[GRAPHIC OF TREE OMITTED]
ELFUN FUNDS
ANNUAL REPORT
December 31, 1998
<PAGE>
UNDERSTANDING YOUR REPORT
A LETTER FROM THE PRESIDENT ............................ 1
John Myers on market events
REVIEW OF PERFORMANCE AND
SCHEDULES OF INVESTMENTS
Portfolio managers discuss your Funds' results in 1998
ELFUN GLOBAL FUND ................................. 3
ELFUN TRUSTS ...................................... 8
ELFUN DIVERSIFIED FUND ............................12
ELFUN TAX-EXEMPT INCOME FUND ......................22
ELFUN INCOME FUND .................................30
ELFUN MONEY MARKET FUND ...........................38
NOTES TO PERFORMANCE ...................................42
NOTES TO SCHEDULES OF INVESTMENTS ......................42
FINANCIAL STATEMENTS
Financial Highlights ................................43
Notes to Financial Highlights .......................45
Statements of Assets and Liabilities,
Operations, and Changes in Net Assets ...............46
NOTES TO FINANCIAL STATEMENTS ..........................52
INDEPENDENT AUDITORS' REPORT ...........................61
ELFUN FUNDS' INVESTMENT TEAM ...........................64
SHAREHOLDER SERVICES ....................INSIDE BACK COVER
How you can obtain more information
HIGHLY RATED ELFUN FUNDS
MORNINGSTAR RATINGS[TRADEMARK]
THROUGH DECEMBER 31, 1998
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NUMBER
FUND OF FUNDS STAR
(CATEGORY) IN CATEGORY RATING
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ELFUN GLOBAL -- (International Equity)
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Overall and 3 year 862 [STAR][STAR][STAR][STAR]
5 year 407 [STAR][STAR][STAR][STAR]
10 year 115 [STAR][STAR][STAR][STAR]
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ELFUN TRUSTS -- (Domestic Equity)
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Overall and 3 year 2802 [STAR][STAR][STAR][STAR][STAR]
5 year 1702 [STAR][STAR][STAR][STAR][STAR]
10 year 732 [STAR][STAR][STAR][STAR]
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ELFUN TAX-EXEMPT INCOME -- (Municipal Bonds)
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Overall and 3 year 1577 [STAR][STAR][STAR][STAR]
5 year 1040 [STAR][STAR][STAR][STAR][STAR]
10 year 370 [STAR][STAR][STAR][STAR]
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ELFUN INCOME -- (Taxable Bonds)
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Overall 1488 [STAR][STAR][STAR][STAR][STAR]
3 year 1488 [STAR][STAR][STAR][STAR]
5 year 987 [STAR][STAR][STAR][STAR]
10 year 368 [STAR][STAR][STAR][STAR][STAR]
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ELFUN DIVERSIFIED -- (Domestic Equity)
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Overall and 3 year 2802 [STAR][STAR][STAR]
5 year 1702 [STAR][STAR][STAR]
10 year 732 [STAR][STAR][STAR][STAR]
Morningstar is an independent fund rating company that seeks to provide a
non-biased 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 after 3 years' performance.
Morningstar proprietary ratings reflect historical risk-adjusted performance
through December 31, 1998. 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 90-day T-bill
returns and a risk factor that reflects fund performance below 90-day T-bill
returns. The top ten percent of the funds in a rating category receive five
stars and the next 22.5% receive four stars and the next 35% receive three
stars.
Investment return and principal value of an investment will fluctuate and
you may have a gain or loss when you sell your shares. Returns assume changes in
share price and reinvestment of dividends and capital gains. Past performance is
no guarantee of future results.
- --------------------------------------------------------------------------------
This report has been prepared for shareholders and may be distributed to others
only if preceded or accompanied by a current prospectus.
<PAGE>
A LETTER FROM THE PRESIDENT
- --------------------------------------------------------------------------------
DEAR SHAREHOLDER,
We are pleased to provide you with the 1998 Elfun Funds Annual Report.
1998 was a year of unusually high volatility for the financial markets. The S&P
500 Index of large-cap stocks posted an unprecedented fourth consecutive year of
20%+ returns, finishing the year at 28.7%, while the Russell 2000 small-cap
stock index posted a return of negative 2.6% thus recording the largest negative
divergence with large caps ever. Internationally, European markets were up 28%;
Japan returned 5% in U.S. dollars but was down 9% in local currency; and
emerging market stock indices were down 25.3%! Although the large-cap U.S.
equity market was up strongly, individual stock performance was very
concentrated. The twenty top performers, led by technology stocks such as
Microsoft, Dell, Lucent, etc., accounted for about two-thirds of the S&P 500's
total performance, and only 17% of U.S. equity funds outperformed the S&P 500
Index as the average U.S. stock fund was up 14.5%.
PERFORMANCE HIGHLIGHTS
Our equity Elfun Funds all achieved strong double-digit returns in 1998. Both
Elfun Global, up 17.4%, and Elfun Diversified, up 17.1%, exceeded the average
returns of their Lipper peer groups, ranking in the top third of their group
over one and ten year periods. Elfun Trusts, with a return of 22.9%, ranked in
the middle of its Lipper peers for the year, with top-third rankings over five
and ten year periods. Our fixed income funds continued to turn in excellent
performances with Elfun Income and Elfun Money Market placing in the top 5% of
their Lipper peers for the five and ten year periods while Elfun Money Market
placed in the top 3% for 1998. The Elfun Tax-Exempt Income Fund significantly
improved its performance, ranking in the top 10% of peers in 1998 and the top
20% for the five-year period. Several of our funds also received favorable
ratings by Morningstar, an independent fund ranking company which analyzes
risk-adjusted performance. Our top rated Morningstar Funds are presented on the
inside front cover of this report. The average returns for each applicable
Lipper category and complete details on each fund's performance can be found on
the various performance review pages included in this annual report.
MARKET OVERVIEW
The past several years have been a very positive environment for financial
markets. Traditional long-term U.S. stock returns normally in the range of
10-12% have been significantly exceeded with average returns of 17.5% in the
80's and 16.2% so far in the 90's. The last 4 years in particular have set new
standards averaging 30.5%. These incredible returns have not only been in stocks
but also in long term government bonds which posted returns of 12.6% in the 80's
and 10.0% in the 90's versus historic averages of 6-7%. This has been due to a
number of positive factors. Since the fall of the Iron Curtain, we have
experienced a disinflationary peacetime economy with corresponding low interest
rates, strong consistent economic growth, excellent productivity gains and
rising corporate profitability. This has led to unprecedented high historic
valuation levels on almost any basis of measurement-dividend yields, price to
book, price to sales, or price to earnings ratios. One might argue, however,
that the current technology innovations and increased services content of the
economy should lead us to evaluate valuations differently in this "new era",
similar to what occurred in the late 1800's during the industrial revolution.
The U.S. Federal Reserve Bank reduced interest rates three times during late
1998 and 63 other central banks around the world followed suit. These actions
put liquidity back into world markets and stabilized the emerging market
economic crises in Asia, Russia and Latin America. It also calmed the turmoil in
global markets during the third quarter triggered by the near collapse of a
large hedge fund, Long Term Capital.
[PHOTO OF JOHN MYERS OMITTED]
1
<PAGE>
A LETTER FROM THE PRESIDENT (CONTINUED)
- --------------------------------------------------------------------------------
As a result, the S&P 500, which had fallen nearly 20% from its peak levels in
August, recovered all of its losses and finished the year strong.
MARKET OUTLOOK
Looking ahead, a number of positive factors continue. Commodity prices are at
25-year lows and there are few signs that they will significantly increase. The
"Supertanker America" U.S. growth engine seems likely to continue, albeit at a
more moderate 2-3% rate but still positive. New investment dollars continue to
move into the market through 401(k) plans and mutual funds and as foreign
pension plans increase their equity allocations. The U.S. market should be a
beneficiary of those new flows as well. Finally, business merger and acquisition
activity, especially in Europe, is booming.
On the cautionary side, valuations continue to be high and there is more
worldwide producing capacity than there is demand. Bottom-up analyst
expectations of double digit earnings growth of 15% will not be realized and
there will be continued high volatility and narrow market breath as many
companies will disappoint. S&P 500 earnings, however, should still be positive
around the 4-5% level which, together with 1.5-2% dividends, should result in
positive gains for the year closer to historic levels.
The principal wild cards impacting this outlook continue to be outside the U.S.
We are watching Japan where their economic crisis has been exacerbated by rising
interest rates, a strengthening yen, and continued weak consumer demand. We are
also monitoring developments in Brazil where recent events could become a
negative catalyst for other world markets if they cannot get their social
benefits structure in order.
The volatility in 1998 underscores the danger of trying to market time and
reliance on back-tested investment models (e.g., Long Term Capital) that tell
you what has already happened and may not be a good indicator of what will
happen in the future. Maintaining a well-diversified portfolio is even more
important when markets are volatile and the economic outlook uncertain. Equities
have the potential to be the best performing long-term asset class, although
returns over the next few years will most likely not equal the levels they have
been at for the past four. Stock selection will be a major factor in performance
as we expect small and mid-cap stocks to narrow the historic high variances with
large-caps. Fixed income investments (whether taxable or tax-exempt) typically
match the goal of current income and can provide some moderate growth of capital
as well. The basic rules still apply-know your investment objectives and your
tolerance for risk, then spend as much time and diligence investing your money
as you spent earning it. These held true in 1998 and we would recommend that you
consider them in your investment plans in the future.
On a final note, many shareholders have inquired about the impact the year 2000
(Y2K) may have with respect to their financial investments and recordkeeping. We
have incorporated Y2K readiness capability into our analysis processes for the
investment portfolios. In addition, we have been engaged in a multi-year effort
to address Y2K date-related issues in a broad range of areas including
applications, process-enabling systems and facilities. We also benefit from the
Y2K efforts of our parent, General Electric Company, which systematically
monitors the implementation of the Y2K programs of all GE businesses and
facilitates the sharing of best practices. With respect to third-party systems,
GE Investments like many similar companies, must largely rely on the efforts and
affirmations of others; however, we continue to work closely in partnership with
our most critical vendor, State Street Bank and Trust Company. Although the
interaction of various software and hardware elements is highly complex -- and
the possibility of Y2K related problems cannot be totally eliminated -- GE
Investments believes it is taking appropriate steps.
Sincerely,
/S/SIGNATURE
John Myers
President and Chief Executive Officer
GENERAL ELECTRIC INVESTMENT CORPORATION
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 PROMUS HOTELS CORPORATION. HE HOLDS A B.S. IN MATHEMATICS
FROM WAGNER COLLEGE, WHERE HE SERVES ON THE BOARD OF TRUSTEES.
2
<PAGE>
ELFUN GLOBAL FUND
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Q&A
RALPH LAYMAN (PICTURED ON THE LEFT) MANAGES THE INTERNATIONAL EQUITY OPERATION
WITH TOTAL ASSETS EXCEEDING $9 BILLION. HIS RESPONSIBILITIES INCLUDE
CO-MANAGEMENT OF THE ELFUN GLOBAL FUND WITH MICHAEL J. SOLECKI. PRIOR TO JOINING
GE INVESTMENTS IN 1991, RALPH WAS EXECUTIVE VICE PRESIDENT, PARTNER AND
PORTFOLIO MANAGER 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.
MICHAEL J. SOLECKI IS CO-PORTFOLIO MANAGER OF THE ELFUN GLOBAL FUND AND HAS
SERVED THE FUND IN THAT CAPACITY SINCE SEPTEMBER 1997. MIKE HAS MORE THAN EIGHT
YEARS OF INVESTMENT EXPERIENCE AND HAS HELD POSITIONS WITH GE INVESTMENTS SINCE
1990. HE IS CURRENTLY A VICE PRESIDENT OF GE INVESTMENTS. MIKE IS A CHARTERED
FINANCIAL ANALYST (CFA) AND A MEMBER OF THE NEW YORK SOCIETY OF SECURITY
ANALYSTS. HE HOLDS A B.S. IN FINANCE FROM WESTERN NEW ENGLAND COLLEGE.
Q. HOW DID THE ELFUN GLOBAL FUND PERFORM COMPARED TO ITS BENCHMARK AND LIPPER
PEER GROUP FOR THE ONE-YEAR PERIOD ENDED DECEMBER 31, 1998?
A. The Elfun Global Fund posted a return of 17.36% for the one-year period
ending December 31, 1998. For the same period, the MSCI World Index
returned 24.34% and our Lipper peer group of 263 Global Stock funds
returned 12.40%.
Q. WHY DID THE FUND OUTPERFORM ITS PEER GROUP BY SUCH A WIDE MARGIN?
A. Stock performance in our Continental European component of the portfolio
was very strong. In addition, we were overweighted in stocks from that
region compared with peers. The fund's holdings in Continental Europe
gained 35%, a higher return than the MSCI Europe Index. The fund's U.S.
holdings increased 28.6%, also a notable showing given the narrow
performance of the market. The fund continued to underweight the U.S. given
valuation levels compared to the rest of the world. The U.S. currently
represents 21% of the portfolio compared to a MSCI World Index weight of
50%. This was a narrow market where a few stocks did extremely well so
almost all managers underperformed. Investors were willing to give those
stocks very high valuations. Our strategy is to invest in stocks that show
growth potential and have reasonable valuations and we think Europe fits
this style better.
Q. WHAT FACTORS CONTRIBUTED TO THE FUND'S PERFORMANCE?
A. Stocks in Continental Europe are inexpensive relative to their growth rate.
Also, interest rates have been dropping as the eleven European Union
countries implement a common currency. We took advantage of those favorable
factors to search for bargains. Despite economic turmoil that roiled
emerging markets late last year, we maintained a small stake in Latin
America and other emerging markets because of the bargains to be found.
However, for the year, emerging markets generally had a negative impact on
performance. Israel was a bright spot in the emerging market sector, where
companies such as ECI Telecommunications and Comverse Technology turned in
excellent results.
Q. WHICH STOCKS AND STOCK SECTORS WERE NOTEWORTHY?
A. Telecommunications stocks in the portfolio did exceptionally well. Top
stocks were Nokia of Finland, Germany's Mannesmann, and Airtouch
Communications, the U.S. company that is being acquired by Vodaphone. In
the financial sector, AXA-UAP, the French domiciled global financial
services group, also was among the fund's best performers.
Q. WHAT IS YOUR OUTLOOK FOR THE FUND?
A. We believe that the advent of the euro will continue to spur favorable
economic conditions in Europe. In the United States, stock valuations
remain high, which adds risk to stock selection. We still are waiting for
Japan to change its economic fundamentals. Although we see possible signs
of a turnaround and are looking for opportunities, we remain cautious.
Valuations in Latin America are extremely inexpensive but growth is slowing
as countries raise interest rates to defend their currencies.
[PHOTO OF RALPH LAYMAN AND MICHAEL HY. SOLECKI OMITTED]
3
<PAGE>
ELFUN GLOBAL FUND
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COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT
[LINE GRAPH OMITTED]
[PLOT POINTS]
ELFUN GLOBAL MSCI WORLD
`88 $10,000 $10,000
`89 12,470 11,660
`90 11,398 9,678
`91 13,086 11,449
`92 13,863 10,853
`93 18,282 13,296
`94 18,167 13,974
`95 21,079 16,866
`96 24,479 19,140
`97 26,553 22,156
`98 31,190 27,548
AVERAGE ANNUAL TOTAL RETURN
FOR THE PERIODS ENDED DECEMBER 31, 1998
- --------------------------------------------------------------------------------
ONE FIVE TEN
YEAR YEAR YEAR
- --------------------------------------------------------------------------------
Elfun Global Fund 17.36% 11.26% 12.05%
MSCI World 24.34% 15.68% 10.66%
- --------------------------------------------------------------------------------
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 AVERAGE ANNUAL TOTAL RETURNS
FOR THE PERIODS ENDED 12/31/98
GLOBAL STOCK PEER GROUP
ONE FIVE TEN
YEAR YEAR YEAR
Fund's rank in peer group: ............ 83 42 8
Number of Funds in peer group: ........ 263 87 25
Peer group average total return: ......12.40% 11.34% 10.85%
Lipper categories in peer group: ......GLOBAL, GLOBAL SMALL CAP
* SEE NOTES TO PERFORMANCE FOR EXPLANATION OF PEER CATEGORIES.
TOP TEN LARGEST HOLDINGS
AS A PERCENTAGE OF NET ASSETS
AT DECEMBER 31, 1998
- --------------------------------------------------------------------------------
Airtouch Communications Inc. 3.52%
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Nokia Oyj (Series A) 3.01%
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AXA-UAP 2.89%
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Mannesmann AG 2.81%
- --------------------------------------------------------------------------------
ING Groep N.V. 2.52%
- --------------------------------------------------------------------------------
Siebe PLC 2.38%
- --------------------------------------------------------------------------------
AlliedSignal Inc. 2.31%
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Citigroup Inc. 2.21%
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Preussag AG 2.13%
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EMC Corp. 2.11%
- --------------------------------------------------------------------------------
SEE NOTES TO PERFORMANCE. PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.
4
<PAGE>
SCHEDULE OF INVESTMENTS (DOLLARS IN THOUSANDS) -- DECEMBER 31, 1998
- --------------------------------------------------------------------------------
ELFUN GLOBAL FUND
[PIE CHART OMITTED]
PACIFIC RIM 3.6%
CASH & OTHER 1.2%
EUROPE 63.3%
UNITED STATES 20.6%
OTHER REGIONS 6.2%
JAPAN 5.1%
NUMBER
OF SHARES VALUE
- --------------------------------------------------------------------------------
COMMON STOCK -- 97.4%
- --------------------------------------------------------------------------------
AUSTRALIA -- 1.1%
Cable & Wireless Optus .......... 962,902 $ 2,024
Coca Cola Amatil Ltd. ........... 61,339 228
2,252
BRAZIL -- 0.9%
Telecomunicacoes Brasileiras
S.A. ADR ..................... 18,278 1,328
Uniao de Banco Brasiliero
S.A. GDR ..................... 31,222 451
1,779
CANADA -- 1.4%
Newcourt Credit Group Inc. ...... 15,334 537
Northern Telecom Ltd. ........... 49,179 2,465
3,002
CROATIA -- 0.1%
Pliva D D GDR (Regd.) ........... 13,342 218
[ICON OF FLAG OMITTED] FINLAND-- 6.9%
Helsingin Puhelin Oyj ........... 19,095 1,135
Merita Ltd. (Series A) .......... 259,993 1,642
Nokia Oyj (Series A) ............ 51,334 6,242
Sampo Insurance Co. Ltd.
(Series A) ................... 88,358 3,353
Sonera Group Oyj ................ 105,165 1,856(a)
14,228
NUMBER
OF SHARES VALUE
- --------------------------------------------------------------------------------
[ICON OF FLAG OMITTED] FRANCE-- 14.0%
Alstom ........................... 49,674 $ 1,164(a)
AXA-UAP .......................... 41,405 5,999
Banque Nationale de Paris ........ 14,742 1,213(a)
Cap Gemini S.A. .................. 21,256 3,410
Carrefour S.A. ................... 3,305 2,494
Coflexip S.A. ADR ................ 66,425 2,134
Elf Aquitaine S.A. ADR ........... 7,680 887
Lyonnaise Des Eaux S.A. .......... 6,358 1,305
Renault S.A. ..................... 28,554 1,282
Rhone-Poulenc S.A. (Class A) ..... 41,749 2,148
Schneider S.A. ................... 40,927 2,482
Societe Generale ................. 10,219 1,654
Total S.A. (Class B) ............. 28,585 2,894
29,066
[ICON OF FLAG OMITTED] GERMANY-- 8.7%
Bayerische Vereinsbank AG ........ 33,146 2,595
DaimlerChrysler AG ............... 24,668 2,435(a)
Fresenius Medical Care AG ........ 33,961 2,394
Mannesmann AG .................... 50,863 5,829
Muenchener Rueckversicherungs-
Gesellschaft AG (Regd.) ....... 183 9(a)
Preussag AG ...................... 9,787 4,422
Volkswagen AG .................... 5,488 438
18,122
GREECE -- 0.3%
Alpha Credit Bank (Regd.) ........ 1,176 123
National Bank Greece S.A. GDR .... 9,564 415(b)
538
HONG KONG -- 0.9%
Giordano International Ltd. ....1,502,000 281
Johnson Electric Holdings ........589,000 1,513
1,794
ISRAEL -- 2.3%
Comverse Technology Inc. ......... 27,234 1,934(a)
ECI Telecommunications Ltd. ...... 57,613 2,052
Teva Pharmaceutical Industries
Ltd. ADR ...................... 21,624 880
4,866
ITALY -- 4.5%
Assicurazioni Generali ........... 24,234 1,011
Unicredito Italiano S.p.A. .......222,135 1,316
Montedison S.p.A. ................814,772 1,082
Saipem ...........................277,038 1,170
Telecom Italia Mobile S.p.A. .....312,651 2,307
Telecom Italia S.p.A. ............295,526 2,520
9,406
- ----------
See Notes to Schedules of Investments and Notes to Financial Statements.
5
<PAGE>
ELFUN GLOBAL FUND (DOLLARS IN THOUSANDS) -- DECEMBER 31, 1998
NUMBER
OF SHARES VALUE
- --------------------------------------------------------------------------------
JAPAN -- 5.1%
Canon Inc. ...................... 87,000 $ 1,859
Honda Motor Co. ................. 22,000 722
Minebea Co. Ltd. ................ 96,000 1,099
NTT Data Corp ................... 400 1,985
Shin-Etsu Chemical Co. .......... 68,000 1,636
Sony Corp. ...................... 31,900 2,322
Toshiba Corp. ................... 169,000 1,006
10,629
MEXICO -- 1.3%
Desc S.A. de C.V. (Series B) .... 241,860 207
Desc S.A. de C.V. ADR (Class C) . 24,651 473
Gruma S.A. de C.V. (Series B) ... 123,436 311(a)
Grupo Carso S.A. de C.V.
(Series A) ................... 103,144 350
Grupo Carso S.A. de C.V. ADR .... 95,359 632
Grupo Financiero Banamex
Accival S.A. de C.V. (Class B) 601,006 789(a)
2,762
NETHERLANDS -- 3.8%
ING Groep N.V. .................. 85,838 5,232
Koninklijke Ahold N.V. .......... 28,159 1,040
Philips Electronics N.V. ........ 25,705 1,724
7,996
NORWAY -- 0.2%
Petroleum Geo Services .......... 25,094 320
PANAMA -- 0.3%
Panamerican Beverages Inc.
(Class A) .................... 27,359 597
PHILIPPINES -- 0.3%
San Miguel Corp. S.A. ........... 286,900 553
POLAND -- 0.5%
Telekomunikacja Polska S.A.
GDR .......................... 210,831 1,054(a,b)
PORTUGAL -- 2.4%
Banco Comercial Portugues
(Regd.) ...................... 42,831 1,317
Jeronimo Martins, SGPS S.A. ..... 34,280 1,876
Telecel-Comunicacoes Pessoais
S.A. ......................... 8,370 1,712
4,905
SOUTH KOREA -- 0.3%
Pohang Iron & Steel Co. Ltd.
ADR .......................... 9,880 615
NUMBER
OF SHARES VALUE
- --------------------------------------------------------------------------------
SPAIN -- 2.0%
Argentaria S.A. ................. 106,730 $ 2,760
Repsol S.A. ..................... 26,005 1,385
4,145
SWEDEN -- 4.2%
Autoliv Inc. SDR ................ 95,364 3,415
Ericsson LM Telephone (Series B) 62,289 1,480
NetCom Systems AB (Series B) .... 19,332 785
Pharmacia & Upjohn Inc. ......... 53,314 3,019
8,699
SWITZERLAND -- 1.9%
ABB AG .......................... 533 625
Novartis AG (Regd.) ............. 1,374 2,700(a)
Zurich Allied AG (Regd.) ........ 797 590(a)
3,915
TAIWAN -- 1.0%
Taiwan Semiconductor
Manufacturing Co. ............ 939,250 2,070(a)
[ICON OF FLAG OMITTED] UNITED KINGDOM -- 12.4%
Airtours PLC .................... 266,670 1,706
Bank of Scotland PLC ............ 20,408 244
Cable & Wireless
Communication PLC ............ 138,199 1,260(a)
Commercial Union PLC ............ 67,776 1,069
FKI PLC ......................... 453,734 1,010
Granada Group PLC ............... 113,181 1,984
Johnson Matthey PLC ............. 249,108 1,680
LucasVarity PLC ................. 774,931 2,588
Railtrack Group PLC ............. 18,849 492
Reed International PLC .......... 97,586 775
Royal & Sun Alliance Insurance
Group PLC .................... 221,624 1,804
SEMA Group PLC .................. 192,481 1,896
Senior Engineering PLC .......... 409,591 776
Siebe PLC ......................1,257,229 4,940
Somerfield PLC .................. 114,777 766
United Assurance Group .......... 247,451 2,241
Vodafone Group PLC .............. 30,647 498
25,729
[ICON OF FLAG OMITTED] UNITED STATES-- 20.6%
Airtouch Communications Inc. .... 101,352 7,310(a)
AlliedSignal Inc. ............... 108,101 4,790
Burlington Northern Santa Fe .... 46,119 1,557
Cardinal Health Inc. ............ 48,795 3,702
Citigroup Inc. .................. 92,712 4,589
Ecolab Inc. ..................... 44,653 1,616
EMC Corp. ....................... 51,399 4,369(a)
Intel Corp. ..................... 16,947 2,009
- ----------
See Notes to Schedules of Investments and Notes to Financial Statements.
6
<PAGE>
SCHEDULE OF INVESTMENTS (DOLLARS IN THOUSANDS) -- DECEMBER 31, 1998
NUMBER
OF SHARES VALUE
- --------------------------------------------------------------------------------
International Business
Machines ...................... 12,639 $ 2,335
MCI Worldcom Inc. ................ 38,774 2,782(a)
Morgan Stanley, Dean Witter ...... 21,260 1,509
SBC Communications Inc. .......... 45,731 2,452
Sun Microsystems Inc. ............ 13,474 1,154(a)
Xerox Corp. ...................... 10,785 1,273
Zebra Technologies Corp.
(Class A) ..................... 47,401 1,363(a)
42,810
TOTAL COMMON STOCK
(COST $155,022) ............... 202,070
- --------------------------------------------------------------------------------
PREFERRED STOCK -- 0.3%
- --------------------------------------------------------------------------------
Fresenius Medical Care AG ........ 12,309 572
Telerj Celular S.A. ..............321,552 8(a)
TOTAL PREFERRED STOCK
(COST $1,019) ................. 580
- --------------------------------------------------------------------------------
WARRANTS -- 1.1%
- --------------------------------------------------------------------------------
Muenchener Rueckversicherungs-
Gesellschaft AG (Regd.), 06/03/02
(COST $ 2,181) ................ 4,659 2,256(a)
TOTAL INVESTMENTS IN SECURITIES
(COST $158,222) ............... 204,906
- --------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS -- 1.0%
- --------------------------------------------------------------------------------
GEI Short Term Investment Fund
(COST $ 2,109) ................ 2,109 2,109
OTHER ASSETS AND LIABILITIES,
NET 0.2% ...................... 451
--------
NET ASSETS-- 100% ................ $207,466
========
OTHER INFORMATION
- --------------------------------------------------------------------------------
The Elfun Global Fund invested in the following sectors at December 31, 1998:
SECTOR PERCENTAGE (BASED ON TOTAL NET ASSETS)
- --------------------------------------------------------------------------------
Capital Equipment 26.76%
Services 25.05%
Finances 21.55%
Consumer Goods 13.81%
Multi Industry 5.24%
Energy 3.81%
Materials 2.55%
Cash & Other 1.23%
-------
100.00%
=======
[ICON OF FLAG OMITTED] ICONS REPRESENT THE TOP FIVE COUNTRY WEIGHTINGS IN THE
ELFUN GLOBAL FUND AS OF DECEMBER 31, 1998.
- ------------
See Notes to Schedules of Investments and Notes to Financial Statements.
7
<PAGE>
ELFUN TRUSTS
- --------------------------------------------------------------------------------
Q&A
DAVID CARLSON MANAGES PENSION AND MUTUAL FUND PORTFOLIOS WITH TOTAL ASSETS OF
NEARLY $6 BILLION. HIS RESPONSIBILITIES INCLUDE MANAGING ELFUN TRUSTS AND THE
U.S. EQUITY PORTION OF THE 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 OF 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 AND LIPPER PEER
GROUP FOR THE ONE-YEAR PERIOD ENDED DECEMBER 31, 1998?
A. Elfun Trusts posted a total return of 22.94%. This compares with a 28.70%
return for the S&P 500 Index. Our Lipper peer group of 979 Growth funds had
an average return of 22.91% for the same period.
Q. WHY DID THE FUND PERFORMANCE TRAIL THE S&P 500 INDEX?
A. The primary reason was industry weightings. Elfun Trusts was underweighted
in technology stocks (15% average weight during the year vs. 17% for the
S&P 500 Index) and overweighted in energy stocks (8% average weight during
the year vs. 7% for the S&P 500 Index). While the fund has positions in
technology bellwethers such as Microsoft, Intel and Cisco Systems, the
weightings are smaller in the fund than they are in the S&P 500 Index. In
the energy sector, our belief that oil prices would strengthen in the
latter half of the year was much too optimistic and energy stocks were
among the poorest performers for the year.
Q. WHY THE CAUTIOUS ATTITUDE TOWARD TECHNOLOGY STOCKS?
A. In a word, valuation. Internet fever has affected the valuation of the
whole technology sector, in our opinion. We share the enthusiasm and
believe that the internet will have profound implications for businesses
and consumers. However, while we continue to look for technology
investments to participate in these trends, our valuation discipline keeps
us from making the sector a larger portion of the fund at this time.
Q. WHAT ARE THE SIGNIFICANT INDUSTRY WEIGHTINGS IN THE PORTFOLIO?
A. Healthcare remains the largest industry weight at over 20% of the
portfolio. The fund owns many of the large pharmaceutical stocks and
several healthcare service stocks. Financial and insurance stocks remain a
large portion at approximately 16% of the portfolio. Consumer cyclical
stocks (mostly media) and technology stocks are each about 14% of the
portfolio.
Q. PLEASE COMMENT ON THE LARGE UNREALIZED GAIN IN THE FUND?
A. One of the consequences of a roaring bull market coupled with a low
turnover rate is the buildup of significant unrealized gains. We make our
distribution of realized capital gains every December, and late in the year
we attempt to minimize the distribution by offsetting gains with losses.
Presently, about half the fund value is in unrealized gains. We're
cognizant of unitholder's desire to minimize their tax bills, but virtually
any turnover activity will likely result in gain recognition, even if the
stock market were to decline. The one consolation we have is the lower
capital gains tax rate that went into effect in 1997.
Q. WHAT IS YOUR OUTLOOK FOR THE MARKET AND THE FUND?
A. Readers of past annual reports will note that we have been cautious in our
prior outlook comments due to the record high valuation levels for the
stock market. Obviously, that caution was not rewarded last year where the
high flyers and high price to earnings stocks were among the best
performers. Valuation measures tell us about risk, but tell us nothing
about timing. As we have demonstrated so ably in the past, we do not know
when the stock market will decline. However, we do know that risks are high
because, presently, current valuation measures are at levels never before
seen in stock market history. We continue to focus on high quality growth
companies at reasonable valuation levels. We believe this strategy will
lead to favorable results when compared to the major market averages over
the long term.
[PHOTO OF DAVID CARLSON OMITTED]
8
<PAGE>
ELFUN TRUSTS
- --------------------------------------------------------------------------------
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT
[LINE GRAPH OMITTED]
[PLOT POINTS]
ELFUN TRUSTS S&P 500
`88 $10,000 $10,000
`89 13,581 13,154
`90 13,077 12,738
`91 16,761 16,634
`92 18,316 17,920
`93 19,961 19,713
`94 20,007 19,970
`95 27,848 27,456
`96 34,406 33,801
`97 45,024 45,054
`98 55,347 57,983
AVERAGE ANNUAL TOTAL RETURN
FOR THE PERIODS ENDED DECEMBER 31, 1998
- --------------------------------------------------------------------------------
ONE FIVE TEN
YEAR YEAR YEAR
- --------------------------------------------------------------------------------
Elfun Trusts 22.94% 22.63% 18.66%
S&P 500 28.70% 24.08% 19.21%
- --------------------------------------------------------------------------------
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 AVERAGE ANNUAL TOTAL RETURNS
FOR THE PERIODS ENDED 12/31/98
GROWTH PEER GROUP
ONE FIVE TEN
YEAR YEAR YEAR
Fund's rank in peer group: ........... 523 62 52
Number of Funds in peer group: ....... 979 364 172
Peer group average total return: ..... 22.91% 18.66% 16.72%
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, 1998
- --------------------------------------------------------------------------------
Airtouch Communications Inc. 3.78%
- --------------------------------------------------------------------------------
Citigroup Inc. 3.69%
- --------------------------------------------------------------------------------
Cardinal Health Inc. 3.32%
- --------------------------------------------------------------------------------
Federal National Mortgage Assoc. 2.98%
- --------------------------------------------------------------------------------
First Data Corp. 2.81%
- --------------------------------------------------------------------------------
Abbott Laboratories 2.75%
- --------------------------------------------------------------------------------
Dover Corp. 2.63%
- --------------------------------------------------------------------------------
Johnson & Johnson 2.62%
- --------------------------------------------------------------------------------
Merck & Co. Inc. 2.62%
- --------------------------------------------------------------------------------
AlliedSignal Inc. 2.54%
- --------------------------------------------------------------------------------
SEE NOTES TO PERFORMANCE. PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.
9
<PAGE>
ELFUN TRUSTS (DOLLARS IN THOUSANDS) -- DECEMBER 31, 1998
- --------------------------------------------------------------------------------
ELFUN TRUSTS
[PIE CHART OMITTED]
RETAIL TRADE 1.8%
CASH & OTHER 2.1%
UTILITIES 5.4%
ENERGY 6.3%
CAPITAL GOODS 9.9%
TECHNOLOGY 14.6%
FINANCIAL 16.0%
CONSUMER 20.4%
HEALTHCARE 22.2%
BASIC MATERIALS 1.3%
NUMBER
OF SHARES VALUE
- --------------------------------------------------------------------------------
COMMON STOCK -- 97.6%
- --------------------------------------------------------------------------------
BASIC MATERIALS -- 1.3%
Air Products & Chemicals Inc. ....180,000 $ 7,200
Airgas Inc. ......................550,000 4,916(a)
Great Lakes Chemical Corp. .......100,000 4,000
Morton International Inc. ........595,000 14,577
30,693
[GRAPHIC OMITTED] CAPITAL GOODS-- 9.9%
Alleghany Corp. Delaware ......... 35,373 6,646(a)
AlliedSignal Inc. ..............1,360,000 60,265
Dover Corp. ....................1,700,000 62,262
Hubbell Inc. (Class A) ......... 91,000 3,464
Hubbell Inc. (Class B) ......... 610,000 23,180
Molex Inc. (Class A) ........... 950,000 30,281
Waste Management Inc. ..........1,040,000 48,490
234,588
[GRAPHIC OMITTED] CONSUMER - CYCLICAL-- 13.5%
Carnival Corp. (Class A) ....... 620,000 29,760
Catalina Marketing Corp. ....... 450,000 30,769(a)
Comcast Corp. (Class A) ........ 770,000 45,189
Gannett Inc. ................... 315,000 20,318
Harman International
Industries Inc. ............. 240,000 9,150
Interpublic Group Cos. Inc. .... 440,000 35,090
Metromedia International
Group Inc. .................. 356,654 1,939(a)
NTL Inc. ....................... 930,000 52,487(a)
Stanley Works .................. 220,000 6,105
Tele-Communications Inc.
Liberty Media Group
(Series A) .................. 575,000 26,486(a)
NUMBER
OF SHARES VALUE
- --------------------------------------------------------------------------------
Tele-Communications TCI
Ventures Group (Series A) ... 655,000 $ 15,433(a)
Time Warner Inc. ............... 330,000 20,481
Walt Disney Co. ................ 680,000 20,400
Xerox Corp. .................... 60,000 7,080
320,687
CONSUMER - STABLE -- 6.9%
Anheuser Busch Cos. Inc. ....... 200,000 13,125
Avon Products Inc. ............. 580,000 25,665
Coca-Cola Co. .................. 55,000 3,678
Colgate-Palmolive Co. .......... 120,000 11,145
Gillette Co. ................... 200,000 9,663
Kimberly Clark Corp. ........... 540,000 29,430
Pepsico Inc. ................... 790,000 32,341
Philip Morris Cos. Inc. ........ 725,000 38,787(i)
163,834
ENERGY -- 6.3%
Anadarko Petroleum Co. ......... 440,000 13,585
Baker Hughes Inc. .............. 695,000 12,293
Burlington Resources Inc. ...... 260,000 9,311
Exxon Corp. .................... 300,000 21,937
Nabors Industries Inc. ......... 410,000 5,561(a)
Newpark Resources Inc. ......... 648,949 4,421(a)
Royal Dutch Petroleum Co. ADR .. 710,000 33,991
Schlumberger Ltd. .............. 830,000 38,284
Unocal Corp. ................... 330,000 9,632
149,015
[GRAPHIC OMITTED] FINANCIAL -- 10.3%
American Express Co. ........... 230,000 23,518
Citigroup Inc. .................1,765,000 87,368
Countrywide Credit Industries .. 160,000 8,030
Federal National Mortgage Assoc. 955,000 70,670
State Street Corp. ............. 415,000 28,868(e)
Wells Fargo & Co. .............. 650,000 25,959
244,413
[GRAPHIC OMITTED] HEALTHCARE-- 22.2%
Abbott Laboratories ............1,330,000 65,170
American Home Products Corp. ... 580,000 32,661
Bristol-Myers Squibb Co. ....... 400,000 53,525
Cardinal Health Inc. ...........1,035,000 78,531
Dentsply International Inc. .... 410,000 10,557
Eli Lilly & Co. ................ 100,000 8,887
Henry Schein Inc. .............. 210,000 9,397(a)
Johnson & Johnson .............. 740,000 62,067
Lincare Holdings Inc. .......... 480,000 19,470(a)
Merck & Co. Inc. ............... 420,000 62,029
Omnicare Inc. .................. 220,000 7,645
Pfizer Inc. .................... 345,000 43,276
Pharmerica Inc. ................ 544,590 3,268(a)
- ----------
See Notes to Schedules of Investments and Notes to Financial Statements.
10
<PAGE>
SCHEDULE OF INVESTMENTS (DOLLARS IN THOUSANDS) -- DECEMBER 31, 1998
NUMBER
OF SHARES VALUE
- --------------------------------------------------------------------------------
Shire Pharmaceuticals Group
PLC ADR ...................... 165,000 $ 3,341(a)
Sun Healthcare Group Inc. ....... 432,235 2,837(a)
Sybron International Corp. ...... 850,000 23,109(a)
Tenet Healthcare Corp. .......... 310,000 8,138(a)
Watson Pharmaceuticals Inc. ..... 515,000 32,381(a)
526,289
INSURANCE -- 5.7%
American International
Group Inc. ................... 348,750 33,698
Berkshire Hathaway Inc.
(Class B) .................... 13,650 32,078(a)
Chicago Title Corp. ............. 106,119 4,981
Loews Corp. ..................... 285,000 28,001
Marsh & McLennan Cos. Inc. ...... 480,000 28,050
UNUM Corp. ...................... 120,000 7,005
133,813
RETAIL TRADE -- 1.8%
CVS Corp. ....................... 220,000 12,100
Home Depot Inc. ................. 510,000 31,206
43,306
TECHNOLOGY - ELECTRONICS & EQUIPMENT -- 3.8%
Applied Materials Inc. .......... 130,000 5,549(a)
Cisco Systems Inc. .............. 295,000 27,380(a)
Hewlett Packard Co. ............. 110,000 7,514
Intel Corp. ..................... 360,000 42,683
Pitney Bowes Inc. ............... 95,000 6,276
89,402
[GRAPHIC OMITTED] TECHNOLOGY - SOFTWARE & SERVICES -- 10.3%
Automatic Data Processing Inc. .. 620,000 49,716
EMC Corp. ....................... 185,000 15,725(a)
Equifax Inc. ...................1,520,000 51,965
First Data Corp. ...............2,100,000 66,544(i)
Microsoft Corp. ................ 220,000 30,511(a)
Reuters Holdings PLC ADR ....... 480,000 30,420
244,881
TRANSPORTATION -- 0.2%
Pittston Brinks Group .......... 150,000 4,781
UTILITIES -- 5.4%
Airtouch Communications Inc. ...1,240,000 89,435(a,i)
MCI WorldCom Inc. .............. 240,000 17,220(a)
SBC Communications Inc. ........ 380,000 20,377
127,032
TOTAL COMMON STOCK
(COST $1,012,708) ........... 2,312,734
NUMBER
OF SHARES VALUE
- --------------------------------------------------------------------------------
PREFERRED STOCK -- 0.5%
- --------------------------------------------------------------------------------
Microsoft Corp. (Series A)
(COST $ 9,503) .............. 110,000 $ 10,753
TOTAL INVESTMENTS IN SECURITIES
(COST $1,022,211) ........... 2,323,487
- --------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS -- 1.8%
- --------------------------------------------------------------------------------
GEI Short Term Investment Fund
(COST $ 42,219) ............. 42,219 42,219
OTHER ASSETS AND LIABILITIES,
NET 0.1% .................... 3,172
-----------
NET ASSETS-- 100% .............. $2,368,878
==========
- --------------------------------------------------------------------------------
OTHER INFORMATION (IN THOUSANDS)
- --------------------------------------------------------------------------------
Elfun Trusts had the following short futures contract open at December 31, 1998:
NUMBER
EXPIRATION OF UNDERLYING UNREALIZED
DESCRIPTION DATE CONTRACTS FACE VALUE LOSS
- --------------------------------------------------------------------------------
S&P 500 March 1999 100 $31,138 $(1,669)
[GRAPHIC OMITTED] ICONS REPRESENT THE TOP FIVE INDUSTRY WEIGHTINGS IN
ELFUN TRUSTS AS OF DECEMBER 31, 1998.
- ----------
See Notes to Schedules of Investments and Notes to Financial Statements.
11
<PAGE>
ELFUN DIVERSIFIED FUND
- --------------------------------------------------------------------------------
Q&A
THE ELFUN DIVERSIFIED FUND IS MANAGED JOINTLY BY DAVID CARLSON, RALPH LAYMAN AND
ROBERT MACDOUGALL. THE FUND FOLLOWS AN ASSET ALLOCATION STRATEGY AND EACH
PORTFOLIO MANAGER IS RESPONSIBLE FOR INVESTMENTS WITHIN HIS AREA OF EXPERTISE:
DAVE CARLSON MANAGES THE DOMESTIC EQUITY INVESTMENTS IN THE PORTFOLIO (PLEASE
REFER TO PAGE 8 FOR DAVE'S BIOGRAPHICAL DETAILS), RALPH LAYMAN MANAGES THE
INTERNATIONAL EQUITY HOLDINGS WITHIN THE PORTFOLIO (PLEASE REFER TO PAGE 3 FOR
RALPH'S BIOGRAPHICAL DETAILS) AND BOB MACDOUGALL MANAGES THE FIXED INCOME
RELATED INVESTMENTS IN THE PORTFOLIO (PLEASE REFER TO PAGE 30 FOR BOB'S
BIOGRAPHICAL DETAILS).
Q. HOW DID THE ELFUN DIVERSIFIED FUND PERFORM COMPARED TO ITS BENCHMARKS AND
LIPPER PEER GROUP FOR THE ONE-YEAR PERIOD ENDED DECEMBER 31, 1998?
A. The Elfun Diversified Fund posted a total return of 17.14%. The fund
allocates its investments among several asset classes and must be compared
with several benchmarks. U.S. stocks as measured by the S&P 500 Index
returned 28.70%, international stocks, as measured by the MSCI EAFE Index,
returned 20.00%, and fixed income investments, as measured by the Lehman
Brothers Aggregate Bond Index returned 8.67%. Our Lipper peer group of 409
Balanced funds returned 13.50% for the same period.
Q. WHAT FACTORS CONTRIBUTED TO THE FUND'S PERFORMANCE?
A. Once again, the U.S. stock market beat the other asset classes by a
substantial margin. The outperformance of the fund versus its peers was
notable since the fund only has a 46% weighting in U.S. equities, a lower
weighting than most funds in its Lipper peer group which generally hold a
higher weighting of U.S. stocks. The fund's concentration in large
capitalization stocks helped as they did better than small and mid-cap
issues.
In international stocks, holdings in Europe were strong performers as the
markets in Continental Europe collectively returned more than 30%. However,
the turmoil in Asia and Latin America resulted in declines in the emerging
market holdings.
While the bond market had a solid return of nearly 9%, volatility was
significant throughout the year. The collapse of the Russia currency,
blow-ups at large hedge funds, and other macro events caused a significant
widening of yield spreads in corporate and mortgage bonds versus Treasury
Bonds.
Q. WHAT IS THE ASSET ALLOCATION OF THE FUND AND DO YOU ANTICIPATE ANY CHANGES?
A. Stocks represent approximately 61%, bonds approximately 36% with the
remaining 3% of the portfolio in cash or cash equivalence. These weightings
remained fairly constant all year. Our valuation models indicate that
stocks (and other equivalence) are somewhat overvalued relative to bonds
(and other fixed income securities). As a result, stocks remain at the low
end of our target weighting range. Our approach to asset allocation is
based on the relative attractiveness of each asset class, and changes are
hard to forecast. If stocks were to decline, and look more attractive
relative to bonds, we would boost the equity weighting.
Q. WHAT IS YOUR OUTLOOK FOR THE MARKETS AND THE FUND?
A. We would characterize the fund as somewhat defensive, meaning that the
relatively low weight in U.S. stocks leaves us more conservatively
positioned than most of our peer balanced funds. The U.S. market is
presently selling at the highest valuation levels seen in history. While
valuation is helpful in assessing risk, it does not tell us anything about
timing. Our U.S. equity weighting will remain at the low end of a range
until the relative valuation improves. The international markets seem to
offer more valuation underpinning, when compared to the U.S. The emerging
markets have been beaten down to levels where attractive investment
opportunities are beginning to appear. Security selection within asset
class has been the driving factor in our outperformance versus peers, and
this will continue to be our primary focus.
12
<PAGE>
ELFUN DIVERSIFIED FUND
- --------------------------------------------------------------------------------
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT
[LINE GRAPH OMITTED]
[PLOT POINTS]
ELFUN DIVERSIFIED S&P 500 LB AGGREGATE
`88 $10,000 $10,000 $10,000
`89 12,150 13,154 11,450
`90 12,733 12,738 12,481
`91 14,987 16,634 14,477
`92 16,388 17,920 15,549
`93 17,847 19,713 17,057
`94 17,800 19,970 16,562
`95 22,626 27,456 19,626
`96 25,884 33,801 20,339
`97 30,694 45,054 22,301
`98 35,937 57,983 24,236
AVERAGE ANNUAL TOTAL RETURN
FOR THE PERIODS ENDED DECEMBER 31, 1998
ONE FIVE TEN
YEAR YEAR YEAR
- --------------------------------------------------------------------------------
Elfun Diversified 17.14% 15.03% 13.65%
- --------------------------------------------------------------------------------
S&P 500 28.70% 24.08% 19.21%
- --------------------------------------------------------------------------------
LB Aggregate 8.67% 7.27% 9.26%
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 including U.S. and
foreign common stocks, bonds and other debt instruments.
*LIPPER PERFORMANCE COMPARISON
BASED ON AVERAGE ANNUAL TOTAL RETURNS
FOR THE PERIODS ENDED 12/31/98
BALANCED PEER GROUP
ONE FIVE TEN
YEAR YEAR YEAR
Fund's rank in peer group: ........... 106 49 19
Number of Funds in peer group: ....... 409 162 56
Peer group average total return: ..... 13.50% 13.84% 12.97%
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, 1998
- --------------------------------------------------------------------------------
Citigroup Inc. 1.90%
- --------------------------------------------------------------------------------
Airtouch Communications Inc. 1.72%
- --------------------------------------------------------------------------------
Federal National Mortgage Assoc. 6.00%, TBA 1.51%
- --------------------------------------------------------------------------------
Federal National Mortgage Assoc. 1.50%
- --------------------------------------------------------------------------------
Cardinal Health Inc. 1.50%
- --------------------------------------------------------------------------------
U.S. Treasury Note 5.375%, 06/30/00 1.39%
- --------------------------------------------------------------------------------
AlliedSignal Inc. 1.36%
- --------------------------------------------------------------------------------
Dover Corp. 1.36%
- --------------------------------------------------------------------------------
First Data Corp. 1.28%
- --------------------------------------------------------------------------------
NTL Inc. 1.27%
- --------------------------------------------------------------------------------
SEE NOTES TO PERFORMANCE. PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.
13
<PAGE>
ELFUN DIVERSIFIED FUND (DOLLARS IN THOUSANDS) -- DECEMBER 31, 1998
- --------------------------------------------------------------------------------
ELFUN DIVERSIFIED FUND
[PIE CHART OMITTED]
CASH & OTHER 2.7%
DOMESTIC EQUITY 46.3%+
BONDS & NOTES 36.3%
FOREIGN EQUITY 14.7%+
+INCLUDES PREFERRED STOCK
NUMBER
OF SHARES VALUE
- --------------------------------------------------------------------------------
DOMESTIC EQUITY -- 45.8%
- --------------------------------------------------------------------------------
BASIC MATERIALS -- 0.6%
Air Products & Chemicals Inc. .... 6,075 $ 243
Airgas Inc. ...................... 18,344 164(a)
Great Lakes Chemical Corp. ....... 3,395 136
Morton International Inc. ........ 19,833 486
1,029
[GRAPHIC OMITTED] CAPITAL GOODS-- 5.3%
Alleghany Corp. Delaware ......... 1,456 273(a)
AlliedSignal Inc. ................ 54,682 2,423
Dover Corp. ...................... 66,134 2,422
Emerson Electric Co. ............. 4,404 266
Hubbell Inc. (Class B) ........... 22,633 860
Molex Inc. (Class A) ............. 33,816 1,078
Textron Inc. ..................... 3,683 280
United Technologies Corp. ........ 2,240 244
Waste Management Inc. ............ 35,661 1,663
9,509
[GRAPHIC OMITTED] CONSUMER - CYCLICAL-- 6.5%
Carnival Corp. (Class A) ......... 20,906 1,004
Catalina Marketing Corp. ......... 16,740 1,145(a)
Comcast Corp. (Class A) .......... 26,266 1,541
Gannett Inc. ..................... 10,661 688
Harman International
Industries Inc. ............... 8,954 341
Interpublic Group Cos. Inc. ...... 14,830 1,183
NTL Inc. ......................... 39,917 2,253(a)
Stanley Works .................... 7,564 210
Tele-Communications Inc.
Liberty Media Group
(Series A) .................... 22,248 1,025(a)
NUMBER
OF SHARES VALUE
- --------------------------------------------------------------------------------
Tele-Communications TCI
Ventures Group (Series A) ..... 25,016 $ 589(a)
Time Warner Inc. ................. 11,197 695
Walt Disney Co. .................. 29,445 883
11,557
CONSUMER - STABLE -- 3.1%
Anheuser Busch Cos. Inc. ......... 6,790 446
Avon Products Inc. ............... 19,476 862
Coca-Cola Co. .................... 1,787 119
Colgate-Palmolive Co. ............ 3,812 354
Gillette Co. ..................... 6,730 325
Kimberly Clark Corp. ............. 18,344 1,000
Pepsico Inc. ..................... 26,266 1,075
Philip Morris Cos. Inc. .......... 23,943 1,281
5,462
ENERGY -- 2.8%
Anadarko Petroleum Co. ........... 15,069 465
Baker Hughes Inc. ................ 23,586 417(i)
Burlington Resources Inc. ........ 8,874 318
Exxon Corp. ...................... 9,947 728
Nabors Industries Inc. ........... 13,877 188(a)
Royal Dutch Petroleum Co. ADR .... 24,300 1,163
Schlumberger Ltd. ................ 28,231 1,302
Unocal Corp. ..................... 11,197 327
4,908
[GRAPHIC OMITTED] FINANCIAL -- 5.1%
American Express Co. ............. 7,743 792(i)
Citigroup Inc. ................... 68,213 3,377
Countrywide Credit Industries .... 5,420 272
Federal National Mortgage
Assoc. ........................ 35,977 2,662
State Street Corp. ............... 16,194 1,126(e)
Wells Fargo & Co. ................ 22,156 885
9,114
[GRAPHIC OMITTED] HEALTHCARE-- 10.1%
Abbott Laboratories .............. 44,015 2,157
American Home Products Corp. ..... 19,714 1,110
Bristol-Myers Squibb Co. ......... 13,401 1,793
Cardinal Health Inc. ............. 35,022 2,657
Dentsply International Inc. ...... 15,784 406
Eli Lilly & Co. .................. 3,574 318
Henry Schein Inc. ................ 7,945 356(a)
Johnson & Johnson ................ 24,479 2,053
Lincare Holdings Inc. ............ 18,110 735(a)
Merck & Co. Inc. ................. 14,175 2,094
Omnicare Inc. .................... 7,026 244
Pfizer Inc. ...................... 11,674 1,464
Pharmacia & Upjohn Inc. .......... 6,457 366
Sybron International Corp. ....... 29,578 804(a)
Tenet Healthcare Corp. ........... 10,721 281(a)
Watson Pharmaceuticals Inc. ...... 17,511 1,101(a)
17,939
- ------------
See Notes to Schedules of Investments and Notes to Financial Statements.
14
<PAGE>
SCHEDULE OF INVESTMENTS (DOLLARS IN THOUSANDS) -- DECEMBER 31, 1998
- --------------------------------------------------------------------------------
NUMBER
OF SHARES VALUE
- --------------------------------------------------------------------------------
INSURANCE -- 2.6%
American International
Group Inc. .................... 13,030 $ 1,259
Berkshire Hathaway Inc. (Class B) 464 1,090(a)
Chicago Title Corp. .............. 4,368 205
Loews Corp. ...................... 9,232 907
Marsh & McLennan Cos. Inc. ....... 15,962 933
UNUM Corp. ....................... 3,871 226
4,620
RETAIL TRADE -- 0.8%
CVS Corp. ........................ 7,147 393
Home Depot Inc. .................. 16,617 1,017
1,410
TECHNOLOGY - ELECTRONICS & EQUIPMENT -- 1.7%
Applied Materials Inc. ........... 4,348 186(a)
Cisco Systems Inc. ............... 9,947 923(a)
Hewlett Packard Co. .............. 3,633 248
Intel Corp. ...................... 12,150 1,440
Pitney Bowes Inc. ................ 3,157 209
3,006
[GRAPHIC OMITTED] TECHNOLOGY - SOFTWARE & SERVICES -- 4.7%
Automatic Data Processing Inc. ... 20,608 1,652
EMC Corp. ........................ 6,254 532(a)
Equifax Inc. ..................... 51,579 1,763
First Data Corp. ................. 71,770 2,274
Microsoft Corp. .................. 7,445 1,033(a)
Reuters Holdings PLC ADR ......... 16,498 1,046
8,300
TRANSPORTATION -- 0.1%
Pittston Brinks Group ............ 5,837 186
UTILITIES -- 2.4%
Airtouch Communications Inc. ..... 42,288 3,050(a,i)
MCI WorldCom Inc. ................ 8,160 585(a)
SBC Communications Inc. .......... 12,865 690
4,325
TOTAL DOMESTIC EQUITY
(COST $45,824) ................ 81,365
- --------------------------------------------------------------------------------
FOREIGN EQUITY -- 14.6%
- --------------------------------------------------------------------------------
BASIC MATERIALS -- 0.4%
Iscor Ltd. ....................... 48,554 9
Ispat International N.V. (Regd.) . 4,193 33
Johnson Matthey PLC .............. 7,990 54
Montedison S.p.A. ................234,863 312
NUMBER
OF SHARES VALUE
- --------------------------------------------------------------------------------
Pohang Iron & Steel Co. Ltd.
ADR ........................... 713 $ 44
Shin-Etsu Chemical Co. ........... 7,000 168
620
[GRAPHIC OMITTED] CAPITAL GOODS-- 2.1%
ABB AG ........................... 155 182
Alstom ........................... 12,211 286(a)
Barlow Ltd. ...................... 10,393 40
Desc S.A. de C.V. (Series B) ..... 32,672 28
FKI PLC .......................... 83,007 185
Grupo Carso S.A. de C.V. ADR ..... 19,904 132
Lyonnaise Des Eaux S.A. .......... 2,261 464
Mannesmann AG .................... 7,286 835
Minebea Co. Ltd. ................. 13,000 149
Preussag AG ...................... 1,572 710
Siebe PLC ........................176,448 693
VA Technologie AG ................ 1,069 92
3,796
[GRAPHIC OMITTED] CONSUMER - CYCLICAL-- 2.6%
Airtours PLC ..................... 76,240 488
Autoliv Inc. SDR ................. 13,517 484
Canon Inc. ....................... 17,000 363
DaimlerChrysler AG ............... 4,705 464(a)
Granada Group PLC ................ 26,618 466
Honda Motor Co. .................. 2,000 66
Industrie Natuzzi S.p.A. ADR ..... 365 9
Johnson Electric Holdings Ltd. ... 59,400 152
Kinnevik AB (Series B) ........... 1,504 35
LucasVarity PLC ..................102,336 342
Michelin CGDE (Regd.) (Class B) .. 1,451 58
Philips Electronics N.V. ......... 5,081 341
Reed International PLC ........... 14,191 113
Renault S.A. ..................... 5,682 255
Saatchi & Saatchi PLC ............ 21,316 48
SEMA Group PLC ................... 34,493 340
Societe Europeene de
Communication S.A. ADR
(Class A) ..................... 27 1(a)
Societe Europeene de
Communication S.A. ADR
(Class B) ..................... 251 4(a)
Sony Corp. ....................... 4,600 335
Volkswagen AG .................... 2,640 211
4,575
CONSUMER - STABLE -- 0.1%
Coca Cola Amatil Ltd. ............ 9,336 35
Gruma S.A. de C.V. (Series B) .... 14,065 35(a)
Panamerican Beverages Inc.
(Class A) ..................... 5,505 120
San Miguel Corp. S.A. ............ 34,120 66
256
- -----------
See Notes to Schedules of Investments and Notes to Financial Statements.
15
<PAGE>
ELFUN DIVERSIFIED FUND (DOLLARS IN THOUSANDS) -- DECEMBER 31, 1998
- --------------------------------------------------------------------------------
NUMBER
OF SHARES VALUE
- --------------------------------------------------------------------------------
ENERGY -- 0.7%
Coflexip S.A. ADR ................ 7,360 $ 236
Elf Aquitaine S.A. ADR ........... 1,701 196
Repsol S.A. ...................... 1,802 96
Saipem ........................... 56,277 238
Total S.A. (Class B) ............. 5,440 551
1,317
[GRAPHIC OMITTED] FINANCIAL-- 2.3%
Alpha Credit Bank (Regd.) ........ 1,445 151
Argentaria S.A. .................. 19,341 500
Banca Intesa S.p.A. .............. 49,206 295
Banco Comercial Portugues
(Regd.) ....................... 9,095 280
Bank of Scotland PLC ............. 9,691 116
Bayerische Vereinsbank AG ........ 5,465 428
Unicredito Italiano S.p.A. ....... 43,516 258
Grupo Financiero Banamex
Accival S.A. de C.V. (Class B) 74,828 98(a)
ING Groep N.V. ................... 11,757 717
Investor AB (Series B) ........... 898 40
Invik & Co. AB ................... 751 61
Merita Ltd. (Series A) ........... 41,330 261
National Bank Greece S.A. GDR .... 1,144 50(b)
Newcourt Credit Group Inc. ....... 4,094 143
Societe Generale ................. 2,156 349
Uniao de Banco Brasiliero S.A.
GDR ........................... 5,260 76
Zurich Allied AG (Regd.) ......... 442 327(a)
4,150
[GRAPHIC OMITTED] HEALTHCARE-- 0.8%
Fresenius Medical Care AG ........ 4,485 316
Novartis AG (Regd.) .............. 189 372
Rhone-Poulenc S.A. (Class A) ..... 8,201 422
Shire Pharmaceuticals Group
PLC ADR ....................... 6,304 128(a)
Teva Pharmaceutical Industries
Ltd. ADR ...................... 5,514 224
1,462
INSURANCE -- 1.4%
Assicurazioni Generali ........... 8,016 334
AXA-UAP .......................... 6,342 919
Commercial Union PLC ............. 8,152 128
Muenchener Rueckverischerungs-
Gesellschaft AG (Regd.) ....... 791 383(a)
Pohjola Group Insurance Ltd.
Co. (Series B) ................ 1,369 75
Royal & Sun Alliance Insurance
Group PLC ..................... 43,259 352
Sampo Insurance Co. Ltd.
(Series A) .................... 9,028 343
2,534
NUMBER
OF SHARES VALUE
- -------------------------------------------------------------------------------
RETAIL TRADE -- 0.7%
Carrefour S.A. ................... 557 $ 420
Giordano International Ltd. ......138,000 26
Jeronimo Martins, SGPS S.A. ...... 3,397 186
Koninklijke Ahold N.V. ........... 8,870 328
Somerfield PLC ................... 28,768 192
1,152
TECHNOLOGY - ELECTRONICS & EQUIPMENT -- 2.1%
Brambles Industries Ltd. ......... 17,988 438
Cable & Wireless Communications
PLC ........................... 32,454 296(a)
Comverse Technology Inc. ......... 3,158 224(a)
ECI Telecommunications Ltd. ...... 12,886 459
Ericsson LM Telephone (Series B) . 12,259 291
NetCom Systems AB (Series B) ..... 3,255 132
Nokia Oyj (Series A) ............. 6,793 826
Northern Telecom Ltd. ............ 5,107 256
Schneider S.A. ................... 6,687 406
Taiwan Semiconductor
Manufacturing Co. .............113,050 249(a)
Toshiba Corp. .................... 29,000 173
3,750
[GRAPHIC OMITTED] TECHNOLOGY - SOFTWARE & SERVICES -- 0.5%
Cap Gemini S.A. .................. 3,850 618
NTT Data Corp. ................... 51 253
871
TRANSPORTATION -- 0.2%
IHC Caland N.V. .................. 6,619 275
Railtrack Group PLC .............. 3,275 85
360
UTILITIES -- 0.7%
Telecom Italia Mobile S.p.A. ..... 54,496 402
Telecom Italia S.p.A. ............ 39,246 335
Telecomunicacoes Brasileiras S.A.
ADR ........................... 1,950 142
Telekomunikacja Polska S.A.
GDR ........................... 27,904 139(a,b)
Vodafone Group PLC ............... 9,909 161
1,179
TOTAL FOREIGN EQUITY
(COST $21,825) ................ 26,022
- ------------
See Notes to Schedules of Investments and Notes to Financial Statements.
16
<PAGE>
SCHEDULE OF INVESTMENTS (DOLLARS IN THOUSANDS) -- DECEMBER 31, 1998
- --------------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
- --------------------------------------------------------------------------------
BONDS AND NOTES -- 36.3%
U.S. TREASURIES -- 7.7%
U.S. Treasury Bonds
10.625% 08/15/15 .............. $ 384 $ 610 (i)
8.125% 08/15/19 .............. 1,614 2,155 (i)
8.125% 05/15/21 .............. 976 1,317 (i)
5.50% 08/15/28 .............. 25 26 (i)
5.25% 11/15/28 .............. 1,505 1,541 (i)
5,649
U.S. Treasury Notes
5.375% 06/30/00 .............. 2,445 2,470 (i)
5.125% 08/31/00 .............. 1,348 1,358 (i)
4.50% 09/30/00 .............. 131 131 (i)
6.50% 08/31/01 .............. 165 173 (i)
5.375% 06/30/03 .............. 310 319 (i)
5.25% 08/15/03 .............. 960 984 (i)
4.75% 11/15/08 .............. 1,760 1,774 (i)
7,209
U.S. Treasury STRIPS
5.31% 08/15/11 .............. 490 253 (d,i)
5.35% 02/15/12 .............. 995 498 (d,i)
751
TOTAL U.S. TREASURIES
(COST $13,396) ................ 13,609
FEDERAL AGENCIES -- 4.5%
Federal Home Loan Bank
5.62% 08/10/00 .............. 400 404
Federal Home Loan Mortgage Corp.
6.22% 03/18/08 .............. 240 245
5.75% 04/15/08 .............. 695 719
5.125% 10/15/08 .............. 215 213
7.50% 04/01/28 .............. 1,126 1,156
2,333
Federal National Mortgage Assoc.
5.60% 03/27/00 .............. 450 453
5.67% 05/26/00 .............. 920 929
5.10% 09/25/00 .............. 248 248
5.38% 01/16/01 .............. 630 635
6.41% 07/08/02 .............. 200 208
5.75% 04/15/03 .............. 325 334
6.99% 07/09/07 .............. 785 824
6.00% 05/15/08 .............. 880 929
6.16% 08/07/28 .............. 485 507
5,067
Small Business Administration
6.55% 10/01/17 - 12/01/17 ... 142 146
TOTAL FEDERAL AGENCIES
(COST $7,823) ................. 7,950
PRINCIPAL
AMOUNT VALUE
- --------------------------------------------------------------------------------
AGENCY MORTGAGE BACKED -- 11.5%
Federal Home Loan Mortgage Corp.
7.50% 06/01/10 ..............$ 334 $ 344
7.50% 09/01/12 .............. 75 78
7.50% 04/01/28 .............. 1,138 1,169
6.50% 05/01/28 - 12/01/28 ... 3,084 3,106 (c)
4,697
Federal National Mortgage Assoc.
6.50% 01/01/04 .............. 10 11
6.50% 04/01/13 .............. 798 809
8.50% 04/01/17 .............. 28 29 (i)
7.00% 06/18/20 .............. 106 106 (b)
6.247% 03/17/21 .............. 86 87
6.424% 12/25/23 .............. 120 122
9.00% 11/01/25 .............. 563 596
8.50% 12/01/25 .............. 703 737
8.50% 12/01/26 .............. 247 259
7.00% 08/01/27 - 11/01/27 ... 934 954
8.50% 02/01/28 .............. 564 590
6.50% 07/01/28 .............. 55 55
7.00% 07/01/28 .............. 983 1,003
6.00% TBA ................... 4,890 4,892 (c)
7.50% TBA ................... 775 796 (c)
11,046
Federal National Mortgage Assoc. REMIC
7.623% 12/17/04 .............. 97 102
6.221% 05/25/14 .............. 42 43
8.50% 03/01/17 .............. 16 3
6.42% 05/25/18 .............. 64 65
10.84% 07/25/20 .............. 32 31
244
Government National Mortgage Assoc.
7.00% 03/15/12 .............. 579 594
8.50% 10/15/17 .............. 716 766
7.50% 06/15/23 - 08/15/23 ... 638 657
6.50% 03/15/24 .............. 322 325
7.50% 01/15/28 - 04/15/28 ... 560 579
6.50% 04/15/28 .............. 970 979
7.00% 04/15/28 .............. 578 592
4,492
TOTAL AGENCY MORTGAGE BACKED
(COST $20,364) ................ 20,479
AGENCY COLLATERALIZED MORTGAGE OBLIGATIONS -- 0.6%
Collateralized Mortgage
Obligation Trust
5.12% 09/01/15 .............. 17 16 (d,f)
4.88% 11/01/18 .............. 37 31 (d,f)
47
Federal Home Loan Mortgage Corp.
8.00% 04/15/20 .............. 34 35
- ------------
See Notes to Schedules of Investments and Notes to Financial Statements.
17
<PAGE>
ELFUN DIVERSIFIED FUND (DOLLARS IN THOUSANDS) -- DECEMBER 31, 1998
- --------------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
- --------------------------------------------------------------------------------
Federal National Mortgage Assoc.
5.56% 07/24/00 ............ $ 770 $ 777
8.50% 04/01/17 ............ 32 6 (g)
8.50% 01/01/18 ............ 6 1 (g)
9.00% 02/25/22 ............ 59 11 (g)
8.50% 07/25/22 ............ 79 14 (g)
8.50% 09/01/23 ............ 654 125 (g)
934
Federal National Mortgage Assoc.
REMIC
8.00% 10/25/20 ............ 62 64
4.58% 12/25/22 ............ 58 49 (d,f)
113
TOTAL AGENCY COLLATERALIZED
MORTGAGE OBLIGATIONS
(COST $1,122) ............... 1,129
ASSET BACKED -- 0.6%
Advanta Mortgage Loan Trust Corp.
6.30% 07/25/25 ............ 22 22
Capital One Master Trust
5.43% 01/15/07 ............ 271 271
Chase Credit Card Master Trust
6.00% 08/15/05 ............ 117 119
Discover Card Master Trust I
5.60% 05/15/06 ............ 271 273
Fleetwood Credit Grantor Trust
6.40% 05/15/13 ............ 57 57
Ford Credit Auto Loan Master Trust
5.50% 02/15/03 ............ 66 66
Ford Credit Auto Owner Trust
5.90% 06/15/02 ............ 113 115
MBNA Master Credit Card Trust I
6.05% 11/15/02 ............ 142 143
TOTAL ASSET BACKED
(COST $1,066) ............... 1,066
CORPORATE NOTES -- 7.3%
Abbey National PLC
6.70% 06/29/49 ............ 55 54
7.35% 10/29/49 ............ 88 89
Arizona Public Service Co.
6.25% 01/15/05 ............ 75 77
Associates Corporation of
North America
6.375% 10/15/02 ............ 200 206
5.75% 11/01/03 ............ 105 106
Atlantic City Electric Co.
6.19% 01/17/06 ............ 185 190
Bank Austria AG
7.25% 02/15/17 ............ 250 260
Bank of Scotland
7.00% 11/29/49 ............ 85 84 (b)
Beckman Instruments Inc.
7.10% 03/04/03 ............ 95 95
PRINCIPAL
AMOUNT VALUE
- -------------------------------------------------------------------------------
Bell Telephone Co. - Pennsylvania
8.375% 12/15/30 ............ $ 75 $ 98
Bellsouth Telecomm Inc.
6.3% 06/01/28 ............ 65 68
Black & Decker Holdings Inc.
7.05% 07/01/28 ............ 80 80 (b)
Boston University
7.625% 07/15/2097 .......... 230 266
Brascan Ltd.
7.375% 10/01/02 ............ 70 73
Carnival Corp.
5.65% 10/15/00 ............ 200 200
Cleveland Electric Co.
7.19% 07/01/00 ............ 35 35
Coca Cola Enterprises Inc.
7.00% 10/01/26 ............ 80 87
Columbia University Trustees
New York
6.83% 12/15/20 ............ 70 77
Conseco Inc.
6.40% 06/15/01 ............ 145 140
6.80% 06/15/05 ............ 50 47
8.70% 11/15/26 ............ 100 91
Continental Cablevision Inc.
8.50% 09/15/01 ............ 70 74
Corporacion Andina De Fomento
6.75% 03/15/05 ............ 130 125
Dayton Hudson Corp.
5.895% 06/15/37 ............ 95 99
Dow Chemical Co.
8.55% 10/15/09 ............ 75 90
Empresa Nacional De Electricidad
8.125% 02/01/2097 .......... 70 53
Fairfax Financial Holdings Ltd.
7.375% 04/15/18 ............ 105 102
Federal Express Corp.
7.52% 01/15/18 ............ 96 102
Federated Department Stores Inc.
6.125% 09/1/01 ............. 85 86
Felcor Suites Ltd.
7.375% 10/1/04 ............. 90 84
Ford Motor Credit Corp.
7.32% 05/23/02 ............ 205 206
Fujian International Trust &
Investment Corp.
7.375% 08/25/07 ............ 65 28 (b)
General Motors Acceptance Corp.
5.75% 11/10/03 ............ 55 55
Goldman Sachs Group L.P.
6.20% 12/15/00 ............ 115 117 (b)
Guangdong International Trust &
Investment Corp.
8.75% 10/24/16 ............ 75 42 (b,m)
Heritage Media Corp.
8.75% 02/15/06 ............ 150 161
Household Finance Corp.
6.125% 07/15/02 ............ 40 40
- -----------------
See Notes to Schedules of Investments and Notes to Financial Statements.
18
<PAGE>
SCHEDULE OF INVESTMENTS (DOLLARS IN THOUSANDS) -- DECEMBER 31, 1998
- --------------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
- --------------------------------------------------------------------------------
Hydro-Quebec
8.05% 07/07/24 ............. $ 115 $ 138
8.25% 04/15/26 ............. 175 216
International Lease Finance Corp.
5.62% 02/01/00 ............. 300 301
Israel Electric Corp. Ltd.
7.125% 07/15/05 ............. 50 51 (b)
8.10% 12/16/26 ............. 25 24 (b)
J.C. Penney Co. Inc.
7.40% 04/01/37 ............. 70 76
Korea Development Bank
7.125% 09/17/01 ............. 45 43
6.625% 11/21/03 ............. 80 71
Landeskreditbank Baden
7.875% 04/15/04 ............. 65 72
Lasmo USA Inc.
6.75% 12/15/07 ............. 105 106
LCI International Inc.
7.25% 06/15/07 ............. 53 54
Lehman Brothers Holdings Inc.
6.90% 03/30/01 ............. 30 31
8.05% 01/15/19 ............. 70 71
7.50% 08/01/26 ............. 130 135
LG&E Capital Corp.
5.75% 11/01/01 ............. 100 99 (b)
Liberty Property Ltd. Partnership
7.50% 01/15/18 ............. 80 74
Loewen Group International Inc. -
Pass-Through Asset Trust
6.70% 10/01/99 ............. 175 168 (b)
7.50% 04/15/01 ............. 30 26
MBNA Corp.
6.306% 04/22/03 ............. 150 148
MCI Communications Corp.
6.125% 04/15/02 ............. 200 203
Meditrust
7.114% 08/15/04 ............. 100 90
MIC Financing Trust
8.375% 2/1/27 ............... 150 156 (b)
Monsanto Co.
5.75% 12/01/05 ............. 70 70 (b)
6.60% 12/01/28 ............. 70 70
Morgan Stanley Finance PLC
6.54% 05/15/08 ............. 45 48
National Rural Utilities
Cooperative
6.046% 04/15/03 ............. 100 102
National Westminster Bank PLC
7.75% 04/29/49 ............. 85 90
New Jersey Economic
Development Authority
7.425% 02/15/29 ............. 70 80
News America Holdings Inc.
8.15% 10/17/36 ............. 220 247
Niagara Mohawk Power Corp.
9.50% 06/01/00 ............. 85 89
Norfolk Southern Corp.
7.05% 05/01/37 ............. 35 38
7.90% 05/15/2097 ........... 158 185
PRINCIPAL
AMOUNT VALUE
- --------------------------------------------------------------------------------
Noram Energy Corp.
6.375% 11/1/03 .............. $ 70 $ 71
North Atlantic Energy Corp.
9.05% 06/01/02 ............. 87 90
Northrop Grumman Corp.
8.625% 10/15/04 ............. 90 101
NRG Energy Inc.
7.50% 06/15/07 ............. 160 169
Occidental Petroleum Corp.
7.375% 11/15/08 ............. 30 31
Paramount Communications Inc.
5.875% 07/15/00 ............. 200 200
Philip Morris Cos. Inc.
7.25% 09/15/01 ............. 70 73
7.20% 02/01/07 ............. 40 43
Republic of Columbia
7.25% 02/15/03 ............. 35 31
Republic of Panama
7.875% 02/13/02 ............. 50 48 (b)
Riggs Capital Trust
8.625% 12/31/26 ............. 40 41 (b)
RJR Nabisco Inc.
8.00% 07/15/01 ............. 200 201
7.625% 09/15/03 ............. 60 58
6.125% 02/01/33 ............. 85 83
Safeway Inc.
5.75% 11/15/00 ............. 65 65
Sprint Capital Corp.
5.70% 11/15/03 ............. 60 60
6.125% 11/15/08 ............. 60 61
6.88% 11/15/28 ............. 85 89
St. George Funding Co.
8.485% 12/31/49 ............. 230 205 (b)
Stop & Shop Cos. Inc.
9.75% 02/01/02 ............. 50 55
Sun Life Canada Capital Trust
8.525% 05/29/49 ............. 105 114 (b)
Sunamerica Inc.
5.60% 07/31/2097 ........... 160 136
Suntrust Banks Inc.
6.00% 01/15/28 ............. 70 72
TCI Communications Inc.
8.65% 09/15/04 ............. 100 115
Tele-Communications Inc.
9.80% 02/01/12 ............. 130 174
Tenet Healthcare Corp.
7.875% 01/15/03 ............. 60 61
8.00% 01/15/05 ............. 25 26
Texas Utilities Co.
5.944% 10/15/01 ............. 100 101
Time Warner Pass-Through Asset Trust
6.10% 12/30/01 ............. 230 234 (b)
Times Mirror Co.
6.61% 09/15/27 ............. 90 96
Transamerica Capital
7.625% 11/15/37 ............. 105 109
Turner Broadcasting Systems Inc.
8.375% 07/01/13 ............. 100 119
- -------------
See Notes to Schedules of Investments and Notes to Financial Statements.
19
<PAGE>
ELFUN DIVERSIFIED FUND (DOLLARS IN THOUSANDS) -- DECEMBER 31, 1998
- --------------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
- --------------------------------------------------------------------------------
Tyco International Group S.A.
6.25% 06/15/03 .............. $ 95 $ 96
6.125% 11/01/08 .............. 70 70 (b)
7.00% 06/15/28 .............. 345 352
Union Pacific Corp.
6.79% 11/09/07 .............. 120 123
United Illuminating Co.
6.25% 12/15/02 .............. 30 30
United Parcel Service Inc.
8.375% 04/01/30 .............. 130 163
US West Capital Funding Inc.
6.125% 07/15/02 .............. 35 35
6.875% 07/15/28 .............. 55 59
USA Waste Services Inc.
6.125% 07/15/01 .............. 300 302
USX Marathon Group
9.80% 07/01/01 .............. 75 81
8.125% 07/15/23 .............. 70 74
Washington Mutual Capital
8.375% 06/01/27 .............. 40 44
Waterford Funding Corp.
8.09% 01/02/17 .............. 240 260
Westdeutsche Landesbank
6.75% 06/15/05 .............. 100 103
Westinghouse Electric Corp.
8.875% 06/01/01 .............. 45 48
Williams Cos. Inc.
6.125% 02/15/02 .............. 145 145
WMX Technologies Inc.
6.65% 05/15/05 .............. 85 88
Worldcom Inc.
6.125% 08/15/01 .............. 60 61
6.40% 08/15/05 .............. 95 99
8.875% 01/15/06 .............. 125 136
Yale University Notes
7.375% 04/15/2096 ............ 70 79
Zurich Capital Trust
8.376% 06/01/37 .............. 50 56 (b)
TOTAL CORPORATE NOTES
(COST $12,720) ................ 12,895
NON-AGENCY MORTGAGE BACKED SECURITIES -- 4.0%
Amresco Commercial Mortgage
Funding Corp.
6.73% 06/17/29 .............. 86 88
Asset Securitization Corp.
6.50% 02/14/41 .............. 77 78
BCF
7.22% 11/25/28 .............. 273 273
7.25% 11/25/28 .............. 161 149
6.315% 11/25/37 .............. 100 99
BHN Mortgage Trust
7.916% 07/25/09 .............. 37 27 (b)
7.54% 05/31/17 .............. 67 48 (b)
PRINCIPAL
AMOUNT VALUE
- --------------------------------------------------------------------------------
Chase Commercial Mortgage
Securities Corp.
6.39% 11/18/08 ..............$ 217 $ 224
Commercial Mortgage
Acceptance Corp.
6.49% 05/15/08 .............. 113 117
Credit Suisse First Boston
Mortgage
6.30% 11/11/30 .............. 184 187
DDR Pass-Through Asset Trust
7.125% 03/15/02 .............. 230 229 (b)
DLJ Commercial Mortgage Corp.
6.14% 10/15/06 .............. 133 134
6.41% 02/15/08 .............. 292 299
6.24% 11/12/31 .............. 240 245
DLJ Mortgage Acceptance Corp.
6.65% 12/17/27 .............. 39 40 (b)
First Union Lehman Brothers Bank
6.28% 06/18/07 .............. 353 359
GMAC Commercial Mortgage
Security Inc.
6.42% 08/15/08 .............. 154 159
GS Mortgage Securities Corp.
5.95% 07/13/30 .............. 129 134 (d)
Lehman Large Loan
6.79% 06/12/04 .............. 79 82
Merrill Lynch Mortgage Investors Inc.
6.39% 02/15/30 .............. 357 368
Mid State Trust
7.28% 07/01/35 .............. 35 36 (d)
Morgan Stanley Capital Inc.
6.86% 05/15/06 .............. 140 145 (b)
6.52% 01/15/08 .............. 591 613
6.54% 05/15/08 .............. 360 375
6.59% 10/03/30 .............. 52 54
6.01% 11/15/30 .............. 133 135
6.48% 11/15/30 .............. 226 234
Nationslink Funding Corp.
6.001% 11/20/07 .............. 77 77
6.476% 07/20/08 .............. 226 233
Provident Bank Home Equity
Loan Trust
6.72% 01/25/13 .............. 116 118
Residential Assets Securitization
Trust
7.75% 04/25/27 - 09/25/27 ... 431 443
Sawgrass Finance REMIC Trust
6.45% 01/20/06 .............. 90 91
Structured Asset Securities Corp.
6.256% 08/25/00 .............. 542 539 (b)
8.495% 04/25/27 .............. 92 95
0.44% 02/25/28 .............. 710 38 (d)
Vornado Finance Corp.
6.36% 12/01/00 .............. 460 465 (b)
TOTAL NON-AGENCY MORTGAGE
BACKED SECURITIES
(COST $6,977) ................. 7,030
- ---------
See Notes to Schedules of Investments and Notes to Financial Statements.
20
<PAGE>
SCHEDULE OF INVESTMENTS (DOLLARS IN THOUSANDS) -- DECEMBER 31, 1998
- --------------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
- --------------------------------------------------------------------------------
NON-AGENCY COLLATERALIZED
MORTGAGE OBLIGATIONS -- 0.1%
Salomon Brothers Mortgage
Securities Inc.
7.00% 07/25/24
(COST $238) $242 $ 237
TOTAL BONDS AND NOTES
(COST $63,706) 64,395
NUMBER
OF SHARES VALUE
- --------------------------------------------------------------------------------
PREFERRED STOCK -- 0.6%
- --------------------------------------------------------------------------------
DOMESTIC PREFERRED -- 0.5%
Centaur Funding, 9.08% ............ 115 119(a,b)
Citigroup Inc., 6.231% ............ 600 32
Microsoft Corp. (Series A) ........ 3,752 367
New Plan Realty Trust, 8.625% ..... 1,709 80(a)
News Corp., Ltd., 5.00% ........... 720 44(a,b)
SPG Properties Inc. (Series C),
7.89% .......................... 1,895 86
TCI Communications Inc.,
10.00% ......................... 3,200 87
815
FOREIGN PREFERRED -- 0.1%
Banesto Holdings Ltd., 10.50% ..... 1,550 45(a,b)
Desc S.A. de C.V. ADR (Class C) ... 4,884 93
Fresenius Medical Care AG ......... 916 43
Telerj Celular S.A. ...............51,300 1(a)
182
TOTAL PREFERRED STOCK
(COST $1,026) ..................... 997
- --------------------------------------------------------------------------------
WARRANTS -- 0.0%
- --------------------------------------------------------------------------------
Muenchener Rueckverischerungs-
Gescellschaft AG, 06/03/02
(COST $0) ......................... 33 2(a)
TOTAL INVESTMENTS IN SECURITIES
(COST $132,381) ................... 172,781
NUMBER
OF SHARES VALUE
- --------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS -- 5.0%
- --------------------------------------------------------------------------------
GEI Short Term Investment Fund 8,500 $ 8,500
PRINCIPAL
AMOUNT VALUE
- --------------------------------------------------------------------------------
REPURCHASE AGREEMENT
State Street Bank and Trust Co.
4.70% 01/04/99 .............. $398 398
(dated 12/31/98, proceeds
$398, collateralized by $411,
U.S. Treasury Notes,
7.875%, 8/15/01)
TOTAL SHORT-TERM INVESTMENTS
(COST $8,898) ..................... 8,898
NUMBER OF
EXPIRATION DATE/ CONTRACTS
STRIKE PRICE (IN THOUSANDS) VALUE
- --------------------------------------------------------------------------------
CALL OPTIONS -- 0.0%
- --------------------------------------------------------------------------------
U.S. Treasury Notes Jan 99/107.06 (455) 0
U.S. Treasury Notes Jan 99/104.42 (480) (3)
(WRITTEN OPTION PREMIUM $(4)) ......... (3)
- --------------------------------------------------------------------------------
PUT OPTIONS -- 0.0%
- --------------------------------------------------------------------------------
U.S. Treasury Notes Jan 99/101.06 (455) (3)
U.S. Treasury Notes Jan 99/ 98.42 (480) (1)
(WRITTEN OPTION PREMIUM $(4)) ......... (4)
OTHER ASSETS AND LIABILITIES,
NET (2.3)% ......................... (4,090)
---------
NET ASSETS-- 100% ..................... $177,582
=========
[GRAPHIC OMITTED] ICONS REPRESENT THE TOP FIVE COMBINED INDUSTRY WEIGHTINGS FOR
THE DOMESTIC AND FOREIGN EQUITIES IN THE ELFUN DIVERSIFIED FUND AS OF DECEMBER
31, 1998.
- -----------
See Notes to Schedules of Investments and Notes to Financial Statements.
21
<PAGE>
ELFUN TAX-EXEMPT INCOME FUND
- --------------------------------------------------------------------------------
Q&A
BOB KAELIN MANAGES THE TAX-EXEMPT OPERATION WITH TOTAL ASSETS EXCEEDING $7
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 BENCHMARK
AND LIPPER PEER GROUP FOR THE ONE-YEAR PERIOD ENDED DECEMBER 31, 1998?
A. The Elfun Tax-Exempt Income Fund posted a total return of 6.21%. This
compares with a 6.48% return for the Lehman Brothers Municipal Bond Index.
Our Lipper peer group of 244 General Municipal Bond funds had an average
return of 5.33%.
Q. WHAT INFLUENCED FUND PERFORMANCE?
A. Although long bond yields were at about the same level at the beginning and
end of 1998 (5%), there was a lot of volatility in the bond markets during
the year. We did not make interest rate bets, although many funds did so.
Because we manage our portfolio conservatively, we nearly matched our
benchmark and greatly outperformed our peers. Our investment goals are to
augment tax-exempt income, minimize taxable gains and maintain as high an
average yield as possible.
Q. WHAT ECONOMIC EVENTS AFFECTED THE TAX-EXEMPT MARKET?
A. Last year was unlike any other. Because of Asia's continuing economic
problems, the near-collapse of the Russian economy and the spillover effect
on other emerging markets, yields for U.S. Treasuries reached historic lows
as investors worldwide rushed into the safe haven of Treasuries. As a
result, municipal bonds had higher after-tax yields than Treasuries.
Additionally, with interest rates low and the economy strong, municipal
issues increased at near record pace. More than half of these new issues
were insured, which assured liquidity. Value, quality and liquidity drew
many non-traditional buyers into the market, thereby increasing demand and
providing a high level of price support.
Q. HOW DID INDIVIDUAL INVESTMENTS PERFORM?
A. In the state and local government sector, Californian and New York bonds
did well. In the revenue sector, we were underweighted in BBB-rated bonds
compared with our benchmark and that benefited us at the end of the year as
spreads widened.
Q. WHAT IS YOUR OUTLOOK FOR THE FUND?
A. In our view, 1999 looks to be a replay of 1998. Foreign financial markets
remain volatile with the Asian economies' seeming inability to recover from
their slumps; Russia recently rescheduling more debt; and Brazil entering a
difficult economic period. At home, the United States is also sailing into
the uncharted waters of a year in which a presidential impeachment is
considered. While individual investors perceive uncertainty in the stock
market, we expect a move back to bonds. Municipal bond yields remain high
compared to those of other fixed income investments. We plan to stay with
our strategy of prudent investment management.
[PHOTO OF BOB KAELIN OMITTED]
22
<PAGE>
ELFUN TAX-EXEMPT INCOME FUND
- --------------------------------------------------------------------------------
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT
[LINE GRAPH OMITTED]
[PLOT POINTS]
ELFUN TAX-EXEMPT LB MUNI BOND
`88 $10,000 $10,000
`89 10,920 11,080
`90 11,575 11,889
`91 12,973 13,327
`92 14,076 14,500
`93 15,781 16,284
`94 14,870 15,442
`95 17,446 18,129
`96 18,074 18,932
`97 19,807 20,672
`98 21,035 22,011
AVERAGE ANNUAL TOTAL RETURN
FOR THE PERIODS ENDED DECEMBER 31, 1998
- --------------------------------------------------------------------------------
ONE FIVE TEN
YEAR YEAR YEAR
- --------------------------------------------------------------------------------
Elfun Tax-Exempt 6.21% 5.92% 7.72%
LBMI 6.48% 6.22% 8.22%
- --------------------------------------------------------------------------------
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 AVERAGE ANNUAL TOTAL RETURNS
FOR THE PERIODS ENDED 12/31/98
GENERAL MUNICIPAL BOND PEER GROUP
ONE FIVE TEN
YEAR YEAR YEAR
Fund's rank in peer group: ............ 25 33 35
Number of Funds in peer group: ........ 244 140 74
Peer group average total return: ...... 5.33% 5.44% 7.68%
Lipper categories in peer group: ...... GENERAL MUNICIPAL DEBT
* SEE NOTES TO PERFORMANCE FOR EXPLANATION OF PEER CATEGORIES.
QUALITY RATINGS AS OF DECEMBER 31, 1998
- --------------------------------------------------------------------------------
PERCENT OF
MOODY'S RATINGS + NET ASSETS
- --------------------------------------------------------------------------------
Aaa 55.8%
- --------------------------------------------------------------------------------
Aa 24.7%
- --------------------------------------------------------------------------------
A 11.6%
- --------------------------------------------------------------------------------
Baa 3.9%
- --------------------------------------------------------------------------------
NR 1.1%
- --------------------------------------------------------------------------------
Other 2.9%
- --------------------------------------------------------------------------------
+MOODY'S INVESTORS SERVICE, INC. IS A NATIONALLY RECOGNIZED
STATISTICAL RATING ORGANIZATION.
SEE NOTES TO PERFORMANCE. PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.
23
<PAGE>
SCHEDULE OF INVESTMENTS (DOLLARS IN THOUSANDS) -- DECEMBER 31, 1998
- --------------------------------------------------------------------------------
ELFUN TAX-EXEMPT INCOME FUND
[PIE CHART OMITTED]
INDUSTRIAL DEVELOPMENT 1.4%
GENERAL OBLIGATIONS 25.7%
WATER & SEWER 13.2%
HEALTH 10.8%
TRANSPORTATION 10.2%
LEASE REVENUE 8.3%
ELECTRIC UTILITY 7.8%
CASH & OTHER 7.5%
SALES TAX 6.9%
EDUCATION 6.4%
POLLUTION CONTROL 1.8%
PRINCIPAL
AMOUNT VALUE
- --------------------------------------------------------------------------------
MUNICIPAL BONDS -- 97.1%
- --------------------------------------------------------------------------------
ALABAMA -- 0.9%
Alabama Water Pollution Control
Auth. Rev. - Water & Sewer
4.75% 08/15/21 ............. $ 7,155 $ 6,942(k)
Mobile County Alabama G.O.
5.35% 02/01/10 ............. 6,530 6,864
13,806
ARIZONA -- 1.6%
Arizona Transportation Board
Rev. - Sales Tax
6.00% 07/01/08 ............. 5,000 5,702
Mohave County Arizona Industrial
Dev. Auth. - Industrial Dev. Rev.
7.05% 08/01/20 ............. 12,000 12,585
Phoenix Arizona G.O.
5.55% 07/01/09 ............. 3,975 4,426
Phoenix Arizona Street &
Highway User Rev. - Trans.
6.10% 07/01/01 ............. 1,500 1,582
24,295
CALIFORNIA -- 3.8%
California State Dept. Water
Resource Ctr. Rev. - Water & Sewer
4.75% 12/01/25 ............. 4,000 3,836
California State G.O.
8.00% 05/01/03 ............. 10,725 12,503 (i)
PRINCIPAL
AMOUNT VALUE
- --------------------------------------------------------------------------------
Los Angeles California Waste
Water Systems Rev. - Water & Sewer
5.70% 06/01/20 .............$ 15,000 $ 15,877 (k)
San Diego County California
Certificates Participation Rev. - Lease Rev.
5.25% 11/15/19 ............. 6,000 6,148 (k)
Southern California Public Power
Auth. Rev. - Electric Utility
5.00% 07/01/15 ............. 5,725 5,885 (l)
5.00% 07/01/22 ............. 12,500 12,398 (k)
56,647
COLORADO -- 2.2%
Colorado Springs Colorado
Utility Rev. - Electric Utility
6.50% 11/15/15 ............. 30,370 32,899
[GRAPHIC OMITTED] CONNECTICUT -- 8.4%
Connecticut State G.O.
5.95% 11/15/00 ............. 2,700 2,825
6.15% 11/15/03 ............. 2,000 2,168
6.00% 10/01/04 - 11/01/04 . 4,455 4,946
5.50% 08/01/05 ............. 2,855 3,109
5.50% 03/15/07 - 12/01/07 .. 18,410 20,016
5.50% 03/15/08 - 12/01/08 .. 15,090 16,617
5.625% 03/15/09 ............. 1,990 2,142
5.25% 03/15/14 ............. 3,175 3,329
4.50% 10/15/16 ............. 2,510 2,426
Connecticut State Health &
Educational Fac. Auth. Rev. - Health
5.125% 11/01/12 ............. 1,495 1,557 (k)
Connecticut State Resources
Recovery Auth.
5.50% 11/15/12 ............. 3,865 4,170 (k)
Connecticut State Special
Assessment Second Injury Funding
Rev. - Special Assessment
5.25% 01/01/09 ............. 2,830 3,017 (k)
Connecticut State Special Tax
Obligation Rev. - Sales Tax
4.00% 10/01/00 ............. 7,550 7,628
5.80% 02/15/02 ............. 1,000 1,060
5.125% 09/01/05 ............. 2,250 2,396
6.00% 10/01/09 ............. 5,250 6,001 (k)
Mashantucket Western Pequot
Tribe Connecticut Rev. - Lease Rev.
5.70% 09/01/12 ............. 2,500 2,653 (b)
5.75% 09/01/18 ............. 9,500 9,859 (b)
Stamford Connecticut G.O.
5.00% 07/15/01 ............. 2,890 2,993
4.60% 02/15/06 ............. 885 930
4.60% 02/15/06 ............. 140 147 (j)
5.00% 02/15/07 ............. 1,550 1,633 (j)
5.00% 02/15/08 ............. 1,475 1,554 (j)
5.00% 02/15/09 ............. 1,500 1,581 (j)
5.00% 02/15/10 ............. 1,875 1,957
- -----------
See Notes to Schedules of Investments and Notes to Financial Statements.
24
<PAGE>
SCHEDULE OF INVESTMENTS (DOLLARS IN THOUSANDS) -- DECEMBER 31, 1998
PRINCIPAL
AMOUNT VALUE
- --------------------------------------------------------------------------------
5.00% 02/15/11 ........... $ 1,875 $ 1,946
5.25% 07/15/11 ........... 6,120 6,575
5.00% 02/15/12 ........... 1,875 1,937
5.00% 02/15/13 ........... 1,875 1,927
5.00% 02/15/14 ........... 1,875 1,916
5.00% 02/15/15 ........... 1,875 1,908
Watertown Connecticut G.O.
6.00% 09/15/01 ........... 530 563 (k)
Wilton Connecticut G.O.
4.70% 07/15/17 ........... 1,500 1,494
124,980
DELAWARE -- 0.2%
New Castle County Delaware G.O.
6.40% 10/15/03 ........... 2,390 2,595
[GRAPHIC OMITTED] FLORIDA -- 8.0%
Brevard County Utility Rev. -
Water & Sewer
5.25% 03/01/07 ........... 2,800 2,974 (k)
5.25% 03/01/08 ........... 3,250 3,453 (k)
Dade County School District G.O.
5.20% 08/01/07 ........... 5,000 5,311 (k)
5.50% 08/01/11 ........... 14,250 15,496 (j,k)
5.50% 08/01/15 ........... 17,805 19,362 (j,k)
Florida State Board Education
Capital Outlay G.O.
5.00% 06/01/13 ........... 8,000 8,183
6.00% 06/01/19 ........... 5,250 5,750 (j)
Florida State Div. Bd. Fin. Dept.
Rev. - Lease Rev.
6.50% 07/01/09 ........... 6,915 7,451 (j,k)
6.50% 07/01/10 ........... 1,940 2,091 (j,k)
Hillsborough County School Board
Rev. - Lease Rev.
6.00% 07/01/12 ........... 5,000 5,595 (j,k)
6.00% 07/01/14 ........... 2,155 2,411 (j,k)
Hillsborough County Utility Ref.
Rev. - Water & Sewer
6.625% 08/01/11 ........... 10,000 10,926 (k)
6.50% 08/01/16 ........... 3,260 3,521 (k)
6.50% 08/01/16 ........... 5,240 5,659 (k)
Orange County Water & Wastewater
Rev. - Treatment
6.25% 10/01/17 ........... 3,485 3,766 (k)
6.25% 10/01/17 ........... 3,015 3,301 (j,k)
Orlando & Orange County
Expressway Auth. Rev. - Trans.
5.25% 07/01/14 ........... 13,695 14,252 (k)
119,502
GEORGIA -- 1.8%
Fulton County Georgia School
District G.O.
4.50% 01/01/07 ........... 4,575 4,699
5.625% 01/01/21 ........... 8,205 8,956 (j)
PRINCIPAL
AMOUNT VALUE
- --------------------------------------------------------------------------------
Georgia State G.O.
6.50% 08/01/04 ........... $ 1,750 $ 1,987
6.50% 04/01/08 - 08/01/08 5,320 6,321
Private Colleges & University
Rev. - Education
6.50% 11/01/15 ........... 4,010 4,879 (k)
26,842
HAWAII -- 0.3%
Honolulu Hawaii City &
County G.O.
6.10% 06/01/11 ........... 1,500 1,663 (j)
6.00% 01/01/12 ........... 2,000 2,278
3,941
ILLINOIS -- 5.7%
Chicago Illinois School Finance
Auth. G.O.
5.00% 06/01/09 ........... 9,000 9,403 (k)
Chicago Public Bldg. Comm. Rev. -
Lease Rev.
7.125% 01/01/15 ........... 9,115 9,619 (k,l)
Cook County Illinois G.O.
5.375% 11/15/18 ........... 14,500 14,769 (k)
Illinois Education Fac. Auth. Rev. -
Education
7.125% 07/01/21 ........... 14,940 16,406 (j)
Illinois Health Fac. Auth. Rev. -
Health
5.00% 08/15/21 ........... 9,600 9,510 (k)
Metropolitan Pier & Exposition
Authority Illinois Rev. -
Sales Tax
5.25% 06/15/27 ........... 1,550 1,572 (k)
6.50% 06/15/27 ........... 305 331
6.50% 06/15/27 ........... 10,000 11,250 (j)
Regional Transport Auth.
Illinois Rev. - Trans
6.25% 06/01/15 ........... 10,980 12,160
85,020
INDIANA -- 2.7%
Indiana Transportation Finance
Auth. Airport Fac. Lease
Rev. - Trans.
5.00% 11/01/12 ........... 13,305 13,742 (k)
5.00% 11/01/16 ........... 3,250 3,268 (k)
Indiana University Rev. - Education
6.00% 11/15/14 ........... 7,500 8,126
Indianapolis Local Rev. - Bank Bond
6.00% 07/01/10 ........... 6,000 6,516
Petersburg Pollution Control
Rev. - Industrial Dev.
6.625% 12/01/24 ........... 7,250 8,188
39,840
- --------------
See Notes to Schedules of Investments and Notes to Financial Statements.
25
<PAGE>
ELFUN TAX-EXEMPT INCOME FUND (DOLLARS IN THOUSANDS) -- DECEMBER 31, 1998
- --------------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
- --------------------------------------------------------------------------------
IOWA -- 0.7%
Iowa Finance Authority Rev. - Health
5.25% 08/15/12 .......... $ 1,755 $ 1,805
5.25% 08/15/14 .......... 3,790 3,855
5.375% 08/15/17 .......... 4,215 4,295
9,955
KENTUCKY -- 0.1%
Louisville & Jefferson County
Kentucky Rev. - Water & Sewer
5.30% 05/15/19 .......... 1,900 1,935 (k)
MAINE -- 0.5%
Maine Health & Higher Educational
Facilities Auth. Rev. - Health
5.50% 07/01/23 .......... 7,690 7,976 (k)
MARYLAND -- 0.3%
Maryland State G.O.
5.00% 10/15/11 .......... 3,500 3,703
MASSACHUSETTS -- 5.7%
Massachusetts State G.O.
5.50% 11/01/08 .......... 18,135 20,045
Massachusetts State Health &
Educational Fac. Auth.
Rev. - Health
6.30% 08/15/24 .......... 4,000 4,399 (k)
Massachusetts State Indus. Fin.
Agcy. Rev. - Resource Rec.
6.30% 07/01/05 .......... 8,750 9,356
Massachusetts State Water
Resources Auth. Rev. -
Water & Sewer
5.10% 03/01/03 .......... 8,000 8,364
6.50% 07/15/08 .......... 9,245 10,845
6.50% 07/15/19 .......... 14,125 16,764
5.00% 03/01/22 .......... 7,500 7,418 (k)
4.75% 12/01/23 .......... 7,500 7,203 (k)
84,394
MICHIGAN -- 3.4%
Hartland Michigan Consolidated
School District Rev. - Education
5.125% 05/01/22 .......... 5,000 5,010 (k)
Michigan Trunk Line Rev. -
Sales Tax
5.25% 11/01/09 .......... 4,475 4,807
5.25% 11/01/10 .......... 2,790 2,985
5.50% 10/01/21 .......... 35,815 37,458
50,260
PRINCIPAL
AMOUNT VALUE
- --------------------------------------------------------------------------------
MINNESOTA -- 1.3%
Southern Muni. Power Agency
Rev. - Electric Utility
5.75% 01/01/11 .......... $ 8,780 $ 9,377 (l)
5.00% 01/01/12 .......... 10,000 10,233 (k)
19,610
MISSOURI -- 1.5%
Jackson County Missouri
Consolidated School District
Number 002 G.O.
5.25% 03/15/09 .......... 8,000 8,413 (k)
Missouri Health & Educational
Facilities Rev. - Health
6.00% 05/15/07 .......... 2,340 2,629
University Missouri Health
Facilities Rev. - Health
5.60% 11/01/26 .......... 10,000 10,572 (k)
21,614
NEW HAMPSHIRE -- 1.3%
New Hampshire Higher
Educational & Health
Facilities Rev. - Education
6.25% 07/01/20 .......... 5,000 5,414 (k)
New Hampshire State Tpke.
Systems Rev. - Trans.
5.25% 02/01/19 .......... 4,500 4,558 (k)
New Hampshire Tpke. Auth.
Rev. - Trans.
5.75% 04/01/20 .......... 8,745 9,084
19,056
[GRAPHIC OMITTED] NEW JERSEY -- 6.9%
New Jersey Building Auth. Rev. -
Lease Rev.
5.00% 06/15/11 .......... 10,650 10,981
5.00% 06/15/12 .......... 9,440 9,680
New Jersey Health Care Fac. Fin.
Auth. Rev. - Health
5.50% 07/01/08 .......... 2,715 2,973 (k)
New Jersey Sports and Exposition
Convention Ctr. Rev. - Lease Rev.
6.50% 03/01/19 .......... 12,590 13,637
New Jersey Tpke. Auth. Rev. - Trans.
6.50% 01/01/16 .......... 49,960 60,205 (k)
New Jersey Wastewater Treatment
Trust Rev. - Water & Sewer
5.875% 06/15/06 .......... 5,160 5,760
103,236
- ------------
See Notes to Schedules of Investments and Notes to Financial Statements.
26
<PAGE>
SCHEDULE OF INVESTMENTS (DOLLARS IN THOUSANDS) -- DECEMBER 31, 1998
- --------------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
- --------------------------------------------------------------------------------
[GRAPHIC OMITTED] NEW YORK -- 11.4%
Battery Park City Auth. Rev. -
Lease Rev.
5.00% 11/01/13 ............. $10,000 $ 10,161 (k)
5.25% 11/01/17 ............. 6,500 6,634 (k)
4.75% 11/01/19 ............. 16,130 15,631 (k)
Long Island Power Auth. Electric
Systems Rev. - Electric Utility
5.50% 12/01/08 ............. 4,100 4,528 (k)
Municipal Assistance Corp.
Rev. - Sales Tax
5.20% 07/01/08 ............. 10,000 10,707
Nassau County New York G.O.
4.75% 09/01/11 ............. 5,750 5,851 (k)
New York New York G.O.
4.80% 08/01/05 ............. 1,190 1,230
5.25% 08/01/05 ............. 3,200 3,389
5.60% 08/015/06 ............ 13,000 14,077
4.70% 08/01/07 ............. 1,725 1,785 (k)
5.50% 08/01/07 ............. 7,000 7,566
5.25% 08/01/11 ............. 3,950 4,128
5.25% 08/01/13 ............. 1,500 1,547
New York State Dormitory CUNY
Rev. - Education
5.375% 07/01/07 ............. 2,750 2,991 (k)
5.75% 07/01/07 ............. 1,000 1,114 (k)
7.00% 07/01/09 ............. 7,000 8,089
5.40% 07/01/10 ............. 8,185 8,864
New York State Housing Finance
Agency Service Contract Rev. -
Housing
6.375% 09/15/14 ............. 65 72
New York State Local Government
Assistance Corp. Rev. - Sales Tax
5.50% 04/01/21 ............. 12,255 12,712
New York State Thruway Auth.
Rev. - Trans.
6.00% 04/01/14 ............. 8,000 8,899 (j)
New York State Urban Development
Auth. Rev. - Housing
5.50% 07/01/16 ............. 7,000 7,359
New York State Urban Development
Corporation Rev. - Lease Rev.
5.50% 01/01/16 ............. 25,310 26,244
Suffolk County New York Water
Auth. Waterworks Rev. -
Water & Sewer
5.00% 06/01/17 ............. 6,000 6,019 (k)
169,597
NORTH CAROLINA -- 1.6%
Mecklenburg County North
Carolina G.O.
4.50% 02/01/15 ............. 14,000 13,656
PRINCIPAL
AMOUNT VALUE
- --------------------------------------------------------------------------------
North Carolina Medical Care
Commission Hospital Rev. -
Health
4.75% 10/01/26 ............$ 7,000 $ 6,569
5.00% 10/01/28 ............ 3,610 3,506
23,731
NORTH DAKOTA -- 1.3%
Oliver County North Dakota
Pollution Control Rev. -
Electric Utility
5.30% 01/01/27 ............ 19,000 19,372 (k)
OHIO -- 3.9%
Clermont County Ohio Hospital
Facilities Rev. - Health
7.50% 09/01/19 ............ 455 499 (j,k)
Cleveland Water Works Rev. -
Water & Sewer
6.25% 01/01/16 ............ 9,490 10,240 (k)
Northeast Ohio Reg. Sewer
District Rev. - Water & Sewer
6.50% 11/15/16 ............ 15,500 16,894 (j,k)
Ohio State Building Auth. Rev. -
Lease Rev.
7.00% 09/01/07 ............ 3,230 3,462 (j,k)
4.75% 04/01/14 ............ 5,000 4,978
Ohio State Higher Education
Rev. - Education
6.70% 05/01/05 ............ 10,100 10,733 (j,k)
Ohio State Public Facilities
Commission G.O.
4.50% 11/01/09 ............ 1,500 1,510 (k)
Ohio State Water Development
Auth. Pollution Control Fac.
Rev. - Water & Sewer
5.30% 12/01/11 ............ 9,265 9,721 (k)
58,037
OKLAHOMA -- 0.3%
Oklahoma Tpke. Auth. Rev. - Trans.
6.25% 01/01/22 ............ 4,640 5,037 (k)
OREGON -- 0.4%
Oregon State G.O.
5.875% 10/01/18 ............ 2,295 2,471
Portland Sewer Systems Rev. -
Sewer Rev.
4.50% 06/01/16 ............ 3,750 3,597 (k)
6,068
- ------------
See Notes to Schedules of Investments and Notes to Financial Statements.
27
<PAGE>
ELFUN TAX-EXEMPT INCOME FUND (DOLLARS IN THOUSANDS) -- DECEMBER 31, 1998
- --------------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
- --------------------------------------------------------------------------------
[GRAPHIC OMITTED] PENNSYLVANIA -- 7.2%
Allegheny County Hospital
Development Auth. Rev. - Health
6.20% 09/01/15 .............$ 3,500 $ 3,548 (k)
5.375% 12/01/25 ............. 27,000 27,583 (k)
Allentown Pennsylvania Hospital
Rev. - Health
5.00% 07/01/10 ............. 2,350 2,352
Delaware Valley Pennsylvania
School District G.O.
6.50% 04/01/01 ............. 1,000 1,061 (k)
Montgomery County
Pennsylvania G.O.
5.25% 10/15/07 ............. 3,450 3,743
5.25% 10/15/08 ............. 3,635 3,950
Montgomery County Pennsylvania
Higher Education & Health
Rev. - Health
5.00% 10/01/09 ............. 2,405 2,511 (k)
5.10% 10/01/10 ............. 2,670 2,784 (k)
Montgomery County Pennsylvania
Industrial Dev. Auth.
Rev. - Education
8.25% 03/01/14 ............. 3,160 3,243
New Castle Pennsylvania Hospital
Rev. - Health
5.50% 07/01/09 ............. 1,000 1,089 (k)
Northampton County Higher
Education Fac. Auth. Lehigh
Univ. Rev. - Education
7.00% 10/15/11 ............. 7,800 8,624 (k)
Pennsylvania Intergovernmental
Co-op. Rev. - Sales Tax
5.60% 06/15/15 ............. 8,000 8,311 (k)
Philadelphia Gas Works Rev. -
Natural Gas
6.375% 07/01/14 ............. 1,845 2,058 (k)
Philadelphia Hospitals & Higher
Education Facilities Rev. -
Health
5.00% 02/15/21 ............. 11,250 10,913
Philadelphia Pennsylvania
Airport Rev. - Trans
6.00% 06/15/06 ............. 5,000 5,597 (k)
Philadelphia Pennsylvania School
District G.O.
5.55% 07/01/05 ............. 10,150 10,918 (k)
5.65% 07/01/06 ............. 2,070 2,230 (k)
5.75% 07/01/07 ............. 1,200 1,298 (k)
5.80% 07/01/08 ............. 1,500 1,625 (k)
5.85% 07/01/09 ............. 1,440 1,561 (k)
University Pittsburgh Pennsylvania
Higher Education Rev. -
Education
4.95% 06/01/11 ............. 2,000 2,059 (k)
107,058
PRINCIPAL
AMOUNT VALUE
- --------------------------------------------------------------------------------
RHODE ISLAND -- 0.5%
Rhode Island G.O.
5.00% 08/01/11 .............$ 5,000 $ 5,158
Rhode Island State Health &
Education Bldg. Corp. Rev. -
Education
5.00% 09/01/23 .............. 2,205 2,189
7,347
SOUTH CAROLINA -- 2.4%
Charleston County SC G.O.
5.90% 06/01/10 .............. 2,170 2,372
6.00% 06/01/11 .............. 2,310 2,537
6.00% 06/01/12 .............. 2,455 2,696
South Carolina State Public
Service Auth. Rev. -
Electric Utility
5.50% 07/01/21 .............. 26,635 27,609 (k)
35,214
TENNESSEE -- 0.8%
Knox County Tennessee Health
Educational & Housing
Facilities Board Rev. - Health
7.25% 01/01/09 .............. 4,500 5,552 (k)
Metropolitan Government
Nashville & Davidson County
Tennessee Health &
Education Fac. Bd. Rev.
4.875% 11/01/28 .............. 6,740 6,479 (k)
12,031
TEXAS -- 3.8%
Dallas Texas Civic Ctr. Rev. -
Sales Tax
5.00% 08/15/18 .............. 2,835 2,814 (k)
Harris County Texas G.O.
6.125% 08/15/20 .............. 15,000 16,907 (j)
Houston Texas Water & Sewer
Systems Rev. - Water & Sewer
5.25% 12/01/21 .............. 20,000 20,415 (k)
Texas State Pubic Fin. Auth.
Bldg. Rev. - Lease Rev.
5.00% 08/01/17 .............. 6,440 6,417 (k)
University Texas Permanent
University Fund Rev. -
Education
4.75% 07/01/17 .............. 8,840 8,733
University Texas University
Rev. - Education
5.20% 08/15/09 .............. 1,295 1,381
56,667
- -------------
See Notes to Schedules of Investments and Notes to Financial Statements.
28
<PAGE>
SCHEDULE OF INVESTMENTS (DOLLARS IN THOUSANDS) -- DECEMBER 31, 1998
- --------------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
- --------------------------------------------------------------------------------
UTAH -- 0.7%
Intermountain Power Agency
Utah Power Supply Rev. -
Electric Utility
5.00% 07/01/21 ............ $ 10,000 $ 9,841
VIRGINIA -- 3.4%
Chesapeake Virginia G.O.
6.00% 05/01/12 ............ 2,150 2,359
Fairfax County Virginia Sewer
Rev. - Water & Sewer
5.875% 07/15/28 ............ 13,785 15,079 (k)
Fairfax County Virginia Water
Auth. Rev. - Water & Sewer
5.00% 04/01/16 ............ 2,500 2,528
Norfolk Virginia Industrial
Development Auth. Rev. - Health
5.00% 11/01/20 ............ 4,250 4,178
Roanoke Virginia Industrial
Development Auth. Hospital
Rev. - Health
5.00% 07/01/24 ............ 21,220 21,039 (k)
University Virginia Rev. - Education
5.375% 06/01/20 ............ 5,000 5,107
50,290
WEST VIRGINIA -- 0.2%
West Virginia State University
Rev. - Education
6.00% 04/01/12 ............ 3,000 3,272 (k)
WISCONSIN -- 0.9%
Wisconsin State Health &
Educational Fac. Auth.
Rev. - Health
5.25% 08/15/23 ............ 13,455 13,551 (k)
PUERTO RICO -- 1.0%
Puerto Rico Commonwealth G.O.
5.75% 07/01/10 ............ 6,245 7,096 (k)
5.75% 07/01/11 ............ 4,000 4,564 (k)
Puerto Rico Electric Power Auth.
Power Rev. - Electric Utility
5.50% 07/01/07 ............ 2,120 2,343 (k)
5.00% 07/01/12 ............ 570 592 (k)
14,595
TOTAL INVESTMENTS IN SECURITIES
(COST $1,327,108) ........... 1,443,814
NUMBER
OF SHARES VALUE
- --------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS -- 1.3%
- --------------------------------------------------------------------------------
GEI Short Term Investment Fund
(COST $19,058) .............. 19,058 $ 19,058
OTHER ASSETS AND LIABILITIES,
NET 1.6% .................... 23,501
-----------
NET ASSETS-- 100% .............. $1,486,373
==========
[GRAPHIC OMITTED] ICONS REPRESENT THE TOP FIVE STATE WEIGHTINGS IN THE ELFUN
TAX-EXEMPT INCOME FUND AS OF DECEMBER 31, 1998.
- ------------
See Notes to Schedules of Investments and Notes to Financial Statements.
29
<PAGE>
ELFUN INCOME FUND
- --------------------------------------------------------------------------------
Q&A
ROBERT MACDOUGALL LEADS THE FIXED INCOME TEAM AT GE INVESTMENTS. ASSETS UNDER
MANAGEMENT EXCEED $29 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 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. DESCRIBE WHAT HAPPENED IN THE FIXED INCOME MARKETS DURING THE ONE-YEAR
PERIOD ENDED DECEMBER 31, 1998.
A. The past twelve months have seen a nice rally in the bond market. Yields on
30 year U.S. Treasury Bonds fell 82 basis points (0.82%) from 5.92% to
5.10%. Similar declines occurred in Treasuries of shorter maturities as
well. During the first half of the year the Federal Reserve, concerned
about the tight labor market, had a bias to raise interest rates to help
slow our economy and prevent an acceleration of inflation. Uncertainty
about the impact of the Asian crisis and whether it would spread to other
regions of the world kept them on the sidelines. As the Asian financial
crisis worsened and spread to Russia and Latin America, investors were
increasingly attracted to the U.S. Treasury market's quality, liquidity and
value. Signs of a slowing of domestic economic activity and continued low
inflation together with the global market turmoil prompted the Federal
Reserve to ease monetary policy on three occasions during the fall.
Not all sectors of the fixed income market fared as well, however.
Declining interest rates prompted many homeowners to refinance their
mortgages. This had a dampening effect on the price performance of
securities backed by home mortgages. The mortgage sector, as measured by
the Lehman Brothers Mortgage Index returned 6.96% for the one-year period
ended December 1998 compared with a 10.03% return for the Treasury Index.
Corporate and other non-U.S. government bonds were hit with fears of
"repayment" risk. For years investors have increasingly "reached for yield"
by buying lower rated corporates and driving credit spreads tighter and
tighter. After the Russian debt default in August, the markets reassessed -
and repriced - the credit risk premiums in the corporate bond market. Lower
quality bonds were sold in favor of high quality U.S. Treasuries. This
"flight to quality" pushed corporate yields up while driving Treasury
yields down. The yield differential, or spread, widened in some cases to
levels not seen since the 1990-91 recession. During this period there was
an inverse correlation between yield and return. The lowest yielding
sectors (Treasuries) outperformed higher yielding corporates and mortgages.
Q. HOW DID THE ELFUN INCOME FUND PERFORM COMPARED TO ITS MARKET BENCHMARK AND
LIPPER PEER GROUP FOR THE ONE-YEAR PERIOD ENDED DECEMBER 31, 1998?
A. The Elfun Income Fund posted a total return of 8.49%. This compares with a
8.67% return for the Lehman Brothers Aggregate Bond Index. Our Lipper peer
group of 136 Intermediate U.S. Taxable Bond funds had an average return of
7.81% for the same period.
Q. WHAT WERE THE KEY DRIVERS OF FUND PERFORMANCE?
A. Anticipating the decline in the interest rates we maintained a longer
duration (interest rate exposure) than the market. This, plus good security
selection in the mortgage backed sector, helped performance. The widening
of corporate bond spreads was a negative.
Q. WHAT IS YOUR OUTLOOK FOR THE BOND MARKET?
A. Despite the low level of interest rates we believe that bonds continue to
offer good value on both a fundamental (real) basis as well as a relative
(to other asset classes) basis. Inflation remains low and well controlled,
fiscal policy is supportive and monetary policy has been effective. The
widening of mortgage and credit spreads has presented many opportunities
for value in those sectors. We believe that high quality bonds will
continue to play an important role in a well balanced portfolio.
[PHOTO OF ROBERT MACDOUGALL OMITTED]
30
<PAGE>
ELFUN INCOME FUND
- --------------------------------------------------------------------------------
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT
[LINE GRAPH OMITTED]
[PLOT POINTS]
ELFUN INCOME LB AGGREGATE
`88 $10,000 $10,000
`89 11,430 11,450
`90 12,413 12,481
`91 14,415 14,477
`92 15,368 15,549
`93 16,862 17,057
`94 16,469 16,562
`95 19,468 19,626
`96 20,249 20,339
`97 22,188 22,301
`98 24,082 24,236
AVERAGE ANNUAL TOTAL RETURN
FOR THE PERIODS ENDED DECEMBER 31, 1998
- --------------------------------------------------------------------------------
ONE FIVE TEN
YEAR YEAR YEAR
- --------------------------------------------------------------------------------
Elfun Income 8.49% 7.38% 9.19%
LB Aggregate 8.67% 7.27% 9.26%
INVESTMENT PROFILE
A Fund designed for investors who seek a high level of
current income consistent with prudent management and
preservation of capital through investments in a variety of
fixed income securities.
*LIPPER PERFORMANCE COMPARISON
BASED ON AVERAGE ANNUAL TOTAL RETURNS
FOR THE PERIODS ENDED 12/31/98
INTERMEDIATE U.S. TAXABLE BOND PEER GROUP
ONE FIVE TEN
YEAR YEAR YEAR
Fund's rank in peer group: ......... 39 4 2
Number of Funds in peer group: .... 136 78 26
Peer group average total return: .. 7.81% 5.94% 7.87%
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, 1998
- --------------------------------------------------------------------------------
PERCENT OF
MOODY'S RATINGS + NET ASSETS
- --------------------------------------------------------------------------------
Aaa 79.5%
- --------------------------------------------------------------------------------
Aa 2.5%
- --------------------------------------------------------------------------------
A 6.3%
- --------------------------------------------------------------------------------
Baa 8.0%
- --------------------------------------------------------------------------------
Ba 2.2%
- --------------------------------------------------------------------------------
B 0.2%
- --------------------------------------------------------------------------------
Other 1.3%
- --------------------------------------------------------------------------------
+MOODY'S INVESTORS SERVICE, INC. IS A NATIONALLY RECOGNIZED
STATISTICAL RATING ORGANIZATION.
SEE NOTES TO PERFORMANCE. PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.
31
<PAGE>
ELFUN INCOME FUND (DOLLARS IN THOUSANDS) -- DECEMBER 31, 1998
- --------------------------------------------------------------------------------
ELFUN INCOME FUND
[PIE CHART OMITTED]
MORTGAGE BACKED & CASH & OTHER 41.7%
CORPORATE NOTES 22.1%
U.S. TREASURIES 20.0%
FEDERAL AGENCIES 16.2%
PRINCIPAL
AMOUNT VALUE
- --------------------------------------------------------------------------------
BONDS AND NOTES -- 105.5%
- --------------------------------------------------------------------------------
U.S. TREASURIES -- 20.0%
U.S. Treasury Bonds
10.625% 08/15/15 .............$ 1,662 $ 2,640 (i)
8.125% 08/15/19 ............. 6,261 8,361 (i)
8.125% 05/15/21 ............. 4,336 5,850 (i)
5.50% 08/15/28 ............. 105 110 (h)
5.25% 11/15/28 ............. 8,145 8,338 (h)
25,299
U.S. Treasury Notes
5.50% 05/31/00 ............. 775 784 (i)
5.375% 06/30/00 ............. 7,210 7,285 (i)
4.50% 09/30/00 ............. 795 793 (h)
6.50% 08/31/01 ............. 7,670 8,021 (i)
5.375% 06/30/03 ............. 320 329 (i)
5.25% 08/15/03 ............. 2,995 3,071 (h)
4.75% 11/15/08 ............. 4,325 4,359 (h,i)
24,642
U.S. Treasury STRIPS
5.31% 08/15/11 ............. 6,568 3,393 (d,i)
5.35% 02/15/12 ............. 2,930 1,467 (d,i)
4,860
TOTAL U.S. TREASURIES
(COST $53,712) ............... 54,801
PRINCIPAL
AMOUNT VALUE
- --------------------------------------------------------------------------------
FEDERAL AGENCIES -- 16.2%
Federal Home Loan Bank
6.43% 01/04/99 .............$ 15,460 $ 15,454 (d)
5.62% 08/10/00 .............. 1,900 1,918
5.625% 03/19/01 .............. 430 436
17,808
Federal Home Loan Mortgage Corp.
6.22% 03/18/08 .............. 830 849
5.75% 04/15/08 .............. 2,470 2,554
5.125% 10/15/08 .............. 1,045 1,035
4,438
Federal National Mortgage Assoc.
5.60% 03/27/00 .............. 1,390 1,400
5.67% 05/26/00 .............. 3,565 3,598
5.56% 07/24/00 .............. 2,470 2,491
5.10% 09/25/00 .............. 1,081 1,083
5.38% 01/16/01 .............. 890 897
6.41% 07/08/02 .............. 1,095 1,138
5.75% 04/15/03 .............. 1,515 1,555
6.99% 07/09/07 .............. 2,010 2,110
6.00% 05/15/08 .............. 2,840 2,998 (h)
5.64% 12/10/08 .............. 820 824
6.16% 08/07/28 .............. 2,145 2,244
20,338
Small Business Administration
6.55% 10/01/17 - 12/01/17 ... 682 703
6.125% 01/01/18 .............. 1,039 1,052
1,755
TOTAL FEDERAL AGENCIES
(COST $43,827) ................ 44,339
AGENCY MORTGAGE BACKED -- 33.7%
Federal Home Loan Mortgage Corp.
7.50% 06/01/10 .............. 2,006 2,065
7.50% 09/01/12 .............. 1,269 1,305
7.50% 04/01/28 .............. 9,033 9,278
6.50% 03/01/28 - 12/01/28 ... 15,321 15,430 (c)
28,078
Federal National Mortgage Assoc.
6.50% 01/01/04 .............. 90 91
7.50% 12/01/09 .............. 1,395 1,435
6.50% 12/01/10 .............. 1,632 1,658
6.50% 02/01/13 - 04/01/13 ... 2,001 2,029
7.00% 06/18/20 .............. 624 624 (b)
6.247% 03/17/21 .............. 587 593
6.424% 12/25/23 .............. 906 922
9.00% 11/01/25 .............. 2,578 2,729
8.50% 12/01/25 .............. 3,333 3,491
8.50% 12/01/26 .............. 1,162 1,217
7.00% 08/01/27 - 11/01/27 ... 6,047 6,181
8.50% 02/01/28 .............. 2,650 2,775
7.00% 07/01/28 .............. 983 1,003
6.00% TBA ................... 14,350 14,337 (c)
7.50% TBA ................... 2,500 2,568 (c)
41,653
- -----------
See Notes to Schedules of Investments and Notes to Financial Statements.
32
<PAGE>
SCHEDULE OF INVESTMENTS (DOLLARS IN THOUSANDS) -- DECEMBER 31, 1998
- --------------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
- --------------------------------------------------------------------------------
Federal National Mortgage Assoc.
REMIC
7.623% 12/17/04 ............. $ 535 $ 563
6.221% 05/25/14 ............. 317 321
6.42% 05/25/18 ............. 440 449
1,333
Government National Mortgage Assoc.
7.00% 04/15/12 ............. 2,667 2,734
8.50% 10/15/17 ............. 1,433 1,532
7.50% 03/15/23 - 12/15/23 .. 2,870 2,961
6.50% 01/15/24 - 04/15/24 .. 2,218 2,241
6.50% 11/15/27 ............. 211 213
7.00% 11/15/27 - 12/15/27 .. 877 898
7.50% 12/15/27 ............. 391 404
6.50% 03/15/28 - 04/15/28 .. 3,701 3,739
7.00% 03/15/28 - 04/15/28 .. 947 968
7.50% 01/15/28 - 10/15/28 .. 5,564 5,740
21,430
TOTAL AGENCY MORTGAGE BACKED
(COST $92,026) ............... 92,494
AGENCY COLLATERALIZED MORTGAGE
OBLIGATIONS -- 0.8%
Collateralized Mortgage Obligation Trust
5.12% 09/01/15 ............. 146 137 (d,f)
4.88% 11/01/18 ............. 311 256 (d,f)
393
Federal Home Loan Mortgage Corp.
8.00% 04/15/20 ............. 338 351
Federal National Mortgage Assoc.
8.50% 04/01/17 ............. 268 51 (g,j)
8.50% 01/01/18 ............. 50 9 (g)
9.00% 02/25/22 ............. 345 65 (g)
8.50% 07/25/22 ............. 604 103 (g)
8.50% 09/01/23 ............. 2,786 533 (g)
761
Federal National Mortgage Assoc. REMIC
8.50% 03/01/17 ............. 135 25 (g)
10.84% 07/25/20 ............. 250 242 (d,f)
8.00% 10/25/20 ............. 246 255
4.58% 12/25/22 ............. 339 288 (d,f)
810
TOTAL AGENCY COLLATERALIZED
MORTGAGE OBLIGATIONS
(COST $2,354) ................ 2,315
ASSET BACKED -- 1.5%
Advanta Mortgage Loan
Trust Corp.
6.30% 07/25/25 ............. 175 174
Capital One Master Trust
5.43% 01/15/07 ............. 1,247 1,248
PRINCIPAL
AMOUNT VALUE
- --------------------------------------------------------------------------------
Chase Credit Card Master Trust
6.00% 08/15/05 ............. $ 523 $ 530
Discover Card Master Trust I
5.60% 05/15/06 ............. 1,246 1,252
Fleetwood Credit Grantor Trust
6.40% 05/15/13 ............. 305 307
Ford Credit Auto Loan
Master Trust
5.90% 06/15/02 ............. 521 527
5.50% 02/15/03 ............. 207 208
TOTAL ASSET BACKED
(COST $4,237) ................ 4,246
CORPORATE NOTES -- 22.1%
Abbey National PLC
6.70% 06/29/49 ............. 570 558
7.35% 10/29/49 ............. 242 245
Associates Corporation
North America
6.375% 10/15/02 ............. 1,000 1,029
5.75% 11/01/03 ............. 475 479
Bank Austria AG
7.25% 02/15/17 ............. 500 519
Bank of Scotland
7.00% 11/29/49 ............. 350 348 (b)
Beckman Instruments Inc.
7.10% 03/04/03 ............. 360 362
Bell Telephone Co. - Pennsylvania
8.35% 12/15/30 ............. 600 781
BellSouth Telecomm Inc.
6.375% 06/01/28 ............. 375 390
Black & Decker Holdings Inc.
7.05% 07/01/28 ............. 320 320 (b)
Boston University
7.625% 07/15/2097 ........... 520 601
Brascan Ltd.
7.38% 10/01/02 ............. 305 317
Carnival Corp.
5.65% 10/15/00 ............. 400 401
Cleveland Electric Co. Toledo Edison
7.19% 07/01/00 ............. 200 203
Cleveland Electric Illuminating Co.
8.29% 11/15/99 ............. 1,000 1,021
Coca Cola Enterprises Inc.
7.00% 10/01/26 ............. 340 371
Columbia University Trustees
New York
6.83% 12/15/20 ............. 350 386
Conseco Inc.
6.40% 06/15/01 ............. 515 496
6.80% 06/15/05 ............. 195 182
8.70% 11/15/26 ............. 550 503
Continental Cablevision Inc.
8.50% 09/15/01 ............. 450 477
- ----------
See Notes to Schedules of Investments and Notes to Financial Statements.
33
<PAGE>
ELFUN INCOME FUND (DOLLARS IN THOUSANDS) -- DECEMBER 31, 1998
- --------------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
- --------------------------------------------------------------------------------
Corporacion Andina De Fomento
6.75% 03/15/05 ............. $ 240 $ 231
Dayton Hudson Corp.
5.895% 06/15/37 ............. 400 419
Discover Card Master Trust I
5.625% 08/18/03 ............. 660 658
Empresa Nacional De Electricid
8.125% 02/01/2097 ........... 415 315
Fairfax Financial Holdings Ltd.
7.375% 04/15/18 ............. 260 252
Federal Express Corp.
7.52% 01/15/18 ............. 411 435
Federated Department Stores Inc.
6.125% 09/01/01 ............. 380 384
Felcor Suites Ltd.
7.375% 10/01/04 ............. 315 293
Ford Credit Auto Loan
Master Trust
5.857% 07/15/01 ............. 1,136 1,137
5.817% 02/15/03 ............. 100 100
Ford Motor Credit Corp.
7.32% 05/23/02 ............. 1,095 1,100
Fujian International Trust &
Investment Corp.
7.375% 08/25/07 ............. 200 86 (b)
General Motors Acceptance Corp.
5.75% 11/10/03 ............. 250 252
Greenpoint Bank Brooklyn
6.70% 07/15/02 ............. 365 362
Gruma S.A. de C.V.
7.625% 10/15/07 ............. 135 118
Guangdong International Trust &
Investment Corp.
8.75% 10/24/16 ............. 205 115 (b,m)
Heritage Media Corp.
8.75% 02/15/06 ............. 645 695
Household Finance Corp.
6.125% 07/15/02 ............. 170 169
Hydro-Quebec
8.05% 07/07/24 ............. 685 822
8.25% 04/15/26 ............. 1,365 1,688
International Lease Finance Corp.
5.62% 02/01/00 ............. 285 286
Israel Electric Corp. Ltd.
7.125% 07/15/05 ............. 200 203 (b)
8.10% 12/15/2096 ........... 850 835 (b)
J.C. Penney Co. Inc.
7.40% 04/01/37 ............. 310 337
Korea Development Bank
7.125% 09/17/01 ............. 155 147
6.625% 11/21/03 ............. 415 371
Landeskreditbank Baden
7.875% 04/15/04 ............. 570 636
Lasmo USA Inc.
6.75% 12/15/07 ............. 420 423
LCI International Inc.
7.25% 06/15/07 ............. 314 318
PRINCIPAL
AMOUNT VALUE
- --------------------------------------------------------------------------------
Lehman Brothers Holdings Inc.
6.90% 03/30/01 ............. $ 205 $ 209
8.05% 01/15/19 ............. 410 416
7.50% 08/01/26 ............. 520 541
LG&E Capital Corp.
5.75% 11/01/01 ............. 445 442 (b)
Liberty Property Ltd. Partnership
7.50% 01/15/18 ............. 320 296
Loewen Group International Inc.
6.70% 10/01/99 ............. 385 369 (b)
7.50% 04/15/01 ............. 465 407
MBNA Corp.
6.306% 04/22/03 ............. 200 197
MBNA Master Credit Card Trust
5.732% 01/15/02 ............. 766 766
MBNA Master Credit Card Trust II
5.705% 03/15/03 ............. 2,417 2,416
5.795% 10/15/03 ............. 500 500
5.812% 03/15/04 ............. 660 661
MCI Communications Corp.
6.125% 04/15/02 ............. 500 508
Meditrust
7.114% 08/15/04 ............. 415 374
Merita Bank Ltd.
7.15% 12/29/49 ............. 485 469 (b)
Merrill Lynch & Co. Inc.
5.388% 01/22/99 ............. 265 265
MIC Financing Trust
8.375% 02/01/27 ............. 550 573 (b)
Monsanto Co.
5.75% 12/01/05 ............. 310 309 (b)
6.60% 12/01/28 ............. 310 310
Morgan Stanley Finance PLC
8.03% 02/28/17 ............. 300 317
National Rural Utilities
Cooperative
6.046% 04/15/03 ............. 200 204
National Westminster Bank PLC
7.75% 04/29/49 ............. 520 549
New Jersey Economic
Development Authority
7.425% 02/15/29 ............. 350 401
News America Holdings Inc.
8.15% 10/17/36 ............. 500 562
Niagara Mohawk Power Corp.
9.50% 06/01/00 ............. 400 420
Norfolk Southern Corp.
7.05% 05/01/37 ............. 195 211
7.90% 05/15/2097 ........... 872 1,021
Noram Energy Corp.
6.375% 11/01/03 ............. 310 313
North Atlantic Energy Corp.
9.05% 06/01/02 ............. 501 521
Northrop Grumman Corp.
8.625% 10/15/04 ............. 395 442
NRG Energy Inc.
7.50% 06/15/07 ............. 460 485
- ------------
See Notes to Schedules of Investments and Notes to Financial Statements.
34
<PAGE>
SCHEDULE OF INVESTMENTS (DOLLARS IN THOUSANDS) -- DECEMBER 31, 1998
- --------------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
- --------------------------------------------------------------------------------
Occidental Petroleum Corp.
7.375% 11/15/08 ............. $ 100 $ 102
Philip Morris Cos. Inc.
7.25% 09/15/01 ............. 305 319
7.20% 02/01/07 ............. 280 304
Quebec Province Canada
5.67% 02/27/26 ............. 1,000 1,057
Reliance Industries Ltd.
10.50% 08/06/46 ............. 260 201 (b)
Republic of Columbia
7.25% 02/15/03 ............. 280 246
Republic of Panama
7.875% 02/13/02 ............. 300 289 (b)
Riggs Capital Trust
8.625% 12/31/26 ............. 300 305 (b)
RJR Nabisco Inc.
7.625% 09/15/03 ............. 445 433
8.75% 04/15/04 ............. 500 508
6.125% 02/01/33 ............. 370 361
Safeway Inc.
5.75% 11/15/00 ............. 290 291
Signet Master Trust
5.735% 09/16/02 ............. 983 983
Sprint Capital Corp.
5.70% 11/15/03 ............. 270 271
6.125% 11/15/08 ............. 260 265
6.875% 11/15/28 ............. 350 364
St. George Funding Co.
8.485% 12/31/49 ............. 605 539 (b)
Stop & Shop Cos. Inc.
9.75% 02/01/02 ............. 205 227
Sun Life Canada Capital Trust
8.525% 05/29/49 ............. 600 651 (b)
Sunamerica Inc.
5.60% 07/31/2097 ........... 815 692
Suntrust Banks Inc.
6.00% 01/15/28 ............. 310 319
TCI Communications Inc.
8.65% 09/15/04 ............. 620 711
Tele-Communications Inc.
9.25% 04/15/02 ............. 200 222
9.80% 02/01/12 ............. 465 621
Tenet Healthcare Corp.
7.875% 01/15/03 ............. 395 403
8.00% 01/15/05 ............. 150 152
Texas Utilities Co.
5.94% 10/15/01 ............. 600 603
Time Warner Entertainment Co. L.P.
10.15% 05/01/12 ............. 500 672
Time Warner Inc.
6.10% 12/30/01 ............. 630 640 (b)
Times Mirror Co.
6.61% 09/15/27 ............. 415 443
Transamerica Capital
7.625% 11/15/37 ............. 420 436
Turner Broadcasting Systems Inc.
8.375% 07/01/13 ............. 400 478
PRINCIPAL
AMOUNT VALUE
- --------------------------------------------------------------------------------
Tyco International Group S.A.
6.25% 06/15/03 ............. $ 190 $ 192
6.125% 11/01/08 ............. 315 316 (b)
7.00% 06/15/28 ............. 340 347
Union Pacific Corp.
6.79% 11/09/07 ............. 520 534
United Illuminating Co.
6.25% 12/15/02 ............. 115 116
United Parcel Service Inc.
8.375% 04/01/30 ............. 485 607
US West Capital Funding Inc.
6.125% 07/15/02 ............. 140 143
6.875% 07/15/28 ............. 215 230
USA Waste Services Inc.
6.125% 07/15/01 ............. 150 151
USX Marathon Group
9.80% 07/01/01 ............. 310 335
8.125% 07/15/23 ............. 305 324
Viacom Inc.
7.75% 06/01/05 ............. 675 732
Washington Mutual Capital
8.375% 06/01/27 ............. 258 283
Waterford Funding Corp.
8.09% 01/02/17 ............. 40 43
Westdeutsche Landesbank
6.75% 06/15/05 ............. 410 421
Westinghouse Electric Corp.
8.875% 06/01/01 ............. 175 186
Williams Cos. Inc.
6.125% 02/15/02 ............. 615 614
WMX Technologies Inc.
6.65% 05/15/05 ............. 385 398
Worldcom Inc.
6.125% 08/15/01 ............. 245 249
6.40% 08/15/05 ............. 385 400
8.875% 01/15/06 ............. 350 383
Yale University Notes
7.375% 04/15/2096 ........... 395 449
Zurich Capital Trust
8.376% 06/01/37 ............. 205 229 (b)
TOTAL CORPORATE NOTES
(COST $59,588) ............... 60,440
NON-AGENCY MORTGAGE BACKED
SECURITIES -- 10.7%
Amresco Commercial Mortgage
Funding Corp.
6.73% 06/17/29 ............. 460 470
Asset Securitization Corp.
6.50% 02/14/41 ............. 355 360
BCF
7.22% 11/25/28 ............. 1,383 1,385
7.25% 11/25/28 ............. 821 755
6.315% 11/25/37 ............. 503 501
- --------------
See Notes to Schedules of Investments and Notes to Financial Statements.
35
<PAGE>
ELFUN INCOME FUND (DOLLARS IN THOUSANDS) -- DECEMBER 31, 1998
- --------------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
- --------------------------------------------------------------------------------
BHN Mortgage Trust
7.916% 07/25/09 ..............$ 199 $ 148 (b)
7.54% 05/31/17 .............. 325 234 (b)
Chase Commercial Mortgage
Securities Corp.
6.39% 11/18/08 .............. 933 962
Commercial Mortgage Acceptance
Corp.
6.49% 05/15/08 .............. 519 538
Credit Suisse First Boston
Mortgage
6.30% 11/11/30 .............. 2,391 2,430
DDR Pass-Through Asset Trust
7.125% 03/15/02 .............. 715 712 (b)
DLJ Mortgage Acceptance Corp.
6.65% 12/17/27 .............. 335 340 (b)
6.24% 11/12/31 .............. 1,040 1,059
GMAC Commercial Mortgage
Securities Inc.
6.42% 08/15/08 .............. 759 784
GS Mortgage Securities Corp.
7.75% 05/19/27 .............. 247 257 (b)
5.95% 07/13/30 .............. 687 715 (d)
Lehman Large Loan
6.79% 06/12/04 .............. 401 415
Merrill Lynch Mortgage
Investors Inc.
6.39% 02/15/30 .............. 456 469
Mid State Trust
7.28% 07/01/35 .............. 187 192 (d)
Morgan Stanley Capital Inc.
6.86% 05/15/06 .............. 754 779 (b)
6.52% 01/15/08 .............. 2,076 2,154
6.59% 10/03/30 .............. 266 274
6.01% 11/15/30 .............. 620 627
6.48% 11/15/30 .............. 1,039 1,078
Nationslink Funding Corp.
6.001% 11/20/07 .............. 351 354
6.476% 07/20/08 .............. 1,039 1,073
Residential Assets Securitization
Trust
7.75% 04/25/27 - 09/25/27 ... 2,287 2,350
Sawgrass Finance REMIC Trust
6.45% 01/20/06 .............. 700 708
Structured Asset Securities Corp.
6.256% 08/25/00 .............. 2,775 2,760 (b)
8.495% 04/25/27 .............. 892 922
0.44% 02/25/28 .............. 4,893 266 (d)
Vornado Finance Corp.
6.36% 12/01/00 .............. 3,082 3,116 (b)
TOTAL NON-AGENCY MORTGAGE
BACKED SECURITIES
(COST $29,073) ................ 29,187
PRINCIPAL
AMOUNT VALUE
- --------------------------------------------------------------------------------
NON-AGENCY COLLATERALIZED MORTGAGE
OBLIGATIONS -- 0.5%
Salomon Brothers Mortgage
Securities Inc.
8.125% 11/01/12 ............ $ 168 $ 169
7.00% 07/25/24 ............ 1,226 1,199
(COST $1,384) 1,368
TOTAL BONDS AND NOTES
(COST $286,201) ............. 289,190
NUMBER
OF SHARES VALUE
- --------------------------------------------------------------------------------
PREFERRED STOCK -- 1.7%
- --------------------------------------------------------------------------------
CORPORATE PREFERRED
Banesto Holdings Ltd., 10.50% .. 1,350 39 (b)
Centaur Funding, 9.08% ......... 480 498 (b)
Citigroup Inc., 6.231% ......... 2,400 128
Home Ownership, 13.331% ........ 2,705 2,555 (b)
New Plan Realty Trust, 7.80% ... 8,915 416
News Corp. Ltd., 5.00% ......... 3,800 234 (b)
Pinto Totta International
Finance Ltd., 7.77% ......... 520 476 (b)
SPG Properties Inc. (Series C),
7.89% ....................... 3,850 175
TCI Communications Inc.,
10.00% ...................... 8,000 216
TOTAL PREFERRED STOCK
(COST $4,705) ............... 4,737
TOTAL INVESTMENTS IN SECURITIES
(COST $290,906) ............. 293,927
- --------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS -- 4.9%
- --------------------------------------------------------------------------------
Cariplo Finance Inc. ........... 1,500 1,499
GEI Short Term Investment Fund . 10,355 10,355
Generale Bank Inc. ............. 1,500 1,499
TOTAL SHORT-TERM INVESTMENTS
(COST $13,353) .............. 13,353
- ------------
See Notes to Schedules of Investments and Notes to Financial Statements.
36
<PAGE>
SCHEDULE OF INVESTMENTS (DOLLARS IN THOUSANDS) -- DECEMBER 31, 1998
- --------------------------------------------------------------------------------
NUMBER
EXPIRATION DATE/ OF CONTRACTS
STRIKE PRICE (IN THOUSANDS) VALUE
- --------------------------------------------------------------------------------
CALL OPTIONS -- 0.0%
- --------------------------------------------------------------------------------
U.S. Treasury Notes Jan. 99/107.06 (1,960) $ (1)
U.S. Treasury Notes Jan. 99/104.42 (2,030) (13)
((WRITTEN OPTION PREMIUM $(16)) ... (14)
- --------------------------------------------------------------------------------
PUT OPTIONS -- 0.0%
- --------------------------------------------------------------------------------
U.S. Treasury Notes Jan. 99/101.06 (1,960) (11)
U.S. Treasury Notes Jan. 99/ 98.42 (2,030) (5)
((WRITTEN OPTION PREMIUM $(17)) ... (16)
OTHER ASSETS AND LIABILITIES,
NET (12.1)% (33,168)
---------
NET ASSETS-- 100% $274,082
=========
- ------------------
See Notes to Schedules of Investments and Notes to Financial Statements.
37
<PAGE>
ELFUN MONEY MARKET FUND
- --------------------------------------------------------------------------------
Q&A
ROBERT MACDOUGALL MANAGES THE ELFUN MONEY MARKET FUND. BOB'S BIOGRAPHICAL
DETAILS CAN BE FOUND ON PAGE 30.
Q. HOW DID THE ELFUN MONEY MARKET FUND PERFORM COMPARED TO ITS BENCHMARK AND
LIPPER PEER GROUP FOR THE ONE-YEAR PERIOD ENDED DECEMBER 31, 1998?
A. Elfun Money Market Fund posted a total return of 5.39% for the one-year
period ended December 31, 1998. This compares with a 4.88% return for the
90-day U.S. Treasury Bill. Our Lipper peer group of 308 Money Market funds
posted an average return of 4.84% for the same period.
Q. WHAT WERE THE KEY DRIVERS OF FUND PERFORMANCE?
A. While the Federal Reserve waited until the end of September to ease
monetary policy, the markets did not. The money market yield curve became
inverted, as shorter maturities yielded more than longer maturities. By
holding our average maturity shorter than the peer funds we were able to
capture these higher rates.
[PHOTO OF DOLLARS OMITTED]
38
<PAGE>
ELFUN MONEY MARKET FUND
- --------------------------------------------------------------------------------
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT
[LINE GRAPH OMITTED]
[PLOT POINTS]
ELFUN MONEY MARKET 90 DAY U.S. T-BILL
6/14/90 $10,000 $10,000
`90 10,450 10,433
`91 11,134 11,011
`92 11,570 11,399
`93 11,953 11,747
`94 12,451 12,260
`95 13,176 12,953
`96 13,865 13,621
`97 14,621 14,329
`98 15,416 15,029
AVERAGE ANNUAL TOTAL RETURN
FOR THE PERIODS ENDED DECEMBER 31, 1998
- --------------------------------------------------------------------------------
SINCE
ONE FIVE INCEPTION
YEAR YEAR (6/14/90)
- --------------------------------------------------------------------------------
Elfun Money Market 5.39% 5.21% 5.19%
90 Day U.S. T-Bill 4.88% 5.05% 4.80%
*LIPPER PERFORMANCE COMPARISON
BASED ON AVERAGE ANNUAL TOTAL RETURNS
FOR THE PERIODS ENDED 12/31/98
MONEY MARKET PEER GROUP
ONE FIVE
YEAR YEAR
Fund's rank in peer group: .............. 10 7
Number of Funds in peer group: ......... 308 200
Peer group average total return: ....... 4.84% 4.75%
Lipper categories in peer group: ........ MONEY MARKET
* SEE NOTES TO PERFORMANCE FOR EXPLANATION OF PEER CATEGORIES.
FUND YIELD AT DECEMBER 31, 1998
- --------------------------------------------------------------------------------
IBC
FUND MONEY FUND
- --------------------------------------------------------------------------------
7 Day Current 4.92%+ 4.56%
- --------------------------------------------------------------------------------
7 Day Effective 5.04% 4.66%
- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
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.
+ THE SEVEN DAY CURRENT YIELD, RATHER THAN THE TOTAL RETURN, MORE CLOSELY
REFLECTS THE CURRENT EARNINGS OF THE ELFUN MONEY MARKET FUND AT DECEMBER 31,
1998.
SEE NOTES TO PERFORMANCE. PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.
39
<PAGE>
ELFUN MONEY MARKET FUND (DOLLARS IN THOUSANDS) -- DECEMBER 31, 1998
- --------------------------------------------------------------------------------
ELFUN MONEY MARKET FUND
[PIE CHART OMITTED]
CASH & OTHER 1.8%
U.S. GOVERNMENT 40.6%
COMMERCIAL PAPER 34.7%
CERTIFICATES OF DEPOSIT 22.9%
PRINCIPAL AMORTIZED
AMOUNT COST
- --------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS -- 100.3%
- --------------------------------------------------------------------------------
U.S. GOVERNMENT (d) -- 40.6%
Federal Farm Credit Bank
4.80% 01/19/99 ............ $ 3,600 $ 3,591
Federal Home Loan Bank
5.21% 01/04/99 ............ 7,290 7,287
4.89% 01/13/99 ............ 3,000 2,995
5.23% 03/19/99 ............ 6,000 5,935
16,217
Federal Home Loan
Mortgage Corp.
4.93% 01/14/99 ............ 6,000 5,990
5.17% 01/28/99 ............ 4,840 4,822
5.14% 02/17/99 ............ 11,290 11,217
5.00% 03/25/99 ............ 7,450 7,367
4.94% 03/30/99 ............ 7,460 7,371
4.97% 04/23/99 ............ 7,730 7,614
44,381
Federal National Mortgage Assoc.
5.27% 03/19/99 ............ 5,170 5,114
5.00% 04/01/99 ............ 4,700 4,643
4.96% 04/08/99 ............ 8,900 8,785
18,542
TOTAL U.S. GOVERNMENT
(COST $82,731) .............. 82,731
COMMERCIAL PAPER -- 34.7%
Abbey National PLC
5.075% 02/08/99 ............ 1,520 1,512
5.11% 02/08/99 ............ 6,200 6,166
PRINCIPAL AMORTIZED
AMOUNT COST
- --------------------------------------------------------------------------------
Associates Corp. of North America
5.18% 02/04/99 ............ $ 220 $ 219
5.25% 02/04/99 ............ 7,600 7,562
Bank of Nova Scotia
5.08% 02/19/99 ............ 7,760 7,706
Halifax Building Society
5.06% 01/08/99 ............ 7,640 7,632
5.38% 01/11/99 ............ 200 200
Morgan (J.P.) & Co. Inc.
5.10% 02/16/99 ............ 7,760 7,709
Morgan Stanley Dean Witter
5.29% 02/24/99 ............ 7,730 7,669
Rabobank Nederland N.V.
5.26% 01/13/99 ............ 220 220
Rabobank USA Financial Corp.
5.24% 01/13/99 ............ 7,600 7,587
Republic National Bank of
New York
5.03% 03/19/99 ............ 7,760 7,676
State Street Cayman Islands
5.00% 01/04/99 ............ 1,228 1,228
UBS Finance Delaware Inc.
5.21% 01/11/99 ............ 7,600 7,589
5.306% 01/11/99 ............ 200 200
TOTAL COMMERCIAL PAPER
(COST $70,875) .............. 70,875
CERTIFICATES OF DEPOSIT -- 4.3%
ABN Amro
5.15% 03/01/99 ............ 1,000 1,000
Bayerische Vereinsbank AG
5.25% 01/25/99 ............ 7,760 7,760
TOTAL CERTIFICATES OF DEPOSIT
(COST $8,760) ............... 8,760
YANKEE CERTIFICATES OF DEPOSIT -- 18.6%
Algemene Bank Nederland N.V.
5.14% 03/04/99 ............ 7,000 7,000
Bank of Montreal (Chicago)
5.30% 01/08/99 ............ 7,640 7,640
Canadian Imperial
5.14% 01/25/99 ............ 7,480 7,480
5.30% 01/25/99 ............ 350 350
Dresdner Bank AG
5.34% 01/19/99 ............ 7,730 7,730
Societe Generale
5.20% 01/25/99 ............ 7,700 7,700
TOTAL YANKEE CERTIFICATES OF DEPOSIT
(COST $37,900) .............. 37,900
- --------------
See Notes to Schedules of Investments and Notes to Financial Statements.
40
<PAGE>
SCHEDULE OF INVESTMENTS (DOLLARS IN THOUSANDS) -- DECEMBER 31, 1998
- --------------------------------------------------------------------------------
PRINCIPAL AMORIZED
AMOUNT COST
- --------------------------------------------------------------------------------
TIME DEPOSIT -- 2.1%
Bank of America
4.75% 01/04/99
(COST $4,220) ................ $ 4,220 $ 4,220
TOTAL SHORT-TERM INVESTMENTS
(COST $204,486) .............. 204,486
OTHER ASSETS AND LIABILITIES,
NET (0.3)% ................... (566)
---------
NET ASSETS-- 100% $ 203,920
=========
- ---------
See Notes to Schedules of Investments and Notes to Financial Statements.
41
<PAGE>
NOTES TO PERFORMANCE (UNAUDITED)
- --------------------------------------------------------------------------------
Total returns take into account changes in share price and assume reinvestment
of dividends and capital gains, if any. Investment returns and net asset value
on an investment will fluctuate and you may have a gain or loss when you sell
your shares.
A portion of the Elfun Tax-Exempt Income 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 ("S&P") 500 Composite Price Index of stocks (S&P 500
Index), Morgan Stanley Capital International World Index (MSCI World), 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 stocks recognized by investors to be representative of the stock
market in general. MSCI World Index is a composite of 1,481 stocks in companies
from 22 countries representing the European, Pacific Basin and American regions.
LB Aggregate is a composite index of short-, medium-, and long-term bond
performance 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. In the instance of
the Elfun Money Market Fund, where the inception date was not at the beginning
of the month, the index return is calculated from the month end nearest to the
fund's inception date. The 90 Day T-Bill is the average return on three month
U.S. Treasury Bills. The IBC Money Fund Report yields represent the average
yields of 898 taxable money market funds. The results shown for the foregoing
indices assume reinvestment of net dividends or interest.
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.
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) -- DECEMBER 31, 1998
- --------------------------------------------------------------------------------
(a) Non-income producing security.
(b) Pursuant to Rule 144A of The Securities Act of 1933, these securities may be
resold in transactions exempt from registration, normally to qualified
institutional buyers. At December 31, 1998, these securities amounted to
$1,469, $3,683, $12,512, and $20,011 or 0.7%, 2.1%, 0.8% and 7.3% of net
assets for the Elfun Global Fund, Elfun Diversified Fund, Elfun Tax-Exempt
and Elfun Income Fund, respectively. These securities have been determined
to be liquid using guidelines established by the Trustees.
(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) State Street Corp. is the parent company of State Street Bank & Trust Co.,
the fund's custodian.
(f) Principal only securities represent the right to receive the monthly
principal payments on an underlying U.S. Treasury or pool of mortgages. No
payments of interest 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) All or a portion of security out on loan.
(i) At December 31, 1998, all or a portion of this security was pledged to cover
collateral requirements for futures, options or TBAs.
(j) Prerefunded. Bonds which are collateralized by U.S. Treasury securities
which are held in escrow and are used to pay principal and interest on the
tax-exempt issue and to retire the bonds at the earliest refunding date.
(k) The security is insured by FGIC, MBIA, AMBAC, or FSA. The Elfun Tax-Exempt
Income Fund had insurance concentrations of 5% or greater as of December 31,
1998 (as a percentage of net assets) as follows:
MBIA 28.7%
AMBAC 15.8%
(l) Escrowed to maturity. Bonds which are collateralized by U.S Treasury
securities which are held in escrow by a trustee and used to pay principal
and interest on such bonds.
(m) Security in default.
ABBREVIATIONS:
ADR -- American Depositary Receipt
AMBAC -- AMBAC Indemnity Corporation
FGIC -- Financial Guarantee Insurance Corporation
FSA -- Financial Security Assurance
GDR -- Global Depository Receipt
G.O. -- General Obligation
MBIA -- Municipal Bond Insurance Association Corporation
REMIC -- Real Estate Mortgage Investment Conduit
Regd. -- Registered
SDR -- Special Drawing Rights
STRIPS -- Separate Trading of Registered Interest and
Principal of Securities
42
<PAGE>
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
SELECTED DATA BASED ON A SHARE OUTSTANDING DURING THE YEAR ENDED DECEMBER 31:
<TABLE>
<CAPTION>
ELFUN GLOBAL FUND 1998 1997 1996 1995 1994
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year ................. $17.00 $17.67 $16.65 $15.58 $16.48
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income ........................... 0.26 0.22 0.24 0.23 0.21
Net realized and unrealized
gains (losses) on investments ................ 2.69 1.26 2.45 2.27 (0.32)
- -----------------------------------------------------------------------------------------------------------------------
TOTAL INCOME (LOSS) FROM INVESTMENT OPERATIONS ..... 2.95 1.48 2.69 2.50 (0.11)
- -----------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM:
Net investment income ........................... 0.22 0.17 0.23 0.19 0.19
Net realized gains .............................. 0.13 1.98 1.44 1.24 0.60
- -----------------------------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS ................................ 0.35 2.15 1.67 1.43 0.79
- -----------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR ....................... $19.60 $17.00 $17.67 $16.65 $15.58
=======================================================================================================================
TOTAL RETURN(a) .................................... 17.36% 8.47% 16.13% 16.03% (0.63%)
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (in thousands) .......... $207,466 $193,492 $176,303 $142,262 $126,196
Ratios to average net assets:
Net investment income ........................ 1.32% 1.17% 1.37% 1.36% 1.44%
Expenses ..................................... 0.31% 0.24% 0.25% 0.34% 0.38%
Portfolio turnover rate ......................... 54% 83% 45% 55% 30%
- -----------------------------------------------------------------------------------------------------------------------
ELFUN TRUSTS 1998 1997 1996 1995 1994
- -----------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of year ................. $55.81 $46.46 $39.88 $30.91 $33.76
INCOME FROM INVESTMENT OPERATIONS:
Net investment income ........................... 0.83 0.75 0.75 0.77 0.77
Net realized and unrealized
gains (losses) on investments ................ 11.93 13.48 8.68 11.33 (0.68)
- -----------------------------------------------------------------------------------------------------------------------
TOTAL INCOME FROM INVESTMENT OPERATIONS ............ 12.76 14.23 9.43 12.10 0.09
- -----------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM:
Net investment income ........................... 0.83 0.74 0.75 0.77 0.77
Net realized gains .............................. 5.16 4.14 2.10 2.36 2.17
- -----------------------------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS ................................ 5.99 4.88 2.85 3.13 2.94
- -----------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR ....................... $62.58 $55.81 $46.46 $39.88 $30.91
=======================================================================================================================
TOTAL RETURN(a) .................................... 22.94% 30.86% 23.55% 39.19% 0.23%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (in thousands) ..........$2,368,878 $1,981,395 $1,525,979 $1,228,366 $900,349
Ratios to average net assets:
Net investment income ........................ 1.35% 1.39% 1.71% 2.08% 2.28%
Expenses ..................................... 0.12% 0.09% 0.13% 0.13% 0.17%
Portfolio turnover rate ......................... 15% 16% 12% 15% 19%
</TABLE>
- -------
See Notes to Financial Highlights and Notes to Financial Statements.
43
<PAGE>
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
SELECTED DATA BASED ON A SHARE OUTSTANDING DURING THE YEAR ENDED DECEMBER 31:
<TABLE>
<CAPTION>
ELFUN DIVERSIFIED FUND 1998 1997 1996 1995 1994
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year .................. $19.16 $17.27 $15.86 $13.24 $14.05
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income ............................ 0.61 0.56 0.54 0.53 0.47
Net realized and unrealized
gains (losses) on investments ................. 2.66 2.64 1.75 3.06 (0.51)
- ----------------------------------------------------------------------------------------------------------------------
TOTAL INCOME (LOSS) FROM INVESTMENT OPERATIONS ...... 3.27 3.20 2.29 3.59 (0.04)
- ----------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM:
Net investment income ............................ 0.60 0.56 0.54 0.53 0.46
Net realized gains ............................... 1.65 0.75 0.34 0.44 0.31
- ----------------------------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS ................................. 2.25 1.31 0.88 0.97 0.77
- ----------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR ........................ $20.18 $19.16 $17.27 $15.86 $13.24
=======================================================================================================================
TOTAL RETURN(a) ..................................... 17.14% 18.58% 14.40% 27.11% (0.26%)
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (in thousands) ........... $177,582 $143,808 $102,157 $77,255 $57,774
Ratios to average net assets:
Net investment income ......................... 3.00% 3.11% 3.41% 3.62% 3.42%
Expenses ...................................... 0.25% 0.22% 0.28% 0.34% 0.39%
Portfolio turnover rate .......................... 126% 100% 89% 93% 82%
- ----------------------------------------------------------------------------------------------------------------------
ELFUN TAX-EXEMPT INCOME FUND 1998 1997 1996 1995 1994
- ----------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of year .................. $11.93 $11.61 $11.91 $10.83 $12.29
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income ............................ 0.62 0.65 0.66 0.68 0.67
Net realized and unrealized
gains (losses) on investments ................. 0.10 0.43 (0.25) 1.15 (1.37)
- ----------------------------------------------------------------------------------------------------------------------
TOTAL INCOME (LOSS) FROM INVESTMENT OPERATIONS ...... 0.72 1.08 0.41 1.83 (0.70)
- ----------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM:
Net investment income ............................ 0.62 0.65 0.66 0.68 0.67
Net realized gains ............................... 0.05 0.11 0.05 0.07 0.09
- ----------------------------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS ................................. 0.67 0.76 0.71 0.75 0.76
- ----------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR ........................ $11.98 $11.93 $11.61 $11.91 $10.83
=======================================================================================================================
TOTAL RETURN(a) ..................................... 6.21% 9.59% 3.60% 17.32% (5.77%)
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (in thousands) ..........$1,486,373 $1,394,734 $1,301,737 $1,312,342 $1,145,873
Ratios to average net assets:
Net investment income ......................... 5.18% 5.52% 5.67% 5.91% 5.90%
Expenses ...................................... 0.10% 0.10% 0.13% 0.13% 0.13%
Portfolio turnover rate .......................... 18% 28% 22% 59% 24%
</TABLE>
- ----------
See Notes to Financial Highlights and Notes to Financial Statements.
44
<PAGE>
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
SELECTED DATA BASED ON A SHARE OUTSTANDING DURING THE YEAR ENDED DECEMBER 31:
<TABLE>
<CAPTION>
ELFUN INCOME FUND 1998 1997 1996 1995 1994
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year ................... $11.61 $11.32 $11.64 $10.55 $11.68
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income ............................. 0.72 0.75 0.76 0.77 0.70
Net realized and unrealized
gains (losses) on investments .................. 0.24 0.29 (0.32) 1.09 (0.97)
- -----------------------------------------------------------------------------------------------------------------------
TOTAL INCOME (LOSS) FROM INVESTMENT OPERATIONS ....... 0.96 1.04 0.44 1.86 (0.27)
- -----------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM:
Net investment income ............................. 0.75 0.75 0.76 0.77 0.70
Net realized gains ................................ 0.26 0.00 0.00 0.00 0.16
- -----------------------------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS .................................. 1.01 0.75 0.76 0.77 0.86
- -----------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR ......................... $11.56 $11.61 $11.32 $11.64 $10.55
=======================================================================================================================
TOTAL RETURN(a) ...................................... 8.49% 9.58% 4.01% 18.21% (2.33%)
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (in thousands) ............$274,082 $230,963 $219,451 $218,880 $185,665
Ratios to average net assets:
Net investment income .......................... 6.12% 6.56% 6.68% 6.90% 6.34%
Expenses ....................................... 0.22% 0.20% 0.24% 0.25% 0.30%
Portfolio turnover rate ........................... 216% 222% 201% 367% 215%
- -----------------------------------------------------------------------------------------------------------------------
ELFUN MONEY MARKET FUND 1998 1997 1996 1995 1994(b)
- -----------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of year ................... $1.00 $1.00 $1.00 $1.00 $1.00
INCOME FROM INVESTMENT OPERATIONS:
Net investment income ............................. 0.05 0.05 0.05 0.06 0.04
- -----------------------------------------------------------------------------------------------------------------------
TOTAL INCOME FROM INVESTMENT OPERATIONS .............. 0.05 0.05 0.05 0.06 0.04
- -----------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM:
Net investment income ............................. 0.05 0.05 0.05 0.06 0.04
- -----------------------------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS .................................. 0.05 0.05 0.05 0.06 0.04
- -----------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR ......................... $1.00 $1.00 $1.00 $1.00 $1.00
=======================================================================================================================
TOTAL RETURN(a) ...................................... 5.39% 5.45% 5.23% 5.82% 4.17%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (in thousands) ............$203,920 $167,385 $139,474 $117,506 $107,406
Ratios to average net assets:
Net investment income .......................... 5.21% 5.27% 5.08% 5.68% 4.20%
Expenses ....................................... 0.25% 0.24% 0.31% 0.30% 0.16%
<FN>
- ---------------
NOTES TO FINANCIAL HIGHLIGHTS
(a) TOTAL RETURNS ARE HISTORICAL AND ASSUME CHANGES IN SHARE PRICE, REINVESTMENT
OF DIVIDENDS AND CAPITAL GAINS, AND ASSUME NO SALES CHARGE.
(b) HAD THE ADVISOR NOT ABSORBED A PORTION OF THE EXPENSES THE NET INVESTMENT
INCOME PER SHARE WOULD HAVE BEEN THE SAME, THE TOTAL RETURN WOULD HAVE BEEN
LOWER, AND THE RATIO OF EXPENSES TO AVERAGE NET ASSETS WOULD HAVE BEEN .34%
FOR THE YEAR ENDED DECEMBER 31, 1994.
</FN>
</TABLE>
- ---------
See Notes to Financial Highlights and Notes to Financial Statements.
45
<PAGE>
STATEMENTS OF ASSETS
AND LIABILITIES DECEMBER 31, 1998 (AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
ELFUN ELFUN ELFUN
GLOBAL ELFUN DIVERSIFIED TAX-EXEMPT
FUND TRUSTS FUND INCOME FUND
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ASSETS
Investments in securities, at market
(cost $158,222; $1,022,211; $132,381; $1,327,108;
$290,906 and $0, respectively) ................... $204,906 $2,323,487 $172,781 $1,443,814
Short-term investments (at amortized cost) ........... 2,109 42,219 8,898 19,058
Foreign currency (cost $51; $0; $3; $0; $0 and
$0, respectively) ................................ 51 -- 3 --
Receivable for investments sold ...................... 3 -- 499 --
Income receivables ................................... 425 1,983 824 24,678
Receivable for fund shares sold ...................... 258 2,566 233 248
- ------------------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS ..................................... 207,752 2,370,255 183,238 1,487,798
- ------------------------------------------------------------------------------------------------------------------------------
LIABILITIES
Options written, at market* .......................... -- -- 7 --
Distributions payable to shareholders ................ -- -- -- 825
Payable upon return of securities loaned ............. -- -- -- --
Payable for investments purchased .................... -- -- 5,485 --
Payable for fund shares redeemed ..................... 202 740 39 343
Payable to GEIC ...................................... 84 552 125 257
Variation margin payable ............................. -- 85 -- --
- ------------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES ................................ 286 1,377 5,656 1,425
- ------------------------------------------------------------------------------------------------------------------------------
NET ASSETS .............................................. $207,466 $2,368,878 $177,582 $1,486,373
==============================================================================================================================
NET ASSETS CONSIST OF:
Capital paid in ...................................... $161,256 $1,063,143 $136,942 $1,369,026
Undistributed net investment income .................. 1 142 (3) --
Accumulated net realized gain (loss) ................. (494) 5,987 239 641
Net unrealized appreciation/(depreciation) on:
Investments ...................................... 46,684 1,301,276 40,400 116,706
Futures .......................................... -- (1,669) -- --
Written options .................................. -- -- 1 --
Foreign currency related transactions ............ 19 (1) 3 --
- ------------------------------------------------------------------------------------------------------------------------------
NET ASSETS .............................................. $207,466 $2,368,878 $177,582 $1,486,373
==============================================================================================================================
Shares outstanding (Par value $10; $10; $10; $10; $10;
and $1, respectively) ................................ 10,583 37,854 8,802 124,070
Net asset value, offering and redemption price per share $ 19.60 $ 62.58 $ 20.18 $ 11.98
</TABLE>
<TABLE>
<CAPTION>
ELFUN
ELFUN MONEY MARKET
INCOME FUND FUND
- ------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Investments in securities, at market
(cost $158,222; $1,022,211; $132,381; $1,327,108;
$290,906 and $0, respectively) ................... $293,927 $ --
Short-term investments (at amortized cost) ........... 13,353 204,486
Foreign currency (cost $51; $0; $3; $0; $0 and
$0, respectively) ................................ -- --
Receivable for investments sold ...................... 2,574 --
Income receivables ................................... 2,928 310
Receivable for fund shares sold ...................... 733 774
- ------------------------------------------------------------------------------------------
TOTAL ASSETS ..................................... 313,515 205,570
- ------------------------------------------------------------------------------------------
LIABILITIES
Options written, at market* .......................... 30 --
Distributions payable to shareholders ................ 680 97
Payable upon return of securities loaned ............. 20,591 --
Payable for investments purchased .................... 16,960 --
Payable for fund shares redeemed ..................... 998 1,463
Payable to GEIC ...................................... 174 90
Variation margin payable ............................. -- --
- ------------------------------------------------------------------------------------------
TOTAL LIABILITIES ................................ 39,433 1,650
- ------------------------------------------------------------------------------------------
NET ASSETS .............................................. $274,082 $203,920
==========================================================================================
NET ASSETS CONSIST OF:
Capital paid in ...................................... $269,949 $203,908
Undistributed net investment income .................. 206 11
Accumulated net realized gain (loss) ................. 903 1
Net unrealized appreciation/(depreciation) on:
Investments ...................................... 3,021 --
Futures .......................................... -- --
Written options .................................. 3 --
Foreign currency related transactions ............ -- --
- ------------------------------------------------------------------------------------------
NET ASSETS .............................................. $274,082 $203,920
==========================================================================================
Shares outstanding (Par value $10; $10; $10; $10; $10;
and $1, respectively) ................................ 23,719 203,922
Net asset value, offering and redemption price per share $ 11.56 $ 1.00
<FN>
* Premiums received for the Elfun Diversified Fund and Elfun Income Fund were $8
and $33, respectively.
</FN>
</TABLE>
- --------------
See Notes to Financial Statements.
46 & 47
<PAGE>
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998 (AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
ELFUN ELFUN ELFUN
GLOBAL ELFUN DIVERSIFIED TAX-EXEMPT
FUND TRUSTS FUND INCOME FUND
- ------------------------------------------------------------------------------------------------------------------------------
INVESTMENT INCOME
INCOME:
<S> <C> <C> <C> <C>
Dividends .......................................... $ 3,473 $ 27,726 $ 1,457 $ --
Interest ........................................... 185 4,503 3,857 76,368
Less: Foreign taxes withheld ....................... (335) (311) (59) --
- ------------------------------------------------------------------------------------------------------------------------------
TOTAL INCOME .......................................... 3,323 31,918 5,255 76,368
- ------------------------------------------------------------------------------------------------------------------------------
EXPENSES:
Administration expenses ............................ 200 1,051 139 587
Shareholder servicing agent expenses ............... 156 543 96 255
Transfer agent expenses ............................ 159 536 104 285
Custody and accounting expenses .................... 71 213 22 132
Professional fees .................................. 3 145 3 81
Registration, filing, printing and
miscellaneous expenses .......................... 38 180 38 164
- ------------------------------------------------------------------------------------------------------------------------------
TOTAL EXPENSES ........................................ 627 2,668 402 1,504
- ------------------------------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME ................................. 2,696 29,250 4,853 74,864
==============================================================================================================================
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
REALIZED GAIN (LOSS) ON:
Investments ........................................ 1,116 188,851 13,449 6,694
Futures ............................................ -- (5,818) (58) --
Written options .................................... -- -- 48 --
Foreign currency related transactions .............. (359) 6 (43) --
INCREASE (DECREASE) IN UNREALIZED
APPRECIATION/DEPRECIATION ON:
Investments ..................................... 27,404 241,041 6,813 5,155
Futures ......................................... -- (1,457) -- --
Written options ................................. -- -- 1 --
Foreign currency related transactions ........... 128 -- 21 --
- ------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain
on investments ..................................... 28,289 422,623 20,231 11,849
- ------------------------------------------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS .......................... $30,985 $451,873 $25,084 $ 86,713
==============================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
ELFUN
ELFUN MONEY MARKET
INCOME FUND FUND
- --------------------------------------------------------------------------------------------
INVESTMENT INCOME
INCOME:
<S> <C> <C>
Dividends .......................................... $ 524 $ --
Interest ........................................... 15,487* 9,932
Less: Foreign taxes withheld ....................... -- --
- --------------------------------------------------------------------------------------------
TOTAL INCOME .......................................... 16,011 9,932
- --------------------------------------------------------------------------------------------
EXPENSES:
Administration expenses ............................ 164 56
Shareholder servicing agent expenses ............... 140 97
Transfer agent expenses ............................ 174 235
Custody and accounting expenses .................... 22 18
Professional fees .................................. 7 4
Registration, filing, printing and
miscellaneous expenses .......................... 42 47
- --------------------------------------------------------------------------------------------
TOTAL EXPENSES ........................................ 549 457
- --------------------------------------------------------------------------------------------
NET INVESTMENT INCOME ................................. 15,462 9,475
============================================================================================
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
REALIZED GAIN (LOSS) ON:
Investments ........................................ 5,800 1
Futures ............................................ -- --
Written options .................................... 214 --
Foreign currency related transactions .............. 176 --
INCREASE (DECREASE) IN UNREALIZED
APPRECIATION/DEPRECIATION ON:
Investments ..................................... (1,172) --
Futures ......................................... -- --
Written options ................................. -- --
Foreign currency related transactions ........... (96) --
- --------------------------------------------------------------------------------------------
Net realized and unrealized gain
on investments ..................................... 4,922 1
- --------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS .......................... $20,384 $9,476
============================================================================================
<FN>
* Income attributable to security lending activity, net of rebate expenses, for
the Elfun Income Fund was $203.
</FN>
</TABLE>
- ---------------
See Notes to Financial Statements.
48 & 49
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997 (AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
ELFUN
GLOBAL ELFUN
FUND TRUSTS
1998 1997 1998 1997
- ---------------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
<S> <C> <C> <C> <C>
Net investment income ................................... $ 2,696 $ 2,281 $ 29,250 $ 24,880
Net realized gain on investments, futures,
written options, and foreign currency
related transactions ................................. 757 19,254 183,039 140,209
Net increase (decrease) in unrealized
appreciation/depreciation ............................ 27,532 (6,565) 239,584 309,361
- ---------------------------------------------------------------------------------------------------------------------------
Net increase from operations ............................ 30,985 14,970 451,873 474,450
- ---------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income ................................... (2,336) (1,686) (29,478) (24,572)
Net realized gains ...................................... (1,325) (20,126) (182,358) (137,817)
- ---------------------------------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS ........................................ (3,661) (21,812) (211,836) (162,389)
- ---------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets from
operations and distributions ............................ 27,324 (6,842) 240,037 312,061
- ---------------------------------------------------------------------------------------------------------------------------
SHARE TRANSACTIONS:
Proceeds from sale of shares ............................ 20,099 30,328 165,883 146,134
Value of distributions reinvested ....................... 3,356 20,353 154,891 119,192
Cost of shares redeemed ................................. (36,805) (26,650) (173,328) (121,971)
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) from share transactions ............ (13,350) 24,031 147,446 143,355
- ---------------------------------------------------------------------------------------------------------------------------
TOTAL INCREASE IN NET ASSETS ............................... 13,974 17,189 387,483 455,416
NET ASSETS
Beginning of year .......................................... 193,492 176,303 1,981,395 1,525,979
- ---------------------------------------------------------------------------------------------------------------------------
End of year ................................................$207,466 $193,492 $2,368,878 $1,981,395
===========================================================================================================================
UNDISTRIBUTED NET INVESTMENT INCOME,
END OF YEAR ................................................$ 1 $ -- $ 142 $ 364
- ---------------------------------------------------------------------------------------------------------------------------
CHANGES IN FUND SHARES
- ---------------------------------------------------------------------------------------------------------------------------
Shares sold ................................................... 1,075 1,608 2,716 2,766
Issued for distributions reinvested ........................... 171 1,210 2,490 2,181
Shares redeemed ............................................... (2,044) (1,413) (2,851) (2,293)
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in fund shares ........................ (798) 1,405 2,355 2,654
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
ELFUN ELFUN
DIVERSIFIED TAX-EXEMPT
FUND INCOME FUND
1998 1997 1998 1997
- ------------------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
<S> <C> <C> <C> <C>
Net investment income ................................... $ 4,853 $ 3,928 $ 74,864 $ 73,918
Net realized gain on investments, futures,
written options, and foreign currency
related transactions ................................. 13,396 5,090 6,694 12,568
Net increase (decrease) in unrealized
appreciation/depreciation ............................ 6,835 12,082 5,155 35,899
- ------------------------------------------------------------------------------------------------------------------------------
Net increase from operations ............................ 25,084 21,100 86,713 122,385
- ------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income ................................... (4,813) (3,910) (74,864) (73,918)
Net realized gains ...................................... (13,144) (5,216) (6,048) (12,571)
- ------------------------------------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS ........................................ (17,957) (9,126) (80,912) (86,489)
- ------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets from
operations and distributions ............................ 7,127 11,974 5,801 35,896
- ------------------------------------------------------------------------------------------------------------------------------
SHARE TRANSACTIONS:
Proceeds from sale of shares ............................ 26,484 33,170 134,467 106,866
Value of distributions reinvested ....................... 16,810 8,588 56,497 59,947
Cost of shares redeemed ................................. (16,647) (12,081) (105,126) (109,712)
- ------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) from share transactions ............ 26,647 29,677 85,838 57,101
- ------------------------------------------------------------------------------------------------------------------------------
TOTAL INCREASE IN NET ASSETS ............................... 33,774 41,651 91,639 92,997
NET ASSETS
Beginning of year .......................................... 143,808 102,157 1,394,734 1,301,737
- ------------------------------------------------------------------------------------------------------------------------------
End of year ................................................ $177,582 $143,808 $1,486,373 $1,394,734
- ------------------------------------------------------------------------------------------------------------------------------
UNDISTRIBUTED NET INVESTMENT INCOME,
END OF YEAR ................................................ $ (3) $ -- $ -- $ --
- ------------------------------------------------------------------------------------------------------------------------------
CHANGES IN FUND SHARES
- ------------------------------------------------------------------------------------------------------------------------------
Shares sold ................................................... 1,276 1,773 11,240 9,112
Issued for distributions reinvested ........................... 836 453 4,725 5,105
Shares redeemed ............................................... (815) (636) (8,796) (9,399)
- ------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in fund shares ........................ 1,297 1,590 7,169 4,818
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
ELFUN
ELFUN MONEY MARKET
INCOME FUND FUND
1998 1997 1998 1997
- ----------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
<S> <C> <C> <C> <C>
Net investment income ................................... $ 15,462 $ 14,657 $ 9,475 $ 8,271
Net realized gain on investments, futures,
written options, and foreign currency
related transactions ................................. 6,190 2,929 1 --
Net increase (decrease) in unrealized
appreciation/depreciation ............................ (1,268) 2,713 -- --
- ----------------------------------------------------------------------------------------------------------------------
Net increase from operations ............................ 20,384 20,299 9,476 8,271
- ----------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income ................................... (15,968) (14,676) (9,477) (8,271)
Net realized gains ...................................... (6,022) -- -- --
- ----------------------------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS ........................................ (21,990) (14,676) (9,477) (8,271)
- ----------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets from
operations and distributions ............................ (1,606) 5,623 (1) --
- ----------------------------------------------------------------------------------------------------------------------
SHARE TRANSACTIONS:
Proceeds from sale of shares ............................ 63,001 28,332 211,013 183,354
Value of distributions reinvested ....................... 18,047 12,221 9,117 7,843
Cost of shares redeemed ................................. (36,263) (34,724) (183,594) (163,286)
- ----------------------------------------------------------------------------------------------------------------------
Net increase (decrease) from share transactions ............ 44,785 5,829 36,536 27,911
- ----------------------------------------------------------------------------------------------------------------------
TOTAL INCREASE IN NET ASSETS ............................... 43,179 11,452 36,535 27,911
NET ASSETS
Beginning of year .......................................... 230,903 219,451 167,385 139,474
- ----------------------------------------------------------------------------------------------------------------------
End of year ................................................ $274,082 $230,903 $ 203,920 $ 167,385
- ----------------------------------------------------------------------------------------------------------------------
UNDISTRIBUTED NET INVESTMENT INCOME,
END OF YEAR ................................................ $ 206 $ 536 $ 11 $ 13
- ----------------------------------------------------------------------------------------------------------------------
CHANGES IN FUND SHARES
- ----------------------------------------------------------------------------------------------------------------------
Shares sold ................................................... 5,369 2,488 211,013 183,354
Issued for distributions reinvested ........................... 1,548 1,075 9,117 7,843
Shares redeemed ............................................... (3,091) (3,056) (183,594) (163,286)
- ----------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in fund shares ........................ 3,826 507 36,536 27,911
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
- ----------
See Notes to Financial Statements.
50 & 51
<PAGE>
NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1998
- --------------------------------------------------------------------------------
1. ORGANIZATION OF THE FUNDS
The Elfun Funds (each a "Fund" and collectively the "Funds") are registered
under the Investment Company Act of 1940, as amended, (the "1940 Act") as
open-end management investment companies. 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 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 increases and decreases in net
assets from operations during the reporting period. Actual results may differ
from those estimates, but are expected to be immaterial.
The following summarizes the significant accounting policies of the Funds:
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 bid and ask 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 are valued at the last
sale price, or if no sales occurred on that day, at the last quoted bid price.
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, both of which approximate current value. Fund
positions which cannot be valued as set forth above are valued at fair value
determined under procedures approved by the Board of Trustees of the Funds.
52
<PAGE>
NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1998
- --------------------------------------------------------------------------------
In accordance with Rule 2a-7 of the 1940 Act, Elfun Money Market Fund values
securities initially at cost and, thereafter, securities are assumed to have a
constant amortization to maturity of any discount or premium. Amortized cost
approximates fair value.
Transactions are accounted for as of the trade date. Realized gains and losses
on investments sold are recorded on the basis of identified cost 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 denominated in foreign currency are
translated to U.S. dollars at the prevailing rates of exchange at period end.
Purchases and sales of securities, income receipts and expense payments are
translated into U.S. dollars at the prevailing exchange rate on the respective
dates of the 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 or unrealized gain or loss from investments. Reported net realized
exchange gains or losses from foreign currency transactions represent gains or
losses between the trade date and the settlement date on securities
transactions, net realized gains and losses on sales and maturities of forward
foreign currency contracts, and the difference between the amounts of foreign
investment income and withholding taxes accrued on the Funds' books and the U.S.
dollar equivalent of the amounts actually received or paid. Net unrealized
foreign exchange gains and losses arising from changes in the value of assets
and liabilities as a result of changes in foreign exchange rates are included as
increases or decreases in unrealized appreciation/depreciation on foreign
currency related transactions.
INCOME TAXES
The Funds intend to comply with all sections of the Internal Revenue Code
applicable to regulated investment companies and to distribute taxable income,
tax-exempt income, and realized gains to their 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.
53
<PAGE>
NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1998
- --------------------------------------------------------------------------------
Any net capital and currency losses incurred after October 31, within each
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 Elfun Income Fund incurred
and elected to defer losses of $4,925 at October 31, 1998.
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 becomes available. Interest income is recorded on the accrual basis.
All discounts and premiums on taxable bonds and discounts and premiums on
tax-exempt bonds are amortized to call or maturity date, whichever is shorter,
using the effective yield method. For tax-exempt bonds purchased before May 1,
1993, only original issue discount is amortized. For tax-exempt bonds purchased
on or after May 1, 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 directly 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 General Electric Investment
Corporation ("GEIC"), investment adviser to the Funds, 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 them monthly. All other Funds
declare and pay dividends from investment income annually. All Funds declare and
pay net realized capital gains distributions annually. The character of income
and gains to be distributed is 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 contracts, paydown gains and losses on
mortgage-backed securities, and losses deferred due
54
<PAGE>
NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1998
- --------------------------------------------------------------------------------
to 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. These reclassifications
have no impact on net investment income, realized gains or losses, or net asset
value of the Funds. The calculation of net investment income per share in the
Financial Highlights table excludes these adjustments. During any particular
year, net realized gains from investment transactions in excess of any
applicable capital loss carryforwards would be taxable to the Funds if not
distributed and, therefore, will be declared and paid to their shareholders
annually.
WHEN-ISSUED SECURITIES AND FORWARD COMMITMENTS
The Funds may purchase or sell securities on a when-issued and forward
commitment basis. These transactions are arrangements in which the Funds
purchase and sell securities with payment and delivery scheduled for a future
time. Settlement dates may be a month or more after entering into these
transactions, and the purchase of securities on a when-issued or forward
commitment basis involves a risk of loss if the value of the underlying security
declines prior to the settlement date. The price of the underlying securities
and the date when these 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 and causes the Funds to
subsequently invest at less advantageous prices and yields. In connection with
such purchases, the Funds maintain cash or liquid assets in an amount equal to
purchase commitments for such underlying securities until settlement date and
for sales commitments the Funds maintain equivalent deliverable securities as
"cover" for the transaction. Unsettled commitments are valued at current market
value of the underlying security. Daily fluctuations in the value of such
contracts are recorded as unrealized gains or losses. The Funds will not enter
into such agreements for the purpose of investment leverage.
FOREIGN SECURITIES
Each Fund, except for the Elfun Tax-Exempt Fund, may invest in foreign
securities, subject to certain limitations. There are certain additional risks
involved when investing in foreign securities (including those denominated in
foreign currencies) that are not inherent in domestic securi-
55
<PAGE>
NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1998
- --------------------------------------------------------------------------------
ties. These risks may involve foreign currency exchange rate fluctuations;
changes in foreign exchange control regulations; application of foreign tax
laws, including withholding taxes; lack of uniform accounting, auditing and
financial reporting standards; and increased uncertainty about changes in
governmental administration or economic or monetary policy (in the United States
or abroad). The Funds may be subject to restrictions on the repatriation or
foreign currencies and may be limited on the use or removal of its assets.
FORWARD FOREIGN CURRENCY CONTRACTS
Certain Funds may enter into forward foreign currency contracts to facilitate
transactions in foreign denominated securities and to manage the Fund's currency
exposure. A forward foreign currency contract is an agreement between two
parties to buy or sell currency at a set price on a future date. Contracts to
sell are generally used to hedge the Fund's investments against currency
fluctuations or to offset a previous contract to buy. Contracts to buy are
generally used to hedge exposure to foreign currencies or to offset a previous
contract to sell. Currency exposure exists during the period that a foreign
denominated investment is held or during a period between the trade date and
settlement date of an investment which is purchased or sold. These contracts
involve market risk in excess of the unrealized gain or loss reflected in the
fund's Statement of Assets and Liabilities. This amount represents the aggregate
exposure to each currency the Fund has acquired or hedge through currency
contracts at year end. Losses may arise from changes in the value of foreign
currency or if the counterparties do not perform under the contracts' terms. An
open contract 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 contract 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. No Fund
may enter into forward foreign currency transactions for speculative purposes.
REPURCHASE AGREEMENTS
Each of the Funds may enter into repurchase agreements. The Funds' custodian
takes possession of the collateral pledged for investments in repurchase
agreements on behalf of the Funds. The Funds value the underlying collateral
daily on a mark-to-market basis to determine that the
56
<PAGE>
NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1998
- --------------------------------------------------------------------------------
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. There is the risk that the collateral may be insufficient to meet
the obligation in the event of default.
FUTURES AND OPTIONS
Each Fund, other than Elfun Money Market Fund, may invest in financial futures
contracts and purchase and write options, subject to certain limitations. The
Funds may invest in futures and options contracts for the following reasons: (1)
for the purpose of hedging against the effects of changes in the value of
portfolio securities or other investments due to anticipated changes in interest
rates, stock market conditions and currency market conditions, (2) to gain
stock, bond, or currency market exposure for accumulating and residual cash
positions, (3) for duration management, (4) when such transactions are an
economically appropriate way to reduce risks inherent in the management of a
Fund, and (5) for non-hedging purposes such as seeking additional income or
otherwise seeking to increase total return. Buying futures, writing puts and
buying calls tend to increase a Fund's exposure to the underlying instrument.
Selling futures, buying puts and writing calls tend to decrease a Fund's
exposure to the underlying instrument, or hedge other Fund investments. A Fund
will not enter into a transaction involving futures and options on futures for
speculative purposes.
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, shown in the Schedule of Investments under the
captions "Other Information", "Call Options" and "Put Options" reflect the
extent of the involvement the Funds have in the particular classes of these
instruments. Losses may be caused by an imperfect correlation between movements
in the price of the underlying securities and interest rates and currency.
Losses also may arise if there is an illiquid secondary market for the
instruments, or an inability of counterparties to perform.
Upon entering into a financial futures contract, the Funds are required to
deposit with the Funds' custodian in a segregated account, either cash or
securi-
57
<PAGE>
NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1998
- --------------------------------------------------------------------------------
ties in an amount (initial margin) equal to a certain percentage of the contract
value. Subsequent payments (variation margin) are made or received by the Funds
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 Funds
recognize a realized gain or loss when the futures contract is closed. The Funds
will realize a gain or loss upon the expiration or closing of an option
transaction. When an option is exercised, the proceeds on the sales of a
security as a result of exercising a written call option, the purchase cost of a
security acquired from exercising a written put option, or the proceeds on the
sale of the security from exercising a purchased put option or cost of the
security acquired from exercising a purchased call option is adjusted by the
amount of original premium received or paid.
SECURITY LENDING
The Funds may loan securities to brokers, dealers, and financial institutions
determined by GEIC to be creditworthy, up to a maximum of 30% (33 1/3% in the
case of the Income Fund, the Tax-Exempt Fund and the Money Market Fund) of the
total value of the Fund's assets. The loans of securities will be secured by
collateral in the form of cash or other liquid assets, which will be segregated
and maintained with the custodian in an amount at least equal to the current
market value of the loaned securities. The Funds receive a lender fee in
addition to the interest and dividends on the loaned securities during the term
of the loan. A Fund will receive any gain or loss in the market value of its
loaned securities and of securities in which cash collateral is invested net of
any rebate during the term of the loan. 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 using the proceeds of the sale of the collateral.
3. FEES AND COMPENSATION PAID TO AFFILIATES
ADVISORY AND ADMINISTRATION FEES
During 1998, the Funds incurred expenses for the cost of services rendered by
General Electric Company's wholly-owned subsidiary, GEIC, as investment adviser
and for services GEIC rendered as shareholder servicing agent. These expenses
are included as administrative expenses
58
<PAGE>
NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1998
- --------------------------------------------------------------------------------
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, 1998, were as follows:
GROSS GROSS NET
UNREALIZED UNREALIZED UNREALIZED
APPRECIATION DEPRECIATION APPRECIATION
- -----------------------------------------------------------
Elfun Global Fund $ 55,813 $ 9,129 $ 46,684
Elfun Trusts 1,332,515 31,239 1,301,276
Elfun Diversified
Fund 43,040 2,640 40,400
Elfun Tax-Exempt
Income Fund 116,975 269 116,706
Elfun Income Fund 4,733 1,712 3,021
The aggregate cost of each Fund's investments was substantially the same for
book and federal income tax purposes at December 31, 1998.
5. OPTIONS
(CONTRACTS AND DOLLARS IN THOUSANDS)
During the year ended December 31, 1998, the following option contracts were
written:
ELFUN DIVERSIFIED FUND ELFUN INCOME FUND
---------------------- -------------------------
NUMBER NUMBER
OF CONTRACTS PREMIUM OF CONTRACTS PREMIUM
- -----------------------------------------------------------------------
Balance as of
December 31, 1997 1,480 $ 5 7,350 $ 26
Written 17,550 70 75,040 299
Closed and
Expired (14,450) (55) (62,990) (242)
Exercised (2,710) (12) (11,420) (50)
- -----------------------------------------------------------------------
Balance as of
December 31, 1998 1,870 $ 8 7,980 $ 33
- -----------------------------------------------------------------------
59
<PAGE>
NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1998
- --------------------------------------------------------------------------------
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, 1998, were as follows:
PURCHASES SALES
- --------------------------------------------------------------------------------
Elfun Global Fund $107,108 $119,442
Elfun Trusts 313,173 344,389
Elfun Diversified Fund 62,314 44,568
Elfun Tax-Exempt
Income Fund 323,684 250,321
Elfun Income Fund 59,710 53,519
The cost of purchases and the proceeds from sales of long-term U.S. Government
securities for the year ended December 31, 1998, were as follows:
PURCHASES SALES
- --------------------------------------------------------------------------------
Elfun Trusts $ 0 $ 5,774
Elfun Diversified Fund 149,987 150,492
Elfun Income Fund 539,374 497,506
7. SECURITY LENDING
At December 31, 1998, the Elfun Income Fund, which is the only fund that
participated in securities lending, loaned securities having a value, including
accrued interest, of approximately $20,293,592 and received $20,803,353 in cash
and letters of credit as collateral for the loans.
60
<PAGE>
INDEPENDENT AUDITORS' REPORT
- --------------------------------------------------------------------------------
KPMG LLP
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, 1998, 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, 1998, by correspondence with the custodian. As to securities
purchased or sold but not yet received or delivered, we performed other
appropriate auditing procedures. 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, 1998, 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/KPMG LLP
New York, New York
February 4, 1999
61
<PAGE>
[This Page Left Intentionally Blank]
62
<PAGE>
[This Page Left Intentionally Blank]
63
<PAGE>
ELFUN FUNDS' INVESTMENT TEAM
- --------------------------------------------------------------------------------
PORTFOLIO MANAGERS
ELFUN GLOBAL FUND
Ralph R. Layman
Michael J. Solecki
ELFUN TRUSTS
David B. Carlson
ELFUN DIVERSIFIED FUND
David B. Carlson
Ralph R. Layman
Robert A. MacDougall
ELFUN TAX-EXEMPT INCOME FUND
Robert R. Kaelin
ELFUN INCOME FUND
ELFUN MONEY MARKET FUND
Team led by
Robert A. MacDougall
INVESTMENT ADVISER
General Electric Investment Corporation
INDEPENDENT AUDITORS
KPMG LLP
CUSTODIAN
State Street Bank & Trust Company
SHAREHOLDER SERVICING AGENT
Address all inquiries to:
GE Investments
P.O. Box 419631
Kansas City, MO 64141-6631
OFFICERS OF THE INVESTMENT ADVISER
John H. Myers, TRUSTEE, PRESIDENT,
AND CHIEF EXECUTIVE OFFICER
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
Thomas J. Szkutak, TRUSTEE, EVP, CHIEF FINANCIAL OFFICER
Donald W. Torey, TRUSTEE, EVP, ALTERNATIVE INVESTMENTS AND REAL ESTATE
64
<PAGE>
SHAREHOLDER SERVICES
- --------------------------------------------------------------------------------
NEW ONLINE SERVICE
Your Elfun Mutual Fund accounts can now be accessed on the Internet at
www.ge.com/mutualfunds.
Here are some of the benefits of our online service:
o View account balance and transaction history
o Make exchanges
o Redeem shares (minimum, $500; maximum, $50,000)
Many more features will be added to the web site in the future for your
convenience.
NEW EXTENDED TELEPHONE SERVICE
Our Customer Reps at the Inquiry Center are available Monday to Friday from 8:30
AM to 6:00 PM Eastern Standard Time. Call toll-free, 1-800-242-0134, for
assistance.
AUTOMATED VOICE RESPONSE SYSTEM
You can also access your account anytime during the day, 7 days a week by
dialing 1-800-242-0134. Simply follow the menu to obtain information or make
certain transactions.
CONTACT US BY MAIL
If you'd like to write to us, address your inquiries regarding your account(s)
to:
Elfun Funds
P.O. Box 419631
Kansas City MO 64141-6631.
We are continuing to upgrade a variety of services in order to give you the
tools you need to manage your financial objectives. In the meantime, we welcome
all your comments and suggestions.
<PAGE>
----------------
BULK RATE
U.S. POSTAGE
PAID
CANTON, MA
PERMIT NO. 313
----------------
ELFUN FUNDS
3003 SUMMER STREET
STAMFORD, CT 06904-7900
DISTRIBUTOR
GE INVESTMENT DISTRIBUTORS INC.
MEMBER NASD AND SIPC
777 LONG RIDGE ROAD, BUILDING B
STAMFORD, CT 06927
[GE LOGO OMITTED]
ELF-2 (2/99)
- --------------------------------------------------------------------------------
