[GE LOGO]
ELFUN FUNDS
[PHOTO]
ANNUAL REPORT
DECEMBER 31, 1996
<PAGE>
Understanding Your Report
Chairman's Letter 1
Review of Performance and
Schedules of Investments
Portfolio managers discuss your Funds' results in 1996
Elfun Global Fund 3
Elfun Trusts 8
Elfun Diversified Fund 13
Elfun Tax-Exempt Income Fund 22
Elfun Income Fund 30
Elfun Money Market Fund 37
Notes to Performance and
Schedules of Investments 40
Financial Statements 41
Financial Highlights and Statements of Assets and
Liabilities, Operations, and Changes in Net Assets
Notes 50
Notes to the Financial Statements
Independent Auditors' Report 55
The Auditors' opinion
Elfun Funds Investment Team 56
Shareholder Services Inside back cover
How you can obtain more information
Top Rated Elfun Funds
BY MORNINGSTAR
Through December 31, 1996
- --------------------------------------------------------------------------------
FUND NUMBER STAR
(CATEGORY) OF FUNDS RATING
- --------------------------------------------------------------------------------
Elfun Global -- (International Equity)
- --------------------------------------------------------------------------------
Overall 383 ****
1 year 835 ****
3 year 383 ****
5 year 185 ****
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Elfun Trusts -- (Domestic Equity)
- --------------------------------------------------------------------------------
Overall 1826 *****
1 year 2959 ****
3 year 1826 *****
5 year 1058 ****
10 year 598 *****
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Elfun Tax-Exempt Income -- (Municipal Bonds)
- --------------------------------------------------------------------------------
Overall 1129 ****
1 year 1739 ****
3 year 1129 ****
5 year 580 ****
10 year 257 ****
- --------------------------------------------------------------------------------
Elfun Income -- (Taxable Bonds)
- --------------------------------------------------------------------------------
Overall 1104 ****
1 year 1670 ***
3 year 1104 ****
5 year 597 ****
10 year 242 ****
- --------------------------------------------------------------------------------
Morningstar is an independent fund ranking company that seeks to provide a
non-bias rating system used in making investment decisions. A fund is rated in
its investment class on a scale of one to five stars through the evaluation of
the historical balance of risk and return.
Morningstar proprietary ratings reflect historical risk-adjusted performance
through December 31, 1996. The ratings are subject to change every month.
Morningstar ratings are calculated from a fund's three-, five- and ten-year
returns (with fee and sales charge adjustments) in excess of 10-day Treasury
bill returns. The one-year rating is calculated using the same methodology, but
is not a component of a fund's overall rating. Ten percent of the funds in a
rating category receive five stars, the next 22.5% receive four stars and the
next 35% receive three stars.
- --------------------------------------------------------------------------------
On the Cover: GE Investments' employees in a team meeting.
<PAGE>
A Letter from the Chairman
Dear Shareholder:
I am pleased to provide you with the 1996 Annual Report. This letter will be my
last to you as Chairman, as I look forward to my retirement from GE Investments.
I appreciate having had the opportunity to build a relationship with the Elfun
membership over the past 12 years, and I would like to take this opportunity to
introduce you to my successor, John Myers. John is a 10 year seasoned veteran at
GE Investments, and has over 25 years experience with General Electric Company.
This past year brought excitement in the financial markets as well as at GE
Investments. We continued to see growth in Elfun Funds' assets and an increased
focus was placed on customer service. I want to thank you for your response to
our customer satisfaction survey. The survey enabled us to identify your
expectations and helped point out areas that require enhancements. We learned
that approximately 94% of respondents were satisfied with GE Investments and one
area presenting an opportunity for improvement was a more user-friendly
automated telephone response system. As a result of your comments, we are in the
process of revamping the automated telephone response system (please refer to
the inside back cover for further details).
[PHOTO OF DALE F. FREY]
PERFORMANCE HIGHLIGHTS
The performance profiles, which begin on page 3, demonstrate that the Elfun
Funds generated attractive returns for our shareholders in 1996. The Funds with
equity exposure, namely Elfun Global, Elfun Trusts and Elfun Diversified, all
achieved double digit returns for 1996, benefiting from the strength of the 1996
equity markets.
Once again, all of the Elfun Funds, except Elfun Global, outperformed the
average of their peers' based on calculations performed by Lipper Analytical
Services, an independent mutual fund rating service. Additionally, the 1996
annual returns of the Elfun Income and Elfun Money Market Funds were in the top
10% of their Lipper Peers. The average Lipper returns for each category and
complete details on each Fund's performance can be located on the various
performance review pages of this annual report.
We are proud to inform you that our Elfun Funds are now rated by Morningstar, an
independent fund ranking company which analyzes risk-adjusted performance in
order to provide a non-bias rating system. The inside front cover of this report
shows our top rated funds.
MARKET OVERVIEW
1996 proved to be another solid year in the financial markets. Low inflation,
good corporate earnings, and a post-election rally all contributed to strong
performance. The supply-demand balance also remained favorable, with annual
merger and acquisition activity topping $650 billion, and cash inflows into
equity mutual funds exceeding $200 billion, setting new records for both
measures. These factors drove the S&P 500 up 23.1% for the year.
International equity market performance, as measured by the Morgan Stanley EAFE
Index, lagged the U.S. market with full year returns of 6.0%. Despite cautious
optimism that Japan may be emerging from a recession, the Japanese market
underperformed significantly, declining 15.5% in 1996. European shares continue
to take their lead from the U.S. markets with German, French and U.K.
1
<PAGE>
A LETTER FROM THE CHAIRMAN (CONTINUED)
markets rising 13.6%, 21.1% and 27.4%, respectively, for the year. We continue
to hold a favorable view of overseas markets, particularly those in Europe where
corporate restructurings and productivity improvements are expected to
accelerate profit growth.
In the first half of 1996, fixed income returns were adversely impacted due to
concerns over a strong economy. Rates declined in the second half as inflation
fears and election uncertainties subsided allowing the bond market to return
3.6% for the year as measured by the Lehman Brothers Aggregate Bond Index.
Municipal bonds outperformed taxable bonds on a total return basis, with the
Lehman Brothers Municipal Bond Index returning 4.4% for the full year.
MARKET OUTLOOK
Our outlook on the domestic equity market is cautious. The U.S. market remains
at or near record levels when measured by dividend yield and other traditional
valuation methods, suggesting greater vulnerability to a possible correction.
International equity markets continue to offer opportunities for attractive
growth and good investment value. In the new year, we foresee a moderate
acceleration of domestic economic growth, a stable interest rate environment,
and continued low inflation. International markets are expected to perform well
as long as the U.S. market remains stable.
At GE Investments, it was our pleasure to serve your investment needs in 1996
and we look forward to helping you meet your financial objectives in 1997.
Sincerely,
/S/ SIGNATURE
Dale F. Frey
Chairman of the Board and President
General Electric Investment Corporation
INTRODUCING GE INVESTMENTS' NEW CHAIRMAN
Dear Shareholder:
I am excited about the opportunity of serving you as Chairman of GE Investments.
GE Investments has become a leader in investment management because of its
diversified multi-asset base, its solid performance and its strong management
team. I hope to build upon the outstanding organization developed under Dale
Frey's leadership over the last twelve years, and offer you continued high
quality service and investment management results. I am honored to be appointed
as the leader of this exciting organization and I look forward to delivering
continued, strong investment performance to our shareholders.
Sincerely,
/S/ SIGNATURE
John H. Myers
John Myers is a seasoned veteran of GE's financial community and of GE
Investments. John, previously Executive Vice President of GE Investments, began
his GE career in 1970 after serving as an officer in the U.S. Navy. He
progressed through several global financial assignments in GE corporate staff
and GE Power Systems before joining GE Investments in 1986. John serves on the
Board of Directors of Doubletree Hotels Corporation. He holds a B.S. in
Mathematics from Wagner College, where he serves on the Board of Trustees.
[PHOTO OF JOHN H. MYERS]
2
<PAGE>
EFLUN GLOBAL FUND
Q&A
Ralph Layman manages the international equity operation of GE Investments with
total assets of over $8 billion. His responsibilities include managing the Elfun
Global Fund. Prior to joining GE Investments in 1991, Ralph was Executive Vice
President and Director of International Equity Operations at Northern Capital
Management. Previously, he was a Vice President and Portfolio Manager at
Templeton Investment Counsel, Inc. He was instrumental in forming Templeton's
Emerging Markets Fund, the first listed emerging markets equity fund in the U.S.
Ralph is a Trustee of the GE Pension Trust and GE's employee savings program,
and serves on the GE Investments' Asset Allocation Committee. He is a Chartered
Financial Analyst (CFA), a charter member of the International Society of
Security Analysts and a member of the New York Society of Security Analysts.
Ralph is a graduate of the University of Wisconsin with a B.S. in Economics and
a M.S. in Finance.
Q. How did Elfun Global Fund perform compared to its benchmarks in 1996?
A. Elfun Global had a total return of 16.1% in 1996. The MSCI World Index had
a return of 13.5% for the same period. Our Lipper peer group of 189 Global
funds had an average return of 16.5%.
Q. Why did the Elfun Global Fund over or under perform its benchmark and
peers?
A. The Fund's performance during the year was driven by superior stock
selection in Europe, Japan and Latin America. While the Fund's U.S. market
return was comparable to the U.S. market, we were underweighted relative to
the benchmark and many of our peers. Our underweighting in the U.S. market
is a reflection of the relative value which exists in other markets around
the world.
Q. Which investments stand out?
A. Many of our investments performed well in 1996. Companies such as Siebe AB,
AlliedSignal, HSBC Holdings, Carrefour and Autoliv AB registered strong
gains. When considering potential investments, we constantly look for
catalysts which enable our companies to maintain superior long-term growth
rates. The catalyst for Siebe and AlliedSignal is clearly management
quality. HSBC Holdings has one of the best global banking franchises,
especially in Asia. Carrefour has a strong presence in the developing Latin
American and Asian markets. Autoliv AB is developing a leading global
position in automotive safety systems through their merger with Morton. We
believe these catalysts, among others, will be the drivers which contribute
to continuing enhanced valuations over the long-term.
Q. What has your investment strategy been?
A. Our investment strategy is undervalued growth. Our analysts regularly
screen the world for globally competitive companies with growth rates in
excess of their valuation. We are bottom-up investors and our philosophy is
driven by where a company does business, not by where it is located. Since
our style is company specific, we are able to manage a tight, diversified
portfolio with a limited number of names.
Q. What is the outlook for the Fund?
A. Stock selection drives the country allocation of the portfolio. We are
currently underweighted in the U.S. and Japan, and overweighted in Europe.
We continue to find many companies in Europe undervalued relative to their
long term growth rates. European markets in 1997 should benefit from weak
currencies, low inflation, low interest rates and stable economies. We
believe Japan is in desperate need of economic deregulation to improve
growth. We are selectively investing in Japan's winners today. We continue
to believe the U.S. equity market is very expensive relative to future
growth prospects. However, we do maintain investments on a select group of
undervalued, U.S. based growth companies.
[PHOTO OF RALPH LAYMAN]
3
<PAGE>
ELFUN GLOBAL FUND
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT
- --------------------------------------------------------------------------------
Elfun Global MSCI World
------------ ----------
1/5/88 10000 10000
'88 10994 12330
'89 13714 14377
'90 12540 11930
'91 14398 14112
'92 15254 13374
'93 20117 16384
'94 19990 17217
'95 23194 20782
'96 26935 25583
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN
for the periods ended December 31, 1996
- --------------------------------------------------------------------------------
Since
One Five Inception
Year Year (1/5/88)
- --------------------------------------------------------------------------------
Elfun Global Fund 16.13% 13.35% 11.63%
MSCI World 13.48% 10.82% 10.00%
- --------------------------------------------------------------------------------
INVESTMENT PROFILE
A Fund designed for investors who seek long-term growth of capital and future
income consistent with prudent management and preservation of capital. The Fund
invests principally in equity securities issued by companies located in both
developed and developing countries throughout the world.
*Lipper Performance Comparison
Based on 12/31/96 total returns
Global Stock Peer Group
One Five
Year Year
---- ----
Fund's rank in peer group: 95 13
Number of Funds in peer group: 189 47
Peer group average total return: 16.5% 11.2%
Lipper categories in peer group: Global, Global Small
Company.
- ----------
* See notes to performance for explanation of peer categories.
Top Ten Largest Holdings
as a percentage of net assets
at December 31, 1996
================================================================================
Siebe 2.4%
Telecom Italia Mobile 2.4%
Citicorp 2.2%
AlliedSignal Inc. 2.2%
Novartis AG 2.2%
First Data Corp. 2.2%
HSBC Holdings 2.1%
Carrefour 2.1%
Reed International 1.9%
Ecolab Inc. 1.9%
- --------------------------------------------------------------------------------
See page 40 for Notes to Performance.
Past performance is no guarantee of future results.
4
<PAGE>
Schedule of Investments (dollars in thousands) -- December 31, 1996
ELFUN GLOBAL FUND
U.S. 25.4%
Japan 11.0%
Europe 44.2%
Pacific Rim 9.9%
Other Regions 5.8%
Cash & Other 3.7%
- --------------------------------------------------------------------------------
NUMBER
OF SHARES VALUE
- --------------------------------------------------------------------------------
Common Stock -- 96.3%
- --------------------------------------------------------------------------------
Australia -- 1.2%
Burns Philip & Co. 1,212,984 $ 2,160
Austria -- 2.1%
Creditanstalt Bankverein 7,749 358
Flughafen Wien AG 12,170 621
VA Technologie AG 17,760 2,787
3,766
Brazil -- 1.1%
Brasmotor S.A. 4,808,727 1,335
Ceval Alimentos S.A. 72,368,687 634
1,969
Finland -- 0.9%
Valmet Corp. 89,801 1,581
France -- 7.4%
Banque Nationale Paris
(Privitisation) 14,742 570(a)
Carrefour 5,559 3,617
Coflexip ADR 97,473 2,559
Technip 13,677 1,284
Total S.A. (Class B) 39,219 3,190
Valeo 28,328 1,747
12,967
Germany -- 5.8%
BASF AG 26,140 1,007
Fresenius Medical Care Inc.
AG ADR 25,307 2,087(a)
Gehe AG 25,231 1,615
Mannesmann AG 5,215 2,260
Sap AG 6,504 909
Veba AG 39,647 2,293
10,171
Hong Kong -- 4.3%
Consolidated Electric Power 548,600 1,288
Giordano International 2,112,000 1,802
HSBC Holdings 171,250 3,664
Television Broadcasts Ltd.
ADR 213,000 851
7,605
Indonesia -- 1.3%
Astra International 486,500 1,339
Steady Safe 712,867 913
2,252
Italy -- 4.2%
Edison SPA 136,719 865
IMI 106,554 913
Industrie Natuzzi Spa 54,182 1,246
Istituto Mobiliare
Italiano ADR 9,613 249
Telecom Italia Mobile 1,650,165 4,172
7,445
Japan -- 11.0%
Canon Inc. 123,000 2,719
Credit Saison Co. 86,000 1,923
DDI Corp. 464 3,069
Honda Motor Co. 62,000 1,772
Murata Manufacturing Co. 40,000 1,330
NTT Data Corp. 59 1,727
Omron Corp. 61,000 1,148
Rohm Co. 24,000 1,575
Secom Co. 38,000 2,300
Sega Enterprises 21,400 721
Suzuki Motor Corp. 120,000 1,098
19,382
Malaysia -- 1.0%
AMMB Holdings Berhad 201,600 1,692
- ----------
See Notes to Schedules of Investments and Financial Statements
5
<PAGE>
Elfun Global Fund (dollars in thousands) -- December 31, 1996
- --------------------------------------------------------------------------------
NUMBER
OF SHARES VALUE
- --------------------------------------------------------------------------------
Mexico -- 1.7%
Grupo Carso S.A. (Series A) 117,284 $ 614
Grupo Carso S.A. de C.V. ADR 42,418 445
Grupo Financiero Bancomer
S.A. ADR (Series C) 151,105 1,228(a,b)
Grupo Televisa S.A. de
C.V. ADR 25,211 646(a)
2,933
Netherlands -- 2.6%
ING Groep N.V. 85,500 3,080
PolyGram N.V. 28,786 1,467
4,547
Norway -- 1.8%
Petroleum Geo Services 81,494 3,149(a)
Panama -- 1.0%
Banco Latinoamericano de
Exportaciones S.A. (Class E) 15,916 808
Panamerican Beverages Inc.
(Class A) 19,898 932
1,740
Peru -- 0.8%
Telefonica del Peru S.A. ADR
(Class B) 71,985 1,359
Philippines -- 1.7%
Pilipino Telephone 943,100 798(a)
San Miguel Corp. 513,050 2,263
3,061
Portugal -- 0.4%
Telecel-Comunicacoes
Pessoais S.A. 10,601 677
South Africa -- 1.2%
Iscor 3,054,308 2,180
Spain -- 1.5%
Banco Popular (Regd.) 4,569 897
Repsol S.A. 47,989 1,841
2,738
Sweden -- 1.7%
Autoliv AB 67,254 2,949
Switzerland -- 6.9%
ABB AG 2,077 2,584
Novartis AG 3,389 3,881
Roche Holdings AG 223 1,735
Schw Ruckversicher (Regd.) 1,876 2,003
Tag Heuer 11,703 1,889(a)
12,092
Thailand -- 0.4%
Thai Farmers Bank 123,520 771
United Kingdom -- 8.9%
BPB Industries 216,851 1,427
Granada Group 148,157 2,190
Medeva 530,256 2,307
Railtrack Group PLC 71,759 475
Reed International 177,512 3,339
Siebe 225,437 4,187
TC Group PLC 2 0
Thorn 408,778 1,772
15,697
United States -- 25.4%
Airgas Inc. 83,754 1,843(a)
Airtouch Communications Inc. 67,191 1,697(a)
AlliedSignal Inc. 59,128 3,962
Avery Dennison Corp. 30,550 1,081
Chrysler Corp. 38,739 1,278
Citicorp 38,482 3,964
Colgate Palmolive Co. 28,505 2,630
Ecolab Inc. 88,201 3,319
First Data Corp. 106,126 3,874
General Nutrition Cos. Inc. 27,705 467(a)
Intel Corp. 17,813 2,332
Motorola Inc. 46,383 2,847
Scherer (R.P.) Corp. Delaware 48,866 2,455(a)
Sears Roebuck & Co. 48,294 2,227
Sensormatic Electronics Corp. 90,264 1,512
Toys `R Us Inc. 53,580 1,607(a)
Travelers Group Inc. 62,864 2,852
Tyco International Ltd. 21,920 1,159
UCAR International Inc. 79,543 2,993(a)
Zebra Technologies Corp.
(Class A) 33,166 775
44,874
Total Common Stock
(Cost $144,017) 169,757
- ----------
See Notes to Schedules of Investments and Financial Statements
6
<PAGE>
Schedule of Investments (dollars in thousands)
- --------------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
- --------------------------------------------------------------------------------
Short Term Investments -- 2.6%
- --------------------------------------------------------------------------------
U.S. Government Agencies -- 2.2%
Federal Home Loan Mortgage Corp.
5.34% 01/30/97 $2,000 $1,991
Federal National Mortgage Assoc.
5.28% 01/21/97 2,000 1,994(d)
3,985
Repurchase Agreement -- 0.4%
State Street Bank and Trust Co.
6.00% 01/02/97
(Cost $690) 690 690
(dated 12/31/96, proceeds
$690, collateralized by $705
United States Treasury Note,
6.25%, 06/30/98)
Total Short Term Investments
(Cost $4,675) 4,675
Other Assets and Liabilities,
net 1.1% 1,871
--------
NET ASSETS -- 100% $176,303
========
Icons represent the top five country weightings in the
Elfun Global Fund at December 31, 1996.
- ----------
See Notes to Schedules of Investments and Financial Statements
7
<PAGE>
ELFUN TRUSTS
Q&A
David Carlson manages pension and mutual fund portfolios with total assets of
nearly $2 billion. His responsibilities include managing Elfun Trusts and the
U.S. equity portion of Elfun Diversified Fund. Dave joined GE in 1980 on the
Financial Management Program. In 1982, he joined GE Investments as a Security
Analyst responsible for several consumer industries. In 1988, Dave assumed
responsibility for managing Elfun Trusts. He is a Trustee for the GE Canada
Pension Trust, a Chartered Financial Analyst (CFA) and a member of the New York
Society of Security Analysts. Dave is a graduate of Indiana University with a
B.S. in Business.
Q. How did Elfun Trusts perform compared to its benchmarks in 1996?
A. Elfun Trusts had a total return of 23.6% in 1996. This compares to a 23.1%
return for the S&P 500. Our peer group of 669 Growth funds as measured by
Lipper Analytical Services posted an average return of 19.2%. Despite a
slim lead over the S&P 500, Elfun Trusts outperformed 82% of Growth funds
as measured by Lipper.
Q. Which industries or sectors drove the outperformance in 1996?
A. Elfun Trusts has about 20% of the portfolio in financial stocks, a larger
percentage than the S&P 500, and like last year, these stocks were strong
performers. Technology stocks were also strong performers and while Elfun
Trusts is about market weighted in this sector (i.e. our weighting of 12%
matches the S&P weighting of 12%), our technology stocks performed well
versus the S&P 500. Our underweighted positions in utilities and basic
materials was a positive driver last year as these stocks underperformed
the S&P 500. Elfun Trusts maintained a cash weighting of 5-6% throughout
the year and with a return of around 5%, this cash holding was a drag to
overall performance. We are maintaining a modest cash weighting to take
advantage of a market correction.
Q. Please discuss the implication of the large unrealized gain in Elfun
Trusts.
A. Elfun Trusts has a market value of approximately $1.5 billion, but the cost
basis of the stocks held is approximately $730 million. Therefore, about
half of the net asset value per share is represented by unrealized gains.
By law, we must distribute all income and any realized gains (net of
losses) earned during the year. With such a large unrealized gain, almost
any turnover in the portfolio will result in realized gains and hence a
higher distribution at year end. We manage the portfolio with the goal of
deferring taxes and our low turnover rate is expected to continue into the
foreseeable future. In light of the market strength over the last two years
however, investors should be aware of the magnitude of the potential
capital gain that exists in the Fund.
Q. What is the Fund's positioning for the new year?
A. As always, Elfun Trusts focuses on a universe of quality growth stocks. We
select companies that are leaders in their industries, with double-digit
growth rates, strong financial characteristics, and shareholder oriented
management. We remain overweighted in the Financial sector, Healthcare,
Capital goods, and Consumer industries. We are underweighted in Utilities
and Basic Materials. We did move to a market weighting (about 10%) in
energy stocks in 1996.
Our forecast for overall corporate profits calls for a gain of about 5-7%
this year. We believe the holdings in Elfun Trusts can grow earnings at a
low double-digit rate. We expect our strategy of finding above average
growth stocks at reasonable valuation levels will result in long term
outperformance versus the market and peers.
[PHOTO OF DAVID CARLSON]
8
<PAGE>
Elfun Trusts
Comparison of Change in Value of a $10,000 Investment
Elfun Trusts S&P 500
------------ -------
'86 10000 10000
'87 10349 10511
'88 12254 12261
'89 16642 16128
'90 16025 15619
'91 20539 20395
'92 22445 21971
'93 24461 24171
'94 24517 24485
'95 34126 33664
'96 42162 41444
AVERAGE ANNUAL TOTAL RETURN
for the periods ended December 31, 1996
- --------------------------------------------------------------------------------
One Five Ten
Year Year Year
- --------------------------------------------------------------------------------
Elfun Trusts 23.55% 15.47% 15.48%
S&P 500 23.11% 15.24% 15.28%
- --------------------------------------------------------------------------------
INVESTMENT PROFILE
A Fund designed for investors who seek long-term growth of capital and future
income rather than current income through investment in domestic and foreign
securities. The Fund invests principally in common stocks or in securities
convertible into common stocks and may hold bonds, notes and other types of
securities.
- --------------------------------------------------------------------------------
*Lipper Performance Comparison
Based on 12/31/96 total returns
Growth Peer Group
One Five Ten
Year Year Year
---- ---- ----
Fund's rank in peer group: 123 60 31
Number of Funds in peer group: 669 255 163
Peer group average total return: 19.2% 13.0% 13.5%
Lipper categories in peer group: Growth
- ----------
* See notes to performance for explanation of peer categories.
Top Ten Largest Holdings
as a percentage of net assets
at December 31, 1996
================================================================================
Travelers Group Inc. 3.2%
Federal National Mortgage Assoc. 2.7%
First Data Corp. 2.5%
Dover Corp. 2.4%
Philip Morris Cos. Inc. 2.3%
Intel Corp. 2.2%
Schlumberger Ltd. 2.2%
Equifax Inc. 2.2%
Reuters Holdings PLC ADR (Class B) 2.2%
AlliedSignal Inc. 2.2%
- ----------
See page 40 for Notes to Performance.
Past performance is no guarantee of future results.
9
<PAGE>
Elfun Trusts (dollars in thousands) -- December 31, 1996
ELFUN TRUSTS
Energy & Basic Material 11.4%
Consumer 20.3%
Capital Goods 10.8%
Healthcare 14.8%
Financial Services 19.9%
Retail Trade 2.4%
Technology 11.6%
Transportation 1.3%
Utilities 4.2%
Cash & Other 3.3%
- --------------------------------------------------------------------------------
Number
of Shares Value
- --------------------------------------------------------------------------------
Common Stock -- 96.7%
- --------------------------------------------------------------------------------
Basic Materials -- 2.2%
Air Products & Chemicals Inc. 130,000 $ 8,986
Airgas Inc. 260,000 5,720(a)
Morton International Inc. 480,000 19,560
34,266
Capital Goods -- 10.8%
Alleghany Corp. Delaware 34,680 7,352(a)
AlliedSignal Inc. 500,000 33,500
AMP Inc. 310,000 11,896
Browning-Ferris
Industries Inc. 240,000 6,300
Dover Corp. 735,000 36,934
Emerson Electric Co. 100,000 9,675
Hanson PLC ADR 200,000 1,350
Hubbell Inc. (Class A) 91,000 3,458
Hubbell Inc. (Class B) 490,320 21,207
Molex Inc. (Class A) 250,000 8,906
Tyco International Ltd. 115,000 6,081
Waste Management
International PLC ADR 175,000 1,378(a)
WMX Technologies Inc. 490,000 15,986
164,023
Consumer - Cyclical -- 11.0%
American Medical Response 187,570 6,096(a)
Automatic Data
Processing Inc. 480,000 20,580
Carmike Cinemas Inc. 25,000 634(a)
Carnival Corp. (Class A) 240,000 7,920
Catalina Marketing Corp. 94,000 5,182(a)
Circus Circus Enterprises Inc. 155,000 5,328(a)
Comcast Corp. (Class A) 585,000 10,420
Comcast UK Cable Partners
Ltd. (Class A) 110,000 1,499(a)
CUC International Inc. 45,000 1,069(a)
Disney (Walt) Co. 319,000 22,210
Gannett Inc. 155,000 11,606
Harman International
Industries Inc. 115,000 6,397
International Cabletel Inc. 730,000 18,432(a)
Interpublic Group Cos. Inc. 210,000 9,975
McDonalds Corp. 210,000 9,502
Metromedia International
Group Inc. 150,000 1,481(a)
Readers Digest Assoc. Inc.
(Class A) 55,000 2,214
Scholastic Corp. 70,000 4,708(a)
TCI Satellite Entertainment Inc.
(Class A) 67,500 667(a)
Tele-Communications Inc.
(Series A) 675,000 8,817(a)
Tele-Communications Inc. Liberty
Media Group (Series A) 215,000 6,141(a)
Television Broadcasts Ltd. ADR 275,000 1,099
Time Warner Inc. 140,000 5,250
167,227
Consumer Stable -- 9.3%
Anheuser Busch Cos. Inc. 210,000 8,400
Avon Products Inc. 265,000 15,138
Coca Cola Co. 55,000 2,894
Colgate Palmolive Co. 60,000 5,535
Duracell International Inc. 85,000 5,940
Gillette Co. 60,000 4,665
International Flavours 70,000 3,150
Kimberly Clark Corp. 320,000 30,480
Pepsico Inc. 880,000 25,740
Philip Morris Cos. Inc. 310,000 34,914(j)
Procter & Gamble Co. 50,000 5,375
142,231
- ----------
See Notes to Schedules of Investments and Financial Statements
10
<PAGE>
Schedule of Investments (dollars in thousands)
- --------------------------------------------------------------------------------
Number
of Shares Value
- --------------------------------------------------------------------------------
Energy -- 9.2%
Amoco Corp. 60,000 $ 4,830
Anadarko Petroleum Co. 215,000 13,921
Atlantic Richfield Co. 90,000 11,925
Exxon Corp. 140,000 13,720
Royal Dutch Petroleum
Co. ADR 155,000 26,466
Schlumberger Ltd. 340,000 33,957
Texaco Inc. 100,000 9,813
Union Pacific Resources
Group Inc. 207,501 6,069
Unocal Corp. 500,000 20,313
141,014
Financial -- 13.2%
American Express Co. 225,000 12,713
Banque Nationale Paris 81,899 3,170(a)
Citicorp 260,000 26,780
Countrywide Credit Industries 350,000 10,019
Federal National
Mortgage Assoc. 1,100,000 40,975
Morgan (J.P.) & Co. Inc. 140,000 13,667
State Street Boston Corp. 310,000 19,995
Travelers Group Inc. 1,086,666 49,307
Wells Fargo & Co. 90,000 24,277
200,903
Healthcare -- 14.8%
Abbott Laboratories 600,000 30,450
American Home
Products Corp. 330,000 19,346
Arrow International Inc. 60,000 1,725
Bristol-Myers Squibb Co. 195,000 21,206
Cardinal Health Inc. 180,000 10,485
Columbia/HCA
Healthcare Corp. 105,000 4,279
Dentsply International Inc. 90,000 4,275
Eli Lilly & Co. 190,000 13,870
Johnson & Johnson 620,000 30,845
Lincare Holdings Inc. 120,000 4,920(a)
Living Centers of America Inc. 155,000 4,301(a)
Merck & Co. Inc. 330,000 26,153
MIM Corp. 100,000 500(a)
Pfizer Inc. 370,000 30,664
Smithkline Beecham PLC ADR 230,000 15,640
St. Jude Medical Inc. 40,000 1,705(a)
Watson Pharmaceuticals Inc. 110,000 4,943(a)
225,307
Insurance -- 6.7%
American International
Group Inc. 155,000 16,779
Chubb Corp. 190,000 10,213
General Reinsurance Corp. 90,000 14,197
Loews Corp. 305,000 28,746
Marsh & McLennan Cos. Inc. 140,000 14,560
TIG Holdings Inc. 230,000 7,791
UNUM Corp. 120,000 8,670
USF & G Corp. (Series B) 62,370 1,237(h)
102,193
Retail Trade -- 2.4%
Arbor Drugs Inc. 412,500 7,167
General Nutrition Cos. Inc. 150,000 2,531(a)
Giordano International 2,000,000 1,707
Home Depot Inc. 170,000 8,521
Toys `R Us Inc. 570,000 17,100(a)
37,026
Software & Services -- 8.2%
Equifax Inc. 1,100,000 33,688
First Data Corp. 1,060,000 38,690
Intuit Inc. 105,000 3,308(a)
Microsoft Corp. 146,000 12,063(a)
Reuters Holdings 300,000 3,857
Reuters Holdings PLC
ADR (Class B) 440,000 33,660
125,266
Technology -- 3.4%
Applied Materials Inc. 45,000 1,617(a)
Cisco Systems Inc. 120,000 7,635(a)
Hewlett Packard Co. 110,000 5,527
Intel Corp. 260,000 34,044
Xerox Corp. 60,000 3,158
51,981
Transportation -- 1.3%
Pittston Brinks Group 170,000 4,590
Union Pacific Corp. 245,000 14,731
19,321
- ----------
See Notes to Schedules of Investments and Financial Statements
11
<PAGE>
Elfun Trusts (dollars in thousands) -- December 31, 1996
- --------------------------------------------------------------------------------
Number
of Shares Value
- --------------------------------------------------------------------------------
Utilities -- 4.2%
Airtouch Communications Inc. 950,000 $ 23,987(a)
American Telephone &
Telegraph Corp. 200,000 8,700
GTE Corp. 235,000 10,692
MCI Communications Corp. 420,000 13,729
NYNEX Corp. 150,000 7,219
64,327
Total Common Stock
(Cost $723,601) 1,475,085
- --------------------------------------------------------------------------------
Preferred Stock -- 0.4%
- --------------------------------------------------------------------------------
Airtouch Communications
(Class B), 6.00% 100,000 2,725
Airtouch Communications
(Class C), 4.25% 72,656 3,288
Total Preferred Stock
(Cost $5,908) 6,013
Total Investments in Securities
(Cost $729,509) 1,481,098
- --------------------------------------------------------------------------------
Principal
Amount Value
- --------------------------------------------------------------------------------
Short Term Investments -- 2.4%
- --------------------------------------------------------------------------------
U.S. Government Agencies -- 2.4%
Federal Home Loan Mortgage Corp.
5.22% 06/13/97 $ 6,730 6,571(d)
5.34% 01/30/97 1,970 1,961(d)
5.42% 01/17/97 27,800 27,733(d)
36,265
Repurchase Agreement -- 0.0%
State Street Bank and Trust Co.
6.00% 01/02/97
(Cost $360) $ 360 $ 360
(dated 12/31/96, proceeds
$360, collateralized by $368
United States Treasury Note,
6.25%, 06/30/98)
Total Short Term Investments
(Cost $36,625) 36,625
Other Assets and Liabilities,
net 0.5% 8,256
----------
NET ASSETS -- 100% $1,525,979
==========
Other Information
- --------------------------------------------------------------------------------
Elfun Trusts had the following short Futures Contract open at December 31, 1996:
Number
Expiration of Underlying Unrealized
Description Date Contracts Face Value Loss
- --------------------------------------------------------------------------------
S&P 500 March 1997 100 $37,225 $930
Icons represent the top five industry weighting in
Elfun Trusts at December 31, 1996.
- ----------
See Notes to Schedules of Investments and Financial Statements
12
<PAGE>
ELFUN DIVERSIFIED FUND
Q&A
David Carlson and Bob MacDougall share portfolio management responsibility for
the Elfun Diversified Fund. Dave Carlson manages the U.S. equity portion and Bob
MacDougall manages the fixed income portion of the fund. Please refer to page 8
for Dave's biographical details and page 30for Bob's biographical details.
Q. How did Elfun Diversified Fund perform compared to its benchmarks in 1996?
A. Elfun Diversified had a total return of 14.4%. Our Lipper peer group of 272
Balanced funds, posted an average return of 13.8%. Elfun Diversified
finished in the 61st percentile versus peer Balanced funds.
Q. What were the factors driving performance in 1996?
A. Like last year, U.S. stocks were the strongest performing asset class with
a total return of 23.1%(S&P 500). International stocks posted a return of
about 6%(EAFE), and bonds about 4%(LB Aggregate). However, we believe that
Elfun Diversified is somewhat underweighted in U.S. stocks versus our peer
Balanced funds. Favorable security selection within the asset classes
allowed the Fund to post favorable results vs. peers.
Q. What was the asset allocation at year end and discuss any changes
contemplated?
A. At the end of 1996, U.S. equities stood at 43% of the portfolio,
international equities at 15%, fixed income at 31%, and cash at 11%. The
asset allocation weightings remained fairly constant throughout the year.
In January 1997, we increased the international equity weighting by two
percentage points to 17% of the Fund. There was a corresponding drop in the
cash weighting.
Q. What is the outlook for each asset class and the overall portfolio for the
new year?
A. We recommend that investors of Elfun Diversified read the letters for Elfun
Trusts, Elfun Global and Elfun Income Funds for a detailed discussion of
each asset class. The portfolio managers of the other Elfun Funds form the
team that manages the Elfun Diversified Fund. Our long term objective is to
outperform peer Balanced funds through superior security selection within
each asset class and appropriate asset allocation weightings for the
overall portfolio.
[PHOTO OF DAVID CARLSON AND BOB MACDOUGALL]
13
<PAGE>
ELFUN DIVERSIFIED FUND
Comparison of Change in Value of a $10,000 Investment
Elfun Diversified S&P 500 LB Aggregate
----------------- ------- ------------
1-5-88 10000 10000 10000
'88 10657 11665 10789
'89 12949 15344 12357
'90 13564 14859 13460
'91 15965 19403 15614
'92 17458 20903 16768
'93 19012 22995 18402
'94 18961 23294 17865
'95 24101 32028 21167
'96 27571 39429 21935
AVERAGE ANNUAL TOTAL RETURN
for the periods ended December 31, 1996
- --------------------------------------------------------------------------------
Since
One Five Inception
Year Year (1/5/88)
- --------------------------------------------------------------------------------
Elfun Diversified 14.40% 11.55% 11.91%
S&P 500 23.11% 15.24% 16.47%
LB Aggregate 3.63% 7.04% 9.12%
- --------------------------------------------------------------------------------
INVESTMENT PROFILE
A Fund designed for investors who seek to maximize total return consistent with
prudent management and preservation of capital by following an asset allocation
strategy contemplating shifts among a range of investments principally including
U.S. and foreign common stocks, bonds and other debt instruments.
- --------------------------------------------------------------------------------
*Lipper Performance Comparison
Based on 12/31/96 total returns
Balanced Peer Group
One Five
Year Year
---- ----
Fund's rank in peer group: 106 28
Number of Funds in peer group: 272 72
Peer group average total return: 13.8% 10.7%
Lipper categories in peer group: Balanced
- ----------
*See notes to performance for explanation of peer categories.
Top Ten Largest Holdings
as a percentage of net assets
at December 31, 1996
================================================================================
U.S. Treasury Bond, 6.75%, 8/15/26 1.6%
U.S. Treasury Note, 6.5%, 10/15/06 1.5%
U.S. Treasury Note, 6.125%, 8/31/98 1.5%
Travelers Group Inc. 1.5%
U.S. Treasury Bond, 8.125%, 8/15/19 1.5%
Federal National Mortgage Assoc. 1.3%
First Data Corp. 1.3%
Government National Mortgage Assoc. 8.5%, 10/15/17 1.2%
U.S. Treasury Note, 6.625%, 6/30/01 1.2%
U.S. Treasury Note, 7.75%, 12/31/99 1.2%
See page 40 for Notes to Performance.
Past performance is no guarantee of future results.
14
<PAGE>
Schedule of Investments (dollars in thousands) -- December 31, 1996
ELFUN DIVERSIFIED FUND
Domestic Equity 42.8%
Foreign Equity 14.6%
Bonds & Notes 31.3%
Cash & Other 11.3%
- --------------------------------------------------------------------------------
Number
of Shares Value
- --------------------------------------------------------------------------------
Common Stock -- 57.0%
- --------------------------------------------------------------------------------
Basic Materials -- 2.0%
Air Products & Chemicals Inc. 4,500 $ 311
Airgas Inc. 9,000 198(a)
BASF AG 4,825 186
Carter Holt Harvey Ltd. 113,679 258
Fresenius Medical Care Inc.
AG ADR 833 71(a)
Morton International Inc. 16,000 652
SGL Carbon 1,775 224
Tokyo Steel Manufacturing 6,000 86
1,986
[ICON] Capital Goods -- 7.3%
ABB AG 236 294
Alcatel Alsthom 1,505 121
Alleghany Corp. Delaware 1,428 303
AlliedSignal Inc. 15,000 1,005
AMP Inc. 9,000 345
Browning-Ferris Industries Inc. 8,000 210
Dover Corp. 22,000 1,105
Eaux (Cie Generale) 1,165 144
Emerson Electric Co. 2,500 242
Grupo Carso S.A. de C.V. ADR 11,708 123
Hubbell Inc. (Class B) 19,000 822
Lyonnaise Des Eaux S.A. 1,320 123
Mannesmann AG 404 175
Molex Inc. (Class A) 9,000 321
NEC Corp. 12,000 145
Siam Cement Co. Ltd. 1,700 53
Siebe 9,437 175
Siemens AG 5,090 240
Technip 1,552 146
Tyco International Ltd. 4,000 212
VA Technologie AG 1,936 304
Valeo 3,945 243
Valmet Corp. 5,617 99
Waste Management International
PLC ADR 4,100 32(a)
WMX Technologies Inc. 13,500 440
7,422
[ICON] Consumer - Cyclical -- 6.5%
American Medical Response 6,503 211(a)
Autoliv AB 2,987 131
Automatic Data Processing Inc. 15,000 643
Canon Inc. 11,000 243
Carnival Corp. (Class A) 7,000 231
Catalina Marketing Corp. 3,000 165(a)
Circus Circus Enterprises Inc. 6,000 206(a)
Comcast Corp. (Class A) 18,000 321
Comcast UK Cable
Partners Ltd. (Class A) 5,000 68(a)
CUC International Inc. 1,650 39(a)
Disney (Walt) Co. 10,000 696
Gannett Inc. 5,000 374
Granada Group 10,269 152
Harman International
Industries Inc. 4,000 223
Honda Motor Co. 7,000 200
International Cabletel Inc. 22,000 556(a)
Interpublic Group Cos. Inc. 7,000 333
McDonalds Corp. 7,000 317
Polygram N.V. 2,386 122
Promise Co. 2,000 98
Readers Digest Assoc.
Inc. (Class A) 2,000 81
Reed International 13,679 257
Scholastic Corp. 2,500 168(a)
Sega Enterprises 2,000 67
TCI Satellite Entertainment
Inc. (Class A) 2,200 22(a)
- ----------
See Notes to Schedules of Investments and Financial Statements
15
<PAGE>
Elfun Diversified Fund (dollars in thousands) -- December 31, 1996
- --------------------------------------------------------------------------------
Number
of Shares Value
- --------------------------------------------------------------------------------
Tele-Communications Inc.
(Series A) 22,000 $ 287(a)
Tele-Communications Inc. Liberty
Media Group (Series A) 7,000 200(a)
Television Broadcasts Ltd. ADR 24,000 96
Time Warner Inc. 4,000 150
6,657
Consumer - Stable -- 5.2%
Anheuser Busch Cos. Inc. 8,000 320
Avon Products Inc. 7,000 400
Coca Cola Co. 1,500 79
Colgate Palmolive Co. 2,000 185
Duracell International Inc. 3,000 210
Gehe AG (WT) 2,160 138
Gillette Co. 2,000 156
International Flavours 2,500 113
Kimberly Clark Corp. 10,000 952
Nestle S.A. (Regd.) 126 135
Nutricia Verenigde Bedrijven 2,138 325
Panamerican Beverages
Inc. (Class A) 1,568 74(a)
Pepsico Inc. 24,000 702
Philip Morris Cos. Inc. 10,000 1,126
Procter & Gamble Co. 1,500 161
San Miguel Corp. 58,600 258
5,334
[ICON] Energy -- 5.6%
Amoco Corp. 2,000 161
Anadarko Petroleum Co. 5,000 324
Atlantic Richfield Co. 2,500 331
Coflexip ADR 7,786 204
ENI SPA 27,985 144
Exxon Corp. 5,500 539
OMV AG 1,350 152
Repsol S.A. 7,916 304
Royal Dutch Petroleum
Co. ADR 5,000 854
Schlumberger Ltd. 10,000 999
Texaco Inc. 3,500 343
Total S.A. (Class B) 3,991 324
Union Pacific Resources
Group Inc. 5,928 173
Unocal Corp. 14,000 569
Veba AG 4,301 249
5,670
[ICON] Financial -- 7.1%
American Express Co. 7,000 395
Banco Comercial
Portugues ADR 12,854 169
Citicorp 8,000 824
Countrywide Credit Industries 10,000 286
Den Danske Bank 2,367 191
Deutsche Bank AG 1,798 84
Federal National
Mortgage Assoc. 36,000 1,341
Grupo Financiero Bancomer
S.A. ADR (Series C) 4,284 35(a,b)
Grupo Financiero Inbursa
S.A. de C.V. ADR 149 2
HSBC Holdings 11,496 246
IMI 17,723 152
ING Groep N.V. 6,465 233
Morgan (J.P.) & Co. Inc. 3,000 293
New World Development Corp. 12,100 82
State Street Boston Corp. 9,500 613
Thai Farmers Bank 11,000 69
Travelers Group Inc. 33,333 1,512
Wells Fargo & Co. 2,800 755
7,282
[ICON] Healthcare -- 7.7%
Abbott Laboratories 18,000 913
American Home
Products Corp. 10,000 586
Arrow International Inc. 3,000 86
Bristol-Myers Squibb Co. 6,000 652
Cardinal Health Inc. 5,250 306
Columbia/HCA
Healthcare Corp. 4,000 163
Dentsply International Inc. 3,000 143
Eli Lilly & Co. 6,600 482
Fresenius Medical Care
Inc. AG ADR 987 80(a)
Johnson & Johnson 19,000 945
Lincare Holdings Inc. 4,000 164(a)
Living Centers of America Inc. 5,000 139(a)
Medeva 67,243 293
Merck & Co. Inc. 10,000 792
- ----------
See Notes to Schedules of Investments and Financial Statements
16
<PAGE>
Schedule of Investments (dollars in thousands) -- December 31, 1996
- --------------------------------------------------------------------------------
Number
of Shares Value
- --------------------------------------------------------------------------------
Novartis AG ADR 238 $ 273
Pfizer Inc. 11,500 953
Roche Holdings AG 19 148
Smithkline Beecham PLC ADR 7,000 476
St. Jude Medical Inc. 2,000 85(a)
Watson Pharmaceuticals Inc. 4,000 180(a)
7,859
Insurance -- 3.2%
American International
Group Inc. 4,500 487
Chubb Corp. 5,000 268
General Reinsurance Corp. 3,200 505
Loews Corp. 9,400 886
Marsh & McLennan Cos. Inc. 4,200 437
Schw Ruckversicher (Regd.) 94 100
TIG Holdings Inc. 9,000 305
UNUM Corp. 3,000 217
3,205
Miscellaneous -- 0.4%
SPDR Trust 6,000 444
Retail Trade -- 2.0%
Arbor Drugs Inc. 12,750 222
Carrefour 666 433
Credit Saison Co. 5,400 121
EMI Group 7,915 187
General Nutrition Cos. Inc. 5,000 84(a)
Giordano International 96,000 82
Home Depot Inc. 6,000 301
Tag Heuer 598 96(a)
Thorn 7,760 34
Toys `R Us Inc. 17,000 510(a)
2,070
Software & Services -- 4.0%
Equifax Inc. 35,000 1,072
First Data Corp. 35,000 1,277
Intuit Inc. 3,000 95
Microsoft Corp. 4,600 380(a)
Reuters Holdings PLC
ADR (Class B) 15,500 1,186
Sap AG 676 94
4,104
Technology -- 2.3%
Applied Materials Inc. 2,000 72(a)
Brambles Industries Ltd. 15,310 299
Cisco Systems Inc. 3,600 229(a)
Hewlett Packard Co. 3,400 171
Intel Corp. 7,500 982
Murata Manufacturing Co. 5,000 166
Rohm Co. 3,000 197
Secom Co. 2,000 121
Wolters Kluwer 839 111
2,348
Transportation -- 1.0%
Burns Philip & Co. 93,741 167
IHC Caland N.V. 2,779 159
Pittston Brinks Group 5,500 148
Railtrack Group PLC 21,183 140
Union Pacific Corp. 7,000 421
1,035
Utilities -- 2.7%
Airtouch Communications Inc. 29,000 732(a)
American Telephone &
Telegraph Corp. 6,300 274
DDI Corp. 44 291
Edison SPA 20,936 132
GTE Corp. 5,000 228
MCI Communications Corp. 13,000 425
NYNEX Corp. 4,000 193
Telecom Italia Mobile 86,608 219
Telefonica del Peru
S.A. ADR (Class B) 5,204 98
Telekom Malaysia 20,000 178
2,770
Total Common Stock
(Cost $36,873) 58,186
Principal
Amount Value
- --------------------------------------------------------------------------------
Bonds and Notes -- 31.3%
- --------------------------------------------------------------------------------
U.S. Treasuries -- 13.1%
U.S. Treasury Bonds
6.75% 08/15/26 $ 1,609 1,621(j)
8.125% 08/15/19 1,288 1,490(j)
3,111
- ----------
See Notes to Schedules of Investments and Financial Statements
17
<PAGE>
Elfun Diversified Fund (dollars in thousands) -- December 31, 1996
- --------------------------------------------------------------------------------
Principal
Amount Value
- --------------------------------------------------------------------------------
U.S. Treasury Notes
5.625% 02/28/01 $ 145 $ 142(j)
5.875% 10/31/98 - 11/15/99 2,001 1,997(j)
6.00% 12/31/01 472 470
6.125% 08/31/98 1,536 1,543(j)
6.25% 10/31/01 116 116(j)
6.375% 09/30/01 1,019 1,025(j)
6.50% 05/15/05 - 10/15/06 1,589 1,598(j)
6.625% 07/31/01 70 71
6.625% 06/30/01 1,234 1,254(j)
6.75% 04/30/00 223 227(j)
7.00% 07/15/06 655 681(j)
7.75% 12/31/99 1,134 1,186(j)
10,310
Total U.S. Treasuries
(Cost $13,402) 13,421
Asset Backed -- 0.9%
Advanta Mortgage Loan Trust Corp.
6.30% 07/25/25 38 37
CIT RV Owner Trust
5.40% 12/15/11 48 48
First Plus Home Improvement Loan Trust
7.80% 03/20/16 44 45
Fleetwood Credit Grantor Trust
6.90% 03/15/12 63 64
Ford Credit Auto Loan Master Trust
5.50% 02/15/03 38 37
Lehman FHA Title I Loan Trust
7.83% 09/25/17 40 41
MBNA Master Credit Card Trust
5.40% 09/15/00 44 44
Premier Auto Trust
6.50% 03/06/00 60 60
Provident Bank Home Equity Loan Trust
6.72% 01/25/13 260 257
7.60% 09/01/06 73 74
Standard Credit Card Master Trust
5.95% 10/07/04 69 66
The Money Store Home Equity Trust
7.50% 01/15/26 57 57
7.90% 10/15/22 33 34
Total Asset Backed
(Cost $861) 864
- --------------------------------------------------------------------------------
Principal
Amount Value
- --------------------------------------------------------------------------------
Corporate Notes -- 6.4%
Abbey National PLC
7.35% 10/29/49 $ 70 $ 71
Argentaria Capital Fund
6.375% 02/14/06 70 66
Arkla Inc.
8.74% 05/14/98 250 258
Barnett Capital Trust
7.95% 12/01/26 43 43(b)
BCH Cayman Islands
8.25% 06/15/04 25 26
Bell Telephone Co. - Canada
9.50% 10/15/10 80 97
Bell Telephone Co. - Pennsylvania
8.35% 12/15/30 75 88
Blockbuster Entertainment Corp.
6.625% 02/15/98 270 270
Camden Property Trust
7.00% 11/15/06 43 42
Capital One Bank
6.43% 06/29/98 400 400
Central Maine Power Co.
7.40% 06/02/98 200 201
China International Trust & Investment Corp.
9.00% 10/15/06 125 138
Circus Circus Enterprises Inc.
6.70% 11/15/2096 70 69
Conseco Inc.
10.50% 12/15/04 90 106
Deutsche Bank Financial Inc.
6.70% 12/13/06 85 83
Developers Diversified Realty Corp.
7.00% 03/05/01 125 124
Dresser Industries Inc.
7.60% 08/15/2096 50 51
Enersis S.A.
7.40% 12/01/16 45 44
Finova Capital Corp.
6.375% 10/15/00 60 60
First Security Capital
8.41% 12/15/26 43 44(b)
Freeport Term Malta Ltd.
7.50% 03/29/09 100 103(b)
- ----------
See Notes to Schedules of Investments and Financial Statements
18
<PAGE>
Schedule of Investments (dollars in thousands)
- --------------------------------------------------------------------------------
Principal
Amount Value
- --------------------------------------------------------------------------------
Freeport-McMoran Resource Partners L.P.
7.00% 02/15/08 $ 40 $ 38
General Motors Corp.
8.89% 08/18/03 50 55
Great Atlantic & Pacific Tea Inc.
9.125% 01/15/98 200 205
Guangdong International Trust & Investment Corp.
8.75% 10/24/16 50 51
HSBC America Capital Trust
7.808% 12/15/26 43 42(b)
HSBC Finance Nederland B.V.
7.40% 04/15/03 100 102(b)
Hydro-Quebec
8.05% 07/07/24 115 127
8.25% 04/15/26 175 187
Israel Electric Corp. Ltd.
8.10% 12/15/2096 25 25(b)
ITT Corp. (new)
6.25% 11/15/00 93 92
Joy Technologies Inc.
10.25% 09/01/03 150 165
Korea Electric Power Corp.
7.75% 04/01/13 83 86
Landeskreditbank Baden
7.875% 04/15/04 65 69
Lehman Brothers Inc.
7.00% 05/24/00 100 100
Liberty Mutual Insurance Co.
8.50% 05/15/25 100 107(b)
Loewen Group International Inc.
7.50% 04/15/01 55 55
Mayne Nickless Ltd.
8.65% 04/15/02 50 54(b)
Midland Bank PLC
6.95% 03/15/11 40 39
Morgan Stanley Finance PLC
8.03% 02/28/17 45 45
New York State Dormitory Authority Revenues
6.32% 04/01/99 90 90
News America Holdings Inc.
8.15% 10/17/36 280 275
9.125% 10/15/99 100 107
North Atlantic Energy Corp.
9.05% 06/01/02 188 189
Oslo Seismic
8.28% 06/01/11 98 102(b)
Paramount Communications Inc.
5.875% 07/15/00 200 193
Pennzoil Co.
10.625% 06/01/01 50 54
Petroleos Mexicanos
7.75% 10/29/99 50 50(b)
Philip Morris Cos. Inc.
6.95% 06/01/06 100 101
Provident Capital Trust
8.60% 12/01/26 35 36(b)
Reliance Industries Ltd.
10.375% 06/24/16 55 60(b)
10.50% 08/06/46 45 48(b)
Republic of Columbia
7.25% 02/15/03 35 34
Republic of Poland
3.75% 10/27/14 50 42
Riggs Capital Trust
8.625% 12/31/26 40 40(b)
RJR Nabisco Inc.
8.00% 07/15/01 200 201
Southern Investments UK PLC
6.375% 11/15/01 190 188
Taubman Realty Group L.P.
8.00% 06/15/99 50 51
Tele-Communications Inc.
8.25% 01/15/03 100 101
Thai Farmers Bank Ltd.
8.25% 08/21/16 75 75(b)
Total Access Communication Co. Ltd.
7.625% 11/04/01 195 196(b)
Union Electric Co.
7.69% 12/15/36 45 44
United Co. Financial Corp.
7.00% 07/15/98 200 201
Yale University Notes
7.375% 04/15/2096 70 71
Total Corporate Notes
(Cost $6,511) 6,577
- ----------
See Notes to Schedules of Investments and Financial Statements
19
<PAGE>
Elfun Diversified Fund (dollars in thousands) -- December 31, 1996
- --------------------------------------------------------------------------------
Principal
Amount Value
- --------------------------------------------------------------------------------
Mortgage-Backed -- 10.9%
Federal Home Loan Mortgage Corp.
6.50% 03/01/04 - 04/01/11 $ 359 $ 354
7.00% 11/01/09 - 05/01/10 85 86
7.50% 06/01/24 - 09/01/24 124 124
8.00% 12/01/25 - 01/01/26 231 235
9.00% 04/01/25 175 185
984
Federal National Mortgage Assoc.
6.00% 02/01/09 - 03/01/09 170 165
6.50% 01/01/04 19 18
7.50% 11/01/22 - 04/01/24 291 292
8.50% 04/01/17 49 52(j)
527
Government National Mortgage Assoc.
7.00% 06/15/23 - 12/15/23 1,071 1,053
7.50% 05/15/22 - 09/15/23 1,803 1,812
8.00% 01/15/23 - 12/15/23 765 784
8.50% 10/15/17 1,196 1,268
9.00% 12/15/17 120 129
9.00% TBA 281 302(c)
9.50% 12/15/09 286 312
5,660
Mid-State Trust
8.33% 04/01/30 508 535
Collateralized Mortgage Obligations
Aetna Commercial Mortgage Trust
6.422% 12/26/30 70 70
Collateralized Mortgage Obligation Trust
6.52% 09/01/15 47 40(d,f)
6.73% 11/01/18 48 32(d,f)
Community Program Loan Trust
4.50% 10/01/18 100 85
CS First Boston Mortgage Securities Corp.
6.425% 08/20/30 68 68
DLJ Mortgage Acceptance Corp.
6.65% 12/17/27 50 50(b)
6.85% 12/17/27 180 180(b)
7.29% 11/12/21 42 43(b)
8.72% 06/28/26 124 126(b)
Federal Home Loan Mortgage Corp.
7.00% 07/01/26 580 201(g)
8.00% 04/15/20 50 50
1009% 09/15/21 1 37(g)
Federal National Mortgage Assoc.
6.965% 07/25/10 70 70
7.12% 09/25/23 148 94(d,f)
7.41% 03/25/21 109 112
8.00% 02/01/23 259 80(g)
8.50% 03/01/17 - 07/01/22 232 69(g)
9.41% 09/25/23 98 62(d,f)
Federal National Mortgage Assoc. REMIC
6.61% 08/25/23 200 148(d,f)
6.78% 09/25/22 109 87(d,f)
6.856% 06/17/11 64 64
7.12% 09/25/23 41 26(d,f)
7.14% 07/25/20 113 94(d,f)
10.88% 10/25/23 79 61(d,f)
GMAC Commercial Mortgage Securities Inc.
6.79% 09/15/03 100 100
LB Commercial Conduit Mortgage Trust
7.141% 08/25/04 186 189
7.416% 10/25/26 77 78
Merrill Lynch Mortgage Investor's Inc.
7.113% 05/25/15 73 74
7.252% 06/15/21 103 105
Morgan Stanley Capital Inc.
7.218% 10/15/10 98 98(b)
Sawgrass Finance REMIC Trust
6.45% 01/20/06 90 89
Structured Asset Securities Corp.
1.331% 02/25/28 1,063 55(g)
8.495% 04/25/27 167 171
9.087% 09/25/31 256 268
Vornado Finance Corp.
6.36% 12/01/00 210 208(b)
3,384
Total Mortgage-Backed
(Cost $11,014) 11,090
Total Bonds and Notes
(Cost $31,788) 31,952
- ----------
See Notes to Schedules of Investments and Financial Statements
20
<PAGE>
Schedule of Investments (dollars in thousands)
- --------------------------------------------------------------------------------
Number
of Shares Value
- --------------------------------------------------------------------------------
Preferred Stock -- 0.4%
- --------------------------------------------------------------------------------
Airtouch Communications Inc.
(Class B), 6.00% 3,000 $ 82
Airtouch Communications Inc.
(Class C), 4.25% 2,361 107
Appalachian Power Co.
(Series A), 8.25% 300 7
Central Hispano Capital,
9.43% 1,465 39
Entergy Gulf States Inc.,
$1.75 2,875 72
Equity Residential Trust,
9.125% 1,900 49
Grand Metropolitan Delaware,
9.42% 1,500 42
Security Capital Industrial Trust,
8.54% 1,205 61
National Rural Utilities Cooperative
Finance Corp., 8.00% 450 11
Total Preferred Stock
(Cost $458) 470
Total Investments in Securities
(Cost $69,119) 90,608
- --------------------------------------------------------------------------------
Principal
Amount Value
- --------------------------------------------------------------------------------
Short Term Investments -- 12.0%
- --------------------------------------------------------------------------------
U.S. Government Agencies -- 9.8%
Federal Farm Credit Bank
5.28% 01/08/97 $ 4,000 $ 3,996
Federal Home Loan Mortgage Corp.
5.34% 01/30/97 2,000 1,992(d)
Federal National Mortgage Assoc.
5.28% 01/21/97 4,000 3,988(d)
9,976
Repurchase Agreement -- 2.2%
State Street Bank and Trust Co.
6.00% 01/02/97
(Cost $2,260) 2,260 2,260
(dated 12/31/96, proceeds
$2,261, collateralized by
$2,307 United States
Treasury Note, 6.25%, 06/30/98)
Total Short Term Investments
(Cost $12,236) 12,236
Other Assets and Liabilities,
net (0.7%) (687)
--------
NET ASSETS -- 100% $102,157
========
Icons represent the top five industry weightings in the
Elfun Diversified Fund at December 31, 1996.
- ----------
See Notes to Schedules of Investments and Financial Statements
21
<PAGE>
Elfun Tax-Exempt Income Fund
Q&A
Bob Kaelin manages the tax-exempt operation with total assets over $5 billion.
His responsibilities include managing the Elfun Tax-Exempt Income Fund. Prior to
joining GE Investments in 1984, Bob was Senior Vice President and Manager of
Tax-Exempts for CIGNA/INA Insurance Company. From 1969 to 1976, Bob was Vice
President at Girard Bank in Philadelphia and A.G. Becker in New York, where he
was a municipal bond salesman. Bob is a graduate of St. Joseph University in
Philadelphia with a B.S. in Business Administration.
Q. How did the Elfun Tax-Exempt Income Fund perform compared to its benchmarks
in 1996?
A. The Elfun Tax-Exempt Income Fund had a return of 3.6% in 1996. The Lehman
Brothers Municipal Bond Index returned 4.4% for the same period. Our Lipper
peer group of 225 General Municipal Bond funds had an average return of
3.3%.
Q. Why did the Fund over or underperform its benchmark and peers?
A. The Fund was able to outperform its peers due to our defensive posture in
the first half of the year. Many of our peers were caught off guard as
longer maturing portfolios underperformed during the sharp rise in yields.
Throughout the year we carried little cash in the Fund, opting to be fully
invested in the market. Our positioning enabled the Fund to perform well
during the second half, as other managers adjusted to shorten the maturity
of their portfolios.
Q. What has been the investment strategy over the past year?
A. During the year we maintained a consistent investment strategy. We strive
to identify value and yield without compromising the high average quality
rating of the Fund. Through this approach, we seek to maximize tax-exempt
income for our shareholders while minimizing capital gains.
Q. How did domestic events impact the municipal market this year?
A. The municipal market's strong relative performance compared to the taxable
fixed income market was the result of the supply and demand dynamics in the
market. While supply was up a surprising 14% over 1995, the $185 billion
entering the market did not put pressure on prices. Much of the issuance
was in the short and intermediate range where casualty insurance companies
were big buyers. These companies were awash in cash last year as they
experienced limited claims activity but saw heavy redemptions from called
and matured bond holdings. The concentrated buying in this part of the
market stabilized prices in down markets and pushed them higher when the
market rallied.
The re-election of President Clinton was another issue that translated into
the strong relative performance of municipal's. The risk of major tax
reform is all but eliminated from the political landscape. Investors,
particularly individuals, have become more comfortable with the prospects
of municipals continued tax-exempt status. There may be some legislation
that restricts issuance, but this would be positive for prices, given
current demand patterns.
Q. What is the outlook for the Fund in the upcoming year and how have you
positioned the Fund going forward?
A. The key market drivers in 1997 will be similar to 1996. Supply entering the
market should be slightly lower than last year, with the overall amount of
outstanding municipal holdings remaining constant. On the demand side, we
see three buying groups coming into play. First, insurance companies will
remain strong buyers in the near term. Their activity may decline as fewer
of their bond holdings are called away from them. Lower redemptions going
forward means less of a need to put money back into the market. Second,
mutual funds with limited cash inflows are expected to limit buying to
replace bonds rolling-off. Finally, individual investors are seen as the
dominant factor in 1997. Baby boomers are now shifting towards investing in
financial assets, away from housing and in some cases, education. Many of
these investors have reached their desired equity levels. Expectations are
that reallocation will play a major role in the market this year. Within
this environment we will maintain our strategy of seeking value while
maintaining a cautious view towards the market.
[PHOTO OF BOB KAELIN]
22
<PAGE>
Elfun Tax-Exempt Income Fund
Comparison of Change in Value of a $10,000 Investment
Elfun Tax-Exempt LB Muni Bond
---------------- ------------
'86 10000 10000
'87 10030 10150
'88 11344 11185
'89 12388 12393
'90 13131 13298
'91 14720 14907
'92 15971 16219
'93 17903 18214
'94 16870 17272
'95 19789 20278
'96 20501 21176
AVERAGE ANNUAL TOTAL RETURN
for the periods ended December 31, 1996
- --------------------------------------------------------------------------------
One Five Ten
Year Year Year
- --------------------------------------------------------------------------------
Elfun Tax-Exempt 3.60% 6.86% 7.44%
LBMI 4.43% 7.28% 7.80%
- --------------------------------------------------------------------------------
INVESTMENT PROFILE
A Fund designed for investors who seek as high a level of current interest
income exempt from federal income taxes as is consistent with prudent investment
management and preservation of capital by investing principally in municipal
obligations.
- --------------------------------------------------------------------------------
*Lipper Performance Comparison
Based on 12/31/96 total returns
General Municipal Peer Group
One Five Ten
Year Year Year
Fund's rank in peer group: 93 46 19
Number of Funds in peer group: 225 103 64
Peer group average total return: 3.3% 6.8% 7.2%
Lipper categories in peer group: General Municipal
* See notes to performance for explanation of peer categories.
Quality Ratings as of December 31, 1996
================================================================================
Percent of
Moody's Ratings + Market Value
- --------------------------------------------------------------------------------
Aaa 50.8%
Aa 22.8%
A 21.6%
Baa 1.7%
NR 3.1%
- --------------------------------------------------------------------------------
+Moody's Investors Service, Inc. is a nationally recognized statistical rating
organization.
See page 40 for Notes to Performance.
Past performance is no guarantee of future results.
23
<PAGE>
Schedule of Investments (dollars in thousands) -- December 31, 1996
ELFUN TAX-EXEMPT INCOME FUND
Water and Sewer 15.5%
Health 8.0%
General Obligations 21.0%
Transportations 13.0%
Industrial Development 1.6%
Education 11.4%
Cash and Other 5.4%
Electric Utility 9.8%
Sales Tax 7.2%
Lease Revenue 7.1%
- --------------------------------------------------------------------------------
Principal
Amount Value
- --------------------------------------------------------------------------------
Municipal Bonds -- 98.1%
- --------------------------------------------------------------------------------
Alabama -- 0.5%
Mobile County Alabama G.O.
5.35% 02/01/10 $ 6,530 $ 6,598
Arizona -- 2.2%
Arizona Industrial Devel. Auth.
Rev. - Industrial Dev.
7.05% 08/01/20 12,000 13,055
Arizona State University
Rev. - Education
7.10% 07/01/16 2,000 2,251
Arizona Transportation Board
Rev. - Sales Tax, MBIA Insured
7.00% 07/01/00 7,150 7,731
Arizona Transportation Board
Rev. - Trans.
6.00% 07/01/08 5,000 5,469
28,506
California -- 2.1%
California State G.O.
8.00% 05/01/03 10,725 12,671
Los Angeles California Waste Water Systems
Rev. - Water & Sewer, MBIA Insured
5.70% 06/01/20 15,000 14,980
27,651
Colorado -- 5.9%
Colorado Springs Colorado Utility
Rev. - Electric Utility
6.50% 11/15/15 30,370 33,272
Northern Colorado Water
Rev. - Water & Sewer
6.00% 12/01/15 4,500 4,511
Platte River Power. Auth.
Rev. - Electric Utility
6.875% 06/01/16 37,850 38,983
76,766
Connecticut -- 2.3%
Connecticut State G.O.
5.50% 03/15/07 9,560 9,884
5.625% 03/15/09 1,990 2,047
Connecticut State Health & Educational Fac. Auth.
Rev. - Health, MBIA Insured
5.125% 11/01/12 1,495 1,454
Stamford Connecticut G.O.
4.90% 02/15/06 1,025 1,035
5.00% 02/15/07 - 02/15/15 15,775 15,477
29,897
Delaware -- 1.5%
Delaware Trans. Auth.
Rev. - Trans., Prerefunded
6.50% 07/01/11 15,505 17,039
New Castle County Delaware G.O.
6.40% 10/15/03 2,390 2,615
19,654
District of Columbia -- 3.8%
District of Columbia Rev. - Education
7.15% 04/01/21 17,950 19,171
7.25% 04/01/20 28,955 30,426
49,597
[ICON] Florida -- 8.3%
Brevard County Utility
Rev. - Water & Sewer, AMBAC Insured
5.25% 03/01/07 - 03/01/08 6,050 6,159
Dade County School District
G.O., MBIA Insured
5.20% 08/01/07 5,000 5,034
5.50% 08/01/11 - 08/01/15 32,055 32,201
- ----------
See Notes to Schedules of Investments and Financial Statements
24
<PAGE>
Schedule of Investments (dollars in thousands)
- --------------------------------------------------------------------------------
Principal
Amount Value
- --------------------------------------------------------------------------------
Florida State Board Education
Capital Outlay G.O.
5.125% 06/01/22 $ 2,000 $ 1,869
6.00% 06/01/19 5,250 5,457
Florida State Div. Bd. Fin. Dept.
Rev. - Other, MBIA Insured
6.50% 07/01/09 - 07/01/10 8,855 9,598
Hillsborough County School Board
Rev. - Lease Rev., MBIA Insured
6.00% 07/01/12 - 07/01/14 7,155 7,403
Hillsborough County Util. Ref.
Rev. - Water & Sewer, FSA Insured
6.50% 08/01/16 3,260 3,478
Hillsborough County Util. Ref.
Rev. - Water & Sewer, MBIA Insured
6.50% 08/01/16 5,240 5,603
6.625% 08/01/11 10,000 10,953
Orange County Rev. - Water &
Sewer, AMBAC Insured
6.25% 10/01/17 6,500 6,839
Orlando & Orange County
Expressway Auth. Rev. - Trans.,
AMBAC Insured
5.25% 07/01/14 13,695 13,343
107,937
Georgia -- 1.6%
Fulton County Georgia School District G.O.
5.625% 01/01/21 8,205 8,208
Georgia State G.O.
6.50% 08/01/04 - 08/01/08 7,070 7,997
Private Colleges & University
Rev. - Education, MBIA Insured
6.50% 11/01/15 4,010 4,563
20,768
Hawaii -- 0.3%
Honolulu Hawaii City & County G.O.
6.00% 01/01/12 2,000 2,150
6.10% 06/01/11 1,500 1,585
3,735
Illinois -- 6.7%
Chicago Illinois School Finance
Auth. G.O., MBIA Insured
5.00% 06/01/09 9,000 8,757
Chicago Public Bldg. Comm.
Rev. - Lease Rev., MBIA Insured
7.125% 01/01/15 9,115 9,790
7.70% 01/01/08 6,500 6,865
Cook County Illinois
G.O., MBIA Insured
5.375% 11/15/18 14,500 14,144
Illinois Education Fac. Auth.
Rev. - Education
7.125% 07/01/21 14,940 16,265
Illinois State Sales Tax Rev. - Sales Tax
5.50% 06/15/20 4,415 4,235
Metropolitan Pier & Exposition
Authority Illinois Rev. - Sales Tax
6.50% 06/15/27 14,575 16,266
Regional Transport Auth. Illinois Rev. - Trans.
6.25% 06/01/15 9,980 10,598
86,920
Indiana -- 1.7%
Indiana University Rev. - Education
6.00% 11/15/14 7,500 7,816
Indianapolis Local Rev. - Bond Bank
6.00% 07/01/10 6,000 6,205
Petersburg Pollution Control
Rev. - Industrial Dev.
6.625% 12/01/24 7,250 7,861
21,882
Kentucky -- 0.9%
Louisville & Jefferson County
Kentucky Rev. - Water & Sewer,
MBIA Insured
5.30% 05/15/19 11,900 11,655
Maine -- 0.6%
Maine Health & Higher Educational
Facilities Auth. Rev. - Health, FSA Insured
5.50% 07/01/23 7,690 7,512
Maryland -- 0.3%
Montgomery County G.O.
8.60% 05/01/01 2,910 3,378
[ICON] Massachusetts -- 8.0%
Massachusetts Bay Transportation
Auth. Rev. - Trans.
5.90% 03/01/24 20,000 20,352
- ----------
See Notes to Schedules of Investments and Financial Statements
25
<PAGE>
Elfun Tax-Exempt Income Fund (dollars in thousands) -- December 31, 1996
- --------------------------------------------------------------------------------
Principal
Amount Value
- --------------------------------------------------------------------------------
Massachusetts State G.O.
5.50% 11/01/08 $18,135 $18,788
Massachusetts State Health &
Educational Fac. Auth. Rev. -
Health, MBIA Insured
6.30% 08/15/24 4,000 4,187
Massachusetts State Indus. Fin.
Agcy. Rev. - Resource RE
6.30% 07/01/05 8,750 9,186
Massachusetts State Water Resources
Auth. Rev. - Water & Sewer
5.10% 03/01/03 8,000 8,177
6.50% 07/15/08 - 07/15/19 23,370 26,107
Massachusetts State Water Resources
Auth. Rev. - Water & Sewer, MBIA Insured
4.75% 12/01/23 7,500 6,497
5.00% 03/01/22 7,500 6,840
5.50% 03/01/17 3,500 3,433
103,567
Michigan -- 3.9%
Detroit Michigan Sewage Disposal
Rev. - Water & Sewer, MBIA Insured
5.25% 07/01/21 11,865 11,361
Detroit Sewer System Rev. - Water & Sewer
7.00% 07/01/11 5,000 5,184
Michigan Trunk Line Rev. - Sales Tax
5.50% 10/01/21 35,815 34,637
51,182
Minnesota -- 1.4%
Southern Muni. Power Agcy.
Rev. - Electric Utility
5.75% 01/01/11 8,780 8,989
Southern Muni. Power Agcy.
Rev. - Electric Utility, MBIA Insured
5.00% 01/01/12 10,000 9,513
18,502
Missouri -- 1.4%
Jackson County Missouri Consolidated
School District Number 002
G.O., AMBAC Insured
5.25% 03/15/09 8,000 8,058
University Missouri Health Facilities
Rev. - Health, AMBAC Insured
5.60% 11/01/26 10,000 9,913
17,971
New Hampshire -- 1.8%
New Hampshire Higher Educational
& Health Facilities Rev. - Education
5.375% 06/01/23 5,000 4,832
New Hampshire Higher Educational
& Health Facilities Rev. - Education,
MBIA Insured
6.25% 07/01/20 5,000 5,184
New Hampshire State Tpke.
Systems Rev. - Trans., MBIA Insured
5.25% 02/01/19 4,500 4,275
New Hampshire Tpke. Auth. Rev. - Trans.
5.75% 04/01/20 8,745 8,733
23,024
[ICON] New Jersey -- 8.1%
Atlantic County N.J. Utilities Auth.
G.O., AMBAC Insured
5.00% 01/15/13 6,400 6,141
New Jersey Building Auth. Rev. - Lease Rev.
5.00% 06/15/11 - 06/15/12 20,090 19,418
7.00% 06/15/07 3,100 3,268
7.20% 06/15/13 6,000 6,338
New Jersey Sports and Exposition
Convention Ctr. Rev. - Other
6.50% 03/01/19 12,590 13,431
New Jersey State - G.O.
5.125% 07/15/08 5,180 5,254
New Jersey Tpke. Auth. Rev. - Trans.,
AMBAC Insured
6.50% 01/01/16 45,960 52,035
105,885
New Mexico -- 0.6%
Albuquerque Airport Rev. - Trans.
6.50% 07/01/19 7,980 8,045
[ICON] New York -- 6.6%
Battery Park City Auth.
Rev. -Lease Rev., AMBAC Insured
4.75% 11/01/19 16,130 14,509
- ----------
See Notes to Schedules of Investments and Financial Statements
26
<PAGE>
Schedule of Investments (dollars in thousands)
- --------------------------------------------------------------------------------
Principal
Amount Value
- --------------------------------------------------------------------------------
Battery Park City Auth. Rev. - Lease
Rev., MBIA Insured
5.00% 11/01/13 $10,000 $ 9,476
5.25% 11/01/17 4,000 3,838
Municipal Assistance Corp.
Rev. - Sales Tax
5.20% 07/01/08 10,000 10,056
New York State Dormitory
Cornell Univ. Rev. - Education
5.30% 07/01/08 3,000 3,086
5.40% 07/01/10 8,185 8,346
New York State Dormitory CUNY
Rev. - Education
7.00% 07/01/09 7,000 7,838
New York State Housing Fin.
Agcy. Rev. - Housing
6.375% 09/15/14 5,000 5,136
New York State Local Government
Assistance Corp. Rev. - Sales Tax
5.50% 04/01/21 12,255 11,981
New York State Thruway Auth.
Rev. - Trans.
6.00% 04/01/14 8,000 8,204
Port Authority New York And
New Jersey Rev. - Trans.
5.00% 07/15/09 - 07/15/10 4,190 4,105
86,575
North Carolina -- 0.1%
North Carolina Medical Care
Commission Hospital Rev. - Health
5.50% 02/15/19 2,000 1,950
North Dakota -- 0.1%
Bismarck Hospital Rev. - Health,
BIG Insured
7.30% 05/01/97 930 941
Ohio -- 5.2%
Clermont County Ohio Hospital
Facilities Rev. - Health,
AMBAC Insured
7.50% 09/01/19 2,000 2,217
Cleveland Water Works Rev. - Water
& Sewer, AMBAC Insured
6.25% 01/01/16 9,490 9,971
Columbus G.O.
5.30% 07/01/09 1,850 1,870
Northeast Ohio Reg. Sewer
District Rev. - Water & Sewer,
AMBAC Insured
6.50% 11/15/16 15,500 17,070
Ohio State Building Auth.
Rev. - Lease Rev.
4.75% 04/01/14 5,000 4,508
Ohio State Building Auth.
Rev. - Lease Rev., MBIA Insured
7.00% 09/01/07 3,230 3,553
Ohio State Higher Education
Rev. - Education, MBIA Insured
6.70% 05/01/05 10,100 10,997
Ohio State Turnpike Commission
Tpke. Rev. - Trans., MBIA Insured
5.50% 02/15/26 8,000 7,874
Ohio State Water Development
Auth. Pollution Control Fac.
Rev. - Water & Sewer, MBIA Insured
5.30% 12/01/11 9,265 9,152
67,212
Oklahoma -- 0.4%
Oklahoma Tpke. Auth. Rev. -
Trans., MBIA Insured
6.25% 01/01/22 4,640 4,933
Oregon -- 0.6%
Oregon State G.O.
5.875% 10/01/18 2,500 2,559
6.875% 12/01/13 5,000 5,329
7,888
[ICON] Pennsylvania -- 7.4%
Allegheny County Hospital
Development Auth. Rev. -
Health, MBIA Insured
5.375% 12/01/25 27,000 25,762
6.20% 09/01/15 3,500 3,669
Montgomery County Higher
Education & Health Auth.
(Holy Redeemer Hosp.)
Rev. - Lease Rev.
8.25% 03/01/14 3,160 3,434
- ----------
See Notes to Schedules of Investments and Financial Statements
27
<PAGE>
Elfun Tax-Exempt Income Fund (dollars in thousands) -- December 31, 1996
- --------------------------------------------------------------------------------
Principal
Amount Value
- --------------------------------------------------------------------------------
Northampton County Higher
Education Fac. Auth. Lehigh
Univ. Rev. - Education, MBIA Insured
7.00% 10/15/11 $ 7,800 $ 8,669
Pennsylvania Higher Education
Fac. Auth. Rev. - Education
8.125% 03/01/19 3,735 4,094
8.50% 10/01/08 2,095 2,274
Pennsylvania Intergovernmental
Co-op. Rev. - Sales Tax, MBIA Insured
5.60% 06/15/15 8,535 8,496
Pennsylvania State G.O.
6.75% 01/01/09 9,505 10,397
Philadelphia Gas Wks Other
Rev. - Other, FSA Insured
6.375% 07/01/14 1,845 1,942
Philadelphia Hospitals & Higher
Education Facilities Rev. - Health
5.00% 02/15/21 11,250 10,265
Philadelphia Pennsylvania School
District G.O., MBIA Insured
5.55% 07/01/05 10,150 10,648
5.65% 07/01/06 2,070 2,175
5.75% 07/01/07 1,200 1,263
5.80% 07/01/08 1,500 1,576
5.85% 07/01/09 1,440 1,510
96,174
Puerto Rico -- 1.3%
Puerto Rico Commonwealth G.O.
7.125% 07/01/02 16,640 17,204
South Carolina -- 3.4%
Charleston County SC G.O.
5.90% 06/01/10 2,170 2,285
6.00% 06/01/11 - 06/01/12 4,765 5,063
South Carolina State Public Service
Auth. Rev. - Electric Utility
7.10% 07/01/21 4,425 4,970
South Carolina State Public Service
Auth. Rev. - Electric Utility,
AMBAC Insured
6.50% 07/01/24 5,000 5,547
South Carolina State Public Service
Auth. Rev. - Electric Utility,
MBIA Insured
5.50% 07/01/21 26,635 26,282
44,147
Tennessee -- 0.2%
Nashville Health & Education
Rev. - Education
7.625% 05/01/08 2,300 2,441
Texas -- 2.7%
Harris County Texas G.O.
6.125% 08/15/20 15,000 15,852
Tarrant County Texas Water
Control & Improvement Rev. -
Water & Sewer, AMBAC Insured
5.75% 03/01/13 3,500 3,664
Texas State G.O.
9.00% 10/01/99 - 10/01/00 12,800 14,670
University Texas University
Rev. - Education
5.20% 08/15/09 1,295 1,300
35,486
Virginia -- 4.1%
Chesapeake Virginia G.O.
6.00% 05/01/12 2,150 2,264
Fairfax County Virginia Sewer
Rev. - Water & Sewer, MBIA Insured
5.875% 07/15/28 13,785 14,127
Fairfax County Virginia Water
Auth. Rev. - Water & Sewer
5.00% 04/01/16 2,500 2,327
Norfolk Virginia Industrial
Development Auth. Rev. - Health
5.00% 11/01/20 4,250 3,870
Norfolk Virginia Water Rev. -
Water & Sewer, AMBAC Insured
5.375% 11/01/23 2,500 2,385
Roanoke Virginia Industrial
Development Authority Hospital
Rev. - Health, MBIA Insured
5.00% 07/01/24 21,220 19,500
University Virginia Rev. - Education
5.375% 06/01/20 5,000 4,835
- ----------
See Notes to Schedules of Investments and Financial Statements
28
<PAGE>
Schedule of Investments (dollars in thousands)
- --------------------------------------------------------------------------------
Principal
Amount Value
- --------------------------------------------------------------------------------
Virginia State Trans. Board
Rev. - Trans., Prerefunded
6.90% 05/15/12 $4,250 $ 4,495
53,803
Washington -- 0.4%
Seattle Water Systems
Rev. - Water & Sewer
5.50% 06/01/18 5,425 5,324
West Virginia -- 0.2%
West Virginia State University
Rev. - Education, AMBAC Insured
6.00% 04/01/12 3,000 3,136
Wisconsin -- 1.5%
Wisconsin State G.O.
5.20% 05/01/10 4,150 4,122
5.25% 05/01/11 2,385 2,368
Wisconsin State Health &
Educational Fac. Auth.
Rev. - Health, MBIA Insured
5.25% 08/15/23 13,455 12,648
19,138
Total Investments in Securities
(Cost $1,201,332) 1,276,984
Short Term Investments -- 0.3%
- --------------------------------------------------------------------------------
Repurchase Agreement -- 0.3%
State Street Bank and Trust Co.
6.00% 01/02/97
(Cost $3,620) 3,620 3,620
(dated 12/31/96, proceeds
$3,621, collateralized by $3,692
United States Treasury Note,
6.25%, 06/30/98)
Other Assets and Liabilities,
net 1.6% 21,133
----------
NET ASSETS-- 100% $1,301,737
==========
[ICONS] Icons represent the top five states in the Elfun Tax-Exempt Income Fund
at December 31, 1996.
- ----------
See Notes to Schedules of Investments and Financial Statements
29
<PAGE>
Elfun Income Fund
Q&A
Bob MacDougall leads the fixed income team at GE Investments. Assets under
management exceed $19 billion. His responsibilities include managing the Elfun
Income Fund, Elfun Money Market Fund and the fixed income portion of the Elfun
Diversified Fund. Bob joined GE Investments in 1986 as Mutual Fund Portfolio
Manager, became Senior Vice President - Fixed Income in 1992 and was named to
his present position in 1997. Previously he was with GE's Corporate Treasury
Operation managing the Company's $2 billion portfolio of marketable securities
and supporting the Treasurer in the areas of debt management and capital
structure planning. Prior to that, Bob held various financial management
positions since joining GE in 1973. He holds Bachelor's and Master's degrees in
Business Administration from the University of Massachusetts.
Q. How did the Elfun Income Fund perform compared to its benchmarks in 1996?
A. The Elfun Income Fund had a total return of 4.0% in 1996, consisting of
income of 6.8% offset partially by a 2.8% price decline. This compares with
a 3.6% return for the Lehman Brothers Aggregate Bond Index and an average
return of 2.6% for the 130 mutual funds included in our Lipper Intermediate
Bond fund peer group.
Q. What happened in the bond market during the past 12 months?
A. Entering 1996, interest rates were rather low with long Treasury bonds
yielding just under 6%. Moderate economic growth and stable inflation had
rallied the bond market in 1995. Despite an easing of monetary policy in
January 1996, interest rates rose in the first half reaching a high of 7.2%
in June. Stronger economic activity renewed fears of inflation. During the
summer months the market traded in a 0.40% range around 7% as the economic
data gave conflicting signals and no clear trend emerged.
The resolution of election uncertainties and signs of a slowdown rallied
bonds in the fall with the yield on long Treasuries dropping to 6.35% in
early December. As the year ended, however, rates headed back up. Inflation
remains under control but with low unemployment and little excess
industrial capacity, investors are wary of any indications of above trend
economic growth.
Q. What was your strategy in 1996?
A. In anticipation of the Federal Reserve reducing rates we lengthened our
average maturity early in the year which unfortunately hurt performance
when rates rose. This prompted us to shorten to a market neutral duration
position which we then held for the remainder of the year. Happily, our
sector allocation, which was heavily overweight in mortgage backed
securities and, to a lesser extent, corporate bonds boosted performance.
Not only did these sectors provide more yield than U.S. Treasuries but
favorable supply/demand technicals allowed them to have better price
performance as well.
Q. What is your current market outlook?
A. The market remains very sensitive to the perceived level of economic
activity, despite continued reports of mild inflation. As we enter 1997 the
latest batch of statistics are foretelling higher growth which is pushing
yields higher. In 1996 we saw that this market action had a self-correcting
effect on the economy. We think that a similar pattern could emerge this
year. With little to no price appreciation expected, we look to maintain
our yield sector overweights and earn the coupon in 1997.
[PHOTO OF BOB MACDOUGALL]
30
<PAGE>
ELFUN INCOME FUND
Comparison of Change in Value of a $10,000 Investment
Elfun Income LB Aggregate
------------ ------------
'86 10000 10000
'87 10079 10275
'88 10837 11086
'89 12391 12696
'90 13459 13830
'91 15630 16043
'92 16665 17229
'93 18285 18908
'94 17858 18356
'95 21111 21749
'96 21957 22538
AVERAGE ANNUAL TOTAL RETURN
for the periods ended December 31, 1996
- --------------------------------------------------------------------------------
One Five Ten
Year Year Year
- --------------------------------------------------------------------------------
Elfun Income 4.01% 7.03% 8.18%
LB Aggregate 3.63% 7.04% 8.47%
- --------------------------------------------------------------------------------
INVESTMENT PROFILE
A Fund designed for investors who seek maximum current income consistent with
prudent management and preservation of capital through investments in a variety
of fixed income securities.
- --------------------------------------------------------------------------------
*Lipper Performance Comparison
Based on 12/31/96 total returns
Intermediate Bond Peer Group
One Five Ten
Year Year Year
---- ---- ----
Fund's rank in peer group: 11 6 2
Number of Funds in peer group: 130 40 11
Peer group average total return: 2.6% 5.7% 7.3%
Lipper categories in peer group: Intermediate U.S. Government,
Intermediate U.S. Treasury
*See notes to performance for explanation of peer categories.
Quality Ratings as of December 31, 1996
================================================================================
Percent of
Moody's Ratings + Market Value
- --------------------------------------------------------------------------------
Aaa 80.4%
Aa 0.7%
A 6.1%
Baa 7.4%
Ba 5.0%
NR 0.4%
+Moody's Investors Service, Inc. is a nationally recognized statistical rating
organization.
See page 40 for Notes to Performance.
Past performance is no guarantee of future results.
31
<PAGE>
Schedule of Investments (dollars in thousands) -- December 31, 1996
ELFUN INCOME FUND
U.S. Treasuries 38.0%
Corporate Notes 20.9%
Mortgage Backed 35.8%
Cash & Other 5.3%
- --------------------------------------------------------------------------------
Principal
Amount Value
- --------------------------------------------------------------------------------
Bonds and Notes -- 98.6%
- --------------------------------------------------------------------------------
U.S. Treasuries -- 38.0%
U.S. Treasury Bonds
6.75% 08/15/26 $11,726 $11,815(j)
8.125% 08/15/19 6,137 7,099(j)
11.25% 02/15/15 2,173 3,209(i)
12.00% 05/15/05 1,205 1,636(j)
23,759
U.S. Treasury Notes
5.625% 02/28/01 2,196 2,152(j)
5.875% 11/15/99 2,499 2,489(i)
5.875% 10/31/98 11,092 11,090(j)
6.00% 12/31/01 3,268 3,256
6.125% 08/31/98 12,776 12,832(j)
6.25% 10/31/01 6,032 6,038(i)
6.375% 09/30/01 2,851 2,868(j)
6.50% 10/15/06 3,291 3,309(i)
6.625% 07/31/01 2,573 2,614
6.625% 06/30/01 4,752 4,829(j)
6.75% 04/30/00 1,024 1,043(j)
7.75% 12/31/99 6,883 7,199(j)
59,719
Total U.S. Treasuries
(Cost $83,435) 83,478
Asset Backed -- 1.5%
Advanta Mortgage Loan Trust Corp.
6.30% 07/25/25 300 292
Ford Credit Auto Loan Master
Trust Series (Class A)
5.63% 02/15/03 100 100(e)
5.687% 07/15/01 900 902(e)
Lehman FHA Title I Loan Trust
7.83% 09/25/17 290 297
MBNA Master Credit Card Trust
5.53% 11/15/01 837 837(e)
Provident Bank Home Equity Loan Trust
7.60% 10/25/12 551 558
Standard Credit Card Master Trust
5.82% 05/08/00 300 300(e)
Total Asset Backed
(Cost $3,267) 3,286
Corporate Notes -- 20.9%
Abbey National PLC
7.35% 10/29/49 400 405
Amerco Inc.
7.10% 10/02/06 200 205
Argentaria Capital Fund
6.375% 02/14/06 510 483
Banco Nacional De Comercio Corp.
7.25% 02/02/04 400 353
Barnett Capital Trust
7.95% 12/01/26 294 291(b)
BCH Cayman Islands
8.25% 06/15/04 525 554
Bell Telephone Co. - Canada
9.50% 10/15/10 1,000 1,206
Bell Telephone Co. - Pennsylvania
8.35% 12/15/30 600 705
Camden Property Trust
7.00% 11/15/06 292 283
Capital One Bank
6.43% 06/29/98 800 801
Central Maine Power Co.
7.40% 06/02/98 150 151
China International Trust & Investment Corp.
9.00% 10/15/06 865 955
China Light & Power Ltd.
7.50% 04/15/06 350 353
- ----------
See Notes to Schedules of Investments and Financial Statements
32
<PAGE>
Schedule of Investments (dollars in thousands)
- --------------------------------------------------------------------------------
Principal
Amount Value
- --------------------------------------------------------------------------------
Circus Circus Enterprises Inc.
6.70% 11/15/2096 $ 395 $ 388
Cleveland Electric Illuminating Co.
8.29% 11/15/99 1,000 1,023
Conseco Inc.
10.50% 12/15/04 315 372
Continental Cablevision Inc.
8.30% 05/15/06 355 378
Delta Air Lines Inc.
7.79% 12/01/98 915 934
Deutsche Bank Financial Inc.
6.70% 12/13/06 715 702
Developers Diversified Realty Corp.
7.00% 03/05/01 550 547
Dresser Industries Inc.
7.60% 08/15/2096 383 391
Enersis S.A.
7.40% 12/01/16 185 179
Federated Department Stores Inc.
8.50% 06/15/03 315 328
10.00% 02/15/01 890 967
First Security Capital
8.41% 12/15/26 298 305(b)
Ford Motor Credit Co.
5.75% 02/22/99 450 451(e)
Freeport Term Malta Ltd.
7.50% 03/29/09 450 462(b)
Freeport-McMoran Resource Partners L.P.
7.00% 02/15/08 300 286
General Motors Corp.
8.89% 08/18/03 300 331
Guangdong International Trust
& Investment Corp.
8.75% 10/24/16 345 355
HSBC America Capital Trust
7.808% 12/15/26 318 311(b)
HSBC Finance Nederland B.V.
7.40% 04/15/03 150 153(b)
Hydro-Quebec
8.05% 07/07/24 685 753
8.25% 04/15/26 1,365 1,461
11.75% 02/01/12 510 717
Israel Electric Corp. Ltd.
8.10% 12/15/2096 850 849(b)
ITT Corp. (new)
6.25% 11/15/00 734 722
Joy Technologies Inc.
10.25% 09/01/03 800 878
Korea Electric Power Corp.
7.75% 04/01/13 470 485
Landeskreditbank Baden
7.875% 04/15/04 570 607
Lehman Brothers Holdings Inc.
6.84% 09/25/98 500 504
Lehman Brothers Inc.
7.00% 05/24/00 680 683
Liberty Mutual Insurance Co.
8.20% 05/04/07 375 398(b)
8.50% 05/15/25 400 429(b)
Loewen Group International Inc.
7.50% 04/15/01 425 426
Lumbermans Mutual Casualty Co.
9.15% 07/01/26 340 369(b)
Mayne Nickless Ltd.
8.65% 04/15/02 300 323(b)
Merrill Lynch & Co. Inc.
5.762% 05/19/98 2,845 2,852(e)
Metropolitan Life Insurance Co.
7.80% 11/01/25 400 401(b)
Midland Bank PLC
6.95% 03/15/11 350 338
Morgan Stanley Finance PLC
8.03% 02/28/17 300 301
Morgan Stanley Group, Inc.
5.762% 03/01/99 1,200 1,203(e)
Multiva Mexico Trust Corp.
9.75% 06/09/97 300 282(b)
National Bank Hungary
8.875% 11/01/13 310 336
New York State Dormitory Authority Revenues
6.32% 04/01/99 655 656
News America Holdings Inc.
8.15% 10/17/36 640 629
North Atlantic Energy Corp.
9.05% 06/01/02 851 856
- ----------
See Notes to Schedules of Investments and Financial Statements
33
<PAGE>
Elfun Income Fund (dollars in thousands) -- December 31, 1996
- --------------------------------------------------------------------------------
Principal
Amount Value
- --------------------------------------------------------------------------------
Oryx Energy Co.
10.00% 06/15/99 $ 750 $ 800
Oslo Seismic
8.28% 06/01/11 211 219(b)
Pennzoil Co.
10.625% 06/01/01 450 487
Petroleos Mexicanos
7.75% 10/29/99 525 523(b)
8.00% 07/01/98 265 267(b)
Philip Morris Cos. Inc.
6.95% 06/01/06 700 708
Provident Capital Trust
8.60% 12/01/26 235 238(b)
PSI Energy Inc.
6.25% 12/15/98 325 325
Reliance Industries Ltd.
10.375% 06/24/16 345 372(b)
10.50% 08/06/46 285 305(b)
Republic of Columbia
7.25% 02/15/03 280 273
Republic of Poland
3.75% 10/27/14 360 305
Riggs Capital Trust
8.625% 12/31/26 300 303(b)
RJR Nabisco Inc.
8.75% 04/15/04 500 505
Southern Investments UK PLC
6.375% 11/15/01 460 454
Taubman Realty Group L.P.
8.00% 06/15/99 660 674
TCI Communications Inc.
6.69% 03/31/06 750 743
Tele-Communications Inc.
8.25% 01/15/03 620 626
9.25% 04/15/02 200 212
Thai Farmers Bank Ltd.
8.25% 08/21/16 430 433(b)
Time Warner Entertainment Co. L.P.
10.15% 05/01/12 500 600
Time Warner Inc.
7.95% 02/01/00 550 568
Total Access Communication Public Co. Ltd.
7.625% 11/04/01 340 341(b)
Union Electric Co.
7.69% 12/15/36 300 296
United Air Lines Inc.
10.67% 05/01/04 480 568
United Co. Financial Corp.
7.00% 07/15/98 250 251
Viacom Inc.
7.75% 06/01/05 950 935
Yale University Notes
7.375% 04/15/2096 395 401
Total Corporate Notes
(Cost $45,312) 45,798
Mortgage-Backed -- 35.8%
Federal Home Loan Mortgage Corp.
6.50% 03/01/04 - 04/01/11 2,840 2,800
6.75% 07/01/03 - 12/01/06 370 367
7.00% 11/01/09 - 06/01/15 1,572 1,574
7.50% 06/01/23 - 04/01/25 5,805 5,835
7.75% 09/01/07 - 03/01/09 908 927
8.00% 08/01/16 347 355
8.25% 06/01/08 200 207
8.50% 04/01/09 583 609
8.75% 03/01/08 61 63
12,737
Federal National Mortgage Assoc.
6.00% 09/01/08 - 10/01/10 1,503 1,460
6.50% 01/01/04 - 04/01/26 1,172 1,124
7.00% 04/01/26 1,604 1,569
7.00% 07/01/17 390 390
7.00% TBA 676 662(c)
7.50% 06/01/09 - 04/01/24 3,467 3,491
7.75% 01/01/09 371 381(j)
9,077
Government National Mortgage Assoc.
7.00% 11/15/23 899 884
7.50% 09/15/21 - 03/15/24 11,072 11,127
8.00% 01/15/23 - 12/15/23 7,907 8,109
8.50% 10/15/17 2,392 2,536
9.00% TBA 2,064 2,217(c)
9.50% 12/15/09 2,074 2,260
27,133
- ----------
See Notes to Schedules of Investments and Financial Statements
34
<PAGE>
Schedule of Investments (dollars in thousands)
- --------------------------------------------------------------------------------
Principal
Amount Value
- --------------------------------------------------------------------------------
Mid-State Trust
8.33% 04/01/30 $ 4,472 $ 4,713
Collateralized Mortgage Obligations
Aetna Commercial Mortgage Trust
6.422% 12/26/30 227 227
Collateralized Mortgage Obligation Trust
6.52% 09/01/15 394 331(d,f)
6.73% 11/01/18 403 269(d,f)
CS First Boston Mortgage Securities Corp.
6.425% 08/20/30 340 339
DLJ Mortgage Acceptance Corp.
6.65% 12/17/27 430 431(b)
6.85% 12/17/27 997 995(b)
7.29% 11/12/21 291 298(b)
8.72% 06/28/26 955 970(b)
Federal Home Loan Mortgage Corp.
7.00% 07/01/26 2,923 1,012(g)
7.50% 04/15/21 756 765
8.00% 04/15/20 480 486
1009% 09/15/21 8 298(g)
Federal National Mortgage Assoc.
6.965% 07/25/10 680 677
7.12% 09/25/23 1,112 709(d,f)
7.41% 03/01/21 865 888
8.00% 02/01/23 1,486 457(g)
8.50% 03/01/17 - 07/01/22 1,358 410 (g)
8.50% 04/01/17 491 142(g)
Federal National Mortgage Assoc. REMIC
6.61% 08/25/23 1,152 851(d,f)
6.78% 09/25/22 877 700(d,f)
6.856% 06/17/11 440 441
7.12% 09/25/23 309 197(d,f)
7.14% 07/25/20 869 726(d,f)
10.88% 10/25/23 581 446(d,f)
GMAC Commercial Mortgage Securities Inc.
6.79% 10/15/28 429 429
LB Commercial Conduit Mortgage Trust
7.141% 08/25/04 583 591
7.416% 10/25/26 710 725
Merrill Lynch Mortgage Investor's Inc.
7.113% 05/25/15 1,184 1,201
7.252% 06/15/21 1,239 1,259
Morgan Stanley Capital Inc.
7.218% 10/15/10 571 566(b)
Residential Resources Inc.
8.00% 10/01/18 290 295
Salomon Brothers Mortgage Securities Inc.
8.125% 11/01/12 282 288
Sawgrass Finance REMIC Trust
6.45% 01/20/06 700 696
Structured Asset Securities Corp.
1.331% 02/25/28 7,318 382(g)
8.495% 04/25/27 1,619 1,666
9.087% 09/25/31 1,725 1,801
Vornado Finance Corp.
6.36% 12/01/00 1,880 1,862(b)
24,826
Total Mortgage-Backed
(Cost $77,657) 78,486
Foreign Denominated Notes -- 2.4%
Dutch Government
6.00% 01/15/06 NLG 1,744 1,034
Federal Republic of Germany
6.25% 04/26/06 DEM 1,486 998
Government of Canada
7.00% 12/01/06 CAD 1,568 1,194
Kingdom of Belgium
7.00% 05/15/06 BEL 30,913 1,052
Kingdom of Denmark
8.00% 03/15/06 DKK 5,569 1,040
Total Foreign Denominated Notes
(Cost $5,273) 5,318
Total Bonds and Notes
(Cost $214,944) 216,366
- ----------
See Notes to Schedules of Investments and Financial Statements
35
<PAGE>
Elfun Income Fund (dollars in thousands) -- December 31, 1996
- --------------------------------------------------------------------------------
Number
of Shares Value
- --------------------------------------------------------------------------------
Preferred Stock -- 1.0%
Appalachian Power Co.
(Series A), 8.25% 2,575 $ 65
Central Hispano Capital,
9.43% 11,335 300
Entergy Gulf States Inc.,
$1.75 21,735 545
Equity Residential Properties
Trust, 9.125% 14,350 370
Grand Metropolitan Delaware,
9.42% 11,500 322
National Rural Utilities Cooperative
Finance Corp., 8.00% 3,863 96
Security Capital Industrial Trust,
8.54% 8,680 440
Total Preferred Stock
(Cost $2,075) 2,138
Total Investments in Securities
(Cost $217,019) 218,504
Principal
Amount Value
- --------------------------------------------------------------------------------
Short Term Investments -- 5.8%
- --------------------------------------------------------------------------------
Time Deposit -- 3.6%
San Paolo
7.25% 01/02/97 $8,000 7,998
Repurchase Agreement -- 2.2%
State Street Bank and Trust Co.
6.00% 01/02/97
(Cost $4,740) 4,740 4,740
(dated 12/31/96, proceeds $4,742,
collateralized by $4,836
United States Treasury Note,
6.25%, 06/30/98)
Total Short Term Investments
(Cost $12,738) 12,738
Other Assets and Liabilities,
net (5.4%) $ (11,791)
---------
NET ASSETS - 100% $ 219,451
=========
Other Information
- --------------------------------------------------------------------------------
The Elfun Income Fund had the following short Futures Contract open at December
31, 1996:
Number
Expiration of Underlying Unrealized
Description Date Contracts Face Value Gain
- --------------------------------------------------------------------------------
U.S. Treasury March 1997 28 $3,153 $17
- --------------------------------------------------------------------------------
FORWARD FOREIGN CURRENCY CONTRACTS
- --------------------------------------------------------------------------------
At December 31, 1996, the outstanding forward foreign currency contracts, which
contractually obligate the Elfun Income Fund to deliver currencies at a
specified date, were as follows:
U.S. $ Cost U.S. $
Foreign Currency Foreign on Origination Current Unrealized
Sale Contracts Currency Date Value Appreciation
- --------------------------------------------------------------------------------
BEL, expiring
01/28/97 34,387 $1,103 $1,086 $17
CAD, expiring
01/28/97 1,614 1,198 1,181 17
DEM, expiring
01/28/97 1,582 1,043 1,030 13
DKK, expiring
01/28/97 6,391 1,099 1,086 13
NLG, expiring
01/15/97 105 62 61 1
NLG, expiring
01/28/97 1,761 1,038 1,022 16
------ ------ ----
$5,543 $5,466 $77
====== ====== ====
- ----------
See Notes to Schedules of Investments and Financial Statements
36
<PAGE>
Elfun Money Market Fund
Q&A
Bob MacDougall manages the Elfun Money Market Fund. Bob's biographical details
can be found on page 30.
Q. How did Elfun Money Market perform versus its benchmarks in 1996?
A. Elfun Money Market Fund posted a total return of 5.2% for 1996. This
compares with 5.2% for 90 day Treasury Bills and a 4.8% average return for
the 288 other Money Market Funds in our Lipper peer group.
Q. What is your investment strategy?
A. Our top priorities in this fund are to ensure that we have sufficient
liquidity to meet investors needs and to maintain a high quality portfolio.
We do not buy what we would consider to be exotic derivatives in order to
reach for yield. We do adjust our average portfolio maturity depending upon
our outlook for the direction of short term rates.
Q. Why did the fund outperform its peers?
A. While long term interest rates were quite volatile in 1996, yields on short
maturity instruments changed very little over the course of the year.
Therefore our strategy of keeping the Fund's average maturity shorter than
most other funds had little impact. Our outperformance can, in part, be
attributed to our cost efficient organization which keeps our expenses
lower than the average fund.
Q. What is your outlook for 1997?
A. We are seeing signs of a pickup in economic activity. Should these signs
continue, the Federal Reserve might raise short term interest rates to help
reduce inflationary pressures. We plan to continue keeping our portfolio's
maturity shorter than average so as to have the flexibility to capitalize
on such an increase in rates. As always, safety of principal and liquidity
remain our top priorities.
[PHOTO OF CURRENCY]
37
<PAGE>
ELFUN MONEY MARKET FUND
Comparison of Change in Value of a $10,000 Investment
Elfun Money Market 90 Day U.S. T-Bill
------------------ --------------------
6/14/90 10000 10000
'90 10454 10404
'91 11139 10980
'92 11574 11367
'93 11957 11715
'94 12456 12225
'95 13181 12917
'96 13870 13583
AVERAGE ANNUAL TOTAL RETURN
for the periods ended December 31, 1996
- --------------------------------------------------------------------------------
Since
One Five Inception
Year Year (6/14/90)
- --------------------------------------------------------------------------------
Elfun Money Market 5.23% 4.49% 5.12%
90 Day U.S. T-Bill 5.15% 4.35% 4.80%
- --------------------------------------------------------------------------------
INVESTMENT PROFILE
A Fund designed for investors who seek to achieve a high level of current income
consistent with the preservation of capital and maintenance of liquidity through
investments in short-term high grade money market instruments.
- --------------------------------------------------------------------------------
*Lipper Performance Comparison
Based on 12/31/96 total returns
Money Market Peer Group
One Five
Year Year
---- ----
Fund's rank in peer group: 21 2
Number of Funds in peer group: 288 175
Peer group average total return: 4.8% 4.0%
Lipper categories in peer group: Money Market
* See notes to performance for explanation of peer categories.
Fund Yield at December 31, 1996
================================================================================
Fund Donoghue
- --------------------------------------------------------------------------------
7 Day current 5.13% 4.90%
7 Day effective 5.26% 5.02%
- --------------------------------------------------------------------------------
Current yield represents income earned on an investment in the Money Market
Fund for a seven day period and then annualized.
Effective yield is calculated similarly but is slightly higher because it
reflects the compounding effect of earnings on reinvested dividends.
An investment in the Elfun Money Market Fund is neither insured nor guaranteed
by the U.S. Government, and no assurance can be given that the Elfun Money
Market Fund will be able to maintain a stable net asset value of $1.00 per
share.
See page 40 for Notes to Performance. Past performance is no guarantee of future
results.
38
<PAGE>
Schedule of Investments (dollars in thousands) -- December 31, 1996
ELFUN MONEY MARKET FUND
Certificate of Deposits & Other 28.2%
U.S. Government 49.3%
Commercial Paper 22.5%
- --------------------------------------------------------------------------------
Principal Amortized
Amount Cost
- --------------------------------------------------------------------------------
Short Term Investments -- 99.2%
- --------------------------------------------------------------------------------
U.S. Governments(d) -- 49.3%
Federal Home Loan Bank
5.21% 01/16/97 $ 3,220 $ 3,213
5.22% 01/09/97 5,580 5,573
5.24% 01/03/97 4,930 4,929
5.49% 03/06/97 5,000 4,951
18,666
Federal Home Loan Mortgage Corp.
5.19% 03/07/97 2,040 2,021
5.22% 01/02/97 - 06/13/97 6,810 6,684
5.24% 02/10/97 3,670 3,649
5.34% 01/30/97 4,790 4,769
5.70% 01/02/97 2,360 2,360
19,483
Federal National Mortgage Assoc.
5.21% 05/12/97 4,400 4,317
5.22% 03/06/97 3,830 3,794
5.23% 02/18/97 - 02/26/97 12,240 12,147
5.25% 01/16/97 5,960 5,947
5.27% 01/03/97 4,460 4,459
30,664
Total U.S. Governments
(Cost $68,813) 68,813
Commercial Paper(d) -- 22.5%
Abbey National PLC
5.27% 02/18/97 5,020 4,985
Chase Manhattan Corp.
5.30% 01/15/97 3,670 3,662
First Union Corp.
5.29% 02/19/97 5,130 5,093
Merrill Lynch & Co. Inc.
5.30% 02/14/97 4,650 4,620
Morgan (J.P.) & Co. Inc.
5.30% 01/16/97 4,600 4,590
Norwest Corp.
5.30% 01/17/97 4,460 4,450
UBS Finance Delaware Inc.
6.20% 01/02/97 4,000 3,999
Total Commercial Paper
(Cost $31,399) 31,399
Certificate of Deposits -- 27.3%
Algemene Bank Nederland N.V.
5.38% 01/17/97 5,000 5,000
Bank of Nova Scotia
5.51% 01/06/97 5,000 5,000
Bayerische Hypotheken Bank
5.35% 02/21/97 4,400 4,400
Credit Suisse
5.36% 02/11/97 5,400 5,400
Dresdner Bank AG
5.36% 02/11/97 5,300 5,300
Royal Bank of Canada
5.35% 03/13/97 5,400 5,400
Societe Generale
5.50% 01/02/97 3,000 3,000
Toronto Dominion Bank
5.385% 02/03/97 4,500 4,500
Total Certificate of Deposits
(Cost $38,000) 38,000
Time Deposit -- 0.1%
State Street Cayman Islands
6.25% 01/02/97
(Cost $100) 100 100
--------
Total Short Term Investments
(Cost $138,312) 138,312
Other Assets and Liabilities,
net 0.8% 1,162
--------
NET ASSETS -- 100% $139,474
========
- ----------
See Notes to Schedules of Investments and Financial Statements
39
<PAGE>
Notes to Performance (unaudited)
Total returns assume changes in share price and reinvestment of dividends and
capital gains. Investment returns and net asset value on an investment will
fluctuate and you may have a loss or gain when you sell your shares.
A portion of the Elfun Tax-Exempt Fund's income may be subject to state, federal
and/or alternative minimum tax. Capital gains, if any, are subject to capital
gains tax.
The Standard & Poor's Composite Index of 500 Stocks (S&P 500), Morgan Stanley
Capital International Index (MSCI), Lehman Brothers Aggregate Bond Index (LB
Aggregate), Lehman Brothers Municipal Bond Index (LBMI), and the 90 Day U.S.
Treasury Index (90 Day T-Bill) are unmanaged indices and do not reflect the
actual cost of investing in the instruments that comprise each index. The S&P
500 Index is a composite of the prices of 500 widely held U.S. stocks recognized
by investors to be representative of the stock market in general. The MSCI World
Index is a composite of 1,563 stocks of companies in 22 countries representing
the European, Pacific Basin and American regions. The MSCI World Index is widely
used by global investors. The LB Aggregate Bond Index is a composite index of
short-, medium-, and long-term bond performance and is widely recognized as a
barometer of the bond market in general. The LBMI Index is a composite of
investment-grade (Baa or greater), fixed-rate municipal bonds with maturities
greater than two years and is considered to be representative of the municipal
bond market. The 90 Day U.S. T-Bill is the average return on three month U.S.
Treasury Bills. The results shown for the foregoing indices assume reinvestment
of net dividends or interest. Broad market index returns are calculated from the
nearest month end to the Funds' inception date. The majority of the broad market
returns are not available from the Funds' commencement of investment operations
through December 31, 1996. The Donoghue yields represent the average yields of
815 taxable money market funds.
The peer universe of funds used in our peer ranking calculation is based on the
blend of Lipper peer categories, as shown. This blend is the same as the
category blend used by the Wall Street Journal (except for the Elfun Diversified
Fund for which we use the specific Lipper peer group and the Elfun Money Market
Fund which is not in the Wall Street Journal). The actual number of funds and
numerical rankings in the Lipper and Wall Street Journal universes could differ
since the Wall Street Journal excludes certain funds which do not meet their net
asset or shareholder publication thresholds. Lipper is an independent mutual
fund rating service located in Summit, New Jersey.
The views expressed in this document reflect our judgment as of the publication
date and are subject to change at any time without notice. The securities cited
may not represent future holdings and should not be considered as a
recommendation to purchase or sell a particular security. See the prospectus for
complete descriptions of investment objectives, policies, risks and permissible
investments.
Notes to Schedules of Investments (dollars in thousands)
(a) Non-income producing security.
(b) Pursuant to Rule 144A of Securities Act of 1933, these securities may be
resold in transactions exempt from registration, normally to qualified
institutional buyers. At December 31, 1996, these securities amounted to
$1,228, $1,867 and $12,696 or 0.7%, 1.8% and 5.8% of net assets for the
Elfun Global Fund, Elfun Diversified Fund and Elfun Income Fund,
respectively.
(c) Settlement is on a delayed delivery or when-issued basis with final
maturity to be announced (TBA) in the future.
(d) Coupon amount represents effective yield.
(e) Floating rate coupon. The stated rate represents the rate at December 31,
1996.
(f) Principal only securities represent the right to receive the monthly
principal payments on an underlying pool of mortgages. No payments of
interest on the pool are passed through to the principal only holder.
(g) Interest only securities represent the right to receive the monthly
interest payments on an underlying pool of mortgages. Payments of principal
on the pool reduce the value of the interest only holding.
(h) Restricted securities. Securities are not registered under the Securities
Act of 1933, or have contractual or legal restrictions to resale. Dates of
acquisition and costs are shown in parentheses after the titles of the
restricted securities. The Funds do not intend to register these securities
and therefore should not bear any costs of registration. These restricted
securities are fair valued by officers of the Funds under procedures
authorized by the Trustees. At December 31, 1996, the fair value of these
restricted securities represented $1,237 or 0.1% of net assets of Elfun
Trusts.
(i) All or a portion of security out on loan.
(j) At December 31, 1996 all or a portion of this security was pledged to cover
collateral requirements for futures, options and TBA's.
Abbreviations:
ADR -- American Depositary Receipt
AMBAC -- AMBAC Indemnity Corporation
BIG -- Bond Investment Guarantee
FSA -- Financial Security Assurance
MBIA -- Municipal Bond Investors Assurance Corporation
REMIC -- Real Estate Mortgage Investment Conduit
WT -- Warrant
Currency Terms:
BEL -- Belgian Franc
CAD -- Canadian Dollar
DEM -- Deutsche Mark
DKK -- Danish Krone
NLG -- Netherland Guilder
40
<PAGE>
Financial Highlights
Selected data based on a share outstanding during the year ended December 31:
<TABLE>
<CAPTION>
Elfun Global Fund 1996 1995 1994 1993 1992
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $16.65 $15.58 $16.48 $12.80 $12.63
Income (loss) from investment operations:
Net investment income 0.24 0.23 0.21 0.18 0.18
Net realized and unrealized
gains (losses) on investments 2.45 2.27 (0.32) 3.90 0.57
- ---------------------------------------------------------------------------------------------------------------------------
Total income (loss) from investment operations 2.69 2.50 (0.11) 4.08 0.75
- ---------------------------------------------------------------------------------------------------------------------------
Less distributions from:
Net investment income 0.23 0.19 0.19 0.12 0.17
Net realized gains 1.44 1.24 0.60 0.28 0.41
- ---------------------------------------------------------------------------------------------------------------------------
Total distributions 1.67 1.43 0.79 0.40 0.58
- ---------------------------------------------------------------------------------------------------------------------------
Net asset value, end of year $17.67 $16.65 $15.58 $16.48 $12.80
===========================================================================================================================
TOTAL RETURN(a) 16.13% 16.03% (0.63%) 31.88% 5.94%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year
(in thousands) $176,303 $142,262 $126,196 $83,196 $38,469
Ratio of net investment income
to average net assets 1.37% 1.36% 1.44% 1.42% 1.52%
Ratio of expenses to average net assets 0.25% 0.34% 0.38% 0.31% 0.60%
Portfolio turnover rate 45% 55% 30% 43% 63%
Average brokerage commission(b) $0.012 N/A N/A N/A N/A
- ---------------------------------------------------------------------------------------------------------------------------
Elfun Trusts 1996 1995 1994 1993 1992
- ---------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of year $39.88 $30.91 $33.76 $33.93 $33.05
Income from investment operations:
Net investment income 0.75 0.77 0.77 0.81 0.83
Net realized and unrealized
gains (losses) on investments 8.68 11.33 (0.68) 2.25 2.24
- ---------------------------------------------------------------------------------------------------------------------------
Total income from investment operations 9.43 12.10 0.09 3.06 3.07
- ---------------------------------------------------------------------------------------------------------------------------
Less distributions from:
Net investment income 0.75 0.77 0.77 0.80 0.83
Net realized gains 2.10 2.36 2.17 2.43 1.36
- ---------------------------------------------------------------------------------------------------------------------------
Total distributions 2.85 3.13 2.94 3.23 2.19
- ---------------------------------------------------------------------------------------------------------------------------
Net asset value, end of year $46.46 $39.88 $30.91 $33.76 $33.93
===========================================================================================================================
TOTAL RETURN(a) 23.55% 39.19% 0.23% 8.98% 9.28%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year
(in thousands) $1,525,979 $1,228,366 $900,349 $937,676 $872,288
Ratio of net investment income
to average net assets 1.71% 2.08% 2.28% 2.29% 2.49%
Ratio of expenses to average net assets 0.13% 0.13% 0.17% 0.11% 0.11%
Portfolio turnover rate 12% 15% 19% 18% 11%
Average brokerage commission(b) $0.047 N/A N/A N/A N/A
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
- ----------
See Notes to Financial Highlights and Financial Statements
41
<PAGE>
Financial Highlights (continued)
Selected data based on a share
outstanding during the year ended December 31:
<TABLE>
<CAPTION>
Elfun Diversified Fund 1996 1995 1994 1993 1992
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $15.86 $13.24 $14.05 $13.54 $12.84
Income (loss) from investment operations:
Net investment income 0.54 0.53 0.47 0.48 0.46
Net realized and unrealized
gains (losses) on investments 1.75 3.06 (0.51) 0.73 0.74
- ---------------------------------------------------------------------------------------------------------------------------
Total income (loss) from investment operations 2.29 3.59 (0.04) 1.21 1.20
- ---------------------------------------------------------------------------------------------------------------------------
Less distributions from:
Net investment income 0.54 0.53 0.46 0.47 0.46
Net realized gains 0.34 0.44 0.31 0.23 0.04
- ---------------------------------------------------------------------------------------------------------------------------
Total distributions 0.88 0.97 0.77 0.70 0.50
- ---------------------------------------------------------------------------------------------------------------------------
Net asset value, end of year $17.27 $15.86 $13.24 $14.05 $13.54
===========================================================================================================================
TOTAL RETURN(a) 14.40% 27.11% (0.26%) 8.90% 9.35%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year
(in thousands) $102,157 $77,255 $57,774 $54,911 $36,780
Ratio of net investment income
to average net assets 3.41% 3.62% 3.42% 3.65% 3.93%
Ratio of expenses to average net assets 0.28% 0.34% 0.39% 0.39% 0.49%
Portfolio turnover rate 89% 93% 82% 25% 31%
Average brokerage commission(b) $0.041 N/A N/A N/A N/A
- ---------------------------------------------------------------------------------------------------------------------------
Elfun Tax-Exempt Income Fund 1996 1995 1994 1993 1992
- ---------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of year $11.91 $10.83 $12.29 $11.76 $11.59
Income (loss) from investment operations:
Net investment income 0.66 0.68 0.67 0.71 0.73
Net realized and unrealized
gains (losses) on investments (0.25) 1.15 (1.37) 0.68 0.22
- ---------------------------------------------------------------------------------------------------------------------------
Total income (loss) from investment operations 0.41 1.83 (0.70) 1.39 0.95
- ---------------------------------------------------------------------------------------------------------------------------
Less distributions from:
Net investment income 0.66 0.68 0.67 0.71 0.73
Net realized gains 0.05 0.07 0.09 0.15 0.05
- ---------------------------------------------------------------------------------------------------------------------------
Total distributions 0.71 0.75 0.76 0.86 0.78
- ---------------------------------------------------------------------------------------------------------------------------
Net asset value, end of year $11.61 $11.91 $10.83 $12.29 $11.76
===========================================================================================================================
TOTAL RETURN(a) 3.60% 17.32% (5.77%) 12.11% 8.50%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year
(in thousands) $1,301,737 $1,312,342 $1,145,873 $1,297,256 $1,115,254
Ratio of net investment income
to average net assets 5.67% 5.91% 5.90% 5.79% 6.25%
Ratio of expenses to average net assets 0.13% 0.13% 0.13% 0.10% 0.11%
Portfolio turnover rate 22% 59% 24% 29% 29%
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
- ----------
See Notes to Financial Highlights and Financial Statements
42
<PAGE>
Financial Highlights (continued)
Selected data based on a share
outstanding during the year ended December 31:
<TABLE>
<CAPTION>
Elfun Income Fund 1996 1995 1994 1993 1992
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $11.64 $10.55 $11.68 $11.58 $11.92
Income (loss) from investment operations:
Net investment income 0.76 0.77 0.70 0.73 0.86
Net realized and unrealized
gains (losses) on investments (0.32) 1.09 (0.97) 0.38 (0.10)
- ---------------------------------------------------------------------------------------------------------------------------
Total income (loss) from investment operations 0.44 1.86 (0.27) 1.11 0.76
- ---------------------------------------------------------------------------------------------------------------------------
Less distributions from:
Net investment income 0.76 0.77 0.70 0.73 0.87
Net realized gains 0.00 0.00 0.16 0.28 0.23
- ---------------------------------------------------------------------------------------------------------------------------
Total distributions 0.76 0.77 0.86 1.01 1.10
- ---------------------------------------------------------------------------------------------------------------------------
Net asset value, end of year $11.32 $11.64 $10.55 $11.68 $11.58
===========================================================================================================================
TOTAL RETURN(a) 4.01% 18.21% (2.33%) 9.72% 6.61%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year
(in thousands) $219,451 $218,880 $185,665 $199,478 $175,210
Ratio of net investment income
to average net assets 6.68% 6.90% 6.34% 6.10% 7.24%
Ratio of expenses to average net assets 0.24% 0.25% 0.30% 0.17% 0.22%
Portfolio turnover rate 201% 367% 215% 131% 62%
- ---------------------------------------------------------------------------------------------------------------------------
Elfun Money Market Fund 1996 1995 1994(c) 1993(c) 1992(c)
- ---------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of year $1.00 $1.00 $1.00 $1.00 $1.00
Income (loss) from investment operations:
Net investment income 0.05 0.06 0.04 0.03 0.04
- ---------------------------------------------------------------------------------------------------------------------------
Total income (loss) from investment operations 0.05 0.06 0.04 0.03 0.04
- ---------------------------------------------------------------------------------------------------------------------------
Less distributions from:
Net investment income 0.05 0.06 0.04 0.03 0.04
- ---------------------------------------------------------------------------------------------------------------------------
Total distributions 0.05 0.06 0.04 0.03 0.04
Net asset value, end of year $1.00 $1.00 $1.00 $1.00 $1.00
===========================================================================================================================
TOTAL RETURN(a) 5.23% 5.82% 4.17% 3.31% 3.91%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year
(in thousands) $139,474 $117,506 $107,406 $59,959 $52,774
Ratio of net investment income
to average net assets 5.08% 5.68% 4.20% 3.27% 3.86%
Ratio of expenses to average net assets 0.31% 0.30% 0.16% 0.00% 0.11%
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
- ----------
Notes to Financial Highlights
(a) Total returns are historical and assume changes in share price, reinvestment
of dividends and capital gains, and assume no sales charge.
(b) 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.
(c) Had the Advisor not absorbed a portion of the expenses the net investment
income per unit would have been the same, the total return would have been
lower, and the ratio of expenses to average net assets would have been .34%,
.39%, and .35% for the years ended December 31, 1994, 1993, and 1992,
respectively.
- ----------
See Notes to Financial Statements
43
<PAGE>
STATEMENTS OF ASSETS
AND LIABILITIES December 31, 1996 (Amounts in thousands)
<TABLE>
<CAPTION>
ELFUN
GLOBAL ELFUN
FUND TRUSTS
---- ------
<S> <C> <C>
ASSETS
Investments in securities, at market
(Cost $144,017, $729,509, $69,119, $1,201,332,
$217,019, and $0, respectively) $ 169,757 $ 1,481,098
Short term investments (at amortized cost) 4,675 36,625
Cash 3 77
Foreign currency (cost $2,561, $46, $72, $0,
$0, and $0, respectively) 2,576 49
Receivable for investments sold 678 6,500
Income receivables 241 2,279
Receivable for fund shares sold 198 671
Receivable on forward foreign currency contracts 0 0
Variation margin receivable 0 730
- -------------------------------------------------------------------------------------------------
Total assets 178,128 1,528,029
- -------------------------------------------------------------------------------------------------
LIABILITIES
Distributions payable to shareholders 0 0
Payable upon return of securities loaned 0 0
Payable for investments purchased 686 367
Payable for fund shares repurchased 951 762
Payable to GEIC 188 921
- -------------------------------------------------------------------------------------------------
Total liabilities 1,825 2,050
- -------------------------------------------------------------------------------------------------
NET ASSETS $ 176,303 $ 1,525,979
=================================================================================================
NET ASSETS CONSIST OF:
Capital paid in $ 150,575 $ 772,342
Undistributed net investment
income 24 1
Accumulated net realized gain (loss) (32) 2,975
Net unrealized appreciation/(depreciation) on:
Investments 25,740 751,589
Futures 0 (930)
Written options 0 0
Foreign currency transactions (4) 2
- -------------------------------------------------------------------------------------------------
NET ASSETS $ 176,303 $ 1,525,979
=================================================================================================
Shares outstanding (Par value $10, $10, $10, $10,
$10, and $1, respectively) 9,976 32,845
Net asset value, offering and redemption
price per share $ 17.67 $ 46.46
</TABLE>
- ----------
See Notes to Financial Statements
44
<PAGE>
<TABLE>
<CAPTION>
ELFUN ELFUN ELFUN
DIVERSIFIED TAX-EXEMPT ELFUN MONEY MARKET
FUND INCOME FUND INCOME FUND FUND
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
$ 90,608 $ 1,276,984 $ 218,504 $ 0
12,236 3,620 12,738 138,312
62 3 519 25
72 0 0 0
262 0 5,637 0
514 23,297 2,849 336
180 216 216 2,169
0 0 77 0
0 0 35 0
- ---------------------------------------------------------------------------------------------------------------------------
103,934 1,304,120 240,575 140,842
- ---------------------------------------------------------------------------------------------------------------------------
0 1,174 230 116
0 0 14,640 0
1,692 0 5,908 0
0 225 109 1,115
85 984 237 137
- ---------------------------------------------------------------------------------------------------------------------------
1,777 2,383 21,124 1,368
- ---------------------------------------------------------------------------------------------------------------------------
$ 102,157 $ 1,301,737 $ 219,451 $ 139,474
===========================================================================================================================
$ 80,622 $ 1,226,087 $ 219,335 $ 139,461
39 0 353 13
9 (2) (1,816) 0
21,489 75,652 1,485 0
0 0 17 0
0 0 0 0
(2) 0 77 0
- ---------------------------------------------------------------------------------------------------------------------------
$ 102,157 $ 1,301,737 $ 219,451 $ 139,474
===========================================================================================================================
5,915 112,083 19,386 139,475
$ 17.27 $ 11.61 $ 11.32 $ 1.00
</TABLE>
45
<PAGE>
STATEMENTS OF OPERATIONS
For the year ended December 31, 1996 (Amounts in thousands)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
ELFUN
GLOBAL ELFUN
FUND TRUSTS
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
INVESTMENT INCOME
Income:
Dividends $ 2,625 $ 23,491
Interest 287 2,399
Less: Foreign taxes withheld (244) (353)
- --------------------------------------------------------------------------------------------------------------
Total income 2,668 25,537
- --------------------------------------------------------------------------------------------------------------
Expenses:
Administrative expenses 106 818
Shareholder servicing agent expenses 70 229
Transfer agent expenses 115 371
Custody and accounting expenses 30 142
Professional fees 35 102
Registration, filing, printing and
miscellaneous expenses 60 123
- --------------------------------------------------------------------------------------------------------------
Total expenses 416 1,785
- --------------------------------------------------------------------------------------------------------------
Net investment income 2,252 23,752
==============================================================================================================
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Realized gain (loss) on:
Investments 13,209 73,283
Futures 0 (4,184)
Written options 0 99
Foreign currency transactions (141) 15
Increase (decrease) in unrealized
appreciation/(depreciation) on:
Investments 8,968 201,997
Futures 0 (1,195)
Written options 0 (33)
Foreign currency transactions (2) 2
- --------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain
(loss) on investments 22,034 269,984
- --------------------------------------------------------------------------------------------------------------
Net increase in net assets
resulting from operations $ 24,286 $ 293,736
==============================================================================================================
</TABLE>
- ----------
See Notes to Financial Statements
46
<PAGE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
ELFUN ELFUN ELFUN
DIVERSIFIED TAX-EXEMPT ELFUN MONEY MARKET
FUND INCOME FUND INCOME FUND FUND
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
$ 935 $ 0 $ 88 $ 0
2,390 74,461 14,831 6,742
(35) 0 (1) 0
- ---------------------------------------------------------------------------------------------------------------------------
3,290 74,461 14,918 6,742
- ---------------------------------------------------------------------------------------------------------------------------
62 767 147 83
36 141 80 39
64 294 155 166
22 163 37 27
29 118 38 32
39 192 68 46
- ---------------------------------------------------------------------------------------------------------------------------
252 1,675 525 393
- ---------------------------------------------------------------------------------------------------------------------------
3,038 72,786 14,393 6,349
===========================================================================================================================
2,047 2,540 (524) 0
(81) 0 (557) 0
1 0 8 0
(9) 0 264 0
7,081 (29,865) (5,185) 0
(36) 0 (135) 0
0 0 0 0
(2) 0 75 0
- ---------------------------------------------------------------------------------------------------------------------------
9,001 (27,325) (6,054) 0
- ---------------------------------------------------------------------------------------------------------------------------
$ 12,039 $ 45,461 $ 8,339 $ 6,349
===========================================================================================================================
</TABLE>
47
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS
For the years ended December 31, 1996 and 1995 (Amounts in thousands)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
ELFUN
GLOBAL ELFUN
FUND TRUSTS
1996 1995 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
Operations:
Net investment income $ 2,252 $ 1,849 $ 23,752 $ 22,570
Net realized gain (loss) on investments,
futures, written options, and
foreign currency transactions 13,068 9,356 69,213 67,725
Net increase (decrease) in unrealized
appreciation/(depreciation) 8,966 8,336 200,771 261,595
- ---------------------------------------------------------------------------------------------------------------------------
Net increase from operations 24,286 19,541 293,736 351,890
- ---------------------------------------------------------------------------------------------------------------------------
Distributions to unitholders from:
Net investment income (2,094) (1,493) (23,765) (22,385)
Net realized gains (13,195) (9,751) (66,151) (68,891)
- ---------------------------------------------------------------------------------------------------------------------------
Total distributions (15,289) (11,244) (89,916) (91,276)
- ---------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets from
operations and distributions 8,997 8,297 203,820 260,614
- ---------------------------------------------------------------------------------------------------------------------------
Share transactions:
Proceeds from sale of shares 30,141 20,479 114,193 54,091
Value of distributions reinvested 14,450 10,633 65,350 65,390
Cost of shares redeemed (19,547) (23,343) (85,750) (52,078)
- ---------------------------------------------------------------------------------------------------------------------------
Net increase from
share transactions 25,044 7,769 93,793 67,403
- ---------------------------------------------------------------------------------------------------------------------------
Total increase (decrease) in net assets 34,041 16,066 297,613 328,017
NET ASSETS
Beginning of year 142,262 126,196 1,228,366 900,349
- ---------------------------------------------------------------------------------------------------------------------------
End of year $ 176,303 $142,262 $1,525,979 $1,228,366
===========================================================================================================================
Undistributed net investment
income, end of year $ 24 $ 7 $ 1 $ 177
- ---------------------------------------------------------------------------------------------------------------------------
CHANGES IN FUND SHARES
- ---------------------------------------------------------------------------------------------------------------------------
Shares sold 1,702 1,205 2,609 1,455
Issued for distributions reinvested 820 640 1,382 1,645
Shares redeemed (1,092) (1,397) (1,946) (1,429)
- ---------------------------------------------------------------------------------------------------------------------------
Net increase in fund shares 1,430 448 2,045 1,671
===========================================================================================================================
</TABLE>
- ----------
See Notes to Financial Statements
48
<PAGE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
ELFUN ELFUN ELFUN
DIVERSIFIED TAX-EXEMPT ELFUN MONEY MARKET
FUND INCOME FUND INCOME FUND FUND
- ---------------------------------------------------------------------------------------------------------------------------
1996 1995 1996 1995 1996 1995 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 3,038 $ 2,462 $ 72,786 $ 73,694 $ 14,393 $ 14,018 $ 6,349 $ 6,327
1,958 1,931 2,540 11,159 (809) 6,273 0 0
7,043 11,483 (29,865) 112,201 (5,245) 13,445 0 0
- ---------------------------------------------------------------------------------------------------------------------------
12,039 15,876 45,461 197,054 8,339 33,736 6,349 6,327
- ---------------------------------------------------------------------------------------------------------------------------
(3,013) (2,437) (72,817) (73,694) (14,391) (14,022) (6,349) (6,327)
(1,930) (2,010) (5,353) (7,518) 0 0 0 0
- ---------------------------------------------------------------------------------------------------------------------------
(4,943) (4,447) (78,170) (81,212) (14,391) (14,022) (6,349) (6,327)
- ---------------------------------------------------------------------------------------------------------------------------
7,096 11,429 (32,709) 115,842 (6,052) 19,714 0 0
- ---------------------------------------------------------------------------------------------------------------------------
21,433 11,488 67,712 78,293 25,974 25,816 157,968 124,163
4,659 4,188 53,431 57,694 11,811 11,863 5,936 6,040
(8,286) (7,624) (99,039) (85,360) (31,162) (24,178) (141,936) (120,103)
- ---------------------------------------------------------------------------------------------------------------------------
17,806 8,052 22,104 50,627 6,623 13,501 21,968 10,100
- ---------------------------------------------------------------------------------------------------------------------------
24,902 19,481 (10,605) 166,469 571 33,215 21,968 10,100
77,255 57,774 1,312,342 1,145,873 218,880 185,665 117,506 107,406
- ---------------------------------------------------------------------------------------------------------------------------
$ 102,157 $ 77,255 $1,301,737 $ 1,312,342 $ 219,451 $ 218,880 $ 139,474 $ 117,506
===========================================================================================================================
$ 39 $ 22 $ 0 $ 31 $ 353 $ 199 $ 13 $ 10
1,270 746 5,845 6,834 2,300 2,326 157,969 124,163
268 265 4,622 4,982 1,050 1,061 5,936 6,040
(495) (501) (8,577) (7,431) (2,771) (2,179) (141,936) (120,102)
- ---------------------------------------------------------------------------------------------------------------------------
1,043 510 1,890 4,385 579 1,208 21,969 10,101
===========================================================================================================================
</TABLE>
49
<PAGE>
Notes to Financial Statements December 31, 1996
1. Organization of the Funds
The Elfun Funds (the "Funds") are registered under the Investment Company Act of
1940 (as amended) ("the 1940 Act") as open-end management investment companies
and are authorized to issue an unlimited number of shares. The Funds operate as
Employees' Securities Companies (as defined in the 1940 Act) and as such are
exempt from certain provisions of the 1940 Act.
2. Summary of Significant Accounting Policies
The following summarizes the significant accounting policies of the Funds:
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results may differ from those estimates.
Security Valuation and Transactions
Securities for which exchange quotations are readily available are valued at the
last sale price, or if no sales occurred on that day, at the last quoted bid
price. 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. Valuations for municipal bonds are
based on prices obtained from a qualified municipal bond pricing service; prices
represent the mean of the secondary market.
Futures contracts are valued at the settlement price established each day by the
board of trade or exchange on which they are principally traded. Options that
are written or purchased are valued using the mean between the last asked and
bid prices. Forward foreign currency contracts are valued at the mean between
the bid and the offered forward rates as last quoted by a recognized dealer.
Short term investments maturing within 60 days are valued at amortized cost or
original cost plus accrued interest, each of which approximates fair value.
Portfolio positions which cannot be valued as set forth above are valued at fair
value determined under procedures approved by the Trustees.
Elfun Money Market Fund values its securities using the amortized cost method,
which values securities initially at cost and thereafter assumes a constant
amortization to maturity of any discount or premium. Amortized cost approximates
fair value.
Transactions are accounted for as of the trade date. Cost is determined and
gains and losses are based upon the specific identification method for both
financial statement and federal tax purposes.
Foreign Currency
Accounting records of the Funds are maintained in U.S. dollars. Investment
securities and other assets and liabilities and purchases and sales of
investment securities denominated in foreign currency are translated to U.S.
dollars at the prevailing exchange rate on the respective dates of such
transactions.
The Funds do not isolate the portion of the results of operations resulting from
changes in foreign exchange rates on investments from the fluctuations arising
from changes in their market prices. Such fluctuations are included in net
realized and unrealized gain or loss from investments. Reported net realized
exchange gains or losses from foreign currency transactions represent sale of
foreign currencies, currency gains or losses between the trade date and the
settlement date on securities transactions, realized gains and losses on forward
foreign currency contracts, and the difference between the amounts of dividends,
interest, and foreign withholding taxes recorded on the Fund's books, and the
U.S. dollar equivalent of the amounts actually received or paid. Net unrealized
foreign exchange gains and losses arise from changes in the value of assets and
liabilities, other than investments in securities at fiscal year end, as a
result of changes in exchange rates.
50
<PAGE>
Notes to Financial Statements December 31, 1996
Income Taxes
It is each Fund's policy to comply with all sections of the Internal Revenue
Code applicable to regulated investment companies and to distribute all of its
taxable income, tax-exempt income, and gains to its shareholders and, therefore,
no provision for federal income tax has been made. Each Fund is treated as a
separate taxpayer for federal income tax purposes.
Capital loss carryovers are available to offset future realized capital gains.
To the extent that these carryover losses are used to offset future capital
gains, it is probable that the gains so offset will not be distributed to
shareholders because they would be taxable as ordinary income. At December 31,
1996, the Elfun Income Fund had a capital loss carryover of $1,802,301, of which
$617,124 expires December 31, 2002 and $1,185,177 expires December 31, 2004.
Any net capital and currency losses incurred after October 31, within the Fund's
tax year, are deemed to arise on the first day of the Fund's next tax year if
the Fund so elects to defer such losses. The Funds incurred and elected to defer
capital losses as follows:
Elfun Income Fund $109,585
Elfun Tax-Exempt Income Fund 1,340
Elfun Money Market Fund 300
Investment Income
Corporate actions (including cash dividends) are recorded net of nonreclaimable
tax withholdings on the ex-dividend date, except for certain foreign securities
for which corporate actions are recorded as soon after ex-dividend date as such
information is available. Interest income is recorded on the accrual basis. All
discounts and premiums on taxable bonds and premiums on tax exempt bonds are
amortized to call or maturity date, whichever is shorter using the effective
yield method. On tax exempt bonds purchased before May 1, 1993, only original
issue discount is amortized. For tax exempt bonds purchased after April 30,
1993, both market discount and original issue discount are amortized.
Expenses
Expenses of the Funds which are directly identifiable to a specific Fund are
allocated to that Fund. Expenses which are not readily identifiable to a
specific Fund are allocated in such a manner as deemed equitable, taking into
consideration the nature and type of expense and the relative sizes of the
Funds. All expenses of the Funds are paid by the Investment Adviser and
reimbursed by the Funds.
Distributions to Shareholders
Elfun Tax-Exempt Income Fund, Elfun Income Fund and Elfun Money Market Fund
declare investment income dividends daily and pay monthly. Elfun Global Fund,
Elfun Trusts, and Elfun Diversified Fund declare and pay dividends of net
investment income annually. All Funds declare and pay net realized capital gain
distributions annually. The character of income and gains to be distributed are
determined in accordance with income tax regulations which may differ from
generally accepted accounting principles. These differences include treatment of
realized and unrealized gains and losses on forward foreign currency
transactions, paydown gains and losses on mortgage-backed securities and losses
on wash sale transactions. Reclassifications are made to the Funds' capital
accounts to reflect income and gains available for distribution (or available
capital loss carryovers) under income tax regulations. The calculation of net
investment income per share in the Financial Highlights table excludes these
adjustments.
When-Issued Securities
The Funds may purchase or sell securities on a when-issued or forward commitment
basis. Payment and delivery may take place a month or more after the date of the
transaction. The price of the underlying securities and the date when the
securities will be delivered and paid for are fixed at the time the transaction
is negotiated. This may increase the risk if the other party involved in the
transaction fails to deliver
51
<PAGE>
Notes to Financial Statements December 31, 1996
and causes the Fund to subsequently invest at less advantageous yields. In
connection with such purchases, the Fund is required to hold liquid assets as
collateral with the Funds' custodian sufficient to cover the purchase price,
unless they enter into an offsetting contract for the sale of equal securities
and value.
Forward Foreign Currency Contracts
A forward foreign currency contract ("Forward") is an agreement between two
parties to buy and sell a currency at a set price on a future date. The market
value of the Forward fluctuates with changes in currency exchange rates. The
Forward is marked-to-market daily and the change in the market value is recorded
by the Fund as an unrealized gain or loss. When the Forward is closed, the Fund
records a realized gain or loss equal to the difference between the value at the
time it was opened and the value at the time it was closed. The Fund could be
exposed to risk if a counterparty is unable to meet the terms of the contract or
if the value of the currency changes unfavorably. The Fund may enter into
Forwards in connection with planned purchases and sales of securities, to hedge
specific receivables or payables against changes in future exchange rates or to
hedge the U.S. dollar value of portfolio securities denominated in a foreign
currency.
Repurchase Agreements
The Funds' custodian takes possession of the collateral pledged for investments
in repurchase agreements on behalf of the Funds. It is the policy of the Funds
to value the underlying collateral daily on a mark-to-market basis to determine
that the value, including accrued interest, is at least equal to the repurchase
price. In the event of default of the obligation to repurchase, the Funds have
the right to liquidate the collateral and apply the proceeds in satisfaction of
the obligation.
Futures and Options
The Funds, other than the Elfun Money Market Fund, may invest in futures
contracts and purchase and write options. These investments involve, to varying
degrees, elements of market risk and risks in excess of the amount recognized in
the Statements of Assets and Liabilities. The face or contract amounts reflect
the extent of the involvement the Funds have in the particular classes of
instruments. Risks may be caused by an imperfect correlation between movements
in the price of the instruments and the price of the underlying securities and
interest rates. Risks also may arise if there is an illiquid secondary market
for the instruments, or an inability of counterparties to perform. The Funds may
invest in these instruments for the following reasons: to hedge against the
effects of changes in value of portfolio securities due to anticipated changes
in interest rates and/or market conditions, to equitize a cash position, for
duration management, or when the transactions are economically appropriate to
reduce the risk inherent in the management of the Fund involved.
Upon entering into a futures contract, the Fund is required to deposit either
cash or securities in an amount (initial margin) equal to a certain percentage
of the contract value. Subsequent payments (variation margin) are made or
received by the Fund each day. The variation margin payments are equal to the
daily change in the contract value and are recorded as unrealized gains and
losses. The Fund recognizes a realized gain or loss when the futures contract is
closed. The Fund will realize a gain or loss upon the expiration or closing of
the option transaction. When an option is exercised, the proceeds on sales for a
written call option, the purchase cost for a written put option, or the proceeds
on the sale of the security for a purchased put or cost of the security for a
call option is adjusted by the amount of premium received or paid.
52
<PAGE>
Notes to Financial Statements December 31, 1996
Security Lending
The Funds may loan securities to well known and recognized U.S. and foreign
brokers and banks and receive a lenders fee. These fees are included in interest
income. The loans of securities will be collateralized by cash, letters of
credit or U.S. Government securities. The collateral will be segregated and
maintained at all times with the custodian and must be equal to the current
value of the securities loaned. In the event the counterparty (borrower) does
not meet its contracted obligation to return the securities, the Fund may be
exposed to the risk of loss of reacquiring the loaned securities at prevailing
market prices.
Other
There are certain additional risks involved when investing in foreign securities
that are not inherent in domestic securities. These risks may involve foreign
currency exchange rate fluctuations, adverse political and economic developments
and the imposition of unfavorable foreign governmental laws and restrictions.
3. Fees and Compensation Paid to Affiliates
Advisory and Administration Fees
During 1996 the Funds incurred expenses for the cost of services performed or
rendered by General Electric Company's wholly owned subsidiary, General Electric
Investment Corporation ("GEIC"), as Investment Adviser and for services GEIC
performed or rendered as shareholder servicing agent. These expenses are
included as administrative expenses and shareholder servicing agent fees in the
Statements of Operations. The Trustees received no compensation as Trustees for
the Elfun Funds.
4. Aggregate Unrealized Appreciation and Depreciation
(Dollars in Thousands)
Aggregate gross unrealized appreciation/(depreciation) of investments for each
Fund at December 31, 1996, were as follows:
Gross Gross Net
Unrealized Unrealized Unrealized
Appreciation Depreciation Appreciation
- --------------------------------------------------------------------------------
Elfun Global Fund $ 32,967 $ 7,227 $ 25,740
Elfun Trusts 757,213 5,624 751,589
Elfun Diversified
Fund 22,331 842 21,489
Elfun Tax-Exempt
Income Fund 76,260 608 75,652
Elfun Income Fund 2,582 1,097 1,485
The aggregate cost of each Fund's investments was substantially the same for
book and federal income tax purposes at December 31, 1996.
53
<PAGE>
Notes to Financial Statements December 31, 1996
5. Options
(Dollars in Thousands)
During the year ended December 31, 1996, the following option contracts were
written:
Elfun Trusts Elfun Diversified Fund
-------------------------------------------------------------
Number Number
of Contracts Premium of Contracts Premium
- --------------------------------------------------------------------------------
Balance as of
December 31, 1995 150 $ 46 0 $ 0
Written 250 57 1,220 1,191
Closed and Expired (400) (103) (1,220) (1,191)
Exercised 0 0 0 0
----- ----- ------ ------
Balance as of
December 31, 1996 0 $ 0 0 $ 0
===== ===== ====== ======
Elfun Income Fund
----------------------------------
Number
of Contracts Premium
- --------------------------------------------------------------------------------
Balance as of December 31, 1995 0 $ 0
Written 8 8
Closed and Expired (8) (8)
Exercised 0 0
------ ------
Balance as of
December 31, 1996 0 $ 0
====== ======
6. Investment Transactions
(Dollars in Thousands)
The cost of purchases and the proceeds from sales of investments, other than
U.S. Government securities, short term securities and options, for the year
ended December 31, 1996, were:
Purchases Sales
- --------------------------------------------------------------------------------
Elfun Global Fund $ 81,224 $ 70,248
Elfun Trusts 167,392 156,427
Elfun Diversified Fund 24,144 19,464
Elfun Tax-Exempt
Income Fund 289,488 271,351
Elfun Income Fund 99,220 91,009
The cost of purchases and the proceeds from sales of long term U.S. Government
securities for the year ended December 31, 1996, were:
Purchases Sales
- --------------------------------------------------------------------------------
Elfun Trusts $ 1,429 $ 8,422
Elfun Diversified Fund 57,077 51,627
Elfun Income Fund 365,795 359,479
7. Security Lending
At December 31, 1996, the Elfun Income Fund loaned securities having a value,
including accrued interest, of approximately $14,495,564 and received
$15,382,137 in cash and letters of credit as collateral for the loans. Cash
collateral received is invested in high grade liquid debt obligations and short
term investments at December 31, 1996.
54
<PAGE>
Independent Auditors' Report
[LOGO]
To the Board of Trustees and
Shareholders of the Elfun Mutual Funds:
We have audited the accompanying statements of assets and liabilities of the
Elfun Global Fund, Elfun Trusts, Elfun Diversified Fund, Elfun Tax-Exempt Income
Fund, Elfun Income Fund and Elfun Money Market Fund, (the "Elfun Funds"),
including the schedules of investments, as of December 31, 1996, and the related
statements of operations for the year then ended, the statements of changes in
net assets for each of the years in the two-year period then ended, and the
financial highlights for each of the years in the five-year period then ended.
These financial statements and financial highlights are the responsibility of
the Elfun Funds' management. Our responsibility is to express an opinion on
these financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1996, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
Elfun Funds as of December 31, 1996, the results of their operations for the
year then ended, the changes in their net assets for each of the years in the
two-year period then ended, and their financial highlights for each of the years
in the five-year period then ended, in conformity with generally accepted
accounting principles.
/S/ SIGNATURE
New York, New York
February 11, 1997
55
<PAGE>
Elfun Funds Investment Team
Portfolio Managers
Elfun Global Fund
Ralph R. Layman
Elfun Trusts
David B. Carlson
Elfun Diversified Fund
David B. Carlson
Robert A. MacDougall
Elfun Tax-Exempt Income Fund
Robert R. Kaelin
Elfun Income Fund
Robert A. MacDougall
Elfun Money Market Fund
Robert A. MacDougall
Officers of the Investment Adviser
John H. Myers, Trustee,
Chairman of the Board and President,
General Electric Investment Corporation
Eugene K. Bolton, Trustee, EVP, Domestic Equities
Michael J. Cosgrove, Trustee, EVP, Mutual Funds
Ralph R. Layman, Trustee, EVP, International Equities
Alan M. Lewis, Trustee, EVP, General Counsel and Secretary
Robert A. MacDougall, Trustee, EVP, Fixed Income
Geoffrey R. Norman, EVP, Institutional Marketing
Donald W. Torey, Trustee, EVP, Finance and Administration
Investment Adviser
General Electric Investment Corporation
Independent Auditors
KPMG Peat Marwick LLP
Custodian
State Street Bank & Trust Company
Shareholder Servicing Agent
Address all inquiries to:
GE Investments
P.O. Box 8309
Boston, MA 02266-8309
56
<PAGE>
Shareholder Inquiries
Shareholder Services has embarked on an ambitious program of service upgrades
which will be apparent to all our shareholders in the coming months. Among the
areas of improvement will be our telephone technology, account transactional
processing and universal availability of our daily fund prices in the media. Our
first order of business is to redesign and improve the Automated Voice Response
System, which is accessed nearly one million times a year (over 3,500 calls per
day). These numbers show us that our shareholders have readily utilized this
service in making investment decisions.
The new user-friendly Automated Voice Response System, which will be available
24 hours a day, 7 days a week, is in the planning stage. Here is a brief list of
the various functions expected to be included in the final version, which will
have a more simplified and understandable menu selection:
o Obtain information on prices, yields and returns - current as well as
historical
o Create a personal portfolio to hear prices, yields and returns only of
funds you own or funds you may wish to track
o Obtain account balance information - individual investments and total
portfolio
Shortly before the conversion occurs, shareholders will receive a brochure with
detailed instructions on how to use the new System.
We hope you will be pleased with this service upgrade and we welcome your
comments and suggestions.
Information and Assistance
Inquiry Center hours: Monday to Friday 8:30 AM -- 5:00 PM
Shareholder Services: 1-800-242-0134
Daily Value Yields and Performance: 1-800-843-3359
- --------------------------------------------------------------------------------
This report has been prepared for shareholders and may be distributed to others
only if preceded or accompanied by a current prospectus.
<PAGE>
ELFUN FUNDS
3003 SUMMER STREET
STAMFORD, CT 06904-7900
BULK RATE
U.S. POSTAGE
PAID
CANTON, MA
PERMIT NO. 313
[GE LOGO]
Distributed by GE Investment Services, Inc., member NASD and SIPC
