<PAGE>
As filed with the Securities and Exchange Commission
on April 23, 1999
Securities Act File No. 33-15071
Investment Company Act File No. 811-5216
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 /X/
Pre-Effective Amendment No. / /
Post-Effective Amendment No.18 /X/
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 /X /
Amendment No. 18 /X/
(Check appropriate box or boxes)
ELFUN GLOBAL FUND
(Exact Name of Registrant as Specified in Charter)
3003 Summer Street
Stamford, Connecticut 06905
(Address of Principal Executive Office) (Zip Code)
Registrant's Telephone Number, including Area Code:
(203) 326-4040
Alan M. Lewis, Esq.
Executive Vice President, General Counsel & Secretary
c/o General Electric Investment Corporation
3003 Summer Street
Stamford, Connecticut 06905
(Name and Address of Agent for Service)
Copies to:
Burton M. Leibert, Esq.
Willkie Farr & Gallagher
787 Seventh Avenue
New York, New York 10019-6099
<PAGE>
Approximate Date of Proposed Public Offering: As soon as practicable after the
effective date of this Registration Statement.
It is proposed that this filing will become effective (check appropriate box):
immediately upon filing pursuant to paragraph (b) ---
on April 30, 1999 pursuant to paragraph (b) X
---
60 days after filing pursuant to paragraph (a)(1) ---
on (date) pursuant to paragraph (a)(1) of Rule 485 ---
75 days after filing pursuant to paragraph (a)(2) ---
on (date) pursuant to paragraph (a)(2) of Rule 485 ---
If appropriate, check the following box:
This post-effective amendment designates a new
effective date for a previously filed post-effective
amendment. X
---
<PAGE>
Prospectus
-------------
Elfun Funds
April 30, 1999
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Equity Funds
Elfun Trusts
Elfun Global Fund
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Income Funds
Elfun Income Fund
Elfun Tax-Exempt Income Fund
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Asset Allocation Fund
Elfun Diversified Fund
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Money Market Fund
Elfun Money Market Fund
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Like all mutual funds, these securities 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.
<PAGE>
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Contents
- --------------------------------------------------------------------------------
Elfun Funds Prospectus
<TABLE>
<S> <C>
Equity Funds ................................................... 3
Elfun Trusts ................................................... 4
Elfun Global Fund .............................................. 6
Income Funds ................................................... 9
Elfun Income Fund .............................................. 10
Elfun Tax-Exempt Income Fund ................................... 12
Asset Allocation Fund .......................................... 15
Elfun Diversified Fund ......................................... 16
Money Market Fund .............................................. 19
Elfun Money Market Fund ........................................ 20
Fund Expenses .................................................. 22
More on Strategies and Risks ................................... 24
More on Risks .................................................. 24
Other Risk Considerations ...................................... 27
More on Investment Strategies .................................. 27
About the Investment Adviser, Distributor and Servicing Agent .. 33
Investment Adviser and Administrator ........................... 33
Distributor and Servicing Agent ................................ 33
About the Funds' Portfolio Managers ............................ 34
How to Invest .................................................. 35
How to Purchase Units .......................................... 35
How to Redeem Units ............................................ 37
How to Exchange Units .......................................... 39
Dividends, Capital Gains and Other Tax Information ............. 40
Calculating Net Asset Value .................................... 42
Appendix: Financial Highlights ................................ 43
</TABLE>
Additional information regarding the Elfun Funds ("Funds") is contained in the
Statement of Additional Information dated April 30, 1999 which is incorporated
by reference into (legally forms a part of) this Prospectus.
General Electric Company is not a party to the trust agreements which created
each Fund and does not sponsor the Funds.
<PAGE>
---------------------------------------
Equity Funds Elfun Funds 3
Prospectus
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Who may want to invest in an Equity Fund?
Elfun Equity Funds may be appropriate for your investment portfolio 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 fixed income investments
The Elfun Equity Funds may not be appropriate if you want:
o to avoid potentially significant changes in share price
o a short-term investment
o regular income
Equity funds generally invest in equity securities. Equity securities may
include common stocks, preferred stocks, depositary receipts, convertible
preferred stocks, convertible bonds, convertible debentures, convertible notes,
and rights and warrants of U.S. and foreign companies. Stocks represent an
ownership interest in a corporation. Equity funds have more potential for
capital growth than other funds, but they have greater risk.
[Sidebar]
An investment in an Elfun 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 an Elfun Fund is subject to investment risks, including possible
loss of principal invested.
<PAGE>
- ----------------------
4 Elfun Funds
Prospectus
Equity Funds
- --------------------------------------------------------------------------------
Elfun Trusts
Investment Objective:
Seeks long-term growth of capital and future income rather than current income.
The Strategy
Elfun Trusts invests primarily in equity securities. Stock selection is key to
the performance of the Fund. The portfolio manager seeks to identify securities
of issuers with characteristics such as:
o strong earnings growth
o attractive prices
o a presence in successful industries
o high quality management
The Fund also may invest 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 risk of investing in this Fund is stock market risk. To the extent
that the portfolio manager invests in foreign securities and debt securities,
the Fund would be subject to foreign exposure risk, interest rate risk and
credit risk.
If you would like additional information regarding the Fund's investment
strategies and risks, please refer to "More on Strategies and Risks" later in
this Prospectus.
<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 18.67% for the quarter ended December 31, 1998. The Fund's lowest
return for a quarter was -15.03% for the quarter ended September 30, 1990. The
Fund's year-to-date return was 6.49% as of March 31, 1999.
The table opposite illustrates how the Fund's average annual returns for
different calendar periods compare to the returns of the Standard & Poor's 500
Composite Stock Index ("S&P 500 Index"). The table reflects the impact of the
Fund's expenses. It assumes you sold your Units at the end of each period.
Calendar Year Total Returns
[Bar Chart Appears Here]
<TABLE>
<CAPTION>
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
35.81% -3.71% 28.17% 9.28% 8.98% 0.23% 39.19% 23.55% 30.86% 22.94%
</TABLE>
Average Annual Total Return
(as of December 31, 1998)
<TABLE>
<CAPTION>
1 Year 5 Years 10 Years
------ ------- --------
<S> <C> <C> <C>
Elfun Trusts 22.94% 22.63% 18.66%
S&P 500 Index 28.70% 24.08% 19.21%
</TABLE>
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.
[Sidebar]
All mutual funds use a standard formula to calculate total return. Total return
measures the price change in a Unit assuming the reinvestment of all dividend
income and capital gain distributions.
<PAGE>
- -------------------
6 Elfun Funds
Prospectus
Equity Funds
- --------------------------------------------------------------------------------
Elfun Global Fund
Investment Objective: Seeks long-term growth of capital and future income by
investing principally in foreign securities consistent with prudent investment
management and the preservation of capital.
The Strategy
The Elfun Global Fund invests primarily in equity securities of companies
located in developed and developing countries, including the United States. The
portfolio managers focus on companies that they expect will grow faster than
relevant markets and whose security price does not fully reflect its potential
growth. Under normal circumstances, the Fund's assets are invested in no fewer
than three different countries. The portfolio managers consider the following
factors in determining where an issuer is located: country of organization,
primary securities trading market, location of assets, or country where the
issuer derives at least half of its revenues and profits. Stock selection is key
to the performance of the Fund.
The portfolio managers seek to identify securities of growth companies with
characteristics such as:
o low prices relative to their long-term cash earnings potential
o potential for significant improvement in the company's business
o financial strength
o sufficient liquidity
The Fund also may invest to a lesser extent in investment-grade securities. The
portfolio managers may use various investment techniques to adjust the Fund's
investment exposure, but there is no guarantee that these techniques will work.
The Risks
The principal risks of investing in this Fund are stock market risk, foreign
exposure risk, style risk and emerging markets risk. To the extent that the
portfolio managers invest in debt securities, the Fund would be subject to
interest rate risk and credit risk.
If you would like additional information regarding the Fund's investment
strategies and risks, please refer to "More on Strategies and Risks" later in
this Prospectus.
<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 22.70% for the quarter ended December 31, 1998. The Fund's lowest
return for a quarter was -19.02% for the quarter ended September 30, 1998. The
Fund's year-to-date return was 6.58% as of March 31, 1999.
The table opposite illustrates how the Fund's average annual returns for
different calendar periods compare to the returns of the Morgan Stanley Capital
International World Index ("MSCIW Index"). The table reflects the impact of the
Fund's expenses. It assumes that you sold your Units at the end of each period.
Calendar Year Total Returns
[Bar Chart Appears Here]
<TABLE>
<CAPTION>
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
24.74% -8.56% 14.81% 5.94% 31.88% -0.63% 16.03% 16.13% 8.47% 17.36%
</TABLE>
Average Annual Total Return
(as of December 31, 1998)
<TABLE>
<CAPTION>
1 Year 5 Years 10 Years
------ ------- --------
<S> <C> <C> <C>
Elfun Global Fund 17.36% 11.26% 12.05%
MSCIW Index 24.34% 15.68% 10.66%
</TABLE>
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.
[Sidebar]
All mutual funds use a standard formula to calculate total return. Total return
measures the price change in a Unit assuming the reinvestment of all dividend
income and capital gain distributions.
<PAGE>
- --------
8
[This page intentionally left blank.]
<PAGE>
---------------------------------------------
Income Funds Elfun Funds 9
Prospectus
- -------------------------------------------------------------------------------
Who may want to invest in an Income Fund?
Elfun Income Funds may be appropriate for your investment portfolio if you:
o seek regular income
o seek lower potential volatility than equity funds over the long term
o want to diversify a portfolio composed mostly of equity investments
Elfun Income Funds may not be appropriate if you want:
o high potential capital appreciation
The Elfun Tax-Exempt Income Fund may be appropriate for your investment
portfolio if you:
o are in a high tax bracket
o want income that is exempt from
federal income tax
Income funds generally invest in debt securities. Debt securities are bonds and
other securities that are used by issuers to borrow money from investors.
Holders of debt securities have a higher priority claim to assets than do equity
holders. Typically, the debt issuer pays the investor a fixed, variable or
floating rate of interest and must repay the borrowed amount at maturity. Some
debt securities, such as zero coupon bonds, are sold at a discount from their
face values instead of paying interest. Income funds provide regular income and
some provide federally tax-exempt income.
[Sidebar]
An investment in an Elfun 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 an Elfun Fund is subject to risk, including
possible loss of principal invested.
<PAGE>
- -------------------
10 Elfun Funds
Prospectus
Income Funds
- --------------------------------------------------------------------------------
Elfun Income Fund
Investment Objective:
Seeks a high level of income consistent with prudent investment management and
the preservation of capital.
The Strategy
The Elfun Income Fund invests primarily in investment grade securities,
including 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, but is subject to no
limitation with respect to the maturities of the instruments in which it may
invest.
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, high
yield securities and foreign 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 Fund's investment strategy may result in a high portfolio turnover rate,
which may cause the Fund to experience increased transaction costs and
unitholders to incur increased taxes on their investment in the Fund.
The Risks
The principal risks of investing in this Fund are interest rate risk, credit
risk, prepayment risk and below investment-grade securities risk. To the extent
that the portfolio managers invest in foreign securities, the Fund would be
subject to foreign exposure risk. Certain portfolio securities are derivative
securities that carry derivative securities risk.
If you would like additional information regarding the risks associated with
this Fund, please refer to "More on Strategies and Risks" later in this
Prospectus.
<PAGE>
-----------
11
- ------------------------------------------------------------------------------
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 6.25% for the quarter ended June 30, 1995. The Fund's lowest return
for a quarter was -2.37% for the quarter ended March 31, 1994. The Fund's
year-to-date return was -0.52% as of March 31, 1999.
The table opposite illustrates how the Fund's average annual returns for
different calendar periods compare to the returns of the Lehman Brothers
Aggregate Bond Index ("LB Aggregate Bond Index"). The table reflects the impact
of the Fund's expenses. It assumes that you sold your Units at the end of each
period.
Calendar Year Total Returns
[Bar Chart Appears Here]
<TABLE>
<CAPTION>
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
14.34% 8.61% 16.13% 6.61% 9.72% -2.33% 18.21% 4.01% 9.58% 8.49%
</TABLE>
Average Annual Total Return
(as of December 31, 1998)
<TABLE>
<CAPTION>
1 Year 5 Years 10 Years
------ ------- --------
<S> <C> <C> <C>
Elfun Income Fund 8.49% 7.38% 9.19%
LB Aggregate Bond Index 8.67% 7.27% 9.26%
</TABLE>
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.
[Sidebar]
All mutual funds use a standard formula to calculate total return. Total return
measures the price change in a Unit assuming the reinvestment of all dividend
income and capital gain distributions.
<PAGE>
- ----------------------
12 Elfun Funds
Prospectus
Income Funds
- --------------------------------------------------------------------------------
Elfun Tax-Exempt Income Fund
Investment Objective:
Seeks as high a level of current interest income exempt from Federal income
taxation as is available from concentration of investment in municipal bonds
consistent with prudent investment management and the preservation of capital.
Elfun Tax-Exempt Income Fund
The Strategy
The Elfun Tax-Exempt Income Fund invests primarily in investment-grade municipal
securities. The portfolio manager manages the Fund so that, under normal
conditions, at least 80% of the Fund's net assets is invested in municipal
securities, the income from which is typically exempt from federal personal
income tax and the federal alternative minimum tax.
The portfolio manager seeks to identify debt securities with characteristics
such as:
o attractive yields and prices
o the potential for income generation
o the potential for capital appreciation
o reasonable credit quality
The Fund also may invest to a lesser extent in tax-free or taxable money market
instruments and may hold cash. The portfolio manager may use various investment
techniques to adjust the Fund's investment exposure, but there is no guarantee
that these techniques will work.
The Risks
The principal risks of investing in this Fund are municipal securities risk,
interest rate risk and credit risk. Certain portfolio securities are derivative
securities that carry derivative securities risk. The Fund's income may be
subject to state and local taxes.
If you would like additional information regarding the investment strategies and
risks associated with this Fund, please refer to "More on Strategies and Risks"
later in this Prospectus.
<PAGE>
-----------
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 7.07% for the quarter ended March 31, 1995. The Fund's lowest return
for a quarter was -5.35% for the quarter ended March 31, 1994. The Fund's
year-to-date return was 0.77% as of March 31, 1999.
The table opposite illustrates how the Fund's average annual returns for
different calendar periods compare to the returns of the Lehman Brothers
Municipal Bond Index ("LB Muni Bond Index"). The table reflects the impact of
the Fund's expenses. It assumes that you sold your Units at the end of each
period.
Calendar Year Total Returns
[Bar Chart Appears Here]
<TABLE>
<CAPTION>
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
9.21% 5.98% 12.08% 8.50% 12.11% -5.77% 17.32% 3.60% 9.59% 6.21%
</TABLE>
Average Annual Total Return
(as of December 31, 1998)
<TABLE>
<CAPTION>
1 Year 5 Years 10 Years
------ ------- --------
<S> <C> <C> <C>
Elfun Tax-Exempt
Income Fund 6.21% 5.92% 7.72%
LB Muni Bond Index 6.48% 6.22% 8.22%
</TABLE>
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.
Tax-Exempt Investing -- Tax-exempt investing usually benefits investors in
higher tax brackets.
All mutual funds use a standard formula to calculate total return. Total return
measures the price change in a Unit assuming the reinvestment of all dividend
income and capital gain distributions.
<PAGE>
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14
[This page intentionally left blank.]
<PAGE>
----------------------------------------
Asset Allocation Elfun Funds 15
Fund Prospectus
- --------------------------------------------------------------------------------
Who may want to invest in an Elfun Asset Allocation Fund?
An Asset Allocation Fund may be appropriate for your investment portfolio if
you:
o seek both capital appreciation and current income
o want a single diversified investment
Asset allocation funds are designed to meet the needs of investors who prefer to
have their asset allocation decisions made by professional money managers. They
provide an investor with a means to diversify by investing in a core portfolio
that typically holds both equity securities and debt securities. Although an
investor may achieve the same level of diversification by buying individual
Elfun Equity or Income Funds, the Elfun Diversified Fund presents a
diversification alternative within one fund. An investor should not expect
capital appreciation or current income levels comparable to funds for which
either capital appreciation or current income is their sole objective.
[Sidebar]
An investment in an Elfun 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 an Elfun Fund is subject to investment risks, including possible
loss of principal invested.
<PAGE>
- ----------------------------------------
16 Elfun Funds
Prospectus
Asset Allocation
Fund
- --------------------------------------------------------------------------------
Elfun Diversified Fund
Investment Objective:
Seeks the highest total return consistent with prudent investment management and
the preservation of capital.
The Strategy
The Elfun Diversified Fund invests primarily in equity securities and debt
securities. The portfolio managers follow an asset allocation process
established by General Electric Investment Corporation's Asset Allocation
Committee to diversify holdings across asset classes. It is likely that the Fund
will maintain a weighting in U.S. equity securities, debt securities and foreign
securities based on the relative attractiveness of the asset classes. The Fund
invests in equity securities principally for their capital appreciation
potential and debt securities principally for their income potential. Within
each asset class, the portfolio managers use active security selection to choose
securities based on the merits of individual issuers.
The portfolio managers seek to identify equity securities of companies with
characteristics such as:
o strong earnings growth
o attractive prices
o a presence in successful industries
o high quality management
The portfolio managers seek to identify debt securities with characteristics
such as:
o attractive yields, coupons and prices
o favorable cash flow
o reasonable credit quality
The portfolio managers may use various investment techniques to adjust the
Fund's investment exposure, but there is no guarantee that these techniques will
work.
The Fund's asset allocation process may result in a high portfolio turnover
rate, which may cause the Fund to experience increased transaction costs and
unitholders to incur increased taxes on their investment in the Fund.
The Risks
The principal risks of investing in this Fund are stock market risk, foreign
exposure risk, interest rate risk, credit risk and prepayment risk. To the
extent the portfolio managers invest in high yield securities, the Fund would be
subject to below investment-grade 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, 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. The bar chart illustrates how the Fund's performance varies
from year to year over the periods shown.
During the periods presented in the bar chart, the Fund's highest return for a
quarter was 11.94% for the quarter ended December 31, 1998. The Fund's lowest
return for a quarter was -5.78% for the quarter ended September 30, 1998. The
Fund's year-to-date return was 3.62% as of March 31, 1999.
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 LB Aggregate Bond Index. The table reflects the impact of the
Fund's expenses. It assumes that you sold your Units at the end of each period.
Calendar Year Total Returns
[Bar Chart]
1989 21.51%
1990 4.75%
1991 17.70%
1992 9.35%
1993 8.90%
1994 -0.26%
1995 27.11%
1996 14.40%
1997 18.58%
1998 17.14%
Average Annual Total Return
(as of December 31, 1998)
1 Year 5 Years 10 Years
------ ------- --------
Elfun Diversified Fund 17.14% 15.03% 13.65%
S&P 500 Index 28.70% 24.08% 19.21%
LB Aggregate Bond Index 8.67% 7.27% 9.26%
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 must use the same formula to calculate total return. Total
return measures the price change in a Unit assuming the reinvestment of all
dividend income and capital gain distributions.
<PAGE>
- ---------
18
- --------------------------------------------------------------------------------
[This page intentionally left blank.]
<PAGE>
-----------------------------------------
Money Elfun Funds 19
Market Fund Prospectus
- --------------------------------------------------------------------------------
Who may want to invest in an Elfun Money Market Fund?
A Money Market Fund may be appropriate for your portfolio if you:
o want regular income
o are investing for a short period of time
o want an investment that seeks to maintain a stable share price
A Money Market Fund may not be appropriate if you:
o want a potentially higher rate of income
o want a long-term investment
o seek capital appreciation
Money Market Funds invest in short-term, high quality debt securities. They
seek to provide stability of principal and regular income. The income provided
by a money market fund varies with interest rate movements.
<PAGE>
- -----------
20 Elfun Funds
Prospectus
Money Market Fund
- ------------------------------------------------------------------------------
Elfun Money Market Fund
Investment Objective:
Seeks a high level of current income consistent with prudent investment
management and the preservation of capital.
The Strategy
The Elfun Money Market Fund invests primarily in short-term, U.S.
dollar-denominated money market instruments. The Fund's investments may
include U.S. Government securities, repurchase agreements, commercial paper,
variable rate securities, foreign debt securities and bank deposits of
domestic and foreign banks. The portfolio manager limits investments to high
quality securities with maturities of up to 13 months and limits the average
maturity to 90 days.
The Fund invests consistent with regulatory standards governing security
quality, maturity and portfolio diversification. The Fund may invest more than
25% of its total assets in the banking industry. Changes in banking
regulations or the economy can have a significant negative impact on the
banking industry.
All of the Fund's assets are rated in the two highest short-term rating
categories (or their unrated equivalents), and 95% of its assets are rated in
the highest rating category (or its unrated equivalent), by a nationally
recognized statistical rating organization. Additional information about the
money market securities in which the Fund may invest, including rating
categories, is contained in the statement of additional information.
The Risks
The principal risks of investing in this Fund are interest rate risk, credit
risk and foreign exposure risk.
An investment in the Fund is not insured or guaranteed by the Federal Deposit
Insurance Corporation (FDIC) or any other government agency. Although the Fund
seeks to maintain a value of $1.00 per Unit, 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 Unit price
to decline below $1.00.
If you would like additional information regarding the investment strategies
and risks associated with this Fund, please refer to "More on Strategies and
Risks" later in this Prospectus.
<PAGE>
----------
21
- ------------------------------------------------------------------------------
Fund Performance
The bar chart and table opposite illustrate the short-term variability in the
Fund's performance and the Fund's returns relative to a common measure of
performance. The bar chart illustrates how the Fund's performance varies from
year to year over the periods shown.
During the periods presented in the bar chart, the Fund's highest return for a
quarter was 1.82% for the quarter ended March 31, 1991. The Fund's lowest
return for a quarter was 0.26% for the quarter ended January 31, 1993. The
Fund's year-to-date return was 1.18% as of March 31, 1999.
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 sold your Units at the end of each period. The Fund's seven day
yield was 4.92% and the seven day effective yield was 5.04% as of December 31,
1998. "Effective yield" reflects the compounding effect of earnings on
reinvested dividends.
Calendar Year Total Returns
[BAR CHART APPEARS HERE]
1991 6.55%
1992 3.91%
1993 3.31%
1994 4.17%
1995 5.82%
1996 5.23%
1997 5.45%
1998 5.39%
Average Annual Total Return
(as of December 31, 1998)
Since
1 Year 5 Years Inception*
------ ------- ----------
Elfun Money Market Fund 5.39% 5.21% 5.19%
90 Day T-Bill 4.88% 5.05% 4.80%
Both the bar chart and table assume reinvestment of dividends and
distributions. If GEIC 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): June 14, 1990
[Sidebar]
All mutual funds use a standard formula to calculate total return. Total
return measures the price change in a Unit assuming the reinvestment of all
dividend income and capital gain distributions.
<PAGE>
- ---------------------
22 Elfun Funds Fund Expenses
Prospectus
- ------------------------------------------------------------------------------
This summary shows what it will cost you directly or indirectly to invest in a
Fund.
No sales charges, redemption fees or transfer fees are assessed by any Fund,
except if a unitholder elects to redeem units by telephone and have the proceeds
wired to a bank, in which case a Fund will charge a $10 fee.
Annual fund operating expenses come out of a Fund's assets and are reflected in
the Fund's Unit price and dividends.
The figures below reflect actual expenses for the year ended December 31, 1998.
Annual Fund Operating Expenses
(as a percentage of average net assets)
Elfun
Elfun Tax- Elfun
Elfun Diversi- Exempt Elfun Money
Elfun Global fied Income Income Market
Trusts Fund Fund Fund Fund Fund
------ ---- ---- ---- ---- ----
Management expenses:* 0.05% 0.10% 0.09% 0.04% 0.07% 0.03%
Other expenses:** 0.07% 0.21% 0.16% 0.06% 0.15% 0.22%
Total Operating Expenses: 0.12% 0.31% 0.25% 0.10% 0.22% 0.25%
* The nature of the services provided to, and the management expenses paid by,
each Fund are described under "About the Investment Adviser."
** "Other expenses" includes costs of unitholder services, custodial fees, legal
and accounting fees, printing costs and registration fees, the costs of
regulatory compliance, the costs associated with maintaining a Fund's legal
existence and the costs involved in communicating with unitholders of the Funds.
<PAGE>
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23
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The Impact of Fund Expenses
The following example is intended to help you compare the cost of investing in a
Fund with the cost of investing in other mutual funds. Although actual costs may
be higher or lower, you would pay the following expenses on a $10,000
investment, assuming a 5% annual return and that the Fund's operating expenses
remain the same. The example also assumes that you redeemed all of your Units at
the end of each period shown. The example should not be considered to be a
representation of past or future expenses of a Fund. Actual expenses may be
greater or less than those shown.
Example
You would pay the following expenses on a $10,000 investment:
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
Elfun Trusts: $ 12 $ 39 $ 68 $ 154
Elfun Global Fund: 32 100 174 393
Elfun Income Fund: 23 71 124 280
Elfun Tax-Exempt Income Fund: 10 32 56 128
Elfun Diversified Fund: 26 80 141 318
Elfun Money Market Fund: 26 80 141 318
<PAGE>
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24 Elfun Funds More on
Prospectus Strategies
and Risks
- --------------------------------------------------------------------------------
More on Risks
Like all mutual funds, investing in the Elfun 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 Units of a Fund should not be considered a complete
investment program. The Unit value of the Equity Funds, Income Funds and Elfun
Diversified Fund will rise and fall. Although the Elfun Money Market Fund seeks
to preserve the value of your investment at $1.00 per Unit, it is possible to
lose money by investing in the Fund.
One of your most important investment considerations should be balancing risk
and return. Different types of investments tend to respond differently to shifts
in the economic and financial environment. So, diversifying your investments
among different asset classes--such as stocks, bonds and cash--and within an
asset class--such as small-cap and large-cap stocks--can help you manage risk
and achieve the results you need to comfortably reach your financial goals.
For more information about the risks associated with the Funds, please see the
Statement of Additional Information (SAI), which is incorporated by reference
into this Prospectus.
Below investment-grade 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.
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 credit quality and therefore the ability to honor financial
obligations. 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: Derivative securities (securities whose values are
based on other securities, currencies or indices) include options (on stocks,
indices, currencies, futures contracts or bonds), forward currency exchange
contracts, futures contracts, swaps and structured securities. Derivative
securities may be used as a direct investment or as a hedge for a Fund's
portfolio or a portion of a portfolio. Hedging involves using a security to
offset investment risk. Hedging may include reducing the risk of a position held
in a portfolio. Hedging and other investment techniques also may be used to
increase a Fund's exposure to a particular investment strategy. If the portfolio
manager's judgment of market conditions proves incorrect or the strategy does
not correlate well with a Fund's investments, the use of derivatives could
result in a loss regardless of whether the intent was to reduce risk or increase
return and may increase a Fund's volatility. In addition, in the event that
non-exchange traded
<PAGE>
----------
25
- --------------------------------------------------------------------------------
derivatives are used, these derivatives could result in a loss if the
counterparty to the transaction does not perform as promised.
Emerging Markets Risk: Emerging market securities bear most foreign exposure
risks discussed later in this section. In addition, there are greater risks
involved in investing in emerging markets than in developed foreign markets.
Specifically, the economic structures in emerging markets countries are less
diverse and mature than those in developed countries, and their political
systems are less stable. Investments in emerging 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 market 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
markets, particularly emerging markets, may be less liquid, more volatile and
subject to less government supervision than U.S. markets. There may be
difficulties enforcing contractual obligations, and it may take more time for
transactions to clear and settle in foreign countries than in the U.S. Less
information may be available about foreign issuers. The costs of buying and
selling foreign securities, including tax, brokerage and custody costs,
generally are higher than those involving domestic transactions. The specific
risks of investing in foreign securities include:
o Currency Risk: The values of foreign investments may be affected by changes
in currency rates or exchange control regulations. If the local currency
gains strength against the U.S. dollar, the value of the foreign security
increases in U.S. dollar terms. Conversely, if the local currency weakens
against the U.S. dollar, the value of the foreign security declines in U.S.
dollar terms. U.S. dollar-denominated securities of foreign issuers,
including Depositary Receipts, also are subject to currency risk based on
their related investments.
o Political/Economic Risk: Changes in economic, tax or foreign investment
policies, government stability, war or other political or economic actions
may have an adverse effect on a Fund's foreign investments.
o Regulatory Risk: Foreign companies often are not subject to uniform
accounting, auditing and financial reporting standards or to other
regulatory practices and requirements common to U.S. companies.
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 price, a Fund may have to accept a lower price or may not be able to sell the
security at all, or forego other investment opportunities, all of which may have
an impact on the Fund.
Interest Rate Risk: Bond prices generally rise when interest rates decline and
decline when interest rates rise. The longer the duration of a bond, the more a
change in interest rates affects the bond's price. Short-term and long-term
interest rates may not move the same amount and may not move in the same
direction.
Municipal Securities Risk: Municipal securities are backed by the entities that
issue them and/or other revenue streams. Like other debt securities, prices of
municipal debt securities are affected inversely by changes in interest rates
and by changes in the credit rating or financial condition of the issuer. Income
derived from investments in municipal securities typically is exempt from
Federal income tax, however capital gains are subject to Federal tax. 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
<PAGE>
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26 Elfun Funds
Prospectus
More on Strategies
and Risks
- --------------------------------------------------------------------------------
mortgage-backed securities assume the securities will be redeemed at a given
time. When interest rates decline, mortgage-backed securities experience higher
prepayments because the underlying mortgages are repaid earlier than expected. A
Fund's portfolio manager may be forced to invest the proceeds from prepaid
mortgage-backed securities at lower rates, which results in a lower return for
the Fund. When interest rates increase, mortgage-backed securities experience
lower prepayments because the underlying mortgages may be repaid later than
expected. This typically reduces the value of the underlying securities.
Repurchase and Reverse Repurchase Agreements Risk:
A Fund entering into a repurchase agreement may suffer a loss if the other party
to the transaction defaults on its obligations and could be delayed or prevented
from exercising its rights to dispose of the underlying securities. The value of
the underlying securities might decline while the Fund seeks to assert its
rights. The Fund could incur additional expenses in asserting its rights or may
lose all or part of the income from the agreement. A reverse repurchase
agreement involves the risk that the market value of the securities retained by
a Fund may decline below the price of the securities the Fund has sold but is
obligated to repurchase at a higher price under the agreement.
Restricted Securities Risk: Restricted securities may be subject to legal
restraints and, therefore, are less liquid than other securities. The prices
received from reselling restricted securities in privately negotiated
transactions may be less than those originally paid by a Fund. Companies whose
securities are restricted are not subject to the same investor protection
requirements as publicly traded securities.
Stock Market Risk: A Fund's share price will move up and down in reaction to
stock market movements. Stock prices change daily in response to company
activity and general economic and market conditions. A Fund's investments in
common stocks and other equity securities are subject to stock market risk,
which is the risk that the value of equity securities may decline. Also, equity
securities are subject to the risk that a particular issuer's securities may
decline in value, even during periods when equity securities in general are
rising. Additional stock market risks may be introduced when a particular equity
security is traded on a foreign market. For more detail on the related risks
involved in foreign markets, see Foreign Exposure Risk.
Style Risk: Securities with different characteristics tend to shift in and out
of favor depending upon market and economic conditions as well as investor
sentiment. A fund may underperform other funds that employ a different style. A
fund may also employ a combination of styles that impact its risk
characteristics. Examples of different styles include growth and value
investing, as well as those focusing on large, medium, or small company
securities.
o Growth Investing Risk: Growth Stocks may be more volatile than other stocks
because they are more sensitive to investor perceptions of the issuing company's
growth potential. Growth oriented funds will typically underperform when value
investing is in favor.
o Value Investing Risk: Undervalued stocks may not realize their perceived value
for extended periods of time or may never realize their perceived value. Value
stocks may respond differently to market and other developments than other types
of stocks. Value oriented funds will typically underperform when growth
investing is in favor.
o Mid-Cap Company Risk: Investments in securities of mid-cap companies entail
greater risks than investments in larger, more established companies. Mid-cap
companies tend to have more narrow product lines, more limited financial
resources and a more limited trading market for their stocks, as compared with
larger companies. As a result, their stock prices may decline significantly as
market conditions change.
o Small-Cap Company Risk: Investing in securities of small-cap companies may
involve greater risks than investing in larger, more established issuers.
Smaller companies may have limited product lines, markets or financial
resources. Their securities may trade less frequently and in more limited volume
than securities of larger, more established compa-
<PAGE>
----------
27
- --------------------------------------------------------------------------------
nies. In addition, smaller companies are typically subject to greater changes in
earnings and business prospects than are larger companies. Consequently, the
prices of small company stocks tend to rise and fall in value more than other
stocks. Although investing in small-cap companies offers potential for
above-average returns, the companies may not suceed and the value of stock
shares could decline significantly.
Other Risk Considerations:
EURO Conversion: On January 1, 1999, eleven of the fifteen member countries of
the European Economic and Monetary Union (Participating Countries) established
fixed conversion rates between their existing sovereign currencies and the EURO,
a new common currency in Europe. The introduction of the EURO may result in
uncertainties for securities of European companies, European markets and the
operation of the Funds. The redenomination of certain European debt and equity
securities over a period of time may result in differences in various
accounting, tax and/or legal treatments that would not otherwise occur. Market
disruptions may occur that could adversely affect the value of European
securities and currencies held by the Funds. Other risks relate to the ability
of financial institution systems to process EURO transactions.
General Electric Investment Corporation has addressed ongoing EURO conversion
issues in a broad range of areas, including internal business applications,
trading systems and accounting systems. In addition, GE Investment Corporation
has worked closely with the Funds' major service providers to address EURO
conversion issues. It is possible, however, that the markets for securities in
which certain Funds invest may be adversely affected by the conversion to the
EURO. Furthermore, individual issuers may suffer increased costs and decreased
earnings due to the long-term impact of EURO conversion.
Year 2000: Like other business organizations and individuals around the world,
each of the Funds could be adversely affected if the computer systems used by
its investment manager and external service providers do not properly process
and calculate date-related information from and after January 1, 2000. This is
commonly known as the "Year 2000 Problem." General Electric Investment
Corporation is engaged in a multi-year effort to address the Year 2000 Problem
in a broad range of areas, including internal business applications,
process-enabling systems and facilities. In addition, efforts are underway to
track each of the Funds' major service providers to see what they have
completed, or have undertaken to address the Year 2000 Problem. At this time,
however, there can be no assurance that these steps will be sufficient to avoid
any adverse impact on the Funds.
Furthermore, it is possible that the markets for securities in which the Funds
invest may be detrimentally affected by computer failures throughout the
financial services industry beginning January 1, 2000. Corporate and
governmental data processing errors may result in production problems for
individual companies and overall economic uncertainties. Earnings of individual
issuers may be affected by remediation costs. In addition, it has been reported
that foreign institutions have made less progress in addressing the Year 2000
Problem than major U.S. entities, which could have a greater impact on certain
Elfun Funds' investments that are more sensitive to these risks.
More On Investment Strategies
A Fund is permitted to use other securities and investment strategies in pursuit
of its investment objective, subject to limits established by the Funds' Board
of Trustees. No Fund is under any obligation to use any of the techniques or
strategies at any given time or under any particular economic condition. Certain
instruments and investment strategies may expose the Funds to other risks and
considerations, which are discussed in the Funds' SAI.
Holding Cash and Temporary Defensive Positions: Under normal circumstances, each
Fund may hold cash and/or money market instruments (i) pending investment, (ii)
for
<PAGE>
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28 Elfun Funds
Prospectus
More on Strategies
and Risks
- --------------------------------------------------------------------------------
cash management purposes, and (iii) to meet operating expenses. A Fund may from
time to time take temporary defensive positions when the portfolio manager
believes that adverse market, economic, political or other conditions exist. In
these circumstances, the portfolio manager may (i) without limit hold cash
and/or invest in money market instruments, or (ii) restrict the securities
markets in which a Fund's assets are invested by investing those assets in
securities markets deemed to be conservative in light of the Fund's investment
objective and strategies. The Funds, other than the Money Market Fund, may
invest in money market instruments directly or indirectly through investment in
the GEI Short-Term Investment Fund ("Investment Fund"). The Investment Fund is
advised by GE Investment Management Incorporated, an affiliate of the Funds'
investment manager, which charges no advisory fee to the Investment Fund.
To the extent that a Fund, other than the Elfun Money Market Fund, holds cash or
invests in money market instruments, it may not achieve its investment
objective.
Various investment techniques are utilized by a Fund to increase or decrease its
exposure to changing security prices, interest rates, currency exchange rates,
commodity prices or other factors that affect security values. These techniques
may involve derivative transactions such as buying and selling options and
futures contracts, entering into currency exchange contracts or swap agreements,
purchasing indexed securities and selling securities short. These techniques are
designed to adjust the risk and return characteristics of a Fund's portfolio of
investments and are not used for leverage. To the extent that a Fund employs
these techniques, the Fund would be subject to derivative securities risk.
Borrowing: Each Fund may borrow for temporary or emergency purposes. The Elfun
Tax-Exempt Income Fund may borrow from banks for long-term or leveraging
purposes in an amount not to exceed 10% of total assets. Borrowing for long-term
or leveraging purposes may increase the impact on the Fund of fluctuations in
the value of securities purchased with borrowed money. There can be no assurance
that the Fund would realize a higher return on its investment than the interest
rate on borrowed money.
The following are important definitions that may be unfamiliar to an investor
reading about the Elfun 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 and that may be converted on specified terms into the stock of the
issuer.
Corporate bonds are debt securities issued by companies.
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 inter-
<PAGE>
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29
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ests 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 (securities whose values are based on other securities,
currencies or indices) include options (on stocks, indices, currencies, futures
contracts or bonds), forward currency exchange contracts, futures contracts,
swaps, interest-only and principal-only debt securities, certain mortgage-backed
securities like CMOs, and structured securities.
Duration -- a mathematical calculation of the average life of a bond (or
portfolio of bonds) based on cash flows that serves as a useful measure of its
price risk. Each year of duration approximates an expected one percent change in
the bond's price for every one percent change in the interest rate.
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
U.S. by foreign corporations and financial institutions or by foreign branches
of U.S. corporations and financial institutions
o Yankee Bonds, which are dollar-denominated securities issued by foreign
issuers in the U.S.
o Securities denominated in currencies other than U.S. dollars
Foreign securities include interests in or obligations of entities located
outside of the United States. The determination of where an issuer of a security
is located will be made by reference to the country in which the issuer (a) is
organized, (b) derives at least 50% of its revenues or profits from goods
produced or sold, investments made or services performed, (c) has at least 50%
of its assets situated, or (d) has the principal trading market for its
securities. Foreign securities may be denominated in non-U.S. currencies and
traded outside the United States or may be in the form of depositary receipts.
High yield securities are debt securities of corporations, preferred stock 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 speculative quality. High yield securities include
bonds rated below investment grade, sometimes called "junk bonds," and are
considered speculative by the major credit rating agencies.
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.
Investment-grade securities are debt securities 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 -- 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 through
investments in the GEI Short-Term Investment Fund (Investment Fund). The
Investment Fund is advised by GE Investment Management Incorporated, an
affiliate of the Funds' investment manager, 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
<PAGE>
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30 Elfun Funds
Prospectus
More on Strategies
and Risks
- --------------------------------------------------------------------------------
obligations ("CMOs") which are derivative securities that are fully
collateralized by a portfolio of mortgages.
Municipal securities are debt obligations of local, state or regional
governments. Municipal securities include both municipal bonds (securities with
maturities of more than one year) and municipal notes (securities with
maturities of less than one year). They may be a general obligation of the
municipality that issued them or they may be secured by the revenues of a
special project or facility. Income derived from investments in municipal
securities is typically exempt from Federal income tax, however, capital gains
are subject to Federal tax.
Non-publicly traded securities are securities that are subject to contractual or
legal restrictions on transfer, excluding, for purposes of this restriction,
Rule 144A Securities that have been determined to be liquid by a Fund's Board of
Trustees.
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.
Repurchase Agreements (repos) are transactions in which a security (usually
a government security) is purchased with a simultaneous commitment to sell it
back to the seller (a commercial bank or recognized securities dealer) at an
agreed upon price on an agreed upon date -- usually the next day.
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.
Variable Rate Securities carry interest rates that may be adjusted periodically
to market rates. Interest rate adjustments could increase or decrease the income
generated by the securities.
Weighted average maturity -- the length of time in days or years until the
average security in a money market or bond fund will mature or be redeemed by
its issuer. The average maturity is weighted according to the dollar amounts
invested in the various securities in the fund. This measure indicates an income
fund's sensitivity to changes in interest rates. In general, the longer a fund's
average weighted maturity, the more its share price will fluctuate in
response to changing interest rates.
The following tables summarize each Fund's current investment policies and
limitations. Certain policies and limitations may be changed at the discretion
of GE Investment Managment. Percentage figures refer to the percentage of a
Fund's assets that may be invested in accordance with the indicated policy.
<PAGE>
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31
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<TABLE>
<CAPTION>
Structured Purchasing Purchasing
Reverse Non-Publicly and and Writing and Writing
Repurchase Repurchase Traded Indexed Securities Securities
Agreements Agreements Securities Securities Options Index Options
---------- ---------- ---------- ---------- ------- -------------
<S> <C> <C> <C> <C> <C> <C>
Elfun Trusts Yes No Yes No Yes Yes
Elfun Global Fund Yes No Yes No Yes Yes
Elfun Income Fund Yes No Yes Yes Yes Yes
Elfun Tax-Exempt Income Fund Yes No Yes No Yes Yes
Elfun Diversified Fund Yes No Yes Yes Yes Yes
Elfun Money Market Fund Yes Yes Yes No No No
</TABLE>
<TABLE>
<CAPTION>
Maximum Maximum When-Issued
Futures Investment in Investment and
and Forward Options on Maximum Below-Investment in Delayed
Options on Currency Foreign Investment in Grade Debt Foreign Delivery
Futures Transactions Currencies Debt Securities Securities Securities Securities
--------- ------------ ---------- --------------- ---------------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Elfun Trusts Yes No No 35% 5% 35%* Yes
Elfun Global Fund Yes Yes Yes 35% None 100% Yes
Elfun Income Fund Yes Yes Yes 100% (maximum 10% BB or B by 35%* Yes
of 25% BBB by S&P or Ba or B
S&P or Baa by by Moody's or
Moody's or equivalent
equivalent)
Elfun Tax-Exempt Yes No No 100% (maximum 10% BB or B None Yes
Income Fund of 25% BBB by S&P or Ba
by S&P or Baa by Moody's or
by Moody's or equivalent
equivalent)
Elfun Diversified Yes Yes Yes 100% (maximum 10% BB or B by 20%* Yes
Fund of 25% BBB by S&P or Ba or
S&P or Baa by by Moody's or
Moody's or equivalent
equivalent)
Elfun Money Market No No No 100% None 10%* Yes
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 Nasdaq Small Cap Market.
<PAGE>
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32 Elfun Funds Propectus
More on Strategies
and Risks
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<TABLE>
<CAPTION>
Debt Floating Participation
Obligations Securities and Interests
Lending Rule of of Other Variable in
Portfolio 144A Supranational Depositary Investment Municipal Rate Municipal
Securities Securities Agencies Receipts Funds Leases Instruments Obligations
---------- ---------- -------- -------- ----- ------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Elfun Trusts Yes Yes No Yes Yes No No No
Elfun Global Fund Yes Yes No Yes Yes No No* No
Elfun Income Fund Yes Yes Yes No Yes No Yes Yes
Elfun Tax-Exempt Yes Yes No No No Yes Yes Yes
Income Fund
Elfun Diversified Yes Yes Yes Yes Yes Yes Yes Yes
Fund
Elfun Money Market Yes Yes Yes No No No Yes No
Fund
</TABLE>
* Excludes commercial paper and notes with variable and floating rates of
interest.
<TABLE>
<CAPTION>
Asset
Custodial Mortgage Government Backed
Receipts Related Stripped Securities Short
Zero Municipal on Securities, Mortgage and Mortgage Sales
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>
Elfun Trusts No No No No No No No No
Elfun Global Fund No No No No No No No No*
Elfun Income Fund Yes No No Yes Yes Yes Yes No
Elfun Tax-Exempt Yes Yes Yes No No No No No
Income Fund
Elfun Diversified Yes Yes Yes Yes Yes Yes Yes No*
Fund
Elfun Money Market No No No No No No No Yes
Fund
</TABLE>
* The Fund may join with other investment companies or client accounts in the
purchase or sale of securities.
<PAGE>
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About the Investment Elfun Funds 33
Adviser, Distributor Prospectus
and Servicing Agent
- --------------------------------------------------------------------------------
Investment Adviser and Administrator
General Electric Investment Corporation (GEIC), located at 3003 Summer Street,
Stamford, Connecticut 06904, is the investment adviser of each Fund. GEIC is a
wholly-owned subsidiary of GE and a registered investment adviser. GEIC's
principal officers, directors and portfolio managers hold similar positions
with GE Investment Management Incorporated (GEIM), a wholly-owned subsidiary
of GE. As of March 1, 1999, GEIC and GEIM managed roughly $80 billion in
assets, including $16 billion in mutual funds.
The management and administration fee charged to the Funds by GEIC is the
reasonable cost, both direct and indirect, incurred by GEIC in providing
advisory and administration services. Direct and indirect costs incurred by GEIC
for a Fund are paid out of, or reimbursed to GEIC from, gross income. The costs
to be charged to a Fund include: SEC fees, state Blue Sky notification fees,
fees of custodians, transfer and dividend disbursing agents (including fees and
expenses incurred by GEIC as the Funds' unitholder servicing agent (the
"Servicing Agent")), industry association fees, external accounting, audit and
legal expenses, costs of independent pricing services, costs of maintaining the
Fund's existence, costs attributable to unitholder services (including, without
limitation, telephone and personnel expenses), costs of preparing and pricing
unitholders' reports, prospectuses and statements of additional information and
holding meetings, the direct and indirect cost of GEIC personnel providing
investment advisory and other services to the Fund. Some of these costs may be
incurred directly by the Funds. While Trustees who are employees of GE serve as
trustees without compensation, each Fund is required to reimburse GEIC for the
portion of the remuneration such persons receive from GE which is allocable to
the time they spend on Fund matters in their capacity as GEIC employees. In
addition, the following cost and expenses will be incurred directly by a Fund;
taxes, brokerage fees and expenses, interest on borrowings and extraordinary
expenses.
For the year ended December 31, 1998, the Funds paid GEIC the following
amounts as a percentage of average net assets for investment management and
administration services:
Elfun Trusts 0.05%
Elfun Global Fund 0.10%
Elfun Income Fund 0.07%
Elfun Tax-Exempt Income Fund 0.04%
Elfun Diversified Fund 0.09%
Elfun Money Market Fund 0.03%
Distributor and Servicing Agent
During the year ended December 31, 1998, GEIC also served as the Funds'
Servicing Agent. As Servicing Agent, GEIC was responsible for processing
redemption requests, providing services which assist the Funds' transfer
agent, and responding to unitholder inquiries. GEIC was reimbursed for the
reasonable costs of providing such services. For the year ended December 31,
1998, the Funds paid GEIC the following amounts as a percentage of average net
assets for services as Servicing Agent: Elfun Trusts -- 0.03%; Elfun Global
Fund -- 0.08%; Elfun Income Fund -- 0.06%; Elfun Tax-Exempt Income Fund --
0.02%; Elfun Diversified Fund -- 0.06%; and Elfun Money Market Fund -- 0.05%
Effective January 1, 1999, GE Investment Distributors, Inc. ("GEID"), the
Funds' distributor, assumed GEIC's responsibilities as Servicing Agent. GEID
does not receive a fee for acting as the Fund's Distributor and is reimbursed
for the reasonable costs incurred in providing its services as Servicing
Agent. GEID is a wholly-owned subsidiary of GE Financial Assurance Holdings,
Inc., an indirect, wholly-owned subsidiary of GE.
<PAGE>
- -----------------------------------------
34 Elfun Funds
Prospectus
About the
Investment Adviser
- --------------------------------------------------------------------------------
About the Funds' Portfolio Managers
David B. Carlson is a Senior Vice President of GEIC. He is portfolio manager
of Elfun Trusts and is also responsible for the management of the equity
investments for the Elfun Diversified Fund. He has served Elfun Trusts as a
portfolio manager since 1988 and has served the Elfun Diversified Fund as a
portfolio manager since 1992. He has more than 16 years of investment
experience and has held positions with GEIC, or its affiliates since 1982.
Robert R. Kaelin is a Senior Vice President of GE Investments and is the
portfolio manager of the Elfun Tax-Exempt Income Fund. He has served as a
portfolio manager for the Fund since 1984 and has over 29 years of investment
experience. Mr. Kaelin has held positions with GEIC since 1984.
Ralph R. Layman is a Director and Executive Vice President of GEIC. Mr. Layman
is a co-portfolio manager of the Elfun Global Fund and has served the Fund in
a portfolio management capacity since 1991. He has also managed foreign
investments of the Elfun Diversified Fund since March 1997. He has more than
20 years of investment experience and has held positions with GEIC since 1991.
Robert A. MacDougall is a Director and Executive Vice President of GEIC. He
leads a team of portfolio managers for the Elfun Income Fund and also manages
fixed income investments for the Elfun Diversified Fund. Mr. MacDougall has
served in those capaciites for the Elfun Income Fund since 1986 and the Elfun
Diversified Fund since its inception in 1987. He has more than 15 years of
investment experience and has held positions with GEIC since 1986.
Michael J. Solecki is a Vice President of GEIC and co-portfolio manager of the
Elfun Global Fund and has served in that capacity since March 1997. He has
more than eight years of investment experience and has held positions with
GEIC since 1990.
<PAGE>
-----------------------------------------
How to Invest Elfun Funds 35
Prospectus
- --------------------------------------------------------------------------------
How to Purchase Units
Who may Purchase Units
Units of any of the six Elfun Funds to which this prospectus pertains may be
purchased by:
1. Regular and senior members of the Elfun Society,
2. The immediate family of those members,
3. Trusts whose sole beneficiaries are such members,
4. The surviving unremarried spouse of a deceased member,
5. Members of the Board of Directors of General Electric Company ("GE"),
6. GE and its subsidiaries, and
7. Such others as the trustees of the Funds may permit provided that their
participation does not affect the Funds' status as "employees' securities
companies" within the meaning of section 2(a)(13) of the Investment Company Act
of 1940, as amended (the "1940 Act").
Regular members of the Elfun Society are selected from active employees of GE
and/or its majority owned subsidiaries. Senior members are former members who
have retired from those companies. Immediate family is defined as spouse,
children or step-children.
Fund may, in its discretion, reject any order for the purchase of Units. The
Funds no longer issue physical certificates representing Units in any Fund.
Ownership of Units is evidenced by Statements of Account representing Units
issued in book-entry form.
The Elfun Funds offer several ways to purchase Units. You may open an account
and make an investment by mail and make subsequent investments by bank wire,
payroll deduction or electronic funds transfer, as described later in this
section. The Funds no longer issue physical certificates representing Units in
any Fund. Ownership of Units is evidenced by Statements of Account representing
Units issued in book-entry form.
Investing By Mail
o Read this prospectus.
o If opening a new account, complete and sign the application. You may obtain
an application by calling the Funds' Distributor at the number listed on the
back cover.
o Send a check drawn on a U.S. bank in U.S. dollars payable to the applicable
Fund. Third-party checks or endorsed checks are not accepted by the Funds.
o If adding to an existing account, include your account number on the check.
o If a check used to open or add to an account does not clear, you may be
assessed an additional change.
Mail to:
Elfun Mutual Funds
P.O. Box 419631
Kansas City, MO 64141-6631
Overnight delivery:
Elfun Mutual Funds
c/o National Financial Data Services Inc.
330 West 9th Street
Kansas City, MO 64105
Minimum Investments
Initial Investment $500
Subsequent Investments $100
Subsequent minimums are reduced to $25 for Automatic Investment and Payroll
Savings Plans. Accounts that fall below the $500 account minimum may be
automatically redeemed by a Fund on 30 days' notice.
<PAGE>
- ---------------------------------------
36 Elfun Funds
Prospectus
How to Invest
- --------------------------------------------------------------------------------
Once You Have Opened an Account--You Have Additional Options
By Wire
o Wire to the address below. Include your name, the name of the Fund and your
account number. The unitholder's bank may charge a fee for this service.
o Wire orders received by the close of regular trading on the New York Stock
Exchange (NYSE) are executed at that day's net asset value per unit. Wire orders
received after the close of regular trading on the NYSE receive the next
business days' price.
Wire Address:
State Street Bank and Trust Company
ABA 0110-0002-8
DDA 9905-101-3
Payroll Deduction
o You must furnish a completed Elfun Mutual Funds Payroll Deduction
Authorization Form to the Distributor. Contact the Distributor for a copy of the
Payroll Deduction Form at (800) 242-0134.
o Statements of Account are sent on a quarterly basis to those investing
through payroll deductions.
Automatic Investment Plan
o You may have funds transferred directly from your bank account each month.
Call (800) 242-0134 to make arrangements.
o If an automatic investment transaction fails due to insufficient funds in
your account, you may be assessed an additional charge.
Retirement Accounts
Units of the Funds, other than the Elfun Tax-Exempt Fund, are available for
purchase by an Elfun Traditional or Roth Individual Retirement Account ("Elfun
IRAs"). An Elfun IRA application and further details about Elfun IRAs plans are
available from the Distributor.
<PAGE>
-----------
37
- --------------------------------------------------------------------------------
How to Redeem Units
Redemption of Units in General
Bookunits may be redeemed either by telephonic request or by mail. Units
represented by Certificates should be mailed to the addresses listed below for
deposit into Bookunits.
A redemption request received in proper form will be effected at the net asset
value per Unit next determined less any redemption fee as the Trustees may
prescribe. At the present time, the Trustees do not contemplate instituting any
redemption fee for redemption by mail.
By Mail
Send a signed written request, stating the number of Units or specific dollar
amount you want to sell. The written request must also identify the Fund from
which Units are to be redeemed and the account number. Your signature must
appear exactly as it does on the account registration.
Signatures must be guaranteed for any redemption:
o exceeding $25,000
o mailed to a different address from that on record
o paid to someone else
o wired to a financial institution (other than the bank of record)
o mailed to an address that has been changed within the last 30 days
Mail to:
Elfun Mutual Funds
P.O. Box 419631
Kansas City, MO 64141-6631
Overnight Delivery:
Elfun Mutual Funds
c/o National Financial Data Services Inc.
330 West 9th Street
Kansas City, MO 64105
By Telephone
Units may be redeemed by telephone utilizing the Funds' automated system or by
an agent during business hours. The telephone option must have been selected
during initial account setup or subsequently by written request signed by all
registered Unitholders. A single $10 charge will be assessed with each
telephonic redemption wire request. Call toll-free (800) 242-0134.
<PAGE>
- ---------------------------------------
38 Elfun Funds
Prospectus
How to Invest
- --------------------------------------------------------------------------------
By Systematic Withdrawal Plan
You may select a specific amount to be redeemed from your account on a regular
basis.
o Your account balance must be at least $10,000
o Minimum of $50 per withdrawal
o You may sell Units monthly
o If an automatic monthly investment transaction fails due to insufficient
funds in your account, you may be assessed an additional charge.
o You will receive written confirmation of transactions on a quarterly basis
(except the Elfun Money Market Fund which provides a written confirmation
monthly)
o Further information about the Withdrawal Plan may be obtained from the
Servicing Agent.
Checkwriting
Checkwriting privileges may be elected at no cost by shareholders of the Money
Market Fund. Checks may be made payable to any person in amounts of $100 or
more. The Transfer Agent will redeem Units in an amount sufficient to cover the
amount of a check. If the amount of the check is greater than the value of the
Units in a unitholder's account, the check will be returned marked "insufficient
funds" and you may be assessed an additional charge. Please contact the
Distributor at the number listed on the back cover for additional details.
Special Considerations for Selling Units
o When using a check to sell Units of the Money Market Fund, the minimum
check amount is $100.
o If you have purchased Units of a Fund by personal check, redemption of
these Units can only be processed after your check is cleared by your bank. This
could take up to 15 days or more.
o If your account balance falls below $500, the transfer agent may request
that you bring your balance up to the $500 minimum or request that you close
your account. If you take no action within 30 days, the transfer agent may sell
your Units and mail the proceeds to you.
Redemptions in Kind
Large redemptions that exceed $250,000 or 1% of a Fund's assets may be
considered detrimental to the Fund's existing Unitholders. Therefore, the Fund
may require that you take a "distribution in kind" upon redemption and may give
you portfolio securities instead of cash proceeds. Such Fund portfolio
securities will have to be sold through a broker and you may incur transaction
costs when you sell them.
When We Receive Your Transaction Request
Purchase and redemption requests received in good order will be executed at the
net asset value next calculated after receipt of transaction instructions.
Purchase and redemption orders are executed only on days when the NYSE is open
for trading. If the NYSE closes early, the deadlines for purchase and redemption
orders will be accelerated to the earlier closing time. Redemption may be
suspended when trading on the NYSE is restricted or as permitted by the SEC. For
Funds declaring daily income dividends, you will begin to earn income as of the
first business day after payment for your order has been received by the Fund.
You may initiate certain transactions by telephone if you have completed and
returned a telephone transaction form. The Distributor will not be responsible
for losses resulting from unauthorized telephone transaction instructions if it
follows reasonable procedures to verify the identity of the investor.
<PAGE>
-----------
39
- --------------------------------------------------------------------------------
How to Exchange Units
You can exchange Units of one Elfun Fund for Units of another Elfun Fund. An
exchange is a sale and purchase of Units for tax purposes. You may have a
taxable gain or loss when you exchange your Units. To exchange Units:
o by telephone, call (800) 242-0134.
o by mail, send your written request to Elfun Mutual Funds at the address
below.
Mail to:
Elfun Mutual Funds
P.O. Box 419631
Kansas City, MO 64141-6631
Overnight Delivery:
Elfun Mutual Fund
c/o National Financial Data Services Inc.
330 West 9th Street
Kansas City, MO 64105
You should review the description of the Fund that you wish to purchase.
<PAGE>
- ------------------------------------------
40 Elfun Funds Dividends, Capital Gains
Prospectus and Other Tax Information
- --------------------------------------------------------------------------------
Unless you instruct a Fund to mail dividends from net investment income and net
capital gains to you, they will be reinvested in your account. There are no fees
or charges to reinvest dividends.
Each Fund may be subject to a 4% excise tax on undistributed net investment
income and net capital gains. To avoid this tax, the Funds may pay dividends
from net investment income and net capital gains more frequently.
<TABLE>
<CAPTION>
Fund Distribution Schedule
- ---------------------------------------- -----------------------------------------------------------
<S> <C>
Elfun Trusts o Dividends are declared and paid annually.
Elfun Global Fund o Short-term and long-term capital gains, if any, are declared and paid
Elfun Diversified Fund annually
</TABLE>
<TABLE>
<CAPTION>
Fund Distribution Schedule
- ---------------------------------------- -----------------------------------------------------------
<S> <C>
Elfun Tax-Exempt Income Fund o Dividends are declared daily and paid monthly.
Elfun Income Fund o Short-term and long-term capital gains, if any, are declared and paid
Elfun Money Market Fund* annually.
</TABLE>
* All expenses of the Elfun Money Market Fund are accrued daily and deducted
before declaration of dividends to unitholders.
<PAGE>
----------
41
- --------------------------------------------------------------------------------
Taxes
Tax issues can be complicated. We suggest you see your investment professional
or tax advisor for any questions you may have.
Dividends and distributions from net investment income and short-term capital
gains are taxed as ordinary income. Long-term capital gains distributions are
taxed at the long-term capital gains rate, whether you reinvest your
distributions or have them paid to you.
Distributions from Elfun Tax-Exempt Income Fund
In general, income from the Elfun Tax-Exempt Income Fund is exempt from Federal
income tax but may be subject to state and local taxes. Because the Fund may
invest in taxable securities, some dividends from net investment income may be
subject to Federal and state income taxes. Short-term and long-term capital
gains distributed by the Fund are taxable.
Foreign Taxes
Foreign governments may impose taxes on a fund and its investments, and these
taxes generally will reduce the fund's distributions. However, if you meet
certain holding period requirements with respect to your fund Units, an
offsetting tax credit may be available to you. If you do not meet such holding
period requirements, you may still be entitled to a deduction for certain
foreign taxes. In either case, your tax statement will show more taxable income
or capital gains that were actually distributed by the fund, but will also show
the amount of the available offsetting credit or deduction.
Tax Statement
You will receive an annual statement summarizing your dividend and capital gains
distributions. Please consult a tax advisor if you have questions about your
specific tax situation.
Backup Withholding
If you do not provide complete and certified taxpayer identification
information, each Fund is obligated by law to withhold 31% of most Fund
distributions.
<PAGE>
- ----------------------------------------
42 Elfun Funds Calculating Net Asset Value
Prospectus
- --------------------------------------------------------------------------------
Fund Units 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 Unit for Funds (other than the Elfun Money Market Fund) is
determined by adding the value of the Fund's investments, cash, and other assets
attributable to that class, subtracting its liabilities, and then dividing the
result by the number of that class' outstanding Units.
A Fund's portfolio securities are valued most often on the basis of market
quotations. Foreign securities are valued on the basis of quotations from the
primary market in which they are traded. Some debt securities are valued using
dealers and pricing services. Municipal bond valuations are based on prices
supplied by a qualified municipal pricing service. The prices are composed of
the mean average of the bid and ask prices on the secondary market. All
portfolio securities of the Money Market Fund and any short-term securities held
by any other Fund with remaining maturities of sixty days or less are valued on
the basis of amortized cost or original cost plus accrued interest. A Fund's
written or purchased options are generally valued at the last sales price, or if
no sales occurred on that day, at the less quoted bid price. The value of a
futures contract is generally equal to the unrealized gain or loss on the
contract that is determined by marking the contract to the current settlement
price for a like contract on the valuation date of the futures contract. A
Fund's NAV may change on days when Unitholders will not be able to purchase or
redeem the Fund's Units.
If quotations are not readily available for any security, or if the value of a
security has been materially affected by events occurring after the closing of a
market, the security may be valued by using procedures approved by a Fund's
Board of Trustees that they believe accurately reflects "fair value."
<PAGE>
- ----------------------------------------
Financial Elfun Funds 43
Highlights Prospectus
- --------------------------------------------------------------------------------
The financial highlights tables that follow are intended to help you understand
a Fund's financial performance for the fiscal years ended December 31. Certain
information reflects financial results for a single Fund Unit. The total returns
in the table represent the rate that an investor would have earned or
lost on an investment in the Fund (assuming reinvestment of all dividends and
distributions). This information has been audited by KPMG LLP, whose report,
along with the Funds' financial statements, are included in the Funds' Annual
Report, which is available upon request.
<PAGE>
- ----------------------------------------
44 Elfun Funds
Prospectus
Financial
Highlights
- --------------------------------------------------------------------------------
Elfun Trusts
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
--------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Year $55.81 $46.46 $39.88 $30.91 $33.76
- ------------------------------------------------------------------------------------------------------------------------------------
Income from Investment Operations:
- ------------------------------------------------------------------------------------------------------------------------------------
Net Investment Income 0.83 0.75 0.75 0.77 0.77
- ------------------------------------------------------------------------------------------------------------------------------------
Net Realized and Unrealized Gains (Losses) on Investments 11.93 13.48 8.68 11.33 (0.68)
- ------------------------------------------------------------------------------------------------------------------------------------
Total Income from Investment Operations 12.76 14.23 9.43 12.10 0.09
- ------------------------------------------------------------------------------------------------------------------------------------
Less Distributions from:
- ------------------------------------------------------------------------------------------------------------------------------------
Net Investment Income 0.83 0.74 0.75 0.77 0.77
- ------------------------------------------------------------------------------------------------------------------------------------
Net Realized Gains 5.16 4.14 2.10 2.36 2.17
- ------------------------------------------------------------------------------------------------------------------------------------
Total Distributions 5.99 4.88 2.85 3.13 2.94
- ------------------------------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Year $62.58 $55.81 $46.46 $39.88 $30.91
- ------------------------------------------------------------------------------------------------------------------------------------
Total Return (a) 22.94% 30.86% 23.55% 39.19% 0.23%
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios/Supplemental Data:
- ------------------------------------------------------------------------------------------------------------------------------------
Net Assets, End of Year (in thousands) $2,368,878 $1,981,395 $1,525,979 $1,228,366 $900,349
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
- ------------------------------------------------------------------------------------------------------------------------------------
Net Investment Income 1.35% 1.39% 1.71% 2.08% 2.28%
- ------------------------------------------------------------------------------------------------------------------------------------
Expenses 0.12% 0.09% 0.13% 0.13% 0.17%
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 15% 16% 12% 15% 19%
</TABLE>
- --------------------------------------------------------------------------------
Elfun Global Fund
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Year $17.00 $17.67 $16.65 $15.58 $16.48
- ------------------------------------------------------------------------------------------------------------------------------------
Income (Loss) from Investment Operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net Investment Income 0.26 0.22 0.24 0.23 0.21
- ------------------------------------------------------------------------------------------------------------------------------------
Net Realized and Unrealized Gains (Losses) on Investments 2.69 1.26 2.45 2.27 (0.32)
- ------------------------------------------------------------------------------------------------------------------------------------
Total Income (Loss) from Investment Operations 2.95 1.48 2.69 2.50 (0.11)
- ------------------------------------------------------------------------------------------------------------------------------------
Less Distributions from:
- ------------------------------------------------------------------------------------------------------------------------------------
Net Investment Income 0.22 0.17 0.23 0.19 0.19
- ------------------------------------------------------------------------------------------------------------------------------------
Net Realized Gains 0.13 1.98 1.44 1.24 0.60
- ------------------------------------------------------------------------------------------------------------------------------------
Total Distributions 0.35 2.15 1.67 1.43 0.79
- ------------------------------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Year $19.60 $17.00 $17.67 $16.65 $15.58
- ------------------------------------------------------------------------------------------------------------------------------------
Total Return (a) 17.36% 8.47% 16.13% 16.03% (0.63)%
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios/Supplemental Data
- ------------------------------------------------------------------------------------------------------------------------------------
Net Assets, End of Year (in thousands) $207,466 $193,492 $176,303 $142,262 $126,196
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income 1.32% 1.17% 1.37% 1.36% 1.44%
- ------------------------------------------------------------------------------------------------------------------------------------
Expenses 0.31% 0.24% 0.25% 0.34% 0.38%
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 54% 83% 45% 55% 30%
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Highlights
<PAGE>
----------
45
- --------------------------------------------------------------------------------
Elfun Income Fund
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Year $11.61 $11.32 $11.64 $10.55 $11.68
- ------------------------------------------------------------------------------------------------------------------------------------
Income (Loss) from Investment Operations:
- ------------------------------------------------------------------------------------------------------------------------------------
Net Investment Income 0.72 0.75 0.76 0.77 0.70
- ------------------------------------------------------------------------------------------------------------------------------------
Net Realized and Unrealized Gains (Losses) on Investments 0.24 0.29 (0.32) 1.09 (0.97)
- ------------------------------------------------------------------------------------------------------------------------------------
Total Income (Loss) from Investment Operations 0.96 1.04 0.44 1.86 (0.27)
- ------------------------------------------------------------------------------------------------------------------------------------
Less Distributions from:
- ------------------------------------------------------------------------------------------------------------------------------------
Net Investment Income 0.75 0.75 0.76 0.77 0.70
- ------------------------------------------------------------------------------------------------------------------------------------
Net Realized Gains 0.26 0.00 0.00 0.00 0.16
- ------------------------------------------------------------------------------------------------------------------------------------
Total Distributions 1.01 0.75 0.76 0.77 0.86
- ------------------------------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Year $11.56 $11.61 $11.32 $11.64 $10.55
- ------------------------------------------------------------------------------------------------------------------------------------
Total Return (a) 8.49% 9.58% 4.01% 18.21% (2.33)%
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios/Supplemental Data
- ------------------------------------------------------------------------------------------------------------------------------------
Net Assets, End of Year (in thousands) $274,082 $230,963 $219,451 $218,880 $185,665
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
- ------------------------------------------------------------------------------------------------------------------------------------
Net Investment Income 6.12% 6.56% 6.68% 6.90% 6.34%
- ------------------------------------------------------------------------------------------------------------------------------------
Expenses 0.22% 0.20% 0.24% 0.25% 0.30%
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 216% 222% 201% 367% 215%
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
Elfun Tax-Exempt
Income Fund
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
--------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Year $11.93 $11.61 $11.91 $10.83 $12.29
- ------------------------------------------------------------------------------------------------------------------------------------
Income (Loss) From Investment Operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net Investment Income 0.62 0.65 0.66 0.68 0.67
- ------------------------------------------------------------------------------------------------------------------------------------
Net Realized and Unrealized Gains (Losses) on Investments 0.10 0.43 (0.25) 1.15 (1.37)
- ------------------------------------------------------------------------------------------------------------------------------------
Total Income (Loss) From Investment Operations 0.72 1.08 0.41 1.83 (0.70)
- ------------------------------------------------------------------------------------------------------------------------------------
Less Distributions from:
- ------------------------------------------------------------------------------------------------------------------------------------
Net Investment Income 0.62 0.65 0.66 0.68 0.67
- ------------------------------------------------------------------------------------------------------------------------------------
Net Realized Gains 0.05 0.11 0.05 0.07 0.09
- ------------------------------------------------------------------------------------------------------------------------------------
Total Distributions 0.67 0.76 0.71 0.75 0.76
- ------------------------------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Year $11.98 $11.93 $11.61 $11.91 $10.83
- ------------------------------------------------------------------------------------------------------------------------------------
Total Return (a) 6.21% 9.59% 3.60% 17.32% (5.77)%
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios/Supplemental Data:
- ------------------------------------------------------------------------------------------------------------------------------------
Net Assets, End of Year (in thousands) $1,486,373 $1,394,734 $1,301,737 $1,312,342 $1,145,873
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
- ------------------------------------------------------------------------------------------------------------------------------------
Net Investment Income 5.18% 5.52% 5.67% 5.91% 5.90%
- ------------------------------------------------------------------------------------------------------------------------------------
Expenses 0.10% 0.10% 0.13% 0.13% 0.13%
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 18% 28% 22% 59% 24%
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Highlights
<PAGE>
- ----------------------------------------
46 Elfun Funds
Prospectus
Financial
Highlights
- --------------------------------------------------------------------------------
Elfun Diversified Fund
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Year $19.16 $17.27 $15.86 $13.24 $14.05
- ------------------------------------------------------------------------------------------------------------------------------------
Income (Loss) from Investment Operations:
- ------------------------------------------------------------------------------------------------------------------------------------
Net Investment Income 0.61 0.56 0.54 0.53 0.47
- ------------------------------------------------------------------------------------------------------------------------------------
Net Realized and Unrealized Gains (Losses) on Investments 2.66 2.64 1.75 3.06 (0.51)
- ------------------------------------------------------------------------------------------------------------------------------------
Total Income (Loss) from Investment Operations 3.27 3.20 2.29 3.59 (0.04)
- ------------------------------------------------------------------------------------------------------------------------------------
Less Distributions from:
- ------------------------------------------------------------------------------------------------------------------------------------
Net Investment Income 0.60 0.56 0.54 0.53 0.46
- ------------------------------------------------------------------------------------------------------------------------------------
Net Realized Gains 1.65 0.75 0.34 0.44 0.31
- ------------------------------------------------------------------------------------------------------------------------------------
Total Distributions 2.25 1.31 0.88 0.97 0.77
- ------------------------------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Year $20.18 $19.16 $17.27 $15.86 $13.24
- ------------------------------------------------------------------------------------------------------------------------------------
Total Return (a) 17.14% 18.58% 14.40% 27.11% (0.26)%
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios/Supplemental Data
- ------------------------------------------------------------------------------------------------------------------------------------
Net Assets, End of Year (in thousands) $177,582 $143,808 $102,157 $77,255 $57,774
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
- ------------------------------------------------------------------------------------------------------------------------------------
Net Investment Income 3.00% 3.11% 3.41% 3.62% 3.42%
- ------------------------------------------------------------------------------------------------------------------------------------
Expenses 0.25% 0.22% 0.28% 0.34% 0.39%
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 126% 100% 89% 93% 82%
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
Elfun Money Market Fund
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994(b)
------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Year $1.00 $1.00 $1.00 $1.00 $1.00
- ------------------------------------------------------------------------------------------------------------------------------------
Income from Investment Operations:
- ------------------------------------------------------------------------------------------------------------------------------------
Net Investment Income 0.05 0.05 0.05 0.06 0.04
- ------------------------------------------------------------------------------------------------------------------------------------
Total Income from Investment Operations 0.05 0.05 0.05 0.06 0.04
- ------------------------------------------------------------------------------------------------------------------------------------
Less Distributions from:
- ------------------------------------------------------------------------------------------------------------------------------------
Net Investment Income 0.05 0.05 0.05 0.06 0.04
- ------------------------------------------------------------------------------------------------------------------------------------
Total Distributions 0.05 0.05 0.05 0.06 0.04
- ------------------------------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Year $1.00 $1.00 $1.00 $1.00 $1.00
- ------------------------------------------------------------------------------------------------------------------------------------
Total Return (a) 5.39% 5.45% 5.23% 5.82% 4.17%
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios/Supplemental Data:
- ------------------------------------------------------------------------------------------------------------------------------------
Net Assets, End of Year (in thousands) $203,920 $167,385 $139,474 $117,506 $107,406
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
- ------------------------------------------------------------------------------------------------------------------------------------
Net Investment Income 5.21% 5.27% 5.08% 5.68% 4.20%
- ------------------------------------------------------------------------------------------------------------------------------------
Expenses 0.25% 0.24% 0.31% 0.30% 0.16%
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
Notes to Financial Highlights
(a) Total returns are historical and assume changes in share price, reinvestment
of dividends and capital gains, and assume no sales charge.
(b) Had the Adviser not absorbed a portion of the expenses the net investment
income per share would have been the same, the total return would have been
lower, and the ratio of expenses to average net assets would have been
.34% for the year ended December 31, 1994.
<PAGE>
[This page intentionally left blank.]
<PAGE>
- ----------------------------------------
Elfun Funds
Prospectus
- ----------------------------------------
Investment Adviser
General Electric Investment Corporation
3003 Summer Street
P.O. Box 7900
Stamford, CT 06904
- ----------------------------------------
Transfer Agent and Custodian
State Street Bank and Trust Company
225 Franklin Street
Boston, MA 02101
- ----------------------------------------
Distributor and Servicing Agent
GE Investment Distributors, Inc.
777 Long Ridge Road, Building B
Stamford, CT 06927
- ------------------------------------------------------------
If you wish to know more
You will find additional information about the Elfun Funds in the following
documents:
Annual Report to Unitholders: This report details the Funds' actual investments
as of the report date. The report usually includes performance numbers, a
discussion of market conditions and investment strategies that affected Fund
performance during the Funds' last fiscal year.
Statement of Additional Information (SAI): The SAI contains additional
information about the Funds and their investment strategies and policies and is
incorporated by reference (legally considered part of the prospectus). The SAI
is on file with the Securities and Exchange Commission (SEC).
You may visit the SEC's Internet Website (http://www.sec.gov) to view the SAI
and other information. Also, you can obtain copies of this information by
sending your request and duplicating fee to the SEC's Public Reference Section,
Washington, D.C. 20549-6009. You may review and copy information about the
Funds, including the SAI, at the SEC's Public Reference Room in Washington, D.C.
To find out more about the public reference room, call the SEC at
1-800-SEC-0330.
You may obtain a free copy of the SAI or the Funds' annual report and make
inquiries by contacting:
Elfun Mutual Funds
3003 Summer Street
P.O. Box 120065
Stamford, CT 06912-0074
Telephone: 1-800-242-0134
Website: http://www.elfun.org
Investment Company Act file numbers:
Elfun Trusts: 811-00483
Elfun Global Fund: 811-05216
Elfun Income Fund: 811-03866
Elfun Tax-Exempt Income Fund: 811-02735
Elfun Diversified Fund: 811-05324
Elfun Money Market Fund: 811-05904
- --------------------------------------------------------------------------------
EF-PRO-1
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
April 30, 1999
ELFUN FUNDS
3003 Summer Street, Stamford, Connecticut 06905
For information, call 1-800-242-0134 or 203-326-4040
* Elfun Trusts * Elfun Tax-Exempt Income Fund
* Elfun Global Fund * Elfun Income Fund
* Elfun Diversified Fund * Elfun Money Market Fund
Contents
Page
Investment Strategies and Risks...................................... 2
Investment Restrictions.............................................. 33
Portfolio Transactions and Turnover.................................. 39
Who May Own Fund Units............................................... 41
Management of the Funds.............................................. 41
Purchase, Redemption and Exchange of Units........................... 49
Net Asset Value...................................................... 55
Dividends, Distributions and Taxes................................... 57
The Funds' Performance............................................... 61
Principal Unitholders................................................ 67
Fund History and Additional Information.............................. 68
Financial Statements................................................. 70
Appendix............................................................. A-1
This Statement of Additional Information ("SAI") supplements
the information contained in the current Prospectus of Elfun Funds dated April
30, 1999 (the "Prospectus") and should be read in conjunction with the
Prospectus. This SAI, although not a prospectus, is incorporated in its entirety
by reference into the Prospectus. Copies of the Prospectus describing each Trust
listed above (each a "Fund," collectively the "Funds") may be obtained without
charge by calling the Funds at the telephone number listed above. The Funds'
financial statements for the fiscal year ended December 31, 1998 and the
Auditor's Report thereon are incorporated by reference to the Funds' Annual
Report, which may be obtained without charge by calling the Funds at the
telephone number listed above. Information regarding the status of unitholder
accounts may be obtained by calling the Funds at the telephone number listed
above or by writing to the Funds at P.O. Box 120074, Stamford, CT 06912-0074.
Terms that are defined in the Prospectus shall have the same meanings in this
SAI.
<PAGE>
INVESTMENT STRATEGIES AND RISKS
The Prospectus discusses the investment objectives and
policies of the following six managed investment funds: Elfun Trusts, Elfun
Global Fund (the "Global Fund"), Elfun Income Fund (the "Income Fund"), Elfun
Tax-Exempt Income Fund (the "Tax-Exempt Fund"), Elfun Diversified Fund (the
"Diversified Fund") and Elfun Money Market Fund (the "Money Market Fund").
Elfun Trusts. The investment objective of the Elfun Trusts is
long-term growth of capital and future income rather than current income, which
objective the Fund seeks to achieve through investment primarily in equity
securities issued by U.S. and foreign issuers. In pursuing its objective, the
Fund, under normal market conditions, will invest a majority of its assets in
equity securities.
Elfun Global Fund. The investment objective of the Elfun
Global Fund is long-term growth of capital and future income, which the Fund
seeks to achieve by investing primarily in foreign equity securities. In seeking
its objective, the Fund invests primarily in a portfolio of securities issued by
companies located in developed and developing countries throughout the world,
including the United States. During normal market conditions, at least 65% of
the Fund's assets are invested in no fewer than three different countries.
Elfun Income Fund. The investment objective of the Elfun
Income Fund is high level of income consistent with prudent investment
management and the preservation of capital. Capital appreciation with respect to
the Fund's portfolio securities may occur but is not an objective of the Fund.
Elfun Tax-Exempt Income Fund. The investment objective of the
Elfun Tax-Exempt Income Fund is high level of current interest income exempt
from Federal income taxation as is consistent with prudent investment management
and the preservation of capital. The Fund operates subject to a fundamental
investment policy providing that it will invest its assets so that, during any
fiscal year, at least 80% of the income generated by the Fund is exempt from
Federal personal income taxes and the Federal alternative minimum tax. Under
normal conditions, the Fund may hold a portion of its total assets in cash or
money market instruments, including taxable money market instruments.
Elfun Diversified Fund. The investment objective of the Elfun
Diversified Fund is the highest total return consistent with prudent investment
management and the preservation of capital. 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.
- 2 -
<PAGE>
General Electric Investment Corporation ("GEIC") has broad
latitude in selecting the classes of investments to which the Fund's assets are
committed. Although the Fund has the authority to invest solely in equity
securities, solely in debt securities, solely in money market instruments or in
any combination of these classes of investments, GEIC anticipates that at most
times the Fund will be invested in a combination of equity and debt instruments.
Elfun Money Market Fund. The investment objective of the Elfun
Money Market Fund is a high level of current income consistent with prudent
investment management and the preservation of capital. In seeking its objective,
the Fund invests in the following U.S. dollar denominated, short-term money
market instruments: (1) Government Securities; (2) debt obligations of banks,
savings and loan institutions, insurance companies and mortgage bankers; (3)
commercial paper and notes, including those with floating or variable rates of
interest; (4) debt obligations of foreign branches of U.S. banks, U.S. branches
of foreign banks and foreign branches of foreign banks; (5) 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; (6) debt securities issued by foreign issuers; (7)
repurchase agreements; and any other short-term U.S. dollar denominated money
market instruments that the Trustees of the Fund determine present minimal
credit risks.
***********
Supplemental information concerning certain of the securities
and other instruments in which the Funds may invest, the investment policies and
strategies that the Funds may utilize and certain risks attendant to those
investments, policies and strategies are discussed below. Some or all of the
Funds may invest in the types of instruments and engage in the types of
strategies described in detail below. A Fund will not purchase all of the
following types of securities or employ all of the following strategies unless
doing so is consistent with its investment objective.
- 3 -
<PAGE>
Strategies Available to All Funds
Money Market Instruments. The types of money market
instruments in which each Fund, other than the Money Market Fund, may invest
directly or indirectly through its investment in the GEI Short-Term Investment
Fund (the "Investment Fund"), described below, are as follows: (i) securities
issued or guaranteed by the U.S. Government or one of its agencies or
instrumentalities ("Government Securities"), (ii) debt obligations of banks,
savings and loan institutions, insurance companies and mortgage bankers, (iii)
commercial paper and notes, including those with variable and floating rates of
interest, (iv) debt obligations of foreign branches of U.S. banks, U.S. branches
of foreign banks and foreign branches of foreign banks, (v) debt obligations
issued or guaranteed by one or more foreign governments or any of their
political subdivisions, agencies or instrumentalities, including obligations of
supranational entities, (vi) debt securities issued by foreign issuers and (vii)
repurchase agreements. Each Fund, other than the Money Market Fund, may also
invest in the Investment Fund, an investment fund created specifically to serve
as a vehicle for the collective investment of cash balances of the Funds (other
than the Money Market Fund) and other accounts advised by GEIC or its affiliate,
General Electric Investment Management ("GEIM"). The Investment Fund invests
exclusively in the money market instruments described in (i) through (vii)
above. The Investment Fund is advised by GEIM. No advisory fee is charged by
GEIM to the Investment Fund, nor will a Fund incur any sales charge, redemption
fee, distribution fee or service fee in connection with its investments in the
Investment Fund. The Income Fund and the Tax-Exempt Fund are authorized to
invest up to 25% of their assets in the Investment Fund; Elfun Trusts, the
Diversified Fund and the Global Fund may invest up to 5% of their assets in the
Investment Fund.
Government Securities in which the Funds may invest are 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,
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 ("FDIC"), 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 GEIC, as the Fund's investment adviser, determines
that the
- 4 -
<PAGE>
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.
Elfun Trusts, the Global Fund and the Tax-Exempt Fund may invest in these
instruments only if they are rated AAA or AA by Standard & Poors Ratings
Services, a division of McGraw-Hill Companies, Inc. ("S&P") or Aaa or Aa by
Moody's Investor's Service, Inc. ("Moody's") or have received an equivalent
rating from another nationally recognized statistical rating organization
("NRSRO"), or, if unrated, are deemed by GEIC to be of equivalent quality. The
Diversified Fund and the Income Fund may invest in such money market instruments
if they are rated no lower than B by S&P or Moody's or have received an
equivalent rating from another NRSRO, or, if unrated, are deemed by GEIC to be
of equivalent quality. Commercial paper held by a Fund, other than the Money
Market Fund, may be rated no lower than A-2 by S&P or Prime-2 by Moody's or the
equivalent from another NRSRO, or if unrated, must be issued by an issuer having
an outstanding unsecured debt issue then rated within the three highest
categories. A description of the rating systems of Moody's and S&P is contained
in the Appendix.
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, in the case of
the Tax-Exempt Fund, the Income Fund and the Money Market Fund, 33 1/3% of the
Fund's net assets, or, in the case of Elfun Trusts, the Global Fund or the
Diversified Fund, 30% of the Fund's net assets taken at value. The Funds' loans
of securities will be collateralized by cash, letters of credit or Government
Securities. The Funds will retain the right to all interest and dividends
payable with respect to the loaned securities. When the Funds lend portfolio
securities they charge interest at reasonable rates and retain the ability to
terminate the loan at any time. Cash or instruments collateralizing a Fund's
loans of securities are segregated and maintained at all times with the Fund'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. Income derived by the Tax-Exempt Fund on any loan of its
portfolio securities will not be exempt from Federal income taxation.
A Fund 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 Fund's Board of Trustees
- 5 -
<PAGE>
must terminate the loan and regain the right to vote the securities. From time
to time, a Fund may pay a part of the interest earned from the investment of
collateral received for securities loaned to the borrower and/or a third party
that is unaffiliated with the Fund and is acting as a "finder".
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 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.
Debt Instruments. A debt instrument held by a Fund will be
affected by general changes in interest rates that will in turn result in
increases or decreases in the market value of those obligations. The market
value of debt instruments in a Fund's portfolio can be expected to vary
inversely to changes in prevailing interest rates. In periods of declining
interest rates, the yield of a Fund holding a significant amount of debt
instruments will tend to be somewhat higher than prevailing market rates, and in
periods of rising interest rates, the Fund's yield will tend to be somewhat
lower. In addition, when interest rates are falling, money received by such a
Fund from the continuous sale of its shares will likely be invested in portfolio
instruments producing lower yields than the balance of its portfolio, thereby
reducing the Fund's current yield. In periods of rising interest rates, the
opposite result can be expected to occur.
- 6 -
<PAGE>
Ratings as Investment Criteria. The ratings of NRSROs such as
S&P or Moody's represent the opinions of those organizations as to the quality
of securities that they rate. Although these ratings, which are relative and
subjective and are not absolute standards of quality, are used by GEIC as
initial criteria for the selection of portfolio securities on behalf of the
Funds, GEIC 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, GEIC will consider the
event in its determination of whether the Fund should continue to hold the
securities. In the event of a lowering of the rating of a security held by the
Money Market Fund or a default by the issuer of the security, the Fund will
dispose of the security as soon as practicable, unless the Fund's Board of
Trustees determines that disposal of the security would not be in the best
interests of the 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.
Rule 144A Securities. Each of the Funds may purchase Rule 144A
Securities. Certain Rule 144A Securities may be considered illiquid and
therefore subject to a Fund's limitation on the purchase of illiquid securities,
unless the Board determines on an ongoing basis that an adequate trading market
exists for the Rule 144A Securities. A Fund's purchase of Rule 144A Securities
could have the effect of increasing the level of illiquidity in the Fund to the
extent that qualified institutional buyers become uninterested for a time in
purchasing Rule 144A Securities held by the Fund. The Board has established
standards and procedures for determining the liquidity of a Rule 144A Security
and monitors GEIC's implementation of the standards and procedures. The ability
to sell to qualified institutional buyers under Rule 144A is a recent
development and GEIC 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
- 7 -
<PAGE>
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 Fund'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.
Temporary Defensive Positions. During periods when GEIC
believes there are unstable market, economic, political or currency conditions
domestically or abroad, GEIC may assume, on behalf of a Fund, a temporary
defensive posture and (i) without limitation hold cash and/or invest in money
market instruments, or (ii) restrict the securities markets in which the Fund's
assets will be invested by investing those assets in securities markets deemed
by GEIC 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.
- 8 -
<PAGE>
Strategies Available to Some But Not All Funds
Low-rated Debt Securities. Certain Funds are authorized to
invest in securities rated lower than investment-grade (sometimes referred to as
"junk bonds"). Low-rated and comparable unrated securities (collectively
referred to as "low-rated" securities) likely have quality and protective
characteristics that, in the judgment of a rating organization, are outweighed
by large uncertainties or major risk exposures to adverse conditions, and are
predominantly speculative with respect to the issuer's capacity to pay interest
and repay principal in accordance with the terms of the obligation. Securities
in the lowest rating categories may be in default or may present substantial
risks of default.
Although the market values of certain low-rated securities
tend to react less to fluctuations in interest rate levels than market values of
higher-rated securities, the market values of certain low-rated securities tend
to be more sensitive to individual corporate developments and changes in
economic conditions than higher-rated securities. In addition, low-rated
securities generally present a higher degree of credit risk. Issuers of
low-rated securities are often highly leveraged and may not have more
traditional methods of financing available to them, so that their ability to
service their debt obligations during an economic downturn or during sustained
periods of rising interest rates may be impaired. The risk of loss due to
default by these issuers is significantly greater because low-rated securities
generally are unsecured and frequently are subordinated to the prior payment of
senior indebtedness. A Fund may incur additional expenses to the extent that it
is required to seek recovery upon a default in the payment of principal or
interest on its portfolio holdings. The existence of limited markets for
low-rated securities may diminish the Fund's ability to obtain accurate market
quotations for purposes of valuing the securities held by a Fund and calculating
the Fund's net asset value.
Repurchase and Reverse Repurchase Agreements. Each Fund may
engage in repurchase agreement transactions with respect to instruments in which
the Fund is authorized to invest. The Funds may engage in repurchase agreement
transactions with certain member banks of the Federal Reserve System and with
certain dealers listed on the Federal Reserve Bank of New York's list of
reporting dealers. Under the terms of a typical repurchase agreement, which is
deemed a loan for purposes of the 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 GEIC to ensure that the value is at least
equal at all times to the total amount of the repurchase obligation, including
interest. GEIC 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. Income derived by the Tax-Exempt Fund when engaging in a
repurchase agreement is not exempt from Federal income taxation.
- 9 -
<PAGE>
The Money Market Fund may engage in reverse repurchase
agreements, subject to its 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. The Money
Market Fund will use 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 Fund's custodian or designated sub-custodian.
A Fund entering into a repurchase agreement will bear a risk
of loss in the event that the other party to the transaction defaults on its
obligations and the Fund is delayed or prevented from exercising its rights to
dispose of the underlying securities. The Fund will be, in particular, subject
to the risk of a possible decline in the value of the underlying securities
during the period in which the Fund seeks to assert its right to them, the risk
of incurring expenses associated with asserting those rights and the risk of
losing all or a part of the income from the agreement.
A reverse repurchase agreement involves the risk that the
market value of the securities retained by a Fund may decline below the price of
the securities the Fund has sold but is obligated to repurchase under the
agreement. In the event the buyer of securities under a reverse repurchase
agreement files for bankruptcy or becomes insolvent, a Fund's use of the
proceeds of the agreement may be restricted pending a determination by the
party, or its trustee or receiver, whether to enforce the Fund's obligation to
repurchase the securities.
Non-Publicly Traded and Illiquid Securities. The Tax-Exempt
Fund and the Money Market Fund may each invest up to 5% of its assets in
non-publicly traded securities. Elfun Trusts, the Global Fund, the Diversified
Fund and the Income Fund may each invest up to 10% of its assets in such
securities. Non-publicly traded securities are securities that are subject to
contractual or legal restrictions on transfer, excluding for purposes of this
restriction, Rule 144A Securities, that have been determined to be liquid by
each Fund's Board of Trustees based upon the trading markets for the securities.
In addition, each Fund, other than the Money Market Fund and the Tax-Exempt
Fund, may invest up to 10% of its assets in "illiquid securities." The Money
Market Fund may not, under any circumstance, invest in illiquid securities. In
no event, however, will any Fund's investments in illiquid and non-publicly
traded securities, in the aggregate, exceed 10% of its assets (5% in the case of
the Tax-Exempt Fund). Illiquid securities are securities that cannot be disposed
of by a Fund within seven days in the ordinary course of business at
approximately the amount at which the Fund has valued the securities. Illiquid
securities that are held by a Fund may take the form of options traded
over-the-counter, repurchase agreements maturing in more than seven days,
certain mortgage related securities and securities subject to restrictions on
resale that GEIC has determined are not liquid under guidelines established by
the Fund's Board of Trustees. In addition, securities which, if sold, might
position the Income Fund or the Tax-Exempt Fund as an underwriter under the
Securities
- 10 -
<PAGE>
Act of 1933, as amended will be deemed to be illiquid.
Non-publicly traded securities may be less liquid than
publicly traded securities. Although these securities may be resold in privately
negotiated transactions, the prices realized from these sales could be less than
those originally paid by a Fund. In addition, companies whose securities are not
publicly traded are not subject to the disclosure and other investor protection
requirements that may be applicable if their securities were publicly traded. A
Fund's investments in illiquid securities are subject to the risk that should
the Fund desire to sell any of these securities when a ready buyer is not
available at a price that GEIC deems representative of their value, the value of
the Fund's net assets could be adversely affected.
Investment in Foreign Securities. Investing in securities
issued by foreign companies and governments, including securities issued in the
form of depositary receipts, involves considerations and potential risks not
typically associated with investing in obligations issued by the U.S. Government
and U.S. corporations. Less information may be available about foreign companies
than about U.S. companies, and foreign companies generally are not subject to
uniform accounting, auditing and financial reporting standards or to other
regulatory practices and requirements comparable to those applicable to U.S.
companies. The values of foreign investments are affected by changes in currency
rates or exchange control regulations, restrictions or prohibitions on the
repatriation of foreign currencies, application of foreign tax laws, including
withholding taxes, changes in governmental administration or economic or
monetary policy (in the United States or abroad) or changed circumstances in
dealings between nations. Costs are also incurred in connection with conversions
between various currencies. In addition, foreign brokerage commissions are
generally higher than those charged in the United States and foreign securities
markets may be less liquid, more volatile and less subject to governmental
supervision than in the United States. Investments in foreign countries could be
affected by other factors not present in the United States, including
expropriation, confiscatory taxation, lack of uniform accounting and auditing
standards, limitations on the use or removal of funds or other assets (including
the withholding of dividends), and potential difficulties in enforcing
contractual obligations, and could be subject to extended clearance and
settlement periods.
Depositary Receipts. Elfun Trusts, the Diversified Fund and
the Global Fund may each invest in securities of foreign issuers in the form of
American Depositary Receipts ("ADRs") and European Depositary Receipts ("EDRs"),
which are sometimes referred to as Continental Depositary Receipts ("CDRs").
ADRs are publicly traded on exchanges or over-the-counter in the United States
and are issued through "sponsored" or "unsponsored" arrangements. In a sponsored
ADR arrangement, the foreign issuer assumes the obligation to pay some or all of
the depositary's transaction fees, whereas under an unsponsored arrangement, the
foreign issuer assumes no obligations and the depositary's transaction fees are
paid directly by the ADR holders. In addition, less information is available in
the United States about an unsponsored ADR than about a sponsored ADR. Each of
these Funds may invest in ADRs through both sponsored and unsponsored
arrangements. EDRs and CDRs are generally issued by foreign banks and
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evidence ownership of either foreign or domestic securities.
Currency Exchange Rates. A Fund's unit 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.
Investing in Developing Countries. Each Fund other than the
Tax-Exempt Fund may invest in securities issued by companies located in
developing countries. Investing in securities issued by companies located in
developing countries involves not only the risks described above with respect to
investing in foreign securities, but also other risks, including exposure to
economic structures that are generally less diverse and mature than, and to
political systems that can be expected to have less stability than, those of
developed countries. Other characteristics of developing countries that may
affect investment in their markets include certain national policies that may
restrict investment by foreigners in issuers or industries deemed sensitive to
relevant national interests and the absence of developed legal structures
governing private and foreign investments and private property. The typically
small size of the markets for securities issued by companies located in
developing countries and the possibility of a low or nonexistent volume of
trading in those securities may also result in a lack of liquidity and in price
volatility of those securities.
Securities of Other Investment Companies. Elfun Trusts, the
Global Fund, the Income Fund and the Diversified Fund may each invest in
investment funds that invest principally in securities in which the Fund is
authorized to invest. The Money Market Fund may invest only in other money
market funds. Under the Investment Company Act of 1940, as amended (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 the Fund (other than the
Money Market Fund) in the 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 either GEIC or GEIM is 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 unitholders will incur certain duplicative fees and expenses, including
investment advisory fees.
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
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its purchaser to compel the writer of the option to purchase from the option
holder an underlying security at a specified price at any time during the option
period. In contrast, a call option embodies the right of its purchaser to compel
the writer of the option to sell to the option holder an underlying security at
a specified price at any time during the option period.
The Funds with option-writing authority will write only
options that are covered. A call option written by a Fund will be deemed covered
(1) if the Fund owns the securities underlying the call or has an absolute and
immediate right to acquire those securities without additional cash
consideration upon conversion or exchange of other securities held in its
portfolio, (2) if the Fund holds a call at the same exercise price for the same
exercise period and on the same securities as the call written, (3) in the case
of a call option on a stock index, if the Fund owns a portfolio of securities
substantially replicating the movement of the index underlying the call option,
or (4) if, at the time the call is written, an amount of cash, Government
Securities or other liquid assets equal to the fluctuating market value of the
optioned securities, is segregated with the Fund's custodian or 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 Fund's custodian or 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 custodian or 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.
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So long as the obligation of a Fund as the writer of an option
continues, the Fund may be assigned an exercise notice by the broker-dealer
through which the option was sold, requiring the Fund to deliver, in the case of
a call, or take delivery of, in the case of a put, the underlying security
against payment of the exercise price. This obligation terminates when the
option expires or the Fund effects a closing purchase transaction. A Fund can no
longer effect a closing purchase transaction with respect to an option once it
has been assigned an exercise notice. To secure its obligation to deliver the
underlying security when it writes a call option, or to pay for the underlying
security when it writes a put option, a Fund will be required to deposit in
escrow the underlying security or other assets in accordance with the rules of
the Options Clearing Corporation (the "Clearing Corporation") and of the
securities exchange on which the option is written.
A Fund may engage in a closing purchase transaction to realize
a profit, to prevent an underlying security from being called or put or, in the
case of a call option, to unfreeze an underlying security (thereby permitting
its sale or the writing of a new option on the security prior to the outstanding
option's expiration). To effect a closing purchase transaction, a Fund 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. GEIC 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.
No assurance can be given that a Fund will be able to affect
closing purchase transactions at a desired time. The ability of a Fund to engage
in closing purchase transactions with respect to options depends on the
existence of a liquid secondary market. Although a Fund will generally purchase
or write securities options only if a liquid secondary market appears to exist
for the option purchased or sold, no such secondary market may exist or the
market may cease to exist.
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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 GEIC. Successful use by a Fund of options will depend on GEIC's
ability to predict correctly movements in the direction of the securities
underlying the option used as a hedge. Losses incurred in hedging transactions
and the costs of these transactions will affect a Fund's performance.
Securities Index Options. In seeking to hedge all or a portion
of its investments, a Fund, other than the Money Market Fund, may purchase and
write put and call options on securities indexes listed on U.S. or foreign
securities exchanges or traded in the over-the-counter market, which indexes
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 Fund may purchase and write put and call options on
securities indices 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.
A securities index option written by a Fund will be deemed
covered in any manner permitted under the 1940 Act or the rules and regulations
thereunder or any other method determined by the SEC to be permissible.
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 indices 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. Unlike a securities
option, which contemplates the right to take or make delivery of securities at a
specified price, an option on a stock index gives the holder the right to
receive a cash "exercise settlement amount"
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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 securities 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, which is
accomplished by purchasing an option of the same series as the option previously
written, or it may allow the option to expire unexercised.
The effectiveness of purchasing or writing stock index options
as a hedging technique will depend upon the extent to which price movements in
the portion of a securities portfolio being hedged correlate with price
movements of the stock 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 stock, 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 stock
prices in the stock market generally or, in the case of certain indices, in an
industry or market segment, rather than movements in the price of a particular
stock. As a result, successful use by a Fund of options on stock indices will be
subject to GEIC's ability to predict correctly movements in the direction of the
stock 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 stocks.
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 GEIC desires that a Fund engage in such a
transaction.
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 and options on financial futures contracts, securities
(limited to debt securities in the case of the Tax-Exempt Fund) and, in the case
of the Diversified Fund, interest rate futures contracts and options on interest
rate futures contracts that are traded on a U.S. or foreign exchange or board of
trade approved by the CFTC or in the over-the-counter market. If entered into,
these transactions will be made for the following reasons: (1) for the purpose
of hedging against the effects of changes in the value of portfolio securities
due to anticipated changes in interest rates, stock market conditions and
currency market conditions, (2) to gain stock, bond, or currency market exposure
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for accumulating and residual cash positions, (3) for duration management, (4)
when such transactions are economically appropriate to the reduction of risks
inherent in the management of the Fund involved, and (5) for non-hedging
purposes such as seeking additional income or otherwise seeking to increase
total return. 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 Fund's custodian or a designated
sub-custodian or "covered" in a manner similar to that for covered options on
securities.
No consideration is paid or received by a Fund upon trading a
futures contract. Upon entering into a futures contract, cash, short-term
Government Securities or other U.S. dollar-denominated, high-grade, short-term
money market instruments equal to approximately 1% to 10% of the contract amount
will be segregated with the Fund's custodian or a designated sub-custodian. This
amount, which is subject to change by the exchange on which the contract is
traded, is known as "initial margin" and is in the nature of a performance bond
or good faith deposit on the contract that is returned to the Fund upon
termination of the futures contract, so long as all contractual obligations have
been satisfied; the broker will have access to amounts in the margin account if
the Fund fails to meet its contractual obligations. Subsequent payments, 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
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expiration of a futures contract, a Fund may elect to close a position by taking
an opposite position, which will operate to terminate the Fund's existing
position in the contract.
Although the Funds intend to enter into futures contracts only
if an active market exists for the contracts, no assurance can be given that an
active market will exist for the contracts at any particular time. Most U.S.
futures exchanges and boards of trade limit the amount of fluctuation permitted
in futures contract prices during a single trading day. Once the daily limit has
been reached in a particular contract, no trades may be made on that day at a
price beyond that limit. Futures contract prices may move to the daily limit for
several consecutive trading days with little or no trading, thereby preventing
prompt liquidation of futures positions and subjecting some futures traders to
substantial losses. In such a case, and in the event of adverse price movements,
a Fund would be required to make daily cash payments of variation margin. In
such circumstances, an increase in the value of the portion of the portfolio
being hedged, if any, may partially or completely offset losses on the futures
contract.
If a Fund has hedged against the possibility of an increase in
interest rates adversely affecting the value of securities held in its portfolio
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.
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The use of futures contracts and options on futures contracts
as a hedging device involves several risks. No assurance can be given that a
correlation will exist between price movements in the underlying securities or
index and price movements in the securities that are the subject of the hedge.
Positions in futures contracts and options on futures contracts may be closed
out only on the exchange or board of trade on which they were entered.
Furthermore, because any income earned from transactions in futures contracts
and related options will be taxable, GEIC anticipates that the Tax-Exempt Fund
will invest in these instruments only in unusual circumstances, such as when the
GEIC anticipates a significant change in interest rates or market conditions.
Losses incurred in hedging transactions and the costs of these transactions will
affect a Fund's performance.
Forward Currency Transactions. The Income Fund, the Global
Fund and the Diversified Fund may each hold currencies to meet settlement
requirements for foreign securities and may engage in currency exchange
transactions to protect against uncertainty in the level of future exchange
rates between a particular foreign currency and the U.S. dollar or between
foreign currencies in which the Fund's securities are or may be denominated. No
Fund will enter into forward currency transactions for speculative purposes.
Forward currency contracts are agreements to exchange one
currency for another at a future date. The date (which may be any agreed-upon
fixed number of days in the future), the amount of currency to be exchanged and
the price at which the exchange will take place will be negotiated and fixed for
the term of the contract at the time that a Fund enters into the contract.
Forward currency contracts (1) are traded in a market conducted directly between
currency traders (typically, commercial banks or other financial institutions)
and their customers, (2) generally have no deposit requirements and (3) are
typically consummated without payment of any commissions. A Fund, however, may
enter into forward currency contracts requiring deposits or involving the
payment of commissions. To assure that a Fund's forward currency contracts are
not used to achieve investment leverage, cash or other liquid assets will be
segregated with the Fund's custodian or a designated sub-custodian in an amount
at all times equal to or exceeding the Fund's commitment with respect to the
contracts.
Upon maturity of a forward currency contract, a Fund may (1)
pay for and receive the underlying currency, (2) negotiate with the dealer to
roll over the contract into a new forward currency contract with a new future
settlement date or (3) negotiate with the dealer to terminate the forward
contract into an offset with the currency trader providing for the Fund's paying
or receiving the difference between the exchange rate fixed in the contract and
the then current exchange rate. The Fund may also be able to negotiate such an
offset on behalf of a Fund prior to maturity of the original forward contract.
No assurance can be given that new forward contracts or offsets will always be
available to a Fund.
In hedging a specific portfolio position, a Fund may enter
into a forward contract with respect to either the currency in which the
position is denominated or another currency deemed appropriate by GEIC. A Fund's
exposure with respect to forward currency contracts is
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limited to the amount of the Fund's aggregate investments in instruments
denominated in foreign currencies.
The cost to a Fund of engaging in currency transactions varies
with factors such as the currency involved, the length of the contract period
and the market conditions then prevailing. Because transactions in currency
exchange are usually conducted on a principal basis, no fees or commissions are
involved. The use of forward currency contracts does not eliminate fluctuations
in the underlying prices of the securities, but it does establish a rate of
exchange that can be achieved in the future. In addition, although forward
currency contracts limit the risk of loss due to a decline in the value of the
hedged currency, at the same time, they limit any potential gain that might
result should the value of the currency increase. If a devaluation is generally
anticipated, a Fund may not be able to sell currency at a price above the
anticipated devaluation level. A Fund will not enter into a currency transaction
if, as a result, it will fail to qualify as a regulated investment company under
the Internal Revenue Code of 1986, as amended (the "Code"), for a given year.
In entering into forward currency contracts, a Fund will be
subject to a number of risks and special considerations. The market for forward
currency contracts, for example, may be limited with respect to certain
currencies. The existence of a limited market may in turn restrict the Fund's
ability to hedge against the risk of devaluation of currencies in which the Fund
holds a substantial quantity of securities. The successful use of forward
currency contracts as a hedging technique draws upon GEIC's special skills and
experience with respect to those instruments and will usually depend upon GEIC's
ability to forecast interest rate and currency exchange rate movements
correctly. Should interest or exchange rates move in an unexpected manner, a
Fund may not achieve the anticipated benefits of forward currency contracts or
may realize losses and thus be in a less advantageous position than if those
strategies had not been used. Many forward currency contracts are subject to no
daily price fluctuation limits so that adverse market movements could continue
with respect to those contracts to an unlimited extent over a period of time. In
addition, the correlation between movements in the prices of those contracts and
movements in the prices of the currencies hedged or used for cover will not be
perfect.
The ability to dispose of a Fund's positions in forward
currency contracts depends on the availability of active markets in those
instruments, and GEIC cannot predict the amount of trading interest that may
exist in the future in forward currency contracts. Forward currency contracts
may be closed out only by the parties entering into an offsetting contract. As a
result, no assurance can be given that a Fund will be able to utilize these
contracts effectively for the intended purposes.
Options on Foreign Currencies. The Income Fund, the Global
Fund and the Diversified Fund may each 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 write only covered options. No Fund will enter
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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. and foreign exchanges or in the over-the-counter market. Premiums
paid on a Fund's options on foreign currencies will be limited 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 Securities and Exchange Commission (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 counterparty default. In
addition, a liquid secondary market in options traded on a national securities
exchange may exist, potentially permitting a Fund to liquidate open positions at
a profit prior to exercise or expiration, or to limit losses in the event of
adverse market movements.
The purchase and sale of exchange-traded foreign currency
options are subject to the risks of the availability of a liquid secondary
market as described above, as well as the risks regarding adverse market
movements, margining of options written, the nature of the foreign currency
market, possible intervention by governmental authorities and the effects of
other political and economic events. In addition, exercise and settlement of
exchange-traded foreign currency options must be made exclusively through the
Clearing Corporation, which has established banking relationships in applicable
foreign countries for this purpose. As a result, the Clearing Corporation may,
if it determines that foreign governmental restrictions or taxes would prevent
the orderly settlement of foreign currency option exercises, or would result in
undue burdens on the Clearing Corporation or its clearing members, impose
special procedures on exercise and settlement, such as technical changes in the
mechanics of delivery of currency, the fixing of dollar settlement prices or
prohibitions on exercise.
Like the writing of other kinds of options, the writing of an
option on a foreign currency constitutes only a partial hedge, up to the amount
of the premium received; a Fund could also be required, with respect to any
option it has written, to purchase or sell foreign currencies at disadvantageous
exchange rates, thereby incurring losses. The purchase of an option on a foreign
currency may constitute an effective hedge against fluctuation in exchange
rates, although in the event of rate movements adverse to a Fund's position, the
Fund could forfeit the entire amount of the premium plus related transaction
costs.
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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.
Warrants. Because a warrant, which is a security permitting,
but not obligating, its holder to subscribe for another security, does not carry
with it the right to dividends or voting rights with respect to the securities
that the warrant holder is entitled to purchase, and because a warrant does not
represent any rights to the assets of the issuer, a warrant may be considered
more speculative than certain other types of investments. In addition, the value
of a warrant does not necessarily change with the value of the underlying
security and a warrant ceases to have value if it is not exercised prior to its
expiration date. The investment by a Fund in warrants valued at the lower of
cost or market, may not exceed 5% of the value of the Fund's net assets.
Included in that amount, but not to exceed 2% of the value of the Fund's net
assets, may be warrants that are not listed on the New York Stock Exchange, Inc.
("NYSE") or the American Stock Exchange. The Money Market Fund may not invest in
any form of warrants. Warrants acquired by a Fund in units or attached to
securities may be deemed to be without value.
Supranational Agencies. The Income Fund, the Diversified Fund
and the Money Market Fund may each invest up to 10% of its assets in debt
obligations of supranational agencies such as: the International Bank for
Reconstruction and Development (commonly referred to as the World Bank), which
was chartered to finance development projects in developing member countries;
the European Community, which is a twelve-nation organization engaged in
cooperative economic activities; the European Coal and Steel Community, which is
an economic union of various European nations' steel and coal industries; and
the Asian Development Bank, which is an international development bank
established to lend funds, promote investment and provide technical assistance
to member nations in the Asian and Pacific regions. Debt obligations of
supranational agencies are not considered Government Securities and are not
supported, directly or indirectly, by the U.S. Government.
Municipal Obligations. The term "Municipal Obligations" as
used in the Prospectus and this SAI means debt obligations issued by, or on
behalf of, states, territories and possessions of the United States and the
District of Columbia and their political subdivisions, agencies and
instrumentalities or multistate agencies or authorities, the interest from which
debt obligations is, in the opinion of bond counsel to the issuer, excluded from
gross income for Federal income tax purposes. Municipal Obligations generally
are understood to include debt obligations issued to obtain funds for various
public purposes, including the construction of a wide range of public
facilities, refunding of outstanding obligations, payment of general operating
expenses and extensions of loans to public institutions and facilities. Private
activity
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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. GEIC will not
review the proceedings relating to the issuance of Municipal Obligations or the
basis for opinions of counsel. The Tax-Exempt Fund may invest without limit in
debt obligations that are repayable out of revenues generated from economically
related projects or facilities or debt obligations whose issuers are located in
the same state. Sizable investments in these obligations could involve an
increased risk to the Funds should any of the related projects or facilities
experience financial difficulties.
Municipal Obligations may be issued to finance life care
facilities, which are an alternative form of long-term housing for the elderly
that offer residents the independence of a condominium life-style and, if
needed, the comprehensive care of nursing home services. Bonds to finance these
facilities have been issued by various state industrial development authorities.
Because the bonds are secured only by the revenues of each facility and not by
state or local government tax payments, they are subject to a wide variety of
risks, including a drop in occupancy levels, the difficulty of maintaining
adequate financial reserves to secure estimated actuarial liabilities, the
possibility of regulatory cost restrictions applied to health care delivery and
competition from alternative health care or conventional housing facilities.
Even though Municipal Obligations are interest-bearing
investments that promise a stable flow of income, their prices are inversely
affected by changes in interest rates and, therefore, are subject to the risk of
market price fluctuations. The values of Municipal Obligations with longer
remaining maturities typically fluctuate more than those of similarly rated
Municipal Obligations with shorter remaining maturities. The values of fixed
income securities also may be affected by changes in the credit rating or
financial condition of the issuing entities.
Tax legislation in recent years has included several
provisions that may affect the supply of, and the demand for, Municipal
Obligations, as well as the tax-exempt nature of interest paid on those
obligations. GEIC can not 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, GEIC can not predict whether
additional legislation adversely affecting the Municipal Obligation market will
be enacted in the future. If any such laws are enacted that would reduce the
availability of Municipal Obligation for investment by the Tax-Exempt Fund so as
to affect the Fund's unitholders adversely, the Fund will reevaluate its
investment objective and policies and might submit possible changes in its
structure to its unitholders for their consideration. If legislation were
enacted that would treat a type of Municipal Obligation as taxable for Federal
income tax purposes, the Tax-Exempt Fund would
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treat the security as a permissible taxable money market instrument for the Fund
within the applicable limits set forth in the Prospectus.
The Diversified Fund and Tax-Exempt Fund intend to invest in
Municipal Obligations of a broad range of issuers, consistent with prudent
regional diversification. Investors in certain states may be subject to state
taxation on all or a portion of the income and capital gains produced by such
securities.
Municipal Leases. Among the Municipal Obligations in which the
Tax-Exempt Fund and the Diversified Fund may invest are municipal leases.
Municipal leases are Municipal Obligations that may take the form of a lease or
an installment purchase or conditional sales contract issued by state and local
governmental authorities to obtain funds to acquire a wide variety of equipment
and facilities such as fire and sanitation vehicles, computer equipment and
other capital assets.
Interest payments on qualifying municipal leases are exempt
from Federal income taxes and state income taxes within the state of issuance.
Although municipal lease obligations do not normally constitute general
obligations of the municipality, a lease obligation is ordinarily backed by the
municipality's agreement to make the payments due under the lease obligation.
These obligations have evolved to make it possible for state
and local government authorities to acquire property and equipment without
meeting constitutional and statutory requirements for the issuance of debt.
Thus, municipal leases have special risks not normally associated with Municipal
Obligations. These obligations frequently contain "non-appropriation" clauses
that provide that the governmental issuer of the obligation has no obligation to
make future payments under the lease or contract unless money is appropriated
for those purposes by the legislative body on a yearly or other periodic basis.
In addition to the non-appropriation risk, municipal leases represent a type of
financing that has not yet developed the depth of marketability associated with
other Municipal Obligations. Some municipal lease obligations may be, and could
become, illiquid. Moreover, although municipal leases will be secured by the
leased equipment, the disposition of the equipment in the event of foreclosure
might prove to be difficult.
Municipal leases held by a Fund will be considered illiquid
securities unless the Board determines on an ongoing basis that the leases are
readily marketable. An unrated municipal lease with a non-appropriation risk
that is backed by an irrevocable bank letter of credit or an insurance policy
issued by a bank or insurer deemed by GEIC 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 GEIC 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
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or those issued by issuers whose senior debt is rated investment grade at the
time of investment. A Fund may acquire unrated issues that GEIC 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.
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.
Municipal Obligation Components. The Tax-Exempt Fund and the
Diversified Fund may each 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.
Custodial Receipts. The Tax-Exempt Fund and the Diversified
Fund may each 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. 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-
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taxable entity, the yield on the underlying security would be reduced in
recognition of any taxes paid.
Floating and Variable Rate Instruments. The Tax-Exempt Fund,
the Income Fund, the Diversified Fund and the Money Market Fund may invest in
floating and variable rate instruments. Income securities may provide for
floating or variable rate interest or dividend payments. The floating or
variable rate may be determined by reference to a known lending rate, such as a
bank's prime rate, a certificate of deposit rate or the London InterBank Offered
Rate (LIBOR). Alternatively, the rate may be determined through an auction or
remarketing process. The rate also may be indexed to changes in the values of
interest rate or securities indexes, currency exchange rate or other
commodities. Variable and floating rate securities tend to be less sensitive
than fixed rate securities to interest rate changes and to have higher yields
when interest rates increase. However, during periods of rising interest rates,
changes in the interest rate of an adjustable rate security may lag changes in
market rates.
The amount by which the rates paid on an income security may
increase or decrease may be subject to periodic or lifetime caps. Fluctuations
in interest rates above these caps could cause adjustable rate securities to
behave more like fixed rate securities in response to extreme movements in
interest rates.
Floating and variable rate income securities include
securities whose rates vary inversely with changes in market rates of interest.
Such securities may also pay a rate of interest determined by applying a
multiple to the variable rate. The extent of increases and decreases in the
value of securities whose rates vary inversely with changes in market rates of
interest generally will be larger than comparable changes in the value of an
equal principal amount of a fixed rate security having similar credit quality,
redemption provisions and maturity.
The Tax-Exempt Fund, the Income Fund, the Diversified Fund and
the Money Market Fund 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 GEIC for the
purchase of Municipal
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Obligations. GEIC 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. The Tax Exempt Fund, the Income Fund
and the Diversified Fund 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 Fund's Board of Trustees 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 Funds intend to exercise
their right to demand payment only upon a default under the terms of the
Municipal Obligation, or to maintain or improve the quality of their investment
portfolios. A Fund will invest no more than 5% of the value of its total assets
in participation interests.
Zero Coupon Obligations. The Tax-Exempt Fund, the Income Fund
and the Diversified Fund 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.
The Tax-Exempt Fund, the Income Fund and the Diversified Fund
may each invest up to 10% of its assets in zero coupon debt obligations. Zero
coupon debt obligations are generally divided into two categories: "Pure Zero
Obligations," which are those that pay no interest for their entire life and
"Zero/Fixed Obligations," which pay no interest for some initial
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period and thereafter pay interest currently. In the case of a Pure Zero
Obligation, the failure to pay interest currently may result from the
obligation's having no stated interest rate, in which case the obligation pays
only principal at maturity and is sold at a discount from its stated principal.
A Pure Zero Obligation may, in the alternative, provide for a stated interest
rate, but provide that no interest is payable until maturity, in which case
accrued, unpaid interest on the obligation may be capitalized as incremental
principal. The value to the investor of a zero coupon Municipal Obligation
consists of the economic accretion either of the difference between the purchase
price and the nominal principal amount (if no interest is stated to accrue) or
of accrued, unpaid interest during the life or payment deferral period of the
obligation.
Indexed Securities. The Diversified Fund and the Income Fund
may invest in 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. Indexed securities may be positively or negatively
indexed, so that appreciation of the reference instrument may produce an
increase or a decrease in interest rate or value at maturity of the security. In
addition, the change in the interest rate or value at maturity of the security
may be some multiple of the change in value of the reference instrument. Thus,
in addition to the credit risk of the security's issuer, the Funds will bear the
market risk of the reference instrument.
Mortgage Related Securities. The mortgage related securities
in which the Income Fund and the Diversified Fund will invest 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.
Several risks are associated with mortgage related securities
generally. The monthly cash inflow from the underlying loans, for example, may
not be sufficient to meet the monthly payment requirements of the mortgage
related security. Prepayment of principal by mortgagors or mortgage foreclosures
will shorten the term of the underlying mortgage pools for a mortgage related
security. Early returns of principal will affect the average life of the
mortgage related securities remaining in the Income Fund or the Diversified
Fund. The occurrence of mortgage prepayments is affected by factors including
the level of interest rates, general economic conditions, the location and age
of the mortgage and other social and demographic conditions. In periods of
rising interest rates, the rate of prepayment tends to decrease, thereby
lengthening the average life of a pool of mortgage related securities.
Conversely, in periods of falling interest rates, the rate of prepayment tends
to increase, thereby shortening the average life of a pool. Because prepayments
of principal generally occur when interest rates are declining, a Fund will
likely have to reinvest the proceeds of prepayments at lower interest rates than
those at which its assets were previously invested, resulting in a corresponding
decline in the Fund's yield. Thus, mortgage related securities may have less
potential for capital appreciation in
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periods of falling interest rates than other fixed income securities of
comparable maturity, although those other fixed income securities may have a
comparable risk of decline in market value in periods of rising interest rates.
To the extent that the Income Fund or the Diversified Fund purchases mortgage
related securities at a premium, unscheduled prepayments, which are made at par,
will result in a loss equal to any unamortized premium.
Adjustable Rate Mortgages ("ARMs") have interest rates that
reset at periodic intervals, thereby allowing the Income Fund and the
Diversified Fund to participate in increases in interest rates through periodic
adjustments in the coupons of the underlying mortgages, resulting in both higher
current yields and lower price fluctuation than would be the case with more
traditional long-term debt securities. Furthermore, if prepayments of principal
are made on the underlying mortgages during periods of rising interest rates,
the Income Fund or the Diversified Fund generally will be able to reinvest these
amounts in securities with a higher current rate of return. Neither the Income
Fund nor the Diversified Fund, however, will benefit from increases in interest
rates to the extent that interest rates rise to the point at which they cause
the current yield of ARMs to exceed the maximum allowable annual or lifetime
reset limits (or "caps") for a particular mortgage. In addition, fluctuations in
interest rates above these caps could cause ARMs to behave more like long-term
fixed rate securities in response to extreme movements in interest rates. As a
result, during periods of volatile interest rates, the net asset value of the
Income Fund or the Diversified Fund may fluctuate more than if it did not
purchase ARMs. Moreover, during periods of rising interest rates, changes in the
coupon of ARMs will slightly lag behind changes in market rates, creating the
potential for some principal loss for unitholders who redeem their Units of the
Income Fund or the Diversified Fund before the interest rates on the underlying
mortgages are adjusted to reflect current market rates.
Collateralized Mortgage Obligations ("CMOs") are obligations
fully collateralized by a portfolio of mortgages or mortgage related securities.
Payments of principal and interest on the mortgages are passed through to the
holders of the CMOs on the same schedule as they are received, although certain
classes of CMOs have priority over others with respect to the receipt of
prepayments on the mortgages. Therefore, depending on the type of CMOs in which
the Income Fund or the Diversified Fund invests, the investment may be subject
to a greater or lesser risk of prepayment than other types of mortgage related
securities.
The average maturity of pass-through pools of mortgage related
securities in which the Income Fund and the Diversified Fund 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
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represent pass-through pools consisting principally of conventional residential
mortgage loans created by non-governmental issuers, such as commercial banks,
savings and loan associations and private mortgage insurance companies.
Governmental mortgage related securities are backed by the full faith and credit
of the United States. GNMA, the principal U.S. guarantor of these securities, is
a wholly-owned U.S. government corporation within the Department of Housing and
Urban Development. Government-related mortgage related securities are not backed
by the full faith and credit of the United States. Issuers include FNMA and
FHLMC. FNMA is a government-sponsored corporation owned entirely by private
stockholders, which is subject to general regulation by the Secretary of Housing
and Urban Development. Pass-through securities issued by FNMA are guaranteed as
to timely payment of principal and interest by FNMA. FHLMC is a corporate
instrumentality of the United States, the stock of which is owned by the Federal
Home Loan Banks. Participation certificates representing interests in mortgages
from FHLMC's national portfolio are guaranteed as to the timely payment of
interest and ultimate collection of principal by FHLMC.
Private, governmental or government-related entities may
create mortgage loan pools offering pass-through investments in addition to
those described above. The mortgages underlying these securities may be
alternative mortgage instruments, that is, mortgage instruments whose principal
or interest payments may vary or whose terms to maturity may be shorter than
previously customary. GEIC assesses new types of mortgage related securities as
they are developed and offered to determine their appropriateness for investment
by the Diversified Fund and the Income Fund.
Mortgage related securities may not be readily marketable. To
the extent any of these securities are not readily marketable in the judgement
of GEIC, the Income Fund and the Diversified Fund will limit their investments
in these securities, together with other illiquid instruments, to not more than
10% of the value of the net assets of each Fund.
Government Stripped Mortgage Related Securities. The Income
Fund and the Diversified Fund may invest in government stripped mortgage related
securities issued and guaranteed by GNMA, FNMA or FHLMC. These securities
represent beneficial ownership interests in either periodic principal
distributions ("principal-only") or interest distributions ("interest-only") on
mortgage related certificates issued by GNMA, FNMA or FHLMC. The certificates
underlying the government stripped mortgage related securities represent all or
part of the beneficial interest in pools of mortgage loans. The Income Fund and
the Diversified Fund will invest in government stripped mortgage related
securities in order to enhance yield or to benefit from anticipated appreciation
in value of the securities at times when GEIC believes that interest rates will
remain stable or increase. In periods of rising interest rates, the expected
increase in the value of government stripped mortgage related securities may
offset all or a portion of any decline in value of the securities held by the
Income Fund or the Diversified Fund.
Investing in government stripped mortgage related securities
involves risks normally associated with investing in mortgage related securities
issued by government or
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government related entities. In addition, the yields on government stripped
mortgage related securities are extremely sensitive to the prepayment experience
on the mortgage loans underlying the certificates collateralizing the
securities. If a decline in the level of prevailing interest rates results in a
rate of principal prepayments higher than anticipated, distributions of
principal will be accelerated, thereby reducing the yield to maturity on
interest-only government stripped mortgage related securities and increasing the
yield to maturity on principal-only government stripped mortgage related
securities. Sufficiently high prepayment rates could result in these Funds' not
fully recovering their initial investment in an interest-only government
stripped mortgage related security. Under current market conditions, these Funds
expect that investments in government stripped mortgage related securities will
consist primarily of interest-only securities. The sensitivity of an
interest-only security that represents the interest portion of a particular
class, as opposed to the interest portion of an entire pool, to interest rate
fluctuations, may be increased because of the characteristics of the principal
portion to which they relate. Government stripped mortgage related securities
are currently traded in an over-the-counter market maintained by several large
investment banking firms. No assurance can be given that these Funds will be
able to effect a trade of a government stripped mortgage related security at a
desired time. These Funds will acquire government stripped mortgage related
securities only if a secondary market for the securities exists at the time of
acquisition. Except for government stripped mortgage related securities based on
fixed rate FNMA and FHLMC mortgage certificates that meet certain liquidity
criteria established by a Fund's Board of Trustees, each Fund treats government
stripped mortgage related securities as illiquid and will limit each of these
Funds' investments in these securities, together with other illiquid
investments, to not more than 10% of the net assets of each Fund.
Asset-Backed and Receivable-Backed Securities. The Income Fund
and the Diversified Fund may invest in asset-backed and receivable-backed
securities. To date, several types of asset-backed and receivable-backed
securities have been offered to investors including "Certificates for Automobile
Receivables" ("CARs(Service Mark)") and interests in pools of credit card
receivables. CARs(Service Mark) represent undivided fractional interests in a
trust, the assets of which consist of a pool of motor vehicle retail installment
sales contracts and security interests in the vehicles securing the contracts.
Payments of principal and interest on CARs(Service Mark) are passed through
monthly to certificate holders and are guaranteed up to certain amounts and for
a certain time period by a letter of credit issued by a financial institution
unaffiliated with the trustee or originator of the trust.
An investor's return on CARs(Service Mark) may be affected by
early prepayment of principal on the underlying vehicle sales contracts. If the
letter of credit is exhausted, these Funds may be prevented from realizing the
full amount due on a sales contract because of state law requirements and
restrictions relating to foreclosure sales of vehicles and the availability of
deficiency judgments following these sales, because of depreciation, damage or
loss of a vehicle, because of the application of Federal and state bankruptcy
and insolvency laws or other factors. As a result, certificate holders may
experience delays in payment if the letter of credit is exhausted. Consistent
with each of these Funds' investment objective and policies and subject to
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the review and approval of the Board, these Funds may also invest in other types
of asset-backed and receivable-backed securities.
WEBS and Other Index-Related Securities. The Diversified Fund
may invest in shares in an investment company whose shares are known as "World
Equity Benchmark Shares" or "WEBS." WEBS have been listed for trading on the
American Stock Exchange, Inc. The Funds also may invest in the CountryBaskets
Index Fund, Inc., or another fund the shares of which are the substantial
equivalent of WEBS. The Diversified Fund may also invest in S&P 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 the dividends that accrue to the S&P 500 stocks in the underlying
portfolio, less trust expenses.
Mortgage Dollar Rolls. With respect to up to 25% of its total
assets the Diversified Fund may, and with respect to up to 10% of its total
assets the Income Fund may, enter into mortgage "dollar rolls" in which a Fund
sells securities for delivery in the current month and simultaneously contracts
with the same counterparty to repurchase similar (same type, coupon and
maturity) but not identical securities on a specified future date. The Fund
loses the right to receive principal and interest paid on the securities sold.
However, the Fund would benefit to the extent of any price received for the
securities sold and the lower forward price for the future purchase (often
referred to as the "drop") or fee income plus the interest earned on the cash
proceeds of the securities sold until the settlement date of the forward
purchase. Unless such benefits exceed the income, capital appreciation and gain
or loss due to mortgage repayments that would have been realized on the
securities sold as part of the mortgage dollar roll, the use of this technique
will diminish the investment performance of the Fund compared with what such
performance would have been without the use of mortgage dollar rolls. The Fund
will hold and maintain in a segregated account until the settlement date cash or
liquid assets in an amount equal to the forward purchase price. The benefits
derived from the use of mortgage dollar rolls may depend upon GEIC'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, the Income Fund and
the Diversified Fund propose to treat mortgage dollar rolls as two separate
transactions: one involving the purchase of a security and a separate
transaction involving a sale. The Funds do not currently intend to enter into
mortgage dollar rolls that are accounted for as a financing.
Short Sales Against the Box. The Money Market Fund 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.
Borrowing for Long-term or Leveraging Purposes. The Tax-Exempt
Fund
- 32 -
<PAGE>
may borrow, in an amount not to exceed 10% of the value of its total assets for
long-term or leveraging purposes. The Tax-Exempt Fund may leverage its
investments by purchasing securities with borrowed money. In leveraging its
investments, the Tax-Exempt Fund will borrow money only from banks. Borrowing
money to purchase securities will increase the Tax-Exempt Fund's exposure to
capital risk and higher current expenses. Any gain in the value of securities
purchased with borrowed money or income earned from these securities that
exceeds the interest paid on the amount borrowed would cause the Tax-Exempt
Fund's net asset value per Unit to increase faster than would otherwise be the
case. There can be no assurance that the Tax-Exempt Fund will be able to realize
a higher return on its investment portfolio than the then-current interest rate
on borrowed money. If the Tax-Exempt Fund's current investment income were not
sufficient to meet interest costs on borrowings, it could be necessary for the
Fund to liquidate certain of its investments, thereby reducing the net asset
value attributable to the Fund's Units.
INVESTMENT RESTRICTIONS
The following policies and limitations supplement those
described in the Prospectus and this SAI. Each Fund is subject to fundamental
and non-fundamental investment policies and limitations. Under the 1940 Act, a
fundamental policy may not be changed with respect to a Fund without the vote of
a majority of the outstanding voting securities (as defined in the 1940 Act) of
the Fund. Investment restrictions numbered 1 through 18 below have been adopted
by the Funds as fundamental policies. Investment restrictions 19 through 31 are
not fundamental policies and may be changed by a vote of a Fund's Board of
Trustees at any time.
1. Investment in the Securities of any one Issuer. (a) No Fund
may invest more than 5% of its total assets in the securities (other than
Government Securities and, in the case of the Global Fund, other than securities
issued or guaranteed by a foreign country or its instrumentalities) of a single
issuer, except that up to 25% of the value of the assets of the Money Market
Fund, the Income Fund and the Tax-Exempt Fund may be invested without regard to
this limitation. (b) No Fund may purchase more than 10% (or 15%, in the case of
the Income Fund, the Tax-Exempt Fund and the Global Fund) of the outstanding
securities of any class of issuer, treating all debt securities of an issuer as
a single class for purposes of this restriction. (c) No Fund may purchase more
than 10% of the outstanding voting securities of any one issuer. Securities of a
foreign government will be treated as a single issuer for purposes of this
restriction. The Tax-Exempt Fund will regard each state and each of its
political subdivisions, agencies and instrumentalities as a single issuer; if
private companies are responsible for payment of principal and interest, the
Tax-Exempt Fund will regard each as a separate issuer for purposes of this
restriction.
2. Investment in a Particular Industry. No Fund may invest
more than 25% of the value of its total assets in the securities of issuers in
any one industry. The Tax-Exempt Fund may invest more than 25% of the value of
its total assets in securities issued or guaranteed by a state, municipality or
other political subdivision, unless the securities are backed only by the
- 33 -
<PAGE>
assets and revenues of non-governmental users. For purposes of this restriction,
the term industry will be deemed to include the government of any country other
than the United States, but not the U.S. Government. In addition, domestic bank
obligations held by the Money Market Fund and the Tax-Exempt Fund are excluded
from this restriction.
3. Borrowing. The Funds may not borrow money, except that (i)
the Money Market Fund may enter into reverse repurchase agreements, (ii) the
Tax-Exempt Fund may borrow for long-term or leveraging purposes in an amount not
to exceed 10% of the value of its total assets and (iii) each Fund may borrow
for temporary or emergency 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, in
the case of the Income Fund and the Tax-Exempt Fund, 10% of the value of the
Fund's total assets, and in the case of the Global Fund, the Diversified Fund
and the Money Market Fund, 20% of the value of the Fund's total assets. The
Global Fund, Elfun Trusts and the Diversified Fund can borrow money from banks
with minimum assets of one billion dollars as long as, immediately after the
borrowing, asset coverage of 300% exists. Whenever borrowings (including reverse
repurchase agreements) of 5% or more of either the Income Fund's, the Global
Fund's, the Diversified Fund's or the Money Market Fund's total assets are
outstanding, the respective Fund will not make any additional investments.
4. Lending. No Fund may lend its assets or money to other
persons, except through (a) lending its portfolio securities in an amount not to
exceed 30%, in the case of Elfun Trusts', the Global Fund's and the Diversified
Fund's, or 33 1/3% in the case of the Income Fund's, the Tax-Exempt Fund's or
the Money Market Fund's, net assets taken at market value; (b) in the case of
the Global Fund or the Diversified Fund, the purchase of obligations of persons
not in control of, or under common control with, the Fund (including obligations
of restricted securities); (c) in the case of the Income Fund, entering into
repurchase agreements; (d) in the case of the Income Fund and the Tax-Exempt
Fund, entering into security lending agreements and purchasing debt obligations;
and (e) in the case of Elfun Trusts, the Income Fund and the Tax-Exempt Fund,
trading in financial futures contracts, options on financial futures contracts,
securities indexes and securities. The Tax-Exempt Fund will not make any loan if
more than 20% of its assets would be subject to security lending agreements.
5. Purchase Securities on Margin; Short Sales. No Fund may
purchase securities on margin or make short sales, except that the Money Market
Fund may make short sales against the box and in order to achieve better net
results on portfolio transactions or lower brokerage commission rates, the
Global Fund and the Diversified Fund may join with other investment companies or
client accounts managed by GEIC in the purchase or sale 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.
- 34 -
<PAGE>
6. Participation in the Underwriting of Securities. No Fund
may participate in the underwriting of securities or joint trading accounts,
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 Income and the Tax-Exempt Funds may acquire
securities under circumstances in which, if the securities were sold, the Fund
might be deemed to be an underwriter for purposes of the Securities Act of 1933,
as amended.
7. Real Estate. No Fund, other than the Income Fund, may
purchase or sell real estate and neither Elfun Trusts nor the Money Market Fund
may invest in real estate limited partnership interests, except that a Fund,
other than the Tax-Exempt Fund, may (a) engage in the purchase or sale of real
estate as necessary to provide it with an office for the transaction of
business, (b) invest in the securities of real estate investment trusts or in
the securities of companies that invest or deal in real estate, mortgages or
interests in real estate or mortgages and (c) invest in securities secured by
real estate.
8. Commodities. No Fund may purchase or sell commodities or
commodities contracts, except that each Fund, other than the Money Market Fund,
may invest in futures contracts and related options and other similar contracts
(including, in the case of the Income Fund, the Global Fund and the Diversified
Fund, foreign currency forward, futures and options contracts) as described in
this Statement of Additional Information and in the Prospectus.
9. Restricted and Illiquid Securities. No Fund may purchase
securities which are illiquid or restricted (as those terms are described below
and in the Prospectus), if, in the case of Elfun Trusts, the Income Fund, the
Money Market Fund, the Global Fund and the Diversified Fund, more than 10% of
the net assets of the Fund would be invested in any combination of these
securities, and, in the case of the Tax-Exempt Fund, no more than 5% of the net
assets of the Fund would be invested in any combination of these 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 which the Fund has valued the securities; restricted
securities are securities that are subject to contractual or legal restrictions
on transfer, excluding for purposes of this restriction, restricted securities
that are eligible for resale pursuant to Rule 144A under the Securities Act of
1933, as amended, that have been determined to be liquid by the Fund's Board of
Trustees based upon the trading markets for the securities.
10. Other Investment Companies. (a) Elfun Trusts, the Global
Fund, the Diversified Fund or the Money Market Fund may not invest in the
securities of other investment companies except by purchase in the open market
where no commission or profit to a sponsor or dealer results, other than the
customary broker's commission. (b) Elfun Trusts, the Income Fund, the Global
Fund, the Diversified Fund or the Money Market Fund may not invest in the
securities of closed-end investment companies if the Fund would own more than 3%
of the total outstanding voting stock of the company or more than 5% of the
value of the Fund's total assets would be invested in the securities of any one
investment company or the aggregate investment by the Fund in all investment
companies would have a value in excess of 10% of the Fund's total assets.
- 35 -
<PAGE>
(c) The Income Fund may not purchase the securities of other investment
companies, except for money market funds and investment in equity securities
issued by foreign banks provided that all other investment companies having the
same adviser as the Income Fund would not own more than 10% of the total
outstanding voting securities of the foreign bank. (d) The Tax-Exempt Fund may
not invest in the securities of other investment companies. The limitations
described above do not apply if the investment is part of a plan of merger,
consolidation, reorganization or acquisition.
11. Foreign Issuers. The Diversified Fund may not invest more
than 20% of its total assets in securities issued by foreign issuers that are
not listed on a U.S. exchange.
12. Options. Neither the Income Fund nor the Tax-Exempt Fund
may purchase put options on securities if more than 10% of the Fund's net assets
would be invested in premiums on options or if the aggregate value of the
obligations underlying the put options written by the Fund exceed 50% of the
Fund's net assets.
13. Pledging. Neither the Income Fund nor the Tax-Exempt Fund
may pledge, mortgage or hypothecate its assets except (a) to secure borrowings,
the Income Fund and the Tax-Exempt Fund may pledge securities which together
with all securities previously pledged do not exceed 5% of the Fund's total
assets and (b) the Income Fund and the Tax-Exempt Fund may make premium and
margin payments in connection with transactions involving financial futures
contracts and options on financial futures contracts, securities indexes and
securities.
14. Transactions with Affiliates. Neither the Income Fund nor
the Tax-Exempt Fund may purchase from or sell to any of its officers or
Trustees, or the officers or directors of GEIC, its portfolio securities.
15. Options, Straddles and Spreads. Neither the Global Fund
nor the Diversified Fund may purchase or sell put options, call options,
straddles, spreads or combinations of put options, call options, straddles and
spreads, except as described in this Statement of Additional Information and the
Prospectus, and the Money Market Fund may not purchase or sell put options, call
options, straddles, spreads or combinations of put options, call options,
straddles and spreads, if the value of the Money Market Fund's aggregate
investment in these types of securities would exceed 5% of its total assets.
16. Mineral Exploration. The Tax-Exempt Fund may not invest in
oil, gas, or other mineral leases or production agreements, although the Fund
may invest in municipal bonds secured by mineral interests.
17. Affiliate Ownership. Neither Elfun Trusts, the Tax-Exempt
Fund nor the Income Fund may purchase or retain securities of any company if, to
the knowledge of GEIC or the Fund's Trustees, officers or Trustees of the Fund
or officers and directors of GEIC individually own more than 1/2 of 1% of the
outstanding securities of the company and together they
- 36 -
<PAGE>
beneficially own more than 5% of the securities.
18. Control/Management. The Tax-Exempt Fund may not invest in
companies for the purpose of exercising control or management.
19. Unseasoned Issuers, Restricted Securities and Illiquid
Securities. No Fund may purchase securities if, as a result of the purchase, the
Fund would then have more than 5% of its total assets invested in securities of
companies (including predecessors) that have been in continuous operation for
fewer than three years. No Fund may invest more than 15% of its total assets
(10% in the case of the Tax-Exempt Fund), in the aggregate, in the securities of
unseasoned issuers, restricted securities and illiquid securities, excluding,
for purposes of this 15% restriction, restricted securities that are eligible
for resale pursuant to Rule 144A under the Securities Act of 1933, as amended,
that have been determined to be liquid by the Fund's Board of Trustees based
upon the trading markets for the securities ("Rule 144A Securities"). In
addition, no Fund may invest more than 50% of its net assets in the securities
of unseasoned issuers and restricted securities, including, for purposes of this
50% restriction, Rule 144A Securities.
20. Warrants. No Fund may purchase warrants if, as a result,
the investment (valued at the lower of cost or market) would exceed 5% of the
value of the Fund's net assets of which not more than 2% of the value of the
Fund's net assets may be invested in warrants not listed on the New York Stock
Exchange, Inc. ("NYSE") or the American Stock Exchange. The Money Market Fund
may not invest in any form of warrants.
21. Mineral Exploration. Neither Elfun Trusts, the Global Fund
nor the Diversified Fund may invest in oil, gas, or other mineral exploration or
development programs, or leases, although the Funds may invest in securities of
companies involved in these programs or leases. The Income Fund may not invest
in oil, gas, or other mineral exploration or development programs or
partnerships, or leases. The Money Market Fund may not invest in oil, gas, or
other mineral exploration or development programs.
22. Pledging. Neither Elfun Trusts, the Global Fund nor the
Diversified Fund may pledge more than 10% of its assets, except as provided in
this Statement of Additional Information and in the Prospectus. The Money Market
Fund may not pledge, mortgage or hypothecate its assets except for emergency or
extraordinary purposes.
23. Hedging. No Fund may (a) enter into forward foreign
currency exchange or futures contracts or foreign currency options contracts to
sell foreign currencies, except for the purpose of hedging to protect portfolio
securities against the decline in the value of currency or to lock-in the dollar
value of an anticipated disbursement or receipt in a foreign currency, (b)
purchase and write put and call options on stock indexes, purchase and sell
stock index futures and invest in interest in rate futures contracts and options
on interest rate futures contracts, except for the purpose of hedging or (c)
enter into foreign currency futures if the aggregate margin
- 37 -
<PAGE>
deposits made by the Fund exceed 5% of the Fund's total assets excluding amounts
in-the-money.
24. Affiliate Ownership. Neither the Global Fund, the
Diversified Fund nor the Money Market Fund may purchase or retain securities of
any company if, to the knowledge of GEIC or the Fund's Trustees, officers or
trustees of the Fund or officers and directors of GEIC individually own more
than 1/2 of 1% of the outstanding securities of the company and together they
beneficially own more than 5% of the securities.
25. Control/Management. Neither the Income Fund, the Global
Fund or Elfun Trusts may invest in companies for the purpose of exercising
control or management.
26. Real Estate. In connection with the fundamental
restriction prohibiting the Tax-Exempt Fund and the Global Fund from investing
in real estate, the Tax-Exempt Fund and the Global Fund may not invest in real
estate limited partnerships. The Income Fund may not purchase or sell real
estate, except that the Fund may (a) engage in the purchase or sale of real
estate as necessary to provide it with an office for the transaction of
business, (b) invest in the securities of real estate investment trusts in an
amount not to exceed 10% of the Fund's net assets or in the securities of
companies that invest or deal in real estate, mortgages or interests in real
estate or mortgages and (c) invest in securities secured by real estate.
27. Other Investment Companies. In connection with the
fundamental restriction prohibiting the Income Fund from investing in the
securities of other investment companies, the Income Fund may not invest in the
securities of these other investment companies, except by purchase in the open
market where no commission or profit to a sponsor or dealer results, other than
the customary broker's commission.
28. Options. The Money Market Fund may not purchase or sell
options on securities, options on stock index futures or financial futures
unless they are written by other persons and listed on a national securities or
commodities exchange and any premiums on the options held by the Fund may not
exceed 20% of the Fund's total net assets. The Global Fund may not write, sell
or purchase additional options if as a result thereof the value of the options
will exceed 5% of its net assets or if the value of the stock underlying calls
written would exceed 25% of its net assets.
29. Loans. The Trust Agreement of Elfun Trusts does not
restrict the power of the Trustees to make loans to individuals. While it is not
the policy of the trustees of Elfun Trusts to make loans, the registration
statement filed with the SEC under the Securities Act of 1933 and the 1940 Act
reserved for Elfun Trusts freedom of action to make interest-bearing loans to
unitholders. The loans are to be secured by Elfun Trusts' Units of the
unitholder, either with or without other collateral, in principal amounts
aggregating not more than 15% of the then total assets of Elfun Trusts. This
policy does not restrict the authority of Elfun Trusts with respect to its
investment in financial futures contracts and options contracts on financial
futures, securities indices and securities.
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<PAGE>
30. Investment in the Securities of any one Issuer. (a) The
Global Fund will not invest more than 5% of its total assets in the securities
(other than Government Securities) of a single issuer. (b) Neither the Income
Fund, the Tax-Exempt Fund nor the Global Fund may purchase more than 10% of the
outstanding securities of any class of issuer, treating all debt securities of
an issuer as a single class for purposes of this restriction.
31. Investment in a Particular Industry. The Tax-Exempt Fund
will not exclude domestic bank obligations in determining the amount of its
assets which may be invested in a particular industry.
Notes to Investment Restrictions
With respect to investment restriction No. 10, investments by
the Funds (other than the Money Market Fund) in the Investment Fund is not
considered an investment in another investment company.
The percentage limitations in the restrictions listed above
apply at the time of purchases of securities and a later increase or decrease in
percentage resulting from a change in value of net assets, or in any ratings,
will not be deemed to result in a violation of the restriction. For purposes of
investment restrictions numbered 2 and 31, the Funds may use the industry
classifications reflected by the Directory of Companies Required to File Annual
Reports with the SEC, Bloomberg Inc. and the S&P 500 Composite Stock Price
Index. In addition, each Fund may select its own industry classifications,
provided such classifications are reasonable.
PORTFOLIO TRANSACTIONS AND TURNOVER
Decisions to buy and sell securities for each Fund will be
made by GEIC, subject to review by the Fund's Board of Trustees. Transactions on
domestic stock exchanges and some foreign stock exchanges involve the payment of
negotiated brokerage commissions. On exchanges on which commissions are
negotiated, the cost of transactions may vary among different brokers. On most
foreign exchanges, commissions are fixed. No stated commission will be generally
applicable to securities traded in U.S. over-the-counter markets, but the prices
of those securities include undisclosed commissions or mark-ups. The cost of
securities purchased from underwriters include an underwriting commission or
concession, and the prices at which securities are purchased from and sold to
dealers include a dealer's mark-up or mark-down. Government Securities generally
will be purchased on behalf of a Fund from underwriters or dealers, although
certain newly issued Government Securities may be purchased directly from the
U.S. Treasury or from the issuing agency or instrumentality. Whenever GEIC deems
it to be beneficial to a Fund, it may aggregate a Fund's purchase, sale or other
activities with those being performed by GEIC for other customers.
In selecting brokers or dealers to execute securities
transactions on behalf of a
- 39 -
<PAGE>
Fund, GEIC will seek the best overall terms available ("best execution"). In
assessing the best overall terms available for any transaction, GEIC will
consider 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 each Fund and GEIC, authorizes GEIC, 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 GEIC 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. 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
GEIC is a member, except to the extent permitted under rules, interpretations or
exemptions of the SEC.
GEIC may select broker-dealers who are affiliated with the
Funds or GEIC. The Boards of Trustees of the Funds have determined that, to the
extent consistent with applicable provisions of the 1940 Act and rules
thereunder, transactions for a Fund may be executed through a broker-dealer
affiliated with the Funds, if, in the judgment of GEIC, the use of such
affiliated broker-dealer is likely to result in a price and execution at least
as favorable to the Fund as those obtainable through other qualified
broker-dealers, and if, in the transaction, the affiliated broker-dealer charges
the Fund a fair and reasonable rate consistent with that payable by the Fund to
other broker-dealers on comparable transactions. Under rules adopted by the SEC,
an affiliated broker-dealer 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 affiliated broker-dealer. The affiliated broker-dealer will be required
to pay fees charged by those persons performing the floor brokerage elements out
of brokerage compensation that it receives from a Fund.
The Money Market Fund may attempt to increase its yield by
trading to take advantage of short-term market variations, which trading would
result in the Fund's experiencing high portfolio turnover. Because purchases and
sales of money market instruments are usually effected as principal
transactions, however, this type of trading by the Money Market Fund will not
result in the Fund's paying high brokerage commissions.
During the following years ended December 31, the following
commissions were paid to broker-dealers for execution of portfolio transactions:
- --------------------------------------------------------------------------------
1998 1997 1996
---- ---- ----
- --------------------------------------------------------------------------------
- 40 -
<PAGE>
- --------------------------------------------------------------------------------
Elfun Trusts $977,113 $625,040 $544,168
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Global Fund $606,734 $833,650 $444,106
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Diversified Fund $128,951 $123,972 $ 53,066
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Tax-Exempt Fund $0 $0 $0
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Income Fund $0 $0 $0
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Money Market Fund $0 $0 $0
- --------------------------------------------------------------------------------
Of such amounts, the following amounts were paid to a broker
because of research services provided during the respective year:
- --------------------------------------------------------------------------------
1998 1997 1996
---- ---- ----
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Elfun Trusts $124,296 $122.128 $105.806
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Global Fund $35,006 $56,036 $34,054
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Diversified Fund $10,327 $11,773 $ 5,183
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Tax-Exempt Fund $0 $0 $0
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Income Fund $0 $0 $0
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Money market Fund $0 $0 $0
- --------------------------------------------------------------------------------
A 100% annual turnover rate would occur if all of a Fund's
securities were replaced one time during a period of one year. Short-term gains
realized from portfolio turnover are taxable to unitholders as ordinary income.
In addition, higher portfolio turnover rates can result in corresponding
increases in brokerage commissions. GEIC 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.
WHO MAY OWN FUND UNITS
In the case of minor children of Elfun Society members, Units
must be registered in the name of a custodian under a Uniform Gifts to Minors
statute or in the name of a trust in which such children have a beneficial
interest.
Units may only be transferred to persons or entities otherwise
eligible to own Units and to trusts for the exclusive benefit of such persons or
entities. Units are not otherwise transferable but unitholders may assign their
right to redeem their Units for purposes of collateral for a loan by executing
an instrument of assignment from the Servicing Agent.
Units may be registered in the joint names of two adults
eligible to own Units and provide for the right of survivorship as between the
joint unitholders, unless the unitholders reside in a community property state
or request tenancy in common.
MANAGEMENT OF THE FUNDS
Trustees and Officers
- 41 -
<PAGE>
The Board of Trustees oversees the business affairs of the
Funds. The Trustees approve all significant agreements between the Funds and the
persons and companies that furnish services to the Funds, including agreements
with the Funds' investment adviser and administrator, distributor, custodian and
transfer agent. The day-to-day operations of the Funds have been delegated to
GEIC.
The names of the Trustees and executive officers of the Funds,
their addresses and their principal occupations during the past five years and
their other affiliations are shown below. Each person named as Trustee also may
serve in a similar capacity for other Funds advised by GEIC or GEIM. The
executive officers of the Funds are employees of organizations that provide
services to the Funds. The business address of each Trustee and executive
officer is 3003 Summer Street, P. O. Box 7900, Stamford, Connecticut 06904-7900.
All Trustees and officers have been officers or employees of GE for more than
five years. Pursuant to an exemptive order received from the Commission, each of
the Funds is exempt from the provisions of the 1940 Act which require a
registered investment company to have non-interested persons on its Board of
Trustees.
<TABLE>
<CAPTION>
Principal
Position(s) Held Occupation(s)
Name and Address with the Funds During Past Five Years
- ---------------- -------------- ----------------------
<S> <C> <C>
John H. Myers Trustee Age 53. President, Chief Executive Officer and
Director of GEIC and GEIM since 1997; since 1987,
Director, and from 1986 until 1996, Executive Vice
President - Fixed Income and Alternative Investments
of GEIC; since 1988, Director, and from 1988 until
1996, Executive Vice President of GEIM.
Eugene K. Bolton Trustee Age 55. Executive Vice President - Domestic Equity
Investments and Director of GEIC and Executive Vice
President and Director of GEIM since 1991; from 1987
to 1991, Mr. Bolton served as Senior Vice President -
Pension Fund Portfolios of GEIC.
</TABLE>
- 42 -
<PAGE>
<TABLE>
<CAPTION>
Principal
Position(s) Held Occupation(s)
Name and Address with the Funds During Past Five Years
- ---------------- -------------- ----------------------
<S> <C> <C>
Michael J. Cosgrove Trustee Age 49. President, GE Investment Services Group of
GE Financial Assurance Holdings, Inc. ("GEFA") since
February 1997, an indirect wholly-owned subsidiary of
General Electric Company ("GE"); Executive Vice
President - Mutual Funds of GEIC and GEIM,
wholly-owned subsidiaries of GE that are registered
as investment advisers under the Investment Advisers
Act of 1940, since March 1993 (responsibilities
include general management of all mutual fund sales
and management); Director of GEIC and GEIM since
1988; from 1988 until 1993, Mr. Cosgrove served as
Executive Vice President - Finance and Administration
of GEIC and GEIM; Chairman of the Board,
Chief-Executive Officer and President of GE
Investment Distributors, Inc., a registered
broker-dealer, since 1993; Chairman of the Board and
Chief Executive Officer of GE Investment Retirement
Services, Inc., since 1998.
Alan M. Lewis Trustee and Secretary Age 52. Executive Vice President, General Counsel
and Secretary of GEIM since 1988 and of GEIC since
October 1987.
David B. Carlson Portfolio Manager (Elfun Age 41. Senior Vice President - Equity Portfolios of
Trusts and Diversified GEIC since 1991, prior to 1991, Mr. Carlson served as
Fund) Senior Vice President - Mutual Fund Portfolios since
1990 and Vice President - Mutual Fund Portfolios
since 1987.
Robert R. Kaelin Portfolio Manager (Tax Age 52. Senior Vice President-Municipal Bonds of
Exempt Fund) GEIC since 1984.
Ralph R. Layman Portfolio Manager and Age 43. Executive Vice President - International
Trustee Equity Investments of GEIC since 1993 and Senior Vice
(Global Fund) President - International Equity Investments of GEIC
from 1991 until 1993; from 1989 to 1991, Mr. Layman served
as Executive Vice President, Partner and Portfolio Manager
of Northern Capital Management, and prior thereto, served
as Vice President and Portfolio Manager of Templeton
Investment Counsel.
Robert A. MacDougall Portfolio Manager and Age 50. Executive Vice President - Fixed Income and
Trustee (Income Fund, Director of GEIC and Executive Vice President and
Diversified Fund and Director of GEIM since 1997; from 1990 until 1996,
Money Market Fund) Senior Vice President - Taxable Fixed Income of GEIC.
Michael J. Solecki Portfolio Manager Age 33. Vice President - International Equities of
(Global Fund) GEIM and GEIC since 1995; from 1992 until 1995,
Senior European Analyst at GEIM's London, England
office.
</TABLE>
- 43 -
<PAGE>
<TABLE>
<CAPTION>
Principal
Position(s) Held Occupation(s)
Name and Address with the Funds During Past Five Years
- ---------------- -------------- ----------------------
<S> <C> <C>
Donald W. Torey Trustee Age 42. Since 1993, Director of GEIM and GEIC;
Executive Vice President - Alternative Investments
since 1997; Executive Vice President - Finance and
Administration from 1993 to 1997; from 1989 until
1993, Mr. Torey served as Manager - Mergers and
Acquisitions Finance for GE and from 1988 until 1989,
he served as Vice President - Private Placements of
GEIC.
</TABLE>
While Trustees of the Funds who are employees of GE will serve
as Trustees without compensation, each Fund will be required to reimburse GEIC
for the portion of the remuneration such persons receive from GE which is
reasonably allocable to the Fund. All Trustees are currently employees of GE.
However no portion of the remuneration such persons receive from GE has been
allocated to their service as Trustees of the Fund and GEIC does not anticipate
that any such allocation will be made in the future. If a Trustee were not
affiliated with GE, such Trustee would be compensated by the Fund in amounts
approved by the other Trustees.
GEIC investment personnel may engage in securities
transactions for their own accounts pursuant to a code of ethics that
establishes procedures for personal investing and restricts certain
transactions.
- 44 -
<PAGE>
Trustees' Compensation
(for the year ended December 31, 1998)
<TABLE>
<CAPTION>
Total Compensation from Each Total Compensation from all Investment
Name of Trustee Fund Companies Managed by GEIC OR GEIM*
- --------------- ---- ----------------------------------
<S> <C> <C>
Eugene K. Bolton None None
Michael J. Cosgrove None None**
Alan M. Lewis None None**
Robert A. MacDougall None None
John H. Myers None None
Ralph R. Layman None None
Donald W. Torey None None
Thomas J. Szkutak*** None None
</TABLE>
- ---------------
* As of December 31, 1998, each Trustee serves as a Trustee of eight
investment companies advised by GEIC, including the Funds. Messrs.
Cosgrove and Lewis also serve as Trustees of four investment companies
advised by GEIM.
** Messrs. Cosgrove and Lewis are also considered to be interested persons
of each investment company advised by GEIC or GEIM, as defined under
Section 2(a)(19) of the 1940 Act, and accordingly, serve as Trustees
thereof without compensation.
*** Mr. Szkutak served as a Trustee until March 31, 1999.
- 45 -
<PAGE>
Investment Adviser and Administrator
General Electric ("GE") is not a party to any Fund Agreement
and does not sponsor any of the Funds. The Funds were formed at the request of
the Elfun Society and GE does not guarantee performance or continued operation
of the Funds, or encourage participation in the Funds.
GEIC serves as the Funds' investment adviser and served as
unitholder servicing agent for the year ended December 31, 1998. GEIC is
registered as an investment adviser under the Investment Advisers Act of 1940,
as amended, and is located at 3003 Summer Street, P.O. Box 7900, Stamford,
Connecticut 06904-7900. GEIC, which was formed under the laws of Delaware in
1977, is a wholly owned subsidiary of GE. GE provides the personnel and other
resources necessary for GEIC to perform its obligations under the investment
advisory agreements with the Funds. 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.
GEIC also serves as investment adviser to the General Electric
Pension Trust and, under the General Electric Savings and Security Program,
serves as investment adviser to the various investment portfolios for that
Program, including the GE S&S Program Mutual Fund and the GE S&S Long Term
Interest Fund.
GEIC's principal officers serve in similar capacities with
respect to GEIM, a sister company of GEIC wholly-owned by GE, which currently
provides advisory services with respect to a number of other mutual funds and
private institutional accounts. GEIM has acted as the investment adviser to the
GE Funds, currently consisting of seventeen portfolios, since their inception in
1993, and other institutional accounts, including the two portfolios of
Financial Investors Trust since March 1997 and the investment portfolios of the
GE Investments Funds, Inc., currently consisting of ten portfolios offered only
to insurance companies that fund certain variable contracts since May, 1997.
GEIM has also acted as an investment adviser to the six portfolios of the GE
Lifestyle Funds, which invest exclusively in certain GE Funds since their
inception in 1997 and GE Institutional Funds' thirteen portfolios since their
inception in 1997.
The investment professionals at GEIM and GEIC and their
predecessors have managed GE's pension assets since 1927. GEIM and GEIC managed
assets in excess of $78 billion as of December 31, 1998, of which more than $15
billion was invested in mutual fund assets.
GEIC Investment Advisory and Unitholder Servicing Agreements
As each Fund's investment adviser, GEIC, subject to the
supervision of the
- 46 -
<PAGE>
Funds' Board of Trustees, manages the each Fund's portfolio in accordance with
its investment objective(s) and stated policies, makes investment decisions for
the Fund and places purchase and sales orders for the Fund's portfolio
transactions. GEIC also served as the Funds' untiholder servicing agent. As each
Fund's servicing agent, GEIC was responsible for processing redemption requests,
providing services which assisted the Funds' transfer agent and responding to
unitholder inquiries. On January 1, 1999, GE Investment Distributors, Inc., the
Funds distributor, assumed GEIC's responsibilities as unitholder servicing
agent.
Investment Advisory Fees and Unitholder Servicing Agent Fees
GEIC will receive, as the sole consideration for services as
investment adviser, the reasonable costs, both direct and indirect, incurred in
providing its services, including costs of office facilities and clerical help.
The amounts paid to GEIC by the Funds for the reasonable costs incurred by it
for providing services as adviser and administrator for the following years
ended December 31, were as follows:
- --------------------------------------------------------------------------------
1998 1997 1996
---- ---- ----
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Elfun Trusts $1,051,000 $626,000 $818,000
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Global Fund $ 200,000 $182,000 $106,000
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Diversified Fund $ 139,000 $ 93,000 $ 62,000
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Tax-Exempt Fund $ 587,000 $730,000 $767,000
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Income Fund $ 164,000 $151,000 $147,000
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Money Market Fund $ 56,000 $ 78,000 $ 87,000
- --------------------------------------------------------------------------------
The amounts paid to GEIC by the Funds for the reasonable costs
incurred by it for providing services as Unitholder Servicing Agent for the
following years ended December 31, were as follows:
- --------------------------------------------------------------------------------
1998 1997 1996
---- ---- ----
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Elfun Trusts $543,000 $175,000 $229,000
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Global Fund $156,000 $ 53,000 $ 70,000
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Diversified Fund $ 96,000 $ 32,000 $ 36,000
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Tax-Exempt Fund $255,000 $ 85,000 $141,000
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Income Fund $140,000 $ 47,000 $ 80,000
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Money Market Fund $ 97,000 $ 32,000 $ 39,000
- --------------------------------------------------------------------------------
- 47 -
<PAGE>
Securities Activities of the Investment Manager
Securities held by the Funds also may be held by other funds
or separate accounts for which the GEIC or GEIM acts as an adviser. Because of
different investment objectives or other factors, a particular security may be
bought by GEIC or GEIM 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 GEIC or GEIM 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 GEIC or GEIM
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 GEIC (under the supervision of the Board of
Trustees) deems the purchase or sale of a security to be in the best interests
of the Funds as well as other funds or accounts for which GEIC acts as an
investment adviser, it may, to the extent permitted by applicable laws and
regulations, but will not be obligated to, aggregate the securities to be sold
or purchased for the Funds 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 GEIC in the manner it
considers to be most equitable and consistent with its fiduciary obligations to
the Funds and to such other funds or accounts. In some cases this procedure may
adversely affect the size the position obtainable for a Fund.
Distributor
GE Investment Distributors, Inc. (formerly named GE Investment
Services Inc.), located at 777 Long Ridge Road, Building B, Stamford,
Connecticut 06927, serves as distributor of the Funds' Units (the "Distributor")
on a continuing best efforts basis. The Distributor, an indirect wholly-owned
subsidiary of GE, also serves as distributor for the GE Funds, GE Institutional
Funds, GE Lifestyle Funds and GE Investments Funds, Inc. Michael J. Cosgrove, a
member of the Funds' Board of Trustees, is the Chairman of the Board, Chief
Executive Officer and President of the Distributor.
As of January 1, 1999, the Distributor assumed GEIC's
responsibilities as unitholder servicing agent.
Custodian, Transfer Agent and Dividend Paying Agent
State Street Bank and Trust Company ("State Street") is
located at 225 Franklin Street, Boston, Massachusetts 02101 and serves as
custodian, transfer agent and dividend paying agent of the Funds' investments.
As custodian, State Street is responsible for the safekeeping of securities and
does not otherwise participate in investment policies or in the determination of
- 48 -
<PAGE>
investment decisions.
PURCHASE, REDEMPTION AND EXCHANGE OF UNITS
Purchase of Units
Units of the Funds are sold to investors at the net asset
value per unit next determined after receipt of an investment in good order by
State Street Bank and Trust Company, the Funds' custodian and transfer agent.
Purchase orders for Units of a Fund will be accepted by the Fund only on a day
on which the Fund's net asset value is calculated. The Fund may in its
discretion reject any order for the purchase of Units of a Fund. With respect to
all purchases, dividends begin to accrue on the next business day following the
receipt of the unitholder's check or funds.
For unitholder convenience and in the interest of economy, the
Funds no longer issue physical certificates representing Units in any Fund
("Certficate Units"). Ownership of Units is evidenced by Statements of Account
representing Units issued in book-entry form ("Bookunits").
Detailed information on how to purchase Units of a Fund is
included in the Prospectus. For a description of the manner of calculating a
Fund's net asset value, see "Net Asset Value" below in this SAI.
By Mail
Investors can purchase Units of a Fund by sending a cash
purchase application form and a check made payable to the applicable Fund in
U.S. currency and drawn on a U.S. bank along with account information and
instructions. Third-party checks or endorsed checks are not accepted by the
Funds for payment of Units of the Fund. Except for Money Market Fund
confirmations which are provided monthly, confirmations will be sent
acknowledging each purchase daily. If the check used for purchase does not
clear, the Fund will cancel the purchase and the investor may be liable for
losses or fees incurred. Checks are accepted subject to collection at full face
value in U.S. funds and must be drawn on a U.S. bank.
By Wire Transfer
Investors can purchase Units of a Fund by transferring funds
by wire from the unitholder's bank account to the Fund. The unitholder's bank
may charge a fee for this service. The Servicing Agent should be contacted
concerning the details of wire transfers.
By Payroll Savings Plan
An investor can purchase Units of a Fund (minimum of $25 per
transaction)
- 49 -
<PAGE>
automatically on a regular basis by furnishing a completed Payroll Deduction
Authorization Elfun Mutual Funds Form to their Servicing Agent. Statements of
Account are sent on a quarterly basis to those who invest through payroll
deductions.
Automatic Investment Plan
Investors may arrange to make purchases of Units automatically
on a monthly basis by electronic funds transfer (minimum of $25 per transaction)
from the checking, NOW, bank money market deposit account or credit union
account designated by the investor if their bank or credit union is a member of
an automated clearing house or by preauthorized checks drawn on their bank or
credit union account. Unitholders will receive written confirmation (for all
Funds other than the Money Market Fund on a quarterly basis, and for the Money
Market Fund, on a monthly basis) for every transaction and a debit entry will
appear on the bank or credit union statement. If an automatic investment
transaction fails due to insufficient funds in your account, you may be assessed
an additional charge. To make arrangements for automatic monthly investments,
call the Funds at 1-800-242-0134 for further information. Investors may change
the purchase amount or terminate this privilege at any time.
The Funds may modify or terminate this privilege at any time
or charge a service fee; however, no service fee is currently contemplated.
Subsequent Purchase of Units
Investors may purchase additional Units of a Fund at any time
in the manner outlined above. All payments should clearly indicate the
investor's account number.
Redemption of Units
Detailed information on how to redeem Units of a Fund is
included in the Prospectus. The right of redemption of Units of a Fund may be
suspended or the date of payment postponed as provided in the Prospectus.
Units may be redeemed and their proceeds remitted to the
unitholder or transferred to another Fund either by telephonic request or by
mail. Units of a Fund may be redeemed on any day on which the Fund's net asset
value is calculated. A duly executed redemption form received by mail will be
effected at the net asset value per Unit next determined. If the unitholder has
completed and returned a telephone redemption form, the unitholder may request
that the proceeds be transferred by wire to the bank account specified in the
form or transferred to another Fund. Telephonic redemption requests received
before the close of trading on the NYSE (currently 4:00 p.m. New York time), the
Units will be valued at the net asset value determined for the next business
day.
The value of each Unit on redemption may be more or less than
the unitholder's
- 50 -
<PAGE>
cost, depending upon the market value of the portfolio securities at the time of
redemption. Dividends are earned through and including the date of receipt of
the redemption request. For Federal income tax purposes, a redemption of Units
(including a redemption and transfer to another Fund or a transfer to an Elfun
IRA) may result in a unitholder realizing a taxable gain or loss.
The Trustees of a Fund may suspend the unitholders' right of
redemption or postpone the date of payment for any period during which (1)
trading on the NYSE is closed for other than weekends and holidays or during
which trading on the NYSE is restricted, (2) an emergency exists as a result of
which disposal by the Fund of its investments is not reasonably practicable or
it is not reasonably practicable for the Fund fairly to determine the value of
its net assets, or (3) the SEC may by order permit for the protection of
unitholders of the Fund.
A unitholder of the Money Market Fund must maintain a minimum
investment in the Fund of $500, so that care should be exercised to ensure that
redemptions do not reduce the unitholder's investment below this minimum. If the
unitholder's account balance is less than $500, the Fund may automatically
redeem the Units in the account and remit the proceeds to the unitholder so long
as the unitholder is given 30 days' prior written notice of the action. In
addition, if the unitholder has checkwriting privileges, redemption of $100 or
more may be made by writing a check either to the unitholder or to a third
party.
Redemption by Mail
Bookunits may be redeemed by mail by making a written request
that (1) states the number of units or the specific dollar amount to be
redeemed, (2) identifies the Fund from which the units are to be redeemed, (3)
identifies the account number, and (4) is signed by each registered owner
exactly as units are registered. Units represented by Certificate should be sent
in for deposit into Bookunits.
Redemptions will be made at the net asset value next computed
after receipt of a written request less any redemption fee (not, however, to
exceed 1%) as the Trustees may from time to time prescribe. At the present time,
the Trustees do not contemplate instituting any redemption fee for redemption by
mail. Unitholders will be notified in advance in the event that a fee for
redemptions by mail is instituted. Names should be signed exactly as they appear
on the Statement of Account or certificate.
Signature guarantees are required for redemptions over
$25,000. In addition, signature guarantees are required for each signature for
requests to have redemption proceeds (1) mailed to an address other than the
address of record, (2) paid to other than the unitholder, (3) wired to a bank
other than the bank of record, or (4) mailed to an address that has been changed
within 30 days of the redemption request. All signature guarantees must be
guaranteed by a commercial bank, trust company, broker, dealer, credit union,
national securities exchange or registered association, clearing agency, savings
association or by Managers of Personnel Accounting of GE or their designated
alternates. The Fund may require additional supporting
- 51 -
<PAGE>
documents for redemptions made by corporations, executors, administrators,
trustees, guardians or persons utilizing a power of attorney. A request for
redemption will not be deemed to have been submitted until the Fund receives all
documents typically required to assure the safety of a particular account. The
Fund may waive the signature guarantee on a redemption of $25,000 or less if it
is able to verify the signatures of all registered owners from its accounts.
If the account is a joint account, requests for redemption
must be signed by each unitholder. The Fund may take up to seven days to mail
the redemption proceeds, but will normally send the payment in less time.
Dividends are earned through and including the date of receipt of the redemption
request.
Upon request of a unitholder redeeming Units by mail, the
unitholder may request that the proceeds be transferred by wire to the
unitholder's bank account (which has been previously identified in writing to
the Servicing Agent or such request is signature guaranteed). The minimum amount
that may be transferred by wire is $1,000 and there is a $10 fee. If no request
for wire transfer is made, the proceeds will be mailed to the unitholder.
Redemption by Telephone
Bookunits (not Certificate Units) of a Fund may be redeemed by
telephone, although a unitholder first must complete and return to the Servicing
Agent a form authorizing redemption of Bookunits by telephone. A telephone
redemption form can be obtained from the Servicing Agent. Proceeds from a
telephonic wire redemption request will be either transferred by wire to the
unitholder's bank account (which has previously been identified in writing to
the Servicing Agent) or by check to the unitholder's address of record or
transferred to another Elfun Fund, as the unitholder directs. A single $10
charge will be assessed by the Fund in connection with each telephonic
redemption wire request. The redemption proceeds will either be reduced by this
charge or deducted from the balance of the account. There is no fee to redeem
Units by telephone if the proceeds are transferred to another Fund or paid by
check. If the account is registered jointly in the name of more than one
unitholder, only one unitholder will be required to authorize redemption of
Units by telephone, and the Servicing Agent will be entitled to act upon
telephonic instructions of any unitholder of a joint account. Wire transfers
will be made directly to the account specified by the unitholder if that bank is
a member of the Federal Reserve System or to a correspondent bank if the bank
holding the account is not a member. Fees on wire transfers may also be imposed
by the bank and will be the responsibility of the unitholder. A Fund may modify
or terminate the ability to make telephonic requests at any time.
Except for Money Market Fund transactions, confirmations of
the telephonic redemptions will be sent within seven days of the date of
redemption. Wire transfer of fundds will be made within two business days
following the telephonic request. Dividends will be earned through and including
the date of receipt of the redemption request.
- 52 -
<PAGE>
Telephonic redemption requests may be difficult to implement
in times of drastic economic or market changes. In the even unitholders of a
Fund are unable to contact the Fund by telephone, unitholders should write to
the Fund at its address set forth on the cover of thie Prospectus.
By making a telephonic redemption request, a unitholder
authorizes the Servicing Agent to act on the telephonic redemption instructions
by any person representing himself or herself to be the unitholder and believed
by the Servicing Agent to be genuine. The Fund and the Servicing Agent will
employ reasonable procedures to confirm that instructions communicated by
telephone are genuine and the Servicing Agent's records of such instructions
will be binding. If the procedures, which include the use of a personal
identification number ("PIN") system and the provision of written confirmation
of transactions effected by telephone, were not employed by the Fund and the
Servicing Agent, they could be subject to liability for any loss resulting from
unauthorized or fraudulent instructions. As a result of compliance with this
policy, if the Servicing Agent follows the procedures outlined above and has a
good faith belief that the instructions it received were genuine, the unitholder
will bear the risk of loss in the event of a fraudulent redemption transaction.
Automatic Withdrawal Plan
The Automatic Withdrawal Plan ("Withdrawal Plan") permits
investors in a Fund to request withdrawal of a specified dollar amount (minimum
of $50) on a monthly, quarterly or annual basis. The entire amount of a payment
automatically withdrawn pursuant to the Withdrawal Plan is taken from redemption
of Units in the investor's account on the twenty-fifth day of each month (or
prior to such date if the twenty-fifth is not a business day). Checks for the
amount withdrawn are mailed or an electronic funds transfer (if requested by an
investor) is processed on the following business day. The withdrawal amount will
be "net " after deduction of any redemption fee should any redemption fee be
imposed.
Payments made under the Withdrawal Plan do not provide a
guaranteed annuity. The minimum rate of withdrawal and minimum investment should
not be regarded as recommendations of a Fund. Under any withdrawal plan,
continued withdrawals in excess of dividends, distributions and increases in
unrealized appreciation, if any, will eventually use up principal, particularly
in a period of declining market prices. Unitholders will receive written
confirmation of transactions pursuant to the Withdrawal Plan (for all Funds
other than the Money Market Fund on a quarterly basis, and for the Money Market
Fund on a monthly basis).
A portion of the amount withdrawn may represent a taxable
capital gain or loss to the unitholder, depending upon the unitholder's cost.
Participation in the Withdrawal Plan may be terminated at any time without
penalty upon written notice from the untiholder. The cost of administering the
Withdrawal Plan is borne by each Fund as an expense of its unitholders. An
application for and additional information about the Systematic Withdrawal Plan
can be obtained from the Servicing Agent.
- 53 -
<PAGE>
Involuntary Redemptions
An account of a unitholder of a Fund that is reduced by
redemptions, and not by reason of market fluctuations to a value of $500 or less
may be redeemed by the Funds, but only after the unitholder has been given
notice of at least 30 days in which to increase the balance in the account to
more than $500.
Distributions In Kind
If the Board of Trustees determines that it would be
detrimental to the best interests of a Fund's unitholders to make a redemption
payment wholly in cash, each Fund may pay, in accordance with rules adopted by
the SEC, any portion of a redemption in excess of the lesser of $250,000 or 1%
of the Fund's net assets by a distribution in kind of portfolio securities in
lieu of cash. Redemptions failing to meet this threshold must be made in cash.
Portfolio securities issued in a distribution in kind will be deemed by GEIC to
be readily marketable. Unitholders receiving distributions in kind of portfolio
securities may incur brokerage commissions when subsequently disposing of those
securities.
Checkwriting Privileges
A unitholder of the Money Market Fund may request in an
application form or by letter sent to State Street Bank and Trust Company
("State Street" or the "Custodian") that he or she would like checkwriting
privileges, which are provided at no cost to the unitholder. The Money Market
Fund will provide redemption checks ("Checks") drawn on the unitholder's
account. Checks will be sent only to the unitholder of the account and only to
the address of record. The application or written request must be manually
signed by the unitholder. Checks may be made payable to the order of any person
in an amount of $100 or more. Dividends are earned until the Check clears. When
a Check is presented to State Street for payment, State Street, as agent, will
cause the Money Market Fund to redeem a sufficient number of Units in the
unitholder's account to cover the amount of the Check. Unitholders generally
will be subject to the same rules and regulations that State Street applies to
checking accounts. Unless otherwise specified in writing to the Servicing Agent,
only the signature of one unitholder of a joint account is required on Checks.
Checks may not be written to redeem Units purchased by check
until the earlier of (1) the date that good funds are credited to State Street
by its correspondent bank or (2) 15 days from the date of receipt of the check
utilized to purchase Units. If the amount of the Check is greater than the value
of the Units in a unitholder's account, the Check will be returned marked
"insufficient funds." Checks should not be used to close an account. Checks
written on amounts subject to the hold described above will be returned marked
"uncollected." If the Check does not clear, the unitholder will be responsible
for any loss that the Money Market Fund or State Street incurs.
- 54 -
<PAGE>
The Fund may modify or terminate the checkwriting privilege at
any time on 30 days' notice to participating unitholders. The checkwriting
privilege is subject to State Street's rules and regulations and is governed by
the Massachusetts Uniform Commercial Code. All notices with respect to Checks
drawn on State Street must be given to State Street. Stop payment instructions
may be given by calling 800-242-0134.
Exchange Privilege
The exchange privilege described in the Prospectus enables a
unitholder of a Fund to acquire Units in a Fund having a different investment
objective and policies when the unitholder believes that a shift between Funds
is an appropriate investment decision. Units of one Fund may be redeemed and
their proceeds remitted to the unitholder or exchanged to any other Fund either
by telephone request or by mail.
The privilege is available to unitholders residing in any
state in which Units of the Fund being acquired may legally be sold. Exchanges
can only be made to an account with another Fund held by the unitholder in an
identical name and manner. A portion of the amount exchanged may represent
taxable capital gain or loss to the unitholder, depending on the unitholder's
cost. Prior to exchange with another Fund, a unitholder must have a current
prospectus for the Fund to which the proceeds are being exchanged. A Fund may,
upon 60 days' prior written notice to the unitholders of a Fund, may materially
modify or terminate the exchange privilege with respect to a Fund.
NET ASSET VALUE
With certain limited exception, each Fund's net asset value
per Unit is calculated by GEIC or the Custodian on each day, Monday through
Friday, except on days on which the NYSE is closed. The NYSE is currently
scheduled to be closed on New Year's Day, Martin Luther King Jr. Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving and Christmas, and on the preceding Friday or subsequent Monday
when one of these holidays falls on a Saturday or Sunday, respectively. On those
days, securities held by a Fund may nevertheless be actively traded, and the
value of the Fund's Units 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 certain Funds may not take place contemporaneously with the
determination of the prices of many of their 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 a Fund's Board of Trustees.
In carrying
- 55 -
<PAGE>
out the Board's valuation policies, GEIC may consult with one or more
independent pricing services ("Pricing Service") retained by the Funds.
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. When, in the
judgment of the Pricing Service, quoted bid prices for investments of the
Tax-Exempt Fund are readily available and are representative of the bid side of
the market, these investments are valued at the mean between the quoted bid
prices and asked prices. Investments of the Tax-Exempt Fund that are not
regularly quoted are carried at fair value as determined by or under the
direction of the Board of Trustees, which may involve the assistance of the
Pricing Service. The procedures of the Pricing Service are reviewed periodically
by GEIC under the general supervision and responsibility of the Board of
Trustees of the Fund.
Securities and assets for which market quotations are not
readily available are valued at fair value as determined in good faith by or
under the direction of the Board of Trustees.
The valuation of the portfolio securities of the Money Market
Fund is based upon amortized cost, which does not take into account unrealized
capital gains or losses. Amortized cost valuation involves initially valuing an
instrument at its cost and thereafter assuming a constant amortization to
maturity of any discount or premium, regardless of the effect of fluctuating
interest rates on the market value of the instrument. Although this method
provides certainty in valuation, it may result in periods during which value, as
determined by amortized cost, is higher or lower than the price the Money Market
Fund would receive if it sold the instrument.
The use of the amortized cost method of valuing the portfolio
securities of the Money Market Fund is permitted by a rule adopted by the SEC.
Under this rule, the Money Market Fund must maintain a dollar-weighted average
portfolio maturity of 90 days or less, purchase only instruments having
remaining maturities of 397 calendar days or less, and invest only in "eligible
securities" as defined in the rule, which are determined by GEIC to present
minimal credit risks. Pursuant to the rule, GEIC has established procedures
designed to stabilize, to the extent reasonably possible, the Fund's price per
Unit 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 GEIC 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 Unit based on amortized cost.
The rule regarding amortized cost valuation provides that the
extent of certain significant deviations between the Money Market Fund's net
asset value based upon available
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<PAGE>
market quotations or market equivalents and the $1.00 per Unit net asset value
based on amortized cost must be examined by the Fund's Board of Trustees. In the
event the Board of Trustees determines that a deviation exists that may result
in material dilution or other unfair results to investors or existing
unitholders of the Money Market Fund, the Board of Trustees must, in accordance
with the rule, cause the Fund to take such corrective action as the Board of
Trustees 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 Units in kind; or
establishing a net asset value per Unit by using available market quotations.
DIVIDENDS, DISTRIBUTIONS AND TAXES
Dividends and Distributions
Net investment income (that is, income other than long- and
short-term capital gains) and net realized long- and short-term capital gains
are determined separately for each Fund. Dividends derived from net investment
income and distributions of net realized long-term and short-term capital gains
paid by a Fund to a unitholder are automatically reinvested (at current net
asset value) in additional Units of the Fund (which will be depositied in the
unitholder's account) unless the unitholder instructs the Fund, by telephone or
in writing, to pay all dividends and distributions in cash. A cash election
remains in effect until the unitholder notifies the Fund by telephone or in
writing to discontinue the election.
If it is determined, however, that the U.S. Postal Service
cannot properly deliver Fund mailings to the unitholder, the Fund may terminate
the unitholder's election to receive dividends and distributions in cash.
Thereafter, the unitholder's subsequent dividends and other distributions will
be automatically reinvested in additional Units of the Fund until the unitholder
notifies the Fund in writing his or her correct address and requests in writing
that the election to receive dividends and other distributions in cash to be
reinstated. Unitholders may contact the Servicing Agent for details concerning
this election.
Unitholders may elect to apply dividends and distributions to
the purchase of Units in another Elfun Fund with which they have an account. The
account with the other Elfun Fund must be held by the unitholder in the
identical name and manner as the account held with the Fund.
If a unitholder redeems all of his Units of the Tax-Exempt
Fund, the Income Fund or the Money Market fund at any time during a month, all
dividends to which the unitholder is entitled will be paid to the unitholder
along with the proceeds of his redemption. Written confirmations relating to the
automatic reinvestment of daily dividends are sent to unitholders within five
days following the end of each quarter for the Tax-Exempt fund and the Income
Fund, and within five days following the end of each month for the Money Market
Fund.
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<PAGE>
Distributions of any net realized long-term and short-term
capital gains earned by a Fund are made annually. These dividends and
distributions are determined in accordance with income tax regulations which may
differ from generally accepted accounting principals. All expenses of the
Tax-Exempt Fund, the Income Fund and the Money Market Fund are accrued daily and
deducted before declaration of dividends to unitholders. Earnings of the
Tax-Exempt Fund, the Income Fund and the Money Market Fund for Saturdays,
Sundays and holidays will be declared as dividends on the business day
immediately preceeding the Saturday, Sunday or holiday.
Each Fund will be subject to a 4% non-deductable excise tax
measured with respect to certain undistributed amounts of net investment income
and capital gains. If necessary to avoid the imposition of this tax, and if in
the best interests of a Fund's untiholders, the Fund will declare and pay
dividends of the Fund's net investment income and distributions of the Fund's
net capital gains more frequently than stated above.
Tax Status of the Funds and their Unitholders
Set forth below is a summary of certain Federal income tax
considerations generally affecting the Funds and their unitholders. The summary
is not intended as a substitute for individual tax planning, and unitholders are
urged to consult their tax advisors regarding the application of Federal, state,
local and foreign tax laws to their specific tax situations.
Each Fund will be treated as a separate entity for Federal
income tax purposes. Each Fund intends to continue to qualify each year as a
"regulated investment company" under the Code. If a Fund (1) is a regulated
investment company and (2) distributes to its unitholders 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 unitholders. 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 one-year period ending on October 31 of such calendar year.
Alternatively, Funds having a taxable year ending with November or December may
elect to treat their taxable year end as the capital gains measuring period for
excise tax purposes. 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 total 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 total 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)(4)(B) of the Code)
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<PAGE>
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 unitholders). In
such event, dividend distributions, including amounts derived from interest on
tax-exempt obligations, would be taxable to unitholders 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 unitholders.
Net investment income or capital gains earned by a Fund
investing in foreign securities may be subject to foreign income taxes withheld
at the source. The United States has entered into tax treaties with many foreign
countries that entitle the Funds to a reduced rate of tax or exemption from tax
on this related income and gains. The effective rate of foreign tax cannot be
determined at this time since the amount of these Funds' assets to be invested
within various countries is not now known. The Funds intend to operate so as to
qualify for treaty-reduced rates of tax when applicable. In addition, if a Fund
qualifies as a regulated investment company under the Code, if certain
distribution requirements are satisfied, and if more than 50% of the value of
the Fund's assets at the close of the taxable year consists of stocks or
securities of foreign corporations, the Funds may elect, for U.S. Federal income
tax purposes, to treat foreign income taxes paid by the Fund that can be treated
as income taxes under U.S. income tax principles as paid by its unitholders. The
Global Fund anticipates that it may qualify for and make this election in most,
but not necessarily all, of its taxable years. If a Fund were to make an
election an amount equal to the foreign income taxes paid by the Fund would be
included in the income of its unitholders and the unitholders would be entitled
to credit their eligible portions of this amount against their U.S. tax
liabilities, if any, or to deduct those portions from their U.S. taxable income,
if any. Foreign taxes paid by a Fund with respect to dividends accrued are
eligible to be treated as credits by Unitholders only if the securities paying
such dividends are held by the Fund for a specified period of time. Within 60
days after any year for which it makes an election, the Trust will report to the
unitholders of the Fund, in writing, the amount per Unit of foreign tax that
must be included in each unitholder's gross income and the amounts that will be
available as a credit and/or deduction. No deduction for foreign taxes may be
claimed by a unitholder who does not itemize deductions. Certain limitations
will be imposed on the extent to which the credit (but not the deduction) for
foreign taxes may be claimed.
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<PAGE>
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 unitholders 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 Funds seek to
monitor transactions, seek to make the appropriate tax elections and seek 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.
In order for the Tax-Exempt Fund to pay exempt-interest
dividends for any taxable year, at the close of each taxable quarter, at least
50% of the aggregate value of the Fund's portfolio must consist of
exempt-interest obligations. Within 60 days after the close of the taxable year
of the Tax-Exempt Fund, unitholders will be notified of the portion of the
dividends paid that constitutes an exempt-interest dividend with respect to that
taxable year. The percentage of total dividends paid by the Tax-Exempt Fund with
respect to any taxable year that qualifies as Federal exempt-interest dividends
will be the same for all unitholders receiving dividends from the Fund for that
year.
Interest on indebtedness incurred by a unitholder to purchase
or carry Units of the Tax-Exempt Fund is not deductible for income tax purposes
if the Fund distributes exempt-interest dividends during the unitholder's
taxable year. In addition, if a unitholder of the Tax-Exempt Fund holds Units
for six months or less, any loss on the sale or exchange of those Units will be
disallowed to the extent of the amount of exempt-interest dividends received
with respect to the Units.
The Tax-Exempt Fund's net investment income for dividend
purposes consists of (i) interest accrued and discount earned on the Fund's
assets, (ii) less amortization of market premium on such assets, accrued
expenses directly attributable to the fund, and the general expenses (e.g.,
legal, accounting and trustees' fees, if any) of the Fund prorated to such Fund
on the basis of its relative net assets. The Tax-Exempt Fund has elected to
currently accrue market discount. Accrued market discount and any other taxable
interest income, net of allocable expenses, is distributed to unitholders, as
taxable ordinary income dividends.
As a general rule, a unitholder's gain or loss on a sale or
redemption of Units of a Fund will be a long-term capital gain or loss if the
unitholder has held the Units for more than one year. The gain or loss will be a
short-term capital gain or loss if the unitholder has held the Units for one
year or less.
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<PAGE>
Each Fund's net realized long-term capital gains are
distributed as described in the Prospectus. The distributions ("capital gain
dividends"), if any, are taxable to a unitholder of a Fund as long-term capital
gains, regardless of how long a unitholder has held the Units, and will be
designated as capital gain dividends in a written notice mailed by the Trust to
the unitholders of the Fund no later than 60 days after the close of the Fund's
taxable year. If a unitholder receives a capital gain dividend with respect to
any Unit of a Fund, and if the Unit is sold before it has been held by the
unitholder for six months or less, then any loss on the sale or exchange of the
Unit, to the extent of the capital gain dividend, will be treated as a long-term
capital loss. This rule will apply to a sale of Units of the Tax-Exempt Fund
only to the extent the loss is not disallowed under the provision described
above. Investors considering buying Units of a Fund on or just prior to the
record date for a taxable dividend or capital gain distribution should be aware
that the amount of the dividend or distribution payment will be a taxable
dividend or distribution payment.
If a unitholder of a Fund fails to furnish a correct taxpayer
identification number, fails to report fully dividend or interest income, or
fails to certify that he or she has provided a correct taxpayer identification
number and that he or she is not subject to "backup withholding," then the
unitholder may be subject to a 31% "backup withholding" tax with respect to (1)
taxable dividends and distributions from the Fund and (2) the proceeds of any
redemptions of Units of the Fund (other than the Money Market Fund). An
individual's taxpayer identification number is his or her social security
number. The 31% backup withholding tax is not an additional tax and may be
credited against a taxpayer's regular Federal income tax liability.
Statements as to the tax status of each unitholder's dividends
and distributions are mailed annually. Unitholders will also receive, as
appropriate, various written notices after the close of their Fund's taxable
year regarding the tax status of certain dividends and distributions that were
paid (or that are treated as having been paid) by the Fund to its unitholders
during the preceding taxable year, including the amount of dividends that
represents interest derived from Government Securities.
THE FUNDS' PERFORMANCE
As noted in the Prospectus, from time to time, a Fund's
performance may be quoted, in terms of a Fund's yield and/or total return, in
reports or other communications to unitholders of the 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 Money Market Fund may, from time to time, include the
yield and effective yield of the Money Market Fund in advertisements or reports
to unitholders or prospective investors. "Current yield" will be based upon the
income that a hypothetical investment in the Fund would earn over a states
seven-day period. This amount would then
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be "annualized," which means the amount of income generated over that week is
assumed to be generated each week over a 52-week period and is shown as a
percentage of the investment. The Money Market Fund's "effective yield" will be
calculated similarly, but, when annualized, the income earned by an investment
in the Fund is assumed to be reinvested. The effective yield would be slightly
higher than the current yield because of the compounding effect of this presumed
reinvestment.
The yield for the Money Market Fund is computed by (1)
determining the net change in the value of a hypothetical preexisting account in
the Fund having a balance of one Unit 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 Units purchased with dividends declared on the original Unit and any
such additional Units less a hypothetical charge reflecting deductions from
unitholder accounts, but does not include realized gains and losses or
unrealized appreciation and depreciation. In addition, the Money Market Fund may
calculate a compound 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, 1998 were 4.92% and 5.04%, respectively. Had GEIC not absorbed a
portion of the Money Market Fund's expenses, the Fund's seven-day yield and
effective seven-day yield as of December 31, 1998 would have been lower.
Yield for Other Funds
The Income Fund may, from time to time, advertise a 30-day
"yield" and the Tax-Exempt Fund may advertise an "equivalent taxable yield." The
30-day yield figure of a Fund described in the Prospectus is calculated
according to a formula prescribed by the SEC. The formula can be expressed as
follows:
6
Yield = 2[(a-b + 1) -1]
---
cd
Where:
a = dividends and interest earned during the period.
b = expenses accrued for the period (net of reimbursement).
c = the average daily number of Units outstanding during
the period that were entitled to receive dividends.
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<PAGE>
d = the maximum offering price per Unit on the last day of the
period.
For the purpose of determining the interest earned (variable
"a" in the formula) on debt obligations that were purchased by a Fund at a
discount or premium, the formula generally calls for amortization of the
discount or premium; the amortization schedule will be adjusted monthly to
reflect changes in the market values of the debt obligations.
The Tax-Exempt Fund's tax equivalent yield is computed by
dividing that portion of the Fund's yield that is tax-exempt by one minus a
stated income tax rate and adding the product to that portion, if any, of the
Fund's yield that is not tax-exempt.
Investors should recognize that, in periods of declining
interest rates, a Fund's yield 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, moneys
received by a Fund from the continuous sale of its Units 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 Units 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. Unitholders 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, 1998 for
Units of the Tax-Exempt Fund and the Income Fund were as follows: 4.85% and
6.06%, respectively.
The equivalent taxable yield of the Tax-Exempt Fund
demonstrates the yield on a taxable investment necessary to produce an after-tax
yield equal to the Fund's tax-exempt yield. The Tax-Exempt Fund's tax equivalent
yield is computed by dividing that portion of the Fund's yield that is
tax-exempt by one minus a stated income tax rate and adding the product to that
portion, if any, of the Fund's yield that is not tax-exempt. Thus, the
equivalent taxable yield of the Tax-Exempt Fund will always exceed the yield.
Assuming an effective tax rate of 39.6%, for the 30-day period ended December
31, 1998, the equivalent taxable yield of the Tax-Exempt Fund was 5.05%.
Average Annual Total Return
From time to time, the Funds may advertise an "average annual
total return," which represents the average annual compounded rates of return
over one-, five- and ten-year periods, or over the life of the Fund (as stated
in the advertisement). This total return figure
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shows an average percentage change in value of an investment in the Funds from
the beginning date of the measuring period to the ending date of the period. The
figure reflects changes in the price of Units 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 periods might have been greater or less than the average
for the entire period.
The "average annual total return" figures of a Fund described
in the Prospectus, will be computed according to a formula prescribed by the
SEC. The formula can be expressed as follows:
n
P(1 + T) = ERV
Where P = a hypothetical initial payment of $1,000;
T = average annual total return;
n = number of years; and
ERV = Ending Redeemable Value of a hypothetical $1,000
investment made at the beginning of a 1-, 5- or
10-year period at the end of a 1-, 5- or 10-year
period (or fractional portion thereof), assuming
reinvestment of all dividends and distributions.
The ERV assumes complete redemption of the hypothetical
investment at the end of the measuring period.
Based on the above formula, the average annual total return
figures for the one-, five- and 10-year periods (if applicable) ended December
31, 1998 were as follows: Elfun Trusts - 22.94%, 22.63% and 18.66%; the Global
Fund - 17.36%, 11.26% and 12.05%; the Diversified Fund - 17.14%, 15.03% and
13.65%; the Tax-Exempt Fund - 6.21%, 5.92% and 7.72%; the Income Fund - 8.49%,
7.38% and 9.19%; and the Money Market Fund - 5.39%, 5.21% and 5.19% (since
inception June 13, 1990).
The Funds may compare their average annual total returns to
the returns of the following securities market indices. The Standard & Poor's
("S&P") Composite Index of 500 stocks (S&P 500 Index), Morgan Stanley Capital
International World Index (MSCI World), Lehman Brothers Aggregate Bond Index (LB
Aggregate), the Lehman Brothers Municipal Bond Index (LBMI) and the Lehman
Brothers 10-Year Municipal Index are unmanaged indexes and do not reflect the
actual cost of investing in the instruments that comprise each index. The S&P
500 Index is a composite of the prices of 500 widely held stocks recognized by
investors to be representative of the stock market in general. The MSCI World
Index is a composite of 1,561 stocks in companies from 22 countries representing
the European, Pacific Basin and American regions. LB Aggregate is a composite
index of short-, medium-, and long-term bond performance
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<PAGE>
and is widely recognized as a barometer of the bond market in general. The LBMI
is a composite of investment grade, fixed rate municipal bonds and is considered
to be representative of the municipal bond market. The Lehman Brothers 10-Year
Municipal Index is comprised of 8,987 bonds with a nominal maturity from eight
years up to, but not including, 12 years. The results shown for the foregoing
indexes assume the reinvestment of net dividends.
Actual Annual Total Return
The Funds also may advertise the actual annual and annualized
total return performance data for various periods of time, which may be shown by
means of schedules, charts or graphs. Actual annual or annualized total return
data generally will be lower than average annual total return data because the
latter reflects compounding of return. Yield and total return figures are based
on historical earnings and are not intended to indicate future performance.
Aggregate Total Return
The Funds may use "aggregate total return" figures in
advertisements, which represent the cumulative change in value of an investment
in Units of a Fund for a specific period, and which reflects changes in the
Fund's Unit 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
return will be higher.
The "aggregate total return" figures of a Fund described in
the Prospectus represent the cumulative change in the value of an investment in
the Fund for the specified period and will be computed by the following formula:
Aggregate Total Return = ERV - P
-------
P
Where P = a hypothetical initial payment of $1,000; and
ERV = Ending Redeemable Value of a hypothetical $1,000
investment made at the beginning of a 1-, 5- or
10-year period at the end of the 1-, 5- or 10-year
period (or fractional portion thereof), assuming
reinvestment of all dividends and distributions.
Distribution Rate
Each Fund may advertise its distribution rate and/or effective
distribution rate. A Fund's distribution rate differs from yield and total
return and therefore is not intended to be a complete measure of performance.
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A Fund's distribution rate measures dividends distributed for
a specified period. A Fund's distribution rate is computed by dividing the most
recent monthly distribution per Unit annualized by the current net asset value
per Unit. A Fund's effective distribution rate is computed by dividing the
distribution rate by the ratio used to annualize the distribution and
reinvesting the resulting amount for a full year on the basis of such ratio. The
effective distribution rate will be higher than the distribution rate because of
the compounding effect of the assumed reinvestment. A Fund's yield is calculated
using the standardized formula described above. In contrast, the distribution
rate is based on the Fund's last monthly distribution, which tends to be
relatively stable and may be more or less than the amount of net investment
income and short-term capital gain actually earned by the Fund during the month.
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<PAGE>
Comparative Performance Information
In addition to the comparative performance information
included in the Prospectus and otherwise quoted in sales and advertising
materials, each Fund 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 GEIC derived from those
indices.
Performance information also may include evaluations of a Fund
published by nationally recognized ranking services and by financial
publications that are nationally recognized, such as Barron's, Business Week,
Forbes, Fortune, Institutional Investor, Kiplinger's Personal Finance, Money,
Morningstar Mutual Fund Values, The New York Times, The Wall Street Journal and
USA Today. These ranking services or publications may compare a Fund's
performance to, or rank it within, a universe of mutual funds with investment
objectives and policies similar, but not necessarily identical, to that of the
Funds. Such comparisons or rankings are made on the basis of several factors,
including the size of the Fund, objectives and policies, management style and
strategy, and portfolio composition, and may change over time if any of those
factors change.
PRINCIPAL UNITHOLDERS
The following persons are the only persons known by the Trust
to hold beneficially more than 5% of the outstanding units of the Funds as of
March 31, 1999:
<TABLE>
<CAPTION>
Name and Address Amount of Percent
of Record Owner Ownership of Fund
--------------- --------- -------
<S> <C> <C>
Elfun Tax-Exempt Income Fund
John F. Welch 6,840,780.176 units 5.47%
General Electric Company
3135 Easton Turnpike
Fairfield, CT 06431-0001
Elfun Global Fund
Lawrence A. Bossidy 550,763.418 units 5.28%
P.O. Box 3000
101 Columbia Road
Morristown, NJ 07962-2496
</TABLE>
As of that same date, the current Trustees and officers of the
Funds as a group owned of record Units representing less than 1% of the total
outstanding Units of each Fund.
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<PAGE>
FUND HISTORY AND ADDITIONAL INFORMATION
Each of the Funds is a separate, diversified open-end
management investment company registered under the 1940 Act. Elfun Trusts was
organized as a common law trust in the State of New York on May 27, 1935. The
Elfun Global Fund, the Elfun Income Fund, the Elfun Tax-Exempt Fund, the Elfun
Diversified Fund and the Elfun Money Market Fund werre organized as common law
trusts in the State of Connecticut on May 15, 1987, December 22, 1982, March 14,
1977, June 1, 1987 and July 15, 1989, respectively. The Prospectus and this SAI
omit certain information contained in the Registration Statement that the Funds
have filed with the SEC under the Securities Act of 1933 and the 1940 Act and
reference is made to the Registration Statement for further information with
respect to the Funds. The Registration Statement is available for inspection by
the public at the SEC in Washington, D.C.
There are no material pending legal proceedings to which any
Fund or GEIC is a party or of which property of any Fund or GEIC is subject.
The Trustees may at any time, in their absolute discretion,
terminate a Fund, in whole or in part, and cause to be paid to the unitholders
or their assignees the net asset value of the Units held by them, the net asset
value to be determined as of a date fixed by the Trustees and specified in the
notice of termination delivered to the unitholders or their assignees. In
addition, the Trustees may, in order to preserve the status of the Fund as an
"employees' securities company" under the 1940 Act, require the redemption of
the Units of any unitholders if they are individuals or entities whose interest
in the Fund would cause the Fund to lose such status. In this case there will be
paid to such individuals or entities the net asset value of the Units registered
in their names, calculated as of the date determination was made that the
redemption of Units was necessary for the preservation of the status of the
Fund. In case of any termination, the Trustees will, at the same time, direct
the unitholders or their assignees to surrender to the Unitholder Servicing
Agent any certificates they hold evidencing their ownership of Certificate Units
and thereafter the Trustees will be discharged from all further obligations as
to the unitholders.
Unitholder Liability. Although each Fund is offering only its
own Units, it is possible that a Fund might become liable for a misstatement in
the Prospectus about another Fund. The Trustees have considered this factor in
approving the use of a single combined Prospectus.
Unitholder Rights and Voting. Each Fund issues one class of
Units. Unitholders have no voting rights except with respect to amendments to
the Fund agreement affecting the unitholders' rights and with respect to changes
in their Fund's fundamental policies or as may otherwise be required under the
1940 Act. There are no preemptive, subscription or conversion rights. The Funds
do not hold annual unitholder meetings, but will call meetings when changes in
the fundamental policies or investment restrictions of the Funds are to be voted
upon, or as otherwise required by the 1940 Act.
- 68 -
<PAGE>
Independent Auditors. KPMG LLP serves as the Funds'
independent auditors.
- 69 -
<PAGE>
FINANCIAL STATEMENTS
The December 31, 1998 Annual Report, which either accompanies
this Statement of Additional Information or has previously been provided to the
person to whom this Statement of Additional Information is being sent, is
incorporated herein by reference with respect to all information other than the
information set forth in the letter to unitholders included therein. The Funds
will furnish, without charge, a copy of the Annual Report, upon request to the
Funds at 3003 Summer Street, P.O. Box 120074, Stamford, CT 06912-0074, (800)
242-0134.
<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.
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.
Short-term obligations, including commercial paper, rated A-1+
by IBCA Limited or its affiliate IBCA 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 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.
A-1
<PAGE>
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.
Thompson BankWatch Inc. employs the rating TBW-1 to indicate
issues having a very high degree of likelihood of timely payment. TBW-2
indicates a strong degree of safety regarding timely payment, however, the
relative degree of safety is not as high as for issues rated TBW-1. While the
rating TBW-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 TBW-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.
A-2
<PAGE>
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
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
A-3
<PAGE>
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.
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.
A-4
<PAGE>
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 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.
A-5
<PAGE>
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 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.
A-6
<PAGE>
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.
A-7
<PAGE>
Description of Moody's Municipal Note Ratings
Moody's ratings for state and municipal notes and other
short-term loans are designated Moody's Investment Grade (MIG) and for variable
rate demand obligations are designated Variable Moody's Investment Grade (VMIG).
This distinction recognizes the differences between short-term credit risk and
long-term risk. Loans bearing the designation MIG 1/VMIG 1 are the best quality,
enjoying strong protection from established cash flows of funds for their
servicing or from established and broad-based access to the market for
refinancing, or both. Loans bearing the designation MIG 2/VMIG 2 are of high
quality, with margins of protection ample, although not as large as the
preceding group. Loans bearing the designation MIG 3/VMIG3 are of favorable
quality, with all security elements accounted for but lacking the undeniable
strength of the higher grades. Market access for refinancing, in particular, is
likely to be less well established. Loans bearing the designation MIG 4/VMIG 4
are of adequate quality. Protection commonly regarded as required of an
investment security is present and although not distinctly or predominantly
speculative, there is specific risk.
A-8
<PAGE>
ELFUN GLOBAL FUND
PART C
OTHER INFORMATION
Item 23. Exhibits
(a) Fund Agreement, dated May 15, 1987, as amended July 1, 1989
(b) Inapplicable
(c) Inapplicable
(d) Investment Advisory Agreement dated May 15, 1987, between the
Fund and General Electric Investment Corporation
(e) Distribution Agreement dated February 10, 1994 between the Fund
and GE Investment Services Inc.
(f) Inapplicable
(g) Custodian Contract with State Street Bank and Trust Company dated
as of July 1, 1989
(h) Transfer Agency Agreement with State Street Bank and Trust
Company dated as of February 10, 1994
(i) Opinion of counsel, including consent (incorporated by reference
to the Fund's Registration Statement on Form N-1A (33-15071),
Exhibit F, filed on June 22, 1987)
(j) Consent of Independent Auditors
(k) Inapplicable
(l) Inapplicable
(m) Servicing Agreement dated as of March 13, 1992 between the Fund
and General Electric Investment Corporation
(n) Financial Data Schedule
(o) Inapplicable
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended (the
"Securities Act"), and the Investment Company Act of 1940, as amended,
Registrant certifies that it meets all of the requirements for effectiveness of
this Amendment to the Registration Statement pursuant to Rule 485(b) under the
Securities Act and has duly caused this Amendment to be signed on its behalf by
the undersigned, thereunto duly authorized, in the City of Stamford, State of
Connecticut on the 23rd day of April, 1999.
By: /s/ JOHN H. MYERS
------------------------
John H. Myers
Chief Executive Officer
Pursuant to the requirements of the Securities Act, this Post-Effective
Amendment to the Registrant's Registration Statement on Form N-1A has been
signed below by the following persons in the capacities and on the dates
indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ JOHN H. MYERS
- -----------------------------
John H. Myers Trustee and Chief Executive Officer April 23, 1999
/s/ EUGENE K. BOLTON
- -----------------------------
Eugene K. Bolton Trustee April 23, 1999
/s/ MICHAEL J. COSGROVE
- -----------------------------
Michael J. Cosgrove Trustee April 25, 1999
/s/ RALPH R. LAYMAN
- -----------------------------
Ralph R. Layman Trustee and Portfolio Manager April 23, 1999
/s/ ALAN M. LEWIS
- -----------------------------
Alan M. Lewis Trustee and Secretary April 23, 1999
/s/ ROBERT A. MACDOUGALL
- -----------------------------
Robert A. MacDougall Trustee April 23, 1999
/s/ DONALD W. TOREY
- -----------------------------
Donald W. Torey Trustee April 23, 1999
</TABLE>
<PAGE>
EXHIBIT INDEX
Exhibit No. Description of Exhibit Numbered Page
- ----------- ---------------------- -------------
(a) Fund Agreement --
(b) Inapplicable --
(c) Inapplicable --
(d) Investment Advisory Agreement --
(e) Distribution Agreement, as amended --
(f) Inapplicable --
(g) Custodian Contract --
(h) Transfer Agency Agreement --
(i) Opinion of Counsel --
(j) Consent of Independent Auditors --
(k) Inapplicable --
(l) Inapplicable --
(m) Servicing Agreement --
(n) Financial Data Schedule --
(o) Inapplicable --
<PAGE>
Exhibit (a)
ELFUN GLOBAL FUND
FUND AGREEMENT
This instrument, originally made as of the 15th day of May 1987, is to
evidence that:
WHEREAS, a number of the members of the Elfun Society have expressed a
desire to invest personal funds in a global securities mutual fund (the "Fund"),
and
WHEREAS, it has been agreed that such a fund be established for the benefit
of the entities specified in paragraph 3 below, members of the Elfun Society and
members of their immediate family; and
WHEREAS, Dale F. Frey, Arthur S. Bahr, John H. Myers, Brian T. McAnaney and
James E. Bonhivert have agreed to act as Trustees of said Fund; and
WHEREAS, it is desirable that the uses and purposes applicable to the Fund
and the powers and duties of the Trustees of the Fund and the rights, interests
and privileges of the beneficiaries of the Fund be set forth,
Now, therefore, it is mutually agreed that the provisions, terms and
conditions governing the Fund shall be as follows:
1. NAME--This Fund shall be known as the ELFUN GLOBAL FUND.
2. PURPOSE OF THE FUND--The purpose of the Fund shall be as follows: (i) to
issue units ("Units") evidencing ownership interest in the Fund; (ii) to
receive, hold, invest, reinvest and disburse the monies received from the
Fund participants ("Unitholders") upon the purchase of such Units; (iii) to
receive, hold, invest, reinvest and distribute the net income and net
capital gains, if any, realized by the Fund in the course of its assets;
and (iv) to redeem and transfer Units.
3. ENTITIES ELIGIBLE TO PARTICIPATE IN THE FUND--General Electric Company, its
subsidiary and controlled companies and the employees of General Electric
Company, its subsidiary and controlled companies, and the members of their
immediate families, as well as any other persons and entities approved by
the Trustees, shall be eligible to
<PAGE>
participate in the Fund (and accordingly to purchase, hold, transfer and
redeem Units in accordance with the terms of this Fund Agreement (the
"Agreement"); provided, however, that no person or entity shall be entitled
to participate if, as a result thereof, the Fund would cease to be
qualified as an "employees' securities company" under the Investment
Company Act of 1940, as amended ("1940 Act").
The Trustees shall have full power and discretion to prescribe the time,
manner, medium and terms of participation (including the purchase,
redemption and transfer of Units) and shall likewise have full power and
discretion to designate or limit the persons and entities eligible to
participate in the Fund.
4. POWERS OF TRUSTEES--Subject to those policies of the Fund as may be adopted
and be in effect from time to time, the Trustees shall invest and reinvest,
to the extent they deem proper, the Fund's assets, together with any
increment thereto, or income derived therefrom, in securities of whatsoever
nature and by whomsoever issued and to the extent that the Fund's assets
are not so invested the Trustees may invest the same in the following, all
of which are collectively referred to as "short-term investments": (i)
obligations issued or guaranteed by the United States government, its
agencies or instrumentalities; (ii) certificates of deposit, bankers'
acceptances, and other short-term debt obligations of United States and
Canadian banks and their foreign branches; (iii) commercial paper; and (iv)
other short-term debt securities all of which shall in any event mature not
later than twelve months from their respective dates of issue. Except as
herein above or hereafter specified in this Paragraph 4, the Trustees shall
not in any respect be limited in their powers of investment, such
investments to be made in their sole discretion irrespective of any
statute, court decision, rule or regulation now or hereafter in effect
restricting the class of investment or reinvestments for trustees
generally.
Without limiting the generality of the foregoing in any manner the Trustees
are expressly authorized and empowered, in their absolute discretion:
(a) to retain in cash and keep unproductive of income such portion of
the Fund's assets as they may deem advisable;
<PAGE>
(b) to sell, exchange, convey, transfer, or dispose of, and also to
loan or grant options with respect to, any property or cash at any
time held by them, and to make any sale or other disposition by
contract, by public auction or otherwise, for cash, property or upon
credit, or partly for cash or property and partly upon credit, as they
may deem best, and no person dealing with the Trustees shall be bound
to see to the application of the proceeds thereof or to inquire into
the validity, expediency, or propriety of any such sale or
disposition;
(c) to compromise, compound, and settle any debt, claim or obligation
due to or from them as Trustees hereunder and to reduce or change the
rate of interest thereon, to extend or otherwise modify, or to
foreclose upon default or otherwise enforce, any such debt, claim or
obligation;
(d) to vote themselves, or by proxy, any securities with voting rights
held by them; to exercise any options appurtenant to any other
securities for the conversion thereof into other securities, or to
exercise or sell any rights or warrants to subscribe for additional
securities, and to make any and all necessary payments therefor; to
join in or to dissent from and to support or oppose the
reorganization, recapitalization, consolidation, liquidation, sale or
merger of corporations, or other entities or properties in which they
may be interested as Trustees, and to accept and hold any such
securities which may be issued in connection therewith, all upon such
terms and conditions as they may deem advisable;
(e) to make, execute, acknowledge, and deliver any and all necessary
papers, documents, agreements and instruments for the implementation
of the powers herein enumerated;
(f) to enforce any right, obligation or claim and in general to
protect in any way the interests of the Fund, either before or after
default, and where they shall consider such action for the best
interests of the Fund, to abstain from the enforcement of any right,
obligation, or claim and to abandon any property which at any time may
be held by them or in which they may have an interest;
<PAGE>
(g) to borrow or raise money for the purposes of the Fund, upon such
terms and conditions as the Trustees may deem desirable or proper, and
for any sum so borrowed, to issue their promissory notes as Trustees
and to secure the repayment thereof by pledging all or any part of the
Fund's assets; and no person lending money to the Trustees shall be
bound to see to the application of the money lent or to inquire into
the validity, expediency, or propriety of any such borrowing;
(h) to receive, purchase, hold, apportion, sell, distribute, and
otherwise acquire and dispose of securities, cash and other assets;
(i) to collect, receive, invest, apportion, and distribute, any and
all income of the Fund;
(j) to cause any securities or other assets from time to time held by
them to be registered in, or transferred into, the name of the Fund or
into their names as Trustees, or the name of their nominee or
nominees, or to retain them unregistered or in form permitting
transfer by delivery, but the books and records of the Trustees shall
at all times show that all such securities or other assets are part of
the Fund; and
(k) to do all such acts, take all such proceedings, and exercise all
such rights and privileges, although not hereinbefore specifically
mentioned, with relation to the assets of the Fund as if they were the
absolute owners thereof, which they may deem necessary or proper for
the best interests of the Fund.
5. GENERAL AUTHORITY TO EMPLOY ADVISERS, AGENTS AND OTHERS--The Trustees may
use, employ, appoint, discharge and consult such individuals, corporations
or other entities as agents, employees or otherwise (including legal
counsel) as they may deem necessary or advisable to carry out their
functions under this Agreement and may pay such persons or entities such
compensation, including expenses, as they may deem appropriate and charge
the same against the Fund's assets. The Trustees may adopt such rules,
regulations, directions or orders as in their discretion they deem
appropriate for the guidance of their agents and employees and may delegate
all or so much of their powers and authority to such agents and employees
as they may deem
<PAGE>
necessary or advisable, subject, however, to any mandatory limitations
imposed upon such delegation by applicable law. Any actions taken by their
agents and employees in conformity with such rules, regulations,
directions, advice, orders or delegations by the Trustees shall be deemed
to be the proper and binding acts of the Trustees.
6. CUSTODIAN--Without limiting the powers set forth in Paragraph 5 above, the
Trustees shall have the power to appoint and discharge from time to time,
as Custodian or Custodians, one or more banks or trust companies to hold in
custody all property, securities, money and other assets of the Fund and
perform such other administrative services for the Fund as the Trustees may
direct. The Trustees may authorize the Custodian or Custodians to deposit
or arrange for the deposit of securities constituting all or a portion of
the Fund's assets in a "clearing corporation" as defined in Article VIII of
the Uniform Commercial Code. All or any part of the securities or other
nominative items constituting the Fund may be transferred to, and held in
the name of, the Custodian or Custodians, in the name of a nominee or
nominees selected by it or them, or in the name of the registered holder
thereof at the time of deposit with the Custodian or Custodians, or receipt
by, the Custodian or Custodians of such securities endorsed in blank for
transfer or accompanied by proper instruments of assignment in blank duly
executed by such nominee, or nominees or registered holder.
7. INVESTMENT ADVISER--Without limiting the powers set forth in Paragraph 5
above, the Trustees shall have the power to appoint and discharge from time
to time one or more Investment Advisers. Such Adviser or Advisers may be
authorized by the Trustees to supervise the investment operations of the
Fund, and the composition of its portfolio, and may also be authorized to
furnish the Fund with advice and recommendations concerning investments,
investment policies, and the purchase and sale of securities as well as
advice concerning appropriate persons to fill positions with the Fund. In
connection with the performance of the foregoing duties, such Adviser or
Advisers may be further authorized to carry out and execute purchases and
sales of investments and to perform such other acts as the Trustees may
deem necessary or advisable.
8. UNITHOLDER SERVICING AGENT--Without limiting the powers set forth in
Paragraph 5 above, the Trustees shall have the power to appoint and
discharge from time to time one or
<PAGE>
more persons or entities to act as Unitholder Servicing Agent or Agents
with respect to the Units issued from time to time under this Agreement.
Such Agent or Agents may be authorized to provide the Fund with services in
connection with (i) the issuance, transfer, cancellation and redemption of
Units; (ii) the making of all payments and distributions to Unitholders in
connection with Units; (iii) the performance of any and all functions
referred to in this Agreement as being performed by the Unitholder
Servicing Agent or Agents; and (iv) the performance of such other
administrative services for the Fund as the Trustees may direct.
9. TRUSTEES--The number of Trustees of this Fund shall be five, it being
understood that such number may be increased or decreased from time to
time; provided, however, that there shall never be fewer than three and no
more than eleven. Of the total number of Trustees, a majority shall at all
times be members of the Elfun Society. In the event of the removal, death,
resignation or retirement of any of the Trustees, a successor shall be
appointed by the remaining Trustees. Any elections of, additions to, or
replacements of the Trustees shall be accomplished by the vote of
two-thirds of the Trustees then in office at the time of such replacement
or addition, and upon such election by them, they shall become and
constitute Trustees of this Fund. Any Trustee may at any time resign from
the Fund by giving written notice thereof to the other Trustees. In
addition, any Trustee may be removed at any time by the affirmative vote of
two-thirds of the Trustees then in office.
The Trustees who are not members of the Elfun Society shall be initially
appointed for a term to expire on the 30th day of June following their
appointment and thereafter for a term of one year. The Trustees who are
members of the Elfun Society shall be classified in respect to the time for
which they shall severally hold office by dividing them into three classes
(which shall be as nearly equal as possible), the first consisting of the
Trustees whose term of office expires on the 30th day of June following the
adoption of this Agreement, the second class consisting of the Trustees
whose term of office expires twelve months from that date and the third
class consisting of the Trustees whose term of office expires twenty-four
months from that date. In the event that a Trustee should die, resign,
retire, or otherwise be removed from office prior
<PAGE>
to the expiration of the specified term, a successor shall be appointed for
the unexpired term. At the time for each annual appointment, the successors
to the Trustees of the class whose term shall expire in that year shall be
appointed to hold office for the term of three years, so that the term of
office of that class of Trustees shall expire in that year.
The Trustees may appoint from among their numbers a Chairman and one or
more Vice Chairmen. Such Chairman and Vice Chairmen shall have such powers
and duties with respect to the calling and conducting of meetings of
Trustees as the Trustees may direct. In addition, the Trustees may appoint
from time to time a Manager, a Secretary, and Assistant Secretary and such
other Fund officers as they may deem necessary or advisable and may
delegate to them, subject to the mandatory requirements of applicable law,
such powers and duties as they deem appropriate. The Trustees may also
adopt from time to time such rules and regulations for the organization and
transaction of the Fund's business as they deem necessary or advisable.
The Trustees may act either by meetings or by written consent. In the case
of meetings, a majority of the Trustees shall constitute a quorum for the
conduct of business and the vote of a majority of the Trustees present at a
meeting at which a quorum is present shall be the act and deed of the
Trustees. In the case of action by written consent, it shall be sufficient
to bind all the Trustees (and shall be deemed their act and deed) if
written consents are obtained from a majority of the whole number of
Trustees; provided the same are filled with the minutes of the Trustees
meetings and reported at the next meeting of the Trustees. Meetings of the
Trustees may be held either in person or by telephone or other means which
permit the Trustees to confer one with another. The manner, time and place
of holding meetings, the notices thereof, and the length of time required
for such notices shall be determined by the Trustees. Waivers of notice,
either before or after a meeting, shall be permitted.
10. COMPENSATION AND EXPENSES OF TRUSTEES-- Any Trustee (other than Trustees
who are also employees of General Electric Company or any subsidiary or
controlled company thereof) may receive compensation for services performed
as a Trustee in an amount to be determined by the Trustees; provided,
however, that any change in compensation
<PAGE>
previously reported to the Unitholders as being paid to the Trustees shall
be reported to the Unitholders in the Annual Report of the Fund next
published after such change. While Trustees who are also General Electric
Company employees will serve without compensation, the Fund will be
required to reimburse the portion of the remuneration such Trustees receive
from General Electric Company which is allocable to the time they spend on
Fund matters. Compensation of the Trustees as provided herein, of any
agents, employee or counsel of the Trustees and the expenses of
administration shall be paid out of the Fund.
11. FIDUCIARY DUTIES--Each Trustee shall discharge his duties with respect to
the Fund solely in the interest of the Unitholders and with the care,
skill, prudence and diligence under the circumstances then prevailing that
a prudent man acting in a like capacity and familiar with such matters
would use in the conduct of an enterprise of like character and with like
aims.
12. STATEMENTS OF ACCOUNT AND FUND CERTIFICATES--Unless requested by
Unitholders, no certificates ("Certificates") evidencing the ownership of
Units will be issued. In lieu thereof, the Unitholder Servicing Agent will
issue to Unitholders Statements of Account showing the number of bookunits
("Bookunits") in the Fund to which they are entitled by reason of payments
made by them or for their account, including the reinvestment of income and
gains, if any. The Statement of Account will set forth the total number of
Units then owned by the Unitholder (whether or not Certificates therefor
have been issued).
Unitholders may obtain Certificates evidencing all or a portion of the
Units to which they are then entitled, by requesting the same from the
Unitholder Servicing Agent in writing.
Units issued by the Trustees on the first purchase of Units from the Fund
when it commences operations, shall each be valued at Ten Dollars ($10) and
shall be paid in cash to the Trustees. Thereafter, Units shall be issued on
the basis of their Net Asset Value, determined as provided in Paragraph 15
hereof.
Each Unit, whether evidenced by a Statement of Account or by a Certificate,
shall be equal to every other Unit, without preference or priority of any
one Unit over any other. Unitholders shall have no voting rights except
with
<PAGE>
respect to amendments to the Fund Agreement, as described in Paragraph 23
hereof, and with respect to changes in the Fund's fundamental policies.
Each Unit entitles the holder thereof to one vote. There are no preemptive,
subscription or conversion rights.
The Trustees are authorized and empowered in their discretion, at any time
(and from time to time) to authorize Unit splits or reverse splits,
provided, however, that the proportionate interest of each Unitholder in
the Fund shall not in any way be adversely affected thereby. In the event
the number of Units is increased, the Trustees shall issue to each
Unitholder, without further payment, a Statement of Account evidencing the
additional Units to which the Unitholder shall be entitled, such additional
Units to be in the same proportion to the number of Units held by the
Unitholder prior to such issuance as the total number of additional Units
to be issued is to the total number of Units outstanding prior to such
issuance. In the event that the number of Units shall be reduced, the
Trustees shall issue a Statement of Account reflecting such reduction and
may require each Unitholder to whom Certificates had been previously issued
to surrender such Certificates for reissue in terms of the reduced number
of Units, and the Trustees may do all things necessary or expedient to make
such reduction effective.
13. TRANSFER OF UNITS--Unitholders may transfer their interest in the Fund,
wholly or in part, to a member of their immediate family or to a trust for
the exclusive benefit of a member of their immediate family by an
appropriate instructions and authorization in writing in a form acceptable
to the Trustees and, upon the further condition, that in the case of a gift
of Unitholder's interest or any part thereof, the donor and/or the donee
shall agree, in form satisfactory to the Trustees, to indemnify the
Trustees against any loss which might result from failure to comply with
the provisions of the Internal Revenue Code relative to gift taxes. Units
are not otherwise transferable except as stated below.
Unitholders shall have the right at any time (i) to designate a beneficiary
or beneficiaries (a Designated Beneficiary) to whom Units registered in the
Unitholder's name alone will be transferred in the event of death and (ii)
to rescind or change such Designated Beneficiary. The designation,
rescission or change, to be effective, must be made in writing, in form
approved by the Trustees, and must
<PAGE>
be forwarded to and received by the Unitholder Servicing Agent. The
designation, rescission or change will be deemed to be effective as of the
date it was signed. units may be disposed of by last will and testament
duly probated (or by the laws of devise and descent), but no change in a
beneficiary designation may be made by last will and testament. Any
designation by a Unitholder shall be null and void with respect to any
Designated Beneficiary who predeceases the Unitholder. Nothing contained in
this Paragraph 13 shall permit the transfer of any Unit to a person or
entity which would not otherwise be eligible under rules established by the
Trustees to hold Units, and, in the event of any such attempted transfer,
the Trustees shall have the right to direct that the Units attempted to be
transferred be redeemed and the proceeds of redemption delivered to the
transferee, all as provided in Paragraph 22 hereof.
Units shall not otherwise be transferable, but the right of Unitholders to
redeem Units to the extent of a part or all of their interest therein and
to receive from the Trustees the Unitholder's distributive share in the
Fund may be assigned, in whole or in part by the delivery to the assignee
of an executed instrument of assignment in substantially the following
form:
_________________, 19__
FOR VALUE RECEIVED, the undersigned Unitholder of the Elfun Global Fund
_____________________________, hereby assigns to
______________________________ the right to redeem the interest of the
Unitholder in said Fund to the extent of ______________________________
Units/Bookunits, and, when such right is exercised, to receive the
distributive share of said Fund represented by said units.
_____________________________
Unitholder
Signature Guaranteed:
_____________________________
<PAGE>
The assignee of any such assignment may exercise the right of redemption
upon like terms and conditions as the Unitholder to whom the Units were
issued. In the event that the Trustees, after written notice to them of any
such assignment shall terminate the Units/Bookunits pursuant to the
provisions of Paragraph 22 hereof, such assignee shall be entitled, on the
surrender of a duly executed Assignment and Right of Redemption form (and,
if Certificates have been assigned, the Certificates), to receive the
distributive share in said Fund, unless the Trustees shall have been
furnished with evidence satisfactory to them of reassignment to the
Unitholder. Nothing herein contained shall be construed to prevent the
assignment or transfer of Units or Bookunits to the trustee of a trust
created by such Unitholder exclusively for the owner's benefit, but said
Units or Bookunits in the hands of such trustee shall at all times be
subject to the Provisions of Paragraph 22 and all other provisions hereof;
and Units or Bookunits issued or assigned to such trustee may be assigned
to Unitholder from whom or on whose request such trustee received the same.
On every assignment to or from such a trustee, the transferee shall
forthwith give notice thereof by registered mail to the Unitholder
Servicing Agent of the Fund.
Units issued to the trustee or trustees of any trust heretofore or
hereafter created by the General Electric Company or any subsidiary or
controlled corporation may be assigned and/or transferred by said trustee
or trustees to beneficiaries of such trust.
14. DEATH OF A UNITHOLDER--The death of any Unitholder during the continuance
of this Fund shall not operate to terminate the Fund, nor shall it entitle
the personal representative of any such deceased Unitholder to an
accounting or to take any action in the courts or otherwise against the
Fund or the Trustees; provided, however, the right of redemption provided
for in Paragraph 16 shall not expire with the death of such Unitholder, but
such right may be exercised by the personal representatives, legatees,
distributees or Designated Beneficiaries in the manner provided in said
Paragraph 16.
15. VALUE OF UNITS--HOW DETERMINED--The net asset value ("Net Asset Value") of
the Units shall be determined each day that the New York Stock Exchange is
open, as of the close of trading on the Exchange, New York City time. Such
value when so determined shall be taken as the value thereof for
<PAGE>
all purposes of this Agreement and shall be binding and final upon the
Unitholders and their personal representatives, heirs, legatees,
distributees or Designated Beneficiaries.
Securities held by the Fund for which market quotations are readily
available shall be valued at their market values as determined by their
most recent bid prices in the principal market (sales prices, if the
principal market is an exchange) in which such securities are normally
traded. Securities or other assets for which such procedure is deemed by
the Trustees not to reflect fair value (due to the general illiquidity of
the market or otherwise), or for which representative quotes are not
readily available, shall be assigned a fair value determined in good faith
by the Trustees or such other persons as they may direct, in each case
applied on a consistent basis.
16. REDEMPTION OF UNITS--Unitholders may redeem Units of the Fund evidenced by
their Statements of Account or Certificates, either in whole or in part, by
delivering their Certificates or, if no Certificates have been issued to
them, a redemption form, duly executed and in form satisfactory to the
Trustees to the Unitholder Servicing Agent or as the Trustees may otherwise
direct. Redemptions will be made at the Net Asset Value next computed after
such delivery less such redemption fee (not, however, to exceed one
percent) as the Trustees may from time to time prescribe.
The Trustees may suspend the Unitholder's right of redemption or
postpone the date of payment during any period when (a) trading in the
markets the Fund normally utilizes is restricted or an emergency exists as
determined by the Securities and Exchange Commission so that disposal of
the Fund's investments or determination of its Net Asset Value is not
reasonably practicable or (b) said Commission, by order, has otherwise
provided for or permitted such suspension or postponement.
17. PAYMENT IN CASH--Any payment made to Unitholders pursuant to the provisions
of this Fund Agreement shall be made in cash. In the event that Units held
by Unitholders or their personal representatives, heirs, legatees,
distributees or Designated Beneficiaries are evidenced by a Certificate or
Certificates, such Unitholders, their personal representatives, heirs,
legatees, distributees of
<PAGE>
Designated Beneficiaries shall not be entitled to receive any such payment
without the surrender of the Certificate or Certificates or, in lieu
thereof, furnishing to the Trustees evidence satisfactory to them of the
loss, theft or destruction of such Certificate or Certificates, together
with an agreement to indemnify the Trustees against loss resulting from
such payment, in form satisfactory to them.
18. DISTRIBUTIONS--The Trustees may in their absolute and uncontrolled
discretion at any time or times make distribution of income, capital gains
or principal to the Unitholders in such amounts as the Trustees may
determine, and each such distribution shall be made in the proportion which
the number of Units held by each Unitholder bears to the total number of
Units issued and outstanding at the time of such distribution.
19. AUDIT--As soon as is practicable after the close of each calendar year, the
Trustees shall cause an audit to be made of the accounts, transactions,
securities and property of the Fund, such audit to be made by a firm of
certified or chartered accountants of recognized standing, selected by the
Trustees. A certified copy of each report of such auditor shall be filed
with the Trustees. Such audit shall be filed with the Trustees. Such audit
shall show the Net Asset Value of the Units outstanding as of the 31st day
of December next preceding and shall show other matters as the Trustees may
require.
20. STATEMENTS AND REPORTS TO UNITHOLDERS--The Trustees shall, within a
reasonable time after the completion of each annual audit, mail a copy of
the report of the auditor to each Unitholder.
21. TAXES--All taxes which may be required to be paid in respect of the issue
and/or transfer of Units in the Fund shall be paid by the Unitholders to
whom the Units are issued.
22. TERMINATION BY TRUSTEES--The Trustees may at any time, as they in their
absolute discretion may determine to terminate this Fund, in whole or in
part, and to redeem certain Unitholders in order to comply with certain
other sections of this Agreement and cause to be paid to the Unitholders
the Net Asset Value of the Units held by them, such Net Asset Value to be
determined as of a date fixed by the Trustees and specified in the notice
of termination
<PAGE>
delivered to the Unitholders. In addition, the Trustees may, in order to
preserve the status of the Fund as an "employees' securities company" under
the 1940 Act exercise their right of termination with respect to the
interest of any Unitholder in the Fund if such Unitholder is an individual
or entity whose interest in the Fund would cause the Fund to lose such
status, in which case there shall be paid to such individual or entity the
Net Asset Value of the Units registered in the Unitholder's name,
calculated as of the date the determination was made that the termination
of such Unitholder's interest was necessary for the preservation of the
status of the Fund. In the case of any such termination, the Trustees
shall, at the same time, direct such Unitholder to surrender to the
Unitholder Servicing Agent any Certificates they hold and thereafter the
Trustees shall be discharged from all further obligations hereunder. Each
outstanding Certificate shall be surrendered as the Trustees may direct
upon the termination of the Fund as herein provided.
23. AMENDMENTS--The Trustees shall have the power to amend this Agreement, but
no amendment shall be made which shall affect the Unitholders' right of
redemption or other substantial rights of the Unitholders unless and until
a copy of such proposed amendment shall have been submitted by mail to the
Unitholders and the same shall have been approved by the favorable vote of
at least 50% of the outstanding Fund Units or, if less, 67% of the Fund
Units represented at a meeting if the holders of more than 50% of the
outstanding Units are present or represented by proxy.
24. The situs of the Fund and the place of its administration shall be in the
State of Connecticut and all questions concerning the validity,
construction and effect of this Agreement and of the Fund hereunder, and
the rights of any person having an interest hereunder, shall be determined
exclusively according to the laws of said State.
<PAGE>
IN WITNESS WHEREOF, the said Dale F. Frey, Arthur S. Bahr, John H. Myers,
Brian T. McAnaney and James E. Bonhivert have executed this Agreement to
evidence their acceptance of the duties of the Trustees under and pursuant to
the foregoing terms and conditions.
/s/ Dale F. Frey
--------------------------------------
Dale F. Frey, Chairman of the Trustees
/s/ Arthur S. Bahr
--------------------------------------
Arthur S. Bahr, Trustee
/s/ John H. Myers
--------------------------------------
John H. Myers, Trustee
/s/ Brian T. McAnaney
--------------------------------------
Brian T. McAnaney, Trustee
/s/ James E. Bonhivert
--------------------------------------
James E. Bonhivert, Trustee
May 15, 1987
<PAGE>
TRUSTEES' CONSENT
Elfun Trusts
Elfun Tax-Exempt Income Fund
Elfun Income Fund
Elfun Global Fund
Elfun Diversified Fund
The undersigned, being all of the Trustees of Elfun Trusts, Elfun
Tax-Exempt Income Fund, Elfun Income Fund, Elfun Global Fund and Elfun
Diversified Fund (collectively the "Elfun Funds") hereby consent to the adoption
of the following resolutions without the holding of a meeting of the Trustees of
each such Fund:
1. RESOLVED, that in order to eliminate the staggered classes of Trustees
currently provided for by the various Fund Agreements for the Elfun
Funds and to provide in the future for Trustees who shall serve from
the time of their appointment until their resignation, removal or
appointment of a successor, the Fund Agreements for the Elfun Funds
are hereby amended as follows:
A. Elfun Trusts - The Elfun Trusts Trust Agreement, as amended June
18, 1974, is hereby amended by deleting the second sentence of
the first paragraph of Section 11 and by deleting the entire
second paragraph of Section 11.
B. Elfun Tax-Exempt Income Fund - The Elfun Tax-Exempt Income Fund
Fund Agreement, as amended July 12, 1978, is hereby amended by
deleting the second sentence of the first paragraph of Section 9
and by deleting the entire second paragraph of Section 9.
C. Elfun Income Fund - The Elfun Income Fund Fund Agreement, dated
December 22, 1982, is hereby amended by deleting the second
sentence of the first paragraph of Section 9 and by deleting the
entire second paragraph of Section 9.
D. Elfun Global Fund - The Elfun Global Fund Fund Agreement, dated
as of May 15, 1987, is
<PAGE>
hereby amended by deleting the second sentence of the first
paragraph of Section 9 and by deleting the entire second
paragraph of Section 9.
E. Elfun Diversified Fund - The Elfun Diversified Fund Fund
Agreement, dated as of June 1, 1987, is hereby amended by
deleting the second sentence of the first paragraph of Section 9
and by deleting the entire second paragraph of Section 9.
2. RESOLVED, that the following individuals are hereby reappointed as
Trustees of the Elfun Funds and by signing this Consent each of such
individuals hereby accepts such appointment:
Arthur S. Bahr
Michael J. Cosgrove
Dale F. Frey
Alan M. Lewis
John H. Myers
3. RESOLVED, that the following individuals are hereby elected as
officers of the Elfun Funds as indicated below:
Dale F. Frey - Chairman of Trustees - Elfun Funds
Alan M. Lewis - Secretary - Elfun Funds
David B. Carlson - Manager - Elfun Trusts
Robert R. Kaelin - Manager - Elfun Tax-Exempt Income Fund
Robert A. MacDougal - Manager - Elfun Income Fund
John R. Reinsberg - Manager - Elfun Global Fund
Arthur S. Bahr - Manager - Elfun Diversified Fund
Aubrey E. Mayes - Manager - Elfun Diversified Fund
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Consent as of the
1st day of July, 1989.
/s/ Arthur S. Bahr
-----------------------
Arthur S. Bahr
/s/ Michael J. Cosgrove
-----------------------
Michael J. Cosgrove
/s/ Dale F. Frey
-----------------------
Dale F. Frey
/s/ Alan M. Lewis
-----------------------
Alan M. Lewis
/s/ John H. Myers
-----------------------
John H. Myers
<PAGE>
Exhibit (d)
INVESTMENT ADVISORY AGREEMENT
Agreement made as of this 15th day of May, 1987 between the Trustees of Elfun
Global Fund (the Trustees) and General Electric Investment Corporation, a
Delaware corporation and wholly owned subsidiary of General Electric Company
(GEIC).
W I T N E S S E T H:
WHEREAS, GEIC has agreed to furnish the Trustees with certain services in
connection with the management and the investment of monies in the Elfun Global
Fund (Fund) portfolio, all as herein provided,
NOW, THEREFORE, in consideration of the mutual covenants herein set forth, the
parties hereto agree as follows:
1. Appointment as Investment Adviser
The Trustees hereby appoint GEIC to act as the Investment Adviser to the Fund on
the terms set forth in this agreement. GEIC hereby accepts such appointment and
agrees to render the services herein set forth on the terms herein contained.
2. Services to be Performed
a. GEIC will recommend to the Trustees individuals to fill the positions of
Manager, Secretary and, if the Trustees so desire, Assistant Secretary and other
officers of the Fund. Upon receipt of such recommendations the Trustees will
vote upon the appointment of such individuals to the positions for which they
were recommended and will advise GEIC as to whether or not they have been so
appointed.
b. GEIC shall manage the investment and reinvestment of all the assets in the
Fund from time to time (including any income earned thereon and increments in
the value thereof). Among other things, GEIC shall be responsible for all
investment decisions regarding purchases and sales of securities and other
property, the retention of securities, and the retention of uninvested cash. In
performing the aforesaid services, GEIC shall comply with all investment
policies of the Fund in effect from time to time and such general guidance,
policies and instructions as the Trustees may additionally establish. GEIC
shall, in addition, make recommendations as and when requested by the Trustees
with respect to the adoption or modification of investment policies and the
Fund's objective. In carrying out the aforesaid investment activities GEIC
shall, whenever purchases and sales would involve brokerage commissions, have as
its primary objective the selection of brokers so as to obtain the best
execution at the most favorable price; provided, however, that GEIC may in its
discretion select brokers and dealers from time to time as it may deem
appropriate on the basis of research, statistical and other services which they
may furnish to it or the Fund for the Fund's benefit. Whenever GEIC deems it to
be beneficial to the Fund, it may aggregate its purchase, sale and other
activities with those being performed by it for other customers. In such event,
allocation of the security so purchased or sold, as well as the expenses
incurred in such transactions, shall be made by GEIC in the manner it considers
to be
<PAGE>
the most equitable and consistent with its obligations to the Fund and such
other customers.
c. Upon receipt of authorization from the Trustees, GEIC will pay from the
assets of the Fund all amounts necessary to discharge obligations incurred by or
on behalf of the Fund (including distributions to, and payments in respect of
redemptions by, Unitholders), except that the following payments may be made by
GEIC from the Fund's assets without the necessity of prior instructions from the
Trustees:
(i) all income or other taxes in respect of the Fund which may be imposed by
law; and
(ii) all broker's commissions with respect to security transactions entered into
on behalf of the Fund and all taxes or governmental fees attributable to such
transactions.
d. GEIC shall take or cause to be taken all actions necessary to cause the Fund
to continuously comply with all applicable state and local laws and shall itself
comply with all such laws insofar as they pertain to GEIC's activities relating
to the Fund.
e. GEIC will prepare and distribute all reports including reports to the
Unitholders which are required by Federal and state regulatory authorities, as
well as any other reports specifically requested by the Trustees from time to
time.
f. GEIC will vote all securities beneficially owned by the Fund in accordance
with policies and procedures established by the Trustees and, to the extent
prescribed by such policies, subject to their prior approval. g. GEIC will
maintain the records of all security transactions of the Fund and will prepare
an annual accounting for the Trustees.
h. GEIC will cooperate with the independent public accountants retained by the
Trustees in their examination of the Fund and will cooperate in any inspection
of the accounts and records by the Trustees.
i. GEIC will compute the net asset value of the Fund in accordance with the Fund
Trust Agreement.
j. GEIC will prepare such reports, including tax returns as may be requested by
the Trustees and will furnish the Trustees such additional information as is
necessary for the preparation of other reports with respect to the Fund required
by Federal, State or local governmental authorities. k. GEIC will submit
periodically to the Trustees written reports covering all transactions of the
Fund, the results of the Fund's operations, the assets and financial condition
of the Fund, and such other information as the Trustees may reasonably request.
The reports will be provided at the time specified by the Trustees. l. GEIC will
be responsible for effecting adequate routines to collect, receive and deposit
all income of the Fund and other payments to the Fund, including stock
dividends, rights, warrants and similar items, but excluding payments associated
with subscriptions and revocations.
3. Compensation
The Trustees will, within thirty (30) days after receipt of an invoice therefor,
reimburse GEIC for reasonable costs (direct and indirect including without
limitation indirect costs involving allocable overhead, consulting fees, and
informational brochures and services, etc.) of providing the services specified
in Paragraph 1 above; provided, however, that
<PAGE>
GEIC shall not include among such costs any increment for profit to itself or
its employees.
4. Records
GEIC shall maintain such books and records with respect to its activities
hereunder as may be required from time to time by applicable law and as the
Trustees may, in addition, reasonably request. GEIC shall make available its
books and records to the Trustees and their agents, counsel and accountants as
and when requested by the Trustees for purposes of audit or otherwise.
5. Liability for Investments
Subject to any contrary mandatory requirements of applicable law, GEIC shall not
be liable for any losses on investments made in good faith, provided that GEIC
shall not have been grossly negligent.
6. Communications
All communications between GEIC and the Trustees may be made orally or in
writing and GEIC may rely on any such communications if it shall believe in good
faith than the same have been given to it by a Trustee of the Fund or other
person duly authorized on their behalf.
7. Amendments
This Agreement may only be modified or amended or the terms hereof waived by an
instrument in writing signed by the person or entity against whom such
amendment, modification or waiver is sought to be enforced.
8. Termination
This Agreement may be terminated by either party hereto at any time by giving
sixty (60) days' prior written notice thereof to the other party hereto. This
Agreement may not be assigned or transferred by either party hereto to any third
party and any such attempted assignment or transfer shall automatically act to
terminate this Agreement. In the event that this Agreement is terminated, GEIC
will transmit to the Trustees on or before the termination date all records in
its possession relating to its services performed hereunder.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
day and year first above written.
TRUSTEES OF ELFUN GLOBAL FUND
/s/ Dale F. Frey
------------------------------------------
Dale F. Frey
/s/ Arthur S. Bahr
------------------------------------------
Arthur S. Bahr
/s/ John H. Myers
------------------------------------------
John H. Myers
/s/ Brian T. McAnaney
------------------------------------------
Brian T. McAnaney
/s/ James E. Bonhivert
------------------------------------------
James E. Bonhivert
GENERAL ELECTRIC INVESTMENT CORPORATION
ATTEST:
/s/ Brian T. McAnaney By /s/ Dale F. Frey
- ---------------------------- ----------------------------------------
Secretary Dale F. Frey
Chairman of the Board
<PAGE>
Exhibit (e)
DISTRIBUTION AGREEMENT
FOR
ELFUN GLOBAL FUND
February 10, 1994
GE Investment Services Inc.
3003 Summer Street
Stamford, Connecticut 06905
Dear Sirs:
This is to confirm that, in consideration of the agreements set out below,
Elfun Global Fund (the "Fund"), a diversified open-end mutual fund, has agreed
that GE Investment Services Inc. ("GEIS") will be, for the period of this
Agreement, the distributor of units of beneficial interest of the Fund.
1. Services as Distributor.
1.1 GEIS agrees to solicit orders for the sale of units of the Fund and to
undertake advertising and promotion that it believes reasonable in connection
with the solicitation.
1.2 GEIS will act as agent for the distribution of units of the Fund
covered by, and in accordance with, the Fund's prospectus (the "Prospectus") and
statement of additional information (the "Statement") then in effect under the
Securities Act of 1933, as amended (the "Securities Act"), each included as part
of the Registration Statement of the Fund on Form N-1A (the "Registration
Statement"), any amendments to the Registration Statement, and any amendments
to, supplements to, or material incorporated by reference into the Prospectus or
Statement, being referred to collectively in this Agreement as the "Registration
Statement."
1.3 All activities by GEIS as distributor of units of the Fund will comply
with all applicable laws, rules and regulations, including, without limitation,
all rules and regulations made or adopted pursuant to the Securities Act or the
Investment Company Act of 1940, as amended (the "1940 Act"), by the Securities
and Exchange Commission (the "Commission") or any securities association
registered under the Securities Exchange Act of 1934 (the "Exchange Act").
1.4 (a) The public offering price of the units of the Fund will be the net
asset value determined as set forth in the Registration Statement.
(b) The Fund's transfer and dividend agent, or any other agent designated
in writing by the Fund, will be promptly advised by GEIS of all purchase orders
for units of the Fund placed through GEIS. The Fund may cease, on the basis of
market, economic or political conditions, or on the basis of any other
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abnormal conditions, to accept any orders for Fund units or continue to sell
units until the members of the Fund's Board of Trustees (the "Board members")
deem it advisable to accept the orders and to make the sales. The Fund will
promptly advise GEIS of the determination to cease accepting orders or selling
units or to recommence accepting orders or selling units. The Fund (or its
agent) will confirm orders for units placed through GEIS upon their receipt, or
in accordance with any exemptive order of the Commission, and will make
appropriate book entries pursuant to the instructions of GEIS. GEIS agrees to
cause payment for units and instructions as to book entries to be delivered
promptly to the Fund (or its agent).
1.5 The outstanding units of the Fund are subject to redemption in
accordance with the applicable provisions set forth in the Prospectus. The price
to be paid to redeem the units will be equal to their net asset value,
determined as set forth in the Prospectus and Statement.
1.6 GEIS will provide one or more persons, during normal business hours, to
respond to telephone questions with respect to the Fund.
1.7 The Fund agrees at its own expense to execute any and all documents, to
furnish any and all information, and to take any other actions, that may be
reasonably necessary in connection with (a) registering units under the
Securities Act, if required, to the extent necessary to have available for sale
the number of units as may reasonably be expected to be purchased and (b) the
qualification and maintenance of the qualification of units of the Fund for sale
in such states as GEIS may designate, except that the Fund will not be obligated
to execute a general consent to service of process in any state.
1.8 The Fund will furnish GEIS from time to time, for use in connection
with the sale of units of the Fund such information with respect to the Fund and
its units as GEIS may reasonably request, all of which information must be
signed by one or more of the Fund's duly authorized officers; and such
information, when so signed by the Fund's officers, will be true and correct.
The Fund will also furnish GEIS upon request with: (a) financial statements of
the Fund audited at least annually by independent public accountants regularly
retained by the Fund, (b) quarterly earnings statements of the Fund or any
series of the Fund prepared by the Fund, (c) a monthly itemized list of the
securities in the portfolio of the Fund, (d) monthly balance sheets with respect
to the Fund as soon as practicable after the end of each month and (e) from time
to time any additional information regarding the financial condition of the Fund
as GEIS may reasonably request.
1.9 The Fund represents to GEIS that the Registration Statement filed by
the Fund with the Commission under the Securities Act has been carefully
prepared in conformity with the
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requirements of the Securities Act and the 1940 Act and the respective rules and
regulations of the Commission thereunder. The Fund represents and warrants to
GEIS that the Registration Statement contains all statements required to be
stated therein in conformity with the Securities Act and the rules and
regulations of the Commission thereunder; that all statements of fact contained
in the Registration Statement are true and correct; and that the Registration
Statement does not include an untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading. The Fund may, but will not be obligated to,
propose from time to time such amendment or amendments to the Registration
Statement and such supplement or supplements to the Prospectus as may, in the
Fund's judgment, be necessary or advisable. If the Fund does not propose an
amendment or amendments or supplement or supplements within 15 days after
receipt by the Fund of a written request from GEIS to do so, GEIS may, at its
option, terminate this Agreement in accordance with the requirements of Section
2 of this Agreement or decline to make offers of the Fund's securities until the
amendments are made. The Fund will not file any amendment to the Registration
Statement or supplement to the Prospectus without giving GEIS reasonable notice
thereof in advance; provided, however, that nothing contained in this Agreement
will in any way limit the Fund's right to file at any time such amendments to
the Registration Statement or supplements to the Prospectus, of whatever
character, as the Fund may deem advisable, this right being in all respects
absolute and unconditional.
1.10 (a) The Fund authorizes GEIS to use any Prospectus with respect to the
Fund in the form furnished to GEIS from time to time in connection with the sale
of Fund units and agrees to furnish such quantities of the Prospectus as GEIS
may reasonably request. GEIS will devote reasonable time and effort to effect
sales of Fund units, but will not be obligated to sell any specific number of
units. The services of GEIS under this Agreement are not to be deemed exclusive
and nothing contained in this Agreement should be deemed to prevent GEIS from
entering into distribution arrangements with other investment companies so long
as the performance of its obligations under this Agreement is not impaired by
GEIS's doing so.
(b) In selling the units of the Fund, GEIS will use its best efforts in all
respects duly to conform with the requirements of all federal and state laws and
regulations of the National Association of Securities Dealers, Inc. (the "NASD")
relating to the sale of the units. Neither GEIS nor any other person is
authorized by the Fund to give any information or to make any representations,
other than those contained in the Registration Statement or the Prospectus or in
any sales literature specifically approved by the Fund.
(c) GEIS will adopt and follow procedures, as approved by the Fund, for the
confirmation of sales to purchasers of Fund
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units placed through GEIS, the collection of amounts payable by those
purchasers, and the cancellation of unsettled transactions, as may be necessary
to comply with the requirements of the NASD and applicable rules and regulations
of the Commission.
1.11 (a) The Fund agrees promptly to notify GEIS of the commencement of any
litigation or proceedings against the Fund or any of its officers or trustees in
connection with the issuance and sale of any units of the Fund.
(b) The Fund agrees to indemnify and hold GEIS, its several officers and
directors, and any person who controls GEIS within the meaning of Section 15 of
the Securities Act, free and harmless from and against any and all claims,
demands, liabilities and expenses (including the cost of investigating or
defending those claims, demands or liabilities and any counsel fees incurred in
connection with them) that GEIS, its officers and directors, or any controlling
person may incur under the Securities Act or under common law or otherwise,
arising out of or based upon any untrue statement, or alleged untrue statement,
of a material fact contained in the Registration Statement or the Prospectus or
arising out of or based upon any omission, or alleged omission, to state a
material fact required to be stated in either the Registration Statement or
Prospectus or necessary to make the statements in either not misleading;
provided, however, that the Fund's agreement to indemnify GEIS, its officers and
directors, and any controlling person will not be deemed to cover any claims,
demands, liabilities or expenses arising out of any untrue statement or alleged
untrue statement or omission or alleged omission in the Registration Statement
or Prospectus made in reliance upon and in conformity with written information
furnished to the Fund by GEIS specifically for use in the preparation of the
Registration Statement or the Prospectus.
(c) The Fund's agreement to indemnify GEIS, its officers and directors, and
any controlling person, described in paragraph (b) of this Section 1.11, is
expressly conditioned upon the Fund's being notified of any action brought
against GEIS, its officers or directors, or any controlling person, such
notification to be given by letter or by telegram addressed to the Fund at its
principal office in New York, New York within twenty business days after the
summons or other first legal process is served on the person seeking
indemnification. The failure to notify the Fund in this manner of any such
action will not relieve the Fund from any liability that the Fund may have to
the person against whom the action is brought by reason of any such untrue, or
alleged untrue, statement or omission, or alleged omission, otherwise than on
account of the Fund's indemnity agreement contained in this Section 1.11.
(d) The Fund will be entitled to assume the defense of any suit brought to
enforce any claim, demand or liability contemplated by this Section 1.11, but,
in such case, the defense will be conducted by counsel of good standing chosen
by the Fund
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and approved by GEIS (who will not, except with the consent of GEIS, be counsel
to the Fund). In the event the Fund elects to assume the defense of any such
suit and retain counsel of good standing approved by GEIS, the defendant or
defendants in the suit will bear the fees and expenses of any additional counsel
retained by any of them; but in case the Fund does not elect to assume the
defense of any such suit, or in case GEIS does not approve of counsel chosen by
the Fund, the Fund will reimburse GEIS, its officers and directors, or any
controlling person or persons named as defendant or defendants in the suit, for
the fees and expenses of any counsel retained by GEIS or them.
(e) The Fund's indemnification agreement contained in this Section 1.11 and
the Fund's representations and warranties in this Agreement will remain
operative and in full force and effect regardless of any investigation made by
or on behalf of GEIS, its officers and directors, or any controlling person, and
will survive the delivery of any units of the Fund. The Fund's agreement of
indemnity will inure exclusively to GEIS's benefit, to the benefit of its
several officers and directors, and their respective estates, and to the benefit
of any controlling persons and their successors, except that the Fund will not
be obligated to indemnify any entity or person pursuant to this Section 1.11
against any liability to which GEIS, its officers and directors, or any
controlling person would otherwise be subject by reason of willful misfeasance,
bad faith or gross negligence in performance of, or reckless disregard of, the
obligations and duties set forth in this Agreement.
1.12 (a) GEIS agrees to indemnify and hold the Fund, its several officers
and Board members, and any person, if any, who controls the Fund within the
meaning of Section 15 of the Securities Act, free and harmless from and against
any and all claims, demands, liabilities and expenses (including the cost of
investigating or defending those claims, demands or liabilities and any counsel
fees incurred in connection with them) that the Fund, its officers or Board
members, or any controlling person, may incur under the Securities Act, or under
common law or otherwise, but only to the extent that the liability or expense
incurred by the Fund, its officers or Board members, or any controlling person
resulting from the claims or demands arise out of or are based upon any untrue,
or alleged untrue statement of a material fact contained in information
furnished in writing by GEIS to the Fund specifically for use in the
Registration Statement and used in the Fund's answers to any of the items of the
Registration Statement or in the corresponding statements made in the
Prospectus, or arise out of or are based upon any omission, or alleged omission,
to state a material fact in connection with the information furnished in writing
by GEIS to the Fund and required to be stated in the answers or necessary to
make the information not misleading.
(b) GEIS's agreement to indemnify the Fund, its officers and Board members,
and any controlling person under this
<PAGE>
Section 1.12 is expressly conditioned upon GEIS's being notified of any action
brought against the Fund, its officers or Board members, or any controlling
person, such notification to be given by letter or telegram addressed to GEIS at
its principal office and sent to GEIS by the person against whom the action is
brought, within twenty business days after the summons or other first legal
process is served on the person seeking indemnification. The failure to notify
GEIS of any such action will not relieve GEIS from any liability that GEIS may
have to the Fund, its officers or Board members, or to the controlling person
otherwise than on account of GEIS's indemnity agreement contained in this
Section 1.12.
(c) GEIS will have the right to control the defense of any action
contemplated by this Section 1.12, with counsel of its own choosing,
satisfactory to the Fund, unless the action referred to in paragraph (a) of this
Section 1.12 is not based solely upon an alleged misstatement or omission on
GEIS's part. In such event, the Fund, its officers or Board members or the
controlling person will each have the right to participate in the defense or
preparation of the defense of the action.
(d) GEIS will not be obligated to indemnify any entity or person pursuant
to this Section 1.12 against any liability to which the Fund, its officers and
Board members, or any controlling person would otherwise be subject by reason of
willful misfeasance, bad faith or gross negligence in performance of, or
reckless disregard of, the obligations and duties set forth in this Agreement.
1.13 No units of the Fund may be offered by GEIS or the Fund under any of
the provisions of this Agreement, and no orders for the purchase or sale of
units of the Fund pursuant to this Agreement may be accepted by the Fund if and
so long as the effectiveness of the Registration Statement is suspended under
any of the provisions of the Securities Act or if and so long as a current
prospectus as required by Section 10 of the Securities Act is not on file with
the Commission; provided, however, that nothing contained in this Section 1.13
will in any way restrict or have an application to or bearing upon the Fund's
obligation to redeem its units from any shareholder in accordance with the
provisions of Section 1.5 of this Agreement and provided, further, that GEIS may
continue to offer units of the Fund until GEIS has been notified in writing of
the occurrence of any of the foregoing events.
1.14 The Fund agrees to advise GEIS immediately in writing:
(a) of any request by the Commission for amendments to the
Registration Statement or the Prospectus or any additional information
regarding the Fund;
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(b) of the issuance by the Commission of any stop order suspending the
effectiveness of the Registration Statement or the initiation of any
proceeding for that purpose;
(c) of the happening of any event that makes untrue any statement of a
material fact made in the Registration Statement or the Prospectus or that
requires the making of any change in the Registration Statement or the
Prospectus in order to make the statements therein not misleading; and
(d) of all actions of the Commission with respect to any amendments to
the Registration Statement or the Prospectus that may from time to time be
filed with the Commission.
2. Term.
This Agreement will become effective as of the date first written above and
will continue automatically for successive annual periods (until terminated in
the manner provided herein) so long as its continuance is specifically approved
at least annually by the Board members of the Fund by vote cast in person at a
meeting called for the purpose of voting on the approval, or by a vote of a
majority (as defined in the 1940 Act) of the Fund's outstanding voting
securities. This Agreement is terminable without penalty, (a) on not less than
60 days' notice (i) by action of the Board members of the Fund, or (ii) by the
vote of holders of a majority of the Fund's units, or (b) upon not less than 60
days' written notice by GEIS. This Agreement will also terminate automatically
in the event of its assignment (as defined in the 1940 Act and the rules under
the 1940 Act).
3. Amendments.
This Agreement may only be modified or amended or the terms hereof waived
only if the modification of amendment is specifically approved by the Board
members of the Fund by vote cast in person at a meeting called for the purpose
of voting on the approval, or by the vote of a majority of outstanding voting
securities of the Fund.
4. Miscellaneous.
4.1 (a) The Fund will bear all costs and expenses including fees and
disbursements of its counsel and independent accountants, in connection with the
preparation and filing of any registration statements and prospectuses under the
Securities Act and the 1940 Act, and all amendments and supplements thereto, and
the expense of preparing, printing, mailing and otherwise distributing
prospectuses, annual or interim reports or proxy materials.
(b) The Fund will bear all costs and expenses of qualification of its units
for sale in such states of the United States or other jurisdictions as selected
by GEIS pursuant to
<PAGE>
Section 1.7 of this Agreement and the cost and expenses payable to each for
continuing qualification therein.
* * * * *
If the terms and conditions described above are in accordance with your
understanding, kindly indicate your acceptance of this Agreement by signing and
returning to us the enclosed copy of this Agreement.
Very truly yours,
ELFUN GLOBAL FUND
By:/s/ Michael J. Cosgrove
--------------------------
Name: Michael J. Cosgrove
Title: Trustee
Accepted:
GE INVESTMENT SERVICES INC.
By: /s/ Philip A. Mercurio
---------------------------------
Name: Philip A. Mercurio
Title: Senior Vice President
<PAGE>
Exhibit (g)
CUSTODIAN CONTRACT
Between
EACH OF THE PARTIES INDICATED ON APPENDIX A
and
STATE STREET BANK AND TRUST COMPANY
<PAGE>
TABLE OF CONTENTS
Page
----
1. Employment of Custodian and Property to be Held
By It.....................................................................1
2. Duties of the Custodian with Respect to Property
of the Fund Held by the Custodian in the United
States....................................................................2
2.1 Holding Securities..............................................2
2.2 Delivery of Securities..........................................3
2.3 Registration of Securities......................................8
2.4 Bank Accounts...................................................8
2.5 Availability of Federal Funds...................................9
2.6 Collection of Income............................................9
2.7 Payment of Fund Monies.........................................10
Z.8 Liability for Payment in Advance of
Receipt of Securities Purchased................................13
2.9 Appointment of Agents..........................................14
2.10 Deposit of Securities in Securities System.....................14
2.10A Fund Assets Held in the Custodian's
Direct Paper System............................................17
2.11 Segregated Account.............................................19
2.12 Ownership Certificates for Tax Purposes........................20
2.13 Proxies........................................................20
2.14 Communication Relating to Fund Portfolio Securities............20
2.15 Reports to Fund by Independent Public Accountants..............21
3. Duties of the Custodian with Respect to Property
of the Fund Held Outside of the United States............................22
3.1 Appointment of foreign Sub-Custodians .........................22
3.2 Assets to be Held..............................................22
3.3 Foreign Securities Depositories................................23
3.4 Segregation of Securities .....................................23
3.5 Agreements with Foreign Banking Institution;...................24
3.6 Access of Independent Accountants of the Fund..................24
3.7 Reports by Custodian...........................................25
3:8 Transactions in Foreign Custody Account........................25
3.9 Liability of Foreign Sub-Custodians............................26
3.10 Liability of Custodian.........................................27
3.11 Reimbursement for Advances.....................................28
3.12 Monitoring Responsibilities....................................28
<PAGE>
3.13 Branches of U.S. Banks.........................................29
4. Payments for Repurchases or Redemptions and Sales
of Shares of the Fund....................................................29
5. Proper Instructions......................................................30
6. Actions Permitted Without Express Authority..............................31
7. Evidence of Authority....................................................32
8. Duties of Custodian with Respect to the Books of
Account and Calculations of Net Asset Value and Net Income...............32
9. Records..................................................................33
10. Opinion of Fund's Independent Accountant.................................34
11. Compensation of Custodian................................................34
12. Responsibility of Custodian..............................................34
13. Effective Period, Termination and Amendment..............................36
14. Successor Custodian......................................................38
15. Interpretive and Additional Provisions...................................39
16. Massachusetts Law to Apply...............................................40
17. Prior Contracts..........................................................40
18. Notices..................................................................40
19. The Parties..............................................................40
<PAGE>
CUSTODIAN CONTRACT
This Contract between State Street Bank and Trust Company, a Massachusetts
trust company, having its principal place of business at 225 Franklin Street,
Boston, Massachusetts, O2110, hereinafter called the "Custodian" and each Fund
listed on Appendix A which evidences its agreement to be bound hereby by
executing a copy of this Contract (each such fund individually hereinafter
referred to as the "Fund").
WITNESSETH: That in consideration of the mutual covenants and agreements
hereinafter contained, the parties hereto agree as follows:
1. Employment of Custodian and Property to be Held by It
The Fund hereby employs the Custodian as the custodian of its assets,
including securities it desires to be held in places within the United States
("domestic securities") and securities it desires to be held outside the United
States ("foreign securities") pursuant to the provisions of the Fund Agreement.
The Fund agrees to deliver to the Custodian all securities and cash owned by it,
and all payments of income, payments of principal or capital distributions
received by it with respect to all securities owned by the Fund from time to
time, and the cash consideration received by it for such new or treasury shares
of benefitial interest ("Shares"), of the Fund as may be issued or sold from
time to time. The Custodian shall not be responsible for any property of the
Fund held or received by the Fund and not delivered to the Custodian.
<PAGE>
Upon receipt of "Proper Instructions" (within the meaning of Article 5),
the Custodian shall from time to time employ one or more sub-custodians located
in the United States, but only in accordance with an applicable vote by the
Board of Directors of the Fund, and provided that the Custodian shall have no
more or less responsibility or liability to the Fund on account of any actions
or omissions of any sub-custodian so employed than any such sub-custodian has to
the Custodian. The Custodian may employ as sub-custodians for the Fund's
securities and other assets the foreign banking institutions and foreign
securities depositories designated in Schedule "A" hereto but only in accordance
with the provisions of Article 3.
2. Duties of the Custodian with Respect to Property of the Fund Held By the
Custodian in the United States
2.1 Holding Securities. The Custodian shall hold and physically segregate for
the account of the Fund all non-cash property, to be held by it in the
United States, including all domestic securities owned by the Fund, other
than (a) securities which are maintained pursuant to Section 2.10 in a
clearing agency which acts as a securities depository or in a book-entry
system authorized by the U.S. Department of the Treasury, collectively
referred to herein as "Securities System" and (b) commercial paper of an
issuer for which State Street Bank and Trust Company acts as issuing and
paying agent ("Direct Paper") which is deposited and/or maintained in the
Direct Paper System of the Custodian
2
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pursuant to Section 2.10A. The Custodian shall disclose the Securities
System in use at the time that this Contract is executed and shall disclose
from time to time at the Fund's request any changes thereto.
2.2 Delivery of Securities. The Custodian shall promptly release and deliver
domestic securities owned by the Fund held by the Custodian or in a
Securities System account of the Custodian or in the Custodian's Direct
Paper book-entry system account ("Direct Paper System Account") only upon
receipt of Proper Instructions, which may be continuing instructions when
deemed appropriate by the parties, and only in the following cases:
1) Upon sale of such securities for the account of the Fund and receipt
of payment therefor;
2) Upon the receipt of payment in connection with any repurchase
agreement related to such securities entered into by the Fund;
3) In the case of a sale effected through a Securities System, in
accordance with the provisions of Section 2.10 hereof;
4) To the depository agent in connection with tender or other similar
offers for portfolio securities of the Fund;
5) To the issuer thereof or its agent when such securities are called,
redeemed, retired or otherwise become payable; provided that, in
3
<PAGE>
any such case, the cash or other consideration is to be delivered to
the Custodian;
6) To the issuer thereof, or its agent, for transfer into the name of the
Fund or into the name of any nominee or nominees of the Custodian or
into the name or nominee name of any agent appointed pursuant to
Section 2.9 or into the name or nominee name of any sub-custodian
appointed pursuant to Article 1; or for exchange for a different
number of bonds, certificates or other evidence representing the same
aggregate face amount or number of units; provided that, in any such
case, the new securities are to be delivered to the Custodian;
7) Upon the sale of such securities for the account of the Fund, to the
broker or its clearing agent, against a receipt, for examination in
accordance with "street delivery" custom; provided that in any such
case, the Custodian shall have no responsibility or liability for any
loss arising from the delivery of such securities prior to receiving
payment for such securities except as may arise from the Custodian's
own negligence or willful misconduct;
4
<PAGE>
8) For exchange or conversion pursuant to any plan of merger,
consolidation, recapitalization, reorganization or readjustment of the
securities of the issuer of such securities, or pursuant to provisions
for conversion contained in such securities, or pursuant to any
deposit agreement; provided that, in any such case, the new securities
and cash, if any, are to be delivered to the Custodian;
9) In the case of warrants, rights or similar securities, the surrender
thereof in the exercise of such warrants, rights or similar securities
or the surrender of interim receipts or temporary securities for
definitive securities; provided that, in any such case, the new
securities and cash, if any, are to be delivered to the Custodian;
10) For delivery in connection with any loans of securities made by the
Fund, but only against receipt of adequate collateral as agreed upon
from time to time by the Custodian and the Fund, which may be in the
form of cash or obligations issued by the United States government,
its agencies or instrumentalities, except that in connection with any
loans for which collateral is to be credited to the
5
<PAGE>
Custodian's account in the book-entry system authorized by the U.S.
Department of the Treasury, the Custodian will not be held liable or
responsible for the delivery of securities owned by the Fund prior to
the receipt of such collateral;
11) For delivery as security in connection with any borrowings by the Fund
requiring a pledge of assets by the Fund, but only against receipt of
amounts borrowed;
12) For delivery in accordance with the provisions of any agreement among
the Fund, the Custodian and a broker-dealer registered under the
Securities Exchange Act of 1934 (the "Exchange Act") and a member of
The National Association of Securities Dealers, Inc. ("NASD"),
relating to compliance with the rules of The Options Clearing
Corporation and of any registered national securities exchange, or of
any similar organization or organizations, regarding escrow or other
arrangements in connection with transactions by the Fund;
13) For delivery in accordance with the provisions of any agreement among
the Fund, the Custodian, and a Futures Commission Merchant registered
under the Commodity Exchange Act, relating to compliance with the
rules of the
6
<PAGE>
Commodity Futures Trading Commission and/or any Contract Market, or
any similar organization or organizations, regarding account deposits
in connection with transactions by the Fund;
14) Upon receipt of instructions from the transfer agent ("Transfer
Agent") for the Fund, for delivery to such Transfer Agent or to the
holders of shares in connection with distributions in kind, as may be
described from time to time in the Fund's currently effective
prospectus and statement of additional information ("prospectus"), in
satisfaction of requests by holders of Shares for repurchase or
redemption; and
15) For any other proper corporate purpose, but only upon receipt of, in
addition to Proper Instructions, a certified copy of a resolution of
the Board of Directors or of the Executive Committee signed by an
officer of the Fund and certified by the Secretary or an Assistant
Secretary, specifying the securities to be delivered, setting forth
the purpose for which such delivery is to be made, declaring such
purpose to be a proper corporate purpose, and naming the person or
persons to whom delivery of such securities shall be made.
7
<PAGE>
2.3 Registration of Securities. Domestic securities held by the Custodian
(other than bearer securities) shall be registered in the name of the Fund
or in the name of any nominee of the Fund or of any nominee of the
Custodian which nominee shall be assigned exclusively to the Fund, unless
the Fund has authorized in writing the appointment of a nominee to be used
in common with other registered investment companies having the same
investment adviser as the Fund, or in the name or nominee name of any agent
appointed pursuant to Section 2.9 or in the name or nominee name of any
sub-custodian appointed pursuant to Article 1. All securities accepted by
the Custodian on behalf of the Fund under the terms of this Contract shall
be in "street name" or other good delivery form. If, however, the Fund
directs the Custodian to maintain securities in "street name", the
Custodian shall utilize its best efforts only to timely collect income due
the Fund on such securities and to notify the Fund on a best efforts basis
only of relevant corporate actions including, without limitation, pendency
of calls, maturities, tender or exchange offers.
2.4 Bank Accounts. The Custodian shall open and maintain a separate bank
account or accounts in the United States in the name of the Fund, subject
only to draft or order by the Custodian acting pursuant to the terms of
this Contract, and shall hold in such account or accounts, subject to the
provisions hereof, all cash received by it
8
<PAGE>
from or for the account of the Fund, other than cash maintained by the Fund
in a bank account established and used in accordance with Rule 17f-3 under
the Investment Company Act of 1940. Funds held by the Custodian for the
Fund may be deposited by it to its credit as Custodian in the Banking
Department of the Custodian or in such other banks or trust companies as it
may in its discretion deem necessary or desirable; provided, however, that
every such bank or trust company shall be qualified to act as a custodian
under the Investment Company Act of 1940 and that each such bank or trust
company and the funds to be deposited with each such bank or trust company
shall be approved by vote of a majority of the Board of Directors of the
Fund. Such funds shall be deposited by the Custodian in its capacity as
Custodian and shall be withdrawable by the Custodian only in that capacity.
2.5 Availability of Federal Funds. Upon mutual agreement between the Fund and
the Custodian, the Custodian shall, upon the receipt of Proper
Instructions, make federal funds available to the Fund as of specified
times agreed upon from time to time by the Fund and the Custodian in the
amount of checks received in payment for Shares of the Fund which are
deposited into the Fund's account.
2.6 Collection of Income. Subject to the provisions of Section 2.3, the
Custodian shall collect on a timely basis all income and other payments
with respect to United States registered securities held hereunder to
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which the Fund shall be entitled either by law or pursuant to custom in the
securities business, and shall collect on a timely basis all income and
other payments with respect to United States bearer securities if, on the
date of payment by the issuer, such securities are held by the Custodian or
its agent thereof and shall credit such income, as collected, to the Fund's
custodian account. Without limiting the generality of the foregoing, the
Custodian shall detach and present for payment all coupons and other income
items requiring presentation as and when they become due and shall collect
interest when due on securities held hereunder. Income due the Fund on
United States securities loaned pursuant to the provisions of Section 2.2
(10) shall be the responsibility of the Fund. The Custodian will have no
duty or responsibility in connection therewith, other than to provide the
Fund with such information or data as may be necessary to assist the Fund
in arranging for the timely delivery to the Custodian of the income to
which the Fund is properly entitled.
2.7 Payment of Fund Monies. Upon receipt of Proper Instructions, which may be
continuing instructions when deemed appropriate by the parties, the
Custodian shall pay out monies of the Fund in the following cases only:
1) Upon the purchase of domestic securities, options, futures contracts
or options on futures contracts for the account of the Fund
10
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but only (a) against the delivery of such securities, or evidence of
title to such options, futures contracts or options on futures
contracts, to the Custodian (or any bank, banking firm or trust
company doing business in the United States or abroad which is
qualified under the Investment Company Act of 1940, as amended, to act
as a custodian and has been designated by the Custodian as its agent
for this purpose) registered in the name of the Fund or in the name of
a nominee of the Custodian referred to in Section 2.3 hereof or in
proper form for transfer; (b) in the case of a purchase effected
through a Securities System, in accordance with the conditions set
forth in Section 2.10 hereof; (c) in the case of a purchase involving
the Direct Paper System, in accordance with the conditions set forth
in Section 2.10A; (d) in the case of repurchase agreements entered
into between the Fund and the Custodian, or another bank, or a
broker-dealer which is a member of NASD,
(i) against delivery of the securities either in certificate form or
through an entry crediting the Custodian's account at the Federal
Reserve Bank with such securities or
11
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(ii) against delivery of the receipt evidencing purchase by the Fund of
securities owned by the Custodian along with written evidence of the
agreement by the Custodian to repurchase such securities from the Fund
or (e) for transfer to a time deposit account of the Fund in any bank,
whether domestic or foreign; such transfer may be effected prior to
receipt of a confirmation from a broker and/or the applicable bank
pursuant to Proper Instructions from the Fund as defined in Article 5;
2) In connection with conversion, exchange or surrender of securities
owned by the Fund as set forth in Section 2.2 hereof;
3) For the redemption or repurchase of Shares issued by the Fund as set
forth in Article 4 hereof;
4) For the payment of any expense or liability incurred by the Fund,
including but not limited to the following payments for the account of
the Fund: interest, taxes, management, accounting, transfer agent and
legal fees, and operating expenses of the Fund whether or not such
expenses are to be in whole or part capitalized or treated as deferred
expenses;
12
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5) For the payment of any dividends declared pursuant to the governing
documents of the Fund;
6) For payment of the amount of dividends received in respect of
securities sold short;
7) For any other proper purpose, but only upon receipt of, in addition to
Proper Instructions, a certified copy of a resolution of the Board of
Directors or of the Executive Committee of the Fund signed by an
officer of the Fund and certified by its Secretary or an Assistant
Secretary, specifying the amount of such payment, setting forth the
purpose for which such payment is to be made, declaring such purpose
to be a proper purpose, and naming the person or persons to whom such
payment is to be made.
2.8 Liability for Payment in Advance of Receipt of Securities Purchased. Except
as specifically stated otherwise in this Contract, in any and every case
where payment for purchase of domestic securities for the account of the
Fund is made by the Custodian in advance of receipt of the securities
purchased in the absence of specific written instructions from the Fund to
so pay in advance, the Custodian shall be absolutely liable to the Fund for
such securities to the same extent as if the securities had been received
by the Custodian.
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2.9 Appointment of Agents. The Custodian may at any time or times in its
discretion appoint (and may at any time remove) any other bank or trust
company which is itself qualified under the Investment Company Act of 1940,
as amended, to act as a custodian, as its agent to carry out such of the
provisions of this Article 2 as the Custodian may from time to time direct;
provided, however, that the appointment of any agent shall not relieve the
Custodian of its responsibilities or liabilities hereunder.
2.10 Deposit of Securities in Securities Systems. The Custodian may deposit
and/or maintain domestic securities owned by the Fund in a clearing agency
registered with the Securities and Exchange Commission under Section 17A of
the Securities Exchange Act of 1934, which acts as a securities depository,
or in the book-entry system authorized by the U.S. Department of the
Treasury and certain federal agencies, collectively referred to herein as
"Securities System" in accordance with applicable Federal Reserve Board and
Securities and Exchange Commission rules and regulations, if any, and
subject to the following provisions:
1) The Custodian may keep domestic securities of the Fund in a Securities
System provided that such securities are represented in an account
("Account") of the Custodian in the Securities System which shall not
include any assets of the Custodian other than assets held as a
14
<PAGE>
fiduciary, custodian or otherwise for customers;
2) The records of the Custodian with respect to domestic securities of
the Fund which are maintained in a Securities System shall identify by
book-entry those securities belonging to the Fund;
3) The Custodian shall pay for domestic securities purchased for the
account of the Fund upon (i) receipt of advice from the Securities
System that such securities have been transferred to the Account, and
(ii) the making of an entry on the records of the Custodian to reflect
such payment and transfer for the account of the Fund. The Custodian
shall transfer domestic securities sold for the account of the Fund
upon (i) receipt of advice from the Securities System that payment for
such securities has been transferred to the Account, and (ii) the
making of an entry on the records of the Custodian to reflect such
transfer and payment for the account of the Fund. Copies of all
advices from the Securities System of transfers of domestic securities
for the account of the Fund shall identify the Fund, be maintained for
the Fund by the Custodian and be provided to the Fund
15
<PAGE>
at its request. Upon request, the Custodian shall furnish the Fund
confirmation of each transfer to or from the account of the Fund in
the form of a written advice or notice and shall furnish to the Fund
copies of daily transaction sheets reflecting each day's transactions
in the Securities System for the account of the Fund.
4) The Custodian shall provide the Fund with any report obtained by the
Custodian on the Securities System's accounting system, internal
accounting control and procedures for safeguarding domestic securities
deposited in the Securities System;
5) The Custodian shall have received the initial or annual certificate,
as the case may be, required by Article 13 hereof;
6) Anything to the contrary in this Contract notwithstanding, the
Custodian shall be liable to the Fund for any loss or damage to the
Fund resulting from use of the Securities System by reason of any
negligence, misfeasance or misconduct of the Custodian or any of its
agents or of any of its or their employees or from failure of the
Custodian or any such agent to enforce effectively such rights as it
may have against the Securities System; at the election of the Fund,
it shall be entitled to be subrogated to the rights of the Custodian
with respect to any claim against the Securities
16
<PAGE>
System or any other person which the Custodian may have as a
consequence of any such loss or damage if and to the extent that the
Fund has not been made whole for any such loss or damage.
2.10A Fund Assets Held in the Custodian's Direct Paper System. The Custodian may
deposit and/or maintain securities owned by the Fund in the Direct Paper
System of the Custodian subject to the following provisions:
1) No transaction relating to securities in the Direct Paper System will
be effected in the absence of Proper Instructions;
2) The Custodian may keep securities of the Fund in the Direct Paper
System only if such securities are represented in an account
("Account") of the Custodian in the Direct Paper System which shall
not include any assets of the Custodian other than assets held as a
fiduciary, custodian or otherwise for customers;
3) The records of the Custodian with respect to securities of the Fund
which are maintained in the Direct Paper System shall identify by
17
<PAGE>
book-entry those securities belonging to the Fund;
4) The Custodian shall pay for securities purchased for the account of
the Fund upon the making of an entry on the records of the Custodian
to reflect such payment and transfer of securities to the account of
the Fund. The Custodian shall transfer securities sold for the account
of the Fund upon the making of an entry on the records of the
Custodian to reflect such transfer and receipt of payment for the
account of the Fund;
5) The Custodian shall furnish the Fund confirmation of each transfer to
or from the account of the Fund, in the form of a written advice or
notice, of Direct Paper on the next business day following such
transfer and shall furnish to the Fund copies of daily transaction
sheets reflecting each day's transaction in the Direct Paper System
for the account of the Fund;
6) The Custodian shall provide the Fund with any report on its system of
internal accounting control as the Fund may reasonably request from
time to time;
2.11 Segregated Account. The Custodian shall upon receipt of Proper Instructions
establish and maintain a segregated
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account or accounts for and on behalf of the Fund, into which account or
accounts may be transferred cash and/or securities, including securities
maintained in an account by the Custodian pursuant to Section 2.10 hereof,
(i) in accordance with the provisions of any agreement among the Fund, the
Custodian and a broker-dealer registered under the Exchange Act and a
member of the NASD (or any futures commission merchant registered under the
Commodity Exchange Act), relating to compliance with the rules of The
Options Clearing Corporation and of any registered national securities
exchange (or the Commodity Futures Trading Commission or any registered
contract market), or of any similar organization or organizations,
regarding escrow or other arrangements in connection with transactions by
the Fund, (ii) for purposes of segregating cash or government securities in
connection with options purchased, sold or written by the Fund or commodity
futures contracts or options thereon purchased or sold by the Fund, (iii)
for the purposes of compliance by the Fund with the procedures required by
Investment Company Act Release No. 10666, or any subsequent release or
releases of the Securities and Exchange Commission relating to the
maintenance of segregated accounts by registered investment companies and
(iv) for other proper purposes, but only, in the case of clause (iv), upon
receipt of, in addition to Proper Instructions, a certified copy of a
resolution of the Board of Directors
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<PAGE>
or of the Executive Committee signed by an officer of the Fund and
certified by the Secretary or an Assistant Secretary, setting forth the
purpose or purposes of such segregated account and declaring such purposes
to be proper trust purposes.
2.12 Ownership Certificates for Tax Purposes. The Custodian shall execute
ownership and other certificates and affidavits for all federal and state
tax purposes in connection with receipt of income or other payments with
respect to domestic securities of the Fund held by it and in connection
with transfers of such securities.
2.13 Proxies. The Custodian shall, with respect to the domestic securities held
hereunder, cause to be promptly executed by the registered holder of such
securities, if the securities are registered otherwise than in the name of
the Fund or a nominee of the Fund, all proxies, without indication of the
manner in which such proxies are to be voted, and shall promptly deliver to
the Fund such proxies, all proxy soliciting materials and all notices
relating to such securities.
2.14 Communications Relating to Fund Portfolio Securities. Subject to the
provisions of Section 2.3, the Custodian shall transmit promptly to the
Fund all written information (including, without limitation, pendency of
calls and maturities of domestic securities and expirations of rights in
connection therewith and notices of exercise of call and put options
written by the Fund
20
<PAGE>
and the maturity of futures contracts purchased or sold by the Fund)
received by the Custodian from issuers of the domestic securities being
held for the Fund. With respect to tender or exchange offers, the Custodian
shall transmit promptly to the Fund all written information received by the
Custodian from issuers of the domestic securities whose tender or exchange
is sought and from the party (or his agents) making the tender or exchange
offer. If the Fund desires to take action with respect to any tender offer,
exchange offer or any other similar transaction, the Fund shall notify the
Custodian at least three business days prior to the date on which the
Custodian is to take such action or, if later than three business days
prior, the Custodian shall use its reasonable best efforts to take such
action.
2.15 Reports to Fund by Independent Public Accountants. The Custodian shall
provide the Fund, at such times as the Fund may reasonably require, with
reports by independent public accountants on the accounting system,
internal accounting control and procedures for safeguarding securities,
futures contracts and options on futures contracts, including domestic
securities deposited and/or maintained in a Securities System, relating to
the services provided by the Custodian under this Contract; such reports
shall be of sufficient scope and in sufficient detail, as may reasonably be
required by the Fund to provide reasonable assurance that any
21
<PAGE>
material inadequacies would be disclosed by such examination, and, if there
are no such inadequacies, the reports shall so state.
3. Duties of the Custodian with Respect to Property of the Fund Held Outside
of the United States
3.1 Appointment of Foreign Sub-Custodians
The Fund hereby authorizes and instructs the Custodian to employ as
sub-custodians for the Fund's securities and other assets maintained
outside the United States the foreign banking institutions and foreign
securities depositories designated on Schedule A hereto ("foreign
sub-custodians"). Upon receipt of "Proper Instructions", as defined in
Section 5 of this Contract, together with a certified resolution of the
Fund's Board of Directors, the Custodian and the Fund may agree to amend
Schedule A hereto from time to time to designate additional foreign banking
institutions and foreign securities depositories to act as sub-custodian.
Upon receipt of Proper Instructions, the Fund may instruct the Custodian to
cease the employment of any one or more such sub-custodians for maintaining
custody of the Fund's assets.
3.2 Assets to be Held. The Custodian shall limit the securities and other
assets maintained in the custody of the foreign sub-custodians to: (a)
"foreign securities", as defined in paragraph (c)(1) of Rule l7f-5 under
the Investment Company Act of 1940, and (b) cash and cash equivalents in
such amounts as the Custodian or the Fund
22
<PAGE>
may determine to be reasonably necessary to effect the Fund's foreign
securities transactions.
3.3 Foreign Securities Depositories. Except as may otherwise be agreed upon in
writing by the Custodian and the Fund, assets of the Fund shall be
maintained in foreign securities depositories only through arrangements
implemented by the foreign banking institutions serving as sub-custodians
pursuant to the terms hereof. Where possible, such arrangements shall
include entry into agreements containing the provisions set forth in
Section 3.5 hereof.
3.4 Segregation of Securities
The Custodian shall identify on its books as belonging to the Fund, the
foreign securities of the Fund held by each foreign sub-custodian. Each
agreement pursuant to which the Custodian employs a foreign banking
institution shall require that such institution establish a custody account
for the Custodian on behalf of the Fund and physically segregate in that
account, securities and other assets of the Fund, and, in the event that
such institution deposits the Fund's securities in a foreign securities
depository, that it shall identify on its books as belonging to the
Custodian, as agent for the Fund, the securities so deposited.
3.5 Agreements with Foreign Banking Institutions. Each agreement with a foreign
banking institution shall be substantially in the form set forth in Exhibit
1 hereto
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<PAGE>
and shall provide that: (a) the Fund's assets will not be subject to any
right, charge, security interest, lien or claim of any kind in favor of the
foreign banking institution or its creditors or agent, except a claim of
payment for their safe custody or administration; (b) beneficial ownership
of the Fund's assets will be freely transferable without the payment of
money or value other than for custody or administration; (c) adequate
records will be maintained identifying the assets as belonging to the Fund;
(d) officers of or auditors employed by, or other representatives of the
Custodian, including to the extent permitted under applicable law the
independent public accountants for the Fund, will be given access to the
books and records of the foreign banking institution relating to its
actions under its agreement with the Custodian; and (e) assets of the Fund
held by the foreign sub-custodian will be subject only to the instructions
of the Custodian or its agents.
3.6 Access of Independent Accountants of the Fund. Upon request of the Fund,
the Custodian will use its best efforts to arrange for the independent
accountants of the Fund to be afforded access to the books and records of
any foreign banking institution employed as a foreign sub-custodian insofar
as such books and records relate to the performance of such foreign banking
institution under its agreement with the Custodian.
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<PAGE>
3.7 Reports by Custodian. The Custodian will supply to the Fund from time to
time, as mutually agreed upon, statements in respect of the securities and
other assets of the Fund held by foreign sub-custodians, including but not
limited to an identification of entities having possession of the Fund's
securities and other assets and advices or notifications of any transfers
of securities to or from each custodial account maintained by a foreign
banking institution for the Custodian on behalf of the Fund indicating, as
to securities acquired for the Fund, the identity of the entity having
physical possession of such securities.
3.8 Transactions in Foreign Custody Account
(a) Except as otherwise provided in paragraph (b) of this Section 3.8, the
provision of Sections 2.2 and 2.7 of this Contract shall apply, mutatis
mutandis to the foreign securities of the Fund held outside the United
States by foreign sub-custodians.
(b) Notwithstanding any provision of this Contract to the contrary,
settlement and payment for securities received for the account of the Fund
and delivery of securities maintained for the account of the Fund may be
effected in accordance with the customary established securities trading or
securities processing practices and procedures in the jurisdiction or
market in which the transaction occurs, including, without limitation,
delivering securities to the purchaser thereof or to a dealer
25
<PAGE>
therefor (or an agent for such purchaser or dealer) against a receipt with
the expectation of receiving later payment for such securities from such
purchaser or dealer.
(c) Securities maintained in the custody of a foreign sub-custodian may be
maintained in the name of such entity's nominee to the same extent as set
forth in Section 2.3 of this Contract, and the Fund agrees to hold any such
nominee harmless from any liability as a holder of record of such
securities.
3.9 Liability of Foreign Sub-Custodians. Each agreement pursuant to which the
Custodian employs a foreign banking institution as a foreign sub-custodian
shall require the institution to exercise reasonable care in the
performance of its duties and to indemnify, and hold harmless, the
Custodian and each Fund from and against any loss, damage, cost, expense,
liability or claim arising out of or in connection with the institution's
performance of such obligations. At the election of the Fund, it shall be
entitled to be subrogated to the rights of the Custodian with respect to
any claims against a foreign banking institution as a consequence of any
such loss, damage, cost, expense, liability or claim if and to the extent
that the Fund has not been made whole for any such loss, damage, cost,
expense, liability or claim.
3.10 Liability of Custodian. The Custodian shall be liable for the acts or
omissions of a foreign banking
26
<PAGE>
institution to the same extent as set forth with respect to sub-custodians
generally in this Contract and, regardless of whether assets are maintained
in the custody of a foreign banking institution, a foreign securities
depository or a branch of a U.S. bank as contemplated by paragraph 3.13
hereof, the Custodian shall not be liable for any loss, damage, cost,
expense, liability or claim resulting from nationalization, expropriation,
currency restrictions, or acts of war or terrorism or any loss where the
sub-custodian has otherwise exercised reasonable care. Notwithstanding the
foregoing provisions of this paragraph 3.10, in delegating custody duties
to State Street London Ltd., the Custodian shall not be relieved of any
responsibility to the Fund for any loss due to such delegation, except such
loss as may result from (a) political risk (including, but not limited to,
exchange control restrictions, confiscation, expropriation,
nationalization, insurrection, civil strife or armed hostilities) or (b)
other losses (excluding a bankruptcy or insolvency of State Street London
Ltd. not caused by political risk) due to Acts of God, nuclear incident or
other losses under circumstances where the Custodian and State Street
London Ltd. have exercised reasonable care.
3.11 Reimbursement for Advances. If the Fund requires the Custodian to advance
cash or securities for any purpose including the purchase or sale of
foreign exchange or of
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<PAGE>
contracts for foreign exchange, or in the event that the Custodian or its
nominee shall incur or be assessed any taxes, charges, expenses,
assessments, claims or liabilities in connection with the performance of
this Contract, except such as may arise from its or its nominee's own
negligent action, negligent failure to act or willful misconduct, any
property at any time held for the account of the Fund shall be security
therefor and should the Fund fail to repay the Custodian promptly, the
Custodian shall be entitled to utilize available cash and to dispose of the
Fund assets to the extent necessary to obtain reimbursement.
3.12 Monitoring Responsibilities. The Custodian shall furnish annually to the
Fund, during the month of June, information concerning the foreign
sub-custodians employed by the Custodian. Such information shall be similar
in kind and scope to that furnished to the Fund in connection with the
initial approval of this Contract. In addition, the Custodian will promptly
inform the Fund in the event that the Custodian learns of a material
adverse change in the financial condition of a foreign sub-custodian or any
material loss of the assets of the Fund or in the case of any foreign
sub-custodian not the subject of an exemptive order from the Securities and
Exchange Commission is notified by such foreign sub-custodian that there
appears to be a substantial likelihood that its shareholders' equity will
decline
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<PAGE>
below $200 million (U.S. dollars or the equivalent thereof) or that its
shareholders' equity has declined below $200 million (in each case computed
in accordance with generally accepted U.S. accounting principles).
3.13 Branches of U.S. Banks
(a) Except as otherwise set forth in this Contract, the provisions hereof
shall not apply where the custody of the Fund assets are maintained in a
foreign branch of a banking institution which is a "bank" as defined by
Section 2(a)(5) of the Investment Company Act of 1940 meeting the
qualification set forth in Section 26(a) of said Act. The appointment of
any such branch as a sub-custodian shall be governed by paragraph 1 of this
Contract.
(b) Cash held for the Fund in the United Kingdom shall be maintained in an
interest bearing account established for the Fund with the Custodian's
London branch, which account shall be subject to the direction of the
Custodian, State Street London Ltd. or both.
4. Payments for Repurchases or Redemptions and Sales of Shares of the Fund
From such funds as may be available for the purpose but subject to the
limitations of the Articles of Incorporation and any applicable votes of the
Board of Directors of the Fund pursuant thereto, the Custodian shall, upon
receipt of instructions from the Transfer Agent, make funds available for
payment to holders of Shares who have delivered to the Transfer
29
<PAGE>
Agent a request for redemption or repurchase of their Shares. In connection with
the redemption or repurchase of Shares of the Fund, the Custodian is authorized
upon receipt of instructions from the Transfer Agent to wire funds to or through
a commercial bank designated by the redeeming shareholders. In connection with
the redemption or repurchase of Shares of the Fund, the Custodian shall honor
checks drawn on the Custodian by a holder of Shares, which checks have been
furnished by the Fund to the holder of Shares, when presented to the Custodian
in accordance with such procedures and controls as are mutually agreed upon from
time to time between the Fund and the Custodian.
The Custodian shall receive from the distributor for the Fund's Shares or
from the Transfer Agent of the Fund and deposit into the Fund's account such
payments as are received for Shares of the Fund issued or sold from time to time
by the Fund. The Custodian will provide timely notification to the Fund and the
Transfer Agent of any receipt by it of payments for Shares of the Fund.
5. Proper Instructions
Proper Instructions as used herein means a writing signed or initialled by
one or more person or persons as the Board of Directors shall have from time to
time authorized. Each such writing shall set forth the specific transaction or
type of transaction involved, including a specific statement of the purpose for
which such action is requested. Oral instructions will be considered Proper
Instructions if the Custodian reasonably believes them to have been given by a
person
30
<PAGE>
authorized to give such instructions with respect to the transaction involved.
The Fund shall cause all oral instructions to be confirmed in writing. Upon
receipt of a certificate of the Secretary or an Assistant Secretary as to the
authorization by the Board of Directors of the Fund accompanied by a detailed
description of procedures approved by the Board of Directors, Proper
Instructions may include communications effected directly between
electro-mechanical or electronic devices provided that the Board of Directors
and the Custodian are satisfied that such procedures afford adequate safeguards
for the Fund's assets. For purposes of this Section, Proper Instructions shall
include instructions received by the Custodian pursuant to any three-party
agreement which requires a segregated asset account in accordance with Section
2.11.
6. Actions Permitted without Express Authority
The Custodian may in its discretion, without express authority from the
Fund:
1) make payments to others for minor expenses of handling securities or
other similar items relating to its duties under this Contract or to itself in
reimbursement for such payments, provided, that all such payments shall be
accounted for to the Fund;
2) surrender securities in temporary form for securities in definitive
form;
3) endorse for collection, in the name of the Fund, checks, drafts and
other negotiable instruments; and
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4) in general, attend to all non-discretionary details in connection with
the sale, exchange, substitution, purchase, transfer and other dealings with the
securities and property of the Fund except as otherwise directed by the Board of
Directors of the Fund.
7. Evidence of Authority
The Custodian shall be protected in acting upon any instructions, notice,
request, consent, certificate or other instrument or paper believed by it to be
genuine and to have been properly executed by or on behalf of the Fund. The
Custodian may receive and accept a certified copy of a vote of the Board of
Directors of the Fund as conclusive evidence (a) of the authority of any person
to act in accordance with such vote or (b) of any determination or of any action
by the Board of Directors pursuant to the Articles of Incorporation as described
in such vote, and such vote may be considered as in full force and effect until
receipt by the Custodian of written notice to the contrary.
8. Duties of Custodian with Respect to the Books of Account and Calculation of
Net Asset Value and Net Income
Unless otherwise directed in writing by the Fund, the Custodian shall keep
the books of account of the Fund and shall compute the net asset value per share
of the outstanding shares of the Fund. The Custodian shall also calculate daily
the net income of the Fund as described in the Fund's currently effective
prospectus and shall advise the Fund and the Transfer Agent daily of the total
amounts of such net income and, if instructed in writing by an officer of the
Fund to do so, shall advise the
32
<PAGE>
Transfer Agent periodically of the division of such net income among its various
components. The calculations of the net asset value per share and the daily
income of the Fund shall be made at the time or times described from time to
time in the Fund's currently effective prospectus.
9. Records
The Custodian shall create and maintain all records relating to its
activities and obligations under this Contract in such manner as will meet the
obligations of the Fund under the Investment Company Act of 1940, with
particular attention to Section 31 thereof and Rules 31a-1 and 31a-2 thereunder,
applicable federal and state tax laws and any other law or administrative rules
or procedures which may be applicable to the Fund. All such records shall be the
property of the Fund and shall at all times during the regular business hours of
the Custodian be open for inspection by duly authorized officers, employees or
agents of the Fund and employees and agents of the Securities and Exchange
Commission. The Custodian shall, at the Fund's request, supply the Fund with a
tabulation of securities owned by the Fund and held by the Custodian and shall,
when requested to do so by the Fund and for such compensation as shall be agreed
upon between the Fund and the Custodian, include certificate numbers in such
tabulations.
10. Opinion of Fund's Independent Accountant
The Custodian shall take all reasonable action, as the Fund may from time
to time request, to obtain from year to year favorable opinions from the Fund's
independent accountants with
33
<PAGE>
respect to its activities hereunder in connection with the preparation of the
Fund's Form N-1A, and Form N-SAR or other annual reports to the Securities and
Exchange Commission and with respect to any other requirements of such
Commission.
11. Compensation of Custodian
The Custodian shall be entitled to reasonable compensation for its services
and expenses as Custodian, as agreed upon from time to time between the Fund and
the Custodian.
12. Responsibility of Custodian
So long as and to the extent that it is in the exercise of reasonable care,
the Custodian shall not be responsible for the title, validity or genuineness of
any property or evidence of title thereto received by it or delivered by it
pursuant to this Contract and shall be held harmless in acting upon any notice,
request, consent, certificate or other instrument reasonably believed by it to
be genuine and to be signed by the proper party or parties, including any
futures commission merchant acting pursuant to the terms of a three-party
futures or options agreement. The Custodian shall be held to the exercise of
reasonable care in carrying out the provisions of this Contract, but shall be
kept indemnified by and shall be without liability to the Fund for any action
taken or omitted by it in good faith without negligence. It shall be entitled to
rely on and may act upon advice of counsel reasonably acceptable to the Fund
(who may be counsel for the Fund) on all matters, and shall be without liability
for any action reasonably taken or omitted pursuant to such advice.
Notwithstanding the foregoing, the responsibility
34
<PAGE>
of the Custodian with respect to redemptions effected by check shall be in
accordance with a separate Agreement entered into between the Custodian and the
Fund.
The Custodian shall be liable for the acts or omissions of a foreign
banking institution appointed pursuant to the provisions of Article 3 to the
same extent as set forth in Article 1 hereof with respect to sub-custodians
located in the United States and, regardless of whether assets are maintained in
the custody of a foreign banking institution, a foreign securities depository or
a branch of a U.S. bank as contemplated by paragraph 3.11 hereof, the Custodian
shall not be liable for any loss, damage, cost, expense, liability or claim
resulting from, or caused by, the direction of or authorization by the Fund to
maintain custody or any securities or cash of the Fund in a foreign country
including, but not limited to, losses resulting from nationalization,
expropriation, currency restrictions, or acts of war or terrorism.
If the Fund requires the Custodian to take any action with respect to
securities, which action involves the payment of money or which action may, in
the opinion of the Custodian, result in the Custodian or its nominee assigned to
the Fund being liable for the payment of money or incurring liability of some
other form, the Fund, as a prerequisite to requiring the Custodian to take such
action, shall provide indemnity to the Custodian in an amount and form
satisfactory to it.
If the Fund requires the Custodian to advance cash or securities for any
purpose or in the event that the Custodian or
35
<PAGE>
its nominee shall incur or be assessed any taxes, charges, expenses,
assessments, claims or liabilities in connection with the performance of this
Contract, except such as may arise from its or its nominee's own negligent
action, negligent failure to act or willful misconduct, any property at any time
held for the account of the Fund shall be security therefor and should the Fund
fail to repay the Custodian promptly, the Custodian shall be entitled to utilize
available cash and to dispose of the Fund assets to the extent necessary to
obtain reimbursement.
13. Effective Period, Termination and Amendment
This Contract shall become effective as of its execution, shall continue in
full force and effect until terminated as hereinafter provided, may be amended
at any time by mutual agreement of the parties hereto and may be terminated by
either party by an instrument in writing delivered or mailed, postage prepaid to
the other party, such termination to take effect not sooner than thirty (30)
days after the date of such delivery or mailing; provided, however that the
Custodian shall not act under Section 2.10 hereof in the absence of receipt of
an initial certificate of the Secretary or an Assistant Secretary that the Board
of Directors of the Fund has approved the initial use of a particular Securities
System and the receipt of an annual certificate of the Secretary or an Assistant
Secretary that the Board of Directors has reviewed the use by the Fund of such
Securities System, as required in each case by Rule 17f-4 under the Investment
Company Act of 1940, as amended and that the Custodian shall not act under
Section 2.10A hereof in the absence
36
<PAGE>
of receipt of an initial certificate of the Secretary or an Assistant Secretary
that the Board of Directors has approved the initial use of the Direct Paper
System and the receipt of an annual certificate of the Secretary or an Assistant
Secretary that the Board of Directors has reviewed the use by the Fund of the
Direct Paper System; provided further, however, that the Fund shall not amend or
terminate this Contract in contravention of any applicable federal or state
regulations, or any provision of the Articles of Incorporation, and further
provided, that the Fund may at any time by action of its Board of Directors (i)
substitute another bank or trust company for the Custodian by giving notice as
described above to the Custodian, or (ii) immediately terminate this Contract in
the event of the appointment of a conservator or receiver for the Custodian by
the Comptroller of the Currency or upon the happening of a like event at the
direction of an appropriate regulatory agency or court of competent
jurisdiction.
Upon termination of the Contract, the Fund shall pay to the Custodian such
compensation as may be due as of the date of such termination and shall likewise
reimburse the Custodian for its costs, expenses and disbursements.
14. Successor Custodian
If a successor custodian shall be appointed by the Board of Directors of
the Fund, the Custodian shall, upon termination, deliver to such successor
custodian at the office of the Custodian, duly endorsed and in the form for
transfer, all securities then held by it hereunder and shall transfer to an
37
<PAGE>
account of the successor custodian all of the Fund's securities held in a
Securities System.
If no such successor custodian shall be appointed, the Custodian shall, in
like manner, upon receipt of a certified copy of a vote of the Board of
Directors of the Fund, deliver at the office of the Custodian and transfer such
securities, funds and other properties in accordance with such vote.
In the event that no written order designating a successor custodian or
certified copy of a vote of the Board of Directors shall have been delivered to
the Custodian on or before the date when such termination shall become
effective, then the Custodian shall have the right to deliver to a bank or trust
company, which is a "bank" as defined in the Investment Company Act of 1940,
doing business in Boston, Massachusetts, of its own selection, having an
aggregate capital, surplus, and undivided profits, as shown by its last
published report, of not less than $25,000,000, all securities, funds and other
properties held by the Custodian and all instruments held by the Custodian
relative thereto and all other property held by it under this Contract and to
transfer to an account of such successor custodian all of the Fund's securities
held in any Securities System. Thereafter, such bank or trust company shall be
the successor of the Custodian under this Contract.
In the event that securities, funds and other properties remain in the
possession of the Custodian after the date of termination hereof owing to
failure of the Fund to procure the certified copy of the vote referred to or of
the Board of
38
<PAGE>
Directors to appoint a successor custodian, the Custodian shall be
entitled to fair compensation for its services during such period as the
Custodian retains possession of such securities, funds and other properties and
the provisions of this Contract relating to the duties and obligations of the
Custodian shall remain in full force and effect.
15. Interpretive and Additional Provisions
In connection with the operation of this Contract, the Custodian and the
Fund may from time to time agree on such provisions interpretive of or in
addition to the provisions of this Contract as may in their joint opinion be
consistent with the general tenor of this Contract. Any such interpretive or
additional provisions shall be in a writing signed by both parties and shall be
annexed hereto, provided that no such interpretive or additional provisions
shall contravene any applicable federal or state regulations or any provision of
the Fund Agreement of the Fund. No interpretive or additional provisions made as
provided in the preceding sentence shall be deemed to be an amendment of this
Contract.
16. Massachusetts Law to Apply
This Contract shall be construed and the provisions thereof interpreted
under and in accordance with laws of the Commonwealth of Massachusetts.
17. Prior Contracts
This Contract supersedes and terminates, as of the date hereof, all prior
contracts between the Fund and the Custodian relating to the custody of the
Fund's assets.
39
<PAGE>
18. Notices
Written notices issued pursuant to this agreement shall be personally
delivered or mailed postage prepaid to the respective parties as follows:
To the Fund: c/o General Electric Investment Corp.
3003 Summer Street
Stamford, CT 06904
Attn: Manager, Pension Accounting and
Trading Support
Telephone: 203-326-2398 Facsimile: 203-326-4768
To the Custodian: State Street Bank and Trust Company
Master Trust Division
One Monarch Drive
North Quincy, MA 02171
Attn: Judith Hackstaff
Telephone: 617-847-2703 Facsimile: 617-786-5046
or to such other address as a party may hereafter specify in writing.
19. The Parties
All references herein to the "Fund" are to each of the Funds listed on
Appendix A individually, as if this Contract were between such individual Fund
and the Custodian. In the case of a series Fund or trust, all references to the
"Fund" are to the individual series or portfolio of such Fund or trust, or to
such Fund or trust on behalf of the individual series or portfolio, as
appropriate. With respect to any Fund listed on Appendix A which is organized as
a trust, references herein to Board of Directors and Articles of Incorporation
shall be deemed a reference to Board of Trustees and Declaration of Trust
respectively and reference to shares of capital stock shall be deemed a
reference to shares of beneficial interest.
40
<PAGE>
IN WITNESS WHEREOF, each of the parties has caused this instrument to be
executed in its name and behalf by its duly authorized representative and its
seal to be hereunder affixed as of the first day of July, 1989.
ATTEST STATE STREET BANK AND TRUST COMPANY
/s/ [Illegible] By /s/ [Illegible]
- ------------------------------ ---------------------------------
Assistant Secretary Vice President
ATTEST (FOR EACH OF THE S&S FUNDS NAMED ON
APPENDIX A HERETO)
/s/ Alan M. Lewis By /s/ Michael J. Cosgrove
- ------------------------------ ---------------------------------
ATTEST (FOR EACH Of THE ELFUN FUNDS NAMED
ON APPENDIX A HERETO)
/s/ Alan M. Lewis By /s/ Michael J. Cosgrove
- ------------------------------ ---------------------------------
41
<PAGE>
Appendix A
Fund Name
GE S&S Program Mutual Fund
GE S&S Long-Term Interest Fund
Elfun Diversified Fund
Elfun Global Fund
Elfun Money Market Fund
Elfun Trust
Elfun Tax Exempt Income Fund
Elfun Income Fund
ATTEST
/s/ Michael P. Cloherty By /s/ William M. Mahoney
- ------------------------------ ---------------------------------
Assistant Secretary Vice President
42
<PAGE>
Appendix A
Fund Name
GE S&S Program Mutual Fund
GE S&S Long-Term Interest Fund
Elfun Diversified Fund
Elfun Global Fund
Elfun Money Market Fund
Elfun Trusts
Elfun Tax Exempt Income Fund
Elfun Income Fund
GE U.S. Equity Fund
GE Global Equity Fund
GE Fixed Income Fund
GE Tax-Exempt Fund
GE Money Market Fund
GE Strategic Investment Fund
ATTEST
STATE STREET BANK AND TRUST COMPANY
/s/ Michael P. Cloherty By /s/ William M. Mahoney
- ------------------------------ ---------------------------------
Assistant Secretary Vice President
ATTEST (FOR EACH OF THE FUNDS
HEREINABOVE DESCRIBED)
/s/ Alan M. Lewis By:/s/ Michael J. Cosgrove
- ------------------------------ ---------------------------------
Alan M. Lewis Michael J. Cosgrove
December 14, 1992
43
<PAGE>
Appendix A
This Appendix supersedes all previous Appendixes created with respect to
the Custodian Contract between State Street and GE Funds, dated July 1, 1989. It
is intended that the Custodian contract apply to each Fund set forth below.
Fund Name
GE S&S Program Mutual Fund
GE S&S Long-Term Interest Fund
Elfun Diversified Fund
Elfun Global Fund
Elfun Money Market Fund
Elfun Trusts
Elfun Tax Exempt Income Fund
Elfun Income Fund
GE U.S. Equity Fund
GE Global Equity Fund
GE Fixed Income Fund
GE Tax-Exempt Fund
GE Money Market Fund
GE Strategic Investment Fund
GE International Equity Fund
GE Short-Term Government Fund
ATTEST: STATE STREET BANK AND TRUST COMPANY
/s/ [Illegible] By:/s/ William M. Mahoney
- ------------------------------ ---------------------------------
Assistant Secretary Vice President
WILLIAM M. MAHONEY
VICE PRESIDENT
ATTEST (FOR EACH OF THE FUNDS
HEREINABOVE DESCRIBED)
/s/ Alan M. Lewis By:/s/ Michael J. Cosgrove
- ------------------------------ ---------------------------------
Alan M. Lewis Michael J. Cosgrove
March 1, 1994
44
<PAGE>
Appendix A
This Appendix supersedes all previous Appendices created with respect to the
Custodian Contract between State Street and the parties listed in Appendix A
thereto, dated July 1, 1989 (as thereafter amended). It is intended that the
Custodian Contract apply to each Fund set forth below.
Fund Name
GE S&S Program Mutual Fund
GE S&S Long-Term Interest Fund
Elfun Diversified Fund
Elfun Global Fund
Elfun Money Market Fund
Elfun Trusts
Elfun Tax Exempt Income Fund
Elfun Income Fund
GE Funds:
GE Premier Growth Equity Fund
GE U.S. Equity Fund
GE Global Equity Fund
GE Fixed Income Fund
GE Tax-Exempt Fund
GE Money Market Fund
GE Strategic Investment Fund
GE International Equity Fund
GE Short-Term Government Fund
GE Mid-Cap Growth Fund
GE International Fixed Income Fund
GE Value Equity Fund
GE Government Securities Fund
Variable Investment Trust:
GE U.S. Equity Portfolio
GE International Equity Portfolio
GE Strategic Investment Portfolio
GE Fixed Income Portfolio
GE Money Market Portfolio
GE LifeStyle Funds:
GE Conservative Strategy Fund
GE Moderate Strategy Fund
GE Aggressive Strategy Fund
GE Conservative Allocation Fund
GE Moderate Allocation Fund
GE Aggressive Allocation Fund
45
<PAGE>
GE Investments Funds, Inc.:
S&P 500 Index Fund
Government Securities Fund
U.S. Equity Fund
Fixed Income Fund
Premier Growth Equity Fund
Total Return Fund
Money Market Fund
Real Estate Securities Fund
International Equity Fund
Global Income Fund
Value Equity Fund
ATTEST: STATE STREET BANK AND TRUST COMPANY
/s/ [Illegible] By:/s/ Michael P. Cloherty 6/10/97
- ------------------------------ ---------------------------------
Name: Michael P. Cloherty
Title: Vice President
ATTEST (FOR EACH OF THE FUNDS
HEREINABOVE DESCRIBED)
/s/ [Illegible] By:/s/ Michael J. Cosgrove
- ------------------------------ ---------------------------------
Name: Michael J. Cosgrove
Title: Trustee and Director
June 10, 1997
46
<PAGE>
FEE SCHEDULE TO THE CUSTODY CONTRACTS
Reference is made to that (i) Custodian Contract dated as of July 1, 1989
between State Street Bank and Trust Company ("State Street") and General
Electric Investment Corporation ("GEIC") and GE Investment Management
Incorporated ("GEIM"), as Investment Managers for certain entities specified
therein (GEIC and GEIM are collectively referred to herein as "GEI"), (as
amended through the date hereof, the "Non-Mutual Fund Contract") and (ii)
Custodian Contract dated as of July 1, 1989 between State Street and each of the
parties indicated on appendix A attached thereto (as amended through the date
hereof, the "Mutual Fund Contract"; the Non-Mutual Fund Contract and the Mutual
Fund Contract are collectively referred to herein as the "Custody Contracts").
WHEREAS, Section 5 of the Non-Mutual Fund Contract and Section 11 of the
Mutual Fund Contract provide that compensation due State Street for providing
the services to GEI set forth in the Custody Contracts is to be agreed to by
State Street and GEI; and
WHEREAS, State Street and GEI have agreed on such compensation and wish to
set forth the terms of such compensation.
NOW, THEREFORE, in consideration of the premises and the mutual benefits to
be derived from this agreement, the parties hereby agree that the fee schedule
attached hereto as Schedule A (the "Fee Schedule") shall constitute both the fee
schedule contemplated in Section 5 of the Non-Mutual Fund
47
<PAGE>
Contract and the agreement referred to in Section 11 of the Mutual Fund
Contract. Except as expressly provided herein, this Fee Schedule shall not, in
any way, limit any of the rights, obligations, responsibilities or duties set
forth in the Custody Contracts for any of the parties.
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of
this 30 day of August, 1994.
General Electric Investment
Corporation and GE Investment
Management Incorporated
/s/ Donald W. Torey
------------------------------------
Donald W. Torey
Executive Vice President
General Electric Investment
Corporation and GE Investment
Management Incorporated (For each of
the Entities Named on Schedule B
hereto)
/s/ Donald W. Torey
------------------------------------
Donald W. Torey
Executive Vice President
/s/ Donald W. Torey
------------------------------------
Donald W. Torey, as Trustee, on
behalf of each of the S&S Funds
named on Schedule C hereto
/s/ Donald W. Torey
------------------------------------
Donald W. Torey, as Trustee, on
behalf of each of the Elfun Funds
named on Schedule C hereto
48
<PAGE>
/s/ Alan M. Lewis
------------------------------------
Alan M. Lewis, as Trustee, on behalf
of each of the GE Funds named on
Schedule C hereto
State Street Bank and Trust Company
/s/ James J. Darr
------------------------------------
By:
Title:
49
<PAGE>
SCHEDULE A
BASE FEE: GEI will be charged an annual flat fee of S4.7 million for
custodial, accounting and recordkeeping services as outlined in
the Custody Contracts. This S4.7 million fee is effective as of
January 1, 1994 and shall remain in effect, subject to adjustment
specified below, until expiration of the Custody Contracts on
February 28, 1997.
The annual base fee does not include fees for services which are
agreed upon in separate arrangements. For example, fees for
value-added services (e.g., SaFire, Fixed Income Workstation) and
fees for services related to GEI external clients.
INCREMENTAL FEES (per year):
GEI and State Street agree to examine, on a semiannual basis
(June 30 and December 31), significant changes, if any, to GEI's
current operational or investment structure which impact State
Street and further agree to discuss amending the base fee set
forth above, to reflect such changes. Examples of such changes,
include, but are not limited to:
-a change in the size of the assets managed by GEI and (i)
custodied by State Street or (ii) for which State Street provides
investment management support services to GEI, due to
acquisition, merger, or management/custody responsibility
realignment within GEI (changes in asset size due to market
related moves are not included in this criteria);
-a change in the number of portfolios custodied by State Street
pursuant to the Custody Contracts for GEI affiliates;
-a change from monthly pricing requirements to daily pricing
requirements for any of the non-mutual funds listed on Schedule B
attached hereto, as such Schedule may be amended from time to
time;
-a change in the investment policy of any of the non-mutual funds
listed on Schedule B which has the effect of significantly
increasing the allocation of funds (i) from U.S. assets to
non-U.S. assets or (ii) with respect to non-U.S. assets, from
non-emerging markets to emerging markets;
50
<PAGE>
SCHEDULE A (cont.)
-an increase in the number of portfolios beyond 195 (excluding
portfolios listed in Schedule C attached hereto and portfolios
covered under separate fee schedules, for example, GEI external
clients);
-the addition of any mutual fund properly listed on Schedule C;
or
-an increase in the number of classes per mutual fund listed on
Schedule C, as such Schedule may be amended, to a number greater
than four.
REIMBURSEMENT FOR STATE STREET PERSONNEL
Should GEI request that State Street provide personnel to work at
GEI's Stamford office, then State Street shall be reimbursed for
providing such personnel at a monthly rate of 1.5 times the monthly
salary of each individual supplied.
51
<PAGE>
SCHEDULE B
Account Name
General Electric Pension Trust
General Electric Insurance Plan Trust
General Electric Medical Care Trust for Pensioners
General Electric Relief and Loan Fund
RGE Corporate Base Contribution Trust
RGE Employee Stock Plan
General Electric Company (Corporate Treasury)
General Electric Foundation
General Electric Foundation, Inc.
Electric Mutual Liability Insurance Company
Electric Insurance Company
Employers Reinsurance Corporation
GE Investment Realty Partners I, L.P.
GE Investment Realty Partners II, L.P.
GE Investment Private Placement Partners I, L.P.
GE Investment Hotel Partners, L.P.
GE Investment International Fund
GE Investment International Fund - NYC
Damon Runyon - Walter Winchell Cancer Fund
52
<PAGE>
SCHEDULE C
Fund Name
GE S&S Program Mutual Fund
GE S&S Long-Term Interest Fund
GE S&S Program Holding Period Fund
GE S&S Program Short Term Interest Fund
GE S&S Program Money Market Fund
Elfun Diversified Fund
Elfun Global Fund
Elfun Money Market Fund
Elfun Trusts
Elfun Tax Exempt Income Fund
Elfun Income Fund
GE U.S. Equity Fund
GE Global Equity Fund
GE Fixed Income Fund
GE Tax-Exempt Fund
GE Money Market Fund
GE Strategic Investment Fund
GE International Equity Fund
GE Short-Term Government Fund
General Electric Savings and Security Plan Trust
53
<PAGE>
AMENDMENT TO THE FEE
SCHEDULE TO THE CUSTODY CONTRACTS
Reference is made to that (i) Custodian Contract dated as of July 1, 1989
between State Street Bank and Trust Company ("State Street") and General
Electric Investment Corporation ("GEIC") and GE Investment Management
Incorporated ("GEIM"), as Investment Managers for certain entities specified
therein (GEIC and GEIM are collectively referred to herein as "GEI"), (as
amended through the date hereof, the "Non-Mutual Fund Contract") and (ii)
Custodian Contract dated as of July 1, 1989 between State Street and each of the
parties indicated on appendix A attached thereto (as amended through the date
hereof, the "Mutual Fund Contract"; the Non-Mutual Fund Contract and the Mutual
Fund Contract are collectively referred to herein as the "Contracts").
WHEREAS, Section 5 of the Non-Mutual Fund Contract and Section 11 of the
Mutual Fund Contract provide that compensation due State Street for providing
the services to GEI set forth in the Custody Contracts is to be agreed to by
State Street and GEI; and
WHEREAS, State Street and GEI agreed to and set forth such compensation in
that certain Fee Schedule to the Custody Contracts dated as of August 30, 1994
(the "Fee Schedule"); and
WHEREAS, the parties hereto wish to amend the Fee Schedule.
NOW, THEREFORE, in consideration of the premises and the mutual benefits to
be derived from this Amendment, the parties hereby agree as follows:
54
<PAGE>
1. Schedule A to the Fee Schedule is hereby deleted in its entirety and, in
lieu thereof, Schedule A attached hereto shall be inserted.
2. Schedule C to the Fee Schedule is hereby deleted in its entirety and, in
lieu thereof, Schedule C attached hereto shall be inserted.
3. Except as amended hereby, the Fee Schedule remains in all other respects
in full force and effect in accordance with its terms.
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the
1st day of January, 1995.
State Street Bank and Trust General Electric Investment
Company Corporation and GE Investment
Management Incorporated
/s/ James J. Darr /s/ Donald W. Torey
- ----------------------------------- ------------------------------------
By: James J. Darr Donald W. Torey
Title: Executive Vice President Executive Vice President
General Electric Investment
Corporation and GE Investment
Management Incorporated (For
each of the Entities Named on
Schedule B to the Fee Schedule)
/s/ Donald W. Torey
------------------------------------
Donald W. Torey
Executive Vice President
/s/ Donald W. Torey
------------------------------------
Donald W. Torey, as Trustee, on
behalf of each of the S&S Funds
named on Schedule C hereto
/s/ Donald W. Torey
------------------------------------
Donald W. Torey, as Trustee, on
behalf of each of the Elfun Funds
named on Schedule C hereto
55
<PAGE>
/s/ Alan M. Lewis
------------------------------------
Alan M. Lewis, as Trustee, on
behalf of each of the GE Funds
named on Schedule C hereto
/s/ Alan M. Lewis
------------------------------------
Alan M. Lewis, as Trustee, on
behalf of each of the Variable
Trust Funds named on Schedule C
hereto
56
<PAGE>
SCHEDULE A
BASE FEE: GEI will be charged an annual flat fee of $4.9 million for
custodial, accounting and recordkeeping services as outlined in
the Custody Contracts. This $4.9 million fee is effective as of
January 1, 1995 and shall remain in effect, subject to adjustment
specified below, until expiration of the Custody Contracts on
February 28, 1997.
The annual base fee does not include fees for services which are
agreed upon in separate arrangements. For example, fees for
value-added services (e.g., SaFire, Fixed Income Workstation) and
fees for services related to GEI external clients.
INCREMENTAL FEES (per year):
GEI and State Street agree to examine, on a semiannual basis
(June 30 and December 31), significant changes, if any, to GEI's
current operational or investment structure which impact State
Street and further agree to discuss amending the base fee set
forth above, to reflect such changes. Examples of such changes,
include, but are not limited to:
-a change in the size of the assets managed by GEI and (i)
custodied by State Street or (ii) for which State Street provides
investment management support services to GEI due to acquisition,
merger, or management/custody responsibility realignment within
GEI (changes in asset size due to market related moves are not
included in this criteria);
-a change in the number of portfolios custodied by State Street
pursuant to the Custody Contracts for GEI affiliates;
-a change from monthly pricing requirements to daily pricing
requirements for any of the non-mutual funds listed on Schedule B
attached hereto, as such Schedule may be amended from time to
time;
-a change in the investment policy of any of the non-mutual funds
listed on Schedule B which has the effect of significantly
increasing the allocation of funds (i) from U.S. assets to
non-U.S. assets or (ii) with respect to non-U.S. assets, from
non-emerging markets to emerging markets;
57
<PAGE>
SCHEDULE A (cont.)
-an increase in the number of portfolios beyond 195 (excluding
portfolios listed in Schedule C attached hereto and portfolios
covered under separate fee schedules, for example, GEI external
clients);
-the addition of any mutual fund properly listed on Schedule C;
or
-an increase in the number of classes per mutual fund listed on
Schedule C, as such Schedule may be amended, to a number greater
than four.
REIMBURSEMENT FOR STATE STREET PERSONNEL
Should GEI request that State Street provide personnel to work at
GEI's Stamford office, then State Street shall be reimbursed for
providing such personnel at a monthly rate of 1.5 times the
monthly salary of each individual supplied.
58
<PAGE>
SCHEDULE C
Fund Name
GE S&S Program Mutual Fund
GE S&S Long-Term Interest Fund
GE S&S Program Holding Period Fund
GE S&S Program Short Term Interest Fund
GE S&S Program Money Market Fund
Elfun Diversified Fund
Elfun Global Fund
Elfun Money Market Fund
Elfun Trusts
Elfun Tax Exempt Income Fund
Elfun Income Fund
GE U.S. Equity Fund
GE Global Equity Fund
GE Fixed Income Fund
GE Tax-Exempt Fund
GE Money Market Fund
GE Strategic Investment Fund
GE International Equity Fund
GE Short-Term Government Fund
General Electric Savings and Security Plan Trust
Variable Investment Trust U.S. Equity
Variable Investment Trust International Equity
Variable Investment Trust Fixed Income
Variable Investment Trust Money Market
59
<PAGE>
SECOND AMENDMENT TO THE FEE
SCHEDULE TO THE CUSTODY CONTRACTS
Reference is made to that (i) Custodian Contract dated as of July 1, 1989
between State Street Bank and Trust Company ("State Street") and General
Electric Investment Corporation ("GEIC") and GE Investment Management
Incorporated ("GEIM"), as Investment Managers for certain entities specified
therein (GEIC and GEIM are collectively referred to herein as "GEI"), (as
amended through the date hereof, the "Non-Mutual Fund Contract") and (ii)
Custodian Contract dated as of July 1, 1989 between State Street and each of the
parties indicated on appendix A attached thereto (as amended through the date
hereof, the "Mutual Fund Contract"; the Non-Mutual Fund Contract and the Mutual
Fund Contract are collectively referred to herein as the "Custody Contracts").
Capitalized terms used herein but not otherwise defined shall have the meanings
ascribed to them in the Non-Mutual Fund Contract.
WHEREAS, Section 5 of the Non-Mutual Fund Contract and Section 11 of the
Mutual Fund Contract provide that compensation due State Street for providing
the services to GEI set forth in the Custody Contracts is to be agreed to by
State Street and GEI; and
WHEREAS, State Street and GEI agreed to and set forth such compensation in
that certain Fee Schedule to the Custody Contracts dated as of August 30, 1994,
as amended by that certain Amendment to the Fee Schedule to the Custody
Contracts dated as of January 1, 1995 (the "Fee Schedule"); and
WHEREAS, the parties hereto wish to further amend the Fee Schedule.
NOW, THEREFORE, in consideration of the premises and the mutual benefits to
be derived from this Amendment, the parties hereby agree as follows:
1. Schedule A, Schedule B and Schedule C to the Fee Schedule are hereby
deleted in their entirety and, in lieu thereof, Schedule A, Schedule B and
Schedule C attached hereto shall be inserted.
2. Except as amended hereby, the Fee Schedule remains in all other respects
in full force and effect.
60
<PAGE>
IN WITNESS WHEREOF, the parties have duly executed this Amendment as of
this 30th day of September, 1996.
State Street Bank and Trust General Electric Investment
Company Corporation and GE Investment
Management Incorporated
/s/ James J. Darr /s/ Donald W. Torey
- --------------------------------- ------------------------------------
By: James J. Darr Donald W. Torey
Title: Executive Vice Executive Vice President
President
General Electric Investment
Corporation and GE Investment
Management Incorporated (For each
of the Entities designated as
"Custody" on Schedule B hereto)
/s/ Donald W. Torey
------------------------------------
Donald W. Torey
Executive Vice President
/s/ Donald W. Torey
------------------------------------
Donald W. Torey, as Trustee, on
behalf of each of the S&S Funds
named on Schedule C hereto
/s/ Donald W. Torey
------------------------------------
Donald W. Torey, as Trustee, on
behalf of each of the Elfun Funds
named on Schedule C hereto
/s/ Alan M. Lewis
------------------------------------
Alan M. Lewis, as Trustee, on
behalf of each of the GE Funds
named on Schedule C hereto
/s/ Alan M. Lewis
------------------------------------
Alan M. Lewis, as Trustee, on
behalf of the Variable Investment
Trust Portfolios named on Schedule
C hereto
61
<PAGE>
SCHEDULE A
BASE FEE: GEI (inclusive of any Affiliate, as defined below) will be
charged an annual flat fee of $5.4 million for custodial,
accounting and recordkeeping services as outlined in the Custody
Contracts. This $5.4 million fee is effective as of January 1,
1996 and shall remain in effect, subject to adjustment as
specified below, until expiration of the Custody Contracts on
February 28, 1997.
The Base Fee does not include fees for services which are agreed
upon in separate arrangements. For example, fees for value-added
services (e.g., SaFire, Fixed Income Workstation) and fees for
services related to GEI external clients, such as reports.
INCREMENTAL FEES (per year):
From and after the effective date of this Amendment, a separate
and individual fee schedule shall be negotiated for any new party
to the Non Mutual Fund Contract unless that party is an Affiliate
(as defined below).
"Affiliate" shall mean (i) any corporation or other entity which
is a member of a controlled group of which General Electric
Company (the "Company") is a member as determined under Section
414(b) or (c) of the Internal Revenue Code of 1986, as amended
(the "Code"), or (ii) any corporation or other entity which is at
least 50 percent controlled, directly or indirectly, by the
Company (including, but not limited to, a partnership if the
general partner is an entity described in this subsection (ii)),
or (iii) any employee benefit trust or partnership, the assets of
which exclusively benefit, directly or indirectly, employees of
an organization described in (i) or (ii) herein above, and which
corporation or other entity has adopted the Non-Mutual Fund
Contract in accordance with the provisions thereof.
GEI and State Street agree to examine, on a semiannual basis
(June 30 and December 31), significant changes, if any, to GEI's
current operational or investment structure which impact State
Street and further agree to discuss amending the base fee set
forth above, to reflect such changes. Examples of such changes,
include, but are not limited to:
62
<PAGE>
-a change in the size of the assets managed by GEI and (i)
custodied by State Street or (ii) for which State Street provides
reports to GEI, due to acquisition, merger, or management/custody
responsibility realignment within GEI (changes in asset size due
to market related moves are not included in this criteria);
-a change from monthly pricing requirements to daily pricing
requirements for any of the non-mutual funds listed on Schedule B
attached hereto, as such Schedule may be amended from time to
time;
-a change in the investment policy of any of the non-mutual funds
listed on Schedule B which has the effect of significantly
increasing the allocation of funds (i) from U.S. assets to
non-U.S. assets or (ii) with respect to non-U.S assets, from
non-emerging markets to emerging markets;
-an increase in the number of portfolios beyond 195 (excluding
portfolios listed in Schedule C attached hereto and portfolios
covered under separate fee schedules);
-the addition of any mutual fund properly listed on Schedule C;
or
-an increase in the number of classes per mutual fund listed on
Schedule C, as such Schedule may be amended, to a number greater
than four.
REIMBURSEMENT FOR STATE STREET PERSONNEL
Should GEI request that State Street provide personnel to work at
GEI's Stamford office, then State Street shall be reimbursed for
providing such personnel at a monthly rate of 1.5 times the
monthly salary of each individual supplied.
63
<PAGE>
SCHEDULE B
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
Fee Non
Organization Schedule Custody Custody
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
G.E. Fund Base X
- ------------------------------------------------------------------------------------------------------------------------
GE Savings and Security Plan Trust Base X
- ------------------------------------------------------------------------------------------------------------------------
General Relief and Loan Fund Base X
- ------------------------------------------------------------------------------------------------------------------------
General Electric Medical Care Trust For Pensioners Base X
- ------------------------------------------------------------------------------------------------------------------------
General Electric Insurance Plan Trust Base X
- ------------------------------------------------------------------------------------------------------------------------
Electric Insurance Company Base X
- ------------------------------------------------------------------------------------------------------------------------
Viking Insurance Company Base X
- ------------------------------------------------------------------------------------------------------------------------
Roper Corporation Base X
- ------------------------------------------------------------------------------------------------------------------------
General Electric Pension Trust Base X
- ------------------------------------------------------------------------------------------------------------------------
General Electric Company (Corporate Treasury) Base X
- ------------------------------------------------------------------------------------------------------------------------
GE Investments Private Placement Partners I, L.P. Base X
- ------------------------------------------------------------------------------------------------------------------------
GE Investments Private Placement Partners II, L.P. Base X
- ------------------------------------------------------------------------------------------------------------------------
GE Investments Realty Partners I, L.P. Base X
- ------------------------------------------------------------------------------------------------------------------------
GE Investments Realty Partners II, L.P. Base X
- ------------------------------------------------------------------------------------------------------------------------
GE Investments Realty Partners III, L.P. Base X
- ------------------------------------------------------------------------------------------------------------------------
GE Investments Hotel Partners, L.P. Base X
- ------------------------------------------------------------------------------------------------------------------------
Damon Runyon - Walter Winchell Cancer Foundation Base X
- ------------------------------------------------------------------------------------------------------------------------
Bossidy Educational Trust Base X
- ------------------------------------------------------------------------------------------------------------------------
GE Investments International Fund Separate X
- ------------------------------------------------------------------------------------------------------------------------
GE Investments International Fund - NYC Separate X
- ------------------------------------------------------------------------------------------------------------------------
GE Investments Group Trust Separate X
- ------------------------------------------------------------------------------------------------------------------------
Securities-Lending Collateral-Savings and Security Trust Base X
- ------------------------------------------------------------------------------------------------------------------------
Securities-Lending Collateral-Medical Care Trust Base X
- ------------------------------------------------------------------------------------------------------------------------
Securities Lending Collateral-Insurance Plan Trust Base X
- ------------------------------------------------------------------------------------------------------------------------
Securities-Lending Collateral-G.E. Pension Trust Base X
- ------------------------------------------------------------------------------------------------------------------------
GE Mortgage Insurance Corporation Base X
- ------------------------------------------------------------------------------------------------------------------------
Employers Reinsurance Corporation Base X
- ------------------------------------------------------------------------------------------------------------------------
ELM Insurance Company Base X
- ------------------------------------------------------------------------------------------------------------------------
Financial Guaranty Insurance Company Base X
- ------------------------------------------------------------------------------------------------------------------------
Puritan Excess and Surplus Lines Insurance Corporation Base X
- ------------------------------------------------------------------------------------------------------------------------
Viking Insurance Co. Ltd Base X
- ------------------------------------------------------------------------------------------------------------------------
Fiduciary Investment Group Base X
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
64
<PAGE>
<TABLE>
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------
Renaissance Reinsurance Separate X
- ------------------------------------------------------------------------------------------------------------------------
State of Wisconsin Separate X
- ------------------------------------------------------------------------------------------------------------------------
Chrysler Corporation Separate X
- ------------------------------------------------------------------------------------------------------------------------
Battelle Corporation Separate X
- ------------------------------------------------------------------------------------------------------------------------
Commonwealth Edison Corporation Separate X
- ------------------------------------------------------------------------------------------------------------------------
State of Minnesota Separate X
- ------------------------------------------------------------------------------------------------------------------------
Kidder, Peabody Group Inc. Retirement Plan for Salaried and Commissioned Base X
Employees Trust
- ------------------------------------------------------------------------------------------------------------------------
College of Arts and Teachers Separate X
- ------------------------------------------------------------------------------------------------------------------------
Alberta Treasury Separate X
- ------------------------------------------------------------------------------------------------------------------------
New Japan Securities Separate X
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
65
<PAGE>
SCHEDULE C
Fund Name
GE S&S Program Mutual Fund
GE S&S Long-Term Interest Fund
GE S&S Program Holding Period Fund
GE S&S Program Short Term Interest Fund
GE S&S Program Money Market Fund
Elfun Diversified Fund
Elfun Global Fund
Elfun Money Market Fund
Elfun Trusts
Elfun Tax Exempt Income Fund
Elfun Income Fund
GE U.S. Equity Fund
GE Global Equity Fund
GE Fixed Income Fund
GE Tax-Exempt Fund
GE Money Market Fund
GE Strategic Investment Fund
GE International Equity Fund
GE Short-Term
Government Fund
General Electric Savings and Security Plan Trust
GE International Equity Portfolio
GE U.S. Equity Portfolio
GE Fixed Income Portfolio
GE Money Market Portfolio
66
<PAGE>
THIRD AMENDMENT TO THE FEE
SCHEDULE TO THE CUSTODY CONTRACTS
Reference is made to that (i) Custodian Contract dated as of July 1, 1989
between State Street Bank and Trust Company ("State Street") and General
Electric Investment Corporation ("GEIC") and GE Investment Management
Incorporated ("GEIM"), as Investment Managers for certain entities specified
therein (GEIC and GEIM are collectively referred to herein as "GEI"), (as
amended through the date hereof, the "Non-Mutual Fund Contract") and (ii)
Custodian Contract dated as of July 1, 1989 between State Street and each of the
parties indicated on appendix A attached thereto (as amended through the date
hereof, the "Mutual Fund Contract"; the Non-Mutual Fund Contract and the Mutual
Fund Contract are collectively referred to herein as the "Custody Contracts").
Capitalized terms used herein but not otherwise defined shall have the meanings
ascribed to them in the Non-Mutual Fund Contract.
WHEREAS, Section 5 of the Non-Mutual Fund Contract and Section 11 of the
Mutual Fund Contract provide that compensation due State Street for providing
the services to GEI set forth in the Custody Contracts is to be agreed to by
State Street and GEI; and
WHEREAS, State Street and GEI agreed to and set forth such compensation in
that certain Fee Schedule to the Custody Contracts dated as of August 30, 1994,
as amended by that certain Amendment to the Fee Schedule to the Custody
Contracts dated as of January 1, 1995, as further amended by the Second
Amendment dated as of September 30, 1996 (the "Fee Schedule"); and
WHEREAS, the parties hereto wish to further amend the Fee Schedule.
NOW, THEREFORE, in consideration of the premises and the mutual benefits to
be derived from this Amendment, the parties hereby agree as follows:
1. Schedule A, Schedule B and Schedule C to the Fee Schedule are hereby
deleted in their entirety and, in lieu thereof, Schedule A, Schedule B and
Schedule C attached hereto shall be inserted.
2. Except as amended hereby, the Fee Schedule remains in all other respects
in full force and effect.
67
<PAGE>
IN WITNESS WHEREOF, the parties have duly executed this Amendment as of
this _____ day of March, 1997.
State Street Bank and Trust General Electric Investment
Company Corporation and GE Investment
Management Incorporated
/s/ [Illegible] /s/ Donald W. Torey
- -------------------------------- ------------------------------------
Name: Donald W. Torey
Title: Executive Vice President
General Electric Investment
Corporation and GE Investment
Management Incorporated (For each
of the Entities designated as
"Custody" on Schedule B hereto)
/s/ Donald W. Torey
------------------------------------
Donald W. Torey
Executive Vice President
/s/ Donald W. Torey
------------------------------------
Donald W. Torey, as Trustee, on
behalf of each of the S&S Funds
named on Schedule C hereto
/s/ Donald W. Torey
------------------------------------
Donald W. Torey, as Trustee, on
behalf of each of the Elfun Funds
named on Schedule C hereto
/s/ Alan M. Lewis
------------------------------------
Alan M. Lewis, as Trustee, on
behalf of each of the GE Funds
named on Schedule C hereto
/s/ Alan M. Lewis
------------------------------------
Alan M. Lewis, as Trustee, on
behalf of the Variable Investment
Trust Portfolios named on Schedule
C hereto
68
<PAGE>
SCHEDULE A
I. Annual Base Fee
GEI will be charged an annual flat fee of $7.36 million (pro-rated for any
partial year) for custodial, portfolio accounting, performance measurement,
investment manager reporting, security pricing, specific systems support
and any other services outlined in the Custody Contracts, all as currently
being provided on the effective date of this Amendment. This fee is
effective as of March 1, 1997 and shall remain in effect, subject to
adjustments as specified below, if any, until February 28, 2001.
The base fee does not include:
o services related to entities which are not Affiliates or
o additional services (e.g. Fund Administration, transfer agency).
Fees for these services are covered under separate agreements.
From and after the effective date of this Amendment, a separate and
individual fee schedule shall be negotiated for any new party to the
Non-Mutual Fund Contract unless that party is an Affiliate (as defined
below).
"Affiliate" shall mean (i) any corporation or other entity which is a
member of a controlled group of which General Electric Company (the
"Company") is a member as determined under Section 414(b) or (c) of the
Internal Revenue Code of 1986, as amended (the "Code"), or (ii) any
corporation or other entity which is at least 50 percent controlled,
directly or indirectly, by the Company (including but not limited to a
partnership if the general partner is an entity described in this
subsection (ii)), or (iii) any employee benefit trust or partnership, the
assets of which exclusively benefit, directly or indirectly, employees of
an organization described in (i) or (ii) herein above, and which
corporation or other entity has adopted the Non-Mutual Fund Contract in
accordance with the provisions thereof
2. Adjustments to Annual Base Fee
A. The base fee will be adjusted on an annual basis, if necessary, every
January 1, to reflect changes in the factors set forth below. If there
are significant changes to such factors prior to the normal annual
review, GEI and State Street agree to adjust the base fee prior to
January 1.
1. If any entity listed on Schedule B and identified with respect to
the Fee Schedule as "Base Plus" increases the assets and number
of portfolios managed by GEI, the base fee will be adjusted by
69
<PAGE>
an amount calculated by using the fee schedule for entities which
are not Affiliates. (If the contributions go into existing
portfolios, the base fee will not change.) If an entity whose
assets are not custodied at State Street (a) moves assets to
State Street for custody or (b) gives assets to GEI to manage,
and in each case such entity will be identified on Schedule B as
"Base Plus", then the base fee will be adjusted by an amount
calculated by using the fee schedule for entities which are not
Affiliates.
2. If the number of portfolios increases beyond 130 (excluding
portfolios listed in Schedule C attached hereto, portfolios
covered under separate fee schedules and portfolios of "Base
Plus" entities), the base fee will be increased by $10,000 per
portfolio above 130. If the number of portfolios decreases below
90, the base fee will be decreased by $10,000 per portfolio below
90.
3. If a new mutual fund is added and listed in Schedule C, the base
fee will be increased by an amount to be discussed by GEI and
State Street. If an existing mutual fund is closed and removed
from Schedule C, the base fee will decrease by an amount to be
discussed by GEI and State Street. GEI and State Street shall
review any change under this paragraph 3 quarterly.
4. The base fee includes payment for global custody services
(currently 3 basis points on assets in developed markets and 18
basis points on assets in non-developed markets). The amount of
such payment has been based on the allocation of investment
assets by region as of February 28, 1997 and State Street's costs
of providing regional custody services. The base fee will be
adjusted to reflect a material (a) change in the size of the
global assets custodied by State Street on behalf of GEI, (b)
reallocation by GEI of investment assets currently custodied by
State Street from developed to non-developed countries or vice
versa; or (c) change in State Street's cost of providing global
custody services. The current categorization of countries into
developed and non-developed groups is outlined in Attachment I.
GEI and State Street shall review any change under this paragraph
4 semiannually. (Notwithstanding the foregoing, out-of-pocket
expenses for stamp duty and registration are not included in the
base fee and will be passed on to GEI.)
70
<PAGE>
5. The base fee includes $1 million in costs related to systems
development, production, support and maintenance for State Street
systems that must be maintained or developed to support specific
GEI investment trading operations beyond normal State Street
systems maintenance. The base fee shall be adjusted annually to
reflect actual costs which materially differ from $1 million.
6. The base fee assumes State Street receives $2.1 million in
revenue per year due to GEI using State Street for FX Trading,
repo trading, and DDA balances. If the 2 year rolling average of
this revenue is less than $1.9 million per year, the base fee
will be increased by the amount the average revenue is less than
$1.9 million. If the average revenue is greater than $2.3
million, the base fee will be reduced by the amount the average
revenue exceeds $2.3 million. The first analysis of this revenue
will be done 2 years from the effective date of this agreement
and annually thereafter. In addition, should GEI use State Street
for securities lending or investment management services, the
base fee will be adjusted to reflect the revenue State Street
receives from these services. The amount of the adjustment will
be dependent upon the actual services used and volumes generated.
B. On January 1, 1998 and each January 1 thereafter, the base fee will be
adjusted to reflect:
1. Changes in the factors set forth in Section A.1, A.2 and A.3 (but
only for the first additional mutual fund) above; provided that
the base fee will only be increased by the difference which
results when $200,000 is subtracted from the aggregate increase
under such Sections; and
2. changes in the factors set forth in Section A.3 (not including
the first additional mutual fund), A.4, A.5 and A.6 above.
C. Should GEI request that State Street provide personnel to work at
GEI's Stamford office, then State Street shall be reimbursed for
providing such personnel at a monthly rate of 1.5 times the monthly
salary of each individual supplied.
III. Procedure
GEI and State Street agree to discuss from time to time any revision to the
base fee for material changes in the factors set forth in Section A or due
to other unforeseen
71
<PAGE>
circumstances which effect the cost of State Street's services hereunder.
Following such discussions (which shall include the annual revision to the
base fee as contemplated in Section B), State Street shall forward to GEI
by overnight delivery the revised base fee. Such revised fee shall take
effect as of the date sent by State Street unless GEI objects to such
revised fee within ten business days.
72
<PAGE>
ATTACHMENT I
Developed Markets Non-developed Markets
- ----------------- ---------------------
Australia Argentina
Austria Bangladesh
Belgium Bolivia
Canada Botswana
Denmark Brazil
Finland Chile
France China
Germany Columbia
Hong Kong Cyprus
Indonesia Czechoslovakia
Ireland Ecuador
Italy Egypt
Japan Ghana
Luxembourg Greece
Malaysia Hungary
Mexico India
Namibia Israel
Netherlands Ivory Cost
New Zealand Jamaica
Norway Jordan
Singapore Kenya
South Africa Korea
Spain Lebanon
Sweden Mauritius
Switzerland Morocco
Thailand Pakistan
United Kingdom Peru
Philippines
Poland
Portugal
Russia
Slovak Republic
Sri Lanka
Swaziland
Note: This schedule is subject Taiwan
to periodic review based upon Trinidad & Tobago
classification of markets and Tunisia
addition of new markets. Turkey
Uruguay
Venezuela
Zambia
Zimbabwe
73
<PAGE>
SCHEDULE B
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
Fee Non
Organization Schedule Custody Custody
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
G.E. Fund Base X
- ----------------------------------------------------------------------------------------------------------------------
GE Savings and Security Plan Trust Base X
- ----------------------------------------------------------------------------------------------------------------------
General Relief and Loan Fund Base X
- ----------------------------------------------------------------------------------------------------------------------
General Electric Medical Care Trust For Pensioners Base X
- ----------------------------------------------------------------------------------------------------------------------
General Electric Insurance Plan Trust Base X
- ----------------------------------------------------------------------------------------------------------------------
Electric Insurance Company Base Plus X
- ----------------------------------------------------------------------------------------------------------------------
Viking Insurance Company Base Plus X
- ----------------------------------------------------------------------------------------------------------------------
General Electric Pension Trust Base X
- ----------------------------------------------------------------------------------------------------------------------
General Electric Company (Corporate Treasury) Base X
- ----------------------------------------------------------------------------------------------------------------------
GE Investments Private Placement Partners I, L.P. Base X
- ----------------------------------------------------------------------------------------------------------------------
GE Investments Private Placement Partners II, L.P. Base X
- ----------------------------------------------------------------------------------------------------------------------
GE Investments Realty Partners I, L.P. Base X
- ----------------------------------------------------------------------------------------------------------------------
GE Investments Realty Partners II, L.P. Base X
- ----------------------------------------------------------------------------------------------------------------------
GE Investments Realty Partners III, L.P. Base X
- ----------------------------------------------------------------------------------------------------------------------
GE Investments Hotel Partners, L.P. Base X
- ----------------------------------------------------------------------------------------------------------------------
Damon Runyon - Walter Winchell Cancer Foundation Base X
- ----------------------------------------------------------------------------------------------------------------------
Bossidy Educational Trust Base X
- ----------------------------------------------------------------------------------------------------------------------
GE Investments International Fund Separate X
- ----------------------------------------------------------------------------------------------------------------------
GE Investments International Fund - NYC Separate X
- ----------------------------------------------------------------------------------------------------------------------
GE Investments Group Trust Separate X
- ----------------------------------------------------------------------------------------------------------------------
Securities-Lending Collateral-Savings and Security Trust Base X
- ----------------------------------------------------------------------------------------------------------------------
Securities Lending Collateral-Insurance Plan Trust Base X
- ----------------------------------------------------------------------------------------------------------------------
Securities-Lending Collateral-G.E. Pension Trust Base X
- ----------------------------------------------------------------------------------------------------------------------
GE Mortgage Insurance Corporation Base Plus X
- ----------------------------------------------------------------------------------------------------------------------
Employers Reinsurance Corporation Base Plus X
- ----------------------------------------------------------------------------------------------------------------------
ELM Insurance Company Base Plus X
- ----------------------------------------------------------------------------------------------------------------------
Financial Guaranty Insurance Company Base Plus X
- ----------------------------------------------------------------------------------------------------------------------
Puritan Excess and Surplus Lines Insurance Corporation Base Plus X
- ----------------------------------------------------------------------------------------------------------------------
Viking Insurance Co. Ltd Base Plus X
- ----------------------------------------------------------------------------------------------------------------------
Consolidated Financial Insurance Base Plus
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
74
<PAGE>
<TABLE>
<S> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------
Adirondack Communications LP I Base X
- ----------------------------------------------------------------------------------------------------------------------
Adirondack Communications LP II Base X
- ----------------------------------------------------------------------------------------------------------------------
Latin Investors LP Base X
- ----------------------------------------------------------------------------------------------------------------------
GEIPPI Insurance Base X
- ----------------------------------------------------------------------------------------------------------------------
Renaissance Reinsurance Separate X
- ----------------------------------------------------------------------------------------------------------------------
Chrysler Corporation Separate X
- ----------------------------------------------------------------------------------------------------------------------
Battelle Corporation Separate X
- ----------------------------------------------------------------------------------------------------------------------
State of Minnesota Separate X
- ----------------------------------------------------------------------------------------------------------------------
Kidder, Peabody Group Inc. Retirement Plan for Base Plus X
Salaried and Commissioned Employees Trust
- ----------------------------------------------------------------------------------------------------------------------
College of Applied Arts and Technology Separate X
- ----------------------------------------------------------------------------------------------------------------------
Alberta Treasury Separate X
- ----------------------------------------------------------------------------------------------------------------------
New Japan Securities Separate X
- ----------------------------------------------------------------------------------------------------------------------
Brown & Williamson Separate X
- ----------------------------------------------------------------------------------------------------------------------
Western Reserve Life Separate X
- ----------------------------------------------------------------------------------------------------------------------
Red Cross Separate X
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
75
<PAGE>
SCHEDULE C
Fund Name
GE S&S Program Mutual Fund
GE S&S Long-Term Interest Fund
GE S&S Program Holding Period Fund
GE S&S Program Short Term Interest Fund
GE S&S Program Money Market Fund
Elfun Diversified Fund
Elfun Global Fund
Elfun Money Market Fund
Elfun Trusts
Elfun Tax Exempt Income Fund
Elfun Income Fund
GE U.S. Equity Fund
GE Global Equity Fund
GE Fixed Income Fund
GE Tax-Exempt Fund GE Money Market Fund
GE Strategic Investment Fund
GE International Equity Fund GE Short-Term Government Fund
GE Premier Growth Fund
General Electric Savings and Security Plan Trust
GE International Equity Portfolio
GE U.S. Equity Portfolio
GE Fixed Income Portfolio
GE Money Market Portfolio
Common Stock Index Fund
Government Securities Fund
Money Market Fund
Total Return Fund
International Equity Fund
Real Estate Securities Fund
Global
Income Fund
Value Equity Fund
76
<PAGE>
All Funds listed on
Appendix A
August 12, 1994
To: Our Global Mutual Fund Clients
Re: Board Approval Of State Street's Global Custody Network
In conjunction with the release of State Street's 1994 Annual Review of Foreign
Custody at the end of June, please find enclosed a blank copy of the Schedule A
Amendment to the Custody Contract. The Schedule A documents for State Street the
countries, subcustodians and depositories within its Global Custody Network
which have been approved by a mutual fund's Board of Directors or Trustees to
maintain the fund's assets outside of the United States. Per S.E.C. Rule 17f-5,
a fund's Board must approve foreign custody arrangements prior to the fund's
holding assets in a foreign country. The Board must also review and approve the
continuance of such arrangements at least annually.
This blank Schedule A contains State Street's most recent Global Custody Network
for mutual fund clients. It provides a uniform and convenient format for the
fund's authorized officer to indicate which foreign custody arrangements have
been approved by the Board. Please return the Schedule A to us in the
accompanying pre-printed envelope after the Board has voted.
At this time, we would also like to ask that you provide us with a copy of the
fund's Prospectus and Statement of Additional Information. These materials
greatly assist us in responding to your foreign custody questions and providing
information which is fund-specific.
Thank you for your assistance.
Mats Hansson
Assistant Vice President
17f-5 Compliance
77
<PAGE>
SCHEDULE A
17f-5 APPROVAL
The Board of Directors/Trustees of all Funds listed on Appendix A has approved
certain foreign banking institutions and foreign securities depositories within
State Street's Global Custody Network for use as subcustodians for the Fund's
securities, cash and cash equivalents held outside of the United States. Board
approval is as indicated by the Fund's Authorized Officer:
<TABLE>
<CAPTION>
Fund
Officer
Initials Country Subcustodian Central Depository
<S> <C> <C> <C>
/s/ Argentina Citibank, N.A. Caja de Valores S.A.
/s/ Australia Westpac Banking Corporation Austraclear Limited;
Reserve Bank Information
and Transfer system (RITS)
/s/ Austria GiroCredit Bank Oesterreichische
Aktiengesellschaft der Konrollbank AG
Sparkassen
/s/ Bangladesh Standard Chartered None
Bank
/s/ Belgium Generale Bank Caisse Interprofessionnelle
de Depots et de Virements
de Titres S.A. (CIK);
Banque Nationale de
Belgique
/s/ Botswana Barclays Bank of Botswana None
Limited
/s/ Brazil Citibank, N.A. Bolsa de Valores de Sao
Paulo (Bovespa);
Banco Central do Brasil;
Systema Especial de
Liquidacao e Custodia
(SELIC)
/s/ Canada Canada Trustco The Canadian Depository for
Mortgage Company Securities Limited (CDS)
/s/ Chile Citibank, N.A. None
/s/ China The Hongkong and Shanghai Shanghai Securities Central Clearing
Banking Corporation Limited and Registration Corporation (SSCCRC);
Shenzhen Securities Registrars Co.,
Ltd. and its designated agent banks
</TABLE>
78
<PAGE>
<TABLE>
<S> <C> <C> <C>
/s/ Colombia Cititrust Colombia S.A. None
Sociedad Fiduciaria
/s/ Cyprus Barclays Bank PLC None
/s/ Czech Republic Ceskoslovenska Obchodni Banka Stredisko Cennych Papiru (SCP);
A.S.
Czech National Bank (CNB)
/s/ Denmark Den Danske Bank Vaerdipapircentralen - The Danish
Securities Center (VP)
/s/ Egypt National Bank of Egypt None
/s/
/s/ Finland Kansallis-Osake-Pankki The Central Share Register of Finland
/s/ France Banque Paribas Societe Interprofessionnelle pour la
Compensation des Valeurs Mobilieres
(SICOVAM);
Banque de France, Saturne System
/s/ Germany Berliner Handels-und The Deutscher Kassenverein AG
Frankfurter Bank
/s/ Ghana Barclays Bank of Ghana Limited None
/s/ Greece National Bank of Greece S.A. The Central Securities Depository
(Apothetirio Titlon A.E.)
/s/ Hong Kong Standard Chartered Bank The Central Clearing and Settlement
System (CCASS)
/s/ Hungary Citibank Budapest Rt. None
/s/ India The Hongkong and Shanghai None
Banking Corporation Limited
/s/ Indonesia Standard Chartered Bank None
/s/ Ireland Bank of Ireland None;
The Central Bank of Ireland, The Gilt
Settlement Office (GSO)
/s/ Israel Bank Hapoalim B.M. The Clearing House of the Tel Aviv
Stock Exchange
</TABLE>
79
<PAGE>
<TABLE>
<S> <C> <C> <C>
/s/ Italy Morgan Guaranty Trust Company Monte Titoli S.p.A.;
Banca d'Italia
/s/ Japan Sumitomo Trust & Banking Co., None;
Ltd.
Bank of Japan Net System
/s/ Jordan The British Bank of the Middle None
East
/s/ Kenya Barclays Bank of Kenya Limited None
/s/ Korea Bank of Seoul Korea Securities Depository (KSD)
/s/ Malaysia Standard Chartered Bank None
Malaysia Berhad
/s/ Mexico Citibank, N.A. S.D. INDEVAL, S.A. de C.V. (Instituto
para el Deposito de Valores);
Banco de Mexico
/s/ Morocco Banque Commerciale du Maroc None
/s/ Netherlands MeesPierson N.V. Nederlands Centraal Instituut voor
Giraal Effectenverkeer B.V. (NECIGEF)
/s/ New Zealand ANZ Banking Group (New Zealand) None;
Limited
The Reerve Bank of New Zealand,
Austraclear NZ
/s/ Norway Christiania Bank og Kreditkasse Verdipapirsentralen - The Norwegian
Registry of Securities (VPS)
/s/ Pakistan Deutsche Bank AG None
/s/ Peru Citibank, N.A. Caja de Valores (CAVAL)
/s/ Philippines Standard Chartered Bank None
/s/ Poland Citibank Poland S.A. The National Depository of Securities
(Centrum Krajowego Depozytu Papierow
Wartosciowych)
/s/ Portugal Banco Comercial Portugues Central de Valores Mobiliarios (Central)
</TABLE>
80
<PAGE>
<TABLE>
<S> <C> <C> <C>
/s/ Singapore The Development Bank of The Central Depository (Pte) Limited
Singapore Ltd. (CDP)
/s/ South Africa Standard Bank of South Africa None
Limited
/s/ Spain Banca Santander, S.A. Servicio de Compensacion y Liquidacion
de Valores (SCLV);
Banco de Espana, Anotaciones en Cuenta
/s/ Sri Lanka The Hongkong and Shanghai The Central Depository System (Pvt)
Banking Corporation Limited Limited
/s/ Sweden Skandinaviska Enskilda Banken Vardepapperscentralen - The Swedish
Securities Register Center (VPC)
/s/ Switzerland Union Bank of Switzerland Schweizerische Effekten - Giro AG (SEGA)
/s/ Taiwan Central Trust of China the Taiwan Securities Central
Depository Company, Ltd. (TSCD)
/s/ Thailand Standard Chartered Bank The Share Depository Center (SDC)
/s/ Turkey Citibank, N.A. Istanbul Stock Exchange Settlement and
Custody Co., Inc. (I.M.K.B. Takas ve
Saklama A.S.)
/s/ United Kingdom State Street Bank and Trust None;
Company
The Bank of England, The Central Gilts
Office (CGO); The Central Moneymarkets
Office (CMO)
/s/ Uruguay Citibank, N.A. None
/s/ Venezuela Citibank, N.A. None
/s/ Zambia Barclays Bank of Zambia Limited None
/s/ Zimbabwe Barclays Bank of Zimbabwe None
Limited
/s/ Euroclear / State Street London Limited
/s/ Cedel / State Street London Limited
</TABLE>
81
<PAGE>
Certified by:
/s/ Alan M. Lewis, Trustee 12/15/94
- ----------------------------------- ------------------------------------
Fund's Authorized Officer Date
Secretary of all Funds listed
on Appendix A
82
<PAGE>
APPENDIX A
Elfun Trusts
Elfun Global Fund
Elfun Diversified Fund
Elfun Tax-Exempt Income Fund
Elfun Income Fund
Elfun Money Market Fund
General Electric S&S Long-Term Interest Fund
General Electric S&S Program Mutual Fund
83
<PAGE>
Exhibit (h)
TRANSFER AGENCY AND SERVICE AGREEMENT
between
EACH OF THE PARTIES INDICATED ON APPENDIX A
and
STATE STREET BANK AND TRUST COMPANY
<PAGE>
TABLE OF CONTENTS
Page
----
Article 1 Terms of Appointment; Duties of the Bank........................1
Article 2 Fees and Expenses...............................................5
Article 3 Representations and Warranties of the Bank......................6
Article 4 Representations and Warranties of the Fund......................7
Article 5 Data Access Information.........................................7
Article 6 Indemnification................................................10
Article 7 Standard of Care...............................................12
Article 8 Covenants of the Fund and the Bank.............................12
Article 9 Termination of Agreement.......................................14
Article 10 Additional Funds...............................................14
Article 11 Assignment.....................................................15
Article 12 Amendment......................................................15
Article 13 Massachusetts Law to Apply.....................................16
Article 14 Force Majeure..................................................16
Article 15 Consequential Damages..........................................16
Article 16 Merger of Agreement............................................16
Article 17 Limitations of Liability of the Trustees and Shareholders......16
Article 18 Counterparts...................................................17
Article 19 The Parties....................................................17
<PAGE>
TRANSFER AGENCY AND SERVICE AGREEMENT
AGREEMENT made as of the 10th day of February, 1994, by and between STATE
STREET BANK AND TRUST COMPANY, a Massachusetts trust company having its
principal office and place of business at 225 Franklin Street, Boston,
Massachusetts 02110 (the "Bank") and each Fund listed on Appendix A which
evidences its agreement to be bound hereby by executing a copy of this Agreement
(each such Fund individually referred to as the "Fund").
WHEREAS, the Fund desires to appoint the Bank as its transfer agent,
dividend disbursing agent, custodian of certain retirement plans and agent in
connection with certain other activities, and the Bank desires to accept such
appointment;
NOW, THEREFORE, in consideration of the mutual covenants herein contained,
the parties hereto agree as follows:
Article 1 Terms of Appointment; Duties of the Bank
1.01 Subject to the terms and conditions set forth in this Agreement, the
Fund hereby employs and appoints the Bank to act as, and the Bank agrees to act
as its transfer agent for the authorized and issued shares of beneficial
interest of the Fund ("Shares"), dividend disbursing agent, custodian of certain
retirement plans and agent in connection with any accumulation, open-account or
similar plans provided to the shareholders of the Fund ("Shareholders") and set
out in the currently effective prospectus and statement of additional
information ("prospectus") of the Fund, including without limitation any
periodic investment plan or periodic withdrawal program.
<PAGE>
1.02 The Bank agrees that it will perform the following services:
(a) In accordance with procedures established from time to time by
agreement between the Fund and the Bank, the Bank shall:
(i) Receive for acceptance, orders for the purchase of Shares, and
promptly deliver payment and appropriate documentation thereof to
the Custodian of the Fund authorized pursuant to the Trust
Agreement of the Fund (the "Custodian");
(ii) Pursuant to purchase orders, issue the appropriate number of
Shares and hold such Shares in the appropriate Shareholder
account;
(iii) Receive for acceptance redemption requests and redemption
directions and deliver the appropriate documentation thereof to
the Custodian;
(iv) In respect to the transactions in items (i), (ii) and (iii)
above, the Bank shall execute transactions directly with
broker-dealers authorized by the Fund who shall thereby be deemed
to be acting on behalf of the Fund;
(v) At the appropriate time as and when it receives monies paid to it
by the Custodian with respect to any redemption, pay over or
cause to be paid over in the appropriate manner such monies as
instructed by the redeeming Shareholders;
-2-
<PAGE>
(vi) Effect transfers of Shares by the registered owners thereof upon
receipt of appropriate instructions;
(vii) Prepare and transmit payments for dividends and distributions
declared by the Fund;
(viii) Issue replacement certificates for those certificates alleged
to have been lost, stolen or destroyed upon receipt by the Bank
of indemnification satisfactory to the Bank and protecting the
Bank and the Fund, and the Bank at its option, may issue
replacement certificates in place of mutilated stock certificates
upon presentation thereof and without such indemnity;
(ix) Maintain records of account for and advise the Fund and its
Shareholders as to the foregoing; and
(x) Record the issuance of Shares of the Fund and maintain pursuant
to SEC Rule 17Ad-10(e) a record of the total number of Shares
which are authorized, based upon data provided to it by the Fund,
and issued and outstanding. The Bank shall also provide the Fund
on a regular basis with the total number of Shares which are
authorized and issued and outstanding and shall have no
obligation, when recording the issuance of Shares, to monitor the
issuance of such
-3-
<PAGE>
Shares or to take cognizance of any laws relating to the issue or
sale of such Shares, which functions shall be the sole
responsibility of the Fund.
(b) In addition to and neither in lieu nor in contravention of the
services set forth in the above paragraph (a), the Bank shall: (i) perform
the customary services of a transfer agent, dividend disbursing agent,
custodian of certain retirement plans and, as relevant, agent in connection
with accumulation, open-account or similar plans (including without
limitation any periodic investment plan or periodic withdrawal program),
including but not limited to: maintaining all Shareholder accounts,
preparing Shareholder meeting lists, mailing proxies, mailing Shareholder
reports and prospectuses to current Shareholders, withholding taxes on U.S.
resident and non-resident alien accounts, preparing and filing U.S.
Treasury Department Forms 1099 and other appropriate forms required with
respect to dividends and distributions by federal authorities for all
Shareholders, preparing and mailing confirmation forms and statements of
account to Shareholders for all purchases and redemptions of Shares and
other confirmable transactions in Shareholder accounts, preparing and
mailing activity statements for Shareholders, and providing Shareholder
account information and (ii) provide a system which will enable the Fund to
monitor the total number of Shares sold in each State.
(c) In addition, the Fund shall (i) identify to the Bank in writing
those transactions and assets to be treated as
-4-
<PAGE>
exempt from blue sky reporting for each State and (ii) verify the
establishment of transactions for each State on the system prior to
activation and thereafter monitor the daily activity for each State. The
responsibility of the Bank for the Fund's blue sky State registration
status is solely limited to the initial establishment of transactions
subject to blue sky compliance by the Fund and the reporting of such
transactions to the Fund as provided above.
(d) Procedures as to who shall provide certain of these services in
Article 1 may be established from time to time by agreement between the
Fund and the Bank per the attached service responsibility schedule. The
Bank may at times perform only a portion of these services and the Fund or
its agent may perform these services on the Fund's behalf.
(e) The Bank shall provide additional services on behalf of the Fund
(i.e., escheatment services) which may be agreed upon in writing between
the Fund and the Bank.
Article 2 Fees and Expenses
2.01 For performance by the Bank pursuant to this Agreement, the Fund
agrees to pay the Bank an annual maintenance fee for each Shareholder account as
set out in the initial fee schedule attached hereto. Such fees and out-of-pocket
expenses and advances identified under Section 2.02 below may be changed from
time to time subject to mutual written agreement between the Fund and the Bank.
2.02 In addition to the fee paid under Section 2.01 above, the Fund agrees
to reimburse the Bank for out-of-pocket
-5-
<PAGE>
expenses, including but not limited to confirmation production, postage, forms,
telephone, microfilm, microfiche, tabulating proxies, records storage or
advances incurred by the Bank for the items set out in the fee schedule attached
hereto. In addition, any other expenses incurred by the Bank at the request or
with the consent of the Fund, will be reimbursed by the Fund.
2.03 The Fund agrees to pay all fees and reimbursable expenses within five
days following the mailing of the respective billing notice. Postage for mailing
of dividends, proxies, Fund reports and other mailings to all Shareholder
accounts shall be advanced to the Bank by the Fund at least seven (7) days prior
to the mailing date of such materials.
Article 3 Representations and Warranties of the Bank
The Bank represents and warrants to the Fund that:
3.01 It is a trust company duly organized and existing and in good standing
under the laws of the Commonwealth of Massachusetts.
3.02 It is duly qualified to carry on its business in the Commonwealth of
Massachusetts.
3.03 It is empowered under applicable laws and by its Charter and By-Laws
to enter into and perform this Agreement. 3.04 All requisite corporate
proceedings have been taken to authorize it to enter into and perform this
Agreement. 3.05 It has and will continue to have access to the necessary
facilities, equipment and personnel to perform its duties and obligations under
this Agreement.
-6-
<PAGE>
Article 4 Representations and Warranties of the Fund
The Fund represents and warrants to the Bank that:
4.01 It is a common law trust duly organized and existing and in good
standing under the laws of the State of its organization indicated on Appendix A
hereto.
4.02 It is empowered under applicable laws and by its Trust Agreement to
enter into and perform this Agreement.
4.03 All corporate proceedings required by said Trust Agreement have been
taken to authorize it to enter into and perform this Agreement.
4.04 It is an open-end management investment company registered under the
Investment Company Act of 1940, as amended.
4.05 A registration statement under the Securities Act of 1933, as amended
is currently effective and will remain effective, and appropriate state
securities law filings have been made and will continue to be made, with respect
to all Shares of the Fund being offered for sale.
Article 5 Data Access Information
5.01 The Fund acknowledges that the data bases, computer programs, screen
format, report formats, interactive design techniques, and documentation manuals
furnished to the Fund by the Bank as part of the Fund's ability to access
certain Fund-related data ("Customer Data") maintained by the Bank on data bases
under the control and ownership of the Bank ("Data Access Services") constitute
copyrighted, trade secret, or other proprietary information (collectively, "Data
Access Information") of substantial value to the Bank. The Fund agrees to treat
all
-7-
<PAGE>
Data Access Information as proprietary to the Bank and further agrees that it
shall not divulge any Data Access Information to any person or organization
except as may be provided hereunder; however, it is further agreed by the Bank
that Customer Data shall not be deemed to be proprietary to the Bank and that
the Fund is not restricted hereunder as to the use of such Customer Data.
Without limiting the foregoing, the Fund agrees for itself and its employees and
agents:
(a) to access Customer Data solely from locations as may be designated in
writing by the Bank and solely in accordance with the Bank's
applicable user documentation;
(b) to refrain from copying or duplicating in any way the Data Access
Information;
(c) to refrain from obtaining unauthorized access to any portion of the
Data Access Information, and if such access is inadvertently obtained,
to inform in a timely manner of such fact and dispose of such
information in accordance with the Bank's instructions;
(d) to refrain from causing or allowing third-party data required
hereunder from being retransmitted to any other computer facility or
other location, except with the prior written consent of the Bank;
(e) that the Fund shall have access only to those authorized transactions
agreed upon by the parties;
-8-
<PAGE>
(f) to honor all reasonable written requests made by the Bank to protect
at the Bank's expense the rights of the Bank in Data Access
Information at common law, under federal copyright law and under other
federal or state law.
Each party shall take reasonable efforts to advise its employees of their
obligations pursuant to this Article 5. The obligations of this Article shall
survive any earlier termination of this Agreement.
5.02 If the Fund notifies the Bank that any of the Data Access Services do
not operate in material compliance with the most recently issued user
documentation for such services, the Bank shall endeavor in a timely manner to
correct such failure. Organizations from which the Bank may obtain certain data
included in the Data Access Services are solely responsible for the contents of
such data and the Fund agrees to make no claim against the Bank arising out of
the contents of such third-party data, including, but not limited to, the
accuracy thereof. DATA ACCESS SERVICES AND ALL COMPUTER PROGRAMS AND SOFTWARE
SPECIFICATIONS USED IN CONNECTION THEREWITH ARE PROVIDED ON AN AS IS, AS
AVAILABLE BASIS. THE BANK EXPRESSLY DISCLAIMS ALL WARRANTIES EXCEPT THOSE
EXPRESSLY STATED HEREIN INCLUDING, BUT NOT LIMITED TO, THE IMPLIED WARRANTIES OF
MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE.
5.03 If the transactions available to the Fund include the ability to
originate electronic instructions to the Bank in order to (i) effect the
transfer or movement of cash of Shares or
-9-
<PAGE>
(ii) transmit Shareholder information or other information (such transactions
constituting a "COEFI"), then in such event the Bank shall be entitled to rely
on the validity and authenticity of such instruction without undertaking any
further inquiry as long as such instruction is undertaken in conformity with
security procedures established by the Bank from time to time.
Article 6 Indemnification
6.01 The Bank shall not be responsible for, and the Fund shall indemnify
and hold the Bank harmless from and against, any and all losses, damages, costs,
charges, reasonable counsel fees, payments, expenses and liability arising out
of or attributable to:
(a) All actions of the Bank or its agent or subcontractors required to
be taken pursuant to this Agreement, provided that such actions are taken
in good faith and without negligence or willful misconduct.
(b) The Fund's lack of good faith, negligence or willful misconduct
which arise out of the breach of any representation or warranty of the Fund
hereunder.
(c) The reliance on or use by the Bank or its agents or subcontractors
of information, records or documents which (i) are received by the Bank or
its agents or subcontractors, and (ii) have been prepared, maintained or
performed by the Fund or any other person or firm on behalf of the Fund
including but not limited to any previous transfer agent or registrar.
-10-
<PAGE>
(d) The reliance on, or the carrying out by the Bank or its agents or
subcontractors of any instructions or requests of the Fund.
(e) The offer or sale of Shares in violation of any requirement under
the federal securities laws or regulations or the securities laws or
regulations of any state that such Shares be registered in such state or in
violation of any stop order or other determination or ruling by any federal
agency or any state with respect to the offer or sale of such Shares in
such state.
6.02 At any time the Bank may apply to any officer of the Fund for
instructions, and may consult with legal counsel with respect to any matter
arising in connection with the services to be performed by the Bank under this
Agreement, and the Bank and its agents or subcontractors shall not be liable and
shall be indemnified by the Fund on behalf of the applicable Portfolio for any
action taken or omitted by it in reliance upon such instructions or upon the
opinion of such counsel. The Bank, its agents and subcontractors shall be
protected and indemnified in acting upon any paper or document furnished by or
on behalf of the Fund, reasonably believed to be genuine and to have been signed
by the proper person or persons, or upon any instruction, information, data,
records or documents provided the Bank or its agents or subcontractors by
machine readable input, telex, CRT data entry or other similar means authorized
by the Fund, and shall not be held to have notice of any change of authority of
any person, until receipt of written notice thereof from the Fund. The Bank, its
agents and subcontractors shall also be
-11-
<PAGE>
protected and indemnified in recognizing stock certificates which are reasonably
believed to bear the proper manual or facsimile signatures of the officers of
the Fund, and the proper countersignature of any former transfer agent or former
registrar, or of a co-transfer agent or co-registrar.
6.03 In order that the indemnification provisions contained in this Article
6 shall apply, upon the assertion of a claim for which the Fund may be required
to indemnify the Bank, the Bank shall promptly notify the Fund of such
assertion, and shall keep the Fund advised with respect to all developments
concerning such claim. The Fund shall have the option to participate with the
Bank in the defense of such claim or to defend against said claim in its own
name or in the name of the Bank. The Bank shall in no case confess any claim or
make any compromise in any case in which the Fund may be required to indemnify
the Bank except with the Fund's prior written consent.
Article 7 Standard of Care
7.01 The Bank shall at all times act in good faith and agrees to use its
best efforts within reasonable limits to insure the accuracy of all services
performed under this Agreement, but assumes no responsibility and shall not be
liable for loss or damage due to errors unless said errors are caused by its
negligence, bad faith, or willful misconduct of that of its employees.
-12-
<PAGE>
Article 8 Covenants of the Fund and the Bank
8.01 The Fund shall promptly furnish to the Bank the following:
(a) A certified copy of the resolution of the Trustees of the Fund
authorizing the appointment of the Bank and the execution and delivery of
this Agreement.
(b) A copy of the Trust Agreement of the Fund and all amendments
thereto.
8.02 The Bank hereby agrees to establish and maintain facilities and
procedures reasonably acceptable to the Fund for safekeeping of stock
certificates, check forms and facsimile signature imprinting devices, if any;
and for the preparation or use, and for keeping account of, such certificates,
forms and devices.
8.03 The Bank shall keep records relating to the services to be performed
hereunder, in the form and manner as it may deem advisable. To the extent
required by Section 31 of the Investment Company Act of 1940, as amended, and
the Rules thereunder, the Bank agrees that all such records prepared or
maintained by the Bank relating to the services to be performed by the Bank
hereunder are the property of the Fund and will be preserved, maintained and
made available in accordance with such Section and Rules, and will be
surrendered promptly to the Fund on and in accordance with its request.
8.04 The Bank and the Fund agree that all books, records, information and
data pertaining to the business of the other party which are exchanged or
received pursuant to the
-13-
<PAGE>
negotiation or the carrying out of this Agreement shall remain confidential, and
shall not be voluntarily disclosed to any other person, except as may be
required by law.
8.05 In case of any requests or demands for the inspection of the
Shareholder records of the Fund, the Bank will endeavor to notify the Fund and
to secure instructions from an authorized officer of the Fund as to such
inspection. The Bank reserves the right, however, to exhibit the Shareholder
records to any person whenever it is advised by its counsel that it may be held
liable for the failure to exhibit the Shareholder records to such person.
Article 9 Termination of Agreement
9.01 This Agreement may be terminated by either party upon one hundred
twenty (120) days written notice to the other.
9.02 Should the Fund exercise its right to terminate, all out-of-pocket
expenses associated with the movement of records and material will be borne by
the Fund and the Bank reserves the right to charge for any other reasonable
expenses associated with such termination. Additionally, if the Fund should
exercise its right to terminate within twelve (12) months of the execution of
this Agreement, the Bank may impose upon the Fund a charge equivalent to the
average of three (3) months' fees.
Article 10 Additional Funds
10.01 In the event that the Fund establishes one or more series of Shares
in addition to the existing series with
-14-
<PAGE>
respect to which it desires to have the Bank render services as transfer agent
under the terms hereof, it shall so notify the Bank in writing, and if the Bank
agrees in writing to provide such services, such series of Shares shall be
covered under this Agreement.
Article 11 Assignment
11.01 Except as provided in Section 11.03 below, neither this Agreement nor
any rights or obligations hereunder may be assigned by either party without the
written consent of the other party.
11.02 This Agreement shall inure to the benefit of and be binding upon the
parties and their respective permitted successors and assigns.
11.03 The Bank may, without further consent on the part of the Fund,
subcontract for the performance hereof with (i) Boston Financial Data Services,
Inc., a Massachusetts corporation ("BFDS") which is duly registered as a
transfer agent pursuant to Section 17A(c)(1) of the Securities Exchange Act of
1934, as amended ("Section 17A(c)(1)"), (ii) a BFDS subsidiary duly registered
as a transfer agent pursuant to Section 17A(c)(1) or (iii) a BFDS affiliate;
provided, however, that the Bank shall be as fully responsible to the Fund for
the acts and omissions of any subcontractor as it is for its own acts and
omissions.
-15-
<PAGE>
Article 12 Amendment
12.01 This Agreement may be amended or modified by a written agreement
executed by both parties and authorized or approved by a resolution of the
Trustees of the Fund.
Article 13 Massachusetts Law to Apply
13.01 This Agreement shall be construed and the provisions thereof
interpreted under and in accordance with the laws of the Commonwealth of
Massachusetts.
Article 14 Force Majeure
14.01 In the event either party is unable to perform its obligations under
the terms of this Agreement because of acts of God, strikes, equipment or
transmission failure or damage reasonably beyond its control, or other causes
reasonably beyond its control, such party shall not be liable for damages to the
other for any damages resulting from such failure to perform or otherwise from
such causes.
Article 15 Consequential Damages
15.01 Neither party to this Agreement shall be liable to the other party
for consequential damages under any provision of this Agreement or for any
consequential damages arising out of any act or failure to act hereunder.
Article 16 Merger of Agreement
16.01 This Agreement constitutes the entire agreement between the parties
hereto and supersedes any prior agreement with respect to the subject matter
hereof whether oral or written.
-16-
<PAGE>
Article 17 Limitations of Liability of the Trustees and Shareholders
17.01 A copy of the Trust Agreement of the Fund is on file with the
Secretary of the Commonwealth of Massachusetts, and notice is hereby given that
this instrument is executed on behalf of the Trustees of the Fund as Trustees
and not individually and that the obligations of this instrument are not binding
upon any of the Trustees or Shareholders individually but are binding only upon
the assets and property of the Fund.
Article 18 Counterparts
18.01 This Agreement may be executed by the parties hereto on any number of
counterparts, and all of said counterparts taken together shall be deemed to
constitute one and the same instrument.
Article 19 The Parties
19.01 All references herein to the Fund are to each of the Funds listed on
Appendix A individually, as if this Agreement were between such individual Fund
and the Bank.
-17-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed in their names and on their behalf by and through their duly authorized
officers, as of the day and year first above written.
ELFUN TRUSTS
ELFUN GLOBAL FUND
ELFUN DIVERSIFIED FUND
ELFUN TAX-EXEMPT INCOME FUND
ELFUN INCOME FUND
ELFUN MONEY MARKET FUND
GE S&S PROGRAM MUTUAL FUND
GE S&S LONG-TERM INTEREST FUND
BY: /s/ Michael Cosgrove
---------------------------------
Trustee
ATTEST:
/s/ Alan M. Lewis
- ---------------------------------
Secretary
STATE STREET BANK AND TRUST COMPANY
BY: /s/ Ronald E. Logue
---------------------------------
Executive Vice President
ATTEST:
/s/ [Illegible]
- ---------------------------------
Assistant Secretary
-18-
<PAGE>
STATE STREET BANK & TRUST COMPANY
FUND SERVICE RESPONSIBILITIES*
<TABLE>
<CAPTION>
Service Performed Responsibility
- ----------------- --------------------------
Bank Fund
---- ----
<S> <C> <C>
1. Receives orders for the purchase of Shares. X
2. Issue Shares and hold Shares in Shareholders accounts. X
3. Receive redemption requests. X
4. Effect transactions 1-3 above directly with broker-dealers. X
5. Pay over monies to redeeming Shareholders. X
6. Effect transfers of Shares. X
7. Prepare and transmit dividends and distributions. X
8. Issue Replacement Certificates. N/A
9. Reporting of abandoned property. X
10. Maintain records of account. X
11. Maintain and keep a current and accurate control book for X
each issue of securities.
12. Mail proxies. X
13. Mail Shareholder reports. X
14. Mail prospectuses to current Shareholders. X
15. Withhold taxes on U.S. resident and non-resident alien X
accounts.
16. Prepare and file U.S. Treasury Department forms. X
17. Prepare and mail account and confirmation statements for X
Shareholders.
18. Provide Shareholder account information. X
19. Blue sky reporting. X
* Such services are more fully described in Article 1.02 (a), (b) and (c) of
the Agreement.
</TABLE>
ELFUN TRUSTS
ELFUN GLOBAL FUND
ELFUN DIVERSIFIED FUND
ELFUN TAX-EXEMPT INCOME FUND
ELFUN INCOME FUND
ELFUN MONEY MARKET FUND
GE S&S PROGRAM MUTUAL FUND
GE S&S LONG-TERM INTEREST FUND
BY: /s/ Michael Cosgrove
---------------------------------
Trustee
ATTEST:
/s/ Alan M. Lewis
- ---------------------------------
Secretary
STATE STREET BANK AND TRUST COMPANY
BY: /s/ Ronald E. Logue
---------------------------------
Executive Vice President
ATTEST:
/s/ [Illegible]
- ---------------------------------
Assistant Secretary
-19-
<PAGE>
Appendix A
Fund Name State of Organization
- --------- ---------------------
Elfund Trusts New York
Elfun Global Fund Connecticut
Elfun Diversified Fund Connecticut
Elfun Tax-Exempt Income Fund Connecticut
Elfun Income Fund Connecticut
Elfun Money Market Fund Connecticut
GE S&S Program Mutual Fund New York
GE S&S Long-Term Interest Fund New York
-20-
<PAGE>
Fee Information for Services as
Plan, Transfer and Dividend Disbursing Agent
GE Funds/Elfun Funds/S&S Funds
- --------------------------------------------------------------------------------
Base Fee Per Fund
Elfun $6,720
S&S $6,720
GE-Net Assets > $25,000,000 $6,720
GE-Net Assets > $10,000,000 $2,000
GE-Net Assets < $10,000,000 -0-
Any new fund established after May 31, 1994 would assume the full base fee load.
Account Service Fees
- --------------------
Money Market Funds $15.00
Daily Accrual Fund(s) $4.80
Non-Daily Accrual Fund(s) $2.25
Closed Account Fee $1.35
Fees are billable on a monthly basis at the rate of 1/12 of the annual fee. A
charge is made for an account in the month that an account opens or closes.
Fixed Per Account Rate
- ----------------------
Elfun $8.00
S&S $2.00
GE Funds $8.00
Other Fees
- ----------
Annual IRA Maintenance Fee to BFDS (Stock IRA) $25.00
Out-of-Pocket Expenses
- ----------------------
Out-of-Pocket expenses include but are not limited to: Confirmation statements,
checks, certificates, postage forms, telephone, microfilm, microfiche, year-end
forms and expenses incurred at the specific direction of the fund.
GEIC Funds STATE STREET BANK & TRUST CO.
By: Don W. Torey By: /s/ Ronald E. Logue
------------------------------- ------------------------------
Title: Title:
------------------------------- ------------------------------
Date: Date:
------------------------------- ------------------------------
-21-
<PAGE>
Exhibit (i)
June 18, 1987
[GENERAL ELECTRIC INVESTMENT CORPORATION LETTERHEAD]
Trustees of Elfun Global Fund
292 Long Ridge Road, P. 0. Box 7900
Stamford, Connecticut 06904
Gentlemen:
I have examined the Elfun Global Fund's Fund Agreement, dated May 15, 1987,
a specimen of the Elfun Global Fund's form of Certificate and a specimen of the
Statement of Account to be issued under and pursuant to said Fund Agreement. I
am of the opinion that Elfun Global Fund's Certificates in the form of the
specimen, when duly executed by the Unitholder Servicing Agent on behalf of the
Trustees and delivered to the Unitholders subscribing therefore against payment
therefore as provided in said Trust Agreement, will be valid and legally issued
obligations of Elfun Global Fund and that the Units represented thereby will be
fully paid and not liable to further assessment. I am of the further opinion
that Statements of Account in the form of the specimen, when duly issued by the
Unitholder Servicing Agent on behalf of the Trustees and delivered to the
Unitholders subscribing for Elfun Global Fund's Units against payment therefore
as provided in said Fund Agreement, will adequately evidence the Unitholders'
ownership of such Units and fully entitle the Unitholders, at their election, to
have issued to them Elfun Global Fund's Certificates for the number of Units
specified in such Statements.
<PAGE>
I consent to the use of this opinion in connection with the Registration
Statement on Form N-lA, to be filed by Elfun Global Fund with the Securities and
Exchange Commission under the Securities Act of 1933, as amended, and consent
that a copy of this opinion be filed as Exhibit F to such Registration
Statement.
Very truly yours,
/s/ Brian T. McAnaney
-------------------------
Brian T. McAnaney
<PAGE>
Exhibit (j)
CONSENT OF INDEPENDENT AUDITORS
The Board of Trustees and Unitholders
Elfun Funds
We consent to the use of our report dated February 4, 1999 for the Elfun Global
Fund, Elfun Trusts, Elfun Diversified Fund, Elfun Tax-Exempt Income Fund, Elfun
Income Fund and Elfun Money Market Fund, incorporated herein by reference and to
the references to our firm under the captions "FINANCIAL HIGHLIGHTS" in the
prospectus and "Independent Auditors" in the Statement of Additional
Information.
/s/ KMPG LLP
New York, New York
April 21, 1999
<PAGE>
Exhibit (m)
SERVICING AGREEMENT
Agreement made as of this 13th day of March, 1992 between each Fund listed on
Appendix A (each such fund individually hereinafter referred to as the "Fund"
and, collectively, the "Funds") and General Electric Investment Corporation, a
Delaware corporation (the "Company").
WITNESSETH:
WHEREAS, the Company has agreed to furnish each Fund with certain services in
connection with the administration thereof, all as herein provided,
NOW THEREFORE, in consideration of the mutual covenants herein set forth, the
parties hereto agree as follows:
Services to be Performed
The Company shall provide each Fund with the administrative and clerical
services in connection with:
the maintenance of unitholder records, which shall show the ownership of
interests in such Fund ("Units");
the issuance, transfer, cancellation and redemption of Units;
the receipt of money for Units purchased and transmittal of funds to a bank
account specified by Trustees of such Fund;
the making of all payments and distributions in connection with Units; and
the performance of such other administrative services for such Fund as the
Trustees thereof may wish to have performed by the Company.
Compensation
Each Fund will, within thirty (30) days after receipt of an invoice
therefor, reimburse the Company for its costs (direct or indirect) of
providing the services specified in Paragraph 1 above, but without any
provision for profit to the Company or its employees.
Records
The Company shall maintain such books and records with respect to its
activities hereunder is may be required from time to time by applicable law
and as the Trustees of each Fund may, in addition, reasonably request. The
Company
<PAGE>
shall, from time to time, furnish the Trustees of each Fund with such data,
reports and other information maintained or compiled by the Company in
connection with its performance of the services provided for in Paragraph 1
above as such Trustees may reasonably request. In the event that this
Agreement should be terminated, the Company will transmit to the Trustees
of each Fund on the termination date all records in its possession relating
to its services performed hereunder. The Company shall make available its
books and records to the Trustees of each Fund and their agents, counsel
and accountants as and when requested by such Trustees for purposes of
audit or otherwise.
Communications
All communications between the Company and the Trustees of each Fund may be
made orally or in writing and the Company may rely on any such
communications if it shall believe in good faith that the same have been
given to it by a Trustee of such Fund or other person duly authorized on
their behalf.
Amendment
This Agreement may only be modified or amended or the terms thereof waived
by an instrument in writing signed by the person or entity against whom
such amendment, modification or waiver is sought to be enforced.
Termination
This Agreement may be terminated (i) by the Company with respect to any or
all the Funds or (ii) by any Fund with respect to the Company at any time
by giving sixty (60) days' prior written notice thereof to the appropriate
party hereto. This agreement may not be assigned or transferred except with
the agreement of all parties hereto and any such attempted assignment or
transfer without such agreement shall be null, void and of no effect.
-2-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
day and the year first above written.
GENERAL ELECTRIC INVESTMENT CORPORATION
By: /s/ Alan M. Lewis
Alan M. Lewis, Executive
Vice President
TRUSTEES OF EACH OF:
ELFUN DIVERSIFIED FUND
ELFUN GLOBAL FUND
ELFUN INCOME FUND
ELFUN TAX-EXEMPT INCOME FUND
ELFUN TRUSTS
ELFUN MONEY MARKET FUND
By: /s/ John H. Myers
-----------------------------
John H. Myers, Trustee
-3-
<PAGE>
APPENDIX A
Fund Name
Elfun Diversified Fund
Elfun Global Fund
Elfun Income Fund
Elfun Tax Exempt Income Fund
Elfun Trust
Elfun Money Market Fund
-4-
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 817656
<NAME> ELFUN GLOBAL FUND
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 160382
<INVESTMENTS-AT-VALUE> 207066
<RECEIVABLES> 686
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 207752
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 286
<TOTAL-LIABILITIES> 286
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 161256
<SHARES-COMMON-STOCK> 10583
<SHARES-COMMON-PRIOR> 11381
<ACCUMULATED-NII-CURRENT> 1
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (494)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 46703
<NET-ASSETS> 207466
<DIVIDEND-INCOME> 3473
<INTEREST-INCOME> 185
<OTHER-INCOME> (335)
<EXPENSES-NET> (627)
<NET-INVESTMENT-INCOME> 2696
<REALIZED-GAINS-CURRENT> 757
<APPREC-INCREASE-CURRENT> 27532
<NET-CHANGE-FROM-OPS> 30985
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (2336)
<DISTRIBUTIONS-OF-GAINS> (1325)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1075
<NUMBER-OF-SHARES-REDEEMED> (2044)
<SHARES-REINVESTED> 171
<NET-CHANGE-IN-ASSETS> 13974
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (285)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 200
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 627
<AVERAGE-NET-ASSETS> 204308
<PER-SHARE-NAV-BEGIN> 17.000
<PER-SHARE-NII> 0.260
<PER-SHARE-GAIN-APPREC> 2.690
<PER-SHARE-DIVIDEND> (0.220)
<PER-SHARE-DISTRIBUTIONS> (0.130)
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 19.600
<EXPENSE-RATIO> 0.31
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
