As filed with the Securities and Exchange Commission
on April 24, 1998
Securities Act File No. 33-31205
Investment Company Act File No. 811-5904
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. 10 /X/
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 /X /
Amendment No. 10 /X/
(Check appropriate box or boxes)
ELFUN MONEY MARKET 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
One Citicorp Center
153 East 53rd Street
New York, New York 10022-4669
Page 1 of Pages
Exhibit Index at Page __
<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, 1998 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. _______
An indefinite number of Registrant's units of beneficial interest have been
registered pursuant to Rule 24f-2 under the Investment Company Act of 1940, as
amended. The Rule 24f-2 Notice for Registrant's fiscal year ended December 31,
1997 was filed on March 30, 1998.
<PAGE>
ELFUN MONEY MARKET FUND
FORM N-1A
CROSS REFERENCE SHEET
PART A
ITEM NO. PROSPECTUS HEADING
- -------- ------------------
1. Cover Page....................................... Cover Page
2. Synopsis......................................... Expense Information
3. Condensed Financial Information.................. Not applicable
4. General Description of Registration.............. Cover Page; Investment
Management Policies;
Additional Matters;
Further Information:
Certain Investment
Techniques and Strategies
5. Management of the Fund........................... Expense Information;
Investment Objectives
and Management
Policies; Management of
the Funds; Further
Information: Certain
Investment Techniques
and Strategies
5A. Management's Discussion of Fund Performance...... Not applicable
6. Capital Stock and Other Securities............... Dividends; Distributions
and Taxes; Additional
Matters
7. Purchase of Securities Being offered............. Purchase of Units; Net
Asset Value; Distributor
8. Redemption or Repurchase......................... Redemption of Units
<PAGE>
PART B HEADING IN STATEMENT OF
ITEM NO. ADDITIONAL INFORMATION
- -------- ----------------------
9. Legal Proceedings.............................. Not applicable
10. Cover Page..................................... Cover Page
11. Table of Contents.............................. Contents
12. General Information and History................ Not applicable
13. Investment Objectives and Policies............. Investment
Objectives and
Management Policies;
Further Information:
Certain Investment
Techniques and Strategies
14. Management of the Fund......................... Management of the Funds
15. Control Persons and Principal
Holders of Securities.......................... Principal Stockholders;
Management of the Funds
See Prospectus-Additional
Matters
16. Investment Advisory and Other Services......... Management of the Funds
17. Brokerage Allocation and Other Practices....... Investment Restrictions;
Management of the Funds
18. Capital Stock and Other Securities............. Redemption of Units
19. Purchase, Redemption and Pricing of
Securities Being Offered....................... Redemption of Units;
Net Asset Value
20. Tax Status..................................... Dividends, Distributions
and Taxes
21. Underwriters................................... Not Applicable
22. Calculation of Performance Data................ The Funds' Performance
23. Financial Statements........................... Independent Accountants;
Financial Statements
<PAGE>
PART C
Information required to be included in Part C is set forth after the
appropriate item, so numbered, in Part C to this Registration Statement.
<PAGE>
ELFUN FUNDS
- --------------------------------------------------------------------------------
O ELFUN TRUSTS
O ELFUN GLOBAL FUND
O ELFUN DIVERSIFIED FUND
O ELFUN TAX-EXEMPT INCOME FUND
O ELFUN INCOME FUND
O ELFUN MONEY MARKET FUND
PROSPECTUS
April 30, 1998
This Prospectus briefly sets forth certain information about the Funds that
prospective investors will find helpful in making an investment decision.
Investors are encouraged to read this Prospectus carefully and retain it for
future reference.
Additional information about the Funds, contained in a Statement of Additional
Information ("SAI") dated the same date as this Prospectus, has been filed with
the Securities and Exchange Commission (the "SEC") and is available upon request
and without charge by calling the telephone number listed below or by contacting
the Funds at 3003 Summer Street, P.O. Box 120074, Stamford, Connecticut
06912-0074. The SAI is incorporated in its entirety by reference into this
Prospectus. An investor may electronically access additional information about
the Funds such as the SAI and other related materials after reading the
Prospectus by accessing the SEC's World Wide Web site (http://www.sec.gov).
AN INVESTMENT IN ELFUN MONEY MARKET FUND IS NEITHER INSURED NOR GUARANTEED BY
THE U.S. GOVERNMENT. ADDITIONALLY, NO ASSURANCE CAN BE GIVEN THAT ELFUN MONEY
MARKET FUND WILL BE ABLE TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER UNIT.
GENERAL ELECTRIC INVESTMENT CORPORATION
Investment Adviser
ELFUN FUNDS
3003 Summer Street
Stamford, Connecticut 06905
(800) 242-0134
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
<PAGE>
TABLE OF CONTENTS
================================================================================
PAGE NO.
Expense Information 1
Who May Own Fund Units 6
Not Sponsored by GE 6
Investment Objectives and Management Policies 6
Portfolio Transactions and Turnover 19
Management of the Funds 20
Purchase of Units 21
Redemption of Units 22
Exchange Privilege 24
Net Asset Value 24
Dividends, Distributions and Taxes 25
Custodian, Transfer Agent and Dividend Paying Agent 27
Distributor and Unitholder Servicing Agent 27
The Funds' Performance 27
Further Information: Certain Investment Techniques and Strategies 29
Additional Matters 34
Each fund listed below is a separate, diversified open-end management
investment company (each a "Fund" and collectively the "Funds") registered
under the Investment Company Act of 1940, as amended (the "1940 Act"). Each
of the Funds has a separate and distinct investment objective(s) that it
seeks by following certain investment policies. This Prospectus describes
the following six Funds:
o ELFUN TRUSTS' investment objectives are long-term growth of capital and
future income rather than current income, which the Fund seeks to achieve by
investing in stocks, preferred stocks, convertible securities, bonds, notes
or other types of securities described herein.
o ELFUN GLOBAL FUND'S investment objectives are long-term growth of capital
and future income, which the Fund seeks to achieve by investing principally
in foreign securities consistent with prudent investment management and the
preservation of capital.
o ELFUN DIVERSIFIED FUND'S investment objective is to seek the highest total
return, consistent with prudent investment management and the preservation
of capital, which the Fund seeks to achieve by following an asset allocation
strategy contemplating shifts among a range of investments.
o ELFUN TAX-EXEMPT INCOME FUND'S investment objective is to seek 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.
o ELFUN INCOME FUND'S investment objective is to seek a high level of income
consistent with prudent investment management and the preservation of
capital, which the Fund seeks to achieve by investing in fixed income
securities.
o ELFUN MONEY MARKET FUND'S investment objective is to seek a high level of
current income consistent with prudent investment management and the
preservation of capital, which the Fund seeks to achieve by investing in a
defined group of U.S. dollar denominated, short-term money market
instruments.
<PAGE>
[logo]
GE Investments
- --------------------------------------------------------------------------------
Dear Elfun Funds Investor:
It has been our pleasure to serve your investment needs over the past year.
Annually, we furnish you an updated Elfun Funds prospectus that reflects
current financial information.
We urge you to read again those sections of the prospectus relating to the
investment objectives of the Fund(s) in which you own shares to help you
determine if they are still suitable for your personal financial needs. Also,
we encourage you to familiarize yourself with the other Elfun Funds in the
event that your investment objectives have changed or you desire to further
diversify your portfolio.
Our Inquiry Center Specialists are ready to answer any of your questions
between the hours of 8:30 am and 5:00 pm, Monday through Friday. Our
convenient phone system is available for transactions or to provide price
information 24 hours a days. Call the GE Inquiry Center at 1-800-242-0134.
Sincerely,
/s/ Mary R. Stone
-----------------------------
Mary R. Stone
Manager, Shareholder Services
<PAGE>
EXPENSE INFORMATION
================================================================================
FEE TABLE
The purpose of the following table is to assist the investor in understanding
the expenses that an investor in the Funds will bear directly or indirectly. The
costs listed in the table are based upon each particular Fund's operating
expenses for the year ended December 31, 1997.
ELFUN
ELFUN TAX- ELFUN
ELFUN DIVER- EXEMPT ELFUN MONEY
ELFUN GLOBAL SIFIED INCOME INCOME MARKET
TRUSTS FUND FUND FUND FUND FUND
------ ---- ---- ---- ---- ----
Annual Fund Operating
Operating Expenses a
(as percentage of
average net assets)
Management fees...... 0.03% 0.09% 0.07% 0.05% 0.07% 0.09%
Other expenses....... 0.06% 0.15% 0.15% 0.05% 0.13% 0.15%
Total Operating
Expenses............. 0.09% 0.24% 0.22% 0.10% 0.20% 0.24%
The nature of the services provided to, and the management fees paid by, each
Fund are described under "Management of the Funds." "Other expenses" include
fees for 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. See "Management of the
Funds -- Expenses of the Funds" for a complete description of expenses. 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 proceeds wired to a
bank, in which case each Fund will charge a fee of $15; there is no fee to
redeem units by telephone if the proceeds are transferred to another Fund.
<PAGE>
EXAMPLE
The following example demonstrates the projected dollar amount of total
cumulative expenses that would be in-curred over a one-year, three-year,
five-year and ten-year period with respect to a hypothetical investment in each
Fund. These amounts are based upon (1) payment by the Fund of operating expenses
at the levels set out in the table above and (2) the specific assumptions stated
below. 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.
1 3 5 10
YEAR YEARS YEARS YEARS
---- ----- ----- -----
A unitholder would pay the following
expenses on a $1,000 investment,
assuming (1) a 5% annual return and
(2) redemption at the end of the time
periods shown:
Elfun Trusts.................. $1 $3 $ 5 $12
Elfun Global Fund............. 2 8 14 31
Elfun Diversified Fund........ 2 7 12 28
Elfun Tax-Exempt Income Fund.. 1 3 6 13
Elfun Income Fund............. 2 6 11 26
Elfun Money Market Fund....... 2 8 14 31
The above example is intended to assist an investor in understanding various
costs and expenses that an investor in a Fund will bear directly or indirectly.
Although the table assumes a 5% annual return, a Fund's actual performance will
vary and may result in an actual return that is greater or less than 5%. See
"Management of the Funds -- Expenses of the Funds" for a complete description of
expenses.
1
<PAGE>
FINANCIAL HIGHLIGHTS
The tables below set forth selected financial data for a Fund Unit outstanding
throughout the period presented. The financial data for each of the years in the
ten-year period ended December 31, 1997 for each Fund has been audited by the
Funds' auditors, KPMG Peat Marwick LLP, independent certified public
accountants, whose unqualified reports thereon appear in the Funds' December 31,
1997 Annual Report (the "Annual Report"). The following information should be
read in conjunction with the Financial Statements and the Notes to the Financial
Statements, which are incorporated by reference into the Statement of Additional
Information. Further information about the performance of the Funds is contained
in the Funds' Annual Report, copies of which may be obtained without charge upon
request to the Funds at the address or telephone number listed on the front
cover page of this Prospectus.
<TABLE>
<CAPTION>
ELFUN TRUSTS
YEARS ENDED DECEMBER 31,
- ------------------------------------------------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993 1992 1991 1990 1989 1988
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of year $46.46 $39.88 $30.91 $33.76 $33.93 $33.05 $27.42 $31.29 $25.99 $24.17
- ------------------------------------------------------------------------------------------------------------------------------------
Income (loss) from
investment operations:
Net investment income 0.75 0.75 0.77 0.77 0.81 0.83 0.83 0.91 1.05 0.85
Net realized and
unrealized gains
(losses) on investments 13.48 8.68 11.33 (0.68) 2.25 2.24 6.87 (2.11) 8.10 3.58
- ------------------------------------------------------------------------------------------------------------------------------------
Total income (loss) from
investment operations 14.23 9.43 12.10 0.09 3.06 3.07 7.70 (1.20) 9.15 4.43
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions from:
Net investment income 0.74 0.75 0.77 0.77 0.80 0.83 0.83 0.99 1.05 0.88
Net realized gains 4.14 2.10 2.36 2.17 2.43 1.36 1.24 1.68 2.80 1.73
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions 4.88 2.85 3.13 2.94 3.23 2.19 2.07 2.67 3.85 2.61
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of year $55.81 $46.46 $39.88 $30.91 $33.76 $33.93 $33.05 $27.42 $31.29 $25.99
====================================================================================================================================
Total Return(b) 30.86% 23.55% 39.19% 0.23% 8.98% 9.28% 28.17% (3.71)% 35.81% 18.41%
Ratios/Supplemental Data:
Net assets, end of year
(in thousands) $1,981,395 $1,525,979 $1,228,366 $900,349 $937,676 $872,288 $789,879 $622,142 $662,245 $521,084
Ratio of net
investment income
to average net assets 1.39% 1.71% 2.08% 2.28% 2.29% 2.49% 2.67% 3.05% 3.32% 3.33%
Ratio of expenses
to average
net assets 0.09% 0.13% 0.13% 0.17% 0.11% 0.11% 0.13% 0.20% 0.18% 0.24%
Portfolio turnover rate 16% 12% 15% 19% 18% 11% 14% 17% 20% 21%
Average brokerage
commission (a) $0.050 $0.047 N/A N/A N/A N/A N/A N/A N/A N/A
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
ELFUN GLOBAL FUND
YEARS ENDED DECEMBER 31,
- ------------------------------------------------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993 1992 1991 1990 1989 1988
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $17.67 $16.65 $15.58 $16.48 $12.80 $12.63 $11.13 $12.45 $10.73 $10.00
- ------------------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment
operations:
Net investment income 0.22 0.24 0.23 0.21 0.18 0.18 0.14 0.21 0.02 0.09
Net realized and
unrealized gains
(losses) on investments 1.26 2.45 2.27 (0.32) 3.90 0.57 1.51 (1.27) 2.59 0.90
- ------------------------------------------------------------------------------------------------------------------------------------
Total income (loss) from
investment operations 1.48 2.69 2.50 (0.11) 4.08 0.75 1.65 (1.06) 2.61 0.99
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions from:
Net investment income 0.17 0.23 0.19 0.19 0.12 0.17 0.15 0.26 0.02 0.07
Net realized gains 1.98 1.44 1.24 0.60 0.28 0.41 0.00 0.00 0.87 0.19
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions 2.15 1.67 1.43 0.79 0.40 0.58 0.15 0.26 0.89 0.26
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $17.00 $17.67 $16.65 $15.58 $16.48 $12.80 $12.63 $11.13 $12.45 $10.73
====================================================================================================================================
Total Return(b) 8.47% 16.13% 16.03% (0.63%) 31.88% 5.94% 14.81% (8.56)% 24.74% 9.94%
Ratios/Supplemental Data:
Net assets, end of period
(in thousands) $193,492 $176,303 $142,262 $126,196 $83,196 $38,469 $25,029 $19,415 $12,692 $6,868
Ratio of net investment income
to average net assets 1.17% 1.37% 1.36% 1.44% 1.42% 1.52% 1.58% 2.13% 0.30% 1.30%
Ratio of expenses to average
net assets 0.24% 0.25% 0.34% 0.38% 0.31% 0.60% 0.98% 1.00% 1.00% 1.00%
Portfolio turnover rate 83% 45% 55% 30% 43% 63% 100% 219% 219% 159%
Average brokerage commission (a) $0.007 $0.012 N/A N/A N/A N/A N/A N/A N/A N/A
</TABLE>
<TABLE>
<CAPTION>
ELFUN DIVERSIFIED FUND
YEARS ENDED DECEMBER 31,
- ------------------------------------------------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993 1992 1991 1990 1989 1988
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $17.27 $15.86 $13.24 $14.05 $13.54 $12.84 $11.74 $11.86 $10.33 $10.00
- ------------------------------------------------------------------------------------------------------------------------------------
Income (loss) from
investment operations:
Net investment income 0.56 0.54 0.53 0.47 0.48 0.46 0.68 0.65 0.56 0.34
Net realized and
unrealized gains
(losses) on investments 2.64 1.75 3.06 (0.51) 0.73 0.74 1.38 (.09) 1.65 0.32
- ------------------------------------------------------------------------------------------------------------------------------------
Total income (loss) from
investment operations 3.20 2.29 3.59 (0.04) 1.21 1.20 2.06 0.56 2.21 0.66
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions from:
Net investment income 0.56 0.54 0.53 0.46 0.47 0.46 0.70 0.59 0.56 0.33
Net realized gains 0.75 0.34 0.44 0.31 0.23 0.04 0.26 0.09 0.12 0.00
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions 1.31 0.88 0.97 0.77 0.70 0.50 0.96 0.68 0.68 0.33
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $19.16 $17.27 $15.86 $13.24 $14.05 $13.54 $12.84 $11.74 $11.86 $10.33
====================================================================================================================================
Total Return(b) 18.58% 14.40% 27.11% (0.26%) 8.90% 9.35% 17.70% 4.75% 21.51% 6.57%
Ratios/Supplemental Data:
Net assets, end of period $143,808 $102,157 $77,255 $57,774 $54,911 $36,780 $23,959 $18,992 $12,565 $7,771
(in thousands)
Ratio of net
investment income
to average net assets 3.11% 3.41% 3.62% 3.42% 3.65% 3.93% 4.96% 6.29% 5.20% 5.02%
Ratio of expenses to
average net assets 0.22% 0.28% 0.34% 0.39% 0.39% 0.49% 0.90% 1.00% 1.00% 1.00
Portfolio turnover rate 100% 89% 93% 82% 25% 31% 67% 24% 146% 4%
Average brokerage
commission (a) $0.028 $0.041 N/A N/A N/A N/A N/A N/A N/A N/A
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
ELFUN TAX-EXEMPT INCOME FUND
YEARS ENDED DECEMBER 31,
- ------------------------------------------------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993 1992 1991 1990 1989 1988
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of year $11.61 $11.91 $10.83 $12.29 $11.76 $11.59 $11.03 $11.14 $11.04 $10.49
- ------------------------------------------------------------------------------------------------------------------------------------
Income (loss) from
investment operations:
Net investment income 0.65 0.66 0.68 0.67 0.71 0.73 0.73 0.68 0.78 0.78
Net realized and
unrealized gains
(losses) on investment 0.43 (0.25) 1.15 (1.37) 0.68 0.22 0.56 (0.05) 0.21 0.55
- ------------------------------------------------------------------------------------------------------------------------------------
Total income (loss) from
investment operations 1.08 0.41 1.83 (0.70) 1.39 0.95 1.29 0.63 0.99 1.33
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions from:
Net investment income 0.65 0.66 0.68 0.67 0.71 0.73 0.73 0.74 0.78 0.78
Net realized gains 0.11 0.05 0.07 0.09 0.15 0.05 0.00 0.00 0.11 0.00
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions 0.76 0.71 0.75 0.76 0.86 0.78 0.73 0.74 0.89 0.78
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of year $11.93 $11.61 $11.91 $10.83 $12.29 $11.76 $11.59 $11.03 $11.14 $11.04
====================================================================================================================================
Total Return(b) 9.59% 3.60% 17.32% (5.77%) 12.11% 8.50% 12.08% 5.98% 9.21% 13.07%
Ratios/Supplemental Data:
Net assets,
end of year
(in thousands) $1,394,734 $1,301,737 $1,312,342 $1,145,873 $1,297,256 $1,115,254 $962,751 $827,187 $773,651 $677,929
Ratio of net
investment
income
to average
net assets 5.52% 5.67% 5.91% 5.90% 5.79% 6.25% 6.49% 6.78% 6.98% 7.23%
Ratio of
expenses to
average
net assets 0.10% 0.13% 0.13% 0.13% 0.10% 0.11% 0.14% 0.19% 0.17% 0.24%
Portfolio
turnover rate 28% 22% 59% 24% 29% 29% 36% 62% 75% 116%
</TABLE>
<TABLE>
<CAPTION>
ELFUN INCOME FUND
YEARS ENDED DECEMBER 31,
- ------------------------------------------------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993 1992 1991 1990 1989 1988
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of year $11.32 $11.64 $10.55 $11.68 $11.58 $11.92 $11.10 $11.11 $10.57 $10.70
- ------------------------------------------------------------------------------------------------------------------------------------
Income (loss) from
investment operations:
Net investment income 0.75 0.76 0.77 0.70 0.73 0.86 0.89 0.83 0.92 0.92
Net realized and
unrealized gains
(losses) on investments 0.29 (0.32) 1.09 (0.97) 0.38 (.10) 0.82 0.07 0.54 (.13)
- ------------------------------------------------------------------------------------------------------------------------------------
Total income (loss) from
investment operations 1.04 0.44 1.86 (0.27) 1.11 0.76 1.71 0.90 1.46 0.79
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions from:
Net investment income 0.75 0.76 0.77 0.70 0.73 0.87 0.89 0.91 0.92 0.92
Net realized gains 0.00 0.00 0.00 0.16 0.28 0.23 0.00 0.00 0.00 0.00
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions 0.75 0.76 0.77 0.86 1.01 1.10 0.89 0.91 0.92 0.92
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of year $11.61 $11.32 $11.64 $10.55 $11.68 $11.58 $11.92 $11.10 $11.11 $10.57
====================================================================================================================================
Total Return(b) 9.58% 4.01% 18.21% (2.33%) 9.72% 6.61% 16.13% 8.61% 14.34% 7.52%
Ratios/Supplemental Data:
Net assets, end of year
(in thousands) $230,963 $219,451 $218,880 $185,665 $199,478 $175,210 $137,873 $102,653 $93,332 $81,812
Ratio of net
investment income
to average net assets 6.56% 6.68% 6.90% 6.34% 6.10% 7.24% 7.75% 8.38% 8.48% 7.77%
Ratio of expenses
to average
net assets 0.20% 0.24% 0.25% 0.30% 0.17% 0.22% 0.36% 0.46% 0.63% 0.50%
Portfolio turnover rate 222% 201% 367% 215% 131% 62% 133% 214% 367% 631%
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
ELFUN MONEY MARKET FUND
FOR THE PERIOD
MAY 9, 1990
YEARS ENDED DECEMBER 31, (COMMENCEMENT
------------------------------------------------------------------------- OF OPERATIONS)
THROUGH
1997 1996 1995 1994* 1993* 1992* 1991* DEC. 31, 1990*
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
- ------------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.05 0.05 0.06 0.04 0.03 0.04 0.06 0.05
Net realized and unrealized gains
(losses) on investments 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
- ------------------------------------------------------------------------------------------------------------------------------------
Total income from investment
operations 0.05 0.05 0.06 0.04 0.03 0.04 0.06 0.05
- ------------------------------------------------------------------------------------------------------------------------------------
Less distribution from:
Net investment income 0.05 0.05 0.06 0.04 0.03 0.04 0.06 0.05
Net realized gains 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions 0.05 0.05 0.06 0.04 0.03 0.04 0.06 0.05
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
====================================================================================================================================
Total Return(b) 5.45% 5.23% 5.82% 4.17% 3.31% 3.91% 6.55% 4.54%**
Ratios/Supplemental Data:
Net assets, end of period
(in thousands) $167,385 $139,474 $117,506 $107,406 $59,959 $52,774 $47,623 $31,470
Ratio of net investment income
to average net assets 5.27% 5.08% 5.68% 4.20% 3.27% 3.86% 6.33% 8.25%***
Ratio of expenses to average
net assets 0.24% 0.31% 0.30% 0.16% 0.00% 0.11% 0.04% 0.05%***
Portfolio turnover rate N/A N/A N/A N/A N/A N/A N/A N/A
</TABLE>
- ----------
* Had GEIC not absorbed a portion of the expenses, the net investment income
per unit 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%, .39%,
.35%, .49% and .63% for the years ended December 31, 1994, 1993, 1992 and
1991 and for the period May 9, 1990 through December 31, 1990,
respectively.
** Not Annualized.
*** Annualized.
N/A--Not Applicable.
(a) For the fiscal years beginning on or after September 1, 1995, a fund is
required to disclose its average commission rate per share for trades on
which commissions are charged. Mark-ups, mark-downs, and spreads on shares
traded on a principal basis are not included unless they are disclosed on
confirmations prepared in accordance with rule 10b-10 under the Securities
Act of 1934.
(b) Total returns are historical and assume changes in share price,
reinvestment of dividends and capital gains, and assume no sales charge.
5
<PAGE>
WHO MAY OWN FUND UNITS
================================================================================
Purchase of units ("Units") of any of the six Funds may be made 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 (the "Trustees") 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 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.
NOT SPONSORED BY GE
================================================================================
GE is not a party to the trust agreements which created each Fund and does not
sponsor the Funds.
INVESTMENT OBJECTIVES AND MANAGEMENT POLICIES
================================================================================
Set forth below is a description of the investment objective(s) and policies of
each Fund. The investment objective(s) of a Fund may not be changed without the
approval of the holders of a majority of the Fund's outstanding voting
securities as defined in the 1940 Act. Such a majority is defined in the 1940
Act as the lesser of (1) 67% or more of the Units present at a Fund meeting, if
the holders of more than 50% of the outstanding Units of the Fund are present or
represented by proxy or (2) more than 50% of the outstanding Units of the Fund.
No assurance can be given that a Fund will be able to achieve its investment
objective(s).
ELFUN TRUSTS
Elfun Trusts was organized as a common law trust in the State of New York on May
27, 1935. The investment objectives of Elfun Trusts are long-term growth of
capital and future income rather than current income. In pursuing its
objectives, Elfun Trusts, under normal conditions, invests in common stocks,
preferred stocks, convertible securities, warrants, bonds, debentures, notes and
convertible bonds issued by U.S. and foreign companies; securities issued or
guaranteed by the U.S. Government, its agencies and instrumentalities
("Government Securities"); Municipal Obligations (as defined below); obligations
of foreign governments or their agencies or instrumentalities; and domestic and
foreign money market instruments.
Although Elfun Trusts generally invests a majority of its assets in common stock
or securities convertible into common stock, when General Electric Investment
Corporation ("GEIC"), the Funds' investment adviser, believes there will be a
market decline in particular securities, it may, for temporary defensive
purposes, hold cash and/or invest in investment grade short-term securities or
money market instruments without limitation. In addition, during normal market
conditions, a portion of Elfun Trusts' total assets may be held in cash and/or
invested in money market instruments of the types described below under
"Additional Investments -- Money Market Instruments" for cash management
purposes, pending investment in accordance with the Fund's investment objective
and policies and to meet operating expenses. Included among the money market
instruments in which Elfun Trusts may invest are repurchase agreements, the
risks and special considerations of which are described below under "Risk
Factors and Special Considerations -- Repurchase and Reverse Repurchase
Agreements." Other money market instruments in which Elfun Trusts may invest are
described below under "Additional Investments -- Money Market Instruments." To
the extent that it invests in money market instruments, Elfun Trusts may not
achieve its investment objective of long-term growth of capital.
Elfun Trusts' investments in debt securities are limited to those that are rated
investment grade, except that up to 5% of the Fund's assets may be invested in
securities rated lower than investment grade. A security will be considered
investment grade if it is rated at the time of purchase within the four highest
grades assigned by Standard & Poor's Ratings Services, a Division of The
McGraw-Hill Companies, Inc. ("S&P") or by Moody's Investors Service, Inc.
("Moody's") or has received an equivalent rating from another nationally
recognized statistical rating organization ("NRSRO") or, if unrated, is deemed
by GEIC to be of comparable quality. Risks and special considerations applicable
to certain investment grade obligations and obligations rated lower than
investment grade are described below under "Risk Factors and Special
Considerations." A description of S&P and Moody's ratings relevant to Elfun
Trusts' investments is included as an Appendix to the Statement of Additional
Information.
Elfun Trusts, in addition to investing as described above, may hold the
following types of instruments: non-publicly traded securities, illiquid
securities, securities that are not registered under the Securities Act of 1933,
as amended (the "1933 Act"), but that can be sold to "qualified institutional
buyers" in accordance with Rule 144A under the 1933 Act (each, a "Rule 144A
Security" and collectively, "Rule 144A Securities") and securities of other
investment funds. In addition, Elfun Trusts may engage in the following types of
investment techniques and strategies: purchasing put and call options on
securities, writing put and call options on securities, purchasing put and call
options on securities indexes, entering into interest rate, financial and stock
or bond index futures contracts or related options that are traded on a U.S.
exchange or board of trade, entering into securities transactions on a
when-issued or delayed delivery basis and lending portfolio securities. These
other instruments, investment techniques and strategies have risks and special
considerations associated with them that are described below under "Risk Factors
and Special Considerations" and in "Further Information: Certain Investment
Techniques and Strategies."
6
<PAGE>
Investing in accordance with Elfun Trusts' objectives, policies and restrictions
resulted in a portfolio turnover rate of 16% in 1997 and 12% in 1996. See
"Portfolio Transactions and Turnover" below for further information on portfolio
turnover rates.
ELFUN GLOBAL FUND
Elfun Global Fund (the "Global Fund") was organized as a common law trust in the
State of Connecticut on May 15, 1987. The investment objectives of the Global
Fund are long-term growth of capital and future income, which the Fund seeks to
achieve by investing principally in foreign securities consistent with prudent
investment management and the preservation of capital. The Global Fund is
designed for long-term investors who can accept international investment risk.
The Global Fund invests in domestic and foreign companies, wherever organized,
including companies organized in developing countries. Although the Global Fund
is subject to no prescribed limits on geographic asset distribution, under
normal circumstances, at least 65% of the Fund's assets will be invested in the
aggregate in no fewer than three different countries. A more complete
description of foreign securities and the risks and special considerations
applicable to them is included below under "Risk Factors and Special
Considerations" and in "Further Information: Certain Investment Techniques and
Strategies."
The Global Fund intends to diversify investments among companies in several
countries and not to concentrate investments in any particular industry. The
Global Fund will implement its strategy by investing in common stocks, preferred
stocks, notes, bonds, convertible bonds, convertible preferred stock, options
and indexes, as well as common stock purchase warrants or rights issued by
established companies. The Global Fund may also invest in foreign currencies and
in securities of foreign issuers in the form of depositary receipts. The equity
securities in which the Global Fund invests are issued by foreign or U.S.
companies and in most cases are traded on foreign or U.S. securities exchanges.
The dollar value of the Global Fund's portfolio securities fluctuates with
changes in market and economic conditions abroad and with changes in relative
currency values. Changes in the Unit price of the Global Fund may not be related
to changes in the U.S. stock and bond markets.
The Global Fund's investments in debt instruments are limited to those that are
rated investment grade by S&P, or Moody's or another NRSRO or, if unrated, are
deemed by GEIC to be of comparable quality. The Global Fund will not purchase
any security if, as a result of the purchase, a total of more than 20% of the
Fund's total assets would be invested either in securities rated BBB or Baa or
in unrated securities which in the opinion of GEIC would be rated in those
categories. Risks and special considerations applicable to certain investment
grade obligations and obligations rated below investment grade are described
below under "Risk Factors and Special Considerations." A description of S&P and
Moody's ratings relevant to the Global Fund's investments is included as an
Appendix to the Statement of Additional Information.
During normal market conditions, the Global Fund invests principally in
securities of issuers located in a number of different countries as described
above, and a portion of its total assets may be held in cash and/or invested in
money market instruments of the types described below under "Additional
Investments -- Money Market Instruments," for cash management purposes, pending
investment in accordance with the Fund's investment objectives and policies and
to meet operating expenses. In the event GEIC determines that a temporary
defensive posture is warranted due to unstable market, economic, political or
currency conditions outside of the United States, the Fund may (1) restrict the
securities markets in which its assets will be invested or (2) without
limitation hold cash and/or invest in such money market instruments. In that
event, the Global Fund may, in seeking to achieve its objectives, invest all or
a significant portion of its assets in securities of the types described above
issued by U.S. or Canadian entities or in U.S. currency. Investments may be on a
hedged or unhedged basis, without protection from changes in currency exchange
rates. Included among the money market instruments in which the Global Fund may
invest are repurchase agreements, the risks and special considerations of which
are described below under "Risk Factors and Special Considerations -- Repurchase
and Reverse Repurchase Agreements." Other money market instruments in which the
Global Fund may invest are described below under "Additional Investments --
Money Market Instruments." To the extent that it holds cash or invests in money
market instruments, the Global Fund may not achieve its investment objective of
long-term growth of capital.
The Global Fund, in addition to investing as described above, may hold the
following types of instruments: non-publicly traded securities, illiquid
securities, Rule 144A Securities and securities of other investment funds. In
addition, the Global Fund may engage in the following types of investment
techniques and strategies: purchasing put and call options on securities,
writing put and call options on securities, purchasing put and call options on
securities indexes, entering into interest rate, financial and stock or bond
index futures contracts or related options that are traded on a U.S. or foreign
exchange or board of trade, or in the over-the-counter market, engaging in
forward currency transactions, purchasing and writing put and call options on
foreign currencies, entering into securities transactions on a when-issued or
delayed-delivery basis and lending portfolio securities. These other
instruments, investment techniques and strategies have risks and special
considerations associated with them that are described below under "Risk Factors
and Special Considerations" and in "Further Information: Certain Investment
Techniques and Strategies."
Investing in accordance with the Global Fund's objectives, policies and
restrictions resulted in a portfolio turnover rate of 83% in 1997 and 45% in
1996. See "Portfolio Transactions and Turnover" below for further information on
portfolio turnover rates.
7
<PAGE>
ELFUN DIVERSIFIED FUND
Elfun Diversified Fund (the "Diversified Fund") was organized as a common law
trust in the State of Connecticut on June 1, 1987. The investment objective of
the Diversified Fund is to seek the highest total return, consistent with
prudent investment management and the preservation of capital. In seeking its
objective, the Diversified Fund follows an asset allocation strategy
contemplating shifts among a range of investments. The investment philosophy of
the Diversified Fund is based on a belief that the structure of the United
States economy and other economies and their securities markets are undergoing
continuous change. The asset allocation approach puts maximum emphasis on
flexibility. An investor should not, however, expect either income levels or
capital appreciation comparable to that of funds for which either is a primary
objective.
The Diversified Fund invests in the following classes of investments: common
stocks, preferred stocks, convertible securities, warrants, bonds, debentures,
notes and convertible bonds issued by U.S. and foreign companies; Government
Securities; Municipal Obligations (as defined below); obligations of foreign
governments or their agencies or instrumentalities; mortgage related securities,
adjustable rate mortgage related securities ("ARMs"), collateralized mortgage
related securities ("CMOs") and government stripped mortgage related securities;
asset-backed and receivable-backed securities; and domestic and foreign money
market instruments. The U.S. equity and debt instruments in which the
Diversified Fund invests are traded on U.S. securities exchanges or in the U.S.
over-the-counter market, except that the Fund may invest up to 10% of its assets
in non-publicly traded securities. In addition, up to 20% of the Diversified
Fund's total assets may be invested in foreign securities that are listed on
foreign securities exchanges or traded in foreign over-the-counter markets.
Investments may be on a hedged or unhedged basis and may be short-term or
long-term, without protection from changes in currency exchange rates.
Investments in foreign companies and agencies of foreign governments usually
involve currencies of foreign countries. Risks and special considerations
applicable to investing in non-publicly traded and foreign securities are
described below under "Risk Factors and Special Considerations." The Diversified
Fund may also invest in depositary receipts and indexed securities, the value of
which is linked to currencies, interest rates, commodities, indexes or other
financial indicators. Mortgage related securities, ARMs, CMOs, government
stripped mortgage related securities and asset-backed and receivable-backed
securities are subject to several risks including the prepayment of principal.
Other risks and special considerations applicable to these instruments are
described in "Further Information: Certain Investment Techniques and
Strategies."
GEIC has broad latitude in selecting the classes of investments to which the
Diversified Fund's assets will be committed. Although the Diversified 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.
The Diversified Fund's investments are designed to achieve favorable performance
with lower volatility than a fund that invests solely in equity or debt
securities. The weightings of equity and debt holdings for the Diversified Fund
will be established from time to time by GEIC in light of its assessment of the
attractiveness of each market. Although GEIC cannot predict the mix of the
Diversified Fund's investments at any one time, GEIC can delineate certain
situations that can lead to a shift in the mix of the Diversified Fund's
investments. During normal market conditions, a portion of the Diversified
Fund's total assets may be held in cash and/or invested in money market
instruments of the types described below under "Additional Investments -- Money
Market Instruments" for cash management purposes, pending investment in
accordance with the Fund's investment objective and policies and to meet
operating expenses. In addition, if GEIC determines that the outlook for equity
and debt securities is unfavorable, GEIC could cause a major portion of the
Diversified Fund's assets to be invested in such money market instruments.
GEIC's decision that the Diversified Fund make a substantial commitment to
foreign securities would be predicated on the outlook for the foreign securities
markets of selected countries, the underlying economies of those countries and
the direction of the U.S. dollar relative to the currencies of those countries.
The Diversified Fund typically purchases a debt security if GEIC believes that
the yield and potential for capital appreciation of the security are
sufficiently attractive in light of the risks of ownership of the security. In
determining whether the Diversified Fund should invest in particular debt
instruments, GEIC will consider factors such as: the price, coupon and yield to
maturity; GEIC's assessment of the credit quality of the issuer; the issuer's
available cash flow and the related coverage ratios; the property, if any,
securing the obligation; and the terms of the debt securities, including the
subordination, default, sinking fund and early redemption provisions.
The Diversified Fund limits its purchases of debt instruments to those that are
rated within the six highest categories by S&P, Moody's or another NRSRO, or if
unrated, are deemed by GEIC to be of comparable quality. The Diversified Fund
will not purchase a debt security if, as a result of the purchase, more than 25%
of the Fund's total assets would be invested in securities rated BBB by S&P or
Baa by Moody's or, if unrated, deemed by GEIC to be of comparable quality. In
addition, the Diversified Fund will not purchase any obligation rated BB or B by
S&P or B by Moody's if, as a result of the purchase, more than 10% of the Fund's
total assets would be invested in obligations rated in those categories or in
unrated obligations that are deemed by GEIC to be of comparable quality. Risks
and special considerations applicable to certain investment grade obligations
and obligations rated lower than investment grade are described below under
"Risk Factors and Special Considerations." A description of S&P and Moody's
ratings relevant to the Diversified Fund's investments is included as an
Appendix to the Statement of Additional Information.
9
<PAGE>
The Diversified Fund, in addition to investing as described above, may hold the
following types of instruments: repurchase agreements, illiquid securities, Rule
144A Securities, securities of supranational agencies, securities of other
investment funds, zero coupon obligations, municipal leases, floating and
variable rate instruments, participation interests in certain Municipal
Obligations, Municipal Obligation components and custodial receipts. In
addition, the Diversified Fund may engage in the following types of investment
techniques and strategies: purchasing put and call options on securities,
writing put and call options on securities, purchasing put and call options on
securities indexes, entering into interest rate, financial and stock or bond
index futures contracts or related options that are traded on a U.S. or foreign
exchange or board of trade or in the over-the-counter market, engaging in
forward currency transactions, trading in commodity futures contracts on
exchanges located outside the United States, purchasing and writing put and call
options on foreign currencies, entering into securities transactions on a
when-issued or delayed-delivery basis, entering into mortgage dollar rolls and
lending portfolio securities. These other instruments, investment techniques and
strategies have risks and special considerations associated with them that are
described below under "Risk Factors and Special Considerations" and in "Further
Information: Certain Investment Techniques and Strategies."
Investing in accordance with the Diversified Fund's objective, policies and
restrictions resulted in a portfolio turnover rate of 100% in 1997 and 89% in
1996. See "Portfolio Transactions and Turnover" below for more information on
portfolio turnover rates.
ELFUN TAX-EXEMPT INCOME FUND
Elfun Tax-Exempt Income Fund (the "Tax-Exempt Fund") was organized as a common
law trust in the State of Connecticut on March 14, 1977. The investment
objective of the Tax-Exempt Fund is to seek 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. The Tax-Exempt Fund seeks to achieve its objective
by investing in a diversified portfolio of bonds issued by, or on behalf of,
states, territories and possessions of the United States and the District of
Columbia and their political subdivisions, agencies and instrumentalities or
multi-state agencies or authorities, the interest from which bonds is in the
opinion of counsel to their issuers, excluded from gross income for Federal
income tax purposes ("Municipal Obligations"). The Tax-Exempt Fund's income may
be subject to state and local taxes.
The Tax-Exempt Fund operates subject to a fundamental investment policy
providing that, under normal conditions, the Fund will invest at least 80% of
its net assets in Municipal Obligations, the income from which is exempt from
Federal income taxation and is not a specific tax preference item for purposes
of the Federal individual and corporate alternative minimum tax. Under normal
conditions, the Tax-Exempt Fund may hold a portion of its total assets in cash
or money market instruments, including taxable money market instruments of the
sort described below under "Additional Investments -- Money Market Instruments"
for cash management purposes, pending investment in accordance with the Fund's
investment objective and policies and to meet operating expenses. In addition,
the Tax-Exempt Fund may, without limitation, as a temporary defensive posture,
hold cash, or invest in short-term Municipal Obligations and/or money market
instruments of the type described below under "Additional Investments -- Money
Market Instruments."
Municipal Obligations are classified as general obligation bonds or revenue
bonds. General obligation bonds are secured by the issuer's pledge of its full
faith, credit and taxing power for the payment of principal and interest.
Revenue bonds are payable from the revenue derived from a particular facility or
class of facilities or, in some cases, from the proceeds of a special excise or
other specific revenue source but not from the general taxing power. Notes are
short-term obligations of issuing municipalities or agencies and are sold in
anticipation of a bond sale, collection of taxes or receipt of other revenues.
Municipal Obligations bear fixed, floating and variable rates of interest.
Variations exist in the security of Municipal Obligations, both within a
particular classification and between classifications. Risks and special
considerations applicable to Municipal Obligations are described below under
"Risk Factors and Special Considerations."
The Tax-Exempt Fund has the authority to invest in Municipal Obligations that
are rated at the time of purchase within the six highest categories established
by S&P, Moody's or another NRSRO, or which, although not rated, are, in the
opinion of GEIC, of comparable quality. The six highest ratings currently
assigned to Municipal Bonds by S&P are AAA, AA, A, BBB, BB and B and by Moody's
are Aaa, Aa, A, Baa, Ba and B. Bonds coming within the highest four S&P and
Moody's Municipal Bond ratings are considered investment grade. Risks and
special considerations applicable to certain investment grade obligations and
obligations rated lower than investment grade are described below under "Risk
Factors and Special Considerations." A description of S&P and Moody's ratings
relevant to the Tax-Exempt Fund's investments is included as an Appendix to the
Statement of Additional Information.
At least 50% of the Tax-Exempt Fund's total assets are invested in obligations
rated A or better by S&P or Moody's. In addition, the Tax-Exempt Fund will limit
its investments in obligations rated BBB by S&P or Baa by Moody's to no more
than 25% of its total assets and will limit its investments in obligations rated
BB or B by S&P or Ba or B by Moody's to no more than 10% of its total assets. No
more than 25% of the Tax-Exempt Fund's total assets may be invested in
obligations that are not rated and no non-rated obligation will be purchased by
the Fund unless GEIC determines the obligation to be of a quality comparable to
an obligation rated B or better by S&P or Moody's. For purposes of determining
compliance
9
<PAGE>
with these fundamental policies with respect to ratings, non-rated obligations
will be included with rated obligations of comparable quality. If the S&P or
Moody's rating of a particular obligation is lowered, or if S&P or Moody's
ceases to rate the obligation, subsequent to that purchase by the Tax-Exempt
Fund, GEIC will consider the event in its determination of whether the Fund
should continue to hold the obligation; the Fund will not, however, be required
to sell the obligation in either case. Risks and special considerations
applicable to certain investment grade obligations and obligations rated below
investment grade are described below under "Risk Factors and Special
Considerations."
The Tax-Exempt Fund, in addition to investing as described above, may hold the
following types of instruments: repurchase agreements, illiquid securities, Rule
144A Securities, zero coupon obligations, municipal leases, floating or variable
rate instruments, participation interests in certain Municipal Obligations,
Municipal Obligation components and custodial receipts. In addition, the
Tax-Exempt Fund may engage in the following types of investment techniques and
strategies: purchasing put and call options on securities, writing put and call
options on securities, purchasing put and call options on securities indexes,
entering into interest rate, financial and bond index futures contracts
(including tax-exempt bond index futures contracts) or related options that are
traded on a U.S. or foreign exchange or board of trade or in the
over-the-counter market, borrowing for long-term or leveraging purposes in an
amount not to exceed 10% of the value of its total assets, entering into
securities transactions on a when-issued or delayed-delivery basis and lending
portfolio securities. These other instruments, investment techniques and
strategies have risks and special considerations associated with them that are
described below under "Risk Factors and Special Considerations" and in "Further
Information: Certain Investment Techniques and Strategies." Income derived by
the Tax-Exempt Fund with respect to certain of these instruments, investment
techniques and strategies, will not be exempt from Federal income taxation.
Investing in accordance with the Tax-Exempt Fund's objective, policies and
restrictions resulted in a portfolio turnover rate of 28% in 1997 and 22% in
1996. See "Portfolio Transactions and Turnover" below for further information on
portfolio turnover rates.
ELFUN INCOME FUND
Elfun Income Fund (the "Income Fund") was organized as a common law trust in the
State of Connecticut on December 22, 1982. The investment objective of the
Income Fund is to seek a high level of income consistent with prudent investment
management and the preservation of capital. Capital appreciation with respect to
the Income Fund's portfolio securities may occur but is not an objective of the
Fund. In seeking to achieve its investment objective, the Income Fund invests in
the following types of fixed income instruments: Government Securities;
obligations of foreign governments or their agencies or instrumentalities;
bonds, debentures, notes and preferred stocks issued by domestic and foreign
companies; equipment trust certificates (indebtedness secured by liens on
personal property such as airplanes and railroad cars); mortgage related
securities, ARMs, CMOs and government stripped mortgage related securities;
asset-backed and receivable-backed securities; and money market instruments. The
Income Fund may also invest in indexed securities, the value of which is linked
to currencies, interest rates, commodities, indexes or other financial
indicators. Mortgage related securities, ARMs, CMOs, government stripped
mortgage related securities and asset-backed and receivable-backed securities
are subject to several risks, including the early prepayment of principal. Other
risks and special considerations applicable to these instruments are described
in "Further Information: Certain Investment Techniques and Strategies."
The Income Fund is subject to no limitation with respect to the maturities of
the instruments in which it may invest. The Income Fund's investments in bonds
will be limited to those that are rated within the six highest categories by
S&P, Moody's or another NRSRO, or if unrated, are deemed by GEIC to be of
comparable quality. Risks and special considerations applicable to certain
investment grade obligations and obligations rated lower than investment grade
are described below under "Risk Factors and Special Considerations." A
description of S&P and Moody's ratings relevant to the Income Fund's investments
is included as an Appendix to the Statement of Additional Information.
The Income Fund will not purchase any obligation rated BBB by S&P or Baa by
Moody's if, as a result of the purchase, more than 25% of the Fund's total
assets would be invested in obligations rated in those categories or in unrated
obligations that are deemed by GEIC to be of comparable quality. In addition, no
obligation will be purchased by the Income Fund if, as a result of the purchase,
more than 10% of the Fund's total assets would be invested in obligations rated
BB or B by S&P or Ba or B by Moody's or in unrated obligations that GEIC deems
to be of comparable quality.
Up to 35% of the Income Fund's total assets may be invested in obligations of
foreign companies or foreign governments or their agencies and
instrumentalities. Investments in foreign companies and agencies or
instrumentalities of foreign governments made by the Income Fund usually will
involve currencies of foreign countries. Investments may be on a hedged or
unhedged basis and may be short-term or long-term, without protection from
changes in currency rates. Risks and special considerations applicable to
investing in foreign countries are described below under "Risk Factors and
Special Considerations." Under normal market conditions, the Income Fund may
invest a substantial portion of its assets in money market instruments of the
types described below under "Additional Investments -- Money Market Instruments"
for cash management purposes, pending investment in accordance with the Fund's
investment objective and policies and to meet operating expenses.
Under unstable market conditions, when GEIC deems it advisable, the Income Fund
may assume a temporary
10
<PAGE>
defensive measure and without limitation hold cash and/or invest in money market
instruments of the types described below under "Additional Investments -- Money
Market Instruments." Included among the money market instruments in which the
Fund may invest are repurchase agreements, the risks and special considerations
of which are described below under "Risk Factors and Special Considerations --
Repurchase and Reverse Repurchase Agreements."
The Income Fund, in addition to investing as described above, may hold the
following types of instruments: repurchase agreements if collateralized by
Government Securities or other securities rated at least AA by S&P, illiquid
securities, Rule 144A Securities, securities of supranational agencies,
securities of other investment funds, zero coupon obligations, floating and
variable rate instruments and participation interests in certain Municipal
Obligations. In addition, the Income Fund may engage in the following types of
investment techniques and strategies: purchasing put and call options on
securities, writing put and call options on securities, purchasing put and call
options on securities indexes, entering into interest rate, financial and bond
index futures contracts or related options that are traded on a U.S. or foreign
exchange or board of trade or in the over-the-counter market, engaging in
forward currency transactions, purchasing and writing put and call options on
foreign currencies, entering into securities transactions on a when-issued or
delayed-delivery basis, entering into mortgage dollar rolls and lending
portfolio securities. These other instruments, investment techniques and
strategies have risks and special considerations associated with them that are
described below under "Risk Factors and Special Considerations" and in "Further
Information: Certain Investment Techniques and Strategies."
Investing in accordance with the Income Fund's objective, policies and
restrictions resulted in a portfolio turnover rate of 222% in 1997 and 201% in
1996. See "Portfolio Transactions and Turnover" below for further information on
portfolio turnover rates.
ELFUN MONEY MARKET FUND
Elfun Money Market Fund (the "Money Market Fund") was organized as a common law
trust in the State of Connecticut on July 15, 1989. The investment objective of
the Money Market Fund is to seek a high level of current income consistent with
prudent investment management and the preservation of capital. In seeking its
objective, the Money Market 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 other short-term corporate debt
securities, 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) securities issued by foreign issuers; (7) repurchase
agreements; and (8) any other short-term U.S. dollar denominated money market
instruments that the Trustees of the Fund determine present minimal credit
risks. The percentage of the Money Market Fund's assets invested in securities
issued by foreign governments, political subdivisions, agencies or
instrumentalities will vary depending on the relative yields of the securities,
the economic and financial markets of the countries in which the investments are
made and the interest rate climate of those countries, but will in no event
exceed 10% of the Fund's assets.
The Money Market Fund limits its portfolio investments to securities that the
Trustees determine present minimal credit risk and that are "Eligible
Securities" at the time of acquisition by the Fund. "Eligible Securities" as
used in this Prospectus means securities rated by the "Requisite NRSROs" in one
of the two highest short-term rating categories, consisting of issuers that have
received these ratings with respect to other short-term debt securities and
comparable unrated securities. "Requisite NRSROs" means (1) any two NRSROs that
have issued a rating with respect to a security or class of debt obligations of
an issuer or (2) one NRSRO, if only one NRSRO has issued such a rating at the
time that the Money Market Fund acquires the security. Currently, six
organizations are NRSROs: S&P, Moody's, Fitch Investors Service, Inc., Duff and
Phelps, Inc., IBCA Limited and its affiliate, IBCA, Inc., and Thomson BankWatch
Inc. A discussion of the ratings categories is contained in the Appendix to the
Statement of Additional Information. By limiting its investments to Eligible
Securities, the Money Market Fund may not achieve as high a level of current
income as a fund investing in lower-rated securities.
The Money Market Fund may not invest more than 5% of its total assets in the
securities of any one issuer, except for Government Securities and except to the
extent permitted under rules adopted by the SEC under the 1940 Act. In addition,
the Money Market Fund may not invest more than 5% of its total assets in
Eligible Securities that have not received the highest rating from the Requisite
NRSROs and comparable unrated securities ("Second Tier Securities"), and may not
invest more than the greater of $1,000,000 or 1% of its total assets in the
Second Tier Securities of any one issuer. The Money Market Fund may invest more
than 5% (but not more than 25%) of the then-current value of the Fund's total
assets in the securities of a single issuer for a period of up to three business
days, so long as (1) the securities either are rated by the Requisite NRSROs in
the highest short-term rating category or are securities of issuers that have
received such ratings with respect to other short-term debt securities or are
comparable unrated securities or is a security issued by a registered investment
company that is a money market fund and (2) the Fund does not make more than one
such investment at any one time. Determinations of comparable quality for
purchases of unrated securities are made by GEIC in accordance with procedures
established by the Trustees. The Money Market Fund invests only in instruments
that have (or, pursuant to regulations adopted by the SEC, are deemed
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to have) remaining maturities of 13 months or less at the date of purchase
(except securities subject to repurchase agreements), determined in accordance
with a rule promulgated by the SEC. The Money Market Fund will maintain a
dollar-weighted average portfolio maturity of 90 days or less. The assets of the
Money Market Fund will be valued on the basis of amortized cost, as described
below under "Net Asset Value."
The Money Market Fund, in addition to investing as described above, may hold
illiquid securities, Rule 144A Securities and securities of other investment
funds, and may purchase floating and variable rate demand notes and bonds. In
addition, the Money Market Fund may engage in the following types of investment
techniques and strategies: entering into reverse repurchase agreements, entering
into securities transactions on a when-issued or delayed delivery basis, selling
securities short against the box and lending portfolio securities. These other
instruments, investment techniques and strategies have risks and special
considerations associated with them that are described below under "Risk Factors
and Special Considerations" and in "Further Information: Certain Investment
Techniques and Strategies."
ADDITIONAL INVESTMENTS
Some or all of the Funds may invest in the types of instruments and engage in
the types of strategies described in detail below. These instruments and
strategies may be subject to the risks and special considerations described
below under "Risk Factors and Special Considerations."
The Annual Report contains information regarding relevant market conditions and
investment strategies and techniques pursued by GEIC during the previous fiscal
year, and is available to unitholders without charge upon request made to the
Funds at the address listed on the front cover page of this Prospectus.
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 described below are
as follows: (i) securities issued or guaranteed by the U.S. Government or one of
its agencies or instrumentalities, (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 GEI Short-Term Investment Fund (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 GE Investment Management
Incorporated ("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.
Each of the Funds may invest in the following types of Government Securities:
debt obligations of varying maturities issued by the U.S. Treasury or issued or
guaranteed by the Federal Housing Administration, Farmers Home Administration,
Export-Import Bank of the United States, Small Business Administration,
Government National Mortgage Association ("GNMA"), General Services
Administration, Central Bank for Cooperatives, Federal Farm Credit Banks,
Federal Home Loan Banks, Federal Home Loan Mortgage Corporation ("FHLMC"),
Federal Intermediate Credit Banks, Federal Land Banks, Federal National Mortgage
Association ("FNMA"), Federal Deposit Insurance Corporation, Maritime
Administration, Tennessee Valley Authority, District of Columbia Armory Board,
Student Loan Marketing Association and Resolution Trust Corporation. Direct
obligations of the U.S. Treasury include a variety of securities that differ in
their interest rates, maturities and dates of issuance. Certain of the
Government Securities that may be held by the Funds are instruments that are
supported by the full faith and credit of the United States, whereas other
Government Securities that may be held by the Funds are supported by the right
of the issuer to borrow from the U.S. Treasury or are supported solely by the
credit of the instrumentality. Because the U.S. Government is not obligated by
law to provide support to an instrumentality that it sponsors, a Fund will
invest in obligations issued by an instrumentality of the U.S. Government only
if GEIC determines that the instrumentality's credit risk does not make its
securities unsuitable for investment by the Fund.
Each Fund, other than the Money Market Fund, may invest in money market
instruments issued or guaranteed by foreign governments or by any of their
political subdivisions, authorities, agencies or instrumentalities. Elfun
Trusts, the Global Fund and the Tax-Exempt Fund may invest in these instruments
only if they are rated AAA or AA by S&P or Aaa or Aa by Moody's or have received
an equivalent rating from another 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 an Appendix to the Statement of Additional
Information.
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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 will be
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.
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 the Money Market 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 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 the Money Market
Fund's obligations with respect to reverse repurchase agreements are segregated
and maintained with the Fund's custodian or designated sub-custodian.
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 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 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 Act of 1933 will be
deemed to be illiquid.
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 (unlike most fixed income securities) the principal amount
payable at maturity of an indexed security 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.
PURCHASING PUT AND CALL OPTIONS ON SECURITIES. Each Fund, other than the Money
Market Fund, may purchase put and call options that are traded on a U.S. or
foreign securities exchange or in the over-the-counter market. A Fund may
utilize up to 10% of its assets to purchase put options on portfolio securities
and may do so at or about the same time that it purchases the underlying
security or at a later time. By buying a put, a Fund will seek to limit its risk
of loss from a decline in the market value of the security until the put
expires. Any appreciation in the value of the underlying security, however, will
be partially offset by the amount of the premium paid for the put option and any
related transaction costs. A Fund may utilize up to 10% of its assets to
purchase call options on portfolio securities. Call options may be purchased by
a Fund in order to acquire the underlying securities for a price that avoids any
additional cost that would result from a substantial increase in the market
value of a security. A Fund may also purchase call options to increase its
return at a time when the call is expected to increase in value due to
anticipated appreciation of the underlying security. Prior to their expirations,
put and call options may be sold by a Fund in closing sale transactions, which
are sales by the Fund, prior to the exercise of options that it has purchased,
of options of the same series. Profit or loss from the sale will depend on
whether the amount received is more or less than the premium paid for the option
plus the related transaction costs. The aggregate value of the securities
underlying the calls or obligations underlying the puts, determined as of the
date the options are sold, shall not exceed 25% of the net assets of a Fund. In
addition, the premiums paid by a Fund in purchasing options on securities,
options on securities indexes, options on foreign currencies and options on
futures contracts will not exceed 20% of the Fund's net assets.
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COVERED OPTION WRITING. Each Fund, other than the Money Market Fund, may write
covered put and call options on securities. A Fund will realize fees (referred
to as "premiums") for granting the rights evidenced by the options. A put option
embodies the right of its purchaser to compel the writer of the option to
purchase from the option holder an underlying security at a specified price at
any time during the option period. In contrast, a call option embodies the right
of its purchaser to compel the writer of the option to sell to the option holder
an underlying security at a specified price at any time during the option
period.
The Funds with option-writing authority will write only options that are
covered. A put or call 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 SECto be permissible. See "Strategies
Available to Some But Not All Funds -- Covered Option Writing" in the Statement
of Additional Information for specific situations where put and call options
will be deemed to be covered by a Fund.
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. To facilitate closing
purchase transactions, the Funds with option-writing authority will ordinarily
write options only if a secondary market for the options exists on a U.S. or
foreign securities exchange or in the over-the-counter market.
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
position's being offset by a loss on the hedge position.
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 securities index measures the movement of a certain group of securities by
assigning relative values to the securities included in the index. Options on
securities indexes are generally similar to options on specific securities.
Unlike options on securities, however, options on securities indexes do not
involve the delivery of an underlying security; the option in the case of an
option on a securities index represents the holder's right to obtain from the
writer in cash a fixed multiple of the amount by which the exercise price
exceeds (in the case of a call) or is less than (in the case of a put) the
closing value of the underlying securities index on the exercise date.
A 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. See "Strategies Available
to Some But Not All Funds -- Covered Option Writing" in the Statement of
Additional Information for specific situations where securities index options
will be deemed to be covered by a Fund. If the Fund has written a securities
index option, it may terminate its obligation by effecting a closing purchase
transaction, which is accomplished by purchasing an option of the same series as
the option previously written.
FUTURES AND OPTIONS ON FUTURES. Each Fund, other than the Money Market Fund, may
enter into 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 Commodity
Futures Trading Commission 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 effect of changes in the value of portfolio securities or
other investments due to anticipated changes in interest rates, stock market
conditions and currency market conditions, (2) to gain stock, bond, or currency
market exposure for accumulating and residual cash positions, (3) for duration
management, (4) when such transactions are economically appropriate to reduce
risks inherent in the management of the Fund, 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.
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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 SEC staff 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 liquid
assets and segregated with the Trust's custodian or designated sub-custodian or
"covered" in a manner similar to that for covered options on securities (see
"Strategies Available to Some But Not All Funds -- Covered Option Writing" in
the Statement of Additional Information) and designed to eliminate any potential
leveraging.
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
indexes that reflect the market value of common stock of the companies included
in the indexes. 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.
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 readily marketable securities 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. A Fund may also be able to negotiate such an offset 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 limited to the amount of the
Fund's aggregate investments in instruments denominated in foreign currencies.
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 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.
INVESTMENT RESTRICTIONS
Each Fund has adopted certain fundamental investment restrictions that may not
be changed without approval of a majority of the Fund's outstanding voting
securities (as defined in the 1940 Act). Included among those fundamental
restrictions are those listed below.
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
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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 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 indices 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.
For purposes of investment restriction 1(a) above, the Global Fund has
undertaken not to invest more than 5% of its assets in securities issued or
guaranteed by a foreign country or its instrumentalities. For purposes of
investment restriction 1(b), the Income Fund, the Tax-Exempt Fund and the Global
Fund have undertaken not to purchase more than 10% of the outstanding securities
of any class of issuer. For purposes of investment restriction 2, the Tax-Exempt
Fund has undertaken to include domestic bank obligations when determining the
percentage of its total assets to be invested in any one industry. See the
Funds' Statement of Additional Information for further information.
RISK FACTORS AND SPECIAL CONSIDERATIONS
Investing in the Funds involves risk factors and special considerations, such as
those described below:
GENERAL. GEIC's principal officers, directors and portfolio managers serve in
similar capacities with respect to GEIM, which like GEIC is a wholly-owned
subsidiary of GE. GEIM and GEIC collectively provide investment management
services to various institutional accounts with total assets, as of December 31,
1997, in excess of $69 billion. An investment in shares of any Fund, however,
should not be considered to be a complete investment program.
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 units
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.
CERTAIN INVESTMENT GRADE OBLIGATIONS. Although obligations rated BBB by S&P or
Baa by Moody's are considered investment grade, they may be viewed as being
subject to greater risks than other investment grade obligations. Obligations
rated BBB by S&P are regarded as having only an adequate capacity to pay
principal and interest and those rated Baa by Moody's are considered
medium-grade obligations that lack outstanding investment characteristics and
have speculative characteristics as well.
LOW-RATED 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
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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 low-rated securities tend to react less to
fluctuations in interest rate levels than the 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
a 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.
NON-PUBLICLY TRADED AND ILLIQUID SECURITIES. 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.
REPURCHASE AND REVERSE REPURCHASE AGREEMENTS. 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, in particular, be 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 the Money Market 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, the Money Market 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.
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 within
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. Warrants acquired by a Fund in units or attached to
securities may be deemed to be without value.
INVESTMENT IN FOREIGN SECURITIES. Investing in securities issued by foreign
companies and governments 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 may be
more sensitive to the risks described under "Year 2000 Risks" below. In
addition, 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.
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
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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.
MUNICIPAL OBLIGATIONS. 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.
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 Tax-Exempt Fund should any of the related projects or
facilities experience financial difficulties.
In past years, the U.S. Government has enacted various laws that have restricted
or diminished the income tax exemption on various types of Municipal Obligations
and may enact other similar laws in the future. If any such laws are enacted
that would reduce the availability of Municipal Obligations for investment by
the Tax-Exempt Fund so as to affect the Fund's 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 treat the
security as a permissible taxable money market instrument within the applicable
limits set forth in this Prospectus.
COVERED OPTION WRITING. Upon the exercise of a put option written by a Fund, the
Fund may suffer a loss equal to the difference between the price at which the
Fund is required to purchase the underlying security and its market value at the
time of the option exercise, less the premium received for writing the option.
Upon the exercise of a call option written by a Fund, the Fund may suffer a loss
equal to the excess of the security's market value at the time of the option's
exercise over the Fund's acquisition cost of the security, less the premium
received for writing the option. In addition, no assurance can be given that a
Fund will be able to effect 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.
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. 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 OPTIONS ON FUTURES. 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, and no assurance can be given that an active market will exist for a
particular contract or option at any particular time. 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 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. In entering into forward currency contracts, a
Fund will be subject to a number of
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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 Fund's ability to dispose of a position in forward currency contracts will
depend on the availability of active markets in those instruments, and GEIC
cannot now 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. 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.
INSTRUMENTS AND STRATEGIES INVOLVING SPECIAL RISKS. Certain instruments in which
the Funds can invest and certain investment strategies that the Funds may employ
could expose the Funds to various risks and special considerations. The
instruments presenting risks to a Fund that holds the instruments are: Rule 144A
Securities, depositary receipts, securities of supranational agencies,
securities of other investment funds, municipal leases, floating and variable
rate instruments, participation interests, zero coupon obligations, Municipal
Obligation components, custodial receipts, mortgage related securities,
government stripped mortgage related securities, and asset-backed and
receivable-backed securities. Among the risks that some, but not all, of these
instruments involve are lack of liquid secondary markets and the risk of
prepayment of principal. The investment strategies involving special risks to
some or all of the Funds are: engaging in when-issued or delayed delivery
transactions, lending portfolio securities, borrowing for long-term or
leveraging purposes and selling securities short against the box. Among the
risks that some, but not all, of these strategies involve are increased exposure
to fluctuations in market value of the securities and certain credit risks. See
"Further Information: Certain Investment Techniques and Strategies" for a more
complete description of these instruments and strategies.
YEAR 2000 RISKS. Like other mutual funds, financial and business organizations
and individuals around the world, each of the Funds could be adversely affected
if the computer systems used by its investment adviser, sub-advisers and other
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." GEIC is taking steps that it believes are reasonably designed to
address the Year 2000 Problem with respect to the computer systems that it uses
and to obtain satisfactory assurances that comparable steps are being taken by
each of the Funds' other major service providers. At this time, however, there
can be no assurances that these steps will be sufficent to avoid any adverse
impact on the Funds. In addition, 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, if systems
should cease to function at that time. This may result in trade settlement
problems and liquidity issues. Corporate and governmental data processing errors
may result in production problems for individual companies and overall economic
uncertanties. 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 Year 2000 compliance than major U.S. entities, which
could make certain of the Funds' investments more sensitive to these risks.
PORTFOLIO TRANSACTIONS AND TURNOVER
================================================================================
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 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
the brokerage compensation that it receives from a Fund.
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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 shareholders 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. The Statement of Additional
Information contains additional information regarding portfolio transactions and
turnover.
MANAGEMENT OF THE FUNDS
================================================================================
BOARD OF TRUSTEES
Overall responsibility for management and supervision of the Funds rests with
each Fund's Board of Trustees. The Trustees appoint the Funds' auditors, elect
the Trustees, supervise the management and affairs of the Funds and review the
performance of the investment adviser. The day-to-day operations of the Funds
have been delegated to GEIC. The Statement of Additional Information contains
background information regarding each Trustee and executive officer of the
Funds.
PORTFOLIO MANAGEMENT
David B. Carlson is the Portfolio Manager of Elfun Trusts and is also
responsible for the management of the domestic equity related investments of the
portfolio of the Diversified Fund. Mr. Carlson has served Elfun Trusts as a
Portfolio Manager since 1988 and has served the Diversified Fund as a Portfolio
Manager since 1992. He has more than 15 years of investment experience and has
held positions with GEIM or GEIC, or their predecessors (collectively referred
to as "GE Investments"), since 1982. Mr. Carlson is currently a Senior Vice
President of GE Investments.
Robert R. Kaelin is the Portfolio Manager of the Tax-Exempt Fund and has served
in that capacity since 1984. He has more than 28 years of investment experience
and has held positions with GE Investments since 1984. Mr. Kaelin is currently a
Senior Vice President of GE Investments.
Ralph R. Layman is a Co-Portfolio Manager of the Global Fund and has served the
Fund in a portfolio management capacity since 1991. Mr. Layman is also
responsible for the management of the international equity related investments
of the Diversified Fund and has served in that capacity since March 1997. He has
more than 19 years of investment experience and has held positions with GE
Investments since 1991. From 1989 to 1991, Mr. Layman served as an 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. Mr. Layman is currently a Director and Executive Vice
President of GE Investments.
Robert A. MacDougall leads a team of portfolio managers for the Income Fund and
is also responsible for the management of fixed income related investments of
the portfolio of the Diversified Fund. Mr. MacDougall has served the Income Fund
since 1986 and the Diversified Fund since its inception in 1987. He has more
than 14 years of investment experience and has held positions with GE
Investments since 1986. Mr. MacDougall is currently a Director and Executive
Vice President of GE Investments.
Michael J. Solecki is a Co-Portfolio Manager of the Global Fund and has served
in that capacity since March 1997. He has more than seven years of investment
experience and has held positions with GE Investments since 1990. Mr. Solecki is
currently a Vice President of GE Investments.
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.
INVESTMENT ADVISER
GEIC, located at 3003 Summer Street, P.O. Box 7900, Stamford, Connecticut
06904-7900, serves as the investment adviser of each Fund. GEIC, which was
formed under the laws of Delaware in 1977, is a wholly-owned subsidiary of GE
and is a registered investment adviser under the Investment Advisers Act of
1940, as amended. 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 and directors serve in similar capacities with respect
to GEIM, which like GEIC is a wholly-owned subsidiary of GE, and which has acted
as the investment adviser of the GE Funds, currently consisting of 12
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 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 investment adviser to the six
portfolios of GE Lifestyle Funds, which invest exclusively in certain GE Funds
since their inception in 1997 and GE Institutional Funds ten portfolios since
their inception in 1997. In addition, GEIM has acted as investment sub-adviser
to PaineWebber Global Equity Fund, a series of PaineWebber Investment Trust,
since its inception in 1991, the Global Growth Portfolio of Mitchell Hutchins
Series Trust and Global Small Cap Fund Inc. since March 1995, the International
Equity Portfolio of the IDEX Series Fund since its inception in February 1997,
and since their inception in January 1997, the International Equity Portfolio
and U.S. Equity Portfolio of the WRL Series Fund, Inc., which are offered only
to insurance companies that fund certain variable contracts. GE Investments
provides investment management services to various institutional accounts with
total assets, as of December 31, 1997, in excess of $69 billion, of which
approximately $13 billion is invested in mutual funds. Through GE Investments,
GE has over 70 years of investment management experience.
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As a Fund's investment adviser, GEIC, subject to the supervision and direction
of each Fund's Board of Trustees, manages the Fund's portfolio in accordance
with its investment objective(s) and stated policies, makes investment decisions
for the Fund and places purchase and sale orders for the Fund's portfolio
transactions.
EXPENSES OF THE FUNDS
The management 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 charged to
the Fund and 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 costs 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, 1997, the total expenses of each Fund and the
portion of those expenses that were paid to GEIC for advisory and administration
services, respectively, were in aggregate dollar amount and as a percentage of
net assets as follows: Elfun Trusts -- $1,593,000 (.09%) and $626,000 (.03%),
the Global Fund -- $462,000 (.24%) and $182,000 (.09%), the Diversified Fund --
$282,000 (.22%) and $93,000 (.07%), the Tax-Exempt Fund -- $1,375,000 (.10%) and
$730,000 (.05%), the Income Fund -- $445,000 (.20%) and $151,000 (.07%) and the
Money Market Fund -- $378,000 (.24%) and $78,000 (.09%).
Annual costs are estimated and accrued daily so as not to create dramatic
fluctuations in Unit pricing.
PURCHASE OF UNITS
================================================================================
GENERAL
Units of the Funds are sold at the net asset value per Unit next determined
after receipt and acceptance of the unitholder's check or funds. For a
description of the manner of calculating a Fund's net asset value, see "Net
Asset Value."
For unitholder convenience and in the interest of economy, the Funds no longer
issue physical certificates representing Units in any Fund ("Certificate
Units"). Ownership of Units is evidenced by Statements of Account representing
Units issued in book-entry form ("Bookunits").
The minimum initial investment in the Funds is $500 and the minimum for
subsequent investments is $100. The minimum for any purchase by payroll
deduction, provided the $500 initial investment is made, is $25 per transaction.
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. See "Net Asset Value" below.
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.
Units of the Funds may be purchased as follows:
BY MAIL. Investors may send 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 to:
c/o Elfun Mutual Funds
P.O. Box 419631
Kansas City, MO 64141-6631
For overnight package delivery:
Elfun Mutual Funds
c/o National Financial Data Services Inc.
1004 Baltimore
Kansas City, MO 64105
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.
A purchase of Units of a Fund will be effected in accordance with a completed
order at the Fund's net asset value next determined after receipt of the
application. If the check used for the 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 DEDUCTION. An investor can purchase Units of a Fund (minimum of $25
per transaction) 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.
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BY AUTOMATIC INVESTMENT PLAN. Investors may arrange to make purchases of shares
automatically on a monthly basis by electronic funds transfer (minimum $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. 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.
ELFUN RETIREMENT ACCOUNTS
Units of each of the Funds, other than the Tax-Exempt Fund, are available for
purchase by an Elfun Traditional or Roth Individual Retirement Account ("Elfun
IRAs"). See the Elfun IRA information kit materials for a description of each
type of Elfun IRA, how they operate, and the fees associated with establishing
and maintaining them.
REDEMPTION OF UNITS
================================================================================
REDEMPTIONS IN GENERAL
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 as described below under "Net Asset Value." A duly executed
redemption form received by mail in proper form 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) will be
effected at the net asset value as determined for that day. If the request is
received after 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
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.
Units of a Fund may be redeemed in either of the following two ways:
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 and send it to:
Elfun Mutual Funds
P.O. Box 419631
Kansas City, MO 64141-6631
For overnight package delivery:
Elfun Mutual Funds
c/o National Financial Data Services Inc.
1104 Baltimore
Kansas City, MO 64105
Units represented by Certificate should be sent to the above address 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 each signature for all redemptions over
$25,000. In addition, signature guarantees
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<PAGE>
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 shareholder, (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 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
redemption request will either be 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. See "Transfer
Privilege." 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 may be imposed by the bank and will be
the responsibility of the unitholder. A Fund may modify or terminate the charge
assessed with telephonic requests at any time.
Telephonic redemption requests should be made by calling 1-800-242-0134. Except
for Money Market Fund transactions, confirmation of telephonic redemptions will
be sent within seven days of the date of redemption. Wire transfer of funds 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.
Telephone redemption requests may be difficult to implement in times of drastic
economic or market changes. In the event 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 this 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") on the automated telephone 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
23
<PAGE>
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 unitholder. The cost of administering the Withdrawal Plan is
borne by each Fund as an expense of its unitholders. Further information about
the Withdrawal Plan can be obtained from the Servicing Agent.
INVOLUNTARY REDEMPTIONS
An account of a unitholder that is reduced to a value of $500 or less, may be
redeemed by the Fund, but only after the unitholder has been given at least 30
days' notice in which to increase the balance in the account to more than $500.
Proceeds of such a redemption will be mailed to the unitholder.
DISTRIBUTIONS IN KIND
If a Fund's Board of Trustees determines that it would be detrimental to the
best interests of the Fund's unitholders to make a redemption payment wholly in
cash, the 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.
The Money Market 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
================================================================================
Under an exchange privilege offered by the Funds, 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. See "Redemption by Mail" and
"Redemption by Telephone" for a description of the redemption procedure. 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 a taxable capital gain
or loss to the unitholder, depending on the unitholder's cost. Prior to the
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 the Fund, materially modify or terminate
the exchange privilege with respect to a Fund.
NET ASSET VALUE
================================================================================
With certain limited exceptions, 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.
Each Fund's net asset value per Unit is determined as of the close of regular
trading on the NYSE (currently 4:00 p.m., New York time), and is computed by
adding the value of the Fund's investments plus cash and other assets, deducting
liabilities and then dividing the result by the total number of its Units
outstanding. In general, a
24
<PAGE>
Fund's investments will be valued at market value or, in the absence of market
value, at fair value as determined by or under the direction of the Board. The
Money Market Fund will seek to maintain a net asset value at $1.00 per Unit for
purposes of purchases and redemptions, although no assurance can be given that
the Fund will be able to do so on a continuous basis.
Securities that are primarily traded on a foreign exchange generally will be
valued for purposes of calculating a Fund's net asset value at the preceding
closing value of the securities on the exchange, except that, when an occurrence
subsequent to the time a value was so established is likely to have changed that
value, the fair market value of those securities will be determined by
consideration of other factors by or under the direction of the officers of each
Fund in a manner authorized by the Fund's Board of Trustees and applied on a
consistent basis. A security that is primarily traded on a domestic or foreign
securities exchange will be valued at the last sale price on that exchange or,
if no sales occurred during the day, at the current quoted bid price. An option
that is written or purchased by a Fund generally will be valued at the mean
between the last asked and bid prices. The value of a futures contract will be
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 settlement price may not be used if
the market makes a limit move with respect to a particular futures contract or
if the securities underlying the futures contract experience significant price
fluctuations after the determination of the settlement price. When a settlement
price cannot be used, futures contracts will be valued at their fair market
value as determined by or under the direction of the officers of a Fund in a
manner authorized by the Fund's Board of Trustees.
All assets and liabilities of a Fund 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 the bid and offered quotations are not available, the rate
of exchange will be determined in good faith by or under the direction of the
officers of the Fund in a manner authorized by the Board of Trustees and applied
on a consistent basis. In carrying out the Board's valuation policies, GEIC may
consult with an independent pricing service or services, retained by the Fund.
Further information regarding the Fund's valuation policies is contained in the
Statement of Additional Information.
All portfolio securities held by the Money Market Fund, and any short-term
investments of the other Funds that mature in 60 days or less, will be valued on
the basis of amortized cost (which involves valuing an investment 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 investment) when the Fund's Board of Trustees determines that
amortized cost is fair value.
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- 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 deposited 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 other 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 of his or her correct address
and requests in writing that the election to receive dividends and other
distributions in cash 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.
Dividends attributable to net investment income of the Tax-Exempt Fund, the
Income Fund and the Money Market Fund are declared daily and paid monthly.
Dividends attributable to the net investment income of Elfun Trusts, the Global
Fund and the Diversified Fund are declared and paid annually. 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. 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
principles. All expenses of 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 preceding the
Saturday, Sunday or holiday.
25
<PAGE>
Each Fund will be subject to a 4% non-deductible 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 unitholders, 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.
TAXES
Each Fund is treated as a separate entity for Federal income tax purposes. As a
result, the amounts of net investment income and net realized capital gains
subject to tax will be determined separately for each Fund.
Each Fund intends to continue to qualify each year as a regulated investment
company under the Code. Dividends paid from a Fund's net investment income and
distributions of a Fund's net realized short-term capital gains will be taxable
to unitholders (other than tax-exempt investors) as ordinary income, regardless
of how long unitholders have held their Units of the Fund and whether the
dividends or distributions are received in cash or reinvested in additional
Units of the Fund. Distributions of a Fund's net realized long-term capital
gains will be taxable to unitholders as long-term capital gains, regardless of
how long unitholders have held their Units of the Fund and whether the
distributions are received in cash or are reinvested in additional Units of the
Fund. The Funds will provide information relating to the portion of a "capital
gain dividend" that may be treated by unitholders as eligible for the reduced
capital gains rate for capital assets held for more than 18 months. In addition,
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 and will be a short-term capital gain or loss
if the unitholder has held the Units for one year or less.
Dividends and distributions paid by the Tax-Exempt Fund, the Income Fund and the
Money Market Fund, and distributions of capital gains paid by all the Funds,
will not qualify for the Federal dividends-received deduction for corporations.
Dividends paid by the Diversified Fund, Elfun Trusts and the Global Fund, to the
extent derived from dividends attributable to certain types of stock issued by
U.S. corporations, may qualify for the dividends-received deduction for
corporations. Some states, if certain asset and diversification requirements are
satisfied, permit unitholders to treat their portions of a Fund's dividends that
are attributable to interest on U.S. Treasury securities and certain Government
Securities as income that is exempt from state and local income taxes. Dividends
attributable to repurchase agreement earnings are, as a general rule, subject to
state and local taxation.
Dividends paid by the Tax-Exempt Fund that are derived from interest earned on
qualifying tax-exempt obligations are expected to be "exempt-interest" dividends
that unitholders may exclude from their gross income for Federal income tax
purposes if the Fund satisfies certain quarterly asset percentage requirements.
To the extent that the Tax-Exempt Fund invests in bonds, the interest on which
is a specific tax preference item for Federal income tax purposes ("AMT-Subject
Bonds"), any exempt-interest dividends derived from interest on AMT-Subject
Bonds will be a specific tax preference item for purposes of the Federal
individual and corporate alternative minimum taxes. All exempt-interest
dividends will be a component of the "current earnings" adjustment item for
purposes of the Federal corporate alternative minimum income tax.
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, net of allocable expenses, is distributed to
unitholders, as taxable ordinary income dividends.
Net investment income or capital gains earned by the Funds investing in foreign
securities may be subject to foreign income taxes withheld at the source. The
United States has entered into tax treaties with many foreign countries that
entitle the Funds to a reduced rate of tax or exemption from tax on this related
income and gains. The effective rate of foreign tax will vary depending upon the
amount of a Fund's assets invested within various countries. The Funds intend to
seek to operate so as to qualify for treaty-reduced rates of tax when
applicable. In addition, if a Fund qualifies as a regulated investment company
under the Code 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 Fund 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. 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 portions of this amount against their U.S. tax liabilities, if
any, or to deduct those portions from their U.S. taxable income, if any. Shortly
after any year for which it makes an election, the Fund will report to its
unitholders, in writing, the amount per unit of foreign tax that must be
included in each unitholder's gross income and the amount that will be available
for deduction or credit. 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.
The Funds may be required to withhold for U.S. federal income tax purposes 31%
of all distributions payable to unitholders who fail to provide the Funds with
their correct tax identification number or to make required certifications, or
who have been notified by the U.S. Internal Revenue Service that they are
subject to backup withholding.
Statements as to the tax status of each unitholder's dividends and distributions
are mailed annually. Unitholders will also receive, as appropriate, various
26
<PAGE>
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. Unitholders should consult with their own tax
advisors with specific reference to their own tax situations.
CUSTODIAN, TRANSFER AGENT AND DIVIDEND PAYING AGENT
================================================================================
State Street, located at 225 Franklin Street, Boston, Massachusetts 02101,
serves as the Funds' custodian, transfer agent and dividend paying agent.
DISTRIBUTOR AND UNITHOLDER SERVICING AGENT
================================================================================
GE Investment Distributors, Inc., located at 777 Long Ridge Road, Building B,
Stamford, Connecticut 06927, serves as distributor of the Funds' Units (the
"Distributor"). 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.
GEIC serves as the Funds' unitholder servicing agent. As Servicing Agent, GEIC
is responsible for processing redemption requests, providing services which
assist the Funds' transfer agent and responding to unitholder inquiries. GEIC is
reimbursed for the reasonable costs incurred in providing its services as
Servicing Agent. The amounts paid by the Funds to GEIC for its services as
Servicing Agent for the years ended December 31, 1997, 1996, and 1995 were as
follows: Elfun Trusts -- $175,000, $229,000 and $160,000; the Diversified Fund
- -- $32,000, $36,000 and $35,000; the Global Fund -- $53,000, $70,000 and
$70,000; the Income Fund -- $47,000, $80,000 and $90,000; the Tax-Exempt Fund --
$85,000, $141,000 and $245,000; and the Money Market Fund $32,000, $39,000 and
$35,000.
If a unitholder has questions about purchases or redemptions of Units, please
write to:
Elfun Mutual Funds
3003 Summer Street
P.O. Box 120065
Stamford, CT 06912-0074
or telephone any of the following numbers: 1-800-242-0134 (toll-free), (203)
326-4040 or 8*225-4040 (Dial Comm).
THE FUNDS' PERFORMANCE
================================================================================
Certain information about the Funds' performance is set out below. Further
information about the performance of the Funds is contained in the Funds' Annual
Report to shareholders which may be obtained upon request without charge.
YIELD
From time to time, the yield and effective yield of the Money Market Fund may be
included in advertisements or reports to unitholders or prospective investors.
Current yield for the Money Market Fund will be based upon income received by a
hypothetical investment in a given seven-day period (which period will be stated
in the advertisement), and then "annualized" (that is, assuming that the
seven-day yield would be received for 52 weeks, stated in terms of an annual
percentage return on the investment). "Effective yield" for the Money Market
Fund will be calculated in a manner similar to that used to calculate yield, but
will reflect the compounding effect of earnings on reinvested dividends. The
current seven-day yield and effective seven-day yield as of December 31, 1997
were 5.52% and 5.67%, respectively.
From time to time, a 30-day "yield" for Elfun Trusts, the Tax-Exempt Fund, the
Income Fund, the Global Fund and the Diversified Fund and an "equivalent taxable
yield" for the Tax-Exempt Fund may be advertised. The yield of a Fund refers to
the income generated by an investment in the Fund over the 30-day period
identified in the advertisement and is computed by dividing the net investment
income per Unit earned by the Fund during the period by the net asset value per
Unit on the last day of the period. This income is "annualized" by assuming that
the amount of income is generated each month over a one-year period and is
compounded semiannually. The annualized income is then shown as a percentage of
the Fund's net asset value. The 30-day yield for the period ended December 31,
1997 for the Tax-Exempt Fund and the Income Fund was 5.10% and 6.39%,
respectively.
EQUIVALENT TAXABLE YIELD
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. Equivalent taxable yield is calculated by increasing the yield
shown for the Tax-Exempt Fund, calculated as described above, to the extent
necessary to reflect the payment of specified tax rates. Thus, the equivalent
taxable yield of the Tax-Exempt Fund will always exceed the Fund's yield.
Assuming an effective tax rate of 39.6%, for the 30-day period ended December
31, 1997, the equivalent taxable yield of the Tax-Exempt Fund was 8.31%.
The table below shows individual taxpayers how to translate the tax savings from
investments such as the Tax-Exempt Fund into an equivalent return from a taxable
investment. The yields used below are for illustration only and are not intended
to represent current or future yields for the Tax-Exempt Fund, which may be
higher or lower than those shown.
27
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<TABLE>
<CAPTION>
FEDERAL TAXABLE EQUIVALENT YIELD TABLE -- 1998 RATES
TAX-FREE YIELD
FEDERAL FEDERAL MARGINAL 4.00% 4.50% 5.00% 5.50% 6.00% 6.50% 7.00% 7.50% 8.00%
TAXPAYER TAXABLE TAX FEDERAL
YEAR STATUS INCOME BRACKET RATE TAXABLE EQUIVALENT YIELD
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1998 MARRIED $0-42,350 15.00% 15.00% 4.71% 5.29% 5.88% 6.47% 7.06% 7.65% 8.24% 8.82% 9.41%
$42,351-102,300 28.00% 28.00% 5.56% 6.25% 6.94% 7.64% 8.33% 9.03% 9.72% 10.42% 11.11%
$102,301-124,500 31.00% 31.00% 5.80% 6.52% 7.25% 7.97% 8.70% 9.42% 10.14% 10.87% 11.59%
$124,501-155,950 31.00% 31.93% 5.88% 6.61% 7.35% 8.08% 8.81% 9.55% 10.28% 11.02% 11.75%
$155,951-278,450 36.00% 37.08% 6.36% 7.15% 7.95% 8.74% 9.54% 10.33% 11.13% 11.92% 12.71%
OVER $278,450 39.60% 40.79% 6.76% 7.60% 8.44% 9.29% 10.13% 10.98% 11.82% 12.67% 13.51%
1998 SINGLE $0-25,350 15.00% 15.00% 4.71% 5.29% 5.88% 6.47% 7.06% 7.65% 8.24% 8.82% 9.41%
$25,351-61,400 28.00% 28.00% 5.56% 6.25% 6.94% 7.64% 8.33% 9.03% 9.72% 10.42% 11.11%
$61,401-124,500 31.00% 31.00% 5.80% 6.52% 7.25% 7.97% 8.70% 9.42% 10.14% 10.87% 11.59%
$124,501-128,100 31.00% 31.93% 5.88% 6.61% 7.35% 8.08% 8.81% 9.55% 10.28% 11.02% 11.75%
$128,101-278,450 36.00% 37.08% 6.36% 7.15% 7.95% 8.74% 9.54% 10.33% 11.13% 11.92% 12.71%
OVER $278,450 39.60% 40.79% 6.76% 7.60% 8.44% 9.29% 10.13% 10.98% 11.82% 12.67% 13.51%
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
NOTE: THIS TABLE REFLECTS THE FOLLOWING:
1. THE ABOVE IS A FEDERAL TAXABLE EQUIVALENT YIELD TABLE ONLY. THE EFFECT OF
STATE INCOME TAX RATES HAS NOT BEEN FACTORED INTO THE TAXABLE EQUIVALENT
YIELD CALCULATION.
2. TAXABLE INCOME EQUALS ADJUSTED GROSS INCOME LESS PERSONAL EXEMPTIONS OF
$2,700 LESS THE STANDARD DEDUCTION ($4,250 ON A SINGLE RETURN AND $7,100 ON
A JOINT RETURN) OR TOTAL ITEMIZED DEDUCTIONS, WHICHEVER IS GREATER.
HOWEVER, UNDER THE PROVISIONS OF THE OMNIBUS BUDGET RECONCILIATION ACT OF
1990, CERTAIN ITEMIZED DEDUCTIONS ARE REDUCED BY 3% OF THE AMOUNT OF A
TAXPAYER'S AGI OVER $124,500. THIS IS REFLECTED IN THE INCOME BRACKETS
ABOVE BY HIGHER EFFECTIVE MARGINAL FEDERAL RATES. FURTHERMORE, PERSONAL
EXEMPTIONS ARE PHASED OUT FOR THE AMOUNT OF A TAXPAYER'S AGI OVER $124,500
FOR SINGLE TAXPAYERS AND $186,800 FOR MARRIED TAXPAYERS FILING JOINTLY.
THIS LATTER PROVISION IS NOT INCORPORATED INTO THE ABOVE BRACKETS.
3. INTEREST EARNED ON MUNICIPAL OBLIGATIONS MAY BE SUBJECT TO THE FEDERAL
ALTERNATIVE MINIMUM TAX. THIS PROVISION IS NOT INCORPORATED INTO THE TABLE.
4. THE TAXABLE EQUIVALENT YIELD TABLE DOES NOT INCORPORATE THE EFFECT OF
GRADUATED RATE STRUCTURES IN DETERMINING YIELDS. INSTEAD THE TAX RATES USED
ARE THE HIGHEST RATES APPLICABLE TO THE INCOME LEVELS INDICATED WITHIN EACH
BRACKET.
TOTAL RETURN
From time to time, the "average annual total return" over various periods of
time for each Fund other than the Money Market Fund may be advertised and may be
included in supplemental sales literature of the Money Market Fund. This total
return figure shows an average percentage change in value of an investment in a
Fund from the beginning date of the measuring period to the ending date of the
period. The figure reflects changes in the price of a Fund's Units and assumes
that any income, dividends and/or capital gains distributions made by the Fund
during the period are reinvested in Units of the Fund. Figures will be given for
recent one-, five- and 10-year periods (if applicable), and may be given for
other periods as well (such as from commencement of a Fund's operations, or on a
year-by-year basis). When considering average annual total return figures for
periods longer than one year, investors should note that a Fund's annual total
return for any one year in the period might have been greater or less than the
average for the entire period.
A Fund may use "aggregate total return" figures for various periods,
representing the cumulative change in value of an investment in a Fund for the
specific period (again reflecting changes in the Fund's Unit price and assuming
reinvestment of dividends and distributions). Aggregate total returns 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). The Funds'
average annual total returns were as follows for the year ended December 31,
1997: Elfun Trusts -- 30.86%; Global Fund -- 8.47%; Diversified Fund -- 18.58%;
Tax-Exempt Fund -- 9.59%; Income Fund -- 9.58%; and Money Market Fund -- 5.45%.
Yield and total return figures are based on historical earnings and are thus not
intended to indicate future performances. The Statement of Additional
Information describes the method used to determine a Fund's yield and total
return.
The Trust may also advertise a Fund's distribution rate and/or effective
distribution rate. The distribution rate of a Fund represents a measure of
dividends distributed for a specified period. The distribution rate of a Fund
differs from yield and total return and therefore is not intended to be a
complete measure of performance. A Fund's distribution rate is computed by
dividing the most recent monthly distribution per share annualized by the
current net asset value per share. A Fund's effective distribution rate is
computed by dividing the distribution rate by the
28
<PAGE>
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 a standardized formula
the income component of which is computed from the yields to maturity of all
debt obligations in the Fund's portfolio based on the market value of such
obligations (with all purchases and sales of securities during such period
included in the income calculation on a settlement date basis). 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.
COMPARATIVE PERFORMANCE INFORMATION
In reports or other communications to unitholders of a Fund or in advertising
materials, a Fund may compare its performance with (1) 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, (2) various unmanaged indexes, including the Russell Index, S&P Index,
and the Dow Jones Industrial Average or (3) other appropriate indexes of
investment securities or with data developed by GEIC derived from those indexes.
The performance information may also include evaluations of a Fund published by
nationally recognized ranking services and by financial publications that are
nationally recognized, such as Barron's, Business Week, Forbes, Fortune,
Institutional Investor, Kiplinger's Personal Finance, Money, Morningstar Mutual
Fund Values, The New York Times, The Wall Street Journal and USA Today. These
ranking services or publications may compare a Fund's performance to, or rank it
within, a universe of mutual funds with investment objectives and policies
similar, but not necessarily identical to, the Fund's. Such comparisons or
rankings are made on the basis of several factors, including objectives and
policies, management style and strategy, and portfolio composition, and may
change over time if any of those factors change.
FURTHER INFORMATION: CERTAIN INVESTMENT TECHNIQUES AND STRATEGIES
================================================================================
The Funds may engage in a number of investment techniques and strategies,
including those described below. No Fund is under any obligation to use any of
the techniques or strategies at any given time or under any particular economic
condition. In addition, no assurance can be given that the use of any practice
will have its intended result or that the use of any practice is, or will be,
available to any Fund.
STRATEGIES AVAILABLE TO ALL FUNDS
WHEN-ISSUED AND DELAYED-DELIVERY SECURITIES. To secure prices or yields deemed
advantageous at a particular time, a Fund may purchase securities on a
when-issued or delayed-delivery basis, in which case, delivery of the securities
occurs beyond the normal settlement period; no payment for or delivery of the
securities is made by, and no income accrues to, the Fund, however, prior to the
actual delivery or payment by the other party to the transaction. Each Fund will
enter into when-issued or delayed-delivery transactions for the purpose of
acquiring securities and not for the purpose of leverage. When-issued securities
purchased by a Fund may include securities purchased on a "when, as and if
issued" basis under which the issuance of the securities depends on the
occurrence of a subsequent event, such as approval of a merger, corporate
reorganization or debt restructuring. Cash, Government Securities or other
liquid assets 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 a designated sub-custodian, 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.
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 Fund's loans
of securities will be at least 100% 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 designated sub-custodian in an amount at least equal to the
current market value of the loaned securities. In lending securities, a Fund is
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 is not exempt from Federal income taxation.
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 Fund's
Board of Trustees determines on an ongoing basis that an adequate trading market
exists for the Rule 144A
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<PAGE>
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 of Trustees has established standards and
procedures for determining the liquidity of a Rule 144A Security and will
monitor 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.
STRATEGIES AVAILABLE TO SOME BUT NOT ALL FUNDS
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"), which are U.S. dollar-denominated receipts typically issued
by domestic banks or trust companies that represent the deposit with those
entities of securities of a foreign issuer, 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. Elfun Trusts, the Diversified Fund and the Global Fund
may each invest in ADRs through both sponsored and unsponsored arrangements.
EDRs and CDRs are generally issued by foreign banks and evidence ownership of
either foreign or domestic securities.
SUPRANATIONAL AGENCIES. The Income Fund, the Diversified Fund and the Money
Market Fund may each invest up to 10% of its assets in securities 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. Securities of supranational agencies are not
considered Government Securities and are not supported, directly or indirectly,
by the U.S. Government.
INVESTMENTS IN OTHER INVESTMENT FUNDS. 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 1940 Act, a
Fund may invest a maximum of 10% of its total assets in the securities of other
investment companies. In addition, under the 1940 Act, not more than 5% of a
Fund's total assets may be invested in the securities of any one investment
company, and the Fund may not own more than 3% of the securities of any
investment company. Investments by the Funds (other than the Money Market Fund)
in the Investment Fund and other accounts advised by GE Investments, is not
considered an investment in another investment fund or investment company for
purposes of this paragraph and the restrictions just described. 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.
MUNICIPAL LEASES. Among the Municipal Obligations in which the Tax-Exempt Fund
and the Diversified Fund may invest are municipal leases, which may take the
form of a lease or an installment purchase or conditional sales contract to
acquire a wide variety of equipment and facilities. Interest payments on
qualifying municipal leases are exempt from Federal income taxes and state
income taxes within the state of issuance. A Fund may invest in municipal leases
containing "non-appropriation" clauses that provide that the governmental issuer
has no obligation to make future payments under the lease or contract, unless
money is appropriated for the purpose by the appropriate legislative body on a
yearly or other periodic basis.
Municipal leases that a Fund may acquire will be both rated and unrated. Rated
leases that may be held by a Fund include those rated investment grade at the
time of investment or those issued by issuers whose senior debt is rated
investment grade at the time of investment. Risks and special considerations
applicable to certain investment grade obligations are described above under
"Risk Factors and Special Considerations -- Certain Investment Grade
Obligations." 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 the lease will
not be cancelled will be subject to oversight and approval by the Fund's Board
of Trustees.
Municipal leases held by a Fund will be considered illiquid securities unless
the Fund's Board of Trustees 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 in which a Fund may invest have special risks not normally
associated with Municipal Obligations. Municipal leases represent a type of
financing that has not yet developed the depth of marketability generally
associated with other Municipal Obligations. Moreover,
30
<PAGE>
although a municipal lease will be secured by financed equipment or facilities,
the disposition of the equipment or facilities in the event of foreclosure might
prove difficult.
To limit the risks associated with municipal leases, a Fund will invest no more
than 5% of its total assets in those leases. In addition, a Fund will purchase
lease obligations that contain non-appropriation clauses when the lease payments
will commence amortization of principal at an early date resulting in an average
life of five years or less for the lease obligation.
FLOATING AND VARIABLE RATE INSTRUMENTS. The Tax-Exempt Fund, the Income Fund,
the Diversified Fund and the Money Market Fund (except as limited below) 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 period. The rate also may be indexed to changes in the
values of interest rate or securities indexes, currency exchange rates or other
commodities. The amount by which the rate paid on an income security may
increase or decrease may be subject to periodic or lifetime caps. 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 Obligations of each Fund. GEIC, on behalf of a Fund, will
consider on an ongoing basis the creditworthiness of the issuers of the floating
and variable rate demand obligations in the 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 debt 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 Fund intends to exercise
its right to demand payment only upon a default under the terms of the Municipal
Obligation, or to maintain or improve the quality of its investment portfolio. A
Fund will invest no more than 5% of the value of its total assets in
participation interests.
ZERO COUPON OBLIGATIONS. 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 none of the Funds will receive any payments on zero coupon securities,
prior to their maturity or disposition, they will be required for federal income
tax purposes generally to include in their dividends each year an amount equal
to the annual income that accrues on their zero coupon securities. Such
dividends will be paid from cash assets of the Funds, from the borrowings or
liquidation of portfolio securities, if necessary, at a time that the Fund
otherwise would not have done so. To the extent the 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 risk 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 the Funds to pay distributions, the Funds will not be
able to purchase additional income-producing securities with such proceeds, and
as a result their current income ultimately may be reduced.
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<PAGE>
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 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 debt 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.
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 described
above. Although under the terms of a custodial receipt, a Fund would be
typically authorized to assert its rights directly against the issuer of the
underlying obligation, the Fund could be required to assert through the
custodian bank those rights as may exist against the underlying issuers. Thus,
in the event the underlying issuer fails to pay principal and/or interest when
due, a Fund may be subject to delays, expenses and risks that are greater than
those that would have been involved if the Fund had purchased a direct
obligation of the issuer. In addition, in the event that the trust or custodial
account in which the underlying security has been deposited is determined to be
an association taxable as a corporation, instead of a non-taxable entity, the
yield on the underlying security would be reduced in recognition of any taxes
paid.
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 pool 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. Reinvestment of prepayments may occur at higher or lower interest rates
than the original investment, thus affecting the yield of the Income Fund or the
Diversified Fund. 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 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.
ARMs have interest rates that reset at periodic intervals, thereby allowing the
Income Fund and the Diversified
32
<PAGE>
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 the adjustable rate mortgages will slightly lag behind changes in market
rates, creating the potential for some principal loss for unitholders who redeem
their shares of the Income Fund or the Diversified Fund before the interest
rates on the underlying mortgages are adjusted to reflect current market rates.
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.
Mortgage related securities may not be readily marketable. To the extent any of
these securities are not readily marketable in the judgment 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 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 the Income Fund's
or the Diversified Fund's not fully recovering its initial investment in an
interest-only government stripped mortgage related security. Under current
market conditions, the Income Fund and the Diversified Fund 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 the Income Fund and the Diversified Fund will be
able to effect a trade of a government stripped mortgage related security at a
desired time. The Income Fund and the Diversified Fund 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 will treat government stripped mortgage related
securities as illiquid and will limit the investments of the Income Fund and the
Diversified Fund 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(sm)") and interests in pools of credit card receivables. CARs(sm)
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(sm) are passed
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<PAGE>
through monthly to certificate holders and are guaranteed up to certain amounts
and for a certain time period by a letter of credit issued by a financial
institution unaffiliated with the trustee or originator of the trust.
An investor's return on CARs(sm) may be affected by early prepayment of
principal on the underlying vehicle sales contracts. If the letter of credit is
exhausted, the Income Fund and the Diversified Fund 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 the investment objective and policies of the Income
Fund and the Diversified Fund and subject to the review and approval of each
Fund's Board of Trustees, the Income Fund and the Diversified Fund may also
invest in other types of asset-backed and receivable-backed securities.
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. Cash or other liquid assets
equal in value to the Fund's obligations with respect to the forward purchase
price will be segregated with the Fund's custodian or designated sub-custodian.
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.
STRATEGIES AVAILABLE TO INDIVIDUAL FUNDS
BORROWING FOR LONG-TERM OR LEVERAGING PURPOSES. The Tax-Exempt Fund 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. Conversely, any
decline in the value of the securities purchased would cause the Tax-Exempt
Fund's net asset value per Unit to decrease 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.
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 the Money
Market 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. Short sales against the box are typically used by sophisticated investors
to defer recognition of capital gains or losses.
ADDITIONAL MATTERS
================================================================================
The registration of the Funds under the 1940 Act does not involve supervision by
the SEC of the management or investment practices or policies of the Funds. As
employees' securities companies, the Funds are exempt from certain provisions of
the 1940 Act and, as a result, the Funds are precluded from selling to the
general public.
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.
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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.
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NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS OR IN THE
STATEMENT OF ADDITIONAL INFORMATION INCORPORATED INTO THIS PROSPECTUS BY
REFERENCE IN CONNECTION WITH THE OFFERING OF UNITS OF ELFUN FUNDS, AND IF
GIVEN OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY ELFUN FUNDS. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER IN ANY STATE IN WHICH, OR TO ANY PERSON TO WHOM, AN OFFER
MAY NOT LAWFULLY BE MADE.
<PAGE>
Elfun Mutual Funds
3003 Summer Street
Stamford, CT 06905
BULK RATE
U.S. POSTAGE
PAID
BOSTON, MA
PERMIT NO. 54201
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
April 30, 1998
ELFUN FUNDS
3003 Summer Street
Stamford, Connecticut 06905
For information, call
(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 Objectives And Management Policies............................ 2
Investment Restrictions.................................................. 14
Portfolio Transactions and Turnover...................................... 22
Who May Own Fund Units................................................... 23
Management of the Funds.................................................. 24
Redemption of Units...................................................... 29
Exchange Privilege....................................................... 29
Net Asset Value.......................................................... 29
Dividends, Distributions and Taxes....................................... 32
The Funds' Performance................................................... 35
Additional Information................................................... 37
Independent Auditors..................................................... 38
Financial Statements..................................................... 38
Appendix.................................................................A-1
This Statement of Additional Information ("SAI") supplements the
information contained in the current Prospectus of Elfun Funds, dated April 30,
1998, and should be read in conjunction with the Prospectus. Copies of the
Prospectus 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 1-800-242-0134 or by writing to the Funds at
P.O. Box 120074, Stamford, CT 06912-0074. This SAI, although not a prospectus,
is incorporated in its entirety by reference into the Prospectus.
<PAGE>
INVESTMENT OBJECTIVES AND MANAGEMENT POLICIES
The Prospectus discusses the investment objectives and policies of the
following six managed investment funds (each a "Fund" and collectively the
"Funds"): Elfun Trusts, Elfun Global Fund (the "Global Fund"), Elfun Diversified
Fund (the "Diversified Fund"), Elfun Tax-Exempt Income Fund (the "Tax-Exempt
Fund"), Elfun Income Fund (the "Income Fund") and Elfun Money Market Fund (the
"Money Market Fund"). Supplemental information is set out below 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.
STRATEGIES AVAILABLE TO ALL FUNDS
LENDING PORTFOLIO SECURITIES. 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 Trust's Board of Trustees 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".
GOVERNMENT SECURITIES. Securities issued or guaranteed by the U.S.
Government or one of its agencies or instrumentalities ("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
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<PAGE>
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. 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 General Electric Investment Corporation ("GEIC"),
as the Fund's investment adviser, determines that the instrumentality's credit
risk does not make its securities unsuitable for investment by the Fund.
BANK OBLIGATIONS. Domestic commercial banks organized under Federal law are
supervised and examined by the U.S. Comptroller of the Currency and are required
to be members of the Federal Reserve System and to be insured by the Federal
Deposit Insurance Corporation ("FDIC"). Foreign branches of U.S. banks and
foreign banks are not regulated by U.S. banking authorities and generally are
not bound by mandatory reserve requirements, loan limitations, accounting,
auditing and financial reporting standards comparable to U.S. banks. Obligations
of foreign branches of U.S. banks and foreign banks are subject to the risks
associated with investing in foreign securities generally. These obligations
entail risks that are different from those of investments in obligations in
domestic banks, including foreign economic and political developments outside
the United States, foreign governmental restrictions that may adversely affect
payment of principal and interest on the obligations, foreign exchange controls
and foreign withholding or other taxes on income.
A U.S. branch of a foreign bank may or may not be subject to reserve
requirements imposed by the Federal Reserve System or by the state in which the
branch is located if the branch is licensed in that state. In addition, branches
licensed by the Comptroller of the Currency and branches licensed by certain
states ("State Branches") may or may not be required to: (1) pledge to the
regulator by depositing assets with a designated bank within the state, an
amount of its assets equal to 5% of its total liabilities; and (2) maintain
assets within the state in an amount equal to a specified percentage of the
aggregate amount of liabilities of the foreign bank payable at or through all of
its agencies or branches within the state. The deposits of State
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<PAGE>
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.
RATINGS AS INVESTMENT CRITERIA. The ratings of nationally recognized
statistical rating organizations ("NRSROs") such as Standard & Poor's Ratings
Services, a Division of The McGraw-Hill Companies, Inc. ("S&P") or Moody's
Investors Service, Inc. ("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.
STRATEGIES AVAILABLE TO SOME BUT NOT ALL FUNDS
SECURITIES OF OTHER INVESTMENT COMPANIES. A Fund may invest in securities
of other investment companies to the extent permitted under the Investment
Company Act of 1940, as amended (the "1940 Act"). Presently, under the 1940 Act,
a Fund may hold securities of another investment company in amounts which (a) do
not exceed 3% of the total outstanding voting stock of such company, (b) do not
exceed 5% of the value of the Fund's total assets and (c) when added to all
other investment company securities held by the Fund, do not exceed 10% of the
value of the Fund's total assets. Investments by the Fund (other than the Money
Market Fund) in the GEI Short-Term Investment Fund, an investment Fund advised
by GE Investment Management Incorporated
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<PAGE>
("GEIM"), 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 its affiliate GEIM is not considered an
investment in another investment company for purposes of this restriction.
COVERED OPTION WRITING. 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
5
<PAGE>
realize income in the form of premiums. The writer of a covered put option
accepts the risk of a decline in the price of the underlying security. The size
of the premiums that a Fund may receive may be adversely affected as new or
existing institutions, including other investment companies, engage in or
increase their option-writing activities.
Options written by a Fund will normally have expiration dates between one
and nine months from the date written. The exercise price of the options may be
below, equal to or above the market values of the underlying securities at the
times the options are written. In the case of call options, these exercise
prices are referred to as "in-the-money," "at-the-money" and "out-of-the-money,"
respectively.
So long as the obligation of a Fund as the writer of an option continues,
the Fund may be assigned an exercise notice by the broker-dealer through which
the option was sold, requiring the Fund to deliver, in the case of a call, or
take delivery of, in the case of a put, the underlying security against payment
of the exercise price. This obligation terminates when the option expires or the
Fund effects a closing purchase transaction. A Fund can no longer effect a
closing purchase transaction with respect to an option once it has been assigned
an exercise notice. To secure its obligation to deliver the underlying security
when it writes a call option, or to pay for the underlying security when it
writes a put option, a Fund will be required to deposit in escrow the underlying
security or other assets in accordance with the rules of the Options Clearing
Corporation (the "Clearing Corporation") and of the securities exchange on which
the option is written.
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.
6
<PAGE>
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.
STOCK INDEX OPTIONS. A Fund may purchase and write put and call options on
stock indexes or stock 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 stock index fluctuates with
changes in the market values of the stocks included in the index. Stock index
options may be based on a broad or narrow market index or on an industry or
market segment.
The delivery requirements of options on stock indexes differ from options
on stock. Unlike a stock option, which contemplates the right to take or make
delivery of stock at a specified price, an option on a stock index gives the
holder the right to receive a cash "exercise settlement amount" equal to (1) the
amount, if any, by which the fixed exercise price of the option exceeds (in the
case of a put) or is less than (in the case of a call) the closing value of the
underlying index on the date of exercise, multiplied by (2) a fixed "index
multiplier." Receipt of this cash amount will depend upon the closing level of
the stock 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 stock index options prior to expiration by entering into a closing
transaction on an exchange or it may allow the option to expire unexercised.
7
<PAGE>
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 indexes, 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 indexes 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.
FUTURES CONTRACTS. 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 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
8
<PAGE>
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.
OPTIONS ON FUTURES CONTRACTS. 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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FORWARD CURRENCY TRANSACTIONS. 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.
OPTIONS ON FOREIGN CURRENCIES. 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.
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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.
Options on foreign currencies may be traded on foreign exchanges, to the
extent permitted by the CFTC. These transactions are subject to the risk of
governmental actions affecting trading in or the prices of foreign currencies or
securities. The value of these positions could also be adversely affected by (1)
other complex foreign political and economic factors, (2) lesser availability of
data on which to make trading decisions than in the United States, (3) delays in
a Fund's ability to act upon economic events occurring in foreign markets during
non-business hours in the United States, (4) the imposition of different
exercise and settlement terms and procedures and margin requirements than in the
United States and (5) lesser trading volume.
MUNICIPAL OBLIGATIONS. The term "Municipal Obligations" as used in the
Prospectus and this Statement of Additional Information means debt obligations
issued by, or on behalf of, states, territories and possessions of the United
States and the District of Columbia and their political subdivisions, agencies
and instrumentalities or multistate agencies or authorities, the interest from
which debt obligations is, in the opinion of bond counsel to the issuer,
excluded from gross income for Federal income tax purposes. Municipal
Obligations generally are understood to include debt obligations issued to
obtain funds for various public purposes, including the construction of a wide
range of public facilities, refunding of outstanding obligations, payment of
general operating expenses and extensions of loans to public institutions and
facilities. Private activity bonds that are issued by or on behalf of public
authorities to finance privately operated facilities are considered to be
Municipal Obligations if the interest paid on them qualifies as excluded from
gross income (but not necessarily from alternative minimum taxable income) for
Federal income tax purposes in the opinion of bond counsel to the issuer.
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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.
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. 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. 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.
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
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Obligation market will be enacted in the future. GEIC monitors legislative
developments and considers whether changes in the objective or policies of a
Fund need to be made in response to those developments.
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 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. The Government National Mortgage
Association ("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 the Federal
National Mortgage Association ("FNMA") and Federal Home Loan Mortgage
Corporation ("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
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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 Income Fund.
INVESTMENT RESTRICTIONS
Investment restrictions numbered 1 through 18 below have been adopted by
the Funds as fundamental policies. 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 19 through 31 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 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
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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
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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.
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
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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. (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.
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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 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
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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
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contracts, except for the purpose of hedging or (c) enter into foreign currency
futures if the aggregate margin 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.
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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.
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.
A Fund may make commitments more restrictive than the restrictions listed
above to permit the sale of Units of the Fund in certain states. Should a Fund
determine that any such commitment is no longer in the best interests of the
Fund and its unitholders, the Fund will revoke the commitment by terminating the
sale of Units of the Fund in the state involved or may otherwise modify its
commitment based on a change in the state's restrictions. The percentage
limitations in the restrictions listed above apply at the time of purchases of
securities 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.
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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 the
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 Fund, GEIC will seek the best overall terms
available. 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
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of the Fund or GEIC is a member, except to the extent permitted under rules,
interpretations or exemptions of the SEC.
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 years ended December 31, 1997, 1996 and 1995 the following
commissions were paid to broker-dealers for execution of portfolio transactions:
Elfun Trusts paid $625,040, $544,168 and $483,616, respectively; the Global Fund
paid $833,650, $444,106 and $494,655, respectively; and the Diversified Fund
paid $123,972, $53,066 and $42,795, respectively. Of such amounts, the following
amounts were paid to a broker because of research services provided during the
respective year: Elfun Trusts paid $122,128, $105,806 and 212,847, respectively;
the Global Fund paid $56,036, $34,054 and $195,023, respectively; and the
Diversified Fund paid $11,773, $5,183 and $7,264, respectively. The Tax-Exempt
Fund, the Income Fund and the Money Market Fund made no payments to
broker-dealers for execution of portfolio transactions during 1997, 1996 and
1995.
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.
23
<PAGE>
MANAGEMENT OF THE FUNDS
TRUSTEES AND OFFICERS
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. The address of each person 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 and are
"interested persons" within the meaning of Section 2(a)(19) of the 1940 Act.
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 52. 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 54. 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.
Michael J. Cosgrove Trustee Age 48. President, GE Investment
Services Group of GE Financial Assurance
Holdings, Inc. since February 1997, an
indirect wholly-owned subsidiary of
General Electric Company ("GE");
Executive Vice President - Mutual Funds
of GEIC and GEIM 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.
24
<PAGE>
PRINCIPAL
POSITION(S) HELD OCCUPATION(S)
NAME AND ADDRESS WITH THE FUNDS DURING PAST FIVE YEARS
- ---------------- -------------- ----------------------
Alan M. Lewis Trustee and Age 51. Executive Vice President,
Secretary General Counsel and Secretary of GEIM
since 1988 and of GEIC since October
1987.
David B. Carlson Portfolio Manager Age 40. Senior Vice President - Equity
(Elfun Trusts and Portfolios of GEIC since 1991, prior to
Diversified Fund) 1991, Mr. Carlson served as Senior Vice
President - Mutual Fund
Portfolios since 1990 and Vice
President - Mutual Fund
Portfolios since 1987.
Robert R. Kaelin Portfolio Manager Age 51. Senior Vice President-Municipal
(Tax Exempt Fund) Bonds of GEIC since 1984.
Ralph R. Layman Portfolio Manager Age 42. Executive Vice President -
and Trustee International Equity Investments of GEIC
(Global Fund) since 1993 and Senior Vice 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 Age 49. Executive Vice President -
and Trustee Fixed Income and Director of GEIC and
(Income Fund, Executive Vice President and Director of
Diversified Fund GEIM since 1997; from 1990 until 1996,
and Money Market Senior Vice President - Taxable Fixed
Fund) Income of GEIC.
Michael J. Solecki Portfolio Manager Age 32. Vice President - International
(Global Fund) Equities of GEIM and GEIC since 1995;
from 1992 until 1995, Senior
European Analyst at GEIM's
London, England office.
Donald W. Torey Trustee Age 41. 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.
25
<PAGE>
PRINCIPAL
POSITION(S) HELD OCCUPATION(S)
NAME AND ADDRESS WITH THE FUNDS DURING PAST FIVE YEARS
- ---------------- -------------- ----------------------
Thomas J. Szkutak Trustee and Chief Age 37. Chief Financial Officer of GEIC
Financial Officer and GEIM since June 1997; from 1988 to
1997, Mr. Szkutak has held assignments
in the finance department of various
divisions and subsidiaries of GE
</TABLE>
While Trustees of the Fund 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.
26
<PAGE>
TRUSTEES' COMPENSATION
(for the year ended December 31, 1997)
TOTAL COMPENSATION FROM
TOTAL COMPENSATION INVESTMENT COMPANIES MANAGED
NAME OF TRUSTEE FROM EACH FUND BY GEIC OR GEIM*
- --------------- -------------- ----------------
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
- ----------
* 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 three investment companies advised by GEIM.
** Messrs. Cosgrove and Lewis are also considered to be interested persons of
each investment company advised by GEIM or GEIC, as defined under Section
2(a)(19) of the 1940 Act, and accordingly, serve as Trustees thereof
without compensation.
As of April 1, 1998, no person owned of record or to the knowledge of any
Fund, beneficially owned more than 5% of the outstanding Units of the Fund. 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.
27
<PAGE>
INVESTMENT ADVISER AND ADMINISTRATOR
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, located at 3003 Summer Street, P.O. Box 7900, Stamford, Connecticut
06904-7900, 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. 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 years ended December 31, 1997, 1996 and 1995 were as
follows: Elfun Trusts--$626,000, $818,000 and $503,000; the Global
Fund--$182,000, $106,000 and $118,000; the Diversified Fund--$93,000, $62,000
and $37,000; the Tax-Exempt Fund--$730,000, $767,000 and $665,000; the Income
Fund--$151,000, $147,000 and $105,000; and the Money Market Fund--$78,000,
$87,000 and $24,000. Pursuant to state securities laws, GEIC has agreed that, if
in any fiscal year of a Fund, the aggregate expenses of a Fund (including
management fees, but excluding interest, taxes, brokerage fees, and, with the
prior written consent of the necessary state securities commissions,
extraordinary expenses) exceed the expense limitation of any state having
jurisdiction over the Fund, GEIC will reimburse that Fund up to the amount of
the Fund's investment advisory and administration fee. As of the date of this
Statement of Additional Information, the most restrictive state expense
limitation applicable to the Funds requires reimbursement of expenses in any
year that a Fund's expenses, subject to the limitation, exceed 2-1/2% of the
first $30 million of the average daily value of the Fund's net assets, 2% of the
next $70 million of the average daily value of the Fund's net assets and 1-1/2%
of the remaining average daily value of the Fund's net assets.
UNITHOLDER SERVICING AGENT
GEIC, located at 3003 Summer Street, P.O. Box 120074, Stamford, CT
06912-0074 acts as Unitholder Servicing Agent. The amounts paid to GEIC by the
Funds for the reasonable costs incurred by it for providing services as
Unitholder Servicing
28
<PAGE>
Agent for the years ended December 31, 1997, 1996 and 1995 were as follows:
Elfun Trusts--$175,000, $229,000 and $160,000; the Global Fund--$53,000, $70,000
and $70,000; the Diversified Fund--$32,000, $36,000 and $35,000; the Tax-Exempt
Fund--$85,000, $141,000 and $245,000; the Income Fund--$47,000, $80,000 and
$90,000; and, the Money Market Fund--$32,000, $39,000 and $35,000.
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 investment
decisions.
DISTRIBUTOR
GE Investment Distributors, Inc. (formerly named GE Investment Services
Inc.) serves as the distributor of Units of the Funds on a best efforts basis.
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.
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.
NET ASSET VALUE
The Funds will not calculate their net asset value on certain holidays. 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.
29
<PAGE>
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 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
30
<PAGE>
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 13 months 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 any
deviation between the Money Market Fund's net asset value based upon available
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.
31
<PAGE>
DIVIDENDS, DISTRIBUTIONS AND TAXES
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.
TAX STATUS OF THE FUNDS AND THEIR UNITHOLDERS
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) that are engaged in the
same or similar trades or businesses or related trades or businesses (other than
Government Securities or the securities of other regulated investment
companies).
32
<PAGE>
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").
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
33
<PAGE>
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.
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.
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 after the close of the Fund's prior 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. 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.
34
<PAGE>
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
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, 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 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:
Yield = 2[(a-b + 1)(Superior)6-1]
---
cd
Where:
a = dividends and interest earned during the period.
b = expenses accrued for the period (net of
reimbursement).
c = the average daily number of Units outstanding during the period
that were entitled to receive dividends.
d = the maximum offering price per Unit on the last
day of the period.
35
<PAGE>
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.
AVERAGE ANNUAL TOTAL RETURN
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:
P(1 + T)(Superior)n = ERV
36
<PAGE>
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, 1997 were as
follows: Elfun Trusts - 30.86%, 19.71% and 18.22%; the Global Fund - 8.47% and
13.88%; the Diversified Fund - 18.58% and 13.37%; the Tax-Exempt Fund - 9.59%,
7.07% and 8.40%; the Income Fund - 9.58%, 7.62% and 9.09%; and the Money Market
Fund - 5.45% and 4.79%.
AGGREGATE TOTAL RETURN
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.
ADDITIONAL INFORMATION
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.
37
<PAGE>
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.
INDEPENDENT AUDITORS
KPMG Peat Marwick LLP, 345 Park Avenue, New York, New York 10154, serves as
the Funds' independent auditors.
FINANCIAL STATEMENTS
The December 31, 1997 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.
38
<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
A-1
<PAGE>
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.
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.
A-3
<PAGE>
Aa -- Bonds that are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present that
make the long-term risks appear somewhat larger than in Aaa securities.
A -- Bonds that are rated A possess favorable investment attributes and are
to be considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate, but elements may be present that
suggest a susceptibility to impairment sometime in the future.
Baa -- Bonds that are rated Baa are considered as medium-grade obligations,
that is, they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba -- Bonds that are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
B -- Bonds that are rated B generally lack characteristics of desirable
investments. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa -- Bonds that are rated Caa are of poor standing. These issues may be
in default, or present elements of danger may exist with respect to principal or
interest.
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.
A-4
<PAGE>
DESCRIPTION OF S&P MUNICIPAL BOND RATINGS
AAA -- Prime -- These are obligations of the highest quality. They have the
strongest capacity for timely payment of debt service.
General Obligation Bonds -- In a period of economic stress, the issuers
will suffer the smallest declines in income and will be least susceptible to
autonomous decline. Debt burden is moderate. A strong revenue structure appears
more than adequate to meet future expenditure requirements. Quality of
management appears superior.
Revenue Bonds -- Debt service coverage has been, and is expected to remain,
substantial. Stability of the pledged revenues is also exceptionally strong due
to the competitive position of the municipal enterprise or to the nature of the
revenues. Basic security provisions (including rate covenant, earnings test for
issuance of additional bonds, debt service reserve requirements) are rigorous.
There is evidence of superior management.
AA -- High Grade -- The investment characteristics of bonds in this group
are only slightly less marked than those of the prime quality issues. Bonds
rated AA have the second strongest capacity for payment of debt service.
A -- Good Grade -- Principal and interest payments on bonds in this
category are regarded as safe although the bonds are somewhat more susceptible
to the adverse effects of changes in circumstances and economic conditions than
bonds in higher rated categories. This rating describes the third strongest
capacity for payment of debt service. The ratings differ from the two higher
ratings of municipal bonds, because:
General Obligations Bonds -- There is some weakness, either in the local
economic base, in debt burden, in the balance between revenues and expenditures,
or in quality of management. Under certain adverse circumstances, any one such
weakness might impair the ability of the issuer to meet debt obligations at some
future date.
A-5
<PAGE>
Revenue Bonds -- Debt service coverage is good, but not exceptional.
Stability of the pledged revenues could show some variations because of
increased competition or economic influences on revenues. Basic security
provisions, while satisfactory, are less stringent. Management performance
appears adequate.
BBB -- Medium Grade -- Of the investment grade ratings, this is the lowest.
Bonds in this group are regarded as having an adequate capacity to pay interest
and repay principal. Adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity to pay interest and repay principal
for bonds in this category (even though they normally exhibit adequate
protection parameters) than for bonds in higher rated categories.
General Obligation Bonds -- Under certain adverse conditions, several of
the above factors could contribute to a lesser capacity for payment of debt
service. The difference between A and BBB ratings is that the latter shows more
than one fundamental weakness, or one very substantial fundamental weakness,
whereas, the former shows only one deficiency among the factors considered.
Revenue Bonds -- Debt coverage is only fair. Stability of the pledged
revenues could show substantial variations, with the revenue flow possibly being
subject to erosion over time. Basic security provisions are no more than
adequate. Management performance could be stronger.
BB, B, CCC and CC -- Bonds rated BB, B, CCC and CC are regarded, on
balance, as predominately speculative with respect to capacity to pay interest
and repay principal in accordance with the terms of the obligation. BB includes
the lowest degree of speculation and CC the highest degree of speculation. While
these bonds will likely have some quality and protective characteristics, these
characteristics are outweighed by large uncertainties or major risk exposures to
adverse conditions.
C -- The rating C is reserved for income bonds on which no interest is
being paid.
D -- Bonds rated D are in default, and payment of interest and/or repayment
of principal is in arrears.
S&P's letter ratings may be modified by the addition of
A-6
<PAGE>
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-7
<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-8
<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-9
<PAGE>
ELFUN MONEY MARKET FUND
PART C
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements:
(1) Financial Highlights**
(2) Schedule of Investments as of December 31, 1997**
(3) Statements of Assets and Liabilities as of
December 31, 1997**
(4) Statement of Operations for the fiscal year ended
December 31, 1997**
(5) Statement of Changes in Net Assets for the fiscal year
ended December 31, 1997 and the fiscal year ended
December 31, 1996**
(6) Notes to Financial Statements**
- ----------
** Incorporated by reference to the Fund's Annual Report to shareholders
for the fiscal year ended December 31, 1997.
(b) EXHIBITS
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
--- ----------------------
1 Fund Agreement, dated as of July 15, 1989*
2 Inapplicable
3 Inapplicable
4 Inapplicable
- ----------
* Previously filed
<PAGE>
(b) EXHIBITS (CONT.)
--- ----------------
5(a) Investment Advisory Agreement dated July 28, 1989, between the Fund and
General Electric Investment Corporation*
5(b) Servicing Agreement dated as of March 13, 1992 between the Fund and
General Electric Investment Corporation*
6 Distribution Agreement dated February 10, 1994 between the Fund and GE
Investment Services Inc.*
7 Inapplicable
8 Custodian Contract with State Street Bank and Trust Company dated as of
July 1, 1989*
9 Transfer Agency Agreement with State Street Bank and Trust Company dated
as of February 10, 1994*
10 Opinion of counsel, including consent (incorporated by reference to the
Fund's Registration Statement on Form N-1A (33-31205), Exhibit E,
filed on September 21, 1989)*
11 Consent of Independent Auditors
12 Inapplicable
13 Inapplicable
14 Individual Retirement Account documents
15 Inapplicable
16 Inapplicable
17 Financial Data Schedule
- ----------
* Previously filed
C-2
<PAGE>
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH
REGISTRANT.
See Item 28
ITEM 26. NUMBER OF HOLDERS OF SECURITIES
NUMBER OF RECORD
TITLE OF CLASS HOLDERS AS OF MARCH 31, 1998
-------------- ----------------------------
Units 5,888
ITEM 27. INDEMNIFICATION
Registrant shall indemnify any officer, director, shareholder or employee
made party to any proceeding (other than an action by or in the right of the
corporation) against judgments, fines, penalties, amounts paid in settlement and
reasonable expenses actually incurred provided that (1) such person, and the
person whose legal representative he is, was successful on the merits in the
defense of the proceeding, or (2) it shall be concluded as provided by
applicable Connecticut statutes that such person, and the person whose legal
representative he is, acted in good faith and in a manner he reasonably believed
to be in the best interests of the Registrant, or, in the case of a person
serving as a fiduciary of an employee benefit plan or trust, either in the best
interests of the corporation or in the best interests of the participants and
beneficiaries of such employee benefit plan or trust and consistent with the
provisions of such employee benefit plan or trust and, with respect to any
criminal action or proceeding, that he had no reasonable cause to believe his
conduct was unlawful, or (3) the court, on application as provided by applicable
Connecticut statutes, shall have determined that in view of all the
circumstances such person is fairly and reasonably entitled to be indemnified,
and then for such amount as the court shall determine; except that, in
connection with an alleged claim based upon his purchase or sale of securities
of the Registrant or of another enterprise, which he serves or served at the
request of the Registrant, the Registrant shall only indemnify such person after
the court shall have determined that in view of all the circumstances such
person is fairly and reasonably entitled to be indemnified, and then for such
amount as the court shall determine. Registrant shall also, in accordance with
applicable Connecticut statutes, indemnify any person made a party to any
proceeding, by or in the right of the Registrant, to procure a judgment in its
favor by reason of the fact that he, or the person whose legal representative he
is, is or was a shareholder, director, officer, employee or agent of the
Registrant. Any payments to be made by Registrant for indemnification shall be
made only in accordance with the procedures outlined by applicable Connecticut
statutory authority.
C-3
<PAGE>
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 ("Act") may be provided to directors, officers and controlling persons
of the Fund, pursuant to the foregoing provisions or otherwise, the Fund has
been advised that in the opinion of the SEC such indemnification is against
public policy as expressed in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than the
payment by the Fund of expenses incurred or paid by a director, officer or
controlling person of the Fund in connection with the successful defense of any
action, suit or proceeding or payment pursuant to any insurance policy) is
asserted against the Fund by such director, officer or controlling person in
connection with the securities being registered, the Fund will, unless in the
opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
Reference is made to "Management of the Funds" in the Prospectus forming
Part A and in the Statement of Additional Information forming Part B, of this
Registration Statement.
The list required by this Item 28 of officers and directors of General
Electric Investment Corporation ("GEIC"), the Funds' investment adviser,
together with information as to any other business, profession, vocation or
employment of a substantial nature engaged in by those officers and directors
during the past two years, is incorporated by reference to Schedules A and D of
the Form ADV filed by GEIC pursuant to the Investment Advisers Act of 1940, as
amended (SEC File No. 801-13003).
ITEM 29. PRINCIPAL UNDERWRITERS
(a) GE Investment Distributors, Inc. ("GEID") also serves as distributor
for Elfun Tax-Exempt Income Fund, Elfun Income Fund, Elfun Diversified Fund,
Elfun Trusts, Elfun Global Fund, GE Funds, GE Institutional Funds, GE Lifestyle
Funds and GE Investments Funds, Inc., all of which are registered open-end
investment companies.
(b) The information required by this Item 29, with respect to each director
and officer of GEID is incorporated by reference to Schedule A of Form BD filed
by GEID pursuant to the Securities Exchange Act of 1934 (SEC File No. 8-45710).
(c) Inapplicable.
C-4
<PAGE>
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
All accounts, books and other documents required to be maintained by
Registrant pursuant to Section 31(a) of the Investment Company Act of 1940, as
amended (the "1940 Act"), and the rules thereunder, are maintained at the
offices of: Registrant located at 3003 Summer Street, Stamford, Connecticut
06905; State Street Bank and Trust Company ("State Street"); Registrant's
distributor, located at 777 Long Ridge Road, Building B, Stamford, CT 06927;
Registrant's custodian and transfer agent, located at 225 Franklin Street,
Boston, Massachusetts 02101; and National Financial Data Services, Inc., a
subsidiary of State Street, located at P.O. Box 419631, Kansas City, Missouri
64141-6631.
ITEM 31. MANAGEMENT SERVICES
Inapplicable.
ITEM 32. UNDERTAKINGS
Registrant undertakes to furnish each person to whom a prospectus is
delivered with a copy of the Registrant's annual report to shareholders,
covering fiscal year 1997, upon request and without charge.
C-5
<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 Post-Effective Amendment to the Registration Statement pursuant to Rule
485(b) under the Securities Act and has duly caused this Post-Effective
Amendment to its Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Stamford, State of
Connecticut on the 24th day of April, 1998.
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.
Signature Title Date
- --------- ----- ----
/s/ JOHN H. MYERS Trustee and Chief April 24, 1998
- ------------------------------ Executive Officer
John H. Myers
/s/ EUGENE K. BOLTON Trustee April 24, 1998
- ------------------------------
Eugene K. Bolton
/s/ MICHAEL J. COSGROVE Trustee April 24, 1998
- ------------------------------
Michael J. Cosgrove
/s/ RALPH R. LAYMAN Trustee and
- ------------------------------ Portfolio Manager April 24, 1998
Ralph R. Layman
/s/ ALAN M. LEWIS Trustee and Secretary April 24, 1998
- ------------------------------
Alan M. Lewis
/s/ ROBERT A. MACDOUGALL Trustee April 24, 1998
- ------------------------------
Robert A. MacDougall
/s/ THOMAS J. SZKUTAK Trustee and Chief April 24, 1998
- ------------------------------ Financial Officer
Thomas J. Szkutak
/s/ DONALD W. TOREY Trustee April 24, 1998
- ------------------------------
Donald W. Torey
<PAGE>
EXHIBIT INDEX
Exhibit No. Description of Exhibit Numbered Page
- ----------- ---------------------- -------------
1 Trust Agreement* --
2 Inapplicable --
3 Inapplicable --
4 Inapplicable --
5(a) Investment Advisory Agreement* --
5(b) Servicing Agreement* --
6 Distribution Agreement, as amended* --
7 Inapplicable --
8 Custodian Contract* --
9 Transfer Agency Agreement* --
10 Opinion of Counsel* --
11 Consent of Independent Auditors
12 Inapplicable --
13 Inapplicable --
14 Individual Retirement Account documents
15 Inapplicable --
16 Inapplicable --
17 Financial Data Schedule
- ------------------
* Previously filed
Exhibit 11
CONSENT OF INDEPENDENT AUDITORS
To the Board of Trustees and Shareholders of
Elfun Money Market Fund:
We consent to the use of our report dated February 13, 1998 incorporated herein
by reference and to the reference to our Firm under the headings "Financial
Highlights" in the Prospectus and "Independent Auditors" in the Statement of
Additional Information.
KPMG Peat Marwick LLP
New York, New York
April 24, 1998
EXHIBIT 14
Elfun Traditional and Roth IRAs
Disclosure Statement and
Custodial Account Agreement
April 9, 1998
<PAGE>
Contents
Introduction p. 1
Section One: Instructions p. 3
Section Two: Disclosure Statement p. 4
Part One: Traditional IRAs p. 4
Part Two: Roth IRAs p. 10
Part Three: Rules for Both
Traditional and Roth IRAs p. 15
Section Three: Custodial
Account Agreement p. 18
Part One: Traditional IRAs p. 18
Part Two: Roth IRAs p. 20
Part Three: Provisions Applicable to
Both Traditional and Roth IRAs p. 21
Introduction
What's New in the World of IRAs?
An Individual Retirement Account ("IRA") has always provided an attractive
means to save money for the future on a tax-advantaged basis. Recent changes to
Federal tax law have now made the IRA an even more flexible investment and
savings vehicle. Among the new changes is the creation of the Roth Individual
Retirement Account ("Roth IRA"), which is available for use after January 1,
1998. Under a Roth IRA, the earnings and interest on an individual's
nondeductible contributions grow without being taxed, and distributions may be
tax-free under certain circumstances. Most taxpayers (except for those with high
income levels) are eligible to contribute to a Roth IRA. A Roth IRA can be used
instead of a Traditional Individual Retirement Account ("Traditional IRA"), to
replace an existing Traditional IRA, or to complement a Traditional IRA you wish
to continue maintaining.
Taxpayers with adjusted gross income of up to $100,000 are eligible to
convert existing Traditional IRAs into Roth IRAs. The details on conversion are
found in the description of Roth IRAs in this booklet.
Congress has also made significant changes to Traditional IRAs. First,
Congress increased the income levels at which Traditional IRA holders who
participate in employer-sponsored retirement plans can make deductible IRA
contributions. Second, the rules for deductible contributions by a Traditional
IRA holder whose spouse is a participant in an employer-sponsored retirement
plan have been liberalized. Third, the 10% penalty tax for premature withdrawals
(before age 59 1/2) will no longer apply in the case of withdrawals to pay
certain higher education expenses or certain first-time homebuyer expenses.
May I Revoke My Elfun IRA?
You may revoke a newly established Elfun Traditional or Elfun Roth IRA at
any time within seven days after the date on which you receive this Disclosure
Statement. An Elfun Traditional or Elfun Roth IRA established more than seven
days after the date of your receipt of this Disclosure Statement may not be
revoked.
What's in This Document?
In this Document you will find detailed information about Roth IRAs and
about the changes that have been made to Traditional IRAs.
The first section contains the instructions you will need to open a new
Elfun Traditional or Elfun Roth IRA, to transfer from another IRA to an Elfun
IRA, or to convert an Elfun Traditional IRA to an Elfun Roth IRA.
The second section contains our Elfun IRA Disclosure Statement. The
Disclosure Statement is divided into three parts:
o Part One describes the basic rules and benefits which are specifically
applicable to your Elfun Traditional IRA.
o Part Two describes the basic rules and benefits which are specifically
applicable to your Elfun Roth IRA.
o Part Three describes important rules and information applicable to
both Elfun (Traditional and Roth) IRAs.
The third section contains the Elfun IRA Custodial Account Agreement. The
Custodial Account Agreement is also divided into three parts:
o Part One contains provisions specifically applicable to Elfun
Traditional IRAs.
o Part Two contains provisions specifically applicable to Elfun Roth
IRAs.
o Part Three contains provisions applicable to both Elfun (Traditional
and Roth) IRAs.
What's the Difference Between a Traditional IRA and a Roth IRA?
With a Traditional IRA, an individual can contribute up to $2,000 per year
and may be able to deduct the contribution from taxable income, reducing income
taxes. Taxes on investment growth and dividends are deferred until the money is
withdrawn. Withdrawals are taxed as additional ordinary income when received.
Nondeductible contributions, if any, are withdrawn tax-free. Withdrawals before
age 59 1/2 are assessed a 10% penalty in addition to income tax, unless an
exception applies.
With a Roth IRA, the contribution limits are essentially the same as
Traditional IRAs, but there is no tax deduction for contributions. All dividends
and investment growth in the account are tax-free. Most important with a Roth
IRA: there is NO INCOME TAX on qualified withdrawals from your Roth IRA.
Additionally, unlike a Traditional IRA, there is no prohibition on making
contributions to Roth IRAs after turning age 70 1/2, and there's no requirement
that you begin making minimum withdrawals at that age.
The chart on the next page highlights some of the major differences between
a Traditional IRA and a Roth IRA:
1
<PAGE>
<TABLE>
<CAPTION>
CHARACTERISTICS TRADITIONAL IRA ROTH IRA
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ELIGIBILITY o Individuals (and their spouses) o Individuals (and their spouses)
who receive compensation who receive compensation
o Individuals age 70 1/2 and over o Individuals age 70 1/2 and over
MAY NOT contribute MAY contribute
- ------------------------------------------------------------------------------------------------------------------------------------
TAX TREATMENT o Subject to limitations, contributions o No deduction permitted for amounts
OF CONTRIBUTIONS are deductible contributed
- ------------------------------------------------------------------------------------------------------------------------------------
CONTRIBUTION LIMITS o Individuals may contribute up to $2,000 o Individuals may generally contribute up to
annually (or 100% of compensation, if less) $2,000 (or 100% of compensation, if less)
o Deductibility depends on income level for o Ability to contribute phases out at income
individuals who are active participants in an levels of $95,000 to $110,000 (individual
employer-sponsored retirement plan taxpayer) and $150,000 to $160,000
(married taxpayers)
o Overall limit for contributions to ALL IRAs o Overall limit for contributions to ALL IRAs
(Traditional and Roth combined) is $2,000 (Traditional and Roth combined) is $2,000
annually (or 100% of compensation, if less) annually (or 100% of compensation, if less)
- ------------------------------------------------------------------------------------------------------------------------------------
EARNINGS o Earnings and interest are not taxed o Earnings and interest are not taxed
when received by your IRA when received by your IRA
- ------------------------------------------------------------------------------------------------------------------------------------
ROLLOVER/CONVERSIONS o Individuals may rollover amounts held in o Rollovers from other Roth IRAs or Traditional
employer-sponsored retirement arrangements IRAs ONLY
(401(k), SEP IRA, etc.) tax free to o Amounts rolled over (or converted) from
Traditional IRA another Traditional IRA are subject to income
tax in the year rolled over or converted
o Tax on amounts rolled over or
converted in 1998 is spread over
four year period (1998- 2001)
- ------------------------------------------------------------------------------------------------------------------------------------
WITHDRAWALS o Total (principal + earnings) taxable as o Not taxable as long as a qualified
income in year withdrawn (except for distribution--generally, account open for
any non-deductible contributions) 5 years, and age 59 1/2
o Minimum withdrawals must begin o Minimum withdrawals NOT REQUIRED
after age 70 1/2 after age 70 1/2
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Is a Roth or a Traditional IRA Right For Me?
We cannot act as your legal or tax adviser and so we cannot tell you which
kind of IRA is right for you. The information contained in this Document is
intended to provide you with the basic information and material you will need to
decide whether a Traditional or Roth IRA is better for you, or if you want to
convert an existing Traditional IRA to a Roth IRA. We suggest that you consult
with your accountant, lawyer or other tax adviser, or with a qualified financial
planner, to determine whether you should open a Traditional or Roth IRA or
convert any or all of an existing Traditional IRA to a Roth IRA. Your tax
adviser can also advise you as to the state tax consequences that may affect
whether a Traditional or Roth IRA is right for you.
Other Points to Note.
The Disclosure Statement found in this Document provides you with the basic
information that you should know about Elfun Traditional IRAs and Elfun Roth
IRAs. The Disclosure Statement provides general information about the governing
rules for these IRAs and the benefits and features offered through each type of
IRA. However, the Elfun New Account Form and the Custodial Account Agreement are
the primary documents controlling the terms and conditions of your personal
Elfun Traditional or Elfun Roth IRA, and these shall govern in the case of any
difference with the Disclosure Statement.
You or your when used throughout this Document refer to the person for whom
the Elfun Traditional or Elfun Roth IRA is established. A Roth IRA is either an
Elfun Roth IRA or any Roth IRA established by any other financial institution. A
Traditional IRA is either an Elfun Traditional IRA or a Traditional IRA
established by any other financial institution. As used herein an Elfun
Traditional IRA or an Elfun Roth IRA is an IRA offered by GE Investment
Distributors, Inc.
2
<PAGE>
Instructions for Opening Your Elfun Traditional IRA
or Elfun Roth IRA
1. Read carefully the applicable sections of the Elfun IRA Disclosure
Statement, the Traditional or Roth Individual Retirement Custodial Account
Agreement (as applicable), the New Account Form and the Elfun Funds
prospectus. Consult your accountant, lawyer or other tax adviser if you
have any questions about how opening a Traditional IRA or Roth IRA will
affect your financial and tax situation.
You may establish only one Elfun Traditional IRA or one Elfun Roth IRA with
each New Account Form. Separate forms must be completed if you want to
establish multiple (Roth or Traditional) IRA accounts.
2. Complete the New Account Form:
o For an ELFUN TRADITIONAL IRA, check the appropriate box to specify the
type of Traditional IRA you are opening and provide the registration
and mailing address in boxes 2 and 3.
If you are making an annual contribution, check the box for a
Traditional IRA Contributory, complete Part 4 and enclose a check in
the amount of your first contribution. Be sure to indicate whether
this is a contribution for last year or for the current year.
If this is a transfer directly from another IRA custodian or trustee,
check the applicable box to indicate whether the assets transferred
originated from a qualified plan or 403(b) arrangement or an IRA that
held only funds that originated from annual contributions. Complete
Part 5 and sign the Transfer of Assets section at the bottom of the
New Account Form.
If this is an indirect rollover of amounts distributed to you from
another IRA or an employer qualified plan or a 403(b) arrangement,
check the applicable box and complete Part 5. Enclose a check for the
rollover contribution amount.
If this is a direct rollover from a qualified plan or 403(b)
arrangement, check the box for a Traditional IRA Rollover. Complete
Part 5 and sign the Transfer of Assets section at the bottom of the
New Account Form.
o For an ELFUN ROTH IRA, check the appropriate box to specify the type
of Roth IRA you are opening and provide the registration information
and mailing address in boxes 2 and 3.
If this is an Elfun Roth IRA to which you expect to make contributions
each year, enclose a check in the amount of your first contribution.
Be sure to indicate whether this is a contribution for last year or
for the current year. Annual contribution Roth IRA accounts must be
kept separate from a converted or rollover Roth IRA account. NOTE:
Roth IRAs are available starting January 1, 1998, so you cannot make a
contribution for 1997.
If you are converting an existing Elfun Traditional IRA, indicate your
current Elfun IRA account number and how much you are converting.
Conversion of an existing Traditional IRA will result in the taxable
amount in the existing Traditional IRA being treated as additional
income on your income tax return. NOTE: If a conversion, rollover or
transfer from a Traditional IRA to a Roth IRA is being made, only
amounts converted, rolled over or transferred during the same tax year
will be accepted in a single Roth IRA. A separate Roth IRA must be
established to hold such amounts from a different tax year. Annual
contributions may never be deposited in a Roth IRA holding such
converted, rolled over or transferred amounts.
If you are making a rollover or a transfer from an existing
Traditional IRA with a different custodian or trustee to an Elfun Roth
IRA, check the box in Part 1 for a Roth IRA - Transfer from existing
Traditional IRA. Complete and sign the Transfer of Assets section at
the bottom of the New Account Form. A rollover or transfer from an
existing Traditional IRA will result in the taxable amount in the
existing Traditional IRA being treated as additional income on your
income tax return.
If you are making a rollover or a transfer from another Roth IRA with
a different trustee or custodian, check the appropriate box in Part 1
and complete the requested information where indicated in box 2.
o For either type account, indicate your investment choices in Part 4 or
5.
o In Part 6, indicate your Primary and Alternate Beneficiaries. (Spousal
waiver must be signed if beneficiary is not your spouse and you are a
resident of a community property state.)
o Sign and date the New Account Form in Part 7.
o If you are transferring assets from an existing IRA to an Elfun IRA,
complete both sides of the Transfer of Assets section at the bottom of
the New Account Form. DO NOT DETACH.
3. The Custodian fees for maintaining your IRA are listed in the FEES AND
EXPENSES section of Part Three of the Disclosure Statement. Annual fees are
not prorated. A notice of annual fee due will be sent to you, at which time
you may pay the annual fee by check or it will be withdrawn automatically
from your account. Accounts closed or transferred prior to year end will be
assessed the annual maintenance fee at that time.
4. Send the completed forms and checks to:
Elfun IRA
P.O. Box 419631
Kansas City, MO 64141-6631
3
<PAGE>
Disclosure Statement
Part One: Traditional IRAs
Special Note
Part One of the Disclosure Statement describes the rules applicable to
Traditional IRAs beginning January 1, 1998. IRAs described in these pages are
called "Traditional IRAs" to distinguish them from the new "Roth IRAs" first
available starting in 1998. Roth IRAs are described in Part Two of this
Disclosure Statement.
An Elfun IRA offers you the tax advantages of an individual retirement
account while permitting you to direct the investment of account assets in one
or more of the Elfun Funds. Definitions of capitalized terms used in this
Disclosure Statement but not defined herein are set forth in Article VIII of the
Custodial Account Agreement, attached to this Disclosure Statement.
For Traditional IRA contributions for 1997 (including contributions made up
to April 15, 1998 but designated as contributions for 1997), there are different
rules for determining the deductibility of your contribution on your federal tax
return. For contributions for 1997, the "active participant" limits on
deductibility (described below) apply if EITHER spouse is an active participant
in an employer-sponsored plan. Also, the adjusted gross income ("AGI") levels
for partially deductible or nondeductible Traditional IRA contributions
(described below) are lower for 1997 ($25,000 for single taxpayers, with no
deduction if your AGI is above $35,000; and $40,000 for married taxpayers filing
jointly, with no deduction if your AGI is above $50,000).
This Part One of the Disclosure Statement describes Traditional IRAs. It
does not describe Roth IRAs, a new type of IRA available starting in 1998.
Contributions to a Roth IRA are not deductible (regardless of your AGI), but
withdrawals that meet certain requirements are not subject to federal income
tax, so that dividends and investment growth on amounts held in the Roth IRA can
escape federal income tax. Please see Part Two of this Disclosure Statement if
you are interested in learning more about Roth IRAs.
Your Traditional IRA
This Part One contains information about your Elfun Traditional Individual
Retirement Custodial Account with State Street Bank and Trust Company as
Custodian. A Traditional IRA gives you several tax benefits. Earnings on the
assets held in your Traditional IRA are not subject to federal income tax until
withdrawn by you. You may be able to deduct all or part of your Traditional IRA
contribution on your federal income tax return. State income tax treatment of
your Traditional IRA may differ from federal treatment; ask your state tax
department or your personal tax adviser for details.
Be sure to read Part Three of this Disclosure Statement for important
additional information, including information on how to revoke your Traditional
IRA, investments and prohibited transactions, fees and expenses, and certain tax
requirements.
Eligibility
What are the eligibility requirements for a Traditional IRA?
You are eligible to establish and contribute to a Traditional IRA for a
year if:
o You received compensation (or earned income if you are self employed)
during the year for personal services you rendered. If you received
taxable alimony, this is treated like compensation for IRA purposes.
o You did not reach age 70 1/2 during the year.
Can I contribute to a Traditional IRA for my spouse?
For each year before the year when your spouse attains age 70 1/2, you can
contribute to a separate Traditional IRA for your spouse, regardless of whether
your spouse had any compensation or earned income in that year. This is called a
"spousal IRA." To make a contribution to a Traditional IRA for your spouse, you
must file a joint tax return for the year with your spouse. For a spousal IRA,
your spouse must set up a different Traditional IRA, separate from yours, to
which you contribute.
Are there any other eligibility requirements in choosing investments for my
Elfun Traditional IRA?
To participate in an Elfun Traditional IRA you must be (1) a regular or
senior member of the Elfun Society, (2) the immediate family of those members,
(3) the surviving unremarried spouse of a deceased member, (4) members of the
Board of Directors of General Electric Company ("GE"), and (5) such others as
the trustees of the Funds (the "Trustees") 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 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. Consult the current prospectus for the Elfun Funds for additional
information.
Contributions
When can I make contributions to a Traditional IRA?
You may make a contribution to your existing Traditional IRA or establish a
new Traditional IRA for a taxable year by the due date (not including any
extensions) for your federal income tax return for the year. Usually this is
April 15 of the following year.
How much can I contribute to my Traditional IRA?
For each year when you are eligible (see above), you can contribute up to
the lesser of $2,000 or 100% of your compensation (or earned income, if you are
self-employed). However, under the tax laws, all or a portion of your
contribution may not be deductible.
4
<PAGE>
If you and your spouse have spousal Traditional IRAs, each spouse may
contribute up to $2,000 to his or her IRA for a year as long as the combined
compensation of both spouses for the year (as shown on your joint income tax
return) is at least $4,000. If the combined compensation of both spouses is less
than $4,000, the spouse with the higher amount of compensation may contribute up
to that spouse's compensation amount, or $2,000 if less. The spouse with the
lower compensation amount may contribute any amount up to that spouse's
compensation plus any excess of the other spouse's compensation over the other
spouse's IRA contribution. However, the maximum contribution to either spouse's
Traditional IRA is $2,000 for the year.
If you (or your spouse) establish a new Roth IRA and make contributions to
both your Traditional IRA and a Roth IRA, the combined limit on contributions to
both your (or your spouse's) Traditional IRA and Roth IRA for a single calendar
year is $2,000.
How do I know if my contribution is tax deductible?
The deductibility of your contribution depends upon your income level and
whether you are an active participant in any employer-sponsored retirement plan.
If you are not an active participant, the entire contribution to your
Traditional IRA is deductible.
If you are an active participant in an employer-sponsored plan, your
Traditional IRA contribution may still be completely or partly deductible on
your tax return. This depends on the amount of your income (see table below).
Similarly, the deductibility of a contribution to a Traditional IRA for
your spouse depends upon whether your spouse is an active participant in any
employer-sponsored retirement plan. If your spouse is not an active participant,
the contribution to your spouse's Traditional IRA will be deductible. If your
spouse is an active participant, the Traditional IRA contribution will be
completely, partly or not deductible depending upon your combined income.
An exception to the preceding rules applies to high-income married
taxpayers, where one spouse is an active participant in an employer-sponsored
retirement plan and the other spouse is not. A contribution to the non-active
participant spouse's Traditional IRA will be only partly deductible at an
adjusted gross income level on the joint tax return of $150,000, and the
deductibility will be phased out as described below over the next $10,000 so
that there will be no deduction at all with an adjusted gross income level of
$160,000 or higher.
How do I determine my or my spouse's "active participant" status?
Your (or your spouse's) Form W-2 should indicate if you (or your spouse)
were an active participant in an employer-sponsored retirement plan for a year.
If you have a question, you should ask your employer or the plan administrator.
In addition, regardless of income level, your spouse's "active participant"
status will not affect the deductibility of your contributions to your
Traditional IRA if you and your spouse file separate tax returns for the taxable
year and you lived apart at all times during the taxable year.
What are the deduction restrictions for active participants?
If you (or your spouse) are an active participant in an employer plan
during a year, the contribution to your Traditional IRA (or your spouse's
Traditional IRA) may be completely, partly or not deductible depending upon your
filing status and your amount of adjusted gross income ("AGI"). If AGI is any
amount up to the lower limit, the contribution is deductible. If your AGI falls
between the lower limit and the upper limit, the contribution is partly
deductible. If your AGI falls above the upper limit, the contribution is not
deductible.
FOR ACTIVE PARTICIPANTS -- 1998
<TABLE>
<CAPTION>
IF YOU ARE IF YOU ARE THEN YOUR TRADITIONAL
SINGLE MARRIED FILING JOINTLY IRA CONTRIBUTION IS
------ ---------------------- -------------------
Adjusted Gross Income (AGI) Level
<S> <C> <C>
Up to Up to FULLY
Lower Limit Lower Limit DEDUCTIBLE
($30,000 for 1998) ($50,000 for 1998)
- ----------------------------------------------------------------------------------------------------
More than Lower Limit More than Lower Limit PARTLY
but less than but less than DEDUCTIBLE
Upper Limit Upper Limit
($40,000 for 1998) ($60,000 for 1998)
- ----------------------------------------------------------------------------------------------------
Upper Limit or more Upper Limit or more NOT
DEDUCTIBLE
</TABLE>
The Lower Limit and the Upper Limit will change for 1999 and later years. The
Lower Limit and Upper Limit for these years are shown in the following table.
Substitute the correct Lower Limit and Upper Limit in the table above to
determine deductibility in any particular year. (Note: if you are married but
filing separate returns, your Lower Limit is always zero and your Upper Limit is
always $10,000).
5
<PAGE>
TABLE OF LOWER AND UPPER LIMITS
Single Married Filing Jointly
------ ----------------------
Year Lower Limit Upper Limit Lower Limit Upper Limit
---- ----------- ----------- ----------- -----------
1999 $31,000 $41,000 $51,000 $61,000
2000 $32,000 $42,000 $52,000 $62,000
2001 $33,000 $43,000 $53,000 $63,000
2002 $34,000 $44,000 $54,000 $64,000
2003 $40,000 $50,000 $60,000 $70,000
2004 $45,000 $55,000 $65,000 $75,000
2005 $50,000 $60,000 $70,000 $80,000
2006 $50,000 $60,000 $75,000 $85,000
2007 and $50,000 $60,000 $80,000 $100,000
later
How do I calculate my deduction if I fall in the "partly deductible" range?
If your AGI falls in the partly deductible range, you must calculate the
portion of your contribution that is deductible. To do this, multiply your
contribution by a fraction. The numerator is the amount by which your AGI
exceeds the lower limit (for 1998: $30,000 if single, or $50,000 if married
filing jointly). The denominator is $10,000 (note that the denominator for
married joint filers is $20,000 starting in 2007). Subtract this from your
contribution and then round down to the nearest $10. The deductible amount is
the greater of the amount calculated or $200 (provided you contributed at least
$200). If your contribution was less than $200, then the entire contribution is
deductible.
For example, assume that you make a $2,000 contribution to your Traditional
IRA for 1998, a year in which you are an active participant in your employer's
retirement plan. Also assume that your AGI is $57,555 and you are married,
filing jointly. You would calculate the deductible portion of your contribution
this way:
1. The amount by which your AGI exceeds the lower limit
of the partly deductible range:
($57,555-$50,000) = $7,555
2. Divide this by $10,000: $ 7,555 = 0.7555
-------
$10,000
3. Multiply this by your contribution limit:
0.7555 x $2,000 = $1,511
4. Subtract this from your contribution:
($2,000 - $1,511) = $489
5. Round this down to the nearest $10: = $480
6. Your deductible contribution is the greater of this
amount or $200.
Even though part or all of your contribution is not deductible, you may
still contribute to your Traditional IRA (and your spouse may contribute to your
spouse's Traditional IRA) up to the limit on contributions. When you file your
tax return for the year, you must designate the amount of non-deductible
contributions to your Traditional IRA for the year. See IRS Form 8606.
How do I determine my AGI?
AGI is your gross income minus those deductions which are available to all
taxpayers even if they don't itemize. Instructions to calculate your AGI are
provided with your income tax Form 1040 or 1040A.
What happens if I contribute more than allowed to my Traditional IRA?
The maximum contribution you can make to a Traditional IRA generally is
$2,000 or 100% of compensation or earned income, whichever is less. Any amount
contributed to the IRA above the maximum is considered an "excess contribution."
The excess is calculated using your CONTRIBUTION limit, not the DEDUCTIBLE
limit. An excess contribution is subject to excise tax of 6% for each year it
remains in the IRA.
How can I correct an excess contribution?
Excess contributions may be corrected without paying a 6% penalty. To do
so, you must withdraw the excess and any earnings on the excess before the due
date (including extensions) for filing your federal income tax return for the
year for which you made the excess contribution. A deduction should not be taken
for any excess contribution. The earnings must be included in your income for
the tax year for which the contribution was made and may be subject to a 10%
premature withdrawal tax if you have not reached age 59 1/2.
What happens if I don't correct the excess contribution by the tax return due
date?
Any excess contribution not withdrawn by the tax return due date (including
any extensions) for the year for which the contribution was made will be subject
to the 6% excise tax. There will be an additional 6% excise tax for each
subsequent year the excess remains in your account.
Under limited circumstances, you may correct an excess contribution after
tax filing time by withdrawing the excess contribution (leaving the earnings in
the account). This withdrawal will not be includable in income nor will it be
subject to any premature withdrawal penalty if (1) your contributions to all
IRAs do not exceed $2,000 and (2) you did not take a deduction for the excess
amount (or you file an amended return (Form 1040X) which removes the excess
deduction).
How are excess contributions treated if none of the preceding rules apply?
Unless an excess contribution qualifies for the special treatment outlined
above, the excess contribution and any earnings on it withdrawn after tax filing
time will be includable in taxable income
6
<PAGE>
and may be subject to a 10% premature withdrawal penalty. No deduction will be
allowed for the excess contribution for the year in which it is made.
Excess contributions may be corrected in a subsequent year to the extent
that you contribute less than your maximum amount. As the prior excess
contribution is reduced or eliminated, the 6% excise tax will become
correspondingly reduced or eliminated for subsequent tax years. Also, you may be
able to take an income tax deduction for the amount of excess that was reduced
or eliminated, depending on whether you would be able to take a deduction if you
had instead contributed the same amount.
Are the earnings on my Traditional IRA funds taxed?
Any dividends on, or growth of, the investments held in your Traditional
IRA are generally tax deferred and will not be taxed until withdrawn by you,
unless the tax deferred status of your Traditional IRA is revoked (this is
described in Part Three of this Disclosure Statement).
Transfers/Rollovers
Can I transfer or roll over a distribution I receive from my employer's
retirement plan into a Traditional IRA?
Almost all distributions from employer plans or 403(b) arrangements (for
employees of tax-exempt employers) are eligible for rollover to a Traditional
IRA. The main exceptions are
o payments over the lifetime or life expectancy of the participant (or
participant and a designated beneficiary);
o installment payments for a period of 10 years or more;
o required distributions (generally the rules require distributions
starting at age 70 1/2 or for certain employees starting at
retirement, if later); and
o payments of employee after-tax contributions.
If you are eligible to receive a distribution from a tax qualified
retirement plan as a result of, for example, termination of employment, plan
discontinuance, or retirement, all or part of the distribution may be
transferred directly into your Traditional IRA. This is called a "direct
rollover." Or, you may receive the distribution and make a regular rollover to
your Traditional IRA within 60 days. By making a direct rollover or a regular
rollover, you can defer income taxes on the amount rolled over until you
subsequently make withdrawals from your IRA.
The maximum amount you may roll over is the amount of employer
contributions and earnings distributed. You may not roll over any after-tax
employee contributions you made to the employer retirement plan. If you are over
age 70 1/2 and are required to take minimum distributions under the tax laws,
you may not roll over any amount required to be distributed to you under the
minimum distribution rules. Also, if you are receiving periodic payments over
your or your and your designated beneficiary's life expectancy or for a period
of at least 10 years, you may not roll over these payments. A rollover to a
Traditional IRA must be completed within 60 days after the distribution from the
employer retirement plan to be valid.
Note: A qualified plan administrator or 403(b) sponsor must withhold 20% of your
distribution for federal income taxes unless you elect a direct rollover. Your
plan or 403(b) sponsor is required to provide you with information about direct
and traditional rollovers and withholding taxes before you receive your
distribution and must comply with your directions to make a direct rollover.
The rules governing rollovers are complicated. Be sure to consult your tax
adviser or the IRS if you have a question about rollovers.
Once I have rolled over a plan distribution into a Traditional IRA, can I
subsequently roll over into another employer's qualified retirement plan?
Yes. Part or all of an eligible distribution received from a qualified plan
may be transferred from the Traditional IRA holding it to another qualified
plan. However, the IRA must have no assets other than those which were
previously distributed to you from the qualified plan. Specifically, the IRA
cannot contain any contributions by you (or your spouse). Also, the new
qualified plan must accept rollovers. Similar rules apply to Traditional IRAs
established with rollovers from 403(b) arrangements.
Can I make a rollover from my Traditional IRA to another Traditional IRA?
You may make a rollover from one Traditional IRA to another Traditional IRA
you have or you establish to receive the rollover. Such a rollover must be
completed within 60 days after the withdrawal from your first Traditional IRA.
After making a rollover from one Traditional IRA to another, you must wait a
full year (365 days) before you can make another such rollover. (However, you
can instruct a Traditional IRA custodian to transfer amounts directly to another
Traditional IRA custodian; such a direct transfer does not count as a rollover.)
Can I rollover or transfer non-cash assets into an Elfun Traditional IRA?
No. Only cash (in the form of a check) is permitted to be deposited as a
rollover into an Elfun Traditional IRA from a tax qualified retirement plan or
another IRA.
What happens if I combine rollover contributions with my normal contributions in
one Traditional IRA?
If you wish to make both a normal annual contribution and a rollover
contribution, you may wish to open two separate Elfun Traditional IRAs by
completing two New Account Forms and two sets of forms. You should consult a tax
adviser before making your annual contribution to the Traditional IRA you
established with rollover contributions (or make a rollover contribution to the
IRA to which you make your annual contributions). This is because combining your
annual contributions and rollover contributions originating from an employer
plan distribution would prohibit the future rollover out of the IRA into another
qualified plan. If despite this, you still wish to combine a rollover
contribution and the IRA holding your annual contributions, you should establish
the account as a Traditional IRA on the New Account Form (not a Rollover IRA or
Direct Rollover IRA) and make the contributions to that account.
How do rollovers affect my contribution or deduction limits?
Rollover contributions, if properly made, do not count toward the maximum
contribution. Also, rollovers are not deductible and they do not affect your
deduction limits as described above.
Can I convert my Traditional IRA to a Roth IRA?
The rules for converting a Traditional IRA to a new Roth IRA, or making a
rollover from a Traditional IRA to a new Roth IRA, are described in Part Two
below.
7
<PAGE>
Withdrawals
When can I make withdrawals from my Traditional IRA?
You may withdraw from your Traditional IRA at any time. However,
withdrawals before age 59 1/2 may be subject to a 10% penalty tax in addition to
regular income taxes (see below).
When must I start making withdrawals?
If you have not withdrawn your entire Traditional IRA by the April 1
following the year in which you reach 70 1/2, you must make minimum withdrawals
in order to avoid penalty taxes. The rule allowing certain employees to postpone
distributions from an employer qualified plan until actual retirement (even if
this is after age 70 1/2) does NOT apply to Traditional IRAs.
The minimum withdrawal amount is determined by dividing the balance in your
Traditional IRA (or IRAs) by your life expectancy or the combined life
expectancy of you and your designated beneficiary. The minimum withdrawal rules
are complex. Consult your tax adviser for assistance.
The penalty tax for failure to make the required minimum withdrawals is 50%
of the difference between the minimum withdrawal amount and your actual
withdrawals during a year. The IRS may waive or reduce the penalty tax if you
can show that your failure to make the required minimum withdrawals was due to
reasonable cause and you are taking reasonable steps to remedy the problem.
Can I withdraw shares of the Elfun Funds from my Elfun Traditional IRA?
In addition to cash withdrawals, you are permitted to withdraw shares of
the Elfun Funds (but not in certificated form) from your Elfun Traditional IRA.
Shares of the Elfun Funds may be withdrawn from an Elfun Traditional IRA
and transferred in book-entry form to such other Elfun account(s) as you may
designate. Shares of the Elfun Funds held in your account may not be withdrawn
in book-entry form by means of a rollover of such shares into a qualified
employer retirement plan or a transfer of such shares to another IRA.
How are withdrawals from my Traditional IRA taxed?
Amounts withdrawn by you are includable in your gross income in the taxable
year that you receive them, and are taxable as ordinary income. Lump sum
withdrawals from a Traditional IRA are not eligible for averaging treatment
currently available to certain lump sum distributions from qualified employer
retirement plans.
Since the purpose of a Traditional IRA is to accumulate funds for
retirement, your receipt or use of any portion of your Traditional IRA before
you attain age 59 1/2 generally will be considered as an early withdrawal and
subject to a 10% penalty tax.
The 10% penalty tax for early withdrawal will not apply if:
o The distribution was a result of your death or disability.
o The purpose of the withdrawal is to pay certain higher education
expenses for yourself or your spouse, child, or grandchild. Qualifying
expenses include tuition, fees, books, supplies and equipment required
for attendance at a post-secondary educational institution. Room and
board expenses may qualify if the student is attending at least
half-time.
o The withdrawal is used to pay eligible first-time homebuyer expenses.
These are the costs of purchasing, building or rebuilding a principal
residence (including customary settlement, financing or closing
costs). The purchaser may be you, your spouse, or a child, grandchild,
parent or grandparent of you or your spouse. An individual is
considered a "first-time homebuyer" if the individual (or the
individual's spouse, if married) did not have an ownership interest in
a principal residence during the two-year period immediately preceding
the acquisition in question. The withdrawal must be used for eligible
expenses within 120 days after the withdrawal. (If there is an
unexpected delay, or cancellation of the home acquisition, a
withdrawal may be redeposited as a rollover). There is a lifetime
limit on eligible first-time homebuyer expenses of $10,000 per
individual.
o The distribution is one of a scheduled series of substantially equal
periodic payments for your life or life expectancy (or the joint lives
or life expectancies of you and your beneficiary). If there is an
adjustment to the scheduled series of payments, the 10% penalty tax
may apply. The 10% penalty will not apply if you make no change in the
series of payments until the end of five years or until you reach age
59 1/2, whichever is later. If you make a change before then, the
penalty will apply. For example, if you begin receiving payments at
age 50 under a withdrawal program providing for substantially equal
payments over your life expectancy, and at age 58 you elect to receive
the remaining amount in your Traditional IRA in a lump-sum, the 10%
penalty tax will apply to the lump sum and to the amounts previously
paid to you before age 59 1/2%.
o The distribution does not exceed the amount of your deductible medical
expenses for the year (generally speaking, medical expenses paid
during a year are deductible if they are greater than 7 1/2% of your
adjusted gross income for that year).
o The distribution does not exceed the amount you paid for health
insurance coverage for yourself, your spouse and dependents. This
exception applies only if you have been unemployed and received
federal or state unemployment compensation payments for at least 12
weeks; this exception applies to distributions during the year in
which you received the unemployment compensation and during the
following year, but not to any distributions received after you have
been reemployed for at least 60 days.
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How are nondeductible contributions taxed when they are withdrawn?
A withdrawal of nondeductible contributions (not including earnings) will
be tax-free. However, if you made both deductible and nondeductible
contributions to your Traditional IRA, then each distribution will be treated as
partly a return of your nondeductible contributions (not taxable) and partly a
distribution of deductible contributions and earnings (taxable). The nontaxable
amount is the portion of the amount withdrawn which bears the same ratio as your
total nondeductible Traditional IRA contributions bear to the total balance of
all your Traditional IRAs (including rollover IRAs, but not including Roth
IRAs).
For example, assume that you made the following Traditional IRA
contributions:
YEAR DEDUCTIBLE NONDEDUCTIBLE
---- ---------- -------------
1995 $2,000
1996 $2,000
1997 $1,000 $1,000
1998 $1,000
------ ------
$5,000 $2,000
In addition, assume that your Traditional IRA has total investment earnings
through 1998 of $1,000. During 1998 you withdraw $500. Your total account
balance as of 12-31-98 is $7,500 as shown below:
Deductible Contributions $5,000
Nondeductible Contributions $2,000
Earnings On IRA $1,000
Less 1998 Withdrawal $ 500
------
Total Account Balance as of 12/31/98 $7,500
To determine the nontaxable portion of your 1998 withdrawal, the total 1998
withdrawal ($500) must be multiplied by a fraction. The numerator of the
fraction is the total of all nondeductible contributions remaining in the
account before the 1998 withdrawal ($2,000). The denominator is the total
account balance as of 12-31-98 ($7,500) plus the 1998 withdrawal ($500) or
$8,000. The calculation is:
Total Remaining
Nondeductible Contributions $2,000 x $500 = $ 125
- --------------------------- ------
Total Account Balance $8,000
Thus, $125 of the $500 withdrawal in 1998 will not be included in your
taxable income. The remaining $375 will be taxable for 1998. In addition, for
future calculations the remaining nondeductible contribution total will be
$2,000 minus $125, or $1,875.
A loss in your Traditional IRA investment may be deductible. You should
consult your tax adviser for further details on the appropriate calculation for
this deduction if applicable.
Is there a penalty tax on certain large withdrawals or accumulations in my IRA?
Earlier tax laws imposed a "success" penalty equal to 15% of withdrawals
from all retirement accounts (including IRAs, 401(k) or other employer
retirement plans, 403(b) arrangements and others) in a year exceeding a
specified amount (initially $150,000 per year). Also, there was a 15% estate tax
penalty on excess accumulations remaining in IRAs and other tax-favored
arrangements upon your death. These 15% penalty taxes have been repealed.
Important: Please see Part Three of this Document which contains important
information applicable to ALL Elfun IRAs.
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Disclosure Statement
Part Two: Roth IRAs
Special Note
Part Two of the Disclosure Statement describes the rules generally
applicable to Roth IRAs beginning January 1, 1998.
Roth IRAs are a new kind of IRA available for the first time in 1998.
Contributions to a Roth IRA for 1997 are not permitted. Contributions to a Roth
IRA are not tax-deductible, but withdrawals that meet certain requirements are
not subject to federal income taxes. This makes the dividends on and growth of
the investments held in your Roth IRA tax-free for federal income tax purposes
if the requirements are met.
Traditional IRAs, which have existed since 1975, are still available.
Contributions to a Traditional IRA may be tax-deductible. Earnings and gains on
amounts while held in a Traditional IRA are tax-deferred. Withdrawals are
subject to federal income tax (except for prior after-tax contributions which
may be recovered without additional federal income tax).
This Part Two does not describe Traditional IRAs. If you wish to review
information about Traditional IRAs, please see Part One of this Disclosure
Statement.
Your Roth IRA
Your Roth IRA gives you several tax benefits. While contributions to a Roth
IRA are not deductible, dividends on and growth of the assets held in your Roth
IRA are not subject to federal income tax. Withdrawals by you from your Roth IRA
are excluded from your income for federal income tax purposes if certain
requirements (described below) are met. State income tax treatment of your Roth
IRA may differ from federal treatment; ask your state tax department or your
personal tax adviser for details.
Be sure to read Part Three of this Disclosure Statement for important
additional information, including information on how to revoke your Roth IRA,
investments and prohibited transactions, fees and expenses and certain tax
requirements.
Eligibility
What are the eligibility requirements for a Roth IRA?
Starting with 1998, you are eligible to establish and contribute to a Roth
IRA for a year if you received compensation (or earned income if you are self
employed) during the year for personal services you rendered. If you received
taxable alimony, this is treated like compensation for IRA purposes.
In contrast to a Traditional IRA, with a Roth IRA you may continue making
contributions after you reach age 70 1/2.
Can I contribute to a Roth IRA for my spouse?
Starting with 1998, if you meet the eligibility requirements you can not
only contribute to your own Roth IRA, but also to a separate Roth IRA for your
spouse out of your compensation or earned income, regardless of whether your
spouse had any compensation or earned income in that year. This is called a
"spousal Roth IRA." To make a contribution to a Roth IRA for your spouse, you
must file a joint tax return for the year with your spouse. For a spousal Roth
IRA, your spouse must set up a different Roth IRA, separate from yours, to which
you contribute.
Of course, if your spouse has compensation or earned income, your spouse
can establish his or her own Roth IRA and make contributions to it in accordance
with the rules and limits described in this Part Two of the Disclosure
Statement.
Are there any other eligibility requirements in choosing investments for my
Elfun Roth IRA?
To participate in an Elfun Roth IRA you must be (1) a regular or senior
member of the Elfun Society, (2) the immediate family of those members, (3) the
surviving unremarried spouse of a deceased member, (4) members of the Board of
Directors of GE, and (5) such others as the Trustees 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 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. Consult the current prospectus for the Elfun Funds for additional
information.
Contributions
When can I make contributions to a Roth IRA?
You may make a contribution to your Roth IRA or establish a new Roth IRA
for a taxable year by the due date (not including any extensions) for your
federal income tax return for the year. Usually this is April 15 of the
following year. For example, you will have until April 15, 1999 to establish and
make a contribution to a Roth IRA for 1998.
Caution: Since Roth IRAs were not available until January 1, 1998, you may
not make a contribution to a Roth IRA for 1997.
How much can I contribute to my Roth IRA?
For each year when you are eligible (see above), you can contribute up to
the lesser of $2,000 or 100% of your compensation (or earned income, if you are
self-employed).
Annual contributions may be made only to a Roth IRA annual contribution
account which does not contain converted or transferred funds from a Traditional
IRA.
Your Roth IRA limit is reduced by any contributions for the same year to a
Traditional IRA. For example, assuming you have at least $2,000 in compensation
or earned income, if you contribute $500 to your Traditional IRA for 1998, your
maximum Roth IRA contribution for 1998 will be $1,500.
If you and your spouse have spousal Roth IRAs, each spouse may contribute
up to $2,000 to his or her Roth IRA for a year as long as the combined
compensation of both spouses for the year (as shown on your joint income tax
return) is at least $4,000. If the combined compensation of both spouses is less
than $4,000, the spouse with the higher amount of compensation may contribute up
to that spouse's compensation amount, or $2,000 if less. The spouse with the
lower compensation amount may contribute any amount up to that spouse's
compensation plus any excess of the other spouse's compensation over the other
spouse's Roth IRA contribution. However, the maximum contribution to either
spouse's Roth IRA is $2,000 for the year.
As noted above, the spousal Roth IRA limits are reduced by any
contributions for the same calendar year to a Traditional IRA maintained by you
or your spouse.
For taxpayers with high income levels, the contribution limits may be
reduced (see below).
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Are contributions to a Roth IRA tax deductible?
Contributions to a Roth IRA are NOT deductible. This is a major difference
between Roth IRAs and Traditional IRAs. Contributions to a Traditional IRA may
be deductible on your federal income tax return depending on whether or not you
are an active participant in an employer-sponsored plan and on your income
level.
Are the earnings on my Roth IRA funds taxed?
Any dividends on or growth of investments held in your Roth IRA are
generally exempt from federal income taxes and will not be taxed until withdrawn
by you, unless the tax exempt status of your Roth IRA is revoked. If the
withdrawal qualifies as a tax-free withdrawal (see below), amounts reflecting
earnings or growth of assets in your Roth IRA will not be subject to federal
income tax.
Which is better, a Roth IRA or a Traditional IRA?
This will depend upon your individual situation. A Roth IRA may be better
if you are an active participant in an employer-sponsored plan and your adjusted
gross income is too high to make a deductible IRA contribution (but not too high
to make a Roth IRA contribution). Also, the benefits of a Roth IRA versus a
Traditional IRA may depend upon a number of other factors including: your
current income tax bracket versus your expected income tax bracket when you make
withdrawals from your IRA, whether you expect to be able to make nontaxable
withdrawals from your Roth IRA (see below), how long you expect to leave your
contributions in the IRA, how much you expect the IRA to earn in the meantime,
and possible future tax law changes.
Consult a qualified tax or financial adviser for assistance on this
question.
Are there any restrictions on contributions to my Roth IRA?
Taxpayers with very high income levels may not be able to contribute to a
Roth IRA at all, or their contribution may be limited to an amount less than
$2,000. This depends upon your filing status and the amount of your adjusted
gross income (AGI). The following table shows how the contribution limits are
restricted:
ROTH IRA CONTRIBUTION
- --------------------------------------------------------------------------------
If You Are If You Are Then You
Single Taxpayer Married May Make
Filing Jointly
- --------------------------------------------------------------------------------
Up to Up to Full
$95,000 $150,000 Contribution
- --------------------------------------------------------------------------------
More than $95,000 More than $150,000 Reduced Contribution
but less than but less than (see explanation
$110,000 $160,000 below)
- --------------------------------------------------------------------------------
$110,000 $160,000 Zero
and up and up (No Contribution)
- --------------------------------------------------------------------------------
Adjusted Gross Income (AGI) Level
Remember, your Roth IRA contribution limit of $2,000 is reduced by any
contributions for the same year to a Traditional IRA. If you fall in the reduced
contribution range, the reduction formula applies to the Roth IRA contribution
limit left after subtracting your contribution for the year to a Traditional
IRA.
Note: If you are a married taxpayer filing separately, your maximum Roth IRA
contribution limit phases out over the first $10,000 of adjusted gross income.
If your AGI is $10,000 or more you may not contribute to a Roth IRA for the
year.
How do I calculate my limit if I fall in the "reduced contribution" range?
If your AGI falls in the reduced contribution range, you must calculate
your contribution limit. To do this, multiply your normal contribution limit
($2,000 or your compensation if less) by a fraction. The numerator is the amount
by which your AGI exceeds the lower limit of the reduced contribution range
($95,000 if single, or $150,000 if married filing jointly). The denominator is
$15,000 (single taxpayers) or $10,000 (married filing jointly). Subtract this
from your normal limit and then round down to the nearest $10. The contribution
limit is the greater of the amount calculated or $200.
For example, assume that your AGI for the year is $157,555 and you are
married, filing jointly. You would calculate your Roth IRA contribution limit
this way:
1. The amount by which your AGI exceeds the lower limit of the reduced
contribution deductible range: ($157,555-$150,000) = $ 7,555
2. Divide this by $10,000: $ 7,555 = 0.7555
-------
$10,000
3. Multiply this by $2,000 (or your compensation for the year, if less):
0.7555 x $2,000 = $1,511
4. Subtract this from your $2,000 limit: ($2,000 - $1,511) = $489
5. Round this down to the nearest $10 = $480
6. Your contribution limit is the greater of this amount or $200.
How do I determine my AGI?
AGI is your gross income minus those deductions which are available to all
taxpayers even if they don't itemize. Instructions to calculate your AGI are
provided with your income tax Form 1040 or 1040A.
There are two additional rules when calculating AGI for purposes of Roth
IRA contribution limits. First, if you are making a deductible contribution for
the year to a Traditional IRA, your AGI is reduced by the amount of the
deduction. Second, if you are converting a Traditional IRA to a Roth IRA in a
year (see below), the amount includable in your income as a result of the
conversion is not considered AGI when computing your Roth IRA contribution limit
for the year. (Note: a bill pending in Congress might affect the first
rule--consult your tax adviser or the IRS for the latest developments.)
What happens if I contribute more than allowed to my Roth IRA?
The maximum contribution you can make to a Roth IRA generally is $2,000 or
100% of compensation or earned income, whichever is less. As noted above, your
maximum is reduced by the amount of any contribution to a Traditional IRA for
the same year and may be further reduced if you have high AGI. Any amount
contributed to the Roth IRA above the maximum is considered an "excess
contribution."
An excess contribution is subject to excise tax of 6% for each year it
remains in the Roth IRA.
How can I correct an excess contribution?
Excess contributions may be corrected without paying a 6% penalty. To do
so, you must withdraw the excess and any earnings on the excess before the due
date (including extensions) for filing your federal income tax return for the
year for which you made the excess contribution. The earnings must be included
in your income for the tax year for which the contribution was made and may be
subject to a 10% premature withdrawal tax if you have not reached age 59 1/2
(unless an exception to the 10% penalty tax applies).
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<PAGE>
What happens if I don't correct the excess contribution by the tax return due
date?
Any excess contribution not withdrawn by the tax return due date (including
any extensions) for the year for which the contribution was made will be subject
to the 6% excise tax. There will be an additional 6% excise tax for each
subsequent year the excess remains in your account.
Unless an excess contribution qualifies for the special treatment outlined
above, the excess contribution and any earnings on it withdrawn after tax filing
time will be includable in taxable income and may be subject to a 10% premature
withdrawal penalty.
You may reduce the excess contributions by making a withdrawal equal to the
excess. Earnings need not be withdrawn. To the extent that no earnings are
withdrawn, the withdrawal will not be subject to income taxes or possible
penalties for premature withdrawals before age 59 1/2. Excess contributions may
also be corrected in a subsequent year to the extent that you contribute less
than your Roth IRA contribution limit for the subsequent year. As the prior
excess contribution is reduced or eliminated, the 6% excise tax will become
correspondingly reduced or eliminated for subsequent tax years.
Conversion of Existing Traditional IRA
Can I convert an existing Traditional IRA into a Roth IRA?
Yes, starting in 1998 you can convert an existing Traditional IRA into a
Roth IRA if you meet the adjusted gross income (AGI) limits described below.
Conversion may be accomplished either by establishing a Roth IRA and then
transferring the amount in your Traditional IRA that you wish to convert to the
new Roth IRA. Or, if you want to convert an existing Traditional IRA with State
Street Bank as custodian to a Roth IRA, you may give us directions to convert.
You are eligible to convert a Traditional IRA to a Roth IRA if, for the
year of the conversion, your AGI is $100,000 or less. The same limit applies to
married and single taxpayers, and the limit is not indexed to cost-of-living
increases. Married taxpayers are eligible to convert a Traditional IRA to a Roth
IRA only if they file a joint income tax return; married taxpayers filing
separately are not eligible to convert.
NOTE: No contributions other than Roth IRA conversion contributions made
during the same tax year may be deposited in a single Roth IRA conversion
account.
CAUTION: You should be extremely cautious in converting an existing IRA
into a Roth IRA early in a year if there is any possibility that your AGI for
the year will exceed $100,000. Although a bill pending in Congress would permit
you to transfer amounts back to your Traditional IRA if your AGI exceeds
$100,000, under the current rules, if you have already converted during a year
and you turn out to have more than $100,000 of AGI, there may be adverse tax
results for you. Consult your tax adviser or the IRS for the latest
developments.
What are the tax results from converting?
The taxable amount in your Traditional IRA that you convert to a Roth IRA
will be considered taxable income on your federal income tax return for the year
of the conversion. All amounts in a Traditional IRA are taxable except for your
prior non-deductible contributions to the Traditional IRA.
If you make the conversion during 1998, the taxable income is spread over
four years. In other words, you would include one quarter of the taxable amount
on your federal income tax return for 1998, 1999, 2000 and 2001.
Should I convert my Traditional IRA to a Roth IRA?
Only you can answer this question, in consultation with your tax or
financial advisers. A number of factors, including the following, may be
relevant. Conversion may be advantageous if you expect to leave the converted
funds on deposit in your Roth IRA for at least five years and to be able to
withdraw the funds under circumstances that will not be taxable (see below). The
benefits of converting will also depend on whether you expect to be in the same
tax bracket when you withdraw from your Roth IRA as you are now. Also,
conversion is based upon an assumption that Congress will not change the tax
rules for withdrawals from Roth IRAs in the future, but this cannot be
guaranteed.
Transfers/Rollovers
Can I transfer or roll over a distribution I receive from my employer's
retirement plan into a Roth IRA?
Distributions from qualified employer-sponsored retirement plans or 403(b)
arrangements (for employees of tax-exempt employers) are NOT eligible for
rollover or direct transfer to a Roth IRA. However, in certain circumstances it
may be possible to make a direct rollover of an eligible distribution to a
Traditional IRA and then to convert the Traditional IRA to a Roth IRA (see
above). Consult your tax or financial adviser for further information on this
possibility.
Can I make a rollover from my Roth IRA to another Roth IRA?
You may make a rollover from one Roth IRA to another Roth IRA you have or
you establish to receive the rollover. Such a rollover must be completed within
60 days after the withdrawal from your first Roth IRA. After making a rollover
from one Roth IRA to another, you must wait a full year (365 days) before you
can make another such rollover. (However, you can instruct a Roth IRA custodian
to transfer amounts directly to another Roth IRA custodian; such a direct
transfer does not count as a rollover.)
How do rollovers affect my Roth IRA contribution limits?
Rollover contributions, if properly made, do not count toward the maximum
contribution. Also, you may make a rollover from one Roth IRA to another even
during a year when you are not eligible to contribute to a Roth IRA (for
example, because your AGI for that year is too high).
Can I rollover or transfer non-cash assets into an Elfun Roth IRA?
No. Only cash (in the form of a check) is permitted to be deposited as a
rollover into an Elfun Roth IRA from another Roth or Traditional IRA.
Withdrawals
When can I make withdrawals from my Roth IRA?
You may withdraw from your Roth IRA at any time. If the withdrawal meets
the requirements discussed below, it is tax-free. This means that you pay no
federal income tax even though the withdrawal includes earnings or gains on your
contributions while they were held in your Roth IRA.
When must I start making withdrawals?
There are no rules on when you must start making withdrawals from your Roth
IRA or on minimum required withdrawal amounts for any particular year during
your lifetime. Unlike Traditional IRAs, you are not required to start making
withdrawals from a Roth IRA by the April 1 following the year in which you reach
age 70 1/2.
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<PAGE>
After your death, there are IRS rules on the timing and amount of
distributions. In general, the amount in your Roth IRA must be distributed by
the end of the fifth year after your death. However, distributions to a
designated beneficiary that begin by the end of the year following the year of
your death and that are paid over the life expectancy of the beneficiary satisfy
the rules. If your surviving spouse is your designated beneficiary, the spouse
will then be treated as the depositor.
Can I withdraw shares of the Elfun Funds from my Roth IRA?
In addition to cash withdrawals, you are permitted to withdraw shares of
the Elfun Funds (but not in certificated form) from your Elfun Roth IRA.
Shares of the Elfun Funds may be withdrawn from an Elfun Roth IRA and
transferred in book-entry form to another Elfun account you designate. Shares of
the Elfun Funds held in your account may not be withdrawn in book-entry form by
means of a transfer of such shares to another Roth IRA.
What are the requirements for a tax-free withdrawal?
To be tax-free, a withdrawal from your Roth IRA must meet two requirements.
First, the Roth IRA must have been open for 5 or more years before the
withdrawal. Second, at least one of the following conditions must be satisfied:
o You are age 59 1/2 or older when you make the withdrawal.
o The withdrawal is made by your beneficiary after you die.
o You are disabled (as defined in IRS rules) when you make the
withdrawal.
o You are using the withdrawal to cover eligible first time homebuyer
expenses. These are the costs of purchasing, building or rebuilding a
principal residence (including customary settlement, financing or
closing costs). The purchaser may be you, your spouse or a child,
grandchild, parent or grandparent of you or your spouse. An individual
is considered a "first-time homebuyer" if the individual (or the
individual's spouse, if married) did not have an ownership interest in
a principal residence during the two-year period immediately preceding
the acquisition in question. The withdrawal must be used for eligible
expenses within 120 days after the withdrawal (if there is an
unexpected delay, or cancellation of the home acquisition, a
withdrawal may be redeposited as a rollover). There is a lifetime
limit on eligible first-time homebuyer expenses of $10,000 per
individual.
For a Roth IRA that you set up with amounts rolled over or converted from a
Traditional IRA, the 5 year period begins with the year in which the conversion
or rollover was made. (Note: a bill pending in Congress might affect this
rule--consult your tax adviser or the IRS for the latest developments.)
For a Roth IRA that you started with a normal contribution, the 5 year
period starts with the year for which you make the initial normal contribution.
How are withdrawals from my Roth IRA taxed if the tax-free requirements are not
met?
If the qualified withdrawal requirements are not met, a withdrawal
consisting of your own prior contribution amounts to your Roth IRA will not be
considered taxable income in the year you receive it, nor will the 10% penalty
apply. To the extent that the nonqualified withdrawal consists of dividends or
gains while your contributions were held in your Roth IRA, the withdrawal is
includable in your gross income in the taxable year you receive it, and may be
subject to the 10% withdrawal penalty. All amounts withdrawn from your Roth IRA
are considered withdrawals of your contributions until you have withdrawn the
entire amount you have contributed. After that, all amounts withdrawn are
considered taxable withdrawals of dividends and gains.
Note that, for purposes of determining what portion of any distribution is
includable in income, all of your Roth IRA accounts are considered as one single
account. Amounts withdrawn from any one Roth IRA account are deemed to be
withdrawn from contributions first. Since all your Roth IRAs are considered to
be one account for this purpose, withdrawals from Roth IRA accounts are not
considered to be from earnings or interest until an amount equal to ALL
contributions made to ALL of an individual's Roth IRA accounts is withdrawn. The
following example illustrates this:
A single individual contributes $1,000 a year to his Elfun Roth IRA account
and $1,000 a year to the Brand X Roth IRA account over a period of ten years. At
the end of 10 years his account balances are as follows:
PRINCIPAL
CONTRIBUTIONS EARNINGS
ELFUN ROTH IRA $10,000 $10,000
BRAND X ROTH IRA $10,000 $10,000
------- -------
TOTAL $20,000 $20,000
At the end of 10 years, this person has $40,000 in both Roth IRA accounts,
of which $20,000 represents his contributions (aggregated) and $20,000
represents his earnings (aggregated). This individual, who is 40, withdraws
$15,000 from his Brand X Roth IRA (not a qualified withdrawal). We look to the
aggregate amount of all principal contributions--in this case $20,000--to
determine if the withdrawal is from contributions, and thus non-taxable. In this
example, there is no ($0) taxable income as a result of this withdrawal because
the $15,000 withdrawal is less than the total amount of aggregated contributions
($20,000). If this individual then withdrew $15,000 from his Elfun Roth IRA,
$5,000 would not be taxable (the remaining aggregate contributions) and $10,000
would be treated as taxable income for the year of the withdrawal, subject to
regular income taxes and the 10% premature withdrawal penalty (unless an
exception applies).
NOTE: If passed, a bill currently pending in Congress will change the rules
and the results discussed above. Under the proposed legislation, in general,
separate Roth IRAs established for annual contributions and conversions for
separate years are not aggregated as explained above to determine the tax on
withdrawals. See your tax adviser for more information and the latest
developments.
Taxable withdrawals of dividends and gains from a Roth IRA are treated as
ordinary income. Withdrawals of taxable amounts from a Roth IRA are not eligible
for averaging treatment currently available to certain lump sum distributions
from qualified employer-sponsored retirement plans, nor are such withdrawals
eligible for taxable gains tax treatment.
Your receipt of any taxable withdrawal from your Roth IRA before you attain
age 59 1/2 generally will be considered as an early withdrawal and subject to a
10% penalty tax.
The 10% penalty tax for early withdrawal will not apply if any of the
following exceptions applies:
o The withdrawal was a result of your death or disability.
o The withdrawal is one of a scheduled series of substantially equal
periodic payments for your life or life expectancy (or the joint lives
or life expectancies of you and your beneficiary). If there is an
adjustment to the scheduled series of payments, the 10% penalty tax
will apply. For example, if you begin receiving payments at age 50
under a withdrawal program providing for substantially equal payments
over your life expectancy, and at age 58 you elect to withdraw the
remaining amount in your Roth IRA in a lump-sum, the 10% penalty tax
will apply to the lump sum and to the amounts previously paid to you
before age 59 1/2 to the extent they were includable in your taxable
income.
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<PAGE>
o The withdrawal is used to pay eligible higher education expenses.
These are expenses for tuition, fees, books, and supplies required to
attend an institution for post-secondary education. Room and board
expenses are also eligible for a student attending at least half-time.
The student may be you, your spouse, or your child or grandchild.
However, expenses that are paid for with a scholarship or other
educational assistance payment are not eligible expenses.
o The withdrawal is used to cover eligible first time homebuyer expenses
(as described above in the discussion of tax-free withdrawals).
o The withdrawal does not exceed the amount of your deductible medical
expenses for the year (generally speaking, medical expenses paid
during a year are deductible if they are greater than 7 1/2% of your
adjusted gross income for that year).
o The withdrawal does not exceed the amount you paid for health
insurance coverage for yourself, your spouse and dependents. This
exception applies only if you have been unemployed and received
federal or state unemployment compensation payments for at least 12
weeks; this exception applies to distributions during the year in
which you received the unemployment compensation and during the
following year, but not to any distributions received after you have
been reemployed for at least 60 days.
What about the 15 percent penalty tax?
The rule imposing a 15% penalty tax on very large withdrawals from
tax-favored arrangements (including IRAs, 403(b) arrangements and qualified
employer-sponsored plans), or on excess amounts remaining in such tax-favored
arrangements at your death, has been REPEALED. This 15% tax no longer applies.
NOTE: The discussion of the tax rules for Roth IRAs in this Disclosure Statement
is based upon the best available information. However, Roth IRAs are new under
the tax laws, and the IRS has not issued regulations or rulings on the operation
and tax treatment of Roth IRA accounts. Also, if enacted, legislation now
pending in Congress will change some of the rules. Therefore, you should consult
your tax adviser for the latest developments or for advice about how maintaining
a Roth IRA will affect your personal tax or financial situation.
IMPORTANT: Please see Part Three of this Document which contains important
information applicable to ALL Elfun IRAs.
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Disclosure Statement
Part Three: Rules for Both Traditional and Roth IRAs
General Information
Establishing your Elfun IRA
To establish an Elfun IRA, you must complete and sign a New Account Form.
By signing the New Account Form, you agree to be bound by the terms of the
Custodial Account Agreement, attached to this Disclosure Statement. There is a
minimum initial purchase of $500 for each new Elfun IRA. Subsequent purchases
may be as little as $100 by check or $25 by systematic purchases such as payroll
deductions or direct deposit. Please review this entire Disclosure Statement for
IRS rules and restrictions on contributions to your Traditional IRA or Roth IRA
and the deductibility of such contributions.
Deposits to your Elfun Traditional IRA or Elfun Roth IRA should be
transmitted or delivered as follows:
Elfun IRA
P.O. Box 419631
Kansas City, MO 64141-6631
Such deposits should be accompanied or preceded by instructions as to how
such amounts should be invested. Deposits by check should be made payable to
"State Street Bank and Trust Company, IRA Custodian." Under no circumstances
should checks be made payable to the Distributor, or deposits of currency be
made.
IRA requirements
All Elfun IRAs must meet certain requirements. Contributions generally must
be made in cash (in the form of a check). The IRA trustee or custodian must be a
bank or other person who has been approved by the Secretary of the Treasury.
Your contributions may not be invested in life insurance or collectibles or be
commingled with other property except in a common trust or investment fund. Your
interest in the account must be nonforfeitable at all times. You may obtain
further information on IRAs from any district office of the Internal Revenue
Service.
May I revoke my Elfun IRA?
You may revoke a newly established Elfun Traditional or Elfun Roth IRA at
any time within seven days after the date on which you receive this Disclosure
Statement. An Elfun Traditional or Elfun Roth IRA established more than seven
days after the date of your receipt of this Disclosure Statement may not be
revoked.
To revoke your Elfun Traditional or Elfun Roth IRA, mail or deliver a
written notice of revocation to:
Elfun IRA
P.O. Box 419631
Kansas City, MO 64141-6631
Mailed notice will be deemed given on the date that it is postmarked (or,
if sent by certified or registered mail, on the date of certification or
registration). If you revoke your Elfun Traditional or Elfun Roth IRA within the
seven-day period, you are entitled to a return of the entire amount you
originally contributed into your Elfun Traditional or Elfun Roth IRA, without
adjustment for such items as sales charges, administrative expenses or
fluctuations in market value.
Investments
How are my Elfun IRA contributions invested?
You control the investment and reinvestment of contributions to your Elfun
Traditional or Elfun Roth IRA. Investments must be in one or more of the Elfun
Funds available from time to time as listed in the New Account Form for your
Elfun Traditional or Elfun Roth IRA. You direct the investment of your Elfun IRA
by giving your investment instructions to the Distributor. If a Service Company
has been designated, instructions may be given to the Service Company rather
than to the Distributor; as of the date of this Disclosure Statement, no Service
Company had been designated. Since you control the investment of your Elfun
Traditional or Elfun Roth IRA, you are responsible for any losses; the
Custodian, the Distributor and the Service Company or their affiliates have no
responsibility for any loss or diminution in value occasioned by your exercise
of investment control.
If investment instructions have not been received by the Distributor or the
Service Company, if any, by the time your Elfun Traditional IRA or Elfun Roth
IRA contribution has been received, or the instructions are unclear in the
opinion of the party receiving such instructions, or the instructions are for a
transaction that is not permitted by the terms of the Elfun IRA, your
contribution may, at the discretion of the Distributor or Service Company, if
any, either be returned to you or invested and held in the Elfun Money Market
Fund, without any liability on the part of the Distributor or Service Company,
if any, for any resulting loss of income or appreciation or depreciation,
pending receipt of appropriate investment instructions, further clarification or
confirmation of eligibility. If instructions regarding existing assets held in
your Elfun Traditional IRA or Elfun Roth IRA are received by the Distributor or
the Service Company, if any, with respect to the purchase or redemption of any
Elfun Fund, receipt or disposition of any dividends or capital gains
distributions on or the proceeds of a redemption or sales of shares of the Elfun
Funds or other transaction which are unclear in the opinion of the party
receiving such instructions, or the instructions are for a transaction that is
not permitted by the terms of the Elfun IRA, the Distributor or Service Company,
if any, may, at its discretion, either refrain from carrying out such
instructions or, in the case of dividends or capital gains distributions on or
the proceeds of a redemption or sale of existing assets, invest and hold such
amounts in the Elfun Money Market Fund, without any liability on the part of the
Distributor or Service Company, if any, for any resulting loss of income or
appreciation or depreciation, pending receipt of appropriate instructions,
further clarification or confirmation of eligibility. No interest or other
investment return will be paid to your Elfun Traditional IRA or Elfun Roth IRA
on any cash amounts contributed to or held as assets of your Elfun Traditional
IRA or Elfun Roth IRA, except for returns on assets invested in Elfun Funds,
pending receipt of appropriate instructions, further clarification or
confirmation of eligibility.
With respect to the Elfun Funds, purchases and redemptions for your Elfun
Traditional IRA or Elfun Roth IRA will generally be effected at the applicable
public offering price or net asset value for shares of the Elfun Fund(s)
involved next determined after the Distributor or the Service Company, if any,
receives proper investment instructions from you. Consult the current prospectus
for the Elfun Fund(s) involved for additional information.
Investments will be made in such amounts and proportions as you may direct
to the Distributor or the Service Company, if any, from time to time, subject to
such minimum investment requirements as may be specified in the prospectuses for
the Elfun Funds.
Because you control the selection of investments for your Elfun Traditional
IRA or Elfun Roth IRA, the growth in value of your Elfun Traditional IRA or
Elfun Roth IRA cannot be guaranteed or projected. As such, any investment
decision on your part must be made with a complete understanding of the risks
associated with such an investment, including your understanding that:
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o You are under no obligation to invest in any particular Elfun Fund;
o The Elfun Funds are being made available to you as alternative
investment vehicles without any specific endorsement by General
Electric Company or its affiliated companies, and neither General
Electric Company nor its affiliated companies are acting in an
employment capacity with respect to any individual participating in
the Elfun Traditional or Elfun Roth IRA program;
o An investment in any particular Elfun Fund may not be suitable for
your financial goals and objectives or for other reasons; and
o Alternative individual retirement account programs are available for
investment that provide the same tax consequences as the Elfun IRA
program.
Before making any investment in the Elfun Funds, please read carefully the
current prospectus for the Elfun Funds you are considering as an investment for
your Elfun IRA. The prospectus contains information about each Fund's investment
objectives and policies, as well as any minimum initial investment or minimum
balance requirements, management fees and expenses, sales, redemption or other
charges, and other information.
Are there any restrictions on the use of my Elfun IRA assets?
As stated above, the assets in your Elfun Traditional IRA or Elfun Roth IRA
may only be invested in the Elfun Funds.
The tax-exempt status of your Traditional or Roth IRA will be revoked if
you engage in any of the prohibited transactions listed in Section 4975 of the
tax code. Upon such revocation, your Traditional or Roth IRA is treated as
distributing its assets to you. The taxable portion of the amount in your IRA
will be subject to income tax (unless, in the case of a Roth IRA, the
requirements for a tax-free withdrawal are satisfied). Also, you may be subject
to a 10% penalty tax on the taxable amount as a premature withdrawal if you have
not yet reached the age of 59 1/2.
What is a prohibited transaction?
Generally, a prohibited transaction is any improper use of the assets in
your Traditional or Roth IRA. Some examples of prohibited transactions are:
o Direct or indirect sale or exchange of property between you and your
Traditional or Roth IRA.
o Transfer of any property from your Traditional or Roth IRA to yourself
or from yourself to your Traditional or Roth IRA.
Your Traditional or Roth IRA could lose its tax exempt status if you use
all or part of your interest in your Traditional or Roth IRA as security for a
loan or borrow any money from your Traditional or Roth IRA. Any portion of your
Traditional or Roth IRA used as security for a loan will be treated as a
distribution in the year in which the money is borrowed. This amount may be
taxable and you may also be subject to the 10% premature withdrawal penalty on
the taxable amount.
Fees and Expenses
Custodian's Fees
The following is a list of the fees charged by the Custodian for
maintaining either an Elfun Traditional IRA or an Elfun Roth IRA.
o Annual maintenance fee for an Elfun IRA account: $11 for each social
security number.
o Account termination fee for an Elfun IRA account is $15.
General Fee Policies
o Fees may be paid by you directly, or the Custodian may deduct them from
your Elfun Traditional or Elfun Roth IRA.
o Fees or waivers of fees may be changed upon 30 days written notice to you.
o The full annual maintenance fee will be charged for any calendar year
during which you have an Elfun Traditional or Elfun Roth IRA account with
us. This fee is not pro-rated for periods of less than one full year.
o Termination fees are charged when your account is closed whether the funds
are distributed to you or transferred to a successor custodian or trustee.
o The Custodian may charge you for its reasonable expenses for services not
covered by its fee schedule.
Elfun Fund Fees
Each Elfun Fund in which your Traditional or Roth IRA is invested pays fees
for investment advisory, administrative, and other services. These fees are
described in detail in the current prospectus for the Elfun Funds.
Tax Matters
What IRA reports does the custodian issue?
The Custodian will report all withdrawals to the IRS and the recipient on
the appropriate form. For reporting purposes, a direct transfer of assets to a
successor custodian or trustee is not considered a withdrawal.
The Custodian will report to the IRS the year-end value of your account and
the amount of any rollover (including conversions of a Traditional IRA to a Roth
IRA) or regular contribution made during a calendar year, as well as the tax
year for which a contribution is made. Unless the Custodian receives an
indication from you to the contrary, it will treat any amount as a contribution
for the tax year in which it is received. It is MOST IMPORTANT that a
contribution between January and April 15th for the prior year be clearly
designated as such.
What tax information must I report to the IRS?
You must file Form 5329 with the IRS for each taxable year for which you
made an excess contribution or you take a premature withdrawal that is subject
to the 10% penalty tax, or you withdraw less than the minimum amount required
from your Traditional IRA. If your beneficiary fails to make required minimum
withdrawals from your Traditional or Roth IRA after your death, your beneficiary
may be subject to an excise tax and be required to file Form 5329.
For Traditional IRAs, you must also report each nondeductible contribution
to the IRS by designating it a nondeductible contribution on your tax return.
Use Form 8606. In addition, for any year in which you make a nondeductible
contribution or take a withdrawal, you must include additional information on
your tax return. The information required includes: (1) the amount of your
nondeductible contributions for that year; (2) the amount of withdrawals from
Traditional IRAs in that year; (3) the amount by which your total nondeductible
contributions for all the years exceed the total amount of your distributions
previously excluded from gross income; and (4) the total value of all your
Traditional IRAs as of the end of the year. If you fail to report any of this
information, the IRS will assume that all your contributions were deductible.
This will result in the taxation of the portion of your withdrawals that should
be treated as a nontaxable return of your nondeductible contributions.
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Which withdrawals are subject to withholding?
Roth IRA
Federal income tax will be withheld at a flat rate of 10% of any taxable
withdrawal from your Roth IRA, unless you elect not to have tax withheld.
Withdrawals from a Roth IRA are not subject to the mandatory 20% income tax
withholding that applies to most distributions from qualified plans or 403(b)
accounts that are not directly rolled over to another plan or IRA.
Traditional IRA
Federal income tax will be withheld at a flat rate of 10% from any
withdrawal from your Traditional IRA, unless you elect not to have tax withheld.
Withdrawals from a Traditional IRA are not subject to the mandatory 20% income
tax withholding that applies to most distributions from qualified plans or
403(b) accounts that are not directly rolled over to another plan or IRA.
Account Termination
You may terminate your Elfun Traditional IRA or Elfun Roth IRA at any time
after its establishment by sending withdrawal instructions in a form acceptable
to the Custodian, or a transfer authorization form, to:
Elfun IRA
P.O. Box 419631
Kansas City, MO 64141-6631
Your Elfun Traditional IRA or Elfun Roth IRA will terminate upon the first
to occur of the following:
o The date your properly executed withdrawal instructions (as described
above) withdrawing your total Elfun Traditional IRA or Elfun Roth IRA
balance are received and accepted by the Custodian.
o The date the Elfun Traditional IRA or Elfun Roth IRA ceases to qualify
under the tax code. This will be deemed a termination.
o The transfer of the Elfun Traditional IRA or Elfun Roth IRA to another
custodian/trustee.
o The rollover of the amounts in the Elfun Traditional IRA or Elfun Roth
IRA to another custodian/trustee.
Any outstanding fees must be received prior to such a termination of your
account or will be deducted from the account.
The amount you receive from your Elfun IRA upon termination of the account
will be treated as a withdrawal, and thus the rules relating to Traditional IRA
or Roth IRA withdrawals will apply. For example, if the IRA is terminated before
you reach age 59 1/2, the 10% early withdrawal penalty may apply to the taxable
amount you receive.
IRA Documents
Traditional IRA
The terms contained in Articles I to VII of Part One of the Elfun
Individual Retirement Custodial Agreement have been promulgated by the IRS in
Form 5305-A for use in establishing a Traditional IRA Custodial Account that
meets the requirements of Code Section 408(a) for a valid Traditional IRA. This
IRS approval relates only to the form of Articles I to VII and is not an
approval of the merits of a Traditional IRA or of any investment permitted by a
Traditional IRA.
Roth IRA
The terms contained in Articles I to VII of Part Two of the Elfun
Individual Retirement Custodial Account Agreement have been promulgated by the
IRS in Form 5305-RA for use in establishing a Roth IRA Custodial Account that
meets the requirements of Code Section 408A for a valid Roth IRA. This IRS
approval relates only to the form of Articles I to VII and is not an approval of
the merits of a Roth IRA or of any investment permitted by a Roth IRA.
Based on legal advice relating to current tax laws and IRS guidance, State
Street Bank, as Custodian for the Elfun IRAs, believes that the use of an Elfun
Individual Retirement Account Document such as this, containing information for
both an Elfun Traditional IRA or an Elfun Roth IRA, will be acceptable to the
IRS. However, if the IRS makes a ruling, or if Congress enacts legislation,
regarding the use of different documentation, State Street Bank will forward to
you new documentation for your Elfun Traditional IRA or Elfun Roth IRA (as
appropriate) for you to read and, if necessary, an appropriate New Account Form
to sign. By adopting an Elfun Traditional IRA or an Elfun Roth IRA using these
materials, you acknowledge this possibility and agree to this procedure if
necessary. In all cases, to the extent permitted, State Street Bank will treat
your IRA as being opened on the date your account was opened using the New
Account Form in this Document.
Additional Information
For additional information, contact your investment professional or call
1 (800) 242-0134.
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Custodial Account Agreement
Part One: Traditional IRAs
The following provisions of Articles I to VII are in the form promulgated
by the Internal Revenue Service in Form 5305-A for use in establishing an
individual retirement custodial account.
Article I.
The Custodian may accept additional cash contributions on behalf of the
Depositor for a tax year of the Depositor. The total contributions are limited
to $2,000 for the tax year unless the contribution is a rollover contribution
described in section 402(c), 403(a)(4), 403(b)(8), 408(d)(3), or an employer
contribution to a simplified employee pension plan as described in section
408(k).
Article II.
The Depositor's interest in the balance in the custodial account is
nonforfeitable.
Article III.
1. No part of the custodial funds may be invested in life insurance
contracts, nor may the assets of the custodial account be commingled with other
property except in a common trust fund or common investment fund (within the
meaning of section 408(a)(5) of the Code).
2. No part of the custodial funds may be invested in collectibles (within
the meaning of section 408(m) except as otherwise permitted by section 408(m)(3)
which provides an exception for certain gold and silver coins and coins issued
under the laws of any state.
Article IV.
1. Notwithstanding any provisions of this agreement to the contrary, the
distribution of the Depositor's interest in the custodial account shall be made
in accordance with the following requirements and shall otherwise comply with
section 408(a)(6) and Proposed Regulations section 1.408-8, including the
incidental death benefit provisions of Proposed Regulations section
1.401(a)(9)-2, the provisions of which are incorporated by reference.
2. Unless otherwise elected by the time distributions are required to begin
to the Depositor under paragraph 3, or to the surviving spouse under paragraph
4, other than in the case of a life annuity, life expectancies shall be
recalculated annually. Such election shall be irrevocable as to the Depositor
and the surviving spouse and shall apply to all subsequent years. The life
expectancy of a nonspouse beneficiary may not be recalculated.
3. The Depositor's entire interest in the custodial account must be, or
begin to be, distributed by the Depositor's required beginning date, the April 1
following the calendar year end in which the Depositor reaches age 70 1/2. By
that date, the Depositor may elect, in a manner acceptable to the Custodian, to
have the balance in the custodial account distributed in:
(a) A single-sum payment.
(b) An annuity contract that provides equal or substantially equal
monthly, quarterly, or annual payments over the life of the Depositor.
(c) An annuity contract that provides equal or substantially equal
monthly, quarterly, or annual payments over the joint and last survivor
lives of the Depositor and his or her designated beneficiary.
(d) Equal or substantially equal annual payments over a specified
period that may not be longer than the Depositor's life expectancy.
(e) Equal or substantially equal annual payments over a specified
period that may not be longer than the joint life and last survivor
expectancy of the Depositor and his or her designated beneficiary.
4. If the Depositor dies before his or her entire interest is distributed
to him or her, the entire remaining interest will be distributed as follows:
(a) If the Depositor dies on or after distribution of his or her
interest has begun, distribution must continue to be made in accordance
with paragraph 3.
(b) If the Depositor dies before distribution of his or her interest
has begun, the entire remaining interest will, at the election of the
Depositor or, if the Depositor has not so elected, at the election of the
beneficiary or beneficiaries, either
(i) Be distributed by the December 31 of the year containing the
fifth anniversary of the Depositor's death, or
(ii) Be distributed in equal or substantially equal payments over
the life or life expectancy of the designated beneficiary or
beneficiaries starting by December 31 of the year following the year
of the Depositor's death. If, however, the beneficiary is the
Depositor's surviving spouse, then this distribution is not required
to begin before December 31 of the year in which the Depositor would
have turned age 70 1/2.
(c) Except where distribution in the form of an annuity meeting the
requirements of section 408(b)(3) and its related regulations has
irrevocably commenced, distributions are treated as having begun on the
Depositor's required beginning date, even though payments may actually have
been made before that date.
(d) If the Depositor dies before his or her entire interest has been
distributed and if the beneficiary is other than the surviving spouse, no
additional cash contributions or rollover contributions may be accepted in
the account.
5. In the case of distribution over life expectancy in equal or
substantially equal annual payments, to determine the minimum annual payment for
each year, divide the Depositor's entire interest in the custodial account as of
the close of business on December 31 of the preceding year by the life
expectancy of the Depositor (or the joint life and last survivor expectancy of
the Depositor and the Depositor's designated beneficiary, or the life expectancy
of the designated beneficiary, whichever applies.) In the case of distributions
under paragraph 3, determine the initial life expectancy (or joint life and last
survivor expectancy) using the attained ages of the Depositor and designated
beneficiary as of their birthdays in the year the Depositor reaches age 70 1/2.
In the case of a distribution in accordance with paragraph 4(b)(ii), determine
life expectancy using the attained age of the designated beneficiary as of the
beneficiary's birthday in the year distributions are required to commence.
6. The owner of two or more individual retirement accounts may use the
"alternative method" described in Notice 88-38, 1988-1 C.B. 524, to satisfy the
minimum distribution requirements described above. This method permits an
individual to satisfy these requirements by taking from one individual
retirement account the amount required to satisfy the requirement for another.
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Article V.
1. The Depositor agrees to provide the Custodian with information necessary
for the Custodian to prepare any reports required under section 408(i) and
Regulations sections 1.408-5 and 1.408-6.
2. The Custodian agrees to submit reports to the Internal Revenue Service
and the Depositor as prescribed by the Internal Revenue Service.
Article VI.
Notwithstanding any other articles which may be added or incorporated, the
provisions of Articles I through III and this sentence will be controlling. Any
additional articles that are not consistent with section 408(a) and the related
regulations will be invalid.
Article VII.
This agreement will be amended from time to time to comply with the
provisions of the Code and related regulations. Other amendments may be made
with the consent of the persons whose signatures appear on the New Account Form.
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Custodial Account Agreement
Part Two: Roth IRAs
The following provisions of Articles I to VII are in the form promulgated
by the Internal Revenue Service in Form 5305-RA for use in establishing a Roth
Individual Retirement Custodial Account.
Article I.
1. If this Roth IRA is not designated as a Roth Conversion IRA, then,
except in the case of a rollover contribution described in section 408A(e), the
Custodian will accept only cash contributions (in the form of a check) and only
up to a maximum amount of $2,000 for any tax year of the Depositor.
2. If this Roth IRA is designated as a Roth Conversion IRA, no
contributions other than IRA Conversion Contributions made during the same tax
year will be accepted.
Article IA
The $2,000 limit described in Article I is gradually reduced to $0 between
certain levels of adjusted gross income (AGI). For a single Depositor, the
$2,000 annual contribution is phased out between AGI of $95,000 and $110,000;
for a married Depositor who files jointly, between AGI of $150,000 and $160,000;
and for a married Depositor who files separately, between $0 and $10,000. In
case of a conversion, the Custodian will not accept IRA Conversion Contributions
in a tax year if the Depositor's AGI for that tax year exceeds $100,000 or if
the Depositor is married and files a separate return. Adjusted gross income is
defined in section 408A(c)(3) and does not include IRA Conversion Contributions.
Article II.
The Depositor's interest in the balance in the custodial account is
nonforfeitable.
Article III.
1. No part of the custodial funds may be invested in life insurance
contracts, nor may the assets of the custodial account be commingled with other
property except in a common trust fund or common investment fund (within the
meaning of section 408(a)(5)).
2. No part of the custodial funds may be invested in collectibles (within
the meaning of section 408(m)) except as otherwise permitted by section
408(m)(3) which provides an exception for certain gold, silver, and platinum
coins, coins issued under specified statutes, coins issued under the laws of any
state, and certain bullion.
Article IV.
1. If the Depositor dies before his or her entire interest is distributed
to him or her and the Depositor's surviving spouse is not the sole beneficiary,
the entire remaining interest will at the election of the Depositor or, if the
Depositor has not so elected, at the election of the beneficiary or
beneficiaries, either:
(a) Be distributed by December 31 of the year containing the fifth
anniversary of the Depositor's death, or
(b) Be distributed over the life or life expectancy of the designated
beneficiary starting no later than December 31 of the year following the
year of the Depositor's death.
If distributions do not begin by the date described in (b), distribution
method (a) will apply.
2. In the case of distribution method 1(b) above, to determine the minimum
annual payment for each year, divide the Depositor's entire interest in the
account as of the close of business on December 31 of the preceding year by the
life expectancy of the designated beneficiary. Determine that initial life
expectancy using the attained age of the designated beneficiary as of the
beneficiary's birthday in the year distributions are required to commence and
subtract 1 for each subsequent year.
3. If the Depositor's spouse is the sole beneficiary on the Depositor's
date of death, such spouse will then be treated as the Depositor.
Article V.
1. The Depositor agrees to provide the Custodian with information necessary
for the Custodian to prepare any reports required under sections 408(i) and
408A(d)(3)(E), and Regulations section 1.408-5 and 1.408-6, and under guidance
published by the Internal Revenue Service.
2. The Custodian agrees to submit reports to the Internal Revenue Service
and the Depositor as prescribed by the Internal Revenue Service.
Article VI.
Notwithstanding any other articles which may be added or incorporated, the
provisions of Articles I through III and this sentence will be controlling. Any
additional articles that are not consistent with section 408A, the related
regulations, and other published guidance will be invalid.
Article VII.
This agreement will be amended from time to time to comply with the
provisions of the Code and related regulations, and other published guidance.
Other amendments may be made with the consent of the persons whose signatures
appear below.
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Custodial Account Agreement
Part Three: Provisions applicable to both Traditional IRAs and Roth IRAs
Article VIII.
1. As used in this Article VIII the following terms have the following
meanings:
"Account" or "Custodial Account" means the individual retirement account
established using the terms of either Part One or Part Two and, in either event,
Part Three of this Elfun Individual Retirement Custodial Account Agreement and
the New Account Form signed by the Depositor. The Account may be a Traditional
Individual Retirement Account or a Roth Individual Retirement Account, as
specified by the Depositor. See Section 24 below.
"Custodian" means State Street Bank and Trust Company.
"Distributor" means GE Investment Distributors, Inc. which has a contract
with the Elfun Funds to serve as distributor of the shares of such Funds.
In any case where there is no Distributor, the duties assigned hereunder to
the Distributor may be performed by the Elfun Funds, or by an entity that has a
contract to perform management, administrative or investment advisory services
for the Fund(s).
"Elfun Fund(s) or Fund(s)" means a mutual fund or registered investment
company which is specified in the Application, or which is designated by the
Distributor named in the Application, as being available as an investment for
the Custodial Account; provided, however, that such a mutual fund or registered
investment company must be legally offered for sale in the state and country of
the Depositor's residence in order to be an Elfun Fund hereunder.
"Service Company" means any entity employed by the Custodian or the
Distributor, including the transfer agent for the Fund(s), to perform various
administrative duties of either the Custodian or the Distributor.
In any case where there is no Service Company, the duties assigned
hereunder to the Service Company will be performed by the Distributor or by an
entity specified in the paragraph following the definition of the term
"Distributor," and references herein to Service Company shall be deemed to be
references to such Distributor or to such other entity.
"Sponsor" means GE Investment Distributors, Inc. and its affiliates.
2. The Depositor may revoke the Custodial Account established hereunder by
mailing or delivering a written notice of revocation to the Custodian within
seven days after the Depositor receives the Disclosure Statement related to the
Custodial Account. Mailed notice is treated as given to the Custodian on date of
the postmark (or on the date of Post Office certification or registration in the
case of notice sent by certified or registered mail). Upon timely revocation,
the Depositor's initial contribution will be returned, without adjustment for
administrative expenses, brokerage fees or commissions, sales or advisory
charges, fluctuations in market value or other changes.
The Depositor may certify in the New Account Form that the Depositor
received the Disclosure Statement related to the Custodial Account at least
seven days before the Depositor signed the New Account Form to establish the
Custodial Account, and the Custodian may rely upon such certification.
3. All contributions to the Custodial Account shall be invested and
reinvested in full and fractional shares of one or more Elfun Funds, provided
that investments in one or more Elfun Funds are available unless the Depositor
fails to meet any of the eligibility requirements specified in the then
effective prospectus for such Elfun Fund(s).
Such investments shall be made in such proportions and/or in such amounts
as Depositor from time to time in the New Account Form or by other written
notice to the Service Company (in such form as may be acceptable to the Service
Company) may direct.
The Service Company shall be responsible for promptly transmitting all
investment directions by the Depositor for the purchase or sale of shares of one
or more Elfun Funds hereunder to the Elfun Funds' transfer agent. However, if
investment directions with respect to the investment of any contribution
hereunder are not received from the Depositor as required or, if received, are
unclear or incomplete in the opinion of the Service Company, or the instructions
are for a transaction that is not permitted by the terms hereof, such
contributions may, at the discretion of the Service Company, either be returned
to the Depositor or invested and held in the Elfun Money Market Fund, without
any liability on the part of the Service Company for any resulting loss of
income or appreciation or depreciation, pending receipt of appropriate
investment instructions, further clarification, or confirmation of eligibility.
If instructions regarding existing assets held in the Custodial Account are
received by the Service Company with respect to the purchase or redemption of
any Elfun Fund, receipt or disposition of any dividends on or the proceeds of a
redemption or sale of shares of the Elfun Funds or other transaction, which are
unclear or incomplete in the opinion of the Service Company, the Service Company
may, at its discretion, either refrain from carrying out such instructions, or,
in the case of dividends on or the proceeds of a redemption or sale of existing
assets, invest and hold such amounts in the Elfun Money Market Fund, without any
liability on the part of the Service Company for any resulting loss of income or
appreciation or depreciation, pending receipt of appropriate instructions,
further clarification or confirmation of eligibility. No interest or other
investment return will be paid to the Custodial Account on any cash amounts
contributed to or held as assets in the Custodial Account, except for returns on
assets invested in Elfun Funds, pending receipt of appropriate instructions,
further clarification or confirmation of eligibility.
All investment directions by Depositor will be subject to any minimum
initial or additional investment or minimum balance rules applicable to Elfun
Funds as described in its prospectus.
All dividends and capital gains or other distributions received on the
shares of any Elfun Fund held in the Depositor's Account shall be (unless
received in additional shares) reinvested in full and fractional shares of such
Elfun Fund (or of any other Elfun Fund offered by the Sponsor, if so directed).
4. Subject to the minimum initial or additional investment, minimum balance
and other exchange rules applicable to Elfun Funds, the Depositor may at any
time direct the Service Company or the Distributor, as applicable, to exchange
all or a specified portion of the assets in the Depositor's Account for shares
and fractional shares of one or more Elfun Funds. The Depositor shall give such
directions by written notice acceptable to the Service Company or the
Distributor, as applicable, and the Service Company or the Distributor, as
applicable, will process such directions as soon as practicable after receipt
thereof (subject to the third paragraph of Section 3 of this Article VIII).
5. Any purchase or redemption of shares of Elfun Funds for or from the
Depositor's Account will be effected at the public
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offering price or net asset value of such Fund (as described in the then
effective prospectus for such Fund) next established after the Service Company
has transmitted the Depositor's investment directions to the transfer agent for
the Fund(s).
Any purchase, exchange, transfer or redemption of shares of an Elfun Fund
or from the Depositor's Account will be subject to any applicable sales,
redemption or other charge as described in the then effective prospectus for
such Fund.
6. The Service Company shall maintain adequate records of all transactions
transmitted by it. Any account maintained in connection herewith shall be in the
name of the Custodian for the benefit of the Depositor. All assets of the
Custodial Account shall be registered in the name of the Custodian or of a
suitable nominee. The books and records of the Custodian shall show that all
such investments are part of the Custodial Account.
The Custodian shall maintain or cause to be maintained adequate records
reflecting transactions of the Custodial Account. In the discretion of the
Custodian, records maintained by the Service Company with respect to the Account
hereunder will be deemed to satisfy the Custodian's recordkeeping
responsibilities therefor. The Service Company agrees to furnish the Custodian
with any information the Custodian requires to carry out the Custodian's
recordkeeping responsibilities.
7. Neither the Custodian nor any other party providing services to the
Custodial Account will have any responsibility for rendering advice with respect
to the investment and reinvestment of Depositor's Custodial Account, nor shall
such parties be liable for any loss or diminution in value which results from
Depositor's exercise of investment control over his Custodial Account. Depositor
shall have and exercise exclusive responsibility for and control over the
investment of the assets of his Custodial Account, and neither Custodian nor any
other such party shall have any duty to question his directions in that regard
or to advise him regarding the purchase, retention or sale of such assets.
8. The Depositor may in writing appoint an investment adviser with respect
to the Custodial Account on a form acceptable to the Custodian and the Service
Company. The investment adviser's appointment will be in effect until written
notice to the contrary is received by the Custodian and the Service Company.
While an investment adviser's appointment is in effect, the investment adviser
may issue investment instructions to the Service Company, and the Service
Company will be fully protected in carrying out such investment directions or
orders to the same extent as if they had been given by the Depositor.
The Depositor's appointment of any investment adviser will also be deemed
to be instructions to the Custodian and the Service Company to pay such
investment adviser's fees to the investment adviser from the Custodial Account
hereunder without additional authorization by the Depositor or the Custodian.
9. Distribution of the assets of the Custodial Account shall be made at
such time and in such form as Depositor (or the Beneficiary if Depositor is
deceased) shall elect by written order to the Custodian. Depositor acknowledges
that any distribution of a taxable amount from the Custodial Account (except for
distribution on account of Depositor's disability or death, return of an "excess
contribution" referred to in Code Section 4973, or a "rollover" from this
Custodial Account) made earlier than age 59 1/2 may subject Depositor to an
"additional tax on early distributions" under Code Section 72(t) unless an
exception to such additional tax is applicable. For that purpose, Depositor will
be considered disabled if Depositor can prove, as provided in Code Section
72(m)(7), that Depositor is unable to engage in any substantial gainful activity
by reason of any medically determinable physical or mental impairment which can
be expected to result in death or be of long-continued and indefinite duration.
It is the responsibility of the Depositor (or the Beneficiary) by appropriate
distribution instructions to the Custodian to insure that any applicable
distribution requirements of Code Section 401(a)(9) and Article IV above are
met. If the Depositor (or Beneficiary) does not direct the Custodian to make
distributions from the Custodial Account by the time that such distributions are
required to commence in accordance with such distribution requirements (to the
extent applicable), the Custodian (and Service Company) shall assume that the
Depositor (or Beneficiary) is meeting the minimum distribution requirements from
another individual retirement arrangement maintained by the Depositor (or
Beneficiary) and the Custodian and Service Company shall be fully protected in
so doing. The Depositor (or the Depositor's surviving spouse) may elect to
comply with the applicable distribution requirements in Article IV using the
recalculation of life expectancy method, or may elect that the life expectancy
of the Depositor and/or the Depositor's surviving spouse, as applicable, will
not be recalculated; any such election may be in such form as the Depositor (or
surviving spouse) provides (including the calculation of minimum distribution
amounts in accordance with a method that does not provide for recalculation of
the life expectancy of one or both of the Depositor and surviving spouse and
instructions for withdrawals to the Custodian in accordance with such method).
Notwithstanding paragraph 2 of Article IV, unless an election to have life
expectancies recalculated annually is made by the time distributions are
required to begin, life expectancies shall not be recalculated. Neither the
Custodian nor any other party providing services to the Custodial Account
assumes any responsibility for the tax treatment of any distribution from the
Custodial Account; such responsibility rests solely with the person ordering the
distribution.
10. The Custodian assumes (and shall have) no responsibility to make any
distribution except upon the written order of Depositor (or Beneficiary if
Depositor is deceased) containing such information as the Custodian may
reasonably request. Also, before making any distribution or honoring any
assignment of the Custodial Account, Custodian shall be furnished with any and
all applications, certificates, tax waivers, signature guarantees and other
documents (including proof of any legal representative's authority) deemed
necessary or advisable by Custodian, but Custodian shall not be responsible for
complying with any order or instruction which appears on its face to be genuine,
or for refusing to comply if not satisfied it is genuine, and Custodian has no
duty of further inquiry. Any distributions from the Account may be mailed,
first-class postage prepaid, to the last known address of the person who is to
receive such distribution, as shown on the Custodian's records, and such
distribution shall to the extent thereof completely discharge the Custodian's
liability for such payment.
11. (a) The term "Beneficiary" means the person or persons designated as
such by the "designating person" (as defined below) on a form acceptable to the
Custodian for use in connection with the Custodial Account, signed by the
designating person, and filed with the Custodian. The form may name individuals,
trusts, estates, or other entities as either primary or contingent
beneficiaries. However, if the designation does not effectively dispose of the
entire Custodial Account as of the time distribution is to commence, the term
"Beneficiary" shall then mean the designating person's estate with respect to
the assets of the Custodial Account not disposed of by the designation form. The
form last accepted by the Custodian before such distribution is to commence,
provided it was received by the Custodian (or deposited in the U.S. Mail or with
a reputable delivery service) during the designating person's lifetime, shall be
controlling and, whether or not fully dispositive of the Custodial Account,
thereupon shall revoke all such forms previously filed by that person. The term
"designating person" means the Depositor during his/her lifetime; after the
Depositor's death, it also means the Depositor's spouse, but only if the spouse
elects to treat the Custodial Account as the spouse's own Custodial Account in
accordance with applicable provisions of the Code.
(b) When and after distributions from the Custodial Account to the
Depositor's Beneficiary commence, all rights and obligations assigned to the
Depositor hereunder shall inure to, and be enjoyed and exercised by, the
Beneficiary instead of the Depositor.
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12. (a) The Depositor agrees to provide information to the Custodian at
such time and in such manner as may be necessary for the Custodian to prepare
any reports required under Section 408(i) or Section 408A(d)(3)(E) of the Code
and the regulations thereunder or otherwise.
(b) The Custodian or the Service Company will submit reports to the
Internal Revenue Service and the Depositor at such time and manner and
containing such information as is prescribed by the Internal Revenue Service.
(c) The Depositor, Custodian and Service Company shall furnish to each
other such information relevant to the Custodial Account as may be required
under the Code and any regulations issued or forms adopted by the Treasury
Department thereunder or as may otherwise be necessary for the administration of
the Custodial Account.
(d) The Depositor shall file any reports to the Internal Revenue Service
which are required by law (including Form 5329), and neither the Custodian nor
Service Company shall have any duty to advise the Depositor, concerning or
monitor the Depositor's compliance with, such requirement.
13. (a) The Depositor retains the right to amend this Custodial Account
document in any respect at any time, effective on a stated date which shall be
at least 60 days after giving written notice of the amendment (including its
exact terms) to the Custodian by registered or certified mail, unless the
Custodian waives notice as to such amendment. If the Custodian does not wish to
continue serving as such under this Custodial Account document as so amended, it
may resign in accordance with Section 17 below.
(b) The Depositor delegates to the Custodian the Depositor's right so to
amend, provided (i) the Custodian does not substitute other investments for
existing investments under this Custodial Agreement and (ii) the Custodian
amends in the same manner all agreements comparable to this one, having the same
Custodian, permitting comparable investments, and under which such power has
been delegated to it; this includes the power to amend retroactively if
necessary or appropriate in the opinion of the Custodian in order to conform
this Custodial Account to pertinent provisions of the Code and other laws or
successor provisions of law, or to obtain a governmental ruling that such
requirements are met, to adopt a prototype or master form of agreement in
substitution for this Agreement, or as otherwise may be advisable in the opinion
of the Custodian. Such an amendment by the Custodian shall be communicated in
writing to the Depositor, and the Depositor shall be deemed to have consented
thereto unless, within 30 days after such communication to the Depositor is
mailed, the Depositor either (i) gives the Custodian a written order for a
complete distribution or transfer of the Custodial Account, or (ii) removes the
Custodian and appoints a successor under Section 17 below.
Pending the adoption of any amendment necessary or desirable to conform
this Custodial Account document to the requirements of any amendment to any
applicable provision of the Internal Revenue Code or regulations or rulings
thereunder, the Custodian and the Service Company may operate the Depositor's
Custodial Account in accordance with such requirements to the extent that the
Custodian and/or the Service Company deem necessary to preserve the tax benefits
of the Account.
(c) Notwithstanding the provisions of subsections (a) and (b) above, no
amendment shall increase the responsibilities or duties of the Custodian without
its prior written consent.
(d) This Section 13 shall not be construed to restrict the Custodian's
right to substitute fee schedules in the manner provided by Section 16 below,
and no such substitution shall be deemed to be an amendment of this Agreement.
14. (a) Custodian shall terminate the Custodial Account if this Agreement
is terminated or if, within 30 days (or such longer time as the Custodian may
agree) after resignation or removal of the Custodian under Section 17, Depositor
or Sponsor, as the case may be, has not appointed a successor which has accepted
such appointment. Termination of the Custodial Account shall be effected by
distributing all assets thereof in a single payment in cash or in kind to the
Depositor, subject to the Custodian's right to reserve funds as provided in
Section 17.
(b) Upon termination of the Custodial Account, this custodial account
document shall have no further force and effect (except for Sections 15(f),
17(b) and (c) hereof which shall survive the termination of the Custodial
Account and this document), and the Custodian shall be relieved from all further
liability hereunder or with respect to the Custodial Account and all assets
thereof so distributed.
15. (a) In its discretion, the Custodian may appoint one or more
contractors or service providers to carry out any of its functions and may
compensate them from the Custodial Account for expenses attendant to those
functions. In the event of such appointment, all rights and privileges of the
Custodian under this Agreement shall pass through to such contractors or service
providers who shall be entitled to enforce them as if a named party.
(b) The Service Company shall be responsible for receiving all
instructions, notices, forms and remittances from the Depositor and for dealing
with or forwarding the same to the transfer agent for the Fund(s) or the
Custodian, as appropriate.
(c) The parties do not intend to confer any fiduciary duties on the
Custodian, Service Company or the Sponsor (or any other party providing services
to the Custodial Account), and none shall be implied. None of such parties shall
be liable (or assumes any responsibility) for the collection of contributions,
the proper amount, time or tax treatment of any contribution to the Custodial
Account or the propriety of any contributions under this Agreement, or the
purpose, time, amount (including any minimum distribution amounts), tax
treatment or propriety of any distribution hereunder, which matters are the sole
responsibility of the Depositor and Depositor's Beneficiary.
(d) Not later than 60 days after the close of each calendar year (or after
the Custodian's resignation or removal), the Custodian or Service Company shall
file with the Depositor a written report or reports reflecting the transactions
effected by it during such period and the assets of the Custodial Account at its
close. Upon the expiration of 60 days after such a report is sent to the
Depositor (or the Beneficiary), the Custodian or Service Company shall be
forever released and discharged from all liability and accountability to anyone
with respect to transactions shown in or reflected by such report except with
respect to any such acts or transactions as to which the Depositor shall have
filed written objections with the Custodian or Service Company within such 60
day period.
(e) The Service Company shall deliver, or cause to be delivered, to the
Depositor all notices, prospectuses, financial statements and other reports to
shareholders, proxies and proxy soliciting materials relating to assets credited
to the Custodial Account. No shares shall be voted, and no other action shall be
taken pursuant to such documents, except upon receipt of adequate written
instructions from the Depositor.
(f) The Depositor shall always fully indemnify the Service Company,
Distributor, Sponsor, Custodian, and Elfun Funds and save them harmless from any
and all liability whatsoever which may arise either (i) in connection with this
Agreement and the matters which it contemplates, except that which arises
directly out of the Service Company's, Distributor's, Sponsor's, Custodian's or
Elfun Funds' bad faith, gross negligence or willful misconduct, (ii) with
respect to making or failing to make any distribution, other than for failure to
make distribution in accordance with an order therefor which is in full
compliance with Section 10, or (iii) actions taken or omitted in good faith by
such parties. Neither the Service Company nor the Custodian shall be obligated
or expected to commence or defend any legal action or proceeding in connection
with this Agreement or such matters unless agreed upon by that party and the
Depositor, and unless fully indemnified for so doing to that party's
satisfaction.
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(g) The Custodian and the Service Company shall each be responsible solely
for performance of those duties expressly assigned to it in this Agreement, and
neither assumes any responsibility as to duties assigned to anyone else
hereunder or by operation of law.
(h) The Custodian, Distributor, Elfun Funds, Sponsor and Service Company
may each conclusively rely upon and shall be protected in acting upon any
written order from the Depositor or the Beneficiary, or any investment adviser
appointed under Section 8, or any other notice, request, consent, certificate or
other instrument or paper believed by it to be genuine and to have been properly
executed, and so long as it acts in good faith, in taking or omitting to take
any other action in reliance thereon. In addition, the Custodian will carry out
the requirements of any apparently valid court order relating to the Custodial
Account and will incur no liability or responsibility for so doing.
16. (a) The Custodian, in consideration of its services under this
Agreement, shall receive the fees specified on the applicable fee schedule. The
fee schedule originally applicable shall be the one specified in the New Account
Form or Disclosure Statement, as applicable. The Custodian may substitute a
different fee schedule at any time upon 30 days' written notice to Depositor.
The Custodian shall also receive reasonable fees for any services not
contemplated by any applicable fee schedule and either deemed by it to be
necessary or desirable or requested by the Depositor.
(b) Any income, gift, estate and inheritance taxes and other taxes of any
kind whatsoever, including transfer taxes incurred in connection with the
investment or reinvestment of the assets of the Custodial Account, that may be
levied or assessed in respect to such assets, and all other administrative
expenses incurred by the Custodian in the performance of its duties (including
fees for legal services rendered to it in connection with the Custodial Account)
shall be charged to the Custodial Account. If the Custodian is required to pay
any such amount, the Depositor (or Beneficiary) shall promptly upon notice
thereof reimburse the Custodian.
(c) All such fees and taxes and other administrative expenses charged to
the Custodial Account shall be collected either from the amount of any
contribution or distribution to or from the Account, or (at the option of the
person entitled to collect such amounts) to the extent possible under the
circumstances by the conversion into cash of sufficient assets held in the
Custodial Account (without liability for any loss incurred thereby).
Notwithstanding the foregoing, the Custodian or Service Company may make demand
upon the Depositor for payment of the amount of such fees, taxes and other
administrative expenses. Fees which remain outstanding after 60 days may be
subject to a collection charge.
17. (a) Upon 30 days' prior written notice to the Custodian, Depositor or
Sponsor, as the case may be, may remove the Custodian from its office hereunder.
Such notice, to be effective, shall designate a successor custodian and shall be
accompanied by the successor's written acceptance. The Custodian also may at any
time resign upon 30 days' prior written notice to the Sponsor, whereupon the
Sponsor shall notify the Depositor (or Beneficiary) and shall appoint a
successor to the Custodian. In connection with its resignation hereunder, the
Custodian may, but is not required to designate a successor custodian by written
notice to the Sponsor or Depositor (or Beneficiary), and the Sponsor or
Depositor (or Beneficiary) will be deemed to have consented to such successor
unless the Sponsor or Depositor (or Beneficiary) designates a different
successor custodian and provides written notice thereof together with such a
different successor's written acceptance by such date as the Custodian specifies
in its original notice to the Sponsor or Depositor (or Beneficiary); provided
that the Sponsor or Depositor (or Beneficiary) will have a minimum of 30 days to
designate a different successor.
(b) The successor custodian shall be a bank, insured credit union, or other
person satisfactory to the Secretary of the Treasury under Code Section
408(a)(2). Upon receipt by the Custodian of written acceptance by its successor
of such successor's appointment, the Custodian shall transfer and pay over to
such successor the assets of the Custodial Account and all records (or copies
thereof) of the Custodian pertaining thereto, provided that the successor
custodian agrees not to dispose of any such records without the Custodian's
consent. The Custodian is authorized, however, to reserve such sum of money or
property as it may deem advisable for payment of all its fees, compensation,
costs, and expenses, or for payment of any other liabilities constituting a
charge on or against the assets of the Custodial Account or on or against the
Custodian, with any balance of such reserve remaining after the payment of all
such items to be paid over to the successor custodian.
(c) Any Custodian shall not be liable for the acts or omissions of its
predecessor or its successor.
18. References herein to the "Internal Revenue Code" or "Code" and sections
thereof shall mean the same as amended from time to time, including successors
to such sections.
19. Except where otherwise specifically required in this Agreement, any
notice from the Custodian to any person provided for in this Agreement shall be
effective if sent by first-class mail to such person at that person's last
address on the Custodian's records.
20. The Depositor or Depositor's Beneficiary shall not have the right or
power to anticipate any part of the Custodial Account or to sell, assign,
transfer, pledge or hypothecate any part thereof. The Custodial Account shall
not be liable for the debts of the Depositor or Depositor's Beneficiary or
subject to any seizure, attachment, execution or other legal process in respect
thereof except to the extent required by law. At no time shall it be possible
for any part of the assets of the Custodial Account to be used for or diverted
to purposes other than for the exclusive benefit of the Depositor or his/her
Beneficiary except to the extent required by law.
21. When accepted by the Custodian, this Agreement is accepted in and shall
be construed and administered in accordance with the laws of the state where the
principal offices of the Custodian are located. Any action involving the
Custodian brought by any other party must be brought in a state or federal court
in such state.
If in the New Account Form, the Depositor designates that the Custodial
Account is a Traditional IRA, this Agreement is intended to qualify under Code
Section 408(a) as an individual retirement custodial account and to entitle the
Depositor to the retirement savings deduction under Code Section 219 if
available. If in the New Account Form the Depositor designates that the
Custodial Account is a Roth IRA, this Agreement is intended to qualify under
Code Section 408A as a Roth individual retirement custodial account and to
entitle Depositor to the tax-free withdrawal of amounts from the Custodial
Account to the extent permitted in such Code section.
If any provision hereof is subject to more than one interpretation or any
term used herein is subject to more than one construction, such ambiguity shall
be resolved in favor of that interpretation or construction which is consistent
with the intent expressed in whichever of the two preceding sentences is
applicable.
However, the Custodian shall not be responsible for whether or not such
intentions are achieved through use of this Agreement, and the Depositor is
referred to the Depositor's financial or legal adviser for any such assurances.
22. The Depositor should seek advice from the Depositor's attorney
regarding the legal consequences (including but not limited to federal and state
tax matters) of entering into this Agreement, contributing to the Custodial
Account, and ordering the Custodian to make distributions from the Account. The
Depositor acknowledges
24
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that the Custodian and Service Company (and any company associated therewith)
are prohibited by law from rendering such advice.
23. If any provision of any document governing the Custodial Account
provides for notice, instructions or other communications from one party to
another in writing, to the extent provided for in the procedures of the
Custodian, Service Company or another party, any such notice, instructions or
other communications may be given by telephonic, computer, other electronic or
other means, and the requirement for written notice will be deemed satisfied.
24. The legal documents governing the Custodial Account are as follows:
(a) If in the New Account Form the Depositor designated the Custodial
Account as a Traditional IRA under Code Section 408(a), the provisions of
Part One and Part Three of this Agreement and the provisions of the New
Account Form are the legal documents governing the Depositor's Custodial
Account.
(b) If in the New Account Form the Depositor designated the Custodial
Account as a Roth IRA under Code Section 408A, the provisions of Part Two
and Part Three of this Agreement and the provisions of the New Account Form
are the legal documents governing the Depositor's Custodial Account.
(c) In the New Account Form the Depositor must designate the Custodial
Account as either a Roth IRA or a Traditional IRA, and a separate account
will be established for such IRA. One Custodial Account may not serve as a
Roth IRA and a Traditional IRA (through the use of subaccounts or
otherwise).
25. Articles I through VII of Part One of this Agreement are in the form
promulgated by the Internal Revenue Service as Form 5305-A. It is anticipated
that, if and when the Internal Revenue Service promulgates changes to Form
5305-A, the Custodian will amend this Agreement correspondingly.
Articles I through VII of Part Two of this Agreement are in the form
promulgated or approved by the Internal Revenue Service as Form 5305-RA. It is
anticipated that, if and when the Internal Revenue Service promulgates changes
to Form 5305-RA, the Custodian will amend this Agreement correspondingly.
The Internal Revenue Service has endorsed the use of documentation
permitting a Depositor to establish either a Traditional IRA or Roth IRA (but
not both using a single New Account Form), and this Document complies with the
requirements of the IRS guidance for such use. If the Internal Revenue Service
subsequently determines that such an approach is not permissible, or that the
use of a "combined" New Account Form does not establish a valid Traditional IRA
or a Roth IRA (as the case may be), the Custodian will furnish the Depositor
with replacement documents and the Depositor will if necessary sign such
replacement documents. The Depositor acknowledges and agrees to such procedures
and to cooperate with the Custodian to preserve the intended tax treatment of
the Account.
26. If the Depositor maintains an Individual Retirement Account under Code
section 408(a), the Depositor may convert or transfer such other IRA to a Roth
IRA under Code section 408A using the terms of this Agreement and the New
Account Form by completing and executing the New Account Form and giving
suitable directions to the Custodian and the custodian or trustee of such other
IRA. Alternatively, the Depositor may convert or transfer such other IRA to a
Roth IRA by use of a reply card or by telephonic, computer or electronic means
in accordance with procedures adopted by the Custodian or Service Company
intended to meet the requirements of Code section 408A, and the Depositor will
be deemed to have executed the New Account Form and adopted the provisions of
this Agreement and the New Account Form in accordance with such procedures.
27. The Depositor acknowledges that he or she has received and read the
current prospectus for each Elfun Fund in which his or her Account is invested
and the Elfun Individual Retirement Account Disclosure Statement related to the
Account. The Depositor represents under penalties of perjury that his or her
Social Security number (or other Taxpayer Identification Number) as stated in
the New Account Form is correct.
25
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Elfun Funds
3003 Summer Street
Stamford, CT 06904-7900
[LOGO]
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Distributed by GE Investment Distributors, Inc., member NASD and SIPC
ELF-IRA-31
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<CIK> 0000855630
<NAME> ELFUN MONEY MARKET FUND
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