As filed with the Securities and Exchange Commission on April 30, 1997
REGISTRATION NO. 2-91369
REGISTRATION NO. 811-4041
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Post-Effective Amendment No. 18
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 19
GE INVESTMENTS FUNDS, INC.
(formerly, Life of Virginia Series Fund, Inc.)
3003 Summer Street
Stamford, Connecticut 06905
(Address of Principal Executive Offices)
Registrant's Telephone Number
(203) 326-4040
Matthew J. Simpson
Secretary
GE Investments Funds, Inc.
3003 Summer Street
Stamford, Connecticut 06905
(Name and Address of Agent for Service)
Copy to:
Stephen E. Roth
Sutherland, Asbill & Brennan, LLP
1275 Pennsylvania Avenue, NW
Washington, DC 20004-2404
------------------------------
It is proposed that this filing will become effective:
___ immediately upon filing pursuant to paragraph (b)
___ on May 1, 1997 pursuant to paragraph (b)
___ 60 days after filing pursuant to paragraph (a)
___ on pursuant to paragraph (a) of Rule 485
___ 75 days after filing pursuant to paragraph (a)(2) of Rule 485
___ on ________ pursuant to paragraph (a)(2) of Rule 485
---------------------------------
Pursuant to Rule 24f-2 under the Investment Company Act of 1940, the Registrant
has registered an indefinite amount of securities. The Registrant filed the
24f-2 Notice for the period ended December 31, 1996 on February 28, 1997.
<PAGE>
CROSS REFERENCE SHEET
Item No. of Caption
Form N1-A
<TABLE>
<CAPTION>
<S> <C>
Part A Prospectus
- ------ ----------
1.................. Cover Page
2.................. Not Applicable
3.................. Financial Highlights
4.................. GE Investments Funds, Inc.; Investment Objectives and Policies; Investment Practices
5.................. Management of the Company
5A................. Not Applicable
6.................. GE Investments Funds, Inc., Dividends, Distributions and Taxes; Additional Information
7.................. Purchase and Redemption of Fund Shares
8.................. Purchase and Redemption of Fund Shares
9.................. Additional Information
Part B Statement of Additional Information
- ------ -----------------------------------
10................. Cover Page
11................. Table of Contents
12................. General Information
13................. General Information; Investment Practices and Restrictions; Appendix A; Appendix B
14................. Management of the Company
15................. General Information; Management of the Fund Additional Information
16................. Management of the Fund; Additional Information
17................. Portfolio Transactions and Brokerage
18................. Dividends and Distributions; Additional Information
19................. Determination of Net Asset Value; Purchase and Redemption of Fund Shares
20................. Dividends, Distributions and Taxes (prospectus)
21................. Purchase and Redemption of Fund Shares (prospectus)
22................. Not Applicable
23................. Financial Statements
</TABLE>
<PAGE>
PART A
PROSPECTUS
<PAGE>
GE INVESTMENTS FUNDS, INC.
3003 Summer Street
Stamford, Connecticut 06905
(203) 326-4040
GE Investments Funds, Inc. is an open-end, management investment company
consisting of eight separate investment portfolios or funds (the, "Funds"), each
of which has different investment objectives.
S&P 500 Index Fund has the investment objective of providing capital
appreciation and accumulation of income that corresponds to the investment
return of the Standard & Poor's 500 Composite Stock Price Index through
investment in common stocks and other securities comprising that Index.
Government Securities Fund has the investment objective of seeking high
current income and protection of capital through investments in
intermediate and long-term debt instruments issued or guaranteed by the
U.S. Government, its agencies or instrumentalities.
Money Market Fund has the investment objective of providing the highest
level of current income as is consistent with high liquidity and safety of
principal by investing in good quality money market securities. An
investment in the Money Market Fund is neither insured nor guaranteed by
the U.S. Government and no one can assure that the Fund will maintain a
stable net asset value of $1 per share.
Total Return Fund has the investment objective of providing the highest
total return, composed of current income and capital appreciation, as is
consistent with prudent investment risk. It seeks to achieve its objective
by investing in common stocks, bonds and money market instruments.
International Equity Fund has the investment objective of providing
long-term capital appreciation. The Fund seeks to achieve its objective by
investing primarily in equity and equity-related securities of companies
that are organized outside of the U.S. or whose securities are principally
traded outside of the U.S.
Real Estate Securities Fund has the investment objective of providing
maximum total return through current income and capital appreciation. The
Fund seeks to achieve this objective by investing primarily in securities
of U.S. issuers that are principally engaged in or related to the real
estate industry including those that own significant real estate assets.
The Fund will not invest directly in real estate.
Global Income Fund has the investment objective of high total return,
emphasizing current income and, to a lesser extent, capital appreciation.
The Fund seeks to achieve these objectives by investing primarily in
income-bearing debt securities and other income-bearing instruments of U.S.
and foreign issuers.
Value Equity Fund has the investment objective of providing long-term
capital appreciation. The Fund seeks to achieve this objective by investing
primarily in common stock and other equity securities that are undervalued
by the market and offer above-average capital appreciation potential.
Shares of the Funds are only available through the purchase of certain variable
annuity and variable life insurance contracts issued by The Life Insurance
Company of Virginia.
This Prospectus concisely sets forth information about the Funds that a
prospective investor ought to know before investing. Please read the Prospectus
thoroughly and retain it for future reference. A Statement of Additional
Information, dated May 1, 1997, containing additional information about the
Funds, has been filed with the Securities and Exchange Commission. The Statement
may be obtained without charge by sending a written request to the GE
Investments Funds, Inc. at the above address or calling the telephone number
shown. The Statement of Additional Information is incorporated into this
Prospectus by reference.
Investments in the Funds are not deposits or obligations of, or guaranteed or
endorsed by, any bank or other insured depository institution, and are not
insured by the Federal Deposit Insurance Corporation or any other government
agency. An investment in any of the Funds involves investment risk including
possible loss of principal.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
May 1, 1997
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
GE Investments Funds, Inc. 3
Financial Highlights 4
Investment Objectives and Policies 13
S&P 500 Index Fund 13
Government Securities Fund 15
Money Market Fund 16
Total Return Fund 17
International Equity Fund 17
Real Estate Securities Fund 18
Global Income Fund 20
Value Equity Fund 21
Investment Practices 22
Loans of Portfolio Securities 22
When Issued and Delayed Delivery Securities 22
Repurchase Agreements 22
Foreign Investments and Currency 22
Debt Securities 26
Writing Covered Call and Put Options and Purchasing Call and Put Options 27
Financial Futures Contracts and Options on Such Contracts 29
Restricted Securities and Other Illiquid Investments 30
Borrowing 31
Real Estate Investment Trusts 31
Other Investment Companies 31
Determination of Net Asset Value 31
Purchase and Redemption of Fund Shares 32
Dividends, Distributions and Taxes 32
Dividends and Distributions 32
Taxes 32
Management of the Company 34
Board of Directors 34
Investment Adviser 34
Investment Sub-Advisers 35
Compensation of Advisers 36
Portfolio Managers 36
Additional Information 38
Capital Stock 38
Contract Owner Voting Rights 38
Plan Participant Voting Rights 38
Annual Reports 38
Inquiries 38
Custodian, Transfer and Dividend Paying Agent 38
Legal Matters 38
</TABLE>
2
<PAGE>
GE INVESTMENTS FUNDS, INC.
GE Investments Funds, Inc. (the "Company") (formerly, Life of Virginia Series
Funds, Inc.) is an open-end management investment company incorporated under the
laws of the Commonwealth of Virginia on May 14, 1984. The Company consists of
eight separate investment portfolios (the "Funds" or a "Fund"), each of which
is, in effect, a separate mutual fund. The Company issues a separate class of
capital stock for each Fund representing fractional undivided interests in that
Fund. An investor, by investing in a Fund, becomes entitled to a pro-rata share
of all dividends and distributions arising from the net income and capital gains
on the investments of that Fund. Likewise, an investor shares pro-rata in any
losses of that Fund.
Pursuant to investment advisory agreements and subject to the authority of the
Company's board of directors, GE Investment Management Incorporated ("GEIM")
serves as the Company's investment adviser and administrator and conducts the
business and affairs of the Company. GEIM has engaged GMG/Seneca Capital
Management, L.L.C. ("Seneca") as the investment sub-adviser to provide
day-to-day portfolio management for the Real Estate Securities Fund; has engaged
NWQ Investment Management Company ("NWQ") as the investment sub-adviser to
provide day-to-day portfolio management to the Value Equity Fund; and has
engaged GE Investments (US) Limited ("GEIUS") to provide day-to-day portfolio
management to the Global Income Fund. (As used herein, "Adviser" shall refer to
GEIM and, where applicable, either Seneca, NWQ or GEIUS in their respective
roles.)
The Company currently offers each class of its capital stock to certain separate
accounts (the "Accounts") of The Life Insurance Company of Virginia ("Life of
Virginia") as funding vehicles for certain variable annuity contracts and
variable life insurance contracts ("variable contracts") issued by Life of
Virginia through the Accounts. The Company does not offer its stock directly to
the general public. All but one of the Accounts is registered as an investment
company with the Securities and Exchange Commission ("SEC") and a separate
prospectus describing the particular Account and variable contract being offered
through that Account will accompany this prospectus when shares of the Company
are offered as a funding vehicle for such contracts. The remaining Account is
not registered as an investment company but a separate disclosure document
(rather than a prospectus) describing that account and the variable contracts
being offered through that Account will accompany this prospectus when shares of
the Company are offered as a funding vehicle for such contracts. The Company
may, in the future, offer any class of its capital stock to other registered and
unregistered separate accounts of Life of Virginia (or Life of Virginia's
affiliates) supporting other variable annuity contracts or variable life
insurance contracts and to qualified pension and retirement plans.
A potential for certain conflicts exists between the interests of variable
annuity contract owners and variable life insurance contract owners. A potential
for certain conflicts would also exist between the interests of any of these
investors and participants in a qualified pension and retirement plan that might
invest in the Funds. To the extent that such classes of investors are invested
in the same Fund when a conflict of interest arises that might involve the Fund,
one or more such classes of investors could be disadvantaged. The Company does
not currently foresee any such disadvantage to owners of variable contracts or
to plan participants. Nonetheless, the board of directors of the Company will
monitor the Funds for the existence of any irreconcilable material conflicts of
interest. If such a conflict affecting owners of variable contracts is
determined to exist, Life of Virginia will, to the extent reasonably
practicable, take such action as is necessary to remedy or eliminate the
conflict. If such a conflict were to occur, one or more of the Accounts might be
required to withdraw its investments in one or more Funds or it may substitute
shares of one Fund for another. This might force a Fund to sell its portfolio
securities at a disadvantageous price.
3
<PAGE>
GE INVESTMENTS FUNDS, INC.
FINANCIAL HIGHLIGHTS
Selected data for each share of capital stock outstanding for the periods
indicated. The data for the most recent five years has been audited by Ernst &
Young LLP. independent auditors. The data should be read in conjunction with the
financial statements, related notes, and other financial information included in
the statement of additional information.
<TABLE>
<CAPTION>
S&P 500 INDEX
FUND +
------------------------------------------------------------------------------
1/1 to 1/1 to 1/1 to 1/1 to 1/1 to 1/1 to
12/30/96 12/31/95 12/31/94 12/31/93 12/31/92 12/31/91
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Net asset value at beginning of period $20.99 $ 15.72 $ 15.99 $ 17.04 $ 16.21 $ 12.75
Net investment income .78 .27 .22 .31 .35 .30
Net realized and unrealized gain
(loss) on investments 4.36 5.41 (.23) 2.16 1.01 4.08
------ ------- ------- ------- ------- -------
Income (loss) from operations 5.14 5.68 (.01) 2.47 1.36 4.38
Distributions to shareholders from:
Net investment income (.77) (.27) (.22) (.31) (.35) (.30)
Net realized gain (10.22) (.14) (.04) (3.21) (.17) (.61)
Tax return of capital .-- .-- .-- .-- (.01) (.01)
------ ------- ------- ------- ------- -------
(10.99) (.41) (.26) (3.52) (.53) (.92)
------ ------- ------- ------- ------- -------
Increase (decrease) in net asset value (5.85) 5.27 (.27) (1.05) .83 3.46
------ ------- ------- ------- ------- -------
Net asset value at end of period $15.14 $ 20.99 $ 15.72 $ 15.99 $ 17.04 $ 16.21
====== ======= ======= ======= ======= =======
Total Return 24.51% 36.14% (0.06%) 14.52% 8.39% 34.43%
====== ======= ======= ======= ======= =======
RATIOS:
Ratio of expenses to
average net assets .48% .66% .75% .87% 1.03% 1.08%
Ratio of net investment income to
average net assets 1.91% 1.98% 2.22% 2.00% 2.24% 2.28%
Portfolio turnover 63.06% 14.58% 4.31% 73.43% 9.72% 35.87%
Average Commission Rate Paid $ .05 N/A N/A N/A N/A N/A
NET ASSETS AT END OF PERIOD $35,522,152 $66,016,840 $23,929,572 $8,276,765 $5,178,316 $4,429,044
</TABLE>
+ Prior to May 1, 1993, this Fund was titled Common Stock Portfolio. Between May
1, 1993 and April 29, 1997, this Fund was titled Common Stock Index Fund.
In 1994, the S&P 500 Index Fund received an expense reimbursement from its
investment adviser. Absent this reimbursement, the ratio of expenses to average
net assets and the ratio of net investment income to average net assets would
have been 1.10% and 1.90%, respectively, for 1994.
Due to the significant increase in shares issued to the Aon Savings Plan in 1995
and 1994 and the significant decrease in shares in 1996 related to redemptions
by Aon Savings Plan, the net changes in the 1994 and 1995 Net Asset Value per
share as calculated in accordance with the requirements of Form N-1A are not
commensurate with the Statement of Changes in Net Assets.
4
<PAGE>
<TABLE>
<CAPTION>
S&P 500 INDEX
FUND+
- ----------------------------------------------------------------------------------------------------------
1/1 to 1/1 to 1/1 to 1/1 to
12/31/90 12/31/89 12/31/88 12/31/87
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net asset value at beginning of period $ 14.67 $ 12.33 $ 10.28 $ 12.66
Net investment income .41 .34 .32 .24
Net realized and unrealized gain (loss)
on investments (1.91) 2.81 2.05 (1.04)
------- ------- ------- -------
Income (loss) from operations (1.50) 3.15 2.37 (.80)
Distributions to shareholders from:
Net investment income (.41) (.34) (.32) (.78)
Net realized gain .-- (.46) .-- (.80)
Tax return of capital (.01) (.01) .-- .--
------- ------- ------- -------
(.42) (.81) (.32) (1.58)
------- ------- ------- -------
Increase (decrease) in net asset value (1.92) 2.34 2.05 (2.38)
------- ------- ------- -------
Net asset value at end of period $ 12.75 $ 14.67 $ 12.33 $ 10.28
======= ======= ======= =======
Total Return (10.22%) 25.72% 23.05% (6.32%)
======= ======= ======= =======
RATIOS:
Ratio of operating expenses to
average net assets 1.06% 1.20% 1.35% 1.42%
Ratio of net investment income to
average net assets 2.99% 2.67% 2.53% 2.03%
Portfolio turnover 57.06% 36.94% 186.43% 105.43%
Average Commission Rate Paid N/A N/A N/A N/A
NET ASSETS AT END OF PERIOD $3,154,412 $3,430,460 $2,126,551 $1,839,227
</TABLE>
+ Prior to May 1, 1993, this Fund was titled Common Stock Portfolio.
5
<PAGE>
GE INVESTMENTS FUNDS, INC.
FINANCIAL HIGHLIGHTS, CONTINUED
Selected data for each share of capital stock outstanding for the periods
indicated. The data for the most recent five years has been audited by Ernst &
Young LLP. independent auditors. The data should be read in conjunction with the
financial statements, related notes, and other financial information included in
the statement of additional information.
<TABLE>
<CAPTION>
GOVERNMENT SECURITIES
FUND +
- ---------------------------------------------------------------------------------------------------------------------------
1/1 to 1/1 to 1/1 to 1/1 to 1/1 to 1/1 to
12/30/96 12/31/95 12/31/94 12/31/93 12/31/92 12/31/91
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Net asset value at beginning of period $10.48 $ 9.51 $ 10.49 $ 10.54 $ 10.54 $ 9.60
Net investment income 1.01 .49 .42 .45 .69 .75
Net realized and unrealized gain
(loss) on investments (.87) 1.13 (.98) .50 .06 .99
------ ------- ------- ------- ------- -------
Income from investment operations .14 1.62 (.56) .95 .75 1.74
Distributions to shareholders from:
Net investment income (1.02) (.49) (.42) (.45) (.69) (.75)
Net realized gain (.04) (.16) .-- (.54) (.05) (.04)
Tax return of capital .-- .-- .-- (.01) (.01) (.01)
------ ------- ------- ------- ------- -------
(1.06) (.65) (.42) (1.00) (.75) (.80)
------ ------- ------- ------- ------- -------
Increase (decrease) in net asset value (.92) .97 (.98) (.05) .-- .94
------ ------- ------- ------- ------- -------
Net asset value at end of period $ 9.56 $ 10.48 $ 9.51 $ 10.49 $ 10.54 $ 10.54
====== ======= ======= ======= ======= =======
Total Return 1.34% 17.08% (5.34%) 8.96% 7.13% 18.16%
====== ======= ======= ======= ======= =======
RATIOS:
Ratio of expenses to average net assets 0.67% .74% .81% .86% .99% .97%
Ratio of net investment income to
average net assets 5.64% 5.92% 5.44% 5.41% 6.69% 7.73%
Portfolio turnover 322.07% 130.64% 565.65% 112.86% 14.43% 23.24%
NET ASSETS AT END OF PERIOD $13,771,450 $23,708,181 $12,598,072 $7,884,928 $5,053,246 $4,444,984
</TABLE>
+ Prior to May 1, 1993, this Fund was titled Bond Portfolio.
Due to the significant increase in shares issued to the Aon Savings Plan in 1995
and 1994 and the significant decrease in shares in 1996 related to redemptions
by Aon Savings Plan, the net changes in the 1994 and 1995 Net Asset Value per
share as calculated in accordance with the requirements of Form N-1A are not
commensurate with the Statement of Changes in Net Assets.
6
<PAGE>
<TABLE>
<CAPTION>
GOVERNMENT SECURITIES
FUND+
- ---------------------------------------------------------------------------------------------------------------------------
1/1 to 1/1 to 1/1 to 1/1 to
12/31/90 12/31/89 12/31/88 12/31/87
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net asset value at beginning of period $ 9.76 $ 9.58 $ 10.09 $ 11.50
Net investment income .64 .74 .90 .66
Net realized and unrealized gain (loss)
on investments (.15) .31 (.15) (.53)
------- ------- ------- -------
Income from investment operations .49 1.05 .75 .13
Distributions to shareholders from:
Net investment income (.64) (.74) (1.26) (1.43)
Net realized gain .-- (.12) .-- (.11)
Tax return of capital (.01) (.01) .-- .--
------- ------- ------- -------
(.65) (.87) (1.26) (1.54)
------- ------- ------- -------
Increase (decrease) in net asset value (.16) .18 (.51) (1.41)
------- ------- ------- -------
Net asset value at end of period $ 9.60 $ 9.76 $ 9.58 $ 10.09
======= ======= ======= =======
Total Return 5.05% 10.85% 7.83% 1.13%
======= ======= ======= =======
RATIOS:
Ratio of expenses to average net assets .96% 1.13% 1.07% 1.08%
Ratio of net investment income to average net assets 7.78% 7.95% 7.67% 7.51%
Portfolio turnover 56.62% 80.30% 177.76% 10.79%
NET ASSETS AT END OF PERIOD $3,701,835 $3,463,916 $2,933,506 $3,175,326
</TABLE>
+ Prior to May 1, 1993, this Fund was titled Bond Portfolio.
<PAGE>
GE INVESTMENTS FUNDS, INC.
FINANCIAL HIGHLIGHTS, CONTINUED
Selected data for each share of capital stock outstanding for the periods
indicated. The data for the most recent five years has been audited by Ernst &
Young LLP. independent auditors. The data should be read in conjunction with the
financial statements, related notes, and other financial information included in
the statement of additional information.
<TABLE>
<CAPTION>
MONEY MARKET
FUND
- ----------------------------------------------------------------------------------------------------------------------------------
1/1 to 1/1 to 1/1 to 1/1 to 1/1 to 1/1 to
12/30/96 12/31/95 12/31/94 12/31/93 12/31/92 12/31/91
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Net asset value at beginning of period $ 10.36 $ 10.17 $ 10.08 $ 10.04 $ 10.00 $ 9.96
Net investment income .56 .60 .29 .25 .31 .53
Net realized and unrealized gain
(loss) on investments .-- .-- .09 (.01) .-- .--
--------- --------- --------- --------- --------- ---------
Income from operations .56 .60 .38 .24 .31 .53
Distributions to shareholders from:
Net investment income (.54) (.41) (.29) (.20) (.26) (.49)
Net realized gain .-- .-- .-- .-- .-- .--
Tax return of capital .-- .-- .-- .-- (.01) .00
--------- --------- --------- --------- --------- ---------
(.54) (.41) (.29) (.20) (.27) (.49)
--------- --------- --------- --------- --------- ---------
Increase (decrease) in net asset value .02 .19 .09 .04 .04 .04
--------- --------- --------- --------- --------- ---------
Net asset value at end of period $ 10.38 $ 10.36 $ 10.17 $ 10.08 $ 10.04 $ 10.00
========= ========= ========= ========= ========= =========
Total Return 5.41% 5.90% 3.77% 2.39% 3.10% 5.32%
========= ========= ========= ========= ========= =========
RATIOS:
Ratio of expenses to average net assets* 0.15% .23% .42% .75% .75% .75%
Ratio of net investment income to
average net assets* 5.29% 5.74% 4.04% 2.53% 3.06% 5.43%
Portfolio turnover N/A N/A N/A N/A N/A N/A
NET ASSETS AT END OF PERIOD $113,262,769 $63,083,360 $33,528,739 $9,904,184 $5,845,136 $4,092,986
</TABLE>
* Effective July 1, 1994, the investment adviser agreed to waive a portion of
the advisory fee for the Money Market Fund. Absent this waiver, the ratio of
expenses to average net assets and the ratio of net investment income to average
net assets would have been .70% and 3.76%, respectively, for 1994, .63% and
5.34%, respectively, for 1995 and .55% and 4.89%, respectively, for 1996.
Due to the significant increase in shares issued to the Aon Savings Plan in 1995
and 1994 and the significant decrease in shares in 1996 related to redemptions
by Aon Savings Plan, the net changes in the 1994 and 1995 Net Asset Value per
share as calculated in accordance with the requirements of Form N-1A are not
commensurate with the Statement of Changes in Net Assets.
8
<PAGE>
<TABLE>
<CAPTION>
MONEY MARKET
FUND
- ----------------------------------------------------------------------------------------------------------------
1/1 to 1/1 to 1/1 to 1/1 to
12/31/90 12/31/89 12/31/88 12/31/87
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net asset value at beginning of period $ 10.18 $ 9.94 $ 10.20 $ 10.55
Net investment income .73 .86 .68 .57
Net realized and unrealized gain(loss)
on investments .01 .-- .01 .--
------- ------- ------- -------
Income from operations .74 .86 .69 .57
Distributions to shareholders from:
Net investment income (.94) (.62) (.94) (.92)
Net realized gain (.01) .-- (.01) .--
Tax return of capital (.01) .-- .-- .--
------- ------- ------- -------
(.96) (.62) (.95) (.92)
------- ------- ------- -------
Increase (decrease) in net asset value (.22) .24 (.26) (.35)
------- ------- ------- -------
Net asset value at end of period $ 9.96 $ 10.18 $ 9.94 $ 10.20
======= ======= ======= =======
Total Return 7.28% 8.67% 6.76% 5.40%
======= ======= ======= =======
RATIOS:
Ratio of expenses to average net assets .75% .75% .75% .87%
Ratio of net investment income to average
net assets 7.02% 8.43% 6.68% 5.78%
Portfolio turnover N/A N/A N/A N/A
NET ASSETS AT END OF PERIOD $3,464,661 $3,686,068 $2,376,022 $4,141,864
</TABLE>
9
<PAGE>
GE INVESTMENTS FUNDS, INC.
FINANCIAL HIGHLIGHTS, CONTINUED
Selected data for each share of capital stock outstanding for the periods
indicated. The data for the most recent five years has been audited by Ernst &
Young LLP. independent auditors. The data should be read in conjunction with the
financial statements, related notes, and other financial information included in
the statement of additional information.
<TABLE>
<CAPTION>
TOTAL RETURN
FUND
- -------------------------------------------------------------------------------------------------------------------------------
1/1 to 1/1 to 1/1 to 1/1 to 1/1 to 1/1 to
12/30/96 12/31/95 12/31/94 12/31/93 12/31/92 12/31/91
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Net asset value at beginning of period $15.93 $ 13.40 $ 13.59 $ 13.00 $ 12.62 $ 10.59
Net investment income 1.02 .41 .35 .42 .44 .43
Net realized and unrealized gain
(loss) on investments .67 3.34 (.01) 1.35 .51 2.47
------ ------- ------- ------- ------- -------
Income (loss) from investment operations 1.69 3.75 .34 1.77 .95 2.90
Distributions to shareholders from:
Net investment income (1.02) (.42) (.35) (.41) (.44) (.43)
Net realized gain (3.87) (.80) (.18) (.76) (.12) (.43)
Tax return of capital .-- .-- .-- (.01) (.01) (.01)
------ ------- ------- ------- ------- -------
(4.89) (1.22) (.53) (1.18) (.57) (.87)
------ ------- ------- ------- ------- -------
Increase (decrease) in net asset value (3.20) 2.53 (.19) .59 .38 2.03
------ ------- ------- ------- ------- -------
Net asset value at end of period $12.73 $ 15.93 $ 13.40 $ 13.59 $ 13.00 $ 12.62
====== ======= ======= ======= ======= =======
Total Return 10.60% 28.07% 2.54% 13.67% 7.53% 27.45%
====== ======= ======= ======= ======= =======
RATIOS:
Ratio of expenses to average net assets 0.60% .65% .77% .85% .98% 1.11%
Ratio of net investment income to
average net assets 2.73% 3.42% 4.00% 3.80% 4.13% 4.39%
Portfolio turnover 144.02% 105.56% 66.92% 48.12% 12.46% 32.58%
Average Commission Rate Paid $ .06 N/A N/A N/A N/A N/A
NET ASSETS AT END OF PERIOD $27,814,028 $70,507,093 $34,708,256 $12,609,407 $7,247,897 $4,608,823
</TABLE>
Due to the significant increase in shares issued to the Aon Savings Plan in 1995
and 1994 and the significant decrease in shares in 1996 related to redemptions
by Aon Savings Plan, the net changes in the 1994 and 1995 Net Asset Value per
share as calculated in accordance with the requirements of Form N-1A are not
commensurate with the Statement of Changes in Net Assets.
10
<PAGE>
<TABLE>
<CAPTION>
TOTAL RETURN
FUND
- --------------------------------------------------------------------------------------------------------------
1/1 to 1/1 to 1/1 to 1/1 to
12/31/90 12/31/89 12/31/88 12/31/87
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net asset value at beginning of period $ 11.60 $ 10.42 $ 9.29 $ 11.19
Net investment income .55 .51 .39 .31
Net realized and unrealized gain (loss)
on investments (1.00) 1.51 1.28 (.90)
------- ------- ------- -------
Income (loss) from investment operations (.45) 2.02 1.67 (.59)
Distributions to shareholders from:
Net investment income (.56) (.51) (.39) (.94)
Net realized gain .-- (.32) (.15) (.37)
Tax return of capital .-- (.01) .-- .--
------- ------- ------- -------
(.56) (.84) (.54) (1.31)
------- ------- ------- -------
Increase (decrease) in net asset value (1.01) 1.18 1.13 (1.90)
------- ------- ------- -------
Net asset value at end of period $ 10.59 $ 11.60 $ 10.42 $ 9.29
======= ======= ======= =======
Total Return (3.85%) 19.51% 17.98% (5.27%)
======= ======= ======= =======
RATIOS:
Ratio of expenses to average net assets 1.10% 1.28% 1.35% 1.50%
Ratio of net investment income to
average net assets 4.81% 4.54% 3.97% 3.04%
Portfolio turnover 41.80% 48.94% 96.15% 81.80%
Average Commission Rate Paid N/A N/A N/A N/A
NET ASSETS AT END OF PERIOD $2,937,613 $3,065,217 $2,301,744 $1,569,825
</TABLE>
11
<PAGE>
GE INVESTMENTS FUNDS, INC.
FINANCIAL HIGHLIGHTS, CONTINUED
Selected data for each share of capital stock outstanding for the periods
indicated. The data for the most recent five years has been audited by Ernst &
Young LLP. independent auditors. The data should be read in conjunction with the
financial statements, related notes, and other financial information included in
the statement of additional information.
<TABLE>
<CAPTION>
INTERNATIONAL EQUITY REAL ESTATE SECURITIES
FUND FUND
------------------------ -------------------------
1/1 to 5/1 to 1/1 to 5/1 to
12/30/96 12/31/95 12/30/96 12/31/95
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net asset value at beginning of period $10.47 $ 10.00 $11.05 $ 10.00
Net investment income .03 .20 .64 .46
Net realized and unrealized gain on investments 1.01 .47 3.36 1.23
------ ------- ------ -------
Income from investment operations 1.04 .67 4.00 1.69
Distributions to shareholders from:
Net investment income (.03) (.20) (.65) (.46)
Net realized gain (.65) .-- (.29) (.18)
------ ------- ------ -------
(.68) (.20) (.94) (.64)
------ ------- ------ -------
Increase in net asset value .36 .47 3.06 1.05
------ ------- ------ -------
Net asset value at end of period $10.83 $ 10.47 $14.11 $ 11.05
====== ======= ====== =======
Total Return 9.91% 6.70%* 36.24% 17.00%*
====== ======= ====== =======
RATIOS:
Ratio of expenses to average net assets** 1.50% 1.54%* 1.07% 1.31%*
Ratio of net investment income to
average net assets** .23% .44%* 5.90% 6.85%*
Portfolio turnover 149.72% 58.11% 30.36% 54.43%
Average Commission Rate Paid $ .03 N/A $ .06 N/A
NET ASSETS AT END OF PERIOD $17,643,845 $15,347,782 $24,533,248 $13,428,877
</TABLE>
* Amounts have been determined on an annualized basis.
** In 1995 and 1996, the International Equity Fund received an expense
reimbursement from the investment adviser. Absent this reimbursement, the
ratio of expenses to average net assets and the ratio of net investment
income to average net assets would have been 1.56% and .17% for 1996 and
2.17% and (.18%) for 1995, respectively.
** In 1995, the Real Estate Securities Fund received an expense reimbursement
from the investment adviser. Absent this reimbursement, the ratio of
expenses to average net assets and the ratio of net investment income to
average net assets would have been 1.61% and 6.55%, respectively.
12
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
Each Fund has one or more investment objectives and related investment policies
and uses various investment practices to pursue these objectives and policies.
There can be no assurance that any of the Funds will achieve its investment
objective or objectives. Investors should not consider any one Fund alone to be
a complete investment program. All of the Funds are subject to the risk of
changing economic conditions, as well as the risk inherent in the ability of the
Adviser to make changes in the composition of the Fund in anticipation of
changes in economic, business, and financial conditions. As with any security, a
risk of loss is inherent in an investment in the shares of any of the Funds.
The different types of securities, investments, and investment practices used by
each Fund all have attendant risks of varying degrees. For example, with respect
to equity securities, there can be no assurance of capital appreciation and
there is a substantial risk of decline. With respect to debt securities, there
exists the risk that the issuer of a security may not be able to meet its
obligations on interest or principal payments at the time required by the
instrument. In addition, the value of debt instruments generally rises and falls
inversely with prevailing current interest rates. As described below, an
investment in certain of the Funds entails special additional risks as a result
of their ability to invest a substantial portion of their assets in either
foreign investments or real estate securities.
Certain types of investments and investment practices common to one or more
Funds are described in greater detail, including the risks of each, under
"Investment Practices" both in this prospectus and in the statement of
additional information ("SAI"). The Funds are also subject to certain investment
restrictions that are described herein and under the caption "Investment
Restrictions" in the SAI.
Where the description of a Fund indicates that it invests primarily in certain
types of securities, this means that under normal circumstances it invests at
least 65% of its total assets in such securities. Notwithstanding this, each of
the Funds other than the S&P 500 Index Fund may, for temporary defensive
purposes, invest 100% of its total assets in money market instruments of the
type that the Money Market Fund may invest in.
The investment objective or objectives of each Fund are fundamental and may not
be changed without the approval of a majority of the outstanding voting shares
of capital stock of the class related to that Fund. A majority means the lesser
of (1) 67% of the Fund's outstanding shares present at a meeting of shareholders
if more than 50% of the outstanding shares are present in person or by proxy, or
(2) more than 50% of the Fund's outstanding shares. Certain investment
restrictions described in the SAI also are fundamental and cannot be changed
without shareholder approval. In contrast, certain other investment
restrictions, also described in the SAI, as well as the investment policies of
each Fund are not fundamental and may be changed by the Company's board of
directors without shareholder approval.
S&P 500 Index Fund
The S&P 500 Index Fund has the investment objective of providing capital
appreciation and accumulation of income that corresponds to the investment
return of the Standard & Poor's 500 Composite Stock Price Index (the "S&P 500
Index"), through investment in common stocks and other securities comprising
that Index. See "General Information" in the SAI for details.
Standard & Poor's ("Standard & Poor's" or "S&P"1) chooses the 500 common stocks
comprising the S&P 500 Index on the basis of market values, industry
diversification and other factors. Most of the common stocks in the S&P 500
Index are issued by the 500 largest companies, in terms of the aggregate market
value of their outstanding stock, and such companies are generally listed on the
New York Stock Exchange. Additional common stocks that are not among the 500
largest market value stocks are included in the S&P 500 Index for
diversification purposes. S&P may, from time to time, add common stocks to or
delete common stocks from the S&P 500 Index.
- ----------
1 "Standard & Poor's"(R), "S&P"(R), and "S&P 500"(R) are trademarks of the
McGraw-Hill Companies, Inc. and have been licensed for use. The S&P 500
Index Fund is not sponsored, endorsed, sold or promoted by S&P, and S&P
makes no representation or warranty, express or implied, to the investors
in this Fund or any member of the public regarding the advisability of
investing in this Fund or in securities generally or the ability of the S&P
500 Index to track general stock market performance. S&P's only
relationship to the Fund is the licensing of certain trademarks and trade
names of S&P and of the S&P 500 Index which is determined, composed and
calculated by S&P without regard to the Fund. S&P has no obligation to take
the needs of the Fund or the investors in the Fund into consideration in
determining, composing or calculating the S&P 500 Index. S&P is not
responsible for and has not participated in the determination of the prices
or composition of the S&P 500 Index Fund or the timing of the issuance or
sale of the shares of that Fund.
S&P does not guarantee the accuracy and/or the completeness of the S&P 500
Index or any data included therein and S&P shall have no liability for any
errors, omissions, or interruptions therein. S&P makes no warranty, express
or implied, as to results to be obtained by the Fund, or by investors in
the Fund, or any other person or entity from the use of the S&P 500 Index
or any data included therein. S&P makes no express or implied warranties,
and expressly disclaims all warranties of merchantability or fitness for a
particular purpose or use with respect to the S&P 500 Index or any data
included therein. Without limiting any of the foregoing, in no event shall
S&P have any liability for any special, punitive, indirect or consequential
damages (including lost profits), even if notified of the possibility of
such damages.
13
<PAGE>
The S&P 500 Index Fund attempts to achieve its objective by replicating the
total return of the S&P 500 Index. To the extent that it can do so consistent
with the pursuit of its investment objective, it attempts to keep transaction
costs low and minimize portfolio turnover. To achieve its investment objective,
the S&P 500 Index Fund purchases equity securities that reflect, as a group, the
total investment return of the S&P 500 Index. Like the S&P 500 Index, the S&P
500 Index Fund will hold both dividend paying and non-dividend paying common
stocks comprising the S&P 500 Index.
Active portfolio management strategies are not used in making investment
decisions for the S&P 500 Index Fund. Rather, the Adviser utilizes a passive
investment management approach. From time to time the Adviser also may
supplement this passive approach by using statistical selection techniques to
determine which securities to purchase or sell for the Fund in order to
replicate the investment return of the S&P 500 Index over a period of time.
The S&P 500 Index Fund may choose not to invest in all the securities that
comprise the S&P 500 Index, and its holdings may differ by industry segment from
the S&P 500 Index. The Fund may compensate for the omission from its portfolio
of stocks that are included in the S&P 500 Index, or for purchasing securities
included in the Index in proportions that are different from their weightings in
the Index, by purchasing securities that may or may not be included in the S&P
500 Index but which have characteristics similar to the omitted securities (such
as stocks from the same or similar industry groups having similar market
capitalizations and other investment characteristics). In addition, from time to
time adjustments may be made in the S&P 500 Index Fund's holdings due to changes
in the composition or weighting of issues comprising the S&P 500 Index.
The S&P 500 Index Fund will attempt to achieve a correlation between its total
return and that of the S&P 500 Index of at least 0.95, without taking expenses
into account. A correlation of 1.00 would indicate perfect correlation, which
would be achieved when the S&P 500 Index Fund's net asset value, including the
value of its dividends and capital gains distributions, increases or decreases
in exact proportion to changes in the S&P 500 Index. The Adviser monitors the
S&P 500 Index Fund's correlation to the S&P 500 Index and attempts to minimize
any "tracking error" (i.e., the statistical measure of the difference between
the investment results of the S&P 500 Index Fund and that of the S&P 500 Index).
However, brokerage and other transaction costs, as well as other S&P 500 Index
Fund expenses, in addition to potential tracking error, will tend to cause the
S&P 500 Index Fund's return to be lower than the return of the S&P 500 Index.
There can be no assurance as to how closely the S&P 500 Index Fund's performance
will correspond to the performance of the S&P 500 Index.
The S&P 500 Index Fund will not invest more than 35% of its total assets in
stocks and other securities not included in the S&P 500 Index. In this regard,
the S&P 500 Index Fund may temporarily invest cash balances, pending withdrawals
or investments, in high quality money market instruments. Nevertheless, the S&P
500 Index Fund will not adopt a temporary defensive investment posture in times
of generally declining stock prices, and, therefore, investors will bear the
risk of such general stock market declines.
14
<PAGE>
The S&P 500 Index Fund may write covered call and put options on individual
securities and stock indices which correlate with the S&P 500 Index Fund's
investments and may purchase call and put options on such securities and stock
indices, provided such options written or purchased are listed on a national
securities exchange. In addition, the S&P 500 Index Fund may purchase and sell
exchange-traded stock index futures contracts and may write covered call and put
options and purchase call and put options on stock index futures contracts
provided such options written or purchased are listed on an exchange.
Consistent with its investment objective, the S&P 500 Index Fund will primarily
use call and put options and futures contracts, as described above, to rapidly
invest cash balances and to hedge exposure to the S&P 500 Index in anticipation
of investing cash balances or expected cash flow into the Fund in appropriate
common stocks or in anticipation of liquidating appropriate common stocks to
meet expected redemption requests. See "Writing Covered Call and Put Options and
Purchasing Call and Put Options" and "Financial Futures Contracts and Options
Thereon" in this Prospectus for more information about these practices and their
risks.
Government Securities Fund
The Government Securities Fund has the investment objective of seeking high
current income and protection of capital through investment in intermediate and
long-term debt instruments issued or guaranteed by the U.S. Government, its
agencies or instrumentalities. The Government Securities Fund may also invest in
U.S. Government debt instruments having maturities of less than one year and in
other high quality money market instruments. The Government Securities Fund
invests at least 80% of its total assets, valued at the time of purchase, in
U.S. Government securities of various maturities. See "Debt Securities" in this
prospectus for more information about U.S. Government securities.
The Government Securities Fund may invest up to 50% of its net assets in
Government National Mortgage Association ("GNMA") certificates. Such securities
are (along with certain Federal National Mortgage Association and Federal Home
Loan Corporation securities in which the Government Securities Fund may invest)
securities whose scheduled monthly interest and principal payments relating to
mortgages in the pool are "passed through" to investors. GNMA and other similar
pass-through securities differ from conventional bonds in that principal is paid
back to the certificate holders over the life of the loan rather than at
maturity. As a result, the Government Securities Fund will receive scheduled
monthly payments of principal and interest on its GNMA and other similar
securities. In addition, the Government Securities Fund may receive unscheduled
principal payments representing prepayments on the underlying mortgages. All
payments and unscheduled prepayments of principal will be reinvested in the
Government Securities Fund in instruments consistent with the Government
Securities Fund's investment objectives. GNMA and other similar securities may
not be an effective means of "locking in" long-term interest rates due to the
need for the Government Securities Fund to reinvest scheduled and unscheduled
principal payments. At the time principal payments or prepayments are received
by the Government Securities Fund, prevailing interest rates may be higher or
lower than the current yield of GNMA and other similar pass-through securities
held by the Government Securities Fund.
The Government Securities Fund may write covered call and put options on debt
securities, in which it may invest, whether or not listed on a national
securities exchange and may purchase call and put options on such debt
securities whether or not listed on an exchange. In addition, the Government
Securities Fund may purchase and sell exchange-traded interest rate futures
contracts and may write covered call options and purchase call and put options
on interest rate futures contracts whether or not listed on an exchange. The
Fund also may lend portfolio securities, purchase securities on a when-issued or
delayed-delivery basis, invest in restricted and other illiquid investments as
well as in foreign investments and zero coupon bonds. See "Investment Practices"
in this prospectus and in the SAI for more information about these practices and
their risks.
The value of U.S. Government securities owned by the Government Securities Fund
will fluctuate in response to various market forces and will vary inversely with
prevailing current interest rates. Therefore, the value of an investment in the
Government Securities Fund also will fluctuate. In this regard, any government
or agency guarantee of securities held in the Government Securities Fund does
not guarantee the value of an investment in the Fund.
15
<PAGE>
Money Market Fund
The Money Market Fund has the investment objective of providing the highest
level of current income as is consistent with high liquidity and safety of
principal by investing in various types of good quality money market securities.
Such securities include:
1. Obligations issued by or guaranteed as to interest and principal by the
government of the United States or any agency or instrumentality thereof
("U.S. Government securities").
2. Obligations (including certificates of deposit, loan participation
interests, time deposits, and bankers' acceptances) of: (a) U.S. banks and
other U.S. financial institutions (including their foreign branches) that
are members of the Federal Reserve System or the Federal Deposit Insurance
Corporation when either (i) the principal amount of the obligation is
insured in full by the FDIC, or (ii) the issuer of the obligation has
capital, surplus and undivided profits in excess of $100 million or total
assets of $1 billion; and (b) foreign banks and U. S. branches of foreign
banks having total assets in excess of $10 billion at the then current
exchange rate.
3. Repurchase agreements with banks or government securities dealers, provided
that:
(a) at the time the repurchase agreement is entered into, and throughout
the duration of the repurchase agreement, the collateral has a market
value at least equal to the value of the repurchase agreement; and
(b) the collateral consists of U.S. Government securities or instruments
rated in the highest rating category by the requisite nationally
recognized statistical rating organizations ("NRSROs") (as defined
below).
4. Commercial paper, which consists of unsecured promissory notes issued by
corporations.
5. Other short-term obligations issued or guaranteed by U.S. corporations,
state and municipal governments or other issuers.
The Money Market Fund only invests in instruments denominated in U. S. dollars
that the Adviser, under the supervision of the board of directors of the Fund,
determines present minimal credit risks and are, at the time of acquisition:
1. rated in the two highest rating categories by at least two NRSROs (as
defined under Rule 2a-7, under the Investment Company Act of 1940), or by
only one NRSRO if only one NRSRO has issued a rating with respect to the
instrument ("requisite NRSROs"); or
2. in the case of an unrated instrument, determined by the Adviser under the
supervision of the board of directors to be of comparable quality to the
above; or
3. issued by an issuer that has received a rating of the type described in 1
above on other securities that are comparable in priority and security to
the instrument.
The Money Market Fund maintains 95% of its total assets in securities that are
rated in the highest category by the requisite NRSROs or unrated securities of
comparable investment quality. Of securities not rated in the highest category
(or not of comparable quality), the Fund does not invest more than the greater
of 1% of its total assets or $1 million in the securities of any single issuer.
Except as explained in the SAI, the Fund does not invest more than 5% of its
total assets (taken at amortized cost) in securities of any single issuer
(except U.S. Government securities or repurchase agreements collateralized by
such securities).
16
<PAGE>
All of the Money Market Fund money market instruments mature in 13 months or
less. The average maturity of the Fund's portfolio securities based on their
dollar value does not exceed 90 days at the time of each investment. If the
disposition of a fund security results in a dollar-weighted average fund
maturity in excess of 90 days, the Fund invests its available cash in such a
manner as to reduce its dollar-weighted average fund maturity to 90 days or less
as soon as reasonably practicable. The Fund attempts to maintain a constant net
asset value per share of $1.
The Money Market Fund also may lend portfolio securities and purchase securities
on a when-issued or delayed-delivery basis.
Total Return Fund
The Total Return Fund has the investment objective of providing the highest
total return, composed of current income and capital appreciation, as is
consistent with prudent investment risk. It attempts to achieve this objective
by investing in common stocks, bonds and money market instruments, the
proportion of each being continuously determined by the Adviser. This Fund
invests in common stocks and other equity securities or securities convertible
into or with rights to purchase common stocks and securities that are
permissible investments for the Government Securities Fund and the Money Market
Fund. This Fund also invests in marketable corporate debt obligations of
domestic and foreign issuers, mortgage-backed and asset backed securities, and
debt obligations of foreign governments and their agencies and
instrumentalities. The Total Return Fund also may invest in options on equity
securities, options on equity indices, futures contracts on equity indices (and
options thereon), securities of real estate investment trusts ("REITs"), equity
securities of foreign issuers, non-dollar equity securities and structured
securities. See "Investment Practices" in this prospectus and in the SAI for
more information about these practices and their risks.
At least 60% of the value of any bonds held by this Fund will be rated within
the four highest grades by an NRSRO such as Standard and Poor's Corporation or
Moody's Investors Service, Inc. The balance of the value of any bonds held by
this Fund may be rated below those four highest grades. If these lower-rated
bonds are held in the Fund in significant amounts, they will increase financial
risk and income volatility. At the current time, the Fund has a non-fundamental
investment restriction limiting the Fund's investment in these lower-rated debt
securities to no more than 30% of the Fund's total assets measured at the time
of purchase. Lower-rated debt securities and their attendant risks are described
in "Investment Practices" in this prospectus and in the SAI.
There are no percentage limitations on the types of securities in which the
Total Return Fund may invest. From time to time, the Fund may invest entirely in
equity securities, entirely in debt securities, entirely in money market
instruments, or in any combination of these types of securities. Consequently,
the Total Return Fund is subject to varying levels of market and financial risk
and current income volatility, and may at times be subject to very high levels
of market and financial risk and current income volatility. The portfolio
turnover rate for this Fund is generally higher than for other funds due to the
frequent fund transactions aimed at maximizing total return. This higher
portfolio turnover rate generates higher brokerage expenses; however, the gain
in total return will often more than offset the brokerage expense. It is not
anticipated that higher portfolio turnover will have any adverse tax
consequences.
International Equity Fund
The International Equity Fund has the investment objective of providing
long-term capital appreciation. The Fund seeks to achieve its objective by
investing primarily in equity and equity-related securities of companies that
are organized outside the United States or of companies whose securities are
principally traded outside the United States ("foreign issuers") and which the
Adviser believes have long-term potential for capital appreciation. The Fund
also may invest in securities (1) of companies organized in the United States
but having their principal activities and interests outside the United States,
(2) denominated or quoted in foreign currency ("non-dollar securities"), and (3)
issued by foreign governments or agencies or instrumentalities of foreign
governments (also "foreign issuers").
The International Equity Fund is intended for investors who can accept the risks
involved in investments in equity and equity-related securities of foreign
issuers and in non-dollar securities. See "Foreign Investments and Currency."
17
<PAGE>
The Fund invests in the securities of foreign issuers located (or, in the case
of the securities, traded) in at least 3 different countries other than the
United States. Nonetheless, under certain economic and business conditions the
Fund may invest up to 35% of its total assets in the securities of issuers
located (or, in the case of the securities, traded) in any one of the following
countries: Australia, Canada, France, Japan, the United Kingdom or Germany.
The equity and equity-related securities in which the International Equity Fund
invests are common stock, preferred stock, convertible debt obligations,
convertible preferred stock and warrants or other rights to acquire stock. The
Fund also may invest in securities of foreign issuers in the form of sponsored
and unsponsored American depository receipts ("ADRs"), European depository
receipts ("EDRs"), and global depository receipts ("GDRs""). ADRs are receipts
typically issued by a U.S. bank or trust company which evidence ownership of
underlying securities of foreign corporate issuers. EDRs and GDRs are receipts
issued by non-U.S. financial institutions evidencing arrangements similar to
ADRs. Generally, ADRs are in registered form and are designed for trading in
U.S. markets while EDRs are in bearer form and are designed for trading in
European securities markets. GDRs are issued in either registered or bearer form
and are designed for trading on a global basis. See "Foreign Investments and
Currency."
The International Equity Fund also may, under normal market conditions, invest
up to 35% of its total assets in dollar denominated and non-dollar denominated
debt securities of foreign issuers and may on occasion, for temporary purposes
to preserve capital, hold part or all of its assets in foreign currency or in
non-dollar short-term debt securities.
The International Equity Fund may invest in the securities of issuers located in
countries with emerging economies or securities markets. Investment in such
countries involves certain risks that are not present in investments in more
developed countries. See "Foreign Investments and Currency." The International
Equity Fund may make investments or engage in investment practices that involve
special risks. These include: convertible securities, when-issued securities,
delayed-delivery securities, options on securities and securities indices,
futures contracts and options thereon, illiquid or restricted securities,
repurchase agreements, REITs, lending portfolio securities and borrowing money
for investment purposes. These investment practices and attendant risks are
described in "Investment Practices" in this prospectus or in the SAI.
The International Equity Fund may employ certain currency management techniques
to hedge against currency exchange rate fluctuations and to seek to increase
total return. When used to attempt to increase total return, these management
techniques are speculative. Such currency management techniques involve risks
different from those associated with investing in dollar-denominated securities
of U.S. issuers. These techniques are transactions in options, futures
contracts, option contracts on futures contracts, forward foreign currency
exchange contracts and currency swaps. To the extent that the Fund is fully
invested in securities of foreign issuers or non-dollar securities while also
maintaining foreign currency positions, it may be exposed to greater combined
risk. The Fund's net currency positions may expose it to risks independent of
its securities positions. See "Foreign Investments and Currency."
Real Estate Securities Fund
The Real Estate Securities Fund has the investment objective of providing
maximum total return through current income and capital appreciation. The Fund
seeks to achieve this objective by investing primarily in equity and debt
securities of U.S. issuers that are principally engaged in or related to the
real estate industry, including those that own significant real estate assets.
The Fund does not invest directly in real estate.
The Real Estate Securities Fund is intended for investors who can accept the
risks, described below, entailed by indirect investments in real estate.
An issuer is principally "engaged in" or principally "related to" the real
estate industry if at least 50% of its assets (marked-to-market), gross income,
or net profits are attributable to ownership, construction, management or sale
of residential, commercial or industrial real estate, or to products or services
related to the real estate industry. Issuers engaged in the real estate industry
include equity real estate investment trusts (which directly own real estate),
mortgage real estate investment trusts (which make short-term construction or
real estate development loans or invest in long-term mortgages or mortgage
pools), real estate brokers and developers, companies that manage real estate,
and
18
<PAGE>
companies that own substantial amounts of real estate. Issuers in businesses
related to the real estate industry include manufacturers and distributors of
building supplies and financial institutions that issue or service mortgages.
The Real Estate Securities Fund generally invests in common stocks but may also,
without limitation, invest in preferred stock, convertible securities, warrants
and debt securities of the foregoing issuers as well as publicly traded limited
partnerships. In addition to these securities, the Fund may invest up to 35% of
its total assets in equity and debt securities of issuers outside the real
estate industry, including all securities that the Total Return Fund may invest
in, including debt securities and convertible preferred stock and convertible
bonds rated less than BBB by Standard and Poor's Corporation or Baa by Moody's
Investors Service, Inc. or that are unrated. If held in the Fund in significant
amounts, such lower-rated debt securities would increase financial risk and
income volatility. Lower-rated debt securities and their attendant risks are
described in "Investment Practices" in this prospectus and in the SAI.
The Real Estate Securities Fund may make investments or engage in investment
practices that involve special risks. These include: convertible securities,
when-issued securities, delayed-delivery securities, options on securities and
securities indices, futures contracts and options thereon, illiquid or
restricted securities, repurchase agreements, structured securities and lending
portfolio securities. These investment practices and attendant risks are
described in "Investment Practices" in this prospectus or in the SAI.
There are significant risks inherent in the investment objective and policies of
the Real Estate Securities Fund. Because of its objective of investing in, among
other things, the securities of issuers that own, construct, manage, or sell
residential, commercial, or industrial real estate, it is subject to all of the
risks associated with the ownership of real estate. These risks include:
declines in the value of real estate, adverse changes in the climate for real
estate, risks related to general and local economic conditions, over-building
and increased competition, increases in property taxes and operating expenses,
changes in zoning laws, casualty or condemnation losses, limitations on rents,
changes in neighborhood values, the appeal of properties to tenants, leveraging
of interests in real estate, increases in prevailing interest rates and costs
resulting from clean-up of environmental problems or liability to third parties
for damages arising from environmental problems. Likewise, because of its
objective of investing in the securities of issuers whose products and services
are related to the real estate industry, it is subject to the risk that the
value of such securities will be adversely affected by one or more of the
foregoing risks.
Because the Fund may acquire debt securities of issuers primarily engaged in or
related to the real estate industry, it also could conceivably own real estate
directly as a result of a default on such securities. Any rental income or
income from the disposition of such real estate could adversely affect its
ability to retain its tax status as a regulated investment company. See "Taxes."
In addition to the risks discussed above, equity real estate investment trusts
may be affected by any changes in the value of the underlying property owned by
the trusts, while mortgage real estate investment trusts may be affected by the
quality of any credit extended. Further, equity and mortgage real estate
investment trusts are dependent upon management skill, are not diversified, and
are therefore subject to the risk of financing single or a limited number of
projects. Such trusts are also subject to heavy cash flow dependency, defaults
by borrowers, self liquidation, and the possibility of failing to qualify for
special tax treatment under Subchapter M of the Internal Revenue Code and to
maintain an exemption under the Investment Company Act of 1940 (the "1940 Act").
Finally, certain real estate investment trusts may be self-liquidating in that a
specific term of existence is provided for in the trust document. Such trusts
run the risk of liquidating at an economically inopportune time. See "Investment
Practices" in this prospectus for more information about real estate investment
trusts.
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Global Income Fund
The Global Income Fund has the investment objectives of high total return,
emphasizing current income and, to a lesser extent, capital appreciation. The
Fund seeks to achieve these objectives by investing primarily in income-bearing
debt securities and other income-bearing instruments of U.S. and foreign
issuers. Such investments may be denominated or quoted in foreign currencies
("non-dollar instruments") or U.S. dollars. Foreign issuers include: (1) foreign
governments, or instrumentalities of foreign governments, (2) international
entities (i.e., the World Bank), (3) companies organized outside the U.S. or
whose securities are principally traded outside the U.S. and, (4) companies
organized in the U.S. but having their principal activities and interests
outside the U.S.
The Global Income Fund may invest in: (1) U.S. Government securities of the type
that the Government Securities Fund may invest in, (2) debt securities issued or
guaranteed by a domestic or foreign issuer (including, in the case of a foreign
government or international entity, any political subdivision, authority, agency
or instrumentality thereof), (3) convertible bonds and non-convertible preferred
stock of domestic or foreign corporate issuers, (4) certificates of deposit,
bankers' acceptances or time deposits of U.S. or foreign banks (including
domestic or foreign branches thereof) having total assets of more than $1
billion, and (5) money market instruments of the type that the Money Market Fund
may invest in. Debt securities may include floating rate and variable rate
instruments, zero coupon obligations, mortgage-backed and asset-backed
securities, and structured securities. See "Investment Practices" in this
prospectus and the SAI for more information about these practices and their
risks.
The Global Income Fund is intended for investors who can accept the risks
involved in securities of foreign issuers and non-dollar instruments. See
"Foreign Investments and Currency."
The Global Income Fund invests in the securities of at least three different
foreign issuers at all times. In selecting investments for the Fund, the Adviser
considers such factors as the instrument's duration, yield, credit quality, the
prospects for capital appreciation, and the fundamental outlooks for currency
and interest rate trends that could affect the instrument. The Fund may use
currency transactions both to enhance overall returns for a given level of risk
and to hedge its exposure to foreign currencies. While the Fund generally has
both long and short currency positions, its net long and short foreign currency
exposure generally does not exceed the value of its total assets. See "Foreign
Investments and Currency."
Debt securities held by the Global Income Fund are limited to those rated within
the six highest categories by S&P, Moody's, or another NRSRO, or, if unrated by
such rating organizations, are determined by the Adviser to be of comparable
quality. The Fund does not, however, invest more than 25% of its total assets in
securities rated below the four highest categories or more than 10% of its total
assets in securities rated below the five highest categories. If such
lower-rated securities are held in the Global Income Fund in significant
amounts, they increase the financial risk and income volatility. Lower-rated
debt securities and their attendant risks are described in "Investment
Practices" in this prospectus and the SAI.
The Global Income Fund maintains a dollar-weighted average portfolio duration of
not more than seven years. Duration represents the weighted average maturity of
expected cash flows on a debt obligation, discounted to present value. The
longer the duration of a debt obligation, the more sensitive its value is to
changes in interest rates. The Fund may use various techniques to shorten or
lengthen the dollar-weighted average duration of its portfolio, including the
acquisition of debt obligations at a premium or discount, transactions in
structured securities, options, futures contracts and options on futures
contracts, and interest rate swaps. The Global Income Fund is not subject to any
limitation with respect to the average maturity of its portfolio.
The Global Income Fund employs certain currency and interest rate management
techniques involving risks different from those associated with investing solely
in dollar-denominated debt securities of U.S. issuers. Such techniques include
transactions in options, futures contracts, options on futures contracts,
structured securities, forward foreign currency exchange contracts, currency
options and futures and currency and interest rate swaps. To the extent that the
Fund is fully invested in securities of foreign issuers and non-dollar
instruments while also maintaining currency positions, it may be exposed to
greater combined risk. The Fund's net currency positions also may expose it to
risks independent of its securities positions. See "Investment Practices" in
this prospectus and the SAI. The Fund also may
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lend securities and invest in repurchase agreements, "when-issued" securities,
securities issued on a delayed-delivery basis, restricted securities and
illiquid investments. See "Investment Practices" in this prospectus and the SAI.
The Global Income Fund is not "diversified" as defined by the 1940 Act.
Therefore, it is more susceptible to adverse developments affecting any single
issuer. Nonetheless, a non-diversified Fund is still subject to the
diversification requirements that arise under federal tax law and the 25% limit
on concentration of investments in a single industry. See "Dividends,
Distributions and Taxes" in this prospectus and "Investment Practices and
Restrictions" in the SAI.
Value Equity Fund
The Value Equity Fund has the investment objective of providing long-term
capital appreciation. The Fund seeks to achieve this objective by investing
primarily in common stock and other equity securities of companies that NWQ
believes are undervalued by the market place at the time of purchase and offer
the potential for above-average capital appreciation. Other equity securities
include preferred stock, securities convertible or exchangeable into common
stock, rights and warrants, options on equity securities, and futures contracts
on equity indices (and options thereon). The Fund also may invest in undervalued
convertible preferred stock and debt securities.
The Value Equity Fund may invest in securities of companies in cyclical
industries during periods when such securities appear to NWQ to have strong
potential for capital appreciation. The Fund also may invest in the securities
of "special situation" companies. A "special situation" company is one that NWQ
believes has potential for significant future earnings growth but has not
performed well in the recent past. These situations may include companies with
management turnaround, corporate or asset restructuring or significantly
undervalued assets.
The universe from which NWQ selects securities includes those issued by
companies of varying capitalization. NWQ identifies potentially undervalued
securities by applying statistical measures designed to reveal value on an
absolute and relative basis. Such statistical measures include key financial
ratios such as stock price-to-earnings, stock price-to-book value and stock
price-to-cash flow. It also evaluates the issuers of such securities on the
basis of management strength, inside ownership, and competitive structure. The
process used by NWQ to select undervalued securities generally differs from that
used by many other "value" oriented investment advisers in that NWQ places a
heavy emphasis on normalized earnings, stock price-to-cash flow ratios, relative
value, and whether the security's issuer is in an industry that is likely to
benefit from long-term fundamental improvements such as restructuring,
turnaround trends or consolidation trends. At any point in time, NWQ also
closely follows approximately 200 companies whose securities appear to have
market appreciation potential based on statistical analysis. Because first-hand
knowledge of management can be an important element in analyzing and valuing a
company, NWQ interviews key management personnel of, and also may visit, these
select companies to obtain fundamental research information and verify their
value.
The Value Equity Fund may invest up to 35% of its total assets in securities of
foreign issuers, including ADRs, EDRs and GDRs. The Fund may invest up to 35% of
its total assets in debt securities including those in which the Total Return
Fund may invest as well as corporate bonds, mortgage-backed and asset-backed
securities, floating rate and variable rate instruments and zero coupon
obligations. Of these debt securities, the Fund may invest an amount equal to
15% of its total assets in securities rated below investment grade. Investment
grade debt securities are those rated in the four highest categories by S&P,
Moody's, or another NRSRO, or, if unrated by such rating organizations, are
determined by NWQ (or GEIM) to be of comparable quality. Securities of foreign
issuers and debt securities of various types (including lower-rated debt
securities) and their attendant risks are described in "Investment Practices" in
this prospectus and the SAI.
The Value Equity Fund may lend portfolio securities and invest in repurchase
agreements, "when-issued" securities, securities issued on a delayed-delivery
basis, restricted securities and illiquid investments. See "Investment
Practices" in this prospectus and in the SAI for more information about these
practices and their risks.
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INVESTMENT PRACTICES
In pursuing their investment objectives, the Funds may engage in the following
investment practices.
Loans of Portfolio Securities
Each Fund may from time to time lend securities it holds to brokers, dealers,
and financial institutions, up to a maximum of 20% of the total value of that
Fund's assets. Such loans will be secured by collateral in the form of cash or
other liquid assets, which will be maintained in an amount at least equal to the
current market value of the loaned securities. Each Fund will continue to
receive interest and dividends on the loaned securities during the term of its
loans, and, in addition, will receive either a fee from the borrower or interest
earned from the investment of cash collateral in short-term securities. Each
Fund also will receive any gain or loss in the market value of its loaned
securities and of securities in which cash collateral is invested during the
term of the loan. The primary risk involved in lending securities is that the
borrower will fail financially and not return the loaned securities at a time
when the collateral is insufficient to replace the full amount of the loaned
securities. In order to minimize this risk, the Funds will make loans of
securities only to firms determined by the Adviser (under the supervision of the
board of directors) to be creditworthy.
When-Issued and Delayed Delivery Securities
When-issued and delayed delivery securities are discussed in "Investment
Practices" in the SAI.
Repurchase Agreements
All of the Funds may invest in repurchase agreements. A repurchase agreement is
a transaction in which a Fund buys a security at one price and simultaneously
agrees to sell that same security back to the original owner at a higher price.
The Adviser (under the supervision of the board of directors) reviews the
creditworthiness of the other party to the agreement and must find it
satisfactory before engaging in a repurchase agreement. In the event of the
bankruptcy of the other party, the Fund could experience delays in recovering
its money, may realize only a partial recovery or even no recovery, and may also
incur disposition costs. Repurchase agreements are further discussed in
"Investment Practices" in the SAI.
Foreign Investments and Currency
The S&P 500 Income Fund, Total Return Fund and Value Equity Fund may each invest
up to 35% of their total assets, taken at market value at the time of
acquisition, in securities of foreign issuers and in non-dollar securities. The
Government Securities Fund, Money Market Fund and Real Estate Securities Fund
may invest up to 20% of its total assets in securities of foreign issuers and
non-dollar securities. These Funds will not concentrate their investments in any
particular foreign country. The International Equity Fund and the Global Income
Fund may, as described above, invest all of their assets in the securities of
foreign issuers and in non-dollar securities.
Foreign Investments Generally. Investments in the securities of foreign issuers
or investments in non-dollar securities may offer potential benefits not
available from investments solely in securities of domestic issuers or dollar
denominated securities. Such benefits may include the opportunity to invest in
foreign issuers that appear to offer better opportunity for long-term capital
appreciation or current earnings than investments in domestic issuers, the
opportunity to invest in foreign countries with economic policies or business
cycles different from those of the United States and the opportunity to reduce
fluctuations in fund value by taking advantage of foreign securities markets
that do not necessarily move in a manner parallel to U.S. markets.
Investing in non-dollar securities or in the securities of foreign issuers
involves significant risks that are not typically associated with investing in
U.S. dollar denominated securities or in securities of domestic issuers. Such
investments may be affected by changes in currency rates, changes in foreign or
U.S. laws or restrictions applicable to such investments and in exchange control
regulations. For example, a decline in the currency exchange rate would reduce
the dollar value of certain portfolio investments. In addition, if the exchange
rate for the currency in which a Fund
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receives interest payments declines against the U.S. dollar before such interest
is paid as dividends to shareholders, the Fund may have to sell fund securities
to obtain sufficient cash to pay such dividends. As discussed below, the
International Equity Fund and the Global Income Fund may employ certain
investment techniques to hedge its foreign currency exposure; however, such
techniques also entail certain risks. Some foreign stock markets (and other
securities markets) may have substantially less volume than, for example, the
New York Stock Exchange (or other domestic markets) and securities of some
foreign issuers may be less liquid than securities of comparable domestic
issuers. Commissions and dealer mark-ups on transactions in foreign investments
may be higher than for similar transactions in the United States. In addition,
clearance and settlement procedures may be different in foreign countries and,
in certain markets, on certain occasions, such procedures have been unable to
keep pace with the volume of securities transactions, thus making it difficult
to conduct such transactions. For example, delays in settlement could result in
temporary periods when a portion of the assets of a Fund are uninvested and no
return is earned thereon. The inability of a Fund to make intended investments
due to settlement problems could cause it to miss attractive investment
opportunities. Inability to dispose of portfolio securities or other investments
due to settlement problems could result either in losses to a Fund due to
subsequent declines in value of the portfolio investment or, if the Fund has
entered into a contract to sell the investment, could result in possible
liability to the purchaser.
Foreign issuers are not generally subject to uniform accounting, auditing and
financial reporting standards comparable to those applicable to domestic
companies. There may be less publicly available information about a foreign
issuer than about a domestic one. In addition, there is generally less
government regulation of stock exchanges, brokers, and listed and unlisted
issuers in foreign countries than in the United States. Furthermore, with
respect to certain foreign countries, there is a possibility of expropriation or
confiscatory taxation, imposition of withholding taxes on dividend or interest
payments, limitations on the removal of funds or other assets of the Fund, or
political or social instability or diplomatic developments which could affect
investments in those countries. Individual foreign economies also may differ
favorably or unfavorably from the United States economy in such respects as
growth of gross national product, rate of inflation, capital reinvestment,
resource self-sufficiency and balance of payments position.
Investments in ADRs, EDRs and GDRs. Many securities of foreign issuers are
represented by ADRs, EDRs and GDRs. The S&P 500 Index Fund, Government
Securities Fund, Total Return Fund, Value Equity Fund, International Equity Fund
and Global Income Fund may all invest in ADRs, EDRs and GDRs. ADRs represent the
right to receive securities of foreign issuers deposited in a domestic bank or a
foreign correspondent bank. Prices of ADRs are quoted in U.S. dollars, and ADRs
are traded in the United States on exchanges or over-the-counter and are
sponsored and issued by domestic banks. ADRs do not eliminate all the risk
inherent in investing in the securities of foreign issuers. To the extent that a
Fund acquires ADRs through banks which do not have a contractual relationship
with the foreign issuer of the security underlying the ADR to issue and service
such ADRs, there may be an increased possibility that the Fund would not become
aware of and be able to respond to corporate actions such as stock splits or
rights offerings involving the foreign issuer in a timely manner. In addition,
the lack of information may result in inefficiencies in the valuation of such
instruments. However, by investing in ADRs rather than directly in the stock of
foreign issuers, a Fund will avoid currency risks during the settlement period
for either purchases or sales. In general, there is a large, liquid market in
the United States for ADRs quoted on a national securities exchange or the
NASD's national market system. The information available for ADRs is subject to
the accounting, auditing and financial reporting standards of the domestic
market or exchange on which they are traded, which standards are more uniform
and more exacting than those to which many foreign issuers may be subject.
EDRs and GDRs are receipts evidencing an arrangement with a non-U.S. bank
similar to that for ADRs and are designed for use in non-U.S. securities
markets. EDRs and GDRs are not necessarily quoted in the same currency as the
underlying security.
Investments in Emerging Markets. The Total Return Fund, International Equity
Fund and the Global Income Fund may invest substantial portions of their
portfolios in securities of issuers located in countries with emerging economies
and/or securities markets. The S&P 500 Index Fund, Government Securities Fund
and Value Equity Fund may invest up to 5% of their total assets in such
securities. These countries are located primarily in the Asia-Pacific region,
Eastern Europe, Central and South America and Africa. Political and economic
structures in many of these countries may be undergoing significant evolution
and rapid development, and such countries may lack the social,
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political and economic stability characteristic of more developed countries.
Certain of these countries have in the past failed to recognize private property
rights and have at times nationalized or expropriated the assets of private
companies. As a result, the risks of foreign investment generally, including the
risks of nationalization or expropriation of assets, may be heightened. In
addition, unanticipated political or social developments may affect the values
of the Funds' investments in those countries and the availability to a Fund of
additional investments in those countries.
The small size and inexperience of the securities markets in certain of these
countries and the limited volume of trading in securities in those countries may
also make investments in such countries illiquid and more volatile than
investments in Japan or most Western European countries. As a result, these
Funds may be required to establish special custody or other arrangements before
making certain investments in those countries. There may be little financial or
accounting information available with respect to issuers located in certain of
such countries, and it may be difficult as a result to assess the value or
prospects of an investment in such issuers. The laws of some foreign countries
may limit the ability of these Funds to invest in securities of certain issuers
located in those countries.
Foreign Currency Transactions. Because investment in foreign issuers will
usually involve currencies of foreign countries, and because the S&P 500 Index
Fund, Government Securities Fund, Total Return Fund, Real Estate Securities
Fund, Value Equity Fund, International Equity Fund and the Global Income Fund
may have currency exposure independent of their securities positions, the value
of the assets of these Funds as measured in U.S. dollars may be affected by
changes in foreign currency exchange rates. To the extent that a Fund's assets
consist of investments quoted or denominated in a particular currency, the
Fund's exposure to adverse developments affecting the value of such currency
will increase. The International Equity Fund and the Global Income Fund often
have substantial currency exposure both from investments quoted or denominated
in foreign currencies and from their currency positions.
Currency exchange rates may fluctuate significantly over short periods of time
causing, along with other factors, a Fund's net asset value to fluctuate. They
generally are determined by the forces of supply and demand in the foreign
exchange markets and the relative merits of investments in different countries,
actual or anticipated changes in interest rates and other complex factors, as
seen from an international perspective. Currency exchange rates also are
affected unpredictably by intervention by U.S. or foreign governments or central
banks, or the failure to intervene, or by currency controls or political
developments in the U.S. or abroad. To the extent that a substantial portion of
a Fund's total assets, adjusted to reflect the Fund's net position after giving
effect to currency transactions, is denominated or quoted in the currencies of
foreign countries, the Fund is more susceptible to the risk of adverse economic
and political developments within those countries.
In addition to investing in securities denominated or quoted in a foreign
currency, these six Funds may engage in a variety of foreign currency management
practices described below. Each also may hold foreign currency received in
connection with investments in foreign securities when, in the judgment of the
Adviser, it would be beneficial to convert such currency into U.S. dollars at a
later date, based on anticipated changes in the relevant exchange rate. These
Funds will incur costs in connection with conversions between various
currencies.
Forward Foreign Currency Exchange Contracts. The Government Securities Fund,
International Equity Fund, Total Return Fund, and the Global Income Fund may
purchase or sell forward foreign currency exchange contracts for hedging
purposes and to seek to increase total return. When purchased or sold for the
purpose of seeking to increase total return, forward foreign currency exchange
contracts are considered speculative. In addition, these Funds may enter into
forward foreign currency exchange contracts in order to protect against
anticipated changes in future foreign currency exchange rates. The International
Equity Fund, Total Return Fund, and the Global Income Fund also may engage in
cross-hedging by using forward contracts in a currency different from that in
which the hedged security is denominated or quoted if the Adviser determines
that there is a pattern of correlation between the two currencies.
The Government Securities Fund, International Equity Fund, Total Return Fund,
and the Global Income Fund may enter into contracts to purchase foreign
currencies to protect against an anticipated rise in the U.S. dollar price of
securities it intends to purchase. It may enter into contracts to sell foreign
currencies to protect against the decline in value of its foreign currency
denominated or quoted portfolio securities, or a decline in the value of
anticipated
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dividends from such securities, due to a decline in the value of foreign
currencies against the U.S. dollar. Contracts to sell foreign currency could
limit any potential gain that might be realized by a Fund if the value of the
hedged currency increases. If the Government Securities Fund, International
Equity Fund, Total Return Fund, or the Global Income Fund enters into a forward
foreign currency exchange contract to sell foreign currency to seek to increase
total return or to buy foreign currency for any reason, it will be required to
segregate cash or liquid securities with its custodian in an amount equal to the
value of the Fund's total assets committed to the consummation of the forward
contract. If the value of the segregated securities declines, additional cash or
securities will be segregated so that the value of the account will equal the
amount of the Fund's commitment with respect to the contract.
Forward contracts are subject to the risk that the counterparty to such contract
will default on its obligations. Since a forward foreign currency exchange
contract is not guaranteed by an exchange or clearinghouse, a default on the
contract would deprive the Fund of unrealized profits, transaction costs or the
benefits of a currency hedge or force the Fund to cover its purchase or sale
commitments, if any, at the current market price.
All of the Funds may utilize foreign forward currency exchange contracts to
settle non-dollar securities transactions.
Options on Currencies. The International Equity Fund and the Global Income Fund
may purchase and sell (write) put and call options on foreign currencies for the
purpose of protecting against declines in the U.S. dollar value of foreign
portfolio securities and anticipated dividends on such securities and against
increases in the U.S. dollar cost of foreign securities to be acquired. The
International Equity Fund and the Global Income Fund may use options on currency
to cross-hedge, which involves writing or purchasing options on one currency to
hedge against changes in exchange rates for a different currency, if there is a
pattern of correlation between the two currencies. As with other kinds of option
transactions, however, the writing of an option on foreign currency will
constitute only a partial hedge, up to the amount of the premium received. The
Fund could be required to purchase or sell foreign currencies at disadvantageous
exchange rates, thereby incurring losses. The purchase of an option on foreign
currency may constitute an effective hedge against exchange rate fluctuations;
however, in the event of exchange rate movements adverse to the Fund's position,
the Fund may forfeit the entire amount of the premium plus related transaction
costs. In addition, the Fund may purchase call or put options on currency to
seek to increase total return when the Adviser anticipates that the currency
will appreciate or depreciate in value, but the securities quoted or denominated
in that currency do not present attractive investment opportunities and are not
being held in the Fund. When purchased or sold to increase total return, options
on currencies are considered speculative. Options on foreign currencies to be
written or purchased by the Fund will be traded on U.S. and foreign exchanges or
over-the- counter. See "Writing Covered Call and Put Options and Purchasing Call
and Put Options" below for a discussion of the liquidity risks associated with
options transactions.
Interest Rate Swaps and Currency Swaps. The International Equity Fund and the
Global Income Fund may enter into currency swaps for both hedging purposes and
to seek to increase total return. The Global Income Fund may enter into interest
rate swaps for these purposes. The Global Income Fund typically uses interest
rate swaps to shorten the effective duration of its portfolio. Interest rate
swaps involve the exchange by the Global Income Fund with another party of their
respective commitments to pay or receive interest, such as an exchange of fixed
rate payments for floating rate payments. Currency swaps involve the exchange by
a Fund with another party of their respective rights to make or receive payments
in specified currencies. Since currency swaps and interest rate swaps are
individually negotiated, a Fund expects to achieve an acceptable degree of
correlation between its fund investments and its swap positions entered into for
hedging purposes.
The Global Income Fund only enters into interest rate swaps on a net basis,
which means that the two payment streams are netted out, with the Fund receiving
or paying, as the case may be, only the net amount of the two payments. Interest
rate swaps do not involve the delivery of securities, or other underlying assets
or principal. Accordingly, the risk of loss with respect to interest rate swaps
is limited to the net amount of interest payments that the Fund is contractually
obligated to make. If the other party to an interest rate swap defaults, the
Fund's risk of loss consists of the net amount of interest payments that the
Fund is entitled to receive. In contrast, currency swaps usually involve the
delivery of the entire principal value of one designated currency in exchange
for the other designated currency. Therefore, the entire principal value of a
currency swap is subject to the risk that the other party to the swap will
default on its contractual delivery obligations. The Fund will segregate with
its custodian cash or liquid
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securities equal to the net amount, if any, of the excess of a Fund's
obligations over its entitlements with respect to swap transactions. To the
extent that the net amount of any swap obligation is collateralized with liquid
assets in this manner, the Fund believes that swaps do not constitute senior
securities under the 1940 Act and, accordingly, will not treat them as being
subject to the Fund's borrowing restriction.
The use of interest rate and currency swaps is a highly specialized activity
which involves investment techniques and risks different from those associated
with ordinary fund securities transactions. If the Adviser is incorrect in its
forecasts of market values, interest rates and currency exchange rates, the
investment performance of the International Equity Fund or the Global Income
Fund would be less favorable than it would have been if swaps were not used.
Debt Securities
Debt Securities Generally. The market value of non-convertible debt securities
usually reflects yields generally available on newly issued-securities of
similar quality and type (i.e., prevailing current interest rates). When such
yields decline, the market value of outstanding debt securities generally rises
if such securities are protected against early call. Similarly, when such yields
increase, the market value of outstanding debt securities generally declines.
U.S. Government Debt Securities. All of the Funds may invest in U.S. Government
securities. These include: (1) U.S. Treasury bills, notes, and bonds; and (2)
obligations issued or guaranteed by U.S. Government agencies and
instrumentalities which are supported by any of the following: (a) the full
faith and credit of the U.S. Government (e.g. , GNMA Certificates); (b) the
right of the issuer to borrow an amount limited to a specific line of credit
from the U.S. Treasury (e.g., debt of each of the Federal Home Loan Banks); (c)
the discretionary authority of the U.S. Government or GNMA to purchase certain
financial obligations of the agency or instrumentality (e.g., Federal National
Mortgage Association); or (d) the credit of the issuing agency or
instrumentality (e.g., Federal Land Banks, Farmers Home Administration or
Student Loan Marketing Association). No assurance can be given that the U.S.
Government will provide support to such U.S. Government sponsored agencies or
instrumentalities in the future, since it is not required to do so by law.
Zero Coupon Bonds. The Government Securities Fund, Total Return Fund, Global
Income Fund and Value Equity Fund each may invest in zero coupon bonds. Zero
coupon bonds are debt obligations issued at a significant discount from face
value. The original discount approximates the total amount of interest the bonds
will accrue and compound over the period until maturity or the first interest
accrual date at a rate of interest reflecting the market rate of the security at
the time of issuance. A zero coupon security pays no interest to its holder
during its life and its value (above its cost to a Fund) consists of the
difference between its face value at maturity and its cost. Zero coupon bonds
benefit the issuer by mitigating its initial need for cash to meet debt service,
but some also provide a higher rate of return to attract investors who are
willing to defer receipt of such cash. Zero coupon bonds experience greater
volatility in market value due to changes in interest rates than debt
obligations that provide for regular payments of interest. A Fund accrues income
on zero coupon bonds for tax and accounting purposes, as required, which is
distributable to shareholders and which, because no cash is received at the time
of accrual, may require the liquidation of other portfolio securities to satisfy
the Fund's distribution obligations.
Mortgage-Backed and Asset-Backed Securities. All of the Funds except the S&P 500
Index Fund may invest in mortgage-backed securities, which represent direct or
indirect participation in, or are collateralized by and payable from, mortgage
loans secured by real property. These Funds may also invest in asset-backed
securities, which represent participation in, or are secured by and payable
from, assets such as motor vehicle installment sale contracts, installment loan
contracts, leases of various types of real and personal property, receivables
from revolving credit (credit card) agreements and other categories of
receivables. Such securities are generally issued by trusts and special purpose
corporations.
Mortgage-backed and asset-backed securities are often subject to more rapid
repayment than their stated maturity dates would indicate as a result of the
pass-through of prepayments of principal on the underlying loans. This may
increase the volatility of such instruments relative to other similarly rated
debt securities. During periods of declining interest rates, prepayment of loans
underlying mortgage-backed and asset-backed securities can be expected to
accelerate, and thus impair a Fund's ability to reinvest the returns of
principal at comparable yields. During periods of rising interest rates, reduced
prepayment rates may extend the average life of mortgage-backed and asset-backed
securities and increase the risk of depreciation due to future increases in
market interest rates. Accordingly, the mar-
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ket values of such securities vary with changes in prevailing market rates of
interest generally and in yield differentials among various kinds of U.S.
Government securities and other mortgage-backed and asset-backed securities.
Asset-backed securities present certain additional risks not presented by
mortgage-backed securities because asset-backed securities generally do not have
the benefit of a security interest in collateral that is comparable to mortgage
assets. There is the possibility that, in some cases, recoveries on repossessed
collateral may not be available to support payments on these securities.
Structured Securities. The Total Return Fund, Real Estate Securities Fund and
Global Income Fund may invest in structured notes, bonds and debentures. The
value of the principal of and/or interest on such securities is determined by
reference to changes in the value of specific currencies, interest rates,
commodities, indices or other financial indicators (the "Reference") or the
relative change in two or more References. The interest rate or the principal
amount payable upon maturity or redemption may be increased or decreased
depending upon changes in the applicable Reference. The terms of the structured
securities may provide that in certain circumstances no principal is due at
maturity and, therefore, may result in a loss of the Fund's investment.
Structured securities may be positively or negatively indexed, so that
appreciation of the Reference may produce an increase or a decrease in the
interest rate or value of the security at maturity. In addition, changes in
interest rates or the value of the security at maturity may be a multiple of
changes in the value of the Reference. Consequently, structured securities may
entail a greater degree of market risk than other types of debt securities.
Structured securities may also be more volatile, less liquid and more difficult
to accurately price than less complex debt securities.
Lower-Rated Debt Securities. The Total Return Fund, Real Estate Securities Fund,
Value Equity Fund and Global Income Fund may invest in debt securities (and the
Real Estate Securities Fund, Value Equity Fund and Global Income Fund in
convertible securities) with lower ratings which generally carry greater risk of
default and are generally subject to greater market value fluctuations. If held
by these Funds in significant amounts, such securities would increase financial
risk and income fluctuation. Lower-rated debt and convertible securities have
speculative characteristics and changes in economic conditions and other
circumstances are more likely to weaken the capacity of issuers of such
securities to make principal and interest payments than would be the case as to
issuers of higher rated (i.e., investment grade) debt securities. In some cases,
lower-rated debt and convertible securities may be highly speculative, have poor
prospects of reaching investment grade standing or even be in default. See the
SAI for a description of securities ratings and of lower-rated securities,
including further discussion of the risks of investing in such instruments.
Writing Covered Call and Put Options and Purchasing Call and Put Options
The S&P 500 Index Fund, Government Securities Fund, Total Return Fund, Value
Equity Fund, International Equity Fund, Real Estate Securities Fund and Global
Income Fund may write exchange-traded covered call and put options on or
relating to specific securities in order to earn additional income or, in the
case of a call written, to minimize or hedge against anticipated declines in the
value of its portfolio securities. All call options written by these Funds are
covered, which means that the Fund will own the securities subject to the option
as long as the option is outstanding. All put options written by these Funds are
covered, which means that the Fund segregates with its custodian cash, or liquid
securities with a value at least equal to the exercise price of the option. Call
and put options written by a Fund may also be covered to the extent that the
Fund's liabilities under such options are offset by its rights under call or put
options purchased by the Fund and call options written by a Fund may also be
covered by segregating cash or securities with its custodian in the same manner
as written puts are covered.
Through the writing of a covered call option a Fund receives premium income but
obligates itself to sell to the purchaser of such an option the particular
security underlying the option at a specified price at any time prior to the
expiration of the option period, regardless of the market value of the security
during this period. Through the writing of a covered put option, a Fund receives
premium income but obligates itself to purchase a particular security underlying
the option at a specified price at any time prior to the expiration of the
option period, regardless of market value during the option period.
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The S&P 500 Index Fund, Total Return Fund, International Equity Fund, Real
Estate Securities and Value Equity Fund may each, in accordance with its
investment objective(s) and investment program, also write exchange-traded
covered call and put options on stock indices. These Funds may write such
options for the same purposes as each may engage in such transactions with
respect to individual fund securities, that is, to generate additional income or
as a hedging technique to minimize anticipated declines in the value of the
Fund's securities. In economic effect, a stock index call or put option is
similar to an option on a particular security, except that the value of the
option depends on the weighted value of the group of securities comprising the
index, rather than a particular security, and settlements are made in cash
rather than by delivery of a particular security.
The S&P 500 Index Fund, Government Securities Fund, Total Return Fund,
International Equity Fund, Real Estate Securities Fund, Global Income Fund and
Value Equity Fund may each also purchase exchange-traded call and put options
with respect to securities and, except for the Government Securities Fund, with
respect also to stock indices that correlate with its particular portfolio
securities. All seven Funds may purchase put options for defensive purposes in
order to protect against an anticipated decline in the value of their portfolio
securities. As the holder of a put option with respect to individual securities,
each has the right to sell the securities underlying the options and to receive
a cash payment at the exercise price at any time during the option period. As
the holder of a put option on an index, a Fund has the right to receive, upon
exercise of the option, a cash payment equal to a multiple of any excess of the
strike price specified by the option over the value of the index.
These seven Funds may purchase call options on individual securities (or, except
for the Government Securities Fund, on stock indices) in order to take advantage
of anticipated increases in the price of those securities by purchasing the
right to acquire the securities underlying the option (or, with respect to
options on indices, to receive income equal to the value of such index over the
strike price). As the holder of a call option with respect to individual
securities, the Funds obtain the right to purchase the underlying securities at
the exercise price at any time during the option period. As the holder of a call
option on a stock index, a Fund obtains the right to receive, upon exercise of
the option, a cash payment equal to the multiple of any excess of the value of
the index on the exercise date over the strike price specified in the option.
The Government Securities Fund, Total Return Fund, International Equity Fund,
Global Income Fund and Value Equity Fund may also write and purchase unlisted
covered call and put options. Such options are not traded on an exchange and may
not be as actively traded as listed securities, making the valuation of these
securities more difficult. In addition, an unlisted option entails a risk not
found in connection with listed options -- that the party on the other side of
the option transaction will default. This may make it impossible to close out an
unlisted option position in some cases, and profits may be lost thereby. Except
as described below, such unlisted over-the-counter options are generally
considered illiquid securities. The Government Securities Fund, Total Return
Fund, International Equity Fund, Global Income Fund and Value Equity Fund will
engage in such transactions only with firms of sufficient credit to minimize
these risks. Where one of these Funds has entered into agreements with primary
dealers with respect to the unlisted options it has written, and such agreements
would enable the Fund to have an absolute right to repurchase, at a
pre-established formula price, the over-the-counter options written by it, the
Fund will treat as illiquid only the amount equal to the formula price described
above less the amount by which the option is "in-the-money."
Option-related investment practices involve certain risks that are different in
some respects from investment risks associated with similar funds which do not
engage in such activities. These risks include the following: writing covered
call options -- the inability to effect closing transactions at favorable prices
and the inability to participate in the appreciation of the underlying
securities above an amount equal to the exercise price plus the premium; writing
covered put options -- the inability to effect closing transactions at favorable
prices and the obligation to purchase the specified securities or to make a cash
settlement on a stock index at prices that may not reflect current market
values; and purchasing put and call options -- possible loss of the entire
premium paid.
In addition, the effectiveness of hedging the S&P 500 Index Fund, Total Return
Fund, International Equity Fund, Real Estate Securities Fund and Value Equity
Fund through the purchase or sale (writing) of stock index options will depend
upon the extent to which price movements in the Fund's holdings being hedged
correlate with price movements in the selected stock index. Perfect correlation
may not be possible because the securities held or to be
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acquired by the Fund may not exactly match the composition of the stock index on
which options are purchased or written.
As to all options, if the Advisers' forecasts regarding movements in securities
prices or interest rates are incorrect, a Fund's investment results might have
been more favorable without the hedge. Because of these risks, the use of
"options" related investment practices requires special skills in addition to
those needed to select portfolio securities. A more detailed description of
these investment practices and their associated risks is contained in the SAI.
Financial Futures Contracts and Options on Such Contracts
The S&P 500 Index Fund, Government Securities Fund, Total Return Fund,
International Equity Fund, Real Estate Securities Fund, Value Equity Fund and
Global Income Fund may purchase and sell exchange-traded financial futures
contracts and may write covered call options and purchase put and call options
on financial futures contracts as a hedge to protect against anticipated changes
in prevailing interest rates, currency exchange rates, overall prices of
securities in which each may invest, or to earn additional income. The S&P 500
Index Fund may write covered put options on financial futures contracts for the
same purposes.
Financial futures contracts consist of interest rate futures contracts, stock
index futures contracts and currency futures contracts. An interest rate futures
contract is a contract to buy or sell specified debt securities at a future time
for a fixed price. A stock index futures contract is similar in economic effect,
except that rather than being based on specified debt securities, it is based on
a specified index of stocks and not the stocks themselves. A currency futures
contract is a contract to purchase or sell a specific amount of foreign currency
at a future time at a fixed price.
To hedge against the possibility that increases in interest rates or other
factors may result in a general decline in prices of securities owned by it, the
Government Securities Fund, Total Return Fund, Real Estate Securities Fund and
Global Income Fund may sell interest rate futures contracts. To hedge against
the possibility of a general decline in the prices of securities owned by it,
the S&P 500 Index Fund, Total Return Fund, International Equity Fund, Real
Estate Securities Fund and Value Equity Fund may sell stock index futures
contracts. To hedge against the possibility of an adverse change in currency
exchange rates, the International Equity Fund and Global Equity Fund may sell
currency futures contracts. Assuming that any decline in the securities or
currency being hedged is accompanied by a decline in the debt instrument or
stock index or currency chosen as a hedge, the sale of a futures contract on
that debt instrument, stock index or currency may generate gains that can wholly
or partially offset any decline in the value of the Fund's securities or
currency exposure which have been hedged.
To hedge against the possibility of lower long-term interest rates and likely
concomitant increase in prices of securities owned by it, the Government
Securities Fund, Total Return Fund, Real Estate Securities Fund and Global
Income Fund may purchase interest rate futures contracts. Likewise, to hedge
against increases in equity prices, the S&P 500 Index Fund, Total Return Fund,
International Equity Fund, Real Estate Securities Fund and Value Equity Fund may
purchase stock index futures contracts. To hedge against the possibility of an
adverse change in currency exchange rates, the International Equity Fund and
Global Income Fund may purchase currency futures contracts. For these Funds,
such a strategy is intended to secure a position in the futures market intended
to approximate the economic equivalent of a position in the securities market or
currency market. When used as hedges, the Funds will purchase appropriate
financial futures contracts only when each intends to purchase the underlying
securities that may be affected by such increases in equity prices or decreases
in interest rates or changes in currency exchange rates (as the case may be) and
will purchase such financial futures contracts in approximately the amount being
hedged. When used as hedges, the Advisers expect that purchases of the
underlying securities will, in fact, be made a substantial majority of the time.
All seven Funds may purchase and sell exchange-traded financial futures
contracts for non-hedging purposes such as seeking additional income or
otherwise seeking to increase total return.
All seven Funds may write covered call options and may purchase put and call
options on futures contracts of the type which that Fund is permitted to
purchase and sell in accordance with its investment objective and investment
program, and may enter into closing transactions with respect to such options on
futures contracts written or pur-
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chased. Likewise, the S&P 500 Index Fund, Total Return Fund and Value Equity
Fund may write covered put options on stock index futures contracts. An option
to acquire a financial futures contract gives the purchaser thereof the right to
assume a position in the underlying futures contract, and, therefore, can serve
the same hedging function as owning the futures contract directly.
The S&P 500 Index Fund may seek to close out (at its market price in the
secondary market) a put option it has written before the option has expired. If
the secondary market is not liquid for that option, however, the Fund must
continue to be prepared to pay the strike price while the option remains
outstanding, regardless of price changes, and must continue to segregate liquid
assets to cover this position.
None of the Funds will enter into any financial futures contract or purchase any
option thereon, if, immediately thereafter, the total amount of its assets
required to be on deposit as margin to secure its obligations under open futures
contracts, plus the amount of premiums paid by the Fund for outstanding options
to purchase futures contracts, would exceed 5% of the market value of the Fund's
total assets.
The use of futures contracts by these Funds entails certain risks, including but
not limited to the following: no assurance that futures contract transactions
can be offset at favorable prices; possible reduction of a Fund's income due to
the use of hedging; possible reduction in value of both the securities hedged
and the hedging instrument; possible lack of liquidity due to daily limits on
price fluctuations; imperfect correlation between the futures contract and the
securities being hedged; and potential losses in excess of the amount initially
invested in the futures contracts themselves. If expectations regarding
movements in securities prices, interest rates, or currency exchange rates are
incorrect, a Fund might have experienced better investment results without
hedging. The use of futures contracts and options on futures contracts requires
special skills in addition to those needed to select fund securities. A further
discussion of futures contracts and their associated risks is contained in the
SAI.
Restricted Securities and Illiquid Investments
The Adviser is responsible for determining the value and liquidity of
investments held by each Fund. Investments may be illiquid because of the
absence of a trading market, making it difficult to value them or dispose of
them promptly at an acceptable price. The S&P 500 Index Fund, Government
Securities Fund, Money Market Fund and Total Return Fund will each not purchase
or otherwise acquire any investment, if as a result, more than 10% of its net
assets (taken at current value) would be invested in illiquid investments. The
International Equity Fund, Real Estate Securities Fund, Value Equity Fund and
Global Income Fund will each not purchase or otherwise acquire any investment,
if as a result, more than 15% of its net assets (taken at current value) would
be invested in illiquid investments.
Illiquid investments include most repurchase agreements maturing in more than
seven days, currency swaps, time deposits with a notice or demand period of more
than seven days, certain over-the-counter option contracts (and segregated
assets used to cover such options), participation interests in loans, and
restricted securities. A restricted Security is one that has a contractual
restriction on resale or cannot be resold publicly until it is registered under
the Securities Act of 1933 (the "1933 Act").
The International Equity, Real Estate Securities, Value Equity and Global Income
Funds may invest in restricted securities. Restricted securities are not,
however, considered illiquid if they are eligible for sale to qualified
institutional purchasers in reliance upon Rule 144A under the 1933 Act and that
are determined to be liquid by the Fund's board of directors or by the Adviser
under board-approved procedures. Such guidelines would take into account trading
activity for such securities and the availability of reliable pricing
information, among other factors. To the extent that qualified institutional
buyers become for a time uninterested in purchasing these restricted securities,
a Fund's holdings of those securities may become illiquid. Purchases by the
International Equity Fund and the Global Income Fund of securities of foreign
issuers offered and sold outside the United States in reliance upon the
exemption from registration provided by Regulation S under the 1933 Act also may
be liquid even though they are restricted.
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Borrowing
From time to time, the International Equity Fund may increase its ownership of
various investments by borrowing from banks and investing the borrowed funds (on
which the Fund pays interest). The Fund may borrow only up to 10% of the value
of its total assets, subject to the 300% asset coverage requirement under the
1940 Act. Purchasing investments with borrowed funds is a speculative investment
method known as "leverage," that may subject the Fund to relatively greater
risks and costs (which may include commitment fees and/or the cost of
maintaining minimum average balances with the lender) than would otherwise be
the case, including possible reduction of income and increased fluctuation of
net asset value per share. A further discussion of borrowing is contained in the
SAI.
Real Estate Investment Trusts
The S&P 500 Index Fund, Total Return Fund, International Equity Fund, Real
Estate Securities Fund and Value Equity Fund may invest in shares of REITs.
REITs are pooled investment vehicles that invest primarily in income producing
real estate or real estate related loans or interests therein. REITs are
generally classified as equity REITs, mortgage REITs or a combination of equity
and mortgage REITs. Equity REITs invest the majority of their assets directly in
real property and derive income primarily from the collection of rents. Equity
REITs can also realize capital gains by selling properties that have appreciated
in value. Mortgage REITs invest the majority of their assets in real estate
mortgages and derive income from the collection of interest payments. REITs are
not taxed on income distributed to shareholders provided they comply with
several requirements of the Code.
Other Investment Companies
All of the Funds may invest up to 10% of their total assets in securities of
other investment companies. However, no Fund may invest more than 5% of its
total assets in the securities of any one investment company or in more than 3%
of the voting securities of any other investment company. Pursuant to an
exemptive order from the SEC, the Funds other than the Money Market Fund may
also invest up to 25% of their total assets in GEI Short-Term Investment Fund
(the "Short-Term Fund"), an investment fund created to serve as a vehicle for
the collective investment of cash balances of the Funds and other mutual funds
and accounts managed by GEIM and its affiliates. GEIM manages the Short-Term
Fund but does not charge this Fund a management fee. The Funds invest in the
Short-Term Fund without paying any sales charges or other fees.
DETERMINATION OF NET ASSET VALUE
The net asset value of each Fund is determined as of the time of the close of
trading on the New York Stock Exchange, (currently at 4:00 PM, New York City
time) on each day when the New York Stock Exchange is open except as noted
below. The New York Stock Exchange is scheduled to be open Monday through Friday
throughout the year, except for certain federal and other holidays. The net
asset value of each Fund will not be calculated on the Friday following
Thanksgiving or on December 31 when December 31 falls on a weekday. The net
asset value of a Fund is determined by adding the values of all securities, cash
and other assets (including accrued but uncollected interest and dividends) of
that Fund and subtracting all liabilities (including accrued expenses but
excluding capital and surplus). Expenses, including investment advisory fees,
are accrued daily. The net asset value of a share is determined by dividing the
net asset value of a Fund by the number of outstanding shares of that Fund.
The value of each Fund's securities and assets, except those of the Money Market
Fund and certain short-term debt securities held by the other Funds, is
determined on the basis of their market values. All of the securities and assets
of the Money Market Fund and debt securities having a remaining maturity of
sixty days or less held by any of the other Funds are valued by the amortized
cost method, which approximates market value. Investments for which market
quotations are not readily available, are valued at their fair market value as
determined in good faith by, or under the authority delegated by, the Company's
board of directors. See "Determination of Net Asset Value" in the SAI for more
information.
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PURCHASE AND REDEMPTION OF FUND SHARES
Pursuant to a distribution agreement dated April 2, 1996, Forth Financial
Securities Corporation ("FFSC") acts without remuneration as the Fund's
distributor in the distribution of the shares of each Fund. FFSC is a
wholly-owned subsidiary of Forth Financial Resources, Ltd., which is in turn a
wholly-owned subsidiary of General Electric Company. FFSC is located at 6610
West Broad Street, Richmond, Virginia 23230. FFSC has no obligation under the
distribution agreement to sell any stated number of shares.
Shares of the Funds are sold in a continuous offering and are authorized to be
offered to the Accounts to support the variable contracts. Net purchase payments
under the variable contracts are placed in one or more subaccounts of the
Accounts and the assets of each such subaccount are invested in the shares of
the Fund corresponding to that subaccount. The Accounts purchase and redeem
shares of the Funds for their subaccounts at net asset value without sales or
redemption charges. In the future, qualified pension and retirement plans may
purchase and redeem shares of the Funds on a basis to be negotiated between the
Company or FFSC or both and such plans.
For each day on which a Fund's net asset value is calculated, the Accounts
transmit to the Company any orders to purchase or redeem shares of the Fund(s)
based on the net purchase payments, redemption (surrender) requests, and
transfer requests from variable contract owners, annuitants and beneficiaries
that have been processed on that day. Similarly, qualified pension and
retirement plans may in the future transmit to the Company any orders to
purchase or redeem shares of the Fund(s) based on the instructions of plan
trustees or participants. The Account purchases and redeems shares of each Fund
at the Fund's net asset value per share calculated as of the day the Company
receives the order, although such purchases and redemptions may be executed the
next morning. Money received by the Company from the Accounts for the purchase
of shares of International Equity Fund or Global Income Fund may not be invested
by these Funds until the day following the execution of such purchases. Payment
for shares redeemed will be made within seven days after receipt of a proper
notice of redemption, except that the right of redemption may be suspended or
payments postponed when permitted by applicable laws and regulations.
DIVIDENDS, DISTRIBUTIONS AND TAXES
Dividends and Distributions
It is the Company's intention to distribute, as dividends, substantially all of
the net investment income, if any, from each of the Funds. All dividends of a
Fund are subsequently reinvested in additional shares of that Fund at net asset
value. For dividend purposes, net investment income of a Fund consists of all
payments of dividends or interest received by that Fund less realized investment
losses, if any, and estimated expenses. All net realized investment gains, if
any, of a Fund are expected to be declared and distributed annually. Dividends
attributable to the net investment income of the Funds other than the Money
Market Fund are declared and paid annually. Dividends attributable to the net
investment income of the Money Market Fund are declared daily and paid monthly.
Taxes
The Company believes that each of the Funds will qualify as a regulated
investment company under Subchapter M of Chapter 1 of the Internal Revenue Code
of 1986 (the "Code"). Since each Fund intends to annually distribute
substantially all of its net income and gains to its shareholders, then under
the provisions of Subchapter M, the Funds should have little or no income
taxable to it under the Code. Distributions will be made, however, consistent
with the Code's rules defining a regulated investment company.
Each Fund of the Company must meet several requirements to maintain its status
as a regulated investment company. These requirements include the following: (1)
at least 90% of the Fund's gross income must be derived from dividends,
interest, payments with respect to securities loaned, and gains from the sale or
disposition of securities; (2) the Fund's gains (without reduction for losses)
derived from sales of securities held for less than three months must account
for less than 30% of the Fund's gross income; and (3) at the close of each
quarter of the Fund's taxable year, (a) at least 50% of the value of the Fund's
assets must consist of cash, United States Government securities and other
securities (no more than 5% of the value of the Fund may consist of such other
securities of any one issuer, and the Fund must not hold more than 10% of the
outstanding voting stock of any issuer), and (b) the Fund must not invest more
than 25% of the value of its assets in the securities of any one issuer (other
than United States Government securities).
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The Internal Revenue Service (the "Service") has ruled publicly that, for
purposes of various of the requirements described above, an exchange-traded call
option is a security and its issuer is the issuer of the underlying security,
not the writer of the option. Also, the Service has ruled privately (at the
request of a taxpayer other than the Funds) that, for purposes of the various
requirements described above (1) certain instruments on stock indices (including
exchange-traded options on a stock index, stock index futures, and options on
stock index futures) are treated as securities, the issuers of which are the
issuers of the stock underlying each index in proportion to the weighting of the
stocks in the computation of the index, and (2) certain instruments on United
States Government securities (including exchange-traded futures contracts,
options, and options on futures contracts) are treated as securities, the issuer
of which is the United States Government. In addition, with respect to certain
instruments, the Service has ruled privately (at the request of a taxpayer other
than the Funds) that gains includable in income solely by reason of
mark-to-market rules in the Code will be treated as gains derived from
securities held for at least three months for purposes of the 30% test described
above.
Since taxpayers other than the taxpayer requesting a private ruling from the
Service are not entitled to rely on the ruling, the Company may, in its business
judgment, restrict a Fund's ability to enter into options or futures
transactions or engage in short-term trading and transactions in securities
(including options and futures contracts). For the same reason, the Company may,
in its business judgment, require a Fund to defer the closing out of a contract
beyond the time when it might otherwise be advantageous to do so.
Each of the Funds also intends to comply with section 817(h) of the Code and the
regulations issued thereunder, which impose certain investment diversification
requirements on life insurance companies' separate accounts (such as the
Accounts) that are used to fund benefits under variable life insurance and
variable annuity contracts. These requirements are in addition to the
requirements of subchapter M and of the 1940 Act, and may affect the securities
in which a Fund may invest. In order to comply with the current or future
requirements of section 817(h) (or related provisions of the Code), the Company
may be required, for example, to alter the investment objectives of one or more
of the Funds.
Foreign Investments. Funds investing in foreign securities or currencies may be
required to pay withholding or other taxes to foreign governments. Foreign tax
withholding from dividends and interest, if any, is generally at a rate between
10% and 35%. The investment return of any Fund that invests in foreign
securities or currencies will be reduced by these foreign taxes. Shareholders
will bear the cost of any foreign tax withholding, but may not be able to claim
a foreign tax credit or deduction for these foreign taxes. Funds investing in
securities of passive foreign investment companies may be subject to U.S.
federal income taxes and interest charges, and the investment return of a Fund
making such investments will be reduced by these taxes and interest charges.
Shareholders will bear the cost of these taxes and interest charges, but will
not be able to claim a deduction for these amounts.
Additional Tax Considerations. If a Fund failed to qualify as a regulated
investment company, owners of variable life insurance and annuity contracts
based on the Fund (1) might be taxed currently on the investment earnings under
their contracts and thereby lose the benefit of tax deferral, and (2) the Fund
might incur additional taxes. In addition, if a Fund failed to comply with the
diversification requirements of the regulations under Subchapter L of the Code,
owners of variable life insurance and annuity contracts based on the Fund would
be taxed on the investment earnings under their contracts and thereby lose the
benefit of tax deferral. Accordingly, compliance with the above rules is
carefully monitored by the Advisers and it is intended that each Fund will
comply with these rules as they exist or as they may be modified from time to
time. Compliance with the tax requirements described above may result in a
reduction in the return of a Fund, since, to comply with the above rules, the
investments utilized (and the time at which such investments are entered into
and closed out) may be different from what the Advisers might otherwise believe
to be desirable.
It is not feasible to comment on all of the federal tax consequences concerning
the Funds. Since the shareholders of the Funds are currently limited to the
Accounts, no further discussion of those consequences is included herein. For
information concerning the federal income tax consequences to the owners of
variable life insurance and annuity contracts, see the prospectuses for the
contracts.
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MANAGEMENT OF THE COMPANY
Board of Directors
The Company has a board of directors, the members of which are elected by the
shareholders. A majority of the directors are not associated with Life of
Virginia or General Electric Company or their affiliates. The Directors are
responsible for the overall management of the Company and their duties include
reviewing the results of each Fund, monitoring investment activities and
practices, and receiving and acting upon future plans for the Company.
Investment Adviser
GEIM, a wholly-owned subsidiary of General Electric Corporation ("GEC"), is the
investment adviser and administrator for the Fund. It is registered under the
Investment Advisers Act of 1940 and its principal office is located at 3003
Summer Street, Stamford Connecticut 06905. GEIM currently provides investment
advisory services with respect to 19 other mutual funds and a number of other
private institutional accounts. The professionals responsible for the investment
operations of GEIM serve in similar capacities with respect to General Electric
Investment Corporation ("GEIC"), a sister company of GEIM wholly owned by GEC,
which provides investment advisory services with respect to GEC's pension and
benefit plans and a number of funds offered exclusively to GEC employees,
retirees and certain related persons. These funds include the Elfun family of
Funds (the first of which, Elfun Trusts, was established in 1935) and the funds
offered as part of GEC's 401(k) program (also known as the GEC Savings and
Security Program), which are referred to as the GE S&S Program Mutual Fund and
the GE S&S Long Term Interest Fund. The investment professionals at GEIM and
GEIC and their predecessors have managed GEC's pension assets since 1927. As of
December 31, 1996, GEIM and GEIC managed assets in excess of $58 billion,
including roughly $11 billion in mutual fund assets.
GEIM manages the investments of the S&P 500 Index Fund, Government Securities
Fund, Money Market Fund, Total Return Fund and International Equity Fund
determining which securities to buy and sell for each, selecting the brokers and
dealers to effect the transactions,and negotiating commissions. In placing
orders for securities transactions, GEIM's policy is to attempt to obtain the
most favorable price and efficient execution available. Subject to this policy,
GEIM may also allocate brokerage to broker/dealers based upon their sale of Life
of Virginia variable life insurance and variable annuity contracts. GEIM has
engaged investment sub-advisers to provide the day-to-day fund management of the
Real Estate Securities Fund, Value Equity Fund and Global Income Fund.
The Company has entered into an investment advisory and administration agreement
(together, the "advisory agreements") with GEIM for each Fund effective May 1,
1997. Under these agreements, GEIM or a sub-adviser provides a continuous
investment program for each Fund's assets, including investment research and
management. GEIM or a sub-adviser determines what investments will be purchased,
retained or sold by the Funds and places purchase and sale orders for the Funds'
investments. GEIM provides the Company with all executive, administrative,
clerical and other personnel necessary to operate each Fund, and pays salaries
and other employment-related costs of employing these persons. GEIM furnishes
the Company and each Fund with office space, facilities, and equipment and pays
the day-to-day expenses related to the operation of such space, facilities and
equipment. GEIM, as administrator, also: (1) maintains the books and records of
each Fund; (2) prepares reports to shareholders of each Fund; (3) prepares and
files tax returns for each Fund; (4) assists with the preparation and filing of
reports and the Company's registration statement with the Securities and
Exchange Commission; (5) provides appropriate officers for the Company; (6)
provides administrative support necessary for the board of directors of the
Company to conduct meetings; and (7) supervises and coordinates the activities
of other service providers, including independent auditors, legal counsel,
custodians, accounting service agents, and transfer agents.
Prior to May 1, 1997, Aon Advisors, Inc. ("AAI") served as investment adviser to
the Company and each Fund other than Global Income Fund and Value Equity Fund
pursuant to a series of investment advisory agreements between the Company and
AAI. AAI, a wholly owned subsidiary of Aon Corporation, is located at 123 N.
Wacker Drive, Chicago, Illinois 60606. The investment advisory fees under the
advisory agreements with GEIM are the same as the fees under the Company's
investment advisory agreements with AAI. The SAI contains a further discussion
of the Company's investment advisory agreements with AAI and information about
AAI.
34
<PAGE>
During the Fund's fiscal year ended December 30, 1996, the total operating
expenses incurred by the Funds (including the advisory fees paid to AAI), before
reimbursement, represented 0.48% of the average net assets of the S&P 500 Index
Fund, 0.67% of the average net assets of the Government Securities Fund, 0.15%
of the average net assets of the Money Market Fund, 0.60% of the average net
assets of the Total Return Fund, 1.56% of the average net assets of the
International Equity Fund, and 1.07% of the Real Estate Securities Fund. During
the Fund's fiscal year ended December 30, 1996, AAI reimbursed the Fund for
expenses in an amount representing 0.06% of the average net assets of the
International Equity Fund.
Investment Sub-Advisers
Prior to May 1, 1997, Perpetual Fund Management, Limited ("Perpetual"), a
wholly-owned subsidiary of Perpetual plc, was the investment sub-adviser for the
International Equity Fund. It is registered under the Investment Advisers Act of
1940 as an investment adviser and has its principal offices at 48 Hart Street,
Henley-on-Thames, Oxfordshire, England RG9 2AZ. In addition to the International
Equity Fund, Perpetual provided investment advice and management to pension
plans, corporations and other institutional and individual clients.
Seneca, a limited liability company, is the investment sub-adviser for the Real
Estate Securities Fund pursuant to an investment sub-advisory agreement
effective May 1, 1997. Seneca is located at 909 Montgomery Street, San
Francisco, CA 94133. Seneca has three principal stockholders. They are Will K.
Weinstein, Gail P. Seneca and Richard D. Little. Seneca is an independent
investment adviser that provides investment management services to foundations,
endowments, corporations, mutual funds and private clients. Founded in 1989,
Seneca currently manages approximately $3.8 billion in equity, fixed-income and
real estate assets.
NWQ is the investment sub-adviser to the Value Equity Fund pursuant to an
investment sub-advisory agreement with GEIM effective May 1, 1997. NWQ, located
at 655 South Hope Street, Los Angeles, CA 90017, is a wholly owned subsidiary of
United Asset Management Corporation, a company whose principal business is
managing investments for institutional clients through 45 operating subsidiaries
and acquiring investment management firms. NWQ is a manager of domestic
investment portfolios for individual, union, corporate, endowment and foundation
clients with 15 years of experience. It manages approximately $6.5 billion in
assets.
GE Investment (US) Limited ("GEIUS") is the investment sub-adviser to the Global
Income Fund pursuant to an investment sub-advisory agreement with GEIM effective
May 1, 1997. Like GEIM, GEIUS is a wholly owned subsidiary of GEC and is
considered under common control with GEIM. GEIUS is located at Sweden House, 20
St. James' Street, London, SW1A 1ES, England and is registered as an investment
adviser under the Investment Advisers Act of 1940. Although GEIUS has no prior
experience advising a U.S. mutual fund, it currently manages approximately $1.1
billion in assets.
Seneca, NWQ and GEIUS manage the investments of the Real Estate Securities Fund,
Value Equity Fund and the Global Income Fund, respectively, determining which
securities or other investments to buy and sell for each, selecting the brokers
and dealers to effect the transactions, and negotiating commissions. In placing
orders for securities transactions, all three sub-advisers follow GEIM's policy
of seeking to obtain the most favorable price and efficient execution available.
For their services, GEIM pays Seneca, NWQ and GEIUS monthly compensation in the
form of an investment sub-advisory fee. The fee is paid by GEIM monthly and is
based upon the average daily net assets of the Fund that each sub-adviser
manages.
35
<PAGE>
Compensation of Advisers
<TABLE>
<CAPTION>
Maximum annual rate
Adviser or 1996 annual rate (as a % (as a % of average
Fund Sub-Adviser of average daily net assets) daily net assets)
------------- -------------- ---------------------------- -----------------------
<S> <C> <C> <C>
S&P 500 Index GEIM .35
Government Securities GEIM .50
Money Market GEIM .50*
Total Return GEIM .50
International Equity GEIM 1.00
Real Estate Securities GEIM . 85
Real Estate Securities Seneca .425
Value Equity GEIM .65
Value Equity NWQ .4875
Global Income GEIM .60
Global Income GEIUS .05
</TABLE>
With respect to each of the Funds other than the S&P 500 Index Fund,Value Equity
Fund and Global Income Fund, the fee payable to the Adviser(s) is graduated so
that increases in the respective Fund's average annual net assets may result in
a lower fee and decreases in a Fund's average annual net assets may increase the
fee. The maximum annual rate payable to each Adviser is indicated in the
right-hand column.
* The Adviser has voluntarily agreed to waive .25% of the .50% fee so that
the fee paid by the Money Market Fund is .25%.
See "Management of the Company" in the SAI for further information.
Portfolio Managers
Eugene K. Bolton, portfolio manager of the S&P 500 Index Fund, is Executive Vice
President and a Director of GEIM. Mr. Bolton is responsible for the overall
management of the domestic equity related process at GEIM and GEIC He joined
GEIM in 1984, prior to which he served for twenty years in various financial
management positions in GEC. Mr. Bolton received a B.A. in business and
management from Mundelein College.
Jon D. Bosse, portfolio manager of the Value Equity Fund, joined NWQ in 1996.
Prior to joining NWQ, he spent ten years with ARCO Investment Management Company
where he was Director of Equity Research and managed a value-oriented fund.
Previous to this, he spent four years in the corporate finance department of
ARCO. Mr. Bosse received his B.A. (summa cum laude) in economics from Washington
University in St. Louis were he received the John M. Olin Award for excellence
in economics and his M.B.A. from Wharton Business School, University of
Pennsylvania. Mr. Bosse is also a Chartered Financial Analyst and a member of
the Association for Investment Management and Research and the Los Angeles
Society of Financial Analysts.
David B. Carlson, portfolio manager of the domestic equity portion of the Total
Return Fund, joined GEIM in 1982. Since that time, Mr. Carlson has held a
variety of positions with GEIM and currently is a Senior Vice President of GEIM.
Mr. received a B.A. in finance from Indiana University and is a Chartered
Financial Analyst.
Ralph R. Layman, portfolio manager of the International Equity Fund and the
international equity portion of the Total Return Fund, joined GEIM in 1991. Mr.
Layman is an Executive Vice President and Director of GEIM and a trustee of the
GE Pension Fund. Prior to joining GEIM, he held positions over a twelve-year
period with Northern Capital Management, Templeton Management, Wausau Insurance
Company and Rockwell International. Mr. Layman received a B.S. in economics and
an M.S. in finance from the University of Wisconsin. He is a Chartered Financial
Analyst and a founding member of the International Society of Financial
Analysts.
36
<PAGE>
Robert A. MacDougall, portfolio manager of the Government Securities Fund and
the debt portion of the Total Return Fund, joined GEIM in 1986 and has served in
various financial management capacities with GEC since 1973. Mr. MacDougall is
Executive Vice President and a Director of GEIM. Mr. MacDougall received a B.A.
and an M.B.A. from the University of Massachusetts.
David A. Shapiro, portfolio manager of the Real Estate Securities Fund, joined
Seneca as a portfolio manager in 1995. In 1992 Mr. Shapiro became a principal of
Asset Holdings Group (he has remained a principal of Asset Holdings Group). From
1982 to 1992, he was a Managing Director of The Adco Group, a real estate
development and finance company. Mr. Shapiro received a B.A. from Columbia
University and a J.D. from the University of Arizona.
William R. Wright, portfolio manager of the Global Income Fund, joined GEIM in
1993, and assumed responsibility for GEIUS at its inception in 1995. He is also
a Vice President of GEIM. Prior to joining GEIUS, Mr. Wright worked for
Continental Asset Management Corp. where he was a portfolio manager of its U.K.
subsidiary. After serving as a language specialist in the U.S. Army Security
Agency, he began his career in 1979 with Coopers & Lybrand, and joined Bankers
Trust Company in 1980. Mr. Wright received his B.A. in political science/Asian
studies from Wittenberg University and an MBA in finance from New York
University. He is a member of the Association for Investment Management and
Research and the New York Society of Security Analysts.
37
<PAGE>
ADDITIONAL INFORMATION
Capital Stock
The Company is currently issuing eight classes of capital stock with each
representing interests in a different Fund. All shares of capital stock
(including fractional shares) have equal rights with regard to voting,
redemptions, dividends, distributions, and liquidations with respect to the Fund
in which they represent an interest. When issued, shares are fully paid and
nonassessable and do not have preemptive or conversion rights or cumulative
voting rights.
Contract Owner Voting Rights
With regard to matters for which the 1940 Act requires a shareholder vote, Life
of Virginia votes Fund shares held in an Account in accordance with instructions
received from owners of variable life insurance and variable annuity contracts
(or annuitants or beneficiaries thereunder) having a voting interest in that
Account. Each share has one vote and votes are counted on an aggregate basis
except as to matters where the interests of Funds differ (such as approval of an
investment advisory agreement or a change in the fundamental investment
policies). In such a case, the voting is on a Fund-by-Fund basis. Fractional
shares are counted. Shares held by the Accounts for which no instructions are
received are voted by Life of Virginia for or against any proposition, or in
abstention, in the same proportion as the shares for which instructions have
been received.
Plan Participant Voting Rights
With regard to matters for which the 1940 Act requires a shareholder vote,
trustees of qualified pension and retirement plans are expected to vote Fund
shares held by their plans either in their own discretion or in accordance with
instructions received from participants in such plans if such participants have
a voting interest in such plans.
Annual Reports
The Fund's annual report to shareholders contains additional performance
information that will be made available upon request and without charge.
Inquiries
Contract owner and plan participant inquiries should be sent to GE Investments
Funds, Inc. 3003 Summer Street, Stamford, Connectict 06905.
Custodian, Transfer and Dividend Paying Agent
Pursuant to a custody agreement with the Company, State Street Bank and Trust
Company ("State Street") serves as custodian of the Fund's assets and also
performs certain accounting services for the Company. These services include
maintaining certain of the Company's books, accounts, journals and other records
of original entry and performing certain daily functions related thereto,
including calculating each Fund's daily net asset value. The principal office of
State Street is 225 Franklin Street, Boston, MA 02110. The Life Insurance
Company of Virginia is the Company's transfer and dividend paying agent. It is
located at 6610 West Broad Street, Richmond, VA 23230.
Legal Matters
Sutherland, Asbill & Brennan, L.L.P., of Washington, D.C. is Counsel for the
Company. There are no material legal proceedings in which the Company is a
party.
38
<PAGE>
PART B
STATEMENT OF ADDITIONAL INFORMATION
<PAGE>
GE INVESTMENTS FUNDS, INC.
STATEMENT OF ADDITIONAL INFORMATION
May 1, 1997
This Statement of Additional Information is not a prospectus. Much of the
information contained in this Statement expands upon matters discussed in the
prospectus and should, therefore, be read in conjunction with the prospectus. To
obtain a copy of a prospectus with the same date as this Statement of Additional
Information, send a written request to GE Investments Funds, Inc., 3003 Summer
Street, Stamford, Connecticut 06905, or call (203) 326-4040.
<PAGE>
TABLE OF CONTENTS
Page
----
General Information
Prior History 3
The Funds 3
Portfolio Turnover Rate Calculation 5
Investment Practices and Restrictions 5
Investment Practices 5
Investment Restrictions 17
Management of the Company 19
Directors and Officers 19
AAI 21
AAI Investment Advisory Agreement 21
AAI Investment Advisory Fee 22
AAI Investment Sub-Advisers 23
AAI Investment Sub-Advisory Agreements 23
AAI Investment Sub-Advisory Fees 24
AAI Reimbursement of Excess Operating Expenses 24
GEIM 25
GEIM Investment Advisory Agreements 25
GEIM Investment Advisory Fees 26
GEIM Investment Sub-Advisers 27
GEIM Investment Sub-Advisory Agreements 27
GEIM Investment Sub-Advisory Fees 28
Securities Activities of the Advisers 28
Portfolio Transactions and Brokerage 29
Determination of Net Asset Value 29
Dividends and Distributions 31
Redemption of Fund Shares 31
Additional Information 31
Life of Virginia 31
Custodian, Dividend and Transfer Agent 31
Independent Auditors 32
Legal Counsel 32
Capital Stock 32
Voting Rights 32
Other Information 33
Audited Financial Statements 33
Appendix A 96
Appendix B 98
<PAGE>
GENERAL INFORMATION
GE Investments Funds, Inc. (the "Company") is an open-end management investment
company incorporated under the laws of the Commonwealth of Virginia on May 14,
1984. The Company consists of eight separate investment portfolios (the "Funds"
or a "Fund"), each of which is, in effect, a separate mutual fund. The Company
issues a separate class of capital stock for each Fund representing fractional
undivided interests in that Fund. An investor, by investing in a Fund, becomes
entitled to a pro-rata share of all dividends and distributions arising from the
net income and capital gains on the investments of that Fund. Likewise, an
investor shares pro-rata in any losses of that Fund.
Pursuant to investment advisory agreements and subject to the authority of the
Company's board of directors, GE Investment Management Incorporated ("GEIM")
serves as the Company's investment adviser and administrator and conducts the
business and affairs of the Company. GEIM has engaged GMG/Seneca Capital
Management, L.L.C. ("Seneca") as the investment sub-adviser to provide
day-to-day portfolio management for the Real Estate Securities Fund; has engaged
NWQ Investment Management Company ("NWQ") as the investment sub-adviser to
provide day-to-day portfolio management to the Value Equity Fund; and engaged GE
Investments (US) Limited ("GEIUS") to provide day-to-day portfolio management to
the Global Income Fund. (As used herein, "Adviser" shall refer to GEIM and,
where applicable, either Seneca, NWQ or GEIUS in their respective roles.)
Prior History
On May 1, 1993, pursuant to shareholder approval obtained on April 20, 1993, the
names and the investment objectives, policies and fundamental restrictions of
the S&P 500 Index Fund, (prior to that time, the Common Stock Fund), and the
Government Securities Fund, (prior to that time, the Bond Fund) were changed.
The investment objective of the Common Stock Fund was intermediate and long-term
growth of capital, with reasonable income a consideration. The Common Stock Fund
sought to achieve this objective by investing principally in common stocks and
securities convertible into or with rights to purchase common stocks. The
investment objective of the Bond Fund was providing as high a level of income as
is consistent with the preservation of capital. It sought to achieve this
objective by investing primarily in corporate bonds and government obligations.
From May 1, 1993 until April 30, 1997, the S&P 500 Index Fund was called the
Common Stock Index Fund. On May 1, 1997, it changed its name (but not its
investment objectives) to the S&P 500 Index Fund
The Funds
The S&P 500 Index Fund has the investment objective of providing capital
appreciation and accumulation of income that corresponds to the investment
return of the Standard & Poor's 500 Composite Stock Price Index (the "S&P 500
Index"), through investment in common stocks and other investments comprising
that index. The S&P 500 Index Fund attempts to achieve its objective by
replicating the total return of the S&P 500 Index. To the extent that it can do
so consistent with the pursuit of its investment objective, it will attempt to
keep transaction costs low and minimize portfolio turnover. Like the S&P 500
Index, the S&P 500 Index Fund will hold both dividend paying and non-dividend
paying common stocks comprising the S&P 500 Index. From time to time,
adjustments will be made in the S&P 500 Index Fund's holdings due to changes in
the composition or weightings of issues comprising the S&P 500 Index. For the
year ended December 31, 1996, the portfolio turnover rate for the S&P 500 Fund
was 63.06%. For the year ended December 31, 1995, the portfolio turnover rate
for the S&P 500 Index Fund was 14.58%.
The Government Securities Fund has the investment objective of seeking high
current income and protection of capital through investment in intermediate and
long-term debt instruments issued or guaranteed by the U.S. Government, its
agencies or instrumentalities. The Government Securities Fund may also invest in
U.S. Government debt instruments having maturities of less than one year and in
other high quality money market instruments. The Government Securities Fund
invests at least 80% of its total assets, valued at the time of purchase, in
U.S. Government securities of various maturities. For the year ended December
31, 1996, the portfolio turnover rate for the Government Securities Fund was
322%. For the year ended December 31, 1995, the portfolio turnover rate for the
Government Securities Fund was 130.64%.
3
<PAGE>
The Money Market Fund has the investment objective of providing the highest
level of current income as is consistent with high liquidity and safety of
principal by investing in good quality money market securities. Such securities
include U.S. Treasury bills, notes and bonds; obligations of agencies and
instrumentalities of the U.S. Government; bank certificates of deposit;
commercial paper; bankers' acceptances; and repurchase agreements.
The Total Return Fund has the investment objective of providing the highest
total return, composed of current income and capital appreciation, as is
consistent with prudent investment risk. It attempts to achieve this objective
by investing in common stocks, bonds and money market instruments, the
proportion of each being continuously determined by the Adviser. Total return
consists of current income, including dividends, interest and discount accruals
and capital appreciation. This Fund invests in common stocks and other equity
securities or securities convertible into or with rights to purchase common
stocks, securities that are permissible investments for the Government
Securities Fund and the Money Market Fund. This Fund also invests in corporate
debt obligations.
There are no percentage limitations on the types of securities in which the
Total Return Fund may invest, so from time to time it may invest entirely in
stocks, entirely in bonds, entirely in money market instruments, or in any
combination of these types of securities in accordance with the sole discretion
of the Adviser and the board of directors of the Company. At least 60% of the
value of any bonds held by this Fund will be rated within the four highest
grades by a nationally recognized rating service such as Standard and Poor's
Corporation ("S&P") or Moody's Investors Service, Inc. ("Moody's"). The
portfolio turnover rate for the year ended December 31, 1996, was 144.02%.
Stocks in the Fund had a turnover ratio of 81.02%. Bonds in the portfolio had a
turnover ratio of 385.43%. The portfolio turnover rate for the year ended
December 31, 1995, was 105.56%. Stocks in the Fund had a turnover ratio of
154.74%. Bonds in the portfolio had a turnover ratio of 51.62%.
The International Equity Fund has the investment objective of providing
long-term capital appreciation. The Fund seeks to achieve its objective by
investing primarily in equity and equity-related securities of companies that
are organized outside of the United States or of companies whose securities are
principally traded outside the United States ("foreign issuers") and which the
Adviser believes have long-term potential for capital appreciation. The Fund
also may invest in securities (1) of companies organized in the United States
but having their principal activities and interests outside the United States,
(2) denominated or quoted in foreign currency ("non-dollar securities"), and (3)
issued by foreign governments or agencies or instrumentalities of foreign
governments (also "foreign issuers"). For the year ended December 31, 1996, the
portfolio turnover rate for the International Equity Fund 149.72%. For the
fiscal period ended December 31, 1995, the portfolio turnover rate for the
International Equity Fund was 58.11% on an annualized basis.
The Real Estate Securities Fund has the investment objective of providing
maximum total return through current income and capital appreciation. The Fund
seeks to achieve this objective by investing primarily in securities of U.S.
issuers that are principally engaged in or related to the real estate industry,
including those that own significant real estate assets. The Fund does not
invest directly in real estate. For the year ended December 31, 1996, the
portfolio turnover rate for the Real Estate Securities Fund was 30.36%. For the
fiscal period ended December 31, 1995, the portfolio turnover rate for the Real
Estate Securities Fund was 54.43% on an annualized basis.
The Global Income Fund has the investment objective of high total return,
emphasizing current income and, to a lesser extent, capital appreciation. The
Fund seeks to achieve these objectives by investing primarily in income-bearing
debt securities and other income-bearing instruments of U.S. and foreign
issuers. Such investments may be denominated or quoted in foreign currencies
("non-dollar instruments") or U.S. dollars. Foreign issuers include: (1) foreign
governments, or instrumentalities of foreign governments, (2) international
entities (i. e., the World Bank), (3) companies organized outside the U.S. or
whose securities are principally traded outside the U.S. and, (4) companies
organized in the U.S. but having their principal activities and interests
outside the U.S. The anticipated portfolio turnover rate for the Global Income
Fund is approximately 250%.
The Value Equity Fund has the investment objective of providing long-term
capital appreciation. The Fund seeks to achieve this objective by investing
primarily in common stock and other equity securities of companies that NWQ
believes are undervalued by the market place at the time of purchase and offer
the potential for above-average capital appreciation. Other equity securities
include preferred stock, securities convertible or exchangeable into common
4
<PAGE>
stock, rights and warrants, options on equity securities, and futures contracts
on equity indices (and options thereon). The Fund also may invest in undervalued
convertible preferred stock and debt securities. The anticipated portfolio
turnover rate for the Value Equity Fund is approximately 100%.
Portfolio Turnover Rate Calculation
The turnover rate for each Fund is calculated by dividing the lesser of
purchases or sales of portfolio securities during the fiscal year by the monthly
average of the value of the Fund's securities (excluding from the computation
all securities, including options, with maturities at the time of acquisition of
one year or less). For example, a portfolio turnover rate of 100% would mean
that all of a Fund's securities (except those excluded from the calculation)
were replaced once in a period of one year. A high rate of portfolio turnover
generally involves correspondingly greater brokerage commission expenses.
Turnover rates may vary greatly from year to year as well as within a particular
year and may also be affected by cash requirements for redemptions of a Fund's
shares and by requirements, the satisfaction of which enable the Company to
receive certain favorable tax treatment. Because the rate of portfolio turnover
is not a limiting factor, however, particular holdings may be sold at any time,
if investment judgment or Fund operations make a sale advisable. As a result,
the annual portfolio turnover rates in future years may exceed the percentages
shown above. Since short term instruments are excluded from the calculation of a
portfolio turnover rate, no meaningful portfolio turnover rate can be estimated
or calculated for the Money Market Fund.
INVESTMENT PRACTICES AND RESTRICTIONS
Investment Practices
The policies by which the Funds will pursue their objectives are generally set
forth in the prospectus. This section is intended to augment the explanation
found in the prospectus.
When-Issued and Delayed Delivery Securities. From time to time, in the ordinary
course of business, each Fund may purchase securities on a when-issued basis or
delayed-delivery basis, i.e., delivery and payment can take place a month or
more after the date of the transaction. The securities so purchased are subject
to market fluctuation, and no interest accrues to the purchaser during this
period. At the time a Fund makes the commitment to purchase securities on a
when-issued or delayed-delivery basis, the Company will record the transaction
and thereafter reflect the value, each day, of such security in determining the
net asset value of that Fund. At the time of delivery of the securities, the
value may be more or less than the purchase price. Each Fund will also establish
a segregated account with the Company's custodian bank in which it will maintain
cash or cash equivalents or other portfolio securities equal in value, marked to
market on a daily basis, to commitments for such when-issued or delayed-delivery
securities.
Loans of Portfolio Securities. The Funds may from time to time lend securities
each Fund holds to brokers, dealers and financial institutions, up to a maximum
of 20% of the total value of each Fund's assets. Such loans are secured by
collateral in the form of cash or other liquid assets, which at all times while
the loan is outstanding, is maintained in an amount at least equal to the
current market value of the loaned securities. The Funds continue to receive
interest and dividends on the loaned securities during the term of the loans,
and, in addition, receive a fee from the borrower or interest earned from the
investment of cash collateral in short-term securities. The Funds also receive
any gain or loss in the market value of loaned securities and of securities in
which cash collateral is invested during the term of the loan.
The right to terminate a loan of securities, subject to appropriate notice, is
given to either party. When a loan is terminated, the borrower returns the
loaned securities to the Company. The Company does not have the right to vote
securities on loan, but may terminate the loan and regain the right to vote if
that were important with respect to the investment.
For tax purposes, the dividends, interest and other distributions which the
Company receives on loaned securities may be treated as other than qualified
income for the 90% test discussed under "Taxes" in the prospectus. The Company
intends to lend portfolio securities only to the extent that this activity does
not jeopardize a Fund's status as a regulated investment company under the
Internal Revenue Code of 1986 (the "Code").
5
<PAGE>
The primary risk involved in lending securities is that the borrower will fail
financially and not return the loaned securities at a time when the collateral
is insufficient to replace the full amount of the loaned securities. The
borrower would be liable for the shortage, but a Fund would be an unsecured
creditor with respect to such shortage and might not be able to recover all or
any of it. In order to minimize this risk, a Fund makes loans of securities only
to firms the Adviser (under the supervision of the board of directors) deems
creditworthy.
Convertible Securities. The Total Return Fund, International Equity Fund, Real
Estate Securities Fund, Value Equity Fund and Global Income Fund may each invest
in one or more types of convertible securities. Convertible securities may
include corporate notes or preferred stock but are ordinarily a long-term debt
obligation of the issuer convertible at a stated exchange rate into common stock
of the issuer. As with all debt securities, the market value of convertible
securities tends to decline as interest rates increase and, conversely, to
increase as interest rates decline. Convertible securities generally offer lower
interest or dividend yields than non-convertible securities of similar quality.
However, when the market price of the common stock underlying a convertible
security exceeds the conversion price, the price of the convertible security
tends to reflect the value of the underlying common stock. As the market price
of the underlying common stock declines, the convertible security tends to trade
increasingly on a yield basis, and thus may not depreciate to the same extent as
the underlying common stock. Convertible securities generally rank senior to
common stocks in an issuer's capital structure and are consequently of higher
quality and entail less risk of declines in market value than the issuer's
common stock. However, the extent to which such risk is reduced depends in large
measure upon the degree to which the convertible security sells above its value
as a debt security. In evaluating a convertible security, an Adviser usually
gives primary emphasis to the attractiveness of the underlying common stock. The
convertible debt securities in which these Funds may invest are subject to the
same rating criteria as each portfolio's investment in non convertible debt
securities.
Warrants. The International Equity Fund, Total Retun Fund, Real Estate
Securities Fund, Value Equity Fund and Global Income Fund may each invest up to
5% of its total assets, calculated at the time of purchase, in warrants or
rights (other than those acquired in units or attached to other securities)
which entitle the holder to buy equity securities at a specific price for a
specific period of time. Warrants and rights have no voting rights, receive no
dividends and have no rights with respect to the assets of the issuer.
Risks of Foreign Investments. Investing in the securities of companies organized
outside the United States or of companies whose securities are principally
traded outside the United States ("foreign issuers") or investments in
securities denominated or quoted in foreign currency ("non-dollar securities")
involves certain special considerations, including those set forth below, which
are not typically associated with investing in securities of domestic issuers or
U.S. dollar denominated securities.
Since investments in foreign issuers may involve currencies of foreign countries
and since a Fund may temporarily hold funds in bank deposits in foreign
currencies during completion of investment programs and since a Fund may be
subject to currency exposure independent of its securities positions, the Fund
may be affected favorably or unfavorably by changes in currency rates and in
exchange control regulations and may incur costs in connection with conversions
between various currencies.
Since foreign issuers are not subject to uniform accounting, auditing and
financial reporting standards, practices and requirements comparable to those
applicable to U.S. issuers, there may be less publicly available information
about a foreign issuer than about a domestic issuer. Volume and liquidity in
most foreign securities markets are less than in the United States and
securities of many foreign issuers are less liquid and more volatile than
securities of comparable domestic issuers. Fixed commissions on foreign
securities exchanges are generally higher than negotiated commissions on U.S.
exchanges, although a Fund may endeavor to achieve the most favorable net
results on its portfolio transactions. There is generally less government
supervision and regulation of securities exchanges, brokers, dealers and listed
and unlisted issuers than in the United States. Mail service between the United
States and foreign countries may be slower or less reliable than within the
United States, thus increasing the risk of delayed settlements of portfolio
transactions or loss of certificates for portfolio securities.
Foreign investment markets also have different clearance and settlement
procedures, and in certain markets there have been times when settlements have
been unable to keep pace with the volume of transactions, making it difficult
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to conduct such transactions. Such delays in settlement could result in
temporary periods when a portion of the assets of a Fund are uninvested and no
return is earned on such assets. The inability of a Fund to make intended
security purchases due to settlement problems could cause the Fund to miss
attractive investment opportunities. Inability to dispose of portfolio
investments due to settlement problems could result either in losses to a Fund
due to subsequent declines in value of the portfolio securities or, if the Fund
has entered into a contract to sell the securities, could result in possible
liability to the purchaser. In addition, with respect to certain foreign
countries, there is the possibility of expropriation or confiscatory taxation,
political or social instability, or diplomatic developments which could affect a
Fund's investments in those countries. Moreover, individual foreign economies
may differ favorably or unfavorably from the U.S. economy in such respects as
growth of gross national product, rate of inflation, capital reinvestment,
resource self-sufficiency and balance of payments position.
Forward Foreign Currency Exchange Contracts. The Government Securities Fund,
International Equity Fund, Total Return Fund and Global Income Fund may enter
into forward foreign currency exchange contracts. A forward foreign currency
exchange contract involves an obligation to purchase or sell a specific currency
at a future date, which may be any fixed number of days from the date of the
contract agreed upon by the parties, at a price set at the time of the contract.
These contracts are traded in the interbank market conducted directly between
currency traders (usually large commercial banks) and their customers. A forward
contract generally has no deposit requirement, and no commissions are generally
charged at any stage for trades. At the maturity of a forward contract, a Fund
may either accept or make delivery of the currency specified in the contract or,
at or prior to maturity, enter into a closing purchase transaction involving the
purchase or sale of an offsetting contract. Closing purchase transactions with
respect to forward contracts are usually effected with the currency trader who
is a party to the original forward contract.
The Government Securities Fund, International Equity Fund, Total Return Fund,
and Global Income Fund may enter into forward foreign currency exchange
contracts in several circumstances. First, when they enter into a contract for
the purchase or sale of a security denominated or quoted in a foreign currency,
or when they anticipate the receipt in a foreign currency of dividend or
interest payments on such a security which either holds, the Funds may desire to
"lock in" the U.S. dollar price of the security or the U.S. dollar equivalent of
such dividend or interest payment, as the case may be. By entering into a
forward contract for the purchase or sale, for a fixed amount of dollars, of the
amount of foreign currency involved in the underlying transactions, the Funds
will attempt to protect themselves against an adverse change in the relationship
between the U.S. dollar and the subject foreign currency during the period
between the date on which the security is purchased or sold, or on which the
dividend or interest payment is declared, and the date on which such payments
are made or received.
Additionally, when an Adviser believes that the currency of a particular foreign
country may suffer a substantial decline against the U.S. dollar, it may enter
into a forward contract to sell, for a fixed amount of dollars, the amount of
foreign currency approximating the value of some or all of a Fund's portfolio
securities denominated in such foreign currency. The precise matching of the
forward contract amounts and the value of the securities involved will not
generally be possible because the future value of such securities in foreign
currencies will change as a consequence of market movements in the value of
those securities between the date on which the contract is entered into and the
date it matures. Using forward contracts to protect the value of these Funds'
portfolio securities against a decline in the value of a currency does not
eliminate fluctuations in the underlying prices of the securities. It simply
establishes a rate of exchange which the Fund can achieve at some future point
in time. The precise projection of short-term currency market movements is not
possible, and short-term hedging provides a means of fixing the dollar value of
only a portion of a Fund's foreign assets.
The International Equity Fund, Total Return Fund, and Global Income Fund may
engage in cross-hedging by using forward contracts in one currency to hedge
against fluctuations in the value of securities quoted or denominated in a
different currency if the Adviser determines that there is a pattern of
correlation between the two currencies. The Funds also may purchase and sell
forward contracts to seek to increase total return when the Adviser anticipates
that the foreign currency will appreciate or depreciate in value, but securities
denominated or quoted in that currency do not present attractive investment
opportunities and are not held by the Funds.
All of the Funds may utilize foreign forward currency exchange contracts to
settle non-dollar securities transactions.
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The Company's custodian will segregate cash or other liquid assets in an amount
equal to the value of a Fund's total assets committed to the consummation of
forward foreign currency exchange contracts requiring the Fund to purchase
foreign currencies or forward contracts entered into to seek to increase total
return. If the value of the securities so segregated declines, additional cash
or liquid assets are segregated on a daily basis so that the value of the
account equals the amount of the Fund's commitments with respect to such
contracts. These segregated securities are marked-to-market on a daily basis.
Although the contracts are not presently regulated by the CFTC, the CFTC may in
the future assert authority to regulate these contracts. In such event, a Fund's
ability to utilize forward foreign currency exchange contracts may be
restricted.
While the Government Securities Fund, International Equity Fund, Total Return
Fund, and Global Income Fund will enter into forward contracts to reduce
currency exchange rate risks, transactions in such contracts involve certain
other risks. Therefore, while these Funds may benefit from such transactions,
unanticipated changes in currency prices may result in a poorer overall
performance for the Funds than if they had not engaged in any such transactions.
Moreover, there may be imperfect correlation between a Fund's portfolio holdings
of securities quoted or denominated in a particular currency and forward
contracts entered into by the Fund. Such imperfect correlation may cause the
Fund to sustain losses which will prevent the Fund from achieving a complete
hedge or expose the Fund to risk of foreign exchange loss.
Writing and Purchasing Currency Call and Put Options. The International Equity
Fund and Global Income Fund may write covered put and call options and purchase
put and call options on foreign currencies for the purpose of protecting against
declines in the U.S. dollar value of portfolio securities and against increases
in the dollar cost of securities to be acquired. The International Equity Fund
and Global Income Fund also may use options on currency to cross-hedge, which
involves writing or purchasing options on one currency to hedge against changes
in exchange rates for a different currency if a pattern of correlation exists
between the values of the currencies. In addition, these Funds may purchase call
options on currency when the Adviser anticipates that the foreign currency will
appreciate in value, but securities denominated or quoted in that currency do
not present attractive investment opportunities and are not held by the Fund. A
call option written by these Funds obligates the Fund to sell specified currency
to the holder of the option at a specified price at any time before the
expiration date. A put option written by a Fund would obligate the Fund to
purchase specified currency from the option holder at a specified price at any
time before the expiration date. The writing of currency options involves a risk
that the Fund will, upon exercise of the option, be required to sell currency
subject to a call at a price that is less than the currency's market value or be
required to purchase currency subject to a put at a price that exceeds the
currency's market value.
The International Equity Fund or Global Income Fund may terminate its
obligations under a call or put option by purchasing an option identical to the
one it has written. Such purchases are referred to as "closing purchase
transactions." These Funds also are able to enter into closing sale transactions
in order to realize gains or minimize losses on options that either purchases.
The International Equity Fund and Global Income Fund normally purchase call
options in anticipation of an increase in the U.S. dollar value of currency in
which securities to be acquired by either are quoted or denominated. The
purchase of a call option would entitle a Fund, in return for the premium paid,
to purchase specified currency at a specified price during the option period.
The Fund ordinarily realizes a gain if, during the option period, the value of
such currency exceeded the sum of the exercise price, the premium paid and
transaction costs; otherwise the Fund realizes either no gain or a loss on the
purchase of the call option.
The International Equity Fund and Global Income Fund would normally purchase put
options in anticipation of a decline in the dollar value of currency in which
securities in its portfolio are quoted or denominated ("protective puts"). The
purchase of a put option would entitle a Fund, in exchange for the premium paid,
to sell specified currency at a specified price during the option period. The
purchase of protective puts is designed merely to offset or hedge against a
decline in the dollar value of a Fund's portfolio securities due to currency
exchange rate fluctuations. A Fund would ordinarily realize a gain if, during
the option period, the value of the underlying currency decreased below the
exercise price sufficiently to more than cover the premium and transaction
costs; otherwise the Fund would realize either no gain or a loss on the purchase
of the put option. Gains and losses on the purchase of protective put options
would tend to be offset by countervailing changes in the value of underlying
currency.
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In addition to using options for the hedging purposes described above, the
International Equity Fund and Global Income Fund may use options on currency to
seek to increase total return. It may write (sell) covered put and call options
on any currency in order to realize greater income than would be realized on
portfolio securities transactions alone. However, in writing covered call
options for additional income, the Funds may forgo the opportunity to profit
from an increase in the market value of the underlying currency. Also, when
writing put options, the Funds accept, in return for the option premium, the
risk that it may be required to purchase the underlying currency at a price in
excess of the currency's market value at the time of purchase.
The International Equity Fund and Global Income Fund normally purchase call
options to seek to increase total return in anticipation of an increase in the
market value of a currency. They ordinarily realize a gain if, during the option
period, the value of such currency exceeded the sum of the exercise price, the
premium paid and transaction costs. Otherwise the Funds realize either no gain
or a loss on the purchase of the call option. Put options may be purchased by a
Fund for the purpose of benefiting from a decline in the value of currencies
which it does not own. It would ordinarily realize a gain if, during the option
period, the value of the underlying currency decreased below the exercise price
sufficiently to more than cover the premium and transaction costs. Otherwise it
would realize either no gain or a loss on the purchase of the put option.
Special Risks Associated With Options on Currency. An exchange-traded option
position may be closed out only on an options exchange which provides a
secondary market for an option of the same series. Although the International
Equity Fund and Global Income Fund generally purchase or write only those
options for which there appears to be an active secondary market, there is no
assurance that a liquid secondary market on an exchange will exist for any
particular option, or at any particular time. For some options no secondary
market on an exchange may exist. In such event, it is not possible to effect
closing transactions in particular options, with the result that a Fund would
have to exercise its options in order to realize any profit and would incur
transaction costs upon the sale of underlying securities pursuant to the
exercise of put options. If a Fund as a covered call option writer is unable to
effect a closing purchase transaction in a secondary market, it is not able to
sell the underlying currency (or security quoted or denominated in that
currency) until the option expires or it delivers the underlying currency upon
exercise.
There is no assurance that higher than anticipated trading activity or other
unforeseen events might not, at times, render certain of the facilities of the
Options Clearing Corporation inadequate, and thereby result in the institution
by an exchange of special procedures which may interfere with the timely
execution of customers' orders.
The International Equity Fund and Global Income Fund may purchase and write
over-the-counter options to the extent consistent with their limitations on
investments in illiquid investments. See "Investment Restrictions." Trading in
over-the-counter options is subject to the risk that the other party will be
unable or unwilling to close-out options purchased or written by the Funds. See
"Investment Practices" in the Prospectus.
Interest Rate and Currency Swaps. The International Equity Fund and Global
Income Fund may enter into currency swaps for hedging purposes and to increase
total return. The Global Income Fund may enter into interest rate swaps for
these purposes. Inasmuch as swaps are entered into for good faith hedging
purposes (or are offset by a segregated account as described below), the Company
and the Adviser believe that swaps do not constitute senior securities as
defined in the Investment Company Act of 1940 (the "1940 Act") and, accordingly,
will not treat them as being subject to a Fund's borrowing restrictions. The net
amount of the excess, if any, of a Fund's obligations over its entitlement with
respect to each currency swap will be accrued on a daily basis and an amount of
cash or other liquid assets having an aggregate net asset value at least equal
to such accrued excess will be maintained in a segregated account by the
Company's custodian. An amount of cash or liquid assets having an aggregate net
asset value at least equal to the entire amount of payment stream payable by the
Global Income Fund pursuant to an interest rate swap will be segregated with the
Company's custodian. Neither Fund enters into any interest rate or currency swap
unless the credit quality of the unsecured senior debt or the claims-paying
ability of the other party thereto is considered to be investment grade by the
Adviser. If there is a default by the other party to such a transaction, the
Company will have contractual remedies pursuant to the agreement, related to the
transaction. The swap market has grown substantially in recent years with a
large number of banks and investment banking firms acting both as principals and
as agents utilizing standardized swap documentation. As a result, the swap
market has become relatively liquid in comparison with the markets for other
similar instruments which are traded in the interbank market. Nevertheless, the
SEC staff takes the position that currency swaps are illiquid investments
subject to a Fund's limitation on such investments. See "Investment Practices"
in the prospectus.
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Options on Securities and Securities Indices. The S&P 500 Index Fund, Government
Securities Fund, Total Return Fund, International Equity Fund, Real Estate
Securities Fund, Value Equity Fund and Global Income Fund may write
exchange-traded covered call and put options on or relating to specific
securities in order to earn additional income or, in the case of a call written,
to minimize or hedge against anticipated declines in the value of its portfolio
securities. All call options written by these Funds are covered, which means
that the Fund will own the securities subject to the option as long as the
option is outstanding. All put options written by these Funds are covered, which
means that the Fund has deposited with its custodian cash, or other liquid
assets with a value at least equal to the exercise price of the option. Call and
put options written by a Fund may also be covered to the extent that the Fund's
liabilities under such options are offset by its rights under call or put
options purchased by the Fund and call options written by a Fund may also be
covered by depositing cash or liquid assets with the Company's custodian in the
same manner as written puts are covered.
Through the writing of a covered call option a Fund receives premium income but
obligates itself to sell to the purchaser of such an option the particular
security underlying the option at a specified price at any time prior to the
expiration of the option period, regardless of the market value of the security
during this period. Through the writing of a covered put option, a Fund receives
premium income but obligates itself to purchase a particular security underlying
the option at a specified price at any time prior to the expiration of the
option period, regardless of market value during the option period.
The S&P 500 Index Fund, International Equity Fund, Total Return Fund, Real
Estate Securities Fund and Value Equity Fund may each, in accordance with its
investment objective and investment program, also write exchange-traded covered
call and put options on stock indices. These Funds may write such options for
the same purposes as each may engage in such transactions with respect to
individual portfolio securities, that is, to generate additional income or as a
hedging technique to minimize anticipated declines in the value of the Fund's
securities. In economic effect, a stock index call or put option is similar to
an option on a particular security, except that the value of the option depends
on the weighted value of the group of securities comprising the index, rather
than a particular security, and settlements are made in cash rather than by
delivery of a particular security.
If a Fund writes an option which expires unexercised or is closed out by the
Fund at a profit, it will retain the premium received for the option, which will
represent a capital gain to the Fund. If the price of the underlying security
moves adversely to the Fund's position, the option may be exercised and the
Fund, as the writer of the option, will be required to sell or purchase the
underlying security at a disadvantageous price, which may only be partially
offset by the amount of premium received.
When a Fund writes an option on an index, and the underlying index moves
adversely to its position, the option may be exercised. Upon such exercise, the
Fund, as the writer of the option, will be required to pay in cash an amount
equal to the difference between the exercise settlement value of the underlying
index and the exercise price of the option, multiplied by a specified index
"multiplier."
Call or put options on a stock index may be written at an exercise or "strike"
price which is either below or above the current value of the index. If the
exercise price at the time of writing the option is below the current value of
the index for a call option or above the current value of the index for a put
option, the option is considered to be "in the money." In such a case, the Fund
will cover such options written by segregating with its custodian or pledging to
its FCM as collateral, cash or other liquid assets equal in value to the amount
by which the option written is in the money, times the multiplier, times the
number of contracts.
Stock indices for which options are currently traded include the S&P 500 Index,
Value Line Index, National OTC Index, Major Market Index, and NYSE Beta Index.
The Funds may also use options on such other indices as may now or in the future
be available. The five Funds may also purchase put or call options on securities
indices in order to (i) hedge against anticipated changes in stock prices that
may adversely affect the prices of securities that they intend to purchase at a
later date, (ii) hedge their investments against an anticipated decline in
value, or (iii) attempt to reduce the risk of missing a general market advance.
In the event that the anticipated changes in stock prices occur, these Funds may
be able to offset the resulting adverse effect, in whole or in part, through the
options purchased.
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The premium paid for a put or call option plus any transaction costs will reduce
the benefit, if any, realized by a Fund upon exercise or liquidation of the
option, and, unless the price of the underlying securities index changes
sufficiently, the option may expire without value to the Fund. To close option
positions purchased by it, the S&P 500 Index Fund may sell put or call options
identical to options previously purchased, which could result in a net gain or
loss depending on whether the amount received on the sale is more or less than
the premium and other transaction costs paid on the put or call option
purchased.
All seven Funds (other than the Money Market Fund) may use options traded on a
national securities exchange. Only the Government Securities Fund, Total Return
Fund, International Equity Fund, Value Equity Fund and Global Income Fund,
however, may use over-the-counter (i.e., unlisted) options. Options traded in
the over-the-counter market may not be as actively traded as those on an
exchange. Accordingly, it may be more difficult to value such options. In
addition, it may be more difficult to enter into closing transactions with
respect to options traded over-the-counter. In this regard, the Government
Securities Fund and Global Income Fund may enter into contracts with the primary
dealers with whom they write over-the-counter options. The contracts will
provide that the Government Securities Fund and Global Income Fund has the
absolute right to repurchase an option it writes at any time at a repurchase
price which represents the fair market value of such option, as determined in
good faith through negotiations between the parties, but which in no event will
exceed a price determined pursuant to a formula contained in the contract.
Although the specific details of the formula may vary between contracts with
different primary dealers, the formula will generally be based on a multiple of
the premium received by the Government Securities Fund and Global Income Fund,
plus the amount, if any, of the option's intrinsic value (i.e., the amount the
option is "in-the-money"). The formula will also include a factor to account for
the difference between the price of the security and the strike price of the
option if the option is written "out-of-the-money." The Company's board of
directors has established standards of creditworthiness for these primary
dealers.
Financial Futures Contracts. The S&P 500 Index Fund, Government Securities Fund,
Total Return Fund, International Equity Fund, Real Estate Securities Fund, Value
Equity Fund and Global Income Fund, each in accordance with its investment
objective, investment program, policies, and restrictions may purchase and sell
exchange-traded financial futures contracts as a hedge to protect against
anticipated changes in prevailing interest rates or overall stock prices, or to
efficiently and in a less costly manner implement either increases or decreases
in exposure to the equity or government bond markets. Likewise, the
International Equity Fund and Global Income Fund may purchase and sell
exchange-traded currency futures contracts as a hedge to protect against
anticipated adverse changes in currency exchange rates. All seven Funds also may
purchase and sell exchange-traded financial futures contracts to earn additional
income or otherwise seek to increase total return.
Financial futures contracts consist of interest rate futures contracts, stock
index futures contracts and currency futures contracts. An interest rate futures
contract is a contract to buy or sell specified debt securities at a future time
for a fixed price. A stock index futures contract is similar in economic effect,
except that rather than being based on specific securities, it is based on a
specified index of stocks and not the stocks themselves. A currency futures
contract is a contract to purchase or sell a specific amount of foreign currency
at a future time for a fixed price.
An interest rate futures contract binds the seller to deliver to the purchaser
on a specified future date a specified quantity of one of several listed
financial instruments, against payment of a settlement price specified in the
contract. A public market currently exists for futures contracts on Government
National Mortgage Association ("GNMA") Certificates, long-term U.S. Treasury
Bonds, three-month U.S. Treasury Bills, short-term U.S. Treasury Notes, and bank
certificates of deposit.
Stock index futures contracts bind purchaser and seller to deliver, at a future
date specified in the contract, a cash amount equal to a multiple of the
difference between the value of a specified stock index on that date and the
settlement price specified by the contract. That is, the seller of the futures
contract must pay and the purchaser would receive a multiple of any excess of
the value of the index over the settlement price, and conversely, the purchaser
must pay and the seller would receive a multiple of any excess of the settlement
price over the value of the index. A public market currently exists for stock
index futures contracts based on the S&P 500 Index, the New York Stock Exchange
Composite Index, the Value Line Stock Index, and the Major Market Index. It is
expected that financial instruments related to broad-based indices, in addition
to those for which futures contracts are currently traded, will
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in the future be the subject of publicly-traded futures contracts. Each Fund may
use those indices which are appropriate to its hedging strategies.
A financial futures contract is an agreement to buy or sell a security or
currency (or deliver a final cash settlement price, in the case of a contract
relating to an index or otherwise not calling for physical delivery of a
specified security) for a set price in the future. Exchange-traded futures
contracts are designated by boards of trade which have been designated
"contracts markets" by the CFTC.
Positions taken in the futures markets are not normally held until delivery or
cash settlement is required, but instead are liquidated through offsetting
transactions which may result in a gain or a loss. While futures positions taken
by a Fund are usually liquidated in this manner, a Fund may instead make or take
delivery of underlying securities whenever it appears economically advantageous
to do so. A clearing organization associated with the relevant exchange assumes
responsibility for closing out transactions and guarantees that, as between the
clearing members of the exchange, the sale and purchase obligations will be
performed with regard to all positions that remain open at the termination of
the contract.
When financial futures contracts are entered into by a Fund, either as the
purchaser or the seller of such contracts, the Fund is required to deposit with
its custodian in a segregated account in the name of the FCM an initial margin
of cash or U.S. Treasury bills equalling as much as 5% to 10% or more of the
contract settlement price. The nature of initial margin requirements in futures
transactions differs from traditional margin payments made in securities
transactions in that initial margins for financial futures contracts do not
involve the borrowing of funds by the customer to finance the transaction.
Instead, a customer's initial margin on a financial futures contract represents
a good faith deposit securing the customer's contractual obligations under the
financial futures contract. The initial margin deposit is returned, assuming
these obligations have been met, when the financial futures contract is
terminated. In addition, subsequent payments to and from the FCM, called
"variation margin," are made on a daily basis as the price of the underlying
security or stock index fluctuates reflecting the change in value in the long
(purchase) or short (sale) positions in the financial futures contract, a
process known as "marking to market."
Financial future contracts generally are not entered into to acquire the
underlying asset and generally are not held to term. Prior to the contract
settlement date, a Fund will normally close all futures positions by entering
into an off-setting transaction which operates to cancel the position held, and
which usually results in a profit or loss.
Options on Financial Futures Contracts. The S&P 500 Index Fund, Government
Securities Fund, Total Return Fund, International Equity Fund, Real Estate
Securities Fund, Value Equity Fund and Global Income Fund may also purchase call
and put options on financial futures contracts and write covered call options on
financial futures contracts of the type which the particular Fund is authorized
to enter into. The S&P Index 500 Fund, Total Return Fund, and Value Equity Fund
also may write covered put options on stock index futures contracts. Covered put
and call options on futures contracts will be covered in the same manner as
covered options on securities and securities indices. The Funds may invest in
such options for the same hedging purposes as they may each purchase or sell
financial futures contracts or in order to earn additional income or otherwise
seek to increase total return.
Options on financial futures contracts are traded on exchanges that are licensed
and regulated by the CFTC. A call option on a financial futures contract gives
the purchaser the right in return for the premium paid, to purchase a financial
futures contract (assume a "long" position) at a specified exercise price at any
time before the option expires. A put option gives the purchaser the right, in
return for the premium paid, to sell a financial futures contract (assume a
"short" position), for a specified exercise price, at any time before the option
expires.
Unlike entering into a financial futures contract itself, purchasing options on
financial futures contracts allows a buyer to decline to exercise the option,
thereby avoiding any loss beyond forgoing the purchase price (or "premium") paid
for the options. Therefore, the purchase of options on financial futures
contracts may be a preferable hedging strategy when the Fund desires maximum
flexibility. Whether, in order to achieve a particular objective, the Fund
enters into a financial futures contract, on the one hand, or an option contract
on a financial futures contract, on the other, will depend on all the
circumstances, including the relative costs, liquidity, availability and capital
requirements of such financial futures and options contracts. Each Fund will
consider the relative risks involved, which may
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be quite different. These factors, among others, will be considered in light of
market conditions and the particular objective to be achieved.
Certain Additional Risks of Options and Financial Futures Contracts. In addition
to the risks described in the Prospectus, the use of options and financial
futures contracts may entail the following risks. First, although such
instruments when used by a Fund are intended to correlate with the Fund's
portfolio securities, in many cases, the options or financial futures contracts
used may be based on securities or currencies which, or stock indices the
components of which, are not identical to the portfolio securities owned or
intended to be acquired by the Fund. Second, due to supply and demand imbalances
and other market factors, the price movements of financial futures contracts,
options thereon, and stock index options may not necessarily correspond exactly
to the price movements of the securities, currencies or stock indices on which
such instruments are based. Accordingly, there is a risk that a Fund's
transactions in those instruments will not in fact offset the impact on the Fund
of adverse market developments in the manner or to the extent contemplated or
that such transactions will result in losses to the Fund which are not offset by
gains with respect to corresponding portfolio securities owned or to be
purchased by that Fund.
To some extent, these risks can be minimized by careful management of hedging
activities. For example, where price movements in a financial futures or option
contract are expected to be less volatile than price movements in the related
portfolio securities owned or intended to be acquired by a Fund, it may, in
order to compensate for this difference, use an amount of financial futures or
option contracts which is greater than the amount of such portfolio securities.
Similarly, where the price movement of a financial futures or option contract is
anticipated to be more volatile, a Fund may use an amount of such contract which
is smaller than the amount of portfolio securities to which such contracts
relate.
The risk that the hedging technique used will not actually or entirely offset an
adverse change in the value of a Fund's securities is particularly relevant to
financial futures contracts and options written on stock indices. A Fund in
entering into a futures purchase contract, potentially could lose any or all of
the contract's settlement price. In entering into a futures sale contract, a
Fund could potentially lose a sum equal to the excess of the contract's value
(marked to market daily) over the contract's settlement price. In writing
options on stock indices, a Fund could potentially lose a sum equal to the
excess of the value of the index (marked to market daily) over the exercise
price. In addition, because financial futures contracts require delivery at a
future date of either a specified security or an amount of cash equal to a
multiple of the difference between the value of a specified stock index on that
date and the settlement price, an algebraic relationship exists between any
price movement in the underlying security or index and the potential cost of
settlement to a Fund. A small increase or decrease in the value of the
underlying security or stock index can, therefore, result in a much greater
increase or decrease in the cost to the Fund.
Stock index call options written also pose another risk as hedging tools.
Because exercises of stock index options are settled in cash, there is an
inherent timing risk that the value of a Fund's securities "covering" a stock
index call option written by it may decline during the time between exercise of
the option by the option holder and notice to the Fund of such exercise (usually
one day or more) thereby requiring the Fund to use additional assets to settle
the transaction. This risk is not present in the case of covered call options on
individual securities, which are settled by delivery of the actual securities.
Although the Funds intend to establish positions in these instruments only when
there appears to be an active market, there is no assurance that a liquid market
for such instruments will exist when they seek to "close out" (i.e. terminate) a
particular financial futures contract or option position. This is particularly
relevant for over-the-counter options. Trading in such instruments could be
interrupted, for example, because of a lack of either buyers or sellers. In
addition, the futures and options exchanges may suspend trading after the price
of such instruments has risen or fallen more than the maximum amount specified
by the exchange. Exercise of options could also be restricted or delayed because
of regulatory restrictions or other factors. A Fund may be able, by adjusting
investment strategy in the cash or other contract markets, to offset to some
extent any adverse effects of being unable to liquidate a hedge position.
Nevertheless, in some cases, a Fund may experience losses as a result of such
inability. Therefore, it may have to liquidate other more advantageous
investments to meet its cash needs.
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In addition, FCMs or brokers in certain circumstances will have access to the
Funds' assets posted as margin in connection with these transactions as
permitted under the 1940 Act. See "Custodian, Dividend and Transfer Agent," in
this Statement of Additional Information. The Funds will use only FCMs or
brokers in whose reliability and financial soundness they have full confidence
and have adopted certain other procedures and limitations to reduce the risk of
loss with respect to any assets which brokers hold or to which they may have
access. Nevertheless, in the event of a broker's insolvency or bankruptcy, it is
possible that a Fund could experience a delay or incur costs in recovering such
assets or might recover less than the full amount due. Also the value of such
assets could decline by the time the Fund could effect such recovery.
The success of any Fund in using hedging techniques depends, among other things,
on the Adviser's ability to predict the direction and volatility of price
movements in both the futures and options markets as well as the securities
markets and on its ability to select the proper type, time, and duration of
hedges. There can be no assurance that these techniques will produce their
intended results. In any event, the Adviser will use financial futures
contracts, options thereon, and stock index options only when it believes the
overall effect is to reduce, rather than increase, the risks to which the Fund
is exposed. Hedging transactions also, of course, may be more, rather than less,
favorable to a Fund than originally anticipated.
Borrowing. From time to time the International Equity Fund may increase its
ownership of investments by borrowing from banks on an unsecured basis and
investing the borrowed funds, subject to the restrictions stated in the
prospectus. The Fund may not borrow more than 10% of the value of its assets for
this purpose and may not borrow unless the value of its assets, less its
liabilities other than borrowing, is equal to at least 300% of all borrowings,
including any additional proposed borrowings. If the value of the Fund's assets
so computed should fail to meet the 300% asset coverage requirement, the Fund
must, within three days, reduce its borrowing to the extent necessary to meet
the coverage requirement and may have to sell a portion of its investments at an
inopportune time. Borrowing for investment increases both investment opportunity
and risk. Interest on borrowed money is an expense that the Fund would not
otherwise incur, so that it may have little or no net investment income during
periods of borrowing. Since substantially all of the Fund's assets fluctuate in
value whereas borrowing obligations are fixed, when the Fund has outstanding
borrowings, its net asset value tends to increase and decrease more when
portfolio investments increase and decrease than would otherwise be the case.
Lower-Rated, Lower Quality Debt Instruments. Up to 30% of the total assets of
the Total Return Fund, 35% of the total assets of the Real Estate Securities
Fund, 15% of the total assets of the Value Equity Fund and 25% of the total
assets of the Global Income Fund may be invested in debt instruments that are
unrated or are rated lower than the four highest rating categories assigned by
Moody's Investors Service, Inc. ("Moody's") or Standard & Poor's Corporation
("Standard & Poor's"). 10% of the total assets of the Global Income Fund may be
invested in debt instruments that are unrated or are rated lower than the five
highest rating categories. Furthermore, debt instruments that are rated in the
four highest categories assigned by Moody's or Standard & Poor's (i.e.
investment grade debt instruments), and especially those which are unrated or
are rated lower than the four highest categories by such rating organizations
may, after purchase by a Fund, have their ratings lowered due to the
deterioration of the issuer's financial position.
Risks of Lower-Rated, Lower Quality Debt Instruments. Lower-rated debt
securities (i.e. those rated Ba or lower by Moody's or BB or lower by Standard &
Poor's) are considered, on balance, as predominantly speculative with respect to
capacity to pay interest and repay principal in accordance with the terms of the
obligation and will generally involve more credit risk than securities in the
higher rated categories. Reliance on credit ratings entails greater risks with
regard to lower-rated securities than it does with regard to higher-rated
securities and the Adviser's success is more dependent upon its own credit
analysis with regard to lower-rated securities than is the case with regard to
higher-rated securities. The market values of such securities tend to reflect
individual corporate developments to a greater extent than do higher-rated
securities, which react primarily to fluctuations in the general level of
interest rates. Such lower-rated securities also tend to be more sensitive to
economic conditions than are higher-rated securities. Adverse publicity and
investor perceptions, whether or not based on fundamental analysis, regarding
lower-rated bonds may depress prices and liquidity for such securities. To the
extent the Total Return, Real Estate Securities, Value Equity, or Global Income
Funds invest in these securities, factors adversely affecting the market value
of lower-rated securities will adversely affect the Funds' net asset value. In
addition, the Funds may incur additional expenses to the
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<PAGE>
extent it is required to seek recovery upon a default in the payment of
principal or interest on its portfolio holdings. Although some risk is inherent
in all securities ownership, holders of debt securities have a claim on the
assets of the issuer prior to the holders of common stock. Therefore, an
investment in debt securities generally entails less risk than an investment in
common stock of the same issuer.
Lower-rated securities may be issued by corporations in the growth stage of
their development. They may also be issued in connection with a corporate
reorganization or as a part of a corporate takeover. Companies that issue such
lower-rated securities are often highly leveraged and may not have available to
them more traditional methods of financing. Therefore, the risk associated with
acquiring the securities of such issuers generally is greater than is the case
with higher rated securities. For example, during an economic downturn or a
sustained period of rising interest rates, highly leveraged issuers of
lower-rated securities may experience financial stress. During such periods,
such issuers may not have sufficient revenues to meet their interest payment
obligations. The issuer's ability to service its debt obligations may also be
adversely affected by specific corporate developments or the issuer's inability
to meet specific projected business forecasts, or the unavailability of
additional financing. The risk of loss due to default by the issuer is
significantly greater for the holders of lower-rated securities because such
securities are generally unsecured and are often subordinated to other creditors
of the issuer.
Lower-rated securities frequently have call or buy-back features that would
permit an issuer to call or repurchase the security from a Fund. If a call were
exercised by the issuer during a period of declining interest rates, the Fund
would likely have to replace such called security with a lower yielding
security, thus decreasing the net investment income to the Fund.
The Total Return, Real Estate Securities, Value Equity, or Global Income Funds
may have difficulty disposing of certain lower-rated securities for which there
is a thin trading market. Because not all dealers maintain markets in all
lower-rated securities, there is no established retail secondary market for many
of these securities, and the Company anticipates that they could be sold only to
a limited number of dealers or institutional investors. To the extent there is a
secondary trading market for lower-rated securities, it is generally not as
liquid as that for higher-rated securities. The lack of a liquid secondary
market for certain securities may make it more difficult for the Company to
obtain accurate market quotations for purposes of valuing a Fund's assets.
Market quotations are generally available on many lower-rated issues only from a
limited number of dealers and may not necessarily represent firm bids of such
dealers or prices for actual sales. When market quotations are not readily
available, lower-rated securities must be valued by (or under the direction of)
the Company's board of directors. This valuation is more difficult and judgement
plays a greater role in such valuation when there is less reliable objective
data available.
The market for lower-rated securities has not weathered a major economic
recession, and it is not known how one might affect that market. It is likely,
however, that any such recession could severely affect the market for and the
values of such securities, as well as the ability of the issuers of such
securities to repay principal and pay interest thereon.
The Real Estate Securities, Value Equity, or Global Income Funds may acquire
lower-rated securities that are sold without registration under the federal
securities laws and therefore carry restrictions on resale. These Funds may
incur special costs in disposing of such securities, but will generally incur no
costs when the issuer is responsible for registering the securities. The Funds
also may acquire lower-rated securities during an initial underwriting. Such
securities involve special risks because they are new issues. The Company has no
arrangement with any person concerning the acquisition of such securities, and
the Adviser will carefully review the credit and other characteristics pertinent
to such new issues.
Zero Coupon Bonds. The Government Securities Fund, Total Return Fund, Global
Income Fund and Value Equity Fund may invest in zero coupon bonds which are debt
obligations that do not entitle the holder to any periodic payments of interest
prior to maturity or provide for a specified cash payment date when the bonds
begin paying interest. As a result, zero coupon bonds are generally traded at a
significant discount from their face value. The discount approximates the
present value of interest that the bonds would have accrued and compounded over
the period until maturity.
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<PAGE>
Zero coupon bonds benefit the issuer by mitigating its initial need for cash to
meet debt service, but generally provide a higher rate of return to compensate
investors for the deferral of interest (and sometimes principal) payments.
Companies that issue zero coupon bonds often do not have the capacity to pay
current interest and so are likely to be poorer credit risks than other issuers.
In addition, the market prices of zero coupon bonds are likely to be more
volatile and to fluctuate to a greater degree in response to interest rates than
the market prices of interest-bearing bonds having similar maturities and credit
quality. Zero coupon bonds entail the disadvantage that cash cannot be generated
from them prior to the maturity or payment date except by liquidating them at a
discount. Similarly, if the issuer of a zero coupon bond defaults, the Fund may
obtain no return on its investment.
Mortgage-Backed and Asset-Backed Securities. All of the Funds except the S&P 500
Index Fund, may invest in mortgage-backed and asset-backed securities, which
represent direct or indirect participation in, or are collateralized by and
payable from, mortgage loans secured by real property. These Funds may also
invest in asset-backed securities, which represent participation in, or are
secured by and payable from, assets such as motor vehicle installment sales
contracts, installment loan contracts, leases of various types of real and
personal property, receivables from revolving credit (i.e., credit card)
agreements and other categories of receivables. Such assets are securitized
through the use of trusts and special purpose corporations. Payments or
distributions of principal and interest may be guaranteed up to certain amounts
and for certain time periods by letters of credit or pool insurance policies
issued by a financial institution unaffiliated with the trust or corporation.
Other credit enhancements also may exist.
Mortgage-backed and asset-backed securities are often subject to more rapid
repayment than their stated maturity date would indicate as a result of the
pass-through of prepayments of principal on the underlying loans. A Fund's
ability to maintain positions in such securities is affected by the reductions
in the principal amount of such securities resulting from prepayments, and its
ability to reinvest prepayments of principal at comparable yield is subject to
generally prevailing interest rates at that time. The values of mortgage-backed
or asset-backed securities varies with changes in market interest rates
generally and the differentials in yields among various kinds of U.S. Government
securities and other mortgage-backed and asset-backed securities.
Because asset-backed securities generally do not have the benefit of a security
interest in collateral that is comparable to mortgage assets, asset-backed
securities present certain additional risks that are not present with
mortgage-backed securities. Revolving credit receivables are generally unsecured
and the debtors on such receivables are entitled to the protection of a number
of state and federal consumer credit laws, many of which give debtors the right
to set-off certain amounts owed, thereby reducing the balance due. Automobile
receivables generally are secured, but by automobiles rather than by real
property. Most issuers of automobile receivables permit the loan servicers to
retain possession of the underlying obligations. If the servicer sells these
obligations to another party, there is the risk that the purchaser could acquire
an interest superior to that of holders of the asset-backed securities. In
addition, because of the large number of vehicles involved in a typical issue of
asset-backed securities and technical requirements under state law, the trustee
for the holders of the automobile receivables may not have a proper security
interest in the automobiles. Therefore, there is the possibility that recoveries
on repossessed collateral may not be available to support payments on these
securities.
GNMA Certificates. The Government Securities Fund may invest up to 50% of its
net assets in GNMA Certificates. GNMA Certificates are securities representing
part ownership of a pool of mortgage loans. These loans, issued by lenders such
as mortgage bankers, commercial banks and savings and loan associations, are
insured either by the Federal Housing Administration or by the Veterans
Administration. Each pool of mortgage loans is assembled and, after being
approved by GNMA, is sold to investors through broker-dealers in the form of
certificates representing participations in the pool. GNMA guarantees the timely
payment of principal and interest of each mortgage in the pool and its guarantee
is backed by the full faith and credit of the U.S. Government. GNMA Certificates
differ from bonds in that a borrower pays the principal over the term of the
loan rather than in a lump sum at maturity. GNMA Certificates are called
"pass-through" certificates because both principal and interest payments on the
mortgages (including prepayments) are passed through to the holder of the
certificate.
The average life of GNMA Certificates varies with the maturities of the
underlying mortgages. The Government Securities Fund may use principal payments
it receives to purchase additional GNMA Certificates or other investments.
Prepayments of any mortgages in the pool will usually result in the return of
the greatest part of principal
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<PAGE>
invested well before the maturity of the mortgages in the pool. The volume of
such prepayments of principal in a given pool of mortgages will influence the
actual yield of the GNMA Certificate. Also, the Government Securities Fund may
reinvest principal repaid to it in instruments whose yield may be higher or
lower than that of the GNMA Certificate had such prepayments not been made.
Investment Restrictions
Fundamental Restrictions. Each class of capital stock of the Company represents
interests in a separate Fund of the Company. The Funds are subject to certain
fundamental restrictions on their investments. These restrictions may not be
changed without the approval of the holders of a majority of the outstanding
voting shares of the Funds affected by the change. Except where otherwise noted,
each Fund may not:
1. Issue senior securities except: (a) to the extent that borrowings under
paragraph (10) below exceeding 5% may be deemed to be senior securities
under the 1940 Act, or (b) in connection with investments of certain Funds
in options and futures contracts.
2. As to 75% of its total assets, invest more than 5% of its total assets
taken at market value at the time of each investment in the securities
(other than United States government or government agency securities) of
any one issuer (including repurchase agreements with any one bank). This
restriction does not apply to the Global Income Fund.
3. Purchase more than either: (i) 10% in principal amount of the outstanding
debt securities of an issuer; or (ii) 10% of the outstanding voting
securities of an issuer, except that such restriction shall not apply to
securities issued or guaranteed by the United States Government or its
agencies, bank money market instruments or bank repurchase agreements.
4. Invest more than 25% of its total assets (taken at market value at the time
of each investment) in the securities of issuers primarily engaged in the
same industry; utilities will be divided according to their services; for
example, gas, gas transmission, electric and telephone each will be
considered a separate industry for purposes of this restriction. This
restriction does not apply to the Real Estate Securities Fund.
5. Purchase real estate or any interest therein, except through the purchase
of corporate or certain government securities including securities secured
by a mortgage or a leasehold interest or other interest in real estate. A
security issued by a real estate or mortgage investment trust is not
treated as an interest in real estate.
6. Purchase securities which are subject to legal or contractual delays in or
restrictions on resale. This restriction does not apply to the
International Equity Fund, the Real Estate Securities Fund, Value Equity
Fund or Global Income Fund.
7. Purchase any securities on margin except: (a) that a Fund may obtain such
short-term credit as may be necessary for the clearance of purchases and
sales of portfolio securities, or (b) in connection with investments of
Funds in options and futures contracts.
8. Make loans, except as provided in (9) below and except through the purchase
of obligations in private placements (the purchase of publicly traded
obligations not being considered the making of a loan).
9. Lend its portfolio securities in excess of 20% of its total assets, taken
at market value at the time of the loan, and provided that such loan shall
be made in accordance with the Fund's guidelines.
10. Borrow amounts in excess of 10% (20% in the case of the S&P 500 Index Fund)
of its total assets, taken at market value at the time of the borrowing,
and then only from banks as a temporary measure for extraordinary or
emergency purposes or to meet redemption requests that might otherwise
require the untimely disposition of securities, and not for investment or
leveraging. The International Equity Fund, however, may borrow amounts up
to an additional 10% of its net asset value from banks to increase its
holdings of portfolio investments.
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11. Mortgage, pledge, hypothecate or in any manner transfer, as security for
indebtedness, any securities owned or held by such Fund except: (a) as may
be necessary in connection with borrowings mentioned in (10) above, and
then such mortgaging, pledging or hypothecating may not exceed 10% of the
Fund's total assets, taken at market value at the time thereof, or (b) in
connection with investments of certain Funds in options and futures
contracts.
12. Underwrite securities of other issuers except insofar as the Company may be
deemed an underwriter under the Securities Act of 1933 in selling portfolio
securities.
13. Invest more than 10% of its net assets (15% for the International Equity
Fund, Real Estate Securities Fund, Value Equity Fund and Global Income
Fund) in repurchase agreements maturing in more than seven days and other
illiquid investments.
Nonfundamental Restrictions. The Company has also adopted the following
additional investment restrictions applicable (except as noted) to all Funds.
These are not fundamental and may be changed by the board of directors without
shareholder approval. Under these restrictions, each Fund may not:
1. Invest in securities of foreign issuers if at the time of acquisition more
than 20% of its total assets, taken at market value,would be invested in
such securities. This restriction is not applicable to the Total Return
Fund, S&P 500 Index Fund, International Equity Fund, Value Equity Fund and
Global Income Fund.
2. Purchase securities of other investment companies if, as a result thereof,
the Fund would own more than 3% of the total outstanding voting stock of
any one investment company, or more than 5% of the Fund's assets would be
invested in any one investment company, or more than a total of 10% of the
Fund's assets would be invested in investment company securities. These
limitations do not apply to securities acquired in connection with a
merger, consolidation, acquisition or reorganization, or by purchase in the
open market of securities of closed-end investment companies where no
underwriter or dealer's commission or profit, other than customary broker's
commission, is involved, and so long as immediately thereafter not more
than 10% of such Fund's total assets, taken at market value, would be
invested in such securities. These limitations also do not apply to
investment by the Funds in shares of GEI Short-Term Investment Fund as
permitted by an exemptive order issued by the SEC.
3. Purchase or sell interests in commodities, or commodity contracts, except
that certain Funds may invest in currency and financial instruments and
contracts that are commodities or commodity contracts.
4. Invest more than 30% (35% for the Real Estate Securities Fund) of its
assets, measured at time of purchase, in debt securities (other than U.S.
Government securities) that are unrated by Moody's or Standard & Poor's or
are rated lower than the four highest rating categories assigned by Moody's
or Standard & Poor's.
5. The Money Market Fund may not invest more than 5% of its total assets taken
at market value at the time of each investment in the securities (other
than United States government or government agency securities) of any one
issuer (including repurchase agreements with any one bank).
6. The S&P 500 Index Fund, Total Return Fund, Government Securities Fund,
International Equity Fund, Real Estate Securities Fund, Value Equity Fund
and Global Income Fund may not enter into a financial futures contract (by
exercise of any option or otherwise) or acquire any options thereon, if,
immediately thereafter, the total of the initial margin deposits required
with respect to all open futures positions, at the time such positions were
established, plus the sum of the premiums paid for all unexpired options on
futures contracts would exceed 5% of the value of its total assets.
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MANAGEMENT OF THE COMPANY
Directors and Officers
The directors and officers of the Company and their principal occupations
for the last five years are set forth below. Unless otherwise noted, the address
of each director and officer is 3003 Summer Street, Stamford, CT 06905.
Names, Positions, and Addresses of Directors and Officers of the Company
Occupation During the Past 5 Years
Michael J. Cosgrove*, Director
Executive Vice President, Mutual Funds, GEIM and GEIC, since 1993.
Executive Vice President and Director of GEIM and Director of GEIC, since
1988. Executive Vice President, Finance and Administration, GEIM and GEIC,
1988-1993. Trustee, GEFunds (registered investment company), since 1992.
Trustee, Variable Investment Trust (registered investment company), since
1994. Trustee, GE LifeStyle Funds (registered investment company), since
1996.
John R. Costantino, Director
150 East 58th Street
New York, NY 10055
Managing Director, Walden Partners, Ltd., since 1992. President, CMG
Acquisition Corp., Inc., since 1988. Vice Chairman, Acoustiguide Holdings,
Inc., since 1989. President CMG/IKH, Inc., since 1991. Director since 1991:
Crossland Federal Savings Bank; Brooklyn Bancorp, Inc. 1991 - 1996; IK
Holdings, Inc.; I. Kleinfeld & Son, Inc.; and High Performance Appliances,
Inc. ("HPA"), Ltd. Director, Lancit Media Productions, Ltd., since 1995.
Partner, Costantino Melamede-Greenberg Investment Partners, 1987-1992.
Trustee, GE Funds (registered investment company), since 1992. Trustee,
Variable Investment Trust (registered investment company), since 1994.
Trustee, GE LifeStyle Funds (registered investment company), since 1996,
Clayton Group, Inc., since 1996.
William J. Lucas, Director
Fairfield University
North Benson Road
Fairfield, CT 06480
Vice President and Treasurer, Fairfield University, since 1983. Trustee, GE
Funds (registered investment company), since 1992. Trustee, Variable
Investment Trust (registered investment company), since 1994. Trustee, GE
LifeStyle Funds (registered investment company), since 1996.
Robert P. Martin, Jr., Director
115 Granite Avenue
Richmond, VA 23226
Self-employed investment consultant, since 1985.
J. Clifford Miller, III, Director
372 Lexington Road
Richmond, VA 23226
Vice President - Investments, Davenport & Co. LLC., since 1992; Self
Employed Consultant from 1988 to 1992; Director, Miller Manufacturing Co.,
Inc., from 1977 to 1990; General Partner, Miller Land Company, 1987 - 1996;
Manager, Miller Properties, L.L.C., since, 1996.
Lee A. Putney, Director
4208 Sulgrave Road
Richmond, VA
Director, Regency Financial Shares, Inc., since 1989 Chairman from 1989 -
1992; Chairman of Board of Directors, Regency Bank, since 1987, Chairman
from 1987 - 1992.
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J. Garnett Nelson*, Director
Route 1, Box 195
Montpelier, VA 23192
President, Mid-Atlantic Holdings, L.L.C. since 1995; Senior Vice President
1988-1995 and Director 1989-1995, The Life Insurance Company of Virginia;
Director RAC Income Fund, Inc. since 1991; Director, Lawyers Title
Corporation, 1991-1996.
Robert P. Quinn, Director
45 Shinnecock Road
Quogue, NY 11959
Retired, Saloman Brothers, Inc., since 1983. Director, GP Financial Corp.,
since 1994. Director, The Greenpoint Savings Bank, since 1987. Trustee, GE
Funds (registered investment company), since 1992. Trustee, Variable
Investment Trust (registered investment company), since 1994. Trustee, GE
LifeStyle Funds (registered investment company), since 1996.
Paul E. Rutledge*, President and Director
6610 W. Broad Street
Richmond, VA 23230
President and Chief Operating Officer of The Life Insurance Company of
Virginia since 1992.
Jeffrey A. Groh*, Treasurer
Treasurer and Controller of GEIM an GEIC since August 1994; prior to August
1994, was a Senior Manager in Investment Company Services Group and
certified public account with Price Waterhouse LLP.
Matthew J. Simpson*, Secretary
Vice President, Associate General Counsel and Assistant Secretary of GEIM
and GEIC since October 1992; attorney with the law firm of Baker &McKenzie,
April 1991 to October 1992; prior to April 1991 was an attorney with the
law firm of Spengler Carlson Gubar Brodsky & Frischling.
- ----------
* Directors and officers identified with an asterisk are considered
"interested persons" of the Company as that term is defined in the 1940 Act
because of their employment or other affiliation with Life of Virginia
and/or GEIM.
Directors or officers who are interested persons of the Company do not receive
any compensation from the Company for their services to the Company. The
directors who are not interested persons of the Company receive compensation
from the Company at a rate of $2,000 annually, plus $250 per meeting attended.
In addition, directors who are not interested persons of the Company are
reimbursed for any out-of-pocket expenses incurred in connection with affairs of
the Company. During 1996 the Company paid directors' fees of $16,868 to the
directors who were not interested persons of the Company.
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Table Of Directors Compensation
Aggregate Compensation
Name of Director From the Company
- ---------------- ----------------
Mr. W. Chandler $3,250
Mr. J. Leard $3,500
Mr. R. Martin $3,500
Mr. C. Miller $3,500
Mr. G. Nelson 0
Mr. J. Palmer 0
Mr. L. Putney $3,500
Directors and officers of the Company do not receive any benefits from the
Company upon retirement nor does the Company accrue any expenses for pension or
retirement benefits. Mr. Chandler, Mr. Leard and Mr. Palmer are no longer
directors of the Company. Mr. Cosgrove, Mr. Costantino, Mr. Lucas and Mr.
Rutledge became directors in 1997 and therefore received no compensation from
the Company in 1996.
AAI
Prior to May 1, 1997 the investment adviser for the Company was Aon Advisors,
Inc. ("AAI"), a wholly-owned subsidiary of Aon Corporation ("Aon"). In addition
to the Company, AAI provided investment advice and management to pension plans,
corporations, and other organizations. Aon, a publicly owned Delaware
corporation, is an insurance holding company organization principally engaged
through subsidiaries in the insurance and insurance brokerage business.
AAI Investment Advisory Agreement
The duties and responsibilities of AAI are specified in the Investment
Advisory Agreement ("AAI Agreement") between the Company and AAI. The Agreement
was first approved for each Fund by the board of directors of the Company
(including a majority of directors who are not parties to the Agreement or
interested persons, as defined by the 1940 Act, of any such party) at a meeting
held for that purpose on January 27, 1993. It was also approved by the
shareholders of each Fund at a meeting held on April 20, 1993. Likewise, the
board of directors approved substantially identical additional agreements ("AAI
Additional Agreements") covering the International Equity Fund and the Real
Estate Securities Fund at a meeting held for that purpose on January 25, 1995.
The Additional Agreements were approved by the shareholders of these Funds on
May 24, 1995. The Agreement and the Additional Agreements were not assignable
and could be terminated without penalty upon 60 days written notice at the
option of either the Company or AAI or by a vote of shareholders. The Agreement
provided that it could be continued for each Fund from year to year so long as
such continuance was specifically approved annually (a) by the board of
directors of the Company or by a majority of the outstanding shares of the Fund
and (b) by a majority vote of the directors who were not parties to the
Agreement, or interested persons of any such party, cast in person at a meeting
held for that purpose. Each Additional Agreement provided that it could be
continued from year to year so long as such continuance was specifically
approved annually (a) by the board of directors of the Company or by a majority
of the outstanding shares of the Fund and (b) by a majority vote of the
directors who were not parties to the Agreement, or interested persons of any
such party, cast in person at a meeting held for that purpose.
AAI (under the supervision of the board of directors) continuously
furnished an investment program for the Funds other than the International
Equity Fund and the Real Estate Securities Fund, was responsible for the actual
manag-
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ing of the investments of such Funds and had responsibility for making decisions
governing whether to buy, sell or hold any particular security. In carrying out
its obligations to manage the investment and reinvestment of the assets of these
Funds, AAI performed research and obtained and evaluated pertinent economic,
statistical and financial data relevant to the investment policies of these
Funds.
As described below, AAI had engaged Perpetual as the investment sub-adviser to
provide day-to-day portfolio management for the International Equity Fund and
had engaged Seneca, as the investment sub-adviser to provide day-to-day
portfolio management for the Real Estate Securities Fund.
In addition to performing management duties and providing the investment advice
described above, AAI was responsible for the administrative services in
connection with the management of the Company and the portfolios, including
financial reporting.
AAI was responsible for payment of all expenses it incurred in performing the
services described. These expenses included costs incurred in providing
investment advisory services, compensating and furnishing office space for
officers and employees of AAI connected with investment and economic research,
trading and investment management of the Company and the payment of any fees to
interested directors of the Company. AAI provided all executive, administrative,
clerical and other personnel necessary to operate the Company and paid the
salaries and other employment related costs of employing those persons. AAI
furnished the Company with office space, facilities and equipment and paid the
day-to-day expenses related to the operation and maintenance of such office
space facilities and equipment. Legal, accounting and all other expenses
incurred in the organization of the Company or of new Funds of the Company,
including costs of registering under federal and state securities laws, were
also paid by AAI. AAI entered into an indemnity agreement with Life of Virginia,
whereby Life of Virginia agreed to reimburse it if certain expenses borne by it
during any month exceeded the investment advisory fee paid by the Company during
that period.
The Company was responsible for payment of all expenses it incurred in its
operation and all of its general administrative expenses except those expressly
assumed by AAI as described in the preceding paragraph. These included (by way
of description and not of limitation), any share redemption expenses, expenses
of portfolio transactions, shareholder servicing costs, pricing costs (including
the daily calculation of net asset value), interest on borrowings by the
Company, charges of the custodian and transfer agent, if any, cost of auditing
services, non-interested directors' fees, legal expenses, state franchise taxes,
certain other taxes, investment advisory fees, certain insurance premiums, cost
of maintenance of corporate existence, investor services (including allocable
personnel and telephone expenses), costs of printing and mailing updated Fund
prospectuses to shareholders, proxy statements and shareholder reports, the cost
of paying dividends and capital gains distributions, capital stock certificates,
costs of directors and shareholder meetings, and any extraordinary expenses,
including litigation costs in legal actions involving the Company, or costs
related to indemnification of directors, officers and employees of the Company.
The board of directors of the Company determined the manner in which expenses
were allocated among the Funds of the Company.
The Agreement and the Additional Agreements also provided that AAI would not be
liable to the Company or to any shareholder or policyowner for any error of
judgment or mistake of law or for any loss suffered by the Company or by any
shareholder in connection with matters to which the such Agreements or
Additional Agreements related, except for a breach of fiduciary duty or a loss
resulting from willful misfeasance, bad faith, gross negligence, or reckless
disregard on the part of AAI in the performance of its duties thereunder.
AAI Investment Advisory Fee
AAI received investment advisory fees as compensation for its services. The fees
were accrued by each Fund of the Company daily but paid to AAI monthly. The
investment advisory fee for each Fund was based upon the average daily net
assets of the Fund (as computed in accordance with the description in the
Company prospectus) at the following annual rates:
S&P 500 Index Fund: .35%
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Government Securities Fund: .50% of the first $100,000,000; .45% of
the next $100,000,000; .40% of the next $100,000,000; .35% of the next
$100,000,000; and .30% of amounts in excess of $400,000,000.
Money Market Fund: .50% of the first $100,000,000; .45% of the next
$100,000,000; .40% of the next $100,000,000; .35% of the next
$100,000,000; and .30% of amounts in excess of $400,000,000.
Total Return Fund: .50% of the first $100,000,000; .45% of the next
$100,000,000; .40% of the next $100,000,000; .35% of the next
$100,000,000; and .30% of amounts in excess of $400,000,000.
International Equity Fund: 1.00% of the first $100,000,000; .95% of
the next $100,000,000; and .90% of amounts in excess of $200,000,000.
Real Estate Securities Fund: .85% of the first $100,000,000; .80% of
the next $100,000,000; and .75% of amounts in excess of $200,000,000.
For the fiscal year ended December 31, 1994, the total advisory fee paid was
$326,133 of which $51,712 was paid by the S&P 500 Index Fund, $49,571 was paid
by the Government Securities Fund, $114,126 was paid by the Money Market Fund,
and $110,724 was paid by the Total Return Fund. For the fiscal year ended
December 31, 1995, the total advisory fee paid was $834,124 of which $148,409
was paid by the S&P 500 Index Fund, $88,566 was paid by the Government
Securities Fund, $201,711 was paid by the Money Market Fund, $250,070 was paid
by the Total Return Fund, $79,321 was paid by the International Equity Fund, and
$66,047 was paid by the Real Estate Securities Fund.
For the fiscal year ended December 31, 1996, the total advisory fee paid was
$1,822,519 of which $336,589 was paid by the S&P 500 Index Fund, $129,056 was
paid by the Government Securities Fund, $552,126 was paid by the Money Market
Fund, $405,779 was paid by the Total Return Fund, $237,088 was paid by the
International Equity Fund, and $161,881 was paid by the Real Estate Securities
Fund.
AAI Investment Sub-Advisers
Pursuant to separate sub-advisory agreements described below, AAI had engaged
Perpetual as the investment sub-adviser to provide day-to-day portfolio
management for the International Equity Fund and had engaged Seneca as the
investment sub-adviser to provide day-to-day portfolio management for the Real
Estate Securities Fund.
Perpetual, a wholly-owned subsidiary of Perpetual plc, was the investment
sub-adviser for the International Equity Fund. It is registered under the
Investment Advisers Act of 1940 as an investment adviser and has its principal
offices at 48 Hart Street, Henley-on-Thames, Oxfordshire, England RG9 2AZ. In
addition to the International Equity Fund, Perpetual provides investment advice
and management to pension plans, corporations and other institutional and
individual clients. Although Perpetual had no prior experience advising a U.S.
mutual fund, it and its affiliates managed over 29 unit trusts (the British term
for mutual funds) in the United Kingdom and overseas.
Seneca was (and still is) the investment sub-adviser for the Real Estate
Securities Fund. Seneca is at 909 Montgomery Street, San Francisco, CA 94133.
Seneca has three principal stockholders. They are Will K. Weinstein, Gail P.
Seneca and Richard D. Little. Seneca is an independent investment adviser that
provides investment management services to foundations, endowments,
corporations, mutual funds and private clients. Founded in 1989, Seneca
currently manages approximately $3.8 billion in equity, fixed-income and real
estate assets.
AAI Investment Sub-Advisory Agreements
AAI entered into a separate sub-advisory agreement (the "AAI Sub-Advisory
Agreements") with Perpetual and with Seneca for the day-to-day portfolio
management of the International Equity Fund and the Real Estate Securities Fund.
The AAI Sub-Advisory Agreement for the International Equity Fund was approved by
the board of directors of the Company (including a majority of directors who are
not parties to such Agreement or interested persons, as
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defined by the 1940 Act, of any such party) at a meeting held for that purpose
on January 25, 1995. The AAI Sub-Advisory Agreement for the Real Estate
Securities Fund was approved by the board of directors of the Company (including
a majority of directors who are not parties to such agreement or interested
persons, as defined by the 1940 Act, of any such party) at a meeting held for
that purpose on April 24, 1996. The International Equity Fund AAI Sub-Advisory
Agreement was also approved by the initial shareholder of that Fund on May 24,
1995. The Real Estate Securities Fund AAI Sub-Advisory Agreement was approved by
the shareholders of that Fund on August 20, 1996. The AAISub-Advisory Agreements
were not assignable and could each be terminated without penalty upon 60 days
written notice at the option of AAI or either Perpetual or Seneca, as the case
may be, or by the board of directors of the Company or by a vote of a majority
of the outstanding shares of the class of stock representing an interest in the
appropriate Fund. Each AAI Sub-Advisory Agreement provided that it would
continue in effect for two years and could thereafter be continued for its Fund
from year to year so long as such continuance was specifically approved annually
(a) by the board of directors of the Company or by a majority of the outstanding
shares of the Fund and (b) by a majority vote of the directors who were not
parties to the Agreement, or interested persons of any such party, cast in
person at a meeting held for that purpose.
AAI Investment Sub-Advisory Fees
For their services, AAI paid Perpetual and Seneca monthly compensation in the
form of an investment sub-advisory fee. The fee was paid by AAI monthly and was
based upon the average daily net assets (see "Purchase and Redemption of Fund
Shares") of the Fund that each sub-adviser managed, at the following annual
rates:
International Equity Fund: .50% of the first $100,000,000; .475% of
the next $100,000,000; and .45% of amounts in excess of $200,000,000.
Real Estate Securities Fund: .425% of the first $100,000,000; .40% of
the next $100,000,000; and .375% of amounts in excess of $200,000,000.
For the fiscal year ended December 31, 1996, AAI paid Perpetual $118,544 and
Seneca $80,941 in sub-advisory fees. For the fiscal period ended December 31,
1995, AAI paid Perpetual $39,660 and Seneca $33,023 in sub-advisory fees.
AAI Reimbursement of Excess Operating Expenses
Under the AAI Agreement and the AAI Additional Agreements, any operating
expenses allocable to the following Funds of the Company for the 1994, 1995 and
1996 fiscal years that exceeded the amounts indicated below, AAI reimbursed the
Company for the excess:
(1) With respect to the Government Securities Fund, the Total Return Fund
and the Real Estate Securities Fund, 1.5% of the first $30,000,000 of
the average daily net assets of each of those portfolios and 1% of the
amount by which the average daily net assets of each of those Funds
exceed $30,000,000.
(2) With respect to the Money Market Fund and the S&P 500 Index Fund,
0.75% of the average daily net assets of each of those Funds.
(3) With respect to the International Equity Fund, 1.75% of the first
$30,000,000 of the average daily net assets of the portfolio and 1% of
the amount by which the average daily net assets of the Fund exceeds
$30,000,000.
Effective July 1, 1995, on a voluntary basis, AAI also agreed to reimburse the
International Equity and Real Estate Securities Funds annually for expenses in
excess of the following amounts: International Equity Fund, 1.50% of the first
$30 million of average daily net assets; Real Estate Securities Fund, 1.25% of
the first $30 million of average daily net assets. For purposes of this
reimbursement formula, "operating expenses" did not include attorneys' fees,
court judgements, decrees or awards, or any other litigation costs in legal
actions involving the Company, or costs related to indemnification of directors,
officers or employees of the Company where such costs were not covered by
director and officer liability insurance.
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Expenses that were reimbursable as described above, if any, were calculated
daily and credited to the Company on a monthly basis.
For the fiscal year ended December 31, 1994, total reimbursements paid to the
Company by AAI amounted to $53,529, all of which pertained to the S&P 500 Index
Fund. For the fiscal year ended December 31, 1995, total reimbursements paid to
the Company amounted to $72,688. Of this amount, $49,516 pertained to the
International Equity Fund and $23,172 pertained to the Real Estate Securities
Fund. For the fiscal year ended December 31, 1996, total reimbursements paid to
the Company by AAI amounted to $14,412 all of which pertained to the
International Equity Fund.
GEIM
GE Investment Management Incorporated ("GEIM") serves as the Company's
investment adviser and administrator. GEIM is registered as an investment
adviser under the Investment Advisers Act of 1940 and is located at 3003 Summer
Street, Stamford, Connecticut 06905. GEIM, which was formed under the laws of
Delaware in 1988, is a wholly owned subsidiary of General Electric Company
("GEC"). GEIM currently provides investment advisory services with respect to 19
other mutual funds and a number of other private institutional accounts. The
professionals responsible for the investment operations of GEIM serve in similar
capacities with respect to General Electric Investment Corporation ("GEIC"), a
sister company of GEIM wholly owned by GEC, which provides investment advisory
services with respect to GEC's pension and benefit plans and a number of funds
offered exclusively to GEC employees, retirees and certain related persons.
These funds include the Elfun family of Funds (the first of which, Elfun Trusts,
was established in 1935) and the funds offered as part of GEC's 401(k) program
(also known as the GEC Savings and Security Program), which are referred to as
the GE S&S Program Mutual Fund and the GE S&S Long Term Interest Fund. The
investment professionals at GEIM and GEIC and their predecessors have managed
GEC's pension assets since 1927. As of December 31, 1996, GEIM and GEIC managed
assets in excess of $58 billion, including roughly $11 billion in mutual fund
assets.
GEIM Investment Advisory Agreements
The duties and responsibilities of GEIM are specified in investment advisory and
administration agreements (the "advisory agreements") between GEIM and the
Company on behalf of each Fund. Under the advisory agreements, GEIM provides a
continuous investment program for each Fund's assets, including investment
research and management. GEIM determines what investments are purchased,
retained or sold by the Funds and places purchase and sale orders for the Funds
investments. GEIM provides the Company with all executive, administrative,
clerical and other personnel necessary to operate each Fund, and pays salaries
and other employment-related costs of employing these persons. GEIM furnishes
the Company and each Fund with office space, facilities, and equipment and pays
the day-to-day expenses related to the operation of such space, facilities and
equipment. GEIM, as administrator, also: (1) maintains the books and records of
each Fund; (2) prepares reports to shareholders of each Fund; (3) prepares and
files tax returns for each Fund; (4) assists with the preparation and filing of
reports and the Company's registration statement with the Securities and
Exchange Commission; (5) provides appropriate officers for the Company; (6)
provides administrative support necessary for the board of directors of the
Company to conduct meetings; and (7) supervises and coordinates the activities
of other service providers, including independent auditors, legal counsel,
custodians, accounting service agents, and transfer agents.
GEIM is generally responsible for employing sufficient staff and consulting with
other persons that it determines to be necessary or useful in the performance of
its obligations under the advisory agreements. The advisory agreements obligate
GEIM to provide services in accordance with each Fund's investment objectives,
policies and restrictions as stated in the Company's current registration
statement, as amended from time to time, and to keep the Company informed of
developments materially affecting each Fund, including furnishing the Company
with whatever information and reports that the board of directors reasonably
request.
Other than those expenses expressly assumed by GEIM, as described above, each
Fund is responsible under the advisory agreement relating to it for paying all
expenses incurred in its operations and all of the Company's general
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administrative expenses allocated to it. These include, but are not limited to:
(1) share redemption expenses, (2) shareholder servicing costs, (3) expenses of
any shareholder servicing plans or distribution plans adopted by the board of
directors, (4) custody expenses, (5) transfer agency and recordkeeping expenses,
(6) brokerage fees and commissions, (7) taxes, (8) federal and state
registration fees, (9) expenses of preparing, printing and distributing
prospectuses to regulators and existing shareholders, (10) expenses of
shareholder and board of directors meetings, (11) fees of disinterested
directors, (12) expenses of preparing and distributing proxy materials, (13)
fees of parties unaffiliated with GEIM for valuing portfolio securities and
computing net asset values for Funds, (14) legal fees, (15) auditors fees, (16)
insurance premiums, and (17) membership dues in industry associations.
The advisory agreements permit GEIM, subject to the approval of the board of
directors and other applicable legal requirements, to enter into any advisory or
sub-advisory agreement with affiliated or unaffiliated entities whereby such
entity would perform some or all of GEIM's responsibilities under one or more of
the advisory agreements. In this event, GEIM remains responsible for ensuring
that these entities perform the services that each undertakes pursuant to a
sub-advisory agreement.
The advisory agreements provide that GEIM may render similar advisory and
administrative services to other clients so long as the services that it
provides under the agreements are not impaired thereby. The advisory agreements
also provide that GEIM shall not be liable for any error of judgment or mistake
of law or for any loss incurred by a Fund in connection with GEIM's services
pursuant to the agreements, except for (1) willful misfeasance, bad faith or
gross negligence in the performance of its duties or by reason of reckless
disregard of its duties or obligations under the agreements, and (2) to the
extent specified in Section 36(b) of the Act concerning loss resulting from a
breach of fiduciary duty with respect to the receipt of compensation.
Each advisory agreement, other than those for the Value Equity Fund and the
Global Income Fund, was approved by the board of directors (including a majority
of directors who are not parties to such agreement or interested persons, as
defined by the 1940 Act, of any such party) at a meeting held for that purpose
on January 29, 1997 and by shareholders at meetings held on April 16, 1997. The
advisory agreements for the Value Equity Fund and Global Income Fund were
approved by the board of directors (including a majority of directors who are
not parties to such agreement or interested persons, as defined by the 1940 Act,
of any such party) at a meeting held for that purpose on April 23, 1997 and by
the sole initial shareholder of these Funds on April __, 1997. All of the
advisory agreements are effective as of May 1, 1997 and continue in effect for
their respective Fund for an initial term ending April 30, 1999, and will
continue from year to year thereafter, subject to approval annually by (a) the
board of directors or a vote of a majority of the outstanding shares of the
Company, and (b) the vote of a majority of the independent directors, cast in
person at a meeting called for the purpose of voting on such approval.
The advisory agreements are not assignable and each may be terminated without
penalty by either the Company or GEIM upon no more than sixty days nor less than
thirty days written notice to the other or by the board of directors of the
Company or by the vote of a majority of the outstanding shares of the class of
stock representing an interest in the applicable Fund.
GEIM Investment Advisory Fees
For its services to each Fund of the Company, GEIM receives a monthly advisory
and administrative fee. The fee is deducted daily from the assets of each of the
Funds and paid to GEIM monthly. The fees payable to GEIM (which are identical to
the fees under the AAI Agreements) are based on the average daily net assets of
each Fund at the following annual rates:
Government Securities Fund, Money Market Fund and Total Return Fund:
.50% of the first $100,000,000; .45% of the next $100,000,000; .40% of
the next $100,000,000; .35% of the next $100,000,000; and .30% of the
amounts in excess of $400,000,000;
International Equity Fund: 1.00% of the first $100,000,000; .95% of
the next $100,000,000; and .90% of the amounts in excess of
$200,000,000;
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Real Estate Securities Fund: .85% of the first $100,000,000; .80% of
the next $100,000,000; and .75% of the amounts in excess of
$200,000,000; and
S&P 500 Index Fund: .35%.
Value Equity Fund: .65%
Global Income Fund: .60%
The advisory agreements do not contain any provisions prescribing limits on the
operating expenses of the Company or of any Fund.
GEIM Sub-Advisers
As was the case with AAI, GEIM has retained Seneca as sub-adviser for the Real
Estate Securities Fund. GEIM also has engaged NWQ as the investment sub-adviser
to provide day-to-day portfolio management to the Value Equity Fund and engaged
GEIUS to provide day-to-day portfolio management to the Global Income Fund.
NWQ is located at 655 South Hope Street, Los Angeles, CA 90017 and is a wholly
owned subsidiary of United Asset Management Corporation, a company whose
principal business is managing investments for institutional clients through 45
operating subsidiaries and acquiring investment management firms. NWQ is a
manager of domestic investment portfolios for individual, union, corporate,
endowment and foundation clients with 15 years of experience. It manages
approximately $6.5 billion in assets.
Like GEIM, GEIUS is a wholly owned subsidiary, of GEC and is considered under
common control with GEIM. GEIUS is located at Sweden House, 20 Saint James
Street, London, SWIIES, England and is registered as an investment adviser under
the Investment Advisers Act of 1940. Although GEIUS has no prior experience
advising a U.S. mutual fund, it currently manages approximately $1.1 billion in
assets.
GEIM Investment Sub-Advisory Agreements
NWQ is the investment sub-adviser to the Value Equity Fund and GEIUS is the
investment sub-adviser to the Global Income Fund pursuant to an investment
sub-advisory agreements with GEIM effective May 1, 1997. Both investment
sub-advisory agreements were approved by the board of directors (including a
majority of directors who are not parties to such agreement or interested
persons, as defined by the 1940 Act, of any such party) at a meeting held for
that purpose on April 23, 1997 and by the respective Funds' sole initial
shareholder on April __, 1997.
Seneca is the investment sub-adviser to the Real Estate Securities Fund pursuant
to an investment sub-advisory agreements with GEIM effective May 1, 1997. This
investment sub-advisory agreement was approved by the board of directors
(including a majority of directors who are not parties to such agreement or
interested persons, as defined by the 1940 Act, of any such party) at a meeting
held for that purpose on January 29, 1997 and by the Fund's shareholders on
April 16, 1997.
The investment sub-advisory agreements are not assignable and each may be
terminated without penalty by either the sub-adviser or GEIM upon sixty days
written notice to the other or by the board of directors of the Company or by
the vote of a majority of the outstanding shares of the class of stock
representing an interest in the applicable Fund.
The investment sub-advisory agreements each provide that the subadviser may
render similar advisory and administrative services to other clients so long as
the services that it provides under the agreements are not impaired thereby. The
investment sub-advisory agreements also provide that the sub- adviser shall not
be liable for any error of judgment or mistake of law or for any loss suffered
by the applicable Fund or its shareholders or by GEIM in connection with its
services pursuant to the agreements, except for a loss resulting from willful
misfeasance, bad faith or gross negligence in the performance of its duties or
by reason of reckless disregard of its duties or obligations under the
agreements.
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GEIM Investment Sub-Advisory Fees
For their services, GEIM pays NWQ, Seneca and GEIUS monthly compensation in the
form of an investment sub-advisory fee. The fee is paid by GEIM monthly and is a
percentage of the average daily net assets of the Fund that each sub-adviser
manages, at the following annual rates:
Real Estate Securities Fund: .425% of the first $100,000,000; .400% of
the next $100,000,000; and .375% of amounts in excess of $200,000,000.
Value Equity Fund: .4875% of the first $50,000,000; .325% of amounts
in excess of $50,000,000.
Global Income Fund: .05%.
Securities Activities of the Advisers
Securities held by the Company may also be held by Life of Virginia, or by
separate accounts, mutual funds or pension funds for which GEIM or its
affiliate, GEIC, acts as an adviser. Because of different investment objectives
or other factors, a particular security may be bought by Life of Virginia or by
GEIM or GEIC or for one or more of their clients, when one or more other clients
are selling the same security. If purchases or sales of securities for a Fund or
other client of GEIM or GEIC or Life of Virginia arise for consideration at or
about the same time, transactions in such securities will be made, insofar as
feasible, for the Fund, Life of Virginia, and other clients in a manner deemed
equitable to all. To the extent that transactions on behalf of more than one
client of GEIM or GEIC during the same period may increase the demand for
securities being purchased or the supply of securities being sold, there may be
an adverse effect on price.
On occasions when GEIM (under the supervision of the board of directors) deems
the purchase or sale of a security to be in the best interests of the Company as
well as other accounts, mutual funds, pension funds or companies, it may, to the
extent permitted by applicable laws and regulations, but will not be obligated
to, aggregate the securities to be sold or purchased for the Company with those
to be sold or purchased for other accounts or companies in order to obtain
favorable execution and low brokerage commissions. In that event, allocation of
the securities purchased or sold, as well as the expenses incurred in the
transaction, will be made by GEIM in the manner it considers to be most
equitable and consistent with its fiduciary obligations to the Company and to
such other accounts or companies. In some cases this procedure may adversely
affect the size of the position obtainable for a Fund. Likewise, Seneca, NWQ or
GEIUS may, to the extent permitted by applicable laws and regulations, but will
not be obligated to, aggregate the securities to be sold or purchased for the
Company with those to be sold or purchased for other accounts or companies in
order to obtain favorable execution and low brokerage commissions. Like GEIM,
Seneca, NWQ and GEIUS allocates the securities purchased or sold, as well as the
expenses incurred in the transaction, in the manner that each considers to be
most equitable and consistent with its fiduciary obligations to the Company and
to such other accounts or companies.
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PORTFOLIO TRANSACTIONS AND BROKERAGE
As described above, GEIM, Seneca, NWQ or GEIUS determines which securities to
buy and sell for the Funds, selects brokers and dealers to effect the
transactions, and negotiates commissions. Transactions in equity securities will
usually be executed through brokers who will receive a commission paid by the
Fund. Debt securities are generally traded with dealers acting as principals for
their own accounts without a stated commission. The dealer's margin is reflected
in the price of the security. Money market obligations may be traded directly
with the issuer. Underwritten offerings of stock may be purchased at a fixed
price including an amount of compensation to the underwriter.
In placing orders for securities transactions, GEIM's policy (followed by
Seneca, NWQ and GEIUS) is to attempt to obtain the most favorable price and
efficient execution available. These entities, subject to the review of the
Company's board of directors, may pay higher than the lowest possible commission
in order to obtain better than average execution of transactions and/or valuable
investment research information described below, if, in their opinion, improved
execution and investment research information will benefit the performance of
each of the Funds.
When selecting broker-dealers to execute portfolio transactions, the Adviser
considers factors including the rate of commission or size of the
broker-dealer's "spread", the size and difficulty of the order, the nature of
the market for the security, the willingness of the broker or dealer to
position, the reliability, financial condition and general execution and
operational capabilities of the broker-dealer, and the research, statistical and
economic data furnished by the broker-dealer to the Adviser. In some cases, the
Adviser may use such information to advise other investment accounts that it
advises. Brokers or dealers which supply research may be selected for execution
of transactions for such other accounts, while the data may be used by the
Adviser in providing investment advisory services to the Company. In addition,
the Adviser may select broker-dealers to execute portfolio transactions based
upon sales by that broker-dealer of Life of Virginia variable life insurance or
annuity contracts and may select broker-dealers who are affiliated with the
Company or GEIM. However, all such directed brokerage will be subject to GEIM's
policy to attempt to obtain the most favorable price and efficient execution
possible.
During the year ended December 31, 1996, the Company paid brokerage commissions
of $407,581 based on $324,352,452 of transactions. During the year ended
December 31, 1995, the Company paid brokerage commissions of $315,311, based on
$175,411,650 of transactions. During the year ended December 31, 1994, the
Company paid brokerage commissions of $48,969, based on $34,724,499 of
transactions.
DETERMINATION OF NET ASSET VALUE
The net asset value of each Fund is determined as of the time of the close of
trading on the New York Stock Exchange, (currently at 4:00 PM, New York City
time) on each day when the New York Stock Exchange is open except as noted
below. The New York Stock Exchange is scheduled to be open Monday through Friday
throughout the year, except for certain federal and other holidays. The net
asset value of each Fund will not be calculated on the Friday following
Thanksgiving or on December 31 when December 31 falls on a weekday. The net
asset value of a Fund is determined by adding the values of all securities, cash
and other assets (including accrued but uncollected interest and dividends) of
that Fund and subtracting all liabilities (including accrued expenses but
excluding capital and surplus). The net asset value of a share is determined by
dividing the net asset value of a Fund by the number of outstanding shares of
that Fund.
Equity securities (including common stocks, preferred stocks, convertible
securities and warrants) and call options written on all portfolio securities,
listed or traded on a national exchange are valued at their last sale price on
that exchange prior to the time when assets are valued. In the absence of any
exchange sales on that day and for unlisted equity securities, such securities
are valued at the last sale price on the NASDAQ (National Association of
Securities Dealers Automated Quotations) National Market System. In the absence
of any National Market System sales on that day, equity securities are valued at
the last reported bid price.
29
<PAGE>
Debt securities traded on a national exchange are valued at their last sale
price on that exchange prior to the time when assets are valued, or, lacking any
sales, at the last reported bid price. Debt securities other than money market
instruments traded in the over-the-counter market are valued at the last
reported bid price or at yield equivalent as obtained from one or more dealers
that make markets in the securities. Debt securities traded in both the
over-the-counter market and on a national exchange are valued according to the
broadest and most representative market, and it is expected that this ordinarily
will be the over-the-counter market.
Securities that are primarily traded on foreign securities exchanges are
generally valued at the last sale price on the exchange where they are primarily
traded. All foreign securities traded on the over-the-counter market are valued
at the last sale quote, if market quotes are available, or the last reported bid
price if there is no active trading in a particular security on a given day.
Quotations of foreign securities in foreign currencies are converted, at current
exchange rates, to their U. S. dollar equivalents in order to determine their
current value. In addition, because of the need to value foreign securities
(other than ADRs) as of the close of trading on various exchanges and
over-the-counter markets throughout the world, the calculation of the net asset
value of Funds investing in foreign securities may not take place
contemporaneously with the valuation of such foreign securities in such Funds.
Securities for which market quotations are not readily available are valued at
fair value as determined in good faith by or under the direction of the board of
directors of the Company, including valuations provided by a pricing service
retained for this purpose.
For Funds other than the Money Market Fund, debt instruments held with a
remaining maturity of 60 days or less are generally valued on an amortized cost
basis. Under the amortized cost basis method of valuation, the security is
initially valued at its purchase price (or in the case of securities purchased
with more than 60 days remaining to maturity, the market value on the 61st day
prior to maturity), and thereafter by amortizing any premium or discount
uniformly to maturity. If for any reason the Company's directors believe the
amortized cost method of valuation does not fairly reflect the fair value of any
security, fair value will be determined in good faith by or under the direction
of the board of directors of the Company as in the case of securities having a
maturity of more than 60 days.
Exchange listed put options written and options purchased are valued on the
primary exchange on which they are traded. Over-the-counter options written or
purchased by a Fund are valued based upon prices provided by market-makers in
such securities. Exchange-traded financial futures contracts are valued at their
settlement price established each day by the board of trade or exchange on which
they are traded.
All of the assets of the Money Market Fund are valued on the basis of amortized
cost in an effort to maintain a constant net asset value per share of $1.00. The
Company's board of directors has determined such a valuation to be in the best
interests of the Money Market Fund and its shareholders. Under the amortized
cost method of valuation, securities are valued at cost on the date of their
acquisition, and thereafter a constant accretion of any discount or amortization
of any premium to maturity is assumed, regardless of the impact of fluctuating
interest rates on the market value of the security. While this method provides
certainty in valuation, it may result in periods in which value as determined by
amortized cost is higher or lower than the price the Fund would receive if it
sold the security. During such periods, the quoted yield to investors may differ
somewhat from that obtained by a similar fund or portfolio which uses available
market quotations to value all of its portfolio securities.
The Company's board of directors has established procedures reasonably designed,
taking into account current market conditions and the Money Market Fund's
investment objective, to stabilize the net asset value per share for purposes of
sales and redemptions at $1.00. These procedures include review by the board, at
such intervals as it deems appropriate, to determine the extent, if any, to
which the net asset value per share calculated by using available market
quotations deviates from $1.00 per share. In the event that such deviation
should exceed one half of one percent, the board of directors will promptly
consider initiating corrective action. If the board believes that the extent of
any deviation from a $1.00 amortized cost price per share may result in material
dilution or other unfair results to new or existing shareholders, it will take
such steps as it considers appropriate to eliminate or reduce these consequences
to the extent reasonably practicable. Such steps may include: selling portfolio
securities prior to maturity, shortening the average maturity of the portfolio;
withholding or reducing dividends; or utilizing a net asset value per share
determined from available market quotations. Even if these steps were taken, the
Money Market Fund's net asset value might still decline.
30
<PAGE>
DIVIDENDS AND DISTRIBUTIONS
It is the Company's intention to distribute substantially all the net investment
income, if any, of a Fund. For dividend purposes, net investment income of a
Fund will consist of all payments of dividends or interest received by that Fund
less realized investment losses, if any, and the estimated expenses of that Fund
(including fees payable to GEIM). Dividends from net investment income of a
Fund, other than the Money Market Fund, will be paid at least annually and are
expected to be reinvested in additional full and fractional shares of that Fund.
Dividends attributable to the net investment income of the Money Market Fund are
declared daily and paid monthly. Shares will begin accruing dividends on the day
following the date on which the shares are issued, the date of issuance
customarily being the "settlement" date. All net realized investment gains of
the Company, if any, are declared and distributed annually after the close of
the Company's fiscal year to the shareholders of the Company and are expected to
be reinvested in additional full and fractional shares of the Company.
REDEMPTION OF FUND SHARES
The Company is required to redeem all full and fractional shares of the Funds
for cash. The redemption price is the net asset value per share next determined
after the receipt of proper notice of redemption. Payment for redeemed shares
will generally occur within seven days of receipt of a proper notice of
redemption.
The right to redeem shares or to receive payment with respect to any redemption
may be suspended for any period during which trading on the New York Stock
Exchange is restricted as determined by the Securities and Exchange Commission
or when such Exchange is closed (other than customary weekend and holiday
closings) for any period during which an emergency exists, as defined by the
Securities and Exchange Commission, which makes disposal of a Fund's securities
or determination of the net asset value of a Fund not reasonably practicable,
and for any other periods as the Securities and Exchange Commission may by order
permit for the protection of shareholders of the Fund.
ADDITIONAL INFORMATION
Life of Virginia
Life of Virginia contributed the initial capital necessary for the Company to
commence operations. Life of Virginia is a stock life insurance company
operating under a charter granted by the Commonwealth of Virginia on March 21,
1871. Life of Virginia is an indirect, wholly-owned subsidiary of General
Electric Capital Corporation. General Electric Capital Corporation is a wholly
owned subsidiary of GEC and is a diversified financial services company. Life of
Virginia ranks among the 25 largest stock life insurance companies in the United
States in terms of assets and business in force. The principal offices of Life
of Virginia are at 6610 W. Broad Street, Richmond, Virginia 23230.
Custodian, Dividend and Transfer Agent
State Street Bank and Trust Company ("State Street") is the Company's custodian.
State Stree's principal office is located at 225 Franklin Street, MA 02110.
Under a custody agreement with the Company, State Street maintains the portfolio
securities acquired by the Company, administers the purchases and sales of
portfolio securities, collects interest and dividends and other distributions
made on the securities held in the Funds of the Company.
State Street may segregate securities of the Funds on which call options are
written and cash or liquid assets in amounts sufficient to cover put options
written on securities by "tagging" such securities or assets and not permitting
them to be sold. Likewise, such segregation may be used in connection with the
covering of put and call options written on futures contracts. State Street also
will segregate assets of certain of the Funds constituting margin deposits with
respect to financial futures contracts at the disposal of FCMs through which
such transactions are effected. These Funds may also be required to post margin
deposits with respect to covered call and put options written on stock indices
and for this purpose certain assets of the Fund may be segregated pursuant to
similar arrangements with the brokers involved. The Life Insurance Company of
Virginia is the Company's transfer and dividend paying agent. It is located at
6610 west Broad street, Richmond. VA 23230.
31
<PAGE>
Independent Auditors
KPMG Peat Marwick LLP have been appointed as independent auditors for the
Company for the year ending December 31, 1997. Its offices are at 345 Park
Avenue, New York, NY 10154. KPMG Peat Marwick LLP performs an audit of the
financial statements of the Company annually.
Legal Counsel
Sutherland, Asbill & Brennan, L.L.P., 1275 Pennsylvania Avenue, NW, Washington,
DC 20004-2404, is counsel for the Company.
Capital Stock
The Company was incorporated in the Commonwealth of Virginia on May 14, 1984.
The authorized capital stock of the Company consists of 3.75 billion shares of
capital stock, par value one cent ($0.01) per share. All of the shares of the
authorized capital stock have been divided into and may be issued in a
designated class as follows: 250 million shares have been designated as Class A
shares, representing interests in the S&P 500 Index Fund; 250 million shares
have been designated as Class B shares, representing interests in the Government
Securities Fund; 250 million shares have been designated as Class C shares
representing interests in the Money Market Fund; 250 million shares have been
designated as Class D shares, representing interests in the Total Return Fund;
250 million shares have been designated as Class E shares, representing
interests in the International Equity Fund; 250 million shares have been
designated as Class F shares, representing interests in the Real Estate
Securities Fund; 250 million shares have been designated as Class G shares,
reprsenting interests in the Value Equity Fund; and 250 million shares have been
designated Class H shares, representing interests in the Global Income Fund.
Classes I through O have also been designated with 250 million shares each.
These shares, however, do not yet represent interests in any Fund.
Each issued and outstanding share of a class is entitled to participate equally
in dividends and distributions declared by the respective class and, upon
liquidation or dissolution, in net assets allocated to such class remaining
after satisfaction of outstanding liabilities. The shares of each class are
fully paid and non-assessable and have no preemptive or conversion rights. As of
February 28, 1997, Life of Virginia owned 106,084 Class B shares (having a
market value of $1,014,163) representing interests in the Government Securities
Fund, 169,837 Class C shares (with a market value of $1,762,912) representing
interests in the Money Market Fund, 1,079,404 Class E shares (with a market
value of $11,121,858) representing interests in the International Equity Fund
and 1,121,858 Class F shares (with a market value of $15,829,412) representing
interests in the Real Estate Securities Fund.
Life of Virginia and the Accounts currently are the only shareholders of record.
As of February 28, 1997, there were no contract owners who beneficially owned a
5% or greater voting interest in any Fund. As of February 28, 1997, officers and
directors of the Company beneficially owned, as owners of variable annuity or
variable life insurance contracts, less than 1% of the S&P 500 Index Fund and
less than 1% of the Total Return Fund.
Voting Rights
All shares of capital stock have equal voting rights, except that only shares
representing interests in a particular Fund will be entitled to vote on matters
affecting only that Fund. The shares do not have cumulative voting rights.
Accordingly, owners of variable annuity or variable life insurance contracts
having voting interests in more than 50% of the shares of the Company voting for
the election of directors could elect all of the directors of the Company if
they choose to do so, and in such event, contract owners having voting interests
in the remaining shares would not be able to elect any directors. Life of
Virginia (directly or through the Accounts) currently owns all shares of the
Company. Life of Virginia will vote all shares of the Company (or a Fund) as
described in the prospectus.
32
<PAGE>
Other Information
This Statement of Additional Information and the prospectus for the Company do
not contain all the information set forth in the registration statement and
exhibits relating thereto, which the Company has filed with the Securities and
Exchange Commission, Washington, D.C. under the Securities Act of 1933 and the
Investment Company Act of 1940, to which reference is hereby made.
AUDITED FINANCIAL STATEMENTS
The financial statements of the Company at December 30, 1996 and December 31,
1995 and for each of the two years in the period ended December 30, 1996,
appearing in this Registration Statement have been audited by Ernst & Young LLP,
independent auditors, as set forth in their report thereon appearing elsewhere
herein, and are included in reliance upon such report given upon the authority
of such firm as experts in accounting and auditing.
33
<PAGE>
Report of Independent Auditors
Board of Directors
Life of Virginia Series Fund, Inc.
We have audited the statements of assets and liabilities, including the
portfolio of investments, of Life of Virginia Series Fund, Inc. (comprising, the
Common Stock Index, Government Securities, Money Market, Total Return,
International Equity and Real Estate Securities portfolios) as of December 30,
1996, and the related statements of operations for the year then ended, the
statements of changes in net assets for each of the two years in the period then
ended (Common Stock Index, Government Securities, Money Market, and Total Return
portfolios), and for the year ended December 30, 1996 and the period from May 1,
1995 to December 31, 1995 (International Equity and Real Estate Securities
portfolios) and the financial highlights for each of the periods since 1992.
These financial statements and financial highlights are the responsibility of
the Company's 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 at December
30, 1996, by correspondence with the custodian and brokers. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of each
of the respective portfolios constituting the Life of Virginia Series Fund, Inc.
at December 30, 1996, the results of their operations for the year then ended,
the changes in their net assets for each of the two years in the period then
ended (Common Stock Index, Government Securities, Money Market, and Total Return
portfolios), and for the year ended December 30, 1996 and the period from May 1,
1995 to December 31, 1995 (International Equity and Real Estate Securities
portfolios) and the financial highlights for each of the periods since 1992, in
conformity with generally accepted accounting principles.
Richmond, Virginia
February 12, 1997
34
<PAGE>
Life of Virginia Series Fund, Inc.
Statements of Assets and Liabilities
December 30, 1996
<TABLE>
<CAPTION>
Common Stock Government
Index Securities Money Market Total Return
Portfolio Portfolio Portfolio Portfolio
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Assets
Investments in securities at fair value:
Common Stock Index Portfolio
(cost - $53,358,782) $61,425,413
Government Securities Portfolio
(cost - $14,863,691) $15,075,683
Money Market Portfolio
(cost - $118,855,039) $118,855,039
Total Return Portfolio
(cost - $33,675,800) $38,350,381
International Equity Portfolio
(cost - $16,713,518)
Real Estate Securities Portfolio
(cost - $19,879,823)
Foreign currencies at fair value
(cost - $421,213) -- -- -- --
Cash 22,330 45,265 5,377 86,972
Dividends receivable 141,555 -- -- 34,174
Interest receivable 45,266 218,634 343,364 155,730
Receivable for securities sold -- -- -- 23,755
Receivable from investment advisor -- -- -- --
Receivable for futures margin 38,470 -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
61,673,034 15,339,582 119,203,780 38,651,012
Liabilities
Payable to security dealers 239,304 -- -- 37,620
Dividends payable 25,790,709 1,526,214 5,892,059 10,678,677
Payable to investment advisor 120,869 41,918 48,952 120,687
Short term borrowing -- -- -- --
Short foreign currencies at fair
value (cost basis-$1,174,513) -- -- -- --
26,150,882 1,568,132 5,941,011 10,836,984
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets $35,522,152 $13,771,450 $113,262,769 $27,814,028
====================================================================================================================================
Outstanding shares 2,345,664.223 1,439,825.001 10,911,220.773 2,184,672.007
====================================================================================================================================
Net asset value per share $15.14 $9.56 $10.38 $12.73
====================================================================================================================================
</TABLE>
See accompanying notes.
35
<PAGE>
International Real Estate
Equity Securities
Portfolio Portfolio
- -----------------------------------------
$18,228,175
$26,072,218
414,044 --
-- 11,313
72,126 174,803
7,796 --
2,781,103 --
6,844 --
- ---------------------------------------
21,510,088 26,258,334
1,069,216 20,685
1,104,642 1,643,298
126,583 61,103
392,251 --
1,173,551 --
- ---------------------------------------
3,866,243 1,725,086
- ---------------------------------------
$17,643,845 $24,533,248
=======================================
1,629,264.923 1,738,939.711
=======================================
$10.83 $14.11
=======================================
36
<PAGE>
Life of Virginia Series Fund, Inc.
Statements of Operations
<TABLE>
<CAPTION>
Common Stock Government
Index Securities Money Market Total Return
Portfolio Portfolio Portfolio Portfolio
- ------------------------------------------------------------------------------------------------------------------------------------
Year ended Year ended Year ended Year ended
December 30, December 30, December 30, December 30,
1996 1996 1996 1996
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Investment Income
Interest $ 264,744 $ 1,556,303 $ 1,767,717 $ 1,586,763
Dividends 2,042,113 -- -- 701,678
Less foreign taxes withheld (12,626) -- -- (1,539)
Accretion of discounts on investments -- 74,348 4,304,951 412,177
- ------------------------------------------------------------------------------------------------------------------------------------
2,294,231 1,630,651 6,072,668 2,699,079
Expenses
Investment advisory fee 336,589 129,056 552,126 405,779
Directors' fees 2,875 2,875 2,875 2,875
Accounting fees 7,000 7,000 7,000 7,000
Legal 3,020 3,020 3,020 3,020
Custodian fees 90,024 18,626 32,641 44,726
Insurance fees 1,827 1,827 1,827 1,827
Miscellaneous 19,277 11,867 13,538 18,601
- ------------------------------------------------------------------------------------------------------------------------------------
460,612 174,271 613,027 483,828
Less expense reimbursement -- -- -- --
Less expense waiver -- -- (440,348) --
- ------------------------------------------------------------------------------------------------------------------------------------
460,612 174,271 172,679 483,828
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income 1,833,619 1,456,380 5,899,989 2,215,251
Realized and Unrealized
Gain (Loss) on Investments
Net realized gain (loss) on investments 23,983,222 62,255 (745) 8,450,564
Change in net unrealized gain (loss)
on investments (3,717,302) (1,084,049) -- (3,141,042)
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss)
on investments 20,265,920 (1,021,794) (745) 5,309,522
- ------------------------------------------------------------------------------------------------------------------------------------
Increase in net assets from operations $ 22,099,539 $ 434,586 $ 5,899,244 $ 7,524,773
====================================================================================================================================
</TABLE>
See accompanying notes.
37
<PAGE>
International Real Estate
Equity Securities
Portfolio Portfolio
- -----------------------------------------
Year ended Year ended
December 30, December 30,
1996 1996
- -----------------------------------------
$ 66,830 $ 68,665
343,893 1,222,336
-- --
-- 36,050
- ----------------------------------------
410,723 1,327,051
237,088 161,881
2,493 2,875
6,982 7,000
6,982 3,020
113,505 17,203
-- 1,827
2,993 9,186
- ----------------------------------------
370,043 202,992
(14,412) --
-- --
- ----------------------------------------
355,631 202,992
- ----------------------------------------
55,092 1,124,059
1,034,935 509,943
571,033 5,092,453
- ----------------------------------------
1,605,968 5,602,396
- ----------------------------------------
$ 1,661,060 $ 6,726,455
========================================
38
<PAGE>
Life of Virginia Series Fund, Inc.
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
Common Stock Index Portfolio Government Securities Portfolio
- -------------------------------------------------------------------------------------------------------------------------------
Year ended Year ended
December 30, December 31, December 30, December 31,
1996 1995 1996 1995
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Increase in Net Assets from Operations
Net investment income $ 1,833,619 $ 838,464 $ 1,456,380 $ 1,048,517
Net realized gain (loss) on investments 23,983,222 435,855 62,255 330,315
Change in unrealized gain (loss)
on investments (3,717,302) 11,238,587 (1,084,049) 1,399,196
- -------------------------------------------------------------------------------------------------------------------------------
Increase in net assets from operations 22,099,539 12,512,906 434,586 2,778,028
Distributions to Shareholders from:
Net investment income (1,807,487) (824,967) (1,463,959) (1,046,426)
Net realized gain on investments (23,983,222) (435,855) (62,255) (330,315)
Tax return of capital -- -- -- --
- -------------------------------------------------------------------------------------------------------------------------------
(25,790,709) (1,260,822) (1,526,214) (1,376,741)
Capital Share Transactions
Proceeds from sale of shares 46,416,381 32,495,984 9,778,053 11,410,213
Net asset value of shares issued
upon reinvestment of dividends -- 1,260,822 -- 1,376,741
Cost of redemption of shares (73,219,899) (2,921,622) (18,623,156) (3,078,132)
- -------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets
from capital transactions (26,803,518) 30,835,184 (8,845,103) 9,708,822
Increase (decrease) in net assets (30,494,688) 42,087,268 (9,936,731) 11,110,109
Net assets at beginning of period 66,016,840 23,929,572 23,708,181 12,598,072
- -------------------------------------------------------------------------------------------------------------------------------
Net assets at end of period $ 35,522,152 $ 66,016,840 $ 13,771,450 $ 23,708,181
- -------------------------------------------------------------------------------------------------------------------------------
Undistributed net investment income $ 40,636 $ 14,504 $ 348 $ 7,927
===============================================================================================================================
</TABLE>
See accompanying notes.
39
<PAGE>
<TABLE>
<CAPTION>
Money Market Portfolio Total Return Portfolio International Equity Portfolio Real Estate Securities Portfolio
---------------------- ---------------------- ------------------------------ --------------------------------
Year ended Year ended Year ended May 1, 1995 to Year ended May 1, 1995 to
December 30, December 31, December 30, December 31 December 30, December 31, December 30, December 31,
1996 1995 1996 1995 1996 1995 1996 1995
------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 5,899,989 $ 2,313,825 $ 2,215,251 $ 1,712,787 $ 55,092 $ 35,268 $ 1,124,059 $ 532,450
(745) 235 8,450,564 3,340,591 1,034,935 (120,856) 509,943 204,852
-- -- (3,141,042) 7,153,511 571,033 936,494 5,092,453 1,099,942
------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
5,899,244 2,314,060 7,524,773 12,206,889 1,661,060 850,906 6,726,455 1,837,244
(5,892,059) (2,313,825) (2,230,657) (1,716,214) (69,707) (35,268) (1,133,355) (523,184)
-- (235) (8,448,019) (3,280,876) (1,034,935) (247,059) (509,943) (204,724)
-- (1,464) -- -- -- (4,496) -- --
------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
(5,892,059) (2,315,524) (10,678,676) (4,997,090) (1,104,642) (286,823) (1,643,298) (727,908)
190,250,466 52,457,301 21,203,447 25,726,933 26,614,888 14,558,413 11,868,291 11,839,141
-- 2,315,524 -- 4,997,090 -- 286,823 -- 727,908
(140,078,242) (25,216,740) (60,742,609) (2,134,985) (24,875,243) (61,537) (5,847,077) (247,508)
------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
50,172,224 29,556,085 (39,539,162) 28,589,038 1,739,645 14,783,699 6,021,214 12,319,541
------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
50,179,409 29,554,621 (42,693,065) 35,798,837 2,296,063 15,347,782 11,104,371 13,428,877
63,083,360 33,528,739 70,507,093 34,708,256 15,347,782 -- 13,428,877 --
------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
$113,262,769 $ 63,083,360 $ 27,814,028 $ 70,507,093 $ 17,643,845 $ 15,347,782 $ 24,533,248 $13,428,877
============ ============ ============ ============ ============ ============ ============ ===========
$ 7,930 -- -- $ 15,108 -- -- -- $ 9,266
============ ============ ============ ============ ============ ============ ============ ===========
</TABLE>
40
<PAGE>
Life of Virginia Series Fund, Inc
Portfolio of Investments
December 30, 1996
Percentage Principal/
of Net Assets Shares Value
------------- ------ -----
COMMON STOCK INDEX PORTFOLIO
COMMON STOCKS
Aerospace/Defense 2.17%
Boeing Co. 3,455 $ 368,411
General Dynamics Corp. 599 42,080
Lockheed Martin Corp. 1,944 177,390
McDonnell Douglas Corp 2,075 135,913
Northrop Grumman Corp. 576 47,160
---------
770,954
Airlines 0.51%
AMR Corp. (A) 876 78,512
Delta Air Lines Inc. Del 784 56,154
Southwest Airlines Co. 1,383 30,945
USAir Group Inc. (A) 599 14,376
---------
179,987
Aluminum 0.61%
Alcan Alumunium Ltd 2,167 73,678
Alcoa Aluminum Co. Amer 1,706 107,905
Reynolds Metals Co. 599 34,443
---------
216,026
Automobiles 2.86%
Chrysler Corp. 7,045 238,649
Ford Motor Co. Del 11,436 368,811
General Motors Corp. 7,332 407,843
---------
1,015,303
Auto Parts After Market 0.96%
Autozone Inc. (A) 1,600 41,200
Cooper Tire & Rubber Co. 830 16,496
Dana Corp. 968 31,823
Echlin Inc. 599 19,018
Genuine Parts Co. 1,153 52,029
Goodyear Tire & Rubber Co. 1,522 78,764
ITT Industries Inc. 1,153 28,393
Johnson Controls Inc. 415 34,860
Snap-on Tools Inc. 599 21,714
Timken Inc. 346 15,873
---------
340,170
41
<PAGE>
Life of Virginia Series Fund, Inc
Portfolio of Investments - continued
Percentage Principal/
of Net Assets Shares Value
------------- ------ -----
COMMON STOCK INDEX PORTFOLIO - Continued
COMMON STOCKS-Continued
Banks 4.83%
Bankamerica Corp. 3,504 $ 360,912
Bankers Trust NY Corp. 784 68,404
Chase Manhattan Corp. 4,253 391,276
Citicorp 4,657 497,135
First Chicago NBD Corp. 3,039 169,804
Morgan J. P. & Co. Inc. 1,798 179,126
Republic New York Corp. 553 46,936
---------
1,713,593
Beverages-Alcoholic 1.08%
Adolph Coors Class B nonvoting 369 7,126
Anheuser Busch Cos Inc. 4,796 197,835
Brown-Forman Corp. Class B 646 29,635
Seagrams Ltd. 3,643 149,818
---------
384,414
Beverages-Soft Drinks 4.97%
Coca-Cola Co. 24,193 1,285,253
Pepsico Inc. 15,171 455,130
Whitman Corp. 1,014 23,702
---------
1,764,085
Broadcast Media/Cable TV 0.72%
Comcast Corp. Class A Spl 3,228 57,297
Telecommunications Inc. Ser A 6,317 82,911
US West Media Inc (A) 6,133 115,760
---------
255,968
Broker-Dealers 0.76%
Merrill Lynch & Co. Inc. 1,614 134,567
Morgan Stanley Group Inc. 1,476 86,900
Salomon Inc. 1,014 48,419
---------
269,886
Building Materials 0.43%
Armstrong World Industries 369 25,830
Masco Corp. 1,568 56,448
Owens Corning 507 21,801
Sherwin Williams 830 47,310
---------
151,389
42
<PAGE>
Life of Virginia Series Fund, Inc
Portfolio of Investments - continued
Percentage Principal/
of Net Assets Shares Value
------------- ------ -----
COMMON STOCK INDEX PORTFOLIO - Continued
COMMON STOCKS-Continued
Business Services 0.63%
Block H & R Inc. 1,014 $ 30,040
CUC International Inc. (A) 3,797 91,128
Interpublic Group Cos. Inc. 784 37,730
Service Corp. International 2,259 63,817
---------
222,715
Chemicals 3.05%
Dow Chemical Co. 2,352 186,690
Du Pont E I De Nemours & Co. 5,441 520,976
Hercules Inc. 1,026 44,503
Monsanto Co. 5,672 226,171
Rohm & Haas Co. 646 52,165
Union Carbide Corp. 1,245 51,201
---------
1,081,706
Chemicals Specialty 1.28%
Air Products and Chemicals Inc. 1,061 74,005
Avery Dennison Corp. 1,014 36,377
Eastman Chemical Co. 738 41,236
Engelhard Corp. 1,406 27,241
Goodrich B F Co. 507 20,597
Grace W R & Co. 876 45,333
Great Lakes Chemical Corp. 599 28,003
Morton International Inc. Ind. 1,383 57,049
Nalco Chemical Co. 646 23,902
Praxair Inc. 1,522 71,154
Sigma-Aldrich Corp. 484 29,524
---------
454,421
Coal 0.08%
Cyprus Amax Minerals Co. 922 22,013
Eastern Enterprises 208 7,384
---------
29,397
Commercial Services 0.83%
Alco Standard Corp. 1,245 $ 63,495
Cognizant Corp. (A) 1,660 54,573
Deluxe Corp. 784 25,578
Donnelley R R & Sons Co. 1,476 46,863
Dun & Bradstreet Corp. 1,660 40,670
Ecolab Inc. 599 22,762
Harland John H Co. 300 9,825
Ryder Systems Inc. 784 22,344
Safety Kleen Corp. 553 9,263
---------
295,373
43
<PAGE>
Life of Virginia Series Fund, Inc
Portfolio of Investments - continued
Percentage Principal/
of Net Assets Shares Value
------------- ------ -----
COMMON STOCK INDEX PORTFOLIO - Continued
COMMON STOCKS-Continued
Communication Equipment - Manufacturing 4.60%
Andrew Corp. (A) 619 $ 33,426
AT&T Corp. 15,770 693,880
Bay Networks Inc. (A) 1,798 37,983
Cabletron System Inc. (A) 1,476 50,553
Cisco Systems Inc. (A) 6,271 406,831
General Instrument Corp. (A) 1,337 29,247
Harris Corp Del 369 25,369
Motorola Inc. 5,718 353,801
---------
1,631,090
Computer Software & Services 4.94%
Autodesk Inc. 484 13,794
Automatic Data Processing Inc. 2,813 124,124
Ceridian Corp. (A) 646 26,244
Computer Assoc Int'l. Inc. 3,504 174,324
Computer Sciences Corp. (A) 761 62,687
EMC Corp (A) 2,259 75,394
Microsoft Corp. (A) 11,620 970,270
Novell Inc. (A) 3,412 32,520
Oracle Corp. (A) 6,306 262,881
Shared Medical System Corp. 219 10,758
---------
1,752,996
Computer Systems 5.82%
3 Com Corp (A) 1,614 121,252
Amdahl Corp. 1,153 14,557
Apple Computer Inc. 1,199 26,078
Compaq Computer Corp (A) 2,628 193,815
Data Gen. Corp. (A) 369 5,581
Dell Computer Corp. 1,752 91,542
Digital Equipment Corp. (A) 1,522 55,173
Hewlett Packard Co. 9,914 511,810
IBM Corp. 5,118 786,253
Seagate Technology (A) 2,429 96,553
Silicon Graphics (A) 1,660 42,330
Sun Microsystems Inc. 3,596 93,946
Tandem Computers (A) 1,153 15,710
Unisys Corp (A) 1,660 11,413
---------
2,066,013
Conglomerates 5.56%
General Electric Co. 16,001 1,626,102
Textron Inc. 784 73,794
Unilever NV New York Shares 1,568 274,596
---------
1,974,492
44
<PAGE>
Life of Virginia Series Fund, Inc
Portfolio of Investments - continued
Percentage Principal/
of Net Assets Shares Value
------------- ------ -----
COMMON STOCK INDEX PORTFOLIO - Continued
COMMON STOCKS-Continued
Containers-Metal & Glass 0.39%
Ball Corp. 277 $ 7,202
Bemis Inc. 507 18,759
Crown Cork & Seal Inc. 1245 68,475
Stone Container Corp. 968 14,641
Temple Inland Inc. 553 30,000
---------
139,077
Cosmetics 1.52%
Alberto Culver Co. Class B 300 14,550
Avon Products Inc. 1,291 74,717
Gillette Co. 5,288 400,566
International Flavors & Fragrances Inc. 1,061 48,541
---------
538,374
Drugs 11.52%
American Home Products Corp. 6,133 366,447
Bristol Myers Squibb Co. 4,842 536,252
Johnson & Johnson 12,911 660,075
Eli Lilly & Co. 5,303 397,725
Merck & Co. Inc. 11,758 953,868
Pfizer Inc. 6,225 529,903
Pharmacia/Upjohn Inc. 4,929 199,625
Schering Plough Corp. 3,597 240,549
Warner Lambert Co. 2,628 203,342
---------
4,087,786
Electric Companies 4.43%
American Electric Power Inc. 1,798 75,067
Baltimore Gas & Electric Co. 1,429 38,762
Carolina Power & Light Co. 1,476 54,428
Central & Southwest Corp. 2,029 52,500
Cinergy Corp. 1,526 51,312
Consolidated Edison Co. NY Inc. 2,259 66,076
Dominion Resources 1,706 66,108
DTE Energy Co. 1,383 45,293
Duke Power Co. 1,983 92,210
Edison International 4,242 85,370
Entergy Corp. New 2,213 62,241
FPL Group Inc. 1,752 80,811
General Public Utilities 1,153 38,914
Houston Industries Inc. 2,300 52,325
Niagara Mohawk Power Corp. 1,383 13,830
Northern States Power Co. 646 30,443
Ohio Edison Co. 1,476 33,764
PP&L Resources Inc. 1,568 36,456
45
<PAGE>
Life of Virginia Series Fund, Inc
Portfolio of Investments - continued
Percentage Principal/
of Net Assets Shares Value
------------- ------ -----
COMMON STOCK INDEX PORTFOLIO - Continued
COMMON STOCKS-Continued
Electric Companies - continued
Pacific Gas & Electric Co. 4,012 $ 85,255
Pacificorp 2,859 59,324
Peco Energy 2,167 54,446
Public Service Enterprise Group 2,352 65,268
Southern Company 6,502 148,733
Texas Utilities Co. 2,167 88,847
Unicom Corp. 2,075 57,841
Union Electric Co. 968 37,631
---------
1,573,255
Electrical Equipment 1.58%
AMP Inc. 2,104 81,793
Emerson Electric Co. 2,167 213,720
Grainger W W Inc. 530 42,864
Honeywell Inc. 1,245 85,438
Thomas & Betts Corp. 369 16,421
Westinghouse Electric Corp. 6,058 119,646
---------
559,882
Electronics-Semiconductor 3.63%
Advanced Micro Devices Inc. (A) 1,291 33,243
Applied Materials 1,752 62,634
Intel Corp. 7,977 1,062,935
"LSI Logic, Inc. (A)" 1,245 34,082
Micron Technology Inc. 2,029 60,870
National Semi-Conductor Co. (A) 1,337 32,924
---------
1,286,688
Engineering and Construction 0.19%
Fluor Corp. 830 52,290
Foster Wheeler Corp. 415 15,770
---------
68,060
Entertainment 3.11%
Disney Walt Holding Co. 6,554 458,780
Eastman Kodak Co. 3,274 269,696
Fleetwood Enterprises 323 8,963
King World Products Inc. (A) 369 13,791
Polaroid Corp. 484 21,417
Time Warner Inc. 5,533 206,104
Viacom Inc. Class B (A) 3,459 123,645
---------
1,102,396
46
<PAGE>
Life of Virginia Series Fund, Inc
Portfolio of Investments - continued
Percentage Principal/
of Net Assets Shares Value
------------- ------ -----
COMMON STOCK INDEX PORTFOLIO - Continued
COMMON STOCKS-Continued
Financial Services Miscellaneous 4.89%
American Express Co. 4,611 $ 264,556
Beneficial Corp. 507 32,955
Dean Witter Discover & Co. 1,568 106,036
Federal Home Loan Mortgage 1,752 199,509
Federal National Mortgage Assoc. 10,560 417,120
First Data Corp. 4,334 162,525
Green Tree Financial 1,337 51,809
Household International Inc. 922 84,824
ITT Corp (A) 1,153 50,156
Marsh & McLennan Cos. Inc. 692 72,833
Travelers 6,209 294,151
---------
1,736,474
Food-Grain & Agricultural 0.52%
Archer Daniels Midland Co. 4,818 109,007
Ralson Purina Group 1,014 75,036
---------
184,043
Food Processing 3.20%
Campbell Soup Co. 2,213 180,913
Conagra Inc. 2,352 119,952
CPC International Inc. 1,383 108,393
General Mills Inc. 1,522 99,501
Heinz H J Co. 3,620 133,488
Hershey Foods Corp. 1,476 66,236
Kellogg Corp. 2,029 136,197
Quaker Oats Co. 1,291 49,865
Sara Lee Corp. 4,703 179,302
Wrigley Wm Jr. Co. 1,107 63,376
---------
1,137,223
Gaming/Hotel 0.06%
Harrahs Entertainment Inc. (A) 1,014 20,153
---------
20,153
Gold 0.71%
Barrick Gold Corp. 3,458 99,850
Battle Mountain gold Co. 2,167 15,440
Homestake Mining Co. 1,429 20,363
Newmont Mining corp. 968 43,802
Placer Dome Inc. 2,306 52,173
Santa Fe Pacific Gold Corp. 1,279 19,506
---------
251,134
47
<PAGE>
Life of Virginia Series Fund, Inc
Portfolio of Investments - continued
Percentage Principal/
of Net Assets Shares Value
------------- ------ -----
COMMON STOCK INDEX PORTFOLIO - Continued
COMMON STOCKS-Continued
Healthcare-Miscellaneous 1.27%
Beverly Enterprises (A) 968 $ 12,342
Columbia/HCA Healthcare 6,502 264,975
Humana Inc. (A) 1,568 29,792
Manor Care Inc. 599 15,874
Tenet Healthcare Corp (A) 2,075 45,391
United Healthcare Corp. 1,798 81,135
---------
449,509
Homebuilding 0.06%
Centex Corp. 277 10,388
Kaufman & Broad Home Corp. 369 4,751
Pulte Corporation 231 7,132
---------
22,271
Hotels - Motels 0.56%
HFS Inc. (A) 1,199 68,793
Hilton Hotels Corp. 2,398 62,648
Marriott International Inc. 1,245 68,786
---------
200,227
Household Furnishings 0.22%
Black & Decker Corp. 830 25,211
Maytag Corp. 968 19,602
Whirlpool Corp. 738 34,594
---------
79,407
Household Products 3.74%
Clorox Co. 507 51,777
Colgate Palmolive Co. 1,429 133,254
James River Corp. VA 830 28,116
Kimberly Clark Corp. 2,738 266,271
Newell Co. 1,545 50,019
Procter & Gamble Co. 6,640 726,250
Rubbermaid Inc. 1,429 32,867
Springs Industries Inc. Class A 173 7,504
Tupperware Corp. 599 32,571
---------
1,328,629
Human Biotechnology 0.56%
Amgen Inc. (A) 2,582 142,333
Pioneer Hi Bred International 784 56,546
---------
198,879
48
<PAGE>
Life of Virginia Series Fund, Inc
Portfolio of Investments - continued
Percentage Principal/
of Net Assets Shares Value
------------- ------ -----
COMMON STOCK INDEX PORTFOLIO - Continued
COMMON STOCKS-Continued
Industrial 2.42%
Allied Signal Inc. 2,721 $ 189,110
Briggs & Stratton Corp. 300 13,200
Cooper Industries Inc. 1,061 44,429
Crane Co. 450 13,163
Dover Corp. 1,107 55,904
FMC Corp (A) 369 26,199
Illinois Tool Works Inc. 1,199 97,269
Ingersoll Rand Co. 1,061 48,010
National Services Industries Inc. 461 17,518
Parker Hannifin Corp. 738 28,598
PPG Industries Inc. 1,798 102,711
Raychem Corp. 415 33,563
Stanley Works 876 24,966
Tenneco Inc. 1,660 76,983
Trinova Corp. 300 10,875
Tyco International Ltd. 1,476 77,859
---------
860,357
Industrial Technology 0.20%
General Signal Corp. 461 20,054
Intergraph Corp. 461 4,898
Millipore Corp 438 18,122
Pall Corp. 1,107 28,505
---------
71,579
Insurance-Life 0.75%
American General Corp. 1,983 81,303
Jefferson Pilot Corp. 680 39,695
Providian Corp. 922 47,598
Torchmark Corp. 692 35,552
UNUM Corp. 692 50,257
US Life Corp. 328 10,742
---------
265,147
Insurance - Multi Line 1.35%
Aetna Inc. 1,453 118,601
Alexander and Alexander Services Inc. 415 7,211
AON Corp. 1,061 66,976
Cigna Corp. 738 101,752
ITT Hartford Group Inc. 1,153 79,845
Lincoln National Corp. Industries 1,014 53,362
Transamerica Corp. 646 52,003
---------
479,750
49
<PAGE>
Life of Virginia Series Fund, Inc
Portfolio of Investments - continued
Percentage Principal/
of Net Assets Shares Value
------------- ------ -----
COMMON STOCK INDEX PORTFOLIO - Continued
COMMON STOCKS-Continued
Insurance - Property 3.49%
Allstate 4,288 $ 254,064
American International Group Inc. 4,565 503,862
Chubb Corp. 1,706 94,257
General RE Corp. 738 117,711
Loews Corp. 1,107 105,442
MGIC Investment Corp MS 553 42,719
Safeco Corp. (A) 1,199 48,408
St. Paul Companies Inc. 830 49,178
U S F & G Corp. 1,153 24,357
---------
1,239,998
Leisure/Entertainment 0.07%
Brunswick Corp. 968 23,474
---------
23,474
Machine Tools 0.03%
Cincinnati Milacron Inc. 369 8,026
Giddings & Lewis Inc 323 4,199
---------
12,225
Machinery-Diversified 1.04%
CASE Corp. 692 38,147
Caterpillar Inc. DEL 1,844 140,144
Deere & Co. 2,490 103,335
Harnischfeger Ind. Inc. 484 23,716
NACCO Ind. Inc. Class A 81 4,364
Thermo Electron Corp (A) 1,600 60,800
---------
370,506
Major Banks - Regional 7.94%
Banc One Corp 4,192 187,592
Bank of Boston Corp. 1,476 99,077
Bank of New York Inc. 3,735 132,126
Barnett Banks Inc. 1,844 78,140
Boatmens Bancshares 1,522 100,262
Comerica Inc. 1,107 60,332
Corestates Financial Corp. 2,167 115,393
Fifth Third Bancorp 1,014 65,910
First Bank System 1,383 98,193
First Union Corp. 2,668 204,769
Fleet Financial Group New 2,549 132,229
Keycorp New 2,213 115,353
MBNA Corp 2,167 92,639
MBIA Inc. 415 42,693
50
<PAGE>
Life of Virginia Series Fund, Inc
Portfolio of Investments - continued
Percentage Principal/
of Net Assets Shares Value
------------- ------ -----
COMMON STOCK INDEX PORTFOLIO - Continued
COMMON STOCKS-Continued
Major Banks - Regional -- continued
Mellon Bank Corp. 1,245 $ 91,974
National City 2,167 100,495
Nationsbank Corp. 2,813 284,113
Norwest Corp. 3,597 162,764
PNC Bank Corp 3,320 127,820
Suntrust Banks Inc. 2,167 111,330
US Bancorp 1,476 69,003
Wachovia Corp. 1,614 94,419
Wells Fargo & Corp 907 250,786
---------
2,817,412
Medical Products 2.96%
Abbott Labs 7,562 395,115
Allergan Inc. 646 22,852
Alza Corp (A) 830 21,373
Bard CR Inc. 553 15,761
Bausch & Lomb Inc. 553 19,701
Baxter International Inc. 2,628 109,719
Becton Dickinson & Co. 1,199 52,906
Biomet Inc. 1,107 16,743
Boston Scientific Corp (A) 1,706 104,066
Guidant Corp. 784 44,590
Mallinckrodt Inc. 738 32,841
Medtronic Inc. 2,306 157,961
St. Jude Medical Inc. (A) 772 32,135
US Surgical Corp 599 23,810
---------
1,049,573
Metal - Miscellaneous 0.59%
Allegheny Teledyne Inc. 1,643 37,789
Asarco Inc. 438 10,895
Echo Bay Mines Ltd. 1,337 8,691
Freeport - McMoran
Copper & Gold Class B 1,891 57,203
INCO Ltd. 1,614 52,052
Phelps Dodge Corp 646 44,170
---------
210,800
Natural Gas 0.49%
Columbia Gas System Inc. 576 37,080
Consolidated National Gas Co. 922 52,324
Nicor Inc. 507 18,506
Noram Energy Corp. 1,337 20,556
Oneok Inc. 300 8,888
Pacific Enterprises 830 25,315
Peoples Energy Corp. 346 11,851
---------
174,520
51
<PAGE>
Life of Virginia Series Fund, Inc
Portfolio of Investments - continued
Percentage Principal/
of Net Assets Shares Value
------------- ------ -----
COMMON STOCK INDEX PORTFOLIO - Continued
COMMON STOCKS-Continued
Natural Gas-Transporters 0.47%
Panenergy Corp. 1,476 $ 66,420
Sonat Inc. 830 43,575
Williams Companies 1,014 57,418
---------
167,413
Office Equipment & Supplies 0.75%
Moore Corp Ltd. 968 20,570
"Pitney Bowes, Inc." 1,429 80,739
Xerox Corp. 3,136 165,424
---------
266,733
Oil & Gas Services 0.72%
Coastal Corp. 1,014 50,827
Enron Corp. 2,444 106,009
Enserch Corp. 646 14,939
Santa Fe Energy Resources 876 12,593
Union Pacific Resource Group Inc. 2,407 70,718
---------
255,086
Oil-Integrated Domestic 2.36%
Amerada Hess Corp 922 54,168
Ashland Oil Inc. (A) 646 28,263
Atlantic Richfield Co. 1,568 214,228
Burlington Resources Inc. 1,199 62,048
Kerr McGee Corp. 484 35,514
Louisiana Land & Expl. Co. 311 17,066
Occidental Pete Corp. 3,136 74,480
Oryx Energy Company (A) 1,014 25,730
Pennzoil Co. 461 26,680
Phillips Petroleum Co. 2,536 115,388
Sun Company Inc. 738 17,989
Unocal Corp. 2,398 100,117
USX Marathon Group 2,767 67,446
---------
839,117
Oil-Integrated International 10.24%
Amoco Corp. 4,796 395,670
Chevron Corporation 6,317 420,081
Exxon Corp. 12,035 1,195,978
Mobil Corp. 3,827 472,635
Royal Dutch Petro Corp 5,211 896,943
Texaco Inc. 2,536 250,747
---------
3,632,054
52
<PAGE>
Life of Virginia Series Fund, Inc
Portfolio of Investments - continued
Percentage Principal/
of Net Assets Shares Value
------------- ------ -----
COMMON STOCK INDEX PORTFOLIO - Continued
COMMON STOCKS-Continued
Oil Well Services & Equipment 1.39%
Baker Hughes Inc. 1,383 $ 48,924
Dresser Industries Inc. 1,752 55,188
Hilliburton Co. 1,107 69,049
Helmerich & Payne Inc. 242 12,856
McDermott International Inc. 507 8,556
Rowan Companies Inc (A) 830 19,609
Schlumberger Ltd. 2,352 241,080
Western Atlas Inc. (A) 507 36,504
---------
491,766
Paper & Forest Products 1.39%
Boise Cascade Corp. 461 14,694
Champion International Corp. 922 40,222
Georgia Pacific Corp. 876 63,401
International Paper Co. 2,910 118,583
Louisiana Pacific Corp. 1,061 23,077
Mead Corp. 507 29,850
Potlatch Corp. 300 13,125
Union Camp Corp. 646 31,412
Westvaco Corp. 991 28,739
Weyerhaeuser Co. 1,937 92,492
Williamette Ind. Inc. 553 38,848
---------
494,443
Pollution Control 0.70%
Browning-Ferris Industries Inc. 2,075 54,728
Laidlaw Inc. Class B Nonvoting 3,043 35,755
WMX Technologies Inc. 4,750 158,531
---------
249,014
Publishing 1.11%
American Greeting Corp. Class A 738 21,125
Dow Jones & Co. Inc. 922 31,924
Gannett Inc. 1,406 106,505
Knight Ridder Inc. 922 36,534
McGraw Hill Companies Inc. 968 45,012
Meredith Corp. 277 14,612
New York Times Class A 968 37,389
Times Mirror Co. Class A 1,014 53,615
Tribune Co. 599 47,770
---------
394,486
<PAGE>
Life of Virginia Series Fund, Inc
Portfolio of Investments - continued
Percentage Principal/
of Net Assets Shares Value
------------- ------ -----
COMMON STOCK INDEX PORTFOLIO - Continued
COMMON STOCKS-Continued
Railroads 1.54%
Burlington Northern / Santa Fe Corp 1,477 $ 129,607
Conrail Inc. 784 78,204
CSX Corp. 2,029 86,740
Norfolk Southern Corp. 1,199 107,460
Union Pacific Corp. 2,352 144,354
---------
546,365
Restaurants 1.16%
Darden Restaurants 1,522 13,508
McDonald's Corp. 6,778 312,635
SYSCO Corp 1,752 59,568
Wendys International Inc. 1,245 264,56
---------
412,167
Retail - Apparel 0.83%
Charming Shoppes (A) 1,014 $5,070
CVS Corp 1,014 42,081
GAP Inc. 2,767 86,815
Harcourt General Inc. 692 32,784
Limited Inc. 2,607 47,904
Mercantile Stores Inc. 392 19,600
Nordstrom Inc. 784 28,518
TJX Companies Inc. New 692 33,043
---------
295,815
Retail - Specialty 1.44%
Circuit City Stores 968 28,919
Home Depot Inc. 4,657 238,671
Jostens Inc. 369 8,072
Lowes Cos. Inc. 1,660 61,213
"Pep /Boys Manny, Moe, & Jack" 599 18,419
Price/Costco Inc. (A) 1,891 47,748
Tandy Corp. 553 25,576
Toys R Us Inc. Holdings Co. (A) 2,628 81,468
---------
510,086
54
<PAGE>
Life of Virginia Series Fund, Inc
Portfolio of Investments - continued
Percentage Principal/
of Net Assets Shares Value
------------- ------ -----
COMMON STOCK INDEX PORTFOLIO - Continued
COMMON STOCKS-Continued
Retail Stores - Department Stores 3.35%
Dayton Hudson Corp. 2,075 $ 82,741
Dillard Dept. Stores Inc. Class A 1,107 34,594
Federated Dept Store Inc. New (A) 2,029 69,747
K-Mart Corp. (A) 4,703 49,382
May Dept Stores Co 2,421 114,090
Penney J C Inc. 2,167 105,912
Sears Roebuck & Co. 3,781 178,180
Wal-Mart Stores Inc. 22,180 524,003
Woolworth Corp. 1,291 28,886
---------
1,187,535
Retail Stores-Drug 0.44%
Longs Drug Stores Inc. 208 10,166
Rite Aid Corp. 1,200 47,400
Walgreen 2,398 98,618
---------
156,184
Retail Stores- Food Chain 0.87%
Albertsons Inc. 2,467 90,046
American Stores Co. 1,429 58,410
Fleming Companies 369 6,273
Giant Food Inc. Class A 599 20,965
Great Atlantic & Pac Tea Co. 369 12,039
Kroger Co (A) 1,199 55,754
Supervalu Inc. 646 18,653
Winn Dixie Stores Inc. 1,476 47,601
---------
309,741
Savings & Loans/Hldgs Co. 0.31%
Ahmanson H F & Co. 1,061 35,544
Golden West Financial Corp Del 553 35,876
Great Western Financial Corp. 1,337 39,274
---------
110,694
Shoes 0.56%
Nike Inc. Class B 2,767 169,479
Reebok International Ltd (A) 553 23,710
Stride Rite Corp. 484 4,901
---------
198,090
55
<PAGE>
Life of Virginia Series Fund, Inc
Portfolio of Investments - continued
Percentage Principal/
of Net Assets Shares Value
------------- ------ -----
COMMON STOCK INDEX PORTFOLIO - Continued
COMMON STOCKS-Continued
Steel 0.31%
Armco Inc. (A) 1,014 $ 4,183
Bethlehem Stl Corp. (A) 1,061 9,549
Inland Stl Industries Inc. 461 9,220
Nucor Corp. 830 42,745
USX-US Steel 830 26,145
Worthington Industries Inc. 876 16,644
---------
108,486
Technology 3.06%
Corning Inc. 2,213 100,692
EG & G Inc. 461 9,508
Minnesota Mng & Mfg Co. 4,058 343,916
Perkin Elmer Corp 415 24,589
Raytheon Co. 2,306 110,976
Rockwell International Corp. 2,121 130,442
Tektronix Inc. 346 17,776
Texas Instruments Inc. 1,844 118,938
TRW Inc (A) 1,291 65,034
United Technologies 2,398 163,963
---------
1,085,834
Telecommunications 2.57%
Airtouch Communications Inc. (A) 4,842 121,655
DSC Communications Corp (A) 1,107 20,064
Frontier Corp 1,700 37,400
Lucent Technologies Inc. 6,157 287,840
Northern Telecom Ltd. 2,490 157,181
Scientific Atlanta Inc. (A) 738 11,439
Tellabs Inc. (A) 1,752 69,204
Worldcom Inc. GA 8,400 207,900
---------
912,683
Telephone (New) 7.67%
Alltel Corp 1,844 58,547
Ameritech Corp. 5,303 324,809
Bell Atlantic Corp. 4,242 284,214
Bellsouth Corp. 9,637 402,345
GTE Corp. 9,361 429,436
MCI Communications 6,640 221,610
Nynex Corp. 4,242 211,570
Pacific Telesis Group 4,150 156,663
SBC Communications Inc. 5,902 316,495
Sprint Corp. 4,150 163,925
US West Communications Group 4,611 151,010
---------
2,720,624
56
<PAGE>
Life of Virginia Series Fund, Inc
Portfolio of Investments - continued
Percentage Principal/
of Net Assets Shares Value
------------- ------ -----
COMMON STOCK INDEX PORTFOLIO - Continued
COMMON STOCKS-Continued
Textiles- Apparel Manufacturers 0.31%
Fruit of the Loom Class A 738 $ 28,229
Liz Claiborne Inc. 692 27,248
Russell Corp. 369 11,162
VF Corp. 623 42,053
----------
108,692
Tobacco 2.97%
American Brands Inc. 1,660 $81,755
Philip Morris Cos. Inc. 7,931 909,091
UST Inc. 1,798 60,233
----------
1,051,079
Toys 0.31%
Hasbro Inc. 830 32,266
Mattell 2,643 73,674
----------
105,940
Transportation 0.29%
Cummins Engine Inc. 369 17,620
Eaton Corp. 738 51,107
Navistar International Corp (A) 738 6,919
Paccar Inc. 369 24,769
----------
100,415
Truckers 0.17%
Caliber System Inc. 369 7,103
Federal Express Corp. (A) 1,107 49,400
----------
56,503
TOTAL COMMON STOCKS -
------- -----------
(Cost - $47,809,137) 157.30% 55,875,831
57
<PAGE>
Life of Virginia Series Fund, Inc
Portfolio of Investments - continued
Percentage Principal/
of Net Assets Shares Value
------------- ------ -----
COMMON STOCK INDEX PORTFOLIO - Continued
COMMON STOCKS-Continued
COMMERCIAL PAPER 14.36%
Amex Corp.
5.33% due January 23, 1997 $285,000 $ 285,000
Baltimore Gas & Electric
5.87% due January 8, 1997 175,000 174,772
Beneficial Corp
5.40% due February 14, 1997 375,000 375,000
FHLMC
5.36% due February 24, 1997 635,000 629,800
Florida Power Corp
5.65% due January 17, 1997 110,000 109,643
FMCC
5.31% due January 30, 1997 180,000 180,000
5.33% due February 7, 1997 750,000 750,000
GECC
5.29% due February 12, 1997 150,000 150,000
5.37% due February 12, 1997 575,000 575,000
HFC
5.32% January 24, 1997 175,000 175,000
Merrill Lynch & Co.
5.40% due February 28, 1997 1,010,000 1,001,062
5.35% due January 31, 1997 320,000 318,526
5.32% due February 7, 1997 380,000 377,866
-----------
TOTAL COMMERCIAL PAPER - 5,101,669
(Cost - $5,101,732)
U.S. GOVERNMENT OBLIGATIONS 1.26%
U.S. Treasury Bill
4.975% due January 16, 1997 285,000 284,370
4.89% due March 6, 1997 165,000 163,543
-----------
TOTAL U.S. GOVERNMENT OBLIGATIONS 447,913
(Cost - $447,913)
TOTAL SECURITY HOLDINGS 172.92% $61,425,413
(Cost - $53,358,782)
Cash and other assets less liabilities 72.92% (25,903,261)
------- -----------
Net Assets 100.00% $35,522,152
======= ===========
See accompanying notes
58
<PAGE>
Life of Virginia Series Fund, Inc
Portfolio of Investments - continued
Percentage Principal/
of Net Assets Amount Value
------------- ------ -----
GOVERNMENT SECURITIES PORTFOLIO
U.S. GOVERNMENT OBLIGATIONS
U.S. Treasury Bill
4.91% due March 27, 1997 $150,000 $ 148,240
U.S. Treasury Bill
4.96% due April 3, 1997 480,000 473,848
U.S. Treasury Bill
4.98% due April 24, 1997 820,000 807,067
U.S. Treasury Note
5.75% due September 30, 1997 100,000 100,219
U.S. Treasury Note
5.00% due February 15, 1999 271,000 266,427
U.S. Treasury Note
7.125% due September 30, 1999 733,000 755,219
U.S. Treasury Note
7.75% due January 31, 2000 407,000 427,350
U.S. Treasury Note
6.875% due March 31, 2000 814,000 835,113
U.S. Treasury Note
6.125% due July 31, 2000 271,000 272,016
U.S. Treasury Note
6.25% due August 31, 2000 543,000 547,073
U.S. Treasury Note
5.25% due January 31, 2001 271,000 263,632
U.S. Treasury Note
5.625% due February 28, 2001 271,000 266,766
U.S. Treasury Note
6.375% due March 31, 2001 543,000 549,109
U.S. Treasury Note
6.50% due May 31, 2001 543,000 551,654
U.S. Treasury Note
6.625% due July 31, 2001 543,000 554,369
U.S. Treasury Note
6.50% due August 31, 2001 1,357,000 1,379,051
U.S. Treasury Note
5.875% due November 30, 2001 1,000,000 990,937
U.S. Treasury Note
7.50% due May 15, 2002 814,000 865,638
U.S. Treasury Note
6.25% due February 15, 2003 163,000 163,917
U.S. Treasury Note
7.50% due February 15, 2005 814,000 877,339
U.S. Treasury Note
6.50% due August 15, 2005 271,000 274,896
U.S. Treasury Note
5.875% due November 15, 2005 1,520,000 1,478,200
59
<PAGE>
Life of Virginia Series Fund, Inc
Portfolio of Investments - continued
Percentage Principal/
of Net Assets Amount Value
------------- ------ -----
GOVERNMENT SECURITIES PORTFOLIO
U.S. GOVERNMENT OBLIGATIONS -- Continued
U.S. Treasury Note
7.00% due July 15, 2006 $128,000 $ 134,120
U.S. Treasury Bond
10.375% due November 15, 2012 271,000 352,046
U.S. Treasury Bond
7.25% due May 15, 2016 543,000 579,822
U.S. Treasury Bond
7.50% due November 16, 2016 112,000 122,605
U.S. Treasury Bond
8.125% due May 15, 2021 543,000 637,516
U.S. Treasury Bond
7.13% due February 15, 2023 380,000 401,494
-------------
TOTAL SECURITY HOLDINGS 109.47% $ 15,075,683
(Cost - $14,863,691)
Cash and other assets
less liabilities (9.47%) (1,304,233)
------ -------------
Net Assets 100.00 $ 13,771,450
====== =============
See accompanying notes
60
<PAGE>
Life of Virginia Series Fund, Inc
Portfolio of Investments - continued
Percentage Principal/
of Net Assets Amount Value
------------- ------ -----
MONEY MARKET PORTFOLIO
COMMERCIAL PAPER
American General Finance
5.29% due February 28, 1997 $ 2,205,000 $ 2,205,000
Ameritech Capital
5.538% due January 8, 1997 1,710,000 1,707,898
AMEX Corp.
5.30% due March 3, 1996 2,685,000 2,685,000
Asset Securitization Coop. Corp.
5.32% due January 31, 1997 4,150,000 4,130,989
Associates Corp.
5.31% due January 23, 1997 1,580,000 1,580,000
5.31% due January 30, 1997 2,295,000 2,295,000
Avco Financial Services, Inc.
5.31% due January 6, 1997 3,000,000 2,997,345
Avent Inc.
5.40% due February 18, 1997 1,545,000 1,533,644
5.48% due February 18, 1997 1,660,000 1,647,618
Bellsouth Telecom
5.32% due March 4, 1997 5,000,000 4,953,450
Beneficial Corp.
5.31% January 14, 1997 3,000,000 3,000,000
Campbell Soup Co.
5.39% due February 21, 1997 3,925,000 3,894,442
Canadian Imperial
5.315% due January 6, 1997 4,000,000 3,996,457
Coca Cola
5.85% due January 9, 1997 1,285,000 1,283,121
Corporate Asset Funding Inc.
5.47% due February 4, 1997 3,070,000 3,053,674
FMCC
5.31% due January 9, 1997 19,90,000 1,990,000
5.31% due January 9, 1997 415,000 415,000
5.32% due January 29, 1997 1,800,000 1,800,000
GE Capital
5.37% due February 10, 1997 1,230,000 1,230,000
GECCCP
5.53% due January 13, 1997 69,0000 690,000
5.31% due January 13, 1997 1,410,000 1,410,000
Goldman Sachs Group
5.35% due February 11, 1997 5,000,000 4,968,792
Household Finance Corp.
5.45% due January 2, 1997 4,000,000 4,000,000
IBM Credit Corp
5.29% due January 15, 1997 5,000,000 4,988,979
Illinois Tool Works
5.25% due December 31, 1996 5,000,000 5,000,000
61
<PAGE>
Life of Virginia Series Fund, Inc
Portfolio of Investments - continued
Percentage Principal/
of Net Assets Amount Value
------------- ------ -----
MONEY MARKET PORTFOLIO
COMMERCIAL PAPER - Continued
International Lease Finance
5.53% due January 10, 1997 $5,000,000 $ 4,992,320
McGraw-Hill Inc.
5.31% due January 7, 1997 3,075,000 3,071,823
Merrill Lynch & Company
5.44% due January 22, 1997 1,760,000 1,754,149
5.35% due February 14, 1997 1,490,000 1,480,036
Morgan Stanley Inc.
5.32% due January 24, 1997 2,245,000 2,237,038
5.32% due January 27, 1997 2,820,000 2,808,748
PHH Corp.
5.35% due January 17, 1997 3,300,000 3,291,663
Potomac Electric
5.95% due January 10, 1997 2,770,000 2,765,422
Proctor & Gamble
5.26% due January 28, 1997 3,960,000 3,943,799
Prudential Funding Corp.
5.45% due January 16, 1997 1,575,000 1,575,000
5.35% due January 21, 1997 1,785,000 1,785,000
Warner Lambert Co.
5.30% due January 3, 1997 4,180,000 4,179,370
-----------
TOTAL COMMERCIAL PAPER 89.48% 101,340,777
(Cost - $101,340,777)
U.S. GOVERMENT SECURITIES
FHLB
5.25% due January 3, 1997 5,500,000 5,497,594
FHLM
5.23% due February 7, 1997 2,170,000 2,158,020
5.33% due February 26, 1997 4,900,000 4,858,648
FNMA
5.45% due February 13, 1997 5,000,000 5,000,000
-----------
TOTAL U.S. GOVERNMENT 15.46%
SECURITIES 17,514,262
-----------
(Cost - $17,514,262)
62
<PAGE>
Life of Virginia Series Fund, Inc
Portfolio of Investments - continued
Percentage Principal/
of Net Assets Amount Value
------------- ------ -----
MONEY MARKET PORTFOLIO
COMMERCIAL PAPER - Continued
TOTAL SECURITY HOLDINGS 104.94% $ 118,855,039
(Cost $118,855,039)
Cash and other assets less
liabilities (4.94%) (5,592,270)
------ ------------
Net Assets 100.00% $113,262,769
====== ============
See accompanying notes
63
<PAGE>
Life of Virginia Series Fund, Inc
Portfolio of Investments - continued
Percentage Principal/
of Net Assets Amount Value
------------- ------ -----
TOTAL RETURN PORTFOLIO
U.S. GOVERNMENT AND AGENCY OBLIGATIONS
U.S. Government Obligations 15.15%
U.S. Treasury Note
6.000% due May 31, 1998 1,357,000 $ 1,362,937
U.S. Treasury Note
7.125% due September 30, 1999 339,000 349,276
U.S. Treasury Note
7.750% due January 31, 2000 742,000 779,100
U.S. Treasury Note
6.500% due August 31, 2001 1,273,000 1,293,686
U.S. Treasury Note
6.375% due September 30, 2001 424,000 428,770
------------
4,213,769
Agency Government Sponsored 1.28%
FHLB
6.32% due December 4, 1997 210,000 211,355
FNMA
7.05% December 10, 1998 105,000 107,153
FNMA
5.45% October 10, 2003 40,000 37,869
------------
356,377
TOTAL U.S. GOVERNMENT 16.43%
------------
AND AGENCY OBLIGATIONS 4,570,146
(Cost - $4,492,051)
PREFERRED STOCK
Financial 1.14%
Merrill Lynch 7.25% conv 4,757 317,530
Broker-Dealers 0.63%
Morgan Stanley Group 3,818 175,628
Financial Services - Misc 0.65%
Sunamerica 4,242 180,285
TOTAL PREFERRED STOCK 2.42%
------------
(Cost - $579,738) 673,443
64
<PAGE>
Life of Virginia Series Fund, Inc
Portfolio of Investments - continued
Percentage Principal/
of Net Assets Amount Value
------------- ------ -----
TOTAL RETURN PORTFOLIO - Continued
COMMON STOCKS
Aerospace/Defense 2.60%
Boeing Co. 4,242 $ 452,303
Sundstrand Corp. 6,363 269,632
---------
721,935
Aluminum 0.51%
Century Aluminum Co. 8,526 141,745
Banks 1.22%
Citicorp 3,181 339,572
Beverages-Soft Drinks 1.92%
Coca Cola Enterprise 2,651 126,585
Panamerican Beverages Inc. 2,121 101,013
Pepsico Inc. 10,181 305,430
---------
533,028
Broadcast Media 4.16%
American Telecasting Inc. 10,605 55,676
Canwest Global Communications Corp. 16,544 169,576
Clear Channel Communications Inc. 12,726 432,684
Cox Communication Inc. Class A (A) 4,242 94,385
Cox Radio Inc. Class (A) 8,484 139,986
Evergreen Media Corp. (A) 10,775 263,988
---------
1,156,295
Business Services 1.14%
International Telecom Data (A) 3,075 $69,956
Outdoor Systems Inc. (A) 4,772 120,493
Universal Outdoor Holdings Inc. 5,515 127,534
---------
317,983
Chemicals 0.98%
DuPont E I De Nemours and Co. 2,842 272,122
Chemicals-Specialty 1.14%
Air Products and Chemicals Inc. 2,121 147,940
Polymer Group Inc. 12,726 170,210
---------
318,150
Communication-Equipment/Manufacturer
Itron Inc. 0.16% 2,545 43,901
65
<PAGE>
Life of Virginia Series Fund, Inc
Portfolio of Investments - continued
Percentage Principal/
of Net Assets Amount Value
------------- ------ -----
TOTAL RETURN PORTFOLIO - Continued
COMMON STOCKS - Continued
Commercial Services
Alco Standard Corp. 1.26% 4,666 $ 237,966
York Group Inc. 6,024 112,950
-----------
350,916
Computer Software & Services 1.28%
EMC Corp. (A) 7,636 254,852
SmallWorld PLC ADR (A) 4,242 48,783
Techforce Corp. (A) 7,423 52,889
-----------
356,524
Computer Systems 5.13%
Compaq Computer Corp. (A) 6,999 516,176
Digital Equipment Corp. (A) 2,121 76,886
Hewlett Packard Co. 7,466 385,432
IBM Corp. 1,697 260,702
Sun Microsystems Inc. (A) 7,126 186,167
-----------
1,425,363
Conglomerates 1.24%
General Electric Co. 3,394 344,915
Containers-Metal & Glass
BWAY Corporation (A) 0.44% 6,363 121,692
Drugs 4.84%
Johnson & Johnson 8,484 433,745
Merck & Co. Inc. 4,242 344,132
Pfizer Inc. 3,818 325,007
Schering Plough Corp. 3,648 243,960
-----------
1,346,844
Electronics Equipment 2.33%
Bolder Technologies Corp. (A) 5,302 89,471
Trimph Group Inc. 6,151 146,855
Watsco Inc. 10,361 293,993
Watsco Inc. Class B 4,295 118,113
-----------
648,432
Engineering and Construction 0.48%
Fluor Corp. 2,121 133,623
66
<PAGE>
Life of Virginia Series Fund, Inc
Portfolio of Investments - continued
Percentage Principal/
of Net Assets Amount Value
------------- ------ -----
TOTAL RETURN PORTFOLIO - Continued
COMMON STOCKS - Continued
Entertainment 3.68%
Disney Walt Holding Co. 3,818 $ 267,260
Harley Davidson Inc. 2,842 128,245
Time Warner Inc. 10,923 406,882
Viacom Inc. Class A (A) 3,648 128,136
Viacom Inc. Class B (A) 2,571 91,913
---------
1,022,436
Financial 2.38%
S&P 500 Deposit Receipts 8,781 $660,495
Financial Services Misc. 7.44%
Associates First Capital Corp. 4,242 186,118
Cityscape Financial Corp. (A) 6,363 156,689
Delta Financial Corp. (A) 6,273 116,835
Financial Federal Corp. (A) 8,660 137,020
First Data Corp. 6,727 252,263
Green Tree Financial 11,877 460,234
Household International Inc. 3,394 312,248
Moneygram Payment System Inc. (A) 5,387 71,378
Onyx Acceptance Corp. (A) 5,302 43,742
Southern Pacific FDG (A) 4,751 144,312
Student Loan Marketing
Assn. New VTG 2,121 195,132
---------
2,075,971
Food Grain and Agriculture 0.64%
Archer Daniels Midland Co. 7,883 178,353
Food Processing 0.37%
General Nutrition Cos. Inc. (A) 6,151 103,029
Healthcare-Miscellaneous 0.58%
United Healthcare Corp. 3,563 160,780
Household Furnishings and AP 1.32%
Interface Inc. Class A (A) 18,749 367,949
Household Products 1.37%
Colgate Palmolive Co. 2,333 217,552
Procter & Gamble Co. 1,485 162,422
---------
379,974
67
<PAGE>
Life of Virginia Series Fund, Inc
Portfolio of Investments - continued
Percentage Principal/
of Net Assets Amount Value
------------- ------ -----
TOTAL RETURN PORTFOLIO - Continued
COMMON STOCKS - Continued
Industrial 1.11%
Illinois Tool Works Inc. 3,818 $ 309,735
Insurance-Multi Line 0.66%
FBL Financial Group Inc. Class A 7,423 184,647
Insurance Property 0.87%
American Intl Group Inc. 2,187 241,390
Machinery-Diversified 2.47%
AGCO Corp. 8,484 246,036
Deere & Co. 10,605 440,108
------------
686,144
Major Banks - Regional 3.88%
Barnett Banks Inc. 6,787 287,599
Columbia Banking System Inc. (A) 4,242 66,812
Nationsbank 5,387 544,087
Texas Regional Bancshares Inc.
Class A 5,302 181,594
------------
1,080,092
Medical Products 2.62%
Abbott Labs 5,939 310,313
Becton Dickinson & Co. 4,242 187,178
Nellcor Puritan Bennett Inc. (A) 10,605 230,659
------------
728,150
Office Equipment & Supplies 0.77%
Xerox Corp. 4,072 214,798
Oil and Gas Services 1.30%
Newpark Resources Inc. (A) 4,454 $165,912
Transocean Offshore Inc. 3,121 196,233
------------
362,145
Oil-Integrated International 1.95%
Amoco Corp. 3,775 311,438
Mobil Corp. 976 120,536
Royal Dutch Petroleum Company 636 109,472
------------
541,446
68
<PAGE>
Life of Virginia Series Fund, Inc
Portfolio of Investments - continued
Percentage Principal/
of Net Assets Amount Value
------------- ------ -----
TOTAL RETURN PORTFOLIO - Continued
COMMON STOCKS - Continued
Oil Well Services & Equipment 1.20%
American Exploration Co. (A) 3,181 $ 50,896
Petroleum Geo Services (A) 7,211 283,032
------------
333,928
Paper and Forest Products 1.39%
Fort Howard Corp. 13,786 387,731
Pollution Control 3.13%
Philip Environmental Inc. (A) 604,485
USA Waste Services Inc. (A) 8,484 265,125
------------
869,610
Publishing 0.63%
Tribune, Inc. 2,206 175,929
Real Estate 6.68%
Cali Realty Corp. 4,878 148,779
Colonial Properties Trust 13,150 394,500
First Industry Realty Trust Inc. 11,665 349,950
Health Care REIT Inc. 8,696 207,617
Meditrust SBI 12,726 504,268
Nationwide Health Property Inc. 4,242 99,687
Spieker Properties Inc. 4,284 152,082
------------
1,856,883
Restaurants 0.40%
CKE Restaurants Inc. 3,181 112,528
Retail Apparel 0.90%
Harcourt General Inc. 5,302 251,182
Retail Specialty 0.78%
Home Depot Inc. 4,242 217,403
Retail Stores-Drug 0.50%
Walgreen Co. 3,394 139,578
Retail Stores - Food Chains 2.05%
Dominick's Supermarkets (A) 7,339 155,036
Kroger Co. (A) 8,908 414,222
------------
569,258
69
<PAGE>
Life of Virginia Series Fund, Inc
Portfolio of Investments - continued
Percentage Principal/
of Net Assets Amount Value
------------- ------ -----
TOTAL RETURN PORTFOLIO - Continued
COMMON STOCKS - Continued
Solid Waste 0.80%
Allied Waste Industries 26,682 $ 223,462
Steel 0.47%
AK Steel Holding Corp. 3,266 129,415
Technology 3.10%
Tektronix Inc. 7,423 381,357
United Technologies Corp. 6,979 477,189
---------
858,546
---------
Telecommunications 5.51%
Arch Communications Group Inc. (A) 2,121 19,487
Billing Information Concepts Corp. (A) 4,242 122,488
Clearnet Communications Inc. Class A (A) 8,272 88,924
Echostar Communication Corp. Class A (A) 7,975 177,444
Glenayre Technologies Inc. (A) 8,357 178,631
Paging Network Inc. (A) 11,071 164,681
Panamsat Corp. (A) 9,332 262,463
Powerwave Technologies Inc. (A) 6,363 94,252
Saville Systems PLC ADR (A) 5,472 214,092
US Long Distance Corp. (A) 4,242 34,997
Vanguard Cellular System Inc. Class A (A) 11,029 175,085
---------
1,532,544
Transportation 1.10%
Coach USA Inc. (A) 7,636 208,081
Knight Transportation Inc. (A) 5,302 98,750
---------
306,831
Truckers 0.35%
Heartland Express Inc. (A) 4,242 96,506
TOTAL COMMON STOCKS -
(Cost - $21,437,905) 93.23% 25,931,908
70
<PAGE>
Life of Virginia Series Fund, Inc
Portfolio of Investments - continued
Percentage Principal/
of Net Assets Amount Value
------------- ------ -----
TOTAL RETURN PORTFOLIO - Continued
COMMERCIAL PAPER
FHLB
5.23% due January 23, 1997 $ 455,000 $ 452,130
FHLM
5.33% due January 7, 1997 1,590,000 1,588,216
FNMA
5.37% due January 31, 1997 1,135,000 1,129,751
----------
TOTAL COMMERCIAL PAPER 11.40% 3,170,097
(Cost - $3,170,097)
SHORT TERM DEBT
Beneficial
5.33% due January 7,1997 67,712 678,711
FMCC
5.34% due Jaunary 10, 1997 80,597 80,596
HFC
5.43% due January 15, 1997 229,065 229,064
Merrill Lynch
5.35% due January 31, 1997 332,993 331,444
Prudential Funding
5.35% due January 21, 1997 318,146 318,145
----------
TOTAL SHORT TERM DEBT 5.89% 1,637,960
(Cost - $1,637,960)
71
<PAGE>
Life of Virginia Series Fund, Inc
Portfolio of Investments - continued
Percentage Principal/
of Net Assets Amount Value
------------- ------ -----
TOTAL RETURN PORTFOLIO - Continued
BONDS
Building Materials 0.81%
Southdown Inc. NT-B 10.000%
10.00% due March 1, 2006 212,000 $ 226,310
Financial 0.84%
Commercial Credit Group
6.00% due June 15, 2000 64,000 63,258
Norwest Financial
6.25% due February 15, 1997 170,000 170,123
-----------
233,381
Financial Services Miscellaneous 0.67%
Cityscape Financial Conv.
6.00% due May 1, 2006 187,000 187,468
Leisure/Entertainment 0.75%
Brunswick
6.75% due December 15, 2006 212,000 207,856
Leisure Time 0.80%
Cobb Theatres
10.63% due March 1, 2003 212,000 223,130
Major Banks - Regional 1.58%
Nationsbank
7.5% due September 15, 2006 424,000 438,827
Publishing 2.29%
Tribune Co.
6.88% due November 1, 2006 636,000 635,540
Telecommunications 0.77%
Airtouch Communications
7.00% due October 1, 2003 212,000 214,315
-----------
TOTAL BONDS - 8.51% 2,366,827
(Cost - $2,358,049)
TOTAL SECURITY HOLDINGS 137.88% $38,350,381
(Cost - $33,675,800)
Cash and other assets
less liabilities (37.88%) (10,536,353)
------- -----------
Net Assets 100.00% $27,814,028
====== ===========
(A) - Non-income producing security
See accompanying notes
72
<PAGE>
Life of Virginia Series Fund, Inc
Portfolio of Investments - continued
Percentage
of Net Assets Shares/Units Value
------------- ------------ -----
INTERNATIONAL EQUITY PORTFOLIO
COMMON STOCKS
Belgium 0.65%
Walibi 3,100 $ 115,214
Finland 0.41%
Cultor 1,434 73,050
France 2.52%
Axime (A) 1,400 160,044
CLF Dexia France 1,800 153,265
Compagnie Generale Des Eaux 1,070 130,474
---------
443,783
Germany 6.01%
BASF 3,500 132,654
Daimler Benz 1,200 81,327
DeGussa 420 188,863
Fried, Krupp 810 130,345
Leica Camera 2,500 76,445
SGL Carbon 1,400 174,564
VEBA 2,700 153,500
Volkswagen 300 122,857
---------
1,060,555
Great Britian 28.79%
Allders 50,000 118,314
BAT Industries 35,000 284,249
British Aerospace 15,000 323,504
British Airways 22,100 226,175
British Biotech 72,500 251,206
British Gas 55,000 211,022
British Telecommunications 43,200 288,781
General Accident 15,000 194,838
Glaxo Holdings 14,200 227,528
Granada Group 10,000 145,611
Grand Metropolitan 24,800 191,980
Great Universal Stores 10,000 102,595
Inchcape 37,500 173,985
Lucas Varity 30,000 113,835
Mirror Group 50,000 182,964
National Westminster Bank 25,000 289,024
Pearson 10,000 126,174
Prudential Corp. 23,500 195,421
Reckitt & Colman 9,500 115,770
Royal Sun Alliance 20,000 149,921
Safeway 30,000 204,852
Standard Charter 18,800 228,944
73
<PAGE>
Life of Virginia Series Fund, Inc
Portfolio of Investments - continued
Percentage
of Net Assets Shares/Units Value
------------- ------------ -----
INTERNATIONAL EQUITY PORTFOLIO
COMMON STOCKS
Great Britian - Continued
Tate & Lyle 20,000 $ 159,724
Unilever 9,000 215,095
United Assurance Group 53,700 2,949
United Utilities 15,000 157,062
Whitebread 15,000 198,894
---------
5,080,417
Hong Kong 7.91%
Cheung Kong 12,000 107,413
Chinese Estates BER 30,000 33,736
China Overseas Land & Investment 80,000 38,519
Citic Pacific Ltd 9,000 53,047
Henderson Land Development 12,000 120,598
Hon Kwok Land Investment 80,000 31,280
Hong Kong Electric 24,000 78,796
Hong Kong Telecom 34,000 54,715
Hotels International 62,401 35,691
HSBC Holdings 10,665 228,837
Hutchinson Whampoa 32,000 249,209
International Bank of Asia 100,000 67,860
National Mutual Asia Ltd. 60,000 56,615
New World Development 24,000 162,865
Television Broadcast 8,000 31,229
Wing Hang Bank 10,000 45,369
---------
1,395,779
Italy 1.96%
Stet-Societa Finanz Telefon 43,000 194,637
TIM SPA 60,000 150,904
---------
345,541
Indonesia 0.42%
Citra Marga Nusaphala 50,000 39,162
PT Telekomunikasi 20,000 34,504
---------
73,666
Japan 16.57%
Canon Inc. 7,000 154,643
Chudendo Corporation 6,000 172,938
Fulitsu Ltd. 30,000 279,600
Futaba 4,000 165,689
Hokuriku Electric Power 12,000 233,000
Kirin Beverage 12,000 161,546
Nichiha Corp. 11,700 206,981
Nippon Tel & Tel 40 303,072
74
<PAGE>
Life of Virginia Series Fund, Inc
Portfolio of Investments - continued
Percentage
of Net Assets Shares/Units Value
------------- ------------ -----
INTERNATIONAL EQUITY PORTFOLIO
COMMON STOCKS
Japan - Continued
Rohm Co. 5,000 $ 327,925
Sagami Chain Co. 10,000 162,237
Sanyo Shinpan Fin 2,800 175,181
Toho Co. 1,000 144,978
Uni-Charm Corp. 12,000 294,097
York-Benimaru 5,000 139,368
---------
2,921,255
Latin America 12.44%
Apasco 1,200 41,171
Banco Frances Rio Pla 1,200 33,600
BCO BHIF 2,300 37,663
Benpres Holding Corp. 10,000 75,000
Bufete Industrial 1,700 35,700
Carso Global Telecom 3,000 13,474
Cemig CIA Energy 1,300 43,419
Centrais Electric 5,300 98,074
Chile Fund 1,900 38,950
Chilectra 1,700 87,734
Cia Cervejaria Brahma 2,800 30,670
Cia Vale Do Rio Doce 2,300 44,962
Citc Seoul (A) 2 15,500
Coca Cola Femsa 2,300 66,700
Disco SA 1,900 53,675
Empresas ICA 5,600 81,900
Empresas La Modera 2,100 41,475
Formosa Growth Fund 5,000 75,000
Grupo Carso 3,000 31,623
Grupo Fin Imbursa 41 702
Huaneng Power International 2,000 47,250
India Cement 10,000 25,000
Indian Opportunities Fund 12,000 93,240
Jardine Strategic 12,000 45,600
Mexico Fund 2,500 37,500
Panamerican Beverages 1,300 61,913
Perez Co. 4,100 57,735
Pfeiffer Vacuum Technologies 16,200 287,550
Samsung Electronics 263 10,882
Schroder Korea Fund 12,000 90,000
Taipei Fund 2,000 182,940
Tata Electric Co. 100 35,000
Telebras 1,000 77,125
Telefonica Del Peru 2,600 49,075
Total Access Communication 10,000 68,000
YPF 3,100 78,663
---------
2,194,465
75
<PAGE>
Life of Virginia Series Fund, Inc
Portfolio of Investments - continued
Percentage
of Net Assets Shares/Units Value
------------- ------------ -----
INTERNATIONAL EQUITY PORTFOLIO
COMMON STOCKS
Malaysia 3.91%
Boustead Holdings 26,000 $ 57,602
Cahya Mata Sarawak 5,000 44,507
DCB Holdings 24,000 81,656
Kian Joo Can Factory 10,000 54,991
IOI Properties 24,000 76,908
MBM Resources 20,000 41,936
Magnum Corp. 72,500 134,233
Metacorp 10,000 25,122
Public Finance (A) 34,750 61,040
Renong 20,000 35,131
Sime Darby 8,000 31,016
Tenaga Nasional 10,000 45,892
---------
690,034
Netherlands 6.92%
Aegon 3,000 189,085
ABN-AMRO Holdings 1,300 83,648
DSM 1,700 165,831
Ing Groep 5,400 192,279
Oce Van De-Grinten 1,800 193,310
Royal Dutch Petroleum 1,100 190,739
VNU-VER NED 10,000 206,660
---------
1,221,552
Norway 0.77%
Orkla Asa 1,960 135,158
Philippines 0.13%
Filinvest Land 75,000 23,384
Singapore 1.27%
Acma Ltd. 18,000 39,094
Acma Warrants 4,500 2,861
City Developments 4,000 35,436
Dev Bank 3,000 40,079
Faser & Neave 3,000 30,649
Singapore Press 2,000 39,294
Straits Trading Co. 13,000 31,021
United Overseas Bank 400 4,544
United Overseas Land Warrants 1,600 974
---------
223,952
76
<PAGE>
Life of Virginia Series Fund, Inc
Portfolio of Investments - continued
Percentage
of Net Assets Shares/Units Value
------------- ------------ -----
INTERNATIONAL EQUITY PORTFOLIO
COMMON STOCKS
Spain 2.37%
Corporacion Financiera 2,000 $ 200,534
Tabacalera 400 16,988
Viscofan Envolturas 13,700 201,086
418,608
Sweden 3.70%
Securitas 10,560 304,708
Skandia Forsakrings 2,000 56,111
Skandinaviska Enskilda 5,700 58,001
Svenska Handelsbanken 4,200 119,664
Volvo 5,200 113,762
652,246
Switzerland 2.29%
Elektrowatt 265 104,784
Novartis 162 183,533
Roche Holdings 15 116,569
404,886
Thailand 0.92%
Banpu Public Co. 2,000 37,137
First Bangkok City Bank 100,500 98,010
Loxley Public Company 4,000 26,370
161,517
TOTAL COMMON STOCK - 99.95%
----------
(Cost - $16,105,684) 17,635,062
77
<PAGE>
Life of Virginia Series Fund, Inc
Portfolio of Investments - continued
Percentage Principal/
of Net Assets Shares Value
------------- ------ -----
INTERNATIONAL EQUITY PORTFOLIO - Continued
BONDS 3.36%
Japan
Ricoh Co Conv Bond $30,000,000 $ 289,178
Sony Corp Conv Bond 30,000,000 303,935
TOTAL BONDS 593,113
(Cost - $607,834)
TOTAL SECURITY HOLDINGS 103.31% 18,228,175
(Cost - $16,713,518)
FOREIGN CURRENCIES 2.35%
(Cost - $421,213)
Japanese Yen 47,979,420 414,044
FOREIGN CURRENCIES SOLD SHORT (6.65%)
German Deutschmarks (1,120,538) (719,826)
French Francs (744,478) (141,845)
Japanese Yen (17,699,322) (152,738)
British Pounds (59,880) (101,209)
Swedish Kronor (398,537) (57,933)
TOTAL CURRENCIES SOLD SHORT (1,173,551)
(Cost - $1,024,062)
Cash and other assets less liabilities: 0.99% 175,177
------ -----------
Net Assets 100.00% $17,643,845
====== ===========
See accompanying notes
78
<PAGE>
Life of Virginia Series Fund, Inc
Portfolio of Investments - continued
Percentage Principal/
of Net Assets Shares Value
------------- ------ -----
IREAL ESTATE SECURITIES PORTFOLIO
COMMON STOCKS
Homebuilding 2.19%
Kaufman & Broad Home Corp. 41,800 $ 538,175
Hotels-Motels 0.57%
Homestead Village Properties Inc. 5,738 106,875
Homestead Village WS 3,349 33,925
140,800
Real Estate 99.71%
Ambassador Apartments Inc. 25,000 596,875
Apartment Investment & Management Co. 50,000 1,393,750
Arden Realty Group Inc. 28,000 770,000
Avalon Properties Inc. 19,800 574,200
Burnham Pacific Properties Inc. 58,200 829,350
Cali Realty Corp 26,600 811,300
CBL & Associates Properties Inc. 10,000 252,500
Centerpoint Properties Corp. 24,000 741,000
Crescent Real Estate 17,800 932,275
Developers Diversified Realty Corp. 20,000 740,000
Evans Withycombe Residential, Inc. 1,000 41,000
First Industry Realty Trust, Inc. 31,200 936,000
Glenborough Realty Trust Inc. 50,000 868,750
Highwoods Properties Inc. 15,000 496,875
Irvine Apartment Communities 27,900 694,013
Liberty Property Trust 35,000 883,750
Manufactured Home Communities Inc. 51,500 1,133,000
Merry Land & Investment Company REIT 25,000 534,375
Pacific Gulf Properties Inc. 27,700 540,150
Patriot American Hospitality Inc. 40,760 1,757,775
Post Properties Inc. 10,000 402,500
Prentiss Properties Trust 38,000 940,500
Security Capital Pacific Trust 23,600 548,700
Security Capital Atlanta Inc. 25,000 590,625
Shurgard Storage Centers Inc. 12,600 373,275
Simon Debartolo Group Inc. 23,800 725,900
Spieker Properties Inc. 15,000 532,500
Starwood Lodging Trust 15,000 826,875
Sun Communities Inc. 23,000 787,750
Thornburg Mortgage Asset Corp. 25,000 521,875
Urban Shopping Centers Inc. 21,200 606,850
Webb (DEL E) Corp. 29,400 485,100
Weeks Corporation 11,000 361,625
Wellsford Residential Properties Trust 50,500 1,230,938
----------
24,461,951
<PAGE>
Life of Virginia Series Fund, Inc
Portfolio of Investments - continued
Percentage Principal/
of Net Assets Shares Value
------------- ------ -----
IREAL ESTATE SECURITIES PORTFOLIO
COMMON STOCKS
TOTAL COMMON STOCK
(Cost - $18,948,531) 102.47% $25,140,926
U.S. GOVERNMENT SECURITIES
FHLB
5.29% due January 16, 1997 100,000 99,765
FHLM
5.42% due January 17, 1997 125,000 124,680
5.40% due February 7, 1997 460,000 457,377
FNMA
5.45% due January 14, 1997 250,000 249,470
TOTAL U.S. GOVERNMENT SECURITIES
(Cost - $931,292) 3.80% 931,292
TOTAL SECURITY HOLDINGS
(Cost - $19,879,823) 106.27% $26,072,218
Cash and other assets less liabilities (6.27%) (1,538,970)
------ -----------
Net Assets 100.00% $24,533,248
====== ===========
See accompanying notes
80
<PAGE>
Life of Virginia Series Fund, Inc.
Notes to Financial Statements
December 30, 1996
1. Description of Entity
Life of Virginia Series Fund, Inc. (the Fund), incorporated in Virginia in 1984,
is registered under the Investment Company Act of 1940, as a open-end,
diversified management investment company. Shares are sold to the Life of
Virginia Separate Accounts (the Separate Accounts) and to the Aon Corporation
Savings Plan, a retirement savings plan maintained by Aon Corporation (Aon) for
its employees and subsidiaries under the provisions of Section 401(k) of the
Internal Revenue Code. The Separate Accounts fund certain benefits for flexible
and single premium variable life insurance and annuity policies issued by The
Life Insurance Company of Virginia (Life of Virginia). Life of Virginia is an
indirect wholly-owned subsidiary of General Electric Capital Corporation.
At December 30, 1996, Life of Virginia owned $1,014,163 in 106,084 shares,
$1,762,912 in 169,837 shares, $11,689,942 in 1,079,404 shares and $15,829,412 in
1,121,858 shares of the Government Securities, Money Market, International
Equity and Real Estate Securities portfolios, respectively for purposes of
seeding the portfolios.
Effective April 1, 1996, General Electric Capital Corporation completed the
purchase of all the common stock of Life of Virginia and Forth Financial
Resources, Ltd., the parent of Forth Financial Securities Corporation (FFSC)
from Aon. FFSC is the principal underwriter of the shares of the Fund. As a
result of the sale, the Aon Savings Plan redeemed all shares of the various
portfolios of the Fund prior to December 30, 1996. In addition, Combined
Insurance Company of America (CICA), a wholly-owned subsidiary of Aon, redeemed
all shares of the International Equity portfolio that was invested in 1995 for
purposes of seeding the portfolio.
The shares redeemed during the year are as follows:
Number of Portfolio
Shares
- --------------------------------------------------------------------------------
Aon Savings Plan:
2,702,840 Common Stock Index
1,190,992 Government Securities
2,253,142 Money Market
2,969,295 Total Return
1,002,341 International Equity
122,444 Real Estate Securities
CICA:
1,019,175 International Equity
2. Significant Accounting Policies
Valuation of Investments: Securities traded on a national exchange are valued at
the last reported sale on the last business day of the period. Securities traded
on the over-the-counter market are stated at a price between the bid and asked
quotations. Securities for which quotations are not readily available are valued
at the estimated fair value obtained from yield data relating to instruments or
securities with similar characteristics. Commercial paper is purchased at par
value. Short-term securities purchased at a premium or discount are valued at
amortized cost, which approximates fair market value. Foreign securities in the
International Equity portfolio for which quotations are readily available are
valued at the last sales price, or if no sale price, at the closing bid prices
in the principal market in which such securities are normally traded. Foreign
securities for which market quotations are not readily available are valued
primarily using dealer-supplied valuations. The values of foreign securities
denominated in or expected to settle in foreign currencies have been translated
into U.S. dollars at the foreign exchange rates reported by a major pricing
service.
81
<PAGE>
Life of Virginia Series Fund, Inc.
Notes to Financial Statements (continued)
Investment Transactions and Income: Security transactions are recorded on the
trade date (the date the order to buy or sell is executed) plus one day.
Interest income is recorded on the accrual basis and dividend income is reported
on the ex-dividend date. Realized gains and losses on investments are determined
on a first-in, first-out basis. Discounts and premiums on securities purchased
are amortized over the life of the respective securities.
Distribution to Shareholders: Distributions of net investment income and capital
gains are determined in accordance with income tax regulations and are declared
and paid yearly. The Fund has no material differences between book and tax
income.
Foreign Currency Transactions: The Fund does not isolate that portion of the
results of operations resulting from changes in foreign exchange rates from the
fluctuations arising from changes in market prices of securities held. Such
fluctuations are included with the net realized and unrealized gain or loss from
investments. Reported net realized foreign exchange gains or losses arise from
sales of portfolio securities, sales of foreign currencies, currency gains or
losses realized between the trade and settlement dates on security transactions,
and the difference between the amounts of dividends, interest, and foreign
withholding taxes recorded on the Funds books, and the U.S. dollar equivalent of
the amounts actually received or paid. Net unrealized foreign exchange gains and
losses arise from changes in the value of assets and liabilities including
investments in securities at the end of the reporting period, resulting from
changes in the exchange rate.
2. Significant Accounting Policies (continued)
Other income and expenses are translated into U.S. dollars at the foreign
exchange rates reported by a major pricing service on the respective date of the
transactions.
Federal Income Taxes: The Funds policy is to comply with the requirements of the
Internal Revenue Code that are applicable to regulated investment companies and
to distribute all of its taxable income to its shareholders. Therefore, no
federal income tax provision is required. The Government Securities Portfolios
accumulated net realized loss of $450,595 on sales of investments is available
to offset future tax gains for Federal income tax purposes. If unused, this loss
carryover expires in 2002.
Fund Year End: The Funds net assets are valued as of December 30, 1996. The net
asset value of each portfolio is not calculated on December 31 when December 31
falls on a weekday.
Use of Estimates: 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 during the period. Actual results could differ from
those estimates.
82
<PAGE>
Life of Virginia Series Fund, Inc.
Notes to Financial Statements (continued)
3. Capital Share Transactions
At December 30, 1996, there were 250,000,000 shares of $.01 par value common
stock authorized in each portfolio of the Fund. An analysis of net assets at
December 30, 1996 follows:
<TABLE>
<CAPTION>
Common Real
Stock Government Money International Estate
Index Securities Market Total Return Equity Securities
Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Common stock -
$.01 par value $ 23,457 $ 14,398 $ 109,112 $ 21,847 $ 16,293 $ 17,389
Accumulated net realized
loss on sales of
investments -- (450,595) -- -- -- --
Paid in capital 53,138,953 15,521,521 119,037,786 33,796,277 17,224,706 19,966,762
Dividends payable (25,790,709) (1,526,214) (5,892,059) (10,678,677) (1,104,642) (1,643,298)
Undistributed net
investment income 40,636 348 7,930 -- -- --
Unrealized appreciation
of investments 8,109,815 211,992 -- 4,674,581 1,507,488 6,192,395
------------ ------------ ------------ ------------ ------------- ------------
Net assets $ 35,522,152 $ 13,771,450 $113,262,769 $ 27,814,028 $ 17,643,845 $ 24,533,248
============ ============ ============ ============ ============= ============
</TABLE>
For the Government Securities Portfolio, the accumulated net realized loss on
sales of investments of $62,255 has been reclassified to paid in capital as of
December 30, 1996 to reflect the difference between financial reporting and tax
reporting.
83
<PAGE>
Life of Virginia Series Fund, Inc.
Notes to Financial Statements (continued)
3. Capital Share Transactions (continued)
A summary of capital share transactions follows:
<TABLE>
<CAPTION>
Common Government Money Total International Real Estate
Stock Securities Market Return Equity Securities
Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Balance at
December 31, 1994 1,521,763.402 1,324,525.855 3,295,804.202 2,589,602.617 -- --
Shares sold 1,724,502.707 1,110,603.363 4,980,205.753 1,671,480.292 1,445,079.395 1,170,284.586
Shares issued to share-
holders in reinvestment
of dividends and
distributions 60,268.746 132,251.775 223,722.137 316,672.376 27,499.836 66,903.314
------------- ------------- -------------- ------------- ------------- -------------
Total issued 1,784,771.453 1,242,855.138 5,203,927.890 1,988,152.668 1,472,579.231 1,237,187.900
Shares reacquired (161,547.365) (305,502.791) (2,412,483.605) (151,411.433) (6,016.718) (22,406.663)
------------- ------------- -------------- ------------- ------------- -------------
Net increase in
shares 1,623,224.088 937,352.347 2,791,444.285 1,836,741.235 1,466,562.513 1,214,781.237
------------- ------------- -------------- ------------- ------------- -------------
Balance at
December 31, 1995 3,144,987.490 2,261,878.202 6,087,248.487 4,426,343.852 1,466,562.513 1,214,781.237
Shares sold 2,040,664.057 946,787.497 17,868,329.943 1,306,830.910 2,420,950.819 962,667.550
Shares issued to share-
holders in reinvestment
of dividends and
distributions -- -- -- -- -- --
------------- ------------- -------------- ------------- ------------- -------------
Total issued 2,040,664.057 946,787.497 17,868,329.943 1,306,830.910 2,420,950.819 962,667.550
Shares reacquired (2,839,987.324) (1,768,840.698) (13,044,357.657) (3,548,502.755) (2,258,248.409) (438,509.076)
------------- ------------- -------------- ------------- ------------- -------------
Net increase (decrease)
in shares (799,323.267) (822,053.201) 4,823,972.286 (2,241,671.845) 162,702.410 524,158.474
------------- ------------- -------------- ------------- ------------- -------------
Balance at
December 30, 1996 2,345,664.223 1,439,825.001 10,911,220.773 2,184,672.007 1,629,264.923 1,738,939.711
============= ============= ============== ============= ============= =============
</TABLE>
84
<PAGE>
Life of Virginia Series Fund, Inc.
Notes to Financial Statements (continued)
4. Investment Transactions
Purchases and sales, excluding maturities, of investment securities during 1996
were as follows:
<TABLE>
<CAPTION>
Common Government Money Total International Real Estate
Stock Index Securities Market Return Equity Securities
Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Purchases
U.S. Government and
Agency Obligations -- $78,717,488 -- $ 46,881,133 -- --
Corporate bonds -- -- -- 5,917,975 -- --
Commercial paper $ 84,030,757 -- $660,550,881 149,148,357 -- $25,244,351
Common stock 53,956,111 -- -- 43,396,269 $35,755,750 12,380,660
Preferred stock 73,361 -- -- 891,635 -- --
------------ ----------- ----------- ------------ ----------- -----------
Total purchases $138,060,229 $78,717,488 $660,550,881 $246,235,369 $35,755,750 $37,625,011
============ =========== =========== ============ =========== ===========
Sales
U.S. Government and
Agency Obligations -- $81,625,016 -- $66,904,002 -- --
Corporate bonds -- -- -- 4,647,331 -- --
Commercial paper $17,522,077 -- $27,069,285 48,680,043 -- $11,193,771
Common stock 83,126,616 -- -- 54,820,333 $34,106,030 5,218,002
Preferred stock 15,438 -- -- 701,046 -- --
------------ ----------- ----------- ------------ ----------- -----------
Total sales $100,664,131 $81,625,016 $27,069,285 $175,752,755 $34,106,030 $16,411,773
============ =========== =========== ============ =========== ===========
</TABLE>
At December 30, 1996, based on cost for federal income tax purposes, net
unrealized appreciation of portfolio securities consisted of the following:
<TABLE>
<CAPTION>
Common Government Money Total International Real Estate
Stock Index Securities Market Return Equity Securities
Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Appreciated securities $8,691,914 $247,528 $0 $5,491,957 $2,211,544 $6,270,142
Depreciated securities (625,283) (35,536) (0) (817,376) (704,056) (77,747)
---------- -------- -- ---------- ---------- ----------
Net unrealized appre-
ciation $8,066,631 $211,992 $0 $4,674,581 $1,507,488 $6,192,395
========== ======== == ========== ========== ==========
</TABLE>
85
<PAGE>
Life of Virginia Series Fund, Inc.
Notes to Financial Statements (continued)
4. Investment Transactions (continued)
The Common Stock Portfolio of the Fund may purchase or sell financial futures
contracts. A futures contract is an agreement between two parties to buy and
sell a security at a set price on a future date. Upon entering into such a
contract, a Fund or Portfolio is required to pledge to the broker an amount of
cash or securities equal to the minimum initial margin requirements of the
exchange of which the contract is traded. Pursuant to the contract, the Fund or
Portfolio agrees to receive from or pay to the broker an amount of cash equal to
the daily fluctuation in value of the contract. Such receipts or payments are
known as variation margin and are recorded by the Fund or Portfolio as
unrealized gains or losses. When the contract is closed, the Fund or Portfolio
records a realized gain or loss equal to the difference between the value of the
contract at the time it was opened and the value at the time it was closed. The
potential risk to the Fund or Portfolio is that the change in value of the
underlying securities may not correlate to the change in value of the contracts.
A Fund or Portfolio may use futures contracts to manage its exposure to the
stock market and to fluctuations in currency values or interest rates.
The Common Stock Index Portfolio had the following open futures contracts at
December 30, 1996:
Number of Contract Expiration Unrealized
Contracts Value Date Gain
--------- ----- ---- ----
Purchased
Standard & Poors 500
Stock Index Futures 14 $5,313,700 March 1997 $43,184
The aggregate market value of eligible securities or cash pledged to cover
requirements for open futures positions at December 30, 1996 was $447,913.
The International Equity portfolio experienced a $85,716 net realized loss on
settlements relating to foreign securities.
86
<PAGE>
Life of Virginia Series Fund, Inc.
Notes to Financial Statements (continued)
5. Investment Advisory Fee and Other Transactions with Affiliates
Under the terms of an investment advisory contract with Aon Advisors, Inc.
(Investment Advisor), a subsidiary of Aon, investment advisory fees will be
deducted from the Fund daily and paid monthly. The schedule of investment
advisory fees follows:
Common Stock Index Fund: .35%
Government Securities Portfolio, Money Market Portfolio and Total Return
Portfolio:
Aggregate Average Daily Net Assets Fee Percentage
(in millions) (on an annual basis)
---------------------------------- --------------------
First $100 .50%
Next 100 .45
Next 100 .40
Next 100 .35
Over 400 .30
International Equity Portfolio:
Aggregate Average Daily Net Assets Fee Percentage
(in millions) (on an annual basis)
---------------------------------- --------------------
First $100 1.00%
Next 100 .95
Over 200 .90
Real Estate Securities Portfolio:
Aggregate Average Daily Net Assets Fee Percentage
(in millions) (on an annual basis)
---------------------------------- --------------------
First $100 .85%
Next 100 .80
Over 200 .75
Effective July 1, 1994, the investment advisor agreed to waive .40% of the
advisory fee for the Money Market Portfolio such that the effective annual rate
is .10%.
87
<PAGE>
Life of Virginia Series Fund, Inc.
Notes to Financial Statements (continued)
5. Investment Advisory Fee and Other Transactions with Affiliates (continued)
The Investment Advisor provides administrative services to the Fund and manages
its business affairs, including personnel, facilities and equipment and all
legal, accounting and other costs incurred in the operation of the Fund.
Expenses of each portfolio of the Fund are subject to reimbursement to the
extent that ordinary business expenses of the Fund (including the advisory fees
but excluding attorneys' fees, court judgments, decrees or awards, or any other
litigation costs in legal actions involving the Fund, or costs relating to the
indemnification of directors, officers, or employees of the Fund, not covered by
directors' and officers' liability insurance) in any year exceed (a) 1.5% of the
first $30 million of aggregate average daily net assets and 1% of any excess of
the aggregate average daily net assets over $30 million of the Government
Securities, Total Return, and Real Estate Securities portfolios of the Fund (b)
.75% of the average daily net assets of the Common Stock Index and Money Market
portfolios of the Fund (c) 1.75% of the first $30 million of aggregate average
daily net assets and 1.00% of any excess of the aggregate average daily net
assets over $30 million of the International Equity portfolio. Effective July 1,
1995, on a voluntary basis (outside the investment advisory agreement), the
Investment Advisor has agreed to reimburse the International Equity and Real
Estate Securities portfolios for expenses in excess of the following amounts:
International Equity Portfolio, 1.50% of the first $30 million of average daily
net assets; Real Estate Securities Portfolio, 1.25% of the first $30 million of
average daily net assets.
Certain officers and directors of the Fund were also officers and directors of
the Investment Advisor, Life of Virginia and Aon. The Fund incurred fees and
expenses for attendance by unaffiliated directors at meetings during 1996 of
$16,868.
A Stock Sale Agreement between Life of Virginia and the Fund was approved which
allows the Fund effective October 1, 1996 to sell shares to the newly created
Separate Account 5 which has been set up to facilitate sales of Life of
Virginias new group annuities which will be marketed to 401(k) Plans of small
businesses.
88
<PAGE>
Life of Virginia Series Fund, Inc.
Notes to Financial Statements (continued)
6. Subsequent Events
The Funds Board of Directors voted, subject to shareholder approval, the
following matters to be effective as of May 1, 1997:
o Change the name of the Fund from Life of Virginia Series Fund, Inc. to
GE Investments Funds, Inc.
o Change the names of the Fund's portfolios as follows:
From To
--------------------------------------------------------------------
Common Stock Index Portfolio S&P 500 Index Fund
Government Securities Portfolio Government Securities Fund
Money Market Portfolio Money Market Fund
Total Return Portfolio Total Return Fund
International Equity Portfolio International Equity Fund
Real Eastate Securities Portfolio Real Eastate Securities Fund
o Replace Investment Advisor and Sub-Advisor of the International Equity
portfolio with GE Investment Management Incorporated, a subsidiary of
General Electric Capital Corporation.
o Create two new portfolios (a Global Fixed Income Portfolio and a Value
Equity Portfolio).
o Create several new classes of the Funds capital stock to allow for
creation of future portfolios.
The dividends payable at December 30, 1996 were reinvested on January 2, 1997
and increased shares outstanding as follows:
Portfolio Increase in Shares
-----------------------------------------------------------
Common Stock Index 1,703,481.440
Government Securities 159,645.816
Money Market 567,635.742
Total Return 838,859.152
International Equity 101,998.338
Real Estate Securities 116,463.359
89
<PAGE>
<TABLE>
<CAPTION>
Common
Common Stock Index Stock
Portfolio Portfolio
-----------------------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net asset value at beginning of period $20.99 $15.72 $15.99 $17.04 $16.21
Net investment income .78 .27 .22 .31 .35
Net realized and unrealized gain (loss)
on investments 4.36 5.41 (.23) 2.16 1.01
------ ------ ------ ------ ------
Income from investment operations 5.14 5.68 (.01) 2.47 1.36
Dividends paid to shareholders from:
Net investment income (.77) (.27) (.22) (.31) (.35)
Net realized gain (10.22) (.14) (.04) (3.21) (.17)
Return of capital -- -- -- -- (.01)
------ ------ ------ ------ ------
(10.99) (.41) (.26) (3.52) (.53)
------ ------ ------ ------ ------
Increase (decrease) in net asset value (5.85) 5.27 (.27) (1.05) .83
------ ------ ------ ------ ------
Net asset value at end of year $15.14 $20.99 $15.72 $15.99 $17.04
====== ====== ====== ====== ======
Total Return 24.51% 36.14% (0.06)% 14.52% 8.39%
====== ====== ====== ====== ======
Ratios:
Ratio of expenses to average net assets 0.48% 0.66% 0.75% 0.87% 1.03%
Ratio of net investment income to
average net assets 1.91% 1.98% 2.22% 2.00% 2.24%
Portfolio turnover 63.06% 14.58% 4.31% 73.43% 9.72%
Average commission rate paid $.05 N/A N/A N/A N/A
Net assets at end of period $35,522,152 $66,016,840 $23,929,572 $8,276,765 $5,178,316
</TABLE>
In 1994, the Common Stock Index portfolio received an expense reimbursement from
the investment advisor. Absent this reimbursement, the ratio of expenses to
average net assets and the ratio of net investment income to average net assets
would have been 1.10% and 1.90%, respectively, for 1994.
Due to the significant increase in Fund shares in 1995 and the significant
decrease in 1996 related to the Aon Savings Plan, the net changes from the 1994
and 1995 Net Asset Value per share as calculated in accordance with the
requirements of Form N-1A are not commensurate with the Statement of Changes in
Net Assets.
90
<PAGE>
Life of Virginia Series Fund, Inc.
Financial Highlights (continued)
Contained below is per share operating performance data for a share outstanding
throughout each period, total investment return, ratios and supplemental data.
This information has been derived from information provided in the financial
statements.
<TABLE>
<CAPTION>
Government Securities Stock
Portfolio Portfolio
--------- ---------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net asset value at beginning of period $10.48 $ 9.51 $10.49 $10.54 $10.54
Net investment income 1.01 .49 .42 .45 .69
Net realized and unrealized gain (loss)
on investments (.87) 1.13 (.98) .50 .06
------ ------ ------ ------ ------
Income from investment operations .14 1.62 (.56) .95 .75
Dividends paid to shareholders from:
Net investment income (1.02) (.49) (.42) (.45) (.69)
Net realized gain (.04) (.16) -- (.54) (.05)
Return of capital -- -- -- (.01) (.01)
------ ------ ------ ------ ------
(1.06) (.65) (.42) (1.00) (.75)
------ ------ ------ ------ ------
Increase (decrease) in net asset value (.92) .97 (.98) (.05) --
------ ------ ------ ------ ------
Net asset value at end of period $9.56 $10.48 $9.51 $10.49 $10.54
====== ====== ====== ====== ======
Total Return 1.34% 17.08% (5.34)% 8.96% 7.13%
====== ====== ====== ====== ======
Ratios:
Ratio of expenses to average net assets 0.67% 0.74% 0.81% 0.86% 0.99%
Ratio of net investment income to
average net assets 5.64% 5.92% 5.44% 5.41% 6.69%
Portfolio turnover 322.07% 130.64% 565.65% 112.86% 14.43%
Net assets at end of period $13,771,450 $23,708,181 $12,598,072 $7,884,928 $5,053,246
</TABLE>
Due to the significant increase in Fund shares in 1995 and the significant
decrease in 1996 related to the Aon Savings Plan, the net changes from the 1994
and 1995 Net Asset Value per share as calculated in accordance with the
requirements of Form N-1A are not commensurate with the Statement of Changes in
Net Assets.
91
<PAGE>
Life of Virginia Series Fund, Inc.
Financial Highlights (continued)
Contained below is per share operating performance data for a share outstanding
throughout each period, total investment return, ratios and supplemental data.
This information has been derived from information provided in the financial
statements.
<TABLE>
<CAPTION>
Money Market Portfolio
----------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net asset value at beginning of period $10.36 $10.17 $10.08 $10.04 $10.00
Net investment income .56 .60 .29 .25 .31
Net realized and unrealized gain (loss)
on investments -- -- .09 (.01) --
Income from investment operations .56 .60 .38 .24 .31
Dividends paid to shareholders from:
Net investment income (.54) (.41) (.29) (.20) (.26)
Net realized gain
Return of capital (.01)
------ ------ ------ ------ ------
(.54) (.41) (.29) (.20) (.27)
------ ------ ------ ------ ------
Increase (decrease) in net asset value .02 .19 .09 .04 .04
====== ====== ====== ====== ======
Net asset value at end of period $10.38 $10.36 $10.17 $10.08 $10.04
====== ====== ====== ====== ======
Total Return 5.41% 5.90% 3.77% 2.39% 3.10%
====== ====== ====== ====== ======
Ratios:
Ratio of expenses to average net assets 0.15% 0.23% 0.42% 0.75% 0.75%
Ratio of net investment income to
average net assets 5.29% 5.74% 4.04% 2.53% 3.06%
Portfolio turnover N/A N/A N/A N/A N/A
Net assets at end of period $113,262,769 $63,083,360 $33,528,739 $9,094,184 $5,845,136
</TABLE>
Effective July 1, 1994, the investment advisor agreed to waive a portion of the
advisory fee for the Money Market Portfolio. Absent this waiver, the ratio of
expenses to average net assets and the ratio of net investment income to average
net assets would have been .55% and 4.89% for 1996, .63% and 5.30% for 1995, and
.70% and 3.76% for 1994, respectively.
Due to the significant increase in Fund shares in 1995 and the significant
decrease in 1996 related to the Aon Savings Plan, the net changes from the 1994
and 1995 Net Asset Value per share as calculated in accordance with the
requirements of Form N-1A are not commensurate with the Statement of Changes in
Net Assets.
92
<PAGE>
Life of Virginia Series Fund, Inc.
Financial Highlights (continued)
Contained below is per share operating performance data for a share outstanding
throughout each period, total investment return, ratios and supplemental data.
This information has been derived from information provided in the financial
statements.
<TABLE>
<CAPTION>
Total Return Portfolio
----------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net asset value at beginning of period $15.93 $13.40 $13.59 $13.00 $12.62
Net investment income 1.02 .41 .35 .42 .44
Net realized and unrealized gain (loss)
on investments .67 3.34 (.01) 1.35 .51
Income from investment operations 1.69 3.75 .34 1.77 .95
Dividends paid to shareholders from:
Net investment income (1.02) (.42) (.35) (.41) (.44)
Net realized gain (3.87) (.80) (.18) (.76) (.12)
Return of capital (.01) (.01)
------ ------ ------ ------ ------
(4.89) (1.22) (.53) (1.18) (.57)
------ ------ ------ ------ ------
Increase (decrease) in net asset value (3.20) 2.53 (.19) .59 .38
====== ====== ====== ====== ======
Net asset value at end of period $12.73 $15.93 $13.40 $13.59 $13.00
====== ====== ====== ====== ======
Total Return 10.60% 28.07% 2.54% 13.67% 7.53%
====== ====== ====== ====== ======
Ratios:
Ratio of expenses to average net assets 0.60% 0.65% 0.77% 0.85% 0.98%
Ratio of net investment income to
average net assets 2.73% 3.42% 4.00% 3.80% 4.13%
Portfolio turnover 144.02% 105.56% 66.92% 48.12% 12.46%
Average commission rate paid $.06 N/A N/A N/A N/A
Net assets at end of period $27,814,028 $70,507,093 $34,708,256 $12,609,407 $7,247,897
</TABLE>
Due to the significant increase in Fund shares in 1995 and the significant
decrease in 1996 related to the Aon Savings Plan, the net changes from the 1994
and 1995 Net Asset Value per share as calculated in accordance with the
requirements of Form N-1A are not commensurate with the Statement of Changes in
Net Assets.
<PAGE>
Life of Virginia Series Fund, Inc.
Financial Highlights (continued)
Contained below is per share operating performance data for a share outstanding
throughout each period, total investment return, ratios and supplemental data.
This information has been derived from information provided in the financial
statements.
International Equity Portfolio
--------------------------------
Period from
May 1, 1995 to
1996 December 31, 1995
--------------------------------
Net asset value at beginning of period $10.47 $10.00
Net investment income .03 .20
Net realized and unrealized gain (loss)
on investments 1.01 .47
------ ------
Income from investment operations 1.04 .67
Dividends paid to shareholders from:
Net investment income (.03) (.20)
Net realized gain (.65) --
------ ------
(.68) (.20)
------ ------
Increase (decrease) in net asset value .36 .47
------ ------
Net asset value at end of period $10.83 $10.47
====== ======
Total Return 9.91% 6.70%*
====== ======
Ratios:
Ratio of expenses to average net assets 1.50% 1.54%*
Ratio of net investment income to
average net assets 0.23% 0.44%*
Portfolio turnover 149.72% 58.11%*
Average commission rate paid $.03 N/A
Net assets at end of period $17,643,845 $15,347,782
*Amounts have been determined on an annualized basis.
In 1995 and 1996, the International Equity portfolio received expense
reimbursements from the investment advisor. Absent this reimbursement, the ratio
of expenses to average net assets and the ratio of net investment income to
average net assets would have been 1.56% and .17% for 1996 and 2.17% and (.18%)
for 1995, respectively.
Yen-based convertible bonds are excluded from the average commission rate paid
due to the nominal commissions paid which dilutes the results. Had those
securities been included, the average commission rate would have been $.00.
94
<PAGE>
Life of Virginia Series Fund, Inc.
Financial Highlights (continued)
Contained below is per share operating performance data for a share outstanding
throughout each period, total investment return, ratios and supplemental data.
This information has been derived from information provided in the financial
statements.
Real Estate Equity Portfolio
-------------------------------
Period from
May 1, 1995 to
1996 December 31, 1995
-------------------------------
Net asset value at beginning of period $11.05 $10.00
Net investment income .64 .46
Net realized and unrealized gain (loss)
on investments 3.36 1.23
------ ------
Income from investment operations 4.00 1.69
Dividends paid to shareholders from:
Net investment income (.65) (.46)
Net realized gain (.29) (.18)
------ ------
(.94) (.64)
------ ------
Increase (decrease) in net asset value 3.06 1.05
------ ------
Net asset value at end of period $14.11 $11.05
====== ======
Total Return 36.24% 17.00%*
====== ======
Ratios:
Ratio of expenses to average net assets 1.07% 1.31%*
Ratio of net investment income to average
net assets 5.90% 6.85%*
Portfolio turnover 30.36% 54.43%*
Average commission rate paid $.06 N/A
Net assets at end of period $24,533,248 $13,428,877
*Amounts have been determined on an annualized basis.
In 1995, the Real Estate Securities portfolio received an expense reimbursement
from the investment advisor. Absent this reimbursement, the ratio of expenses to
average net assets and the ratio of net investment income to average net assets
would have been 1.61% and 6.55%, respectively.
95
<PAGE>
APPENDIX A
Description of Money Market Securities
The following information includes a description of certain money market
instruments in which a Fund may invest to the extent consistent with its
investment objective.
Bank Money Instruments. These include instruments, such as certificates of
deposit and bankers' acceptances. Certificates of deposit are generally
short-term, interest-bearing negotiable certificates issued by commercial banks
or savings and loan associations against funds deposited in the issuing
institution. A bankers' acceptance is a time draft drawn on a commercial bank by
a borrower usually in connection with an international commercial transaction
(to finance the import, export, transfer or storage of goods). The borrower is
liable for payment as well as the bank, which unconditionally guarantees to pay
the draft at its face amount on the maturity date. Most acceptances have
maturities of six months or less and are traded in secondary markets prior to
maturity.
A Fund may not invest in any security issued by a commercial bank or a savings
and loan association unless the bank or association is organized and operating
in the United States, has total assets of at least one billion dollars and is a
member of the Federal Deposit Insurance Corporation, in the case of banks, or
the Federal Savings and Loan Insurance Corporation, in the case of savings and
loan associations, provided that this limitation shall not prohibit investments
in foreign branches of banks which meet the foregoing requirements.
Government Agency Securities. These include debt securities issued by
government-sponsored enterprises, federal agencies or instrumentalities and
international institutions. Such securities are not direct obligations of the
U.S. Treasury but involve government sponsorship or guarantees. Thus the Company
may not be able to assert a claim against the United States itself in the event
the agency or instrumentality does not meet its commitment.
United States Government Securities. These include marketable securities issued
by the United States Treasury, which consist of bills, notes and bonds. Such
securities are direct obligations of the United States government and differ
mainly in the length of their maturity. Treasury bills, the most frequently
issued marketable government security, have a maturity of up to one year and are
issued on a discount basis.
Short-Term Corporate Debt Instruments. These include commercial paper (including
variable amount master demand notes), which refers to short-term unsecured
promissory notes issued by corporations to finance short-term credit needs.
Commercial paper is usually sold on a discount basis and has a maturity at the
time of issuance not exceeding nine months. Variable amount master demand notes
are demand obligations that permit the investment of fluctuating amounts at
varying market rates of interest pursuant to arrangements between the issuer and
a commercial bank acting as agent for the payees of such notes, whereby both
parties have the right to vary the amount of the outstanding indebtedness on the
notes.
Because variable amount master notes are direct lending arrangements between the
lender and borrower, it is not generally contemplated that such instruments will
be traded and there is no secondary market for the notes. Typically, agreements
relating to such notes provide that the lender may not sell or otherwise
transfer the note without the borrower's consent. Such notes provide that the
interest rate on the amount outstanding is adjusted periodically, typically on a
daily basis in accordance with a stated short-term interest rate benchmark.
Since the interest rate of a variable amount master note is adjusted no less
often than every 60 days and since repayment of the note may be demanded at any
time, the Company values such a note in accordance with the amortized cost basis
at the outstanding principal amount of the note.
(See Determination of Net Asset Value, on page 29.)
Also included are nonconvertible corporate debt securities (e.g., bonds and
debentures) with no more than one year remaining to maturity at the date of
settlement. Corporate debt securities with a remaining maturity of less than one
year tend to become extremely liquid and are traded as money market securities.
Such issues with less than one year remaining to maturity tend to have greater
liquidity and considerably less market value fluctuations than longer term
issues. Commercial paper investments at the time of purchase will be rated at
least "A" by Standard and Poor's or "Prime" by Moody's or, if not rated, issued
by companies having an outstanding debt issue rated at least "A" by Standard and
Poor's or by Moody's. (See Corporate Bond Ratings, Appendix B.)
<PAGE>
Repurchase Agreements. A repurchase agreement is an instrument under which the
purchaser (i.e., a Fund) acquires ownership of the obligation (debt security)
and the seller agrees, at the time of the sale, to repurchase the obligation at
a mutually agreed upon time and price, thereby determining the yield during the
purchaser's holding period. This results in a fixed rate of return insulated
from market fluctuations during such period. The underlying securities will
consist only of U.S. government or government agency securities, certificates of
deposit, commercial paper or bankers' acceptances. Repurchase agreements usually
are for short periods, such as under one week. Repurchase agreements are
considered to be loans under the 1940 Act, with the security subject to
repurchase, in effect, serving as "collateral" for the loan. The Company will
require the seller to provide additional collateral if the market value of the
securities falls below the repurchase price at any time during the term of the
repurchase agreement. In the event of a default by the seller because of
bankruptcy or otherwise, the Company may suffer time delays and incur costs or
losses in connection with the disposition of the collateral. Repurchase
agreements will be entered into with primary dealers for periods not to exceed
30 days and only with respect to underlying money market securities in which the
Fund may otherwise invest. A repurchase agreement maturing in more than seven
days is deemed an illiquid investment.
<PAGE>
APPENDIX B
Description of Corporate Bond Ratings
Moody's Investors Services, Inc.
Aaa - Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as
"gilt-edge." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
Aa - Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present which make
the long-term risks appear somewhat larger than in Aaa securities.
A - Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.
Baa - Bonds which are rated Baa are considered as medium grade obligations i.e.,
they are neither highly protected nor poorly secured. Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba - Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B - Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa - Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
Ca - Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked shortcomings.
C - Bonds which are rated C are the lowest rated class of bonds and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
Moody's applies numerical modifiers, 1, 2 and 3 in each generic rating
classification from Aa through B in its corporate bond rating system. The
modifier 1 indicates that the security ranks in the higher end of its generic
rating category; the modifier 2 indicates a midrange ranking; and the modifier 3
indicates that the issue ranks in the lower end of its generic rating category.
Standard & Poor's Corporation
AAA - This is the highest rating assigned by Standard & Poor's to a debt
obligation and indicates an extremely strong capacity to pay principal and
interest.
<PAGE>
AA - Bonds rated AA also qualify as high-quality debt obligations. Capacity to
pay principal and interest is very strong, and in the majority of instances they
differ from AAA issues only in small degree.
A - Bonds rated A have a strong capacity to pay principal and interest, although
they are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions.
BBB - Bonds rated BBB are regarded as having an adequate capacity to pay
principal and interest. Whereas they normally exhibit protection parameters,
adverse economic conditions or changing circumstances are more likely to lead to
a weakened capacity to pay principal and interest for bonds in this category
than for bonds in the A category.
BB-B-CCC-CC - Bonds rated BB, B, CCC and CC are regarded, on balance, as
predominantly speculative with respect to the issuer's capacity to pay interest
and repay principal in accordance with the terms of the obligation. BB indicates
the lowest degree of speculation and CC the highest degree of speculation. While
such bonds will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major risk exposures to adverse
conditions.
C - The rating C is reserved for income bonds on which no interest is being
paid.
D - Debt rated D is in default, and payment of interest and/or repayment of
principal is in arrears.
The ratings from "AA" to "B" may be modified by the addition of a plus or
minus sign to relative standing within the major rating categories.
Description of Commercial Paper Ratings
Commercial paper rated A-1 by Standard & Poor's has the following
characteristics: Liquidity ratios are adequate to meet cash requirements.
Long-term senior debt is rated "A" or better, although in some cases "BBB"
credits may be allowed. The issuer has access to at least two additional
channels of borrowing. Basic earnings and cash flow have an upward trend with
allowance made for unusual circumstances. Typically, the issuer's industry is
well established and the issuer has a strong position within the industry. The
reliability and quality of management are unquestioned. Relative strength or
weakness of the above factors determine whether the issuer's commercial paper is
rated A-1, A-2 or A-3.
The rating Prime-1 is the highest commercial paper rating assigned by
Moody's Investor's Service, Inc. Among the factors considered by Moody's in
assigning ratings are the following: (1) evaluation of the management of the
issuer; (2) economic evaluation of the issuer's industry or industries and an
appraisal of speculative-type risks which may be inherent in certain areas; (3)
evaluation of the issuer's products in relation to competition and customer
acceptance; (4) liquidity; (5) amount and quality of long-term debt; (6) trends
of earnings over a period of ten years; (7) financial strength of a parent
company and the relationships which exist with the issuer, and (8) recognition
by the management of obligations which may be present or may arise as a result
of public interest questions and preparations to meet such obligations.
<PAGE>
GE INVESTMENTS FUNDS, INC.
PART C - OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Financial Statements
The financial statements of GE Investments Funds, Inc. are included in Part
B to this Registration Statement.
(b) Exhibits
1 Amended and restated Articles of Incorporation of GE Investments
Funds, Inc., to be filed by amendment.
2 Amended and restated By-laws of Life of Virginia Series Fund, Inc.
dated January 25, 1995 incorporated herein by reference to
post-effective amendment #15 to this Form N-1A registration statement
(File No. 2-91369), filed with the Securities and Exchange Commission
on May 1, 1995.
3 Not Applicable
4 Not Applicable
5(a) Investment Advisory Agreement between Life of Virginia Series Fund,
Inc. and Aon Advisors, Inc., dated May 1, 1993 incorporated herein by
reference to post-effective amendment #13 to this Form N-1A
registration statement (File No. 2-91369), filed with the Securities
and Exchange Commission on April 29, 1994.
5(b) New Investment Advisory Agreement between Life of Virginia Series
Fund, Inc. and Aon Advisors, Inc. dated April 27, 1995, covering the
International Equity Portfolio incorporated herein by reference to
post-effective amendment #15 to this Form N-1A registration statement
(File No. 2-91369), filed with the Securities and Exchange Commission
on May 1, 1995.
5(c) New Investment Advisory Agreement between Life of Virginia Series
Fund, Inc. and Aon Advisors, Inc. dated April 27, 1995, covering the
Real Estate Securities Portfolio incorporated herein by reference to
post-effective amendment #15 to this Form N-1A registration statement
(File No. 2-91369), filed with the Securities and Exchange Commission
on May 1, 1995.
5(d) Form of Investment Sub-Advisory Agreement between Aon Advisors, Inc.
and Perpetual Portfolio Management, Limited incorporated herein by
reference to post-effective amendment #15 to this Form N-1A
registration statement (File No. 2-91369), filed with the Securities
and Exchange Commission on May 1, 1995.
5(e) Form of Investment Sub-Advisory Agreement between Aon Advisors, Inc.
and Genesis Realty Capital Management, L.P. incorporated herein by
reference to post-effective amendment #15 to this Form N-1A
registration statement (File No. 2-91369), filed with the Securities
and Exchange Commission on May 1, 1995.
5(f) Form of Investment Sub-Advisory Agreement between Aon Advisors, Inc.
and GMG/Seneca Capital Management, LLC incorporated herein by
reference to exhibit 17 to post-effective amendment # 16 to this Form
N-1A registration statement (File No. 2-91369), filed with the
Securities and Exchange Commission on May 1, 1996.
<PAGE>
5(g) Investment Advisory and Administration Agreement dated May 1, 1997,
between GE Investments Funds, Inc. and GE Investment Management
Incorporated.
5(h) Sub-Advisory Agreement dated May 1, 1997, between GE Investment
Management Incorporated and GMG/Seneca Capital Management, LLC.
6 Underwriting Agreement between Life of Virginia Series Fund, Inc. and
Forth Financial Securities Corporation, dated April 2, 1996
incorporated herein by reference to post-effective amendment #16 to
this Form N-1A registration statement (File No. 2-91369), filed with
the Securities and Exchange Commission on May 1, 1996.
7 Not Applicable
8(a) Custody Agreement between Life of Virginia Series Fund, Inc. and
Crestar incorporated herein by reference to post-effective amendment
#4 to this Form N-1A registration statement (File No. 2-91369), filed
with the Securities and Exchange Commission on 4/10/87.
8(b) Form of Custody Agreement between Life of Virginia Series Fund, Inc.
and Firstar Trust Company incorporated herein by reference to
post-effective amendment #15 to this Form N-1A registration statement
(File No. 2-91369), filed with the Securities and Exchange Commission
on May 1, 1995.
8(c) Form of Sub-Custody Agreement between Firstar Trust Company and Chase
Manhattan Bank, N.A. incorporated herein by reference to
post-effective amendment #15 to this Form N-1A registration statement
(File No. 2-91369), filed with the Securities and Exchange Commission
on May 1, 1995.
8(d) Custody Agreement dated May 1, 1997, between GE Investments Funds,
Inc. and State Street Bank and Trust Company, to be filed by
amendment.
9 Not Applicable.
10 Opinion and consent of William E. Daner, Jr., Esq. incorporated herein
by reference to pre-effective amendment #1 to this Forn N-1A
registration statement (File No. 2-91369), filed with the Securities
and Exchange Commission on 12/21/84.
11(a) Consent of Sutherland, Asbill & Brennan, LLP.
11(b) Consent of Ernst & Young, LLP.
12 Not Applicable.
13(a) Letter regarding initial capital incorporated herein by reference to
post-effective amendment #1 to this Form N-1A registration statement
(File No. 2-91369), filed with the Securities and Exchange Commission
on 6/28/85.
13(b) Stock Sale Agreement incorporated herein by reference to pre-effective
amendment #1 to this Form N-1A registration statement (File No.
2-91369), filed with the Securities and Exchange Commission on
12/21/84.
13(c) Stock Sale Agreements for Separate Accounts III and 4; Amendments to
Stock Sale Agreements for Separate Accounts I and II incorporated
herein by reference to post-effective amendment #7 to this Form N-1A
registration statement (File No. 2-91369), filed with the Securities
and Exchange Commission on 4/19/89.
<PAGE>
14 Not Applicable.
15 Not Applicable.
16 Not Applicable.
17. Financial Data Schedules.
18. Not applicable.
19 Not Applicable
Item 25. Persons Controlled by or Under Common Control with Registrant.
GE Investments Funds, Inc. ("Fund") is a Virginia corporation organized on
May 14, 1984. The Life Insurance Company of Virginia, a corporation chartered
under the Laws of the Commonwealth of Virginia, has provided the initial
investment in the Fund. The Life Insurance Company of Virginia owns a
significant amount of the shares of each class of the Fund's stock through the
Separate Accounts to support the variable life insurance and variable annuity
contracts which it offers.
The Life Insurance Company of Virginia is an indirect, wholly-owned
subsidiary of General Electric Capital Corporation ("GE Capital"). GE Capital, a
diversified financial services company, is a wholly-owned subsidiary of General
Electric Company. The chart that follows this page illustrates the structure of
GE Capital and its subsidiaries.
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------
| |
| |
|
Various General Electric
Subsidiaries Capital Services, Inc.
(06-1109503) DE
|
|
- ---------------------------------------------------------------------------------------------------------------------------
| |
| |
General Electric Various
Capital Corporation Subsidiaries
(13-1500700) NY
|
|
GNA Corporation
(91-1277112) NA
|
|
|
- ---------------------------------------------------------------------------------------------------------------------------
| | | | | | |
GNA Mortgage | GNA Distributors, Inc. | GNA Securities, Inc. | GNA Insurance
Funding Corporation | (91-1601607) WA | (91-1143830) WA | Services, Inc.
(91-1635446) OH | | (51-0348373) DE | |
| | | | |
| | | | |
| GNA Capital General Electric Various Various State
| Management, Inc. Capital Assurance Subsidiaries Specific
| (91-1356174) WA Company Subsidiaries
| NAIC #70025 |
| (91-6027719) DE |
| |
| |
| |
- ---------------------------------------------------------------------------------------------------------------------------
| | | | | |
| Great Northern American First Federal Home Life AMEX Life LOV
| Insured Annuity Security Life Insurance Assurance
| Corporation Insurance Company Company
| NAIC #94366 Company NAIC #67695 NAIC #67952
| (91-1127115) WA NAIC #73091 (35-0576390) IN (95-20099931) CA
| (05-0399955) RI
| | |
52% | | 40% |
| | |
| | |
| | |
- ---------------------------------------------------------------------------------------------------------------------------
GR Capital Life Assurance | |
Company of New York PHP Life The Harvest Life
(fka First GNA Life Insurance Insurance Insurance
Company of New York) Company Company
NAIC #72990 NAIC #84808 NAIC #79421
(22-2882416) NY (38-2055892) FL (94-1099737) OH
</TABLE>
<PAGE>
Item 26. Number of Holders of Securities
Number of Record Holders
Title of Class as of May 1, 1997
- ----------- ----------------------
Capital Stock, Class A 6
Capital Stock, Class B 6
Capital Stock, Class C 6
Capital Stock, Class D 6
Capital Stock, Class E 6
Capital Stock, Class F 6
Capital Stock, Class G 1
Capital Stock, Class H 1
Item 27. Indemnification
Under Section 13.1-697.A of the Virginia Stock Corporation Act, with
respect to any threatened, pending or completed proceeding against a present or
former director, officer, employee or agent ("corporate representative") of the
registrant, except a proceeding brought by or on the behalf of the registrant,
the registrant may indemnify the corporate representative against expenses,
including attorneys' fees, judgments, fines and amounts paid in settlement
actually and reasonably incurred by him in connection with such proceedings, if:
(i) he acted in good faith and in a manner he reasonably believed to be in or
not opposed to the best interest of the registrant; and (ii) with respect to any
criminal action or proceeding, he had no reasonable cause to believe his conduct
was unlawful. The registrant is also authorized under Section 13.1-3.1(b) of the
Virginia Stock Corporation Act to indemnify a corporate representative under
certain circumstances against expenses incurred in connection with any
threatened, pending, or completed proceeding brought by or in the right of the
registrant.
The Articles of Incorporation of the Fund (Exhibit 1.(c) to this
Registration Statement) provide that the Fund may indemnify it corporate
representatives, in a manner that is consistent with the laws of the
Commonwealth of Virginia. The Articles preclude indemnification for "disabling
conduct" (willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties involved in the conduct of office) and sets forth
reasonable and fair means for determining whether indemnification shall be made.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the Fund has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of such action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
<PAGE>
Item 28. Business and Other Connections of Investment Adviser.
Directors and executive officers of GEIM are listed below.
<TABLE>
<CAPTION>
<S> <C>
Name Principal Occupation
---- --------------------
John H. Myers - Chairman of the Board of Directors, CEO Chairman and President, GEIM
Eugene K. Bolton - Director Executive Vice President, GEIM
Michael J. Cosgrove - Director Executive Vice President, GEIM
Ralph R. Layman - Director Executive Vice President, GEIM
Alan M. Lewis - Director Executive Vice President, General
Counsel and Secretary, GEIM
Robert A. MacDougall - Director Executive Vice President, GEIM
Geoffrey R. Norman - Director Executive Vice President, GEIM
Donald W. Torey - Director Executive Vice President, GEIM
</TABLE>
The address for each person listed above is 3003 Summer St., Stamford, CT
06905.
Item 29. Principal Underwriters
(a) Forth Financial Securities, Inc. ("FFSC") serves as principal underwriter
for the registrant and also acts as principal underwriter for the variable
life insurance contracts and variable annuity contracts issued by The Life
Insurance Company of Virginia through various separate accounts that are
registered as unit investment trusts. The principal business address of
FFSC is 6610 West Broad Street, Richmond, Virginia 23230.
(b) The principal business address of directors and officers of FFSC is the
same as that of FFSC. Set forth below is a list of each director and
officer of FFSC.
Name and Position With FFSC Position With Registrant
- --------------------------- ------------------------
Scott R. Reeks, President None
Treasurer, and Compliance
Officer
Jerry G. Overman, Assistant None
Treasurer
William E. Daner, None
General Counsel
Linda L. Lanam None
Secretary
Item 30. Location of Accounts and Records
All accounts, books and other documents required to be maintained by
Section 31(a) of the 1940 Act and the Rules thereunder will be maintained at the
offices of the Fund (3003 Summer Street, Stamford, CT 06905) or at State Street
Bank and Trust Company, 225 Franklin Street, Boston, Massachusetts, 02101.
<PAGE>
Item 31. Management Services
None.
Item 32. Undertakings
(a) Not applicable.
(b) The Registrant undertakes to file a post-effective amendment, containing
reasonably current financial statements for the Global Income Fund and the
Value Equity Fund (that need not be certified) within four to six months
from the effective date of this post-effective amendment number 18.
(c) The Registrant undertakes to furnish each person to whom a prospectus is
delivered with a copy of the Registrant's latest annual report to
shareholders, upon request and without charge.
(d) The Registrant hereby undertakes, if requested to do so by the holders of
at least 10% of the Registrant's outstanding shares, to call a meeting of
shareholders for the purpose of voting upon any question of removal of a
director or directors, and to assist in communications with other
shareholders as required by Section 16(c) of the Investment Company Act of
1940, as amended.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, GE Investments Funds, Inc. certifies that it
meets all of the requirements for effectiveness of this registration statement
pursuant to Rule 485(b) under the Securities Act of 1933 and has duly caused
this Post-Effective Amendment No. 18 to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Stanford, State of
Connecticut, on the 23rd day of April, 1997.
GE Investments Funds, Inc.
/s/
By:______________________________
Paul E. Rutledge, President
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, this post-effective
amendment to the registration statement has been signed below by the following
persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
<S> <C> <C>
Signature Title Date
- --------- ----- ----
/s/
__________________________________ President (Principal Executive Officer) 4/23/97
Paul E. Rutledge and Director
/s/
__________________________________ Treasurer (Principal Financial 4/23/97
Jeffrey A. Groh and Accounting Officer)
/s/
__________________________________ Director 4/23/97
Michael J. Cosgrove
/s/
__________________________________ Director 4/23/97
John R. Costantino
/s/
__________________________________ Director 4/23/97
William J. Lucas
/s/
__________________________________ Director 4/23/97
Robert P. Martin, Jr.
/s/
__________________________________ Director 4/23/97
J. Clifford Miller, III
/s/
__________________________________ Director 4/23/97
J. Garnett Nelson
/s/
__________________________________ Director 4/23/97
Lee A. Putney
/s/
__________________________________ Director 4/23/97
Robert P. Quinn
</TABLE>
Exhibit 5(g)
INVESTMENT ADVISORY AND ADMINISTRATION AGREEMENT
GE INVESTMENTS FUNDS, INC.
S&P 500 INDEX FUND
GE INVESTMENT MANAGEMENT INCORPORATED
Agreement made as of April __, 1997 between GE INVESTMENT MANAGEMENT
INCORPORATED ("GEIM") and GE INVESTMENTS FUNDS, INC. (the "Company") on behalf
of its S&P 500 Index Fund (the "Fund").
RECITALS
The Company is an open-end management investment company incorporated under
the laws of the Commonwealth of Virginia on May 14, 1984 and registered under
the Investment Company Act of 1940, as amended (the "1940 Act"). The Fund,
organized as a series company as defined in Rule 18f-2 under the 1940 Act,
currently has eight classes of Capital Stock outstanding, each representing an
interest in a different investment portfolio of the Company. The Fund is one
such portfolio.
GEIM is a Delaware corporation registered as an investment adviser under
the Investment Advisers Act of 1940 (the "Advisers Act").
The Company wishes to retain GEIM to serve as investment adviser and
administrator to the Fund and GEIM wishes to serve in this capacity.
Section 1. Appointment
The Company hereby appoints GEIM as investment adviser and administrator
with respect to the Fund's assets for the period and on the terms set forth in
this Agreement. GEIM accepts this appointment and hereby agrees to render the
services herein set forth for the compensation herein provided.
Subject to the approval of the Board and to other applicable legal
requirements, GEIM may enter into any advisory or sub-advisory agreement or
contract with another affiliated or unaffiliated entity pursuant to which such
entity will carry out some or all of GEIM's responsibilities listed herein.
Section 2. Services as Investment Adviser and Administrator
(a) Subject to the oversight and supervision of the Company's board of
directors (the "Board"), GEIM agrees to provide a continuous investment program
for the Fund's assets, including investment research and management. GEIM will
determine from time to time
<PAGE>
what investments will be purchased, retained or sold by the Fund. GEIM will
place purchase and sale orders for the Fund's investments. GEIM will provide
services under this Agreement in accordance with the Fund's investment
objectives, policies and restrictions as stated in the Company's current
Registration Statement on Form N-1A, as amended from time to time (the
"Registration Statement").
(b) The Company has furnished or will furnish GEIM with copies of the
Registration Statement, its articles of incorporation and by-laws as currently
in effect and agrees during the continuance of this agreement to furnish GEIM
with copies of any amendment or supplements thereto before or at the time such
amendments or supplements become effective. GEIM may rely on all documents
furnished to it by the Company.
(c) Subject to the oversight and supervision of the Board, GEIM agrees to
serve as administrator to the Company and the Fund and, in this capacity, will:
(i) insure the maintenance of the books and records of the Fund (including those
required to be maintained or preserved by Rules 31a-1 and 31a-2 under the 1940
Act); (ii) prepare reports to shareholders of the Fund, (iii) prepare and file
tax returns for the Fund, (iv) assist with the preparation and filing of reports
and the Registration Statement with the Securities and Exchange Commission (the
"Commission"), (v) provide appropriate officers for the Company, including a
Secretary or Assistant Secretary, (vi) provide administrative support necessary
for the Board to conduct meetings, and (vii) supervise and coordinate the
activities of other service providers, including independent auditors, legal
counsel, custodians, accounting service agents, and transfer agents.
(d) GEIM will, at its own expense, maintain sufficient staff, and employ or
retain sufficient personnel and consult with any other persons that it
determines may be necessary or useful to the performance of its obligations
under this agreement.
(e) GEIM will keep the Company informed of developments materially
affecting the Fund, and will, on its own initiative, furnish the Company from
time to time with whatever information and reports that the Board reasonably
requests as appropriate for this purpose.
Section 3. Selection of Investments on Behalf of the Fund.
Unless otherwise set forth in the Registration Statement or directed by the
Company, GEIM will, in selecting brokers or dealers to effect transactions on
behalf of the Fund select the best overall terms available. In so doing, GEIM
may consider the breadth of the market on the investment, the price of the
security, the size and difficulty of the order , the willingness of the broker
or dealer to position, the reliability, financial condition and execution and
operational capabilities of the broker or dealer, and the reasonableness of the
commission or size of the dealer's "spread", if any, for the specific
transaction and on a continuing basis. GEIM may also consider brokerage and
research services provided to the Fund and or other accounts over which GEIM or
its affiliates exercise investment discretion. The Company recognizes the
desirability of GEIM's having access to supplemental investment and market
research and security and economic analyses provided by brokers and that those
brokers may execute
<PAGE>
brokerage transactions at a higher cost to the Company than would be the case if
the transactions were executed on the basis of the most favorable price and
efficient execution. The Company, thus, authorizes GEIM, to the extent permitted
by applicable law and regulations, to pay higher brokerage commissions or dealer
spreads for the purchase and sale of securities for the Fund to brokers who
provide supplemental investment and market research and security and economic
analyses, subject to GEIM's determining in good faith that such commissions are
reasonable in terms either of the particular transaction or of the overall
responsibility of GEIM to the Fund and its other clients and that the total
commissions paid by the Fund will be reasonable in relation to the benefits to
the Fund over the long term. In no instance will portfolio securities be
purchased from or sold to GEIM, or any affiliated person thereof or any
investment advisory client thereof, except in accordance with the federal
securities laws and the rules and regulations thereunder.
Section 4. Costs and Expenses.
GEIM will bear the cost of rendering the services it is obligated to
provide under this Agreement and will provide the Company with all executive,
administrative, clerical and other personnel necessary for the investment and
administrative operations of the Fund and will pay salaries and other
employment-related costs of employing these persons. GEIM will furnish the
Company and the Fund with office space, facilities, and equipment and will pay
the day-to-day expenses related to the operation of such space, facilities and
equipment.
The Company or the Fund shall be responsible for paying all expenses that
each may incur in its operation and all of the general administrative expenses
allocable to each except those expressly assumed by GEIM above. These include,
by way of description and not of limitation, any share redemption expenses,
shareholder servicing costs (including allocable personnel and telephone
expenses), the expenses of any shareholder servicing plan and/or distribution
plan adopted by the Board pursuant to Rule 12b-1 under the 1940 Act, the costs
of custody, transfer agency and recordkeeping services in connection with the
Fund; brokerage fees and commissions; taxes; registration costs of the Fund and
its shares under Federal and state securities laws; the cost and expense of
printing, including typesetting and distributing of a prospectus describing the
Fund and supplements to that prospectus to regulatory authorities and the Fund's
shareholders; all expenses incurred in conducting meetings of the Fund's
shareholders and meetings of the Board relating to the Fund, including fees paid
to members of the Board who are not interested persons of the Company; all
expenses incurred in preparing, printing and mailing proxy statements and
reports to shareholders of the Fund; fees and travel expenses of members of the
Board or members of any advisory board or committee who are not interested
persons of the Company; all expenses incident to any dividend, withdrawal or
redemption options provided to Fund shareholders; charges and expenses of any
outside service used for pricing the Fund's portfolio securities and calculating
the net asset value of the Fund's shares; fees and expenses of legal counsel,
including counsel to the members of the Board who are not interested persons of
the Company and independent auditors; membership dues of industry associations;
interest on Fund borrowings; postage; insurance premiums for coverage of
property or personnel (including officers and Directors) of the Company;
extraordinary expenses (including, but not limited to, legal claims and
liabilities and litigation costs and any indemnification relating thereto); and
all other costs of the Fund's operations.
<PAGE>
Section 5. Compensation.
In consideration of services rendered and the expenses paid by GEIM
pursuant to this Agreement, the Company will pay GEIM at the beginning of each
calendar month a fee that is accrued daily at the annual rate of .35% of the
value of the Fund's average daily net assets for the previous month. For the
purpose of determining fees payable to GEIM under this Agreement, the value of
the Fund's net assets will be computed in the manner described in the
Registration Statement.
Section 6. Services to Other Companies or Accounts.
(a) The Company understands and acknowledges that GEIM now acts and will
continue to act as investment manager or adviser to various fiduciary or other
managed accounts ("Other Accounts") and the Company has no objection to GEIM's
so acting, so long as that when the Fund and any Other Account served by GEIM
are prepared to invest in, or desire to dispose of the same security, available
investments or opportunities for sales will be allocated in a manner believed by
GEIM to be equitable to the Fund and the Other Account. In addition, the Trust
understands and acknowledges that GEIM may, to the extent permitted by
applicable laws and regulations, aggregate securities to be sold or purchased
for the Company with those to be sold or purchased for Other Accounts so long as
the securities purchased or sold, as well as the expenses incurred in the
transaction, are allocated in a manner believed by GEIM to be equitable to the
Company and the Other Accounts. The Company recognizes that, in some cases, the
above procedures may adversely affected the price paid or received by the Fund
or the size of the position obtained or disposed of by the Fund.
(b) It is agreed that GEIM may use any supplemental investment research and
other services provided by brokers or dealer obtained for the benefit of the
Fund or the Company in providing investment advice to Other Accounts.
(c) The Company understands and acknowledges that the persons employed by
GEIM to assist in the performance of its duties under this Agreement will not
devote their full time to that service and agrees that nothing contained in this
Agreement will be deemed to limit or restrict the right of GEIM or any affiliate
of GEIM to engage in and devote time and attention to other businesses or to
render services of whatever kind or nature.
Section 7. Continuance and Termination of the Agreement.
(a) This Agreement will become effective as of May 1, 1997 and will
continue for an initial two-year term and will continue thereafter so long as
the continuance is specifically approved at least annually (a) by the Board or
(b) by a vote of a majority of the Fund's outstanding voting securities, as
defined in the 1940 Act, provided that in either event the continuance is also
approved by a majority of the Directors who are not "interested persons" (as
defined in the 1940 Act) of any party to this Agreement, by vote cast in person
at a meeting called for the purpose of voting on the approval.
<PAGE>
(b) This Agreement is terminable without penalty, by the Company on not
more than 60 nor less than 30 days' written notice to GEIM, by vote of holders
of a majority of the Fund's outstanding voting securities, as defined in the
1940 Act, or by GEIM on not more than 60 nor less than 30 days' notice to the
Company.
(c) This Agreement will terminate automatically in the event of its
assignment (as defined in the 1940 Act or in rules adopted under the 1940 Act).
Section 8. Limitation of Liability.
GEIM will exercise its best judgment in rendering the services described in
this Agreement, except that GEIM will not be liable for any error of judgment or
mistake of law or for any loss suffered by the Fund in connection with the
matters to which this Agreement relates, other than a loss resulting from
willful misfeasance, bad faith or gross negligence on the part of GEIM in the
performance of its duties or from reckless disregard by it of its obligations
and duties under this Agreement or to the extent specified in Section 36(b) of
the 1940 Act concerning loss resulting from a breach of fiduciary duty with
respect to the receipt of compensation for services.
Section 9. Miscellaneous.
The Company recognizes that directors, officers and employees of GEIM and
its affiliates may from time to time serve as directors, trustees, officers and
employees of corporations, partnerships, group trusts and business trusts
(including other investment companies) and that such other entities may include
the initials "GE" or the words "General Electric" as part of their name, and
that GEIM or its affiliates may enter into distribution, investment advisory or
other agreements with such other corporations and trusts. If GEIM ceases to act
as the investment adviser to the Company, the Company agrees that, at GEIM's
request, any license granted to the Company for the use of the initials "GE"
will terminate and that the Company will cease and discontinue completely
further use of such initials.
* * * * *
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
executed by their duly authorized signatories as of the date and year first
above written.
<PAGE>
GE INVESTMENTS FUNDS,
INC.
By:_________________________________
Name:
Title:
GE INVESTMENT MANAGEMENT
INCORPORATED
By:_________________________________
Name: Michael J. Cosgrove
Title: Executive Vice President
GE INVESTMENTS FUNDS, INC.
REAL ESTATE SECURITIES FUND
SUB-ADVISORY AGREEMENT
Agreement made as of May 1, 1997, between GE INVESTMENT MANAGEMENT
INCORPORATED ("GEIM"), a Delaware corporation, and GMG/Seneca Capital Management
("Sub-Adviser"), a California corporation (the "Agreement").
RECITALS
GEIM has entered into an Investment Advisory and Administration Agreement
dated April __, 1997, ("Advisory Agreement") with GE Investments Funds, Inc.
("Company"), an open-end management investment company registered under the
Investment Company Act of 1940, as amended ("1940 Act") with respect to the Real
Estate Securities Fund ("Fund") series of the Company; and
GEIM wishes to retain the Sub-Adviser to furnish certain investment
advisory services to GEIM and the Fund, and the Sub-Adviser is willing to
furnish those services;
GEIM intends that this Agreement will be submitted to the Board of
Directors (the "Board") and shareholders for approval hereafter;
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, the parties agree as follows:
1. Appointment. GEIM hereby appoints the Sub-Adviser as an investment
sub-adviser with respect to the Fund's assets for the period and on the terms
set forth in this Agreement. The Sub-Adviser accepts that appointment and agrees
to render the services herein set forth, for the compensation herein provided.
2. Duties as Sub-Adviser.
(a) Subject to the oversight and supervision of GEIM and the officers
and the Board, the Sub-Adviser will provide a continuous investment program
for the Fund's assets, including investment research and management. The
Sub-Adviser will determine from time to time what investments will be
purchased, retained or sold by the Fund. The Sub-Adviser will be
responsible for placing purchase and sell orders for Fund investments. The
Sub-Adviser will provide services under this Agreement in accordance with
the Fund's investment objective, policies and restrictions as stated in the
Company's current Registration Statement on Form N- 1A and any amendments
or supplements thereto (the "Registration Statement"). In this connection
and in connection with the further duties set forth in paragraphs 2(b) -
(g) below, the Sub-Adviser shall provide GEIM and the officers and
directors of the Company with such
<PAGE>
periodic reports and documentation as GEIM or the officers and directors of
the Company shall request regarding the Sub-Adviser's management of the
Fund's assets and compliance with the Prospectus and all requirements
hereunder.
(b) The Sub-Adviser shall carry out its responsibilities under this
Agreement in compliance with: (1) the Fund's investment objective, policies
and restrictions as set forth in the Registration Statement, (2) such
policies or directives as the Board may from time to time establish or
issue, and (3) applicable law and related regulations. In particular, the
Sub-Adviser shall make every effort to ensure that the Fund complies with
Section 817(h) of the Internal Revenue Code of 1986 (the "Code") and
regulations issued thereunder relating to the diversification requirements
for variable annuity, endowment, and life insurance contracts and to ensure
that the Fund continuously qualifies as a regulated investment company
under sub-chapter M of the Code. GEIM shall promptly notify the Sub-Adviser
of changes to (1) or (2) above and shall notify the Sub-Adviser of changes
to (3) above promptly after it becomes aware of such changes.
(c) The Sub-Adviser shall take all actions which it considers
necessary to implement the investment policies of the Fund, and in
particular, to place all orders for the purchase or sale of securities or
other investments for the Fund with brokers or dealers selected by it, and
to that end, the Sub-Adviser is authorized as the agent of the Company to
give instructions to the Company's custodian as to deliveries of securities
or other investments and payments of cash for the account of the Fund. In
connection with the selection of brokers or dealers and the placing of
purchase and sale orders with respect to investments of the Fund, the
Sub-Adviser is directed at all times to seek to obtain best execution and
price within the policy guidelines determined by the Board and set forth in
the Registration Statement.
In addition to seeking the best price and execution, the Sub-Adviser
may also take into consideration research and statistical information and
wire and other quotation services provided by brokers and dealers to the
Sub-Adviser. The Sub-Adviser is also authorized to effect individual
securities transactions at commission rates in excess of the minimum
commission rates available, if it determines in good faith that such amount
of commission is reasonable in relation to the value of the brokerage and
research services provided by such broker or dealer, viewed in terms of
either that particular transaction or the Sub-Adviser's overall
responsibilities with respect to the Fund. The policies with respect to
brokerage allocation, determined from time to time by the Board are those
disclosed in the Registration Statement. The Sub-Adviser will periodically
evaluate the statistical data, research and other investment services
provided to it by brokers and dealers. Such services may be used by the
Sub-Adviser in connection with the performance of its obligations under
this Agreement or in connection with other advisory or investment
operations including using such information in managing its own accounts.
Whenever the Sub-Adviser simultaneously places orders to purchase or sell
the same security on behalf of the Fund and one or more other accounts
advised by the Sub-Adviser, the orders will be allocated as to price and
amount among all such accounts in a manner believed to be equitable by the
Sub-Adviser to each account.
<PAGE>
(d) Subject to: (1) the requirement that the Sub-Adviser seek to
obtain best execution and price within the policy guidelines determined by
the Board and set forth in the Registration Statement, (2) the provisions
of the 1940 Act and the Investment Advisers Act of 1940, as amended (the
"Advisers Act"), (3) the provisions of the Securities Exchange Act of 1934,
and (4) other applicable provisions of law; the Sub-Adviser or an
affiliated person of the Sub-Adviser or of GEIM may act as broker for the
Fund in connection with the purchase or sale of securities or other
investments for the Fund. Such brokerage services are not within the scope
of the duties of the Sub-Adviser under this Agreement. Subject to the
requirements of applicable law and any procedures adopted by the Board, the
Sub-Adviser or its affiliated persons may receive brokerage commissions,
fees or other remuneration from the Fund or the Company for such services
in addition to the Sub-Adviser's fees for services under this Agreement.
(e) The Sub-Adviser will maintain all books and records required to be
maintained by the Company pursuant to the 1940 Act and the rules and
regulations promulgated thereunder with respect to transactions on behalf
of the Fund, and will furnish the Board and GEIM with such periodic and
special reports as the Board or GEIM reasonably may request. In compliance
with the requirements of Rule 31a-3 under the 1940 Act, the Sub-Adviser
hereby agrees that all records which it maintains for the Fund are the
property of the Company, agrees to preserve for the periods prescribed by
Rule 31a-2 under the 1940 Act any records which it maintains for the
Company and which are required to be maintained by Rule 31a-1 under the
1940 Act, and further agrees to surrender promptly to the Company any
records which it maintains for the Company upon request by the Company.
(f) At such times as shall reasonably be requested by the Board or
GEIM, the Sub-Adviser will provide the Board and GEIM with economic and
investment analyses and reports as well as quarterly reports setting forth
the Fund's performance and make available to the Board and GEIM any
economic, statistical and investment services normally available to
institutional or other customers of the Sub-Adviser.
(g) In accordance with procedures adopted by the Board, as amended
from time to time, the Sub-Adviser is responsible for determining the fair
valuation of any illiquid portfolio securities and will assist the
Company's accounting services agent or GEIM to obtain independent sources
of market value for all other portfolio securities.
3. Further Duties. In all matters relating to the performance of this
Agreement, the Sub-Adviser will act in conformity with the Company's Articles of
Incorporation, By-Laws and Registration Statement and with the written
instructions and directions of the Board and GEIM and will comply with the
requirements of the 1940 Act, the Advisers Act, the rules under each, and
Subchapter M of the Code as applicable to regulated investment companies. In
addition, the Sub-Adviser will act in conformity with all other applicable
federal and state laws and regulations. GEIM agrees to provide to the
Sub-Adviser copies of the Company's Articles of Incorporation, By-Laws,
Registration Statement and any amendments or supplements to any of these
materials as soon as practicable after such materials become available.
<PAGE>
4. Expenses. During the term of this Agreement, the Sub-Adviser will bear
all expenses incurred by it in connection with its investment sub-advisory
services under this Agreement.
5. Compensation.
For the services rendered, the facilities furnished and the expenses
assumed by the Sub-Adviser, the Adviser shall pay the Sub-Adviser at the end of
each calendar month a fee based on the average daily net assets of the Fund at
the following annual rates:
.425% of the first $100,000,000; .40% of the next $100,000,000; and
.375% of amounts in excess of $200,000,000.
The Sub-Adviser's fee shall be accrued daily at 1/365th of the applicable
annual rate set forth above. For the purpose of accruing compensation, the net
assets of the Fund shall be determined in the manner and on the dates set forth
in the current prospectus of the Company, and, on dates on which the net assets
are not so determined, the net asset value computation to be used shall be as
determined on the next day on which the net assets shall have been determined.
In the event of termination of this Agreement, all compensation due through the
date of termination will be calculated on a pro-rated basis through the date of
termination and paid within thirty business days of the date of termination.
During any period when the determination of net asset value is suspended,
the net asset value of the Fund as of the last business day prior to such
suspension shall for this purpose be deemed to be the net asset value at the
close of each succeeding business day until it is again determined.
6. Limitation Of Liability. The Sub-Adviser shall not be liable for any
error of judgment or mistake of law or for any loss suffered by the Fund, the
Company or its shareholders or by GEIM in connection with the matters to which
this Agreement relates, except a loss resulting from willful misfeasance, bad
faith or gross negligence on its part in the performance of its duties or from
reckless disregard by it of its obligations and duties under this Agreement.
7. Indemnification.
(a) GEIM agrees to indemnify the Sub-Adviser, its officers and
directors, and any person who controls the Sub-Adviser within the meaning
of Section 15 of the Securities Act of 1933 ("1933 Act") for any loss or
expense (including attorneys' fees) arising out of any claim, demand,
action or suit in the event that the Sub-Adviser has been found to be
without fault and GEIM has been found at fault (i) by the final judgment of
a court of competent jurisdiction or (ii) in any order of settlement of any
claim, demand, action or suit that has been approved by the Board of
Directors of GEIM.
(b) The Sub-Adviser agrees to indemnify GEIM, its officers and
directors, and any person who controls GEIM within the meaning of Section
15 of the 1933 Act for any loss or
<PAGE>
expense (including attorneys' fees) arising out of any claim, demand,
action or suit in the event that GEIM has been found to be without fault
and the Sub-Adviser has been found at fault (i) by the final judgment of a
court of competent jurisdiction or (ii) in any order of settlement of any
claim, demand, action or suit that has been approved by the Board of
Directors of the Sub- Adviser.
8. Representations of Sub-Adviser. The Sub-Adviser represents, warrants and
agrees as follows:
(a) The Sub-Adviser (i) is registered as an investment adviser under
the Advisers Act and will continue to be so registered for so long as this
Agreement remains in effect; (ii) is not prohibited by the 1940 Act or the
Advisers Act from performing the services contemplated by this Agreement;
(iii) has met, and will seek to continue to meet for so long as this
Agreement remains in effect, any other applicable federal or state
requirements, or the applicable requirements of any regulatory or industry
self-regulatory agency, necessary to be met in order to perform the
services contemplated by this Agreement; (iv) has the authority to enter
into and perform the services contemplated by this Agreement; and (v) will
promptly notify GEIM of the occurrence of any event that would disqualify
the Sub-Adviser from serving as an investment adviser of an investment
company pursuant to Section 9(a) of the 1940 Act or otherwise.
(b) The Sub-Adviser has adopted a written code of ethics complying
with the requirements of Rule 17j-1 under the 1940 Act and will provide
GEIM and the Board with a copy of that code of ethics, together with
evidence of its adoption. Within fifteen days of the end of the last
calendar quarter of each year that this Agreement is in effect, the
president or a vice-president of the Sub-Adviser shall certify to GEIM that
the Sub-Adviser has complied with the requirements of Rule 17j-1 during the
previous year and that there has been no violation of the Sub-Adviser's
code of ethics or, if such a violation has occurred, that appropriate
action was taken in response to such violation. Upon the written request of
GEIM, the Sub-Adviser shall permit GEIM, its employees or its agents to
examine the reports required to be made to the Sub- Adviser by Rule
17j-1(c)(1) and all other records relevant to the Sub-Adviser's code of
ethics.
(c) The Sub-Adviser has provided GEIM with a copy of its Form ADV as
most recently filed with the Securities and Exchange Commission ("SEC") and
promptly will furnish a copy of all amendments to GEIM at least annually.
(d) The Sub-Adviser will notify GEIM of any change of control of the
Sub-Adviser, including any change of its general partners or 25%
shareholders, as applicable, and any changes in the key personnel of the
Sub-Adviser, in each case prior to or promptly after such change.
9. Representations and Warranties of GEIM. GEIM represents, warrants
and agrees that GEIM (i) is registered as an investment adviser under the
Advisers Act and will continue to be so registered for so long as this
Agreement remains in effect; (ii) is not prohibited by the 1940 Act from
performing the services contemplated by this Agreement; (iii) has met, and
<PAGE>
will seek to continue to meet for so long as this Agreement remains in
effect, any other applicable federal or state requirements, or the
applicable requirements of any regulatory or industry self-regulatory
agency, necessary to be met in order to perform the services contemplated
by this agreement; (iv) has the authority to enter into and perform the
services contemplated by this Agreement; and (v) will promptly notify the
Sub-Adviser of the occurrence of any event that would disqualify GEIM from
serving as an investment adviser of an investment company pursuant to
Section 9(a) of the 1940 Act or otherwise.
10. Duration and Termination.
(a) This Agreement shall become effective upon the date first above
written and will continue for an initial two-year term and will continue
thereafter so long as the continuance is specifically approved at least
annually (a) by the Board or (b) by a vote of a majority of the Fund's
outstanding voting securities, as defined in the 1940 Act, provided that in
either event the continuance is also approved by a majority of the Board
who are not "interested persons" (as defined in the 1940 Act) of any party
to this Agreement, by vote cast in person at a meeting called for the
purpose of voting on the approval.
(b) This Agreement may be terminated at any time without the payment
of any penalty, by the Board, or by vote of a majority of the Fund's
outstanding voting securities, on 60 days' written notice to the
Sub-Adviser. This Agreement may also be terminated, without the payment of
any penalty, by GEIM: (i) upon 60 days' written notice to the Sub-Adviser;
(ii) upon material breach by the Sub-Adviser of any of the representations
and warranties set forth in Paragraph 8 of this Agreement; or (iii) if the
Sub-Adviser becomes unable to discharge its duties and obligations under
this Agreement, including circumstances such as financial insolvency of the
Sub-Adviser or other circumstances that could adversely affect the Fund.
The Sub-Adviser may terminate this Agreement at any time, without the
payment of a penalty, on 60 days' written notice to GEIM. This Agreement
will terminate automatically in the event of its assignment or upon
termination of the Advisory Agreement.
11. Amendment of this Agreement. No provision of this Agreement may be
changed, waived, discharged or terminated orally, but only by an instrument in
writing signed by the party against which enforcement of the change, waiver,
discharge or termination is sought, and no material amendment to the terms of
this Agreement shall be effective until approved by a vote of a majority of the
Fund's outstanding voting securities (unless the Company receives an SEC order
or opinion of counsel permitting it to modify the Agreement without such vote).
12. Governing Law. This Agreement shall be construed in accordance with the
1940 Act and the laws of the State of New York, without giving effect to the
conflicts of laws principles thereof. To the extent that the applicable laws of
the State of New York conflict with the applicable provisions of the 1940 Act,
the latter shall control.
13. Miscellaneous. The captions in this Agreement are included for
convenience of reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect. If any
provision of this Agreement shall be held or
<PAGE>
made invalid by a court decision, statute, rule or otherwise, the remainder of
this Agreement shall not be affected thereby. This Agreement shall be binding
upon and shall inure to the benefit of the parties hereto. As used in this
Agreement, the terms "majority of the outstanding voting securities,"
"affiliated person," "interested person," "assignment," "broker," "investment
adviser," "net assets," "sale," "sell" and "security" shall have the same
meaning as such terms have in the 1940 Act, subject to such exemption as may be
granted by the SEC by any rule, regulation or order. Where the effect of a
requirement of the federal securities laws reflected in any provision of this
Agreement is made less restrictive by rule, regulation or order of the SEC,
whether of special or general application, such provision shall be deemed to
incorporate the effect of such rule, regulation or order. This Agreement may be
signed in counterpart.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
executed by their duly authorized signatories as of the date and year first
above written.
Attest: GE INVESTMENT MANAGEMENT INCORPORATED
BY:______________________________________
Name:
Title:
Attest: GMG/SENECA CAPITAL MANAGEMENT
BY:______________________________________
Name:
Title:
Exhibit 11(a)
[LETTERHEAD OF SUTHERLAND, ASBILL & BRENNAN, LLP]
April 29, 1997
Board of Directors
GE Investments Funds, Inc.
3003 Summer Street
Stamford, Connecticut 06905
Re: GE Investments Funds, Inc.
File No. 2-91369
--------------------------
Gentlemen:
We hereby consent to the reference to our name under the caption "Legal
Matters" in the Prospectus and Statement of Additional Information filed as part
of the Post-Effective Amendment No. 18 to Form N-1A for GE Investments Funds,
Inc. (formerly, Life of Virginia Series Fund, Inc.) (File No. 2-91369). In
giving this consent, we do not admit that we are in the category of persons
whose consent is required under Section 7 of the Securities Act of 1933.
Very truly yours,
SUTHERLAND, ASBILL & BRENNAN, L.L.P.
By: /s/
--------------------------------
Stephen E. Roth
Exhibit 11(b)
CONSENT OF ERNST & YOUNG LLP
INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Financial
Highlights" and "Audited Financial Statements" and to the use of our report
dated February 12, 1997, in the Registration Statement (Form N-1A) of GE
Investments Funds, Inc. (formerly, Life of Virginia Series Fund, Inc.) filed
with the Securities and Exchange Commission in this Post Effective Amendment No.
18 to the Registration Statement under the Securities Act of 1933 (Registration
No. 2-91369) and in this Amendment No. 19 to the Registration Statement under
the Investment Company Act of 1940 (Registration No. 811-4041).
ERNST & YOUNG LLP
Richmond, Virginia
April 25, 1997
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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