As filed with the Securities and Exchange Commission
on April 29, 1997
Securities Act File No. 33-76032
Investment Company Act File No. 811-8392
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. 3 /X /
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 /X /
Amendment No. 4 /X /
(Check appropriate box or boxes)
VARIABLE INVESTMENT TRUST
...................................................................
(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 GE Investment Management Incorporated
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) _X_
on (date) pursuant to paragraph (b) ___
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 shares 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,
1996 was filed on February 25, 1997.
<PAGE>
VARIABLE INVESTMENT TRUST
FORM N-1A
CROSS REFERENCE SHEET
Part A
Item No. Prospectus Heading
- -------- ------------------
1. Cover Page......................... Cover Page
2. Synopsis........................... Not applicable
3. Condensed Financial
Information...................... Not applicable
4. General Description of
Registration..................... Cover Page; General
Information; Investment
Objectives and Management
Policies; Additional Matters;
Further Information:
Certain Investment
Techniques and Strategies
5. Management of the Fund............. Investment Objectives and
Management Policies;
Management of the Trust;
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 Shares;
Net Asset Value;
8. Redemption or Repurchase........... Redemption of Shares
9. Legal Proceedings.................. Not applicable
<PAGE>
Part B Heading in Statement of
Item No. Additional Information
- -------- -----------------------
10. Cover Page......................... Cover Page
11. Table of Contents.................. Contents
12. General Information and History.... The Portfolios'
Performances
13. Investment Objectives and
Policies......................... Investment Objectives
and Management Policies;
Further Information:
Certain Investment
Techniques and Strategies
14. Management of the Trust............ Management of the Trust
15. Control Persons and Principal
Holders of Securities........... Principal Stockholders;
Management of the Trust
See Prospectus--
Additional Matters
16. Investment Advisory and
Other Services................... Management of the Trust
17. Brokerage Allocation
and Other Practices.............. Investment Restrictions;
Management of the Funds
18. Capital Stock and Other
Securities....................... Redemption of Shares
19. Purchase, Redemption and Pricing
of Securities Being Offered...... Purchase of Shares;
Redemption of Shares;
Net Asset Value
20. Tax Status......................... Taxation
21. Underwriters....................... Not Applicable
22. Calculation of Performance
Data............................. The Portfolios' Performances
23. Financial Statements............... Independent Accountants;
Financial Statements
ii
<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.
iii
<PAGE>
[LOGO]
VARIABLE INVESTMENT TRUST
Variable Investment Trust (the "Trust") is an open-end management investment
company that offers a selection of diversified managed investment funds (each a
"Portfolio" and collectively the "Portfolios"), each having a distinct
investment objective that it seeks by following distinct investment policies.
This Prospectus describes the following four Portfolios currently offered by the
Trust:
o GE International Equity Portfolio's investment objective is long-term
growth of capital which the Portfolio seeks to achieve by investing primarily in
foreign equity securities.
o GE U.S. Equity Portfolio's investment objective is long-term growth of
capital which the Portfolio seeks to achieve through investment primarily in
equity securities of U.S. companies.
o GE Fixed Income Portfolio's investment objective is to seek maximum
income consistent with prudent investment management and the preservation of
capital, which objective the Portfolio seeks to achieve by investing in fixed
income securities.
o GE Money Market Portfolio's investment objective is to seek a high level
of current income consistent with the preservation of capital and maintenance of
liquidity, which objective the Portfolio seeks to achieve by investing in a
defined group of short-term, U.S. dollar denominated money market instruments.
Shares of the Portfolios are offered only to insurance company separate accounts
that fund certain variable contracts. The information contained in this
Prospectus should be read together with the prospectus for the variable
contracts.
This Prospectus briefly sets forth certain information about the Portfolios and
the Trust that investors should know before allocating premiums or cash value
from variable contracts to the Portfolios. Investors are encouraged to read this
Prospectus carefully and retain it for future reference.
An investment in GE Money Market Portfolio is neither insured nor guaranteed by
the U.S. Government. Additionally, no assurance can be given that GE Money
Market Portfolio will be able to maintain a stable net asset value of $1.00 per
share.
Shares of the Portfolios are not deposits with or obligations of any financial
institution, are not guaranteed or endorsed by any financial institution or its
affiliates, and are not insured by the Federal Deposit Insurance Corporation,
the Federal Reserve Board or any other government agency.
Additional information about the Portfolios and the Trust, contained in a
Statement of Additional Information 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 Trust at the telephone
number listed below or by contacting the Trust at the address listed below. The
Statement of Additional Information is incorporated in its entirety by reference
into this Prospectus. An investor may electronically access additional
information about the Trust and Portfolios 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).
<PAGE>
GE INVESTMENT MANAGEMENT INCORPORATED
Investment Adviser and Administrator
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
Prospectus
April 30, 1997
TABLE OF CONTENTS
General Information ................................................... 2
Investment Objectives and Management Policies ......................... 3
Management of the Trust ............................................... 19
Purchase of Shares .................................................... 22
Redemption of Shares .................................................. 22
Exchange Privilege .................................................... 22
Net Asset Value ....................................................... 23
Dividends, Distributions and Taxes .................................... 23
Custodian and Transfer Agent .......................................... 25
The Portfolios' Performances .......................................... 25
Further Information:
Certain Investment Techniques and Strategies ....................... 27
Additional Matters ................................................. 32
3003 Summer Street
Stamford, Connecticut 06905
(203)326-4040
<PAGE>
FINANCIAL HIGHLIGHTS-
The tables below, which have been audited by Price Waterhouse LLP, whose report
thereon appears in the Trust's Annual Report dated December 31, 1996 (the
"Annual Report"), set forth selected financial data for a Portfolio share
outstanding throughout the periods presented. The following information should
be read in conjunction with the Financial Statements and Notes to the Financial
Statements which are incorporated by reference into the Statement of Additional
Information. The Portfolios' total returns presented below do not reflect cost
of insurance company separate account charges. Further information about the
performance of the Portfolios is contained in the Annual Report, copies of which
may be obtained without charge by calling the GNA Variable Annuity Service
Center at 1-800-455-0870 or by writing to the Center at 300 Berwyn Park, Berwyn,
Pennsylvania 19312-0031.
<TABLE>
<CAPTION>
G.E. U.S. Equity GE International Equity
Portfolio Portfolio
---------------------- ----------------------
12/31/96 12/31/95 (b) 12/31/96 12/31/95 (b)
-------- ------------ -------- ------------
<S><C>
Net asset value, beginning of period ...................................... $ 19.27 $15.00 $ 17.37 $15.00
Income (loss) from investment operations:
Net investment income ................................................... 0.34 0.46 0.08 0.21
Net realized and unrealized gains (losses) on investments ............... 3.90 4.87 2.70 2.45
-------- ------ -------- ------
Total income (loss) from investment operations ............................ 4.24 5.33 2.78 2.66
-------- ------ -------- ------
Less distributions from:
Net investment income ................................................... 0.35 0.47 0.08 0.14
Net realized gains ...................................................... 2.05 0.59 1.73 0.15
-------- ------ -------- ------
Total distributions ....................................................... 2.40 1.06 1.81 0.29
-------- ------ -------- ------
Net asset value, end of period ............................................ $ 21.11 $19.27 $ 18.34 $17.37
======== ====== ======== =======
Total Return (a) .......................................................... 21.72% 35.58% 16.10% 17.74%
Ratios/Supplemental Data:
Net assets, end of period (in thousands) ................................ $ 18,027 $9,071 $ 8,205 $6,364
Ratio of net investment income to average net assets* ................... 1.80% 2.10% 0.46% 0.88%
Ratio of expenses to average net assets* ................................ 0.80% 0.80% 1.20% 1.20%
Ratio of expenses to average net assets before voluntary expense
limitation* ............................................................ 0.88% 1.03% 1.36% 1.35%
Portfolio turnover rate ................................................. 35% 71% 26% 60%
Average brokerage commissions (c) ....................................... $ .071 N/A $ .048 N/A
</TABLE>
<TABLE>
<CAPTION>
GE Fixed Income GE Money Market
Portfolio Portfolio
---------------------- ----------------------
12/31/96 12/31/95 (b) 12/31/96 12/31/95 (b)
-------- ------------ -------- ------------
<S><C>
Net asset value, beginning of period ...................................... $12.53 $12.00 $ 1.00 $ 1.00
Income (loss) from investment operations:
Net investment income ................................................... 0.76 .82 0.05 0.05
Net realized and unrealized gains (losses) on investments ............... (0.43) 1.13 0.00 0.01
------ ------ ----- -----
Total income (loss) from investment operations ............................ 0.33 1.95 0.05 0.06
------ ------ ----- -----
Less distributions from:
Net investment income ................................................... 0.76 0.84 0.05 0.06
Net realized gains ...................................................... 0.26 0.58 0.00 0.00
------ ------ ----- -----
Total distributions ....................................................... 1.02 1.42 0.05 0.06
------ ------ ----- -----
Net asset value, end of period ............................................ $11.84 $12.53 $ 1.00 $ 1.00
====== ====== ====== =====
Total Return (a) .......................................................... 2.92% 16.83% 4.87% 5.72%
Ratios/Supplemental Data:
Net assets, end of period (in thousands) ................................ $5,388 $3,271 $4,390 $5,110
Ratio of net investment income to average net assets* ................... 6.37% 6.52% 4.88% 5.41%
Ratio of expenses to average net assets* ................................ 0.75% 0.75% 0.50% 0.50%
Ratio of expenses to average net assets before voluntary expense
limitation* ............................................................ 1.03% 1.15% 0.93% 0.87%
Portfolio turnover rate ................................................. 222% 253% N/A N/A
Average brokerage commissions (c) ....................................... N/A N/A N/A N/A
</TABLE>
- -------------------
Notes to Financial Highlights
(a) Total returns are historical and assume changes in share price and
reinvestment of dividends and capital gains. Had the adviser not absorbed a
portion of expenses, total returns would have been lower. Periods less than
one year are not annualized.
(b) Information is for the period January 3, 1995, commencement of
investment operations, through December 31, 1995.
(c) 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 1934 Act.
* Annualized for periods less than one year.
<PAGE>
GENERAL INFORMATION
Shares of the Portfolios are offered only to insurance company separate accounts
that fund certain variable annuity contracts (the "Contracts"). Separate
accounts may purchase or redeem shares at net asset value without any sales or
redemption charge. Fees and charges imposed by the separate account, however,
will affect the actual return to the holder of a Contract. A separate account
may also impose certain restrictions or limitations on the allocation of
purchase payments or Contract value to the Portfolios, and the Portfolios may
not be available in connection with a particular Contract. Prospective investors
should consult the applicable Contract prospectus for information regarding fees
and expenses of the Contract and the separate account and any applicable
restrictions or limitations thereunder.
Shares of the Portfolios are offered to the separate accounts of insurance
companies, which may include insurance companies affiliated with GE Investment
Management Incorporated ("GEIM"), the investment adviser and administrator of
each Portfolio. The Trust may in the future offer shares of some or all of the
Portfolios to qualified pension or retirement plans.
The Trust may also advertise a Portfolio's distribution rate and/or effective
distribution rate. The distribution rate of a Portfolio represents a measure
of dividends distributed for a spcified period. The distribution rate of
a Portfolio differs from yield and total return and therefore is not intended
to be a complete measure of performance. A Portfolio's distribution rate is
computed by dividing the most recent monthly distribution per share annualized
by the current net asset value per share. A Portfolio's effective
distribtuion rate is computed by dividing the distribution rate by the
ratio used to annualize the distribution and reinvesting the resulting amount
for a full year on the basis of such ratio. The effective distribution rate
will be higher than the distribution rate because of the compounding effect
of the assumed reinvestment. A Portfolio'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 Portfolio'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 of a settlement
date basis). In contrast, the distribution rate is based on the Portfolio'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 Portfolio during the month.
INVESTMENT OBJECTIVES AND MANAGEMENT POLICIES
Set forth below is a description of the investment objective and policies of
each Portfolio. The investment objective of a Portfolio may not be changed
without the approval of the holders of a majority of the Portfolio's outstanding
voting securities as defined in the Investment Company Act of 1940, as amended
(the "1940 Act"). Such a majority is defined in the 1940 Act as the lesser of
(1) 67% or more of the shares present at a Portfolio meeting, if the holders of
more than 50% of the outstanding shares of the Portfolio are present or
represented by proxy or (2) more than 50% of the outstanding shares of the
Portfolio. No assurance can be given that a Portfolio will be able to achieve
its investment objective.
GE International Equity Portfolio
The investment objective of GE International Equity Portfolio (the
"International Portfolio"), a diversified investment fund, is long-term growth
of capital, which the Portfolio seeks to achieve by investing primarily in
foreign equity securities. The International Portfolio may invest in securities
of companies and governments located in developed and developing countries
outside the United States. The International Portfolio may also invest in
securities of foreign issuers in the form of depositary receipts. Investing in
securities issued by foreign companies and governments involves
<PAGE>
considerations and potential risks not typically associated with investing in
securities issued by the U.S. Government and U.S. corporations. A more complete
description of foreign securities and depositary receipts 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 International Portfolio intends to position
itself broadly among countries and under normal circumstances, at least 65% of
the Portfolio's assets will be invested in securities of issuers collectively
having their principal business activities in no fewer than three different
countries. The percentage of the International Portfolio's assets invested in
particular countries or regions of the world will vary depending on political
and economic conditions. An issuer's domicile or nationality will be determined
by reference to (a) the country in which the issuer derives at least 50% of its
revenues or profits from goods produced or sold, investments made or services
performed, or (b) the country in which the issuer has at least 50% of its assets
situated.
In selecting investments on behalf of the International Portfolio, GEIM seeks
companies that are expected to grow faster than relevant markets and whose
securities are available at a price that does not fully reflect the potential
growth of those companies. GEIM typically focuses on companies that possess one
or more of a variety of characteristics, including strong earnings growth
relative to price-to-earnings and price-to-cash earnings ratios, low
price-to-book value, strong cash flow, presence in an industry experiencing
strong growth and high quality management.
The International Portfolio, under normal conditions, invests at least 65% of
its assets in common stocks, preferred stocks and securities convertible into
common stock, including convertible debentures, convertible notes and common
stock purchase warrants or rights, issued by companies believed by GEIM to have
a potential for superior growth in sales and earnings. In most cases these
securities are traded on foreign or U.S. exchanges. The International Portfolio
will emphasize established companies, although it may invest in companies of
varying sizes as measured by assets, sales or capitalization.
The International Portfolio may, under normal market conditions, invest up to
35% of its assets in notes, bonds and debentures issued by corporate or
governmental entities when GEIM determines that investing in those kinds of debt
securities is consistent with the Portfolio's investment objective of long-term
capital appreciation. GEIM believes that such a determination could be made, for
example, upon the International Portfolio's investing in the debt securities of
a company whose securities GEIM anticipates will increase in value as a result
of a development particularly or uniquely applicable to the company, such as a
liquidation, reorganization, recapitalization or merger, material litigation,
technological breakthrough or new management or management policies. In
addition, GEIM believes such a determination could be made with respect to an
investment by the International Portfolio in debt instruments issued by a
governmental entity upon GEIM's concluding that the value of the instruments
will increase as a result of improvements or changes in public finances,
monetary policies, external accounts, financial markets, exchange rate policies
or labor conditions of the country in which the governmental entity is located.
The International Portfolio's investments in debt securities are limited to
those that are rated investment grade; up to 5% of the Portfolio's assets may be
invested in securities rated lower than investment grade. A security is
<PAGE>
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 GEIM to be of comparable quality. 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."
Under normal circumstances, the International Portfolio invests in securities of
issuers located in a number of different countries outside the United States as
described above, and may invest a portion of its total assets in cash and/or
money market instruments of the types described below under "Additional
Investments-Money Market Instruments" for cash management purposes, pending
investment in accordance with the Portfolio's investment objective and policies
and to meet operating expenses. During periods when GEIM believes there are
unstable market, economic, political or currency conditions abroad, the
Portfolio may adopt a temporary defensive position and (i) restrict the
securities markets in which its assets will be invested and invest all or a
significant portion of its assets in securities of the types described above
issued by companies incorporated in and/or having their principal activities in
the United States, or (ii) 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 International Portfolio 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." To the extent that it holds cash or invests in money market
instruments, the International Portfolio may not achieve its investment
objective of long-term capital appreciation.
The International Portfolio, 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, the International Portfolio 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, lending portfolio
securities and selling securities short against the box. These other
instruments, investment techniques and
<PAGE>
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."
GE U.S. Equity Portfolio
The investment objective of GE U.S. Equity Portfolio (the "U.S. Equity
Portfolio"), a diversified investment fund, is long-term growth of capital,
which objective the Portfolio seeks to achieve through investment primarily in
equity securities of U.S. companies. In pursuing its objective, the U.S. Equity
Portfolio, under normal conditions, invests at least 65% of its assets in equity
securities, consisting of common stocks and preferred stocks, and securities
convertible into common stocks, including convertible bonds, convertible
debentures, convertible notes and warrants or rights issued by U.S. companies.
The equity securities issued by U.S. companies in which the U.S. Equity
Portfolio invests typically are traded on U.S. securities exchanges; those U.S.
equity securities held by the U.S. Equity Portfolio that are not exchange-traded
are non-publicly traded or traded in the U.S. over-the-counter market. Up to 15%
of the U.S. Equity Portfolio's assets may be invested in foreign securities. The
U.S. Equity Portfolio also may invest in securities of foreign issuers in the
form of depositary receipts. A more complete description of foreign securities
and depositary receipts 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."
In managing the assets of the U.S. Equity Portfolio, GEIM uses a combination of
"value-oriented" and "growth-oriented" investing. Value-oriented investing
involves seeking securities that may have low price-to-earnings ratios, or high
yields, or that sell for less than intrinsic value as determined by GEIM, or
that appear attractive on a dividend discount model. These securities generally
are sold from the U.S. Equity Portfolio's portfolio when their prices approach
targeted levels. Growth-oriented investing generally involves buying securities
with above average earnings growth rates at reasonable prices. The U.S. Equity
Portfolio holds these securities until GEIM determines that their growth
prospects diminish or that they have become overvalued when compared with
alternative investments.
In investing on behalf of the U.S. Equity Portfolio, GEIM seeks to produce a
portfolio that GEIM believes will have similar characteristics to the Standard &
Poor's 500 Composite Stock Price Index (the "S&P Index"), by virtue of blending
investments in both "value" and "growth" securities. Since the U.S. Equity
Portfolio's strategy seeks to combine the basic elements of companies comprising
the S&P Index, but is designed to select investments deemed to be the most
attractive within each category, GEIM believes that the strategy should be
capable of outperforming the U.S. equity market as reflected by the S&P Index on
a total return basis.
The U.S. Equity Portfolio may, under normal market conditions, invest up to 35%
of its assets in notes, bonds and debentures issued by corporate or governmental
entities when GEIM determines that investing in these kinds of debt securities
is consistent with the Portfolio's investment objective of long-term growth of
capital. GEIM believes that such a determination could be made, for example,
upon the U.S. Equity Portfolio's investing in the debt securities of a company
whose securities GEIM anticipates will increase in value as a result of a
development particularly or uniquely applicable to the company, such as a
liquidation, reorganization, recapitalization or merger, material litigation,
technological breakthrough or new management or management policies. In
addition, GEIM believes such a determination could be made with respect to an
investment by the U.S. Equity Portfolio in debt instruments issued by a
governmental entity upon GEIM's concluding that the value of the instruments
will increase as a result of improvements or changes in public finances,
monetary policies, external accounts, financial markets, exchange rate policies
or labor conditions of the country in which the governmental entity is located.
During normal market conditions, a portion of the U.S. Equity Portfolio'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 Portfolio's investment objective and policies and to meet operating
expenses. During periods in which GEIM believes that investment opportunities in
the U.S. equity markets are diminished (due to either fundamental changes in
those markets or an anticipated general decline in the
<PAGE>
value of U.S. equity securities), the U.S. Equity Portfolio may for temporary
defensive purposes hold cash and/or invest in the same types of money market
instruments without limitation. Included among the money market instruments in
which the U.S. Equity Portfolio 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." To the
extent that it holds cash or invests in money market instruments, the U.S.
Equity Portfolio may not achieve its investment objective of long-term growth of
capital.
The U.S. Equity Portfolio's investments in debt securities are limited to those
that are rated investment grade, except that up to 5% of the Portfolio's assets
may be invested in securities rated lower than 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 U.S. Equity Portfolio's investments is included as an Appendix
to the Statement of Additional Information.
The U.S. Equity Portfolio, in addition to investing as described above, may hold
the following types of instruments: non-publicly traded securities, illiquid
securities, Rule 144A Securities and zero coupon obligations. In addition, the
U.S. Equity Portfolio 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
<PAGE>
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."
GE Fixed Income Portfolio
The investment objective of GE Fixed Income Portfolio (the "Income Portfolio"),
a diversified investment fund, is to seek maximum income consistent with prudent
investment management and the preservation of capital. Capital appreciation with
respect to the Income Portfolio's securities holdings may occur but is not an
objective of the Portfolio. In seeking to achieve its investment objective, the
Income Portfolio invests in the following types of fixed income instruments:
securities issued or guaranteed by the U.S. Government or one of its agencies or
instrumentalities ("Government Securities"); obligations of foreign governments
or their agencies or instrumentalities; bonds, debentures, notes and preferred
stocks issued by U.S. and foreign companies; zero coupon obligations, floating
and variable rate instruments; mortgage related securities, adjustable rate
mortgage related securities ("ARMs"), collateralized mortgage obligations
("CMOs") and government stripped mortgage related securities; asset-backed and
receivable-backed securities; and money market instruments. The Income Portfolio
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 prepayment of principal. Other risks and special
considerations applicable to these instruments are described in "Further
Information: Certain Investment Techniques and Strategies."
The Income Portfolio is subject to no limitation with respect to the maturities
of the instruments in which it may invest; the weighted average maturity of its
portfolio securities is anticipated to be approximately five to 10 years. The
Income Portfolio's investments in bonds are 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 GEIM 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 Portfolio's investments is included as an Appendix to the
Statement of Additional Information.
The Income Portfolio 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 Portfolio's total
assets would be invested in obligations rated in those categories or in unrated
obligations that are deemed by GEIM to be of comparable quality. In addition, no
obligation will be purchased by the Income Portfolio if, as a result of the
purchase, more than 10% of the Portfolio'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 GEIM deems to be of comparable quality.
<PAGE>
Up to 35% of the Income Portfolio'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 Portfolio usually
will involve currencies of foreign countries. 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
Portfolio 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 Portfolio's investment objective and policies and to meet
operating expenses. Moreover, when GEIM believes that economic and other market
conditions warrant, for temporary defensive purposes, the Income Portfolio may
hold cash or invest in such short-term money market instruments without
limitation.
The Income Portfolio, in addition to investing as described above, may hold the
following types of instruments: non-publicly traded securities, repurchase
agreements, illiquid securities, Rule 144A Securities, securities of
supranational agencies and securities of other investment funds. In addition,
the Income Portfolio 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."
GE Money Market Portfolio
The investment objective of GE Money Market Portfolio (the "Money Market
Portfolio"), a diversified investment fund, is to seek a high level of current
income consistent with the preservation of capital and the maintenance of
liquidity. In seeking its objective, the Money Market Portfolio invests in the
following U.S. dollar denominated, short-term money market instruments: (1)
Government Securities; (2) debt obligations of banks, savings and loan
institutions, insurance companies and mortgage bankers; (3) commercial paper and
notes, including those with floating or variable rates of interest; (4) debt
obligations of foreign branches of U.S. banks, U.S. branches of foreign banks
and foreign branches of foreign banks; (5) debt obligations issued or guaranteed
by one or more foreign governments or any of their political subdivisions,
agencies or instrumentalities, including obligations of supranational entities;
(6) debt securities issued by foreign issuers; and (7) repurchase agreements.
The Money Market Portfolio limits its investments to securities that the
<PAGE>
Trust's Board of Trustees determines present minimal credit risk and that are
"Eligible Securities" at the time of acquisition by the Portfolio. "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 ratings with respect to a security or class of debt
obligations of an issuer or (2) one NRSRO, if only one NRSRO has issued such a
rating at the time that the Money Market Portfolio 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 Portfolio may not achieve
as high a level of current income as a fund investing in lower-rated securities.
The Money Market Portfolio 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 Portfolio 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 1% of its total assets in the Second Tier
Securities of any one issuer. The Money Market Portfolio may invest more than 5%
(but not more than 25%) of the then-current value of the Portfolio's total
assets in the securities of a single issuer for a period of up to three business
days, so long as (1) the securities either are rated by the Requisite NRSROs in
the highest short-term rating category or are securities of issuers that have
received such ratings with respect to other short-term debt securities or are
comparable unrated securities and (2) the Portfolio does not make more than one
such investment at any one time. If the Money Market Portfolio acquires
securities that are unrated or that have been rated by a single NRSRO, the
acquisition must be approved or ratified by the Trust's Board of Trustees.
Determination of comparable quality is made by GEIM in accordance with
procedures established by the Board of Trustees. The Money Market Portfolio
invests only in instruments that have (or, pursuant to regulations adopted by
the SEC, are deemed to have) remaining maturities of 13 months or less at the
date of purchase (except securities subject to repurchase agreements),
determined in accordance with a rule promulgated by the SEC. The Money Market
Portfolio will maintain a dollar-weighted average portfolio maturity of 90 days
or less. The assets of the Money Market Portfolio are valued on the basis of
amortized cost, as described below under "Net Asset Value."
The Money Market Portfolio, in addition to investing as described above, may
hold Rule 144A Securities. In addition, the Money Market Portfolio 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 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
<PAGE>
Investment Techniques and Strategies."
Additional Investments
Some or all of the Portfolios 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 Trust's annual report for the year ended December 31, 1996 contains
information regarding relevant market conditions and investment strategies and
techniques pursued by GEIM during such year and is available to shareholders
without charge upon request by calling the GNA Variable Annuity Service Center
at 1-800-455-0870 or by writing to the Center at 300 Berwyn Park, Berwyn,
Pennsylvania 19312-0031.
MONEY MARKET INSTRUMENTS. The types of money market instruments in which each
Portfolio, other than the Money Market Portfolio, 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 Portfolio, other than the Money
Market Portfolio, 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 Portfolios (other
than the Money Market Portfolio) and other accounts advised by GEIM or its
affiliate General Electric Investment Corporation ("GEIC"). The Investment Fund
invests exclusively in the money market instruments described in (i) through
(vii) above. The Investment Fund is advised by GEIM. No advisory fee is charged
by GEIM to the Investment Fund, nor will a Portfolio incur any sales charge,
redemption fee, distribution fee or service fee in connection with its
investments in the Investment Fund. Each Portfolio, other than the Money Market
Portfolio, may invest up to 25% of its assets in the Investment Fund.
Each of the Portfolios 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 Portfolios 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 Portfolios 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 Portfolio
will invest in obligations issued by an instrumentality of the U.S. Government,
only if GEIM determines that the instrumentality's credit risk does not make its
securities unsuitable for investment by the Portfolio.
Each Portfolio, other than the Money Market Portfolio, may invest in money
market instruments issued or guaranteed by foreign governments or by any of
<PAGE>
their political subdivisions, authorities, agencies or instrumentalities. The
International Portfolio and the U.S. Equity Portfolio 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 GEIM to be of equivalent quality. The Income Portfolio 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 GEIM to be of equivalent quality. Commercial paper held by such Portfolios,
other than the Money Market Portfolio 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. At
no time will the investments of a Portfolio, other than the Money Market
Portfolio, in bank obligations, including time deposits, exceed 25% of the value
of the Portfolio's assets.
REPURCHASE AND REVERSE REPURCHASE AGREEMENTS. Each Portfolio may engage in
repurchase agreement transactions with respect to instruments in which the
Portfolio is authorized to invest. The Portfolios 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 Portfolio 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 Portfolio to
resell, the obligation at an agreed-upon price and time, thereby determining the
yield during the Portfolio's holding period. This arrangement results in a fixed
rate of return that is not subject to market fluctuations during the Portfolio's
holding period. The value of the securities underlying a repurchase agreement of
a Portfolio are monitored on an ongoing basis by GEIM to ensure that the value
is at least equal at all times to the total amount of the repurchase obligation,
including interest. GEIM also monitors, on an ongoing basis to evaluate
potential risks, the creditworthiness of those banks and dealers with which a
Portfolio enters into repurchase agreements.
The Money Market Portfolio may engage in reverse repurchase agreements, subject
to its investment restrictions. A reverse repurchase agreement, which is
considered a borrowing by the Money Market Portfolio, involves a sale by the
Portfolio of securities that it holds concurrently with an agreement by the
Portfolio to repurchase the same securities at an agreed-upon price and date.
The Money Market Portfolio uses the proceeds of reverse repurchase agreements to
provide liquidity to meet redemption requests and to make cash payments of
dividends and distributions when the sale of the Portfolio's securities is
considered to be disadvantageous. Cash, Government Securities or other liquid
assets equal in value to the Money Market Portfolio's obligations with respect
to reverse repurchase agreements are segregated and maintained with the Trust's
custodian or designated sub-custodian.
NON-PUBLICLY TRADED AND ILLIQUID SECURITIES. The U.S. Equity Portfolio, the
International Portfolio and the Income Portfolio may each invest up to 10% of
<PAGE>
its assets in non-publicly traded securities. Non-publicly traded securities are
securities that are subject to contractual or legal restrictions on transfer,
excluding for purposes of this restriction, Rule 144A Securities that have been
determined to be liquid by the Trust's Board of Trustees based upon the trading
markets for the securities. In addition, each Portfolio, other than the Money
Market Portfolio, may invest up to 15% of its assets in "illiquid securities";
the Money Market Portfolio may not, under any circumstance, invest in illiquid
securities. In no event, however, will any Portfolio's investments in illiquid
and non-publicly traded securities, in the aggregate, exceed 15% of its assets.
Illiquid securities are securities that cannot be disposed of by a Portfolio
within seven days in the ordinary course of business at approximately the amount
at which the Portfolio has valued the securities. Illiquid securities that are
held by a Portfolio 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 GEIM has determined are
not liquid under guidelines established by the Trust's Board of Trustees.
Indexed Securities. The Income Portfolio 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 the 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
Income Portfolio will bear the market risk of the reference instrument.
Purchasing Put and Call Options on Securities. Each Portfolio, other than the
Money Market Portfolio, 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
Portfolio 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 Portfolio 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 Portfolio may utilize up
to 10% of its assets to purchase call options on portfolio securities. Call
options may be purchased by a Portfolio 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 Portfolio 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 Portfolio in
closing sale transactions, which are sales by the Portfolio, 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
<PAGE>
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 Portfolio. In addition,
the premiums paid by a Portfolio in purchasing options on securities, options on
securities indexes, options on foreign currencies and options on futures
contracts will not exceed 20% of the Portfolio's net assets.
Covered Option Writing. Each Portfolio, other than the Money Market Portfolio,
may write covered put and call options on securities. A Portfolio 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 Portfolios with option-writing authority write only covered options. A put
or call option written by a Portfolio 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 Portfolios-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 Portfolio.
A Portfolio 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 Portfolio would
purchase, prior to the holder's exercise of an option that the Portfolio has
written, an option of the same series as that on which the Portfolio desires to
terminate its obligation. The obligation of a Portfolio under an option that it
has written would be terminated by a closing purchase transaction, but the
Portfolio would not be deemed to own an option as the result of the transaction.
To facilitate closing purchase transactions, the Portfolios 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 Portfolio 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 Portfolio 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.
<PAGE>
Securities Index Options. In seeking to hedge all or a portion of its
investments, a Portfolio, other than the Money Market Portfolio, 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 its portfolio. The Portfolios with such option
writing authority may write only covered options. A Portfolio 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 Portfolio 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 Portfolios-Covered Option Writing" in the
Statement of Additional Information for specific situations where securities
index options will be deemed to be covered by a Portfolio. If the Portfolio 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 Portfolio, other than the Money Market
Portfolio, may enter into interest rate, financial and stock or bond index
futures contracts or related options that are traded on a U.S. or foreign
exchange or board of trade or in the over-the-counter market. If entered into,
these transactions will be made solely for the purpose of hedging against the
effects of changes in the value of portfolio securities due to anticipated
changes in interest rates and/or market conditions, for duration management, or
when the transactions are economically appropriate to the reduction of risks
inherent in the management of the Portfolio involved. No Portfolio will enter
into a transaction involving futures and options on futures for speculative
purposes.
A Portfolio 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 Portfolio'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 certain
liquid assets segregated with the Trust's custodian or a designated
sub-custodian or "covered" in a manner similar to
<PAGE>
that for covered options on securities (see "Strategies Available to Some But
Not All Portfolios-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 International Portfolio, the U.S. Equity
Portfolio and the Income Portfolio 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 Portfolio's securities are or may be
denominated. No Portfolio 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 Portfolio 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 Portfolio, however,
may enter into forward currency contracts requiring deposits or involving the
payment of commissions. To assure that a Portfolio's forward currency contracts
are not used to achieve investment leverage, cash or other liquid assets will be
segregated with the Trust's custodian or a designated sub-custodian in an amount
at all times equal to or exceeding the Portfolio's commitment with respect to
the contracts.
Upon maturity of a forward currency contract, a Portfolio 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 Portfolio's paying or
<PAGE>
receiving the difference between the exchange rate fixed in the contract and the
then current exchange rate. The Trust may also be able to negotiate such an
offset on behalf of a Portfolio 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 Portfolio.
In hedging a specific portfolio position, a Portfolio may enter into a forward
contract with respect to either the currency in which the position is
denominated or another currency deemed appropriate by GEIM. A Portfolio's
exposure with respect to forward currency contracts is limited to the amount of
the Portfolio's aggregate investments in instruments denominated in foreign
currencies.
Options on Foreign Currencies. The International Portfolio, the U.S. Equity
Portfolio and the Income Portfolio 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 Portfolio.
The Portfolios with such option writing authority may write only covered
options. No Portfolio will enter into a transaction involving options on foreign
currencies for speculative purposes. Options on foreign currencies to be written
or purchased by a Portfolio are traded on U.S. or foreign exchanges or in the
over-the-counter market. The Trust will limit the premiums paid on a Portfolio's
options on foreign currencies to 5% of the value of the Portfolio's total
assets.
Investment Restrictions
The Trust has adopted certain fundamental investment restrictions with respect
to each Portfolio that may not be changed without approval of a majority of the
Portfolio's outstanding voting securities (as defined in the 1940 Act). Included
among those fundamental restrictions are those listed below.
1. No Portfolio may borrow money, except that the Money Market Portfolio may
enter into reverse repurchase agreements, and except that each Portfolio may
borrow from banks for temporary or emergency (not leveraging) purposes,
including the meeting of redemption requests and cash payments of dividends and
distributions that might otherwise require the untimely disposition of
securities, in an amount not to exceed 331/3% of the value of the Portfolio's
total assets (including the amount borrowed) valued at market less liabilities
(not including the amount borrowed) at the time the borrowing is made. Whenever
borrowings, including reverse repurchase agreements, of 5% or more of a
Portfolio's total assets are outstanding, the Portfolio will not make any
additional investments.
2. No Portfolio may lend its assets or money to other persons, except through
(a) purchasing debt obligations, (b) lending portfolio securities in an amount
not to exceed 30% of the Portfolio's assets taken at market value, (c) entering
into repurchase agreements, (d) trading in financial futures contracts, index
futures contracts, securities indexes and options on financial futures
contracts, options on index futures contracts, options on securities and options
on securities indexes and (e) entering into variable
<PAGE>
rate demand notes.
3. No Portfolio may purchase securities (other than Government Securities) of
any issuer if, as a result of the purchase, more than 5% of the Portfolio's
total assets would be invested in the securities of the issuer, except that up
to 25% of the value of the total assets of each Portfolio, other than the Money
Market Portfolio, may be invested without regard to this limitation. All
securities of a foreign government and its agencies will be treated as a single
issuer for purposes of this restriction.
4. No Portfolio may purchase more than 10% of the voting securities of any one
issuer, or more than 10% of the outstanding securities of any class of issuer,
except that (a) this limitation is not applicable to a Portfolio's investments
in Government Securities and (b) up to 25% of the value of the assets of a
Portfolio, other than the Money Market Portfolio, may be invested without regard
to these 10% limitations. All securities of a foreign government and its
agencies will be treated as a single issuer for purposes of this restriction.
5. No Portfolio may invest more than 25% of the value of its total assets in
securities of issuers in any one industry. For purposes of this restriction, the
term industry will be deemed to include (a) the government of any country other
than the United States, but not the U.S. Government and (b) all supranational
organizations. In addition, securities held by the Money Market Portfolio that
are issued by domestic banks are excluded from this restriction. For purposes of
this restriction, the Trust may use the industry classifications reflected by
the S&P 500 Composite Stock Price Index, if applicable at the time of
determination. For all other portfolio holdings, the Trust may use the Directory
of Companies Required to File Annual Reports with the SEC and Bloomberg Inc. In
addition, the Trust may select its own industry classifications, provided such
classifications are reasonable.
Certain other investment restrictions adopted by the Trust with respect to the
Portfolios are described in the Statement of Additional Information.
Risk Factors and Special Considerations
Investing in the Portfolios involves risk factors and special considerations,
such as those described below:
General. GEIM's principal officers, directors, and portfolio managers serve in
similar capacities with respect to GEIC, which like GEIM is a wholly-owned
subsidiary of General Electric Company ("GE"). GEIM and GEIC collectively
provide investment management services to various institutional accounts with
total assets, as of December 31, 1996, in excess of $57.9 billion. An investment
in shares of any Portfolio, however, should not be considered to be a complete
investment program.
Debt Instruments. A debt instrument held by a Portfolio 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
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instruments held by a Portfolio can be expected to vary inversely to changes in
prevailing interest rates. In periods of declining interest rates, the yield of
a Portfolio 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 Portfolio's yield will tend to be somewhat lower. In addition, when
interest rates are falling, money received by such a Portfolio from the
continuous sale of its shares will likely be invested in portfolio instruments
producing lower yields than the balance of its portfolio, thereby reducing the
Portfolio'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 Portfolios are authorized to invest in securities
rated lower than investment grade (sometimes referred to as "junk bonds").
Low-rated and comparable unrated securities (collectively referred to as
"low-rated" securities) likely have quality and protective characteristics that,
in the judgment of a rating organization, are outweighed by large uncertainties
or major risk exposures to adverse conditions, and are predominantly speculative
with respect to the issuer's capacity to pay interest and repay principal in
accordance with the terms of the obligation. Securities in the lowest rating
categories may be in default or may present substantial risks of default.
Although the market values of 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
Portfolio may incur additional expenses to the extent that it is required to
seek recovery upon a default in the payment of principal or interest on its
portfolio holdings. The existence of limited markets for low-rated securities
may diminish the Trust's ability to obtain accurate market quotations for
purposes of valuing the securities held by a Portfolio and calculating the
Portfolio'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 Portfolio. In
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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 Portfolio's investments in illiquid
securities are subject to the risk that should the Portfolio desire to sell any
of these securities when a ready buyer is not available at a price that GEIM
deems representative of their value, the value of the Portfolio's net assets
could be adversely affected.
Repurchase and Reverse Repurchase Agreements. A Portfolio 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 Portfolio is delayed or
prevented from exercising its rights to dispose of the underlying securities.
The Portfolio 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
Portfolio 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 Portfolio may decline below the price of
the securities the Portfolio 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
Portfolio'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
Portfolio'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 Portfolio in warrants valued at the lower of cost or
market, may not exceed 5% of the value of the Portfolio's net assets. Included
within that amount, but not to exceed 2% of the value of the Portfolio'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 Portfolio 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,
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application of foreign tax laws, including withholding taxes, changes in
governmental administration or economic or monetary policy (in the United States
or abroad) or changed circumstances in dealings between nations. Costs are also
incurred in connection with conversions between various currencies. In addition,
foreign brokerage commissions are generally higher than those charged in the
United States and foreign securities markets may be less liquid, more volatile
and less subject to governmental supervision than in the United States.
Investments in foreign countries could be affected by other factors not present
in the United States, including expropriation, confiscatory taxation, lack of
uniform accounting and auditing standards, limitations on the use or removal of
funds or other assets (including the withholding of dividends), and potential
difficulties in enforcing contractual obligations, and could be subject to
extended clearance and settlement periods.
Currency Exchange Rates. A Portfolio's share value may change significantly when
the currencies, other than the U.S. dollar, in which the Portfolio's investments
are denominated, strengthen or weaken against the U.S. dollar. Currency exchange
rates generally are determined by the forces of supply and demand in the foreign
exchange markets and the relative merits of investments in different countries
as seen from an international perspective. Currency exchange rates can also be
affected unpredictably by intervention by U.S. or foreign governments or central
banks or by currency controls or political developments in the United States or
abroad.
Investing in Developing Countries. 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.
Covered Option Writing. Upon the exercise of a put option written by a
Portfolio, the Portfolio may suffer a loss equal to the difference between the
price at which the Portfolio 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
Portfolio, the Portfolio may suffer a loss equal to the excess of the security's
market value at the time of the option's exercise over the Portfolio's
acquisition cost of the security, less the premium received for writing the
option. In addition, no assurance can be given that a Portfolio will be able to
effect closing purchase transactions at a desired time. The ability of a
Portfolio to engage in closing transactions with respect to options depends on
the existence of a liquid secondary market. Although a
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Portfolio 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 Portfolio will engage in hedging transactions only when deemed advisable by
GEIM. Successful use by a Portfolio of options will depend on GEIM'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 Portfolio'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 Portfolio to engage in closing purchase transactions
with respect to securities index options depends on the existence of a liquid
secondary market. Although a Portfolio 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 GEIM
desires that a Portfolio 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. Losses incurred in hedging
transactions and the costs of these transactions will affect a Portfolio's
performance.
Forward Currency Transactions. In entering into forward currency contracts, a
Portfolio will be subject to a number of risks and special considerations. The
market for forward currency contracts, for example, may be limited with respect
to certain currencies. The existence of a limited market may in turn restrict
the Portfolio's ability to hedge against the risk of devaluation of currencies
in which the Portfolio holds a substantial quantity of securities. The
successful use of forward currency contracts as a hedging technique draws upon
GEIM's special skills and experience with respect to those instruments and will
usually depend upon GEIM's ability to forecast interest rate and currency
exchange rate movements correctly. Should interest or exchange rates move in an
unexpected manner, a Portfolio 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 Trust's ability to dispose of a Portfolio's positions in forward currency
contracts depends on the availability of active markets in those instruments,
<PAGE>
and GEIM 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 Portfolio 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 Portfolio 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 Portfolio's position, the Portfolio could forfeit the entire amount of the
premium plus related transaction costs.
Instruments and Strategies Involving Special Risks. Certain instruments in which
the Portfolios can invest and certain investment strategies that the Portfolios
may employ could expose the Portfolios to various risks and special
considerations. The instruments presenting risks to a Portfolio that holds the
instruments are: Rule 144A Securities, depositary receipts, securities of
supranational agencies, securities of other investment funds, floating and
variable rate instruments, participation interests, zero coupon obligations,
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 Portfolios are:
engaging in when-issued or delayed-delivery securities transactions, lending
portfolio securities 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.
Portfolio Transactions and Turnover
All orders for transactions in securities, options, futures contracts and
options on future contracts on behalf of the Portfolios will be placed by GEIM
with broker-dealers that it selects, including affiliated brokers. A Portfolio
may use a GE-affiliated broker in connection with a purchase or sale of
securities if, in the judgment of GEIM, the use of such a GE-affiliated broker
is likely to result in price and execution at least as favorable to the
Portfolio as those obtainable through other qualified broker-dealers, and if, in
the transaction, the affiliated broker charges the Portfolio a fair and
reasonable rate consistent with that payable by the Portfolio to other
broker-dealers on comparable transactions. The same standard applies to the use
of a GE-affiliated broker as a commodities broker in connection with entering
into futures contracts and options on futures contracts.
The Trust cannot predict precisely the turnover rate for any Portfolio, but
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expects that the annual turnover rate will generally not exceed 50% for the
International Portfolio, 50% for the U.S. Equity Portfolio and 300% for the
Income Portfolio. The portfolio turnover rate for the Money Market Portfolio is
expected to be zero for regulatory purposes. For the fiscal year ended December
31, 1996 and for the period from January 3 (commencement of operations) through
December 31, 1995, the actual portfolio turnover rates of the Portfolios were:
the International Portfolio-26% and 60%, the U.S. Equity Portfolio-35% and 71%,
and the Income Portfolio-222% and 253%, respectively. A 100% annual turnover
rate would occur if all of a Portfolio's securities were replaced one time
during a period of one year. Higher portfolio turnover rates can result in
corresponding increases in brokerage commissions. GEIM does not consider
portfolio turnover rate a limiting factor in making investment decisions on
behalf of any Portfolio consistent with the Portfolio's investment objective and
policies. The SAI contains additional information regarding portfolio
transactions and turnover.
MANAGEMENT OF THE TRUST
Board of Trustees
Overall responsibility for management and supervision of the Portfolios rests
with the Trust's Board of Trustees. The Trustees approve all significant
agreements between the Trust and the persons and companies that furnish services
to the Portfolios, including agreements with the Portfolios' investment adviser
and administrator, custodian and transfer agent. The day-to-day operations of
the Portfolios have been delegated to GEIM. The Statement of Additional
Information contains background information regarding each Trustee and executive
officer of the Trust.
Investment Adviser and Administrator
GEIM, located at 3003 Summer Street, P.O. Box 7900, Stamford, Connecticut
06904-7900, serves as the investment adviser and administrator of each
Portfolio. GEIM, which was formed under the laws of Delaware in 1988, is a
wholly-owned subsidiary of GE and is a registered investment adviser under the
Investment Advisers Act of 1940, as amended.
GEIM has served as the investment adviser of the GE Funds, a family of eleven
mutual funds (two of which are not presently being offered) separate from the
Trust and its Portfolios since their inception in 1993 and other institutional
accounts, including Financial Investors Trust since March 1997. In addition,
GEIM acts 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 PaineWebber Series Trust, 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. GEIM's principal officers and directors serve in similar capacities
with respect to GEIC, which like GEIM is a wholly-owned subsidiary of GE, and
which currently acts as the investment adviser of Elfun Global Fund, Elfun
Trusts, Elfun Income Fund, Elfun Money Market Fund, Elfun Tax-Exempt Income Fund
and Elfun Diversified Fund (collectively, the "Elfun Funds"). The first Elfun
Fund, Elfun Trusts, was established in 1935. Investment in the Elfun Funds is
generally limited to regular and senior members of the Elfun Society, whose
regular members are selected from active
<PAGE>
employees of GE and/or its majority-owned subsidiaries, and whose senior Society
members are former members who have retired from those companies. In addition,
under the General Electric Savings and Security Program, GEIC serves as
investment adviser to the GE S&S Program Mutual Fund and GE S&S Program Long
Term Interest Fund. GEIC also serves as the investment adviser to the General
Electric Company Pension Trust. Through GEIM and GEIC and their predecessors
(collectively referred to as "GE Investments"), GE has nearly 70 years of
investment management experience. GEIM and GEIC collectively provide investment
management services to various institutional accounts with total assets, as of
December 31, 1996, in excess of $57.9 billion, of which roughly $11.7 billion is
invested in mutual funds.
As a Portfolio's investment adviser, GEIM, subject to the supervision and
direction of the Trust's Board of Trustees, manages the Portfolio in accordance
with its stated investment objective and policies, makes investment decisions
for the Portfolio and places purchase and sale orders for its portfolio
transactions. The Portfolios pay GEIM fees for advisory services provided by
GEIM to the Portfolios that are accrued daily and paid monthly at the following
annual rates of the value of the Portfolios' average daily net assets: the
International Portfolio-.80%, the U.S. Equity Portfolio-.50%, the Income
Portfolio-.45% and the Money Market Portfolio-.25%. The fee paid by the
International Portfolio is higher than investment management fees paid by most
other mutual funds.
As a Portfolio's administrator, GEIM furnishes the Trust with statistical and
research data, clerical help and accounting, data processing, bookkeeping,
internal auditing services and certain other services required by the Trust;
prepares reports to the shareholders of the Portfolio; and assists in the
preparation of tax returns and reports to and filings with the SEC and state
securities law authorities. GEIM also pays the salaries of all personnel
employed by both it and the Trust and provides each Portfolio with investment
officers who are authorized by the Board of Trustees to execute purchases and
sales of securities on behalf of the Portfolio. Each Portfolio pays GEIM fees
for administrative services provided by GEIM to the Portfolio that are accrued
daily and paid monthly at an annual rate of .05% of the value of the Portfolios'
average daily net assets. GEIM may delegate to others all or a part of its
responsibilities as administrator.
Although investment decisions for each Portfolio are made independently from
those of the other accounts managed by GEIM, investments of the type a Portfolio
may make may also be made by those other accounts. When a Portfolio and one or
more other accounts managed by GEIM are prepared to invest in, or desire to
dispose of, the same security, available investments or opportunities for sales
will be allocated in a manner believed by GEIM to be equitable to each. In some
cases, this procedure may adversely affect the price paid or received by a
Portfolio or the size of the position obtained or disposed of by a Portfolio.
The agreements governing the investment advisory services furnished to the Trust
by GEIM provide that, if GEIM ceases to act as the investment adviser to the
Trust, at GEIM's request, the Trust's license to use the initials "GE" will
terminate and the Trust will change the name of the Portfolios to a name not
including the initials "GE."
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Portfolio Management
Eugene K. Bolton leads a team of portfolio managers for the U.S. Equity
Portfolio. Mr. Bolton has more than 12 years of investment experience and has
held positions with GE Investments since 1984. He is currently a Director and
Executive Vice President of GE Investments, heading up its domestic equities
operation.
Ralph R. Layman leads a team of portfolio managers for the International
Portfolio. He has more than 17 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
an Executive Vice President of GE Investments, heading up its international
equities operation.
Robert A. MacDougall leads a team of portfolio managers for the Income
Portfolio. He has more than 13 years of investment experience and has held
positions with GE Investments since 1986. Mr. MacDougall is currently a
director and an Executive Vice President of GE Investments, heading up its fixed
income operation.
GEIM investment personnel may engage in securities transactions for their own
<PAGE>
accounts pursuant to a code of ethics that establishes procedures for personal
investing and restricts certain transactions.
Expenses of the Portfolios
Each Portfolio will bear its own expenses, which generally include all costs not
specifically borne by GEIM. Included among the Portfolios' expenses are: a
portion of the costs incurred in connection with the Trust's organization;
investment advisory and administration fees; fees paid to members of the Trust's
Board of Trustees who are not affiliated with GEIM or any of its affiliates;
fees for necessary professional and brokerage services; fees for any pricing
service; the costs of custody, transfer agency and recordkeeping services; the
costs of regulatory compliance; a portion of the costs associated with
maintaining the Trust's legal existence; and the costs of corresponding with
shareholders of the Portfolios. GEIM intends to reduce or otherwise limit these
expenses, other than investment advisory and administration fees which are
discussed above under "Investment Adviser and Administrator," on an annualized
basis, to the following annual rate of the value of the Portfolio's average
daily net assets: the U.S. Equity Portfolio-.25%, the International
Portfolio-.35%, the Income Portfolio-.25% and the Money Market Portfolio-.20%.
In addition, the Trust's agreement with GEIM with respect to each Portfolio
provides that GEIM will reimburse the Portfolio to the extent required by
applicable state laws for certain expenses that are described in the Statement
of Additional Information.
A detailed description of the fees and expenses involved in investing in the
Contracts and the Portfolios is included in the applicable Contract prospectus.
PURCHASE OF SHARES
General
Shares of the Portfolios are offered to the insurance company separate accounts
that fund the Contracts and to qualified pension and retirement plans for the
benefit of plan participants, and may at any time be offered to separate
accounts of any insurer approved by the Trustees (collectively, the "Insurers").
The shares are sold on a continuous basis and may be purchased by the separate
accounts or qualified pension and retirement plans without any sales charge at
net asset value. Purchase orders are submitted to the Portfolios based on
premium payments properly furnished to the Insurers by Contract owners.
Similarly, qualified pension and retirement plans may transmit to the Trust any
orders to purchase or redeem shares of the Portfolio(s) based on the
instructions of plan trustees or participants. A purchase order will be
processed at the net asset value next determined with respect to the shares of
the Portfolio being purchased after the purchase order has been received and
accepted by State Street Bank and Trust Company ("State Street"), the Trust's
custodian and transfer agent. For a description of the manner of calculating a
Portfolio's net asset value, see "Net Asset Value."
Purchase orders for shares of a Portfolio will be accepted by the Trust only
on a day on which the Portfolio's net asset value is calculated. See "Net
Asset Value" below. The Trust may in its discretion reject any order for the
<PAGE>
purchase of shares of a Portfolio. For the convenience of shareholders and in
the interest of economy, the Trust will not issue physical certificates
representing shares in any Portfolio.
REDEMPTION OF SHARES
Redemptions in General
Shares of each Portfolio may be redeemed without charge on any day on which the
Portfolio's net asset value is calculated as described below under "Net Asset
Value." Redemption requests are submitted to the Portfolios based on surrender
or partial withdrawal requests properly furnished to the Insurers by the
Contract owners or by plan trustees or participants to the qualified pension and
retirement plans. Redemption requests received in proper form prior to the close
of regular trading on the NYSE will be effected at the net asset value per share
determined on that day. Redemption requests re-ceived after the close of regular
trading on the NYSE will be effected at the net asset value as next determined.
The Trust normally transmits redemption proceeds within seven days after receipt
of a redemption request.
EXCHANGE PRIVILEGE
Under an exchange privilege offered by the Trust, shares of each Portfolio may
be exchanged at their respective net asset values for shares of any of the other
Portfolios described in this Prospectus. Exchanges are treated as a redemption
of shares of one Portfolio and a purchase of shares of another Portfolio. The
Trust may, upon 60 days' prior written notice, materially modify or terminate
the exchange privilege with respect to the Portfolios.
Shareholders exercising the exchange privilege should carefully review the
prospectus disclosure for the Portfolio they are considering investing in prior
to making an exchange.
NET ASSET VALUE
Each Portfolio's net asset value per share, is calculated on each day, Monday
through Friday, except on days on which the NYSE is closed. The NYSE is
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currently scheduled to be closed on New Year's 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 Portfolio's net asset value per share is determined as of the close of
regular trading on the NYSE (currently 4:00 p.m., New York time). Net asset
value per share of a Portfolio is computed by dividing the value of the
Portfolio's net assets by the total number of its shares outstanding. In
general, a Portfolio'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 Trust's Board of Trustees. The Trust will seek to maintain the Money
Market Portfolio's net asset value at $1.00 per share for purposes of purchases
and redemptions, although no assurance can be given that the Trust 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 Portfolio'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 Board of
Trustees. 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 Portfolio generally will be valued at the mean
between the last asked and bid prices. Futures contracts are valued at the
settlement price established each day by the board of trade or exchange on which
they are principally traded. 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 Board of Trustees. Certain
fixed income securities are valued by a dealer or by a pricing service based
upon a computerized matrix system which considers market transactions and dealer
supplied valuations.
All assets and liabilities of a Portfolio 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 the Board of
Trustees. In carrying out the Board's valuation policies, GEIM may consult with
an independent pricing service or services, retained by the Trust. Further
information regarding the Trust's valuation policies is contained in the
Statement of Additional Information.
All portfolio securities held by the Money Market Portfolio, and any short-term
investments of the other Portfolios 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
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interest rates on the market value of the investment) when the Trust'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 Portfolio. All dividends and capital gains distributions
paid by a Portfolio will be automatically invested, at net asset value, by the
separate accounts in additional shares of the Portfolio. Dividends attributable
to the Income Portfolio and the Money Market Portfolio are declared daily and
paid monthly. Dividends attributable to the net investment income of the
International Portfolio and the U.S. Equity Portfolio are declared and paid
annually. These dividends and distributions are determined in accordance with
income tax regulations which may differ from generally accepted accounting
principles. If a separate account redeems all of its shares of the Income
Portfolio or the Money Market Portfolio at any time during a month, all
dividends to which the separate account is entitled will be paid to the separate
account along with the proceeds of its redemption. Written confirmations
relating to the automatic reinvestment of daily dividends will be sent to
shareholders within five days following the end of each quarter for the Income
Portfolio and within five days following the end of each month for the Money
Market Portfolio. Distributions of any net realized long-term and short-term
capital gains earned by a Portfolio will be made annually. All expenses of the
Income Portfolio and the Money Market Portfolio are accrued daily and deducted
before declaration of dividends to the separate accounts. Earnings of the Income
Portfolio and the Money Market Portfolio for Saturdays, Sundays and holidays
will be declared as dividends on the business day immediately preceding the
Saturday, Sunday or holiday.
Each Portfolio may 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 the Portfolio's shareholders, the Trust will declare and pay
dividends of the Portfolio's net investment income and distributions of the
Portfolio's net capital gains more frequently than stated above.
Taxes
Each Portfolio is treated as a separate taxpayer with the result that, for
federal income tax purposes, the amounts of investment income and capital gains
earned are determined separately for each Portfolio (rather than on a Trust-wide
basis).
The Trust intends that each Portfolio qualify each year as a "regulated
investment company" within the meaning of the Code. To qualify as a regulated
investment company, the Portfolio must, among other things: (a) derive at least
90% of its gross income from dividends, interest, payments with respect
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to securities loans, gains from the sale or other disposition of stock or
securities, or foreign currencies, and other income (including, but not limited
to, gains from options, futures, or forward contracts) derived with respect to
the Portfolio's business of investing in such stock, securities or currencies;
(b) derive less than 30% of its gross income from the sale or other disposition
of (i) stock or securities held for less than three months, (ii) options,
futures, or forward contracts held for less than three months (other than
options, futures, or forward contracts on foreign currencies), and (iii) foreign
currencies (or options, futures, or forward contracts on foreign currencies)
held for less than three months, but only if such currencies (or options,
futures, or forward contracts) are not directly related to the Portfolio's
principal business of investing in stock or securities (or options and futures
with respect to stocks or securities); and (c) diversify its holdings so that,
at the end of each quarter, (i) at least 50% of the market value of the
Portfolio's assets is represented by cash and cash items, securities of other
regulated investment companies, U.S. government securities and other securities,
with such other securities limited for purposes of this calculation in respect
of any one issuer to an amount not greater than 5% of the value of the
Portfolio's assets and not greater than 10% of the outstanding voting securities
of such issuer, and (ii) not more than 25% of the value of its total assets is
invested in the securities of any one issuer or of two or more issuers that are
controlled by the Portfolio (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). As a regulated investment company and
provided certain distribution requirements are met, a Portfolio will not be
subject to federal income tax on its net investment income and net capital gain
that it distributes to the separate accounts, its shareholders.
Dividends paid by a Portfolio from taxable investment income and distributions
of short-term capital gains will be treated as ordinary income in the hands of
the shareholders for federal income tax purposes, whether received in cash or
reinvested in additional shares. Distributions of net long-term capital gains
will be treated as long-term capital gains in the hands of the shareholders, if
certain notice and designation requirements are satisfied, whether paid in cash
or reinvested in additional shares, regardless of the length of time the
investor has held shares of the Portfolio. The Trust has been informed by the
separate accounts that they should, for federal income tax purposes, be
considered the shareholders of each of the Portfolios.
Shares of each Portfolio are offered only to insurance company accounts that
currently fund variable annuity contracts and variable life insurance contracts.
Under the Code, no tax is imposed on an insurance company with respect to income
of a qualifying separate account properly allocable to the value of eligible
variable annuity or variable life insurance contracts. See the applicable
Contract prospectus for a discussion of the federal income tax status of (1) the
separate accounts that purchase and hold shares of a Portfolio and (2) the
holders of Contracts funded through those accounts.
To comply with regulations under Section 817(h) of the Code, each Portfolio will
be required to diversify its investments so that on the last day of each
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calendar quarter no more than 55% of the value of its assets is represented by
any one investment, no more than 70% is represented by any two investments, no
more than 80% is represented by any three investments and no more than 90% is
represented by any four investments. Generally, all securities of the same
issuer are treated as a single investment. For the purposes of Section 817(h) of
the Code, obligations of the U.S. Treasury and each U.S. Government
instrumentality are treated as securities of separate issuers. Compliance with
these diversification rules will limit the ability of the Money Market Portfolio
and the Income Portfolio, in particular, to invest more than 55% of their assets
in direct obligations of the U.S. Treasury or to invest primarily in securities
issued by a single agency or instrumentality of the U.S. Government.
CUSTODIAN AND TRANSFER AGENT
State Street, located at 225 Franklin Street, Boston, Massachusetts 02101,
serves as the Trust's custodian and transfer agent, and is responsible for
receiving acceptance orders for the purchase of shares and processing redemption
requests.
THE PORTFOLIOS' PERFORMANCES
Certain information about the Portfolios' performances are set out below.
Yield
The Trust may, from time to time, include the yield and effective yield of the
Money Market Portfolio in advertisements or reports to shareholders or
prospective investors. Current yield for the Money Market Portfolio 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 Portfolio 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, 1996 were 4.77% and 4.88%, respectively.
The Trust may, from time to time, advertise a 30-day "yield" for each of the
International Portfolio, the U.S. Equity Portfolio and the Income Portfolio. The
yield of a Portfolio refers to the income generated by an investment in the
Portfolio over the 30-day period identified in the advertisement and is computed
by dividing the net investment income per share earned by a Portfolio during the
period by the net asset value per share for the Portfolio on the last day of the
period. This income is "annualized" by assuming that the
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amount of income is generated each month over a one-year period and is
compounded semi-annually. The annualized income is then shown as a percentage of
the Portfolio's net asset value. The 30-day yield for the period ended December
31, 1996 for the Income Portfolio was 6.23%.
Total Return
From time to time, the Trust may advertise an "average annual total return" over
various periods of time for each of the International Portfolio, the U.S. Equity
Portfolio and the Income Portfolio. This total return figure shows an average
percentage change in value of an investment in the Portfolio from the beginning
date of the measuring period to the ending date of the period. The figure
reflects changes in the price of a Portfolio's shares and the reinvestment of
any income, dividends and/or capital gains distributions made by the Portfolio
during the period in shares of the same Portfolio. 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 Portfolio'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 Portfolio's
annual total return for any one year in the period might have been greater or
less than the average for the entire period.
The Trust may use "aggregate total return" figures for various periods,
representing the cumulative change in value of an investment in a Portfolio, for
the specific period (again reflecting changes in the Portfolio's share price and
the reinvestment of dividends and distributions). Aggregate total return may be
shown by means of schedules, charts or graphs, and may indicate subtotals of the
various components of total return (that is, the change in value of initial
investment, income dividends and capital gains distributions). Reflecting
compounding over a longer period of time, aggregate total return data generally
will be higher than average annual total return data, which reflects compounding
of return. The Portfolio's average total returns were as follows for the fiscal
year ending December 31, 1996 and for the period January 3 (commencement of
operations) through December 31, 1996: International Portfolio-16.10% and
16.92%; U.S. Equity Portfolio-21.72% and 28.46%; Income Portfolio-2.92% and
9.66%; and Money Market Portfolio-4.86% and 5.29%, respectively.
The Trust may, in addition to quoting a Portfolio's average annual and aggregate
total returns, advertise the actual annual and annualized total return
performance data for various periods of time. Actual annual and annualized total
returns may be shown by means of schedules, charts or graphs. Actual annual or
annualized total return data generally will be lower than average annual total
return data, which reflects compounding of return.
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 Portfolio's yield and total
return.
The Trust may also advertise a Portfolio's distribution rate and/or effective
distribution rate. The distribution rate of a Portfolio represents a measure of
dividends distributed for a specific period. The distribution rate of a
Portfolio differs from yield and total return and therefore is not intended to
be a complete measure of performance. A Portfolio's distribution rate is
computed by dividing the most recent monthly distribution per share annualized
by the current net asset value per share. A Portfolio's effective distribution
rate is computed by dividing the distribution rate by the ratio used to
annualize the distribution and reinvesting the resulting amount for a full year
on the basis of such ratio. The effective distribution rate will be higher than
the distribution rate because of the compounding effect of the assumed
reinvestment. A Portfolio'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 Portfolio'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 Portfolio'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 Portfolio
during the month.
Comparative Performance Information
In reports or other communications to shareholders of a Portfolio or in
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advertising materials, the Trust may compare the Portfolio's 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 GEIM
derived from those indexes. The performance information may also include
evaluations of a Portfolio 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 Portfolio's performance to, or rank it within, a universe of mutual funds with
investment objectives and policies similar, but not necessarily identical to,
the Portfolio'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 Portfolios may engage in a number of investment techniques and strategies,
including those described below. No Portfolio 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 Portfolio.
Strategies Available to All Portfolios
When-Issued and Delayed-Delivery Securities. To secure prices or yields deemed
advantageous at a particular time, a Portfolio 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 Portfolio, however, prior
to the actual delivery or payment by the other party to the transaction. Each
Portfolio 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 Portfolio 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 in an amount equal to the amount of each Portfolio's when-issued
or delayed-delivery purchase commitments will be segregated with the Trust's
custodian or designated subcustodian in order to avoid or limit any leveraging
effect that may arise in the purchase of a security pursuant to such a
commitment.
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Securities purchased on a when-issued or delayed-delivery basis may expose a
Portfolio 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
Portfolio's net asset value.
Lending Portfolio Securities. Each Portfolio is authorized to lend its portfolio
securities to well-known and recognized U.S. and foreign brokers, dealers and
banks. These loans, if and when made, may not exceed 30% of a Portfolio's net
assets taken at value. The Portfolio's loans of securities will be
collateralized by cash, letters of credit or Government Securities. Cash or
instruments collateralizing a Portfolio's loans of securities are segregated and
maintained at all times with the Trust'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 Portfolio will be subject to risks, which,
like those associated with other extensions of credit, include possible loss of
rights in the collateral should the borrower fail financially.
Rule 144A Securities. Each of the Portfolios may purchase Rule 144A Securities.
Certain Rule 144A Securities may be considered illiquid and therefore subject to
a Portfolio's limitation on the purchase of illiquid securities, unless the
Trust's Board of Trustees determines on an ongoing basis that an adequate
trading market exists for the Rule 144A Securities. A Portfolio's purchase of
Rule 144A Securities could have the effect of increasing the level of
illiquidity in the Portfolio to the extent that qualified institutional buyers
become uninterested for a time in purchasing Rule 144A Securities held by the
Portfolio. The Board of Trustees has established standards and procedures for
determining the liquidity of a Rule 144A Security and monitors GEIM's
implementation of the standards and procedures. The ability to sell to qualified
institutional buyers under Rule 144A is a recent development and GEIM cannot
predict how this market will develop.
Strategies Available to Some But Not All Portfolios
Depositary Receipts. The International Portfolio and the U.S. Equity Portfolio
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
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States about an unsponsored ADR than about a sponsored ADR. The International
Portfolio and the U.S. Equity Portfolio 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 Portfolio may 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. The International Portfolio and the
Income Portfolio may each invest in investment funds that invest principally in
securities in which the Portfolio is authorized to invest. Under the 1940 Act, a
Portfolio 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 Portfolio's total assets may be invested in the securities of any one
investment company, and the Portfolio may not own more than 3% of the securities
of any investment company. Investments by the Portfolio (other than the Money
Market Portfolio) in the Investment Fund and other accounts advised by GEIM or
GEIC, 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 Portfolio invests in other investment companies, the Portfolio's
shareholders will incur certain duplicative fees and expenses, including
investment advisory fees.
Floating and Variable Rate Instruments. The Income Portfolio and the Money
Market Portfolio may each invest in floating and variable rate instruments.
Income securities may provide for floating or variable rate interest or dividend
payments. The floating or variable rate may be determined by reference to a
known lending rate, such as a bank's prime rate, a certificate of deposit rate
or the London InterBank Offered Rate (LIBOR). Alternatively, the rate may be
determined through an auction or remarketing process. The rate also may be
indexed to changes in the values of interest rate or securities indexes,
currency exchange rates or other commodities. The amount by which the rate paid
on an income security may increase or decrease or 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 in-versely 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.
Zero Coupon Obligations. The U.S. Equity Portfolio and the Income Portfolio 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
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from their face or par value and generally are subject to greater fluctuations
of market value in response to changing interest rates than securities of
comparable maturities and credit quality that pay cash interest (or dividends in
the case of preferred stock) on a current basis. Although each of the U.S.
Equity Portfolio and the Income Portfolio will receive no payments on its zero
coupon securities, prior to their maturity or disposition, each Portfolio will
be required for federal income tax purposes generally to include in its
dividends each year an amount equal to the annual income that accrues on its
zero coupon securities. Such dividends will be paid from the cash assets of the
Portfolio, from borrowings or by liquidation of portfolio securities, if
necessary, at a time that the Portfolio otherwise would not have done so. To the
extent each of the U.S. Equity Portfolio and the Income Portfolio is required to
liquidate thinly traded securities, the Portfolio may be able to sell such
securities only at prices lower than if such securities were more widely traded.
The risks associated with holding securities that are not readily marketable may
be accentuated at such time. To the extent the proceeds from any such
dispositions are used by the U.S. Equity Portfolio and the Income Portfolio to
pay distributions, the Portfolio will not be able to purchase additional
income-producing securities with such proceeds, and as a result its current
income ultimately may be reduced.
Mortgage Related Securities. The mortgage related securities in which the Income
Portfolio 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 Portfolio. 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 Portfolio. Because prepayments of principal
generally occur when interest rates are declining, the Income Portfolio 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 Portfolio'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 Portfolio
purchases mortgage related securities at a premium, unscheduled prepayments,
which are made at par, will result in a loss equal to any unamortized premium.
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ARMs have interest rates that reset at periodic intervals, thereby allowing the
Income Portfolio 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 Portfolio generally will be able to reinvest these amounts in
securities with a higher current rate of return. The Income Portfolio, however,
will not 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 Income Portfolio's net asset value 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 shareholders who redeem their shares of the Income Portfolio
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 Portfolio 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 GEIM, the Income
Portfolio limits its investments in these securities, together with other
illiquid instruments, to not more than 15% of the value of its net assets.
Government Stripped Mortgage Related Securities. The Income Portfolio 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 Portfolio 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 GEIM 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 Portfolio.
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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
Portfolio's not fully recovering its initial investment in an interest-only
government stripped mortgage related security. Under current market conditions,
the Income Portfolio expects 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 Portfolio will be able to effect a trade of a government stripped
mortgage related security at a desired time. The Income Portfolio will acquire
government stripped mortgage related securities only if a secondary market for
the securities exists at the time of acquisition. Except for government stripped
mortgage related securities based on fixed rate FNMA and FHLMC mortgage
certificates that meet certain liquidity criteria established by the Trust's
Board of Trustees, the Trust treats government stripped mortgage related
securities as illiquid and will limit the Income Portfolio's investments in
these securities, together with other illiquid investments, to not more than 15%
of its net assets.
Asset-Backed and Receivable-Backed Securities. The Income Portfolio may invest
in asset-backed and receivable-backed securities. To date, several types of
asset-backed and receivable-backed securities have been offered to investors
including "Certificates for Automobile Receivables" ("CARssm") and interests in
pools of credit card receivables. CARssm represent undivided fractional
interests in a trust, the assets of which consist of a pool of motor vehicle
retail installment sales contracts and security interests in the vehicles
securing the contracts. Payments of principal and interest on CARssm are passed
through monthly to certificate holders and are guaranteed up to certain amounts
and for a certain time period by a letter of credit issued by a financial
institution unaffiliated with the trustee or originator of the trust.
An investor's return on CARssm may be affected by early prepayment of principal
on the underlying vehicle sales contracts. If the letter of credit is exhausted,
the Income Portfolio 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
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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 Income Portfolio's investment objective and policies and subject to the
review and approval of the Trust's Board of Trustees, the Income Portfolio may
also invest in other types of asset-backed and receivable-backed securities.
Mortgage Dollar Rolls. With respect to up to 10% of its total assets, the Income
Portfolio may enter into mortgage "dollar rolls" in which the Portfolio 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 Portfolio loses the
right to receive principal and interest paid on the securities sold. However,
the Portfolio 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 prepayments 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 Portfolio compared with what
such performance would have been without the use of mortgage dollar rolls. The
Portfolio will hold and maintain in a segregated account until the settlement
date cash or liquid, high grade debt securities in an amount equal to the
forward purchase price. The benefits derived from the use of mortgage dollar
rolls may depend upon GEIM'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 Portfolio proposes to treat
mortgage dollar rolls as two separate transactions; one involving the purchase
of a security and a separate transaction involving a sale. The Portfolio does
not currently intend to enter into mortgage dollar rolls that are accounted for
as a financing.
Short Sales Against the Box. The International Portfolio may sell securities
"short against the box." Whereas a short sale is the sale of a security the
International Portfolio does not own, a short sale is "against the box" if at
all times during which the short position is open, the Portfolio 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 Trust was formed as a business trust pursuant to a Declaration of Trust, as
amended from time to time (the "Declaration"), under the laws of The
Commonwealth of Massachusetts on February 25, 1994. The Declaration authorizes
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the Trust's Board of Trustees to create separate series, of an unlimited number
of shares of beneficial interest, par value $.001 per share.
When issued, shares of a Portfolio will be fully paid and non-assessable. Shares
are freely transferable and have no preemptive, subscription or conversion
rights. Certain aspects of the shares may be changed, upon notice to Portfolio
shareholders, to satisfy certain tax regulatory requirements, if the change is
deemed necessary by the Trust's Board of Trustees.
When matters are submitted for shareholder vote, each shareholder of each
Portfolio will have one vote for each full share held and proportionate,
fractional votes for fractional shares held. In general, shares of each
Portfolio vote by individual Portfolio on all matters except (1) a matter
affecting the interests of one or more of the Portfolios, in which case only
shares of the affected Portfolios would be entitled to vote, or (2) when the
1940 Act requires that shares of the Portfolios be voted in the aggregate.
Normally, no meetings of shareholders of the Portfolios will be held for the
purpose of electing Trustees of the Trust unless and until such time as less
than a majority of the Trustees holding office have been elected by shareholders
of the Trust, at which time the Trustees then in office will call a
shareholders' meeting for the election of Trustees. Shareholders of record of no
less than two-thirds of the outstanding shares of the Trust may remove a Trustee
through a declaration in writing or by vote cast in person or by proxy at a
meeting called for that purpose. A meeting will be called for the purpose of
voting on the removal of a Trustee at the written request of holders of 10% of
the Trust's outstanding shares. Shareholders who satisfy certain criteria will
be assisted by the Trust in communicating with other shareholders in seeking the
holding of the meeting.
An insurance company issuing a Contract that participates in the Portfolios will
vote shares in the applicable separate account as required by law and
interpretation thereof, as such may be amended or changed from time to time. In
accordance with current law and interpretations thereof, a participating
insurance company is required to request voting instructions from Contract
owners and must vote shares in the applicable separate account in proportion to
the voting instructions received. For further discussion, please refer to the
prospectus for your Contract.
Trustees of qualified pension and retirement plans are expected to vote shares
of the Portfolios held by their plans either in their own discretion or in
accordance with instructions received from participants in such plans if such
participants have a voting intereset in such plans.
The Trust will send to each shareholder of each Portfolio a semiannual report
and an audited annual report, each of which includes a list of the investment
securities held by each Portfolio. Management's discussion of the performance of
the Portfolios will be included in the Portfolios' annual reports, which will be
furnished to shareholders free of charge.
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 SHARES OF VARIABLE INVESTMENT
TRUST, AND IF GIVEN OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY VARIABLE INVESTMENT TRUST. 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.
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STATEMENT OF ADDITIONAL INFORMATION
April 29, 1997
VARIABLE INVESTMENT TRUST
3003 Summer Street, Stamford, Connecticut 06905
For information, call (203) 326-4040
o GE U.S. Equity Portfolio
o GE International Equity Portfolio
o GE Fixed Income Portfolio
o GE Money Market Portfolio
CONTENTS
Page
Investment Objectives and Management Policies......... 2
Investment Restrictions...............................10
Management of the Trust...............................15
Redemption of Shares..................................18
Exchange Privilege....................................18
Net Asset Value.......................................19
Taxation..............................................20
The Portfolios' Performances..........................23
Additional Information................................25
Counsel...............................................26
Independent Accountants...............................26
Financial Statements..................................26
Appendix.............................................A-1
This Statement of Additional Information supplements the
information contained in the current Prospectus of Variable Investment Trust
(the "Trust") dated April 29, 1997, and should be read in conjunction with the
Prospectus. Copies of the Prospectus may be obtained without charge by calling
the Trust at the telephone number listed above. This Statement of Additional
Information, although not a prospectus, is incorporated in its entirety by
reference into the Prospectus.
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INVESTMENT OBJECTIVES AND MANAGEMENT POLICIES
The Prospectus discusses the investment objectives and
policies of the following four managed investment funds (each a "Portfolio" and
collectively the "Portfolios") currently offered by the Trust: GE U.S. Equity
Portfolio (the "U.S. Equity Portfolio"), GE International Equity Portfolio (the
"International Portfolio"), GE Fixed Income Portfolio (the "Income Portfolio")
and GE Money Market Portfolio (the "Money Market Portfolio"). Supplemental
information is set out below concerning certain of the securities and other
instruments in which the Portfolios may invest, the investment policies and
strategies that the Portfolios may utilize and certain risks attendant to those
investments, policies and strategies.
STRATEGIES AVAILABLE TO ALL PORTFOLIOS
WHEN-ISSUED AND DELAYED-DELIVERY SECURITIES. When a Portfolio
engages in when-issued or delayed-delivery securities transactions, it relies on
the other party to consummate the trade. Failure of the seller to do so may
result in the Portfolio's incurring a loss or missing an opportunity to obtain a
price considered to be advantageous.
LENDING PORTFOLIO SECURITIES. A Portfolio will adhere to the
following conditions whenever its portfolio securities are loaned: (1) the
Portfolio 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 Portfolio must be able to terminate the loan at any time; (4) the
Portfolio 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 Portfolio 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 Portfolio 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 Portfolio and is acting as a "finder."
BANK OBLIGATIONS. Domestic commercial banks organized under
Federal law are supervised and examined by the U.S. Comptroller of the Currency
and are required to be members of the Federal Reserve System and to be insured
by the Federal Deposit Insurance Corporation ("FDIC"). Foreign branches of U.S.
banks and foreign banks are not regulated by U.S. banking authorities
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and generally are not bound by mandatory reserve requirements, loan limitations,
accounting, auditing and financial reporting standards comparable to U.S. banks.
Obligations of foreign branches of U.S. banks and foreign banks are subject to
the risks associated with investing in foreign securities generally. These
obligations entail risks that are different from those of investments in
obligations in domestic banks, including foreign economic and political
developments outside the United States, foreign governmental restrictions that
may adversely affect payment of principal and interest on the obligations,
foreign exchange controls and foreign withholding or other taxes on income.
A U.S. branch of a foreign bank may or may not be subject to
reserve requirements imposed by the Federal Reserve System or by the state in
which the branch is located if the branch is licensed in that state. In
addition, branches licensed by the Comptroller of the Currency and branches
licensed by certain states ("State Branches") may or may not be required to: (1)
pledge to the regulator by depositing assets with a designated bank within the
state, an amount of its assets equal to 5% of its total liabilities; and (2)
maintain assets within the state in an amount equal to a specified percentage of
the aggregate amount of liabilities of the foreign bank payable at or through
all of its agencies or branches within the state. The deposits of State Branches
may not necessarily be insured by the FDIC. In addition, less information may be
available to the public about a U.S. branch of a foreign bank than about a U.S.
bank.
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 GE Investment Management Incorporated ("GEIM") as initial
criteria for the selection of portfolio securities on behalf of the Portfolios,
GEIM also relies upon its own analysis to evaluate potential investments.
Subsequent to its purchase by a Portfolio, an issue of
securities may cease to be rated or its rating may be reduced below the minimum
required for purchase by the Portfolio. Although neither event will require the
sale of the securities by a Portfolio, other than the Money Market Portfolio,
GEIM will consider the event in its determination of whether the Portfolio
should continue to hold the securities. In the event of a lowering of the rating
of a security held by the Money Market Portfolio or a default by the issuer of
the security, the
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Portfolio will dispose of the security as soon as practicable, unless the
Trust's Board of Trustees determines that disposal of the security would not be
in the best interests of the Portfolio. To the extent that a NRSRO's ratings
change as a result of a change in the NRSRO or its rating system, the Portfolios
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 PORTFOLIOS
SECURITIES OF OTHER INVESTMENT COMPANIES. A Portfolio 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 Portfolio 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 Portfolio's
total assets and (c) when added to all other investment company securities held
by the Portfolio, do not exceed 10% of the value of the Portfolio's total
assets. Investments by the Portfolio (other than the Money Market Portfolio) in
the GEI Short-Term Investment Fund, an investment Fund advised by GEIM, created
specifically to serve as a vehicle for the collective investment of cash
balances of the Portfolios (other than the Money Market Portfolio) and other
accounts advised by either GEIM or its affiliate GEIM, is not considered an
investment in another investment company for purposes of this restriction.
COVERED OPTION WRITING. The Portfolios with option- writing
authority will write only options that are covered. A call option written by a
Portfolio will be deemed covered (1) if the Portfolio 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 Portfolio 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
Trust'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 Trust's custodian or
with a designated sub-custodian or (2) if the Portfolio continues to own an
equivalent
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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 Portfolio), or an equivalent number of puts of the same "class" (that is,
puts on the same underlying securities) with exercise prices greater than those
that it has written (or, if the exercise prices of the puts it holds are less
than the exercise prices of those it has written, the difference is segregated
with the Trust's custodian or a designated sub-custodian).
The principal reason for writing covered call options on a
securities portfolio is to attempt to realize, through the receipt of premiums,
a greater return than would be realized on the securities alone. In return for a
premium, the writer of a covered call option forfeits the right to any
appreciation in the value of the underlying security above the strike price for
the life of the option (or until a closing purchase transaction can be
effected). Nevertheless, the call writer retains the risk of a decline in the
price of the underlying security. Similarly, the principal reason for writing
covered put options is to realize income in the form of premiums. The writer of
a covered put option accepts the risk of a decline in the price of the
underlying security. The size of the premiums that a Portfolio 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 Portfolio 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 Portfolio as the writer of an
option continues, the Portfolio may be assigned an exercise notice by the
broker-dealer through which the option was sold, requiring the Portfolio 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 Portfolio effects a closing purchase
transaction. A Portfolio 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
Portfolio 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.
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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 Portfolios are expected to
purchase only call or put options issued by the Clearing Corporation. GEIM
expects that the Portfolios will write options, other than those on Government
Securities, only on national securities exchanges. Options on Government
Securities may be written by the Portfolios in the over-the-counter market.
A Portfolio may realize a profit or loss upon entering into
closing transactions. When a Portfolio 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 Portfolio will
incur a loss if the cost of the closing purchase transaction exceeds the premium
received upon writing the original option. When a Portfolio has purchased an
option and engages in a closing sale transaction, whether the Portfolio 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 Portfolio initially paid
for the original option plus the related transaction costs.
STOCK INDEX OPTIONS. A Portfolio 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
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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.
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 Portfolio 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 Portfolio of options on stock indexes is
subject to GEIM'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
Portfolio upon trading a futures contract. Upon entering into a futures
contract, cash, short-term Government Securities or other U.S.
dollar-denominated, high-grade, short-term money market instruments equal to
approximately 1% to 10% of the contract amount will be segregated with the
Trust's custodian or a designated sub-custodian. This amount, which is subject
to change by the exchange on which the contract is traded, is known as "initial
margin" and is in the nature of a performance bond or good faith deposit on the
contract that is returned to the Portfolio 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 Portfolio 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 Portfolio may elect
to close a position by taking an opposite position, which will operate to
terminate the Portfolio's existing position in the contract.
Although the Trust intends that the Portfolios enter
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into futures contracts only if an active market exists for the contracts, no
assurance can be given that an active market will exist for the contracts at any
particular time. Most U.S. futures exchanges and boards of trade limit the
amount of fluctuation permitted in futures contract prices during a single
trading day. Once the daily limit has been reached in a particular contract, no
trades may be made on that day at a price beyond that limit. Futures contract
prices may move to the daily limit for several consecutive trading days with
little or no trading, thereby preventing prompt liquidation of futures positions
and subjecting some futures traders to substantial losses. In such a case, and
in the event of adverse price movements, a Portfolio 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 Portfolio 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 Portfolio 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 Portfolio 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 Portfolio
holding the options.
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FORWARD CURRENCY TRANSACTIONS. The cost to a Portfolio 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 ex change 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 antici pated, a Portfolio may not be
able to sell currency at a price above the anticipated devaluation level. A
Portfolio 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 con tract 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 posi tions 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 Portfolio
to liquidate open positions at a profit prior to exercise or expiration, or to
limit losses in the event of adverse market movements.
The purchase and sale of exchange-traded foreign currency
options are subject to the risks of the availability of a liquid secondary
market as described above, as well as the risks regarding adverse market
movements, margining of options written, the nature of the foreign currency
market, possible intervention by governmental authorities and the effects of
other political and economic events. In addition, exercise and settlement of
exchange-traded foreign currency options must be made exclusively through the
Clearing Corporation, which has established banking relationships in applicable
foreign countries for this purpose. As a result, the Clearing Corporation may,
if it determines that foreign governmental restrictions or taxes would prevent
the orderly settlement of foreign currency option exercises, or would result in
undue burdens on the Clearing Corporation or its clearing members, impose
special procedures on
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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 Portfolio'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.
MORTGAGE RELATED SECURITIES. The average maturity of
pass-through pools of mortgage related securities in which the Income Portfolio
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 conven tional 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 the 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,
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the stock of which is owned by the Federal Home Loan Banks. Participation
certificates representing interests in mortgages from FHLMC's national portfolio
are guaranteed as to the timely payment of interest and ultimate collection of
principal by FHLMC.
Private, governmental or government-related entities may
create mortgage loan pools offering pass-through investments in addition to
those described above. The mortgages underlying these securities may be
alternative mortgage instruments, that is, mortgage instruments whose principal
or interest payments may vary or whose terms to maturity may be shorter than
previously customary. GEIM assesses new types of mortgage related securities as
they are developed and offered to determine their appropriateness for investment
by the Income Portfolio.
INVESTMENT RESTRICTIONS
Investment restrictions numbered 1 through 10 below have been
adopted by the Trust as fundamental policies of the Portfolios. Under the
Investment Company Act of 1940, as amended (the "1940 Act"), a fundamental
policy may not be changed with respect to a Portfolio without the vote of a
majority of the outstanding voting securities (as defined in the 1940 Act) of
the Portfolio. Investment restrictions 11 through 17 may be changed by a vote of
the Board of Trustees at any time.
1. No Portfolio may borrow money, except that the Money Market
Portfolio may enter into reverse repurchase agreements, and except that each
Portfolio may borrow from banks for temporary or emergency (not leveraging)
purposes, including the meeting of redemption requests and cash payments of
dividends and distributions that might otherwise require the untimely
disposition of securities, in an amount not to exceed 33-1/3% of the value of
the Portfolio's total assets (including the amount borrowed) valued at market
less liabilities (not including the amount borrowed) at the time the borrowing
is made. Whenever borrowings, including reverse repurchase agreements, of 5% or
more of a Portfolio's total assets are outstanding, the Portfolio will not make
any additional investments.
2. No Portfolio may lend its assets or money to other persons,
except through (a) purchasing debt obligations, (b) lending portfolio securities
in an amount not to exceed 30% of the Portfolio's assets taken at market value,
(c) entering into repurchase agreements (d) trading in financial futures
contracts, index futures contracts, securities indexes and options on financial
futures contracts, options on index futures contracts, options on securities and
options on securities indexes and (e) entering into variable rate demand notes.
11
<PAGE>
3. No Portfolio may purchase securities (other than Government
Securities) of any issuer if, as a result of the purchase, more than 5% of the
Portfolio's total assets would be invested in the securities of the issuer,
except that up to 25% of the value of the total assets of each Portfolio, other
than the Money Market Portfolio, may be invested without regard to this
limitation. All securities of a foreign government and its agencies will be
treated as a single issuer for purposes of this restriction.
4. No Portfolio may purchase more than 10% of the voting
securities of any one issuer, or more than 10% of the outstanding securities of
any class of issuer, except that (a) this limitation is not applicable to a
Portfolio's investments in Government Securities and (b) up to 25% of the value
of the assets of a Portfolio, other than the Money Market Portfolio, may be
invested without regard to these 10% limitations. All securities of a foreign
government and its agencies will be treated as a single issuer for purposes of
this restriction.
5. No Portfolio may invest more than 25% of the value of its
total assets in securities of issuers in any one industry. For purposes of this
restriction, the term industry will be deemed to include (a) the government of
any country other than the United States, but not the U.S. Government and (b)
all supranational organizations. In addition, securities held by the Money
Market Portfolio that are issued by domestic banks are excluded from this
restriction.
6. No Portfolio may underwrite any issue of securities, except
to the extent that the sale of portfolio securities in accordance with the
Portfolio's investment objective, policies and limitations may be deemed to be
an underwriting, and except that the Portfolio may acquire securities under
circumstances in which, if the securities were sold, the Portfolio might be
deemed to be an underwriter for purposes of the Securities Act of 1933, as
amended.
7. No Portfolio may purchase or sell real estate or real
estate limited partnership interests, or invest in oil, gas or mineral leases,
or mineral exploration or development programs, except that a Portfolio may (a)
invest in securities secured by real estate, mortgages or interests in real
estate or mortgages, (b) purchase securities issued by companies that invest or
deal in real estate, mortgages or interests in real estate or mortgages, (c)
engage in the purchase and sale of real estate as necessary to provide it with
an office for the transaction of business or (d) acquire real estate or
interests in real estate securing an issuer's obligations, in the event of a
default by that issuer.
12
<PAGE>
8. No Portfolio may make short sales of securities or maintain
a short position, unless at all times when a short position is open, the
Portfolio owns an equal amount of the securities or securities convertible into
or exchangeable for, without payment of any further consideration, securities of
the same issue as, and equal in amount to, the securities sold short.
9. No Portfolio may purchase securities on margin, except that
a Portfolio may obtain any short-term credits necessary for the clearance of
purchases and sales of securities. For purposes of this restriction, the deposit
or payment of initial or variation margin in connection with futures contracts,
financial futures contracts or related options, and options on securities,
options on securities indexes and options on currencies will not be deemed to be
a purchase of securities on margin by a Portfolio.
10. No Portfolio may invest in commodities, except that each
Portfolio (other than the Money Market Portfolio) may invest in futures
contracts (including financial futures contracts, index futures contracts or
securities index futures contracts) and related options and other similar
contracts (including foreign currency forward, futures and options contracts) as
described in this Statement of Additional Information and in the Prospectus.
11. No Portfolio may purchase or sell put options, call
options, spreads or combinations of put options, call options and spreads,
except that (a) each Portfolio, other than the Money Market Portfolio, may
purchase and sell covered put and call options on securities and stock indexes
and futures contracts and options on futures contracts and (b) the Money Market
Portfolio may acquire "puts" and "unconditional puts" as defined in Rule 2a-7
under the 1940 Act.
12. No Portfolio may purchase securities of other investment
companies, other than a security acquired in connection with a merger,
consolidation, acquisition, reorganization or offer of exchange and except as
permitted under the 1940 Act, if as a result of the purchase (a) the Portfolio
would own any securities of an open-end investment company or more than 3% of
the total outstanding voting stock of any closed-end investment company or (b)
more than 5% of the value of the Portfolio's total assets would be invested in
securities of any one or more closed-end investment companies.
13. No Portfolio may invest in companies for the purpose of
exercising control or management.
14. No Portfolio may purchase securities (other than
Government Securities) if, as a result of the purchase, the
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<PAGE>
Portfolio would then have more than 5% of its total assets invested in
securities of companies (including predecessors) that have been in continuous
operation for fewer than three years.
15. No Portfolio may purchase or retain securities of any
company if, to the knowledge of the Trust, any of the Trust's officers or
Trustees or any officer or director of GEIM individually owns more than 1/2 of
1% of the outstanding securities of the company and together they own
beneficially more than 5% of the securities.
16. No Portfolio may purchase warrants (other than warrants
acquired by the Portfolio as part of a unit or attached to securities at the
time of purchase) if, as a result, the investments (valued at the lower of cost
or market) would exceed 5% of the value of the Portfolio's net assets of which
not more than 2% of the value of the Portfolio's net assets may be invested in
warrants not listed on the New York Stock Exchange, Inc. (the "NYSE") or the
American Stock Exchange. For purposes of this restriction, warrants acquired by
a Portfolio in units or attached to securities may be deemed to be without
value. The Money Market Portfolio may not invest in any form of warrants.
17. No Portfolio may purchase illiquid securities if more than
15% of the total assets of the Portfolio would be invested in illiquid
securities; the Money Market Portfolio will not purchase illiquid securities.
For purposes of this restriction, illiquid securities are securities that cannot
be disposed of by a Portfolio within seven days in the ordinary course of
business at approximately the amount at which the Portfolio has valued the
securities.
18. No Portfolio may purchase restricted securities if more
than 10% of the total assets of the Portfolio would be invested in restricted
securities. Restricted securities are securities that are subject to contractual
or legal restrictions on transfer, excluding for purposes of this restriction,
restricted securities that are eligible for resale pursuant to Rule 144A under
the Securities Act of 1933, as amended, that have been determined to be liquid
by the Trust's Board of Trustees based upon the trading markets for the
securities. In no event, however, will any Portfolio's investment in illiquid
and non- publicly traded securities, in the aggregate, exceed 15% of its assets.
The Trust may make commitments more restrictive than the
restrictions listed above with respect to a Portfolio to permit the sale of
shares of the Portfolio in certain states. Should the Trust determine that any
such commitment is no longer in the best interests of a Portfolio and its
shareholders, the Trust will revoke the commitment by terminating the sale of
14
<PAGE>
shares of the Portfolio in the state involved or may otherwise modify its
commitment based on a change in the state's restrictions. The percentage
limitations in the restrictions listed above apply at the time of purchases of
securities. For purposes of investment restriction number 5, the Trust may use
the industry classifications reflected by the S&P 500 Composite Stock Index, if
applicable at the time of determination. For all other portfolio holdings, the
Trust may use Directory of Companies Required to File Annual Reports with the
SEC and Bloomberg Inc. In addition, the Trust may select its own industry
classifications, provided such classifications are reasonable.
PORTFOLIO TRANSACTIONS AND TURNOVER
Decisions to buy and sell securities for each Portfolio are
made by GEIM, subject to review by the Trust'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 Portfolio 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 GEIM deems it to be beneficial to a Portfolio, it may
aggregate the Portfolio's purchase, sale or other activities with those being
performed by GEIM for other customers. In selecting brokers or dealers to
execute securities transactions on behalf of a Portfolio, GEIM seeks the best
overall terms available. In assessing the best overall terms available for any
transaction, GEIM considers factors that it deems relevant, including the
breadth of the market in the security, the price of the security, the financial
condition and execution capability of the broker or dealer and the
reasonableness of the commission, if any, for the specific transaction and on a
continuing basis. In addition, the investment advisory agreement between the
Trust and GEIM relating to each Portfolio authorizes GEIM, on behalf of the
Portfolio, 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
15
<PAGE>
in Section 28(e) of the Securities Exchange Act of 1934) provided to the
Portfolio and/or other accounts over which GEIM or its affiliates exercise
investment discretion. The fees under the investment advisory agreement relating
to a Portfolio will not be reduced by reason of the Portfolio's receiving
brokerage and research services. The Trust's Board of Trustees periodically
reviews the commissions paid by a Portfolio to determine if the commissions paid
over representative periods of time were reasonable in relation to the benefits
inuring to the Portfolio. Over-the-counter purchases and sales on behalf of the
Portfolios will be transacted directly with principal market makers except in
those cases in which better prices and executions may be obtained elsewhere. A
Portfolio will not purchase any security, including Government Securities,
during the existence of any underwriting or selling group relating to the
security of which any affiliate of a Portfolio or GEIM is a member, except to
the extent permitted under rules, interpretations or exemptions of the SEC. All
brokerage transaction commissions paid to affiliates will be fair and reasonable
to the shareholders.
The Money Market Portfolio may attempt to increase its yield
by trading to take advantage of short-term market variations, which trading
would result in the Portfolio'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
Portfolio will not result in the Portfolio's paying high brokerage commissions.
During the year ended December 31, 1996 and during the period
ended December 31, 1995, the following commissions were paid to broker-dealers
for execution of portfolio transactions: U.S. Equity Portfolio paid $297,732 and
$17,532; and the International Portfolio paid $247,676 and $56,558,
respectively. Of such amounts, the following amounts were paid to a broker
because of research services provided during the respective year: U.S. Equity
Portfolio paid $39,502 and $3,612; and the International Portfolio paid $12,853
and $35,385. The Income Portfolio and the Money Market Portfolio made no
payments to broker-dealers for execution of portfolio transactions during the
1996 and 1995 fiscal year.
MANAGEMENT OF THE TRUST
TRUSTEES AND OFFICERS
The names of the Trustees and executive officers of the Trust,
their addresses and their principal occupations during the past five years and
their other affiliations are shown below. The executive officers of the Trust
are employees of organizations that provide services to the Portfolios. An
16
<PAGE>
asterisk appears before the name of each Trustee who is an "interested person"
of the Trust, as defined in the 1940 Act.
17
<PAGE>
<TABLE>
<CAPTION>
Principal
Positions Held Occupation(s)
Name and Address with Trust During Past Five Years
- ---------------- -------------- ----------------------
<S> <C>
*Michael J. Cosgrove Chairman of the Age 47. Executive Vice
3003 Summer Street Board and President President - Mutual Funds of
Stamford, CT 06905 GEIM and General
Electric Investment
Corporation ("GEIC"),
a wholly-owned
subsidiary of General
Electric Company
("GE") that is
registered as an
investment adviser
under the Investment
Advisers Act of 1940,
as amended, since
March 1993
(responsibilities
include general
management of all
mutual funds managed
by GEIM and GEIC) and
Director of GEIC and
Executive Vice
President and
Director of GEIM
since 1988; from 1988
until 1993, Mr.
Cosgrove served as
Executive Vice
President-Finance and
Administration of
GEIM and GEIC.
*Alan M. Lewis Trustee and Age 50. Executive Vice
3003 Summer Street Executive Vice President, General Counsel
Stamford, CT 06905 President and Secretary of GEIM since
1988 and of GEIC since
October 1987.
</TABLE>
18
<PAGE>
<TABLE>
<CAPTION>
Principal
Positions Held Occupation(s)
Name and Address with Trust During Past Five Years
- ---------------- -------------- ----------------------
<S> <C>
John R. Costantino Trustee Age 50. Managing Director,
150 East 58th Street Walden Partners, Ltd.,
New York, NY 10055 consultants and investors,
since August 1992;
President, CMG
Acquisition Corp.,
Inc., a holding
company, since 1988;
Vice Chairman,
Acoustiguide
Holdings, Inc., a
holding company,
since 1989; President
CMG/IKH, Inc., a
holding company,
since 1991; Director,
CrossLand Federal
Savings Bank, a
financial
institution;
Director, Brooklyn
Bankcorp, Inc., a
financial
institution;
Director, IK
Holdings, Inc., a
holding company,
since 1991; Director,
I. Kleinfeld & Son,
Inc., a retailer,
since 1991; Director,
High Performance
Appliances, Inc., a
distributor of
kitchen appliances
("HPA"), since 1991;
Director, HPA Hong
Kong, Ltd., a service
subsidiary of HPA,
since 1991; Director,
Lancit Media
Productions, Ltd., a
children's and family
television film and
videotape production
company, since 1995;
Partner, Costantino
Melamede-Greenberg
Investment Partners,
a general investment
partnership, from
September 1987
through August 1992.
William J. Lucas Trustee Age 49. Vice
Fairfield University President and
North Benson Road Treasurer of
Fairfield, CT 06430 Fairfield
University since
1983.
</TABLE>
19
<PAGE>
<TABLE>
<CAPTION>
Principal
Positions Held Occupation(s)
Name and Address with Trust During Past Five Years
- ---------------- -------------- ----------------------
<S> <C>
Robert P. Quinn Trustee Age 61. Retired since 1983
45 Shinnecock Rd. from Salomon Brothers Inc.;
Quogue, NY 11959 Director, GP Financial Corp.,
a holding company,
since 1994; Director,
The Greenpoint
Savings Bank, a
financial
institution, since
1987.
*Jeffrey A. Groh Treasurer Age 34. Treasurer and
3003 Summer Street Controller of GEIC since
Stamford, CT 06905 August 1994; prior to August,
1994, was a Senior
Manager in Investment
Company Services
Group and certified
public accountant
with Price
Waterhouse.
*Matthew J. Simpson Secretary Age 36. Vice President,
3003 Summer Street Associate General Counsel and
Stamford, CT 06905 Assistant Secretary of GEIM
and GEIC since
October 1992;
attorney with the law
firm of Baker &
McKenzie, April 1991
to October 1992;
prior to April 1991
was an attorney with
the law firm of
Spengler Carlson
Gubar Brodsky &
Frischling.
</TABLE>
No employee of GE or any of its affiliates receives any compen sation from the
Trust for acting as a Trustee or officer of the Trust. Each Trustee of the Trust
who is not a director, officer or employee of GEIM, GE, or any affiliate of
those companies, receives an annual fee of $5,000 and $500 for each meeting of
the Trust's Board of Trustees attended by the Trustee for services as Trustee
and is reimbursed for expenses incurred in connection with attendance at Board
meetings.
20
<PAGE>
Trustees Compensation
(for the year ended December 31, 1996)
Total Total Compensation from
Name of Trustee Compensation from all Investment Companies
- --------------- the Trust Managed by GEIC or GEIM
----------------- -------------------------
Michael J. Cosgrove None None+
Alan M. Lewis None None+
John R. Costantino $7,000 $17,000++
William J. Lucas $7,000 $17,000++
Robert P. Quinn $7,000 $17,000++
- -----------------------
+ Messrs. Cosgrove and Lewis serve as Trustees of two investment
companies advised by GEIM and of eight investment companies advised by
GEIC. They are considered to be interested persons of each investment
company advised by GEIM or GEIC, as defined under Section 2(a)(19) of
the 1940 Act, and accordingly, serve as Trustees thereof without
compensation.
++ Messrs. Costantino, Lucas and Quinn serve as Trustees of two investment
companies advised by GEIM and the compensation is for their services as
Trustees of both companies.
INVESTMENT ADVISER AND ADMINISTRATOR
GEIM, located at 3003 Summer Street, P.O. Box 7900, Stamford,
Connecticut 06904-7900, a wholly-owned subsidiary of GE, bears all expenses in
connection with the performance of its services as each Portfolio's investment
adviser and administrator. For the years ended December 31, 1996 and 1995, the
International Portfolio, the Equity Portfolio, the Income Portfolio and the
Money Market Portfolio paid $25,469 and $77,057, $33,323 and $53,162, $16,244
and $22,614, and $13,273 $15,595, respectively, for investment advisory and
administration services. Pursuant to state securities laws, GEIM has agreed
that, if in any fiscal year of a Portfolio, the aggregate expenses of a
Portfolio (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 Trust, GEIM will reimburse the Trust up to the
amount of the Portfolio's investment advisory fees. As of the date of this
Statement of Additional Information, the most restrictive state expense
limitation
21
<PAGE>
applicable to the Portfolios requires reimbursement of expenses in any year that
a Portfolio's expenses, subject to the limitation, exceed 2-1/2% of the first
$30 million of the average daily value of the Portfolio's net assets, 2% of the
next $70 million of the average daily value of the Portfolio's net assets and
1-1/2% of the remaining average daily value of the Portfolio's net assets.
CUSTODIAN AND TRANSFER AGENT
State Street Bank and Trust Company ("State Street") is
located at 225 Franklin Street, Boston, Massachusetts 02101 and serves as
custodian and transfer agent of the Portfolios' investments. Under its custodian
contract with the Trust, State Street is authorized to appoint one or more
banking institutions as subcustodians of assets owned by each Portfolio. For its
custody services, State Street receives monthly fees charged to the Portfolios
based upon the month-end, aggregate net asset value of the Portfolios, plus
certain charges for securities transactions. The assets of the Trust are held
under bank custodianship in accordance with the 1940 Act. As transfer agent,
State Street is responsible for processing redemption requests and crediting
dividends to the accounts of shareholders of the Portfolios.
REDEMPTION OF SHARES
Information on how to redeem shares of a Portfolio is included
in the Prospectus. The right of redemption of shares of a Portfolio may be
suspended or the date of payment postponed (1) for any periods during which the
NYSE is closed (other than for customary weekend and holiday closings), (2) when
trading in the markets the Portfolio normally utilizes is restricted, or an
emergency, as defined by the rules and regulations of the SEC, exists, making
disposal of a Portfolio's investments or determination of its net asset value
not reasonably practicable or (3) for such other periods as the SEC by order may
permit for the protection of the Portfolio's shareholders. The separate
accounts' policies on when or whether to buy or redeem shares of a Portfolio are
described in the prospectus relating to the applicable variable annuity
contract.
EXCHANGE PRIVILEGE
The exchange privilege described in the Prospectus enables a
separate account to exchange its shares in a Portfolio for shares in another
Portfolio having a different investment objectives and policies, as described
herein. Upon receipt of proper instructions and all necessary supporting
documents,
22
<PAGE>
shares submitted for exchange are redeemed at the then-current net asset value
and the proceeds are immediately invested in shares of the Portfolio being
acquired. The Trust reserves the right to reject any exchange request.
NET ASSET VALUE
The Trust will not calculate net asset value on certain
holidays. On those days, securities held by a Portfolio may nevertheless be
actively traded, and the value of the Portfolio's shares could be significantly
affected.
Because of the need to obtain prices as of the close of
trading on various exchanges throughout the world, the calculation of the net
asset value of a Portfolio 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 Portfolios initially expressed
in foreign currency values will be converted into U.S. dollar values at the mean
between the bid and offered quotations of the currencies against U.S. dollars as
last quoted by any recognized dealer. If these quotations are not available, the
rate of exchange will be determined in good faith by the Trust's Board of
Trustees. In carrying out the Board's valuation policies, GEIM may consult with
one or more independent pricing services ("Pricing Service") retained by the
Trust.
Certain fixed income securities are valued by a dealer or by a
pricing service based upon a computerized matrix system, which considers market
transactions and dealer supplied valuations. Futures contracts are valued at the
settlement price established each day by the board of trade or exchange on which
they are principally traded.
The valuation of the portfolio securities of the Money Market
Portfolio is based upon amortized cost, which does not take into account
unrealized capital gains or losses. Amortized cost valuation involves initially
valuing an instrument at its cost and thereafter assuming a constant
amortization to maturity of any discount or premium, regardless of the effect of
fluctuating interest rates on the market value of the instrument. Although this
method provides certainty in valuation, it may result in periods during which
value, as determined by amortized cost, is higher or lower than the price the
Money Market Portfolio would receive if it sold the instrument.
The use of the amortized cost method of valuing the
23
<PAGE>
portfolio securities of the Money Market Portfolio is permitted by a rule
adopted by the SEC. Under this rule, the Money Market Portfolio 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 GEIM to
present minimal credit risks. Pursuant to the rule, GEIM has established
procedures designed to stabilize, to the extent reasonably possible, the
Portfolio's price per share as computed for the purpose of sales and redemptions
at $1.00. These procedures include review of the Money Market Portfolio's
holdings at such intervals as GEIM may deem appropriate, to determine whether
the Portfolio's net asset value calculated by using available market quotations
or market equivalents deviates from $1.00 per share based on amortized cost.
The rule regarding amortized cost valuation provides that the
extent of any deviation between the Money Market Portfolio's net asset value
based upon available market quotations or market equivalents and the $1.00 per
share net asset value based on amortized cost must be examined by the Trust'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 shareholders of the Money Market Portfolio, the Board of
Trustees must, in accordance with the rule, cause the Portfolio to take such
corrective action as the Board of Trustees regards as necessary and appropriate,
including: selling instruments held by the Portfolio prior to their maturity to
realize capital gains or losses or to shorten average portfolio maturity;
withholding dividends or paying distributions from capital or capital gains;
redeeming shares in kind; or establishing a net asset value per share by using
available market quotations.
TAXATION
Set forth below is a summary of certain Federal income tax
considerations generally affecting the Portfolios and their shareholders. The
summary is not intended as a substitute for individual tax planning, and
shareholders are urged to consult their tax advisors regarding the application
of Federal, state, local and foreign tax laws to their specific tax situations.
Shares of the Portfolios are currently offered only to
insurance company separate accounts that fund certain variable annuity contracts
(the "Contracts"). See the applicable Contract prospectus for a discussion of
the special taxation of insurance companies with respect to such accounts and of
Contract holders.
24
<PAGE>
Each Portfolio will be treated as a separate entity for
federal income tax purposes. Each Portfolio's net investment income and capital
gains distributions are determined separately from any other series that the
Trust may designate.
REGULATED INVESTMENT COMPANY STATUS
The Trust intends that each Portfolio will qualify separately
each year as a "regulated investment company" under the Code. If a Portfolio (1)
is a regulated investment company and (2) distributes to its shareholders at
least 90% of its net investment income (including for this purpose its net
realized short-term capital gains) and 90% of its tax-exempt interest income
(reduced by certain expenses), the Portfolio will not be liable for Federal
income taxes to the extent that its net investment income and its net realized
long-term and short-term capital gains, if any, are distributed to its
shareholders. In addition, in order to avoid a 4% excise tax, a Portfolio 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 period ending on
October 31 of such calendar year and all undistributed income from prior years.
The requirements for qualifications as a regulated investment
company include two significant rules as to investment results. First, a
Portfolio 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"). Second, a Portfolio must earn less than 30% of its
gross income from short-term (less than three months) gains on the sale of
certain investments (the "30% Test").
The 30% Test will restrict the extent to which a Portfolio
may, among other things: (1) sell or purchase put options on securities held for
less than three months or purchase put options on substantially identical
securities (unless the option and the security are acquired on the same day);
(2) write options that expire in less than three months; and (3) close options
that were written or purchased within the preceding three months. For purposes
of the 30% Test, a Portfolio's increases or decreases in value of short-term
investment positions that constitute certain designated hedging transactions may
generally be netted. The Trust does not expect that the 30% Test will
significantly affect the investment policies of any Portfolio.
A Portfolio's transactions in options and futures
25
<PAGE>
contracts are subject to special provisions of the Code that, among other
things, may affect the character of gains and losses realized by the Portfolio
(that is, may affect whether gains or losses are ordinary or capital),
accelerate recognition of income to the Portfolio and defer losses of the
Portfolio. These rules (1) could affect the character, amount and timing of
distributions to shareholders of a Portfolio, (2) will require the Portfolio 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 Portfolio 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 Trust seeks to monitor
transactions of each Portfolio, will seek to make the appropriate tax elections
on behalf of the Portfolio and seeks to make the appropriate entries in the
Portfolio's books and records when the Portfolio acquires any option, futures
contract or hedged investment, to mitigate the effect of these rules and prevent
disqualification of the Portfolio as a regulated investment company.
SEGREGATED ASSET ACCOUNT
The Trust has been informed that each of the separate accounts
intends to qualify as a "segregated asset account" within the meaning of the
Code. For a separate account to qualify as a segregated asset account, the
Portfolio in which such separate account holds shares must meet the
diversification requirements of Section 817(h) of the Code and the regulations
promulgated thereunder. To meet those requirements, a Portfolio may not invest
more than certain specified percentages of its assets in the securities of any
one, two, three or four issuers. For these purposes, all obligations of the U.S.
Treasury and each U.S. Government instrumentality are treated as securities of
separate issuers.
Income on assets of a separate account qualified as a
segregated asset account whose underlying investments are adequately diversified
will not be taxable to Contract holders. However, in the event a separate
account is not so qualified, all annuities allocating any amount of premiums to
such separate account will not qualify as annuities for federal income tax
purposes and the holders of such annuities would be taxed on any income on the
annuities during the period of disqualification.
The Trust has undertaken to meet the diversification
requirements of Section 817(h) of the Code. This undertaking may limit the
ability of a particular Portfolio to make certain otherwise permitted
investments. In particular, the ability of the Money Market Portfolio and the
Income Portfolio to invest in U.S. Government securities may be materially
limited by these
26
<PAGE>
diversification requirements.
THE PORTFOLIOS' PERFORMANCES
As noted in the Prospectus, the Trust, from time to time, may
quote a Portfolio's performance, in terms of its yield and/or total return, in
reports or other communications to shareholders of the Portfolio 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 Portfolio is computed by (1)
determining the net change in the value of a hypothetical preexisting account in
the Portfolio having a balance of one share at the beginning of a
seven-calendar-day period for which yield is to be quoted, (2) dividing the net
change by the value of the account at the beginning of the period to obtain the
base period return, and (3) annualizing the results (that is, multiplying the
base period return by 365/7). The net change in the value of the account
reflects the value of additional shares purchased with dividends declared on the
original share and any such additional shares, but does not include realized
gains and losses or unrealized appreciation and depreciation. In addition, the
Money Market Portfolio 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 described in the Prospectus is
calculated for a Portfolio (other than the Money Market Portfolio) according to
a formula prescribed by the SEC. The formula can be expressed as follows:
Yield = 2[(a-b + 1)6-1]
cd
Where:
a = dividends and interest earned during the period.
b = expenses accrued for the period (net of
reimbursement).
c = the average daily number of shares outstanding during
the period that were entitled to receive dividends.
d = the maximum offering price per share on the last
27
<PAGE>
day of the period.
For the purpose of determining the interest earned (variable
"a" in the formula) on debt obligations that were purchased by a Portfolio at a
discount or premium, the formula generally calls for amortization of the
discount or premium; the amortization schedule will be adjusted monthly to
reflect changes in the market values of the debt obligations.
Investors should recognize that, in periods of declining
interest rates, the yield will tend to be somewhat higher than prevailing market
rates, and in periods of rising interest rates the yield will tend to be
somewhat lower. In addition, when interest rates are falling, moneys received by
a Portfolio from the continuous sale of its shares will likely be invested in
portfolio instruments producing lower yields than the balance of its holdings,
thereby reducing the current yield of the Portfolio. In periods of rising
interest rates, the opposite result can be expected to occur.
Yield information is useful in reviewing the perfor mance of a
Portfolio, but because yields fluctuate, this information cannot necessarily be
used to compare an investment in shares of the Portfolio with bank deposits,
savings accounts and similar investment alternatives that often provide an
agreed or guaranteed fixed yield for a stated period of time. Shareholders of a
Portfolio should remember that yield is a function of the kind and quality of
the instruments in the Portfolio's holdings, portfolio maturity, operating
expenses and market conditions.
AVERAGE ANNUAL TOTAL RETURN
The "average annual total return" figures described in the
Prospectus, are computed for a Portfolio (other than the Money Market Portfolio)
according to a formula prescribed by the SEC. The formula can be expressed as
follows:
P(1 + T)n = ERV
Where P = a hypothetical initial payment of $1,000;
T = average annual total return;
n = number of years; and
ERV = Ending Redeemable Value of a hypothetical $1,000
investment made at the beginning of a 1-, 5- or
10-year period at the end of a 1-, 5- or 10-year
period (or fractional portion thereof), assuming
reinvestment of all dividends and distributions.
The ERV assumes complete redemption of the hypothetical
investment at the end of the measuring period.
28
<PAGE>
AGGREGATE TOTAL RETURN
The "aggregate total return" figures described in the
Prospectus represent the cumulative change in the value of an investment in a
Portfolio (other than the Money Market Portfolio) for the specified period and
are 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.
PRINCIPAL STOCKHOLDERS
Great Northern Insured Annuity Corporation ("GNA") is the only
person known to the Trust to be a control person of each of the Portfolios. So
long as GNA owns in excess of 25% of the amount of outstanding shares of a
Portfolio it will be deemed to be a control person; however, assuming no further
investment by GNA, an increase in the amount of assets of a Portfolio will
result in a diminution of its holdings. The following persons are the only
persons known by the Trust to hold beneficially more than 5% of the outstanding
shares of any class of the Funds as of March 31, 1997:
Name and Address
of Record Amount of Percent of
Ownership Name of Portfolio Ownership Portfolio
- --------- ----------------- --------- ---------
Great Northern International 450,223 shares 99.67%
Insured Annuity Portfolio
Corporation*
("GNA")
Two Union Square
Seattle, WA 98101
GNA* Equity Portfolio 863,965 shares 99.82%
Two Union Square
Seattle, WA 98101
GNA* Income Portfolio 443,624 shares 95.44%
Two Union Square
Seattle, WA
98101
29
<PAGE>
Name and Address
of Record Amount of Percent of
Ownership Name of Portfolio Ownership Portfolio
- --------- ----------------- --------- ---------
GNA* Money Market 4,600,598 shares 99.52%
Two Union Square Portfolio
Seattle, WA
98101
- --------------------
* The ownership interest of GNA is held in insurance separate accounts
established by GNA in connection with a variable annuity and modified
guaranteed annuity contract (the "Contract"). No person or entity
participating under the Contract is known to the Trust to be a control
person of any Portfolio.
ADDITIONAL INFORMATION
The Trust was organized as an unincorporated business trust
under the laws of The Commonwealth of Massachusetts pursuant to a Declaration of
Trust dated February 25, 1994, as amended from time to time (the "Declaration").
In the interest of economy and convenience, certificates representing shares of
a Portfolio are not physically issued. State Street maintains a record of each
shareholder's ownership of shares of a Portfolio.
Massachusetts law provides that shareholders of the Portfolios
could, under certain circumstances be held personally liable for the obligations
of the Trust. The Declaration disclaims shareholder liability for acts or
obligations of the Trust, however, and requires that notice of the disclaimer be
given in each agreement, obligation or instrument entered into or executed by
the Trust or a Trustee of the Trust. The Declaration provides for
indemnification from the property of a Portfolio for all losses and expenses of
any shareholder of the Portfolio held personally liable for the obligations of
the Portfolio. Thus, the risk of a shareholder of a Portfolio's incurring
financial loss on account of shareholder liability is limited to circumstances
in which the Portfolio would be unable to meet its obligations, a possibility
that the Trust's management believes is remote. Upon payment of any liability
incurred by a Portfolio, the shareholder paying the liability will be entitled
to reimbursement from the general assets of the Portfolio. The Trustees intend
to conduct the operations of the Trust and the Portfolios in such a way so as to
avoid, as far as practicable, ultimate liability of the shareholders for
liabilities of the Portfolios.
COUNSEL
30
<PAGE>
Willkie Farr & Gallagher, 153 East 53rd Street, New York, New
York 10022, serves as counsel for the Trust.
INDEPENDENT ACCOUNTANTS
KPMG Peat Marwick LLP, 345 Park Avenue, New York, New York
10154, serves as independent accountants of the Trust.
FINANCIAL STATEMENTS
The Annual Report, dated December 31, 1996, 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.
31
<PAGE>
APPENDIX
DESCRIPTION OF RATINGS
COMMERCIAL PAPER RATINGS
The rating A-1+ is the highest, and A-1 the second highest commercial
paper rating assigned by S&P. Paper rated A-1+ must have either the direct
credit support of an issuer or guarantor that possesses excellent long-term
operating and financial strength combined with strong liquidity characteristics
(typically, such issuers or guarantors would display credit quality
characteristics that would warrant a senior bond rating of AA or higher) or the
direct credit support of an issuer or guarantor that possesses above average
long-term fundamental operating and financing capabilities combined with ongoing
excellent liquidity characteristics. Paper rated A-1 must have the following
characteristics: liquidity ratios are adequate to meet cash requirements;
long-term senior debt is rated A or better; the issuer has access to at least
two additional channels of borrowing; basic earnings and cash flow have an
upward trend with allowance made for unusual circumstances; typically, the
issuer's industry is well established and the issuer has a strong position
within the industry; and the reliability and quality of management are
unquestioned. Capacity for timely payment on issues rated A-2 is satisfactory.
However, the relative degree of safety is not as high as issues designated
"A-1."
The rating Prime-1 is the highest commercial paper rating assigned by
Moody's. Among the factors considered by Moody's in assigning ratings are the
following: (a) evaluation of the management of the issuer; (b) economic
evaluation of the issuer's industry or industries and an appraisal of
speculative-type risks that may be inherent in certain areas; (c) evaluation of
the issuer's products in relation to competition and customer acceptance; (d)
liquidity; (e) amount and quality of long-term debt; (f) trend of earnings over
a period of ten years; (g) financial strength of parent company and the
relationships that exist with the issue; and (h) recognition by the management
of obligations that may be present or may arise as a result of public interest
questions and preparations to meet the obligations.
Issuers rated Prime-2 (or supporting institutions) have a strong
ability for repayment of senior short-term debt obligations. This normally will
be evidenced by many of the characteristics cited above, but to a lesser degree.
Earnings trends and coverage ratios, while sound, may be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
A-1
<PAGE>
Short-term obligations, including commercial paper, rated A-1+ by IBCA
Limited or its affiliate IBCA Inc. are obligations supported by the highest
capacity for timely repayment. Obligations rated A-1 have a very strong capacity
for timely repayment. Obligations rated A-2 have a strong capacity for timely
repayment, although that capacity may be susceptible to adverse changes in
business, economic and financial conditions.
Fitch Investors Services, Inc. employs the rating F-1+ to indicate
issues regarded as having the strongest degree of assurance of timely payment.
The rating F-1 reflects an assurance of timely payment only slightly less in
degree than issues rated F-1+, while the rating F-2 indicates a satisfactory
degree of assurance of timely payment although the margin of safety is not as
great as indicated by the F-1+ and F-1 categories.
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 Portfolios, in accordance with industry practice,
recognize such ratings within categories or gradations, viewing for example
S&P's ratings of A-1+ and A-1 as being in S&P's highest rating category.
DESCRIPTION OF S&P CORPORATE BOND RATINGS
AAA -- This is the highest rating assigned by S&P to a bond and
indicates an extremely strong capacity to pay interest and repay principal.
AA -- Bonds rated AA have a very strong capacity to pay interest and
repay principal and differ from AAA issues only in
A-2
<PAGE>
small degree.
A -- Bonds rated A have a strong capacity to pay interest and repay
principal although they are somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than debt in higher rated
categories.
BBB -- Bonds rated BBB have an adequate capacity to pay interest and
repay principal. Adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
bonds in this category (even though they normally exhibit adequate protection
parameters) than for bonds in higher rated categories.
BB, B and CCC -- Bonds rated BB and B are regarded, on balance, as
predominately speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligation. BB represents a lower
degree of speculation than B, and CCC the highest degree of speculation. While
such bonds will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major risk exposures to adverse
conditions.
To provide more detailed indications of credit quality, the ratings
from AA to B may be modified by the addition of a plus or minus sign to show
relative standing within this major rating category.
DESCRIPTION OF MOODY'S CORPORATE BOND RATINGS
Aaa -- Bonds that are rated Aaa are judged to be of the best quality.
They carry the smallest degree of investment risk and are generally referred to
as "gilt edge." Interest payments are protected by a large or exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
Aa -- Bonds that are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present that
make the long-term risks appear somewhat larger than in Aaa securities.
A -- Bonds that are rated A possess favorable investment attributes and
are to be considered as upper medium grade obligations. Factors giving security
to principal and interest are considered adequate, but elements may be present
that suggest
A-3
<PAGE>
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>
VARIABLE INVESTMENT TRUST
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Financial Statements:
(1) Financial Highlights**
(2) Schedule of Investments as of December 31, 1996**
(3) Statements of Assets and Liabilities as of
December 31, 1996**
(4) Statement of Operations for the fiscal year ended
December 31, 1996**
(5) Statement of Changes in Net Assets for the fiscal
years ended December 31, 1996 and December 31,
1995**
- --------------------
** Incorporated by reference to the Trust's Annual Report to shareholders
for the fiscal year ended December 31, 1996.
(b) Exhibits
Exhibit
No. Description of Exhibit
------- ----------------------
1 Declaration of Trust*
2 By-Laws*
3 Inapplicable
4 Inapplicable
- ------------------------
* Previously filed
C-1
<PAGE>
5 Investment Advisory Agreement*
6 Inapplicable
7 Inapplicable
8 Custodian Contract*
9(a) Transfer Agency Agreement and Service Agreement*
9(b) Administration Agreement*
10(a) Opinion of Willkie Farr & Gallagher, including
consent*
11 Consent of Price Waterhouse
12 Inapplicable
13 Purchase Agreement*
14 Inapplicable
15 Inapplicable
16 Schedule of computation of performance data
information
- ----------------------------------
* Previously filed
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 29, 1997
-------------- ----------------------------
Shares 10
C-2
<PAGE>
Item 27. Indemnification
Reference is made to Article IV of the Declaration of Trust of
Variable Investment Trust (the "Registrant") filed as Exhibit 1 to this
Registration Statement. Insofar as indemnification for liability arising under
the Securities Act of 1933, as amended (the "Securities Act"), may be permitted
for Trustees, officers and controlling persons of the Registrant pursuant to the
provisions of Registrant's Declaration of Trust, or otherwise, the Registrant
has been advised that, in the opinion of the Securities and Exchange Commission,
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a Trustee, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
Trustee, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities 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 Trust" in the
Prospectus forming Part A, and "The Management of the Trust" 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
GEIM, 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
Form ADV filed by GEIM pursuant to the Investment Advisers Act of 1940, as
amended (SEC File No. 801-31947).
Item 29. Principal Underwriters
Inapplicable.
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
C-3
<PAGE>
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 custodian and transfer agent, located at 225 Franklin
Street, Boston, Massachusetts 02101; and Boston Financial Data Services, Inc., a
subsidiary of State Street, located at 2 Heritage Drive, Quincy, Massachusetts
02171.
Item 31. Management Services
Inapplicable.
Item 32. Undertakings
(a) Registrant undertakes to call a meeting of the
shareholders of each Portfolio for the purpose of voting upon the question of
removal of a trustee or trustees of the Registrant when requested in writing to
do so by the holders of at least 10% of the Registrant's outstanding shares and,
in connection with the meeting, to comply with the provisions of Section 16(c)
of the 1940 Act relating to communications with the shareholders of certain
common-law trusts.
(b) 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 1996, upon request and without charge.
C-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as
amended, and the Investment Company Act of 1940, as amended, Registrant
certifies that it meets all of the requirements for effectiveness of this
Registration Statement pursuant to Rule 485(b) under the Securities Act of 1933
and has duly caused this 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 23rd day of April, 1997.
By: /s/ Michael J. Cosgrove
-----------------------
Michael J. Cosgrove
President and Chairman
of the Board
Pursuant to the requirements of the Securities Act of 1933, as
amended, this Amendment to Registrant's Registration Statement on Form N-1A has
been signed below by the following persons in the capacities and on the dates
indicated.
Signature Title Date
- --------- ----- ----
/s/ Michael J. Cosgrove President and Chairman April 23, 1997
- ----------------------- of the Board
Michael J. Cosgrove (Chief Executive Officer)
/s/ Alan M. Lewis Executive Vice President April 23, 1997
- ----------------------- and Trustee
Alan M. Lewis
/s/ John R. Costantino Trustee April 23, 1997
- -----------------------
John R. Costantino
/s/ William J. Lucas Trustee April 23, 1997
- -----------------------
William J. Lucas
/s/ Robert P. Quinn Trustee April 23, 1997
- -----------------------
Robert P. Quinn
/s/ Jeffrey A. Groh Treasurer April 23, 1997
- ----------------------- (Chief Financial and
Jeffrey A. Groh Accounting Officer)
C-5
<PAGE>
EXHIBIT INDEX
Exhibit No. Description of Exhibit
11 Consent of Price Waterhouse
16 Schedule of computation of performance
data information
- --------------------------
*Previously filed
C-6
Exhibit 11
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Statement of Additional Information
constituting part of this Post-Effective Amendment No. 3 to the registration
statement on Form N-1A (the "Registration Statement") of our report dated
February 11, 1997, that is included in the December 31, 1996 annual report of
Variable Investment Trust, which is incorporated herein by reference, and to the
reference to our firm, included herein under the caption "Financial Highlights"
in the Prospectus.
Price Waterhouse LLP
Boston, Massachusetts
April 29, 1997
Exhibit 16
<PAGE>
Schedule of Computation of
Performance Data Information
<PAGE>
VIT FIXED INCOME FUND
TOTAL RETURN FOR FISCAL YEAR ENDED DECEMBER 1996
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
A B C D E F G H I J K L
CAPITAL CAPITAL GAINS INCOME CURRENT
INCOME PER GAINS REINVEST. UNIT INCOME UNITS UNITS TOTAL ACCOUNT MONTH YTD
PERIOD UNIT UNIT VALUE VALUE EARNED PURCHASED PURCHASED UNITS VALUE RETURN RETURN
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Dec-95 12.53 1000.000 12530.00
Jan-96 0.0639182 12.54 12.54 63.918 0.000 5.097 1005.097 12603.92 0.59% 0.59%
Feb-96 0.0608311 12.34 12.25 61.141 0.000 4.991 1010.088 12373.58 -1.83% -1.25%
Mar-96 0.0626776 12.16 12.09 63.310 0.000 5.237 1015.325 12275.28 -0.79% -2.03%
Apr-96 0.0614023 11.99 11.94 62.343 0.000 5.221 1020.546 12185.32 -0.73% -2.75%
May-96 0.0627910 11.95 11.85 64.081 0.000 5.408 1025.954 12157.55 -0.23% -2.97%
Jun-96 0.0634699 11.81 11.92 65.117 0.000 5.463 1031.417 12294.49 1.13% -1.88%
Jul-96 0.0647172 11.85 11.89 66.750 0.000 5.614 1037.031 12330.30 0.29% -1.59%
Aug-96 0.0657966 11.93 11.80 68.233 0.000 5.782 1042.813 12305.20 -0.20% -1.79%
Sep-96 0.0642608 0.261 11.68 11.68 67.012 23.343 5.737 1071.893 12519.71 1.74% -0.08%
Oct-96 0.0636000 11.77 11.86 68.172 0.000 5.748 1077.641 12780.82 2.09% 2.00%
Nov-96 0.0629128 11.96 12.00 67.797 0.000 5.650 1083.291 12999.49 1.71% 3.75%
Dec-96 0.0636779 11.87 11.84 68.982 0.000 5.826 1089.117 12895.15 -0.80% 2.91%
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Annual return for one year equals:
(Ending Account Value - Beginning Account Value)/Beginning Account Value
- --------------------------------------------------------------------------------
1) Input numbers for columns A,B,C,D,E
A = Month - Year
B = Income per unit
C = Capital Gains per unit
D = Capital Gain Reinvestment NAV
E = NAV per unit at Month End
2) F = I^ * B, where I^ is from prior month
3) G = I^ *C/D, where I^ is from prior month
4) H = F/E
5) I = I^ + H, wher I^ is from prior month
6) J= E/I
7) K =(J-J^)/J^, where J^ is from prior month
8) L = ((L^ + 1)*(K + 1))-1, where L^ is from prior month
<PAGE>
ELFUN MONEY MARKET
TOTAL RETURN FOR FISCAL YEAR ENDED DECEMBER 1996
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
A B C D E F G H I J K L
CAPITAL CAPITAL GAINS INCOME CURRENT
INCOME PER GAINS REINVEST. UNIT INCOME UNITS UNITS TOTAL ACCOUNT MONTH YTD
PERIOD UNIT UNIT VALUE VALUE EARNED PURCHASED PURCHASED UNITS VALUE RETURN RETURN
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Dec-95 1000.000 1000.00
Jan-96 0.0042639 1 1 4.264 0.000 4.264 1004.264 1004.26 0.43% 0.43%
Feb-96 0.0039015 1 1 3.918 0.000 3.918 1008.182 1008.18 0.39% 0.82%
Mar-96 0.0040559 1 1 4.089 0.000 4.089 1012.271 1012.27 0.41% 1.23%
Apr-96 0.0039082 1 1 3.956 0.000 3.956 1016.227 1016.23 0.39% 1.62%
May-96 0.0040406 1 1 4.106 0.000 4.106 1020.334 1020.33 0.40% 2.03%
Jun-96 0.0039368 1 1 4.017 0.000 4.017 1024.350 1024.35 0.39% 2.44%
Jul-96 0.0039454 1 1 4.041 0.000 4.041 1028.392 1028.39 0.39% 2.84%
Aug-96 0.0039563 1 1 4.069 0.000 4.069 1032.460 1032.46 0.40% 3.25%
Sep-96 0.0038256 1 1 3.950 0.000 3.950 1036.410 1036.41 0.38% 3.64%
Oct-96 0.0039754 1 1 4.120 0.000 4.120 1040.530 1040.53 0.40% 4.05%
Nov-96 0.0038299 1 1 3.985 0.000 3.985 1044.516 1044.52 0.38% 4.45%
Dec-96 0.0039409 1 1 4.116 0.000 4.116 1048.632 1048.63 0.39% 4.86%
- ----------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Annual return for one year equals:
(Ending Account Value - Beginning Account Value)/Beginning Account Value
- --------------------------------------------------------------------------------
1) Input numbers for columns A,B,C,D,E
A = Month - Year
B = Income per unit
C = Capital Gains per unit
D = Capital Gain Reinvestment NAV
E = NAV per unit at Month End
2) F = I^ * B, where I^ is from prior month
3) G = I^ *C/D, where I^ is from prior month
4) H = F/E
5) I = I^ + H, wher I^ is from prior month
6) J= E/I
7) K =(J-J^)/J^, where J^ is from prior month
8) L = ((L^ + 1)*(K + 1))-1, where L^ is from prior month
<PAGE>
VIT U.S. EQUITY
CALCULATION OF 1996 TOTAL RETURN
This method compares a fund's net asset value (NAV), at the beginning and end of
a This method compares a fund's net asset value (NAV), at the beginning and end
of a period with the results being expressed as a percent change of the
beginning net asset period with the results being expressed as a percent change
of the beginning net asset value. The net asset value is adjusted to reflect the
compounding effect of reinvesting value. The net asset value is adjusted to
reflect the compounding effect of reinvesting dividends as well as capital gains
distributions, if any. Dividends and distributions are dividends as well as
capital gains distributions, if any. Dividends and distributions are reinvested
on the ex-dividend date at the ex-dividend NAV. reinvested on the ex-dividend
date at the ex-dividend NAV.
The following computation illustrates this methodology for 1996.
Factual Data VIT U.S. EQUITY
1. Opening NAV 12/29/95 19.27
2. Closing NAV 12/31/96 21.11
3. Distributions:
Ex Date 12/27/96
Amount / Unit 2.39271
NAV on ex-date 21.54
Ordinary Income 0.3475
Short Term Capital Gains 1.26493
Long Term Capital Gains 0.78028
Computation
= 21.11 * (1+ ( 2.39271 / 21.54 )) -19.27)
---------------------------------------------------------
19.27
= 0.217174
= 0.217174 or 21.72%
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VIT INTERNATIONAL
CALCULATION OF 1996 TOTAL RETURN
This method compares a fund's net asset value (NAV), at the beginning and end of
a period with the results being expressed as a percent change of the beginning
net asset value. The net asset value is adjusted to reflect the compounding
effect of reinvesting dividends as well as capital gains distributions, if any.
Dividends and distributions are reinvested on the ex-dividend date at the
ex-dividend NAV.
The following computation illustrates this methodology for 1996.
Factual Data VIT INTERNATIONAL
1. Opening NAV 12/29/95 17.37
2. Closing NAV 12/31/96 18.34
3. Distributions:
Ex Date 12/27/96
Amount / Unit 1.80733
NAV on ex-date 18.14
Ordinary Income 0.07953
Short Term Capital Gains 1.38949
Long Term Capital Gains 0.33831
Computation
= 18.*4 (1+ ( 1.80733 / 18.14 )) -17.37)
------------------------------------------------------
17.37
= 0.16104
= 0.16104 or 16.10%
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VIT MONEY MARKET FUND
CURRENT 7 DAY YIELD AND EFFECTIVE 7 DAY YIELD AS OF DECEMBER 31, 1996
- ------------------------------------------------------------------------------
A B C D E F
Daily Current Effective
Daily Shares Income Rate 7 Day 7 Day
Date Income Outstanding Per Share Yield Yield
- ------------------------------------------------------------------------------
25-Dec 557.41 4,423,056.75 0.000126023
26-Dec 563.66 4,440,107.14 0.000126947
27-Dec 581.74 4,440,107.14 0.000131019
28-Dec 581.74 4,440,107.14 0.000131019
29-Dec 581.74 4,440,107.14 0.000131019
30-Dec 596.09 4,440,107.14 0.000134251
31-Dec 592.11 4,399,212.37 0.000134595 4.77% 4.88%
- ------------------------------------------------------------------------------
0.000914873
- ------------------------------------------------------------------------------
1) Input Numbers for columns A, B, C
2) D= B/C
3) E = ((Sum of Column D) / 7 Days) * 365 Days
4) F = (( 1 + Sum of Column D) ^ (365/7)) -1
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VIT FIXED INCOME FUND
Year to Date percentage return equals
Ending Account Value -1
--------------------
Beginning Account Value
where
Beginning Account Value = the net asset value (NAV) at the
beginning of the year multiplied by 1000 "beginning
units" (a hypothetical number of Units.)
Ending Account Value = Ending Units x NAV at the end of the year
Ending Units Beginning units + number of units purchased month 1
+ number of units purchased month 2 ... ...continued
through month 12.
Income Units Purchased
Each Month = Total Income Earned that Month NAV at end of month
Income Earned = Income per unit multiplied by total number
of units through end of prior months.
See attached Return calculations for the Period ending December 31, 1996.
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VIT FIXED INCOME FUND 30 DAY SEC YIELD CALCULATION
SEC Yield = 2 ((((A-B)/(C-D)+1)^6)-1)
Where:
A = Dividends and Interest earned during the period
B = Expenses accrued for the period
C = Average daily number of shares outstanding during the period that were
entitled to dividends
D = Offering price per unit on the last day of the period
The calculation below is based on the 30 day period ending December 31, 1995.
2((( 31090.75 - 3326.9)/( 455372.43 * 11.89)+1)^6)-1)
= 6.23%
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