<PAGE>
File Nos. 2-91369 811-04041
As filed with the Securities and Exchange Commission on February 16, 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. 26 / X /
and
REGISTRATION STATEMENT UNDER
THE INVESTMENT COMPANY ACT OF 1940 / /
Amendment No. 27 / 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
[ ] on May 1, 1999 Pursuant to Paragraph (b) of Rule 485
[ ] 60 Days after Filing Pursuant to Paragraph (a)(1) of Rule 485
[ ] on (Date) Pursuant to Paragraph (a)(1) of Rule 485
[ ] 75 Days after Filing Pursuant to Paragraph (a)(2) of Rule 485
[ X ] 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
--------------
GE Investments
Funds, Inc.
May 1, 2000
- --------------------------------------------------------------------------------
Equity Funds
U.S. Equity Fund
S&P 500 Index Fund
Premier Growth Equity Fund
Value Equity Fund
Mid-Cap Value Equity Fund
Small-Cap Value Equity Fund
International Equity Fund
Europe Equity Fund
Emerging Markets Fund
- --------------------------------------------------------------------------------
Income Funds
Income Fund
Global Income Fund
- --------------------------------------------------------------------------------
Asset Allocation Funds
Total Return Fund
- --------------------------------------------------------------------------------
Money Market Funds
Money Market Fund
- --------------------------------------------------------------------------------
Other Funds
Real Estate Securities Fund
- --------------------------------------------------------------------------------
Like all mutual funds, the Funds' shares have not been approved or disapproved
by the Securities and Exchange Commission, nor has the Securities and Exchange
Commission passed upon the accuracy or adequacy of this prospectus. Any
representation to the contrary is a criminal offense.
- -------------------
[GE LOGO]
- ------------------
We bring good things to life.
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------
Contents
- --------------------------------------------------------------------------------
GE Investments
Funds, Inc.
Prospectus
Equity Funds 3
----------------------------------------
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
Income Fund 22
----------------------------------------
Global Income Fund 24
Asset Allocation Funds 27
----------------------------------------
Total Return Fund 28
Money Market Funds 31
----------------------------------------
Money Market Fund 32
Other Funds 35
----------------------------------------
Real Estate Securities Fund 36
----------------------------------------
More on Strategies and Risks 38
----------------------------------------
Important Definitions 38
More on Investment Strategies 41
More on Risks 46
Other Risk Considerations 49
About the Investment Adviser 50
----------------------------------------
Investment Adviser and
Administrator 50
----------------------------------------
About the Funds' Portfolio Managers 51
About the Sub-Advisers 52
Purchase and Redemption
of Shares 56
----------------------------------------
Dividend Distributions
and Tax Information 58
Calculating Share Value 59
Financial Highlights 60
Additional information regarding the GE Investments Funds, Inc. (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 only available 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.
- --------------------------------------------------------------------------------
<PAGE>
------------------------------------------------
Equity Funds GE Investments 3
Funds, Inc.
Prospectus
- --------------------------------------------------------------------------------
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 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.
<PAGE>
- -------------------
4 GE Investments
Funds, Inc.
Prospectus
Equity Funds
- --------------------------------------------------------------------------------
U.S. Equity Fund
- --------------------
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 Fund generally intends to hold its investments for a long time,
which results in a relatively low portfolio turnover rate. The portfolio
managers may use various investment techniques to adjust the Fund's investment
exposure, but there is no guarantee that these techniques will work.
The Risks
The principal risk of investing in 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.
- --------------------------------------------------------------------------------
<PAGE>
------------------------
5
- --------------------------------------------------------------------------------
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 % for the quarter ended
. The Fund's lowest return for a quarter was %
for the quarter ended . The Fund's year-to-date return
was % as of .
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 reflects the impact of the Fund's expenses. It assumes that you redeem
your investment in the Fund at the end of each period.
- --------------------------------------------------------------------------------
Calendar Year Total Returns
[BAR CHART]
1996 21.72%
1997 31.13%
1998 23.41%
1999 __%
- --------------------------------------------------------------------------------
Average Annual Total Return
(as of December 31, 1999)
Since
1 Year Inception*
--------------- -----------
U.S. Equity Fund % %
S&P 500 Index % %
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. 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.
- --------------------------------------------------------------------------------
<PAGE>
- -------------------
6 GE Investments
Funds, Inc.
Prospectus
Equity Funds
- --------------------------------------------------------------------------------
S&P 500 Index Fund
- ---------------------
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 Standard & Poor's 500 Composite Stock Index (S&P 500 Index).*
The portfolio manager seeks to replicate the return of the S&P 500 Index while
holding transaction costs low and minimizing portfolio turnover. The portfolio
manager attempts to achieve a correlation between the Fund's total return and
that of the S&P 500 Index of at least 0.95, without taking expenses into
account.
The portfolio manager uses a passive management approach to select a
representative group of stocks within the S&P 500 Index. The portfolio manager
also may use statistical selection to determine which securities within the
Index to purchase or sell for the Fund. The Fund generally will not hold all the
securities that comprise the Index and, in some cases, the Fund's weightings in
particular industry segments represented in the Index may differ significantly
from those of the Index.
The Fund also may invest to a lesser extent in debt securities, foreign
securities and other securities that are not in the S&P 500 Index. Except for
debt securities, which are used to manage cash flows, all securities held by the
Fund are aquired to fulfill its investment objective. The Fund generally intends
to hold its investments for a long time, which may result in a relatively low
portfolio turnover rate. The portfolio managers may use various investment
techniques to adjust the Fund's investment exposure, but there is no guarantee
that these techniques will work. The Fund will not adopt a temporary defensive
strategy in times of declining stock prices and therefore you will bear the risk
of such declines.
The Risks
The principal risks of investing in 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) are trademarks 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 & Poor's, and Standard &
Poor's makes no representation or warranty, express or implied, to the investors
of the Fund or any member of the public regarding the advisability of investing
in securities generally or in this Fund particularly or the ability of the S&P
500 Index to track general stock market performance. Please see the SAI for
additional disclaimers and liabilities regarding Standard & Poor's.
- --------------------------------------------------------------------------------
<PAGE>
-----------
7
- --------------------------------------------------------------------------------
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 % for the quarter ended
. The Fund's lowest return for a quarter was % for the quarter
ended . The Fund's year-to-date return was % as of
.
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 reflects the impact of the Fund's expenses and assumes that you redeem
your investment in the Fund at the end of each period.
- --------------------------------------------------------------------------------
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 __%
- --------------------------------------------------------------------------------
Average Annual Total Return
(as of December 31, 1999)
1 Year 5 Years 10 Years
------ ------- --------
S&P 500 Index Fund % % %
S&P 500 Index % % %
Both the bar chart and table assume reinvestment of dividends and distributions.
As with all mutual funds, past performance is not an indication of future
performance.
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>
- -------------------
8 GE Investments
Funds, Inc.
Prospectus
Equity Funds
- --------------------------------------------------------------------------------
Premier Growth Equity Fund
- ---------------------
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 expectation of income in future periods
o financial strength
o leadership in their respective industries
o high quality management focused on generating shareholder value
The Fund also may invest to a lesser extent in foreign securities and debt
securities. The Fund generally intends to hold its investments for a long time,
which may result in a relatively low portfolio turnover rate. The portfolio
manager may use various investment techniques to adjust the Fund's investment
exposure, but there is no guarantee that these techniques will work.
The Risks
The principal risks of investing in the Fund are stock market risk,
concentration risk and style risk (growth investing risk). To the extent that
the portfolio manager invests in foreign securities or debt securities, the Fund
would be subject to foreign exposure risk 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.
- --------------------------------------------------------------------------------
<PAGE>
---------
9
- --------------------------------------------------------------------------------
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 % for the quarter ended .
The Fund's lowest return for a quarter was % for the quarter ended
. The Fund's year-to-date return was % as of .
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 reflects the impact of the Fund's expenses. It assumes that you redeem
your investment in the Fund at the end of each period.
- --------------------------------------------------------------------------------
Calendar Year Total Returns
[BAR CHART]
1998 36.53%
1999 __%
- --------------------------------------------------------------------------------
Average Annual Total Return
(as of December 31, 1999)
Since
1 Year Inception*
--------- ---------
Premiere Emerging Growth Fund % %
S&P 500 Index % %
Both the bar chart and table assume reinvestment of dividends and distributions.
As with all mutual funds, past performance is not an indication of future
performance.
* 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.
- --------------------------------------------------------------------------------
<PAGE>
- --------------------
10 GE Investments
Funds, Inc.
Prospectus
Equity Funds
- --------------------------------------------------------------------------------
Value Equity Fund
- ----------------------
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 Fund generally intends to hold its investments for a long time
which may result in a relatively low portfolio turnover rate. The portfolio
manager may use various investment techniques to adjust the Fund's investment
exposure, but there is no guarantee that these techniques will work.
The Risks
The principal risks of investing in 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.
- --------------------------------------------------------------------------------
Fund Background
No performance figures are shown because the Fund has no operating history as of
the date of this Prospectus.
- --------------------------------------------------------------------------------
<PAGE>
-------------
11
- --------------------------------------------------------------------------------
[This page intentionally left blank.]
- --------------------------------------------------------------------------------
<PAGE>
- ---------------------
12 GE Investments
Funds, Inc.
Prospectus
Equity Funds
- --------------------------------------------------------------------------------
Mid-Cap Value Equity Fund
- ----------------------
Investment Objective: Long-term growth of capital and future income.
The Strategy
The Mid-Cap Value Equity Fund invests primarily in equity securities of mid-cap
companies that the portfolio manager believes are undervalued by the market and
have above-average growth potential. The median market capitalization of the
companies in the Fund's portfolio will fall within the mid-cap range defined by
the Morningstar rating agency, between $1.7 and $10.7 billion as of December 31,
1999. The Fund's market capitalization is calculated in accordance with
Morningstar rating agency's trimmed medium 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 Fund is value-oriented and seeks to identify undervalued companies where a
catalyst exists to recognize value or improve a company's profitability.
Examples of these catalysts are:
o new management
o industry consolidation
o company restructuring
o change in the company's fundamentals
The Fund also may invest to a lesser extent in foreign securities and debt
securities. The portfolio manager may use various investment techniques to
adjust the Fund's investment exposure, but there is no guarantee that these
techniques will work.
The Risks
The principal risks of investing in 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.
- --------------------------------------------------------------------------------
<PAGE>
---------
13
- --------------------------------------------------------------------------------
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 % for the quarter ended .
The Fund's lowest return for a quarter was % for the quarter ended
. The Fund's year-to-date return was % as of .
The table opposite illustrates how the Fund's average annual returns for
different calendar periods compare to the returns of the Standard & Poor's
MidCap 400 Stock Index (S&PMidCap Index) and the S&P 500 Index. The table
reflects the impact of the Fund's expenses. It assumes that you redeem your
investment in the Fund at the end of each period.
The Fund changed its benchmark index during the fiscal year ended December 31,
1999 from the S&P 500 Index to the S&P MidCap Index because the latter index
better represents the companies in the Fund's portfolio.
- --------------------------------------------------------------------------------
Calendar Year Total Returns
[BAR CHART]
1998 6.69%
1999 __%
- --------------------------------------------------------------------------------
Average Annual Total Return
(as of December 31, 1999)
Since
1 Year Inception*
------ ---------
Value Equity Fund % %
S&P MidCap Index % %
S&P 500 Index % %
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. 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.
- --------------------------------------------------------------------------------
<PAGE>
- ---------------------
14 GE Investments
Funds, Inc.
Prospectus
Equity Funds
- --------------------------------------------------------------------------------
Small-Cap Value Equity Fund
- ----------------------
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
Fund generally intends to hold its investments for a long time, which may result
in a relatively low portfolio turnover rate. The portfolio managers may use
various investment techniques to adjust the Fund's investment exposure, but
there is no guarantee that these techniques will work.
The Risks
The principal risks of investing in 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.
- --------------------------------------------------------------------------------
Fund Background
No performance figures are shown because the Fund has no operating history as of
the date of this Prospectus.
<PAGE>
---------
15
- --------------------------------------------------------------------------------
[This page intentionally left blank.]
- --------------------------------------------------------------------------------
<PAGE>
- --------------------
16 GE Investments
Funds, Inc.
Prospectus
Equity Funds
- --------------------------------------------------------------------------------
International Equity Fund
- ---------------------
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 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.
- --------------------------------------------------------------------------------
<PAGE>
----------
17
- --------------------------------------------------------------------------------
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 % for the quarter ended .
The Fund's lowest return for a quarter was % for the quarter ended .
The Fund's year-to-date return was % as of .
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
reflects the impact of the Fund's expenses. It assumes that you redeem your
investment in the Fund at the end of each period.
- --------------------------------------------------------------------------------
Calendar Year Total Returns
[BAR CHART]
1996 9.91%
1997 10.17%
1998 17.45%
1999 __%
- --------------------------------------------------------------------------------
Average Annual Total Return
(as of December 31, 1999)
Since
1 Year Inception*
------ ---------
International Equity Fund % %
MSCI EAFE Index % %
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.
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>
- ---------------------
18 GE Investments
Funds, Inc.
Prospectus
Equity Funds
- --------------------------------------------------------------------------------
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 price
does 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 (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.
- --------------------------------------------------------------------------------
<PAGE>
----------
19
- --------------------------------------------------------------------------------
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 are
expected to grow faster than relevant markets and whose security price does not
fully reflect their potential for growth. Under normal circumstances, the Fund's
assets are invested in 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.
<PAGE>
- ----------------------
20
- --------------------------------------------------------------------------------
[This page intentionally left blank.]
- --------------------------------------------------------------------------------
<PAGE>
------------------------------------------------
Income GE Investments 21
Funds Funds, Inc.
Prospectus
- --------------------------------------------------------------------------------
An investment in a GE Investment Income Fund is not a deposit of any bank and is
not insured or guaranteed by the Federal Deposit Insurance Corporation or any
other government agency. Investment in the Income Funds 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.
- --------------------------------------------------------------------------------
<PAGE>
- --------------------
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 % for the quarter ended .
The Fund's lowest return for a quarter was % for the quarter ended
. The Fund's year-to-date return was % as of .
The table opposite illustrates how the Fund's average annual returns for
different calendar periods compare to the returns of the Lehman Brothers
Aggregate Bond Index (LB Aggregate Bond Index). The table reflects the impact of
the Fund's expenses. 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 __%
- --------------------------------------------------------------------------------
Average Annual Total Return
(as of December 31, 1999)
Since
1 Year Inception*
------ ---------
Income Fund % %
LB Aggregate Bond Index % %
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. 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.
- --------------------------------------------------------------------------------
<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 foreign and domestic income-bearing
debt securities that include U.S. Government securities, corporate bonds, money
market instruments, foreign debt securities, mortgage-backed securities,
asset-backed securities and certificates of deposit, bankers' acceptances or
time deposits of U.S. and foreign banks (including branches thereof) having
total assets of more than $1 billion. Under normal circumstances, the Fund's
assets are invested in securities of companies representing at least three
different countries.
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 the other Funds making it more
susceptible to adverse developments affecting a single issuer. 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.
In selecting investments for the Fund, the portfolio manager considers such
factors as:
o the instrument's duration
o yield
o issuer credit quality
o prospects for capital appreciation
o currency and interest rate trends
The Fund also may invest to a lesser extent in 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 Risks
The principal risks of investing in the Fund are interest rate risk, credit
risk, foreign exposure 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 % for the quarter ended .
The Fund's lowest return for a quarter was % for the quarter ended
. The Fund's year-to-date return was % as of
.
The table opposite illustrates how the Fund's average annual returns for
different calendar periods compare to the returns of the JP Morgan Global
Government Bond Index (JPM Global Bond Index). The table reflects the impact of
the Fund's 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 __%
- --------------------------------------------------------------------------------
Average Annual Total Return
(as of December 31, 1999)
Since
1 Year Inception*
------ ---------
Global Income Fund % %
JPM Global Bond Index % %
Both the bar chart and table assume reinvestment of dividends and distributions.
As with all mutual funds, past performance is not an indication of future
performance.
* 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.
- --------------------------------------------------------------------------------
<PAGE>
- --------------------
26
- --------------------------------------------------------------------------------
[This page intentionally left blank.]
- --------------------------------------------------------------------------------
<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 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 % for the quarter ended
. The Fund's lowest return for a quarter was % for the
quarter ended . The Fund's year-to-date return was % as of
.
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 reflects the impact of the Fund's 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 __%
- --------------------------------------------------------------------------------
Average Annual Total Return
(as of December 31, 1999)
Since
1 Year 5 Years Inception*
--------- --------- ---------
Total Return Fund % % %
S&P 500 Index % % %
LB Aggregate Bond Index % % %
Both the bar chart and table assume reinvestment of dividends and distributions.
As with all mutual funds, past performance is not an indication of future
performance.
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.
- --------------------------------------------------------------------------------
<PAGE>
- ---------------
30
- --------------------------------------------------------------------------------
[This page intentionally left blank.]
- --------------------------------------------------------------------------------
<PAGE>
---------------------------------------------------
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 an investment that seeks to maintain a stable share price
The GE Investments Money Market Fund may not be appropriate to support your
variable contract if you:
o want a stable investment
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 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 % for the quarter ended
. The Fund's lowest return for a quarter was % for the
quarter ended . The Fund's year-to-date return was % as of
. The Fund's seven day yield was mmmmmmi % and the seven day
effective yield was % 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 reflects the impact of the Fund's 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 __%
- --------------------------------------------------------------------------------
Average Annual Total Return
(as of December 31, 1999)
Since
1 Year 5 Years Inception*
--------- --------- ---------
Money Market Fund % % %
90 Day T-Bill % % %
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. 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
- --------------------------------------------------------------------------------
[This page intentionally left blank.]
- --------------------------------------------------------------------------------
<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 % for the quarter ended . The
Fund's lowest return for a quarter was % for the quarter ended . The Fund's
year-to-date return was % as of .
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 Index). The table reflects the impact of the Fund's
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 38.24%
1997 19.49%
1998 -17.68%
1999 %
- --------------------------------------------------------------------------------
Average Annual Total Return
(as of December 31, 1999)
Since
1 Year Inception*
------ ----------
Real Estate Securities Fund % %
Wilshire Index % %
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. 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 and
Prospectus 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 options (on stocks, indices, currencies,
futures contracts or bonds), forward currency exchange contracts, futures
contracts, swaps, interest-only and principal-only debt securities, certain
mortgage-backed securities like collateralized mortgage obligations (CMOs), and
structured securities.
Duration represents a mathematical calculation of the average life of a bond (or
portfolio of bonds) based on 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 securities include interests in or obligations of entities located
outside the United States. The determina-
- --------------------------------------------------------------------------------
<PAGE>
----------
39
- --------------------------------------------------------------------------------
tion 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 currency transactions involve agreements to exchange one currency for
another at a future date.
Futures are agreements to buy or sell a specific amount of a commodity,
financial instrument or index at a particular price and future date. Options on
futures give the purchaser the right, in return for the premium paid, to assume
a position in a futures contract at a specified exercise price at any time prior
to the expiration date of the option.
Growth investing involves buying stocks with above-average growth rates.
Typically, growth stocks are the stocks of faster growing companies in more
rapidly growing sectors of the economy. Generally, growth stock valuation levels
will be higher than those of value stocks and the market averages.
High yield securities are debt securities of corporations, preferred stock and
convertible bonds and convertible preferred stock 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 of similar quality to such
securities. Securities rated in the fourth highest grade have some speculative
elements.
Maturity represents the date on which a debt security matures or when the issuer
must pay back the principal amount of the security.
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
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
- --------------------------------------------------------------------------------
<PAGE>
- -------------------------
40 GE Investments
Funds, Inc.
Prospectus
More on Strategies
and Risks
- --------------------------------------------------------------------------------
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 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.
- --------------------------------------------------------------------------------
<PAGE>
----------
41
- --------------------------------------------------------------------------------
Variable rate securities carry interest rates that may be adjusted periodically
to market rates. Interest rate adjust ments 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 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.
- --------------------------------------------------------------------------------
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 securities and investment
strategies in pursuit of its investment objective. No Fund is under any
obligation to use any of these techniques or strategies at any given time or
under any particular economic condition. Certain instruments and investment
strategies may expose the Funds to other risks and considerations, which are
discussed later in this Prospectus or in the 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.
- --------------------------------------------------------------------------------
<PAGE>
- -------------------------
42 GE Investments
Funds, Inc.
Prospectus
More on Strategies
and Risks
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Purchasing Purchasing
Reverse Restricted Structured and Writing and Writing
Repurchase Repurchase and Illiquid and Indexed Securities Securities
Borrowing Agreements Agreements Securities Securities Options Index Options
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
U.S. Equity Fund 33 1/3% Yes Yes Yes No Yes Yes
- ------------------------------------------------------------------------------------------------------------------------------------
S&P 500 Index Fund 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>
- --------------------------------------------------------------------------------
<PAGE>
----------
43
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Futures Forward Options Maximum
and Options Currency on Foreign Investment in
on Futures Transactions Currencies Debt 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%
- --------------------------------------------------------------------------------------------
Total Return Yes Yes Yes 100%
- --------------------------------------------------------------------------------------------
Money Market Fund No No No 100%
- --------------------------------------------------------------------------------------------
Real Estate Securities Fund Yes No No 100%
- --------------------------------------------------------------------------------------------
<CAPTION>
When-Issued
Maximum Investment Maximum and Delayed
in Below-Investment Investment in Delivery
Grade Debt Securities Foreign 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 100% Yes
S&P or Ba or B by
Moody's or
equivalent
- -------------------------------------------------------------------------------------
Income Fund 10% in BB or B 35%* Yes
by S&P or Ba or B
by Moody's or
equivalent
- -------------------------------------------------------------------------------------
Global Income Fund 25% in BB and B 100% Yes
by S&P or Ba and B
by Moody's,
and 10% in by B
by S&P or by Moody's
- -------------------------------------------------------------------------------------
Total Return 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.
- --------------------------------------------------------------------------------
<PAGE>
- -------------------------
44 GE Investments
Funds, Inc.
Prospectus
More on Strategies
and Risks
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Debt Securities Floating and Participation
Lending Obligations of of Other 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
- ------------------------------------------------------------------------------------------------------------------------------------
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
- ------------------------------------------------------------------------------------------------------------------------------------
Money Market Fund Yes No Yes No Yes No Yes No
- ------------------------------------------------------------------------------------------------------------------------------------
Real Estate Securities Fund Yes Yes Yes Yes Yes No Yes No
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Excludes commercial paper and notes with variable and floating rates of
interest.
- --------------------------------------------------------------------------------
<PAGE>
----------
45
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Mortgage Government
Custodial Related Stripped Asset Backed
Municipal Receipts on Securities, Mortgage Securities and Mortgage Short Sales
Zero Coupon Obligation Municipal including Related Receivable-Backed Dollar Against
Obligations Components Obligations CMOs Securities Securities Rolls the Box
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Equity Fund Yes No No No No No No 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>
- --------------------------------------------------------------------------------
<PAGE>
- -------------------------
46 GE Investments
Funds, Inc.
Prospectus
More on Strategies
and 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.
More on Risks
Concentration Risk: Certain Funds 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.
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 (securities or contracts whose values are based on other
securities, currencies or indices) include options contracts (on stocks,
indices, currencies, futures contracts, or bonds), forward currency exchange
contracts, futures contracts, swap contracts, and structured securities.
Derivative securities and contracts may be used as a direct investment or as a
hedge for a Fund's portfolio or a portion of a portfolio. Hedging involves using
a security or contract to offset investment risk. Hedging may include reducing
the risk of a position held in a portfolio. Hedging and other investment
techniques also may be used to increase a Fund's exposure to a particular
investment strategy. If the portfolio 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
- --------------------------------------------------------------------------------
<PAGE>
----------
47
- --------------------------------------------------------------------------------
may be unable to be used for other reasons. These investments may be considered
speculative.
Emerging Markets Risk: Emerging market securities bear most foreign exposure
risks discussed below. In addition, there are greater risks involved in
investing in emerging markets than in developed foreign markets. Specifically,
the economic structures in emerging market countries are less diverse and mature
than those in developed countries, and their political systems are less stable.
Investments in emerging market countries may be affected by national policies
that restrict foreign investment. Emerging market countries may have less
developed legal structures, and the small size of their securities markets and
low trading volumes can make 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 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 ordinary course of business in
seven days or less. When investments cannot be sold readily at the desired time
or
- --------------------------------------------------------------------------------
<PAGE>
- -------------------------
48 GE Investments
Funds, Inc.
Prospectus
More on Strategies
and Risks
- --------------------------------------------------------------------------------
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
repurchase at a higher price under the agreement.
- --------------------------------------------------------------------------------
<PAGE>
----------
49
- --------------------------------------------------------------------------------
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.
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.
- --------------------------------------------------------------------------------
<PAGE>
- ---------------------------------------------------
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 GE and a registered investment adviser. GE Asset Management`s principal
officers, directors and portfolio managers hold similar positions with General
Electric Investment Corporation, a wholly-owned subsidiary of General Electric
Company ("GE"). As of December 31, 1999, GE's investment advisory firms 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) Seneca, NWQ, GEAML and SSGA monthly 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:
U.S. Equity Fund 0.55%
- --------------------------------------------------------------------------------
S&P 500 Index Fund 0.35%
- --------------------------------------------------------------------------------
Premier Growth 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%
- --------------------------------------------------------------------------------
* GE Asset Management has voluntarily waived a portion of the investment
management fee such that the fee paid by the Money Market Fund is currently
0.25%.
- --------------------------------------------------------------------------------
<PAGE>
----------
51
- --------------------------------------------------------------------------------
About the Funds' 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 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 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.
- --------------------------------------------------------------------------------
<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, with approximately $ 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.
The Fund is managed by a team of portfolio managers led by James B. May. Mr. May
has been an investment officer and portfolio manager in the U.S. Structured
Products Group of State Street since 1994. From 1991 to 1993, Mr. May served as
an Investment Support Analyst in the U.S. Passive Services Group of State
Street. Mr. May earned his MBA from Boston College and is a member of the
Financial Management Association.
- --------------------------------------------------------------------------------
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 17 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
$ billion of assets under management.
Jon D. Bosse is the portfolio manager of the Value Equity Fund and has served in
that capacity since the Fund's inception. Mr. Bosse has more than 12 years of
investment experience and has held the position of Director of Equity Research
and Managing Director at NWQ since 1996. Prior to his joining NWQ, 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)
Sweden House
20 St. James's Street
London, SW1A 1ES, England
GEAML is a wholly owned subsidiary of GE and is considered under common control
with GE Investment Management. Although GEAML has no prior experience advising a
U.S. mutual fund, as of December 31, 1999 it managed approximately $ billion in
assets. GEAML has been the investment sub-adviser for the Fund since May 1,
1997.
William R. Wright, portfolio manager of the Global Income Fund, is a Vice
President of GE Asset Management. He assumed responsibility for GEAML at its
inception in 1995. Prior to joining GE Asset Management, Mr. Wright worked for
Continental Asset Management Corp., where he was a portfolio manager of its U.K.
subsidiary. After serving as a language specialist in the U.S. Army Security
Agency, he began his career in 1979 with Coopers & Lybrand, and joined Bankers
Trust Company in 1980. Mr. Wright is a member of the Association for Investment
Management and Research and the New York Society of Security Analysts.
- --------------------------------------------------------------------------------
<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 $
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.
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 are valued on the basis of quotations from the
primary market in which they are traded. Some debt securities are valued using
dealers and pricing services. Municipal bond valuations are based on prices
supplied by a qualified municipal pricing service. The prices are composed of
the mean average of the bid and ask prices on the secondary market. All
portfolio securities of the Money Market Fund and any short-term securities held
by any other Fund with remaining maturities of sixty days or less are valued at
the last sales price of the day. If no sales occurred, the options are valued at
the last traded bid price. A Fund's NAV may change on days when shareholders
will not be able to purchase or redeem the Fund's shares.
If quotations are not readily available for any security, or if the value of a
security has been materially affected by events occurring after the closing of a
market, the security may be valued by using procedures approved by a Fund's
Board of Trustees that they believe accurately reflects "fair value."
- --------------------------------------------------------------------------------
<PAGE>
- -----------------------------------------------------
60 GE 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 30. 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>
1999 1998 1997(c) 1996 1995(h)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Inception date -- -- -- -- --
- -----------------------------------------------------------------------------------------------------------------------------------
Net Asset Value, Beginning of Period $27.88 $21.11 $19.27 $15.00
- -----------------------------------------------------------------------------------------------------------------------------------
Income (Loss) from Investment Operations
Net Investment Income 0.28 0.24 0.34 0.46
- -----------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized Gains (Losses) on Investments 6.23 6.54 3.90 4.87
- -----------------------------------------------------------------------------------------------------------------------------------
Total Income (Loss) From Investment Operations 6.51 6.78 4.24 5.33
- -----------------------------------------------------------------------------------------------------------------------------------
Less Distributions from
- -----------------------------------------------------------------------------------------------------------------------------------
Net Investment Income 0.28 0.00 0.35 0.47
- -----------------------------------------------------------------------------------------------------------------------------------
Net realized Gains 0.61 0.01 2.05 0.59
- -----------------------------------------------------------------------------------------------------------------------------------
Total Distributions 0.89 0.01 2.40 1.06
- -----------------------------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Period $33.50 $27.88 $21.11 $19.27
- -----------------------------------------------------------------------------------------------------------------------------------
Total Return (a) 23.41% 32.13% 21.72% 35.58%
- -----------------------------------------------------------------------------------------------------------------------------------
Ratios/Supplemental Data:
- -----------------------------------------------------------------------------------------------------------------------------------
Net Assets, End of Period (in thousands) $31,160 $23,917 $18,027 $9,071
- -----------------------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
- -----------------------------------------------------------------------------------------------------------------------------------
Net Investment Income* 0.95% 0.94% 1.80% 2.10%
- -----------------------------------------------------------------------------------------------------------------------------------
Net Expenses* 0.69% 0.80% 0.80% 0.80%
- -----------------------------------------------------------------------------------------------------------------------------------
Gross Expenses* 0.69% 0.86% 0.88% 1.03%
- -----------------------------------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 41% 33% 35% 71%
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
S&P 500 Index Fund
<TABLE>
<CAPTION>
1999 1998 1997(b,c) 1996 1995
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Inception date -- -- -- -- --
- -----------------------------------------------------------------------------------------------------------------------------------
Net Asset Value, Beginning of Period $19.23 $15.14 $20.99 $15.72
- -----------------------------------------------------------------------------------------------------------------------------------
Income (Loss) from Investment Operations
Net Investment Income 0.21 0.23 0.78 0.27
- -----------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized Gains (Losses) on Investments 5.20 4.36 4.36 5.41
- -----------------------------------------------------------------------------------------------------------------------------------
Total Income (Loss) From Investment Operations 5.41 4.59 5.14 5.68
- -----------------------------------------------------------------------------------------------------------------------------------
Less Distributions from
- -----------------------------------------------------------------------------------------------------------------------------------
Net Investment Income 0.21 0.23 0.77 0.27
- -----------------------------------------------------------------------------------------------------------------------------------
Net realized Gains 0.72 0.27 10.22 0.14
- -----------------------------------------------------------------------------------------------------------------------------------
Total Distributions 0.93 0.50 10.99 0.41
- -----------------------------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Period $23.71 $19.23 $15.14 $20.99
- -----------------------------------------------------------------------------------------------------------------------------------
Total Return (a) 28.24% 30.33% 24.51% 36.14%
- -----------------------------------------------------------------------------------------------------------------------------------
Ratios/Supplemental Data
- -----------------------------------------------------------------------------------------------------------------------------------
Net Assets, End of Period (in thousands) $326,961 $164,294 $35,522 $66,017
- -----------------------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
- -----------------------------------------------------------------------------------------------------------------------------------
Net Investment Income* 1.20% 1.70% 1.91% 1.98%
- -----------------------------------------------------------------------------------------------------------------------------------
Net Expenses* 0.45% 0.46% 0.48% 0.66%
- -----------------------------------------------------------------------------------------------------------------------------------
Gross Expenses* 0.45% 0.46% 0.48% 0.66%
- -----------------------------------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 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>
1999 1998 1997(d)
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Inception date -- -- --
- ---------------------------------------------------------------------------------------------------
Net Asset Value, Beginning of Period $51.48 $49.79
- ---------------------------------------------------------------------------------------------------
Income from Investment Operations
Net Investment Income 0.25 0.03
- ---------------------------------------------------------------------------------------------------
Net realized and unrealized Gains on Investments 18.43 1.69
- ---------------------------------------------------------------------------------------------------
Total Income (Loss) From Investment Operations 18.68 1.72
- ---------------------------------------------------------------------------------------------------
Less Distributions from
- ---------------------------------------------------------------------------------------------------
Net Investment Income 0.24 0.03
- ---------------------------------------------------------------------------------------------------
Net realized gains 2.70 0.00
- ---------------------------------------------------------------------------------------------------
Total Distributions 2.94 0.03
- ---------------------------------------------------------------------------------------------------
Net Asset Value, End of Period $67.22 $51.48
- ---------------------------------------------------------------------------------------------------
Total Return (a) 36.53% 3.46%
- ---------------------------------------------------------------------------------------------------
Ratios/Supplemental Data:
- ---------------------------------------------------------------------------------------------------
Net Assets, End of Period (in thousands) $19,879 $16,237
- ---------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
- ---------------------------------------------------------------------------------------------------
Net Investment Income* 0.41% 1.04%
- ---------------------------------------------------------------------------------------------------
Expenses* 0.82% 0.69%
- ---------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 34% 3%
- ---------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
Mid-Cap Value Equity Fund
<TABLE>
<CAPTION>
1999 1998 1997(d)
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Inception date -- -- --
- ---------------------------------------------------------------------------------------------------
Net Asset Value, Beginning of Period $13.11 $10.00
- ---------------------------------------------------------------------------------------------------
Income (Loss) from Investment Operations
Net Investment Income 0.07 0.02
- ---------------------------------------------------------------------------------------------------
Net realized and unrealized Gains (Losses) on Investments 0.79 3.23
- ---------------------------------------------------------------------------------------------------
Total Income (Loss) From Investment Operations 0.86 3.25
- ---------------------------------------------------------------------------------------------------
Less Distributions from
- ---------------------------------------------------------------------------------------------------
Net Investment Income 0.07 0.02
- ---------------------------------------------------------------------------------------------------
Net realized Gains 0.33 0.12
- ---------------------------------------------------------------------------------------------------
Total Distributions 0.40 0.14
- ---------------------------------------------------------------------------------------------------
Net Asset Value, End of Period $13.57 $13.11
- ---------------------------------------------------------------------------------------------------
Total Return (a) 6.69% 32.56%
- ---------------------------------------------------------------------------------------------------
Ratios/Supplemental Data
- ---------------------------------------------------------------------------------------------------
Net Assets, End of Period (in thousands) $53,643 $30,856
- ---------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
- ---------------------------------------------------------------------------------------------------
Net Investment Income* 0.59% 0.38%
- ---------------------------------------------------------------------------------------------------
Expenses* 0.75% 0.69%
- ---------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 14% 18%
- ---------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Highlights
- --------------------------------------------------------------------------------
<PAGE>
----------
63
- --------------------------------------------------------------------------------
International Equity Fund
<TABLE>
<CAPTION>
1999 1998 1997(c) 1996 1995(f)
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Inception date -- -- -- -- --
- --------------------------------------------------------------------------------------------------------------------------------
Net Asset Value, Beginning of Period $10.68 $10.83 $10.47 $10.00
- --------------------------------------------------------------------------------------------------------------------------------
Income from Investment Operations
Net Investment Income 0.08 0.02 0.03 0.20
- --------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized Gains on Investments 1.77 1.10 1.01 0.47
- --------------------------------------------------------------------------------------------------------------------------------
Total Income (Loss) From Investment Operations 1.85 1.12 1.04 0.67
- --------------------------------------------------------------------------------------------------------------------------------
Less Distributions from
- --------------------------------------------------------------------------------------------------------------------------------
Net Investment Income 0.07 0.08 0.03 0.20
- --------------------------------------------------------------------------------------------------------------------------------
Net realized Gains 0.57 1.19 0.65 0.00
- --------------------------------------------------------------------------------------------------------------------------------
Total Distributions: 0.64 1.27 0.68 0.20
- --------------------------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Period $11.89 $10.68 $10.83 $10.47
- --------------------------------------------------------------------------------------------------------------------------------
Total Return (a) 17.45% 10.17% 9.91% 6.70%
- --------------------------------------------------------------------------------------------------------------------------------
Ratios/Supplemental Data
- --------------------------------------------------------------------------------------------------------------------------------
Net Assets, End of Period (in thousands) $36,952 $31,931 $17,644 $15,348
- --------------------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
- --------------------------------------------------------------------------------------------------------------------------------
Net Investment Income* 0.65% 0.47% 0.23% 0.44%
- --------------------------------------------------------------------------------------------------------------------------------
Net Expenses* 1.15% 1.34% 1.50% 1.54%
- --------------------------------------------------------------------------------------------------------------------------------
Gross Expenses* 1.15% 1.43% 1.56% 2.17%
- --------------------------------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 60% 166% 150% 58%
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
Income Fund
<TABLE>
<CAPTION>
1999 1998 1997(c) 1996 1995(h)
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Inception date -- -- -- -- --
- --------------------------------------------------------------------------------------------------------------------------------
Net Asset Value, Beginning of Period $12.11 $11.84 $12.53 $12.00
- --------------------------------------------------------------------------------------------------------------------------------
Income (Loss) from Investment Operations
Net Investment Income 0.62 0.76 0.76 0.82
- --------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized Gains (Losses) on Investments 0.34 0.27 (0.43) 1.13
- --------------------------------------------------------------------------------------------------------------------------------
Total Income (Loss) from Investment Operations 0.96 1.03 0.33 1.95
- --------------------------------------------------------------------------------------------------------------------------------
Less Distributions from
- --------------------------------------------------------------------------------------------------------------------------------
Net Investment Income 0.62 0.76 0.76 0.84
- --------------------------------------------------------------------------------------------------------------------------------
Net realized Gains 0.11 0.00 0.26 0.58
- --------------------------------------------------------------------------------------------------------------------------------
Total Distributions 0.73 0.76 1.02 1.42
- --------------------------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Period $12.34 $12.11 $11.84 $12.53
- --------------------------------------------------------------------------------------------------------------------------------
Total Return (a) 7.95% 9.00% 2.92% 16.83%
- --------------------------------------------------------------------------------------------------------------------------------
Ratios/Supplemental Data
- --------------------------------------------------------------------------------------------------------------------------------
Net Assets, End of Period (in thousands) $59,077 $45,555 $5,388 $3,271
- --------------------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
- --------------------------------------------------------------------------------------------------------------------------------
Net Investment Income* 5.54% 5.11% 6.37% 6.52%
- --------------------------------------------------------------------------------------------------------------------------------
Net Expenses* 0.64% 0.59% 0.75% 0.75%
- --------------------------------------------------------------------------------------------------------------------------------
Gross Expenses* 0.64% 0.77% 1.03% 1.15%
- --------------------------------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 217% 356% 222% 253%
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Highlights
- --------------------------------------------------------------------------------
<PAGE>
- -----------------------------------------------------
64 GE Investments
Funds, Inc.
Prospectus
Financial
Highlights
- --------------------------------------------------------------------------------
Global Income Fund
<TABLE>
<CAPTION>
1999 1998 1997(c,g)
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Inception date -- -- --
- ---------------------------------------------------------------------------------------------------------------
Net Asset Value, Beginning of Period $9.85 $10.00
- ---------------------------------------------------------------------------------------------------------------
Income (Loss) from Investment Operations
- ---------------------------------------------------------------------------------------------------------------
Net Investment Income 0.44 0.35
- ---------------------------------------------------------------------------------------------------------------
Net realized and unrealized Gains (Losses) on Investments 0.87 (0.01)
- ---------------------------------------------------------------------------------------------------------------
Total Income (Loss) From Investment Operations 1.31 0.34
Less Distributions from
- ---------------------------------------------------------------------------------------------------------------
Net Investment Income 0.61 0.45
- ---------------------------------------------------------------------------------------------------------------
Net realized Gains 0.02 0.04
- ---------------------------------------------------------------------------------------------------------------
Total Distributions 0.63 0.49
- ---------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Period $10.53 $9.85
- ---------------------------------------------------------------------------------------------------------------
Total Return (a) 13.33% 3.41%
- ---------------------------------------------------------------------------------------------------------------
Ratios/Supplemental Data:
- ---------------------------------------------------------------------------------------------------------------
Net Assets, End of Period (in thousands) $9,739 $5,851
- ---------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
- ---------------------------------------------------------------------------------------------------------------
Net Investment Income* 4.73% 5.54%
- ---------------------------------------------------------------------------------------------------------------
Net Expenses* 0.82% 0.84%
- ---------------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 64% 119%
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
Money Market Fund
<TABLE>
<CAPTION>
1999 1998 1997(c,e) 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Inception date -- -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Net Asset Value, Beginning of Period $1.00 $1.00 $1.00 $0.98
- ------------------------------------------------------------------------------------------------------------------------------------
Income (Loss) from Investment Operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net Investment Income 0.05 0.05 0.05 0.06
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized Gains (Losses) on Investments 0.00 0.00 0.00 0.00
- ------------------------------------------------------------------------------------------------------------------------------------
Total Income (Loss) From Investment Operations 0.05 0.05 0.05 0.06
- ------------------------------------------------------------------------------------------------------------------------------------
Less Distributions from:
- ------------------------------------------------------------------------------------------------------------------------------------
Net Investment Income 0.05 0.05 0.05 0.04
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized Gains 0.00 0.00 0.00 0.00
- ------------------------------------------------------------------------------------------------------------------------------------
Total Distributions 0.05 0.05 0.05 0.04
- ------------------------------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Period $1.00 $1.00 $1.00 $1.00
- ------------------------------------------------------------------------------------------------------------------------------------
Total Return (a) 5.26% 5.41% 5.41% 5.90%
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios/Supplemental Data
- ------------------------------------------------------------------------------------------------------------------------------------
Net Assets, End of Period (in thousands) $239,547 $144,815 $113,263 $63,083
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
- ------------------------------------------------------------------------------------------------------------------------------------
Net Investment Income* 5.14% 5.17% 5.29% 5.74%
- ------------------------------------------------------------------------------------------------------------------------------------
Net Expenses* 0.37% 0.32% 0.15% 0.23%
- ------------------------------------------------------------------------------------------------------------------------------------
Gross Expenses* 0.59% 0.48% 0.55% 0.63%
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Highlights
- --------------------------------------------------------------------------------
<PAGE>
----------
65
- --------------------------------------------------------------------------------
Total Return Fund
<TABLE>
<CAPTION>
1999 1998 1997(c) 1996 1995
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Inception date -- -- -- -- --
- -----------------------------------------------------------------------------------------------------------------------------------
Net Asset Value, Beginning of Period $13.21 $12.73 $15.93 $13.40
- -----------------------------------------------------------------------------------------------------------------------------------
Income (Loss) from Investment Operations
Net Investment Income 0.34 0.34 1.02 0.41
- -----------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized Gains (Losses) on Investments 1.90 1.95 0.67 3.34
- -----------------------------------------------------------------------------------------------------------------------------------
Total Income (Loss) from Investment Operations 2.24 2.29 1.69 3.75
- -----------------------------------------------------------------------------------------------------------------------------------
Less Distributions from
- -----------------------------------------------------------------------------------------------------------------------------------
Net Investment Income 0.34 0.34 1.02 0.42
- -----------------------------------------------------------------------------------------------------------------------------------
Net realized Gains 0.45 1.47 3.87 0.80
- -----------------------------------------------------------------------------------------------------------------------------------
Total Distributions 0.79 1.81 4.89 1.22
- -----------------------------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Period $14.66 $13.21 $12.73 $15.93
- -----------------------------------------------------------------------------------------------------------------------------------
Total Return (a) 17.10% 17.99% 10.60% 28.07%
- -----------------------------------------------------------------------------------------------------------------------------------
Ratios/Supplemental Data
- -----------------------------------------------------------------------------------------------------------------------------------
Net Assets, End of Period (in thousands) $72,632 $50,007 $27,814 $70,507
- -----------------------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
- -----------------------------------------------------------------------------------------------------------------------------------
Net Investment Income* 2.69% 2.56% 2.73% 3.42%
- -----------------------------------------------------------------------------------------------------------------------------------
Net Expenses* 0.63% 0.65% 0.60% 0.65%
- -----------------------------------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 124% 135% 144% 106%
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
Real Estate Securities Fund
<TABLE>
<CAPTION>
1999 1998 1997(c) 1996 1995(f)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Inception date -- -- -- -- 5/1/95
- -----------------------------------------------------------------------------------------------------------------------------------
Net Asset Value, Beginning of Period $15.28 $14.11 $11.05 $10.00
- -----------------------------------------------------------------------------------------------------------------------------------
Income (Loss) from Investment Operations
Net Investment Income 0.73 0.74 0.64 0.46
- -----------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized Gains (Losses) on Investments (3.46) 2.01 3.36 1.23
- -----------------------------------------------------------------------------------------------------------------------------------
Total Income (Loss) From Investment Operations (2.73) 2.75 4.00 1.69
- -----------------------------------------------------------------------------------------------------------------------------------
Less Distributions from
- -----------------------------------------------------------------------------------------------------------------------------------
Net Investment Income 0.50 0.53 0.65 0.46
- -----------------------------------------------------------------------------------------------------------------------------------
Net realized Gains 0.46 1.05 0.29 0.18
- -----------------------------------------------------------------------------------------------------------------------------------
Total Distributions 0.96 1.58 0.94 0.64
- -----------------------------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Period $11.59 $15.28 $14.11 $11.05
- -----------------------------------------------------------------------------------------------------------------------------------
Total Return (a) (17.68%) 19.49% 36.24% 17.00%
- -----------------------------------------------------------------------------------------------------------------------------------
Ratios/Supplemental Data
- -----------------------------------------------------------------------------------------------------------------------------------
Net Assets, End of Period (in thousands) $47,756 $48,887 $24,533 $13,429
- -----------------------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
- -----------------------------------------------------------------------------------------------------------------------------------
Net Investment Income* 5.43% 4.83% 5.90% 6.85%
- -----------------------------------------------------------------------------------------------------------------------------------
Net Expenses* 0.99% 0.95% 1.07% 1.31%
- -----------------------------------------------------------------------------------------------------------------------------------
Gross Expenses* 0.99% 0.95% 1.07% 1.61%
- -----------------------------------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 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, total returns would have been lower. Periods less
than one year are not annualized.
(b) As of April 30, 1997, the fund's name was changed to S&P 500 Index Fund
from Common Stock Index Portfolio.
(c) GE Asset Management Incorporated assumed management responsibilities for
the Funds effective May 1, 1997. See Note 3 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
have been restated to reflect the 10.41 to 1 stock split.
(f) Information 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 about the GE Investments
know more 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 the 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 the Funds'
Funds, Inc. 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
- --------------------------------------------------------------------------------
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 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.
1
<PAGE>
TABLE OF CONTENTS
INVESTMENT STRATEGIES AND RISKS __
INVESTMENT RESTRICTIONS __
PORTFOLIO TRANSACTIONS AND TURNOVER __
MANAGEMENT OF THE COMPANY __
NET ASSET VALUE __
DIVIDENDS, DISTRIBUTIONS AND TAXES __
THE FUNDS' PERFORMANCE __
PRINCIPAL STOCKHOLDERS __
FUND HISTORY AND ADDITIONAL INFORMATION __
FINANCIAL HIGHLIGHTS __
APPENDIX - Description of Ratings __
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 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 common stocks comprising that
Index
Premier Growth Equity Fund. The investment objective of the Premier Growth
Equity Fund is long-term growth of capital and future income rather than
- --------
1 Standard & Poor's(Registered) and S&P(Registered) are trademarks 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>
current income. The Fund seeks to achieve this objective by investing primarily
in growth-oriented equity securities, which, under normal market conditions,
will represent at least 65% of the Fund's assets.
Value Equity Fund. The investment objective of the Value Equity Fund is
long-term growth of capital and future income. The Fund seeks to achieve its
objective by investing primarily in equity securities of companies with large
sized market capitalizations that GE Asset Management considers to be
undervalued by the market. Undervalued securities are those selling for low
prices given the fundamental characteristics of their issuers. During normal
market conditions, the Fund 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 traded on U.S. securities exchanges or in the U.S. over-the-counter
market. 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.
International Equity Fund: The investment objective of the International
Equity Fund is long-term growth of capital. The Fund seeks to achieve its
objective by investing primarily in foreign equity securities. The Fund may
invest in securities of companies and governments located in developed and
developing countries outside the United States. The Fund intends to position
itself broadly among countries and, under normal circumstances, at least 65% of
the Fund's total assets will be invested in securities of issuers collectively
in no fewer than three different countries other than the United States. The
International Fund, under normal conditions, invests at least 65% of its total
assets in common stocks, preferred stocks, convertible debentures, convertible
notes, convertible preferred stocks and warrants or rights issued by companies
believed by GE Asset Management 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
5
<PAGE>
normal conditions, at least 65% of its total assets in equity securities of
companies located in developed European countries.
Emerging Markets Fund: The investment objective of the Emerging Markets
Fund is long-term growth of capital. 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 in income bearing
debt securities and other income-bearing instruments. Capital appreciation with
respect to the Income Fund's portfolio securities may occur but is not an
objective of the Fund.
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.
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
Strategic 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 in a combination of
equity and 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)
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
6
<PAGE>
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 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.
7
<PAGE>
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 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 "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.
8
<PAGE>
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 GE Asset Management. Percentage figures refer to the percentage of
a Fund's assets that may be invested in accordance with the indicated technique.
9
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
Purchasing
Restricted Purchasing and Writing
Reverse and Structured and Writing Securities
Repurchase Repurchase Illiquid and Indexed Securities Index
Borrowing Agreements Agreements Securities Securities Options Options
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
U.S. Equity Fund 33.33% Yes No Yes No Yes Yes
- ----------------------------------------------------------------------------------------------------------------------------
S&P 500 Index Fund 33.33% Yes Yes Yes No Yes Yes
- ----------------------------------------------------------------------------------------------------------------------------
Premier Growth 33.33% Yes No Yes No Yes Yes
Equity Fund
- ----------------------------------------------------------------------------------------------------------------------------
Value Equity Fund 33.33% Yes Yes Yes No Yes Yes
- ----------------------------------------------------------------------------------------------------------------------------
Mid-Cap Value 33.33% Yes No Yes Yes Yes Yes
Equity Fund
- ----------------------------------------------------------------------------------------------------------------------------
Small-Cap Value 33.33% Yes Yes Yes No Yes Yes
Equity Fund
- ----------------------------------------------------------------------------------------------------------------------------
International 33.33% Yes No Yes No Yes Yes
Equity Fund
- ----------------------------------------------------------------------------------------------------------------------------
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 No Yes Yes Yes Yes
- ----------------------------------------------------------------------------------------------------------------------------
Global Income Fund 33.33% Yes Yes Yes Yes Yes Yes
- ----------------------------------------------------------------------------------------------------------------------------
Total Return Fund 33.33% Yes No Yes Yes Yes Yes
- ----------------------------------------------------------------------------------------------------------------------------
Money Market Fund 33.33% Yes Yes No No No No
- ----------------------------------------------------------------------------------------------------------------------------
Real Estate 33.33% Yes Yes No No No No
Securities Fund
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
When-Issued
Futures Maximum Investment Maximum and
and Forward Options on Maximum Investment in Below-Investment Investment Delayed
Options Currency Foreign in Debt Securities Grade Debt Securities in Foreign Delivery
on Txns Currencies Securities Securities
Futures
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
U.S. Equity Fund Yes Yes Yes 35% 5% 15%* Yes
- ------------------------------------------------------------------------------------------------------------------------------------
S&P 500 Index Fund Yes Yes Yes 35% 5% 35%* Yes
- ------------------------------------------------------------------------------------------------------------------------------------
Premier Growth Equity Yes Yes No 35% 5% 25%* Yes
Fund
- ------------------------------------------------------------------------------------------------------------------------------------
Value Equity Fund Yes Yes Yes 35% 5% 25%* Yes
- ------------------------------------------------------------------------------------------------------------------------------------
Mid-Cap Value Equity Yes Yes Yes 35% 15% in securities 15%* Yes
Fund rated BBB or below
by S&P or Baa or
below by Moody's or
equivalent
- ------------------------------------------------------------------------------------------------------------------------------------
Small-Cap Value No No No 35% 10% 10%* Yes
Equity Fund
- ------------------------------------------------------------------------------------------------------------------------------------
International Equity Yes Yes Yes 35% 5% 100% Yes
Fund
- ------------------------------------------------------------------------------------------------------------------------------------
Europe Equity Fund Yes Yes Yes 35% 15% 100% Yes
- ------------------------------------------------------------------------------------------------------------------------------------
Emerging Markets Fund Yes Yes Yes 35% (maximum of 25% 10% in BB or B by 100% Yes
in BBB by S&P, Baa S&P or Ba or B by
by Moody's or Moody's or
equivalent) equivalent
- ------------------------------------------------------------------------------------------------------------------------------------
Income Fund Yes Yes Yes 100% (maximum of 10% in BB or B by 35%* Yes
25% in BBB by S&P S&P or Ba or B by
or Baa by Moody's Moody's or
or equivalent) equivalent
- ------------------------------------------------------------------------------------------------------------------------------------
Global Income Fund Yes Yes No 35% 5% 25%* Yes
- ------------------------------------------------------------------------------------------------------------------------------------
Total Return Fund Yes Yes Yes 100% (maximum of 10% in BB or B by 30%* Yes
25% in BBB by S&P S&P or Ba or B by
or Baa by Moody's Moody's or
or equivalent) equivalent
- ------------------------------------------------------------------------------------------------------------------------------------
Money Market Fund No No No 100% None 25%* Yes
- ------------------------------------------------------------------------------------------------------------------------------------
Real Estate No No No 100% None 25%* Yes
Securities Fund
- ------------------------------------------------------------------------------------------------------------------------------------
</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.
11
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Debt Securities Participation
Obligations of Floating and Interests
Lending Rule 144A of Other Variable in
Portfolio Securities Supra-national Depositary Investment Municipal Rate Municipal
Securities Agencies Receipts Funds Leases Instruments Obligations
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Equity Fund Yes Yes Yes Yes No No No* No
- ------------------------------------------------------------------------------------------------------------------------------------
S&P 500 Index Fund Yes Yes Yes Yes Yes No No* No
- ------------------------------------------------------------------------------------------------------------------------------------
Premier Growth Equity Yes Yes Yes Yes Yes No No* No
Fund
- ------------------------------------------------------------------------------------------------------------------------------------
Value Equity Fund Yes Yes Yes Yes Yes No No* No
- ------------------------------------------------------------------------------------------------------------------------------------
Mid-Cap Value Equity Yes Yes Yes Yes Yes No No* No
Fund
- ------------------------------------------------------------------------------------------------------------------------------------
Small-Cap Value Yes Yes Yes Yes Yes No No* No
Equity Fund
- ------------------------------------------------------------------------------------------------------------------------------------
International Equity Yes Yes Yes Yes Yes No No* No
Fund
- ------------------------------------------------------------------------------------------------------------------------------------
Europe Equity Fund Yes Yes Yes Yes Yes No Yes No
- ------------------------------------------------------------------------------------------------------------------------------------
Emerging Markets Fund Yes Yes Yes Yes Yes No No* No
- ------------------------------------------------------------------------------------------------------------------------------------
Income Fund Yes Yes Yes Yes Yes No Yes No
- ------------------------------------------------------------------------------------------------------------------------------------
Global Income Fund Yes Yes Yes Yes Yes No Yes No
- ------------------------------------------------------------------------------------------------------------------------------------
Total Return Fund Yes Yes Yes Yes Yes Yes Yes Yes
- ------------------------------------------------------------------------------------------------------------------------------------
Money Market Fund Yes Yes Yes No No No Yes No
- ------------------------------------------------------------------------------------------------------------------------------------
Real Estate Yes Yes Yes No No No Yes No
Securities Fund
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Excludes commercial paper and notes with variable and floating rates of
interest.
12
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Mortgage Government
Custodial Related Stripped Asset- and Short
Municipal Receipts on Securities Mortgage Receivable Mortgage Sales
Zero Coupon Obligations Municipal Including Related Backed Dollar Against
Obligations Components Obligations CMO's Securities Securities Rolls the Box
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Equity Fund Yes No No No No No No No
- ------------------------------------------------------------------------------------------------------------------------------------
S&P 500 Index Fund No No No No No No No No
- ------------------------------------------------------------------------------------------------------------------------------------
Premier Growth Equity No No No No No No No No
Fund
- ------------------------------------------------------------------------------------------------------------------------------------
Value Equity Fund No No No No No No No Yes
- ------------------------------------------------------------------------------------------------------------------------------------
Mid-Cap Value Equity Fund Yes No No No No No No Yes
- ------------------------------------------------------------------------------------------------------------------------------------
Small-Cap Value Equity No No No No No No No Yes
Fund
- ------------------------------------------------------------------------------------------------------------------------------------
International Equity Fund No No No No No No No Yes
- ------------------------------------------------------------------------------------------------------------------------------------
Europe Equity Fund No No No No No No No Yes
- ------------------------------------------------------------------------------------------------------------------------------------
Emerging Markets Fund No No No No No No No Yes
- ------------------------------------------------------------------------------------------------------------------------------------
Income Fund Yes No No Yes Yes Yes Yes No
- ------------------------------------------------------------------------------------------------------------------------------------
Global Income Fund Yes No No Yes Yes Yes Yes Yes
- ------------------------------------------------------------------------------------------------------------------------------------
Total Return Fund Yes Yes Yes Yes Yes Yes Yes No
- ------------------------------------------------------------------------------------------------------------------------------------
Money Market Fund No No No No No No No No
- ------------------------------------------------------------------------------------------------------------------------------------
Real Estate Securities
Fund No No No No No No No No
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
13
<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 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."
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
14
<PAGE>
in the GEI Short-Term Investment Fund (the "Investment Fund"), described below,
are as follows: (i) securities issued or guaranteed by the U.S. Government or
one of its agencies or instrumentalities ("Government Securities"), (ii) debt
obligations of banks, savings and loan institutions, insurance companies and
mortgage bankers, (iii) commercial paper and notes, including those with
variable and floating rates of interest, (iv) debt obligations of foreign
branches of U.S. banks, U.S. branches of foreign banks and foreign branches of
foreign banks, (v) debt obligations issued or guaranteed by one or more foreign
governments or any of their political subdivisions, agencies or
instrumentalities, including obligations of supranational entities, (vi) debt
securities issued by foreign issuers and (vii) repurchase agreements.
Each Fund, other than the Money Market Fund, may also invest in the
Investment Fund, an investment fund created specifically to serve as a vehicle
for the collective investment of cash balances of the Funds (other than the
Money Market Fund) and other accounts advised by GEAM or its affiliate, General
Electric Investment Corporation ("GEIC"). The Investment Fund invests
exclusively in the money market instruments described in (i) through (vii)
above. The Investment Fund is advised by 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.
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
15
<PAGE>
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 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.
16
<PAGE>
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 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
17
<PAGE>
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.
Below Investment-Grade 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 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.
18
<PAGE>
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.
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
19
<PAGE>
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.
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.
20
<PAGE>
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.
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
21
<PAGE>
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 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.
22
<PAGE>
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 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
23
<PAGE>
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.
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
24
<PAGE>
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: 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.
25
<PAGE>
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 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.
26
<PAGE>
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. 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
27
<PAGE>
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. 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.
28
<PAGE>
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 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.
29
<PAGE>
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 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 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
30
<PAGE>
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.
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.
Forward Currency Transactions. Certain funds may utilize forward currency
transactions such as engaging in a forward foreign currency exchange contract.
For example, a
31
<PAGE>
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
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
32
<PAGE>
exchange which the Fund can achieve at some future point in time. The precise
projection of 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 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
33
<PAGE>
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.
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
34
<PAGE>
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 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
35
<PAGE>
for securities loaned to the borrower and/or a third party that is unaffiliated
with the Fund and is acting as a "finder."
Securities of Other Investment Companies. Certain Funds may invest in
investment funds that invest principally in securities in which the Fund is
authorized to invest. Currently, under the 1940 Act, a Fund may hold securities
of another investment company in amounts which (a) do not exceed 3% of the total
outstanding voting stock of such company, (b) do not exceed 5% of the value of
the Fund's total assets and (c) when added to all other investment company
securities held by the Fund, do not exceed 10% of the value of the Fund's total
assets. Investments by a Fund (other than the Money Market Fund) in the
Investment Fund are not considered an investment in another investment company
for purposes of this restriction. To the extent a Fund invests in other
investment companies, the Fund's shareholders will incur certain duplicative
fees and expenses, including investment advisory fees.
Purchasing Put and Call Options on Securities. Each Fund, other than the
Money Market Fund, may purchase put and call options that are traded on a U.S.
or foreign securities exchange or in the over-the-counter market. A Fund may
utilize up to 10% of its assets to purchase put options on portfolio securities
and may do so at or about the same time that it purchases the underlying
security or at a later time. By buying a put, a Fund will seek to limit its risk
of loss from a decline in the market value of the security until the put
expires. Any appreciation in the value of the underlying security, however, will
be partially offset by the amount of the premium paid for the put option and any
related transaction costs. A Fund may utilize up to 10% of its assets to
purchase call options on portfolio securities. Call options may be purchased by
a Fund in order to acquire the underlying securities for a price that avoids any
additional cost that would result from a substantial increase in the market
value of a security. A Fund may also purchase call options to increase its
return at a time when the call is expected to increase in value due to
anticipated appreciation of the underlying security. Prior to their expirations,
put and call options may be sold by a Fund in closing sale transactions, which
are sales by the Fund, prior to the exercise of options that it has purchased,
of options of the same 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.
36
<PAGE>
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 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
37
<PAGE>
secure its obligation to deliver the underlying security when it writes a call
option, or to pay for the underlying security when it writes a put option, a
Fund will be required to deposit in escrow the underlying security or other
assets in accordance with the rules of the Options Clearing Corporation (the
"Clearing Corporation") and of the securities exchange on which the option is
written.
A Fund may engage in a closing purchase transaction to realize a profit,
to prevent an underlying security from being called or put or, in the case of a
call option, to unfreeze an underlying security (thereby permitting its sale or
the writing of a new option on the security prior to the outstanding option's
expiration). To effect a closing purchase transaction, a Fund would purchase,
prior to the holder's exercise of an option that the Fund has written, an option
of the same series as that on which the Fund desires to terminate its
obligation. The obligation of a Fund under an option that it has written would
be terminated by a closing purchase transaction, but the Fund would not be
deemed to own an option as the result of the transaction. An option position may
be closed out only if a secondary market exists for an option of the same series
on a recognized securities exchange or in the over-the-counter market. In light
of the need for a secondary market in which to close an option position, the
Funds are expected to purchase only call or put options issued by the Clearing
Corporation. The 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
38
<PAGE>
incurred in hedging transactions and the costs of these transactions will affect
a Fund's performance.
Securities Index Options. In seeking to hedge all or a portion of its
investments, each Fund, other than the Money Market Fund, may purchase and write
put and call options on securities indices listed on U.S. or foreign securities
exchanges or traded in the over-the-counter market, which indices include
securities held in the Fund's portfolio. The Funds with such option writing
authority may write only covered options. A Fund may also use securities index
options as a means of participating in a securities market without making direct
purchases of securities.
A securities index measures the movement of a certain group of securities
by assigning relative values to the securities included in the index. Options on
securities indexes are generally similar to options on specific securities.
Unlike options on securities, however, options on securities indices do not
involve the delivery of an underlying security; the option in the case of an
option on a securities index represents the holder's right to obtain from the
writer in cash a fixed multiple of the amount by which the exercise price
exceeds (in the case of a call) or is less than (in the case of a put) the
closing value of the underlying securities index on the exercise date. A Fund
may purchase and write put and call options on securities indexes or securities
index futures contracts that are traded on a U.S. exchange or board of trade or
a foreign exchange, to the extent permitted under rules and interpretations of
the Commodity Futures Trading Commission ("CFTC"), as a hedge against changes in
market conditions and interest rates, and for duration management, and may enter
into closing transactions with respect to those options to terminate existing
positions. A securities index fluctuates with changes in the market values of
the securities included in the index. Securities index options may be based on a
broad or narrow market index or on an industry or market segment.
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
39
<PAGE>
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.
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
40
<PAGE>
when such sale might be advantageous. In the event of insolvency of the other
party, the Fund may be unable to liquidate a dealer option.
Futures and Related Options. Each Fund, other than the 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
41
<PAGE>
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 consecutive
42
<PAGE>
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.
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 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
43
<PAGE>
disadvantageous exchange rates, thereby incurring losses. The purchase of an
option on a foreign currency may constitute an effective hedge against
fluctuation in exchange rates, although in the event of rate movements adverse
to a Fund's position, the Fund could forfeit the entire amount of the premium
plus related transaction costs.
Options on foreign currencies may be traded on foreign exchanges, to the
extent permitted by the CFTC. These transactions are subject to the risk of
governmental actions affecting trading in or the prices of foreign currencies or
securities. The value of these positions could also be adversely affected by (1)
other complex foreign political and economic factors, (2) lesser availability of
data on which to make trading decisions than in the United States, (3) delays in
a Fund's ability to act upon economic events occurring in foreign markets during
non-business hours in the United States, (4) the imposition of different
exercise and settlement terms and procedures and margin requirements than in the
United States and (5) lesser trading volume.
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
44
<PAGE>
actuarial liabilities, the possibility of regulatory cost restrictions applied
to health care delivery and competition from alternative health care or
conventional housing facilities.
Even though Municipal Obligations are interest-bearing investments that
promise a stable flow of income, their prices are inversely affected by changes
in interest rates and, therefore, are subject to the risk of market price
fluctuations. The values of Municipal Obligations with longer remaining
maturities typically fluctuate more than those of similarly rated Municipal
Obligations with shorter remaining maturities. The values of fixed income
securities also may be affected by changes in the credit rating or financial
condition of the issuing entities.
Tax legislation in recent years has included several provisions that may
affect the supply of, and the demand for, Municipal Obligations, as well as the
tax-exempt nature of interest paid on those obligations. Neither the 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
45
<PAGE>
leases will be secured by the leased equipment, the disposition of the equipment
in the event of foreclosure might prove to be difficult.
Municipal lease obligations may be deemed to be illiquid as determined by
or in accordance with methods adopted by the board 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
46
<PAGE>
rate securities to behave more like fixed rate securities in response to extreme
movements in interest rates.
Floating and variable rate income securities include securities whose
rates vary inversely with changes in market rates of interest. Such securities
may also pay a rate of interest determined by applying a multiple to the
variable rate. The extent of increases and decreases in the value of securities
whose rates vary inversely with changes in market rates of interest generally
will be larger than comparable changes in the value of an equal principal amount
of a fixed rate security having similar credit quality, redemption provisions
and maturity.
Certain Funds may purchase floating and variable rate demand bonds and
notes, which are Municipal Obligations ordinarily having stated maturities in
excess of one year but which permit their holder to demand payment of principal
at any time or at specified intervals. Variable rate demand notes include master
demand notes, which are obligations that permit a Fund to invest fluctuating
amounts, which may change daily without penalty, pursuant to direct arrangements
between the Fund, as lender, and the borrower. These obligations have interest
rates that fluctuate from time to time and frequently are secured by letters of
credit or other credit support arrangements provided by banks. Use of letters of
credit or other credit support arrangements will not adversely affect the
tax-exempt status of variable rate demand notes. 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.
47
<PAGE>
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. Short Sales Against the BoxCertain Funds may
sell securities "short against the box." Whereas a short sale is the sale of a
security a Fund does not own, a short sale is "against the box" if at all times
during which the short position is open, the Fund owns at least an equal amount
of the securities or securities convertible into, or exchangeable without
further consideration for, securities of the same issue as the securities sold
short.
WEBs and Other Index-related Securities. The International Fund may invest
in shares in a particular series issued by Foreign Fund, Inc., an investment
company whose shares
48
<PAGE>
also are known as "World Equity Benchmark Shares" or "WEBS." WEBS have been
listed for trading on the American Stock Exchange, Inc. The Fund 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.
49
<PAGE>
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.
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
50
<PAGE>
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.
51
<PAGE>
Nonfundamental 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 asses 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 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
52
<PAGE>
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 asses. 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 Small-Cap Growth Fund, Small-Cap
Value Fund, the Value Equity Fund, the Europe Fund, the Emerging Markets
Fund, the High Yield Fund, the Government Securities Fund and the Money
Market Fund 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
53
<PAGE>
options on securities indexes and (e) entering into variable rate demand
notes.
3. No Fund, other than the International Income 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, other than the Money Market Fund, may be
invested without regard to this limitation, and (b) the Money Market Fund
may invest more than 5% of its total assets in the securities of an issuer
to the extent permitted by Rule 2a-7 under the 1940 Act. All securities of
a foreign government and its agencies will be treated as a single issuer
for purposes of this restriction.
4. No Fund, other than the International Income 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, other
than the Money Market Fund, may be invested without regard to these 10%
limitations. All securities of a foreign government and its agencies will
be treated as a single issuer for purposes of this restriction.
5. No Fund may invest more than 25% of the value of its total assets in
securities of issuers in any one industry. For purposes of this
restriction, the term industry will be deemed to include (a) the
government of any one country other than the United States, but not the
U.S. Government and (b) all supranational organizations. In addition,
securities held by the Money Market Fund that are issued by domestic banks
are excluded from this restriction.
6. No Fund may underwrite any issue of securities, except to the extent that
the sale of portfolio securities in accordance with the Fund's investment
objective, policies and limitations may be deemed to be an underwriting,
and except that the Fund may acquire securities under circumstances in
which, if the securities were sold, the Fund might be deemed to be an
underwriter for purposes of the Securities Act of 1933, as amended (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
54
<PAGE>
consideration, securities of the same issue as, and equal in amount to,
the securities sold short.
9. No Fund may purchase securities on margin, except that a Fund may obtain
any short-term credits necessary for the clearance of purchases and sales
of securities. For purposes of this restriction, the deposit or payment of
initial or variation margin in connection with futures contracts,
financial futures contracts or related options, and options on securities,
options on securities indexes and options on currencies will not be deemed
to be a purchase of securities on margin by a Fund.
10. No Fund may invest in commodities, except that each Fund (other than the
Money Market Fund) may invest in futures contracts (including financial
futures contracts, index futures contracts or securities index futures
contracts) and related options and other similar contracts (including
foreign currency forward, futures and options contracts) as described in
this Statement of Additional Information and in 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 (a)
each Fund, other than the Money Market Fund, may purchase and sell covered
put and call options on securities and stock indexes and futures contracts
and options on futures contracts and (b) the Money Market Fund may acquire
"puts" and "unconditional puts" as defined in Rule 2a-7 under the 1940
Act.
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. The Money Market Fund may
not invest in any form of warrants.
5. No Fund may purchase illiquid securities if more than 15% of the total
assets of the Fund would be invested in illiquid securities; the Money
Market Fund will not purchase illiquid securities. For purposes of this
restriction, illiquid securities are securities that cannot be disposed of
by a Fund within seven days in the ordinary course of business at
approximately the amount at which the Fund has valued the securities.
6. No Fund may purchase restricted securities if more than 10% of the total
assets of the
55
<PAGE>
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.
Notes to Investment Restrictions for all Funds other than Value Equity Fund,
Small-Cap Value Equity Fund, Europe Equity Fund, and Emerging Markets Fund
With respect to 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.
The percentage limitations in the restrictions listed above apply at
the time of purchases of securities. For purposes of 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.
56
<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
- --------------------------------------------------------------------------------
S&P 500 Index Fund
- --------------------------------------------------------------------------------
Premier Growth Equity Fund
- --------------------------------------------------------------------------------
Value Equity Fund N/A N/A N/A
- --------------------------------------------------------------------------------
Mid-Cap Value Equity Fund
- --------------------------------------------------------------------------------
Small-Cap Value Equity Fund N/A N/A N/A
- --------------------------------------------------------------------------------
International Equity Fund
- --------------------------------------------------------------------------------
Europe Equity Fund N/A N/A N/A
- --------------------------------------------------------------------------------
Emerging Markets Fund N/A N/A N/A
- --------------------------------------------------------------------------------
Income Fund
- --------------------------------------------------------------------------------
Global Income Fund
- --------------------------------------------------------------------------------
Total Return Fund
- --------------------------------------------------------------------------------
Money Market Fund
- --------------------------------------------------------------------------------
Real Estate Securities Fund
- --------------------------------------------------------------------------------
57
<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.
58
<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.
- --------------------------------------------------------------------------------
Total Amount of
Commissions Paid to Firms Transactions for
for Brokerage and Brokerage and Research
Fund Research Services Services
- --------------------------------------------------------------------------------
U.S. Equity Fund
- --------------------------------------------------------------------------------
S&P 500 Index Fund
- --------------------------------------------------------------------------------
Premier Growth Equity Fund
- --------------------------------------------------------------------------------
Value Equity Fund N/A N/A
- --------------------------------------------------------------------------------
Mid-Cap Value Equity Fund
- --------------------------------------------------------------------------------
Small-Cap Value Equity Fund N/A N/A
- --------------------------------------------------------------------------------
International Equity Fund
- --------------------------------------------------------------------------------
Europe Equity Fund N/A N/A
- --------------------------------------------------------------------------------
Emerging Markets Fund N/A N/A
- --------------------------------------------------------------------------------
Income Fund
- --------------------------------------------------------------------------------
Global Income Fund
- --------------------------------------------------------------------------------
Total Return Fund
- --------------------------------------------------------------------------------
Money Market Fund
- --------------------------------------------------------------------------------
Real Estate Securities Fund
- --------------------------------------------------------------------------------
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
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
59
<PAGE>
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. Higher 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 12/31/99
- --------------------------------------------------------------------------------
U.S. Equity Fund
- --------------------------------------------------------------------------------
S&P 500 Index Fund
- --------------------------------------------------------------------------------
Premier Growth Equity Fund
- --------------------------------------------------------------------------------
Value Equity Fund N/A N/A
- --------------------------------------------------------------------------------
Mid-Cap Value Equity Fund
- --------------------------------------------------------------------------------
Small-Cap Value Equity Fund N/A N/A
- --------------------------------------------------------------------------------
International Equity Fund
- --------------------------------------------------------------------------------
Europe Equity Fund N/A N/A
- --------------------------------------------------------------------------------
Emerging Markets Fund N/A N/A
- --------------------------------------------------------------------------------
Income Fund
- --------------------------------------------------------------------------------
Global Income Fund
- --------------------------------------------------------------------------------
Total Return Fund
- --------------------------------------------------------------------------------
Money Market Fund
- --------------------------------------------------------------------------------
Real Estate Securities Fund
- --------------------------------------------------------------------------------
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
60
<PAGE>
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's 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 or GEIC. 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.
61
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
Position(s) Held Age and Principal Occupation(s)
Name and Address With Company During Past 5 Years
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
*Michael J. Cosgrove Chairman of the Board
and President Age 50. President, GE Asset Management Services of GE
Financial Assurance Holdings, Inc. ("GEFA"), 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 and GEIC, wholly-owned subsidiaries of GE
that are registered as investment advisers under the
Investment Advisers Act of 1940, as amended, since March
1993; Director of GEIC and GEAM since 1988; from 1988 until
1993, Mr. Cosgrove served as Executive Vice President -
Finance and Administration of GEAM and GEIC; Chairman of
the Board, Chief Executive Officer and President of GE
Investment Distributors, Inc., a registered broker-dealer,
since 1993; Chairman of the Board and Chief Executive
Officer of GE Investment Retirement Services, Inc., since
1998.
- -----------------------------------------------------------------------------------------------------------------
John R. Costantino Director Age 53. Managing Director, Walden Partners, Ltd.,
150 East 58th Street consultants and investors, since August 1992; President,
New York, NY 10055 CMG Acquisition Corp., Inc., a holding company, since 1988;
Vice Chairman, Acoustiguide Holdings, Inc., a holding
company, since 1989; President CMG/IKH, Inc., a holding
company, since 1991; Director, Crossland Federal Savings
Bank, a financial institution; Director, Brooklyn Bankcorp,
Inc., a financial institution; Director, IK Holdings, Inc.,
a holding company since 1991; Director, I. Kleinfeld & Son,
Inc., a retailer, since 1991; Director, High Performance
Appliances, Inc., a distributor of kitchen appliances
("HPA"), since 1991; Director, HPA Hong Kong, Ltd., a
service subsidiary of HPA, since 1991; Director, Lancit
Media Productions, Ltd., a children's and family television
film and videotape production company, since 1995.
- -----------------------------------------------------------------------------------------------------------------
William J. Lucas Director Age 52. Vice President and Treasurer of Fairfield
Fairfield University University since 1983.
North Benson Road
Fairfield, CT 06430
- -----------------------------------------------------------------------------------------------------------------
Robert P. Martin, Jr. Director Age 65. Self-employed investment consultant, since 1985.
115 Granite Avenue
Richmond, VA 23226
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
62
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
J. Clifford Miller, III Director Age 56. Vice President - Investments, Davenport & Co. LLC.
372 Lexington Road (an investment firm) since 1992. Self employed consultant
Richmond, VA 23226 from 1988 to 1992. Director, Miller Manufacturing Co.,
Inc., from 1977 to 1990; General Partner, Miller Land
Company, 1987 - 1996. Manager, Miller Properties, L.L.C.,
since, 1996.
- -----------------------------------------------------------------------------------------------------------------
Lee A. Putney Director Age 66. Director, Regency Financial Shares, Inc., since
4208 Sulgrave Road 1989 (Chairman from 1989 - 1992). Director, Regency Bank,
Richmond, VA since 1987 (Chairman from 1987 -1992).
- -----------------------------------------------------------------------------------------------------------------
Robert P. Quinn Director Age 63. Retired since 1983 from Salomon Brothers Inc.;
45 Shinnecock Road Director, GP Financial Corp., a holding company, since
Quogue, NY 11959 1994; Director, The Greenpoint Savings Bank, a financial
institution, since 1987.
- -----------------------------------------------------------------------------------------------------------------
Michael Tansley Treasurer Age 35. Manager of Fund Administration at GEAM and GEIC
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. Simpson Secretary Age 38. Vice President and General Counsel, Investment
Services Group of GEFA since February 1997; Vice President,
Associate General Counsel and Assistant Secretary of GEAM
and GEIC since October 1992.
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
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.
- --------------------------------------------------------------------------------
Total Director's Compensation
for fiscal period ended December 31, 1999 from
- --------------------------------------------------------------------------------
Investment Companies
Name of Director The Company Managed by GEAM or GEIC
- --------------------------------------------------------------------------------
Michael J. Cosgrove
- --------------------------------------------------------------------------------
John R. Costantino
- --------------------------------------------------------------------------------
William J. Lucas
- --------------------------------------------------------------------------------
Robert P. Martin, Jr.
- --------------------------------------------------------------------------------
J. Clifford Miller, III
- --------------------------------------------------------------------------------
63
<PAGE>
- --------------------------------------------------------------------------------
Lee A. Putney
- --------------------------------------------------------------------------------
J. Garnett Nelson**
- --------------------------------------------------------------------------------
Robert P. Quinn
- --------------------------------------------------------------------------------
** 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 responsible for the administrative services in connection with
the management of the Company and the Funds, including financial reporting.
64
<PAGE>
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. Seneca currently
manages approximately $4.5 billion in equity, fixed income and real estate
assets.
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.
65
<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. For the fiscal year
ended December 30, 1996, AAI paid Perpetual $118,544 and Seneca $80,941 in
subadvisory 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
GEAM. GE Asset Management Incorporated ("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. The professionals responsible for the investment
operations of GEAM serve in similar capacities with respect to GEIC, a sister
company of GEAM, also wholly owned by GE, which provides investment advisory
services with respect to GE's pension and benefit plans and a number of funds
offered exclusively to GE
66
<PAGE>
employees, retirees and certain related persons. These funds include the Elfun
Family of Funds (the first of which, Elfun Trusts, was established in 1935) and
the funds offered as part of GE's 401(k) program (also known as the GE Savings
and Security Program), which are referred to as the GE S&S Program Mutual Fund
and the GE S&S Long Term Interest Fund. The investment professionals at GEAM and
GEIC and their predecessors have managed GE's pension assets since 1927. GEAM
and GEIC oversaw more than $106 billion and managed assets in excess of $82
billion as of December 31, 1999, of which more than $18 billion was invested in
mutual fund assets.
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 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
67
<PAGE>
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.
The advisory agreements for the S&P 500 Index Fund, Money Market Fund,
Total Return Fund, International Equity Fund and Real Estate Securities Fund
were each approved by the board of directors (including a majority of
independent directors) at a meeting held for that purpose on January 29, 1997
and by the shareholders at meetings held on April 16, 1997. The advisory
agreements for the Mid-Cap Value Equity Fund and Global Income Fund 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 sole
initial shareholder of these Funds on April 29, 1997. Each of the foregoing
advisory agreements were effective as of May 1, 1997 and will continue in effect
for their respective Fund from year to year thereafter, subject to approval
annually by (a) the board of directors or a vote of a majority of the
outstanding shares of the class of stock representing an interest in the
applicable Fund, and (b) the vote of a majority of the independent directors,
cast in person at a meeting called for the purpose of voting on such approval.
The advisory agreements for the Income Fund, U.S. Equity Fund and Premier Growth
Equity Fund were 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 sole initial shareholder of these Funds on October 23, 1997. These three
advisory agreements were effective as of November 15, 1997. These three advisory
agreements will continue in effect for their respective Funds until November 15,
1999, and continue from year to year thereafter, subject to annual approval by
(a) the board of directors or a vote of a majority of the outstanding shares of
the class of stock representing an interest in the applicable Fund, and (b) a
vote of a majority of the independent directors, cast in person at a meeting
called for the purpose of voting on such approval.
68
<PAGE>
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 Company will change the name of the Company and the Funds
to a name not including the initials "GE."
69
<PAGE>
Advisory Fees
- --------------------------------------------------------------------------------
Method of Calculating Advisory Fees. For its services to each Fund of the
Company, 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.
The fees payable to GEAM 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
- --------------------------------------------------------------------------------
70
<PAGE>
- --------------------------------------------------------------------------------
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 $143,124 $5,970**
- --------------------------------------------------------------------------------
S&P 500 Index Fund $815,501 $295,260*
- --------------------------------------------------------------------------------
Premier Growth Equity Fund $110,836 $4,750**
- --------------------------------------------------------------------------------
Value Equity Fund N/A N/A N/A
- --------------------------------------------------------------------------------
Mid-Cap Value Equity Fund $292,504 38,851*
- --------------------------------------------------------------------------------
Small-Cap Value Equity
Fund N/A N/A N/A
- --------------------------------------------------------------------------------
International Equity Fund $355,662 $163,408*
- --------------------------------------------------------------------------------
Europe Equity Fund N/A N/A N/A
- --------------------------------------------------------------------------------
Emerging Markets Fund N/A N/A N/A
- --------------------------------------------------------------------------------
Income Fund $251,667 $10,583**
- --------------------------------------------------------------------------------
Global Income Fund $46,130 $21,909*
- --------------------------------------------------------------------------------
Total Return Fund $295,203 $152,895*
- --------------------------------------------------------------------------------
Money Market Fund $943,239 $417,282
- --------------------------------------------------------------------------------
Real Estate Securities
Fund $448,620 $251,459
- --------------------------------------------------------------------------------
* 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 certain funds. GEAM has agreed to waive a portion of its
management fee for the Money Market Fund so that the fee paid by the Money
Market Fund is equal to 0.25%. GEAM also has agreed to waive a portion of its
management fee for the _____ Fund so that the fee paid by the ____ Fund is equal
to 0.__%. The figures in the table reflect the effect of those waivers. GEAM
reserves the right to discontinue the waiver at anytime.
- --------------------------------------------------------------------------------
71
<PAGE>
Sub-Advisers
As was the case with AAI, GEAM has retained Seneca as sub-adviser for the
Real Estate Securities Fund. GEAM also has engaged NWQ as the investment
sub-adviser to provide day-to-day portfolio management to the Mid-Cap Value
Equity Fund; engaged GEAML to provide day-to-day portfolio management to the
Global Income Fund and; SSGA to provide day-to-day portfolio management to the
S&P 500 Index Fund.
NWQ Investment Management Company (NWQ). 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 16 years of experience. It manages approximately $8.3 billion in assets.
GE Asset Management Limited (GEAML). Like GEAM, GEAML is a wholly owned
subsidiary of GE and is considered under common control with GEAM. GEAML is
located at Sweden House, 20 Saint James' Street, London, SWlA lES, England and
is registered as an investment adviser under the Investment Advisers Act of
1940. Although GEAML has no prior experience advising a U.S. mutual fund, it
currently manages approximately $1.5 billion in assets.
State Street Global Advisors (SSGA). 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 $390 billion under management as of December 31, 1997,
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). 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 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. Seneca
currently manages approximately $4.5 billion in equity, fixed income and real
estate assets.
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
72
<PAGE>
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.
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 reckless disregard of is duties or obligations under the agreements.
Sub-Advisory Fees
- --------------------------------------------------------------------------------
Calculation of Sub-Advisory Fees. For their services, GEAM pays SSGA, NWQ, GEAML
and Seneca 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:
- --------------------------------------------------------------------------------
S&P 500 Index Fund 0.05% first $100,000,000
0.04% next $200,000,000
0.03% over $300,000,000
- --------------------------------------------------------------------------------
Mid-Cap Value Equity Fund 0.4875% first $50,000,000
0.325% over $50,000,000
- --------------------------------------------------------------------------------
Global Income Fund 0.05%
- --------------------------------------------------------------------------------
73
<PAGE>
- --------------------------------------------------------------------------------
Real Estate Securities Fund 0.425% first $100,000,000
0.400% next $100,000,000
0.375% over $200,000,000
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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 $28,537 $103,123
- --------------------------------------------------------------------------------
NWQ $29,139 $219,010
- --------------------------------------------------------------------------------
GEAML $4,915 $3,845
- --------------------------------------------------------------------------------
Seneca $122,393 $224,310
- --------------------------------------------------------------------------------
Securities Activities of GEAM
Securities held by the Funds also may be held by other funds or separate
accounts for which GEAM or GEIC acts as an adviser. Because of different
investment objectives or other factors, a particular security may be bought by
GEAM or GEIC for one or more of their clients, when one or more other clients
are selling the same security. If purchases or sales of securities for a Fund or
other client of GEAM or GEIC arise for consideration at or about the same time,
transactions in such securities will be made, insofar as feasible, for the Fund
and other clients in a manner deemed equitable to all. To the extent that
transactions on behalf of more than one client of GEAM or GEIC during the same
period may increase the demand for securities being purchased or the supply of
securities being sold, there may be an adverse effect on price.
On occasions when 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 or GEIC 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.
74
<PAGE>
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 is generally 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
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
75
<PAGE>
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 this rule, the Money
Market Fund must maintain a dollar-weighted average portfolio maturity of 90
days or less, purchase only instruments having remaining maturities of 397
calendar days or less, and invest only in "eligible securities" as defined in
the rule, which are determined by 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 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.
76
<PAGE>
DIVIDENDS, DISTRIBUTIONS AND TAXES
Set forth below is a summary of certain federal income tax considerations
generally affecting the Funds.
Tax Status of the Funds
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 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
77
<PAGE>
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, 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
78
<PAGE>
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
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
79
<PAGE>
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 __________ and __________,
respectively. Had GEAM not 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
80
<PAGE>
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:
Global Income Fund __________
Income Fund __________
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:
81
<PAGE>
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.
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 One Five Ten Since Incept.
for Periods Ending Year Year Year Inception Date
December 31, 1999 ---- ---- ---- --------- ----
- --------------------------------------------------------------------------------
U.S. Equity Fund 1/3/95
- --------------------------------------------------------------------------------
S&P 500 Index Fund 4/15/85
- --------------------------------------------------------------------------------
Premier Growth Equity Fund 12/12/97
- --------------------------------------------------------------------------------
Value Equity Fund
- --------------------------------------------------------------------------------
Mid-Cap Value Equity Fund 5/1/97
- --------------------------------------------------------------------------------
Small-Cap Value Equity Fund
- --------------------------------------------------------------------------------
International Equity Fund 5/1/95
- --------------------------------------------------------------------------------
Europe Equity Fund
- --------------------------------------------------------------------------------
Emerging Markets Fund
- --------------------------------------------------------------------------------
Income Fund 1/3/95
- --------------------------------------------------------------------------------
Global Income Fund 5/1/97
- --------------------------------------------------------------------------------
Money Market Fund 7/1/85
- --------------------------------------------------------------------------------
Total Return Fund 7/1/85
- --------------------------------------------------------------------------------
Real Estate Securities Fund 5/1/95
- --------------------------------------------------------------------------------
-82-
<PAGE>
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.
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.
-83-
<PAGE>
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.
-84-
<PAGE>
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 capital 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.
- --------------------------------------------------------------------------------
As of March 31, 2000
- --------------------------------------------------------------------------------
Number Percentage
Fund Shareholder of Record of Shares of Shares
- --------------------------------------------------------------------------------
U.S. Equity Fund
- --------------------------------------------------------------------------------
S&P 500 Index Fund
- --------------------------------------------------------------------------------
Premier Growth Equity Fund
- --------------------------------------------------------------------------------
Value Equity Fund
- --------------------------------------------------------------------------------
Mid-Cap Value Equity Fund
- --------------------------------------------------------------------------------
Small-Cap Value Equity Fund
- --------------------------------------------------------------------------------
International Equity Fund
- --------------------------------------------------------------------------------
Europe Equity Fund
- --------------------------------------------------------------------------------
Emerging Markets Fund
- --------------------------------------------------------------------------------
Income Fund
- --------------------------------------------------------------------------------
Global Income Fund
- --------------------------------------------------------------------------------
Total Return Fund
- --------------------------------------------------------------------------------
Money Market Fund
- --------------------------------------------------------------------------------
Real Estate Securities Fund
- --------------------------------------------------------------------------------
GE Life and Annuity and its Accounts and General Electric Capital are the
only shareholders of record. As of _________, there were no contract owners who
beneficially owned a 5% or greater voting interest in any Fund. As of
__________, officers and directors of the Company beneficially owned, as owners
of variable annuity or variable life insurance contracts, less than 1% of the
S&P 500 Index Fund and less than 1% of the Total Return Fund.
-85-
<PAGE>
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 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, all but one of the Accounts is registered as
an investment company with the Securities and Exchange Commission ("SEC") and 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 such variable contracts. The
remaining Account is not registered as an investment company but a separate
disclosure document (rather than a prospectus) describing that Account and the
variable contracts 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 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
-86-
<PAGE>
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.
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.
-87-
<PAGE>
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.
-88-
<PAGE>
APPENDIX
Description of Ratings
Commercial Paper Ratings
The rating A-1+ is the highest, and A-1 the second highest commercial
paper rating assigned by S&P. Paper rated A-1+ must have either the direct
credit support of an issuer or guarantor that possesses excellent long-term
operating and financial strength combined with strong liquidity characteristics
(typically, such issuers or guarantors would display credit quality
characteristics that would warrant a senior bond rating of AA or higher) or the
direct credit support of an issuer or guarantor that possesses above average
long-term fundamental operating and financing capabilities combined with ongoing
excellent liquidity characteristics. Paper rated A-1 must have the following
characteristics: liquidity ratios are adequate to meet cash requirements;
long-term senior debt is rated A or better; the issuer has access to at least
two additional channels of borrowing; basic earnings and cash flow have an
upward trend with allowance made for unusual circumstances; typically, the
issuer's industry is well established and the issuer has a strong position
within the industry; and the reliability and quality of management are
unquestioned. Capacity for timely payment on issues rated A-2 is satisfactory.
However, the relative degree of safety is not as high as issues designated
"A-1."
The rating Prime-1 is the highest commercial paper rating assigned by
Moody's. Among the factors considered by Moody's in assigning ratings are the
following: (a) evaluation of the management of the issuer; (b) economic
evaluation of the issuer's industry or industries and an appraisal of
speculative-type risks that may be inherent in certain areas; (C) evaluation of
the issuer's products in relation to competition and customer acceptance; (d)
liquidity; (e) amount and quality of long-term debt; (f) trend of earnings over
a period of ten years; (g) financial strength of parent company and the
relationships that exist with the issue; and (h) recognition by the management
of obligations that may be present or may arise as a result of public interest
questions and preparations to meet the obligations.
Issuers rated Prime-2 (or supporting institutions) have a strong ability
for repayment of senior short-term debt obligations. This normally will be
evidenced by many of the characteristics cited above, but to a lesser degree.
Earnings trends and coverage ratios, while sound, may be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
Short-term obligations, including commercial paper, rated A-1+ by ICA
Limited or its affiliate ICA Inc. are obligations supported by the highest
capacity for timely repayment. Obligations rated A-1 have a very strong capacity
for timely repayment. Obligations rated A-2 have a strong capacity for timely
repayment, although that capacity may be susceptible to adverse changes in
business, economic and financial conditions.
Fitch Investors Services, Inc. employs the rating F-1+ to indicate issues
regarded as having the strongest degree of assurance of timely payment. The
rating F-1 reflects an assurance
A - 1
<PAGE>
of timely payment only slightly less in degree than issues rated F-1+, while the
rating F-2 indicates a satisfactory degree of assurance of timely payment
although the margin of safety is not as great as indicated by the F-1+ and F-1
categories.
Duff & Phelps Inc. employs the designation of Duff 1 with respect to top
grade commercial paper and bank money instruments. Duff 1+ indicates the highest
certainty of timely payment: short-term liquidity is clearly outstanding and
safety is just below risk-free U.S. Treasury short-term obligations. Duff 1-
indicates high certainty of timely payment. Duff 2 indicates good certainty of
timely payment; liquidity factors and company fundamentals are sound.
Thomson BankWatch Inc. employs the rating TAW-1 to indicate issues having
a very high degree of likelihood of timely payment. TAW-2 indicates a strong
degree of safety regarding timely payment, however, the relative degree of
safety is not as high as for issues rated TAW-1. While the rating TAW-3
indicates issues that are more susceptible to adverse developments than
obligations with higher ratings, capacity to service principal and interest in a
timely fashion is considered adequate. The lowest rating category is TAW-4; this
rating is regarded as non-investment grade and, therefore, speculative.
Various NRSROs utilize rankings within ratings categories indicated by a
plus or minus sign. The Funds, in accordance with industry practice, recognize
such ratings within categories or gradations, viewing for example S&P's ratings
of A-1+ and A-1 as being in S&P's highest rating category.
Description of S&P Corporate Bond Ratings
AAA -- This is the highest rating assigned by S&P to a bond and indicates
an extremely strong capacity to pay interest and repay principal.
AA -- Bonds rated AA have a very strong capacity to pay interest and repay
principal and differ from AAA issues only in small degree.
A -- Bonds rated A have a strong capacity to pay interest and repay
principal although they are somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than debt in higher rated
categories.
BBB -- Bonds rated BBB have an adequate capacity to pay interest and repay
principal. Adverse economic conditions or changing circumstances are more likely
to lead to a weakened capacity to pay interest and repay principal for bonds in
this category (even though they normally exhibit adequate protection parameters)
than for bonds in higher rated categories.
BB, B and CCC -- Bonds rated BB and B are regarded, on balance, as
predominately 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
A - 2
<PAGE>
characteristics, these are outweighed by large uncertainties or major risk
exposures to adverse conditions.
To provide more detailed indications of credit quality, the ratings from
AA to B may be modified by the addition of a plus or minus sign to show relative
standing within this major rating category.
Description of Moody's Corporate Bond Ratings
Aaa -- Bonds that are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edge." Interest payments are protected by a large or exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa -- Bonds that are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present that
make the long-term risks appear somewhat larger than in Aaa securities.
A -- Bonds that are rated A possess favorable investment attributes and
are to be considered as upper medium grade obligations. Factors giving security
to principal and interest are considered adequate, but elements may be present
that suggest a susceptibility to impairment sometime in the future.
Baa -- Bonds that are rated Baa are considered as medium-grade
obligations, that is, they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
Ba -- Bonds that are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
B -- Bonds that are rated B generally lack characteristics of desirable
investments. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
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.
A - 3
<PAGE>
Moody's applies numerical modifiers (1, 2 and 3) with respect to the bonds
rated Aa through B, The modifier 1 indicates that the bond being rated ranks in
the higher end of its generic rating category; the modifier 2 indicates a
mid-range ranking; and the modifier 3 indicates that the bond ranks in the lower
end of its generic rating category.
Description of S&P Municipal Bond Ratings
AAA -- Prime -- These are obligations of the highest quality. They have
the strongest capacity for timely payment of debt service.
General Obligation Bonds -- In a period of economic stress, the issuers
will suffer the smallest declines in income and will be least susceptible to
autonomous decline. Debt burden is moderate. A strong revenue structure appears
more than adequate to meet future expenditure requirements. Quality of
management appears superior.
Revenue Bonds -- Debt service coverage has been, and is expected to
remain, substantial. Stability of the pledged revenues is also exceptionally
strong due to the competitive position of the municipal enterprise or to the
nature of the revenues. Basic security provisions (including rate covenant,
earnings test for issuance of additional bonds, debt service reserve
requirements) are rigorous. There is evidence of superior management.
AA -- High Grade -- The investment characteristics of bonds in this group
are only slightly less marked than those of the prime quality issues. Bonds
rated AA have the second strongest capacity for payment of debt service.
A -- Good Grade -- Principal and interest payments on bonds in this
category are regarded as safe although the bonds are somewhat more susceptible
to the adverse effects of changes in circumstances and economic conditions than
bonds in higher rated categories. This rating describes the third strongest
capacity for payment of debt service. The ratings differ from the two higher
ratings of municipal bonds, because:
General Obligations Bonds -- There is some weakness, either in the local
economic base, in debt burden, in the balance between revenues and expenditures,
or in quality of management. Under certain adverse circumstances, any one such
weakness might impair the ability of the issuer to meet debt obligations at some
future date.
Revenue Bonds -- Debt service coverage is good, but not exceptional.
Stability of the pledged revenues could show some variations because of
increased competition or economic influences on revenues. Basic security
provisions, while satisfactory, are less stringent. Management performance
appears adequate.
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
A - 4
<PAGE>
capacity to pay interest and repay principal for bonds in this category (even
though they normally exhibit adequate protection parameters) than for bonds in
higher rated categories.
General Obligation Bonds -- Under certain adverse conditions, several of
the above factors could contribute to a lesser capacity for payment of debt
service. The difference between A and BBB ratings is that the latter shows more
than one fundamental weakness, or one very substantial fundamental weakness,
whereas, the former shows only one deficiency among the factors considered.
Revenue Bonds -- Debt coverage is only fair. Stability of the pledged
revenues could show substantial variations, with the revenue flow possibly being
subject to erosion over time. Basic security provisions are no more than
adequate. Management performance could be stronger.
BB, B, CCC and CC -- Bonds rated BB, B, CCC and CC are regarded, on
balance, as predominately speculative with respect to capacity to pay interest
and repay principal in accordance with the terms of the obligation. BB includes
the lowest degree of speculation and CC the highest degree of speculation. While
these bonds will likely have some quality and protective characteristics, these
characteristics are outweighed by large uncertainties or major risk exposures to
adverse conditions.
C -- The rating C is reserved for income bonds on which no interest is
being paid.
D -- Bonds rated D are in default, and payment of interest and/or
repayment of principal is in arrears.
S&P's letter ratings may be modified by the addition of a plus or a minus
sign, which is used to show relative standing within the major rating
categories, except in the AAA-Prime Grade category.
Description of S&P Municipal Note Ratings
Municipal notes with maturities of three years or less are usually given
note ratings (designated SP-1, -2 or -3) to distinguish more clearly the credit
quality of notes as compared to bonds. Notes rated SP-1 have a very strong or
strong capacity to pay principal and interest. Those issues determined to
possess overwhelming safety characteristics are given the designation of SP-1+.
Notes rated SP-2 have satisfactory capacity to pay principal and interest.
Description of Moody's Municipal Bond Ratings
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
A - 5
<PAGE>
various protective elements are likely to change, such changes as can be
visualized are most unlikely to impair the fundamentally strong position of such
issues.
Aa -- Bonds that are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities, or fluctuation of
protective elements may be of greater amplitude, or there may be other elements
present that make the long-term risks appear somewhat larger than in Aaa
securities.
A -- Bonds that are rated A possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate, but elements may be
present that suggest a susceptibility to impairment sometime in the future.
Baa -- Bonds that are rated Baa are considered as medium grade
obligations, that is, they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
Ba -- Bonds that are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterize bonds in this class.
B -- Bonds that are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time may be
small.
Caa -- Bonds that are rated Caa are of poor standing. Such issues may be
in default or there may be present elements of danger with respect to principal
or interest.
Ca -- Bonds that are rated Ca represent obligations that are speculative
in a high degree. Such issues are often in default or have other marked
shortcomings.
C -- Bonds that are rated C are the lowest rated class of bonds, and
issues so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.
Moody's applies the numerical modifiers 1, 2 and 3 in each generic rating
classification from Aa through B. The modifier 1 indicates that the security
ranks in the higher end of its generic ratings category; the modifier 2
indicates a mid-range ranking; and the modifier 3 indicates that the issue ranks
in the lower end of its generic ratings category.
Description of Moody's Municipal Note Ratings
A - 6
<PAGE>
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 22. 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 __,
2000.*
- -------------------
* Incorporated into the Statement of Additional Information by reference
to GE Investments Funds, Inc.'s Annual Report dated __________________.
<PAGE>
Item 23.
Exhibits
- --------
Exhibit No. Description of Exhibit
----------- ----------------------
(a) Amended and restated Articles of Incorporation
of GE Investments Funds, Inc. dated February 19,
1998, incorporated herein by reference to
post-effective amendment number 23 to this Form
N-1A registration statement (File No. 2-91369),
filed with the Commission on May 1, 1998.
(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) Investment Advisory and Administration Agreement
for Value Equity Fund.*
(d)(3) Investment Advisory and Administration Agreement
for Small-Cap Value Equity Fund.*
(d)(4) Investment Advisory and Administration Agreement
for Europe Equity Fund.*
(d)(5) Investment Advisory and Administration Agreement
for Emerging Markets Fund.*
(d)(6) 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.
(d)(7) Sub-Advisory Agreement for Small-Cap Value Equity
Fund.*
(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 November __,
1998, between Registrant and GE Life and Annuity
Assurance Company (to be filed by amendment).
(i) 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.
(j)(1) Consent of Sutherland Asbill & Brennan LLP*
(j)(2) Consent of KPMG Peat Marwick LLP*
(k) Inapplicable.
(l) Inapplicable.
(m) Inapplicable.
(n) Financial Data Schedules
(o) Inapplicable.
(p) Powers of attorney, incorporated herein by
reference to post-effective amendment 24 to this
Form N-1A registration statement (File No.
811-04041), filed with the Commission on February
25, 1999.
- ----------
*To be filed by amendment.
Item 24. Persons Controlled by or Under Common Control with Registrant
The list required by this Item 24 of persons controlled by or under
common control with Registrant, which includes the subsidiaries of General
Electric Company ("GE"), is incorporated herein by reference to Exhibit 21,
"Subsidiaries of Registrant," of the Form 10-K filed by GE pursuant to Section
13 or 15(d) of the Securities Exchange Act of 1934, as amended (SEC File No.
1-35) for the fiscal year ended December 31, 1998 (the "Form 10-K"). Additional
information about persons controlled by or under common control with Registrant
is incorporated herein by reference to pages 10-12 of the Form 10-K, beginning
under the caption "GECs Segments."
C-3
<PAGE>
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.
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.
C-4
<PAGE>
The list required by this Item 26 of officers and directors of GE Asset
Management Incorporated, 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 GE Asset Management Incorporated 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).
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 International Fund, Elfun Money Market
Fund, Elfun Trusts and Elfun Diversified Fund.
(b) The information required by this Item 27 with respect to each
director and officer of GEID is incorporated herein by reference to Schedule A
of Form BD filed by GEID pursuant to the Securities Exchange Act of 1934, as
amended (SEC File No. 8-45710).
(c) Inapplicable.
Item 28. Location of Accounts and Records
All accounts, books and other documents required to be maintained by
Registrant pursuant to Section 31(a) of the 1940 Act, and the rules thereunder,
are maintained at the offices of Registrant located at 3003 Summer Street,
Stamford, Connecticut 06905; 777 Long Ridge Road, Stamford, Connecticut 06927;
State Street, Registrant's custodian and transfer agent, located at 225
Franklin Street, Boston, Massachusetts 02101; and National Financial Data
Services Inc., an indirect subsidiary of State Street, located at P.O. Box
419631, Kansas, MO 64141-6631.
C-5
<PAGE>
Item 29. Management Services
Inapplicable.
Item 30. Undertakings
Inapplicable.
C-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
and the Investment Company Act of 1940, as amended, the Registrant has duly
caused this Amendment to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Stamford, State of Connecticut on this 16th day
of February, 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.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ Michael J. Cosgrove President (Principal Executive 2/16/00
- ------------------------------------ Officer) and Director
Michael J. Cosgrove
/s/ Michael Tansley Treasurer (Principal Financial 2/16/00
- ------------------------------------ and Accounting Officer)
Michael Tansley
/s/ John R. Costantino *Director 2/16/00
- ------------------------------------
John R. Costantino
/s/ William J. Lucas *Director 2/16/00
- ------------------------------------
William J. Lucas
/s/ Robert P. Martin, Jr. *Director 2/16/00
- ------------------------------------
Robert P. Martin, Jr.
/s/ J. Clifford Miller, III *Director 2/16/00
- ------------------------------------
J. Clifford Miller, III
/s/ Lee A. Putney *Director 2/16/00
- ------------------------------------
Lee A. Putney
/s/ Robert P. Quinn *Director 2/16/00
- ------------------------------------
Robert P. Quinn
</TABLE>
* Signature affixed by Matthew J. Simpson pursuant to a power of attorney dated
December 9, 1998 and filed herewith.
<PAGE>
POWER OF ATTORNEY
I, the undersigned Director and/or Trustee of GE Funds, GE
Institutional Funds, GE Lifestyles Funds and GE Investments Funds, Inc. plus any
other investment company for which GE Investment Management, Inc. or an
affiliate acts as investment adviser and for which the undersigned individual
serves as Director and/or Trustee (collectively, the "Funds"), hereby constitute
and appoint Michael J. Cosgrove, Matthew J. Simpson, Jeanne M. LaPorta and Marc
R. Bryant, each of them singly, my true and lawful attorneys-in-fact, with full
power and substitution, and with full power to each of them, to sign for me and
in my name in the appropriate capacities, all Registration Statements of the
Funds on Forms N-1A and N-8A or any successor(s) thereto, any and all subsequent
Amendments, Pre-Effective Amendments, or Post-Effective Amendments to said
Registration Statements, any Registration Statements on Form N-14, and any
supplements or other instruments in connection therewith, and generally to do
all such things in my name necessary or appropriate, to comply with the
provisions of the Securities Act of 1933 and the Investment Company Act of 1940,
and all related requirements of the Securities and Exchange Commission. I hereby
ratify and confirm all that said attorneys-in-fact or their substitutes may do
or cause to be done by virtue hereof. This power of attorney is effective for
all documents filed on or after the date hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney
as of the 9th day of December, 1998.
/s/ JOHN R. COSTANTINO
--------------------------
John R. Costantino
/s/ WILLIAM J. LUCAS
--------------------------
William J. Lucas
/s/ ROBERT W.P. MARTIN, JR.
--------------------------
Robert W.P. Martin, Jr.
/s/ CLIFFORD MILLER III
--------------------------
Clifford Miller III
/s/ LEE A. PUTNEY
--------------------------
Lee A. Putney
/s/ ROBERT P. QUINN
--------------------------
Robert P. Quinn
