------------------------------------------------------------------
Ratios/Supplemental Data
- -----------------------------------------------------------------------------------------------------------------------------------
Net Assets, End of Period (in thousands) $52,540 $36,952 $31,931 $17,644 $15,348
- -----------------------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
- -----------------------------------------------------------------------------------------------------------------------------------
Net Investment Income* 0.51% 0.65% 0.14% 0.23% 0.44%
- -----------------------------------------------------------------------------------------------------------------------------------
Net Expenses* 1.08% 1.15% 1.34% 1.50% 1.54%
- -----------------------------------------------------------------------------------------------------------------------------------
Gross Expenses* 1.08% 1.15% 1.43% 1.56% 2.17%
- -----------------------------------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 51% 60% 166% 150% 58%
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
Income Fund
<TABLE>
<CAPTION>
Years ended December 31 1999 1998 1997(c) 1996 1995(h)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Inception date -- -- -- -- 01/03/95
- -----------------------------------------------------------------------------------------------------------------------------------
Net Asset Value, Beginning of Period $12.34 $12.11 $11.84 $12.53 $12.00
- -----------------------------------------------------------------------------------------------------------------------------------
Income (Loss) from Investment Operations
- -----------------------------------------------------------------------------------------------------------------------------------
Net Investment Income 0.64 0.62 0.76 0.76 0.82
- -----------------------------------------------------------------------------------------------------------------------------------
Net Realized and Unrealized Gains (Losses)
on Investments (0.81) 0.34 0.27 (0.43) 1.13
- -----------------------------------------------------------------------------------------------------------------------------------
Total Income (Loss) from Investment Operations (0.17) 0.96 1.03 0.33 1.95
- -----------------------------------------------------------------------------------------------------------------------------------
Less Distributions from
- -----------------------------------------------------------------------------------------------------------------------------------
Dividends (from net investment income) 0.64 0.62 0.76 0.76 0.84
- -----------------------------------------------------------------------------------------------------------------------------------
Distributions (from capital gains) 0.02 0.11 0.00 0.26 0.58
- -----------------------------------------------------------------------------------------------------------------------------------
Total Distributions 0.66 0.73 0.76 1.02 1.42
- -----------------------------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Period $11.51 $12.34 $12.11 $11.84 $12.53
- -----------------------------------------------------------------------------------------------------------------------------------
Total Return (a) (1.43)% 7.95% 9.00% 2.92% 16.83%
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
Ratios/Supplemental Data
- -----------------------------------------------------------------------------------------------------------------------------------
Net Assets, End of Period (in thousands) $68,434 $59,077 $45,555 $5,388 $3,271
- -----------------------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
- -----------------------------------------------------------------------------------------------------------------------------------
Net Investment Income* 5.74% 5.54% 5.11% 6.37% 6.52%
- -----------------------------------------------------------------------------------------------------------------------------------
Net Expenses* 0.57% 0.64% 0.59% 0.75% 0.75%
- -----------------------------------------------------------------------------------------------------------------------------------
Gross Expenses* 0.57% 0.64% 0.77% 1.03% 1.15%
- -----------------------------------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 230% 217% 356% 222% 253%
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Highlights
- --------------------------------------------------------------------------------
<PAGE>
- -------------------
64 GE Investments
Funds, Inc.
Prospectus
Financial
Highlights
- --------------------------------------------------------------------------------
Global Income Fund
<TABLE>
<CAPTION>
Years ended December 31 1999 1998 1997(c,g)
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Inception date -- -- 05/01/97
- ----------------------------------------------------------------------------------------------------------
Net Asset Value, Beginning of Period $10.53 $9.85 $10.00
- ----------------------------------------------------------------------------------------------------------
Income (Loss) from Investment Operations
- ----------------------------------------------------------------------------------------------------------
Net Investment Income 0.45 0.44 0.35
- ----------------------------------------------------------------------------------------------------------
Net Realized and Unrealized Gains (Losses) on Investments (1.24) 0.87 (0.01)
- ----------------------------------------------------------------------------------------------------------
Total Income (Loss) From Investment Operations (0.79) 1.31 0.34
- ----------------------------------------------------------------------------------------------------------
Less Distributions from
- ----------------------------------------------------------------------------------------------------------
Dividends (from net investment income) 0.14 0.61 0.45
- ----------------------------------------------------------------------------------------------------------
Distributions (from capital gains) 0.01 0.02 0.04
- ----------------------------------------------------------------------------------------------------------
Total Distributions 0.15 0.63 0.49
- ----------------------------------------------------------------------------------------------------------
Net Asset Value, End of Period $9.59 $10.53 $9.85
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
Total Return (a) (7.49)% 13.33% 3.41%
- ----------------------------------------------------------------------------------------------------------
Ratios/Supplemental Data:
- ----------------------------------------------------------------------------------------------------------
Net Assets, End of Period (in thousands) $9,175 $9,739 $5,851
- ----------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
- ----------------------------------------------------------------------------------------------------------
Net Investment Income* 4.20% 4.73% 5.54%
- ----------------------------------------------------------------------------------------------------------
Expenses* 0.74% 0.82% 0.84%
- ----------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 130% 64% 119%
- ----------------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
Money Market Fund
<TABLE>
<CAPTION>
Years ended December 31 1999 1998 1997(c,e) 1996 1995
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Inception date -- -- -- -- 07/01/85
- -----------------------------------------------------------------------------------------------------------------------------------
Net Asset Value, Beginning of Period $1.00 $1.00 $1.00 $1.00 $0.98
- -----------------------------------------------------------------------------------------------------------------------------------
Income (Loss) from Investment Operations
- -----------------------------------------------------------------------------------------------------------------------------------
Net Investment Income 0.05 0.05 0.05 0.05 0.06
- -----------------------------------------------------------------------------------------------------------------------------------
Net Realized and Unrealized Gains (Losses)
on Investments 0.00 0.00 0.00 0.00 0.00
- -----------------------------------------------------------------------------------------------------------------------------------
Total Income (Loss) From Investment Operations 0.05 0.05 0.05 0.05 0.06
- -----------------------------------------------------------------------------------------------------------------------------------
Less Distributions from:
- -----------------------------------------------------------------------------------------------------------------------------------
Dividends (from net investment income) 0.05 0.05 0.05 0.05 0.04
- -----------------------------------------------------------------------------------------------------------------------------------
Distributions (from capital gains) 0.00 0.00 0.00 0.00 0.00
- -----------------------------------------------------------------------------------------------------------------------------------
Total Distributions 0.05 0.05 0.05 0.05 0.04
- -----------------------------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Period $1.00 $1.00 $1.00 $1.00 $1.00
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
Total Return (a) 5.00% 5.26% 5.41% 5.41% 5.90%
- -----------------------------------------------------------------------------------------------------------------------------------
Ratios/Supplemental Data
- -----------------------------------------------------------------------------------------------------------------------------------
Net Assets, End of Period (in thousands) $473,538 $239,547 $144,815 $113,263 $63,083
- -----------------------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
- -----------------------------------------------------------------------------------------------------------------------------------
Net Investment Income* 4.96% 5.14% 5.17% 5.29% 5.74%
- -----------------------------------------------------------------------------------------------------------------------------------
Net Expenses* 0.30% 0.37% 0.32% 0.15% 0.23%
- -----------------------------------------------------------------------------------------------------------------------------------
Gross Expenses* 0.49% 0.59% 0.48% 0.55% 0.63%
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Highlights
- --------------------------------------------------------------------------------
<PAGE>
----------
65
- --------------------------------------------------------------------------------
Total Return Fund
<TABLE>
<CAPTION>
Years ended December 31 1999 1998 1997(c) 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Inception date -- -- -- -- 07/01/85
- ---------------------------------------------------------------------------------------------------------------------------
Net Asset Value, Beginning of Period $14.66 $13.21 $12.73 $15.93 $13.40
- ---------------------------------------------------------------------------------------------------------------------------
Income (Loss) from Investment Operations
- ---------------------------------------------------------------------------------------------------------------------------
Net Investment Income 0.34 0.34 0.34 1.02 0.41
- ---------------------------------------------------------------------------------------------------------------------------
Net Realized and Unrealized Gains (Losses)
on Investments 1.59 1.90 1.95 0.67 3.34
- ---------------------------------------------------------------------------------------------------------------------------
Total Income (Loss) from Investment Operations 1.93 2.24 2.29 1.69 3.75
- ---------------------------------------------------------------------------------------------------------------------------
Less Distributions from
- ---------------------------------------------------------------------------------------------------------------------------
Dividends (from net investment income) 0.33 0.34 0.34 1.02 0.42
- ---------------------------------------------------------------------------------------------------------------------------
Distributions (from capital gains) 0.40 0.45 1.47 3.87 0.80
- ---------------------------------------------------------------------------------------------------------------------------
Total Distributions 0.73 0.79 1.81 4.89 1.22
- ---------------------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Period $15.86 $14.66 $13.21 $12.73 $15.93
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
Total Return (a) 13.25% 17.10% 17.99% 10.60% 28.07%
- ---------------------------------------------------------------------------------------------------------------------------
Ratios/Supplemental Data
- ---------------------------------------------------------------------------------------------------------------------------
Net Assets, End of Period (in thousands) $109,913 $72,632 $50,007 $27,814 $70,507
- ---------------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
- ---------------------------------------------------------------------------------------------------------------------------
Net Investment Income* 2.50% 2.69% 2.56% 2.73% 3.42%
- ---------------------------------------------------------------------------------------------------------------------------
Expenses* 0.56% 0.63% 0.65% 0.60% 0.65%
- ---------------------------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 105% 124% 135% 144% 106%
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
Real Estate Securities Fund
<TABLE>
<CAPTION>
Years ended December 31 1999 1998 1997(c) 1996 1995(f)
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Inception date -- -- -- -- 05/01/95
- ---------------------------------------------------------------------------------------------------------------------------
Net Asset Value, Beginning of Period $11.59 $15.28 $14.11 $11.05 $10.00
- ---------------------------------------------------------------------------------------------------------------------------
Income (Loss) from Investment Operations
- ---------------------------------------------------------------------------------------------------------------------------
Net Investment Income 0.77 0.73 0.74 0.64 0.46
- ---------------------------------------------------------------------------------------------------------------------------
Net Realized and Unrealized Gains (Losses)
on Investments (0.82) (3.46) 2.01 3.36 1.23
- ---------------------------------------------------------------------------------------------------------------------------
Total Income (Loss) From Investment Operations (0.05) (2.73) 2.75 4.00 1.69
- ---------------------------------------------------------------------------------------------------------------------------
Less Distributions from
- ---------------------------------------------------------------------------------------------------------------------------
Dividends (from net investment income) 0.64 0.50 0.53 0.65 0.46
- ---------------------------------------------------------------------------------------------------------------------------
Distributions (from capital gains) 0.03 0.46 1.05 0.29 0.18
- ---------------------------------------------------------------------------------------------------------------------------
Total Distributions 0.67 0.96 1.58 0.94 0.64
- ---------------------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Period $10.87 $11.59 $15.28 $14.11 $11.05
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
Total Return (a) (0.22)% (17.68%) 19.49% 36.24% 17.00%
- ---------------------------------------------------------------------------------------------------------------------------
Ratios/Supplemental Data
- ---------------------------------------------------------------------------------------------------------------------------
Net Assets, End of Period (in thousands) $41,842 $47,756 $48,887 $24,533 $13,429
- ---------------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
- ---------------------------------------------------------------------------------------------------------------------------
Net Investment Income* 6.21% 5.43% 4.83% 5.90% 6.85%
- ---------------------------------------------------------------------------------------------------------------------------
Net Expenses* 0.94% 0.99% 0.95% 1.07% 1.31%
- ---------------------------------------------------------------------------------------------------------------------------
Gross Expenses* 0.94% 0.99% 0.95% 1.07% 1.61%
- ---------------------------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 16% 29% 58% 30% 54%
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Highlights
- --------------------------------------------------------------------------------
<PAGE>
- ---------------------
66 GE Investments
Funds, Inc.
Prospectus
Financial
Highlights
- --------------------------------------------------------------------------------
Notes to Financial Highlights
(a) Total returns are historical and assume changes in share price and
reinvestment of dividends and capital gains. Had the adviser not absorbed
a portion of expenses on certain Funds, total returns of those Funds for
those periods would have been lower. Periods less than one year are not
annualized.
(b) As of May 1, 1997, the fund's name was changed to S&P 500 Index Fund from
Common Stock Index Portfolio.
(c) GE Asset Management assumed management responsibilities for the Funds
effective May 1, 1997. See Note 4 in the Notes to Financial Statements for
further information.
(d) Information is for the period December 12, 1997, commencement of
investment operations, through December 31, 1997.
(e) Effective May 5, 1997, the Fund began maintaining a constant net asset
value per share of $1.00. Per share information prior to January 1, 1997
has been restated to reflect the 10.4 to 1 stock split.
(f) nformation is for the period May 1, 1995, commencement of investment
operations, through December 31, 1995.
(g) Information is for the period May 1, 1997, commencement of investment
operations, through December 31, 1997.
(h) Information is for the period January 3, 1995, commencement of investment
operations, through December 31, 1995.
* Annualized for periods less than one year.
- --------------------------------------------------------------------------------
<PAGE>
[This page intentionally left blank.]
<PAGE>
GE Investments
Funds, Inc.
Prospectus
-----------------------------------------------------------------
If you wish to You will find additional information know
more about the GE Investments Funds in
the following documents:
Annual/Semi-Annual Reports to
Shareholders: These reports detail the
Funds' actual investments as of the
report date. Reports usually include
performance numbers and a discussion of
market conditions and investment
strategies that significantly affected
Fund performance during the Funds' last
fiscal year.
Statement of Additional Information
(SAI): The SAI contains additional
information about the Funds and their
investment strategies and policies and is
incorporated by reference (legally
considered part of this Prospectus).
You may visit the SEC's Internet Website
(http://www.sec.gov) to view the
Annual/Semi-Annual Reports, the SAI and
other information about the GE
Investments Funds, Inc. Also, you may
obtain copies of this information, after
paying a duplicating fee, by sending your
request electronically to the following
e-mail address: [email protected], or
writing to the SEC's Public Reference
Section, Washington, D.C. 20549-0102. You
may review and copy information about the
Funds, including the SAI, at the SEC's
Public Reference Room in Washington, D.C.
To find out more about the Public
Reference Room, call the SEC at
1-202-942-8090.
-----------------------------------------------------------------
GE Investments You may obtain a free copy of the SAI or
Funds, Inc. the Funds' annual/semiannual report and
make shareholder inquiries by contacting:
GE Investment Distributors, Inc.
P.O. Box 7900
3003 Summer Street
Stamford, CT 06904
or
Capital Brokerage Corporation
6630 West Broad Street
Richmond, VA 23230
Telephone 1-800-493-3042
-----------------------------------------------------------------
Investment GE Asset Management Incorporated
Adviser P.O. Box 7900
3003 Summer Street
Stamford, CT 06904
-----------------------------------------------------------------
Transfer Agent State Street Bank and Trust Company
and Custodian 225 Franklin Street
Boston, MA 02101
-----------------------------------------------------------------
Distributor GE Investment Distributors, Inc.
777 Long Ridge Road, Building B
Stamford, CT 06927
-----------------------------------------------------------------
This Prospectus must be read along with
the current prospectus for the variable
annuity contract or variable life
insurance policy being applied for.
Investment Company Act file number:
811-04041
- --------------------------------------------------------------------------------
GEI-PRO-1
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
May 1, 2000
GE INVESTMENTS FUNDS, INC.
3003 Summer Street, Stamford, Connecticut 06905
For information, call 1.800.493.3042
o U.S. Equity Fund o Europe Equity Fund
o S&P 500 Index Fund o Emerging Markets Fund
o Premier Growth Equity Fund o Income Fund
o Value Equity Fund o Global Income Fund
o Mid-Cap Value Equity Fund* o Total Return Fund
o Small Cap Value Equity Fund o Money Market Fund
o International Equity Fund o Real Estate Securities Fund
This Statement of Additional Information ("SAI") supplements the
information contained in the current Prospectus of GE Investments Funds, Inc.
(the "Company") dated May 1, 2000 (the "Prospectus"), and should be read in
conjunction with the Prospectus. This SAI, although not a prospectus, is
incorporated in its entirety by reference into the Prospectus. Copies of the
Prospectus describing each series of the Company listed above ("Funds") may be
obtained without charge by calling the Company at the telephone number listed
above.
The Company's financial statements for the fiscal period ended December
31, 1999, and the Independent Auditor's Report thereon, are incorporated herein
by reference to the Company's Annual Report, which may be obtained without
charge by calling the Company at the telephone number listed above. Terms that
are defined in the Prospectus shall have the same meanings in this SAI.
- ------------------------------------------------------------------------------
* The Mid-Cap Value Equity Fund was formerly named the Value Equity Fund. Its
name has been changed to better reflect its investment style. Also, a new Fund,
the Value Equity Fund, is being offered by the Prospectus and this SAI.
<PAGE>
Table of Contents
INVESTMENT STRATEGIES AND RISKS..............................................3
INVESTMENT RESTRICTIONS.....................................................51
PORTFOLIO TRANSACTIONS AND TURNOVER.........................................58
MANAGEMENT OF THE COMPANY...................................................62
NET ASSET VALUE.............................................................76
DIVIDENDS, DISTRIBUTIONS AND TAXES..........................................78
THE FUNDS' PERFORMANCE......................................................81
PRINCIPAL STOCKHOLDERS......................................................86
FUND HISTORY AND ADDITIONAL INFORMATION.....................................86
FINANCIAL STATEMENTS........................................................88
APPENDIX - DESCRIPTION OF RATINGS.........................................A -1
2
<PAGE>
INVESTMENT STRATEGIES AND RISKS
This section discusses the principal investment objectives and principal
strategies of the following Funds:
1. U.S. Equity Fund, a diversified open-end fund
2. S&P 500 Index Fund, a diversified open-end fund
3. Premier Growth Equity Fund, a diversified open-end fund
4. Value Equity Fund, a diversified open-end fund
5. Mid-Cap Value Equity Fund, a diversified open-end fund
6. Small-Cap Value Equity Fund, a diversified open-end fund
7. International Equity Fund, a diversified open-end fund
8. Europe Equity Fund, a diversified open-end fund
9. Emerging Markets Fund, a diversified open-end fund
10. Income Fund, a diversified open-end fund
11. Global Income Fund, a non-diversified open-end fund
12. Total Return Fund, a diversified open-end fund
13. Money Market Fund, a diversified open-end fund
14. Real Estate Securities Fund, a diversified open-end fund
The principal investment objective or objectives of a Fund are fundamental
and cannot be changed without the approval of a majority of the outstanding
voting shares of capital stock of the class related to that Fund. Certain
investment restrictions also are fundamental and cannot be changed without
shareholder approval. In contrast, certain other investment restrictions as well
as the investment policies of each Fund are not fundamental and may be changed
by the Company's board of directors without shareholder approval.
There can be no assurance that any of the Funds will achieve its
investment objective or objectives. Investors should not consider any one Fund
alone to be a complete investment program. All of the Funds are subject to the
risk of changing economic conditions, as well as the risk inherent in the
ability of the Adviser to make changes in the composition of the Fund in
anticipation of changes in economic, business, and financial conditions. As with
any security, a risk of loss is inherent in an investment in the shares of any
of the Funds. The different types of securities, investments, and investment
practices used by each Fund all have attendant risks of varying degrees. For
example, with respect to equity securities, there can be no assurance of capital
appreciation and there is a substantial risk of decline. With respect to debt
securities, there exists the risk that the issuer of a security may not be able
to meet its obligations on interest or principal payments at the time required
by the instrument. In addition, the value of debt instruments generally rises
and falls inversely with prevailing current interest rates. As described below,
an investment in certain of the Funds entails special additional risks as a
result of their ability to invest a substantial portion of their assets in
either foreign investments or real estate securities.
3
<PAGE>
Principal Investment Objectives
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 total assets in such equity securities.
S&P 500 Index Fund. 1 The investment objective of the S&P 500 Index Fund
is 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 equity securities of companies
contained in that Index.
- --------
(1)Standard & Poor's(R) and S&P(R) "S&P 500(R)" "Standard and Poor's 500"
and "500" are marks of The McGraw-Hill Companies, Inc. and have been licensed
for use. The S&P 500 Index Fund is not sponsored, endorsed, sold or promoted by
Standard and Poor's ("S&P"), and S&P makes no representation or warranty,
express or implied, to the investors in this 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 RESULTS TO BE OBTAINED BY THE FUND, OR BY 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.
4
<PAGE>
Premier Growth Equity Fund. The investment objective of the Premier Growth
Equity Fund is long-term growth of capital and future income rather than current
income. The Fund seeks to achieve this objective by investing primarily in a
limited number of growth-oriented equity securities of large and medium-sized
companies. Under normal market conditions such securities will represent at
least 65% of the Fund's assets.
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 large U.S. companies
that GEAM considers to be undervalued by the market but have solid growth
prospects. During normal market conditions, the Fund invests at least 65% of its
total 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.
Mid-Cap Value Equity Fund. The investment objective of the Mid-Cap Value
Equity Fund (formerly named the Value Equity Fund) is long term growth of
capital and future income. In seeking its investment objective, the Fund invests
primarily in equity securities of mid-cap companies that the portfolio manager
believes are undervalued by the market and have above-average growth potential.
Small Cap Value Equity Fund. The investment objective of the Small-Cap
Value Equity Fund is long-term growth of capital. The Fund seeks to achieve its
objective by investing, under normal market conditions, at least 65% of its
total assets in a portfolio of equity securities of small-capitalization
companies that GEAM believes are undervalued by the market but have solid growth
prospects.
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 equity securities of companies located in
developed and developing countries outside the United States. Under normal
circumstances, at least 65% of the Fund's total assets will be invested in
securities of companies representing at least three different countries other
than the United States. The International Fund, under normal conditions, invests
at least 65% of its total assets in common stocks, preferred stocks, convertible
debentures, convertible notes, convertible preferred stocks and warrants or
rights issued by companies believed by GEAM to have a potential for superior
growth in sales and earnings.
Europe Equity Fund. The investment objective of the Europe Fund is
long-term growth of capital. The Fund seeks to achieve its objective by
investing, 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
5
<PAGE>
long-term growth of capital. The Fund seeks to achieve its objective by
investing, under normal conditions, at least 65% of its total assets in equity
securities of issuers that are located in emerging markets countries.
Income Fund. The investment objective of the Income Fund is maximum income
consistent with prudent investment management and the preservation of capital.
The Fund seeks to achieve its objective by investing primarily a variety of
investment grade debt securities. Capital appreciation with respect to the
Income Fund's portfolio securities may occur but is not an objective of the
Fund. The Fund normally has a weighted average maturity of five to ten years.
Global Income Fund. The investment objective of the Global Income Fund is
high return, emphasizing current income, and, to a lesser extent, capital
appreciation. The Fund seeks to achieve its objective by investing primarily in
foreign and domestic income bearing debt securities. Under normal market
conditions, at least 65% of its total assets will be invested in debt securities
of companies or governments representing at least three different countries.
Total Return Fund. The investment objective of the Total Return Fund is
the highest total return, composed of current income and capital appreciation,
as is consistent with prudent investment risk. 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.
GEAM has broad latitude in selecting the classes of investments to which the
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, GEAM
anticipates that at most times the Fund will be invested primarily in a
combination of equity and investment grade debt instruments.
Money Market Fund. The investment objective of the Money Market Fund is a
high level of current income consistent with the preservation of capital and
maintenance of liquidity. In seeking its objective, the Fund invests in the
following U.S. dollar denominated, short-term money market instruments: (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 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
supranational entities; (vi) debt securities issued by foreign issuers; and
(vii) repurchase agreements.
Real Estate Securities Fund. The investment objective of the Real Estate
Securities Fund is maximum total return through current income and capital
appreciation. The Fund
6
<PAGE>
seeks to achieve this objective by investing primarily in equity and debt
securities of U.S. issuers that are principally engaged in or related to the
real estate industry, including those that own significant real estate assets.
The Fund does not invest directly in real estate.
The Real Estate Securities Fund is intended for investors who can accept
the risks, described below, entailed by indirect investments in real estate.
An issuer is principally "engaged in" or principally "related to" the real
estate industry if at least 50% of its total assets (marked-to-market), gross
income, or net profits are attributable to ownership, construction, management
or sale of residential, commercial or industrial real estate, or to products or
services related to the real estate industry. Issuers engaged in the real estate
industry include equity REITs (which directly own real estate), mortgage REITs
(which make short-term construction or real estate development loans or invest
in long-term mortgages or mortgage pools) real estate brokers and developers,
companies that manage real estate, and companies that own substantial amounts of
real estate. Issuers in businesses related to the real estate industry include
manufacturers and distributors of building supplies and financial institutions
that issue or service mortgages.
The Real Estate Securities Fund generally invests in common stocks but may
also, without limitation, invest in preferred stock, convertible securities,
rights and warrants, and debt securities of issuers principally engaged in or
related to the real estate industry as well as publicly traded limited
partnerships related to the real estate industry. In addition to these
securities, the Fund may invest up to 35% of its total assets in equity and debt
securities of issuers outside the real estate industry, including all securities
and other investments that the Total Return Fund may invest in, such as debt
securities and convertible preferred stock and convertible debt securities rated
less than BBB by Standard and Poor's or Baa by Moody's. If held in the Fund in
significant amounts, such lower-rated debt securities would increase financial
risk and income volatility Lower-rated debt securities and their attendant risks
are described in "Investment Strategies and Risks" in this SAI. The Real Estate
Securities Fund may make investments or engage in investment practices that
involve special risks. These include: convertible securities, "when-issued"
securities, securities issued on a delayed-delivery basis, options on securities
and securities indices, financial futures contracts and options thereon,
restricted securities, illiquid investments, repurchase agreements, structured
or indexed securities and lending portfolio securities. These investment
practices and attendant risks are described in "Investment Strategies and Risks"
in this SAI.
There are significant risks inherent in the investment objective and
policies of the Real Estate Securities Fund. Because of its objective of
investing in, among other things, the securities of issuers that own, construct,
manage, or sell residential, commercial, or industrial real estate, it is
subject to all of the risks associated with the ownership of real estate. These
risks include: declines in the value of real estate, adverse changes in the
climate for real estate, risks related to general and local economic conditions,
over-building and increased competition, increases in property taxes and
operating expenses, changes in zoning laws, casualty or condemnation losses,
limitations on rents, changes in neighborhood values, the
7
<PAGE>
appeal of properties to tenants, leveraging of interests in real estate,
increases in prevailing interest rates and costs resulting from clean-up of
environmental problems or liability to third parties for damages arising from
environmental problems. Likewise, because of its objective of investing in the
securities of issuers whose products and services are related to the real estate
industry, it is subject to the risk that the value of such securities will be
adversely affected by one or more of the foregoing risks.
Because the Fund may acquire debt securities of issuers primarily engaged
in or related to the real estate industry, it also could conceivably own real
estate directly as a result of a default on such securities. Any rental income
or income from the disposition of such real estate could adversely affect its
ability to retain its tax status as a regulated investment company. See
"Dividends, Distributions and Taxes."
In addition to the risks discussed above, equity REITs may be affected by
any changes in the value of the underlying property owned by the trusts, while
mortgage REITs may be affected by the quality of any credit extended. Further,
equity and mortgage REITs are dependent upon management skill and are not
diversified. Such trusts are also subject to heavy cash flow dependency,
defaults by borrowers, self liquidation, and the possibility of failing to
qualify for special tax treatment under Subchapter M of the Internal Revenue
Code and to maintain an exemption under the 1940 Act. Finally, certain REITs may
be self-liquidating in that a specific term of existence is provided for in the
trust document. Such trusts run the risk of liquidating at an economically
inopportune time. See "Investment Strategies and Risks" in this SAI for more
information about REITs.
Summary of Investment Techniques
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. The Funds are not
obligated to pursue the following strategies or techniques and do not represent
that these strategies or techniques are available now or will be available at
any time in the future. Some or all of the Funds may invest in the types of
instruments and engage in the types of strategies described in detail below. A
Fund will not purchase all of the following types of securities or employ all of
the following strategies unless doing so is consistent with its investment
objective.
The following tables summarize the investment techniques that may be
employed by a Fund. Certain techniques and limitations may be changed at the
discretion of GEAM. Percentage figures refer to the percentage of a Fund's
assets that may be invested in accordance with the indicated technique.
8
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Reverse Restricted Structured and Purchasing Purchasing and
Borrowing Repurchase Repurchase and Indexed and Writing Writing
Agreements Agreements Illiquid Securities Securities Securities
Securities Options Index Options
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
U.S. Equity Fund 33.33% Yes Yes Yes No Yes Yes
- -----------------------------------------------------------------------------------------------------------------------------------
S&P 500 Index Fund 20% Yes No Yes No Yes Yes
- -----------------------------------------------------------------------------------------------------------------------------------
Premier Growth Equity 33.33% Yes Yes Yes No Yes Yes
Fund
- -----------------------------------------------------------------------------------------------------------------------------------
Value Equity Fund 33.33% Yes Yes Yes No Yes Yes
- -----------------------------------------------------------------------------------------------------------------------------------
Mid-Cap Value Equity Fund 10% Yes No Yes No Yes Yes
- -----------------------------------------------------------------------------------------------------------------------------------
Small-Cap Value Equity 33.33% Yes Yes Yes No Yes Yes
Fund
- -----------------------------------------------------------------------------------------------------------------------------------
International Equity Fund 10% Yes No Yes No Yes Yes
- -----------------------------------------------------------------------------------------------------------------------------------
Europe Equity Fund 33.33% Yes Yes Yes Yes Yes Yes
- -----------------------------------------------------------------------------------------------------------------------------------
Emerging Markets Fund 33.33% Yes Yes Yes No Yes Yes
- -----------------------------------------------------------------------------------------------------------------------------------
Income Fund 33.33% Yes Yes Yes Yes Yes Yes
- -----------------------------------------------------------------------------------------------------------------------------------
Global Income Fund 10% Yes No Yes Yes Yes Yes
- -----------------------------------------------------------------------------------------------------------------------------------
Total Return Fund 10% Yes No Yes Yes Yes Yes
- -----------------------------------------------------------------------------------------------------------------------------------
Money Market Fund 10% Yes No Yes No No No
- -----------------------------------------------------------------------------------------------------------------------------------
Real Estate Securities 10% Yes No Yes Yes Yes Yes
Fund
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
Futures and Options on Maximum Investment in Debt
Options on Forward Currency Foreign Securities
Futures Transactions Currencies
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Equity Fund Yes Yes Yes 35%
- ------------------------------------------------------------------------------------------------------------------
S&P 500 Index Fund Yes No No 35%
- ------------------------------------------------------------------------------------------------------------------
Premier Growth Equity Fund Yes No No 35%
- ------------------------------------------------------------------------------------------------------------------
Value Equity Fund Yes Yes Yes 35%
- ------------------------------------------------------------------------------------------------------------------
Mid-Cap Value Equity Fund Yes No No 35%
- ------------------------------------------------------------------------------------------------------------------
Small-Cap Value Equity Fund No No No 35%
- ------------------------------------------------------------------------------------------------------------------
International Equity Fund Yes Yes Yes 35%
- ------------------------------------------------------------------------------------------------------------------
Europe Equity Fund Yes Yes Yes 35%
- ------------------------------------------------------------------------------------------------------------------
Emerging Markets Fund Yes Yes Yes 35%
- ------------------------------------------------------------------------------------------------------------------
Income Fund Yes Yes Yes 100% (maximum of 25% in BBB
by S&P or Baa by Moody's or
equivalent)
- ------------------------------------------------------------------------------------------------------------------
Global Income Fund Yes Yes Yes 100%
- ------------------------------------------------------------------------------------------------------------------
Total Return Fund Yes Yes Yes 100%
- ------------------------------------------------------------------------------------------------------------------
Money Market Fund No No No 100%
- ------------------------------------------------------------------------------------------------------------------
Real Estate Securities Fund Yes No No 100%
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
Maximum When-Issued
Maximum Investment in High Investment in and Delayed
Yield Securities Foreign Delivery
Securities Securities
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. Equity Fund 5% 15%* Yes
- -----------------------------------------------------------------------------------------------
S&P 500 Index Fund None 35% Yes
- -----------------------------------------------------------------------------------------------
Premier Growth Equity Fund 5% 25%* Yes
- -----------------------------------------------------------------------------------------------
Value Equity Fund 5% 25%* Yes
- -----------------------------------------------------------------------------------------------
Mid-Cap Value Equity Fund 15% 35% Yes
- -----------------------------------------------------------------------------------------------
Small-Cap Value Equity Fund 10% 10%* Yes
- -----------------------------------------------------------------------------------------------
International Equity Fund 5% 100% Yes
- -----------------------------------------------------------------------------------------------
Europe Equity Fund 15% 100% Yes
- -----------------------------------------------------------------------------------------------
Emerging Markets Fund 10% in BB or B by S&P or Ba 100% Yes
or B by Moody's or
equivalent
- -----------------------------------------------------------------------------------------------
Income Fund 10% in BB or B by S&P or Ba 35%* Yes
or B by Moody's or
equivalent
- -----------------------------------------------------------------------------------------------
Global Income Fund 25% in BB and B by S&P or 100% Yes
Ba and B by Moody's or
equivalent and 10% in B by
S&P or Moody's.
- -----------------------------------------------------------------------------------------------
Total Return Fund 30% 35% Yes
- -----------------------------------------------------------------------------------------------
Money Market Fund None 20%* Yes
- -----------------------------------------------------------------------------------------------
Real Estate Securities Fund 30% 20% Yes
- -----------------------------------------------------------------------------------------------
</TABLE>
*This limitation excludes ADRs, and securities of a foreign issuer with a class
of securities registered with the Securities and Exchange Commission and listed
on a U.S. national securities exchange or traded on the Nasdaq National Market
or the Nasdaq Small-Cap Market.
10
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
Lending Debt Obligations of
Portfolio Rule 144A Supranational Depositary
Securities Securities Agencies Receipts
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Equity Fund Yes Yes Yes Yes
- ----------------------------------------------------------------------------------------------------------
S&P 500 Index Fund Yes No No Yes
- ----------------------------------------------------------------------------------------------------------
Premier Growth Equity Fund Yes Yes Yes Yes
- ----------------------------------------------------------------------------------------------------------
Value Equity Fund Yes Yes Yes Yes
- ----------------------------------------------------------------------------------------------------------
Mid-Cap Value Equity Fund Yes Yes Yes Yes
- ----------------------------------------------------------------------------------------------------------
Small-Cap Value Equity Fund Yes Yes Yes Yes
- ----------------------------------------------------------------------------------------------------------
International Equity Fund Yes Yes Yes Yes
- ----------------------------------------------------------------------------------------------------------
Europe Equity Fund Yes Yes Yes Yes
- ----------------------------------------------------------------------------------------------------------
Emerging Markets Fund Yes Yes Yes Yes
- ----------------------------------------------------------------------------------------------------------
Income Fund Yes Yes Yes Yes
- ----------------------------------------------------------------------------------------------------------
Global Income Fund Yes Yes Yes Yes
- ----------------------------------------------------------------------------------------------------------
Total Return Fund Yes No Yes Yes
- ----------------------------------------------------------------------------------------------------------
Money Market Fund Yes No Yes No
- ----------------------------------------------------------------------------------------------------------
Real Estate Securities Fund Yes Yes Yes Yes
- ----------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
Participation
Securities of Floating and Interests in
Other Investment Municipal Variable Rate Municipal
Funds Leases Instruments Obligations
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. Equity Fund Yes No No* No
- ----------------------------------------------------------------------------------------------------------
S&P 500 Index Fund Yes No Yes No
- ----------------------------------------------------------------------------------------------------------
Premier Growth Equity Fund Yes No No* No
- ----------------------------------------------------------------------------------------------------------
Value Equity Fund Yes No No* No
- ----------------------------------------------------------------------------------------------------------
Mid-Cap Value Equity Fund Yes No No* No
- ----------------------------------------------------------------------------------------------------------
Small-Cap Value Equity Fund Yes No No* No
- ----------------------------------------------------------------------------------------------------------
International Equity Fund Yes No No* No
- ----------------------------------------------------------------------------------------------------------
Europe Equity Fund Yes No Yes No
- ----------------------------------------------------------------------------------------------------------
Emerging Markets Fund Yes No No* No
- ----------------------------------------------------------------------------------------------------------
Income Fund Yes No Yes No
- ----------------------------------------------------------------------------------------------------------
Global Income Fund Yes No Yes No
- ----------------------------------------------------------------------------------------------------------
Total Return Fund Yes No Yes No
- ----------------------------------------------------------------------------------------------------------
Money Market Fund Yes No Yes No
- ----------------------------------------------------------------------------------------------------------
Real Estate Securities Fund Yes No Yes No
- ----------------------------------------------------------------------------------------------------------
</TABLE>
* Excludes commercial paper and notes with variable and floating rates of
interest.
11
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
Custodial Mortgage-Related
Zero Coupon Municipal Receipts on Securities
Obligations Obligation Municipal Including CMOs
Components Obligations
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Equity Fund Yes No No No
- ----------------------------------------------------------------------------------------------------------------
S&P 500 Index Fund No No No No
- ----------------------------------------------------------------------------------------------------------------
Premier Growth Equity Fund No No No No
- ----------------------------------------------------------------------------------------------------------------
Value Equity Fund No No No No
- ----------------------------------------------------------------------------------------------------------------
Mid-Cap Value Equity Fund Yes No No Yes
- ----------------------------------------------------------------------------------------------------------------
Small-Cap Value Equity Fund No No No No
- ----------------------------------------------------------------------------------------------------------------
International Equity Fund No No No No
- ----------------------------------------------------------------------------------------------------------------
Europe Equity Fund No No No No
- ----------------------------------------------------------------------------------------------------------------
Emerging Markets Fund No No No No
- ----------------------------------------------------------------------------------------------------------------
Income Fund Yes No No Yes
- ----------------------------------------------------------------------------------------------------------------
Global Income Fund Yes No No Yes
- ----------------------------------------------------------------------------------------------------------------
Total Return Fund Yes Yes Yes Yes
- ----------------------------------------------------------------------------------------------------------------
Money Market Fund No No No No
- ----------------------------------------------------------------------------------------------------------------
Real Estate Securities Fund No No No Yes
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
Government
Stripped Asset- and
Mortgage-Related Receivable- Mortgage Dollar Short Sales
Securities Backed Securities Rolls Against the Box
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Equity Fund No No No Yes
- -----------------------------------------------------------------------------------------------------------
S&P 500 Index Fund No No No Yes
- -----------------------------------------------------------------------------------------------------------
Premier Growth Equity Fund No No No Yes
- -----------------------------------------------------------------------------------------------------------
Value Equity Fund No No No Yes
- -----------------------------------------------------------------------------------------------------------
Mid-Cap Value Equity Fund Yes Yes Yes Yes
- -----------------------------------------------------------------------------------------------------------
Small-Cap Value Equity Fund No No No Yes
- -----------------------------------------------------------------------------------------------------------
International Equity Fund No No No Yes
- -----------------------------------------------------------------------------------------------------------
Europe Equity Fund No No No Yes
- -----------------------------------------------------------------------------------------------------------
Emerging Markets Fund No No No Yes
- -----------------------------------------------------------------------------------------------------------
Income Fund Yes Yes Yes Yes
- -----------------------------------------------------------------------------------------------------------
Global Income Fund Yes Yes Yes Yes
- -----------------------------------------------------------------------------------------------------------
Total Return Fund Yes Yes Yes Yes
- -----------------------------------------------------------------------------------------------------------
Money Market Fund No No No No
- -----------------------------------------------------------------------------------------------------------
Real Estate Securities Fund Yes Yes Yes Yes
- -----------------------------------------------------------------------------------------------------------
</TABLE>
-12-
<PAGE>
Additional Detail Concerning Strategies, Techniques & Risks
Money Market Fund Investments
The Money Market Fund limits its portfolio investments to securities that
the Company's board of directors determines present minimal credit risk and that
are "Eligible Securities" at the time of acquisition by the Fund. "Eligible
Securities" means securities rated by the requisite nationally recognized
statistical rating organizations ("NRSROs") in one of the two highest short-term
rating categories, consisting of issuers that have received these ratings with
respect to other short-term debt securities and comparable unrated securities.
"Requisite NRSROs" means (1) any two NRSROs that have issued ratings with
respect to a security or class of debt obligations of an issuer or (2) one
NRSRO, if only one NRSRO has issued such a rating at the time that the Fund
acquires the security. Currently, 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 Investment Company Act of 1940, as amended ("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 (1) the securities either are rated by the
Requisite NRSROs in the highest short-term rating category or are securities of
issuers that have received such ratings with respect to other short-term debt
securities or are comparable unrated securities and (2) the Fund does not make
more than one such investment at any one time. Determinations of comparable
quality for purchases of unrated securities are made by GEAM in accordance with
procedures established by the board of directors. 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 20% of the Fund's total
assets may be invested in foreign securities. For this purpose, foreign
securities do not include 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 Small-Cap 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."
-13-
<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) 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 GEAM . The Investment Fund
invests exclusively in the money market instruments described in (i) through
(vii) above. The Investment Fund is advised by GEAM. No advisory fee is charged
by GEAM 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 total 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 Adviser determines that the instrumentality's
credit risk does not make its securities unsuitable for investment by the Fund.
-14-
<PAGE>
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 total assets.
Temporary Defensive Positions
During periods when the Adviser believes there are unstable market,
economic, political or currency conditions domestically or abroad, the Adviser
may assume, on behalf of a Fund (except for the S&P 500 Index 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 Adviser 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 income bearing securities without
limitation.
Bank Obligations
Domestic commercial banks organized under federal law are supervised and
examined by the U.S. Comptroller of the Currency and are required to be members
of the Federal Reserve System and to be insured by the Federal Deposit Insurance
Corporation ("FDIC"). Foreign branches of U.S. banks and foreign banks are not
regulated by U.S. banking authorities and generally are not bound by mandatory
reserve requirements, loan limitations, accounting, auditing and financial
reporting standards comparable to U.S. banks. Obligations of foreign branches of
U.S. banks and foreign banks are subject to the risks associated with investing
in foreign securities generally. These obligations entail risks that are
different from those of investments in obligations in domestic banks, including
foreign economic and political developments outside the United States, foreign
governmental restrictions that may adversely affect payment of principal and
interest on the obligations, foreign exchange controls and foreign withholding
or other taxes on income.
A U.S. branch of a foreign bank may or may not be subject to reserve
requirements imposed by the Federal Reserve System or by the state in which the
branch is located if the
-15-
<PAGE>
branch is licensed in that state. In addition, branches licensed by the
Comptroller of the Currency and branches licensed by certain states ("State
Branches") may or may not be required to: (1) pledge to the regulator by
depositing assets with a designated bank within the state, an amount of its
assets equal to 5% of its total liabilities; and (2) maintain assets within the
state in an amount equal to a specified percentage of the aggregate amount of
liabilities of the foreign bank payable at or through all of its agencies or
branches within the state. The deposits of State 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 the instrument. The market value of non-convertible debt instruments
(particularly fixed-income 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 NRSRO such as S&P or
Moody's ratings 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 Adviser as
initial criteria for the selection of portfolio securities on behalf of the
Funds, the Adviser 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 Adviser 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 of directors determines that disposal of the security would not be in the
best interests of the Money Market Fund. To the extent that a NRSRO's ratings
change as a result of a change in the NRSRO or its rating system, the Funds will
attempt to use comparable ratings as standards for their investments in
accordance with their investment objectives and policies.
Certain Investment Grade Debt Obligations. Although obligations rated BBB
by S&P or Baa by Moody's are considered investment grade, they may be viewed as
being subject to
-16-
<PAGE>
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.
U.S. Government Debt Securities. Each of the Funds may invest in U.S.
Government securities. These include: debt obligations of varying maturities
issued by the U.S. Treasury or issued or guaranteed by the Federal Housing
Administration, Farmers Home Administration, Import-Export Bank of the United
States, Small Business Administration, Government National Mortgage Association
("GNMA"), General Services Administration, Central Bank for Cooperatives,
Federal Farm Credit Banks, Federal Home Loan Banks, Federal Home Loan Mortgage
Corporation, Federal Intermediate Credit Banks, Federal Land Banks, Federal
National Mortgage Association, 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 issue dates. Certain of the foregoing U.S.
Government securities are supported by the full faith and credit of the United
States, whereas others are supported by the right of the agency or
instrumentality to borrow an amount limited to a specific line of credit from
the U.S. Treasury or by the discretionary authority of the U.S. Government or
GNMA to purchase financial obligations of the agency or instrumentality. In
contrast, certain of the foregoing U.S. Government securities are only supported
by the credit of the issuing agency or instrumentality. Because the U.S.
Government is not obligated by law to support an agency or instrumentality that
it sponsors, a Fund only invests in U.S. Government securities when the Adviser
determines that the credit risk associated with the obligation is suitable for
the Fund.
Custody Receipts. Each of the Funds may also acquire U.S. Government
securities in the form of custody receipts. Such receipts evidence ownership
of future interest payments, principal payments or both on certain U.S.
Government securities. For certain securities law purposes, custody receipts
are not considered U.S. Government securities.
Lower-Rated High Yield Debt Securities. Certain Funds are authorized to
invest in securities rated lower than investment grade (sometimes referred to as
"junk bonds"). Below investment-grade and comparable unrated securities
(collectively referred to as "below investment-grade" 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 below investment-grade securities tend to be
more sensitive to individual corporate developments and changes in economic
conditions than higher-rated securities. In addition, below investment-grade
securities generally present a higher degree of
-17-
<PAGE>
credit risk. Issuers of below investment-grade 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 below investment-grade 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 below investment-grade 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.
Lower-rated securities may be issued by corporations in the growth stage
of their development. They may also be issued in connection with a corporate
reorganization or as a part of a corporate takeover. Companies that issue such
lower-rated securities are often highly leveraged and may not have available to
them more traditional methods of financing. Therefore, the risk associated with
acquiring the securities of such issuers generally is greater than is the case
with higher rated securities. For example, during an economic downturn or a
sustained period of rising interest rates, highly leveraged issuers of
lower-rated securities may experience financial stress. During such periods,
such issuers may not have sufficient revenues to meet their interest payment
obligations. The issuer's ability to service its debt obligations may also be
adversely affected by specific corporate developments or the issuer's inability
to meet specific projected business forecasts, or the unavailability of
additional financing. The risk of loss due to default by the issuer is
significantly greater for the holders of lower-rated securities because such
securities are generally unsecured and are often subordinated to other creditors
of the issuer.
Lower-rated securities frequently have call or buy-back features that
would permit an issuer to call or repurchase the security from a Fund. If a call
were exercised by the issuer during a period of declining interest rates, the
Fund would likely have to replace such called security with a lower yielding
security, thus decreasing the net investment income to the Fund.
A Fund may have difficulty disposing of certain lower-rated securities for
which there is a thin trading market. Because not all dealers maintain markets
in a lower-rated securities, there is no established retail secondary market for
many of these securities, and the Company anticipates that they could be sold
only to a limited number of dealers or institutional investors. To the extent
there is a secondary trading market for lower-rated securities, it is generally
not as liquid as that for higher-rated securities. The lack of a liquid
secondary market for certain securities may make it more difficult for the
Company to obtain accurate market quotations for purposes of valuing a Fund's
assets. Market quotations are generally available on many lower-rated issues
only from a limited number of dealers and may not necessarily represent firm
bids of such dealers or prices for actual sales. When market quotations are not
readily available, lower-rated securities must be valued by (or under the
direction of) the Company's board of directors. This valuation is more difficult
and judgment plays a greater role in such valuation when there is less reliable
objective data available.
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The market for lower-rated securities has not weathered a major economic
recession, and it is not known how one might affect that market. It is likely,
however, that any such recession could severely affect the market for and the
values of such securities, as well as the ability of the issuers of such
securities to repay principal and pay interest thereon.
The Real Estate Securities Fund, Mid-Cap Value Equity Fund, Global Income
Fund, Income Fund, U.S. Equity Fund and Premier Growth Equity Fund may acquire
lower-rated securities that are sold without registration under the federal
securities laws and therefore carry restrictions on resale. These Funds may
incur special costs in disposing of such securities, but will generally incur no
costs when the issuer is responsible for registering the securities. The Funds
also may acquire lower-rated securities during an initial underwriting. Such
securities involve special risks because they are new issues. The Company has no
arrangement with any person concerning the acquisition of such securities, and
the Adviser will carefully review the credit and other characteristics pertinent
to such new issues.
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 purchase additional income-producing securities with
such proceeds, and as a result its current income ultimately may be reduced.
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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.
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" ("CARs(Service Mark)") and
interests in pools of credit card receivables. CARs(Service Mark) 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
CARs(Service Mark) 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(Service Mark) 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-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.
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Mortgage-related securities may be classified as private, governmental or
government-related, depending on the issuer or guarantor. Private
mortgage-related securities represent pass-through pools consisting principally
of conventional residential mortgage loans created by non-governmental issuers,
such as commercial banks, savings and loan associations and private mortgage
insurance companies. Governmental mortgage-related securities are backed by the
full faith and credit of the United States. Ginnie Mae, 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 Fannie Mae and Freddie Mae. Fannie Mae 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 Fannie Mae are guaranteed as to
timely payment of principal and interest by Fannie Mae. Freddie Mae 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 Freddie Mae's national portfolio are guaranteed as to the
timely payment of interest and ultimate collection of principal by Freddie Mae.
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 Adviser assesses new types of mortgage-related securities as they are
developed and offered to determine their appropriateness for investment by the
relevant Fund.
Risks Associated with Mortgage-Related and Asset-Backed Securities.
Mortgage-related and asset-backed securities are often subject to more rapid
repayment than their stated maturity date would indicate as a result of the
pass-through of prepayments of principal on the underlying loans. Prepayments of
principal by mortgagors or mortgage foreclosures shorten the term of the
mortgage pool underlying the mortgage security. The occurrence of mortgage
prepayments is a function of several factors including the level of interest
rates, general economic conditions, the location and age of the mortgage and
other social and demographic conditions. A Fund's ability to maintain positions
in such securities is affected by the reductions in the principal amount of such
securities resulting from prepayments, and its ability to reinvest prepayments
of principal at comparable yield is subject to generally prevailing interest
rates at that time. The values of mortgage-backed or asset-backed securities
varies with changes in market interest rates generally and the differentials in
yields among various kinds of U.S. Government securities and other
mortgage-backed and asset-backed securities. In periods of rising interest
rates, the rate of prepayment tends to decrease, thereby lengthening the average
life of a pool of mortgages supporting a mortgage-backed security. Conversely,
in periods of falling interest rates, the rate of prepayment tends to increase
thereby shortening the average life
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of such a pool. Because prepayments of principal generally occur when interest
rates are declining, an investor, such as a Fund, generally has to reinvest the
proceeds of such prepayments at lower interest rates than those at which its
assets were previously invested. Therefore, mortgage-backed securities have less
potential for capital appreciation in periods of falling interest rates than
other income-bearing securities of comparable maturity, although such other
income-bearing securities may have a comparable risk of capital depreciation
during periods of rising interest rates.
Because asset-backed securities generally do not have the benefit of a
security interest in collateral that is comparable to mortgage assets,
asset-backed securities present certain additional risks that are not present
with mortgage-backed securities. Revolving credit receivables are generally
unsecured and the debtors on such receivables are entitled to the protection of
a number of state and federal consumer credit laws, many of which give debtors
the right to set-off certain amounts owed, thereby reducing the balance due.
Automobile receivables generally are secured, but by automobiles rather than by
real property. Most issuers of automobile receivables permit the loan servicers
to retain possession of the underlying obligations. If the servicer sells these
obligations to another party, there is the risk that the purchaser could acquire
an interest superior to that of holders of the asset-backed securities. In
addition, because of the large number of vehicles involved in a typical issue of
asset-backed securities and technical requirements under state law, the trustee
for the holders of the automobile receivables may not have a proper security
interest in the automobiles. Therefore, there is the possibility that recoveries
on repossessed collateral may not be available to support payments on these
securities.
Government Stripped Mortgage-Related Securities. The Total Return Fund,
Real Estate Securities Fund, Global Income Fund, Mid-Cap Value Equity Fund and
Income Fund may invest in government stripped mortgage-related securities. These
securities represent beneficial ownership interests in either period principal
distributions ("principal-only") or interest distributions ("interest-only") on
mortgage-backed certificates issued by the Government National Mortgage
Association ("GNMA"), the Federal Home Loan Mortgage Corporation ("FHLMC"), or
the Federal National Mortgage Association ("FNMA"). The certificates underlying
the government stripped mortgage-related securities represent all or part of the
beneficial interest in pools of mortgage loans.
Investing in government stripped mortgage-related securities involves all
of the risks of investing in mortgage-backed securities and U.S. Government
securities generally. In addition, the yields on these instruments are extremely
sensitive to prepayment of the mortgage loans making up the pool underlying the
certificates. If a decline in the level of prevailing current interest rates
results in a rate of principal prepayments that is higher than anticipated when
the certificate was created, then distributions of principal will accelerate
thereby reducing the yield to maturity of interest-only securities from that
certificate and increasing the yield to maturity of principal-only securities
from that certificate. Sufficiently high prepayment rates could result in a Fund
not recovering its investment in interest-only securities. Where a certificate
represents only a part of the beneficial interest in a pool, the sensitivity of
an interest-only security of that
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certificate to interest rate fluctuations, may be greater than of other
interest-only securities derived from other certificates supported by the same
underlying pool because of the particular character of the principal portion of
the pool that the certificate represents.
Government stripped mortgage-related securities are currently traded over
the counter in a market maintained by several investment banking firms. No one
can be certain that a Fund will be able to purchase or sell a government
stripped mortgage-related security at any time in the future. The Funds only
purchase such securities if a secondary market exists for the securities at the
time of purchase. Except for certain government stripped mortgage-related
securities derived from fixed rate FHLMC and FNMA certificates meeting certain
liquidity requirements established by the Company's Board of Directors, the
Funds treat government stripped mortgage-related securities as illiquid
investments.
Adjustable Rate Mortgage-Related Securities. The Total Return Fund, Real
Estate Securities Fund, Global Income Fund, Mid-Cap Value Equity Fund and Income
Fund may invest in adjustable rate mortgage-related securities. Adjustable rate
mortgage-related securities ("ARMs") have interest rates that reset at periodic
intervals. Acquiring ARMs permits a Fund to participate in increases in
prevailing current interest rates through periodic adjustments in the coupons of
mortgages underlying the pool on which certificates are based. Such certificates
generally have higher current yield and lower price fluctuation than is the case
with more traditional fixed-income debt securities of comparable rating and
maturity. In addition, when prepayments of principal are made on the underlying
mortgages during periods of rising interest rates, a Fund can reinvest the
proceeds of such prepayments at rates higher than that at which they were
previously invested. Mortgages underlying most ARMs, however, have limits on the
allowable annual or lifetime increases that can be made in the interest rate
that the mortgagor pays. Therefore, if current interest rates rise above such
limits over the period of the limitation, a Fund holding an ARM does not benefit
from further increases in interest rates. Moreover, when interest rates are in
excess of coupon rates (i.e., the rates being paid by mortgagors) of the
mortgages, ARMs behave more like fixed-income securities and less like
adjustable rate securities. In addition, during periods of rising interest
rates, increases in the coupon rate of adjustable rate mortgages generally lags
current market interest rates slightly, thereby creating the potential for
capital depreciation on such securities.
Collateralized Mortgage Obligations. The Total Return Fund, Real Estate
Securities Fund, Global Income Fund, Mid-Cap Value Equity Fund and Income Fund
may invest in collateralized mortgage obligations ("CMOs"). CMOs are obligations
fully collateralized by a portfolio of mortgages or mortgage-backed 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 other classes with respect to the receipt of
prepayments on the mortgages. Therefore, depending upon the type of CMO in which
a Fund invests, the investment is subject to a greater or lesser risk of
prepayment than other types of mortgage-backed securities.
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GNMA Certificates. GNMA Certificates are securities representing part
ownership of a pool of mortgage loans. These loans, issued by lenders such as
mortgage bankers, commercial banks and savings and loan associations, are
insured either by the Federal Housing Administration or by the Veterans
Administration. Each pool of mortgage loans is assembled and, after being
approved by GNMA, is sold to investors through broker-dealers in the form of
certificates representing participations in the pool. GNMA guarantees the timely
payment of principal and interest of each mortgage in the pool and its guarantee
is backed by the full faith and credit of the U.S. Government. GNMA Certificates
differ from bonds in that a borrower pays the principal over the term of the
loan rather than in a lump sum at maturity. GNMA Certificates are called
"pass-through" certificates because both principal and interest payments on the
mortgages (including prepayments) are passed through to the holder of the
certificate.
The average life of GNMA Certificates varies with the maturities of the
underlying mortgages. Prepayments of any mortgages in the pool will usually
result in the return of the greatest part of principal invested well before the
maturity of the mortgages in the pool. The volume of such prepayments of
principal in a given pool of mortgages will influence the actual yield of the
GNMA Certificate.
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 Adviser's ability to predict correctly mortgage prepayments and
interest rates. There is no assurance that mortgage dollar rolls can be
successfully employed.
For financial reporting and tax purposes, each of these Funds proposes to
treat mortgage dollar rolls as two separate transactions: one involving the
purchase of a security and a separate transaction involving a sale. The Funds do
not currently intend to enter into mortgage dollar rolls that are accounted for
as a financing.
Repurchase and Reverse Repurchase Agreements
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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 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 Adviser to ensure
that the value is at least equal at all times to the total amount of the
repurchase obligation, including interest. The Adviser 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.
Certain Funds 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 Company's
custodian or designated sub-custodian.
A Fund entering into a repurchase agreement will bear a risk of loss in
the event that the other party to the transaction defaults on its obligations
and the Fund is delayed or prevented from exercising its rights to dispose of
the underlying securities. The Fund will be, in particular, subject to the risk
of a possible decline in the value of the underlying securities during the
period in which the Fund seeks to assert its right to them, the risk of
incurring expenses associated with asserting those rights and the risk of losing
all or a part of the income from the agreement.
A reverse repurchase agreement involves the risk that the market value of
the securities retained by a Fund may decline below the price of the securities
the Fund has sold but is obligated to repurchase under the agreement. In the
event the buyer of securities under a reverse repurchase agreement files for
bankruptcy or becomes insolvent, a Fund's use of the proceeds of the agreement
may be restricted pending a determination by the party, or its trustee or
receiver, whether to enforce the Fund's obligation to repurchase the securities.
Restricted Securities and Illiquid Investments
The Adviser is responsible for determining the value and liquidity of
investments held by each Fund. Investments may be illiquid because of the
absence of a trading market, making it
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difficult to value them or dispose of them promptly at an acceptable price. The
S&P 500 Index Fund, Money Market Fund and Total Return Fund will each not
purchase or otherwise acquire any investment, if as a result, more than 10% of
its net assets (taken at current value) would be invested in illiquid
investments. The International Equity Fund, Income Fund, U.S. Equity Fund,
Premier Growth Equity Fund, Real Estate Securities Fund, Value Equity Fund,
Mid-Cap Value Equity Fund, Small-Cap Value Equity Fund, Europe Equity Fund,
Emerging Markets Fund, and Global Income Fund will each not purchase or
otherwise acquire any investment, if as a result, more than 15% of its total
assets (taken at current value) would be invested in illiquid investments.
Illiquid investments include most repurchase agreements maturing in more than
seven days, currency swaps, time deposits with a notice or demand period of more
than seven days, certain over-the-counter option contracts (and segregated
assets used to cover such options), participation interests in loans, and
restricted securities. A restricted security is one that has a contractual
restriction on resale or cannot be resold publicly until it is registered under
the Securities Act of 1933 (the "1933 Act").
The International Equity Fund, Income Fund, U.S. Equity Fund, Premier
Growth Equity Fund, Real Estate Securities Fund, Value Equity Fund, Mid-Cap
Value Equity Fund, Small-Cap Value Equity Fund, Europe Equity Fund, Emerging
Markets Fund and Global Income Fund may invest in restricted securities.
Restricted securities are not, however, considered illiquid if they are eligible
for sale to qualified institutional purchasers in reliance upon Rule 144A under
the 1933 Act and that are determined to be liquid by the Fund's board of
directors or by the adviser under board-approved procedures. Such guidelines
would take into account trading activity for such securities and the
availability of reliable pricing information, among other factors. To the extent
that qualified institutional buyers become for a time uninterested in purchasing
these restricted securities, a Fund's holdings of those securities may become
illiquid. Purchases by these Funds of securities of foreign issuers offered and
sold outside the United States in reliance upon the exemption from registration
provided by Regulation S under the 1933 Act also may be liquid even though they
are restricted.
Rule 144A Securities. Certain 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 Company's
Board of Directors 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 GEAM cannot predict how this market
will develop.
When-Issued and Delayed-Delivery Securities
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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 Company's
custodian, or with a designated subcustodian, in order to avoid or limit any
leveraging effect that may arise in the purchase of a security pursuant to such
a commitment.
Securities purchased on a when-issued or delayed-delivery basis may expose
a Fund to risk because the securities may experience fluctuations in value prior
to their delivery. Purchasing securities on a when-issued or delayed- delivery
basis can involve the additional risk that the return available in the market
when the delivery takes place may be higher than that applicable at the time of
the purchase. This characteristic of when-issued and delayed-delivery securities
could result in exaggerated movements in a Fund's net asset value.
When a Fund engages in when-issued or delayed-delivery securities
transactions, it relies on the selling party to consummate the trade. Failure of
the seller to do so may result in the Funds incurring a loss or missing an
opportunity to obtain a price considered to be advantageous.
Warrants
Certain Funds are authorized to invest in 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.
Foreign Investments
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Investments in foreign securities may offer potential benefits not
available from investments solely in securities of domestic issuers or dollar
denominated securities. Such benefits may include the opportunity to invest in
foreign issuers that appear to offer better opportunity for long-term capital
appreciation or current earnings than investments in domestic issuers, the
opportunity to invest in foreign countries with economic policies or business
cycles different from those of the United Sates and the opportunity to reduce
fluctuations in fund value by taking advantage of foreign securities markets
that do not necessarily move in a manner parallel to U.S. markets.
Investing in foreign securities (including those dominated in foreign
currencies) involves significant risks that are not typically associated with
investing in U.S. dollar-denominated securities or in securities of domestic
issuers. Such investments may be affected by changes in currency rates, changes
in foreign or U.S. laws or restrictions applicable to such investments and in
exchange control regulations. For example, a decline in the currency exchange
rate would reduce the dollar value of certain portfolio investments. In
addition, if the exchange rate for the currency in which a Fund receives
interest payments declines against the U.S. dollar before such interest is paid
as dividends to shareholders, the Fund may have to sell fund securities to
obtain sufficient cash to pay such dividends. As discussed below, such
techniques also entail certain risks.
Since foreign issuers are not subject to uniform accounting, auditing and
financial reporting standards, practices and requirements comparable to those
applicable to U.S. issuers, there may be less publicly available information
about a foreign issuer than about a domestic issuer. Some foreign stock markets
(and other securities markets) may have substantially less volume than, for
example, the New York Stock Exchange (or other domestic markets) and securities
of some foreign issuers may be less liquid than securities of comparable
domestic issuers. Fixed commissions on foreign securities exchanges are
generally higher than negotiated commissions on U.S. exchanges, although a Fund
may endeavor to achieve the most favorable net results on its portfolio
transactions. There is generally less government supervision and regulation of
securities exchanges, brokers, dealers and listed and unlisted issuers than in
the United States. Mail service between the United States and foreign countries
may be slower or less reliable than within the United States, thus increasing
the risk of delayed settlements or portfolio transactions or loss of
certificates for portfolio securities.
In addition, clearance and settlement procedures may be different in
foreign countries and, in certain markets, on certain occasions, such procedures
have been unable to keep pace with the volume of securities transactions, thus
making it difficult to conduct such transactions. For example, delays in
settlement could result in temporary periods when a portion of the assets of a
Fund are uninvested and no return is earned thereon. The inability of a Fund to
make intended investments due to settlement problems could cause it to miss
attractive investment opportunities. Inability to dispose of portfolio
securities or other investments due to settlement problems could result either
in losses to a Fund due to subsequent declines in value of the portfolio
investment or, if the Fund has entered into a contract to sell the investment,
could result
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in possible liability to the purchaser. In addition, with respect to certain
foreign countries, there is the possibility of expropriation or confiscatory
taxation, political or social instability, or diplomatic developments which
could affect a Fund's investments in those countries. Moreover, individual
foreign economies may differ favorably or unfavorably from the U.S. economy in
such respects as growth of gross national product, rate of inflation, capital
reinvestment, resource self-sufficiency and balance of payment position.
Depositary Receipts. Many securities of foreign issuers are represented by
depositary receipts such as ADRs, EDRs and GDRs. ADRs are receipts typically
issued by a U.S. bank or trust company which evidence ownership of underlying
securities of foreign corporate issuers. EDRs and GDRs are receipts issued by
non-U.S. financial institutions evidencing arrangements similar to ADRs, but are
designed for use in non-U.S. securities markets. Depositary receipts are not
necessarily quoted in the same currency as the underlying security. Generally,
ADRs are in registered form and are designed for trading in U.S. markets while
EDRs are in bearer form and are designed for trading in European securities
markets. GDRs are issued in either registered or bearer form and are designed
for trading on a global basis.
Each of the Funds, other than the Money Market Fund, may invest in ADRs,
EDRs and GDRs. ADRs represent the right to receive foreign securities deposited
in a domestic bank or a foreign correspondent bank. Prices of ADRs are quoted in
U.S. dollars, and ADRs are traded in the United States on exchanges or
over-the-counter and are sponsored and issued by domestic banks. In general,
there is a large, liquid market in the United States for ADRs quoted on a
national securities exchange or the NASD's national market system. The
information available for ADRs is subject to the accounting, auditing and
financial reporting standards of the domestic market or exchange on which they
are traded, which standards are more uniform and more exacting than those to
which many foreign issuers may be subject.
Depositary receipts do not eliminate all the risk inherent in investing in
foreign securities. To the extent that a Fund acquires depositary receipts
through banks which do not have a contractual relationship with the foreign
issuer of the security underlying the depositary receipts to issue and service
such depositary receipts, there may be an increased possibility that the Fund
would not become aware of and be able to respond to corporate actions such as
stock splits or rights offerings involving the foreign issuer in a timely
manner. In addition, the lack of information may result in inefficiencies in the
valuation of such instruments. However, by investing in depositary receipts,
rather than directly in the stock of foreign issuers, a Fund will avoid currency
risks during the settlement period for either purchases or sales.
Foreign Government Securities. Each of the Funds may invest in debt
obligations of foreign governments or their agencies or instrumentalities,
including those with emerging economies or securities markets. Investing in
sovereign debt obligations involves risks not present when investing in the debt
obligations of foreign corporate issuers. The issuer of the debt or the
government authority that controls the repayment of the debt may be unable or
unwilling to repay principal or interest when due and the Funds may have limited
recourse in the event of
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such a default. Periods of economic uncertainty may result in the volatility of
market prices of sovereign debt to a greater extent than the volatility inherent
in debt obligations of U.S. issuers. A sovereign debtor's willingness or ability
to repay principal or pay interest in a timely manner may be affected by, among
other factors, its cash flow circumstances, the extent of its foreign currency
reserves, the availability of sufficient foreign exchange on the date a payment
is due, the relative size of the debt service burden to the economy as a whole,
its policy towards principal international lenders and the political constraints
to which a sovereign debtor may be subject.
Supranational Agencies. Each of the Funds, except the S&P Index Fund, may
invest up to 10% of total assets in securities issued by supranational agencies
such as the International Bank for Reconstruction and Development (commonly
known as the World Bank), the European Economic Community, the European Coal and
Steel Community and the Asian Development Bank. Securities of supranational
agencies are not U.S. Government securities and are not supported, directly or
indirectly, by the U.S. Government, its agencies or instrumentalities.
Emerging Markets. The Total Return Fund, Income Fund, International Equity
Fund, the Emerging Markets Fund and the Global Income Fund may invest
substantial portions of their portfolios in securities of issuers located in
countries with emerging economies and/or securities markets. The S&P 500 Index
Fund, U.S. Equity Fund, Premier Growth Equity Fund and Mid-Cap Value Equity Fund
may invest up to 5% of their total assets in such securities. These countries
are located primarily in the Asia-Pacific region, Eastern Europe, Central and
South America and Africa. Political and economic structures in many of these
countries may be undergoing significant evolution and rapid development, and
such countries may lack the social, political and economic stability
characteristic of more developed countries. Certain of these countries have in
the past failed to recognize private property rights and have at times
nationalized or expropriated the assets of private companies. As a result, the
risks of foreign investment generally, including the risks of nationalization or
expropriation of assets, may be heightened. In addition, unanticipated political
or social developments may affect the values of the funds' investments in those
countries and the availability to a Fund of additional investments in those
countries.
The small size and inexperience of the securities markets in certain of
these countries and the limited volume of trading in securities in those
countries may also make investments in such countries illiquid and more volatile
than investments in Japan or most Western European countries. As a result, these
Funds may be required to establish special custody or other arrangements before
making certain investments in those countries. There may be little financial or
accounting information available with respect to issuers located in certain of
such countries, and it may be difficult as a result to assess the value or
prospects of an investment in such issuers. The laws of some foreign countries
may limit the ability of these Funds to invest in securities of certain issuers
located in those countries.
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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.
Foreign Currency Transactions. Because investment in foreign issuers will
usually involve currencies of foreign countries, and because each Fund, other
than the Money Market Fund, may have currency exposure independent of their
securities positions, the value of the assets of these Funds as measured in U.S.
dollars may be affected by changes in foreign currency exchange rates. To the
extent that a Fund's assets consist of investments quoted or denominated in a
particular currency, the Fund's exposure to adverse developments affecting the
value of such currency will increase. The International Equity Fund and the
Global Income Fund often have substantial currency exposure both from
investments quoted or denominated in foreign currencies and from their currency
positions.
Currency exchange rates may fluctuate significantly over short periods of
time causing, along with other factors, a Fund's net asset value to fluctuate.
They generally are determined by the forces of supply and demand in the foreign
exchange markets and the relative merits of investments in different countries,
actual or anticipated changes in interest rates and other complex factors, as
seen from an international perspective. Currency exchange rates also are
affected unpredictably by intervention by U.S. or foreign governments or central
banks, or the failure to intervene, or by currency controls or political
developments in the U.S. or abroad. To the extent that a substantial portion of
a Fund's total assets, adjusted to reflect the Fund's net position after giving
effect to currency transactions, is denominated or quoted in the currencies of
foreign countries, the Fund is more susceptible to the risk of adverse economic
and political developments within those countries.
In addition to investing in securities denominated or quoted in a foreign
currency, each Fund, other than the Money Market Fund, may engage in some or all
of the foreign currency management practices described below. Each also may hold
foreign currency received in connection with investments in foreign securities
when, in the judgment of the Adviser, it would be beneficial to convert such
currency into U.S. dollars at a later date, based on anticipated changes in the
relevant exchange rate. These Funds will incur costs in connection with
conversions between various currencies.
Certain funds may utilize forward currency transactions such as engaging
in a forward foreign currency exchange contract. For example, a Fund may hold
currencies to meet settlement requirements for foreign securities and may engage
in currency exchange transactions to help protect against uncertainty in the
level of future exchange rates between a particular foreign
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currency and the U.S. dollar or between foreign currencies in which the Fund's
securities are or may be denominated. The use of forward foreign currency
exchange contracts does not eliminate fluctuations in the underlying prices of
securities, but it does establish a rate of exchange that can be achieved in the
future.
A forward foreign currency exchange contract involves an obligation to
purchase or sell a specific currency at a future date, which may be any fixed
number of days from the date of the contract agreed upon by the parties, at a
price set at the time of the contract. These contracts are traded in the
interbank market conducted directly between currency traders (usually large
commercial banks) and their customers. A forward contract generally has no
deposit requirement, and no commissions are generally charged at any stage for
trades. Deposits or commissions may be involved, however. 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. At the maturity of a forward contract, a Fund may either accept or
make delivery of the currency specified in the contract or, at or prior to
maturity, enter into a closing purchase transaction involving the purchase or
sale of an offsetting contract. Closing purchase transactions with respect to
forward contracts are usually effected with the currency trader who is a party
to the original forward contract.
The Income Fund, U.S. Equity Fund, International Equity Fund, Total Return
Fund, and Global Income Fund may enter into forward foreign currency exchange
contracts in several circumstances. First, when they enter into a contract for
the purchase or sale of a security denominated or quoted in a foreign currency,
or when they anticipate the receipt in a foreign currency of dividend or
interest payments on such a security which either holds, the Funds may desire to
"lock in" the U.S. dollar price of the security or the U.S. dollar equivalent of
such dividend or interest payment, as the case may be. By entering into a
forward contract for the purchase or sale, for a fixed amount of dollars, of the
amount of foreign currency involved in the underlying transactions, the Funds
will attempt to protect themselves against an adverse change in the relationship
between the U.S. dollar and the subject foreign currency during the period
between the date on which the security is purchased or sold, or on which the
dividend or interest payment is declared, and the date on which such payments
are made or received.
Additionally, when an Adviser believes that the currency of a particular
foreign country may suffer a substantial decline against the U.S. dollar, it may
enter into a forward contract to sell, for a fixed amount of dollars, the amount
of foreign currency approximating the value of some or all of a Fund's portfolio
securities denominated in such foreign currency. The precise matching of the
forward contract amounts and the value of the securities involved will not
generally be possible because the future value of such securities in foreign
currencies will change as a consequence of market movements in the value of
those securities between the date on which the contract is entered into and the
date it matures. Using forward contracts to protect the value of these Funds'
portfolio securities against a decline in the value of a currency does not
eliminate fluctuations in the underlying prices of the securities. It simply
establishes a rate of exchange which the Fund can achieve at some future point
in time. The precise projection of
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short-term currency market movements is not possible, and short-term hedging
provides a means of fixing the dollar value of only a portion of a Fund's
foreign assets. Contracts to sell foreign currency could limit any potential
gain that might be realized by a Fund if the value of the hedged currency
increases.
The Income Fund, U.S. Equity Fund, International Equity Fund, Total Return
Fund, and the Global Income Fund may enter into contracts to purchase foreign
currencies to protect against an anticipated rise in the U.S. dollar price of
securities it intends to purchase. The Income Fund, U.S. Equity Fund,
International Equity Fund, Total Return Fund, and Global Income Fund may engage
in cross-hedging by using forward contracts in one currency to hedge against
fluctuations in the value of securities quoted or denominated in a different
currency if the Adviser determines that there is a pattern of correlation
between the two currencies. The International Equity Fund, Total Return Fund and
Global Income Fund also may purchase and sell forward contracts to seek to
increase total return when the Adviser anticipates that the foreign currency
will appreciate or depreciate in value, but securities denominated or quoted in
that currency do not present attractive investment opportunities and are not
held by the Funds.
Each of the Funds may utilize foreign forward currency exchange contracts
to settle non-dollar securities transactions.
The Company's custodian will segregate cash or other liquid assets in an
amount equal to the value of a Fund's total assets committed to the consummation
of forward foreign currency exchange contracts requiring the Fund to purchase
foreign currencies or forward contracts entered into to seek to increase total
return. If the value of the securities so segregated declines, additional cash
or liquid assets are segregated on a daily basis so that the value of the
account equals the amount of the Fund's commitments with respect to such
contracts. These segregated securities are marked-to-market on a daily basis.
Although the contracts are not presently regulated by the Commodity Futures
Trading Commission (the "CFTC"), the CFTC may in the future assert authority to
regulate these contracts. In such event, a Fund's ability to utilize forward
foreign currency exchange contracts may be restricted.
While the Income Fund, U.S. Equity Fund, International Equity Fund, Total
Return Fund, and Global Income Fund will enter into forward contracts to reduce
currency exchange rate risks, transactions in such contracts involve certain
other risks. Therefore, while these Funds may benefit from such transactions,
unanticipated changes in currency prices may result in a poorer overall
performance for the Funds than if they had not engaged in any such transactions.
Moreover, there may be imperfect correlation between a Fund's portfolio holdings
of securities quoted or denominated in a particular currency and forward
contracts entered into by the Fund. Such imperfect correlation may cause the
Fund to sustain losses which will prevent the Fund from achieving a complete
hedge or expose the Fund to risk of foreign exchange loss. Likewise, to the
extent that the International Equity Fund, Total Return Fund, and Global Income
Fund enter into forward foreign currency exchange contracts to seek to increase
total return, the risk of
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losses on such contracts due to unanticipated changes in currency prices is
greater than it is when such contracts are used to reduce currency exchange rate
risk.
As with other kinds of option transactions, however, the writing of an
option contract on foreign currency will constitute only a partial hedge, up to
the amount of the premium received. These Funds could be required to purchase or
sell foreign currencies at disadvantageous exchange rates, thereby incurring
losses. The purchase of an option on foreign currency may constitute an
effective hedge against exchange rate fluctuations; however, in the event of
exchange rate movements adverse to the Fund's position, the Fund may forfeit the
entire amount of the premium plus related transaction costs. In addition, the
Total Return Fund, International Equity Fund and Global Income Fund may purchase
call or put options on currency to seek to increase total return when the
Adviser anticipates that the currency will appreciate or depreciate in value,
but the securities quoted or denominated in that currency do not present
attractive investment opportunities and are not being held in the Fund. When
purchased or sold to increase total return, options on currencies are considered
speculative.
Interest Rate Swaps and Currency Swaps
The Total Return Fund, International Equity Fund and the Global Income
Fund may enter into currency swaps for both hedging purposes and to seek to
increase total return. The Total Return Fund, and Global Income Fund may enter
into interest rate swaps for these purposes. These Funds typically use interest
rate swaps to shorten the effective duration of their portfolios. Interest rate
swaps involve the exchange by a Fund with another party of their respective
commitments to pay or receive interest, such as an exchange of fixed rate
payments for floating rate payments. Currency swaps involve the exchange by a
Fund with another party of their respective rights to make or receive payments
in specified currencies. Since currency swaps and interest rate swaps are
individually negotiated, a Fund expects to achieve an acceptable degree of
correlation between its fund investments and its swap positions entered into for
hedging purposes.
The Total Return and Global Income Fund only enter into interest rate
swaps on a net basis, which means that the two payment streams are netted out,
with the Fund receiving or paying, as the case may be, only the net amount of
the two payments. Interest rate swaps do not involve the delivery of securities,
or other underlying assets or principal. Accordingly, the risk of loss with
respect to interest rate swaps is limited to the net amount of interest payments
that the Fund is contractually obligated to make. If the other party to an
interest rate swap defaults, the Fund's risk of loss consists of the net amount
of interest payments that the Fund is entitled to receive. In contrast, currency
swaps usually involve the delivery of the entire principal value of one
designated currency in exchange for the other designated currency. Therefore,
the entire principal value of a currency swap is subject to the risk that the
other party to the swap will default on its contractual delivery obligations.
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The use of interest rate and currency swaps is a highly specialized
activity which involves investment techniques and risks different from those
associated with ordinary portfolio securities transactions. If the Adviser is
incorrect in its forecasts of market values, interest rates and currency
exchange rates, the investment performance of the Total Return Fund,
International Equity Fund or the Global Income Fund would be less favorable than
it would have been if swaps were not used. Inasmuch as swaps are entered into
for good faith hedging purposes (or are offset by a segregated account as
described below), the Company and the Adviser believe that swaps do not
constitute senior securities as defined in the 1940 Act and, accordingly, will
not treat them as being subject to a Fund's borrowing restrictions. The net
amount of the excess, if any, of a Fund's obligations over its entitlement with
respect to each currency swap will be accrued on a daily basis and an amount of
cash or other liquid assets having an aggregate net asset value at least equal
to such accrued excess will be maintained in a segregated account by the
Company's custodian. An amount of cash or liquid assets having an aggregate net
asset value at least equal to the entire amount of payment stream payable by the
Total Return Fund and Global Income Fund pursuant to an interest rate swap will
be segregated with the Company's custodian. These Funds do not enter into any
interest rate or currency swap unless the credit quality of the unsecured senior
debt or the claims-paying ability of the other party thereto is considered to be
investment grade by the Adviser. If there is a default by the other party to
such a transaction, the Company will have contractual remedies pursuant to the
agreement, related to the transaction. The swap market has grown substantially
in recent years with a large number of banks and investment banking firms acting
both as principals and as agents utilizing standardized swap documentation. As a
result, the swap market has become relatively liquid in comparison with the
markets for other similar instruments which are traded in the interbank market.
Nevertheless, the SEC staff takes the position that currency swaps are illiquid
investment subject to a Fund's limitation on such investments.
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 Company'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: (1) the Fund must
receive at least 100% cash collateral or equivalent securities from the
borrower; (2) the borrower must increase the collateral whenever the market
value of the securities loaned rises above the level of the collateral; (3) the
Fund must be able to terminate the loan at any time; (4) the Fund must receive
reasonable interest on the
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loan, as well as any dividends, interest or other distributions on the loaned
securities, and any increase in market value; (5) the Fund may pay only
reasonable custodian fees in connection with the loan; and (6) voting rights on
the loaned securities may pass to the borrower except that, if a material event
adversely affecting the investment in the loaned securities occurs, the
Company's board of directors must terminate the loan and regain the right to
vote the securities. From time to time, a Fund may pay a part of the interest
earned from the investment of collateral received for securities loaned to the
borrower and/or a third party that is unaffiliated with the Fund and is acting
as a "finder."
Securities of Other Investment Companies
Certain Funds may invest in investment funds that invest principally in
securities in which the Fund is authorized to invest. Currently, under the 1940
Act, a Fund may hold securities of another investment company in amounts which
(a) do not exceed 3% of the total outstanding voting stock of such company, (b)
do not exceed 5% of the value of the Fund's total assets and (c) when added to
all other investment company securities held by the Fund, do not exceed 10% of
the value of the Fund's total assets. Investments by a Fund (other than the
Money Market Fund) in the Investment Fund are not considered an investment in
another investment company for purposes of this restriction. To the extent a
Fund invests in other investment companies, the Fund's shareholders will incur
certain duplicative fees and expenses, including investment advisory fees.
WEBS and Other Index-Related Securities. Those Funds that are permitted to
invest in other investment companies and in foreign securities 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.
These 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 Mid-Cap Value Equity Fund, the U.S. Equity Fund, the Premier
Growth Equity Fund, and the Total Return 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.
Purchasing and Selling Put and Call Options on Securities, Indices and
Currencies
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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 (1) if the Fund
owns the securities underlying the call or has an absolute and immediate right
to acquire those securities without additional cash consideration upon
conversion or exchange of other securities held in its portfolio, (2) if the
Fund holds a call at the same exercise price for the same exercise period and on
the same securities as the call written, (3) in the case of a call option on a
stock index, if the Fund owns a portfolio of securities substantially
replicating the movement of the index underlying the call option, or (4) if at
the time the call is written, an amount of cash, Government Securities or other
liquid assets equal to the fluctuating market value of the optioned securities,
is segregated with the Company's custodian or with a designated sub-custodian. A
put option will be deemed covered (1) if, at the time the put is written, an
amount of cash, Government Securities or other liquid assets having a value at
least equal to the exercise price of the underlying securities is segregated
with the Company's custodian or with a designated sub-custodian, or (2) if the
Fund continues to
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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 Company'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 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
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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 Adviser 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 Adviser. Successful use by a Fund of options will depend on the Adviser's
ability to predict correctly movements in the direction of the securities
underlying the option used as a hedge. Losses incurred in hedging transactions
and the costs of these transactions will affect a Fund's performance.
Securities Index Options. In seeking to hedge all or a portion of its
investments, each Fund, other than the Money Market Fund, may purchase and write
put and call options on securities indices listed on U.S. or foreign securities
exchanges or traded in the over-the-counter market, which indices include
securities held in the Fund's portfolio. The Funds with such option writing
authority may write only covered options. A Fund may also use securities index
options as a means of participating in a securities market without making direct
purchases of securities.
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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 (1) the amount, if any, by which the fixed exercise
price of the option exceeds (in the case of a put) or is less than (in the case
of a call) the closing value of the underlying index on the date of exercise,
multiplied by (2) a fixed "index multiplier." Receipt of this cash amount will
depend upon the closing level of the securities index upon which the option is
based being greater than, in the case of a call, or less than, in the case of a
put, the exercise price of the option. The amount of cash received will be equal
to the difference between the closing price of the index and the exercise price
of the option expressed in dollars times a specified multiple. The writer of the
option is obligated, in return for the premium received, to make delivery of
this amount. The writer may offset its position in securities index options
prior to expiration by entering into a closing transaction on an exchange or it
may allow the option to expire unexercised.
The effectiveness of purchasing or writing securities index options as a
hedging technique will depend upon the extent to which price movements in the
portion of a securities portfolio being hedged correlate with price movements of
the securities index selected. Because the value of an index option depends upon
movements in the level of the index rather than the price of a particular
security, whether a Fund realizes a gain or loss from the purchase or writing of
options on an index depends upon movements in the level of prices in the market
generally or, in the case of certain indices, in an industry or market segment,
rather than movements in the price of a particular security. As a result,
successful use by a Fund of options on securities indices is subject to the
Adviser'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.
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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 Adviser 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.
Options on Foreign Currencies. Each Fund, other than the Premier 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
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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
Company will limit the premiums paid on a Fund's options on foreign currencies
to 5% of the value of the Fund's total assets.
Certain transactions involving options on foreign currencies are
undertaken on contract markets that are not regulated by the CFTC. Options on
foreign currencies traded on national securities exchanges are within the
jurisdiction of the SEC, as are other securities traded on those exchanges. As a
result, many of the protections provided to traders on organized exchanges will
be available with respect to those transactions. In particular, all foreign
currency option positions entered into on a national securities exchange are
cleared and guaranteed by the Clearing Corporation, thereby reducing the risk of
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 (1)
other complex foreign political and economic factors, (2) lesser availability of
data on which to make trading decisions than in the United States, (3) delays in
a Fund's ability to act upon economic events occurring in foreign markets during
non-business
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hours in the United States, (4) the imposition of different exercise and
settlement terms and procedures and margin requirements than in the United
States and (5) lesser trading volume.
Futures and Related Options
Each Fund, other than the Money Market Fund, may enter into interest rate,
financial and stock or bond index futures contracts or related options that are
traded on a U.S. or foreign exchange or board of trade approved by the Commodity
Futures Trading Commission or in the over-the-counter market. If entered into,
these transactions will be made solely for the purpose of hedging against the
effects of changes in the value of portfolio securities due to anticipated
changes in interest rates and/or market conditions, to gain market exposure for
accumulating and residual cash positions, for duration management, or when the
transactions are economically appropriate to the reduction of risks inherent in
the management of the Fund involved. No Fund will enter into a transaction
involving futures and options on futures for speculative purposes.
An interest rate futures contract provides for the future sale by one
party and the purchase by the other party of a specified amount of a particular
financial instrument (debt security) at a specified price, date, time and place.
Financial futures contracts are contracts that obligate the holder to deliver
(in the case of a futures contract that is sold) or receive (in the case of a
futures contract that is purchased) at a future date a specified quantity of a
financial instrument, specified securities, or the cash value of a securities
index. A municipal bond index futures contract is based on an index of
long-term, tax-exempt municipal bonds and a corporate bond index futures
contract is based on an index of corporate bonds. Stock index futures contracts
are based on indices that reflect the market value of common stock of the
companies included in the indices. An index futures contract is an agreement
pursuant to which two parties agree to take or make delivery of an amount of
cash equal to the difference between the value of the index at the close of the
last trading day of the contract and the price at which the index contract was
originally written. An option on an interest rate or index futures contract
generally gives the purchaser the 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 Company's custodian or a designated
sub-custodian or "covered" in a manner similar to that for covered options on
securities and designed to eliminate potential leveraging.
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 Company's custodian or a
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designated sub-custodian. This amount, which is subject to change by the
exchange on which the contract is traded, is known as "initial margin" and is in
the nature of a performance bond or good faith deposit on the contract that is
returned to the Fund upon termination of the futures contract, so long as all
contractual obligations have been satisfied; the broker will have access to
amounts in the margin account if the Fund fails to meet its contractual
obligations. Subsequent payments, known as "variation margin," to and from the
broker, will be made daily as the price of the securities underlying the futures
contract fluctuates, making the long and short positions in the contract more or
less valuable, a process known as "marking-to-market." At any time prior to the
expiration of a futures contract, a Fund may elect to close a position by taking
an opposite position, which will operate to terminate the Fund's existing
position in the contract.
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. Losses incurred
in hedging transactions and the costs of these transactions will affect a Fund's
performance.
Although the Company 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
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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.
Municipal Obligations
The term "Municipal Obligations" as used in the Prospectus and this SAI
means debt obligations issued by, or on behalf of, states, territories and
possessions of the United States and the District of Columbia and their
political subdivisions, agencies and instrumentalities or multistate agencies or
authorities, the interest from which debt obligations is, in the opinion of bond
counsel to the issuer, excluded from gross income for federal income tax
purposes. Municipal Obligations generally are understood to include debt
obligations issued to obtain funds for various public purposes, including the
construction of a wide range of public facilities, refunding of outstanding
obligations, payment of general operating expenses and extensions of loans to
public institutions and facilities. Private activity bonds that are issued by or
on behalf of public authorities to finance privately operated facilities are
considered to be Municipal Obligations if the interest paid on them qualifies as
excluded from gross income (but not necessarily from alternative minimum taxable
income) for federal income tax purposes in the opinion of bond counsel to the
issuer.
Opinions relating to the validity of Municipal Obligations and to the
exemption of interest on them from federal income taxes are rendered by bond
counsel to the respective issuers at the time of issuance. Neither the Company
nor the Adviser 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
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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 Company nor
the Adviser 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 Company nor the Adviser can
predict whether additional legislation adversely affecting the Municipal
Obligation market will be enacted in the future. The Company 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 Company 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 Company would treat the security as a permissible taxable money market
instrument for the Fund within the applicable limits set forth in the
Prospectus.
Municipal Leases. 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.
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Municipal lease obligations may be deemed to be illiquid as determined by
or in accordance with methods adopted by the board of directors. In determining
the liquidity and appropriate valuation of a municipal lease obligation, the
following factors relating to the security are considered, among others: (1) the
frequency of trades and quotes; (2) the number of dealers willing to purchase or
sell the security; (3) the willingness of dealers to undertake to make a market;
(4) the nature of the marketplace trades; and (5) the likelihood that the
obligation will continue to be marketable based on the credit quality of the
municipality or relevant obligor.
Municipal leases held by a Fund will be considered illiquid securities
unless the board of directors 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 Adviser 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 Adviser 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 Adviser deems to be comparable in quality to rated issues in which a
Fund is authorized to invest. A determination that an unrated lease obligation
is comparable in quality to a rated lease obligation and that there is a
reasonable likelihood that the lease will not be canceled will be subject to
oversight and approval by the board of directors.
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.
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.
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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. 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 Adviser
for the purchase of Municipal Obligations. The Adviser 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 of directors 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
Company 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.
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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 increase as the Auction
Component's rate decreases. Moreover, the extent of the increases and decreases
in market value of Residual Components may be larger than comparable changes in
the market value of an equal principal amount of a fixed rate Municipal
Obligation having similar credit quality, redemption provisions and maturity.
Municipal Custody Receipts. Funds that may invest in municipal obligations
also may acquire custodial receipts or certificates underwritten by securities
dealers or banks that evidence ownership of future interest payments, principal
payments, or both, on certain Municipal Obligations. The underwriter of these
certificates or receipts typically purchases Municipal Obligations and deposits
the obligations in an irrevocable trust or custodial account with a custodian
bank, which then issues receipts or certificates that evidence ownership of the
periodic unmatured coupon payments and the final principal payment on the
obligations. Custodial receipts evidencing specific coupon or principal payments
have the same general attributes as zero coupon Municipal Obligations described
above. Although under the terms of a custodial receipt a Fund would be typically
authorized to assert its rights directly against the issuer of the underlying
obligation, the Fund could be required to assert through the custodian bank
those rights as may exist against the underlying issuers. Thus, in the event the
underlying issuer fails to pay principal and/or interest when due, a Fund may be
subject to delays, expenses and risks that are greater than those that would
have been involved if the Fund had purchased a direct obligation of the issuer.
In addition, in the event that the trust or custodial account in which the
underlying security has been deposited is determined to be an association
taxable as a corporation, instead of a non-taxable entity, the yield on the
underlying security would be reduced in recognition of any taxes paid.
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.
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INVESTMENT RESTRICTIONS
Fundamental Restrictions for all Funds other than Value Equity Fund,
Small-Cap Value Equity Fund, Europe Equity Fund, and Emerging Markets Fund
The Funds are subject to certain fundamental restrictions on their
investments. These restrictions may not be changed without the approval of the
holders of a majority of the outstanding voting shares of the Funds affected by
the change. Except where otherwise noted, each Fund may not:
1. Issue senior securities except: (a) to the extent that borrowings under
paragraph (10) below exceeding 5% may be deemed to be senior securities
under the 1940 Act, or (b) in connection with investments of certain Funds
in options and futures contracts.
2. As to 75% of its total assets, invest more than 5% of its total assets
taken at market value at the time of each investment in the securities
(other than United States government or government agency securities) of
any one issuer (including repurchase agreements with any one bank). For
purposes of this restriction, an issuer includes the government (including
agencies and instrumentalities thereof) of any country other than the
United States. This restriction does not apply to the Global Income Fund.
3. For Funds other than Income Fund, U.S. Equity Fund and Premier Growth
Equity Fund, purchase more than either: (i) 10% in principal amount of the
outstanding debt securities of an issuer; or (ii) 10% of the outstanding
voting securities of an issuer, except that such restriction shall not
apply to securities issued or guaranteed by the United States Government
or its agencies, bank money market instruments or bank repurchase
agreements. The Income Fund, U.S. Equity Fund and Premier Growth Equity
Fund may not purchase more than 10% of the voting securities of any single
issuer or more than 10% of the outstanding securities of any class of any
single issuer, except that these restrictions do not apply to: (i) U.S.
Government securities, or (ii) up to 25% of the total assets of these
three Funds. For the purposes of these restrictions, a foreign government
and its agencies and instrumentalities are treated as a single issuer.
4. Invest more than 25% of its total assets (taken at market value at the
time of each investment) in the securities of issuers primarily engaged in
the same industry; utilities will be divided according to their services;
for example, gas, gas transmission, electric and telephone each will be
considered a separate industry for purposes of this restriction. For
purposes of this restriction, the term industry includes (a) the
government (including agencies and instrumentalities thereof) of any
country other than the United States, and (b) any supranational entity
(including agencies and instrumentalities thereof). This restriction does
not apply to the Real Estate Securities Fund.
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<PAGE>
5. Purchase real estate or any interest therein, except through the purchase
of corporate or certain government securities including securities secured
by a mortgage or a leasehold interest or other interest in real estate. A
security issued by a real estate or mortgage investment trust is not
treated as an interest in real estate.
6. Purchase securities which are subject to legal or contractual delays in or
restrictions on resale. This restriction does not apply to the
International Equity Fund, the Real Estate Securities Fund, Mid-Cap Value
Equity Fund, Income Fund, U.S. Equity Fund, Premier Growth Equity Fund or
Global Income Fund.
7. Purchase any securities on margin except: (a) that a Fund may obtain such
short-term credit as may be necessary for the clearance of purchases and
sales of portfolio securities, or (b) in connection with investments of
Funds in options and futures contracts.
8. Make loans, except as provided in (9) below and except through the
purchase of obligations in private placements (the purchase of publicly
traded obligations not being considered the making of a loan).
9. Lend its portfolio securities in excess of 20% of its total assets (30% of
total assets for the Income Fund, U.S. Equity Fund and Premier Growth
Equity Fund), taken at market value at the time of the loan, and provided
that such loan shall be made in accordance with the Fund's guidelines.
10. Borrow amounts in excess of 10% (20% in the case of the S&P 500 Index
Fund; 33.33% in the case of Income Fund, U.S. Equity Fund, Premier
Growth Equity Fund) of its total assets, taken at market value at the
time of the borrowing, and then only from banks as a temporary measure
for extraordinary or emergency purposes or to meet redemption requests
that might otherwise require the untimely disposition of securities,
and not for investment or leveraging. For these purposes, the Income
Fund, U.S. Equity Fund and Premier Growth Equity Fund also may borrow
via reverse repurchase agreements. The International Equity Fund,
however, may borrow amounts up to an additional 10% of is net asset
value from banks to increase is holdings of portfolio investments.
11. Mortgage, pledge, hypothecate or in any manner transfer, as security for
indebtedness, any securities owned or held by such Fund except: (a) as may
be necessary in connection with borrowings mentioned in (10) above, and
then such mortgaging, pledging or hypothecating may not exceed 10% of the
Fund's total assets, taken at market value at the time thereof, or (b) in
connection with investments of certain Funds in options and futures
contracts.
12. Underwrite securities of other issuers except insofar as the Company may
be deemed an underwriter under the Securities Act of 1933, as amended, in
selling portfolio securities.
13. Invest more than 10% of its net assets (15% of total assets for the
International Equity Fund, Real Estate Securities Fund, Mid-Cap Value
Equity Fund, Income Fund, U.S. Equity Fund, Premier Growth Equity Fund and
Global Income Fund) in repurchase agreements maturing in more than seven
days and other illiquid investments.
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<PAGE>
Non-fundamental Restrictions for all Funds other than Value Equity Fund,
Small-Cap Value Equity Fund, Europe Equity Fund, and Emerging Markets Fund
The Company has also adopted the following additional investment
restrictions applicable (except as noted) to all Funds. These are not
fundamental and may be changed by the board of directors without shareholder
approval. Under these restrictions, each Fund may not:
1. Invest in securities of foreign issuers if at the time of acquisition more
than 20% of its total assets, taken at market value, would be invested in
such securities. This restriction is not applicable to the Total Return
Fund, S&P 500 Index Fund, International Equity Fund, Mid-Cap Value Equity
Fund, Income Fund, Premier Growth Equity Fund and Global Income Fund.
2. Purchase securities of other investment companies if, as a result thereof,
the Fund would own more than 3% of the total outstanding voting stock of
any one investment company, or more than 5% of the Fund's assets would be
invested in any one investment company, or more than a total of 10% of the
Fund's assets would be invested in investment company securities. These
limitations do not apply to securities acquired in connection with a
merger, consolidation, acquisition or reorganization, or by purchase in
the open market of securities of closed-end investment companies where no
underwriter or dealer's commission or profit, other than customary
broker's commission, is involved, and so long as immediately thereafter
not more than 10% of such Fund's total assets, taken at market value,
would be invested in such securities. These limitations also do not apply
to investment by the Funds in shares of GEI Short-Term Investment Fund as
permitted by an exemptive order issued by the SEC.
3. Purchase or sell interests in commodities, or commodity contracts, except
that certain Funds may invest in currency and financial instruments and
contracts that are commodities or commodity contracts.
4. Invest more than 30% (35% for the Real Estate Securities Fund) of its
assets, measured at time of purchase, in debt securities (other than U.S.
Government securities) that are rated lower than the four highest rating
categories assigned by Moody's or Standard & Poor's.
5. The Money Market Fund may not invest more than 5% of its total assets
(taken at amortized cost at the time of each investment) in the securities
of any single issuer (including repurchase agreements with any one bank)
except U.S. Government securities or repurchase agreements collateralized
by such securities.
6. The S&P 500 Index Fund, Total Return Fund, International Equity Fund,
Real Estate Securities Fund, Mid-Cap Value Equity Fund, Income Fund,
U.S. Equity Fund, Premier Growth Equity Fund and Global Income Fund may
not enter into a financial futures
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<PAGE>
contract (by exercise of any option or otherwise) or acquire any options
thereon, if, immediately thereafter, the total of the initial margin
deposits required with respect to all open futures positions, at the time
such positions were established, plus the sum of the premiums paid for all
unexpired options on futures contracts would exceed 5% of the value of is
total assets.
7. Make additional investments when borrowings (including reverse repurchase
agreements) exceed 5% of is total assets. This restriction does not apply
to the International Equity Fund.
8. The Income Fund, U.S. Equity Fund and Premier Growth Equity Fund may not
make short sales of securities or maintain a short position, unless at all
times when a short position is open, the Fund holds the securities sold
short or may obtain such securities (in an amount equal to the short
position) without payment of any consideration.
Notes to Investment Restrictions for all Funds other than Value Equity Fund,
Small-Cap Value Equity Fund, Europe Equity Fund, and Emerging Markets Fund
The percentage limitations in the restrictions listed above apply at the
time of purchases of securities. For purposes of fundamental investment
restriction number 4, the Company may use the industry classifications reflected
by the S&P 500 Composite Stock Price Index, if applicable at the time of
determination. For all other portfolio holdings, the Company may use the
Directory of Companies Required to File Annual Reports with the SEC and
Bloomberg Inc. In addition, the Company may select its own industry
classifications, provided such classifications are reasonable.
Fundamental Restrictions for Value Equity Fund, Small-Cap Value Equity Fund,
Europe Equity Fund, and Emerging Markets Fund
1. No Fund may borrow money, except that the Funds may enter into reverse
repurchase agreements, and except that each Fund may borrow from banks
for temporary or emergency (not leveraging) purposes, including the
meeting of redemption requests and cash payments of dividends and
distributions that might otherwise require the untimely disposition of
securities, in an amount not to exceed 33-1/3% of the value of the
Fund's total assets (including the amount borrowed) valued at market
less liabilities (not including the amount borrowed) at the time the
borrowing is made. Whenever borrowings of 5% or more of a Fund's total
assets are outstanding, including reverse repurchase agreements, 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 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
-54-
<PAGE>
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 Fund may be invested
without regard to this limitation. All securities of a foreign government
and its agencies will be treated as a single issuer for purposes of this
restriction.
4. No Fund may purchase more than 10% of the voting securities of any one
issuer, or more than 10% of the outstanding securities of any class of
issuer, except that (a) this limitation is not applicable to a Fund's
investments in Government Securities and (b) up to 25% of the value of the
assets of a 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 supranational organizations.
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 (the
"1933 Act").
7. No Fund may purchase or sell real estate or real estate limited
partnership interests, or invest in oil, gas or mineral leases, or mineral
exploration or development programs, except that a Fund may (a) invest in
securities secured by real estate, mortgages or interests in real estate
or mortgages, (b) purchase securities issued by companies that invest or
deal in real estate, mortgages or interests in real estate or mortgages,
(c) engage in the purchase and sale of real estate as necessary to provide
it with an office for the transaction of business or (d) acquire real
estate or interests in real estate securing an issuer's obligations, in
the event of a default by that issuer.
8. No Fund may make short sales of securities or maintain a short position,
unless at all times when a short position is open, the Fund owns an equal
amount of the securities or securities convertible into or exchangeable
for, without payment of any further consideration, securities of the same
issue as, and equal in amount to, the securities sold short.
9. No Fund may purchase securities on margin, except that a Fund may obtain
any short-term credits necessary for the clearance of purchases and sales
of securities. For purposes of this restriction, the deposit or payment of
initial or variation margin in connection with futures contracts,
financial futures contracts or related options, and
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<PAGE>
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 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 SAI and in the Prospectus.
Non-Fundamental Restrictions for Value Equity Fund, Small-Cap Value Equity
Fund, Europe Equity Fund, and Emerging Markets Fund
1. No Fund may purchase or sell put options, call options, spreads or
combinations of put options, call options and spreads, except that each
Fund may purchase and sell covered put and call options on securities and
stock indexes and futures contracts and options on futures.
2. No Fund may purchase securities of other investment companies, other than
a security acquired in connection with a merger, consolidation,
acquisition, reorganization or offer of exchange and except as otherwise
permitted under the 1940 Act.
3. No Fund may invest in companies for the purpose of exercising control or
management.
4. No Fund may purchase warrants (other than warrants acquired by the Fund as
part of a unit or attached to securities at the time of purchase) if, as a
result, the investments (valued at the lower of cost or market) would
exceed 5% of the value of the Fund's net assets. For purposes of this
restriction, warrants acquired by a Fund in units or attached to
securities may be deemed to be without value.
5. No Fund may purchase illiquid securities if more than 15% of the total
assets of the Fund would be invested in 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.
6. 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 1933 Act ("Rule 144A Securities"), that have been determined to
be liquid by the Board based upon the trading markets for the securities.
7. No Fund may issue senior securities except as otherwise permitted by the
1940 Act and as otherwise permitted herein.
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<PAGE>
Notes to Investment Restrictions for all Funds other than Value Equity Fund,
Small-Cap Value Equity Fund, Europe Equity Fund, and Emerging Markets Fund
The percentage limitations in the restrictions listed above apply at the
time of purchases of securities. For purposes of fundamental investment
restriction No. 5, the Company 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 Company may use the Directory of Companies
Required to File Annual Reports with the SEC and Bloomberg Inc. In addition, the
Company may select its own industry classifications, provided such
classifications are reasonable.
With respect to non-fundamental investment restriction No. 2, investments
by the Funds in the Investment Fund is not considered an investment in another
investment company for purposes of this restriction.
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<PAGE>
PORTFOLIO TRANSACTIONS AND TURNOVER
Decisions to buy and sell securities for each Fund are made by the
Adviser, subject to review by the Fund's board of directors. 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 many
foreign exchanges, commissions are fixed and may be higher than for securities
traded on U.S. exchanges. Generally, no stated commissions are 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.
The following table shows the amount of brokerage commissions paid by each
Fund over the past three fiscal years. Variations in the amount of brokerage
commissions paid by a Fund from year to year may result from changing asset
levels, market conditions or changes in the Investment Manager's outlook.
- --------------------------------------------------------------------------------
Annual Brokerage Commissions Paid
Year Ended December 31
Fund 1999 1998 1997
- ------------------------------------------------------------------------------
U.S. Equity Fund $46,881 $14,292 $15,146
- ------------------------------------------------------------------------------
S&P 500 Index Fund $73,918 $45,852 $30,478
- ------------------------------------------------------------------------------
Premier Growth Equity Fund $34,230 $6,981 $9,950
- ------------------------------------------------------------------------------
Value Equity Fund N/A N/A N/A
- ------------------------------------------------------------------------------
Mid-Cap Value Equity Fund $100,546 $52,874 $47,360
- ------------------------------------------------------------------------------
Small-Cap Value Equity Fund N/A N/A N/A
- ------------------------------------------------------------------------------
International Equity Fund $103,780 $38,228 $155,844
- ------------------------------------------------------------------------------
Europe Equity Fund N/A N/A N/A
- ------------------------------------------------------------------------------
Emerging Markets Fund N/A N/A N/A
- ------------------------------------------------------------------------------
Income Fund N/A N/A N/A
- ------------------------------------------------------------------------------
Global Income Fund N/A N/A N/A
- ------------------------------------------------------------------------------
Total Return Fund $55,826 $24,207 $71,470
- ------------------------------------------------------------------------------
Money Market Fund N/A N/A N/A
- ------------------------------------------------------------------------------
Real Estate Securities Fund $46,355 $66,685 $86,103
- ------------------------------------------------------------------------------
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<PAGE>
In selecting brokers or dealers to execute securities transactions on
behalf of a Fund, Advisers seek the most favorable terms available under the
circumstances ("best execution"). In assessing the overall terms available to
ensure best execution for any transaction, an Adviser 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 Company and
GEAM relating to each Fund authorizes the Advisers, 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 an
Adviser or its affiliates exercise investment discretion. The fees under the
investment advisory agreement relating to a Fund will not be reduced by reason
of the Fund's receiving brokerage and research services.
Such services include analyses and reports regarding issuers, industries,
economic trends, portfolio strategy, and may effect securities transactions and
perform certain functions related thereto. In addition, such services may
include advice concerning the advisability of investing in, purchasing or
selling securities and the availability of particular securities or buyers or
sellers of securities. The research services received from broker-dealers that
execute transactions on behalf of a Fund may be useful to the Investment Manager
in servicing that Fund as well as all of the Investment Manager's accounts and
not all of these services may be used in connection with the particular Fund or
Funds generating the commissions. Consistent with limits established by the
Federal Securities Laws, a Fund may pay a broker-dealer commissions for agency
transactions that exceed the amount of commissions charged by other
broker-dealers in recognition of their research and brokerage services. In
addition, subject to the overall policy of best execution, the investment
manager may consider sales of Fund shares in selecting brokers or dealers to
execute securities transactions on behalf of a Fund.
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<PAGE>
The following table shows the dollar amount of brokerage commissions paid
to firms that provided research and execution services and the approximate
dollar amount of transactions involved during the fiscal period ended December
31, 1999.
- --------------------------------------------------------------------------------
Amount of Transactions
To Firms Providing Amount of Commissions
Brokerage and Research on Those Transactions
Fund Services
- --------------------------------------------------------------------------------
U.S. Equity Fund $5,468,742 $5,534
- --------------------------------------------------------------------------------
S&P 500 Index Fund 0 0
- --------------------------------------------------------------------------------
Premier Growth Equity Fund $4,730,219 $4,818
- --------------------------------------------------------------------------------
Value Equity Fund N/A N/A
- --------------------------------------------------------------------------------
Mid-Cap Value Equity Fund $815,712 $7,438
- --------------------------------------------------------------------------------
Small-Cap Value Equity Fund N/A N/A
- --------------------------------------------------------------------------------
International Equity Fund $3,195,715 $5,900
- --------------------------------------------------------------------------------
Europe Equity Fund N/A N/A
- --------------------------------------------------------------------------------
Emerging Markets Fund N/A N/A
- --------------------------------------------------------------------------------
Income Fund 0 0
- --------------------------------------------------------------------------------
Global Income Fund 0 0
- --------------------------------------------------------------------------------
Total Return Fund $11,962,221 $7,396
- --------------------------------------------------------------------------------
Money Market Fund 0 0
- --------------------------------------------------------------------------------
Real Estate Securities Fund $2,187,615 $5,358
- --------------------------------------------------------------------------------
The board of directors 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 an
Adviser is a member, except to the extent permitted under rules, interpretations
or exemptions of the SEC.
The Advisers may select broker-dealers who are affiliated with the Company
or the Adviser. All brokerage commissions paid to affiliates will be fair and
reasonable. The Company's board of directors has determined that, to the extent
consistent with applicable provisions of the 1940 Act and rules thereunder and
procedures adopted by the board of directors, transactions for a Fund may be
executed through the Distributor, if, in the judgement of the Adviser, the use
of the Distributor is likely to result in price and execution at least as
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<PAGE>
favorable to the Fund as those obtainable through other qualified
broker-dealers, and if, in the transaction, the Distributor charges the Fund a
fair and reasonable rate consistent with that payable by the Fund to other
broker-dealers on comparable transactions. Under rules adopted by the SEC, the
Distributor generally may not execute transactions for a Fund on the floor of
any national securities exchange, but may effect transactions by transmitting
orders for execution providing for clearance and settlement, and arranging for
the performance of those functions by members of the exchange not associated
with the Distributor. The Distributor will be required to pay fees charged by
those persons performing the floor brokerage elements out of the brokerage
compensation that it receives from a Fund.
The portfolio turnover rate for a Fund is calculated by dividing the
lesser of purchases or sales of portfolio securities during the fiscal year by
the monthly average of the value of the Fund's securities (excluding from the
computation all securities, including options, with maturities at the time of
acquisition of one year or less). For example, a portfolio turnover rate of 100%
would mean that all of a Fund's securities (except those excluded from the
calculation) were replaced once in a period of one year. Certain of the Fund's
investment strategies may result in the Fund having a high portfolio turnover
rate. High portfolio turnover may cause a Fund to experience increased
transaction costs, brokerage expenses and other acquisition costs. The following
table provides the portfolio turnover rates for each Fund (except the Money
Market Fund) for the fiscal periods ended December 31, 1999 and December 31,
1998:
- --------------------------------------------------------------------------------
Portfolio Turnover Rate Portfolio Turnover Rate
Fund Period Ended 12/31/99 Period Ended 12/31/98
- --------------------------------------------------------------------------------
U.S. Equity Fund 35% 41%
- --------------------------------------------------------------------------------
S&P 500 Index Fund 3% 13%
- --------------------------------------------------------------------------------
Premier Growth Equity Fund 27% 34%
- --------------------------------------------------------------------------------
Value Equity Fund N/A N/A
- --------------------------------------------------------------------------------
Mid-Cap Value Equity Fund 30% 14%
- --------------------------------------------------------------------------------
Small-Cap Value Equity Fund N/A N/A
- --------------------------------------------------------------------------------
International Equity Fund 51% 60%
- --------------------------------------------------------------------------------
Europe Equity Fund N/A N/A
- --------------------------------------------------------------------------------
Emerging Markets Fund N/A N/A
- --------------------------------------------------------------------------------
Income Fund 230% 217%
- --------------------------------------------------------------------------------
Global Income Fund 130% 64%
- --------------------------------------------------------------------------------
Total Return Fund 105% 124%
- --------------------------------------------------------------------------------
Money Market Fund N/A N/A
- --------------------------------------------------------------------------------
Real Estate Securities Fund 16% 29%
- --------------------------------------------------------------------------------
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<PAGE>
The Adviser 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. Because the rate of portfolio turnover is not
a limiting factor, however, particular holdings may be sold at any time, if
investment judgment or Fund operations make a sale advisable. As a result, the
annual portfolio turnover rates in future years may exceed the percentages shown
below. Turnover rates may vary greatly from year to year as well as within a
particular year and may be affected by cash requirements resulting from
fluctuations in shareholder purchase, exchange and redemption transactions,
market conditions or changes in the Investment Adviser's outlook.
Because short term instruments are excluded from the calculation of a
portfolio turnover rate, no meaningful portfolio turnover rate can be estimated
or calculated for the Money Market 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 usually are effected as
principal transactions, however, this type of trading by the Money Market Fund
will not result in the Fund paying higher brokerage commissions.
MANAGEMENT OF THE COMPANY
Directors and Officers
The board of directors oversees the business affairs of the Company. The
directors approve all significant agreements between the Company and the persons
and companies that furnish services to the Funds, including agreements with the
Funds' Adviser and administrator, distributor, custodian and transfer agent. The
day-to-day operations of the Funds have been delegated to GEAM.
The names of the directors and executive officers of the Company, their
addresses and their principal occupations during the past five years and their
other affiliations are shown below. Each person named as a director also may
serve in a similar capacity for other Funds advised by GEAM. The executive
officers of the Company are employees of organizations that provide services to
the Funds. An asterisk appears before the name of each director who is an
"interested person" of the Company, as defined in the 1940 Act. The business
address of each Director and executive officer who is an "interested person" (as
defined in the 1940 Act) is 3003 Summer Street, Stamford, Connecticut 06905.
-62-
<PAGE>
- ------------------------------------------------------------------------------
Position(s) Held Age and Principal Occupation(s)
Name and Address With Company During Past 5 Years
- ------------------------------------------------------------------------------
*Michael J. Chairman of the Age 50. President, GE Asset Management
Cosgrove Board and Services of GE Financial Assurance
President Holdings, Inc., an indirect wholly-owned
subsidiary of General Electric Company
("GE"), since February 1997; Vice President,
GE Capital Corporation, an indirect
wholly-owned subsidiary of GE, since December
1999, Executive Vice President - Mutual Funds
of GEAM, a wholly-owned subsidiary of GE that
is registered as an investment adviser under
the Investment Advisers Act of 1940, as
amended, since March 1993; Director of GEAM
since 1988; from 1988 until 1993, Mr.
Cosgrove served as Executive Vice President -
Finance and Administration of GEAM; 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.
- ------------------------------------------------------------------------------
John R. Director Age 53. Managing Director, Walden
Costantino Partners, Ltd., consultants and
150 East 58th investors, since August 1992; President,
Street CMG Acquisition Corp., Inc., a holding
New York, NY company, since 1988; Vice Chairman,
10055 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 Director Age 52. Vice President and Treasurer of
Fairfield Fairfield University since 1983.
University
North Benson Road
Fairfield, CT
06430
- ------------------------------------------------------------------------------
Robert P. Director Age 65. Self-employed investment
Martin, Jr. consultant, since 1985.
115 Granite
Avenue
Richmond, VA
23226
- ------------------------------------------------------------------------------
J. Clifford Director Age 56. Vice President - Investments,
Miller, III Davenport & Co. LLC. (an investment firm)
372 Lexington since 1992. Self employed consultant from
Road 1988 to 1992. Director, Miller
Richmond, VA Manufacturing Co., Inc., from 1977 to
23226 1990; General Partner, Miller Land
Company, 1987 - 1996. Manager, Miller
Properties, L.L.C., since, 1996.
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<PAGE>
- ------------------------------------------------------------------------------
Lee A. Putney Director Age 66. Director, Regency Financial
4208 Sulgrave Shares, Inc., since 1989 (Chairman from
Road 1989 - 1992). Director, Regency Bank,
Richmond, VA since 1987 (Chairman from 1987 -1992).
- ------------------------------------------------------------------------------
Robert P. Quinn Director Age 63. Retired since 1983 from Salomon
45 Shinnecock Brothers Inc.; Director, GP Financial
Road Quogue, NY Corp., a holding company, since 1994;
11959 Director, The Greenpoint Savings Bank, a
financial institution, since 1987.
- ------------------------------------------------------------------------------
Michael Tansley Treasurer Age 35. Manager of Fund
Administration at GEAM since May 1998; from
1990 to May 1998, Mr. Tansley held various
positions in the Investment Company Services
Group of PriceWaterhouseCoopers LLP, New York
(formerly Price Waterhouse LLP).
- ------------------------------------------------------------------------------
*Matthew J. Secretary Age 39. Vice President and General
Simpson Counsel, Investment Services Group of
GEFA since February 1997; Vice President,
Associate General Counsel and Assistant
Secretary of GEAM since October 1992.
- ------------------------------------------------------------------------------
No employee of GE or any of its affiliates receives any compensation from
the Company for acting as a director or officer of the Company. Each director of
the Company who is not a director, officer or employee of GEAM, GEID, GE, or any
affiliate of those companies, receives an annual fee of $6,000 for services as
director. In addition, each director receives $500 for each meeting attended in
person and $250 per telephone meeting and is reimbursed for expenses incurred in
connection with attendance at Board meetings.
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<PAGE>
- ------------------------------------------------------------------------------
Total Director's Compensation
for fiscal period ended December 31, 1999 from
- ------------------------------------------------------------------------------
Investment Companies
Name of Director The Company Managed by GEAM
- ------------------------------------------------------------------------------
Michael J. Cosgrove None None
- ------------------------------------------------------------------------------
$7,125 $25,500
John R. Costantino
- ------------------------------------------------------------------------------
$7,125 $25,500
William J. Lucas
- ------------------------------------------------------------------------------
$8,250 $8,250
Robert P. Martin, Jr.
- ------------------------------------------------------------------------------
$8,250 $8,250
J. Clifford Miller, III
- ------------------------------------------------------------------------------
$8,250 $8,250
Lee A. Putney
- ------------------------------------------------------------------------------
$8,000 $8,000
J. Garnett Nelson**
- ------------------------------------------------------------------------------
Robert P. Quinn $7,125 $25,500
- ------------------------------------------------------------------------------
** Served as Director through December 7, 1999.
Former Investment Adviser and Administrator
AAI. Prior to May 1, 1997, Aon Advisors, Inc. ("AAI") served as investment
adviser to the Company and the Money Market Fund, S&P 500 Index Fund, Government
Securities Fund, Total Return Fund, International Equity Fund and Real Estate
Securities Fund pursuant to a series of investment advisory agreements between
the Company and AAI. AAI Corporation, a wholly owned subsidiary of Aon
Corporation, is located at 123 N. Wacker Drive, Chicago, Illinois 60606. Aon, a
publicly owned Delaware corporation, is an insurance holding company
organization principally engaged through subsidiaries in the insurance and
insurance brokerage business. The duties and responsibilities of AAI were
specified in the Investment Advisory Agreement ("AAI Agreement") between the
Company and AAI covering each of the foregoing Funds and by substantially
identical additional agreements ("AAI Additional Agreements") covering the
International Equity Fund and Real Estate Securities Fund.
AAI furnished an investment program for the Money Market Fund, Government
Securities Fund, S&P 500 Index Fund and Total Return Fund, was responsible for
the actual managing of the investments of such Funds and had responsibility for
making decisions governing whether to buy, sell or hold any particular security.
As described below, AAI had engaged Perpetual as the investment sub-adviser to
provide day-to-day portfolio management for the International Equity Fund and
had engaged Seneca, as the investment sub-adviser to provide day-to-day
portfolio management for the Real Estate Securities Fund. In addition to
performing management duties and providing the investment advice described
above, AAI was
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<PAGE>
responsible for the administrative services in connection with
the management of the Company and the Funds, including financial reporting.
Under the AAI Agreement and AAI Additional Agreements, AAI received
investment advisory fees as compensation for its services. The fees were the
same as the fees under the company's investment advisory agreements with GEAM.
For the fiscal period January 1, 1997 to April 30, 1997, the total advisory fee
paid to AAI and each Fund's contribution to the advisory fee paid to AAI was as
follows:
- ---------------------------------------------------------------------------
S&P 500 Index Fund $84,383
- ---------------------------------------------------------------------------
International Equity Fund $64,735
- ---------------------------------------------------------------------------
Total Return Fund $65,574
- ---------------------------------------------------------------------------
Money Market Fund $38,112
- ---------------------------------------------------------------------------
Real Estate Securities Fund $88,299
- ---------------------------------------------------------------------------
Pursuant to sub-advisory agreements (the "AAI Sub-Advisory Agreements"),
AAI had engaged Perpetual as the investment sub-adviser to provide day-to-day
portfolio management for the International Equity Fund and had engaged Seneca as
the investment sub-adviser to provide day-to-day portfolio management for the
Real Estate Securities Fund.
Perpetual, a wholly-owned subsidiary of Perpetual plc, was the investment
sub-adviser for the International Equity Fund. It is registered under the
Investment Advisers Act of 1940 as an investment adviser and has its principal
offices at 48 Hart Street, Henley-on-Thames, Oxfordshire, England RG9 2AZ.
Seneca was (and still is) the investment sub-adviser for the Real Estate
Securities Fund. Seneca is at 909 Montgomery Street, San Francisco, CA 94133.
Seneca is a majority owned subsidiary of Phoenix Duff & Phelps Corporation
("Phoenix"). 40% of the stock of Phoenix is publicly held and traded on the New
York Stock Exchange while the remaining 60% is owned by a wholly owned
subsidiary of Phoenix Home Life Mutual Insurance Company. Seneca is an
investment adviser that provides investment management services to foundations,
endowments, corporations, mutual funds and private clients.
For their services, AAI paid Perpetual and Seneca monthly compensation in
the form of an investment sub-advisory fee. The fee was paid by AAI monthly and
was based upon the average daily net assets (see "Purchase and Redemption of
Fund Shares") of the Fund that each subadviser managed, at the following annual
rates:
International Equity Fund: .50% of the first $100,000,000; .475% of the
next $100,000,000; and .45% of amounts in excess of $200,000,000.
Real Estate Securities Fund: .425% of the first $100,000,000; .40% of
the next $100,000,000; and .375% of amounts in excess of $200.000.000.
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<PAGE>
For the fiscal period January 1, 1997 to April 30, 1997, AAI paid
Perpetual $32,367 and Seneca $44,150 in sub-advisory fees.
Under the AAI Agreement and the AAI Additional Agreements, any operating
expenses allocable to the following Funds of the Company for the 1997 fiscal
year that exceeded the amounts indicated below, AAI reimbursed the Company for
the excess:
(1) With respect to the Real Estate Securities Fund, 1.5% of the first
$30,000,000 of the average daily net assets of each of those
portfolios and 1% of the amount by which the average daily net
assets of each of those Funds exceed $30.000.000.
(2) With respect to the International Equity Fund, 1.75% of the first
$30,000,000 of the average daily net assets of the portfolio and 1%
of the amount by which the average daily net assets of the Fund
exceeds $30.000.000.
On a voluntary basis, AAI also agreed to reimburse the International
Equity and Real Estate Securities Funds annually for operating expenses in
excess of the following amounts: International Equity Fund, 1.50% of the first
$30 million of average daily net assets; Real Estate Securities Fund, 1.25% of
the first $30 million of average daily net assets.
For the fiscal period January 1, 1997 to April 30, 1997, total
reimbursements paid by AAI to the Company amounted to $22,680 which pertained to
the International Equity Fund and $3,337 which pertained to the Real Estate
Securities Fund.
Current Investment Advisor and Administrator
GE Asset Management Incorporated ("GEAM"). GEAM serves as the Company's
investment adviser and administrator. GEAM is registered as an investment
adviser under the Investment Advisers Act of 1940 and is located at 3003 Summer
Street, Stamford, Connecticut 06905. GEAM, 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. GEAM currently provides
advisory services with respect to a number of other mutual funds and private
institutional accounts. On March 31, 2000, General Electric Investment
Corporation, also a wholly owned subsidiary of GE and a registered investment
adviser, was merged into GEAM. Prior to that merger, the professionals
responsible for the investment operations of GEAM had served in similar
capacities with respect to GEIC. Subsequent to the merger, GEAM has continued
providing those advisory services that had been provided by GEIC, including:
providing 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
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<PAGE>
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 GEAM and GEIC and their predecessors have managed GE's pension assets since
1927. As of December 31, 1999, GEAM oversaw more than $106 billion of assets and
managed assets in excess of $91.7 billion, of which more than $18.2 billion was
invested in mutual fund assets.
Personnel of each of the Funds, GEAM and GE Investment Distributors, Inc.
are subject to a code of ethics, pursuant to Rule 17j-1 under the 1940 Act,
which establishes procedures for personal investing and restricts certain
transactions by persons subject to the code.
Investment Advisory and Administration Agreements. The duties and
responsibilities of GEAM are specified in investment advisory and administration
agreements (the "advisory agreements") between GEAM and the Company on behalf of
each Fund. Under the advisory agreements, GEAM provides a continuous investment
program for each Fund's assets, including investment research and management.
GEAM determines what investments are purchased, retained or sold by the Funds
and places purchase and sale orders for the Funds investments. GEAM provides the
Company with all executive, administrative, clerical and other personnel
necessary to operate each Fund, and pays salaries and other employment-related
costs of employing these persons. GEAM furnishes the Company 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. GEAM, as
administrator, also: (1) maintains the books and records of each Fund; (2)
prepares reports to shareholders of each Fund; (3) prepares and files tax
returns for each Fund; (4) assists with the preparation and filing of reports
and the Company's registration statement with the Securities and Exchange
Commission; (5) provides appropriate officers for the Company; (6) provides
administrative support necessary for the board of directors of the Company to
conduct meetings; and (7) supervises and coordinates the activities of other
service providers, including independent auditors, legal counsel, custodians,
accounting service agents, and transfer agents.
GEAM 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 the advisory agreements. The advisory
agreements obligate GEAM to provide services in accordance with each Fund's
investment objectives, policies and restrictions as stated in the Company's
current registration statement, as amended from time to time, and to keep the
Company informed of developments materially affecting each Fund, including
furnishing the Company with whatever information and reports that the board of
directors reasonably request.
Other than those expenses expressly assumed by GEAM, as described above,
each Fund is responsible under the advisory agreement relating to it for paying
all expenses incurred in its operations and all of the Company's general
administrative expenses allocated to it. These
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<PAGE>
include, but are not limited to: (1) share redemption expenses, (2) shareholder
servicing costs, (3) expenses of any shareholder servicing plans or distribution
plans adopted by the board of directors, (4) custody expenses, (5) transfer
agency and recordkeeping expenses, (6) brokerage fees and commissions, (7)
taxes, (8) federal and state registration fees, (9) expenses of preparing,
printing and distributing prospectuses to regulators and existing shareholders,
(10) expenses of shareholder and board of directors meetings, (11) fees of
disinterested directors, (12) expenses of preparing and distributing proxy
materials, (13) fees of parties unaffiliated with GEAM for valuing portfolio
securities and computing net asset values for Funds, (14) legal fees, (15)
auditors fees, (16) insurance premiums, and (17) membership dues in industry
associations.
The advisory agreements permit GEAM, subject to the approval of the board
of directors 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 GEAM's responsibilities under one or more of
the advisory agreements. In this event, GEAM remains responsible for ensuring
that these entities perform the services that each undertakes pursuant to a
sub-advisory agreement.
The advisory agreements provide that GEAM may render similar advisory and
administrative services to other clients so long as the services that it
provides under the agreements are not impaired thereby. The advisory agreements
also provide that GEAM shall not be liable for any error of judgment or mistake
of law or for any loss incurred by a Fund in connection with GEAM's services
pursuant to the agreements, except for (1) willful misfeasance, bad faith or
gross negligence in the performance of its duties or by reason of reckless
disregard of its duties or obligations under the agreements, and (2) to the
extent specified in Section 36(b) of the Act concerning loss resulting from a
breach of fiduciary duty with respect to the receipt of compensation.
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 directors, or (b) the vote of a majority of the relevant Fund's outstanding
voting securities, provided that in either event the continuance also is
approved by a vote of the majority of the directors who are not parties to the
agreement or interested persons (as that term is defined in the 1940 Act) of any
party to the agreement, by a vote cast in person at a meeting called for the
purpose of voting on such approval.
The advisory agreements are not assignable and each may be terminated
without penalty by either the Company or GEAM upon no more than sixty days nor
less than thirty days written notice to the other or by the board of directors
of the Company or by the vote of a majority of the outstanding shares of the
class of stock representing an interest in the applicable Fund.
The agreements governing the investment advisory services furnished to the
Company by GEAM provide that, if GEAM ceases to act as the investment adviser to
the Company, at GEAM's request, the Company's license to use the initials "GE"
will terminate and the
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<PAGE>
Company will change the name of the Company and the Funds
to a name not including the initials "GE."
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<PAGE>
Advisory Fee Rates.
-----------------------------------------------------------------------------
Method of Calculating Advisory Fees. For its services to each Fund, GEAM
receives a monthly advisory and administrative fee. The fee is deducted daily
from the assets of each of the Funds and paid to GEAM monthly. These fees are
based on the average daily net assets of each Fund at the following annual
rates:
-----------------------------------------------------------------------------
U.S. Equity Fund 0.55%
-----------------------------------------------------------------------------
S&P 500 Index Fund 0.35%
-----------------------------------------------------------------------------
Premier Growth Equity Fund 0.65%
-----------------------------------------------------------------------------
Value Equity Fund 0.65%
-----------------------------------------------------------------------------
Mid-Cap Value Equity Fund 0.65%
-----------------------------------------------------------------------------
Small-Cap Value Equity Fund 0.80%
-----------------------------------------------------------------------------
International Equity Fund 1.00% first $100,000,000
0.95% next $100,000,000
0.90% over $200,000,000
-----------------------------------------------------------------------------
Europe Equity Fund 1.15%
-----------------------------------------------------------------------------
Emerging Markets Fund 1.30%
-----------------------------------------------------------------------------
Income Fund 0.50%
-----------------------------------------------------------------------------
Global Income Fund 0.60%
-----------------------------------------------------------------------------
Total Return Fund 0.50% first $100,000,000
0.45% next $100,000,000
0.40% next $100,000,000
0.35% next $100,000,000
0.30% over $400,000,000
-----------------------------------------------------------------------------
Money Market Fund 0.50% first $100,000,000
0.45% next $100,000,000
0.40% next $100,000,000
0.35% next $100,000,000
0.30% over $400,000,000
-----------------------------------------------------------------------------
Real Estate Securities Fund 0.85% first $100,000,000
0.80% next $100,000,000
0.75% over $200,000,000
-----------------------------------------------------------------------------
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<PAGE>
Advisory Fees Paid.
-----------------------------------------------------------------------------
Total Annual Advisory Fees Paid. This table shows the total dollar amounts of
advisory fees that each Fund paid to the Adviser for each of the last three
fiscal years ending on December 31:
1999 1998 1997
-----------------------------------------------------------------------------
U.S. Equity Fund $250,028 $143,124 $5,970**
-----------------------------------------------------------------------------
S&P 500 Index Fund $1,630,617 $815,501 $295,260*
-----------------------------------------------------------------------------
Premier Growth Equity $177,402 $110,836 $4,750**
Fund
-----------------------------------------------------------------------------
Value Equity Fund N/A N/A N/A
-----------------------------------------------------------------------------
Mid-Cap Value Equity Fund $462,822 $292,504 38,851*
-----------------------------------------------------------------------------
Small-Cap Value Equity N/A N/A N/A
Fund
-----------------------------------------------------------------------------
International Equity Fund $410,693 $355,662 $163,408*
-----------------------------------------------------------------------------
Europe Equity Fund N/A N/A N/A
-----------------------------------------------------------------------------
Emerging Markets Fund N/A N/A N/A
-----------------------------------------------------------------------------
Income Fund $315,505 $251,667 $10,583**
-----------------------------------------------------------------------------
Global Income Fund $61,389 $46,130 $21,909*
-----------------------------------------------------------------------------
Total Return Fund $444,269 $295,203 $152,895*
-----------------------------------------------------------------------------
Money Market Fund $1,455,389*** $943,239 $417,282
-----------------------------------------------------------------------------
Real Estate Securities $379,342 $448,620 $251,459
Fund
-----------------------------------------------------------------------------
* For the period May 1, 1997 though December 31, 1997.
** For the period December 12, 1997 (inception) through December 31, 1997. For
financial statement presentation purposes, U.S. Equity Fund and Income Fund are
each treated as the financial successor to a predecessor mutual fund that was
not a Fund of the Company. Both predecessor funds were advised by GEAM and the
total advisory fee received by GEAM from January 1, 1997 through December 31,
1997 from the predecessor U.S. Equity Fund was $112,278 and from the
predecessor Income Fund was $24, 957.
*** GEAM has agreed to waive voluntarily a portion of its contractual
management fee for the Money Market Fund so that the fee paid is equal to 0.30%
beginning May 1, 2000. Prior to that date, GEAM had waived a portion of its
management fees so that the Money Market Fund's fee was equal to 0.25%. The
figures in the table reflect the effect of those waivers. GEAM reserves the
right to discontinue the waiver at anytime.
-----------------------------------------------------------------------------
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<PAGE>
Current Sub-Advisers
NWQ Investment Management Company (NWQ). GEAM has engaged NWQ as the
investment sub-adviser to provide day-to-day portfolio management to the Mid-Cap
Value Equity Fund. NWQ is located at 2049 Century Park East, Los Angeles, CA
90067 and is a wholly owned subsidiary of United Asset Management Corporation, a
company whose principal business is managing investments for institutional
clients through 50 operating subsidiaries and acquiring investment management
firms. NWQ is a manager of domestic investment portfolios for individual, union,
corporate, endowment and foundation clients with 18 years of experience. It
manages approximately $ 6.0 billion in assets.
GE Asset Management Limited (GEAML). GEAM has engaged GEAML to provide
day-to-day portfolio management to the Global Income Fund. Like GEAM, GEAML is a
wholly owned subsidiary of GE and is considered under common control with GEAM.
GEAML is located at Aldwych House 71-91, Aldwych, London, WC2B 4HL, , England
and is registered as an investment adviser under the Investment Advisers Act of
1940. Prior to this engagement, GEAML had no prior experience advising a U.S.
mutual fund. As of December 31, 1999, GEAML managed approximately $ 0.7 billion
in assets.
State Street Global Advisors (SSGA). GEAM has engaged SSGA to provide
day-to-day portfolio management to the S&P 500 Index Fund. SSGA is a division of
State Street Bank and Trust Company ("State Street"). SSGA is located at Two
International Place, Boston, Massachusetts 02110. State Street is a wholly-owned
subsidiary of State Street Corporation, a publicly held bank holding company.
State Street, with approximately $ 672.4 billion under management as of December
31, 1999, provides complete global investment management services from offices
in the United States, London, Sydney, Hong Kong, Tokyo, Toronto, Montreal,
Luxembourg, Melbourne, Paris, Dubai, Munich and Brussels.
Seneca Capital Management (Seneca). GEAM has retained Seneca as
sub-adviser for the Real Estate Securities Fund. Seneca is a majority owned
subsidiary of Phoenix Investment Partners ("Phoenix"). 40% of the stock of
Phoenix is publicly held and traded on the New York Stock Exchange while the
remaining 60% is owned by a wholly owned subsidiary of Phoenix Home Life Mutual
Insurance Company. Seneca is located at 909 Montgomery Street, San Francisco, CA
94133. Seneca is an investment adviser that provides investment management
services to foundations, endowments, corporations, mutual funds and private
clients. As of December 31, 1999, Seneca managed approximately $ 10.0 billion in
equity, fixed income and real estate assets.
Palisade Capital Management, L.L.C. (Palisade). GEAM has retained Palisade
as sub-adviser to the Small-Cap Value Equity Fund. Located at One Bridge Plaza,
Fort Lee, New Jersey 07024, Palisade has been retained by GEAM to act as
sub-investment adviser of the Small-Cap Value Fund. Palisade has a history of
managing small-cap equity portfolios and for several years has provided pension
fund services to GE. Palisade has sub-advised another
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<PAGE>
small-cap value equity portfolio offered by a different GE mutual fund since
September 30, 1998. Although Palisade had no previous experience managing mutual
fund portfolios, Palisade has managed various institutional and private
accounts, Palisade translates its experience from various institutional and
private accounts to mutual funds. As of December 31, 1999, Palisade managed
various institutional and private accounts with total assets in excess of $2.1
billion.
Sub-Advisory Agreements.
NWQ is the investment sub-adviser to the Mid-Cap Value Equity Fund and
GEAML is the investment sub-adviser to the Global Income Fund pursuant to
investment sub-advisory agreements with GEAM effective May 1, 1997. Both
investment sub-advisory agreements were approved by the board of directors,
including a majority of the independent directors at a meeting held for that
purpose on April 23, 1997 and by the respective Funds' sole initial shareholder
on April 29, 1997
Seneca is the investment sub-adviser to the Real Estate Securities Fund
pursuant to an investment sub-advisory agreement with GEAM effective July 24,
1997. This investment sub-advisory agreement was approved by the board of
directors (including a majority of the independent directors) at a meeting held
for that purpose on June 4, 1997 and by the Fund's shareholders on July 23,
1997.
SSGA is the investment sub-adviser to the S&P 500 Index Fund pursuant to
an investment sub-advisory agreement with GEAM effective July 24, 1997. This
investment sub-advisory agreement was approved by the board of directors,
including a majority of independent directors, at a meeting held for that
purpose on June 4, 1997 and by the Fund's shareholders on July 23, 1997.
Palisade is the investment sub-adviser to the Small-Cap Value Equity Fund
pursuant to an investment sub-advisory agreement with GEAM effective May 1,
1999.
The investment sub-advisory agreements are not assignable and each may be
terminated without penalty by either the sub-adviser or GEAM upon sixty days
written notice to the other or by the board of directors of the Company or by
the vote of a majority of the outstanding shares of the class of stock
representing an interest in the applicable Fund.
The investment sub-advisory agreements each provide that the subadviser
may render similar advisory and administrative services to other clients so long
as the services that it provides under the agreements are not impaired thereby.
The investment 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
suffered by the applicable Fund or is shareholders or by GEAM in connection with
is services pursuant to the agreements, except for a loss resulting from willful
misfeasance, bad faith or gross negligence in the performance of is duties or by
reason of
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<PAGE>
reckless disregard of is duties or obligations under the agreements.
Sub-Advisory Fee Rates.
- --------------------------------------------------------------------------------
Calculation of Sub-Advisory Fees. For their services, GEAM pays SSGA, NWQ,
GEAML, Seneca and Palisade monthly compensation in the form of an investment
sub-advisory fee. The fee is paid by GEAM monthly and is a percentage of the
average daily net asses of the Fund that each sub-adviser manages, at the
following annual rates:
- --------------------------------------------------------------------------------
SSGA (S&P 500 Index Fund) 0.05% first $100,000,000
0.04% next $200,000,000
0.03% over $300,000,000
- --------------------------------------------------------------------------------
NWQ (Mid-Cap Value Equity Fund) 0.4875% first $50,000,000
0.325% over $50,000,000
- --------------------------------------------------------------------------------
GEAML (Global Income Fund) 0.05%
- --------------------------------------------------------------------------------
Seneca (Real Estate Securities Fund) 0.425% first $100,000,000
0.400% next $100,000,000
0.375% over $200,000,000
- --------------------------------------------------------------------------------
Palisade (Small-Cap Value Equity Fund) 0.450% first $25,000,000
0.400% next $50,000,000
0.375% next $100,000,000
0.350% over $175,000,000
- --------------------------------------------------------------------------------
Sub-Advisory Fees Paid.
- --------------------------------------------------------------------------------
Total Annual Sub-Advisory Fees Paid. This table shows the total dollar amounts
of sub-advisory fees that the Advisor paid to each sub-advisor for each of the
last three fiscal years ending on December 31.
- --------------------------------------------------------------------------------
1999 1998 1997
- --------------------------------------------------------------------------------
SSGA $179,767 $28,537 $103,123
- --------------------------------------------------------------------------------
NWQ $312,661 $29,139 $219,010
- --------------------------------------------------------------------------------
GEAML $5,116 $4,915 $3,845
- --------------------------------------------------------------------------------
Seneca $189,671 $122,393 $224,310
- --------------------------------------------------------------------------------
Palisade N/A N/A N/A
- --------------------------------------------------------------------------------
Securities Activities of GEAM
Securities held by the Funds also may be held by other funds or separate
accounts for which GEAM acts as an adviser. Because of different investment
objectives or other factors, a particular security may be bought by GEAM 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 GEAM
arise for consideration at or about the same time, transactions in such
securities will be made, insofar as feasible, for the Fund and other clients in
a manner deemed equitable to all. To the extent that transactions on behalf of
more than one client of GEAM during the same
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<PAGE>
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 GEAM (under the supervision of the board of directors)
deems the purchase or sale of a security to be in the best interests of the
Company as well as other funds or accounts for which GEAM acts as an adviser,
GEAM 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
Company 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 GEAM in the manner it considers to be most
equitable and consistent with its fiduciary obligations to the Company and to
such other funds or accounts. In some cases this procedure may adversely affect
the size the position obtainable for a Fund.
Custodian and Transfer Agent
State Street Bank and Trust Company ("State Street") is the Company's
custodian. State Street's principal office is located at 225 Franklin Street,
Boston, Massachusetts 02101. Under a custody agreement with the Company, State
Street maintains the portfolio securities acquired by the Company, administers
the purchases and sales of portfolio securities, collects interest and dividends
and other distributions made on the securities held in the Funds.
State Street may segregate securities of the Funds on which call options
are written and cash or liquid assets in amounts sufficient to cover put options
written on securities by "tagging" such securities or assets and not permitting
them to be sold. Likewise, such segregation may be used in connection with the
covering of put and call options written on futures contracts. Assets of certain
of the Funds constituting margin deposits with respect to financial futures
contracts generally are held in the custody of FCMs through which such
transactions are effected. These Funds may also be required to post margin
deposits with respect to covered call and put options written on stock indices
and for this purpose certain assets of the Fund may be segregated pursuant to
similar arrangements with the brokers involved.
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
Company's board of trustees, is the Chairman of the board, Chief Executive
Officer and President of GEID.
NET ASSET VALUE
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<PAGE>
The Company 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 of directors. In carrying out the
board of directors' valuation policies, GEAM may consult with one or more
independent pricing services ("Pricing Service") retained by the Company.
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 GEAM under the general supervision and
responsibility of the board of directors.
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 Rule 2a-7. Under Rule 2a-7, 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 GEAM to present minimal credit risks. Pursuant
to the rule, GEAM 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 GEAM may deem
appropriate to determine whether the Fund's net
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asset value calculated by using available market quotations or market
equivalents deviates from $1.00 per share based on amortized cost.
Rule 2a-7 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 of directors. In the event the
board of directors determines that a deviation exists that may result in
material dilution or other unfair results to investors or existing shareholders
of the Money Market Fund, the board of directors must, in accordance with the
rule, cause the Fund to take such corrective action as the board of directors
regards as necessary and appropriate, including: selling portfolio instruments
of the Fund prior to maturity to realize capital gains or losses or to shorten
average portfolio maturity; withholding dividends or paying distributions from
capital or capital gains; redeeming shares in kind; or establishing a net asset
value per share by using available market quotations.
DIVIDENDS, DISTRIBUTIONS AND TAXES
Set forth below is a summary of certain federal income tax considerations
generally affecting the Funds. This discussion summarizes certain tax
consequences to shareholders in the Funds (which are the separate accounts and
not the variable contract holders). No discussion of consequences to contract
holders is included. This is a general discussion only and does not constitute
tax advice.
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 Fund.
The Company intends for each Fund to continue to qualify each year as a
"regulated investment company" under Sub-Chapter M of the Code. If a Fund (1) is
a regulated investment company and (2) distributes to its shareholders at least
90% of its net investment income (including for this purpose its net realized
short-term capital gains) and 90% of its tax-exempt interest income (reduced by
certain expenses), the Fund will not be liable for federal income taxes to the
extent that its net investment income and its net realized long-term and
short-term capital gains, if any, are distributed to its shareholders. In
addition, in order to avoid a 4% excise tax, a Fund must declare, no later than
December 31 and distribute no later than the following January 31, at least 98%
of its taxable ordinary income earned during the calendar year and 98% of its
capital gain net income for the 1-year period ending generally on October 31 of
such calendar year. One requirement for qualification as a regulated investment
company is that each Fund must diversify its holdings so that, at the end of
each quarter, (i) at least 50% of the market value of the Fund's assets is
represented by cash and cash items, securities of other regulated investment
companies, U.S. government securities and other securities, with such other
securities limited for purposes of this calculation in respect of any one issuer
to an amount not greater than
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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").
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.
Investment income received from sources within foreign countries may be
subject to foreign income taxes. In this regard, withholding tax rates in
countries with which the United States does not have a tax treaty are often as
high as 30% or more. The United States has entered into tax treaties with many
foreign countries which entitle certain investors (such as the International
Fund or the Global Income Fund) to a reduced rate of tax (generally 10-15%) or
to certain exemptions from tax. The International Fund and Global Income Fund
intend operate so as to qualify for such reduced tax rates or tax exemptions
whenever possible. While policyholders will bear the cost of any foreign tax
withholding, they will not be able to claim a foreign tax credit or deduction
for taxes paid by the International Fund or the Global Income Fund.
A Fund's transactions in options and futures contracts are subject to
special provisions of the Code that, among other things, may affect the
character of gains and losses realized by the Fund (that is, may affect whether
gains or losses are ordinary or capital), accelerate recognition of income to
the Fund and defer losses of the Fund. These rules (1) could affect the
character,
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amount and timing of distributions to shareholders of a Fund, (2) will require
the Fund to "mark to market" certain types of the positions in its portfolio
(that is, treat them as if they were closed out) and (3) may cause the Fund to
recognize income without receiving cash with which to make distributions in
amounts necessary to satisfy the distribution requirements for avoiding income
and excise taxes described above and in the Prospectus. The Company 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.
Each of the Funds also intends to comply with section 817(h) of the Code
and the regulations issued thereunder, which impose certain investment
diversification requirements on life insurance companies' separate accounts
(such as the Accounts) that are used to fund benefits under variable life
insurance and variable annuity contracts. These requirements are in addition to
the requirements of subchapter M and of the 1940 Act, and may affect the
securities in which a Fund may invest. In order to comply with the current of
future requirements of section 817(h) (or related provisions of the Code), the
Company may be required, for example, to alter the investment objectives of one
or more of the Funds.
Section 817(h) of the Code and the regulations thereunder impose
"diversification" requirements on each Fund. Each Fund intends to comply with
the diversification requirements. These requirements are in addition to the
diversification requirements imposed on each Fund by Subchapter M and the 1940
Act. The 817(h) requirements place certain limitations on the assets of each
separate account that may be invested in securities of a single issuer. These
limitations apply to each Fund's assets that may be invested in securities of a
single issuer. Specifically, the regulations provide that, except as permitted
by a "safe harbor" described below, as of the end of each calendar quarter or
within 30 days thereafter, no more than 55% of a Fund's total assets may be
represented by any one investment, no more than 70% by any two investments, no
more than 80% by any three investments, and no more than 90% by any four
investments.
Section 817(h) provides, as a safe harbor, that a separate account will be
treated as being adequately diversified if the diversification requirements
under Subchapter M are satisfied and no more than 55% of the value of the
account's total assets are cash and cash items, government securities, and
securities of other regulated investment companies. For purposes of Section
817(h), all securities of the same issuer, all interests in the same real
property project, and all interests in the same commodity are treated as a
single investment. In addition, each U.S. Government agency or instrumentality
is treated as a separate issuer, while the securities of a particular foreign
government and its agencies, instrumentalities, and political subdivisions will
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be considered securities issued by the same issuer. Failure of a Fund to satisfy
the Section 817(h) requirements would result in taxation of the applicable
separate accounts, the insurance companies variable life policies and variable
annuity contracts, and tax consequences to the holders thereof.
THE FUNDS' PERFORMANCE
The Company, from time to time, may quote a Fund's performance, in terms
of yield and/or total return, in reports or other communications to investors of
a Fund or in advertising material. Additional information regarding the manner
in which performance figures are calculated is provided below.
Yield for the Money Market Fund
The Company may, from time to time, publish the yield and effective yield
of the Money Market Fund in advertisements or reports to shareholders or
prospective investors. "Current yield" is based upon the income that a
hypothetical investment in shares of the Fund would earn over a stated seven-day
period. This amount is then "annualized" by assuming that the amount of income
generated over that week is generated each week over a 52-week period and is
shown as a percentage of the investment. The Money Market Fund's "effective
yield" is calculated similarly, but, when annualized, the income earned by an
investment in the Fund is assumed to be reinvested. For any stated period, the
effective yield is slightly higher than the current yield because of the
compounding effect of this presumed reinvestment.
The yield for the Money Market Fund is computed by (1) determining the net
change in the value of a hypothetical pre-existing account in the Fund having a
balance of one share at the beginning of a seven-calendar-day period for which
yield is to be quoted, (2) dividing the net change by the value of the account
at the beginning of the period to obtain the base period return, and (3)
annualizing the results (that is, multiplying the base period return by 365/7).
The net change in the value of the account reflects the value of additional
shares purchased with dividends declared on the original share and any such
additional shares less a hypothetical charge reflecting deductions from
shareholder accounts, but does not include realized gains and losses or
unrealized appreciation and depreciation. In addition, the Company 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 December
31, 1999, for shares of the Money Market Fund were 5.67% and 5.83% respectively.
Had GEAM not
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waived a portion of the Money Market Fund's management fee, its
seven-day yield and effective seven-day yield as of December 31, 1999 would have
been lower.
30-Day Yield
From time to time, the Company may publish 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.
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 December 31, 1999, for shares of the
following Funds was as follows:
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Global Income Fund 6.51%
Income Fund 4.25%
Average Annual Total Return
From time to time, the Company 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 a Fund from the beginning date of the measuring period to the ending date of
the period. The figure reflects changes in the price of shares and assumes that
any income, dividends and/or capital gains distributions made by the Fund during
the period are reinvested. When considering average annual total return figures
for periods longer than one year, investors should note that a Fund's annual
total return for any one year in the period might have been greater or less than
the average for the entire period.
The "average annual total return" figures for the Funds described below
are computed 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.
ERV assumes complete redemption of the hypothetical investment at the end
of the measuring period.
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The chart below shows each Fund's historic performance for the referenced
period compared with the historic performance of broad market indices for the
same time period.
- -------------------------------------------------------------------------------
Average Annual Total Return
for Periods Ending One Five Ten Since Incept.
December 31, 1999 Year Year Year Inception Date
- -------------------------------------------------------------------------------
U.S. Equity Fund 19.61% N/A N/A 26.37% 1/3/95
- -------------------------------------------------------------------------------
S&P 500 Index Fund 20.61% 27.86% 17.71% N/A 4/15/85
- -------------------------------------------------------------------------------
Premier Growth Equity Fund 36.26% N/A N/A 37.53% 12/12/97
- -------------------------------------------------------------------------------
Value Equity Fund N/A N/A N/A N/A 5/1/00
- -------------------------------------------------------------------------------
Mid-Cap Value Equity Fund 17.26% N/A N/A 20.85% 5/1/97
- -------------------------------------------------------------------------------
Small-Cap Value Equity Fund N/A N/A N/A N/A 5/1/00
- -------------------------------------------------------------------------------
International Equity Fund 30.33% N/A N/A 15.72% 5/1/95
- -------------------------------------------------------------------------------
Europe Equity Fund N/A N/A N/A N/A 5/1/00
- -------------------------------------------------------------------------------
Emerging Markets Fund N/A N/A N/A N/A 5/1/00
- -------------------------------------------------------------------------------
Income Fund -1.43% N/A N/A 6.89% 1/3/95
- -------------------------------------------------------------------------------
Global Income Fund -7.49% N/A N/A 3.07% 5/1/97
- -------------------------------------------------------------------------------
Money Market Fund 5.00% 5.40% 4.84% N/A 7/1/85
- -------------------------------------------------------------------------------
Total Return Fund 13.25% 17.25% 13.41% N/A 7/1/85
- -------------------------------------------------------------------------------
Real Estate Securities Fund -0.22% N/A N/A 10.06% 5/1/95
- -------------------------------------------------------------------------------
The performance data related to the shares of U.S. Equity Fund and the
Income Fund, reflect the prior performance (net of expenses) of the GE U.S.
Equity Portfolio and GE Fixed Income Portfolio, respectively, of the Variable
Investment Trust, the assets of which were "transferred" to the corresponding
Funds in a substitution transaction. The substitution transaction occurred on
December 12, 1997, when the shareholder of each of these Portfolios (Great
Northern Annuity Corporation) redeemed its shares of GE U.S. Equity Portfolio
and GE Fixed Income Portfolio in kind and applied the redemption proceeds to the
purchase of shares of the Company's U.S. Equity Fund and Income Fund.
Certain fees and expenses of the Funds have been waived and/or borne by
the Funds' prior investment advisers. GEAM currently waives certain fees for the
Money Market Fund. Had these fees and expenses not been absorbed, the average
annual total returns would have been lower.
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Aggregate Total Return
The Company may also publish "aggregate total return" figures in
advertisements, sales literature and shareholder reports. Aggregate total return
represents the cumulative change in value of an investment in 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). Aggregate total
return data reflects compounding over a longer period of time than does annual
total return data, and therefore aggregate total returns are generally greater.
The Company also may publish 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 a share 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;
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.
Yield and total return figures are based on historical performance and are not
intended to indicate future performance.
Comparative Performance Information
In addition to the comparative performance information included in the
Prospectus and otherwise quoted in sales and advertising materials, the Company
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 GEAM derived from those indices.
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PRINCIPAL STOCKHOLDERS
The Company was incorporated in the Commonwealth of Virginia on May 14,
1984. The authorized capital stock of the Company consists of 3.75 billion
shares of cap ital stock, par value one cent ($0.01) per share.
Each issued and outstanding share of a Fund is entitled to participate
equally in dividends and distributions declared by the respective Fund and, upon
liquidation or dissolution, in net assets allocated to such class remaining
after satisfaction of outstanding liabilities. The shares of each Fund are fully
paid and non-assessable and have no preemptive or conversion rights.
GE Life and Annuity Assurance Company ("GE Life and Annuity") (previously,
The Life Insurance Company of Virginia) and its Accounts, GE Capital Life
Assurance Company of New York and its Accounts, GE Financial Assurance Holdings,
Inc., and General Electric Capital Assurance Company ("General Electric
Capital") are the only shareholders of record. As of March 31, 2000, there were
no contract owners who beneficially owned a 5% or greater voting interest in any
Fund. As of March 31, 2000 officers and directors of the Company together
beneficially owned (i.e., as owners of variable annuity or variable life
insurance contracts) less than 1% of any Fund.
FUND HISTORY AND ADDITIONAL INFORMATION
General Information
GE Investments Funds, Inc. (the "Company") is an open-end management
investment company incorporated under the laws of the Commonwealth of Virginia
on May 14, 1984. The Company consists of fourteen separate investment portfolios
(the "Funds" or a "Fund"), each of which is, in effect, a separate mutual fund.
The Company issues a separate class of capital stock for each Fund representing
fractional undivided interests in that Fund. An investor, by investing in a
Fund, becomes entitled to a pro-rata share of all dividends and distributions
arising from the net income and capital gains on the investments of that Fund.
Likewise, an investor shares pro-rata in any losses of that Fund.
Pursuant to investment advisory agreements and subject to the authority of
the Company's board of directors, GEAM serves as the Company's investment
adviser and administrator and conducts the business and affairs of the Company.
GEAM has engaged SSGA as the investment sub-adviser to provide day-to-day
portfolio management to the S&P 500 Index Fund; has engaged Seneca as the
investment sub-adviser to provide day-to-day portfolio management to the Real
Estate Securities Fund; has engaged NWQ as the investment sub-adviser to provide
day-to-day portfolio management to the Mid-Cap Value Equity Fund; and has
engaged GEAML to provide day-to-day portfolio management to the Global Income
Fund. (As used herein, "Adviser" shall refer to GEAM and, where applicable,
either SSGA, Seneca, NWQ
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or GEAML in their respective roles.)
The Company currently offers each class of its capital stock to separate
accounts (the "Accounts") of various life insurance companies as funding
vehicles for certain variable annuity contracts and variable life insurance
contracts ("variable contracts") issued by such life insurers through the
Accounts. Certain of these life insurance companies may be affiliates of the
Company or GEAM.
The Company does not offer its stock directly to the general public. As of
the date of this SAI, each Account (with one exception) is registered as an
investment company with the SEC and a separate prospectus describing each such
Account and variable contract being offered through that Account will accompany
the Prospectus when shares of the Company are offered as a funding vehicle for
such variable contracts. The one Account that is not registered as an investment
company with the SEC has a separate disclosure document (rather than a
prospectus) describing the Account and the variable contracts being offered
through that Account which will accompany the Prospectus when shares of the
Company are offered as a funding vehicle for such variable contracts. The
Company may, in the future, offer any class of its capital stock directly to
qualified pension and retirement plans.
Prior History
On May 1, 1993, pursuant to shareholder approval obtained on April 20,
1993, the name and the investment objectives, policies and fundamental
restrictions of the S&P 500 Index Fund (prior to that time, the Common Stock
Portfolio) was changed. The investment objective of the Common Stock Portfolio
was intermediate and long-term growth of capital, with reasonable income a
consideration. The Common Stock Portfolio sought to achieve this objective by
investing principally in common stocks and securities convertible into or with
rights to purchase common stocks. From May 1, 1993 until April 30, 1997, the S&P
500 Index Fund was called the Common Stock Index Portfolio. On May 1, 1997, it
changed its name (but not its investment objectives) to the S&P 500 Index Fund.
Voting Rights
All shares of capital stock have equal voting rights, except that only
shares representing interests in a particular Fund will be entitled to vote on
matters affecting only that Fund. The shares do not have cumulative voting
rights. Accordingly, owners of variable annuity or variable life insurance
contracts having voting interests in more than 50% of the shares of the Company
voting for the election of directors could elect all of the directors of the
Company if they choose to do so, and in such event, contract owners having
voting interests in the remaining shares would not be able to elect any
directors. GE Life and Annuity and General Electric Capital (directly or through
the Accounts) currently own all shares of the Company. GE Life and Annuity and
General Electric Capital will vote all shares of the Company (or a Fund) as
described in the prospectus.
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Counsel
Sutherland Asbill & Brennan LLP, 1275 Pennsylvania Avenue, N.W.,
Washington, D.C. 20004-2404 serves as counsel for the Company.
Independent Auditors
KPMG LLP, 345 Park Avenue, New York, New York 10154, serves as independent
auditors of the Company.
FINANCIAL STATEMENTS
The Annual Report dated December 31, 1999, which either accompanies this
SAI or has previously been provided to the person to whom this SAI is being
sent, is incorporated herein by reference with respect to all information other
than the information set forth in the Letter to Shareholders included in the
Annual Report. The Company will furnish, without charge, a copy of the Financial
Reports, upon request to the Company at P.O. Box 120065, Stamford, CT
06912-0065, (800) 493-3042.
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APPENDIX - DESCRIPTION OF RATINGS
Commercial Paper Ratings
The rating A-1+ is the highest, and A-1 the second highest commercial
paper rating assigned by S&P. Paper rated A-1+ must have either the direct
credit support of an issuer or guarantor that possesses excellent long-term
operating and financial strength combined with strong liquidity characteristics
(typically, such issuers or guarantors would display credit quality
characteristics that would warrant a senior bond rating of AA or higher) or the
direct credit support of an issuer or guarantor that possesses above average
long-term fundamental operating and financing capabilities combined with ongoing
excellent liquidity characteristics. Paper rated A-1 must have the following
characteristics: liquidity ratios are adequate to meet cash requirements;
long-term senior debt is rated A or better; the issuer has access to at least
two additional channels of borrowing; basic earnings and cash flow have an
upward trend with allowance made for unusual circumstances; typically, the
issuer's industry is well established and the issuer has a strong position
within the industry; and the reliability and quality of management are
unquestioned. Capacity for timely payment on issues rated A-2 is satisfactory.
However, the relative degree of safety is not as high as issues designated
"A-1."
The rating Prime-1 is the highest commercial paper rating assigned by
Moody's. Among the factors considered by Moody's in assigning ratings are the
following: (a) evaluation of the management of the issuer; (b) economic
evaluation of the issuer's industry or industries and an appraisal of
speculative-type risks that may be inherent in certain areas; (C) evaluation of
the issuer's products in relation to competition and customer acceptance; (d)
liquidity; (e) amount and quality of long-term debt; (f) trend of earnings over
a period of ten years; (g) financial strength of parent company and the
relationships that exist with the issue; and (h) recognition by the management
of obligations that may be present or may arise as a result of public interest
questions and preparations to meet the obligations.
Issuers rated Prime-2 (or supporting institutions) have a strong ability
for repayment of senior short-term debt obligations. This normally will be
evidenced by many of the characteristics cited above, but to a lesser degree.
Earnings trends and coverage ratios, while sound, may be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
Short-term obligations, including commercial paper, rated A-1+ by ICA
Limited or its affiliate ICA Inc. are obligations supported by the highest
capacity for timely repayment. Obligations rated A-1 have a very strong capacity
for timely repayment. Obligations rated A-2 have a strong capacity for timely
repayment, although that capacity may be susceptible to adverse changes in
business, economic and financial conditions.
A-1
<PAGE>
Fitch Investors Services, Inc. employs the rating F-1+ to indicate issues
regarded as having the strongest degree of assurance of timely payment. The
rating F-1 reflects an assurance of timely payment only slightly less in degree
than issues rated F-1+, while the rating F-2 indicates a satisfactory degree of
assurance of timely payment although the margin of safety is not as great as
indicated by the F-1+ and F-1 categories.
Duff & Phelps Inc. employs the designation of Duff 1 with respect to top
grade commercial paper and bank money instruments. Duff 1+ indicates the highest
certainty of timely payment: short-term liquidity is clearly outstanding and
safety is just below risk-free U.S. Treasury short-term obligations. Duff 1-
indicates high certainty of timely payment. Duff 2 indicates good certainty of
timely payment; liquidity factors and company fundamentals are sound.
Thomson BankWatch Inc. employs the rating TAW-1 to indicate issues having
a very high degree of likelihood of timely payment. TAW-2 indicates a strong
degree of safety regarding timely payment, however, the relative degree of
safety is not as high as for issues rated TAW-1. While the rating TAW-3
indicates issues that are more susceptible to adverse developments than
obligations with higher ratings, capacity to service principal and interest in a
timely fashion is considered adequate. The lowest rating category is TAW-4; this
rating is regarded as non-investment grade and, therefore, speculative.
Various NRSROs utilize rankings within ratings categories indicated by a
plus or minus sign. The Funds, in accordance with industry practice, recognize
such ratings within categories or gradations, viewing for example S&P's ratings
of A-1+ and A-1 as being in S&P's highest rating category.
Description of S&P Corporate Bond Ratings
AAA -- This is the highest rating assigned by S&P to a bond and indicates
an extremely strong capacity to pay interest and repay principal.
AA -- Bonds rated AA have a very strong capacity to pay interest and repay
principal and differ from AAA issues only in small degree.
A -- Bonds rated A have a strong capacity to pay interest and repay
principal although they are somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than debt in higher rated
categories.
BBB -- Bonds rated BBB have an adequate capacity to pay interest and repay
principal. Adverse economic conditions or changing circumstances are more likely
to lead to a weakened capacity to pay interest and repay principal for bonds in
this category (even though they normally exhibit adequate protection parameters)
than for bonds in higher rated categories.
A-2
<PAGE>
BB, B and CCC -- Bonds rated BB and B are regarded, on balance, as
predominately speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligation. BB represents a lower
degree of speculation than B, and CCC the highest degree of speculation. While
such bonds will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major risk exposures to adverse
conditions.
To provide more detailed indications of credit quality, the ratings from
AA to B may be modified by the addition of a plus or minus sign to show relative
standing within this major rating category.
Description of Moody's Corporate Bond Ratings
Aaa -- Bonds that are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edge." Interest payments are protected by a large or exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa -- Bonds that are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present that
make the long-term risks appear somewhat larger than in Aaa securities.
A -- Bonds that are rated A possess favorable investment attributes and
are to be considered as upper medium grade obligations. Factors giving security
to principal and interest are considered adequate, but elements may be present
that suggest a susceptibility to impairment sometime in the future.
Baa -- Bonds that are rated Baa are considered as medium-grade
obligations, that is, they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
Ba -- Bonds that are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
A-3
<PAGE>
B -- Bonds that are rated B generally lack characteristics of desirable
investments. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa -- Bonds that are rated Caa are of poor standing. These issues may be
in default, or present elements of danger may exist with respect to principal or
interest.
Moody's applies numerical modifiers (1, 2 and 3) with respect to the bonds
rated Aa through B, The modifier 1 indicates that the bond being rated ranks in
the higher end of its generic rating category; the modifier 2 indicates a
mid-range ranking; and the modifier 3 indicates that the bond ranks in the lower
end of its generic rating category.
Description of S&P Municipal Bond Ratings
AAA -- Prime -- These are obligations of the highest quality. They have
the strongest capacity for timely payment of debt service.
General Obligation Bonds -- In a period of economic stress, the issuers
will suffer the smallest declines in income and will be least susceptible to
autonomous decline. Debt burden is moderate. A strong revenue structure appears
more than adequate to meet future expenditure requirements. Quality of
management appears superior.
Revenue Bonds -- Debt service coverage has been, and is expected to
remain, substantial. Stability of the pledged revenues is also exceptionally
strong due to the competitive position of the municipal enterprise or to the
nature of the revenues. Basic security provisions (including rate covenant,
earnings test for issuance of additional bonds, debt service reserve
requirements) are rigorous. There is evidence of superior management.
AA -- High Grade -- The investment characteristics of bonds in this group
are only slightly less marked than those of the prime quality issues. Bonds
rated AA have the second strongest capacity for payment of debt service.
A -- Good Grade -- Principal and interest payments on bonds in this
category are regarded as safe although the bonds are somewhat more susceptible
to the adverse effects of changes in circumstances and economic conditions than
bonds in higher rated categories. This rating describes the third strongest
capacity for payment of debt service. The ratings differ from the two higher
ratings of municipal bonds, because:
General Obligations Bonds -- There is some weakness, either in the local
economic base, in debt burden, in the balance between revenues and expenditures,
or in quality of management. Under certain adverse circumstances, any one such
weakness might impair the ability of the issuer to meet debt obligations at some
future date.
A-4
<PAGE>
Revenue Bonds -- Debt service coverage is good, but not exceptional.
Stability of the pledged revenues could show some variations because of
increased competition or economic influences on revenues. Basic security
provisions, while satisfactory, are less stringent. Management performance
appears adequate.
BBB -- Medium Grade -- Of the investment grade ratings, this is the
lowest. Bonds in this group are regarded as having an adequate capacity to pay
interest and repay principal. Adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay interest and
repay principal for bonds in this category (even though they normally exhibit
adequate protection parameters) than for bonds in higher rated categories.
General Obligation Bonds -- Under certain adverse conditions, several of
the above factors could contribute to a lesser capacity for payment of debt
service. The difference between A and BBB ratings is that the latter shows more
than one fundamental weakness, or one very substantial fundamental weakness,
whereas, the former shows only one deficiency among the factors considered.
Revenue Bonds -- Debt coverage is only fair. Stability of the pledged
revenues could show substantial variations, with the revenue flow possibly being
subject to erosion over time. Basic security provisions are no more than
adequate. Management performance could be stronger.
BB, B, CCC and CC -- Bonds rated BB, B, CCC and CC are regarded, on
balance, as predominately speculative with respect to capacity to pay interest
and repay principal in accordance with the terms of the obligation. BB includes
the lowest degree of speculation and CC the highest degree of speculation. While
these bonds will likely have some quality and protective characteristics, these
characteristics are outweighed by large uncertainties or major risk exposures to
adverse conditions.
C -- The rating C is reserved for income bonds on which no interest is
being paid.
D -- Bonds rated D are in default, and payment of interest and/or
repayment of principal is in arrears.
S&P's letter ratings may be modified by the addition of a plus or a minus
sign, which is used to show relative standing within the major rating
categories, except in the AAA-Prime Grade category.
Description of S&P Municipal Note Ratings
Municipal notes with maturities of three years or less are usually given
note ratings (designated SP-1, -2 or -3) to distinguish more clearly the credit
quality of notes as compared to bonds. Notes rated SP-1 have a very strong or
strong capacity to pay principal and interest.
A-5
<PAGE>
Those issues determined to possess overwhelming safety characteristics are given
the designation of SP-1+. Notes rated SP-2 have satisfactory capacity to pay
principal and interest.
Description of Moody's Municipal Bond Ratings
Aaa -- Bonds that are rated Aaa are judged to be the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edge." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
Aa -- Bonds that are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities, or fluctuation of
protective elements may be of greater amplitude, or there may be other elements
present that make the long-term risks appear somewhat larger than in Aaa
securities.
A -- Bonds that are rated A possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate, but elements may be
present that suggest a susceptibility to impairment sometime in the future.
Baa -- Bonds that are rated Baa are considered as medium grade
obligations, that is, they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
Ba -- Bonds that are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterize bonds in this class.
B -- Bonds that are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time may be
small.
Caa -- Bonds that are rated Caa are of poor standing. Such issues may be
in default or there may be present elements of danger with respect to principal
or interest.
Ca -- Bonds that are rated Ca represent obligations that are speculative
in a high degree. Such issues are often in default or have other marked
shortcomings.
A-6
<PAGE>
C -- Bonds that are rated C are the lowest rated class of bonds, and
issues so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.
Moody's applies the numerical modifiers 1, 2 and 3 in each generic rating
classification from Aa through B. The modifier 1 indicates that the security
ranks in the higher end of its generic ratings category; the modifier 2
indicates a mid-range ranking; and the modifier 3 indicates that the issue ranks
in the lower end of its generic ratings category.
Description of Moody's Municipal Note Ratings
Moody's ratings for state and municipal notes and other short-term loans
are designated Moody's Investment Grade (MIG) and for variable rate demand
obligations are designated Variable Moody's Investment Grade (VMIG). This
distinction recognizes the differences between short-term credit risk and
long-term risk. Loans bearing the designation MIG 1/VMIG 1 are the best quality,
enjoying strong protection from established cash flows of funds for their
servicing or from established and broad-based access to the market for
refinancing, or both. Loans bearing the designation MIG 2/VMIG 2 are of high
quality, with margins of protection ample, although not as large as the
preceding group. Loans bearing the designation MIG 3/VMIG3 are of favorable
quality, with all security elements accounted for but lacking the undeniable
strength of the higher grades. Market access for refinancing, in particular, is
likely to be less well established. Loans bearing the designation MIG 4/VMIG 4
are of adequate quality. Protection commonly regarded as required of an
investment security is present and although not distinctly or predominantly
speculative, there is specific risk.
A-7
<PAGE>
PART C
OTHER INFORMATION
Item 23. Financial Statements and Exhibits
Financial Statements:
Included in Part A:
Financial Highlights for the fiscal year ended December 31, 1999.
Included in Part B:
(1) Financial Highlights for the periods ended December 31, 1999.*
(2) Statements of Assets and Liabilities at December 31, 1999.*
(3) Statements of Operations for the periods ended December 31,
1999.*
(4) Statements of Changes in Net Assets for the periods ended
December 31, 1999.*
(5) Schedules of Investments at December 31, 1999.*
(6) Report of Independent Accountants dated February 4,
2000.*
- ----------
* Incorporated into the Statement of Additional Information by reference to
GE Investments Funds, Inc.'s Annual Report dated December 31, 1999.
<PAGE>
Exhibits:
Exhibit No. Description of Exhibit
----------- ----------------------
(a) Amended and restated Articles of Incorporation of GE
Investments Funds, Inc. dated March 16, 2000.
(b) Amended and restated by-laws of Life of Virginia Series Fund,
Inc., dated January 25, 1995, incorporated herein by
reference to post- effective amendment number 15 to this Form
N-1A registration statement (File No. 2-91369), filed with
the Commission on May 1, 1995.
(c) Inapplicable.
(d)(1) Investment Advisory and Administration Agreement, dated May
1, 1997, between GE Investments Funds, Inc. and GE Investment
Management Incorporated, incorporated herein by reference to
post- effective amendment number 18 to this Form N-1A
registration statement (File No. 2-91369), filed with the
Commission on April 30, 1997.
(d)(2) Sub-Advisory Agreement, dated May 1, 1997, between GE
Investment Management Incorporated and GMG/Seneca Capital
Management, LLC, incorporated herein by reference to
post-effective amendment number 18 to this Form N-1A
registration statement (File No. 2-91369), filed with the
Commission on April 30, 1997.
(e) Distribution Agreement, dated October 23, 1997, between GE
Investments Funds, Inc. and GE Investment Services, Inc.,
incorporated herein by reference to post-effective amendment
number 21 to this Form N-1A registration statement (File No.
2-91369), filed with the Commission on October 24, 1997.
(f) Inapplicable.
(g) Custody Agreement dated May 1, 1997, between GE Investments
Funds, Inc. and State Street Bank and Trust Company,
incorporated herein by reference to post-effective amendment
number 21 to this Form N-1A registration statement (File No.
2-91369), filed with the Commission on October 24, 1997.
C-2
<PAGE>
(h)(1) Transfer Agency and Service Agreement, dated May 1, 1997,
between GE Investments Funds, Inc. and State Street Bank and
Trust Company, incorporated herein by reference to
post-effective amendment number 21 to this Form N-1A
registration statement (File No. 2-91369), filed with the
Commission on October 24, 1997.
(h)(2) Participation Agreement, dated May 1, 1998, between
Registrant and GE Life and Annuity Assurance Company.
(i)(1) Opinion and consent of William E. Daner, Jr., Esq.,
incorporated herein by reference to the Rule 24f-2 Notice
filing made by GE Investments Funds, Inc. on February 28,
1997.
(i)(2) Opinion and consent of Sutherland Asbill & Brennan LLP
relating to shares of Value Equity Fund, Small Cap Value
Equity Fund, Europe Equity Fund and Emerging Markets Fund.
(j)(1) Consent of Sutherland Asbill & Brennan LLP
(j)(2) Consent of KPMG LLP.
(k) Inapplicable.
(l) Inapplicable.
(m) Inapplicable.
(n) Inapplicable.
(p)(1) Code of Ethics for GE Investments Funds, Inc. Incorporated
herein by reference to post-effective amendment number 11 to
the Form N-1A registration statement for GE Institutional
Funds (File No. 333-29337) Filed with the Commission on
April 25, 2000.
(p)(2) Code of Ethics for GE Asset Management Incorporated and for
GE Investment Distributors, Inc. Incorporated herein by
reference to post-effective amendment number 11 to the Form
N-1A registration statement for GE Institutional Funds (File
No. 333-29337) Filed with the Commission on April 25, 2000.
(q) Powers of attorney, incorporated herein by reference to
post-effective amendment number 24 to this Form N-1A
registration statement (File No. 2-91369), filed with the
Commission on February 25, 1999.
Item 24. Persons Controlled by or Under Common Control with Registrant
The list required by this Item 24 of persons controlled by or under common
control with Registrant, which includes the subsidiaries of General Electric
Company ("GE"), is incorporated herein by reference to Exhibit 21, "Subsidiaries
of Registrant," of the Form 10-K filed by GE
C-3
<PAGE>
pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934, as
amended (SEC File No. 1-35) for the fiscal year ended December 31, 1999 (the
"Form 10-K"). Additional information about persons controlled by or under common
control with Registrant is incorporated herein by reference to pages 10-16 of
the Form 10-K, beginning under the caption "GEC Segments."
Item 25. Indemnification
Under Section 13.1-697.A of the Virginia Stock Corporation Act, with
respect to any threatened, pending or completed proceeding against a present or
former director, officer, employee or agent ("corporate representative") of the
registrant, except a proceeding brought by or on the behalf of the registrant,
the registrant may indemnify the corporate representative against expenses,
including attorneys' fees, judgments, fines and amounts paid in settlement
actually and reasonably incurred by him in connection with such proceedings, if:
(i) he acted in good faith and in a manner he reasonably believed to be in or
not opposed to the best interest of the registrant; and (ii) with respect to any
criminal action or proceeding, he had no reasonable cause to believe his conduct
was unlawful. The registrant is also authorized under Section 13.1- 3.1(b) of
the Virginia Stock Corporation Act to indemnify a corporate representative under
certain circumstances against expenses incurred in connection with any
threatened, pending, or completed proceeding brought by or in the right of the
registrant.
The Articles of Incorporation of the Fund (Exhibit 1.(c) to this
Registration Statement) provide that the Fund may indemnify its corporate
representatives, in a manner that is consistent with the laws of the
Commonwealth of Virginia. The Articles preclude indemnification for "disabling
conduct"" (willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties involved in the conduct of office) and sets forth
reasonable and fair means for determining whether indemnification shall be made.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the Fund has
been advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of such action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the 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.
C-4
<PAGE>
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 GEAM, 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 GEAM 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 NWQ
Investment Management Company ("NWQ"), the Mid-Cap Value Equity 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).
The list required by this Item 26 of officers and directors of Seneca
Capital Management ("Seneca"), the Real Estate Securities 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 Seneca pursuant to the Advisers Act (SEC File No.
801-51559).
The list required by this Item 26 of officers and directors of Palisade
Capital Management, L.L.C. ("Palisade"), the Small CapValue Equity 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 Palisade pursuant to the Advisers Act (SEC File
No. 801-48401).
C-5
<PAGE>
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 and the
Investment Company Act of 1940, GE Investments Funds, Inc. certifies that it
meets all of the requirements for effectiveness of this registration statement
under Rule 485(b) under the Securities Act of 1933 and has duly caused this
Post-Effective Amendment No. 27 to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Stamford, State of Connecticut on this
26th day of April, 2000.
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, this
post-effective amendment to the registration statement has been signed below by
the following persons in the capacities and on the dates indicated.
Signature Title Date
- --------- ----- ----
/s/ Michael J. Cosgrove President (Principal Executive 4/26/00
- -------------------------- Officer) and Director
Michael J. Cosgrove
/s/ Michael Tansley Treasurer (Principal Financial 4/26/00
- ---------------------------- and Accounting Officer)
Michael Tansley
/s/ John R. Costantino* Director 4/26/00
- ---------------------------
John R. Costantino
/s/ William J. Lucas* Director 4/26/00
- ----------------------------
William J. Lucas
/s/ Robert P. Martin, Jr.* Director 4/26/00
- --------------------------
Robert P. Martin, Jr.
/s/ J. Clifford Miller, III* Director 4/26/00
- ----------------------------
J. Clifford Miller, III
/s/ Lee A. Putney* Director 4/26/00
- ----------------------------
Lee A. Putney
/s/ Robert P. Quinn* Director 4/26/00
- --------------------------
Robert P. Quinn
* Signature affixed by Matthew J. Simpson pursuant to a power of attorney dated
December 9, 1998.
<PAGE>
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
GE INVESTMENTS FUNDS, INC.
(March 16, 2000)
The undersigned person, pursuant to Section 13.1-711 of the Virginia Stock
Corporation Act, hereby executes the following amended and restated Articles of
Incorporation of GE Investments Funds, Inc. (the "Corporation"), a Virginia:
The Undersigned person, pursuant to Chapter 9, Title 13.1, Section
13.1-711 of the Code of Virginia, hereby executes the following amended and
restated Articles of Incorporation and sets forth the following:
FIRST: The name of the corporation is GE Investments Funds, Inc.
(hereinafter the "Corporation").
SECOND: The purposes for which the Corporation is formed are:
(1) to conduct, operate and carry on the business of an open-end
management investment company described in and regulated by the Investment
Company Act of 1940 (hereinafter the "1940 Act");
(2) to subscribe for, invest in, reinvest in, purchase or otherwise
acquire, hold, pledge, sell, assign, transfer, exchange, distribute or otherwise
dispose of notes, bills, bonds, debentures and other negotiable or
non-negotiable instruments, obligations and evidences of indebtedness issued or
guaranteed as to principal or interest by the United States Government, or any
agency or instrumentality thereof, any State, local or foreign government, or
any agency or instrumentality thereof, or any other securities or other
investments of any kind issued by any corporation or other issuer whether
organized under the laws of the United States or any State, territory or
possession thereof or the laws of any foreign country or any political
subdivision, territory or possession thereof, to pay for the same in cash or by
the issue of stock, including treasury stock, bonds or notes of the Corporation
or otherwise;
(3) to exercise any and all rights, powers and privileges of
ownership or interest in respect of any and all such investments of every kind
and description, including and without limitation, the right to consent and
otherwise act with respect thereto, with power to designate one or more persons,
firms, associations or corporations to exercise any of said rights, powers and
privileges in respect of any said investments;
(4) to conduct research and investigations in respect of securities
or other investments, organizations and general business and financial
conditions in the United States of America and elsewhere for the purpose of
obtaining information pertinent to the investment and employment of the assets
of the Corporation and to procure any or all of the foregoing to be done by
others as independent contractors and to pay compensation therefor;
(5) to borrow money or otherwise obtain credit and, if required, to
secure the same by mortgaging, pledging or otherwise subjecting as security the
assets of the Corporation, and to endorse,
<PAGE>
guarantee or undertake the performance of any obligation, contract or engagement
of any other persons, firm, association or corporation, each subject to the 1940
Act;
(6) to issue, sell, repurchase, redeem, retire, cancel, acquire,
hold, resell, reissue, dispose of, transfer, and otherwise deal in, redeemable
shares of Common Stock of the Corporation, including shares of Common Stock of
the Corporation in fractional denominations, and to apply to any such
repurchase, redemption, retirement, cancellation or acquisition of shares of
Common Stock of the Corporation, any funds or property of the Corporation,
whether capital or surplus or otherwise, to the full extent now or hereafter
permitted by the 1940 Act, the laws of the Commonwealth of Virginia and by these
Articles of Incorporation;
(7) to enter into investment advisory, distribution, administration,
custodian contracts, and such other contracts as may be appropriate;
(8) to have and exercise all of the powers and privileges conferred
by the laws of the Commonwealth of Virginia upon corporations formed under the
laws of such Commonwealth; and
(9) to do any and all such further acts and to exercise any and all
such further powers and privileges as may be necessary, incidental, relative,
conducive, appropriate or desirable for the foregoing purposes.
The enumeration herein of the objects and purposes of the Corporation
shall be construed as powers as well as objects and purposes and shall not be
deemed to exclude by inference any powers, objects or purposes which the
Corporation is empowered to exercise, whether expressly by force of the laws of
the Commonwealth of Virginia now or hereafter in effect, or impliedly by the
reasonable construction of the said laws.
THIRD: The total number of shares of Capital Stock which the Corporation
shall have authority to issue is three billion seven hundred fifty million
(3,750,000,000) having each a par value of one cent.
(1) The shares of such Capital Stock are hereby divided into and
will be issued in the following classes, such classes comprising the number of
shares and having the designations indicated:
------------------------------------------------------
Classes of Capital Stock Number of Shares
------------------------------------------------------
Capital Stock, Class A
S&P 500 Index Fund 250,000,000
------------------------------------------------------
Capital Stock, Class B
Government Securities Fund 250,000,000
------------------------------------------------------
Capital Stock, Class C
Money Market Fund 250,000,000
------------------------------------------------------
Capital Stock, Class D
Total Return Fund 250,000,000
------------------------------------------------------
2
<PAGE>
------------------------------------------------------
Classes of Capital Stock Number of Shares
------------------------------------------------------
Capital Stock, Class E
International Equity Fund 250,000,000
------------------------------------------------------
Capital Stock, Class F
Real Estate Securities Fund 250,000,000
------------------------------------------------------
Capital Stock, Class G
Global Income Fund 250,000,000
------------------------------------------------------
Capital Stock, Class H
Mid-Cap Value Equity Fund 250,000,000
------------------------------------------------------
Capital Stock, Class I
Income Fund 250,000,000
------------------------------------------------------
Capital Stock, Class J
U.S. Equity Fund 250,000,000
------------------------------------------------------
Capital Stock, Class K
Premier Growth Equity Fund 250,000,000
------------------------------------------------------
Capital Stock, Class L
Value Equity Fund 250,000,000
------------------------------------------------------
Capital Stock, Class M
Small-Cap Value Equity Fund 250,000,000
------------------------------------------------------
Capital Stock, Class N
Europe Equity Fund 250,000,000
------------------------------------------------------
Capital Stock, Class O
Emerging Markets Fund 250,000,000
------------------------------------------------------
(2) The Board of Directors may, without shareholder action, amend
these Articles of Incorporation to designate investment portfolios for any class
of Capital Stock. The Board of Directors may redesignate any shares of any
series theretofore established that have not been issued, or that have been
issued and reacquired, as shares of some other series, and may delete from the
Articles of Incorporation any provisions originally adopted by the Board of
Directors without shareholder action fixing the preferences, limitations and
relative rights of any class of shares or series within a class, provided there
are no shares of such class or series then outstanding.
(3) The Corporation may issue fractions of shares of each class of
the Capital Stock of the Corporation (calculated three places beyond the
decimal) having pro rata all the rights of full shares, including, without
limitation, the right to vote and to receive dividends and distributions, as and
when declared by the Board of Directors, and the right to participate upon
liquidation of the Corporation. Where the words "share" or "shares" are used in
these Articles of Incorporation or in the By-Laws, they shall be deemed to
include fractions of shares where the context does not clearly indicate that
only full shares are intended.
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(4) With the approval of a majority of the shareholders of each
affected class of Capital Stock, the Board of Directors may transfer the assets
allocated to any particular class to any other class. Upon such a transfer, the
Corporation shall issue shares of Capital Stock representing interests in the
class to which the assets were transferred, in exchange for all shares of the
Capital Stock representing interest in the class from which the assets were
transferred. Such shares shall be exchanged at their respective net asset
values.
(5) Each share of a class shall have the same rights and privileges
with respect to the assets allocated to such class and shall be entitled to
participate equally in any dividends or distributions that may be declared as
any other share of that class. Each fractional share of a class of Capital Stock
shall have proportionately the same rights and privileges with respect to the
assets allocated to such class as a whole share and shall participate
proportionately in dividends or distributions declared.
(6) Each shareholder of the Capital Stock of the Corporation shall
be entitled to one vote for each full share, and a fractional vote for each
fractional share, of Capital Stock, irrespective of the class, then standing in
his name on the books of the Corporation. On any matter submitted to a vote of
shareholders, all shares of the Capital Stock of the Corporation then issued and
outstanding and entitled to vote shall be voted in the aggregate and not by
class except:
(i) when otherwise expressly required by law, shares of the
Capital Stock shall be voted by individual class; or
(ii) if the Board of Directors, in its sole discretion,
determines that any matter concerns only one or more particular class or
classes, it may direct that only holders of that class or those classes may vote
on the matter.
(7) Each shareholder of any class of the Capital Stock of the
Corporation may require the Corporation to redeem all or any part of the shares
of any class of the Capital Stock of the Corporation standing in the name of
such holder on the books of the Corporation. The Corporation shall redeem all
shares of such Capital Stock tendered to it for redemption at the redemption
price of such shares in effect as determined by the Board of Directors of the
Corporation. This right of redemption is subject to the right of the Board of
Directors of the Corporation to suspend the right of redemption of any class of
shares of the Capital Stock of the Corporation or postpone the date of payment
of such redemption price in accordance with provisions of applicable law.
Redemptions shall be conditioned upon the Corporation's having funds legally
available therefor. The redemption price of shares of any class of the Capital
Stock of the Corporation shall be the net asset value thereof as determined by
the Board of Directors of the Corporation in accordance with the provisions of
applicable law or these Articles, less such redemption fee or other charge, if
any, as may be fixed by resolution of the Board of Directors of the Corporation.
Payment of the redemption price shall be made in cash by the Corporation at such
time and in such manner as may be determined by the Board of Directors of the
Corporation, except that the shares of any class of the Capital Stock may be
redeemed in kind with the assets allocated to that class if the Board of
Directors deems such action desirable.
(8) Each class of the Capital Stock of the Corporation shall have
the following additional rights, qualifications, restrictions and/or
limitations:
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(i) The shares of each class of the Capital Stock, when
issued, will be fully paid and non-assessable, have no preemptive, conversion,
exchange, or similar rights, except as set forth in (ii) below.
(ii) All consideration received by the Corporation for the
issue or sale of the Capital Stock of each class, together with all assets in
which such consideration is invested or reinvested, all income, earnings,
profits and proceeds thereof, including any proceeds derived from the sale,
exchange or liquidation of such assets, and any funds or payments derived from
any reinvestment of such proceeds in whatever form, shall for all purposes be
allocated to the assets of that class, subject only to the liabilities of that
class. Each share of such class of the Capital Stock shall have a pro rata
interest in the assets allocated to that class but shall not have any interest
in the assets allocated to any other class. Any assets, income, earnings,
profits, and proceeds thereof, and funds or payments which are not readily
identifiable as allocable to any particular class, shall be allocated by or
under the general supervision of the Board of Directors to and among one or more
of the classes established and designated in such a manner and on such basis as
the Board of Directors, in its sole discretion, deems fair and equitable.
(iii) The Board of Directors may declare and pay dividends or
distributions, in stock or in cash, upon the shares of any or all classes of the
Capital Stock, the declaration and the amounts of such dividends and
distributions being wholly in the discretion of the Board of Directors subject
to the following conditions:
(a) Dividends or distributions upon shares of any class of the
Capital Stock, when declared by the Board of Directors, shall be paid only out
of earned surplus or other lawfully available assets allocated to such class.
(b) Insomuch as one goal of the Corporation is to qualify as a
"regulated investment company" under the Internal Revenue Code of 1986, as
amended, or any successor or comparable statute, and inasmuch as the computation
of net income and gains for Federal income tax purposes may vary from the
computation thereof on the books of the Corporation, the Board of Directors
shall have the power in its discretion to distribute in any fiscal year as
dividends, including dividends designated in whole or in part as capital gains
distributions, amounts sufficient in the opinion of the Board of Directors, to
enable the Corporation to qualify as a regulated investment company and to avoid
liability of the Corporation for Federal income tax in respect of that year. In
furtherance, and not in limitation of the foregoing, in the event that a class
of shares of the Capital Stock has a net capital loss for a fiscal year, and to
the extent that a net capital loss for a fiscal year offsets net capital gains
from one or more of the other classes, the amount to be deemed available for
distribution to the class or classes with the net capital gains may be reduced
by the amount of the offset.
(iv) The assets allocated to any class of the Capital Stock
shall be charged with the liabilities in respect to such class, and shall also
be charged with their share of the general liabilities of the Corporation in
proportion to the net asset values of the assets allocated to the respective
classes before allocation of general liabilities. The determination of the Board
of Directors shall be conclusive as to the amount of liabilities or the amount
of any general assets of the Corporation, as to whether such liabilities or
assets are allocable to one or more classes, and as to the allocation of such
liabilities or assets to a given class or among several classes.
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(v) In the event of a liquidation, dissolution or winding up
of the Corporation, whether voluntary or involuntary, the assets allocated to
any class of the Capital Stock of the Corporation shall be charged with the
liabilities in respect to such class and shall also be charged with their share
of the general liabilities of the Corporation in proportion to the net asset
values of the assets allocated to the respective classes. The determination of
the Board of Directors shall be conclusive as to the amount of liabilities or
the amount of any general assets of the Corporation and as to whether such
liabilities or assets are allocable to one or more classes.
FOURTH: (1) The number of Directors constituting the Board of Directors
shall be fixed by the By-Laws, or in the absence of a by-law fixing the number,
the number shall be seven. At the annual meeting of shareholders, the
shareholders shall elect said number of directors.
(2) A Director may be removed with or without cause, but only by
action of the shareholders at a meeting called for such purposes by the holders
of ten percent (10%) of the Capital Stock of the Corporation at the time issued
and outstanding and entitled to vote in any election of Directors.
(3) The Board of Directors of the Corporation is hereby empowered to
authorize the issuance from time to time of shares of the Capital Stock of any
class, whether now or hereafter authorized, subject to such limitations as may
be set forth in these Articles of Incorporation or in the By-Laws of the
Corporation or in the Virginia Stock Corporation Act or in the 1940 Act.
FIFTH: Unless the Board of Directors conditions its submission of a
proposed extraordinary corporate event on a receipt of a greater vote, any
extraordinary corporate event that requires shareholder approval under the
Virginia Stock Corporation Act, shall be approved by the holders of not less
than two-thirds of the Capital Stock of the Corporation at the time outstanding
and entitled to vote at a meeting at which a quorum is present in person or by
proxy. The provisions of this Article shall not be deemed to affect any
shareholder vote required by the Virginia Stock Corporation Act.
SIXTH: Any Article of these Articles of Incorporation may be amended,
altered or repealed, upon the vote of a majority of the holders of the Capital
Stock of the Corporation who are present in person or by proxy at a meeting at
which a quorum is present. Provisions which might, under the laws of the
Commonwealth of Virginia at the time in force, be lawfully contained in these
Articles of Incorporation, may be added or inserted upon a vote of holders of
the Capital Stock of the Corporation who are present at a meeting in person or
by proxy at a meeting at which a quorum is present. All rights at any time
conferred upon the shareholders of the Corporation by these Articles of
Incorporation are granted subject to the provisions of this Article.
Notwithstanding any other Article of these Articles of Incorporation or
the By-Laws of the Corporation, the amendment or repeal of the Seventh Article
of these Articles of Incorporation requires the affirmative vote of holders of
at least two-thirds of the Capital Stock of the Corporation at the time
outstanding and entitled to vote.
SEVENTH: As indicated in this Article, the Corporation shall indemnify its
currently acting, former or future directors and officers against liability
incurred in any proceeding. As used in this Article, "liability" means the
obligation to pay a judgement, settlement, penalty, fine and all reasonable
expenses incurred with respect to a proceeding, including attorney's fees, and
"proceeding" means any
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<PAGE>
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative, arbitrative or investigative, and whether formal or
informal.
(1) The Corporation shall indemnify a director or officer made a
party to a proceeding because he/she is or was a director or officer of the
Corporation against liability incurred in the proceeding if:
(i) he/she conducted himself/herself in good faith, and
(ii) he/she reasonably believed that his/her conduct was in,
or not opposed to, the Corporation's best interest, and
(iii) he/she was not guilty of willful misconduct, bad faith,
gross negligence or reckless disregard of the duties involved in the conduct of
his/her office, and
(iv) in the case of any criminal proceeding, he/she had no
reasonable cause to believe his/her conduct was unlawful.
The termination of a proceeding by an adverse judgement or order, by
settlement or by conviction will not, of itself, be determinative that the
officer or director did not meet the standard of conduct described in this
section.
(2) Indemnification provided pursuant to Section (1) shall be
limited to reasonable expenses incurred in connection with the proceeding.
(3) The Corporation shall indemnify a director or officer who
entirely prevails in the defense of any proceeding to which he/she was a party
because he/she is or was a director or officer of the Corporation against
reasonable expenses incurred by him/her in connection with the proceeding.
(4) The Corporation may pay for or reimburse the reasonable expenses
incurred by a director or officer who is a party to a proceeding in advance of
final disposition of the proceeding if:
(i) the director or officer furnishes the Corporation a
written statement of his/her good faith belief that he/she has met the standard
of conduct described in Section (1) of this Ninth Article, and
(ii) the director or officer furnishes the Corporation a
written undertaking (which shall be an unlimited general obligation of the
director or officer but need not be secured and may be accepted without
reference to financial ability to make repayment), executed personally or on
his/her behalf to repay the advance if it is ultimately determined that he/she
did not meet the standard of conduct specified in Section (1), and
(iii) a determination is made that the facts then known to the
persons making the determination would not preclude indemnification under this
Ninth Article.
(5) The Corporation shall not indemnify a director or officer under
Section (1) of this Ninth Article unless authorized in the specific case after a
determination has been made that
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<PAGE>
indemnification is permissible in the circumstances because the director or
officer has met the standard of conduct set forth in Section (1). The
determination shall be made:
(i) By a majority of a quorum of directors who are neither
interested persons nor parties to the proceeding or a proceeding on the same or
similar grounds; or
(ii) If a quorum cannot be obtained under Subsection (5) (i),
by a written opinion of special legal counsel (a) selected by the Board of
Directors in the manner prescribed in Subsection (5) (i), or (b) if a quorum
cannot be obtained under Subsection (5) (i) selected by a majority vote of the
full Board of Directors, in which selection directors who are parties may
participate; or
(iii) By the shareholders, but shares owned by or voted under
the control of directors or officers who are at the time parties to the
proceeding may not be voted on the determination.
(6) Authorizations of indemnification and evaluations as to the
reasonableness of expenses shall be made in the same manner as the determination
that indemnification is permissible, except that if the determination is made by
special legal counsel, authorization of indemnification and determination of
reasonableness of expenses shall be made by those entitled under Subsection (5)
(ii) to select special legal counsel.
(7) Every reference herein to director or officer shall include
every director or officer or former director or officer of the Corporation and
shall enure to the benefit of the heirs, executors and administrators of such
person.
(8) The foregoing rights of indemnification shall not be exclusive
of any other rights and indemnifications to which the directors and officers of
the Corporation may be entitled according to law.
(9) The Corporation shall have the power to make any other or
further indemnity to its directors and officers except an indemnity against
willful misconduct, willful misfeasance, bad faith, gross negligence, reckless
disregard of the duties involved in the conduct of his/her office, or a knowing
violation of criminal law.
EIGHTH: Any determination made in good faith, so far as accounting matters
are involved, and in accordance with generally accepted accounting principles,
by or pursuant to the direction of the Board of Directors is considered final
and conclusive. This includes determinations as to:
(1) the amount of assets, obligations or liabilities of the
Corporation, the amount of net income of the Corporation from dividends and
interest for any period and amounts at any time legally available for the
payment of dividends,
(2) the amount of any reserves or charges set up and the propriety
thereof, the time of or purpose for creating reserves and the use, alteration or
cancellation of any reserves or charges (whether or not any obligation or
liability for which such reserves or charges have been created shall have been
paid or discharged or shall be then or thereafter required to be paid or
discharged),
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(3) the value of any investment owned by the Corporation, the net
asset value per share of the outstanding Capital Stock of the Corporation and
the establishment or designation or methods to be employed for valuing any asset
of the Corporation or for determining the net asset value per share of Capital
Stock of the Corporation, and
(4) any other matters relating to the issuance, sale, redemption or
other acquisition or disposition of investments or shares of the Capital Stock
of the Corporation.
Any reasonable determination made in good faith by or at the direction of
the Board of Directors shall be final and conclusive, and shall be binding upon
the Corporation and all holders of its Capital Stock, past, present and future.
Shares of the Capital Stock of the Corporation are issued and sold on the
condition and understanding, evidenced by the purchase of shares of Capital
Stock, that any and all such determinations shall be binding.
NINTH: The holders of not less than one-third of the shares of the
Corporation's Capital Stock issued and outstanding and entitled to vote,
represented in person or by proxy, shall constitute a quorum for the transaction
of business at any meeting of the Corporation's shareholders. The vote of a
majority of the shares cast on any matter at a meeting of shareholders at which
a quorum is present shall be the act of the shareholders on that matter, unless
the vote of a greater number of shares is required by law, including the 1940
Act, or by these Articles of Incorporation or the By-Laws of the Corporation.
TENTH: The By-Laws of the Corporation shall be adopted by the directors of
the Corporation. Thereafter the Board of Directors shall have the power to make,
alter or repeal the By-Laws except any by-law in effect which may require
shareholder action for adoption, alteration or repeal.
ELEVENTH: The net asset value per share of each share of the Capital Stock
of the Corporation shall be determined by or pursuant to the discretion of the
Board of Directors and shall be final and conclusive. Such values shall be
determined in the manner and subject to such applicable requirements as may be
set forth in the By-Laws of the Corporation and any applicable law.
TWELFTH: No provision of these Articles of Incorporation shall be
effective to require a waiver of compliance with any provision of the Securities
Act of 1933, as amended, or the 1940 Act, or of any valid rule, regulation or
order of the Securities and Exchange Commission thereunder.
Date: April 11, 20000
----------------------
Signature: /s/ Matthew J. Simpson
----------------------
Printed name Matthew J. Simpson
----------------------
Title: Secretary
----------------------
9
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PARTICIPATION AGREEMENT
By and Among
THE LIFE INSURANCE COMPANY OF VIRGINIA
And
GE INVESTMENTS FUNDS, INC.
And
GE INVESTMENT MANAGEMENT INCORPORATED
THIS AGREEMENT, made and entered into this 1st day of May, 1998, by and
among The Life Insurance Company of Virginia, organized under the laws of the
State of Virginia (the "Company"), on its own behalf and on behalf of each
segregated asset account of the Company named in Schedules 1 and 2 to this
Agreement as may be amended from time to time (each account referred to as the
"Account"), GE Investments Funds, Inc., an open-end management investment
company organized under the laws of Virginia (the "Fund") on its own behalf and
on behalf of the Portfolios named in Schedule 3 to this Agreement (the
"Portfolios"); and GE Investment Management Incorporated, a corporation
organized under the laws of the State of Delaware (the "Adviser").
WHEREAS, the Fund engages in business as an open-end management investment
fund and was established for the purpose of serving as the investment vehicle
for separate accounts established for variable life insurance contracts and
variable annuity contracts to be offered by insurance companies that have
entered into participation agreements similar to this Agreement (the
"Participating Insurance Companies") and for qualified pension and retirement
plans; and
WHEREAS, the Fund has received an order from the Securities & Exchange
Commission (the "SEC") granting Participating Insurance Companies and variable
annuity separate accounts and variable life insurance separate accounts relief
from the provisions of Sections 9(a), 13(a), 15(a), and 15(b) of the Investment
Company Act of 1940, as amended, (the "1940 Act") and Rules 6e-2(b)(15) and
6e-3(T)(b)(15) thereunder, to the extent necessary to permit shares of the
Portfolios to be sold to and held by variable annuity separate accounts and
variable life insurance separate accounts of both affiliated and unaffiliated
Participating Insurance Companies and qualified pension and retirement plans
outside of the separate account context (the "Mixed and Shared Funding Exemptive
Order"). The parties to this Agreement agree that the conditions or undertakings
specified in the Mixed and Shared Funding Exemptive Order and that may be
imposed on the Company, the Fund, the Portfolios, and/or the Adviser by virtue
of the receipt of such order by the SEC will be incorporated herein by
reference, and such parties agree to comply with such conditions and
undertakings to the extent applicable to each such party; and
WHEREAS, the Fund is registered as an open-end management investment
company under the 1940 Act and shares of the Portfolios are registered under the
Securities Act of 1933, as amended (the "1933 Act"); and
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WHEREAS, the Company has developed or intends to develop certain variable
annuity insurance policies (hereinafter, the "Contracts") set forth in Schedule
4 hereto, for sale to "accredited investors," as that term is defined in
Regulation D promulgated under the 1933 Act (hereinafter "Regulation D"), or
other investors permitted by Regulation D; and
WHEREAS, the Company has developed or intends to develop certain other
variable life insurance and variable annuity policies (also hereinafter included
within the term "Contracts") shown on Schedule 5 interests under which have been
or will be registered under the 1933 Act; and
WHEREAS, each Account is a duly organized, validly existing segregated
asset account, established by resolution of the Board of Directors of the
Company under the insurance laws of the State of Virginia, to set aside and
invest assets attributable to the Contracts; and
WHEREAS, the Company has registered each Account listed on Schedule 2 as a
unit investment trust under the 1940 Act; and
WHEREAS, each Account listed on Schedule 1 will be excepted from the
definition of an investment company under the 1940 Act; and
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, the Company intends to purchase shares of the Portfolios named in
Schedule 3, as such schedule may be amended from time to time on behalf of the
Account to fund the Contracts, and the Fund is authorized to sell such shares to
the Account at net asset value;
NOW, THEREFORE, in consideration of their mutual promises, the Company,
the Fund, the Portfolios and the Adviser agree as follows:
ARTICLE I. Sale of Fund Shares
1.1. The Fund agrees to sell to the Company those shares of the Portfolios that
each Account orders, executing such orders on a daily basis at the net asset
value next computed after receipt and acceptance by the Fund or its designee of
the order for the shares of the Portfolio. For purposes of this Section 1.1, the
Company will be the designee of the Fund for receipt of such orders from the
Account and receipt by such designee will constitute receipt by the Fund;
provided that the Fund receives notice of such order by 10:00 a.m. Eastern Time
on the next following business day ("T+l"). "Business Day" will mean any day on
which the New York Stock Exchange is open for trading and on which the Portfolio
calculates its net asset value pursuant to the rules of the SEC.
1.2. The Company will pay for Portfolio shares on T + 1 provided that an order
to purchase Portfolio shares is made in accordance with Section 1.1 above.
Payment will be in federal funds transmitted by wire. This wire transfer will be
initiated by 12:00 p.m. Eastern Time.
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1.3. Subject to the Fund's rights set forth in Article X, the Fund agrees to
make shares of the Portfolios available for purchase at the applicable net asset
value per share by the Company and each Account on those days on which the
Portfolios calculate their net asset values pursuant to rules of the SEC,and the
Portfolios shall use reasonable efforts to calculate such net asset values on
each day the New York Stock Exchange is open for trading; provided, however,
that the Board of Directors of the Fund (the "Board") may refuse to sell shares
of the Portfolios to any person, or suspend or terminate the offering of shares
of the Portfolios if such action is required by law or by regulatory authorities
having jurisdiction or is, in the sole discretion of the Board, acting in good
faith and in light of its fiduciary duties under federal and any applicable
state laws, necessary in the best interests of the shareholders of any
Portfolio.
1.4. On each Business Day on which the Portfolios calculate their net asset
values, the Company will aggregate and calculate the net purchase or redemption
orders for each Account maintained by the Fund in which contractowner assets are
invested. Net orders will only reflect orders that the Company has received
prior to the close of regular trading on the New York Stock Exchange, Inc. (the
"NYSE") (currently 4:00 p.m., Eastern Time) on that Business Day. Orders that
the Company has received after the close of regular trading on the NYSE will be
treated as though received on the next Business Day. Each communication of
orders by the Company will constitute a representation that such orders were
received by it prior to the close of regular trading on the NYSE on the Business
Day on which the purchase or redemption order is priced in accordance with Rule
22c-1 under the 1940 Act. Other procedures relating to the handling of orders
will be in accordance with the prospectus and statement of information ("SAI")
of the Fund or with oral or written instructions that the Fund will forward to
the Company from time to time.
1.5. The Fund agrees that shares of the Portfolios will be sold in compliance
with the requirements of the Mixed and Shared Funding Exemptive Order only to
Participating Insurance Companies and their separate accounts, qualified pension
and retirement plans or such other persons as are permitted under applicable
provisions of the Internal Revenue Code of 1986, as amended (the "Code"), and
regulations promulgated thereunder , the sale to which will not impair the tax
treatment currently afforded the Contracts. No shares of the Portfolios will be
sold to the general public except as set forth in this Section 1.5.
1.6. The Fund agrees to redeem for cash, upon the Company's request, any full or
fractional shares of the Portfolios held by the Company, executing such requests
on a daily basis at the net asset value next computed after receipt and
acceptance by the Fund or its designee of the request for redemption. For
purposes of this Section 1.6, the Company will be the designee of the Fund for
receipt of requests for redemption from each Account and receipt by such
designee will constitute receipt by the Fund; provided the Fund receives notice
of request for redemption by 10:00 a.m. Eastern Time on the next following
Business Day. Payment will be in federal funds transmitted by wire to the
Company's account as designated by the Company in writing from time to time, on
the same Business Day the Fund receives notice of the redemption order from the
Company. The Fund reserves the right to delay payment of redemption proceeds,
but in no event may such payment be delayed longer than the period permitted by
the 1940 Act. The Fund will not bear any responsibility whatsoever for the
proper disbursement or crediting of
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redemption proceeds following payment of the redemption proceeds to the Company;
the Company alone will be responsible for such action. If notification of
redemption is received after 10:00 a.m. Eastern Time, payment for redeemed
shares will be made on the next following Business Day.
1.7. The Company agrees to purchase and redeem the shares of the Portfolios
offered by the then current prospectus of the Fund in accordance with the
provisions of such prospectus.
1.8. Issuance and transfer of the Portfolios' shares will be by book entry only.
Stock certificates will not be issued to the Company or any Account. Purchase
and redemption orders for Portfolio shares will be recorded in an appropriate
title for each Account or the appropriate subaccount of each Account.
1.9. The Fund will furnish same day notice (by telecopier, wire or telephone
followed by written confirmation) to the Company of the declaration of any
income, dividends or capital gain distributions payable on a Portfolio's shares.
The Company hereby elects to receive all such dividends and distributions as are
payable on a Portfolio shares in the form of additional shares of the Portfolio.
The Fund will notify the Company of the number of shares so issued as payment of
such dividends and distributions. The Company reserves the right to revoke this
election upon reasonable prior notice to the Fund and to receive all such
dividends and distributions in cash.
1.10. The Fund will make the net asset value per share for each Portfolio
available to the Company on a daily basis as soon as reasonably practical after
the net asset value per share is calculated and will use its best efforts to
make such net asset value per share available by 6:30 p.m., Eastern Time, but in
no event later than 7:00 p.m., Eastern Time, each Business Day.
1.11. In the event adjustments are required to correct any error in the
computation of the net asset value of the Portfolio's shares, the Fund will
notify the Company as soon as practicable after discovering the need for those
adjustments that result in an error in the calculation of the net asset value
equal to or greater than .5% of the correct net asset value. Any such notice
will state for each day for which an error occurred the incorrect price, the
correct price and the reason for the price change. The Company may send this
notice or a derivation thereof (so long as such derivation is approved in
advance by the Adviser) to contractowners whose accounts are affected by the
price change. The parties will negotiate in good faith to develop a reasonable
method for effecting such adjustments.
1.12. The Fund will provide as much advance notice as is reasonably practicable
of any material change affecting a Portfolio (including, but not limited to, any
material change in its registration statement or prospectus and any proxy
solicitations) and will take reasonable steps to assist the Company in
implementing the change in an orderly manner, taking into account the expense of
the Company
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ARTICLE II. Representations and Warranties
2.1. The Company represents and warrants that the Contracts listed on Schedule 5
are or will be registered under the 1933 Act and that the Contracts listed on
Schedule 4 are exempt from registration under the 1933 Act; that the Accounts
listed on Schedule 1 are and will remain excluded from the definition of an
investment company under the 1940 Act, and that it will immediately notify the
Fund and the Adviser upon having a reasonable basis for believing that the
Accounts listed on Schedule 1 have ceased to be so exempt or that they might
cease to be exempt in the future; that each Account listed on Schedule 2 is and
will be registered as a unit investment trust in accordance with the provisions
of the 1940 Act; and that the Contracts are and will be issued and sold in
compliance with all applicable federal and state laws, including state insurance
suitability requirements; that each Account meets the definition of a "separate
account" under the 1940 Act. The Company further represents and warrants that it
is an insurance company duly organized and in good standing under applicable law
and that it has legally and validly established each Account as a separate
account under applicable law and that it has legally and validly established
each Account, prior to any issuance or sale of any Contract funded by that
Account, as a segregated asset account under the Insurance Laws of the State of
Virginia and has registered or, prior to any issuance or sale of the Contracts,
will register to the extent required by law the Account as a unit investment
trust in accordance with the provisions of the 1940 Act to serve as a segregated
investment account for the Contracts, and that it will maintain such
registration for so long as required by the 1940 Act. The Company will amend the
registration statement under the 1933 Act for the Contracts and the registration
statement under the 1940 Act for the Account from time to time as required in
order to effect the continuous offering of the Contracts or as may otherwise be
required by applicable law. The Company will register and qualify the Contracts
for sale in accordance with the securities laws of the various states only if
and to the extent deemed necessary by the Company. The Company further
represents and warrants that each Account is a segregated asset account and that
interests in each Account are offered exclusively through the purchase of or
transfer into a variable contract, within the meaning of such terms under
Section 817 of the Code, and the regulations thereunder. The Company will use
every effort to continue to meet such definitional requirement and will notify
the Fund immediately upon having a reasonable basis for believing such
requirements have ceased to be met or that they might not be met in the future.
2.2. The Company represents that the Contracts are currently and at the time of
issuance will be treated as life insurance or annuity contracts under applicable
provisions of the Code, and that it will make every effort to maintain such
treatment and that it will notify the Fund and the Adviser immediately upon
having a reasonable basis for believing that the Contracts have ceased to be so
treated or that they might not be so treated in the future.
2.3. The Company represents and warrants that it will not purchase shares of a
Portfolio with assets derived from tax-qualified retirement plans except,
indirectly, through Contracts purchased in connection with such plans.
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2.4. The Fund represents and warrants that it will not sell shares of a
portfolio to any purchaser whose purchase of such shares would result in a
violation of the conditions imposed by the Mixed and Shared Funding Exemptive
Order.
2.5. The Fund represents and warrants that shares of each Portfolio sold
pursuant to this Agreement will be registered under the 1933 Act and duly
authorized for issuance in accordance with applicable law and that the Fund is
and will remain registered under the 1940 Act for as long as such shares are
outstanding. The Fund will amend the registration statement for its shares of
the Portfolios under the 1933 Act and the 1940 Act from time to time as required
in order to effect the continuous offering of shares. The Fund will register and
qualify the shares of each Portfolio for sale in accordance with the laws of the
various states only if and to the extent deemed advisable by the Fund.
2.6. The Fund represents that each Portfolio is currently qualified as a
Regulated Investment Company under Subchapter M of the Code, and that it will
make every effort to maintain such qualification (under Subchapter M or any
successor or similar provision) and that it will notify the Company immediately
upon having a reasonable basis for believing that a Portfolio has ceased to so
qualify or that it might not so qualify in the future.
2.7. The Fund represents and warrants that in performing the services described
in this Agreement, the Fund will comply with all applicable federal securities
laws, rules and regulations. The Fund further represents and warrants that its
investment objectives, policies and restrictions comply with all applicable
state investment laws, rules and regulations. The Fund makes no representation
as to whether any aspect of its operations (including, but not limited to, fees
and expenses and investment policies, objectives and restrictions) complies with
the insurance laws and regulations of any state. The Fund agrees that upon
request it will furnish the information required by state insurance laws so that
the Company can obtain the authority needed to issue the Contracts in the
various states.
2.8. The Fund currently does not intend to make any payments to finance
distribution expenses pursuant to Rule 12b-1 under the 1940 Act, although it
reserves the right to make such payments in the future. To the extent that it
decides to finance distribution expenses pursuant to Rule 12b-1, the Fund
undertakes to have its Board, a majority of whom will not be interested persons
of the Fund, formulate and approve any plan under Rule 12b-1 to finance
distribution expenses in accordance with the 1940 Act.
2.9. The Fund represents that it is lawfully organized and validly existing
under the laws of the Commonwealth of Virginia and that it does and will comply
in all material respects with applicable provisions of the 1940 Act and the Code
of Virginia.
2.10. Each of the Fund and the Adviser represents and warrants that all of its
directors, trustees, officers, employees, investment advisers, and other
individuals/entities having access to the funds and/or securities of the
Portfolios are and continue to be at all times covered by a blanket fidelity
bond or similar coverage for the benefit of the Portfolios in an amount not less
than the minimal coverage as required currently by Rule 17g-(1) of the 1940 Act
or related provisions as
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may be promulgated from time to time. The aforesaid bond includes coverage for
larceny and embezzlement and is issued by a reputable bonding company.
2.11. The Adviser represents and warrants that it is and shall remain duly
registered in all material respects under all applicable federal and state
securities laws and that the Adviser shall perform its obligations for the
Portfolios in compliance with applicable securities laws.
2.12. Each party represents that the execution and delivery of this Agreement
and the consummation of the transactions contemplated herein have been duly
authorized by all necessary corporate or board action, as applicable, by such
party and when so executed and delivered this Agreement will be the valid and
binding obligation of such party enforceable in accordance with its terms.
ARTICLE III. Prospectuses and Proxy Statements: Voting
3.1. The Fund will provide the Company, at the Company's expense, with as many
copies of the current prospectus for the Portfolios and any amendments thereto
as the Company may reasonably request. If requested by the Company in lieu
thereof, the Fund shall provide camera ready copy containing the Fund's
prospectus and such other assistance as is reasonably necessary in order for the
Company once each year (or more frequently if the prospectus is amended during
the year) to have the prospectuses for the Contracts and the Fund printed
together in one document. Alternatively, the Company may print the Fund's
prospectus in combination with the prospectuses of other fund companies. This
provision may be amended by agreement of the parties hereto in writing.
It is understood and agreed that the Company is not responsible for the content
of the prospectus or SAI for the Fund, except to the extent that statements in
the Fund's prospectus and SAI reflect information given to the Fund by the
Company. It is also understood and agreed that, except with respect to
information provided to the Company by the Fund or the Adviser, the Portfolios,
the Fund and the Adviser shall not be responsible for the content of the
prospectus, SAI or disclosure statement for the Contracts or non-affiliated
funds.
3.2. The Fund's prospectus shall state that its SAI is available from the Fund.
The Fund at its expense shall print and provide such SAI free of charge to the
Company and to any existing Contract owner, prospective Contract owner or
participant who requests such SAI.
3.3. The Fund, at the Fund's or its affiliate's expense, will provide the
Company or its mailing agent with copies of its proxy material, if any, reports
to shareholders and other communications to shareholders in such quantity as the
Company will reasonably require for distribution to Contract owners and
participants. The Company, at its expense, will distribute this proxy material,
reports and other communications to existing Contract owners.
3.4. If and to the extent required by law, the Company will:
(a) solicit voting instructions from Contract owners and tabulate the
voting instructions;
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(b) vote the shares of each Portfolio held in the Account in accordance
with instructions received from contractowners; and
(c) vote shares of each Portfolio held in the Account for which no timely
instructions have been received, as well as shares it owns, in the same
proportion as shares of each such Portfolio for which instructions have
been received from the contractowners;
in each case, for so long as and to the extent that the SEC continues to
interpret the 1940 Act to require pass-through voting privileges for variable
contractowners. Except as set forth above, the Company reserves the right to
vote Portfolio shares held in any segregated asset account in its own right, to
the extent permitted by law. The Company will be responsible for assuring that
each of its separate accounts participating in the Portfolios calculates voting
privileges in a manner consistent with all legal requirements, including the
Mixed and Shared Funding Exemptive Order.
3.5. The Fund will comply with all provisions of the 1940 Act requiring voting
by shareholders, and in particular, the Fund will act in accordance with the
SEC's interpretation of the requirements of Section 16(a) with respect to
periodic elections of trustees and with whatever rules the SEC may promulgate
with respect thereto.
ARTICLE IV. Sales Material and Information
4.1. The Adviser will provide the Company on a timely basis with investment
performance information for the Portfolios, including total return for the
preceding calendar month and calendar quarter, the calendar year to date, and
the prior one-year, five-year, and ten year (or life of the Portfolio) periods.
The Company may, based on the SEC mandated information supplied by the Adviser,
prepare communications for contractowners ("Contractowner Materials"). The
Company will provide the Adviser with copies of all Contractowner Materials that
reference the Fund or the Portfolios concurrently with their first use for the
Adviser's internal recordkeeping purposes. It is understood that neither the
Adviser, the Fund nor the Portfolios will be responsible for errors or omissions
in, or the content of, Contractowner Materials except to the extent that the
error or omission resulted from information provided by or on behalf of the
Adviser, the Fund or the Portfolio. Any printed information that is furnished to
the Company pursuant to this Agreement other than the Portfolio's prospectus or
statement of additional information (or information supplemental thereto),
periodic reports and proxy solicitation materials is the Adviser's sole
responsibility and not the responsibility of the Portfolio or the Fund. The
Company agrees that the Portfolio, the shareholders of the Portfolio and the
officers and members of the Board will have no liability or responsibility to
the Company in these respects.
4.2. The Company will not give any information or make any representations or
statements on behalf of the Fund or concerning the Portfolios in connection with
the sale of the Contracts other than the information or representations
contained in or accurately derived from the registration statement, prospectus
or SAI for Portfolio shares, as such registration statement, prospectus and SAI
may be amended or supplemented from time to time, or in reports or proxy
statements for a Portfolio, or in published reports for a Portfolio which are in
the public domain or approved by the Fund or the Adviser for distribution, or in
sales literature or other material provided by the
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<PAGE>
Fund or the Adviser, except with permission of the Fund or the Adviser. The Fund
and/or the Adviser, as applicable, agrees to respond to any request for approval
on a prompt and timely basis.
Nothing in this Section 4.2 will be construed as preventing the Company or
its employees or agents from giving advice on investment in the Portfolios.
4.3. The Company will furnish, or will cause to be furnished, to the Fund or the
Adviser or its designee, each piece of sales literature or other promotional
material in which the Fund, the Portfolios or the Adviser is named, at least
fifteen (15) business days prior to its use. No such material will be used if
the Fund or the Adviser reasonably objects to such use within ten (10) business
days after receipt of such material. Likewise, the Fund or the Adviser will
furnish, or will cause to be furnished, to the Company or its designee, each
piece of sales literature or other promotional material in which the Company is
named, at least fifteen (15) business days prior to its use. No such material
will be used if the Company reasonably objects to such use within ten (10)
business days after receipt of such material.
4.4. The Fund and the Adviser will not give any information or make any
representations or statements on behalf of the Company or concerning the
Company, each Account, or the Contracts other than the information or
representations contained in or accurately derived from a registration
statement, prospectus or SAI for the Contracts, as such registration statement,
prospectus and SAI may be amended or supplemented from time to time, or in
published reports for each Account or the Contracts which are in the public
domain or approved by the Company for distribution to contractowners, or in
sales literature or other material provided by the Company, except with
permission of the Company. The Company agrees to respond to any request for
approval on a prompt and timely basis.
4.5. The Fund will provide to the Company at least one complete copy of all
registration statements, prospectuses, SAIs, reports, proxy statements, sales
literature and other promotional materials that reference the Company, the
Accounts or the Contracts, applications for exemptions, requests for no-action
letters, and all amendments to any of the above, that relate to the Portfolios
or their shares, contemporaneously with the filing of such document with the
SEC, the NASD or other regulatory authority.
4.6. The Company will provide to the Fund at least one complete copy of all
registration statements, prospectuses, statements of additional information,
reports, solicitations for voting instructions, sales literature and other
promotional materials, applications for exemptions, requests for no action
letters, and all amendments to any of the above, that reference the Fund or the
Portfolios and relate to the Contracts or each Account, contemporaneously with
the filing of such document with the SEC, the NASD or other regulatory authority
4.7. For purposes of this Article IV, the phrase "sales literature or other
promotional material" includes, but is not limited to, advertisements (such as
material published, or designed for use in, a newspaper, magazine, or other
periodical, radio, television, telephone or tape recording, videotape display,
signs or billboards, motion pictures, or other public media, (e.g., on-line
networks such as the Internet or other electronic messages), sales literature
(i.e., any written
9
<PAGE>
communication distributed or made generally available to customers or the
public, including brochures, circulars, research reports, market letters, form
letters, seminar texts, reprints or excerpts of any other advertisements sales
literature, or published article), educational or training materials or other
communications distributed or made generally available to some or all agents or
employees, registration statements, prospectuses, statements of additional
information, shareholder reports, and proxy materials and any other material
constituting sales literature or advertising under the NASD rules, the 1933 Act
or the 1940 Act.
4.8. The Fund and each Portfolio hereby consents to the Company's use of the
name GE Investments Funds, Inc. and the name of each portfolio listed on
Schedule 3 in connection with the marketing of the Contracts, subject to the
terms of Sections 4.1, 4.2 and 10.3 of this Agreement. Such consent will
terminate with the termination of this Agreement.
ARTICLE V. Fees and Expenses
5.1. The Fund, the Portfolios and the Adviser will pay no fee or other
compensation to the Company under this Agreement except if the Fund or the
Portfolios adopt and implement a plan pursuant to Rule 12b-1 under the 1940 Act
to finance distribution expenses, then, subject to obtaining any required
exemptive orders or other regulatory approvals, the Fund may make payments to
the Company or to the underwriter for the Contracts if and in such amounts
agreed to by the Fund in writing.
5.2. Except as otherwise provided herein, all expenses incident to performance
by the Fund under this Agreement shall be paid by the Fund. The Fund shall see
to it that all its shares are registered and authorized for issuance in
accordance with applicable federal law and, if and to the extent deemed
advisable by the Fund or the Adviser, in accordance with applicable state laws
prior to their sale. The Fund shall bear the expenses for the cost of
registration and qualification of the Portfolios' shares; the preparation of all
statements and notices required of the Fund by any federal or state law; all
taxes on the issuance or transfer of the Portfolios' shares; and any expenses
permitted to be paid or assumed by a Portfolio pursuant to a plan, if any, under
Rule 12b-1 under the 1940 Act.
ARTICLE VI. Diversification
6.1. The Fund will ensure that each Portfolio will at all times invest money
from the Contracts in such a manner as to ensure that the Contracts will comply
with Section 817(h) of the Code and Treasury Regulation 1.817-S, as amended from
time to time, relating to the diversification requirements for variable annuity
or life insurance contracts and any amendments or other modifications to such
Section or Regulation. In the event of a breach of this Article VI by the
Portfolio, it will take all reasonable steps: (a) to notify the Company of such
breach; and (b) to adequately diversify the Portfolio so as to achieve
compliance within the grace period afforded by Treasury Regulation 1.817-S.
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ARTICLE VII. Potential Conflicts
7.1. The Board will monitor the Portfolios for the existence of any material
irreconcilable conflict among the interests of the contractowners of all
separate accounts investing in the Portfolios and determine what action, if any,
should be taken in response to such conflicts. A material irreconcilable
conflict may arise for a variety of reasons, including: (a) an action by any
state insurance regulatory authority; (b) a change in applicable federal or
state insurance, tax, or securities laws or regulations, or a public ruling,
private letter ruling, no-action or interpretative letter, or any similar action
by insurance, tax, or securities regulatory authorities; (c) an administrative
or judicial decision in any relevant proceeding; (d) the manner in which the
investments of the Portfolios are being managed; (e) a difference in voting
instructions given by Participating Insurance Companies or by variable annuity
and variable life insurance contractowners; or (f) a decision by an insurer to
disregard the voting instructions of contractowners. The Board will promptly
inform the Company if it determines that a material irreconcilable conflict
exists and the implications thereof.
7.2. The Company will report any potential or existing conflicts of which it is
aware to the Board. The Company agrees to assist the Board in carrying out its
responsibilities, as delineated in the Mixed and Shared Funding Exemptive Order,
by providing the Board with all information reasonably necessary for the Board
to consider any issues raised. This includes, but is not limited to, an
obligation by the Company to inform the Board whenever it has determined to
disregard contractowner voting instructions. The Company's responsibilities
hereunder will be carried out with a view only to the interest of
contractowners.
7.3. If it is determined by a majority of the Board, or a majority of its
disinterested directors, that a material irreconcilable conflict exists, the
Company will, at its expense and to the extent reasonably practicable (as
determined by a majority of the disinterested directors), take whatever steps
are necessary to remedy or eliminate the material irreconcilable conflict,
including: (a) withdrawing the assets allocable to some or all of the Accounts
from the Portfolios and reinvesting such assets in a different investment medium
or submitting the question whether such segregation should be implemented to a
vote of all affected contractowners and, as appropriate, segregating the assets
of any appropriate group (i.e., variable annuity contractowners or variable life
insurance contractowners of one or more Participating Insurance Companies) that
votes in favor of such segregation, or offering to the affected contractowners
the option of making such a change; and (b) establishing a new registered
management investment company or managed separate account.
7.4. If a material irreconcilable conflict arises because of a decision by the
Company to disregard contractowner voting instructions, and the Company's
judgment represents a minority position or would preclude a majority vote, the
Company may be required, at the Fund's election, to withdraw the affected
Account's investment in the Portfolios and terminate this Agreement with respect
to such Account; provided, however, that such withdrawal and termination will be
limited to the extent required by the foregoing material irreconcilable conflict
as determined by a majority of the disinterested directors of the Board. No
charge or penalty will be imposed as a result of such withdrawal. Any such
withdrawal and termination shall take place
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within six (6) months after written notice is given that this provision is being
implemented. Until such withdrawal and termination is implemented, the Fund
shall continue to accept and implement orders by the Company for the purchase
and redemption of shares of the Fund.
7.5. If a material irreconcilable conflict arises because a particular state
insurance regulator's decision applicable to the Company conflicts with the
majority of other state insurance regulators, then the Company will withdraw the
affected Account's investment in the Portfolios and terminate this Agreement
with respect to such subaccount; provided, however, that such withdrawal and
termination will be limited to the extent required by the foregoing material
irreconcilable conflict as determined by a majority of the disinterested
directors of the Board. No charge or penalty will be imposed as a result of such
withdrawal. Any such withdrawal and termination shall take place within six (6)
months after written notice is given that this provision is being implemented.
Until such withdrawal and termination is implemented, the Fund shall continue to
accept and implement orders by the Company for the purchase and redemption of
shares of the Fund.
7.6. For purposes of Sections 7.3 through 7.6 of this Agreement, a majority of
the disinterested members of the Board will determine whether any proposed
action adequately remedies any material irreconcilable conflict, but in no event
will the Fund or the Adviser be required to establish a new funding medium for
the Contracts. The Company will not be required by Section 7.3 to establish a
new funding medium for the Contracts if an offer to do so has been declined by
vote of a majority of contractowners materially affected by the material
irreconcilable conflict.
7.7. The Company will at least annually submit to the Board such reports,
materials or data as the Board may reasonably request so that the Board may
fully carry out the duties imposed upon it as delineated in the Mixed and Shared
Funding Exemptive Order, and said reports, materials and data will be submitted
more frequently if deemed appropriate by the Board.
7.8. If and to the extent that Rule 6e-2 and Rule 6e-3(T) are amended, or Rule
6e-3 is adopted, to provide exemptive relief from any provision of the 1940 Act
or the rules promulgated thereunder with respect to mixed or shared funding (as
defined in the Mixed and Shared Funding Exemptive Order) on terms and conditions
materially different from those contained in the Mixed and Shared Funding
Exemptive Order, then: (a) the Fund and/or the Participating Insurance
Companies, as appropriate, will take such steps as may be necessary to comply
with Rules 6e-2 and 6e-3(T), as amended, and Rule 6e-3, as adopted, to the
extent such rules are applicable; and (b) Sections 3.4, 3.5, 7.1, 7.2, 7.3, 7.4,
and 7.5 of this Agreement will continue in effect only to the extent that terms
and conditions substantially identical to such Sections are contained in such
Rule(s) as so amended or adopted.
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ARTICLE VIII. Indemnification
8.1. Indemnification By The Company
(a) The Company agrees to indemnify and hold harmless the Fund, the
Portfolios, the Adviser, and each person, if any, who controls or is associated
with the Fund, the Portfolios or the Adviser within the meaning of such terms
under the federal securities laws and any director, trustee, officer, partner,
employee or agent of the foregoing (collectively, the "Indemnified Parties" for
purposes of this Section 8.1) against any and all losses, claims, expenses,
damages, liabilities (including amounts paid in settlement with the written
consent of the Company) or litigation (including reasonable legal and other
expenses), to which the Indemnified Parties may become subject under any
statute, regulation, at common law or otherwise, insofar as such losses, claims,
damages, liabilities or expenses (or actions in respect thereof) or settlements
are related to the sale or acquisition of Portfolio shares or the Contracts and:
(1) arise out of or are based upon any untrue statements or alleged
untrue statements of any material fact contained in the registration statement,
prospectus or SAI for the Contracts or contained in the Contracts or sales
literature or other promotional material for the Contracts (or any amendment or
supplement to any of the foregoing), or arise out of or are based upon the
omission or the alleged omission to state therein a material fact required to be
stated or necessary to make such statements not misleading in light of the
circumstances in which they were made; provided that this agreement to indemnify
will not apply as to any Indemnified Party if such statement or omission or such
alleged statement or omission was made in reliance upon and in conformity with
written information furnished to the Company by the Fund, the Portfolio or the
Adviser for use in the registration statement, prospectus or SAI for the
Contracts or in the Contracts or sales literature (or any amendment or
supplement) or otherwise for use in connection with the sale of the Contracts or
Portfolio shares; or
(2) arise out of or as a result of statements or representations by
or on behalf of the Company (other than statements or representations contained
in the Fund's registration statement, Fund prospectus or sales literature or
other promotional material of the Fund not supplied by the Company or persons
under its control) or wrongful conduct of the Company or persons under its
control, with respect to the sale or distribution of the Contracts or Portfolio
shares; or
(3) arise out of any untrue statement or alleged untrue statement of
a material fact contained in the Fund's registration statement, prospectus,
statement of additional information or sales literature or other promotional
material of the Fund (or amendment or supplement) or the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make such statements not misleading in light of the circumstances
in which they were made, if such a statement or omission was made in reliance
upon and in conformity with information furnished to the Fund by or on behalf of
the Company or persons under its control; or
(4) arise as a result of any failure by the Company to provide the
services and furnish the materials under the terms of this Agreement; or
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(5) arise out of any material breach of any representation and/or
warranty made by the Company in this Agreement or arise out of or result from
any other material breach by the Company of this Agreement;
Except to the extent provided in Sections 8. l(b) and 8.3 hereof,
this indemnification will be in addition to any liability that the Company
otherwise may have.
(b) No party will be entitled to indemnification under Section 8. l(a) to
the extent such loss, claim, damage, liability or litigation is due to the
willful misfeasance, bad faith, or gross negligence in the performance of such
party's duties under this Agreement, or by reason of such party's reckless
disregard of its obligations or duties under this Agreement.
(c) The Indemnified Parties promptly will notify the Company of the
commencement of any litigation, proceedings, complaints or actions by regulatory
authorities against them in connection with the issuance or sale of the
Portfolio shares or the Contracts or the operation of the Fund.
8.2. Indemnification By The Adviser, the Fund and each Portfolio
(a) The Adviser, the Fund and each Portfolio, in each case solely to the
extent relating to such party's responsibilities hereunder, agree to indemnify
and hold harmless the Company and each person, if any, who controls or is
associated with the Company within the meaning of such terms under the federal
securities laws and any director, trustee, officer, partner, employee or agent
of the foregoing (collectively, the "Indemnified Parties" for purposes of this
Section 8.2) against any and all losses, claims, expenses, damages, liabilities
(including amounts paid in settlement with the written consent of the Adviser,
the Fund or a Portfolio, as applicable) or litigation (including reasonable
legal and other expenses) to which the Indemnified Parties may become subject
under any statute, regulation, at common law or otherwise, insofar as such
losses, claims, damages, liabilities or expenses (or actions in respect thereof)
or settlements:
(1) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in the registration statement,
prospectus or statement of additional information for the Fund or sales
literature or other promotional material of the Fund (or any amendment or
supplement to any of the foregoing), or arise out of or are based upon the
omission or the alleged omission to state therein a material fact required to be
stated or necessary to make such statements not misleading in light of the
circumstances in which they were made; provided that this agreement to indemnify
will not apply as to any Indemnified Party if such statement or omission or such
alleged statement or omission was made in reliance upon and in conformity with
information furnished to the Adviser, the Fund or a Portfolio by or on behalf of
the Company for use in the registration statement, prospectus or statement of
additional information for the Fund or in sales literature of the Fund (or any
amendment or supplement thereto) or otherwise for use in connection with the
sale of the Contracts or Portfolio shares; or
(2) arise out of or as a result of statements or representations
(other than statements or representations contained in the Contracts or the
Contracts or Fund registration statements or the Contracts or Fund prospectuses,
SAIs or sales literature or other promotional
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materials for the Contracts or Fund not supplied by the Fund or persons under
its control) or wrongful conduct of the Adviser, the Fund or a Portfolio or
persons under the control of the Adviser, the Fund or a Portfolio respectively,
with respect to the sale of the Portfolio shares; or
(3) arise out of any untrue statement or alleged untrue statement of
a material fact contained in a registration statement, prospectus, statement of
additional information or sales literature or other promotional material
covering the Contracts (or any amendment or supplement thereto), or the omission
or alleged omission to state therein a material fact required to be stated or
necessary to make such statement or statements not misleading in light of the
circumstances in which they were made, if such statement or omission was made in
reliance upon and in conformity with written information furnished to the
Company by the Adviser, the Fund or a Portfolio or persons under the control of
the Adviser, the Fund or a Portfolio; or
(4) arise as a result of any failure by the Fund, the Adviser or a
Portfolio to provide the services and furnish the materials under the terms of
this Agreement (including a failure, whether unintentional or in good faith or
otherwise, to comply with the diversification requirements and procedures
related thereto specified in Article VI of this Agreement); or
(5) arise out of or result from any material breach of any
representation and/or warranty made by the Adviser, the Fund or a Portfolio in
this Agreement, or arise out of or result from any other material breach of this
Agreement by the Adviser, the Fund or a Portfolio;
Except to the extent provided in Sections 8.2(b) and 8.3 hereof,
this indemnification will be in addition to any liability that the Adviser, the
Fund or the Portfolio otherwise may have.
(b) No party will be entitled to indemnification under Section 8.2(a) to
the extent such loss, claim, damage, liability or litigation is due to the
willful misfeasance, bad faith, or gross negligence in the performance of such
party's duties under this Agreement, or by reason of such party's reckless
disregard of its obligations or duties under this Agreement by the party seeking
indemnification.
(c) The Indemnified Parties will promptly notify the Adviser, the Fund or
a Portfolio of the commencement of any litigation, proceedings, complaints or
actions by regulatory authorities against them in connection with the issuance
or sale of the Contracts or the operation of the account.
8.3. Indemnification Procedure
Any person obligated to provide indemnification under this Article VIII
("Indemnifying Party" for the purpose of this Section 8.3) will not be liable
under the indemnification provisions of this Article VIII with respect to any
claim made against a party entitled to indemnification under this Article VIII
("Indemnified Party" for the purpose of this Section 8.3) unless such
Indemnified Party will have notified the Indemnifying Party in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim will have been served upon such
Indemnified Party (or after such party will have received notice of
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such service on any designated agent), but failure to notify the Indemnifying
Party of any such claim will not relieve the Indemnifying Party from any
liability which it may have to the Indemnified Party against whom such action is
brought otherwise than on account of the indemnification provision of this
Article VIII. In case any such action is brought against the Indemnified Party,
the Indemnifying Party will be entitled to participate, at its own expense, in
the defense thereof. The Indemnifying Party also will be entitled to assume the
defense thereof, with counsel satisfactory to the party named in the action.
After notice from the Indemnifying Party to the Indemnified Party of the
Indemnifying Party's election to assume the defense thereof, the Indemnified
Party will bear the fees and expenses of any additional counsel retained by it,
and the Indemnifying Party will not be liable to such party under this Agreement
for any legal or other expenses subsequently incurred by such party
independently in connection with the defense thereof other than reasonable costs
of investigation, unless: (a) the Indemnifying Party and the Indemnified Party
will have mutually agreed to the retention of such counsel; or (b) the named
parties to any such proceeding (including any impleaded parties) include both
the Indemnifying Party and the Indemnified Party and representation of both
parties by the same counsel would be inappropriate due to actual or potential
differing interests between them. The Indemnifying Party will not be liable for
any settlement of any proceeding effected without its written consent but if
settled with such consent or if there is a final judgment for the plaintiff, the
Indemnifying Party agrees to indemnify the Indemnified Party from and against
any loss or liability by reason of such settlement or judgment. A successor by
law of the parties to this Agreement will be entitled to the benefits of the
indemnification contained in this Article VIII. The indemnification provisions
contained in this Article VIII will survive any termination of this Agreement.
ARTICLE IX. Applicable Law
9.1. This Agreement will be construed and the provisions hereof interpreted
under and in accordance with the laws of the Commonwealth of Virginia.
9.2. This Agreement will be subject to the provisions of the 1933 Act, the 1934
Act and the 1940 Act, and the rules and regulations and rulings thereunder,
including such exemptions from those statutes, rules and regulations as the SEC
may grant (including, but not limited to, the Mixed and Shared Funding Exemptive
Order) and the terms hereof will be interpreted and construed in accordance
therewith.
ARTICLE X. Termination
10.1. This Agreement will terminate:
(a) at the option of any party, with or without cause, upon six (6)
months' advance written notice to the other parties; or
(b) at the option of the Company, upon receipt of the Company's written
notice by the other parties, with respect to a Portfolio if shares of the
Portfolio are not reasonably available to meet the requirements of the Contracts
as determined in good faith by the Company; or
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(c) at the option of the Company, upon receipt of the Company's written
notice by the other parties, with respect to a Portfolio in the event any of the
Portfolio's shares are not registered, issued or sold in accordance with
applicable state and/or Federal law or such law precludes the use of such shares
as the underlying investment medium of the Contracts issued or to be issued by
the Company; or
(d) at the option of the Fund, upon receipt of the Fund's written notice
by the other parties, upon institution of formal proceedings against the Company
by the NASD, the SEC, the insurance commission of any state or any other
regulatory body regarding the Company's duties under this Agreement or related
to the sale of the Contracts, the administration of the Contracts, the operation
of the Account, or the purchase of Portfolio shares, provided that the Fund
determines in its sole judgment, exercised in good faith, that any such
proceeding would have a material adverse effect on the Company's ability to
perform its obligations under this Agreement; or
(e) at the option of the Company, upon receipt of the Company's written
notice by the other parties, upon institution of formal proceedings against the
Fund, the Adviser or a Portfolio by the NASD, the SEC, or any state securities
or insurance department or any other regulatory body, provided that the Company
determines in its sole judgment, exercised in good faith, that any such
proceeding would have a material adverse effect on the Fund's, the Adviser's or
a Portfolio's ability to perform its obligations under this Agreement; or
(f) at the option of the Company, upon receipt of the Company's written
notice by the other parties, if a Portfolio ceases to qualify as a Regulated
Investment Company under Subchapter M of the Code, or under any successor or
similar provision, or if the Company reasonably and in good faith believes that
a Portfolio may fail to so qualify; or
(g) at the option of the Company, upon receipt of the Company's written
notice by the other parties, with respect to a Portfolio if the Portfolio fails
to meet the diversification requirements specified in Article VI hereof or if
the Company reasonably and in good faith believes the Portfolio may fail to meet
such requirements; or
(h) at the option of any party to this Agreement, upon written notice to
the other parties, upon another party's material breach of any provision of this
Agreement which material breach is not cured within thirty (30) days of said
notice; or
(i) at the option of the Company, upon receipt of the Company's written
notice by the other parties, if the Company determines in its sole judgment
exercised in good faith, that either the Fund, the Adviser or a Portfolio has
suffered a material adverse change in its business, operations or financial
condition since the date of this Agreement or is the subject of material adverse
publicity which is likely to have a material adverse impact upon the business
and operations of the Company; or
(j) at the option of the Fund or the Adviser, upon receipt of the Fund's
or the Adviser's written notice by the Company, if the Fund or the Adviser
respectively' determines in its sole judgment exercised in good faith, that the
Company has suffered a material adverse
17
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change in its business, operations or financial condition since the date of this
Agreement or is the subject of material adverse publicity which is likely to
have a material adverse impact upon the business and operations of the Fund or
the Adviser; or
(k) at the option of the Company or the Fund upon receipt of any necessary
regulatory approvals and/or the vote of the contractowners having an interest in
the Account (or any subaccount) to substitute the shares of another investment
company for the corresponding Portfolio shares in accordance with the terms of
the Contracts for which those Portfolio shares had been selected to serve as the
underlying investment medium. The Company will give sixty (60) days' prior
written notice to the Fund of the date of any proposed vote or other action
taken to replace the Portfolio shares; or
(l) at the option of the Company or the Fund upon a determination by a
majority of the Board, or a majority of the disinterested Board members, that a
material irreconcilable conflict exists among the interests of: (1) all
contractowners of variable insurance products of all separate accounts; or (2)
the interests of the Participating Insurance Companies investing in the
Portfolio as set forth in Article VII of this Agreement; or
(m) at the option of the Fund in the event any of the Contracts are not
issued or sold in accordance with applicable federal and/or state law.
Termination will be effective immediately upon such occurrence without notice.
10.2. Notice Requirement
No termination of this Agreement will be effective unless and until the
party terminating this Agreement gives prior written notice to all other parties
of its intent to terminate, which notice will set forth the basis for the
termination.
10.3. Effect of Termination
Notwithstanding any termination of this Agreement, the Fund will, at the
option of the Company, continue to make available additional shares of a
Portfolio pursuant to the terms and conditions of this Agreement, for all
Contracts in effect on the effective date of termination of this Agreement
(hereinafter referred to as "Existing Contracts"). Specifically, without
limitation, the owners of the Existing Contracts will be permitted to reallocate
investments in a Portfolio (as in effect on such date), redeem investments in a
Portfolio and/or invest in Portfolio upon the making of additional purchase
payments under the Existing Contracts.
10.4. Surviving Provisions
Notwithstanding any termination of this Agreement, each party's
obligations under Article VIII to indemnify other parties will survive and not
be affected by any termination of this Agreement. In addition, each party's
obligations under Section 12.7 will survive and not be affected by any
termination of this Agreement. Finally, with respect to Existing Contracts, all
provisions of this Agreement also will survive and not be affected by any
termination of this Agreement.
18
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ARTICLE XI. Notices
11.1. Any notice will be deemed duly given when sent by registered or certified
mail to the other party at the address of such party set forth below or at such
other address as such party may from time to time specify in writing to the
other parties.
If to the Company:
The Life Insurance Company of Virginia
6610 West Broad Street
Richmond, VA 23260
Attn: Linda L. Lanam, Esq., Senior Vice President,
Secretary and General Counsel
If to the Fund, the Adviser and/or the Portfolios:
c/o GE Investment Management Incorporated
3003 Summer Street, Stamford, CT 06905
Attn: Associate General Counsel, Mutual Funds
ARTICLE XII. Miscellaneous
12.1 All persons dealing with the Fund must look solely to the property of the
Fund for the enforcement of any claims against the Fund as neither the
directors, trustees, officers, partners, employees, agents or shareholders
assume any personal liability for obligations entered into on behalf of the
Fund. No other portfolio or series of the Fund will be liable for the
obligations or liabilities of another Portfolio.
12.2. The Fund and the Adviser acknowledge that the identities of the customers
of the Company or any of its affiliates (collectively the "Company Protected
Parties" for purposes of this Section 12.2), information maintained regarding
those customers, and all computer programs and procedures or other information
developed or used by the Company Protected Parties or any of their employees or
agents in connection with the Company's performance of its duties under this
Agreement are the valuable property of the Company Protected Parties. The Fund
and the Adviser agree that if they come into possession of any list or
compilation of the identities of or other information about the Company
Protected Parties' customers, or any other information or property of the
Company Protected Parties, other than such information as is publicly available
or as may be independently developed or compiled by the Fund and the Adviser
from information supplied to them by the Company Protected Parties' customers
who also maintain accounts directly with the Fund or the Adviser, the Fund and
the Adviser will hold such information or property in confidence and refrain
from using, disclosing or distributing any of such information or other property
except: (a) with the Company's prior written consent; or (b) as required by law
or judicial process. The Company acknowledges that the identities of the
customers of the Fund, the Adviser or any of their affiliates (collectively the
"Adviser Protected Parties" for purposes of this Section 12.2), information
maintained regarding those customers, and all computer programs and procedures
or other information developed or used by the
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Adviser Protected Parties or any of their employees or agents in connection with
the Fund's or the Adviser's performance of their respective duties under this
Agreement are the valuable property of the Adviser Protected Parties. The
Company agrees that if it comes into possession of any list or compilation of
the identities of or other information about the Adviser Protected Parties'
customers, or any other information or property of the Adviser Protected
Parties, other than such information as is publicly available or as may be
independently developed or compiled by the Company from information supplied to
it by the Adviser Protected Parties' customers who also maintain accounts
directly with the Company, the Company will hold such information or property in
confidence and refrain from using, disclosing or distributing any of such
information or other property except: (a) with the Fund's or the Adviser's prior
written consent; or (b) as required by law or judicial process. Each party
acknowledges that any breach of the agreements in this Section 12.2 would result
in immediate and irreparable harm to the other parties for which there would be
no adequate remedy at law and agree that in the event of such a breach, the
other parties will be entitled to equitable relief by way of temporary and
permanent injunctions, as well as such other relief as any court of competent
jurisdiction deems appropriate.
12.3. The captions in this Agreement are included for convenience of reference
only and in no way define or delineate any of the provisions hereof or otherwise
affect their construction or effect.
12.4. This Agreement may be executed simultaneously in two or more counterparts,
each of which taken together will constitute one and the same instrument.
12.5. If any provision of this Agreement will be held or made invalid by a court
decision, statute, rule or otherwise, the remainder of the Agreement will not be
affected thereby.
12.6. This Agreement will not be assigned by any party hereto without the prior
written consent of all the parties.
12.7. Each party to this Agreement will maintain all records required by law,
including records detailing the services it provides. Such records will be
preserved, maintained and made available to the extent required by law and in
accordance with the 1940 Act and the rules thereunder. Each party to this
Agreement will cooperate with each other party and all appropriate governmental
authorities (including without limitation the SEC, the NASD and state insurance
regulators) and will permit each other and such authorities reasonable access to
its books and records in connection with any investigation or inquiry relating
to this Agreement or the transactions contemplated hereby. Upon request by the
Fund and at the Fund's expense, the Company agrees to promptly make copies or,
if required, originals of all records pertaining to the performance of services
under this Agreement available to the Fund. The Fund agrees that the Company
will have the right to inspect, audit and copy all records pertaining to the
performance of services under this Agreement pursuant to the requirements of any
state insurance department. Each party also agrees to promptly notify the other
parties if it experiences any difficulty in maintaining the records in an
accurate and complete manner. This provision will survive termination of this
Agreement.
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12.8. The parties to this Agreement acknowledge and agree that all liabilities
of the Fund arising, directly or indirectly, under this agreement, will be
satisfied solely out of the assets of the Fund and that no trustee, officer,
agent or holder of shares of beneficial interest of the Fund will be personally
liable for any such liabilities.
12.9. The parties to this Agreement may amend the schedules to this Agreement
from time to time to reflect changes in or relating to the Contracts, the
Accounts or the Portfolios or other applicable terms of this Agreement.
12.10. The rights, remedies and obligations contained in this Agreement are
cumulative and are in addition to any and all rights.
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement
to be executed in its name and behalf by its duly authorized representative and
its seal to be hereunder affixed hereto as of the date specified above.
THE LIFE INSURANCE COMPANY OF
VIRGINIA
By:_______________________________
Name:
Title:
GE INVESTMENTS FUNDS, INC.
By:_______________________________
Name:
Title:
GE INVESTMENT MANAGEMENT
INCORPORATED
By:_______________________________
Name:
Title:
21
<PAGE>
Schedule 1
PARTICIPATION AGREEMENT
By and Among
THE LIFE INSURANCE COMPANY OF VIRGINIA
And
GE INVESTMENTS FUNDS, INC.
And
GE INVESTMENT MANAGEMENT INCORPORATED
Unregistered Accounts
Name of Account: Date of Resolution of Company's Board
which Established the Account:
Life of Virginia Separate Account 5 May 20, 1996
22
<PAGE>
Schedule 2
PARTICIPATION AGREEMENT
By and Among
THE LIFE INSURANCE COMPANY OF VIRIGINA
And
GE INVESTMENTS FUNDS, INC.
And
GE INVESTMENT MANAGEMENT INCORPORATED
Registered Accounts
Name of Account: Date of Resolution of Company's Board
which Established the Account:
Life of Virginia Separate Account I February 16, 1984
Life of Virginia Separate Account II August 21, 1986
Life of Virginia Separate Account III February 10, 1987
Life of Virginia Separate Account 4 August 18, 1987
23
<PAGE>
Schedule 3
PARTICIPATION AGREEMENT
By and Among
GE LIFE AND ANNUITY ASSURANCE COMPANY
(formerly known as THE LIFE INSURANCE COMPANY OF VIRGINIA)
And
GE INVESTMENTS FUNDS, INC.
And
GE ASSET MANAGEMENT INCORPORATED
(formerly named GE INVESTMENT MANAGEMENT INCORPORATED)
(as amended April 25, 2000)
Name(s) of Portfolio
S&P 500 Index Fund
Money Market Fund
Total Return Fund
International Equity Fund
Real Estate Securities Fund
Global Income Fund
Mid-Cap Value Equity Fund (formerly named Value Equity Fund)
Income Fund
U.S. Equity Fund
Premier Growth Equity Fund
Approved:_________________________
Title:
GE Asset Management Incorporated
Approved:_________________________
Title:
GE Investments Funds, Inc.
Approved:_________________________
Title:
GE Life and Annuity Assurance Company
24
<PAGE>
Schedule 4
PARTICIPATION AGREEMENT
By and Among
THE LIFE INSURANCE COMPANY OF VIRGINIA
And
GE INVESTMENTS FUNDS, INC.
And
GE INVESTMENT MANAGEMENT INCORPORATED
Exempt Contracts
Commonwealth 401(k) group flexible premium variable deferred annuity
25
<PAGE>
Schedule 5
PARTICIPATION AGREEMENT
By and Among
THE LIFE INSURANCE COMPANY OF VIRGINIA
And
GE INVESTMENTS FUNDS, INC.
And
GE INVESTMENT MANAGEMENT INCORPORATED
Registered Contracts
Commonwealth One flexible premium variable life insurance policy
Commonwealth Two flexible premium variable life insurance policy
Commonwealth 3 flexible premium variable life insurance policy
Commonwealth VL flexible premium variable life insurance policy
Commonwealth VL Flex flexible premium variable life insurance policy
Commonwealth VUL flexible premium variable life insurance policy
Asset Allocation Life flexible premium variable life insurance policy
Asset Allocation Annuity flexible premium variable deferred annuity policy
Commonwealth VA flexible premium variable deferred annuity policy
Commonwealth VA Plus flexible premium variable deferred annuity policy
Commonwealth 4 flexible premium variable universal life insurance policy
Commonwealth VA Plus Plus flexible premium variable deferred annuity policy
Contracts being developed:
Single premium variable immediate annuity
Extra credit flexible premium variable immediate annuity
No surrender charge flexible premium variable immediate annuity
26
<PAGE>
Exhibit (j)(1)
[Letterhead of Sutherland Asbill & Brennan LLP]
April 24, 2000
Board of Directors
GE Investments Funds, Inc.
3003 Summer Street
Stamford, CT 06905
RE: GE Investments Funds, Inc.
File No. 2-91369
Gentlemen:
We hereby consent to the reference to our name under the caption
"Counsel" in the Statement of Additional Information filed as part of the
Post-Effective Amendment No. 27 to Form N-1A for GE Investments Funds, Inc.
(File No. 2-91369). 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.
Very truly yours,
SUTHERLAND ASBILL & BRENNAN LLP
By: /s/ David S. Goldstein
---------------------------------------
David S. Goldstein
<PAGE>
Consent of Independent Auditors
The Board of Directors and Shareholders
GE Investments Funds, Inc.:
We consent to the use of our report dated February 4, 2000 for the U.S. Equity
Fund, S&P 500 Index Fund, Premier Growth Equity Fund, Mid-Cap Value Equity Fund
(formerly Value Equity Fund), International Equity Fund, Total Return Fund,
Income Fund, Global Income Fund, Money Market Fund, and Real Estate Securities
Fund of GE Investments Funds, Inc., incorporated herein by reference under the
headings, "Financial Highlights" in the prospectus and "Independent Auditors" in
the statement of additional information.
/s/ KPMG LLP
New York, New York
April 24, 2000
<PAGE>
[SUTHERLAND ASBILL & BRENNAN LLP LETTERHEAD]
April 24, 2000
DAVID S. GOLDSTEIN
DIRECT LINE: (202) 383-0606
Internet: [email protected]
Board of Directors
GE Investments Funds, Inc.
3003 Summer Street
Stamford, Connecticut 06905
Re: GE Investments Funds, Inc.
Post-Effective Amendment Number 27
File No. 2-91369
Directors:
We have acted as counsel to GE Investments Funds, Inc. (the "Company"), a
corporation organized under the laws of the State of Virginia, in connection
with its registration of an indefinite number of its shares of stock
representing interests in Value Equity Fund, Small Cap Value Equity Fund, Europe
Equity Fund and Emerging Markets Fund of the Company (the "Shares") under the
Securities Act of 1933, as amended. In this connection, we have examined
post-effective amendment number 26 to the registration statement filed by you
and post-effective amendment number 27 to the registration statement to be filed
by you with the Securities and Exchange Commission on Form N-1A (File No.
2-91369) (the "registration statement"). We also are familiar with the actions
taken by you at the board of directors meeting held on March 16, 2000 in
connection with the authorization, issuance and sale of the Shares.
We have examined such Company records, certificates and other documents
and reviewed such questions of law as we have considered necessary or
appropriate for purposes of this opinion. In our examination of such materials,
we have assumed the genuineness of all signatures and the conformity to the
original documents of all copies submitted to us. As to various questions of
fact material to our opinion, we have relied upon statements of officers and
representatives of the Company and upon representations of the Company made in
the registration statement.
Based upon the foregoing, we are of the opinion that the Shares, when
issued and sold in the manner described in the registration statement, will be
legally issued, fully paid and non- assessable.
We are attorneys licensed to practice only in the State of Georgia and the
District of
<PAGE>
Board of Directors
April 24, 2000
Page 2
Columbia.
We hereby consent to the inclusion of this opinion as an exhibit to the
registration statement. In giving this consent, we do not admit that we are in
the category of persons whose consent is required under Section 7 of the
Securities Act of 1933.
Sincerely,
SUTHERLAND ASBILL & BRENNAN LLP
By: /s/ David S. Goldstein
----------------------------
David S. Goldstein
