[GE LOGO OMITTED]
[GRAPHIC OMITTED]
GE
Investments
Funds, Inc.
ANNUAL REPORT
DECEMBER 31, 1998
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GE INVESTMENTS FUNDS, INC.
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UNDERSTANDING YOUR REPORT
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A LETTER FROM THE CHAIRMAN ............................................... 2
REVIEW OF PERFORMANCE AND SCHEDULE OF INVESTMENTS
GE Investments Funds' portfolio managers' Q&A and
Schedules of Investments
INTERNATIONAL EQUITY FUND ........................................... 3
REAL ESTATE SECURITIES FUND ......................................... 7
PREMIER GROWTH EQUITY FUND .......................................... 10
VALUE EQUITY FUND ................................................... 13
U.S. EQUITY FUND .................................................... 16
S&P 500 INDEX FUND .................................................. 21
TOTAL RETURN FUND ................................................... 28
GLOBAL INCOME FUND .................................................. 35
FIXED INCOME FUNDS .................................................. 38
INCOME FUND
MONEY MARKET FUND
NOTES TO PERFORMANCE AND NOTES TO SCHEDULES OF
INVESTMENTS ...................................................... 47
FINANCIAL STATEMENTS
Financial Highlights ................................................ 48
Notes to the Financial Highlights ................................... 53
Statements of Assets and Liabilities
Operations, and Changes in Net Assets ............................. 54
NOTES TO THE FINANCIAL STATEMENTS ........................................ 60
INDEPENDENT AUDITORS' REPORT ............................................. 66
GE INVESTMENTS FUNDS' INVESTMENT TEAM ......................INSIDE BACK COVER
1
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A LETTER FROM THE CHAIRMAN
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Dear Shareholder:
We are pleased to provide you with the GE Investments Funds Inc. annual report
for 1998.
In 1998 world markets were characterized by tremendous volatility. GE
Investments Funds benefited from strong markets in the United States and
Continental Europe as these markets continued to surge. At the same time, the
Russian economy nearly imploded; Asian economies continued to stagnate; and the
near collapse of a large hedge fund triggered turmoil in global markets.
Stability was restored when central banks, led by the United States, moved to
cut interest rates and add liquidity to the system.
PERFORMANCE HIGHLIGHTS
GE Investment Funds reflected the overall strength of the stock markets in 1998.
The S&P 500 Index moved up 28.70% by year end, the fourth consecutive year of
more than 20% gains. The MSCI EAFE Index of international stocks rose 20.00% and
the LB Aggregate Bond Index returned 8.67%. U.S. equities were strong performers
as evidenced by the Premier Growth Equity Fund which outpaced its benchmark by
more than eight percentage points, while the S&P 500 Index Fund and the U.S.
Equity Fund posted greater than 20% returns. Also noteworthy are the
International Equity Fund, the Global Income Fund and the Total Return Fund, all
of which turned in double-digit returns.
MARKET OVERVIEW
In the U.S., a thin market in large-cap stocks and technology sector stocks
fueled last year's surge. It is clear that old valuation rules may no longer
apply. We saw the genesis of a new age as internet stocks such as Yahoo and
Amazon.com soared in value day after day. Compare Amazon.com, trading at 54
times revenues, with Microsoft, which took a decade to reach 12 times revenues.
With the advent of the euro, Europe emerged as a strong, stable market that
promises to generate good equity returns over the next few years. Finally in
1998, the U.S. Federal Reserve Bank and other central banks assumed new roles as
stabilizing influences on global markets.
MARKET OUTLOOK
We expect reasonable earnings growth to continue in 1999. Small and mid-cap
stocks, whose performance has long trailed the large-caps, should be primed to
do better. Inflation and commodity prices remain low. Mergers and acquisitions
are booming. Investors, who last year fled equity mutual funds for the safe
haven of fixed-income securities, are returning. Despite all these positive
signs, we remain concerned about excess valuations, worldwide production
overcapacity, and a slowdown in global growth. It will take a while for Japan to
work out its economic problems, which were only exacerbated by the strong yen's
impact on export growth. Another question mark is Brazil: Will that nation be
able to solve its financial problems? Given these uncertainties, we remain
cautious. We will continue to focus on stock selection, seeking out strong
companies with solid fundamentals.
On a final note, many stockholders have inquired about the impact of year 2000.
GE Investments has incorporated year 2000 analysis into its investment decision
making process. GE Investments has also been working to identify and address
year 2000 date-related issues in a broad range of areas including applications,
process-enabling systems and facilities. With respect to third-party systems, GE
Investments, like many similar companies, must largely rely on the efforts and
affirmations of others. Although the interaction of various software and
hardware elements is highly complex - and the possibility of year 2000 related
problems cannot be totally eliminated - GE Investments believes it is taking all
appropriate steps.
Sincerely,
/S/ SIGNATURE
Michael J. Cosgrove
CHAIRMAN, GE INVESTMENTS FUNDS, INC.
MIKE COSGROVE IS THE PRESIDENT OF THE INVESTMENT SERVICES GROUP OF GE FINANCIAL
ASSURANCE HOLDINGS, INC. AND GE INVESTMENT DISTRIBUTORS, INC., THE FUNDS'
DISTRIBUTOR. IN THIS ROLE, HE IS RESPONSIBLE FOR THE MARKETING, PRODUCT
DEVELOPMENT AND SALES OF THE FUNDS, AND IS ALSO A TRUSTEE OF THE GE PENSION
TRUST AND GE'S EMPLOYEE SAVINGS PROGRAM.
IN MIKE'S PREVIOUS POSITION AS CHIEF FINANCIAL OFFICER OF GE INVESTMENTS AND
ASSISTANT TREASURER-GE COMPANY, HE HAD FINANCIAL RESPONSIBILITY FOR ALL ASSETS
UNDER GE INVESTMENTS' MANAGEMENT. MIKE JOINED GE IN 1970. AFTER COMPLETING THE
GE FINANCIAL MANAGEMENT PROGRAM, HE HELD A NUMBER OF MANAGERIAL POSITIONS IN
FINANCE AND SALES IN THE INTERNATIONAL OPERATION, INCLUDING SERVING AS VICE
PRESIDENT AND TREASURER AND LATER AS VICE PRESIDENT - COUNTERTRADE AND BARTER
FOR GE TRADING COMPANY.
MIKE GRADUATED FROM FORDHAM UNIVERSITY IN 1970 WITH A B.S. DEGREE IN ECONOMICS
AND RECEIVED HIS M.B.A. DEGREE FROM ST. JOHN'S UNIVERSITY IN 1973.
2
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INTERNATIONAL EQUITY FUND
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Q&A
RALPH LAYMAN MANAGES THE INTERNATIONAL EQUITY OPERATION AT GE INVESTMENTS WITH
ASSETS UNDER MANAGEMENT EXCEEDING $10 BILLION. PRIOR TO JOINING GE INVESTMENTS
IN 1991, RALPH WAS EXECUTIVE VICE PRESIDENT, PARTNER AND PORTFOLIO MANAGER OF
INTERNATIONAL EQUITY OPERATIONS AT NORTHERN CAPITAL MANAGEMENT. PREVIOUSLY, HE
WAS A VICE PRESIDENT AND PORTFOLIO MANAGER AT TEMPLETON INVESTMENT COUNSEL, INC.
HE WAS INSTRUMENTAL IN FORMING TEMPLETON'S EMERGING MARKETS FUND, THE FIRST
LISTED EMERGING MARKETS EQUITY FUND IN THE U.S. RALPH IS A TRUSTEE OF THE GE
PENSION TRUST AND GE'S EMPLOYEE SAVINGS PROGRAM, AND SERVES ON GE INVESTMENTS'
ASSET ALLOCATION COMMITTEE. HE IS A CHARTERED FINANCIAL ANALYST (CFA), A CHARTER
MEMBER OF THE INTERNATIONAL SOCIETY OF SECURITY ANALYSTS AND A MEMBER OF THE NEW
YORK SOCIETY OF SECURITY ANALYSTS. RALPH IS A GRADUATE OF THE UNIVERSITY OF
WISCONSIN WITH A B.S. IN ECONOMICS AND A M.S. IN FINANCE.
Q. HOW DID THE INTERNATIONAL EQUITY FUND PERFORM COMPARED WITH ITS BENCHMARK AND
LIPPER PEER GROUP FOR THE ONE-YEAR PERIOD ENDED DECEMBER 31, 1998?
A. The International Equity Fund posted a 17.45% return for the one-year period
ending December 31, 1998. For the same period, the MSCI EAFE Index returned
20.00% and our Lipper peer group of 108 International annuity funds returned
13.26%.
Q. WHAT FACTORS CONTRIBUTED TO THE FUND'S PERFORMANCE?
A. 1998 was a volatile period in international equity markets. The third quarter
collapse of the Russian economy affected the global banking sector and every
emerging market. Equity and bond investors reacted positively when central
bankers, led by Alan Greenspan of the United States, began cutting interest
rates in an attempt to restore stability. In fact, the fourth quarter rise in
equity markets almost matched their third quarter drop.
Despite global market volatility, the fund continued to focus on long-term
fundamentals of individual companies rather than shorter-term factors that cause
share prices to fluctuate. Our strategy was justified when European markets
recovered in the fourth quarter and the fund's European stocks outperformed
peers.
The fund underperformed its benchmark because it was underweighted in the
Japanese equity market, where the yen rose sharply against the dollar in the
fourth quarter. Japan's underlying market fundamentals continue to deteriorate.
The strong yen made exports more expensive, which negatively affected corporate
earnings for the export oriented companies we own in this market.
Q. WHAT CHANGES HAVE YOU MADE TO THE PORTFOLIO?
A. Because the investment picture in Latin America has been shaky since the
third quarter, we sold a significant portion of Telebras (Telecommunications
Brasileiras), the Brazilian telecommunications company, when the government
privatized it. We added two United Kingdom-based companies, Somerfield, a
restructuring retailer, and Cable and Wireless Communications, the United
Kingdom's second largest telecommunications provider, as well as Koninklijke
Ahold, a Netherlands-based retailer with significant interests in the United
States. Taking advantage of weak markets at the beginning of the fourth quarter,
we added Canada's Northern Telecom, a company in a booming market for fixed and
mobile phones; and Toshiba of Japan, which has trimmed staff, sold non-core
businesses and formed global joint ventures.
Q. WHAT IS THE FUND'S OUTLOOK FOR 1999?
A. We are entering a deflationary era, an environment where few investors have
experience. Prices are falling in many areas, including crude oil, metals and
agriculture. We will carefully watch commodity prices because developing
nations, which depend on primary products for economic wealth, tend to be the
swing factor in economic recoveries.
The euro debuted in 11 European Union countries on January 1, 1999. These
countries form an export-driven economic zone, comparable in size to the United
States, with foreign currency reserves, trade surpluses, high savings rates and
a large, unemployed workforce. We believe that the euro will drive down prices
for consumer goods and continue to be a catalyst for industry consolidation. The
fund is well-positioned to benefit from consolidation in the banking, insurance,
automotive and retail segments.
The Japanese economy is still deteriorating, with rising unemployment and a net
inflow of funds because of falling imports. It is unlikely Japan will solve its
economic problems or restructure rapidly in the near term thereby making it
difficult to find companies in Japan which meet our investment criteria.
3
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INTERNATIONAL EQUITY FUND
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COMPARISON OF CHANGES IN
VALUE OF A $10,000 INVESTMENT
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[LINE GRAPH OMITTED]
PLOT POINTS FOLLOW:
INTERNATIONAL EQUITY FUND MSCI EAFE
5/1/95 10,000 10,000
6/95 10,010 9,707
9/95 10,350 10,112
12/95 10,670 10,522
3/96 11,323 10,826
6/96 11,628 10,997
9/96 11,455 10,983
12/96 11,728 11,158
3/97 12,346 10,983
6/97 13,786 12,408
9/97 13,927 12,320
12/97 12,921 11,356
3/98 15,135 13,026
6/98 15,510 13,164
9/98 12,788 11,293
12/98 15,175 13,626
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AVERAGE ANNUAL TOTAL RETURN
FOR THE PERIODS ENDED DECEMBER 31, 1998
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ONE THREE SINCE
YEAR YEAR COMMENCEMENT
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International Equity Fund 17.45% 12.46% 12.03%
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MSCI EAFE 20.00% 9.00% 8.79%
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Lipper peer group average* 13.26% 11.12%
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Commencement date 5/1/95
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INVESTMENT PROFILE
A fund designed for investors who seek
long-term capital growth by investing primarily
in foreign equity and equity-related securities.
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TOP TEN LARGEST HOLDINGS
AT DECEMBER 31, 1998
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AXA-UAP .......................................... 3.39%
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Mannesmann AG .................................... 3.08%
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Nokia Oyj (Series A) ............................. 3.05%
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ING Groep N.V. ................................... 2.81%
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Preussag AG ...................................... 2.62%
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Siebe PLC ........................................ 2.53%
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Cap Gemini S.A. .................................. 2.28%
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Total S.A. (Class B) ............................. 2.03%
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Argentaria S.A. .................................. 1.85%
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Airtours PLC ..................................... 1.80%
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PORTFOLIO COMPOSITION
AS OF DECEMBER 31, 1998
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[PIE CHART OMITTED]
PLOT POINTS FOLLOW:
CASH & OTHER 2.4%
EUROPE 80.5%
OTHER REGIONS 7.9%
JAPAN 5.5%
PACIFIC RIM 3.7%
* LIPPER PERFORMANCE COMPARISONS ARE BASED ON AVERAGE ANNUAL TOTAL RETURNS FOR
THE PERIODS INDICATED IN THE INTERNATIONAL PEER GROUP CONSISTING OF 108 AND 72
UNDERLYING ANNUITY FUNDS, RESPECTIVELY.
SEE NOTES TO PERFORMANCE.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.
4
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SCHEDULE OF INVESTMENTS DECEMBER 31, 1998
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INTERNATIONAL EQUITY FUND
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NUMBER
OF SHARES VALUE
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COMMON STOCK -- 97.5%
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AUSTRALIA -- 1.7%
Brambles Industries Ltd. ........... 24,553 $ 598,065
Coca Cola Amatil Ltd. .............. 12,265 45,696
643,761
AUSTRIA -- 0.3%
VA Technologie AG .................. 1,461 126,605
BRAZIL -- 0.8%
Telecomunicacoes Brasileiras S.A.
ADR ............................. 2,662 193,494
Uniao de Banco Brasiliero S.A.
GDR ............................. 7,179 103,647
297,141
CANADA -- 1.5%
Newcourt Credit Group Inc. ......... 5,589 195,624
Northern Telecom Ltd. .............. 6,977 349,722
545,346
FINLAND -- 5.6%
Merita Ltd. (Series A) ............. 55,742 352,009
Nokia Oyj (Series A) ............... 9,271 1,127,284
Pohjola Group Insurance Ltd. Co.
(Series B) ...................... 1,868 101,844
Sampo Insurance Co. Ltd.
(Series A) ...................... 12,323 467,641
2,048,778
FRANCE -- 19.1%
Alstom ............................. 16,671 390,610(a)
AXA-UAP ............................ 8,656 1,254,044
Cap Gemini S.A. .................... 5,255 843,093
Carrefour S.A. ..................... 751 566,709
Coflexip S.A. ADR .................. 10,046 322,728
Elf Aquitaine S.A. ADR ............. 2,321 268,175
Lyonnaise Des Eaux S.A. ............ 3,087 633,854
Michelin CGDE (Regd.) (Class B) .... 1,979 79,110
Renault S.A. ....................... 7,755 348,150
Rhone-Poulenc S.A. (Class A) ....... 11,193 575,766
Schneider S.A. ..................... 9,128 553,459
Societe Generale ................... 2,942 476,214
Total S.A. (Class B) ............... 7,424 751,562
7,063,474
GERMANY -- 12.3%
Bayerische Vereinsbank AG .......... 7,459 584,063
DaimlerChrysler AG ................. 6,372 628,969(a)
Fresenius Medical Care AG .......... 6,085 429,010
Mannesmann AG ...................... 9,944 1,139,628
Muenchener Rueckversicherungs-
Gesellschaft AG (Regd.) ......... 1,083 524,409 (a)
NUMBER
OF SHARES VALUE
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Preussag AG ........................ 2,145 $ 969,150
Volkswagen AG ...................... 3,565 284,498
4,559,727
GREECE -- 0.8%
Alpha Credit Bank (Regd.) .......... 1,974 206,089
National Bank Greece S.A. GDR ...... 1,603 69,570(b)
275,659
HONG KONG -- 0.7%
Giordano International Ltd. ........ 186,000 34,811
Johnson Electric Holdings .......... 81,300 208,822
243,633
ISRAEL -- 3.4%
Comverse Technology Inc. ........... 4,311 306,081(a)
ECI Telecommunications Ltd. ........ 18,100 644,812
Teva Pharmaceutical Industries
Ltd. ADR ........................ 7,553 307,313
1,258,206
ITALY -- 8.0%
Assicurazioni Generali ............. 10,942 456,620
Banca Intesa S.p.A. ................ 67,167 402,770
Unicredito Italiano S.p.A. ......... 59,380 351,766
Montedison S.p.A. .................. 320,471 425,434
Saipem ............................. 76,820 324,294
Telecom Italia Mobile S.p.A. ....... 74,385 548,851
Telecom Italia S.p.A. .............. 53,630 457,336
2,967,071
JAPAN -- 5.5%
Canon Inc. ......................... 22,000 469,969
Honda Motor Co. .................... 3,000 98,452
Minebea Co. Ltd. ................... 17,000 194,586
NTT Data Corp ...................... 69 342,406
Shin-Etsu Chemical Co. ............. 9,000 216,541
Sony Corp. ......................... 6,300 458,638
Toshiba Corp ....................... 40,000 238,125
2,018,717
LUXEMBOURG -- 0.0%
Societe Europeenne de
Communication S.A. ADR
(Class A) ....................... 40 745 (a)
Societe Europeenne de
Communication S.A. ADR
(Class B) ....................... 365 6,433 (a)
7,178
MEXICO -- 1.4%
Desc S.A. de C.V. (Series B) ....... 44,594 38,171
Desc S.A. de C.V. ADR (Class C) .... 6,704 128,633
Gruma S.A. de C.V. (Series B) ...... 18,959 47,842 (a)
Grupo Carso S.A. de C.V. ADR ....... 27,167 179,981
Grupo Financiero Banamex Accival
S.A. de C.V. (Class B) .......... 102,208 134,118 (a)
528,745
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See Notes to Schedule of Investments and Notes to
Financial Statements.
5
<PAGE>
INTERNATIONAL EQUITY FUND
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NUMBER
OF SHARES VALUE
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NETHERLANDS -- 6.5%
IHC Caland N.V. .................... 9,034 $ 375,074
ING Groep N.V. ..................... 17,033 1,038,100
Ispat International N.V. (Regd.) ... 5,724 44,361
Koninklijke Ahold N.V. ............. 12,475 460,832
Philips Electronics N.V. ........... 7,144 479,132
2,397,499
PANAMA -- 0.5%
Panamerican Beverages Inc.
(Class A) ....................... 7,512 163,855
PHILIPPINES -- 0.2%
San Miguel Corp. S.A. .............. 46,580 89,807
POLAND -- 0.5%
Telekomunikacja Polska S.A. GDR .... 38,115 190,575 (a,b)
PORTUGAL -- 1.7%
Banco Comercial Portugues (Regd.) .. 12,413 381,798
Jeronimo Martins, SGPS S.A. ........ 4,636 253,730
635,528
SOUTH AFRICA -- 0.2%
Barlow Ltd. ........................ 14,184 54,421
Iscor Ltd. ......................... 69,011 12,419
66,840
SOUTH KOREA -- 0.2%
Kookmin Bank GDR ................... 5 39(b)
Pohang Iron & Steel Co. Ltd. ADR ... 4,408 74,385
74,424
SPAIN -- 2.2%
Argentaria S.A. .................... 26,397 682,585
Repsol S.A. ........................ 2,453 130,659
813,244
SWEDEN -- 5.2%
Autoliv Inc. SDR ................... 18,450 660,810
Ericsson LM Telephone (Series B) ... 16,754 397,982
Investor AB (Series B) ............. 1,225 55,183
Invik & Co. AB ..................... 1,026 83,345
Kinnevik AB (Series B) ............. 2,028 47,425
NetCom Systems AB (Series B) ....... 4,443 180,459
Pharmacia & Upjohn Inc. ............ 8,810 498,866
1,924,070
SWITZERLAND -- 3.3%
ABB AG ............................. 212 248,468
Novartis AG (Regd.) ................ 258 507,097
Zurich Allied AG (Regd.) ........... 603 446,423(a)
1,201,988
TAIWAN -- 0.9%
Taiwan Semiconductor
Manufacturing Co. ............... 154,750 341,007(a)
NUMBER
OF SHARES VALUE
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UNITED KINGDOM -- 15.0%
Airtours PLC ...................... 104,061 $ 665,617
Bank of Scotland PLC .............. 13,224 158,187
Cable & Wireless
Communication PLC .............. 44,355 404,567 (a)
Commercial Union PLC .............. 11,124 175,389
FKI PLC ........................... 116,452 259,255
Granada Group PLC ................. 36,331 636,804
Johnson Matthey PLC ............... 10,906 73,564
LucasVarity PLC ................... 139,679 466,448
Railtrack Group PLC ............... 4,472 116,648
Reed International PLC ............ 18,975 150,690
Royal & Sun Alliance Insurance
Group PLC ...................... 59,047 480,695
Saatchi & Saatchi PLC ............. 29,095 65,741
SEMA Group PLC .................... 47,197 464,991
Siebe PLC ......................... 238,062 935,399
Somerfield PLC .................... 39,276 262,319
Vodafone Group PLC ................ 13,528 219,810
5,536,124
TOTAL COMMON STOCK
(COST $31,360,755) ............. 36,019,002
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PREFERRED STOCK -- 0.1%
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Fresenius Medical Care AG ........... 1,335 62,080
Telerj Celular S.A. ................. 64,400 1,519(a)
TOTAL PREFERRED STOCK
(COST $92,648) ................... 63,599
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WARRANTS -- 0.0%
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Muenchener Rueckversicherungs-
Gesellschaft AG
(COST $ 0) ....................... 48 2,232(a)
TOTAL INVESTMENTS IN SECURITIES
(COST $31,453,403) ............... 36,084,833
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SHORT-TERM INVESTMENTS -- 5.1%
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GEI Short Term Investment Fund
(COST $ 1,867,786) .............1,867,786 1,867,786
OTHER ASSETS AND LIABILITIES, NET (2.7)% (1,000,378)
-----------
NET ASSETS-- 100% ......................... $36,952,241
===========
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OTHER INFORMATION
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The International Equity Fund invested in the following sectors
at December 31, 1998:
SECTOR PERCENTAGE (BASED ON TOTAL NET ASSETS)
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Finance 24.71%
Capital Equipment 24.27%
Services 20.08%
Consumer Goods 16.57%
Energy 5.15%
Multi Industry 3.71%
Materials 3.16%
Cash and Other 2.35%
-------
100%
=======
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See Notes to Schedule of Investments and Notes to
Financial Statements.
6
<PAGE>
REAL ESTATE SECURITIES FUND
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Q&A
DAVID A. SHAPIRO, OF SENECA CAPITAL MANAGEMENT (SENECA), THE FUND'S SUB-ADVISER,
WITH TOTAL ASSETS UNDER MANAGEMENT OF OVER $6 BILLION, IS THE PORTFOLIO MANAGER
OF THE REAL ESTATE SECURITIES FUND, DAVID JOINED SENECA IN 1995. IN 1992 DAVID
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. DAVID RECEIVED A B.A. FROM
COLUMBIA UNIVERSITY AND A J.D. FROM THE UNIVERSITY OF ARIZONA.
Q. HOW DID THE REAL ESTATE SECURITIES FUND PERFORM COMPARED TO ITS BENCHMARK AND
LIPPER PEER GROUP FOR THE ONE-YEAR ENDED DECEMBER 31, 1998?
A. The Real Estate Securities Fund posted a return of -17.68% for the one-year
period ended December 31, 1998. For the same period, the Wilshire REIT Index
returns -17.43% and our Lipper peer group of 13 Real Estate annuity funds
returned -15.49%.
Q. WHY DID THE FUND UNDERPERFORM ITS BENCHMARK AND PEER GROUP?
A. The fund's continued overweighting in the Hotel and Office/Industrial sectors
negatively affected performance. These growth sectors of the past two years were
the worst performing ones in 1998. In the Hotel sector, Patriot American
Hospitality and Starwood Lodging Trust generated dismal returns - down 76% and
54%, respectively. The drop in value was attributable to new legislation
introduced in early 1998 and consummated later in the year, which threatened the
paired-share arrangements. In the Office/Industrial sector, our holdings'
declined in line with those of the benchmark. The Office sector was the second
worst performing in the index with the Industrial sector not far behind.
Although both sectors have done poorly in 1998, we still like them for their
strong internal Funds from Operation ("FFO") growth rate.
Q. HOW HAVE THE FUND'S HOLDINGS CHANGED DURING THE YEAR?
A. The fund decreased its holdings in Apartments from 21% of the fund at the end
of 1997 to approximately 18% by the end of 1998. We have also trimmed holdings
from the Hotel and Office/Industrial sectors during the year. Percentages of
holdings in other sectors remain relatively the same. Although the Hotel and
Office/Industrial sectors performance was less than stellar, the fundamentals of
these businesses remain strong and so we have not deviated from them.
Q. WHAT IS THE OUTLOOK FOR THE FUND?
A. Entering 1998, real estate securities may have been overvalued. As the year
progressed, the market corrected itself due to legislative initiatives, tighter
credit markets, and investors' expectations. In terms of dividend yields, real
estate securities had few peers with yields in the 7% - 8% range. Estimates for
1999 earnings growth are slightly less than those for 1998 (8% - 10%). Real
estate fundamentals remain sound and as is evident in the fourth quarter rebound
of the Wilshire REIT Index (the first three quarters returned -16.63% while the
fourth quarter returned -0.95%). We suspect that stocks are currently slightly
undervalued and so will be focusing on companies with solid balance sheets,
increasing dividends and FFO growth rates selling at attractive values.
7
<PAGE>
REAL ESTATE SECURITIES FUND
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COMPARISON OF CHANGES IN
VALUE OF A $10,000 INVESTMENT
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[LINE GRAPH OMITTED]
PLOT POINTS FOLLOW:
REAL ESTATE SECURITIES FUND WILSHIRE REIT
5/1/95 10,000 10,000
6/95 10,570 10,511
9/95 11,060 11,009
12/95 11,700 11,404
3/96 12,102 11,886
6/96 12,515 12,450
9/96 13,384 13,185
12/96 15,941 15,609
3/97 16,607 15,896
6/97 17,308 16,626
9/97 19,160 18,727
12/97 19,048 18,699
3/98 18,948 18,558
6/98 18,013 17,707
9/98 16,181 15,589
12/98 15,679 15,441
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AVERAGE ANNUAL TOTAL RETURN
FOR THE PERIODS ENDED DECEMBER 31, 1998
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ONE THREE SINCE
YEAR YEAR COMMENCEMENT
- --------------------------------------------------------------------------------
Real Estate Securities Fund -17.68% 10.25% 13.03%
- --------------------------------------------------------------------------------
Wilshire REIT Index -17.43% 10.63% 12.56%
- --------------------------------------------------------------------------------
Lipper peer group average* -15.49% 10.95%
- --------------------------------------------------------------------------------
Commencement date 5/1/95
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
INVESTMENT PROFILE
A fund designed for investors who seek to maximize total
returns through current income and
capital appreciation by investing primarily in equity and debt securities
of U.S. issuers that are principally engaged in or related
to the real estate industry.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
TOP TEN LARGEST HOLDINGS
AT DECEMBER 31, 1998
- --------------------------------------------------------------------------------
Spieker Properties Inc. .......................... 4.68%
- --------------------------------------------------------------------------------
Essex Property Trust Inc. ........................ 4.24%
- --------------------------------------------------------------------------------
Archstone Communities Trust ...................... 4.22%
- --------------------------------------------------------------------------------
Equity Residential Properties Trust .............. 3.95%
- --------------------------------------------------------------------------------
Equity Office Properties Trust ................... 3.93%
- --------------------------------------------------------------------------------
Manufactured Home Communities Inc. ............... 3.73%
- --------------------------------------------------------------------------------
Cornerstone Properties Inc. ...................... 3.57%
- --------------------------------------------------------------------------------
Prentiss Properties Trust ........................ 3.46%
- --------------------------------------------------------------------------------
Urban Shopping Centers Inc. ...................... 3.46%
- --------------------------------------------------------------------------------
Duke Realty Investments Inc. ..................... 3.41%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO COMPOSITION
AS OF DECEMBER 31, 1998
- --------------------------------------------------------------------------------
[PIE CHART OMITTED]
PLOT POINTS FOLLOW:
NET LEASE 2.0%
MORTGAGE 1.1%
OFFICE/INDUSTRIAL 36.3%
APARTMENTS 17.7%
REGIONAL MALLS 9.6%
CASH & OTHER 9.4%
HOTEL 8.8%
MANUFACTURED HOME 6.6%
DIVERSIFIED 6.0%
SHOPPING CENTER 2.5%
* LIPPER PERFORMANCE COMPARISON ARE BASED ON AVERAGE ANNUAL TOTAL RETURNS FOR
THE PERIODS INDICATED IN THE REAL ESTATE PEER GROUP CONSISTING OF 13 AND 7
UNDERLYING ANNUITY FUNDS, RESPECTIVELY.
SEE NOTES TO PERFORMANCE.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.
8
<PAGE>
SCHEDULE OF INVESTMENTS DECEMBER 31, 1998
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
REAL ESTATE SECURITIES FUND
- --------------------------------------------------------------------------------
NUMBER
OF SHARES VALUE
- --------------------------------------------------------------------------------
COMMON STOCK -- 87.2%
- --------------------------------------------------------------------------------
APARTMENTS -- 17.7%
Archstone Communities Trust ......... 99,585 $ 2,016,596
Avalonbay Communities Inc. .......... 44,260 1,515,905
Berkshire Realty Company Inc. .......104,500 992,750
Equity Residential Properties Trust . 46,600 1,884,388
Essex Property Trust Inc. ........... 68,000 2,023,000
8,432,639
DIVERSIFIED -- 4.1%
Entertainment Properties Trust ...... 24,000 408,000
Northstar Capital Investment Corp. .. 30,000 480,000 (a,b)
Pacific Gulf Properties Inc. ........ 52,700 1,057,294
1,945,294
HOTEL -- 8.8%
Boykin Lodging Co. .................. 35,800 443,025
FelCor Suite Hotels Inc. ............ 28,700 661,894
MeriStar Hospitality Corp. .......... 37,713 700,048
Patriot American Hospitality Inc. 78,020 468,120
Starwood Lodging Trust .............. 49,200 1,116,225
Sunstone Hotel Investors Inc. ....... 86,200 813,512
4,202,824
MANUFACTURED HOME -- 6.6%
Chateau Communities Inc. ............ 46,500 1,363,031
Manufactured Home Communities
Inc. ............................. 71,000 1,779,438
3,142,469
MORTGAGE -- 1.1%
Capital Trust ....................... 70,000 420,000(a)
Clarion Commercial Holdings Inc. .... 25,800 109,650
529,650
NET LEASE -- 2.0%
TriNet Corporation Realty Trust Inc. 36,000 963,000
OFFICE/INDUSTRIAL -- 34.8%
Arden Realty Inc. ................... 31,000 718,813
Bedford Property Investors Inc. ..... 68,500 1,155,937
Boston Properties Inc. .............. 31,300 954,650
Catellus Development Corp. .......... 32,000 458,000(a)
Cornerstone Properties Inc. .........109,000 1,703,125
Crescent Real Estate Equities Co. ... 60,700 1,396,100
Duke Realty Investments Inc. ........ 70,000 1,627,500
Equity Office Properties Trust ...... 78,200 1,876,800
First Industrial Realty Trust Inc. .. 47,600 1,276,275
Mack-Cali Realty Corp. .............. 51,600 1,593,150
Prentiss Properties Trust ........... 74,000 1,651,125
Spieker Properties Inc. ............. 64,500 2,233,312
16,644,787
NUMBER
OF SHARES VALUE
- --------------------------------------------------------------------------------
REGIONAL MALLS -- 9.6%
Macerich Co. ....................... 63,500 $ 1,627,187
Simon Property Group Inc. .......... 46,800 1,333,800
Urban Shopping Centers Inc. ........ 50,400 1,650,600
4,611,587
SHOPPING CENTER -- 2.5%
Developers Diversified Realty Corp. 66,800 1,185,700
TOTAL COMMON STOCK
(COST $47,889,636) .............. 41,657,950
- --------------------------------------------------------------------------------
PREFERRED STOCK -- 3.4%
- --------------------------------------------------------------------------------
Glenborough Realty Trust Inc. ...... 50,550 922,537
Reckson Associates Realty Corp. .... 33,500 707,688
TOTAL PREFERRED STOCK
(COST $2,025,620) ............... 1,630,225
TOTAL INVESTMENTS IN SECURITIES
(COST $49,915,256) .............. 43,288,175
- --------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS -- 8.1%
- --------------------------------------------------------------------------------
GEI Short Term Investment Fund
(COST $3,869,770) ..............3,869,770 3,869,770
OTHER ASSETS AND LIABILITIES, NET 1.3% 598,027
-----------
NET ASSETS-- 100% ......................... $47,755,972
===========
- -------------
See Notes to Schedule of Investments and Notes to
Financial Statements.
9
<PAGE>
PREMIER GROWTH EQUITY FUND
- --------------------------------------------------------------------------------
Q&A
DAVID CARLSON MANAGES PENSION AND MUTUAL FUND PORTFOLIOS WITH TOTAL ASSETS OF
OVER $5 BILLION. DAVE JOINED GE IN 1980 ON THE GE FINANCIAL MANAGEMENT PROGRAM.
IN 1982, HE JOINED GE INVESTMENTS AS A SECURITY ANALYST RESPONSIBLE FOR SEVERAL
CONSUMER INDUSTRIES. IN 1988, DAVE ASSUMED RESPONSIBILITY FOR MANAGING ELFUN
TRUSTS AND HAS MANAGED THE PREMIER GROWTH EQUITY FUND SINCE IT'S INCEPTION. HE
IS A TRUSTEE FOR THE GE CANADA PENSION TRUST, A CHARTERED FINANCIAL ANALYST
(CFA) AND A MEMBER OF THE NEW YORK SOCIETY OF SECURITY ANALYSTS. DAVE IS A
GRADUATE OF INDIANA UNIVERSITY WITH A B.S. IN BUSINESS.
Q. HOW DID THE PREMIER GROWTH EQUITY FUND PERFORM COMPARED AGAINST ITS BENCHMARK
AND LIPPER PEER GROUP FOR THE ONE-YEAR PERIOD ENDED DECEMBER 31, 1998?
A. The Premier Growth Equity Fund posted a return of 36.53% for the one-year
period ended December 31, 1998. For the same period, the S&P 500 Index returned
28.70% and our Lipper peer group of 147 Growth annuity funds returned 24.94%.
Q. WHY DID THE FUND OUTPERFORM ITS BENCHMARKS?
A. This fund is run with a concentrated focus. Presently, there are just 32
holdings in the fund. The narrow list of holdings will mean more volatility in
the short term, but fortunately the volatility was on the upside last year. The
performance will be driven by individual names, and last year's biggest winners
were in the technology sector. Other areas of strength were in the
telecommunications and consumer industries.
Q. WHICH INVESTMENTS STAND OUT?
A. In technology, EMC, which manufactures disk storage devices; Microsoft and
Cisco Systems, a supplier of networking devices, all doubled in price during the
year. In telecommunications, Airtouch Communications, a cellular telephone
provider; NTL, a United Kingdom based telecommunication company; and MCI
WorldCom all turned in outstanding performance for the year. The two retail
holdings, Home Depot and CVS were also big winners. On the downside, our two oil
service companies, Schlumberger and Baker-Hughes declined in price as the weak
crude oil price negatively impacted earnings for both companies.
Q. WHAT IS YOUR OUTLOOK FOR THE FUND?
A. The focus of this fund will continue to be on a concentrated list of high
quality growth stocks with the following characteristics: industry dominance,
above average growth, financial strength, and shareholder oriented management.
The portfolio will essentially be fully invested at all times, meaning we will
not attempt to time the market and periodically hold a large cash balance. We
have been through a period of extraordinary returns for the stock market, and
valuation measures are at all time highs. Expectations for equity returns should
not be an extrapolation of the recent past. If we continue to own outstanding
growth companies, then the success of these companies will drive above-average
investment returns over the long term.
10
<PAGE>
PREMIER GROWTH EQUITY FUND
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
COMPARISON OF CHANGES IN
VALUE OF A $10,000 INVESTMENT
- --------------------------------------------------------------------------------
[LINE GRAPH OMITTED]
PLOT POINTS FOLLOW:
PREMIER GROWTH EQUITY FUND S&P 500
12/12/97 10,000 10,000
12/97 10,346 10,182
3/98 11,712 11,604
6/98 12,193 11,988
9/98 11,395 10,802
12/98 14,125 13,104
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN
FOR THE PERIODS ENDED DECEMBER 31, 1998
- --------------------------------------------------------------------------------
ONE SINCE
YEAR COMMENCEMENT
- --------------------------------------------------------------------------------
Premier Growth Equity Fund 36.53% 38.73%
- --------------------------------------------------------------------------------
S&P 500 Index 28.70% 29.21%
- --------------------------------------------------------------------------------
Lipper peer group average* 24.94%
- --------------------------------------------------------------------------------
Commencement date 12/12/97
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
INVESTMENT PROFILE
A fund designed for investors who seek long-term
growth of capital as well as future income by
investing primarily in growth-oriented equity
securities.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
TOP TEN LARGEST HOLDINGS
AT DECEMBER 31, 1998
- --------------------------------------------------------------------------------
Catalina Marketing Corp. .......................... 4.01%
- --------------------------------------------------------------------------------
Interpublic Group Cos. Inc. ....................... 3.88%
- --------------------------------------------------------------------------------
NTL Inc. .......................................... 3.88%
- --------------------------------------------------------------------------------
Tele-Communications Inc. Liberty
Media Group (Series A) ............................ 3.80%
- --------------------------------------------------------------------------------
MCI WorldCom Inc. ................................. 3.70%
- --------------------------------------------------------------------------------
First Data Corp. .................................. 3.63%
- --------------------------------------------------------------------------------
Airtouch Communications Inc. ...................... 3.51%
- --------------------------------------------------------------------------------
Home Depot Inc. ................................... 3.50%
- --------------------------------------------------------------------------------
Waste Management Inc. ............................. 3.47%
- --------------------------------------------------------------------------------
Cisco Systems Inc. ................................ 3.45%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO COMPOSITION
AS OF DECEMBER 31, 1998
- --------------------------------------------------------------------------------
[PIE CHART OMITTED]
PLOT POINTS FOLLOW:
CONSUMER - STABLE 2.4%
HEALTHCARE 19.8%
CONSUMER - CYCLICAL 18.6%
TECHNOLOGY - SOFTWARE & SERVICES 15.7%
CAPITAL GOODS 11.3%
TECHNOLOGY - ELECTRONICS & EQUIPMENT 8.2%
UTILITIES 7.2%
RETAIL TRADE 5.4%
CASH & OTHER 5.1%
ENERGY 3.5%
FINANCIAL 2.8%
* LIPPER PERFORMANCE COMPARISON ARE BASED ON AVERAGE ANNUAL TOTAL RETURNS FOR
THE PERIOD INDICATED IN THE GROWTH PEER GROUP CONSISTING OF 147 UNDERLYING
ANNUITY FUNDS.
SEE NOTES TO PERFORMANCE.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.
11
<PAGE>
SCHEDULE OF INVESTMENTS DECEMBER 31, 1998
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PREMIER GROWTH EQUITY FUND
- --------------------------------------------------------------------------------
NUMBER
OF SHARES VALUE
- --------------------------------------------------------------------------------
COMMON STOCK -- 94.9%
- --------------------------------------------------------------------------------
CAPITAL GOODS -- 11.3%
AlliedSignal Inc. .................. 7,398 $ 327,824
Dover Corp. ........................ 15,935 583,619
Molex Inc. (Class A) ............... 19,918 634,886
Waste Management Inc. .............. 14,795 689,817
2,236,146
CONSUMER - CYCLICAL -- 18.6%
Carnival Corp. (Class A) ........... 12,519 600,913
Catalina Marketing Corp. ........... 11,667 797,731(a)
Interpublic Group Cos. Inc. ........ 9,675 771,581
NTL Inc. ........................... 13,658 770,824(a)
Tele-Communications Inc.
Liberty Media Group
(Series A) ...................... 16,390 754,964 (a)
3,696,013
CONSUMER - STABLE -- 2.4%
Avon Products Inc. ................. 10,814 478,520
ENERGY -- 3.5%
Baker Hughes Inc. .................. 18,211 322,107
Schlumberger Ltd. .................. 7,967 367,478
689,585
FINANCIAL -- 2.8%
Citigroup Inc. ..................... 11,381 563,359
HEALTHCARE -- 19.8%
Cardinal Health Inc. ............... 8,537 647,745
Dentsply International Inc. ........ 16,503 424,952
Johnson & Johnson .................. 6,317 529,838
Lincare Holdings Inc. .............. 13,090 530,963(a)
Omnicare Inc. ...................... 18,779 652,570
Sybron International Corp. ......... 24,470 665,278(a)
Tenet Healthcare Corp. ............. 18,210 478,013(a)
3,929,359
RETAIL TRADE -- 5.4%
CVS Corp. .......................... 6,829 375,595
Home Depot Inc. .................... 11,382 696,436
1,072,031
TECHNOLOGY - ELECTRONICS & EQUIPMENT -- 8.2%
Applied Materials Inc. ............. 8,536 364,380(a)
Cisco Systems Inc. ................. 7,398 686,627(a)
Intel Corp. ........................ 4,951 587,003
1,638,010
NUMBER
OF SHARES VALUE
- --------------------------------------------------------------------------------
TECHNOLOGY - SOFTWARE & SERVICES -- 15.7%
Automatic Data Processing Inc. ...... 7,171 $ 575,025
EMC Corp. ........................... 7,967 677,195(a)
Equifax Inc. ........................ 14,114 482,522
First Data Corp. .................... 22,763 721,303
Microsoft Corp. ..................... 4,838 670,970(a)
3,127,015
UTILITIES -- 7.2%
Airtouch Communications Inc. ........ 9,675 697,810 (a,h)
MCI WorldCom Inc. ................... 10,243 734,935(a)
1,432,745
TOTAL INVESTMENTS IN SECURITIES
(COST $14,007,856) ............... 18,862,783
- --------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS -- 5.7%
- --------------------------------------------------------------------------------
GEI Short Term Investment Fund
(COST $1,140,975) ............ 1,140,975 1,140,975
OTHER ASSETS AND LIABILITIES, NET (0.6)% (124,385)
-----------
NET ASSETS-- 100% ............... $19,879,373
===========
- ------------------
See Notes to Schedule of Investments and Notes to
Financial Statements.
12
<PAGE>
VALUE EQUITY FUND
- --------------------------------------------------------------------------------
Q&A
JON D. BOSSE OF NWQ INVESTMENT MANAGEMENT COMPANY (NWQ), THE FUND'S SUB-ADVISER,
WHICH HAS TOTAL ASSETS UNDER MANAGEMENT EXCEEDING $8 BILLION, IS THE PORTFOLIO
MANAGER OF THE VALUE EQUITY FUND. PRIOR TO JOINING NWQ IN 1996, 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. JON RECEIVED HIS B.A. (SUMMA
CUM LAUDE) IN ECONOMICS FROM WASHINGTON UNIVERSITY IN ST. LOUIS WHERE HE
RECEIVED THE JOHN M. OLIN AWARD FOR EXCELLENCE IN ECONOMICS AND HIS M.B.A. FROM
WHARTON BUSINESS SCHOOL, UNIVERSITY OF PENNSYLVANIA. JON IS ALSO A CHARTERED
FINANCIAL ANALYST (CFA) AND A MEMBER OF THE ASSOCIATION FOR INVESTMENT
MANAGEMENT AND RESEARCH AND THE LOS ANGELES SOCIETY OF FINANCIAL ANALYSTS.
Q. HOW DID THE VALUE EQUITY FUND PERFORM COMPARED TO ITS BENCHMARK AND LIPPER
PEER GROUP FOR THE ONE-YEAR PERIOD ENDED DECEMBER 31, 1998?
A. The Value Equity Fund posted a return of 6.69% for the one-year period ended
December 31, 1998. For the same period, the S&P 500 Index returned 28.70% and
our Lipper peer group of 146 Growth and Income annuity funds returned 16.37%.
Q. HOW DID THE FUND PERFORM COMPARED TO ITS BENCHMARK?
A. The Value Equity Fund, an all-cap portfolio, did outperform the S&P Mid-Cap
400/Barra Value Index by 2.02%, yet underperformed the S&P 500, an index which
was driven by large gains in growth stocks. Growth stocks outperformed value
stocks by 30% over the one-year period. Equally astounding is the fact that more
than 35% of the S&P Mid-Cap 400 Index return -19.12% was generated by one stock
- - America Online. Clearly, 1998 was an extremely challenging and unusual year,
with market averages appreciating sharply while the average stock on the New
York Stock Exchange experienced a double-digit decline. In the Portfolio,
significant gains were realized in a number of stocks, particularly in the cable
and cellular industries.
Q. WHAT SECTORS HAVE YOU LIKED?
A. We have emphasized several sectors including cable, cellular communications,
financial services, and energy. Our cable and cellular investments performed
exceptionally well. Cable performance was driven by industry consolidation,
AT&T's acquisition of Tele-Communications, excitement over new services and the
continued development of the internet. Our cellular investments also posted
substantial gains, driven by solid fundamentals and merger and acquisition
activity. Our energy investments performed poorly during 1998 as oil prices
collapsed due to weakness in Asian economies, a mild winter, and increases in
the Organization of Petroleum Exporting Countries' production levels.
Q. WHICH INVESTMENTS STAND OUT?
A. Cable industry holdings such as Liberty Media Group, NTL, Cox Communications,
and MediaOne Group performed exceptionally well. Cellular holdings, including
Cellular Communications International, CoreComm, and Alltel also appreciated
substantially. Other successful investments include Ford Motor, Philip Morris
Cos., Pharmacia & Upjohn, Chase Manhattan, Berg Electronics, and Darden
Restaurants. Four holdings were acquired or received takeover bids during 1998,
namely Berg Electronics, Provident Cos., 360 Communications, and Cellular
Communications International, which contributed to the stocks' values.
Q. HOW HAVE WE POSITIONED THE FUND GOING FORWARD?
A. Our strategy of investing in undervalued companies with catalysts present to
improve profitability and unlock value remains unchanged. We continue to find
significant investment opportunities in today's market. Recent purchases include
Waste Management, Banc One and Lear. We have maintained our focus in the
financial services, cable and cellular sectors and are not chasing the current
market mania for internet, technology, and other growth stocks where risk/reward
and valuation parameters appears to have fallen to the wayside.
13
<PAGE>
VALUE EQUITY FUND
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
COMPARISON OF CHANGES IN
VALUE OF A $10,000 INVESTMENT
- --------------------------------------------------------------------------------
[LINE GRAPH OMITTED]
PLOT POINTS FOLLOW:
VALUE EQUITY FUND S&P 500
5/1/97 10,000 10,000
6/97 11,450 11,086
9/97 13,320 11,920
12/97 13,256 12,259
3/98 15,055 13,971
6/98 14,975 14,434
9/98 12,406 13,006
12/98 14,142 15,777
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN
FOR THE PERIODS ENDED DECEMBER 31, 1998
- --------------------------------------------------------------------------------
ONE SINCE
YEAR COMMENCEMENT
- --------------------------------------------------------------------------------
Value Equity Fund 6.69% 23.04%
- --------------------------------------------------------------------------------
S&P 500 Index 28.70% 31.37%
- --------------------------------------------------------------------------------
Lipper peer group average* 16.37%
- --------------------------------------------------------------------------------
Commencement date 5/1/97
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
INVESTMENT PROFILE
A fund designed for investors who seek long-term growth of capital by investing
primarily in common stock and other equity securities that are undervalued by
the market at the time of purchase and offer above-average potential for capital
growth.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
TOP TEN LARGEST HOLDINGS
AT DECEMBER 31, 1998
- --------------------------------------------------------------------------------
Tele-Communications Inc. Liberty
Media Group (Series A) ............................ 4.52%
- --------------------------------------------------------------------------------
Cellular Communications International Inc. ........ 4.29%
- --------------------------------------------------------------------------------
Philip Morris Cos. Inc. ........................... 3.79%
- --------------------------------------------------------------------------------
Loews Corp. ....................................... 3.75%
- --------------------------------------------------------------------------------
Provident Cos. Inc. ............................... 3.47%
- --------------------------------------------------------------------------------
NTL Inc. .......................................... 3.26%
- --------------------------------------------------------------------------------
Waste Management Inc. ............................. 3.13%
- --------------------------------------------------------------------------------
Alltel Corp. ...................................... 3.05%
- --------------------------------------------------------------------------------
MediaOne Group Inc. ............................... 2.89%
- --------------------------------------------------------------------------------
Chase Manhattan Corp. ............................. 2.79%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTOLIO ALLOCATION
AS OF DECEMBER 31, 1998
- --------------------------------------------------------------------------------
[PIE CHART OMITTED]
PLOT POINTS FOLLOW:
REAL ESTATE INVESTMENT TRUST 1.0%
CONSUMER - CYCLICAL 24.4%
FINANCIAL 15.8%
INSURANCE 13.6%
TELECOMMUNICATIONS 10.8%
ENERGY 6.7%
CASH & OTHER 5.4%
CONSUMER - STABLE 5.3%
CAPITAL GOODS 4.2%
TECHNOLOGY - ELECTRONICS & EQUIPMENT 4.2%
HEALTHCARE 3.2%
UTILITIES 3.0%
BASIC MATERIALS 2.4%
* LIPPER PERFORMANCE COMPARISON ARE BASED ON AVERAGE ANNUAL TOTAL RETURNS FOR
THE PERIOD INDICATED IN THE GROWTH & INCOME PEER GROUP CONSISTING OF 146
UNDERLYING ANNUITY FUNDS.
SEE NOTES TO PERFORMANCE.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.
14
<PAGE>
SCHEDULE OF INVESTMENTS DECEMBER 31, 1998
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
VALUE EQUITY FUND
- --------------------------------------------------------------------------------
NUMBER
OF SHARES VALUE
- --------------------------------------------------------------------------------
COMMON STOCK -- 94.6%
- --------------------------------------------------------------------------------
BASIC MATERIALS -- 2.4%
Praxair Inc. ....................... 37,000 $ 1,304,250
CAPITAL GOODS -- 4.2%
Atchison Casting Corp. ............. 10,500 97,125(a)
Case Corp. ......................... 22,500 490,781
Waste Management Inc. .............. 36,000 1,678,500
2,266,406
CONSUMER - CYCLICAL -- 24.4%
@ Entertainment Inc. ............... 47,900 323,325(a)
Circus Circus Enterprises Inc. ..... 36,000 411,750(a)
Cox Communications Inc. ............ 20,000 1,382,500(a)
Darden Restaurants Inc. ............ 30,000 540,000
Ford Motor Co. ..................... 14,800 868,575
Hasbro Inc. ........................ 40,700 1,470,288
Hayes Lemmerz International Inc. ... 28,700 866,381(a)
Lear Corp. ......................... 6,500 250,250(a)
MediaOne Group Inc. ................ 33,000 1,551,000
NTL Inc. ........................... 31,000 1,749,562(a)
Tele-Communications Inc.
Liberty Media Group
(Series A) ...................... 52,670 2,426,112(a)
The E.W. Scripps Co. Inc ........... 25,000 1,243,750
13,083,493
CONSUMER - STABLE -- 5.3%
Alberto-Culver Co. ................. 32,000 808,000
Philip Morris Cos. Inc. ............ 38,000 2,033,000
2,841,000
ENERGY -- 6.7%
BJ Services Co. .................... 48,000 750,000(a)
Noble Affiliates Inc. .............. 27,000 664,875
Ocean Energy Inc. .................. 89,050 562,128(a)
Tosco Corp. ........................ 35,000 905,625
Transocean Offshore Inc. ........... 27,000 723,938
3,606,566
FINANCIAL -- 15.8%
Bank One Corp. ..................... 28,000 1,429,750
BankAmerica Corp. .................. 19,031 1,144,239
Chase Manhattan Corp. .............. 22,000 1,497,375
First Union Corp. .................. 22,000 1,337,875
Fleet Financial Group Inc. ......... 20,000 893,750
Heller Financial Inc. .............. 34,000 998,750
Waddell & Reed Financial Inc.
(Class A) ....................... 43,433 1,028,819
Waddell & Reed Financial Inc.
(Class B) ....................... 6,171 143,476
8,474,034
NUMBER
OF SHARES VALUE
- --------------------------------------------------------------------------------
HEALTHCARE -- 3.2%
Integrated Health Services Inc. ... 45,000 $ 635,625
Pharmacia & Upjohn Inc. ........... 19,000 1,075,875
1,711,500
INSURANCE -- 13.6%
Aetna Inc. ........................ 16,000 1,258,000
Hartford Financial Services
Group Inc. ..................... 23,000 1,262,125
Loews Corp. ....................... 20,500 2,014,125
Provident Cos. Inc. ............... 44,800 1,859,200
Torchmark Corp. ................... 25,200 889,875
7,283,325
REAL ESTATE INVESTMENT TRUST -- 1.0%
Indymac Mortgage Holdings Inc. .... 49,000 517,563
TECHNOLOGY - ELECTRONICS & EQUIPMENT -- 4.2%
Allen Telecomm Inc. ............... 40,000 267,500
Quantum Corp. ..................... 53,000 1,126,250(a)
Storage Technology Corp. .......... 23,600 839,275(a)
2,233,025
TELECOMMUNICATIONS -- 10.8%
Cellular Communications
International Inc. ............. 33,812 2,299,216 (a)
Cellular Communications of
Puerto Rico .................... 65,000 1,202,500 (a)
CoreComm Ltd. ..................... 65,000 1,023,750(a)
Telephone & Data Systems Inc. ..... 28,000 1,258,250
5,783,716
UTILITIES -- 3.0%
Alltel Corp. ...................... 27,380 1,637,666
TOTAL INVESTMENTS IN SECURITIES
(COST $45,323,665) ............. 50,742,544
- --------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS -- 4.7%
- --------------------------------------------------------------------------------
GEI Short Term Investment Fund
(COST $2,528,702) ............. 2,528,702 2,528,702
OTHER ASSETS AND LIABILITIES, NET 0.7% 371,371
----------
NET ASSETS-- 100% $53,642,617
===========
- -------------
See Notes to Schedule of Investments and Notes to
Financial Statements.
15
<PAGE>
U.S. EQUITY FUND
- --------------------------------------------------------------------------------
Q&A
GENE BOLTON IS RESPONSIBLE FOR THE OVERALL MANAGEMENT OF GE INVESTMENT'S U.S.
EQUITY OPERATION WITH ASSETS UNDER MANAGEMENT OF OVER $31 BILLION. HIS
RESPONSIBILITIES INCLUDE OVERSEEING THE PORTFOLIO MANAGEMENT TEAMS OF THE U.S.
EQUITY FUND. GENE JOINED GE IN 1964. AFTER COMPLETING GE'S FINANCIAL MANAGEMENT
PROGRAM HE HELD A NUMBER OF FINANCIAL AND STRATEGIC PLANNING POSITIONS IN THE
U.S. AND EUROPE. JOINING GE INVESTMENTS IN 1984 AS CHIEF FINANCIAL OFFICER, HE
MOVED TO EQUITIES AS A PORTFOLIO MANAGER IN 1986 AND WAS NAMED TO HIS PRESENT
POSITION IN 1991. GENE IS A TRUSTEE OF THE GE PENSION TRUST AND GE'S EMPLOYEE
SAVINGS PROGRAM, AS WELL AS CHAIRMAN OF THE ASSET ALLOCATION COMMITTEE OF GE
INVESTMENTS. HE ALSO SERVES AS A TRUSTEE OF THE INVESTMENT MANAGEMENT WORKSHOP,
SPONSORED BY THE ASSOCIATION FOR INVESTMENT MANAGEMENT AND RESEARCH. GENE IS A
GRADUATE OF MUNDELEIN COLLEGE WITH A B.A. IN BUSINESS MANAGEMENT.
Q. HOW DID THE U.S. EQUITY FUND PERFORM COMPARED TO ITS BENCHMARKS AND LIPPER
PEER GROUP FOR THE ONE-YEAR PERIOD ENDED DECEMBER 31, 1998?
A. The U.S. Equity Fund posted a return of 23.41% for the one-year ending
December 31, 1998. For the same period, the S&P 500 Index posted a 28.70% and
our Lipper peer group of 146 Growth and Income annuity funds returned 16.37%
Q. WHAT FACTORS CONTRIBUTED TO THE FUND'S PERFORMANCE?
A. The S&P 500 Index outperformed the fund in a narrow market where a few large
companies, notably in the technology sector, did extremely well. Investors gave
these companies high valuations and, although the fund includes strong
technology stocks such as Cisco Systems, Sun Microsystems, EMC and International
Business Machines, it was underweighted in the sector because of valuation
concerns.
Q. WHICH INVESTMENTS STAND OUT?
A. Strong performances by consumer stocks helped the fund outperform its peers.
Healthcare issues such as Allergan, Merck and Watson Pharmaceuticals did well
because their earnings growth remained strong while earnings slowed in other
sectors. With consumer confidence high and unemployment low, holdings in home
improvement retailers Home Depot and Loews Cos., retailers Wal-Mart Stores and
Dayton Hudson, and Comcast, a media company, posted excellent returns. In
contrast, the fund's energy sector holdings underperformed because oil prices
stayed low longer than expected. We remain hopeful that factors such as colder
weather, production cutbacks within the Organization of Petroleum Exporting
Countries, and a possible increase in demand from Asia may reverse the inventory
overhang which has resulted in oil price weakness in 1999.
Q. HAVE YOU MADE ANY CHANGES TO THE PORTFOLIO?
A. In early 1999, we made some changes to the portfolio's structure. These
changes should generate better returns without altering the fund's close
tracking to the S&P 500 Index. The fund remains balanced between value and
growth stocks. The bulk of the fund's assets moved from utilization of four
portfolio managers to the two most senior managers. This resulted in a portfolio
that is more concentrated, with holdings declining from 250 companies to
approximately 160. We also added a research portfolio component, comprising
about 15% of the fund. This component reflects the best ideas of our research
analysts, who have been managing a very successful broad research portfolio for
the past seven years. The fund will use a more concentrated version of the
research portfolio -- with approximately 60 companies. The goal is to amplify
positions that the two portfolio managers already own. This places more emphasis
on stock selection, which has been our strength historically, rather than sector
allocation. We believe these changes will set the stage for better performance
going forward. We will continue to focus on fundamental research and stock
selection, with more concentration in fewer stocks that we believe have the best
potential to outperform the market over the longer term.
Q. WHAT IS YOUR OUTLOOK FOR THE FUND IN 1999?
A. We foresee a reasonably healthy United States economy fueled by low
inflation, high consumer confidence, job growth and another federal budget
surplus. Although domestic and global growth may slow, signs of recession are
few. However, businesses will find it challenging to raise prices. In this
environment, shareholders will reward companies that can increase revenues and
profits consistently without the benefit of higher prices.
16
<PAGE>
U.S. EQUITY FUND
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
COMPARISON OF CHANGES IN
VALUE OF A $10,000 INVESTMENT
- --------------------------------------------------------------------------------
[LINE GRAPH OMITTED]
PLOT POINTS FOLLOW:
U.S. EQUITY FUND S&P 500
1/3/95 10,000 10,000
3/95 10,940 10,974
6/95 11,973 12,019
9/95 12,873 12,977
12/95 13,558 13,749
3/96 14,353 14,497
6/96 14,888 15,151
9/96 15,218 15,616
12/96 16,502 16,927
3/97 16,854 17,369
6/97 19,598 20,404
9/97 21,255 21,938
12/97 21,805 22,563
3/98 24,394 25,713
6/98 24,989 26,566
9/98 22,447 23,937
12/98 26,910 29,038
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN
FOR THE PERIODS ENDED DECEMBER 31, 1998
- --------------------------------------------------------------------------------
ONE THREE SINCE
YEAR YEAR COMMENCEMENT
- --------------------------------------------------------------------------------
U.S. Equity Fund 23.41% 25.67% 28.12%
- --------------------------------------------------------------------------------
S&P 500 Index 28.70% 28.30% 30.59%
- --------------------------------------------------------------------------------
Lipper peer group average* 16.37% 21.21%
- --------------------------------------------------------------------------------
Commencement date 1/3/95
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
INVESTMENT PROFILE
A fund designed for investors who seek long-term growth of capital by investing
primarily in equity securities of U.S. companies.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
TOP TEN LARGEST HOLDINGS
AT DECEMBER 31, 1998
- --------------------------------------------------------------------------------
Citigroup Inc. .................................... 2.81%
- --------------------------------------------------------------------------------
Merck & Co. Inc. .................................. 2.56%
- --------------------------------------------------------------------------------
Bristol-Myers Squibb Co. .......................... 2.48%
- --------------------------------------------------------------------------------
International Business Machines ................... 2.10%
- --------------------------------------------------------------------------------
Federal National Mortgage Assoc. .................. 1.96%
- --------------------------------------------------------------------------------
AlliedSignal Inc. ................................. 1.75%
- --------------------------------------------------------------------------------
Cisco Systems Inc. ................................ 1.71%
- --------------------------------------------------------------------------------
Cardinal Health Inc. .............................. 1.59%
- --------------------------------------------------------------------------------
SBC Communications Inc. ........................... 1.48%
- --------------------------------------------------------------------------------
Wal-Mart Stores Inc. .............................. 1.38%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO COMPOSITION
AS OF DECEMBER 31, 1998
- --------------------------------------------------------------------------------
[PIE CHART OMITTED]
PLOT POINTS FOLLOW:
BASIC MATERIALS 1.8%
HEALTHCARE 15.0%
FINANCIAL 10.8%
UTILITIES 9.5%
CONSUMER - CYCLICAL 8.7%
CAPITAL GOODS 8.5%
TECHNOLOGY - ELECTRONICS & EQUPIMENT 8.3%
CONSUMER - STABLE 7.6%
ENERGY 6.6%
TECHNOLOGY - SOFTWARE & SERVICES 6.6%
RETAIL TRADE 5.9%
INSURANCE 4.8%
CASH & OTHER 4.0%
TRANSPORTATION 1.9%
* LIPPER PERFORMANCE COMPARISONS ARE BASED ON AVERAGE ANNUAL TOTAL RETURNS FOR
THE PERIODS INDICATED IN THE GROWTH AND INCOME PEER GROUP CONSISTING OF 146 AND
80 UNDERLYING ANNUITY FUNDS, RESPECTIVELY.
SEE NOTES TO PERFORMANCE.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.
17
<PAGE>
U.S. EQUITY FUND
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
U.S. EQUITY FUND
- --------------------------------------------------------------------------------
NUMBER
OF SHARES VALUE
- --------------------------------------------------------------------------------
COMMON STOCK -- 95.3%
- --------------------------------------------------------------------------------
BASIC MATERIALS -- 1.8%
Air Products & Chemicals Inc. ....... 2,699 $ 107,960
Airgas Inc. ......................... 1,703 15,221(a)
Barrick Gold Corp. .................. 2,958 57,681
Du Pont de Nemours (E.I.) & Co. ..... 2,987 158,498
Great Lakes Chemical Corp. .......... 1,477 59,080
Morton International Inc. ........... 1,841 45,104
Newmont Mining Corp. ................ 4,103 74,110
Rayonier Inc. ....................... 1,123 51,588
569,242
CAPITAL GOODS -- 8.5%
AlliedSignal Inc. ................... 12,332 546,462
Deere & Co. ......................... 1,963 65,024
Dover Corp. ......................... 10,595 388,042(h)
Emerson Electric Co. ................ 3,695 223,547
Gulfstream Aerospace Corp. .......... 730 38,873(a)
Hubbell Inc. (Class B) .............. 6,346 241,148
Lockheed Martin Corp. ............... 625 52,969
Martin Marietta Materials Inc. ...... 3,201 199,062
Masco Corp. ......................... 2,494 71,702
Molex Inc. (Class A) ................ 3,200 102,000
Textron Inc. ........................ 3,661 278,007
Tyco International Ltd. ............. 102 7,695
United Technologies Corp. ........... 1,449 157,579
Waste Management Inc. ............... 6,018 280,589
2,652,699
CONSUMER - CYCLICAL -- 8.7%
Carnival Corp. (Class A) ............ 1,941 93,168
Catalina Marketing Corp. ............ 1,585 108,374(a)
Comcast Corp. (Class A) ............. 4,900 287,569
Ford Motor Co. ...................... 1,217 71,423
Gannett Inc. ........................ 4,253 274,318
Harman International Industries Inc. 847 32,292
Interpublic Group Cos. Inc. ......... 4,031 321,472
Knight-Ridder Inc. .................. 1,996 102,045
McDonald's Corp. .................... 2,472 189,417
NTL Inc. ............................ 3,706 209,158(a)
Stanley Works ....................... 702 19,481
Tele-Communications Inc.
(Series A) ....................... 4,170 230,653 (a)
Tele-Communications Inc.
Liberty Media Group
(Series A) ....................... 2,107 97,054 (a)
Tele-Communications TCI
Ventures Group (Series A) ........ 2,356 55,513 (a)
Time Warner Inc. .................... 1,040 64,545
Walt Disney Co. ..................... 6,177 185,310
Xerox Corp. ......................... 3,158 372,644
2,714,436
NUMBER
OF SHARES VALUE
- --------------------------------------------------------------------------------
CONSUMER - STABLE -- 7.6%
Anheuser Busch Cos. Inc. ............ 3,462 $ 227,194
Avon Products Inc. .................. 5,386 238,330
Bestfoods ........................... 1,493 79,502
Coca Cola Co. ....................... 166 11,101
Colgate-Palmolive Co. ............... 354 32,878
Conagra Inc. ........................ 1,869 58,874
General Mills Inc. .................. 1,123 87,313
Gillette Co. ........................ 625 30,195
Kimberly Clark Corp. ................ 1,703 92,814
Nestle S.A. (Regd.) ................. 39 84,888
Pepsico Inc. ........................ 8,223 336,629
Philip Morris Cos. Inc. ............. 6,702 358,557(h)
Procter & Gamble Co. ................ 2,743 250,470
Ralston Purina Co. .................. 5,618 181,883
Sara Lee Corp. ...................... 10,240 288,640
2,359,268
ENERGY -- 6.6%
Anadarko Petroleum Co. .............. 1,399 43,194
Baker Hughes Inc. ................... 2,190 38,736
British Petroleum PLC ADR ........... 1,649 156,640
Burlington Resources Inc. ........... 3,755 134,476
Chevron Corp. ....................... 874 72,487
Exxon Corp. ......................... 5,038 368,404(h)
Halliburton Co. ..................... 4,159 123,210
Mobil Corp. ......................... 3,401 296,312
Nabors Industries Inc. .............. 1,288 17,469(a)
Royal Dutch Petroleum Co. ADR ....... 5,060 242,248
Schlumberger Ltd. ................... 4,556 210,146
Texaco Inc. ......................... 1,493 78,942
Total S.A. ADR ...................... 935 46,516
Unocal Corp. ........................ 5,132 149,790
USX-Marathon Group .................. 2,345 70,643
2,049,213
FINANCIAL -- 10.8%
American Express Co. ................ 3,241 331,392(h)
Associates First Capital Corp.
(Class A) ........................ 3,738 158,398
Bank of New York Inc. ............... 1,642 66,091
BankAmerica Corp. ................... 2,921 175,597
BankBoston Corp. .................... 2,289 89,128
Chase Manhattan Corp. ............... 2,560 174,240
Citigroup Inc. ...................... 17,690 875,655
Countrywide Credit Industries ....... 503 25,244
Crestar Financial Corp. ............. 2 144
Federal National Mortgage Assoc. .... 8,262 611,388
First Union Corp. ................... 1,659 100,888
ING Groep N.V. ADR .................. 1 62
Morgan Stanley, Dean Witter ......... 4,120 292,520
National City Corp. ................. 2,162 156,745
State Street Corp. .................. 1,533 106,639
United States Bancorp. .............. 3,119 110,725
Wells Fargo & Co. ................... 2,057 82,151
3,357,007
- ------------
See Notes to Schedule of Investments and Notes to
Financial Statements.
18
<PAGE>
SCHEDULE OF INVESTMENTS DECEMBER 31, 1998
- --------------------------------------------------------------------------------
NUMBER
OF SHARES VALUE
- --------------------------------------------------------------------------------
HEALTHCARE -- 15.0%
Abbott Laboratories ................. 7,958 $ 389,942(h)
Allergan Inc. ....................... 3,495 226,301
American Home Products Corp. ........ 3,451 194,334
Amgen Inc. .......................... 935 97,766(a)
Bristol-Myers Squibb Co. ............ 5,768 771,831
Cardinal Health Inc. ................ 6,549 496,875
Dentsply International Inc. ......... 1,496 38,522
Eli Lilly & Co. ..................... 332 29,507
Henry Schein Inc. ................... 749 33,518(a)
Johnson & Johnson ................... 4,816 403,942
Lincare Holdings Inc. ............... 1,711 69,402(a)
Merck & Co. Inc. .................... 5,392 796,331
Omnicare Inc. ....................... 650 22,588
Pfizer Inc. ......................... 2,677 335,796
Pharmacia & Upjohn Inc. ............. 2,804 158,777
Schering Plough Corp. ............... 3,611 199,508
Shire Pharmaceuticals Group
PLC ADR .......................... 597 12,089(a)
Sybron International Corp. .......... 2,797 76,043(a)
Tenet Healthcare Corp. .............. 2,865 75,206(a)
Watson Pharmaceuticals Inc. ......... 4,031 253,449(a)
4,681,727
INSURANCE -- 4.8%
American International Group Inc. ... 2,616 252,771
Berkshire Hathaway Inc. (Class B) ... 160 376,294(a)
Chicago Title Corp. ................. 18 845
Hartford Financial Services
Group Inc. ....................... 2,267 124,402
Lincoln National Corp. .............. 1,493 122,146
Loews Corp. ......................... 1,853 182,057
Marsh & McLennan Cos. Inc. .......... 1,482 86,604
Provident Cos. Inc. ................. 2,804 116,366
Reliastar Financial Corp. ........... 3,307 152,535
St. Paul Cos. Inc. .................. 1,432 49,762
UNUM Corp. .......................... 359 20,957
1,484,739
RETAIL TRADE -- 5.9%
Costco Cos. Inc. .................... 1,759 126,978(a)
CVS Corp. ........................... 685 37,675
Dayton Hudson Corp. ................. 7,897 428,412
Federated Department Stores Inc. .... 2,378 103,592(a)
Home Depot Inc. ..................... 5,026 307,528
Lowes Cos. Inc. ..................... 6,000 307,125
Sears Roebuck & Co. ................. 2,179 92,607
Wal-Mart Stores Inc. ................ 5,298 431,456
1,835,373
TECHNOLOGY - ELECTRONICS & EQUIPMENT -- 8.3%
Analog Devices Inc. ................. 4,606 144,513(a)
Applied Materials Inc. .............. 1,963 83,795(a,h)
Cisco Systems Inc. .................. 5,730 531,816(a)
Hewlett Packard Co. ................. 2,604 177,886
Intel Corp. ......................... 2,997 355,332
International Business Machines ..... 3,550 655,862
Northern Telecom Ltd. ............... 3,484 174,635
Pitney Bowes Inc. ................... 2,477 163,637
Sun Microsystems Inc. ............... 3,705 317,241(a)
2,604,717
NUMBER
OF SHARES VALUE
- --------------------------------------------------------------------------------
TECHNOLOGY - SOFTWARE & SERVICES -- 5.9%
Automatic Data Processing Inc. ..... 3,191 $ 255,878
Computer Sciences Corp. ............ 1,742 112,250
EMC Corp. .......................... 3,982 338,470(a)
Equifax Inc. ....................... 8,715 297,944
First Data Corp. ................... 11,961 379,014
Microsoft Corp. .................... 2,654 368,077(a)
Reuters Holdings PLC ADR ........... 1,532 97,091
1,848,724
TRANSPORTATION -- 1.9%
Burlington Northern Santa Fe ....... 6,227 210,161
Canadian Pacific Ltd. .............. 3,097 58,456
Continental Airlines Inc.(Class B) . 3,998 133,933(a)
Delta Air Lines Inc. ............... 3,208 166,816
Pittston Brinks Group .............. 542 17,276
586,642
UTILITIES -- 9.5%
Airtouch Communications Inc. ...... 5,668 408,804(a)
American Electric Power Inc. ...... 2,494 117,374
American Telephone &
Telegraph Corp. ................ 1,996 150,199(h)
Bell Atlantic Corp. ............... 3,987 211,311(h)
Bellsouth Corp. ................... 1,184 59,052
CMS Energy Corp. .................. 3,207 155,339
Duke Energy Corp. ................. 2,245 143,820
Edison International .............. 3,113 86,775
Florida Progress Corp. ............ 1,742 78,063
FPL Group Inc. .................... 1,244 76,662
Frontier Corp. .................... 1,559 53,006
GTE Corp. ......................... 4,258 276,770
MCI WorldCom Inc. ................. 2,964 212,667(a)
New Century Energies Inc. ......... 1,869 91,114
Northern States Power Co. ......... 1,869 51,865
Qwest Communications
International Inc. ............. 885 44,250(a)
SBC Communications Inc. ........... 8,583 460,263
Sprint Corp. ...................... 807 67,889
Texas Utilities Co. ............... 1,869 87,259
U.S. WEST Inc. .................... 2,057 132,934
2,965,416
TOTAL COMMON STOCK
(COST $24,443,617) ............. 29,709,203
- --------------------------------------------------------------------------------
PREFERRED STOCK -- 0.7%
- --------------------------------------------------------------------------------
Microsoft Corp. (Series A)
(COST $204,701) ................ 2,218 216,810
TOTAL INVESTMENTS IN SECURITIES
(COST $24,648,318) ............. 29,926,013
- ---------
See Notes to Schedule of Investments and Notes to
Financial Statements.
19
<PAGE>
U.S. EQUITY FUND
- --------------------------------------------------------------------------------
NUMBER
OF SHARES VALUE
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS -- 3.8%
- --------------------------------------------------------------------------------
GEI Short Term Investment Fund
(COST $1,182,947) ............. 1,182,947 $ 1,182,947
OTHER ASSETS AND LIABILITIES, NET 0.2% 51,097
------------
NET ASSETS-- 100% ...................... $31,160,057
=============
- --------------------------------------------------------------------------------
OTHER INFORMATION
- --------------------------------------------------------------------------------
The U.S. Equity Fund had the following long Futures Contracts open at December
31, 1998:
NUMBER
EXPIRATION OF UNDERLYING UNREALIZED
DESCRIPTION DATE CONTRACTS FACE VALUE GAIN
- --------------------------------------------------------------------------------
S&P 500 March 1999 3 $ 934,125 $ 33,588
- --------
See Notes to Schedule of Investments and Notes to
Financial Statements.
20
<PAGE>
S&P 500 INDEX FUND
- --------------------------------------------------------------------------------
Q&A
JAMES B. MAY LEADS A TEAM OF PORTFOLIO MANAGERS AT STATE STREET GLOBAL ADVISORS,
THE SUB-ADVISER FOR THE S&P 500 INDEX FUND. SINCE 1994, JAMES HAS BEEN AN
INVESTMENT OFFICER AND PORTFOLIO MANAGER IN THE U.S. STRUCTURED PRODUCTS GROUP
AT STATE STREET BANK AND TRUST COMPANY WHICH HAS TOTAL ASSETS UNDER MANAGEMENT
EXCEEDING $441 BILLION. FROM 1991 TO 1993, JAMES SERVED AS AN INVESTMENT SUPPORT
ANALYST IN THE U.S. PASSIVE SERVICES GROUP AT STATE STREET. JAMES HOLDS A B.S.
IN FINANCE FROM BENTLEY COLLEGE AND AN M.B.A. FROM BOSTON COLLEGE.
Q. HOW DID THE S&P 500 INDEX FUND PERFORM COMPARED TO ITS BENCHMARK AND LIPPER
PEER GROUP FOR THE ONE-YEAR PERIOD ENDED DECEMBER 31, 1998?
A. The S&P 500 Index Fund posted a return of 28.24% for the one-year period
ended December 31, 1998. For the same period, the S&P 500 Index returned 28.70%
and our Lipper peer group of 28 S&P 500 Index Objective annuity funds returned
28.25%.
Q. WHY DID THE FUND UNDERPERFORM ITS BENCHMARK?
A. The S&P 500 Index is an unmanaged index and does not reflect the actual cost
of investing in the instruments that comprise the index or expenses related to
managing a mutual fund. If these expenses (0.45% for the one-year period ended
December 31, 1998) were taken into account, the fund's performance would track
that of the S&P 500 Index.
Q. WHAT HAS YOUR INVESTMENT STRATEGY BEEN?
A. We continue to utilize a full replication strategy to manage the S&P 500
Index Fund. With this strategy, all 500 constituents of the S&P 500 Index are
owned by the fund in the approximate capitalization weight of the S&P 500 Index.
This methodology provided consistent tracking with the S&P 500 Index.
Q. WHAT DOMESTIC AND WORLD EVENTS HAD A MAJOR IMPACT ON THE FINANCIAL MARKETS IN
THE PAST TWELVE MONTHS AND HOW DID THIS IMPACT YOUR FUND?
A. The two defining characteristics of the 1998 equity market were volatility
and narrowness of performance. As record point gains and losses occurring on a
daily basis, the long awaited correction occurred in August when the uncertainty
of the Asian/Russian crisis, White House scandal, fear of returning inflation
and other issues came to a head in the global equity markets. The S&P 500
Index's drop of 14.44% for the month pushed third quarter performance down
9.89%. The drop was soon forgotten as the S&P 500 Index rebounded during the
fourth quarter. This gain was spurred on by continued low inflation, a positive
outlook by U.S. consumers and three consecutive interest rate cuts by the
Federal Reserve in late fall. Only a few stocks within the S&P 500 Index
including companies such as Microsoft, General Electric, International Business
Machines, Wal-Mart Stores and Lucent Technologies, however, powered the rebound.
In fact, approximately 50 companies contributed to the bulk of the annual S&P
500 Index return with 75% of the index composite stocks lagging the return.
As in previous years, 1998 was dominated by growth companies. The S&P/Barra
Growth Index returned 42.16% while the S&P/Barra Value Index returned 14.68% for
the year. Large capitalization stocks such as those in the S&P 500 Index,
outperformed their small-cap counterparts as exhibited by the Russell 2000
returning -2.64% for 1998.
Q. WHAT IS THE OUTLOOK FOR THE FUND?
A. With the passively managed strategy of the fund, it will remain properly
positioned to track the return of the S&P 500 Index.
21
<PAGE>
S&P 500 INDEX FUND
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
COMPARISON OF CHANGES IN
VALUE OF A $10,000 INVESTMENT
- --------------------------------------------------------------------------------
[LINE GRAPH OMITTED]
PLOT POINTS FOLLOW:
S&P 500 INDEX FUND S&P 500
'88 10,000 10,000
'89 12,548 13,154
'90 11,264 12,738
'91 15,136 16,633
'92 16,405 17,918
'93 18,766 19,712
'94 18,752 19,968
'95 25,529 27,454
'96 31,786 33,800
'97 41,426 45,053
'98 53,125 57,982
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN
FOR THE PERIODS ENDED DECEMBER 31, 1998
- --------------------------------------------------------------------------------
ONE FIVE TEN
YEAR YEAR YEAR
- --------------------------------------------------------------------------------
S&P 500 Index Fund 28.24% 23.14% 18.18%
- --------------------------------------------------------------------------------
S&P 500 Index 28.70% 24.08% 19.21%
- --------------------------------------------------------------------------------
Lipper peer group average* 28.25% 23.58% 18.62%
- --------------------------------------------------------------------------------
Commencement date 4/15/85
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
INVESTMENT PROFILE
A fund designed for investors who seek long-term growth of capital and
accumulation of income by investing in common stocks comprised in the Standard &
Poor's 500 Composite Stock Price Index.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
TOP TEN LARGEST HOLDINGS
AT DECEMBER 31, 1998
- --------------------------------------------------------------------------------
Microsoft Corp. ................................... 3.36%
- --------------------------------------------------------------------------------
General Electric Co. .............................. 3.25%
- --------------------------------------------------------------------------------
Intel Corp. ....................................... 1.92%
- --------------------------------------------------------------------------------
Wal-Mart Stores Inc. .............................. 1.78%
- --------------------------------------------------------------------------------
Exxon Corp. ....................................... 1.73%
- --------------------------------------------------------------------------------
Merck & Co. Inc. .................................. 1.70%
- --------------------------------------------------------------------------------
International Business Machines ................... 1.68%
- --------------------------------------------------------------------------------
Coca Cola Co. ..................................... 1.60%
- --------------------------------------------------------------------------------
Pfizer Inc. ....................................... 1.57%
- --------------------------------------------------------------------------------
Cisco Systems Inc. ................................ 1.42%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO COMPOSITION
AS OF DECEMBER 31, 1998
- --------------------------------------------------------------------------------
[PIE CHART OMITTED]
PLOT POINTS FOLLOW:
TRANSPORTATION 0.9%
FINANCIAL 12.3%
HEALTHCARE 12.0%
TECHNOLOGY - ELECTRONICS & EQUIPMENT 11.6%
UTILITIES 11.0%
CONSUMER - STABLE 9.5%
CONSUMER - CYCLICAL 8.0%
CAPITAL GOODS 7.7%
TECHNOLOGY - SOFTWARE & SERVICES 6.4%
RETAIL TRADE 6.1%
ENERGY 5.5%
CASH & OTHER 3.1%
BASIC MATERIALS 3.0%
INSURANCE 2.9%
* LIPPER PERFORMANCE COMPARISON ARE BASED ON AVERAGE ANNUAL TOTAL RETURNS FOR
THE PERIODS INDICATED IN THE S&P 500 INDEX OBJECTIVE PEER GROUP CONSISTING OF
28, 17 AND 7 UNDERLYING ANNUITY FUNDS, RESPECTIVELY.
SEE NOTES TO PERFORMANCE.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.
22
<PAGE>
SCHEDULE OF INVESTMENTS DECEMBER 31, 1998
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
S&P 500 INDEX FUND
- --------------------------------------------------------------------------------
NUMBER
OF SHARES VALUE
- --------------------------------------------------------------------------------
COMMON STOCK -- 96.7%
- --------------------------------------------------------------------------------
BASIC MATERIALS -- 3.0%
Air Products & Chemicals Inc. ....... 7,032 $ 281,280(h)
Alcan Aluminum Ltd. ................. 6,777 183,403(h)
Allegheny Teldyne Inc. .............. 5,902 120,622(h)
Aluminum Co. of America ............. 5,788 431,568
Asarco Inc. ......................... 838 12,622
Avery Dennison Corp. ................ 3,755 169,210
Barrick Gold Corp. .................. 12,233 238,543
Battle Mountain Gold Co. ............ 5,453 22,494
Bethlehem Steel Corp. ............... 4,966 41,590(a)
Boise Cascade Corp. ................. 2,223 68,913
Champion International Corp. ........ 3,225 130,612
Cyprus Amax Minerals Co. ............ 2,191 21,910
Dow Chemical Co. .................... 7,120 647,475
Du Pont de Nemours (E.I.) & Co. ..... 35,711 1,894,915
Eastman Chemical Co. ................ 2,459 110,040
Ecolab Inc. ......................... 3,926 142,072
Engelhard Corp. ..................... 4,246 82,797
FMC Corp. ........................... 1,253 70,168(a)
Fort James Corp. .................... 7,084 283,360
Freeport McMoran Copper &
Gold Inc. (Class B) .............. 6,284 65,589
Georgia Pacific Corp. ............... 2,864 167,723
Goodrich (B.F.) Co. ................. 2,001 71,786
Great Lakes Chemical Corp. .......... 1,797 71,880
Hercules Inc. ....................... 2,828 77,417
Homestake Mining Co. ................ 8,689 79,830
Inco Ltd. ........................... 4,312 45,546
International Paper Co. ............. 9,581 429,349
Louisiana Pacific Corp. ............. 2,822 51,678
Mead Corp. .......................... 3,158 92,569
Millipore Corp. ..................... 945 26,873
Monsanto Co. ........................ 19,979 949,002
Morton International Inc. ........... 4,023 98,563
Nalco Chemical Co. .................. 1,805 55,955
Newmont Mining Corp. ................ 4,728 85,400
Nucor Corp. ......................... 2,709 117,164
Pall Corp. .......................... 3,778 95,631
Phelps Dodge Corp. .................. 1,967 100,071
Placer Dome Inc. .................... 8,074 92,851
Potlatch Corp. ...................... 730 26,919
PPG Industries Inc. ................. 5,737 334,180
Praxair Inc. ........................ 5,235 184,534
Reynolds Metals Co. ................. 2,085 109,853
Rohm & Haas Co. ..................... 5,562 167,555
Sealed Air Corp. .................... 2,557 130,567(a)
Sigma-Aldrich Corp. ................. 2,991 87,861
Union Camp Corp. .................... 2,339 157,882
Union Carbide Corp. ................. 4,101 174,292
USX-US Steel Group Inc. ............. 2,265 52,095
W.R. Grace & Co. .................... 1,787 28,034(a)
Westvaco Corp. ...................... 3,020 80,974
Weyerhaeuser Co. .................... 6,460 328,249
Willamette Industries Inc. .......... 3,450 115,575
Worthington Industries Inc. ......... 3,141 39,263
9,746,304
NUMBER
OF SHARES VALUE
- --------------------------------------------------------------------------------
CAPITAL GOODS -- 7.7%
Aeroquip-Vickers Inc. ............. 717 $ 21,465
AlliedSignal Inc. ................. 17,544 777,418
AMP Inc. .......................... 6,813 354,702
Armstrong World Industries Inc. ... 1,315 79,311
Boeing Co. ........................ 31,716 1,034,734
Briggs & Stratton Corp. ........... 534 26,633
Browning-Ferris Industries Inc. ... 5,280 150,150
Case Corp. ........................ 2,295 50,060
Caterpillar Inc. .................. 11,416 525,136
Centex Corp. ...................... 1,960 88,323
Cooper Industries Inc. ............ 3,571 170,292
Corning Inc. ...................... 7,713 347,085
Crane Co. ......................... 2,427 73,265
Cummins Engine Co. Inc. ........... 1,189 42,210
Danaher Corp. ..................... 4,000 217,250
Deere & Co. ....................... 7,620 252,412
Dover Corp. ....................... 6,958 254,837
Eaton Corp. ....................... 2,350 166,116
Emerson Electric Co. .............. 13,874 839,377
Fleetwood Enterprises Inc. ........ 1,230 42,743
Fluor Corp. ....................... 2,152 91,594
Foster Wheeler Corp. .............. 1,006 13,267
General Dynamics Corp. ............ 4,182 245,170
General Electric Co. .............. 103,965 10,610,928
Grainger (W.W.) Inc. .............. 2,782 115,801
Harnischfeger Industries Inc. ..... 1,133 11,542
Honeywell Inc. .................... 3,992 300,647
Illinois Tool Works Inc. .......... 8,097 469,626
Ingersoll Rand Co. ................ 5,199 244,028
Johnson Controls Inc. ............. 2,741 161,719
Kaufman & Broad Home Corp. ........ 880 25,300
Lockheed Martin Corp. ............. 6,076 514,941
Masco Corp. ....................... 10,990 315,962
McDermott International Inc. ...... 1,719 42,438
Milacron Inc. ..................... 994 19,135
Minnesota Mining &
Manufacturing Co. .............. 12,640 899,020
Nacco Industries Inc. ............. 222 20,424
National Service Industries Inc. .. 1,276 48,488
Navistar International Corp. Inc. . 2,395 68,258(a)
Northrop Grumman Corp. ............ 2,161 158,023
Owens Corning ..................... 1,376 48,762
PACCAR Inc. ....................... 2,160 88,830
Parker Hannifin Corp. ............. 3,115 102,016
Pulte Corp. ....................... 1,322 36,768
Raychem Corp. ..................... 2,532 81,815
Raytheon Co. (Class B) ............ 10,624 565,728
Rockwell International Corp. ...... 5,968 289,821
Sherwin-Williams Co. .............. 5,763 169,288
Tenneco Inc. ...................... 5,648 192,385
Textron Inc. ...................... 5,168 392,445
Thermo Electron Corp. ............. 5,028 85,162(a)
Thomas & Betts Corp. .............. 1,793 77,659
Timken Co. ........................ 1,531 28,898
Tyco International Ltd. ........... 20,455 1,543,074
United Technologies Corp. ......... 7,043 765,926
Waste Management Inc. ............. 18,412 858,459
25,216,866
CONSUMER - CYCLICAL -- 8.0%
American Greetings Corp.
(Class A) ...................... 2,417 99,248(h)
Black & Decker Corp. .............. 2,807 157,367
Block H & R Inc. .................. 3,252 146,340
Brunswick Corp. ................... 3,268 80,883
- ----------
See Notes to Schedule of Investments and Notes to
Financial Statements.
23
<PAGE>
S&P 500 INDEX FUND
- --------------------------------------------------------------------------------
NUMBER
OF SHARES VALUE
- --------------------------------------------------------------------------------
Carnival Corp. (Class A) .......... 19,000 $ 912,000
CBS Corp. ......................... 22,670 742,442
Cendant Corp. ..................... 27,207 518,633(a)
Clear Channel
Communications Inc. ............ 8,500 463,250(a)
Comcast Corp. (Class A) ........... 11,772 690,869
Cooper Tire & Rubber Co. .......... 1,823 37,258
Dana Corp. ........................ 5,441 222,401
Darden Restaurants Inc. ........... 4,886 87,948
Deluxe Corp. ...................... 2,429 88,810
Donnelley (R.R.) & Sons Co. ....... 4,252 186,291
Dow Jones & Co. Inc. .............. 2,842 136,771
Dun & Bradstreet Corp. ............ 5,242 165,451
Eastman Kodak Co. ................. 10,375 747,000
Ford Motor Co. .................... 38,300 2,247,731
Fortune Brands Inc. ............... 5,241 165,747
Fruit of the Loom Inc. ............ 1,647 22,749(a)
Gannett Inc. ...................... 9,008 581,016
General Motors Corp. .............. 20,794 1,488,071
Genuine Parts Co. ................. 5,396 180,429
Goodyear Tire & Rubber Co. ........ 4,719 238,015
Harrahs Entertainment Inc. ........ 2,735 42,905(a)
Hasbro Inc. ....................... 3,931 142,007
Hilton Hotels Corp. ............... 7,688 147,033
Interpublic Group Cos. Inc. ....... 4,515 360,071
ITT Industries Inc. ............... 3,563 141,629
Jostens Inc. ...................... 776 20,322
King World Productions Inc. ....... 2,414 71,062(a)
Knight-Ridder Inc. ................ 2,300 117,587
Laidlaw Enviromental Services Inc. 10,188 102,517
Liz Claiborne Inc. ................ 1,765 55,708
Marriott International Inc.
(Class A) ...................... 7,522 218,138
Mattel Inc. ....................... 9,711 221,532
Maytag Corp. ...................... 2,695 167,764
McDonald's Corp. .................. 21,417 1,641,078
McGraw Hill Cos. Inc. ............. 3,185 324,472
MediaOne Group Inc. ............... 19,326 908,322
Meredith Corp. .................... 1,698 64,312
Mirage Resorts Inc. ............... 5,300 79,169(a)
New York Times Co. ................ 5,788 200,771
Newell Co. ........................ 5,271 217,429
Nike Inc. ......................... 9,304 377,393
Omnicom Group Inc. ................ 5,500 319,000
Polaroid Corp. .................... 978 18,276
Reebok International Ltd. ......... 1,330 19,784(a)
Rubbermaid Inc. ................... 4,736 148,888
Russell Corp. ..................... 770 15,641
Seagram Ltd. ...................... 12,635 480,130
Service Corp. International ....... 8,218 312,798
Snap-On Inc. ...................... 1,809 62,976
Springs Industries Inc. ........... 400 16,575
Stanley Works ..................... 2,626 72,872
Tele-Communications Inc.
(Series A) ..................... 17,125 947,227(a)
Time Warner Inc. .................. 38,776 2,406,535
Times Mirror Co. .................. 2,595 145,320
Tribune Co. ....................... 3,838 253,308
Tricon Global Restaurants Inc. .... 4,811 241,151(a)
TRW Inc. .......................... 3,995 224,469
Tupperware Corp. .................. 1,428 23,473
VF Corp. .......................... 3,702 173,531
Viacom Inc. (Class B) ............. 10,982 812,668(a)
Walt Disney Co. ................... 64,937 1,948,110
Wendy's International Inc. ........ 4,331 94,470
Whirlpool Corp. ................... 2,609 144,473
Xerox Corp. ....................... 10,345 1,220,710
26,130,326
NUMBER
OF SHARES VALUE
- --------------------------------------------------------------------------------
CONSUMER - STABLE -- 9.5%
Adolph Coors Co. ................... 1,165 $ 65,750
Alberto-Culver Co. ................. 1,333 35,574
Anheuser Busch Cos. Inc. ........... 15,154 994,481(h)
Archer-Daniels Midland Co. ......... 19,221 330,361
Avon Products Inc. ................. 8,464 374,532
Ball Corp. ......................... 754 34,496
Bemis Inc. ......................... 1,681 63,773
Bestfoods .......................... 9,190 489,367
Brown-Forman Corp. ................. 2,329 176,276
Campbell Soup Co. .................. 13,976 768,680
Clorox Co. ......................... 3,442 402,069
Coca-Cola Co. ...................... 78,251 5,233,036(h)
Coca-Cola Enterprises Inc. ......... 12,600 450,450
Colgate-Palmolive Co. .............. 9,286 862,437
Conagra Inc. ....................... 15,868 499,842
Crown Cork & Seal Inc. ............. 3,814 117,519
General Mills Inc. ................. 5,011 389,605
Gillette Co. ....................... 35,166 1,698,957
Heinz (H.J.) Co. ................... 11,397 645,355
Hershey Foods Corp. ................ 4,592 285,565
International Flavours ............. 3,147 139,058
Kellogg Co. ........................ 12,990 443,284
Kimberly Clark Corp. ............... 17,236 939,362
Owens-Illinois Inc. ................ 4,600 140,875(a)
Pepsico Inc. ....................... 46,510 1,904,003
Philip Morris Cos. Inc. ............ 76,979 4,118,376
Pioneer Hi-Bred International Inc. . 7,600 205,200
Procter & Gamble Co. ............... 42,188 3,852,292
Quaker Oats Co. .................... 4,328 257,516
Ralston Purina Co. ................. 10,258 332,103
RJR Nabisco Holdings Corp. ......... 10,100 299,844
Safeway Inc. ....................... 15,600 950,625(a)
Sara Lee Corp. ..................... 29,362 827,641
Supervalu Inc. ..................... 4,100 114,800
Sysco Corp. ........................ 10,472 287,326
Temple Inland Inc. ................. 1,726 102,373
Unilever N.V. ...................... 20,256 1,679,982
UST Inc. ........................... 5,779 201,543
Wrigley (W.M.) Junior Co. .......... 3,734 334,426
31,048,754
ENERGY -- 5.5%
Amerada Hess Corp. ................. 2,790 138,802(h)
Anadarko Petroleum Co. ............. 3,500 108,062
Apache Corp. ....................... 3,000 75,937
Ashland Oil Inc. ................... 2,607 126,114
Atlantic Richfield Co. ............. 10,109 659,612(h)
Baker Hughes Inc. .................. 10,750 190,141
Burlington Resources Inc. .......... 5,841 209,181
Chevron Corp. ...................... 20,641 1,711,913
Exxon Corp. ........................ 77,189 5,644,445
Halliburton Co. .................... 14,160 419,490
Helmerich & Payne Inc. ............. 1,242 24,064
Kerr-McGee Corp. ................... 1,423 54,430
Mobil Corp. ........................ 24,662 2,148,677
Occidental Petroleum Corp. ......... 11,010 185,794
ONEOK Inc. ......................... 707 25,540
Oryx Energy Co. .................... 2,564 34,454(a)
Phillips Petroleum Co. ............. 8,529 363,549
Rowan Cos. Inc. .................... 2,077 20,770(a)
Royal Dutch Petroleum Co. ADR ...... 67,816 3,246,691
Schlumberger Ltd. .................. 17,254 795,841
Sempra Energy ...................... 7,861 199,473
Sunoco Inc. ........................ 3,188 114,967
Texaco Inc. ........................ 17,096 903,951
- -----------
See Notes to Schedule of Investments and Notes to
Financial Statements.
24
<PAGE>
SCHEDULE OF INVESTMENTS DECEMBER 31, 1998
- --------------------------------------------------------------------------------
NUMBER
OF SHARES VALUE
- --------------------------------------------------------------------------------
Union Pacific Resources
Group Inc. ..................... 6,829 $ 61,888
Unocal Corp. ...................... 7,738 225,853
USX-Marathon Group ................ 9,492 285,946
17,975,585
FINANCIAL -- 12.1%
American Express Co. .............. 14,274 1,459,516(h)
American General Corp. ............ 8,203 639,836(h)
Associates First Capital Corp.
(Class A) ...................... 22,852 968,354
Bank of New York Inc. ............. 24,310 978,478(h)
Bank One Corp. .................... 37,127 1,895,797(h)
BankAmerica Corp. ................. 54,740 3,291,242
BankBoston Corp. .................. 9,466 368,582
Bankers Trust New York Corp. ...... 2,919 249,392
BB&T Corp. ........................ 9,500 382,969
Bear Stearns Cos. Inc. ............ 3,600 134,550
Capital One Financial Corp. ....... 2,100 241,500
Charles Schwab Corp. .............. 12,987 729,707
Chase Manhattan Corp. ............. 26,754 1,820,944
Citigroup Inc. .................... 72,135 3,570,682
Comerica Inc. ..................... 4,856 331,119
Countrywide Credit Industries ..... 3,300 165,619
Federal Home Loan Mortgage
Corp. .......................... 21,565 1,389,595
Federal National Mortgage Assoc. .. 32,876 2,432,824
Fifth Third Bancorp ............... 8,356 595,887
First Union Corp. ................. 31,348 1,906,350
Firstar Corp. ..................... 7,300 680,564
Fleet Financial Group Inc. ........ 17,732 792,399
Franklin Resources Inc. ........... 8,200 262,400
Golden West Financial Corp. ....... 1,855 170,080
Household International Inc. ...... 15,311 606,698
Huntington Bancshares Inc. ........ 6,320 189,995
KeyCorp ........................... 14,628 468,096
Lehman Brothers Holdings Inc. ..... 3,400 149,813
MBIA Inc. ......................... 3,190 209,144
Mellon Bank Corp. ................. 8,264 568,150
Mercantile Bancorp. Inc. .......... 4,800 221,400
Merrill Lynch & Co. Inc. .......... 11,317 755,410
MGIC Investment Corp. ............. 3,459 137,711
Morgan (J.P.) & Co. Inc. .......... 5,464 574,062
Morgan Stanley, Dean Witter ....... 18,298 1,299,158
National City Corp. ............... 10,532 763,570
Northern Trust Corp. .............. 3,500 305,594
Paychex Inc. ...................... 5,200 267,475
PNC Bank Corp. .................... 9,808 530,858
Providian Financial Corp. ......... 4,647 348,525
Regions Financial Corp. ........... 7,200 290,250
Republic of New York Corp. ........ 3,446 157,008
SLM Holding Corp. ................. 5,200 249,600
State Street Corp. ................ 5,000 347,813
Summit Bancorp. ................... 5,600 244,650
Suntrust Banks Inc. ............... 6,629 507,119
Synovus Financial Corp. ........... 8,750 213,281
Transamerica Corp. ................ 1,988 229,614
Union Planters Corp. .............. 4,100 185,781
United States Bancorp. ............ 23,327 828,109
Wachovia Corp. .................... 6,566 574,115
Washington Mutual Inc. ............ 18,918 722,431
Wells Fargo & Co. ................. 51,218 2,045,519
39,449,335
NUMBER
OF SHARES VALUE
- --------------------------------------------------------------------------------
HEALTHCARE -- 12.0%
Abbott Laboratories ................ 47,896 $2,346,904
Aetna Inc. ......................... 4,452 350,039
Allergan Inc. ...................... 1,976 127,946
Alza Corp. ......................... 2,561 133,812(h)
American Home Products
Corp. ........................... 41,754 2,351,272(h)
Amgen Inc. ......................... 8,048 841,519(a)
Bard (C.R.) Inc. ................... 1,751 86,675
Bausch & Lomb Inc. ................. 1,628 97,680
Baxter International Inc. .......... 8,874 570,709
Becton Dickinson & Co. ............. 7,970 340,219
Biomet Inc. ........................ 3,807 153,232
Boston Scientific Corp. ............ 12,188 326,791(a)
Bristol-Myers Squibb Co. ........... 31,454 4,208,938(h)
Cardinal Health Inc. ............... 6,523 494,933
Columbia/HCA Healthcare
Corp. ........................... 20,723 512,894
Eli Lilly & Co. .................... 34,816 3,094,272
Guidant Corp. ...................... 4,712 519,498
HBO & Co. .......................... 15,300 438,919
HCR Manor Care Inc. ................ 3,837 112,712(a)
Healthsouth Corp. .................. 14,036 216,681(a)
Humana Inc. ........................ 5,227 93,106(a)
IMS Health Inc. .................... 5,242 395,443
Johnson & Johnson .................. 42,583 3,571,649
Mallinckrodt Inc. .................. 2,304 70,992
Medtronic Inc. ..................... 15,466 1,148,351
Merck & Co. Inc. ................... 37,675 5,564,127
Pfizer Inc. ........................ 41,048 5,148,958
Pharmacia & Upjohn Inc. ............ 15,885 899,488
Schering Plough Corp. .............. 46,558 2,572,329(h)
St. Jude Medical Inc. .............. 2,323 64,318(a)
Tenet Healthcare Corp. ............. 9,897 259,796(a)
United Healthcare Corp. ............ 5,647 243,174
Warner-Lambert Co. ................. 26,047 1,958,409
39,315,785
INSURANCE -- 2.9%
Allstate Corp. ..................... 26,076 1,007,185(h)
American International
Group Inc. ...................... 33,222 3,210,027(h)
Aon Corp. .......................... 5,424 300,354
Chubb Corp. ........................ 5,397 350,130
CIGNA Corp. ........................ 6,663 515,133
Cincinnati Financial Corp. ......... 5,500 201,438
Conseco Inc. ....................... 9,684 295,967
Hartford Financial Services
Group Inc. ...................... 7,404 406,295
Jefferson-Pilot Corp. .............. 3,482 261,150
Lincoln National Corp. ............. 3,156 258,200
Loews Corp. ........................ 3,716 365,097
Marsh & McLennan Cos. Inc. ......... 8,054 470,656
Progressive Corp. .................. 2,300 389,563
Provident Cos. Inc. ................ 4,500 186,750
Safeco Corp. ....................... 4,281 183,815
St. Paul Cos. Inc. ................. 7,381 256,477
SunAmerica Inc. .................... 6,900 559,763
Torchmark Corp. .................... 4,300 151,844
UNUM Corp. ......................... 4,182 244,124
9,613,968
RETAIL TRADE -- 6.1%
Albertsons Inc. .................... 7,847 499,756(h)
American Stores Co. ................ 9,052 334,358(h)
Autozone Inc. ...................... 5,044 166,137(a)
- ------------
See Notes to Schedule of Investments and Notes to
Financial Statements.
25
<PAGE>
S&P 500 INDEX FUND
- --------------------------------------------------------------------------------
NUMBER
OF SHARES VALUE
- --------------------------------------------------------------------------------
Circuit City Stores Inc. .......... 2,963 $ 147,965
Consolidated Stores Corp. ......... 3,200 64,600(a)
Costco Cos. Inc. .................. 6,833 493,257(a)
CVS Corp. ......................... 12,556 690,580
Dayton Hudson Corp. ............... 14,076 763,623
Dillards Inc. ..................... 3,495 99,171
Dollar General Corp. .............. 5,575 131,709
Federated Department
Stores Inc. .................... 6,504 283,331(a)
Fred Meyer Inc. ................... 5,000 301,250(a)
Gap Inc. .......................... 18,479 1,039,444
Great Atlantic & Pacific
Tea Co. Inc. ................... 1,470 43,549
Harcourt General Inc. ............. 2,061 109,619
Home Depot Inc. ................... 49,412 3,023,397
J.C. Penney Co. Inc. .............. 7,887 369,703
K Mart Corp. ...................... 15,431 236,287(a)
Kohl's Corp. ...................... 5,100 313,331(a)
Kroger Co. ........................ 8,365 506,082(a)
Limited Inc. ...................... 7,547 219,806
Longs Drug Stores Corp. ........... 1,182 44,325
Lowes Cos. Inc. ................... 10,964 561,220
May Department Stores Co. ......... 7,256 438,081
Nordstrom Inc. .................... 4,892 169,691
Pep Boys Manny Moe & Jack ......... 1,803 28,285
Rite Aid Corp. .................... 8,158 404,331
Sears Roebuck & Co. ............... 12,245 520,412
Staples Inc. ...................... 10,200 445,613(a)
Tandy Corp. ....................... 3,028 124,716
TJX Cos. Inc. ..................... 10,440 302,760
Toys 'R Us Inc. ................... 8,435 142,341(a)
Wal-Mart Stores Inc. .............. 71,512 5,823,758
Walgreen Co. ...................... 15,950 934,072
Winn Dixie Stores Inc. ............ 4,440 199,245
19,975,805
TECHNOLOGY - ELECTRONICS & EQUIPMENT -- 11.6%
3Com Corp. ........................ 11,354 508,801(a)
Advanced Micro Devices Inc. ....... 4,237 122,608(a,h)
Andrew Corp. ...................... 2,156 35,574(a)
Apple Computer .................... 3,960 162,113(a)
Applied Materials Inc. ............ 11,800 503,712(a)
Ascend Communications Inc. ........ 6,800 447,100(a)
Cabletron Systems Inc. ............ 5,826 48,793(a)
Cisco Systems Inc. ................ 50,101 4,649,999(a)
Compaq Computer Corp. ............. 53,805 2,256,447
Data General Corp. ................ 2,195 36,080(a)
Dell Computer Corp. ............... 40,224 2,943,894(a)
EG & G Inc. ....................... 1,205 33,514
Gateway 2000 Inc. ................. 5,000 255,938(a)
General Instrument Corp. .......... 5,743 194,903(a)
Harris Corp. ...................... 2,562 93,833
Hewlett Packard Co. ............... 32,841 2,243,451
Ikon Office Solutions Inc. ........ 3,210 27,486
Intel Corp. ....................... 52,902 6,272,193
International Business Machines ... 29,665 5,480,609
KLA-Tencor Corp. .................. 2,800 121,450(a)
LSI Logic Corp. ................... 4,796 77,336(a)
Lucent Technologies Inc. .......... 41,754 4,592,940
Micron Technology Inc. ............ 6,927 350,246(a)
Moore Corp. Ltd. .................. 2,074 22,814
Motorola Inc. ..................... 19,151 1,169,408
National Semiconductor Corp. ...... 5,583 75,371(a)
Northern Telecom Ltd. ............. 20,881 1,046,660
Perkin Elmer Corp. ................ 1,650 160,978
Pitney Bowes Inc. ................. 8,732 576,858
NUMBER
OF SHARES VALUE
- --------------------------------------------------------------------------------
Scientific-Atlanta Inc. ............ 1,853 $ 42,272
Seagate Technology ................. 7,390 223,548(a)
Silicon Graphics Inc. .............. 6,133 78,962(a)
Solectron Corp. .................... 3,800 353,162(a)
Sun Microsystems Inc. .............. 12,195 1,044,197(a)
Tektronix Inc. ..................... 1,238 37,217
Tellabs Inc. ....................... 6,276 430,298(a)
Texas Instruments Inc. ............. 12,484 1,068,162
37,788,927
TECHNOLOGY - SOFTWARE & SERVICES -- 6.4%
Adobe Systems Inc. ................. 2,198 102,757(h)
America Online, Inc. ............... 14,800 2,368,000(a)
Autodesk Inc. ...................... 1,312 56,006
Automatic Data Processing Inc. ..... 9,659 774,531
BMC Software Inc. .................. 7,000 311,938(a)
Computer Associates
International Inc. .............. 16,981 723,815
Computer Sciences Corp. ............ 5,082 327,471
Compuware Corp. .................... 5,800 452,763(a)
Electronic Data Systems Corp. ...... 15,600 783,900
EMC Corp. .......................... 15,936 1,354,560(a)
Equifax Inc. ....................... 4,500 153,844
First Data Corp. ................... 14,281 452,529
Microsoft Corp. .................... 79,128 10,974,064(a)
Novell Inc. ........................ 11,566 209,634(a)
Oracle Systems Corp. ............... 30,872 1,331,355(a)
Parametric Technology Corp. ........ 8,406 137,648(a)
PeopleSoft Inc. .................... 7,800 147,713(a)
Shared Medical System Corp. ........ 653 32,568
Unisys Corp. ....................... 8,309 286,141(a)
20,981,237
TRANSPORTATION -- 0.9%
AMR Corp. .......................... 5,814 345,206(a,h)
Burlington Northern Santa Fe ....... 14,549 491,029
CSX Corp. .......................... 6,838 283,777
Delta Air Lines Inc. ............... 4,882 253,864
FDX Corp. .......................... 4,730 420,970(a)
Norfolk Southern Corp. ............. 11,801 373,944
Ryder System Inc. .................. 1,831 47,606
Southwest Airlines Co. ............. 10,744 241,069
U.S. Airways Group Inc. ............ 2,707 140,764(a)
Union Pacific Corp. N.V. ........... 7,554 340,402
2,938,631
UTILITIES -- 11.0%
AES Corp. .......................... 5,600 265,300(a)
Airtouch Communications Inc. ....... 18,286 1,318,878(a,h)
Alltel Corp. ....................... 8,694 520,010
Ameren Corp. ....................... 4,142 176,812
American Electric Power Inc. ....... 6,197 291,646(h)
American Telephone &
Telegraph Corp. ................. 57,392 4,318,748
Ameritech Corp. .................... 34,904 2,212,041(h)
Baltimore Gas & Electric Co. ....... 4,403 135,943
Bell Atlantic Corp. ................ 49,168 2,605,904
Bellsouth Corp. .................... 61,898 3,087,163(h)
Carolina Power & Light Co. ......... 4,960 233,430
Central & South West Corp. ......... 7,048 193,379
CINergy Corp. ...................... 4,853 166,822
Coastal Corp. ...................... 6,842 239,042
Columbia Gas Systems Inc. .......... 2,684 155,001
Consolidated Edison Inc. ........... 7,207 381,070
Consolidated Natural Gas Co. ....... 2,915 157,410
- -----------
See Notes to Schedule of Investments and Notes to
Financial Statements.
26
<PAGE>
SCHEDULE OF INVESTMENTS DECEMBER 31, 1998
- --------------------------------------------------------------------------------
NUMBER
OF SHARES VALUE
- --------------------------------------------------------------------------------
Dominion Resources Inc. ........... 6,089 $ 284,661
DTE Energy Co. .................... 4,766 204,342
Duke Energy Corp. ................. 11,566 740,947
Eastern Enterprises ............... 802 35,087
Edison International .............. 11,442 318,946
Enron Corp. ....................... 10,700 610,569
Entergy Corp. ..................... 7,947 247,350
FirstEnergy Corp. ................. 7,177 233,701
FPL Group Inc. .................... 5,831 359,335
Frontier Corp. .................... 5,643 191,862
GPU Inc. .......................... 3,900 172,331
GTE Corp. ......................... 30,561 1,986,465
Houston Industries Inc. ........... 9,518 305,766
MCI WorldCom Inc. ................. 57,955 4,158,271(a)
New Century Energies Inc. ......... 3,500 170,625
Nextel Communications Inc. ........ 8,700 205,537(a)
Niagara Mohawk Power Corp. ........ 5,254 84,721(a)
Nicor Inc. ........................ 1,443 60,967
Northern States Power Co. ......... 4,660 129,315
Pacificorp ........................ 9,899 208,498
Peco Energy Co. ................... 7,422 308,941
Peoples Energy Corp. .............. 1,121 44,700
PG&E Corp. ........................ 12,554 395,451
PP&L Resources Inc. ............... 4,722 131,626
Public Service Enterprise Group ... 7,259 290,360
SBC Communications Inc. ........... 61,880 3,318,315
Sonat Inc. ........................ 3,187 86,248
Southern Co. ...................... 22,158 643,967
Sprint Corp. ...................... 13,726 1,154,700
Sprint Corp. ...................... 12,763 295,144(a)
Texas Utilities Co. ............... 8,786 410,196
U.S. WEST Inc. .................... 16,088 1,039,687
Unicom Corp. ...................... 7,019 270,670
Williams Cos. Inc. ................ 13,386 417,476
35,975,376
TOTAL COMMON STOCK
(COST $241,601,421) ............ 316,156,899
PREFERRED STOCK -- 0.2%
- --------------------------------------------------------------------------------
Ceridian Corp. .................... 2,204 $ 153,867(a)
MBNA Corp. ........................ 24,374 607,826
TOTAL PREFERRED STOCK
(COST $508,614) ................ 761,693
TOTAL INVESTMENTS IN SECURITIES
(COST $242,110,035) ............ 316,918,592
NUMBER
OF SHARES VALUE
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS -- 3.7%
- --------------------------------------------------------------------------------
GEI Short Term Investment Fund ... 1,954,954 $ 1,954,954
Money Market Obligations Trust ... 5,578,317 5,578,317
Short Term Investment Fund ....... 3,778,005 3,778,005
PRINCIPAL
AMOUNT VALUE
- --------------------------------------------------------------------------------
U.S. GOVERNMENT
U.S. Treasury Bill
4.405% 03/18/99 ........... $ 700,000 693,490
TOTAL SHORT-TERM INVESTMENTS
(COST $12,004,766) .......... 12,004,766
OTHER ASSETS AND LIABILITIES, NET (0.6)% (1,962,121)
------------
NET ASSETS-- 100% $326,961,237
============
- --------------------------------------------------------------------------------
OTHER INFORMATION
- --------------------------------------------------------------------------------
The S&P 500 Index Fund had the following long Futures Contracts open at December
31, 1998:
NUMBER
EXPIRATION OF UNDERLYING UNREALIZED
DESCRIPTION DATE CONTRACTS FACE VALUE GAIN
- --------------------------------------------------------------------------------
S&P 500 March 1999 29 $ 9,029,875 $457,200
- -------------
See Notes to Schedule of Investments and Notes to
Financial Statements.
27
<PAGE>
TOTAL RETURN FUND
- --------------------------------------------------------------------------------
Q&A
DAVID CARLSON, RALPH LAYMAN AND ROBERT MACDOUGALL SHARE PORTFOLIO MANAGEMENT
RESPONSIBILITY FOR THE TOTAL RETURN FUND. DAVE CARLSON MANAGES THE DOMESTIC
EQUITY PORTION, RALPH LAYMAN MANAGES THE INTERNATIONAL EQUITY PORTION AND BOB
MACDOUGALL MANAGES THE FIXED INCOME PORTION OF THE FUND. PLEASE REFER TO PAGE 3
FOR RALPH'S BIOGRAPHICAL DETAILS, PAGE 10 FOR DAVE'S BIOGRAPHICAL DETAILS, AND
PAGE 38FOR BOB'S BIOGRAPHICAL DETAILS.
Q. HOW DID THE TOTAL RETURN FUND PERFORM COMPARED WITH ITS BENCHMARKS AND LIPPER
PEER GROUP FOR THE ONE-YEAR PERIOD ENDED DECEMBER 31, 1998?
A. The Total Return Fund posted a return of 17.10% for the one-year period ended
December 31, 1998. The fund allocates its investments among several asset
classes and must be compared with several benchmarks. For the same period, U.S.
stocks, as measured by the S&P 500 Index returned 28.70% and fixed income
investments, as measured by the Lehman Brothers Aggregate Bond Index returned
8.67%. Our Lipper peer group of 84 Flexible annuity funds returned 13.50% for
the year.
Q. WHAT FACTORS CONTRIBUTED TO THE FUND'S PERFORMANCE?
A. Once again, the U.S. stock market beat other asset classes by a substantial
margin. The outperformance of the Total Return Fund versus its peers was notable
since the fund only has a 45% weighting in U.S. equities, a lower weighting than
most annuity funds in it's Lipper peer group which generally hold a higher
weighting of U.S. stocks. The fund's concentration in large capitalization
stocks helped as they did better than small and mid-cap issues.
In international stocks, holdings in Europe were strong performers as the
markets in Continental Europe collectively returned more than 30%. However, the
turmoil in Asia and Latin America resulted in declines in the emerging market
holdings.
While the bond market had a solid return of nearly 9%, volatility was
significant throughout the year. The collapse of the Russia currency, blow-ups
at large hedge funds, and other macro events caused a significant widening of
yield spreads in corporate and mortgage bonds versus Treasury Bonds.
Q. WHAT IS THE ASSET ALLOCATION OF THE FUND AND DO YOU ANTICIPATE ANY CHANGES?
A. Stocks represent 60%( U.S. 45% and international 15%), bonds 35% with the
remaining 5% of the portfolio in cash. These weightings remained fairly constant
all year. Our valuation models indicate that stocks are somewhat overvalued
relative to bonds. As a result, stocks remain at the low end of our target
weighting range. Our approach to asset allocation is based on the relative
attractiveness of each asset class, and changes are hard to forecast. If stocks
were to decline, and look more attractive relative to bonds, we would boost the
equity weighting.
Q. WHAT IS YOUR OUTLOOK FOR THE MARKETS AND THE FUND?
A. We would characterize the fund as somewhat defensive, meaning that the
relatively low weight in U.S. stocks leaves us more conservatively positioned
than most of our peer flexible funds. The U.S. market is presently selling at
the highest valuation levels seen in history. While valuation is helpful in
assessing risk, it does not tell us anything about timing. Our U.S. equity
weighting will remain at the low end of a range until the relative valuation
improves. The international markets seem to offer more valuation underpinning,
when compared to the U.S. The emerging markets have been beaten down to levels
where attractive investment opportunities are beginning to appear. Security
selection within asset classes has been the driving factor in our outperformance
versus peers, and this will continue to be our primary focus.
28
<PAGE>
TOTAL RETURN FUND
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
COMPARISON OF CHANGES IN
VALUE OF A $10,000 INVESTMENT
- --------------------------------------------------------------------------------
[LINE GRAPH OMITTED]
PLOT POINTS FOLLOW:
TOTAL RETURN FUND S&P 500 LB AGGREGATE
'88 10,000 10,000 10,000
'89 11,521 13,154 11,453
'90 11,477 12,738 12,477
'91 14,616 16,633 14,474
'92 15,710 17,918 15,545
'93 17,839 19,712 17,061
'94 18,290 19,968 16,563
'95 23,424 27,454 19,622
'96 25,906 33,800 20,332
'97 30,566 45,053 22,301
'98 35,793 57,982 24,235
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN
FOR THE PERIODS ENDED DECEMBER 31, 1998
- --------------------------------------------------------------------------------
ONE FIVE TEN
YEAR YEAR YEAR
- --------------------------------------------------------------------------------
Total Return Fund 17.10% 14.94% 13.60%
- --------------------------------------------------------------------------------
S&P 500 Index 28.70% 24.08% 19.21%
- --------------------------------------------------------------------------------
LB Aggregate Bond Index 8.67% 7.27% 9.26%
- --------------------------------------------------------------------------------
Lipper peer group average* 13.50% 13.64% 14.00%
- --------------------------------------------------------------------------------
Commencement date 7/1/85
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
INVESTMENT PROFILE
A fund designed for investors who seek to maximize total return through current
income and capital appreciation by investing in a range of securities, including
common stocks, bonds and money market instruments.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
TOP TEN LARGEST HOLDINGS
AT DECEMBER 31, 1998
- --------------------------------------------------------------------------------
Citigroup Inc. .................................... 1.87%
- --------------------------------------------------------------------------------
Airtouch Communications Inc. ...................... 1.67%
- --------------------------------------------------------------------------------
Federal National Mortgage Assoc. .................. 1.47%
- --------------------------------------------------------------------------------
Cardinal Health Inc. .............................. 1.46%
- --------------------------------------------------------------------------------
U.S. Treasury Bonds 5.25% 11/15/28 .............. 1.42%
- --------------------------------------------------------------------------------
Federal Home Loan Mortgage Corp. 6.50% 9/1/28 ... 1.37%
- --------------------------------------------------------------------------------
Dover Corp. ....................................... 1.33%
- --------------------------------------------------------------------------------
AlliedSignal Inc. ................................. 1.33%
- --------------------------------------------------------------------------------
U.S. Treasury Bonds 8.125% 8/15/19 .............. 1.31%
- --------------------------------------------------------------------------------
First Data Corp. .................................. 1.25%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTOLIO COMPOSITION
AS OF DECEMBER 31, 1998
- --------------------------------------------------------------------------------
[PIE CHART OMITTED]
PLOT POINTS FOLLOW:
CASH & OTHER 4.7%
+DOMESTIC EQUITY 45.4%
BONDS & NOTES 35.2%
+FOREIGN EQUITY 14.7%
+ INCLUDES PREFERRED STOCK.
* LIPPER PERFORMANCE COMPARISONS ARE BASED ON AVERAGE ANNUAL TOTAL RETURNS FOR
THE PERIODS INDICATED IN THE FLEXIBLE PEER GROUP CONSISTING OF 84, 53 AND 32
UNDERLYING ANNUITY FUNDS, RESPECTIVELY.
SEE NOTES TO PERFORMANCE.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.
29
<PAGE>
TOTAL RETURN FUND
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
TOTAL RETURN FUND
- --------------------------------------------------------------------------------
NUMBER
OF SHARES VALUE
- --------------------------------------------------------------------------------
DOMESTIC EQUITY -- 45.1%
- --------------------------------------------------------------------------------
BASIC MATERIALS -- 0.6%
Air Products & Chemicals Inc. ....... 2,423 $ 96,920
Airgas Inc. ......................... 7,280 65,065(a)
Great Lakes Chemical Corp. .......... 1,357 54,280
Morton International Inc. ........... 7,897 193,476
409,741
CAPITAL GOODS -- 5.2%
Alleghany Corp. Delaware ............ 301 56,550
AlliedSignal Inc. ................... 21,748 963,708
Dover Corp. ......................... 26,418 967,559
Emerson Electric Co. ................ 1,923 116,342
Hubbell Inc. (Class B) .............. 8,973 340,974(h)
Molex Inc. (Class A) ................ 13,739 437,931
Textron Inc. ........................ 1,484 112,691
Tyco International Ltd. ............. 377 28,440
United Technologies Corp. ........... 1,098 119,408
Waste Management Inc. ............... 14,229 663,427
3,807,030
CONSUMER - CYCLICAL -- 6.4%
Carnival Corp. (Class A) ............ 8,334 400,032
Catalina Marketing Corp. ............ 6,764 462,488(a)
Comcast Corp. (Class A) ............. 10,466 614,223
Gannett Inc. ........................ 4,240 273,480
Harman International
Industries Inc. .................. 3,628 138,318
Interpublic Group Cos. Inc. ......... 5,911 471,402
NTL Inc. ............................ 15,904 897,582(a)
Stanley Works ....................... 3,004 83,361
Tele-Communications Inc.
Liberty Media Group
(Series A) ....................... 9,016 415,300(a)
Tele-Communications TCI
Ventures Group (Series A) ........ 10,086 237,651(a)
Time Warner Inc. .................... 4,458 276,675
Walt Disney Co. ..................... 12,141 364,230
4,634,742
CONSUMER - STABLE -- 3.0%
Anheuser Busch Cos. Inc. ............ 2,713 178,041(h)
Avon Products Inc. .................. 7,752 343,026
Coca Cola Co. ....................... 699 46,746
Colgate-Palmolive Co. ............... 1,525 141,634
Gillette Co. ........................ 2,677 129,333
Kimberly Clark Corp. ................ 7,316 398,722(h)
Pepsico Inc. ........................ 10,463 428,329
Philip Morris Cos. Inc. ............. 9,543 510,550
2,176,381
ENERGY -- 2.7%
Anadarko Petroleum Co. .............. 5,990 184,941
Baker Hughes Inc. ................... 9,400 166,262
Burlington Resources Inc. ........... 3,527 126,311
Exxon Corp. ......................... 3,973 290,526
Nabors Industries Inc. .............. 5,524 74,919(a)
Royal Dutch Petroleum Co. ADR ....... 9,690 463,909
Schlumberger Ltd. ................... 11,240 518,445
Unocal Corp. ........................ 4,457 130,089
1,955,402
NUMBER
OF SHARES VALUE
- --------------------------------------------------------------------------------
FINANCIAL -- 5.0%
American Express Co. ................ 3,076 $ 314,521
Citigroup Inc. ...................... 27,398 1,356,201
Countrywide Credit Industries ....... 2,143 107,552
Federal National Mortgage Assoc. .... 14,452 1,069,448
State Street Corp. .................. 6,559 456,260(i)
Wells Fargo & Co. ................... 8,790 351,051
3,655,033
HEALTHCARE -- 9.9%
Abbott Laboratories ................. 17,531 859,019
American Home Products Corp. ........ 7,849 441,997
Bristol-Myers Squibb Co. ............ 5,330 713,221
Cardinal Health Inc. ................ 13,953 1,058,684
Dentsply International Inc. ......... 6,395 164,671
Eli Lilly & Co. ..................... 1,408 125,136
Henry Schein Inc. ................... 3,215 143,871(a)
Johnson & Johnson ................... 9,756 818,285(h)
Lincare Holdings Inc. ............... 7,332 297,404(a,h)
Merck & Co. Inc. .................... 5,653 834,877
Omnicare Inc. ....................... 2,787 96,848
Pfizer Inc. ......................... 4,651 583,410
Pharmacia & Upjohn Inc. ............. 2,650 150,056
Sybron International Corp. .......... 11,957 325,081(a)
Tenet Healthcare Corp. .............. 4,264 111,930(a)
Watson Pharmaceuticals Inc. ......... 6,977 438,679(a)
7,163,169
INSURANCE -- 2.5%
American International Group Inc. ... 5,319 513,948
Berkshire Hathaway Inc. (Class B) ... 181 425,397(a)
Chicago Title Corp. ................. 903 42,385
Loews Corp. ......................... 3,676 361,167
Marsh & McLennan Cos. Inc. .......... 6,361 371,721
UNUM Corp. .......................... 1,554 90,715
1,805,333
MISCELLANEOUS -- 0.4%
SPDR Trust .......................... 2,527 310,821
RETAIL TRADE -- 0.8%
CVS Corp. ........................... 2,926 160,930
Home Depot Inc. ..................... 6,624 405,306
566,236
TECHNOLOGY - ELECTRONICS & EQUIPMENT -- 1.6%
Applied Materials Inc. .............. 1,745 74,490(a)
Cisco Systems Inc. .................. 3,973 368,744(a)
Hewlett Packard Co. ................. 1,454 99,326
Intel Corp. ......................... 4,845 574,435
Pitney Bowes Inc. ................... 1,246 82,314
1,199,309
TECHNOLOGY - SOFTWARE & SERVICES -- 4.5%
Automatic Data Processing Inc. ...... 8,200 657,537
EMC Corp. ........................... 2,494 211,990(a)
Equifax Inc. ........................ 20,543 702,314
First Data Corp. .................... 28,588 905,882
Microsoft Corp. ..................... 2,955 409,822(a)
Reuters Holdings PLC ADR ............ 6,568 416,247
3,303,792
TRANSPORTATION -- 0.1%
Pittston Brinks Group ............... 2,315 73,791
- ------------
See Notes to Schedule of Investments and Notes to
Financial Statements.
30
<PAGE>
SCHEDULE OF INVESTMENTS DECEMBER 31, 1998
- --------------------------------------------------------------------------------
NUMBER
OF SHARES VALUE
- --------------------------------------------------------------------------------
UTILITIES -- 2.4%
Airtouch Communications Inc. ........ 16,860 $ 1,216,027(a)
MCI WorldCom Inc. ................... 3,242 232,614(a)
SBC Communications Inc. ............. 5,135 275,364
1,724,005
TOTAL DOMESTIC EQUITY
(COST $23,470,541) ............... 32,784,785
- --------------------------------------------------------------------------------
FOREIGN EQUITY -- 14.6%
- --------------------------------------------------------------------------------
BASIC MATERIALS -- 0.4%
Iscor Ltd. .......................... 17,944 3,229
Ispat International N.V. (Regd.) .... 1,624 12,586
Johnson Matthey PLC ................. 3,281 22,131
Montedison S.p.A. ................... 96,414 127,992
Pohang Iron & Steel Co. Ltd. ADR .... 1,460 24,638
Shin-Etsu Chemical Co. .............. 3,000 72,181
262,757
CAPITAL GOODS -- 2.2%
ABB AG .............................. 64 75,009
Alstom .............................. 5,015 117,504(a)
Barlow Ltd. ......................... 4,268 16,376
Desc S.A. de C.V. (Series B) ........ 12,655 10,832
Desc S.A. de C.V. ADR (Class C) ..... 2,017 38,701
FKI PLC ............................. 34,092 75,898
Grupo Carso S.A. de C.V. ADR ........ 8,173 54,146
Lyonnaise Des Eaux S.A. ............. 929 190,752
Mannesmann AG ....................... 2,993 343,011
Minebea Co. Ltd. .................... 5,000 57,231
Preussag AG ......................... 645 291,423
Siebe PLC ........................... 72,454 284,688
VA Technologie AG ................... 414 35,876
1,591,447
CONSUMER - CYCLICAL -- 2.6%
Airtours PLC ........................ 31,307 200,252
Autoliv Inc. SDR .................... 5,551 198,816
Canon Inc. .......................... 7,000 149,536
DaimlerChrysler AG .................. 1,932 190,656(a)
Granada Group PLC ................... 10,930 191,579
Honda Motor Co. ..................... 1,000 32,817
Johnson Electric Holdings ........... 24,500 62,929
Kinnevik AB (Series B) .............. 582 13,610
LucasVarity PLC ..................... 42,023 140,333
Michelin CGDE (Regd.) (Class B) ..... 595 23,785
Philips Electronics N.V. ............ 2,086 139,903
Reed International PLC .............. 5,825 46,259
Renault S.A. ........................ 2,333 104,737
Saatchi & Saatchi PLC ............... 8,753 19,778
SEMA Group PLC ...................... 14,448 142,344
Societe Europeenne de
Communication S.A. ADR
(Class A) ........................ 9 168(a)
Societe Europeenne de
Communication S.A. ADR
(Class B) ........................ 88 1,551(a)
Sony Corp. .......................... 1,900 138,319
Volkswagen AG ....................... 1,023 81,639
1,879,011
NUMBER
OF SHARES VALUE
- --------------------------------------------------------------------------------
CONSUMER - STABLE -- 0.1%
Coca Cola Amatil Ltd. .............. 3,120 $ 11,624
Gruma S.A. de C.V. (Series B) ...... 5,445 13,741(a)
Panamerican Beverages Inc.
(Class A) ....................... 2,260 49,296
San Miguel Corp. S.A. .............. 14,030 27,050
101,711
ENERGY -- 0.7%
Coflexip S.A. ADR .................. 3,011 96,728
Elf Aquitaine S.A. ADR ............. 698 80,649
Repsol S.A. ........................ 738 39,309
Saipem ............................. 23,111 97,563
Total S.A. (Class B) ............... 2,234 226,157
540,406
FINANCIAL -- 2.4%
Alpha Credit Bank (Regd.) .......... 586 61,180
Argentaria S.A. .................... 7,973 206,169
Banca Intesa S.p.A. ................ 20,207 121,172
Banco Comercial Portugues (Regd.) .. 3,735 114,881
Bank of Scotland PLC ............... 3,973 47,525
Bayerische Vereinsbank AG .......... 2,244 175,712
Unicredito Italiano S.p.A. ......... 17,865 105,832
Grupo Financiero Banamex Accival
S.A. de C.V. (Class B) .......... 30,749 40,349(a)
ING Groep N.V. ..................... 5,185 316,007
Investor AB (Series B) ............. 348 15,676
Invik & Co. AB ..................... 309 25,101
Merita Ltd. (Series A) ............. 16,971 107,171
Newcourt Credit Group Inc. ......... 1,681 58,838
Societe Generale ................... 885 143,253
Uniao de Banco Brasiliero
S.A. GDR ........................ 2,160 31,185
Zurich Allied AG (Regd.) ........... 181 134,001(a)
1,704,052
HEALTHCARE -- 0.8%
Fresenius Medical Care AG .......... 1,842 129,866
Novartis AG (Regd.) ................ 78 153,309
Rhone-Poulenc S.A. (Class A) ....... 3,368 173,249
Shire Pharmaceuticals Group
PLC ADR ......................... 2,552 51,678(a)
Teva Pharmaceutical Industries
Ltd. ADR ........................ 2,264 92,117
600,219
INSURANCE -- 1.4%
Assicurazioni Generali ............. 3,292 137,378
AXA-UAP ............................ 2,604 377,256
Commercial Union PLC ............... 3,347 52,771
Muenchener Rueckverischerungs-
Gesellschaft AG (Regd.) ......... 326 157,855(a)
Pohjola Group Insurance Ltd. Co.
(Series B) ...................... 562 30,641
Royal & Sun Alliance Insurance
Group PLC ....................... 17,764 144,615
Sampo Insurance Co. Ltd.
(Series A) ...................... 3,707 140,676
1,041,192
RETAIL TRADE -- 0.7%
Carrefour S.A. ..................... 229 172,805
Giordano International Ltd. ........ 54,000 10,106
Jeronimo Martins, SGPS S.A. ........ 1,395 76,349
Koninklijke Ahold N.V. ............. 3,645 134,648
Somerfield PLC ..................... 11,816 78,917
472,825
- ----------
See Notes to Schedule of Investments and Notes to
Financial Statements.
31
<PAGE>
TOTAL RETURN FUND
- --------------------------------------------------------------------------------
NUMBER
OF SHARES VALUE
- --------------------------------------------------------------------------------
TECHNOLOGY - ELECTRONICS & EQUIPMENT -- 2.1%
Brambles Industries Ltd. ............ 7,387 $ 179,933
Cable & Wireless Communication
PLC .............................. 13,344 121,712(a)
Comverse Technology Inc. ............ 1,298 92,158(a)
ECI Telecommunications Ltd. ......... 5,292 188,528
Ericson LM Telephone (Series B) ..... 5,038 119,675
NetCom Systems AB (Series B) ........ 1,337 54,304
Nokia Oyj (Series A) ................ 2,789 339,121
Northern Telecom Ltd. ............... 2,099 105,212
Schneider S.A. ...................... 2,746 166,499
Taiwan Semiconductor
Manufacturing Co. ................ 44,100 97,179(a)
Taiwan Semiconductor
Manufacturing Co. ADR ............ 419 5,944
Toshiba Corp. ....................... 12,000 71,438
1,541,703
TECHNOLOGY - SOFTWARE & SERVICES -- 0.5%
Cap Gemini S.A. ..................... 1,581 253,650
NTT Data Corp ....................... 20 99,248
352,898
TRANSPORTATION -- 0.2%
IHC Caland N.V. ..................... 2,718 112,846
Railtrack Group PLC ................. 1,346 35,109
147,955
UTILITIES -- 0.5%
Telecom Italia Mobile S.p.A. ........ 22,379 165,124
Telecom Italia S.p.A ................ 16,120 137,465
Vodafone Group PLC .................. 4,070 66,132
368,721
TOTAL FOREIGN EQUITY
(COST $9,098,765) 10,604,897
PRINCIPAL
AMOUNT VALUE
- --------------------------------------------------------------------------------
BONDS AND NOTES -- 35.2%
- --------------------------------------------------------------------------------
U.S. TREASURIES -- 7.8%
U.S. Treasury Bonds
10.625% 08/15/15 ............ $ 166,000 $ 263,628(h)
8.125% 08/15/19 ............ 713,000 952,190
8.125% 05/15/21 ............ 495,000 667,785
5.25% 11/15/28 ............ 1,008,000 1,031,940
2,915,543
U.S. Treasury Notes
7.125% 09/30/99 ............ 339,000 345,038(h)
7.75% 01/31/00 ............ 663,000 684,030(h)
5.375% 06/30/00 ............ 305,000 308,145
5.25% 08/31/00 ............ 47,000 47,360
6.50% 08/31/01 ............ 630,000 658,841
5.375% 06/30/03 ............ 21,000 21,610
5.25% 08/15/03 ............ 90,000 92,292
4.75% 11/15/08 ............ 5,000 5,039
2,162,355
U.S. Treasury STRIPS
5.31% 08/15/11 ............ 568,000 293,434(d)
5.35% 02/15/12 ............ 505,000 252,854(d)
546,288
TOTAL U.S. TREASURIES
(COST $5,468,169) ............ 5,624,186
PRINCIPAL
AMOUNT VALUE
- --------------------------------------------------------------------------------
FEDERAL AGENCIES -- 4.8%
Federal Home Loan Bank
5.62% 08/10/00 ............ $ 100,000 $ 100,953
Federal Home Loan Mortgage Corp.
6.22% 03/18/08 ............ 100,000 102,328
5.75% 04/15/08 ............ 65,000 67,204
5.125% 10/15/08 ............ 270,000 267,427
6.50% 11/01/28 - 12/1/28 .. 594,000 598,362
1,035,321
Federal National Mortgage Assoc.
5.60% 03/27/00 ............ 100,000 100,719
5.67% 05/26/00 ............ 345,000 348,181
5.56% 07/24/00 ............ 105,000 105,902
5.10% 09/25/00 ............ 43,000 43,080
5.38% 01/16/01 ............ 250,000 251,915
6.41% 07/08/02 ............ 45,000 46,786
5.75% 04/15/03 ............ 30,000 30,797
5.45% 10/10/03 ............ 40,000 40,581
6.99% 07/09/07 ............ 80,000 83,962
6.00% 05/15/08 ............ 200,000 211,124
7.50% 12/01/09 ............ 131,401 135,179
6.16% 08/07/28 ............ 205,000 214,481
6.00% TBA ................. 255,000 251,653(c)
7.50% TBA ................. 400,000 410,813(c)
2,275,173
Small Business Administration
6.55% 10/01/17-12/01/17 ... 66,863 69,050
TOTAL FEDERAL AGENCIES
(COST $3,441,487) ............ 3,480,497
AGENCY MORTGAGE BACKED -- 11.2%
Federal Home Loan Mortgage Corp.
7.50% 06/01/10 ............ 133,724 137,682
9.00% 10/01/25 ............ 23,703 25,103
7.50% 04/01/28 ............ 920,077 944,944
6.50% 04/01/28 - 09/01/28 . 1,204,180 1,212,797
2,320,526
Federal National Mortgage Assoc.
6.65% 08/25/07 ............ 70,000 73,588
5.64% 12/10/08 ............ 255,000 256,116
6.50% 04/01/13 ............ 323,200 327,744
7.00% 08/01/25 - 12/1/25 .. 491,379 501,360
9.00% 11/01/25 ............ 221,054 233,970
8.50% 12/01/25 ............ 277,762 290,953
8.50% 12/01/26 ............ 96,133 100,669
7.00% 08/01/27 - 11/01/27 . 438,374 447,930
8.50% 02/01/28 ............ 219,308 229,655
7.00% 07/01/28 ............ 599,377 611,364
6.00% TBA ................. 1,130,000 1,132,506(c)
4,205,855
Government National Mortgage Assoc.
7.00% 03/15/12 ............ 630,137 645,891
6.50% 04/15/24 ............ 176,055 177,979
7.50% 01/15/28 ............ 352,302 363,529
6.50% 04/15/28 ............ 395,514 399,469
1,586,868
TOTAL AGENCY MORTGAGE BACKED
(COST $8,078,094) ............ 8,113,249
- ---------
See Notes to Schedule of Investments and Notes to
Financial Statements.
32
<PAGE>
SCHEDULE OF INVESTMENTS DECEMBER 31, 1998
- --------------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
- --------------------------------------------------------------------------------
AGENCY COLLATERALIZED MORTGAGE OBLIGATIONS -- 0.2%
Federal National Mortgage Assoc.
8.50% 09/01/23 ............. $257,160 $ 49,182(g)
Federal National Mortgage
Assoc. REMIC
8.00% 10/25/20 ............. 19,350 20,039
Salomon Brothers Mortgage
Securities Inc.
7.00% 07/25/24 ............. 83,649 81,829
TOTAL AGENCY COLLATERALIZED MORTGAGE OBLIGATIONS
(COST $143,532) ............... 151,050
ASSET BACKED -- 0.6%
Capital One Master Trust
5.43% 01/15/07 ............. 106,000 106,066
Chase Credit Card Master Trust
6.00% 08/15/05 ............. 46,000 46,632
Discover Card Master Trust I
5.60% 05/15/06 ............. 106,000 106,547
Federal Express Corp.
7.52% 01/15/18 ............. 38,605 40,887
Fleetwood Credit Grantor Trust
6.40% 05/15/13 ............. 19,715 19,814
Ford Credit Auto Loan Master Trust
5.50% 02/15/03 ............. 26,000 26,077
Ford Credit Auto Owner Trust
5.90% 06/15/02 ............. 37,000 37,468
MBNA Master Credit Card Trust I
6.05% 11/15/02 ............. 56,000 56,507
TOTAL ASSET BACKED
(COST $440,078) ............... 439,998
CORPORATE NOTES -- 7.7%
Abbey National PLC
6.70% 06/29/49 ............. 105,000 102,844
Airtouch Communications Inc.
7.00% 10/01/03 ............. 212,000 224,050
Associates Corporation of
North America
6.375% 10/15/02 ............. 100,000 102,894
Bellsouth Telecomm Inc.
6.375% 06/01/28 ............. 50,000 51,974
Boston University
7.625% 07/15/2097 ........... 80,000 92,401
Brascan Ltd.
7.375% 10/01/02 ............. 25,000 25,967
Brunswick Corp. - Pennsylvania
6.75% 12/15/06 ............. 200,000 200,602
Carnival Corp.
5.65% 10/15/00 ............. 50,000 50,129
Chrysler Financial Corp.
6.95% 03/25/02 ............. 500,000 522,955
Coca Cola Enterprises Inc.
7.00% 10/01/26 ............. 30,000 32,722
Columbia University Trustees
New York
6.83% 12/15/20 ............. 25,000 27,594
Commercial Credit Group Inc.
6.00% 06/15/00 ............. 64,000 64,538
Conseco Inc.
6.40% 06/15/01 ............. 50,000 48,169
6.80% 06/15/05 ............. 35,000 32,704
Corporacion Andina De Fomento
6.75% 03/15/05 ............. 130,000 125,056
PRINCIPAL
AMOUNT VALUE
- --------------------------------------------------------------------------------
Dayton Hudson Corp.
5.895% 06/15/37 ............ $ 35,000 $ 36,667
Fairfax Financial Holdings Ltd.
7.375% 04/15/18 ............ 40,000 38,729
Federated Department Stores Inc.
6.125% 09/01/01 ............ 35,000 35,396
Ford Motor Credit Corp.
7.32% 05/23/02 ............ 69,000 69,345
General Motors Acceptance Corp.
5.75% 11/10/03 ............ 20,000 20,155
Heritage Media Corp.
8.75% 02/15/06 ............ 40,000 43,100
Household Finance Corp.
6.125% 07/15/02 ............ 15,000 14,957
Hydro-Quebec
8.25% 04/15/26 ............ 125,000 154,532
International Lease Finance Corp.
5.62% 02/01/00 ............ 100,000 100,409
J.C. Penney Co. Inc.
7.40% 04/01/37 ............ 30,000 32,663
Korea Development Bank
6.625% 11/21/03 ............ 20,000 17,878
Lasmo USA Inc.
6.75% 12/15/07 ............ 25,000 25,166
LCI International Inc.
7.25% 06/15/07 ............ 25,000 25,313
Lehman Brothers Holdings Inc.
7.50% 08/01/26 ............ 45,000 46,841
Liberty Property Ltd. Partnership
7.50% 01/15/18 ............ 30,000 27,748
MCI Communications Corp.
6.125% 04/15/02 ............ 50,000 50,761
Merrill Lynch & Co. Inc.
7.00% 01/15/07 ............ 500,000 537,620
National Rural Utilities Cooperative
6.046% 04/15/03 ............ 25,000 25,468
NationsBank Corp.
7.50% 09/15/06 ............ 424,000 467,982
New Jersey Economic
Development Authority
7.425% 02/15/29 ............ 25,000 28,660
Niagara Mohawk Power Corp.
9.50% 06/01/00 ............ 25,000 26,223
Norfolk Southern Corp.
7.05% 05/01/37 ............ 10,000 10,818
7.90% 05/15/2097 .......... 55,000 64,385
Noram Energy Corp.
6.375% 11/01/03 ............ 30,000 30,296
Northrop Grumman Corp.
8.625% 10/15/04 ............ 40,000 44,763
Occidental Petroleum Corp.
7.375% 11/15/08 ............ 20,000 20,398
Oracle Corp.
6.72% 02/15/04 ............ 250,000 249,837
Paramount Communications Inc.
7.50% 01/15/02 ............ 75,000 78,265
Philip Morris Cos. Inc.
7.25% 09/15/01 ............ 25,000 26,097
RJR Nabisco Inc.
6.125% 02/01/33 ............ 30,000 29,255
Safeway Inc.
5.75% 11/15/00 ............ 25,000 25,050
Southdown Inc.
10.00% 03/01/06 ............ 212,000 228,960
Sprint Capital Corp.
5.70% 11/15/03 ............ 25,000 25,089
6.125% 11/15/08 ............ 25,000 25,546
6.875% 11/15/28 ............ 35,000 36,375
Stop & Shop Cos. Inc.
9.75% 02/01/02 ............ 20,000 22,114
- --------
See Notes to Schedule of Investments and Notes to
Financial Statements.
33
<PAGE>
TOTAL RETURN FUND
- --------------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
- --------------------------------------------------------------------------------
Suntrust Banks Inc.
6.00% 01/15/28 ............. $ 25,000 $ 25,700
Tele-Communications Inc.
9.80% 02/01/12 ............. 30,000 40,061
Times Mirror Co.
6.61% 09/15/27 ............. 35,000 37,383
Tribune Co. (new)
6.875% 11/01/06 ............. 200,000 214,894
Turner Broadcasting Systems Inc.
8.375% 07/01/13 ............. 35,000 41,835
Tyco International Group S.A.
6.25% 06/15/03 ............. 50,000 50,512
7.00% 06/15/28 ............. 130,000 132,632
Union Pacific Corp.
6.79% 11/09/07 ............. 45,000 46,198
United Illuminating Co.
6.25% 12/15/02 ............. 10,000 10,110
United Parcel Service Inc.
8.375% 04/01/30 ............. 45,000 56,344
US West Capital Funding Inc.
6.125% 07/15/02 ............. 15,000 15,313
6.875% 07/15/28 ............. 20,000 21,358
USA Waste Services Inc.
6.125% 07/15/01 ............. 115,000 115,757
USX Marathon Group
9.80% 07/01/01 ............. 25,000 27,011
8.125% 07/15/23 ............. 25,000 26,539
Washington Mutual Capital
8.375% 06/01/27 ............. 12,000 13,162
Westdeutsche Landesbank
6.75% 06/15/05 ............. 100,000 102,737
Westinghouse Electric Corp.
8.875% 06/01/01 ............. 15,000 15,975
Williams Cos. Inc.
6.125% 02/15/02 ............. 50,000 49,924
Worldcom Inc.
6.125% 08/15/01 ............. 20,000 20,320
6.40% 08/15/05 ............. 35,000 36,376
8.875% 01/15/06 ............. 35,000 38,254
TOTAL CORPORATE NOTES
(COST $5,390,475) ............. 5,585,855
NON-AGENCY MORTGAGE BACKED SECURITIES -- 2.9%
Chase Commercial Mortgage
Securities Corp.
6.39% 11/18/08 ............. 146,000 150,625
Commercial Mortgage Acceptance Corp.
6.49% 05/15/08 ............. 72,000 74,633
Credit Suisse First Boston Mortgage
Securities Corp.
6.30% 11/11/30 ............. 325,000 330,332
DLJ Commercial Mortgage Corp.
6.24% 11/12/31 ............. 325,000 330,992
First Union Lehman Brothers Bank
6.28% 06/18/07 ............. 125,314 127,585
GMAC Commercial Mortgage
Security Inc.
6.42% 08/15/08 ............. 44,000 45,430
Lehman Large Loan
6.79% 06/12/04 ............. 27,264 28,219
Merrill Lynch Mortgage Investors Inc.
6.39% 02/15/30 ............. 160,000 164,725
Mid State Trust
7.28% 07/01/35 ............. 13,862 14,239(d)
Morgan Stanley Capital Inc.
6.52% 01/15/08 ............. 243,000 252,189
6.54% 05/15/08 ............. 135,000 140,674
6.59% 10/03/30 ............. 18,376 18,910
6.01% 11/15/30 ............. 52,702 53,245
6.48% 11/15/30 ............. 88,000 91,355
PRINCIPAL
AMOUNT VALUE
- --------------------------------------------------------------------------------
Mortgage Capital Funding Inc.
6.423% 05/18/08 ............. $ 150,000 $ 154,172
Nationslink Funding Corp.
6.001% 11/20/07 ............. 29,843 30,035
6.476% 07/20/08 ............. 89,000 91,934
Residential Assets Securitization Trust
7.75% 06/25/27 ............. 32,610 33,531
TOTAL NON-AGENCY MORTGAGE BACKED SECURITIES
(COST $2,104,488) ............. 2,132,825
TOTAL BONDS AND NOTES
(COST $25,066,323) ............ 25,527,660
NUMBER
OF SHARES VALUE
- --------------------------------------------------------------------------------
PREFERRED STOCK -- 0.4%
- --------------------------------------------------------------------------------
DOMESTIC PREFERRED -- 0.3%
Citigroup Inc., 6.23% ............. 300 16,050
Microsoft Corp. (Series A) ........ 1,496 146,234
New Plan Excel Reality Trust Inc.
(Series D), 7.80% .............. 493 23,018(a)
TCI Communications Inc., 10.00% ... 1,200 32,400
217,702
FOREIGN PREFERRED -- 0.1%
Fresenius Medical Care AG ......... 386 17,950
Telecomunicacoes Brasileiras S.A. ADR 801 58,223
Telerj Celular S.A. ............... 14,300 337
76,510
TOTAL PREFERRED STOCK
(COST $305,453) ................ 294,212
- --------------------------------------------------------------------------------
WARRANTS -- 0.0%
- --------------------------------------------------------------------------------
Muenchener Rueckverischerungs-
Gesellschaft AG, 06/03/02
(COST $ 0) ...................... 11 511(a)
TOTAL INVESTMENTS IN SECURITIES
(COST $57,941,082) .............. 69,212,065
- --------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS -- 6.4%
- --------------------------------------------------------------------------------
GEI Short Term Investment Fund
(COST $4,687,117) .................4,687,117 4,687,117
EXPIRATION DATE/ NUMBER
STRIKE PRICE OF CONTRACTS VALUE
- --------------------------------------------------------------------------------
CALL OPTIONS -- 0.0%
- --------------------------------------------------------------------------------
U.S. Treasury Notes Jan 99/107.06 (185,000) (101)
U.S. Treasury Notes Jan 99/104.42 (195,000) (1,203)
(WRITTEN OPTION PREMIUM $(1,492)) (1,304)
- --------------------------------------------------------------------------------
PUT OPTIONS -- 0.0%
- --------------------------------------------------------------------------------
U.S. Treasury Notes Jan 99/101.06 (185,000) (1,026)
U.S. Treasury Notes Jan 99/98.42 (195,000) (488)
(WRITTEN OPTION PREMIUM $(1,656)) (1,514)
OTHER ASSETS AND LIABILITIES, NET (1.7)% (1,264,414)
-----------
NET ASSETS-- 100% $72,631,950
===========
- -------------
See Notes to Schedule of Investments and Notes to
Financial Statements.
34
<PAGE>
GLOBAL INCOME FUND
- --------------------------------------------------------------------------------
Q&A
WILLIAM R. WRIGHT, PORTFOLIO MANAGER OF THE GLOBAL INCOME FUND, JOINED GEIM IN
1993 AND ASSUMED RESPONSIBILITY FOR GE INVESTMENTS (US) LIMITED (GEIUS) AT ITS
INCEPTION IN 1995. GEIUS HAS TOTAL ASSETS UNDER HIS MANAGEMENT EXCEEDING $684
MILLION. HE IS ALSO A VICE PRESIDENT OF GEIM. PRIOR TO JOINING GEIM, BILL 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. BILL 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.
Q. HOW DID THE GLOBAL INCOME FUND PERFORM COMPARED TO ITS BENCHMARK AND LIPPER
PEER GROUP FOR THE ONE-YEAR PERIOD ENDED DECEMBER 31, 1998?
A. The Global Income Fund posted a return of 13.33% for the one-year period
ended December 31, 1998. For the same period, the JP Morgan Global Bond Index
returned 15.31% and our Lipper peer group of 38 Global Income annuity funds
returned 5.15%.
Q. WHY DID THE FUND UNDERPERFORM ITS BENCHMARK?
A. 1998 was an extremely volatile year in the global investment markets,
particularly with respect to foreign exchange. The fund attempted to achieve
positive returns while reducing overall risk by partially hedging against
negative currency returns during the year. This resulted in underperformance
versus the benchmark, particularly in October when the Japanese yen strengthened
against the dollar by approximately 15% in 4 days.
Q. WHAT HAS YOUR INVESTMENT STRATEGY BEEN?
A. The fund follows a primary strategy of investing in markets where real yields
are too high relative to domestic economic conditions, especially in relation to
expected inflation rates. For example, if we expect a country's inflation rate
to fall, we also expect a decline in yields on that country's debt, resulting in
increasing bond prices. Such an analysis led the fund to invest heavily in the
European and Dollar-bloc bond market in 1998, shifting assets primarily away
from the Japanese bond market.
Q. HOW DID THE EMERGING MARKETS AND HEDGE FUND CRISIS IMPACT THE FUND?
A. Our assessment of the growing financial imbalances in countries such as
Russia and Brazil, and their contagion impact on other markets caused us to
invest only in high grade government and corporate debt during 1998. This
strategy greatly insulated the fund from the turmoil surrounding these markets.
The hedge fund crisis impacted the fund negatively. The fund's underweighting in
Japan as well as its partial hedge against negative currency returns restricted
the fund's ability to benefit from any market upswing. This occurred when the
Japanese yen strengthened by over 15% in a few days as hedge funds unwound their
large short yen positions. The fund however, could not benefit from this huge
exchange rate move.
Q. WHAT IS THE OUTLOOK FOR THE FUND?
A. With interest rates worldwide at historically low levels, the fund is taking
a cautious stance, maintaining a duration approximating that of the benchmark.
We are currently adverse to the Japanese bond market, and will maintain an
underweighted position there. With the recent turmoil in the emerging markets,
we feel that there may be some short term opportunities from oversold
conditions. Presently, the fund is unhedged against currency risks, as we feel
that the dollar faces significant challenges from three sources: 1) the
ballooning U.S. current account deficit; 2) Japanese need to repatriate capital;
and 3) demand for the Euro.
35
<PAGE>
GLOBAL INCOME FUND
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
COMPARISON OF CHANGES IN
VALUE OF A $10,000 INVESTMENT
- --------------------------------------------------------------------------------
[LINE GRAPH OMITTED]
PLOT POINTS FOLLOW:
GLOBAL INCOME FUND JPM GLOBAL BOND
5/1/97 10,000 10,000
6/97 10,190 10,352
9/97 10,320 10,427
12/97 10,341 10,509
3/98 10,540 10,613
6/98 10,729 10,853
9/98 11,517 11,767
12/98 11,720 12,118
- --------------------------------------------------------------------------------
ANNUAL AVERAGE TOTAL RETURN
FOR THE PERIODS ENDED DECEMBER 31, 1998
- --------------------------------------------------------------------------------
ONE SINCE
YEAR COMMENCEMENT
- --------------------------------------------------------------------------------
Global Income Fund 13.33% 9.96%
- --------------------------------------------------------------------------------
JPM Global Bond Index 15.31% 12.18%
- --------------------------------------------------------------------------------
Lipper peer group average* 5.15%
- --------------------------------------------------------------------------------
Commencement date 5/1/97
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
INVESTMENT PROFILE
A fund designed for investors who seek total return through emphasis on
current income and less emphasis on capital appreciation by investing primarily
in foreign and domestic income-bearing debt securities and instruments.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
CURRENCY EXPOSURE
AS OF DECEMBER 31, 1998
- --------------------------------------------------------------------------------
[PIE CHART OMITTED]
PLOT POINTS FOLLOW:
U.S. DOLLARS 51.2%
OTHER 13.9%
ITALIAN LIRA 9.4%
DEUTSCHE MARK 8.5%
JAPANESE YEN 7.4%
SPANISH OESETA 4.9%
CANADIAN DOLLARS 4.7%
- --------------------------------------------------------------------------------
PORTFOLIO COMPOSITION
AS OF DECEMBER 31, 1998
- --------------------------------------------------------------------------------
[PIE CHART OMITTED]
PLOT POINTS FOLLOW:
EUROPE 45.7%
UNITED STATES 29.9%
CASH & OTHER 11.0%
OTHER REGIONS 9.3%
JAPAN 4.1%
* LIPPER PERFORMANCE COMPARISONS ARE BASED ON AVERAGE ANNUAL TOTAL RETURNS FOR
THE PERIODS INDICATED IN THE GLOBAL INCOME PEER GROUP CONSISTING OF 38
UNDERLYING ANNUITY FUNDS.
SEE NOTES TO PERFORMANCE.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.
36
<PAGE>
SCHEDULE OF INVESTMENTS DECEMBER 31, 1998
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
GLOBAL INCOME FUND
- --------------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
- --------------------------------------------------------------------------------
BONDS AND NOTES -- 89.0%
- --------------------------------------------------------------------------------
AUSTRIA -- 1.1%
Republic of Austria
6.25% 10/16/03 ......... JPY 10,000,000 $ 109,023 (h)
CANADA -- 9.3%
Government of Canada
7.00% 12/01/06 ......... CAD 170,000 126,520
6.00% 06/01/08 ......... CAD 200,000 141,642
Province of New Brunswick
11.25% 12/13/00 ......... CAD 270,000 196,773
Thomson Corp.
7.15% 10/23/06 ......... CAD 320,000 230,421
Toyota Credit Canada Inc.
7.375% 12/31/01 ......... CAD 310,000 213,968 (h)
909,324
FRANCE -- 7.2%
Government of France
7.00% 10/12/00 ......... FRF 800,000 152,474
5.25% 04/25/08 ......... FRF 950,000 187,774
Reseau Ferre De France
5.25% 04/14/10 ......... XEU 285,000 362,170 (h)
702,418
GERMANY -- 8.5%
Bayerische Vereinsbank
4.50% 06/24/02 ......... DEM 410,000 254,030
Dresdner Finance
5.50% 04/30/04 ......... DEM 420,000 270,407 (h)
Kredit Fuer Wiederaufbau
5.00% 01/04/09 ......... DEM 475,000 304,249
828,686
ITALY -- 11.0%
Republic of Italy
6.00% 05/15/00 ......... ITL 240,000,000 150,565
4.50% 04/15/01 ......... ITL 85,000,000 52,821
6.25% 03/01/02 ......... ITL 115,000,000 75,290
4.75% 05/01/03 ......... ITL 85,000,000 54,286
8.50% 08/01/04 ......... ITL 110,000,000 82,336
3.75% 06/08/05 ......... JPY 14,000,000 139,474 (h)
6.75% 02/01/07 ......... ITL 120,000,000 85,603
5.00% 05/01/08 ......... ITL 600,000,000 389,792
6.50% 11/01/27 ......... ITL 50,000,000 37,785
1,067,952
JAPAN -- 4.1%
Government of Japan
3.00% 09/20/17 ......... JPY 15,000,000 137,009
International Bank for
Reconstruction & Development
4.50% 03/20/03 ......... JPY 16,900,000 170,514 (h)
2.00% 02/18/08 ......... JPY 10,000,000 88,954 (h)
396,477
NETHERLANDS -- 1.4%
Dutch Government
9.00% 05/15/00 ......... NLG 15,000 8,587
5.75% 09/15/02 ......... NLG 95,000 54,612
5.25% 07/15/08 ......... NLG 118,000 69,153
132,352
SPAIN -- 5.2%
Government of Spain
6.00% 01/31/08 ......... ESP 38,000,000 306,217
PRINCIPAL
AMOUNT VALUE
- --------------------------------------------------------------------------------
Kingdom of Spain
10.10% 02/28/01 ......... ESP 19,000,000 $ 153,215
3.10% 09/20/06 ......... JPY 5,000,000 48,209 (h)
507,641
SWEDEN -- 1.2%
Kingdom of Sweden
10.25% 05/05/00 ......... SEK 400,000 53,467 (h)
8.00% 08/15/07 ......... SEK 400,000 62,862 (h)
116,329
UNITED KINGDOM -- 10.1%
Commonwealth Bank of Australia
8.125% 12/07/06 ......... GBP 99,000 191,516 (h)
European Investment Bank
6.25% 12/07/08 ......... GBP 100,000 181,509 (h)
Halifax Building Society
8.75% 07/10/06 ......... GBP 100,000 195,215 (h)
SmithKline Beecham PLC
8.375% 12/29/00 ......... GBP 140,000 243,354 (h)
Treasury
8.00% 06/07/21 ......... GBP 70,000 175,378
986,972
UNITED STATES -- 29.9%
Federal National Mortgage Assoc.
5.75% 09/05/00 ......... AUD 100,000 62,077 (h)
6.375% 08/15/07 ......... AUD 70,000 45,397 (h)
U.S. Treasury Notes
5.625% 02/15/06 ......... USD 1,000,000 1,054,690
5.50% 02/15/08 ......... USD 1,650,000 1,748,488
2,910,652
TOTAL INVESTMENTS IN SECURITIES
(COST $8,254,721) ...... 8,667,826
NUMBER
OF SHARES VALUE
- --------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS -- 10.7%
- --------------------------------------------------------------------------------
GEI Short Term Investment Fund
(COST $ 1,043,861) ......... 1,043,861 1,043,861
OTHER ASSETS AND LIABILITIES, NET 0.3% 27,041
----------
NET ASSETS-- 100% $9,738,728
==========
- --------------------------------------------------------------------------------
FORWARD FOREIGN CURRENCY CONTRACTS
- --------------------------------------------------------------------------------
At December 31, 1998, the outstanding forward foreign currency contracts, which
obligate the Global Income Fund to deliver currencies at a specified date, were
as follows:
U.S. $ UNREALIZED
SETTLEMENT CURRENT APPRECIATION/
FOREIGN CURRENCY EXCHANGED FOR DATE VALUE (DEPRECIATION)
- --------------------------------------------------------------------------------
PURCHASES
DEM2,500,000 USD$1,505,752 01/02/99 $1,502,378 $ (3,374)
JPY85,700,000 USD 731,229 01/08/99 758,877 27,648
---------- --------
$2,261,255 $ 24,274
---------- --------
SALES
CAD 725,000 USD$ 472,036 01/08/99 $ 474,329 $ (2,293)
DEM2,500,000 USD 1,523,461 02/01/99 1,502,378 21,083
GDP 450,000 USD 742,050 01/08/99 747,435 (5,385)
JPY85,700,000 USD 700,484 01/08/99 758,877 (58,393)
========== ========
$3,483,019 $(44,988)
========== ========
Net Unrealized Depreciation $(20,714)
========
- ------------
See Notes to Schedule of Investments and Notes to
Financial Statements.
37
<PAGE>
FIXED INCOME FUNDS
- --------------------------------------------------------------------------------
Q&A
ROBERT MACDOUGALL LEADS THE FIXED INCOME TEAM AT GE INVESTMENTS. ASSETS UNDER
MANAGEMENT EXCEED $29 BILLION. HIS RESPONSIBILITIES INCLUDE MANAGING THE INCOME
FUND AND MONEY MARKET FUND. BOB JOINED GE INVESTMENTS IN 1986 AS MUTUAL FUND
PORTFOLIO MANAGER, BECAME SENIOR VICE PRESIDENT- FIXED INCOME IN 1992 AND WAS
NAMED TO HIS PRESENT POSITION IN 1997. PREVIOUSLY HE WAS WITH GE'S CORPORATE
TREASURY OPERATION, MANAGING THE COMPANY'S $2 BILLION PORTFOLIO OF MARKETABLE
SECURITIES AND SUPPORTING THE TREASURER IN DEBT MANAGEMENT AND CAPITAL STRUCTURE
PLANNING. PRIOR TO THAT, BOB HAS HELD VARIOUS FINANCIAL MANAGEMENT POSITIONS
SINCE JOINING GE IN 1973. HE HOLDS BACHELOR'S AND MASTER'S DEGREES IN BUSINESS
ADMINISTRATION FROM THE UNIVERSITY OF MASSACHUSETTS.
Q. WHAT HAPPENED IN THE FIXED INCOME MARKETS DURING THE ONE-YEAR PERIOD ENDED
DECEMBER 31, 1998.
A. The past twelve months have seen a nice rally in the bond market. Yields on
30 year U.S. Treasury Bonds fell 80 basis points -0.80% from 5.92% to 5.10%.
Similar declines occurred on Treasuries of shorter maturities as well. During
the first half of the year the Federal Reserve, concerned about the tight labor
market, had a bias to raise interest rates to help slow our economy and prevent
an acceleration of inflation. Uncertainty about the impact of the Asian crisis
and whether it would spread to other regions of the world kept them on the
sidelines. As the Asian financial crisis worsened and spread to Russia and Latin
America, investors were increasingly attracted to the U.S. Treasury market's
quality, liquidity and value. Signs of a slowing of domestic economic activity
and continued low inflation together with the global market turmoil prompted the
Federal Reserve to ease monetary policy on three occasions during the fall.
Not all sectors of the fixed income market fared as well, however. Declining
interest rates prompted many homeowners to refinance their mortgages. This had a
dampening effect on the price performance of securities backed by home
mortgages. The mortgage sector, as measured by the Lehman Brothers Mortgage
index returned 6.96% for the one-year period ended December 1998 compared with a
10.03% return for the Treasury index. While mortgage-backed securities were
affected by "prepayment" risk (the uncertainty about the cash flow due to the
prepayment option granted to honeowners), corporate and other non-U.S.
government bonds were hit with fears of "repayment" risk. For years investors
have increasingly "reached for yield" by buying lower rated corporates and
driving credit spreads tighter and tighter. After the Russian debt default in
August, the markets reassessed - and repriced - the credit risk premiums in the
corporate bond market. Lower quality bonds were sold in favor of high quality
U.S. Treasuries. This "flight to quality" pushed corporate yields up while
driving Treasury yields down. The yield differential, or spread, widened in some
cases to levels not seen since the 1990-91 recession. Emerging market debt
declined 11.60% while high yield corporate bonds eked out a 1.87% return for the
year. Over the life of a bond its return is generally equal to its yield
(barring a default). During this period there was an inverse correlation between
yield and return. The lowest yielding sectors (Treasuries) outperformed higher
yielding corporates and mortgages.
Q. WHAT IS YOUR OUTLOOK FOR THE BOND MARKET?
A. Despite the low level of interest rates we believe that bonds continue to
offer good value on both a fundamental (real) basis as well as a relative (to
other asset classes) basis. Inflation remains low and well controlled, fiscal
policy is supportive and monetary policy has been effective. The widening of
mortgage and credit spreads has presented many opportunities for value in those
sectors. We believe that high quality bonds will continue to play an important
role in a well balanced portfolio.
38
<PAGE>
FIXED INCOME FUNDS
- --------------------------------------------------------------------------------
Q&A
INCOME FUND
Q. HOW DID THE INCOME FUND PERFORM COMPARED TO ITS MARKET BENCHMARK AND LIPPER
PEER GROUP FOR THE ONE-YEAR PERIOD ENDED DECEMBER 31, 1998?
A. The Income Fund posted a return of 7.95% for the one-year period ended
December 31, 1998. For the same period, the Lehman Brothers Aggregate Bond Index
returned 8.67% and our Lipper peer group of 18 Intermediate Investment Grade
Debt annuity funds returned of 7.74%.
Q. WHAT WERE THE KEY DRIVERS OF FUND PERFORMANCE?
A. Anticipating the decline in the interest rates we maintained a longer
duration (interest rate exposure) than the market. This strategy plus good
security selection in the mortgage-backed sector helped performance. The
widening of corporate bond spreads was a negative.
MONEY MARKET FUND
Q. HOW DID THE MONEY MARKET FUND PERFORM COMPARED TO ITS BENCHMARK AND LIPPER
PEER GROUP FOR THE ONE-YEAR PERIOD ENDED DECEMBER 31, 1998?
A. The Money Market Fund posted a return of 5.26% for the one-year period ended
December 31, 1998. For the same period, the 90-day U.S. Treasury Bills returned
4.88% and our Lipper peer group of 105 Money Markets annuity funds returned
5.10%.
Q. WHAT WERE THE KEY DRIVERS OF FUND PERFORMANCE?
A. While the Federal Reserve waited until the end of September to ease monetary
policy, the markets did not. The money market yield curve became inverted with
shorter maturities yielded more than longer maturities. By holding our average
maturity shorter than the peer funds we were able to capture these higher rates.
39
<PAGE>
INCOME FUND
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
COMPARISON OF CHANGES IN
VALUE OF A $10,000 INVESTMENT
- --------------------------------------------------------------------------------
[LINE GRAPH OMITTED]
PLOT POINTS FOLLOW:
INCOME FUND LB AGGREGATE
1/3/95 10,000 10,000
3/95 10,453 10,504
6/95 11,016 11,144
9/95 11,210 11,363
12/95 11,683 11,847
3/96 11,445 11,636
6/96 11,463 11,702
9/96 11,674 11,918
12/96 12,024 12,275
3/97 11,953 12,207
6/97 12,378 12,657
9/97 12,770 13,079
12/97 13,106 13,464
3/98 13,312 13,672
6/98 13,626 13,991
9/98 14,102 14,583
12/98 14,148 14,632
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN
FOR THE PERIODS ENDED DECEMBER 31, 1998
- --------------------------------------------------------------------------------
ONE THREE SINCE
YEAR YEAR COMMENCEMENT
- --------------------------------------------------------------------------------
Income Fund 7.95% 6.59% 9.07%
- --------------------------------------------------------------------------------
LB Aggregate Bond Index 8.67% 7.29% 10.00%
- --------------------------------------------------------------------------------
Lipper peer group average* 7.74% 6.55%
- --------------------------------------------------------------------------------
Commencement date 1/3/95
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
INVESTMENT PROFILE
A fund designed for investors who seek to
maximize income consistent with prudent investment
management and preservation of capital by
investing primarily in income-bearing debt securities and instruments.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO COMPOSITION
AS OF DECEMBER 31, 1998
- --------------------------------------------------------------------------------
[PIE CHART OMITTED]
PLOT POINTS FOLLOW:
MORTGAGE-BACKED 40.5%
U.S. TREASURIES & FEDERAL AGENCIES 28.0%
CORPORATE NOTES 20.6%
CASH & OTHER 10.9%
- --------------------------------------------------------------------------------
QUALITY RATINGS
AT DECEMBER 31, 1998
- --------------------------------------------------------------------------------
MOODY'S / S&P PERCENTAGE OF
RATINGS NET ASSETS
- --------------------------------------------------------------------------------
Aaa / AAA 74.2%
- --------------------------------------------------------------------------------
Aa / AA 2.9%
- --------------------------------------------------------------------------------
A / A 6.9%
- --------------------------------------------------------------------------------
Baa / BBB 8.9%
- --------------------------------------------------------------------------------
Ba / BB 1.4%
- --------------------------------------------------------------------------------
Other 5.7%
- --------------------------------------------------------------------------------
* LIPPER PERFORMANCE COMPARISONS ARE BASED ON AVERAGE ANNUAL TOTAL RETURNS FOR
THE PERIODS INDICATED IN THE INTERMEDIATE U.S. BOND PEER GROUP CONSISTING OF 18
AND 14 UNDERLYING ANNUITY FUNDS, RESPECTIVELY.
SEE NOTES TO PERFORMANCE.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.
40
<PAGE>
SCHEDULE OF INVESTMENTS DECEMBER 31, 1998
- --------------------------------------------------------------------------------
INCOME FUND
- --------------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
- --------------------------------------------------------------------------------
BONDS AND NOTES -- 93.6%
- --------------------------------------------------------------------------------
U.S. TREASURIES -- 16.6%
U.S. Treasury Bonds
10.625% 08/15/15 ............ $ 139,000 $ 220,749(h)
8.125% 08/15/19 ............ 789,000 1,053,686(h)
7.875% 02/15/21 ............ 450,000 591,822(h)
8.125% 05/15/21 ............ 1,118,000 1,508,249(h)
5.50% 08/15/28 ............ 20,000 20,934(h)
5.25% 11/15/28 ............ 1,316,000 1,347,255(h)
4,742,695
U.S. Treasury Notes
5.375% 06/30/00 ............ 313,000 316,227(h)
5.25% 08/31/00 ............ 1,453,000 1,464,130(h)
6.50% 08/31/01 ............ 410,000 428,770(h)
5.375% 06/30/03 ............ 140,000 144,068(h)
5.25% 08/15/03 ............ 789,000 809,096(h)
4.75% 11/15/08 ............ 755,000 760,897(h)
3,923,188
U.S. Treasury STRIPS
4.60% 02/15/00 ............ 100,000 95,070(d,h)
5.31% 08/15/11 ............ 375,000 193,729(d,h)
5.35% 02/15/12 ............ 560,000 280,392(d,h)
5.63% 02/15/19 ............ 1,750,000 573,947(d,h)
1,143,138
TOTAL U.S. TREASURIES
(COST $9,629,387) ............ 9,809,021
FEDERAL AGENCIES -- 11.4%
Federal Farm Credit Bank
5.27% 02/01/99 ............ 500,000 500,080
9.15% 02/14/05 ............ 100,000 120,047
8.60% 05/30/06 ............ 400,000 431,624
1,051,751
Federal Home Loan Bank
5.62% 08/10/00 ............ 50,000 50,476
5.625% 03/19/01 ............ 115,000 116,527
167,003
Federal Home Loan Mortgage Corp.
8.00% 02/01/00 - 04/01/00 . 20,357 20,589
6.22% 03/18/08 ............ 170,000 173,958
5.75% 04/15/08 ............ 290,000 299,834
5.125% 10/15/08 ............ 425,000 420,950
8.25% 06/01/26 ............ 60,000 79,809
995,140
Federal National Mortgage Assoc.
5.60% 03/27/00 ............ 270,000 271,941
5.67% 05/26/00 ............ 600,000 605,532
5.56% 07/24/00 ............ 130,000 131,117
5.38% 01/16/01 ............ 70,000 70,536
6.41% 07/08/02 ............ 20,000 20,794
5.75% 04/15/03 ............ 220,000 225,843
7.70% 08/10/04 ............ 100,000 101,500
6.99% 07/09/07 ............ 50,000 52,477
6.00% 05/15/08 ............ 290,000 306,130
5.64% 12/10/08 ............ 485,000 487,122
2,272,992
PRINCIPAL
AMOUNT VALUE
- --------------------------------------------------------------------------------
Government National Mortgage Assoc.
7.00% 03/15/12 ............ $ 525,749 $ 538,893
7.00% 10/15/28 ............ 1,284,834 1,314,539
1,853,432
Small Business Administration
6.125% 01/01/18 ............ 269,559 272,929
Tennessee Valley Authority
6.125% 07/15/03 ............ 133,000 134,455
TOTAL FEDERAL AGENCIES
(COST $6,676,585) ............ 6,747,702
AGENCY MORTGAGE BACKED -- 33.4%
Federal Home Loan Mortgage Corp.
8.00% 01/01/00 ............ 14,485 14,522
6.75% 10/01/08 ............ 97,200 98,530(b)
8.00% 09/01/09 ............ 130,614 134,915
7.50% 06/01/10 ............ 40,117 41,304
8.50% 07/01/10 ............ 132,189 137,695
7.50% 09/01/12 ............ 219,534 225,707
9.00% 02/01/17 ............ 42,444 45,203
8.00% 04/01/17 ............ 130,223 135,679
7.50% 04/01/28 ............ 2,042,253 2,097,528
6.50% 07/01/28 - 12/01/28 . 3,687,726 3,714,146
6,645,229
Federal National Mortgage Assoc.
5.10% 09/25/00 ............ 292,000 292,546
7.50% 07/01/02 ............ 24,718 24,955
6.50% 01/01/04 ............ 1,367 1,378
7.50% 12/01/09 ............ 298,942 307,537
6.50% 12/01/10 ............ 485,438 493,171
6.50% 04/01/13 ............ 277,474 281,375
7.631% 07/01/19 ............ 95,074 95,653
7.00% 06/18/20 ............ 15,132 15,132(b)
6.424% 12/25/23 ............ 1,050,000 1,069,031
9.00% 11/01/25 ............ 545,570 577,447
8.50% 12/01/25 ............ 697,360 730,478
8.50% 12/01/26 ............ 238,959 250,233
7.00% 10/01/27 - 11/01/27 . 996,005 1,017,718
8.50% 02/01/28 ............ 545,137 570,856
7.00% 07/01/28 ............ 196,608 200,540
6.16% 08/07/28 ............ 425,000 444,656
6.00% TBA ................. 3,480,000 3,478,139(c)
7.50% TBA ................. 420,000 431,353(c)
10,282,198
Government National Mortgage Assoc.
7.50% 04/15/01 ............ 10,300 10,444
8.50% 10/15/17 ............ 374,668 400,539
6.875% 11/20/22 ............ 47,670 48,103
7.00% 02/20/23 ............ 150,356 152,263
6.50% 02/15/24 - 03/15/24 . 465,959 470,908
6.875% 12/20/24 ............ 75,168 76,202
7.00% 02/20/26 ............ 32,110 32,552
7.50% 03/15/28 ............ 224,994 232,115
6.50% 04/15/28 ............ 891,365 900,279
7.00% 04/15/28 ............ 460,334 470,977
2,794,382
TOTAL AGENCY MORTGAGE BACKED
(COST $19,652,734) ........... 19,721,809
- -----------
See Notes to Schedule of Investments and Notes to
Financial Statements.
41
<PAGE>
INCOME FUND
- --------------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
- --------------------------------------------------------------------------------
AGENCY COLLATERALIZED MORTGAGE OBLIGATIONS -- 2.1%
Federal Home Loan Mortgage Corp.
6.50% 02/15/21 ............. $ 76,926 $ 77,262
Federal Home Loan Mortgage PC
5.85% 02/15/08 ............. 110,000 110,309
6.50% 07/15/08 ............. 50,000 50,656
7.00% 02/15/21 ............. 50,000 50,594
211,559
Federal National Mortgage Assoc.
6.247% 03/25/21 ............. 196,000 197,899
9.00% 02/25/22 ............. 8,339 1,576(g)
8.50% 07/01/22 ............. 13,145 2,240(g)
8.50% 09/01/23 ............. 619,326 118,446(g)
320,161
Federal National Mortgage Assoc. REMIC
6.00% 06/25/01 ............. 47,343 46,840
7.623% 12/17/04 ............. 12,601 13,263
6.221% 05/25/14 ............. 364,619 369,405
6.42% 05/25/18 ............. 11,000 11,230
6.00% 03/25/19 ............. 86,400 86,508
10.84% 07/25/20 ............. 5,462 5,291(d,f)
7.00% 09/25/20 ............. 20,989 21,408
8.00% 10/25/20 ............. 47,495 49,187
4.58% 12/25/22 ............. 8,192 6,970(d,f)
610,102
TOTAL AGENCY COLLATERALIZED MORTGAGE OBLIGATIONS
(COST $1,193,721) ............. 1,219,084
ASSET BACKED -- 1.5%
Advanta Mortgage Loan Trust Corp.
6.30% 07/25/25 ............. 3,724 3,700
Capital One Master Trust
5.43% 01/15/07 ............. 263,000 263,164
Chase Credit Card Master Trust
6.00% 08/15/05 ............. 111,000 112,526
Discover Card Master Trust I
5.60% 05/15/06 ............. 263,000 264,356
Fleetwood Credit Grantor Trust
6.40% 05/15/13 ............. 7,478 7,516
Ford Credit Auto Loan Master Trust
5.50% 02/15/03 ............. 60,000 60,177
Ford Credit Auto Owner Trust
5.90% 06/15/02 ............. 28,000 28,354
MBNA Master Credit Card Trust
6.05% 11/15/02 ............. 135,000 136,223
TOTAL ASSET BACKED
(COST $875,960) ............... 876,016
CORPORATE NOTES -- 20.6%
Abbey National PLC
6.70% 06/29/49 ............. 15,000 14,692
7.35% 10/29/49 ............. 131,000 132,444
Arizona Public Service Co.
6.25% 01/15/05 ............. 65,000 66,380
Associates Corporation North America
6.375% 10/15/02 ............. 300,000 308,682
5.75% 11/01/03 ............. 100,000 100,897
PRINCIPAL
AMOUNT VALUE
- --------------------------------------------------------------------------------
Atlantic City Electric Co.
6.19% 01/17/06 ............. $ 160,000 $ 164,427
Bank of Scotland
7.00% 11/29/49 ............. 110,000 109,343(b)
Beckman Instruments Inc.
7.10% 03/04/03 ............. 70,000 70,407
Bell Telephone Co. - Pennsylvania
8.35% 12/15/30 ............. 243,000 316,350
Bellsouth Telecomm Inc.
6.375% 06/01/28 ............. 75,000 77,962
Black & Decker Holdings Inc.
7.05% 07/01/28 ............. 60,000 59,999(b)
Boston University
7.625% 07/15/2097 ........... 100,000 115,501
Brascan Ltd.
7.375% 10/01/02 ............. 60,000 62,320
Carnival Corp.
5.65% 10/15/00 ............. 100,000 100,259
Carter Holt Harvey Ltd.
8.875% 12/01/04 ............. 50,000 54,649
Cleveland Electric Co.
7.19% 07/01/00 ............. 5,000 5,074
Coca-Cola Enterprises Inc.
7.00% 10/01/26 ............. 75,000 81,805
Columbia University Trustees
New York
6.83% 12/15/20 ............. 5,000 5,519
Conseco Inc.
6.40% 06/15/01 ............. 279,000 268,783
6.80% 06/15/05 ............. 90,000 84,096
8.70% 11/15/26 ............. 192,000 175,417
Continental Cablevision Inc.
8.50% 09/15/01 ............. 160,000 169,722
Corporacion Andina De Fomento
6.75% 03/15/05 ............. 130,000 125,056
Dayton Hudson Corp.
5.895% 06/15/37 ............. 85,000 89,049
Dow Chemical Co.
8.55% 10/15/09 ............. 65,000 77,728
Fairfax Financial Holdings Ltd.
7.375% 04/15/18 ............. 125,000 121,029
Federal Express Corp.
7.52% 01/15/18 ............. 88,099 93,306
Federated Department Stores Inc.
6.125% 09/01/01 ............. 80,000 80,904
Ford Motor Credit Corp.
7.32% 05/23/02 ............. 26,000 26,130
General Motors Acceptance Corp.
5.75% 11/10/03 ............. 50,000 50,388
Goldman Sachs Group L.P.
6.20% 12/15/00 ............. 100,000 101,306(b)
Guangdong International Trust
& Investment Corp.
8.75% 10/24/16 ............. 10,000 5,600(b,j)
Heritage Media Corp.
8.75% 02/15/06 ............. 95,000 102,362
Household Finance Corp.
6.125% 07/15/02 ............. 30,000 29,914
Hydro-Quebec
8.05% 07/07/24 ............. 260,000 312,013
International Lease Finance Corp.
5.62% 02/01/00 ............. 185,000 185,757
Israel Electric Corporation Ltd.
7.125% 07/15/05 ............. 40,000 40,591(b)
J.C. Penney Co. Inc.
7.40% 04/01/37 ............. 65,000 70,769
Korea Development Bank
7.125% 09/17/01 ............. 20,000 18,954
6.625% 11/21/03 ............. 5,000 4,469
- -------------
See Notes to Schedule of Investments and Notes to
Financial Statements.
42
<PAGE>
SCHEDULE OF INVESTMENTS DECEMBER 31, 1998
- --------------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
- --------------------------------------------------------------------------------
Landeskreditbank Baden
7.875% 04/15/04 ............. $ 218,000 $ 243,162
Lasmo USA Inc.
6.75% 12/15/07 ............. 85,000 85,564
LCI International Inc.
7.25% 06/15/07 ............. 78,000 78,977
Lehman Brothers Holdings Inc.
6.90% 03/30/01 ............. 75,000 76,241
8.05% 01/15/19 ............. 160,000 162,389
7.50% 08/01/26 ............. 100,000 104,092
LG&E Capital Corp.
5.75% 11/01/01 ............. 95,000 94,344(b)
Liberty Property Ltd. Partnership
7.50% 01/15/18 ............. 65,000 60,120
Loewen Group International Inc.
6.70% 10/01/99 ............. 162,000 155,520(b)
7.50% 04/15/01 ............. 48,000 42,000
MBNA Corp.
6.306% 04/22/03 ............. 100,000 98,521
MCI Communications Corp.
6.125% 04/15/02 ............. 125,000 126,902
MIC Financing Trust
8.375% 02/01/27 ............. 15,000 15,622(b)
Monsanto Co.
5.75% 12/01/05 ............. 75,000 74,828
6.60% 12/01/28 ............. 75,000 74,862(b)
Morgan Stanley Finance PLC
8.03% 02/28/17 ............. 5,000 5,287
National Rural Utilities Cooperative
6.046% 04/15/03 ............. 100,000 101,870
National Westminster Bank PLC
7.75% 04/29/49 ............. 185,000 195,201
New Jersey Economic
Development Authority
7.425% 02/15/29 ............. 10,000 11,464
News America Holdings Inc.
8.15% 10/17/36 ............. 279,000 313,663
Norfolk Southern Corp.
7.90% 05/15/2097 ........... 312,000 365,240
Noram Energy Corp.
6.375% 11/01/03 ............. 65,000 65,642
North Atlantic Energy Corp.
9.05% 06/01/02 ............. 12,000 12,468
Northrop Grumman Corp.
8.625% 10/15/04 ............. 85,000 95,121
NRG Energy Inc.
7.50% 06/15/07 ............. 15,000 15,802
Occidental Petroleum Corp.
7.375% 11/15/08 ............. 50,000 50,994
Paramount Communications Inc.
5.875% 07/15/00 ............. 50,000 50,065
Philip Morris Cos. Inc.
7.25% 09/15/01 ............. 60,000 62,633
Quebec Province of Canada
5.67% 02/27/26 ............. 500,000 528,730
Riggs Capital Trust
8.625% 12/31/26 ............. 10,000 10,164(b)
RJR Nabisco Inc.
8.00% 07/15/01 ............. 50,000 50,126
7.625% 09/15/03 ............. 155,000 151,045
6.125% 02/01/33 ............. 75,000 73,136
Safeway Inc.
5.75% 11/15/00 ............. 60,000 60,120
Sprint Capital Corp.
5.70% 11/15/03 ............. 60,000 60,214
6.125% 11/15/08 ............. 55,000 56,201
6.875% 11/15/28 ............. 75,000 77,947
PRINCIPAL
AMOUNT VALUE
- --------------------------------------------------------------------------------
Stop & Shop Cos. Inc.
9.75% 02/01/02 ............. $ 40,000 $ 44,228
Sun Life Canada Capital Trust
8.526% 05/29/49 ............. 214,000 232,239(b)
Sunamerica Inc.
5.60% 07/31/2097 ........... 295,000 250,664
Suntrust Banks Inc.
6.00% 01/15/28 ............. 60,000 61,681
TCI Communications Inc.
8.65% 09/15/04 ............. 35,000 40,110
Tele-Communications Inc.
9.80% 02/01/12 ............. 65,000 86,798
Tenet Healthcare Corp.
8.00% 01/15/05 ............. 10,000 10,150
Texas Utilities Co.
5.944% 10/15/01 ............. 225,000 226,312
Time Warner Entertainment Co. L.P.
10.15% 05/01/12 ............. 224,000 300,937
Time Warner Pass-Through Asset Trust
6.10% 12/30/01 ............. 95,000 96,530(b)
Times Mirror Co.
6.61% 09/15/27 ............. 370,000 395,197
Toledo Edison Co.
7.38% 03/31/00 ............. 272,000 277,331
Turner Broadcasting Systems Inc.
8.375% 07/01/13 ............. 80,000 95,622
Tyco International Group S.A.
6.25% 06/15/03 ............. 10,000 10,102
6.125% 11/01/08 ............. 65,000 65,188(b)
7.00% 06/15/28 ............. 95,000 96,924
Union Pacific Corp.
6.79% 11/09/07 ............. 110,000 112,928
United Illuminating Co.
6.25% 12/15/02 ............. 25,000 25,275
United Parcel Service Inc.
8.375% 04/01/30 ............. 95,000 118,949
US West Capital Funding Inc.
6.125% 07/15/02 ............. 30,000 30,626
6.875% 07/15/28 ............. 40,000 42,717
USA Waste Services Inc.
6.125% 07/15/01 ............. 75,000 75,493
USX Marathon Group
9.80% 07/01/01 ............. 60,000 64,828
8.125% 07/15/23 ............. 60,000 63,692
Viacom Inc.
7.75% 06/01/05 ............. 368,000 399,217
Washington Mutual Capital
8.375% 06/01/27 ............. 12,000 13,162
Westdeutsche Landesbank
6.75% 06/15/05 ............. 100,000 102,737
Westinghouse Electric Corp.
8.875% 06/01/01 ............. 35,000 37,274
Williams Cos. Inc.
6.125% 02/15/02 ............. 120,000 119,818
WMX Technologies Inc.
6.65% 05/15/05 ............. 80,000 82,617
Worldcom Inc.
6.125% 08/15/01 ............. 45,000 45,719
6.40% 08/15/05 ............. 75,000 77,949
8.875% 01/15/06 ............. 100,000 109,297
Yale University
7.375% 04/15/2096 ........... 305,000 346,355
Zurich Capital Trust
8.376% 06/01/37 ............. 50,000 55,889(b)
TOTAL CORPORATE NOTES
(COST $12,111,072) ............ 12,200,885
- ------------
See Notes to Schedule of Investments and Notes to
Financial Statements.
43
<PAGE>
INCOME FUND
- --------------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
- --------------------------------------------------------------------------------
NON-AGENCY MORTGAGE BACKED SECURITIES -- 7.1%
BHN Mortgage Trust
7.916% 07/25/09 ............. $ 88,635 $ 65,590(b)
7.54% 05/31/17 ............. 8,341 6,005(b)
Chase Commercial Mortgage
Securities Corp.
6.39% 11/18/08 ............. 198,000 204,273
Commercial Mortgage
Acceptance Corp.
6.49% 05/15/08 ............. 110,000 114,022
Credit Suisse First Boston
Mortgage Securities Corp.
6.30% 11/15/08 ............. 455,000 462,465
DDR Pass-Through Asset Trust
7.125% 03/15/02 ............. 65,000 64,762(b)
DLJ Commercial Mortgage Corp.
6.14% 10/15/06 ............. 29,434 29,729
5.92% 11/12/31 ............. 223,000 227,111(d)
GMAC Commercial Mortgage
Security Inc.
6.42% 08/15/08 ............. 154,000 159,005
GS Mortgage Securities Corp.
5.95% 07/13/30 ............. 219,000 228,102(d)
Lehman Large Loan
6.79% 06/12/04 ............. 9,737 10,078
Merrill Lynch Mortgage
Investors Inc.
6.39% 02/15/30 ............. 100,000 102,953
Mid State Trust
7.28% 07/01/35 ............. 6,931 7,120(d)
Morgan Stanley Capital Inc.
6.86% 05/15/06 ............. 227,726 235,091(b)
6.52% 01/15/08 ............. 429,000 445,221
6.59% 10/03/30 ............. 9,672 9,953
6.01% 11/15/30 ............. 131,257 132,610
6.48% 11/15/30 ............. 220,000 228,388
Nationslink Funding Corp.
6.001% 11/20/07 ............. 74,609 75,087
6.476% 07/20/08 ............. 219,000 226,220
Residential Assets Securitization Trust
7.75% 04/25/27 - 09/25/27 .. 354,080 363,874
Sawgrass Finance REMIC Trust
6.45% 01/20/06 ............. 272,000 274,975
Vornado Finance Corp.
6.36% 12/01/00 ............. 521,000 526,698(b)
TOTAL NON-AGENCY MORTGAGE BACKED SECURITIES
(COST $4,181,277) ............. 4,199,332
NON-AGENCY COLLATERALIZED MORTGAGE OBILIGATIONS -- 0.9%
Salomon Brothers Mortgage Securities Inc.
7.00% 07/25/24
(COST $518,663) ............... 529,443 508,622
TOTAL NON-AGENCY COLLATERALIZED MORTGAGE OBILIGATIONS
TOTAL BONDS AND NOTES
(COST $54,839,399) ............ 55,282,471
NUMBER
OF SHARES VALUE
- --------------------------------------------------------------------------------
PREFERRED STOCK -- 0.7%
- --------------------------------------------------------------------------------
CORPORATE PREFERRED
Banesto Holdings Ltd.
(Series A), 10.50% ................ 1,300 $ 37,375(a,b)
Centaur Funding (Series B) ........... 105 108,919(b)
Citigroup Inc., 6.23% ................ 500 26,750
New Plan Excel Reality Trust Inc.
(Series D), 7.80% ................. 467 21,804
News Corp. Exchange Trust, 5.00% ..... 80 4,920(b)
Pinto Totta International
Finance Ltd., 7.77% ............... 181 165,606(b)
Spaulding Properties Inc.
(Series C), 7.89% ................. 205 9,327
TCI Communications Inc., 10.00% ...... 2,400 64,800
TOTAL PREFERRED STOCK
(COST $467,573) ................... 439,501
TOTAL INVESTMENTS IN SECURITIES
(COST $55,306,972) ................ 55,721,972
- --------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS -- 10.6%
- --------------------------------------------------------------------------------
GEI Short Term Investment Fund .......17,313 17,313
PRINCIPAL
AMOUNT VALUE
- --------------------------------------------------------------------------------
U.S. GOVERNMENT AGENCIES
Federal National Mortgage Assoc.
6.43% 1/14/99 ............ $6,267,315 6,267,315(d)
TOTAL SHORT-TERM INVESTMENTS
(COST $6,284,628) ........... 6,284,628
NUMBER
EXPIRATION DATE/ OF
STRIKE PRICE CONTRACTS VALUE
- --------------------------------------------------------------------------------
CALL OPTIONS -- 0.0%
- --------------------------------------------------------------------------------
U.S. Treasury Notes Jan 99/107.06 (420,000) (229)
U.S. Treasury Notes Jan 99/104.42 (435,000) (2,685)
(WRITTEN OPTION PREMIUM $(3,363)) ............... (2,914)
- --------------------------------------------------------------------------------
PUT OPTIONS -- 0.0%
- --------------------------------------------------------------------------------
U.S. Treasury Notes Jan 99/101.06 (420,000) (2,331)
U.S. Treasury Notes Jan 99/98.42 (435,000) (1,087)
(WRITTEN OPTION PREMIUM $(3,732)) ............... (3,418)
OTHER ASSETS AND LIABILITIES, NET (4.9)% (2,923,723)
------------
NET ASSETS-- 100% $59,076,545
============
- ----------
See Notes to Schedule of Investments and Notes to
Financial Statements.
44
<PAGE>
MONEY MARKET FUND
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
COMPARISON OF CHANGES IN
VALUE OF A $10,000 INVESTMENT
- --------------------------------------------------------------------------------
[LINE GRAPH OMITTED]
PLOT POINTS FOLLOW:
MONEY MARKET FUND 90-DAY T-BILL
'88 10,000 10,000
'89 10,866 10,839
'90 11,642 11,678
'91 12,258 12,325
'92 12,628 12,758
'93 12,925 13,149
'94 13,407 13,723
'95 14,199 14,500
'96 14,966 15,246
'97 15,776 16,039
'98 16,605 16,822
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN
FOR THE PERIODS ENDED DECEMBER 31, 1998
- --------------------------------------------------------------------------------
ONE FIVE TEN
YEAR YEAR YEAR
- --------------------------------------------------------------------------------
Money Market Fund 5.26% 5.14% 5.20%
- --------------------------------------------------------------------------------
90-Day T-Bill 4.88% 5.05% 5.34%
- --------------------------------------------------------------------------------
Lipper peer group average* 5.10% 4.92% 5.32%
- --------------------------------------------------------------------------------
Commencement date 7/1/85
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO COMPOSITION
AS OF DECEMBER 31, 1998
- --------------------------------------------------------------------------------
[PIE CHART OMITTED]
PLOT POINTS FOLLOW:
U.S. GOVERNMENTS 36.9%
COMMERCIAL PAPER 32.4%
YANKEE CERTIFICATES OF DEPOSITS 24.4%
CASH & OTHER 5.2%
- --------------------------------------------------------------------------------
FUND YIELD AT DECEMBER 31, 1998
- --------------------------------------------------------------------------------
FUND IBC MONEY FUND
---- --------------
7 day current 4.72%+ 4.56%
7 day effective 4.83% 4.66%
- --------------------------------------------------------------------------------
CURRENT YIELD REPRESENTS INCOME EARNED ON AN INVESTMENT IN THE MONEY MARKET FUND
FOR A SEVEN DAY PERIOD AND THEN ANNUALIZED.
EFFECTIVE YIELD IS CALCULATED SIMILARLY BUT IS SLIGHTLY HIGHER BECAUSE IT
REFLECTS THE COMPOUNDING EFFECT OF EARNINGS ON REINVESTED DIVIDENDS.
- --------------------------------------------------------------------------------
INVESTMENT PROFILE
A fund designed for investors who seek high current income consistent with high
liquidity and safety of principal by investing in various types of high quality
money market securities.
- --------------------------------------------------------------------------------
AN INVESTMENT IN THE MONEY MARKET FUND IS NEITHER INSURED NOR GUARANTEED BY THE
U.S. GOVERNMENT, AND NO ASSURANCE CAN BE GIVEN THAT THE MONEY MARKET FUND WILL
BE ABLE TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE.
* LIPPER PERFORMANCE COMPARISONS ARE BASED ON AVERAGE ANNUAL TOTAL RETURNS FOR
THE PERIODS INDICATED IN THE MONEY MARKET PEER GROUP CONSISTING OF 105, 79 AND
47 UNDERLYING ANNUITY FUNDS, RESPECTIVELY.
+ THE SEVEN DAY CURRENT YIELD, RATHER THAN THE TOTAL RETURN, MORE CLOSELY
REFLECTS THE CURRENT EARNINGS OF THE MONEY MARKET FUND AT DECEMBER 31, 1998.
SEE NOTES TO PERFORMANCE.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.
45
<PAGE>
SCHEDULE OF INVESTMENTS DECEMBER 31, 1998
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
MONEY MARKET FUND
- --------------------------------------------------------------------------------
PRINCIPAL AMORTIZED
AMOUNT COST
- --------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS -- 94.8%
- --------------------------------------------------------------------------------
U.S. GOVERNMENT (d) -- 36.9%
Federal Farm Credit Bank
4.80% 01/19/99 ........... $ 5,850,000 $ 5,836,106
Federal Home Loan Bank
5.64% 01/22/99 ........... 4,000,000 3,987,470
5.11% 02/19/99 ........... 6,000,000 5,959,983
5.23% 03/19/99 ........... 10,500,000 10,386,136
20,333,589
Federal Home Loan Mortgage Corp.
5.17% 01/28/99 ........... 7,590,000 7,561,538
5.13% 02/17/99 - 02/26/99 21,145,000 21,003,117
28,564,655
Federal National Mortgage Assoc.
5.27% 03/19/99 ........... 10,500,000 10,385,350
5.01% 04/01/99 ........... 17,710,000 17,496,369
4.96% 04/08/99 ........... 5,900,000 5,823,980
33,705,699
TOTAL U.S. GOVERNMENT
(COST $88,440,049) .......... 88,440,049
COMMERICAL PAPER -- 32.4%
Abbey National PLC
5.11% 02/08/99 ........... 7,800,000 7,757,928
Associates Corp. of North America
5.13% 02/04/99 ........... 8,000,000 7,961,240
5.18% 02/04/99 ........... 1,400,000 1,393,151
Bank of Nova Scotia
5.10% 02/19/99 ........... 9,000,000 8,937,525
Halifax Building Society
5.06% 01/08/99 ........... 11,400,000 11,388,784
Morgan (J.P.) & Co. Inc.
5.10% 02/16/99 ........... 9,400,000 9,338,743
Morgan Stanley Dean Witter
5.29% 02/24/99 ........... 10,130,000 10,049,618
Rabobank Nederland N.V.
5.26% 01/13/99 ........... 470,000 469,176
Republic National Bank of New York
5.03% 03/19/99 ........... 9,400,000 9,298,869
UBS Finance Delaware Inc.
5.29% 01/11/99 ........... 11,000,000 10,983,836
TOTAL COMMERICAL PAPER
(COST $77,578,870) .......... 77,578,870
PRINCIPAL AMORTIZED
AMOUNT COST
- --------------------------------------------------------------------------------
YANKEE CERTIFICATES OF DEPOSIT -- 24.4%
Algemene Bank Nederland N.V.
5.14% 03/04/99 .......... $ 8,930,000 $ 8,930,000
Bank of Montreal (Chicago)
5.37% 01/08/99 .......... 9,400,000 9,400,000
Bayerische Vereinsbank AG
5.25% 01/25/99 .......... 8,850,000 8,849,978
5.38% 01/25/99 .......... 550,000 550,000
Canadian Imperial
5.14% 01/25/99 .......... 11,080,000 11,080,000
Dresdner Bank AG
5.34% 01/19/99 .......... 10,130,000 10,130,000
Societe Generale
5.20% 01/14/99 - 01/25/99 9,450,000 9,450,000
TOTAL YANKEE CERTIFICATES OF DEPOSIT
(COST $58,389,978) ......... 58,389,978
TIME DEPOSIT -- 1.1%
Bank of America
4.75% 01/04/99
(COST $2,610,000) ......... 2,610,000 2,610,000
TOTAL SHORT-TERM INVESTMENTS
(COST $227,018,897) ........ 227,018,897
OTHER ASSETS AND LIABILITIES, NET 5.2% 12,527,972
------------
NET ASSETS-- 100% $239,546,869
============
- ----------------
See Notes to Schedule of Investments and Notes to
Financial Statements.
46
<PAGE>
NOTES TO PERFORMANCE DECEMBER 31, 1998 (UNAUDITED)
- --------------------------------------------------------------------------------
Total returns take into account changes in share price and assume reinvestment
of dividends and capital gains, if any. Investment returns and net asset value
on an investment will fluctuate and you may have a gain or loss when you sell
your shares. Periods less than one year are not annualized.
The performance data related to the shares of the U.S. Equity Fund and the
Income Fund, for the periods through December 12, 1997, reflect the prior
performance and expense ratios of the Variable Investment Trust GE U.S. Equity
Portfolio and GE Fixed Income Portfolio, the assets of which were transferred to
corresponding GE Investments Funds, Inc. pursuant to an exemptive order granted
by the Securities and Exchange Commission permitting a substitution of funds
that occurred on December 12, 1997.
Certain fees and fund expenses have been waived and/or borne by the funds' prior
investment advisers. GEIM currently waives certain fees for the Money Market
Fund. Had these fees and expenses not been absorbed, the returns (and/or yields)
would have been lower. The Standard & Poor's ("S&P") 500 Composite Price Index
of stocks (S&P 500 Index), 90 Day U.S. Treasury Index (90 Day T-Bill), Lehman
Brothers Aggregate Bond Index (LB Aggregate), Morgan Stanley Capital
International EAFE Index (MSCI EAFE), Wilshire Real Estate Index (Wilshire
REIT), and JP Morgan Global Government Bond Index (JPM Global Bond) are
unmanaged indices and do not reflect the actual cost of investing in the
instruments that comprise each index. The S&P 500 Index is a composite of the
prices of 500 widely held stocks recognized by investors to be representative of
the stock market in general. The 90-Day T-Bill is the average return on three
month U.S. Treasury Bills. The LB Aggregate is a composite index of short-,
medium-, and long-term bond performance and is widely recognized as a barometer
of the bond market in general. MSCI EAFE is a composite of 1,032 stocks of
companies from 20 countries representing stock markets of Europe, Australasia,
New Zealand and the Far East. The Wilshire REIT is a market
capitalization-weighted index comprised of publicly traded real estate
investment trusts (REITs), real estate operating companies (REOCs) and
partnerships. The JPM Global Bond is an unhedged index comprised of government
bonds from several countries including the U.S. The IBC Money Fund Report yields
represent the average yields of 898 taxable money market funds. The results
shown for the foregoing indices assume the reinvestment of net dividends or
interest.
The peer universe of the underlying annuity funds used in our peer ranking
calculation is based on the average returns of Lipper peer categories, as shown.
Lipper is an independent mutual fund rating service.
The views expressed in this document reflect our judgment as of the publication
date and are subject to change at any time without notice. The securities cited
may not represent future holdings and should not be considered as a
recommendation to purchase or sell a particular security. See the prospectus for
complete descriptions of investment objectives, policies, risks and permissible
investments.
NOTES TO SCHEDULES OF INVESTMENTS
- --------------------------------------------------------------------------------
(a) Non-income producing security.
(b) Pursuant to Rule 144A under the Securities Act of 1933, these securities may
be resold in transactions exempt from registration, normally to qualified
institutional buyers. At December 31,1998, these securities amounted to
$260,184, $480,000 and $2,445,825 or 0.70%, 1.01% and 4.14% of net assets
for the International Equity, Real Estate Securities and Income Funds,
respectively.
(c) Settlement is on a delayed delivery or when-issued basis with final maturity
to be announced (TBA) in the future.
(d) Coupon amount represents effective yield.
(e) Adjustable rate mortgage coupon. The stated rate represents the rate at
December 31,1998.
(f) Principal only securities represent the right to receive the monthly
principal payments on an underlying pool of mortgages. No payments of
interest on the pool are passed through to the "principal only" holder.
(g) Interest only securities represent the right to receive the monthly interest
payments on an underlying pool of mortgages. Payments of principal on the
pool reduce the value of the interest only holding.
(h) At December 31, 1998, all or a portion of this security was pledged to cover
collateral requirements for futures, options or TBAs.
(i) State Street Corp. is the parent company of State Street Bank & Trust Co.,
the fund's custodian.
(j) Security is in default.
<TABLE>
<CAPTION>
ABBREVIATIONS: CURRENCY TERMS:
<S> <C> <C> <C>
ADR -- American Depositary Receipt AUD -- Australian Dollar
GDR -- Global Depositary Receipt CAD -- Canadian Dollar
Regd. -- Registered DEM -- Deutsche Mark
REMIC -- Real Estate Mortgage Investment Conduit ESP -- Spanish Peseta
SDR -- Special Drawing Rights FRF -- French Franc
STRIPS -- Separate Trading of Registered GBP -- Pound Sterling
Interest and Principal of Securities ITL -- Italian Lira
JPY -- Japanese Yen
NLG -- Netherland Guilder
SEK -- Swedish Krona
USD -- United States Dollar
XEU -- European Currency Unit (ECU)
</TABLE>
47
<PAGE>
FINANCIAL HIGHLIGHTS
SELECTED DATA BASED ON A SHARE OUTSTANDING THROUGHOUT THE PERIOD(S) INDICATED
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INTERNATIONAL EQUITY FUND
12/31/98 12/31/97(c) 12/30/96 12/31/95(f)
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INCEPTION DATE -- -- -- 5/1/95
Net asset value, beginning of period ........... $10.68 $10.83 $10.47 $10.00
INCOME FROM INVESTMENT OPERATIONS:
Net investment income ....................... 0.08 0.02 0.03 0.20
Net realized and unrealized
gains on investments ..................... 1.77 1.10 1.01 0.47
- -----------------------------------------------------------------------------------------------------
TOTAL INCOME (LOSS) FROM INVESTMENT OPERATIONS . 1.85 1.12 1.04 0.67
- -----------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM:
Net investment income ....................... 0.07 0.08 0.03 0.20
Net realized gains .......................... 0.57 1.19 0.65 0.00
- -----------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS ............................ 0.64 1.27 0.68 0.20
- -----------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD ................. $11.89 $10.68 $10.83 $10.47
=====================================================================================================
TOTAL RETURN (a) ............................... 17.45% 10.17% 9.91% 6.70%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in thousands) .... $36,952 $31,931 $17,644 $15,348
Ratios to average net assets:
Net investment income* ................... 0.65% 0.14% 0.23% 0.44%
Net expenses* ............................ 1.15% 1.34% 1.50% 1.54%
Gross expenses* .......................... 1.15% 1.43% 1.56% 2.17%
Portfolio turnover rate ..................... 60% 166% 150% 58%
- -----------------------------------------------------------------------------------------------------
REAL ESTATE SECURITIES FUND
12/31/98 12/31/97(c) 12/30/96 12/31/95(f)
- -----------------------------------------------------------------------------------------------------
INCEPTION DATE -- -- -- 5/1/95
Net asset value, beginning of period ........... $15.28 $14.11 $11.05 $10.00
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income ....................... 0.73 0.74 0.64 0.46
Net realized and unrealized
gains (losses) on investments ............ (3.46) 2.01 3.36 1.23
- -----------------------------------------------------------------------------------------------------
TOTAL INCOME (LOSS) FROM INVESTMENT OPERATIONS . (2.73) 2.75 4.00 1.69
- -----------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM:
Net investment income ....................... 0.50 0.53 0.65 0.46
Net realized gains .......................... 0.46 1.05 0.29 0.18
- -----------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS ............................ 0.96 1.58 0.94 0.64
- -----------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD ................. $11.59 $15.28 $14.11 $11.05
=====================================================================================================
TOTAL RETURN (a) ............................... (17.68%) 19.49% 36.24% 17.00%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in thousands) .... $47,756 $48,887 $24,533 $13,429
Ratios to average net assets:
Net investment income* ................... 5.43% 4.83% 5.90% 6.85%
Net expenses* ............................ 0.99% 0.95% 1.07% 1.31%
Gross expenses* .......................... 0.99% 0.95% 1.07% 1.61%
Portfolio turnover rate ..................... 29% 58% 30% 54%
</TABLE>
- -------------
SEE NOTES TO FINANCIAL HIGHLIGHTS AND NOTES TO FINANCIAL STATEMENTS.
48
<PAGE>
FINANCIAL HIGHLIGHTS
SELECTED DATA BASED ON A SHARE OUTSTANDING THROUGHOUT THE PERIOD(S) INDICATED
- --------------------------------------------------------------------------------
PREMIER GROWTH EQUITY FUND
12/31/98 12/31/97(d)
- --------------------------------------------------------------------------------
INCEPTION DATE -- 12/12/97
Net asset value, beginning of period ............ $51.48 $49.79
INCOME FROM INVESTMENT OPERATIONS:
Net investment income ........................ 0.25 0.03
Net realized and unrealized
gains on investments ...................... 18.43 1.69
- --------------------------------------------------------------------------------
TOTAL INCOME (LOSS) FROM INVESTMENT OPERATIONS .. 18.68 1.72
- --------------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM:
Net investment income ........................ 0.24 0.03
Net realized gains ........................... 2.70 0.00
- --------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS ............................. 2.94 0.03
- --------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD .................. $67.22 $51.48
================================================================================
TOTAL RETURN (a) ................................ 36.53% 3.46%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in thousands) ..... $19,879 $16,237
Ratios to average net assets:
Net investment income* .................... 0.41% 1.04%
Expenses* ................................. 0.82% 0.69%
Portfolio turnover rate ...................... 34% 3%
- --------------------------------------------------------------------------------
VALUE EQUITY FUND
12/31/98 12/31/97(g)
- --------------------------------------------------------------------------------
INCEPTION DATE -- 5/1/97
Net asset value, beginning of period ............ $13.11 $10.00
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income ........................ 0.07 0.02
Net realized and unrealized
gains (losses) on investments ............. 0.79 3.23
- --------------------------------------------------------------------------------
TOTAL INCOME (LOSS) FROM INVESTMENT OPERATIONS .. 0.86 3.25
- --------------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM:
Net investment income ........................ 0.07 0.02
Net realized gains ........................... 0.33 0.12
- --------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS ............................. 0.40 0.14
- --------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD .................. $13.57 $13.11
================================================================================
TOTAL RETURN (a) ................................ 6.69% 32.56%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in thousands) ..... $53,643 $30,856
Ratios to average net assets:
Net investment income* .................... 0.59% 0.38%
Expenses* ................................. 0.75% 0.69%
Portfolio turnover rate ...................... 14% 18%
- ---------------
SEE NOTES TO FINANCIAL HIGHLIGHTS AND NOTES TO FINANCIAL STATEMENTS.
49
<PAGE>
FINANCIAL HIGHLIGHTS
SELECTED DATA BASED ON A SHARE OUTSTANDING THROUGHOUT THE PERIOD(S) INDICATED
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
U.S. EQUITY FUND
12/31/98 12/31/97(c) 12/31/96 12/31/95(h)
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INCEPTION DATE -- -- -- 1/3/95
Net asset value, beginning of period ............... $27.88 $21.11 $19.27 $15.00
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income ........................... 0.28 0.24 0.34 0.46
Net realized and unrealized
gains (losses) on investments ................ 6.23 6.54 3.90 4.87
- ------------------------------------------------------------------------------------------------------------------------
TOTAL INCOME (LOSS) FROM INVESTMENT OPERATIONS ..... 6.51 6.78 4.24 5.33
- ------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM:
Net investment income ........................... 0.28 0.00 0.35 0.47
Net realized gains .............................. 0.61 0.01 2.05 0.59
- ------------------------------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS ................................ 0.89 0.01 2.40 1.06
- ------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD ..................... $33.50 $27.88 $21.11 $19.27
========================================================================================================================
TOTAL RETURN (a) ................................... 23.41% 32.13% 21.72% 35.58%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in thousands) ........ $31,160 $23,917 $18,027 $9,071
Ratios to average net assets:
Net investment income* ....................... 0.95% 0.94% 1.80% 2.10%
Net expenses* ................................ 0.69% 0.80% 0.80% 0.80%
Gross expenses* .............................. 0.69% 0.86% 0.88% 1.03%
Portfolio turnover rate ......................... 41% 33% 35% 71%
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
S&P 500 INDEX FUND
12/31/98 12/31/97(b, c) 12/30/96 12/31/95 12/31/94
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
INCEPTION DATE -- -- -- -- 4/15/85
Net asset value, beginning of period ............... $19.23 $15.14 $20.99 $15.72 $15.99
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income ........................... 0.21 0.23 0.78 0.27 0.22
Net realized and unrealized
gains (losses) on investments ................ 5.20 4.36 4.36 5.41 (0.23)
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL INCOME (LOSS) FROM INVESTMENT OPERATIONS ..... 5.41 4.59 5.14 5.68 (0.01)
- ------------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM:
Net investment income ........................... 0.21 0.23 0.77 0.27 0.22
Net realized gains .............................. 0.72 0.27 10.22 0.14 0.04
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS ................................ 0.93 0.50 10.99 0.41 0.26
- ------------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD ..................... $23.71 $19.23 $15.14 $20.99 $15.72
====================================================================================================================================
TOTAL RETURN (a) ................................... 28.24% 30.33% 24.51% 36.14% (0.06%)
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in thousands) ........ $326,961 $164,294 $35,522 $66,017 $23,930
Ratios to average net assets:
Net investment income. ....................... 1.20% 1.70% 1.91% 1.98% 2.22%
Net expenses ................................. 0.45% 0.46% 0.48% 0.66% 0.75%
Gross expenses ............................... 0.45% 0.46% 0.48% 0.66% 1.10%
Portfolio turnover rate ......................... 13% 6% 63% 15% 4%
</TABLE>
- -----------
SEE NOTES TO FINANCIAL HIGHLIGHTS AND NOTES TO FINANCIAL STATEMENTS.
50
<PAGE>
FINANCIAL HIGHLIGHTS
SELECTED DATA BASED ON A SHARE OUTSTANDING THROUGHOUT THE PERIOD(S) INDICATED
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TOTAL RETURN FUND
12/31/98 12/31/97(c) 12/30/96 12/31/95 12/31/94
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
INCEPTION DATE -- -- -- -- 7/1/85
Net asset value, beginning of period ................ $13.21 $12.73 $15.93 $13.40 $13.59
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income ............................ 0.34 0.34 1.02 0.41 0.35
Net realized and unrealized
gains (losses) on investments ................. 1.90 1.95 0.67 3.34 (0.01)
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL INCOME (LOSS) FROM INVESTMENT OPERATIONS ...... 2.24 2.29 1.69 3.75 0.34
- ------------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM:
Net investment income ............................ 0.34 0.34 1.02 0.42 0.35
Net realized gains ............................... 0.45 1.47 3.87 0.80 0.18
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS ................................. 0.79 1.81 4.89 1.22 0.53
- ------------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD ...................... $14.66 $13.21 $12.73 $15.93 $13.40
====================================================================================================================================
TOTAL RETURN (a) .................................... 17.10% 17.99% 10.60% 28.07% 2.54%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in thousands) ......... $72,632 $50,007 $27,814 $70,507 $34,708
Ratios to average net assets:
Net investment income* ........................ 2.69% 2.56% 2.73% 3.42% 4.00%
Expenses* ..................................... 0.63% 0.65% 0.60% 0.65% 0.77%
Portfolio turnover rate .......................... 124% 135% 144% 106% 67%
- ------------------------------------------------------------------------------------------------------------------------------------
GLOBAL INCOME FUND
12/31/98 12/31/97(c,g)
- -----------------------------------------------------------------------------------------------------------------------------------
INCEPTION DATE -- 5/1/97
Net asset value, beginning of period ................. $9.85 $10.00
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income ............................. 0.44 0.35
Net realized and unrealized
gains (losses) on investments .................. 0.87 (0.01)
- -------------------------------------------------------------------------------
TOTAL INCOME (LOSS) FROM INVESTMENT OPERATIONS ....... 1.31 0.34
- -------------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM:
Net investment income ............................. 0.61 0.45
Net realized gains ................................ 0.02 0.04
- -------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS .................................. 0.63 0.49
- -------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD ....................... $10.53 $9.85
===============================================================================
TOTAL RETURN (a) ..................................... 13.33% 3.41%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in thousands) .......... $9,739 $5,851
Ratios to average net assets:
Net investment income* ......................... 4.73% 5.54%
Expenses* ...................................... 0.82% 0.84%
Portfolio turnover rate ........................... 64% 119%
</TABLE>
- --------------
SEE NOTES TO FINANCIAL HIGHLIGHTS AND NOTES TO FINANCIAL STATEMENTS.
51
<PAGE>
FINANCIAL HIGHLIGHTS
SELECTED DATA BASED ON A SHARE OUTSTANDING THROUGHOUT THE PERIOD(S) INDICATED
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INCOME FUND
12/31/98 12/31/97(c) 12/31/96 12/31/95(h)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INCEPTION DATE ....................................... -- -- -- 1/3/95
Net asset value, beginning of period ................. $12.11 $11.84 $12.53 $12.00
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income ............................. 0.62 0.76 0.76 0.82
Net realized and unrealized
gains (losses) on investments .................. 0.34 0.27 (0.43) 1.13
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL INCOME (LOSS) FROM INVESTMENT OPERATIONS ....... 0.96 1.03 0.33 1.95
- ------------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM:
Net investment income ............................. 0.62 0.76 0.76 0.84
Net realized gains ................................ 0.11 0.00 0.26 0.58
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS .................................. 0.73 0.76 1.02 1.42
- ------------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD ....................... $12.34 $12.11 $11.84 $12.53
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN (a) ..................................... 7.95% 9.00% 2.92% 16.83%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in thousands) .......... $59,077 $45,555 $5,388 $3,271
Ratios to average net assets:
Net investment income* ......................... 5.54% 5.11% 6.37% 6.52%
Net expenses* .................................. 0.64% 0.59% 0.75% 0.75%
Gross expenses* ................................ 0.64% 0.77% 1.03% 1.15%
Portfolio turnover rate ........................... 217% 356% 222% 253%
- ------------------------------------------------------------------------------------------------------------------------------------
MONEY MARKET FUND
12/31/98 12/31/97(c, e) 12/30/96 12/31/95 12/31/94
- ------------------------------------------------------------------------------------------------------------------------------------
INCEPTION DATE -- -- -- -- 7/1/85
Net asset value, beginning of period ................. $1.00 $1.00 $1.00 $0.98 $0.97
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income ............................. 0.05 0.05 0.05 0.06 0.03
Net realized and unrealized
gains (losses) on investments .................. 0.00 0.00 0.00 0.00 0.01
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL INCOME (LOSS) FROM INVESTMENT OPERATIONS ....... 0.05 0.05 0.05 0.06 0.04
- ------------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM:
Net investment income ............................. 0.05 0.05 0.05 0.04 0.03
Net realized gains ................................ 0.00 0.00 0.00 0.00 0.00
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS .................................. 0.05 0.05 0.05 0.04 0.03
- ------------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD ....................... $1.00 $1.00 $1.00 $1.00 $0.98
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN (a) ..................................... 5.26% 5.41% 5.41% 5.90% 3.77%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in thousands) .......... $239,547 $144,815 $113,263 $63,083 $33,529
Ratios to average net assets:
Net investment income* . ...... 5.14% 5.17% 5.29% 5.74% 4.04%
Net expenses* .................................. 0.37% 0.32% 0.15% 0.23% 0.42%
Gross expenses* ................................ 0.59% 0.48% 0.55% 0.63% 0.70%
</TABLE>
- -----------------
SEE NOTES TO FINANCIAL HIGHLIGHTS AND NOTES TO FINANCIAL STATEMENTS.
52
<PAGE>
NOTES TO FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(a) Total returns are historical and assume changes in share price and
reinvestment of dividends and capital gains. Had the adviser not absorbed a
portion of expenses, total returns would have been lower. Periods less than
one year are not annualized.
(b) As of April 30, 1997, the fund's name was changed to S&P 500 Index Fund
from Common Stock Index Portfolio.
(c) GEIM assumed management responsibilities for the Funds effective May 1,
1997. See Note 3 in the Notes to Financial Statements for further
information.
(d) Information is for the period December 12, 1997, commencement of investment
operations, through December 31, 1997.
(e) Effective May 5, 1997, the fund's primary investment policy was amended to
comply with Rule 2a-7 of the Investment Company Act of 1940 governing money
market funds. The Fund's investment objective, however, remains to seek a
high level of current income consistent with high liquidity and safety of
principal. Per share information prior to January 1, 1997 have been restated
to reflect the 10.41 to 1 stock split.
(f) Information is for the period May 1, 1995, commencement of investment
operations, through December 31, 1995.
(g) Information is for the period May 1, 1997, commencement of investment
operations, through December 31, 1997.
(h) Information is for the period January 3, 1995, commencement of investment
operations, through December 31, 1995.
* Annualized for periods less than one year.
- --------------
See Notes to Financial Statements.
53
<PAGE>
STATEMENTS OF ASSETS
AND LIABILITIES DECEMBER 31, 1998
<TABLE>
<CAPTION>
PREMIER
INTERNATIONAL REAL ESTATE GROWTH VALUE
EQUITY SECURITIES EQUITY EQUITY
FUND FUND FUND FUND
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ASSETS
Investments in securities, at market
(cost $31,453,403; $49,915,256; $14,007,856;
$45,323,665; $24,648,318; $242,110,035; $57,941,082;
$8,254,721; $55,306,972; and $0, respectively) ......... $ 36,084,833 $ 43,288,175 $ 18,862,783 $ 50,742,544
Short-term investments (at amortized cost) ................ 1,867,786 3,869,770 1,140,975 2,528,702
Cash ...................................................... -- -- -- --
Foreign currency (cost $57,935; $0; $0; $0; $0; $0;
$8,942; $113,203; $0; and $0, respectively) ............ 59,001 -- -- --
Receivable for investments sold ........................... 12,430 291,057 249,796 812,184
Income receivables ........................................ 91,236 473,497 9,354 62,975
Receivable for fund shares sold ........................... -- -- -- 135,815
Variation margin receivable ............................... -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS ................................................. 38,115,286 47,922,499 20,262,908 54,282,220
- ------------------------------------------------------------------------------------------------------------------------------------
LIABILITIES
Options written, at market* ............................... -- -- -- --
Distributions payable to shareholders ..................... -- -- -- --
Payable for investments purchased ......................... 29,234 64,875 261,855 603,632
Payable for fund shares redeemed .......................... 1,005,523 57,292 107,857 --
Payable on forward foreign currency contracts ............. -- -- -- --
Payable to GEIM ........................................... 128,288 44,360 13,823 35,971
Payable to custodian ...................................... -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES ...................................... 1,163,045 166,527 383,535 639,603
- ------------------------------------------------------------------------------------------------------------------------------------
NET ASSETS ................................................... $ 36,952,241 $ 47,755,972 $ 19,879,373 $ 53,642,617
====================================================================================================================================
NET ASSETS CONSIST OF:
Capital paid in ........................................... $ 32,100,860 $ 53,703,216 $ 14,636,242 $51,169,864
Undistributed (overdistributed) net investment income ..... (19,961) 738,047 142 5,407
Accumulated net realized gain (loss) ...................... 235,331 (58,210) 388,062 (2,951,533)
Net unrealized appreciation / (depreciation) on:
Investments ............................................ 4,631,430 (6,627,081) 4,854,927 5,418,879
Futures ................................................ -- -- -- --
Written options ........................................ -- -- -- --
Foreign currency related transactions .................. 4,581 -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
NET ASSETS ................................................... $ 36,952,241 $ 47,755,972 $ 19,879,373 $ 53,642,617
====================================================================================================================================
Shares outstanding ($.01 par value) .......................... 3,109,003 4,119,543 295,715 3,953,431
Net asset value, offering and redemption price per share ..... $ 11.89 $ 11.59 $ 67.22 $ 13.57
</TABLE>
<TABLE>
<CAPTION>
U.S. S&P 500 TOTAL
EQUITY INDEX RETURN
FUND FUND FUND
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS
Investments in securities, at market
(cost $31,453,403; $49,915,256; $14,007,856;
$45,323,665; $24,648,318; $242,110,035; $57,941,082;
$8,254,721; $55,306,972; and $0, respectively) ......... $ 29,926,013 $316,918,592 $ 69,212,065
Short-term investments (at amortized cost) ................ 1,182,947 12,004,766 4,687,117
Cash ...................................................... -- 3,920 --
Foreign currency (cost $57,935; $0; $0; $0; $0; $0;
$8,942; $113,203; $0; and $0, respectively) ............ -- -- 8,925
Receivable for investments sold ........................... 22,863 1,858,498 186,694
Income receivables ........................................ 33,368 366,243 350,376
Receivable for fund shares sold ........................... 74,672 1,485,600 33,076
Variation margin receivable ............................... 2,550 19,950 --
- ---------------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS ................................................. 31,242,413 332,657,569 74,478,253
- ---------------------------------------------------------------------------------------------------------------------------
LIABILITIES
Options written, at market* ............................... -- -- 2,818
Distributions payable to shareholders ..................... 1,294 -- --
Payable for investments purchased ......................... 36,764 5,567,038 1,802,326
Payable for fund shares redeemed .......................... 26,500 -- --
Payable on forward foreign currency contracts ............. -- -- --
Payable to GEIM ........................................... 17,798 129,294 41,159
Payable to custodian ...................................... -- -- --
- ---------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES ...................................... 82,356 5,696,332 1,846,303
- ---------------------------------------------------------------------------------------------------------------------------
NET ASSETS ................................................... $ 31,160,057 $326,961,237 $ 72,631,950
===========================================================================================================================
NET ASSETS CONSIST OF:
Capital paid in ........................................... $ 25,695,512 $249,131,347 $ 60,986,012
Undistributed (overdistributed) net investment income ..... 1,146 98,534 (1,056)
Accumulated net realized gain (loss) ...................... 152,090 2,465,599 374,871
Net unrealized appreciation / (depreciation) on:
Investments ............................................ 5,277,695 74,808,557 11,270,983
Futures ................................................ 33,588 457,200 --
Written options ........................................ -- -- 330
Foreign currency related transactions .................. 26 -- 810
- ---------------------------------------------------------------------------------------------------------------------------
NET ASSETS ................................................... $ 31,160,057 $326,961,237 $ 72,631,950
===========================================================================================================================
Shares outstanding ($.01 par value) .......................... 930,138 13,791,574 4,955,778
Net asset value, offering and redemption price per share ..... $ 33.50 $ 23.71 $ 14.66
</TABLE>
<TABLE>
<CAPTION>
GLOBAL MONEY
INCOME INCOME MARKET
FUND FUND FUND
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS
Investments in securities, at market
(cost $31,453,403; $49,915,256; $14,007,856;
$45,323,665; $24,648,318; $242,110,035; $57,941,082;
$8,254,721; $55,306,972; and $0, respectively) ......... $ 8,667,826 $ 55,721,972 $ --
Short-term investments (at amortized cost) ................ 1,043,861 6,284,628 227,018,897
Cash ...................................................... -- 299 --
Foreign currency (cost $57,935; $0; $0; $0; $0; $0;
$8,942; $113,203; $0; and $0, respectively) ............ 113,736 -- --
Receivable for investments sold ........................... -- 457,361 --
Income receivables ........................................ 189,632 589,938 344,044
Receivable for fund shares sold ........................... -- 5,304 12,405,147
Variation margin receivable ............................... -- -- --
- ------------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS ................................................. 10,015,055 63,059,502 239,768,088
- ------------------------------------------------------------------------------------------------------------------------
LIABILITIES
Options written, at market* ............................... -- 6,332 --
Distributions payable to shareholders ..................... -- -- 120,078
Payable for investments purchased ......................... -- 3,922,520 --
Payable for fund shares redeemed .......................... 249,428 6,576 1,098
Payable on forward foreign currency contracts ............. 20,714 -- --
Payable to GEIM ........................................... 6,185 47,529 96,189
Payable to custodian ...................................... -- -- 3,854
- ------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES ...................................... 276,327 3,982,957 221,219
- ------------------------------------------------------------------------------------------------------------------------
NET ASSETS ................................................... $ 9,738,728 $ 59,076,545 $239,546,869
========================================================================================================================
NET ASSETS CONSIST OF:
Capital paid in ........................................... $ 9,411,262 $ 58,578,901 $239,546,124
Undistributed (overdistributed) net investment income ..... (79,096) 418 --
Accumulated net realized gain (loss) ...................... 10,407 81,463 745
Net unrealized appreciation / (depreciation) on:
Investments ............................................ 413,105 415,000 --
Futures ................................................ -- -- --
Written options ........................................ -- 763 --
Foreign currency related transactions .................. (16,950) -- --
- ------------------------------------------------------------------------------------------------------------------------
NET ASSETS ................................................... $ 9,738,728 $ 59,076,545 $239,546,869
========================================================================================================================
Shares outstanding ($.01 par value) .......................... 925,270 4,787,354 239,545,141
Net asset value, offering and redemption price per share ..... $ 10.53 $ 12.34 $ 1.00
</TABLE>
*Premiums received for the Total Return Fund and Income Fund were $3,148 and
$7,095, respectively.
- ----------
See Notes to Financial Statements.
54 & 55
<PAGE>
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
PREMIER
INTERNATIONAL REAL ESTATE GROWTH VALUE
EQUITY SECURITIES EQUITY EQUITY
FUND FUND FUND FUND
- -----------------------------------------------------------------------------------------------------------------------------------
INVESTMENT INCOME
INCOME:
<S> <C> <C> <C> <C>
Dividends ................................................ $ 654,042 $ 3,175,541 $ 147,076 $ 427,057
Interest ................................................. 54,543 213,928 63,250 180,081
Less: Foreign taxes withheld ............................. (67,400) -- (1,126) --
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL INCOME ................................................ 641,185 3,389,469 209,200 607,138
- -----------------------------------------------------------------------------------------------------------------------------------
EXPENSES:
Advisory and administration fees ......................... 355,662 448,620 110,836 292,504
Transfer agent ........................................... 8,001 8,001 8,001 8,001
Trustees' fees ........................................... 3,007 4,278 1,230 1,935
Custody and accounting expenses .......................... 18,035 25,678 7,369 11,611
Professional fees ........................................ 24,109 35,673 11,026 25,259
Other expenses ........................................... 1,336 1,900 548 861
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL EXPENSES BEFORE WAIVER ................................ 410,150 524,150 139,010 340,171
Less: Expenses waived or borne by
the adviser ........................................... -- -- -- --
- -----------------------------------------------------------------------------------------------------------------------------------
Net expenses ............................................. 410,150 524,150 139,010 340,171
- -----------------------------------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME ....................................... 231,035 2,865,319 70,190 266,967
===================================================================================================================================
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS
REALIZED GAIN (LOSS) ON:
Investments ........................................... 2,260,890 1,997,722 1,134,441 (1,750,273)
Futures ............................................... -- -- 18,838 --
Written options ....................................... -- -- -- --
Foreign currency related transactions ................. (62,951) -- -- --
INCREASE (DECREASE) IN UNREALIZED APPRECIATION/
DEPRECIATION ON:
Investments ........................................... 3,287,136 (15,269,814) 4,313,226 3,907,480
Futures ............................................... -- -- -- --
Written options ....................................... -- -- -- --
Foreign currency related transactions ................. 6,973 -- (3) --
- -----------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain
(loss) on investments ................................. 5,492,048 (13,272,092) 5,466,502 2,157,207
- -----------------------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS ................................ $5,723,083 $(10,406,773) $5,536,692 $2,424,174
===================================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
U.S. S&P 500 TOTAL GLOBAL MONEY
EQUITY INDEX RETURN INCOME INCOME MARKET
FUND FUND FUND FUND FUND FUND
- ------------------------------------------------------------------------------------------------------------------------------------
INVESTMENT INCOME
INCOME:
<S> <C> <C> <C> <C> <C> <C>
Dividends ..................................... $ 377,426 $ 3,355,580 $ 525,891 $ -- $ 27,891 $ --
Interest ...................................... 61,261 498,336 1,456,935 430,650 3,085,251 11,051,475
Less: Foreign taxes withheld .................. (2,903) (18,652) (21,090) (4,040) -- --
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL INCOME ..................................... 435,784 3,835,264 1,961,736 426,610 3,113,142 11,051,475
- ------------------------------------------------------------------------------------------------------------------------------------
EXPENSES:
Advisory and administration fees .............. 143,124 815,501 295,203 46,130 251,667 943,239
Transfer agent ................................ 8,001 8,001 8,001 8,001 8,001 8,001
Trustees' fees ................................ 2,048 11,698 4,073 489 3,734 12,505
Custody and accounting expenses ............... 12,286 70,200 24,437 2,942 22,411 75,033
Professional fees ............................. 17,421 133,126 37,759 4,903 33,357 135,848
Other expenses ................................ 909 5,403 2,013 219 1,660 5,761
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL EXPENSES BEFORE WAIVER ..................... 183,789 1,043,929 371,486 62,684 320,830 1,180,387
Less: Expenses waived or borne by
the adviser ................................ -- -- -- -- -- (441,423)
- ------------------------------------------------------------------------------------------------------------------------------------
Net expenses .................................. 183,789 1,043,929 371,486 62,684 320,830 738,964
- ------------------------------------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME ............................ 251,995 2,791,335 1,590,250 363,926 2,792,312 10,312,511
====================================================================================================================================
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS
REALIZED GAIN (LOSS) ON:
Investments ................................ 618,052 10,417,645 2,459,685 62,097 560,492 2,034
Futures .................................... 102,462 1,503,150 -- -- -- --
Written options ............................ -- -- 15,267 -- 40,102 --
Foreign currency related transactions ...... (304) -- (3,724) 99,506 -- --
INCREASE (DECREASE) IN UNREALIZED APPRECIATION/
DEPRECIATION ON:
Investments ................................ 4,726,121 44,331,000 5,483,372 534,940 418,664 --
Futures .................................... 35,688 374,175 -- -- -- --
Written options ............................ -- -- 330 -- 126 --
Foreign currency related transactions ...... 49 -- 1,317 (64,884) -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain
(loss) on investments ...................... 5,482,068 56,625,970 7,956,247 631,659 1,019,384 2,034
- ------------------------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS ..................... $5,734,063 $59,417,305 $9,546,497 $995,585 $3,811,696 $10,314,545
====================================================================================================================================
</TABLE>
- ----------------
See Notes to Financial Statements.
56 & 57
<PAGE>
STATEMENTS OF
CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
PREMIER
INTERNATIONAL REAL ESTATE GROWTH
EQUITY SECURITIES EQUITY
FUND FUND FUND
- --------------------------------------------------------------------------------------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED PERIOD ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1998 1997 1998 1997 1998 1997*
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net investment income .........$ 231,035 $ 33,663 $ 2,865,319 $ 1,972,098 $ 70,190 $ 8,781
Net realized gain (loss) on
investments, futures, written
options, and foreign currency
related transactions ........ 2,197,939 2,324,754 1,997,722 2,605,868 1,153,279 (4,770)
Net increase (decrease) in
unrealized appreciation/
depreciation ................ 3,294,109 (165,586) (15,269,814) 2,450,338 4,313,223 541,704
- --------------------------------------------------------------------------------------------------------------------
Net increase (decrease) from
operations .................. 5,723,083 2,192,831 (10,406,773) 7,028,304 5,536,692 545,715
- --------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income ......... (171,596) (155,651) (1,919,406) (1,694,121) (68,908) (9,921)
Net realized gains ............ (1,790,431) (2,349,968) (1,766,106) (3,372,241) (760,447) --
- --------------------------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS ............. (1,962,027) (2,505,619) (3,685,512) (5,066,362) (829,355) (9,921)
- --------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets
from operations and
distributions ................. 3,761,056 (312,788) (14,092,285) 1,961,942 4,707,337 535,794
- --------------------------------------------------------------------------------------------------------------------
SHARE TRANSACTIONS:
Proceeds from sale of shares .. 19,148,022 14,820,466 10,749,483 27,924,962 8,647,997 11,437
Value of distributions
reinvested .................. 1,962,027 3,610,282 8,751,903 1,643,298 839,275 --
Cost of shares redeemed ....... (19,849,462) (12,355,053) (6,539,651) (7,176,928) (10,552,145) (13,785)
Proceeds from substitution
of fund ..................... -- 8,523,846 -- -- -- 15,703,463
- --------------------------------------------------------------------------------------------------------------------
Net increase (decrease) from
share transactions .......... 1,260,587 14,599,541 12,961,735 22,391,332 (1,064,873) 15,701,115
- --------------------------------------------------------------------------------------------------------------------
TOTAL INCREASE (DECREASE) IN
NET ASSETS .................... 5,021,643 14,286,753 (1,130,550) 24,353,274 3,642,464 16,236,909
NET ASSETS
Beginning of period ............. 31,930,598 17,643,845 48,886,522 24,533,248 16,236,909 --
- --------------------------------------------------------------------------------------------------------------------
End of period ...................$ 36,952,241 $31,930,598 $47,755,972 $ 48,886,522 $ 19,879,373 $ 16,236,909
====================================================================================================================
UNDISTRIBUTED (OVERDISTRIBUTED)
NET INVESTMENT INCOME, END
OF PERIOD .......................$ (19,961) $ (15,966) $ 738,047 $ 76,049 $ 142 $ (1,140)
- --------------------------------------------------------------------------------------------------------------------
CHANGES IN PORTFOLIO SHARES:
Shares sold by subscription .... 1,623,481 1,235,204 752,372 1,808,623 140,302 256
Issued for distributions reinvested 168,414 333,787 656,571 116,463 13,063 --
Shares redeemed ................ (1,673,171) (1,022,876) (489,779) (463,647) (173,026) (274)
Shares from substitution of fund -- 814,899 -- -- -- 315,394
- --------------------------------------------------------------------------------------------------------------------
Net increase (decrease)
in fund shares ............... 118,724 1,361,014 919,164 1,461,439 (19,661) 315,376
====================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
VALUE U.S. S&P 500
EQUITY EQUITY INDEX
FUND FUND FUND
- -------------------------------------------------------------------------------------------------------------------
YEAR ENDED PERIOD ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1998 1997** 1998 1997 1998 1997
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net investment income ..........$ 266,967 $ 26,741 $ 251,995 $ 202,766 $ 2,791,335 $ 1,909,480
Net realized gain (loss) on
investments, futures, written
options, and foreign currency
related transactions ......... (1,750,273) 189,159 720,210 8,213,694 11,920,795 2,191,543
Net increase (decrease) in
unrealized appreciation/
depreciation ................. 3,907,480 1,511,399 4,761,858 (2,556,091) 44,705,175 22,450,767
- -------------------------------------------------------------------------------------------------------------------
Net increase (decrease) from
operations ................... 2,424,174 1,727,299 5,734,063 5,860,369 59,417,305 26,551,790
- -------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM
Net investment income .......... (268,273) (20,028) (250,555) (4,168) (2,699,390) (1,914,729)
Net realized gains ............. (1,266,070) (124,349) (546,305) (7,464) (9,401,821) (2,259,212)
- -------------------------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS .............. (1,534,343) (144,377) (796,860) (11,632) (12,101,211) (4,173,941)
- -------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets
from operations and
distributions .................. 889,831 1,582,922 4,937,203 5,848,737 47,316,094 22,377,849
- -------------------------------------------------------------------------------------------------------------------
SHARE TRANSACTIONS:
Proceeds from sale of shares ... 31,179,749 15,768,462 16,925,055 1,013,255 130,960,266 82,623,523
Value of distributions
reinvested ................... 1,534,344 144,380 808,489 -- 12,101,211 29,965,259
Cost of shares redeemed ........(10,816,957) (1,016,670) (15,427,494) (971,729) (27,710,415) (6,194,702)
Proceeds from substitution
of fund ...................... -- 14,376,556 -- -- -- --
- -------------------------------------------------------------------------------------------------------------------
Net increase (decrease) from
share transactions ........... 21,897,136 29,272,728 2,306,050 41,526 115,351,062 106,394,080
- -------------------------------------------------------------------------------------------------------------------
TOTAL INCREASE (DECREASE) IN
NET ASSETS ..................... 22,786,967 30,855,650 7,243,253 5,890,263 162,667,156 128,771,929
NET ASSETS
Beginning of period .............. 30,855,650 -- 23,916,804 18,026,541 164,294,081 35,522,152
- -------------------------------------------------------------------------------------------------------------------
End of period ....................$53,642,617 $30,855,650 $ 31,160,057 $ 23,916,804 $326,961,237 $164,294,081
===================================================================================================================
UNDISTRIBUTED (OVERDISTRIBUTED)
NET INVESTMENT INCOME, END
OF PERIOD .........................$ 5,407 $ 6,713 $ 1,146 $ -- $ 98,534 $ 6,589
- -------------------------------------------------------------------------------------------------------------------
CHANGES IN PORTFOLIO SHARES:
Shares sold by subscription ..... 2,271,852 1,297,933 532,917 42,501 6,047,885 4,614,080
Issued for distributions reinvested 117,215 11,140 24,815 -- 521,604 1,921,660
Shares redeemed ................. (789,260) (77,741) (485,538) (38,356) (1,321,302) (338,017)
Shares from substitution of fund -- 1,122,292 -- -- -- --
- -------------------------------------------------------------------------------------------------------------------
Net increase (decrease)
in fund shares ................ 1,599,807 2,353,624 72,194 4,145 5,248,187 6,197,723
===================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
TOTAL GLOBAL
RETURN INCOME INCOME
FUND FUND FUND
- ----------------------------------------------------------------------------------------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED PERIOD ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1998 1997 1998 1997** 1998 1997
- ----------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
<S> <C> <C> <C> <C> <C> <C>
Net investment income ..........$ 1,590,250 $ 1,125,446 $ 363,926 $ 204,414 $ 2,792,312 $ 438,991
Net realized gain (loss) on
investments, futures, written
options, and foreign currency
related transactions ......... 2,471,228 4,914,136 161,603 47,675 600,594 135,787
Net increase (decrease) in
unrealized appreciation/
depreciation ................. 5,485,019 1,112,523 470,056 (73,901) 418,790 (45,723)
- ----------------------------------------------------------------------------------------------------------------------
Net increase (decrease) from
operations ................... 9,546,497 7,152,105 995,585 178,188 3,811,696 529,055
- ----------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM
Net investment income .......... (1,584,895) (1,108,399) (513,299) (263,343) (2,792,417) (438,469)
Net realized gains ............. (2,103,414) (4,917,675) (45,764) (23,902) (486,762) --
- ----------------------------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS .............. (3,688,309) (6,026,074) (559,063) (287,245) (3,279,179) (438,469)
- ----------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets
from operations and
distributions .................. 5,858,188 1,126,031 436,522 (109,057) 532,517 90,586
- ----------------------------------------------------------------------------------------------------------------------
SHARE TRANSACTIONS:
Proceeds from sale of shares ... 14,948,135 8,490,461 4,092,914 6,089,468 31,877,838 621,763
Value of distributions
reinvested ................... 3,688,309 16,704,749 846,310 -- 3,397,795 308,539
Cost of shares redeemed ........ (1,869,877) (4,128,074) (1,488,358) (129,071) (22,284,896) (749,066)
Proceeds from substitution
of fund ...................... -- -- -- -- -- 39,893,774
- ----------------------------------------------------------------------------------------------------------------------
Net increase (decrease) from
share transactions ........... 16,766,567 21,067,136 3,450,866 5,960,397 12,990,737 40,075,010
- ----------------------------------------------------------------------------------------------------------------------
TOTAL INCREASE (DECREASE) IN
NET ASSETS ..................... 22,624,755 22,193,167 3,887,388 5,851,340 13,523,254 40,165,596
NET ASSETS
Beginning of period .............. 50,007,195 27,814,028 5,851,340 -- 45,553,291 5,387,695
- ----------------------------------------------------------------------------------------------------------------------
End of period ....................$ 72,631,950 $ 50,007,195 $ 9,738,728 $ 5,851,340 $59,076,545 $ 45,553,291
======================================================================================================================
UNDISTRIBUTED (OVERDISTRIBUTED)
NET INVESTMENT INCOME, END
OF PERIOD .........................$ (1,056) $ (2,576) $ (79,096) $ (35,156) $ 418 $ 523
- ----------------------------------------------------------------------------------------------------------------------
CHANGES IN PORTFOLIO SHARES:
Shares sold by subscription ..... 1,045,168 610,645 386,376 606,644 2,490,175 50,870
Issued for distributions reinvested 256,667 1,295,034 82,508 -- 276,612 26,070
Shares redeemed ................. (132,272) (304,136) (137,734) (12,524) (1,740,167) (63,001)
Shares from substitution of fund -- -- -- -- -- 3,291,565
- ----------------------------------------------------------------------------------------------------------------------
Net increase (decrease)
in fund shares ................ 1,169,563 1,601,543 331,150 594,120 1,026,620 3,305,504
======================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
MONEY
MARKET
FUND
- ---------------------------------------------------------------
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1998 1997
- ------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
<S> <C> <C>
Net investment income .......... $ 10,312,511 $ 6,479,092
Net realized gain (loss) on
investments, futures, written
options, and foreign currency
related transactions ......... 2,034 (544)
Net increase (decrease) in
unrealized appreciation/
depreciation ................. -- --
- ------------------------------------------------------------------
Net increase (decrease) from
operations ................... 10,314,545 6,478,548
- ------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM
Net investment income .......... (10,312,511) (6,487,022)
Net realized gains ............. -- --
- ------------------------------------------------------------------
TOTAL DISTRIBUTIONS .............. (10,312,511) (6,487,022)
- ------------------------------------------------------------------
Increase (decrease) in net assets
from operations and
distributions .................. 2,034 (8,474)
- ------------------------------------------------------------------
SHARE TRANSACTIONS:
Proceeds from sale of shares ... 1,128,113,014 271,188,589
Value of distributions
reinvested ................... 10,332,839 12,245,586
Cost of shares redeemed ........(1,043,716,505) (274,705,155)
Proceeds from substitution
of fund ...................... -- 22,832,172
- ------------------------------------------------------------------
Net increase (decrease) from
share transactions ........... 94,729,348 31,561,192
- ------------------------------------------------------------------
TOTAL INCREASE (DECREASE) IN
NET ASSETS ..................... 94,731,382 31,552,718
NET ASSETS
Beginning of period .............. 144,815,487 113,262,769
- ------------------------------------------------------------------
End of period .................... $239,546,869 $144,815,487
==================================================================
UNDISTRIBUTED (OVERDISTRIBUTED)
NET INVESTMENT INCOME, END
OF PERIOD ........................ $ -- $ --
- ------------------------------------------------------------------
CHANGES IN PORTFOLIO SHARES:
Shares sold by subscription .... 1,128,113,014 198,347,812
Issued for distributions reinvested 10,332,839 121,908,143
Shares redeemed ................(1,043,716,505) (209,183,555)
Shares from substitution of fund -- 22,832,172
- ------------------------------------------------------------------
Net increase (decrease)
in fund shares ............... 94,729,348 133,904,572
==================================================================
<FN>
* For the period December 12, 1997 (inception) through December 31, 1997.
** For the period May 1, 1997 (inception) through December 31, 1997.
</FN>
</TABLE>
- -----------
See Notes to Financial Statements.
58 & 59
<PAGE>
NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1998
- --------------------------------------------------------------------------------
1. ORGANIZATION OF THE FUNDS
GE Investments Funds, Inc. (the "Company") (formerly, Life of Virginia Series
Funds, Inc.) was incorporated under the laws of the Commonwealth of Virginia on
May 14, 1984 and is registered under the Investment Company Act of 1940, as
amended, (the "1940 Act") as an open-end, management investment company. The
Company is comprised of eleven investment Funds (each a "Fund" and collectively
the "Funds"), only ten of which are currently being offered, as follows:
International Equity Fund, Real Estate Securities Fund, Premier Growth Equity
Fund, Value Equity Fund, U.S. Equity Fund, S&P 500 Index Fund, Total Return
Fund, Global Income Fund, Income Fund, and Money Market Fund.
Effective May 1, 1997, the Common Stock Index Portfolio changed its name to S&P
500 Index Fund. On May 5, 1997, the Money Market Fund's investment policy was
changed to maintain a constant net asset value in accordance with Rule 2a-7 of
the 1940 Act, as amended, governing money market funds. To effect this change
the Money Market Fund declared a stock split in the ratio of 10.41 to 1. As a
result of the stock split, the Money Market Fund began maintaining a constant
net asset value per share of $1.00. The financial highlights of the Money Market
Fund have been restated to reflect this stock split.
Shares of the Company are offered only to insurance company separate accounts
that fund certain variable life insurance contracts and variable annuity
contracts. These insurance companies may include insurance companies affiliated
with GE Investment Management Incorporated ("GEIM"), the investment adviser and
administrator of each Fund. As of December 31, 1998, The Life Insurance Company
of Virginia and Great Northern Insured Annuity Corporation, each an affiliated
insurance company, controlled the Funds by ownership, through separate accounts,
of virtually all of the Funds' shares of beneficial interest. These companies
are indirect wholly-owned subsidiaries of General Electric Capital Corporation
and, as such are affiliates of GEIM. Effective as of January 1, 1999, The Life
Insurance Company of Virginia changed its name to GE Life and Annuity Assurance
Company. Also effective as of January 1, 1999, Great Northern Insured Annuity
Corporation merged with and into its parent company, General Electric Capital
Assurance Company.
2. SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of increases and decreases in net
assets from operations during the reporting period. Actual results may differ
from those estimates, but are expected to be immaterial.
The following summarizes the significant accounting policies of the Company:
SECURITY VALUATION AND TRANSACTIONS
Securities for which exchange quotations are readily available are valued at the
last sale price, or if no sales occurred on that day, at the last quoted bid
price. Certain fixed income securities are valued by a dealer or by a pricing
service based upon a computerized matrix system, which considers market
transactions and dealer supplied valuations. Futures contracts are valued at the
settlement price established each day by the board of trade or exchange on which
they are principally traded. Options are valued at the last sale price, or if no
sales occurred on that day, at the last quoted bid price. Forward foreign
currency contracts are valued at the mean between the bid and the offered
forward rates as last quoted by a recognized dealer. Short-term investments
maturing within 60 days are valued at amortized cost or original cost plus
accrued interest, both of which approximate current value. Fund positions which
cannot be valued as set forth above are valued at fair value determined under
procedures approved by the Board of Directors of the Funds.
In accordance with Rule 2a-7 of the 1940 Act, the Money Market Fund values its
securities initially at cost and, thereafter, securities are assumed to have a
constant amortization to maturity of any discount or premium. Amortized cost
approximates fair value.
Transactions are accounted for as of the trade date. Realized gains and losses
on investments sold are recorded on the basis of specific identified cost for
both financial statement and federal tax purposes.
FOREIGN CURRENCY
Accounting records of the Funds are maintained in U.S. dollars. Investment
securities and other assets and liabilities denominated in a foreign currency
are translated to U.S. dollars at the prevailing rates of exchange at period
end. Purchases and sales of securities, income receipts and expense payments are
translated into U.S. dollars at the prevailing exchange rate on the respective
dates of the transactions.
The Funds do not isolate the portion of the results of operations resulting from
changes in foreign exchange rates on investments from the fluctuations arising
from changes in their market prices. Such fluctuations are included in net
realized or unrealized gain or loss from investments. Reported net realized
exchange gains or losses from foreign currency transactions represent gains or
losses on sales of foreign currencies, currency gains or losses between the
trade date and the settlement date on securities transactions, net realized
gains and losses on sales and maturities of forward foreign currency contracts,
and the difference between the amounts of foreign investment income and
withholding taxes accrued on the Funds'
60
<PAGE>
NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1998
- --------------------------------------------------------------------------------
books and the U.S. dollar equivalent of the amounts actually received or paid.
Net unrealized foreign exchange gains and losses arising from changes in the
value of other assets and liabilities as a result of changes in foreign exchange
rates are included as increases or decreases in unrealized
appreciation/depreciation on foreign currency related transactions.
INCOME TAXES
The Funds intend to comply with all sections of the Internal Revenue Code
applicable to regulated investment companies and to distribute all of their
taxable income and realized gains to their shareholders and, therefore, no
provision for federal income tax has been made. Each Fund is treated as a
separate taxpayer for federal income tax purposes. Any net capital and currency
losses incurred after October 31, within each Fund's tax year, are deemed to
arise on the first day of the Fund's next tax year if the Fund so elects to
defer such losses.
The Funds incurred and elected to defer losses at October 31, 1998 as follows:
FUND CURRENCY CAPITAL
- ------------------------------------------------------------
International Equity Fund $19,961 $ --
Real Estate Securities Fund -- 182,488
Value Equity Fund -- 2,951,556
U.S Equity Fund 249 --
Total Return Fund 1,056 --
Income Fund -- 527
INVESTMENT INCOME
Corporate actions (including cash dividends) are recorded net of non-reclaimable
tax withholdings on the ex-dividend date, except for certain foreign securities
for which corporate actions are recorded as soon after ex-dividend date as such
information is available. Interest income is recorded on the accrual basis. All
discounts and premiums on taxable bonds are accreted or amortized to call or
maturity date, whichever is shorter, using the effective yield method.
EXPENSES
Expenses of the Company which are directly identifiable to a specific Fund are
allocated to that Fund. Expenses which are not directly identifiable to a
specific Fund are allocated in such a manner as deemed equitable, taking into
consideration the nature and type of expense and the relative sizes of the
Funds. All expenses of the Funds are paid by GEIM, investment adviser to the
Funds, and reimbursed by the Funds.
DISTRIBUTIONS TO SHAREHOLDERS
The Money Market Fund declares investment income dividends daily and pays them
monthly. All other Funds declare and pay dividends from investment income
annually. All Funds declare and pay net realized capital gains distributions
annually. The character of income and gains to be distributed is determined in
accordance with income tax regulations which may differ from generally accepted
accounting principles. These differences include treatment of realized and
unrealized gains and losses on forward foreign currency contracts, paydown gains
and losses on mortgage-backed securities, losses deferred due to wash sale
transactions, and deferred organization expenses. Reclassifications are made to
the Funds' capital accounts to reflect income and gains available for
distribution (or available capital loss carryovers) under income tax
regulations. These reclassifications have no impact on net investment income,
realized gains or losses, or net asset value of the Funds. The calculation of
net investment income per share in the Financial Highlights table excludes these
adjustments. During any particular year, net realized gains from investment
transactions in excess of any applicable capital loss carryforwards would be
taxable to the Funds if not distributed and, therefore, will be declared and
paid to their shareholders annually.
WHEN-ISSUED SECURITIES AND FORWARD COMMITMENTS
The Funds may purchase or sell securities on a when-issued or forward commitment
basis. These transactions are arrangements in which the Funds purchase and sell
securities with payment and delivery scheduled for a future time. Settlement
dates may be a month or more after entering into these transactions, and the
purchase of securities on a when-issued or forward commitment basis involves a
risk of loss if the value of the underlying security declines prior to the
settlement date. The price of the underlying securities and the date when these
securities will be delivered and paid for are fixed at the time the transaction
is negotiated. This may increase the risk if the other party involved in the
transaction fails to deliver and causes the Funds to subsequently invest at less
advantageous prices and yields. In connection with such purchases, the Funds
maintain cash or liquid assets in an amount equal to purchase commitments for
such underlying securities until settlement date and for sales commitments the
Funds maintain equivalent deliverable securities as "cover" for the transaction.
Unsettled commitments are valued at current market value of the underlying
security. Daily fluctuations in the value of such contracts are recorded as
unrealized gains or losses. The funds will not enter into such agreements for
the purpose of investment leverage.
FOREIGN SECURITIES
All Funds may invest in foreign securities, subject to certain limitations.
There are certain additional risks involved when investing in foreign securities
(including those denominated in foreign currencies) that are not inherent in
domestic securities. These risks may involve foreign currency exchange rate
fluctuations; changes in foreign exchange control regulations: application of
foreign tax laws, including withholding taxes: lack of uniform accounting,
auditing and financial reporting standards; and increase uncertainty about
changes in governmental administration or economic or monetary policy (in the
United States or abroad). The Funds may be subject to restrictions on the
repatriation or foreign currencies and may be limited on the use or removal of
its assets.
61
<PAGE>
NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1998
- --------------------------------------------------------------------------------
FORWARD FOREIGN CURRENCY CONTRACTS
Certain Funds may enter into forward foreign currency contracts to facilitate
transactions in foreign denominated securities and to manage the Fund's currency
exposure. A forward foreign currency contract is an agreement between two
parties to buy or sell currency at a set price on a future date. Contracts to
sell are generally used to hedge the Fund's investment against currency
fluctuations or to offset a previous contract to buy. Contracts to buy are
generally used to hedge exposure to foreign currencies or to offset a previous
contract to sell. Currency exposure exists during the period that a foreign
denominated investment is held or during a period between the trade date and
settlement date of an investment which is purchased or sold. These contracts
involve market risk in excess of the unrealized gain or loss reflected in the
fund's Statement of Assets and Liabilities. This amount represents the aggregate
exposure to each currency the Fund has acquired or hedge through currency
contracts at year end. Losses may arise from changes in the value of foreign
currency or if the counterparties do not perform under the contracts' terms. An
open contract is marked-to-market daily and the change in the market value is
recorded by the Fund as an unrealized gain or loss. When the contract is closed,
the Fund records a realized gain or loss equal to the difference between the
value at the time it was opened and the value at the time it was closed. Certain
Funds may utilized forward currency contracts for speculative purposes. When a
Fund enters into a forward foreign currency exchange contract for speculative
purposes, it is required to segregate cash or liquid securities with its
custodian in an amount equal to the value of the Fund's total asset committed to
the consummation of the forward contract. If the value of the segregated
securities declines, additional cash or securities is segregated so that the
value of the account will equal the amount of the Fund's commitment with respect
to the contract.
REPURCHASE AGREEMENTS
Each of the Funds may enter into repurchase agreements. The Funds' custodian
takes possession of the collateral pledged for investments in repurchase
agreements on behalf of the Funds. The Funds value the underlying collateral
daily on a mark-to-market basis to determine that the value, including accrued
interest, is at least equal to the repurchase price. In the event of default of
the obligation to repurchase, the Funds have the right to liquidate the
collateral and apply the proceeds in satisfaction of the obligation. There is
the risk that the collateral may be insufficient to meet the obligation in the
event of default.
FINANCIAL FUTURES CONTRACTS AND OPTIONS
Each fund, other than the Money Market Fund, may invest in financial future
contracts and purchase and write options, subject to certain limitations. The
Funds may invest in futures and options contracts for the following reasons: (1)
for the purpose of hedging against the effects of changes in the value of
portfolio securities or other investments due to anticipated changes in interest
rates, stock market conditions and currency market conditions, (2) to gain
stock, bond, or currency market exposure for accumulating and residual cash
positions, (3) for duration management, (4) when such transactions are an
economically appropriate way to reduce risks inherent in the management of a
Fund, and (5) for non-hedging purposes such as seeking additional income or
otherwise seeking to increase total return. Buying futures, writing puts and
buying calls tend to increase a Fund's exposure to the underlying instrument.
Selling futures, buying puts and writing calls tend to decrease a Fund's
exposure to the underlying instrument, or hedge other fund investments.
These investments involve, to varying degrees, elements of market risk and risks
in excess of the amount recognized in the Statement of Assets and Liabilities.
The face or contract amounts, shown in the Schedule of Investments under the
captions "Other Information, "Call Options" and "Put Options" reflect the extent
of the involvement the Funds have in the particular classes of these
instruments. Losses may be caused by an imperfect correlation between movements
in the price of the instruments and the price of the underlying securities and
interest rates and currency. Losses also may arise if there is an illiquid
secondary market for the instruments, or an inability of counterparties to
perform.
Upon entering into a financial futures contract, the Funds are required to
deposit with the Funds' custodian in a segregated account, either cash or
securities in an amount (initial margin) equal to a certain percentage of the
contract value. Subsequent payments (variation margin) are made or received by
the Funds each day. The variation margin payments are equal to the daily change
in the contract value and are recorded as unrealized gains and losses. The Funds
recognize a realized gain or loss when the futures contract is closed. The Funds
will realize a gain or loss upon the expiration or closing of an option
transaction. When an option is exercised, the proceeds on the sale of a security
as a result of exercising a written option, the purchase cost of a security
acquired from exercising a written put option, or the proceeds on the sale of
the security from exercising a purchased put option or cost of the security
acquired from exercising a purchased call option is adjusted by the amount of
original premium received or paid.
SECURITY LENDING
The Funds may loan securities to brokers, dealers, and financial institutions
determined by GEIM to be creditworthy, up to a maximum of 20% (30% for the
Income Fund, U.S. Equity Fund and Premier Growth Equity Fund) of the total value
of the Fund's assets. The loans of securities will be secured by collateral in
the form of cash or other liquid assets, which will be segregated and maintained
with the custodian in an amount at least equal to the current market value of
the loaned securities. The Funds receive a lender fee in addition to the
interest and dividends on the loaned securities during the term of the loan. The
Funds will receive any gain or loss in the market value of its loaned securities
and of securities in which cash
62
<PAGE>
NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1998
- --------------------------------------------------------------------------------
collateral is invested net of any rebate during the term of the loan. In the
event the counterparty (borrower) does not meet its contracted obligation to
return the securities, the Fund may be exposed to the risk of loss of
reacquiring the loaned securities at prevailing market prices using the proceeds
of the sale of the collateral.
3. FEES AND COMPENSATION PAID TO AFFILIATES
ADVISORY AND ADMINISTRATION FEES
GEIM, a registered investment adviser, was retained by the Company's Board of
Directors effective May 1, 1997 to act as investment adviser and administrator
of the Funds.
Compensation of GEIM, a wholly-owned subsidiary of General Electric Company, for
investment advisory and administrative services, is paid monthly based on the
average daily net assets of each Fund. The advisory and administrative fee is
stated in the following schedule:
ANNUALIZED BASED ON AVERAGE DAILY NET ASSETS
AVERAGE DAILY ADVISORY AND
NET ASSETS OF FUND ADMINISTRATION FEES
- -----------------------------------------------------------------------------
International Equity Fund First $100 million 1.00%
Next $100 million .95%
Over $200 million .90%
Real Estate Securities Fund First $100 million .85%
Next $100 million .80%
Over $200 million .75%
Premier Growth Equity Fund All assets .65%
U.S Equity Fund All assets .55%
Value Equity Fund All assets .65%
S&P 500 Index Fund All assets .35%
Total Return Fund First $100 million .50%
Next $100 million .45%
Next $100 million .40%
Next $100 million .35%
Over $400 million .30%
Global Income Fund All assets .60%
Income Fund First $100 million .50%
Next $100 million .45%
Next $100 million .40%
Next $100 million .35%
Over $400 million .30%
Money Market Fund* First $100 million .50%
Next $100 million .45%
Next $100 million .40%
Next $100 million .35%
Over $400 million .30%
* THE ADVISER HAS VOLUNTARILY AGREED TO WAIVE A PORTION OF THE FEE PAYABLE BY
THE MONEY MARKET FUND SO THAT THE FEE PAID BY THE MONEY MARKET FUND IS EQUAL TO
.25%.
From time to time, GEIM may waive or reimburse advisory or administrative fees
paid by a Fund.
DIRECTORS' COMPENSATION
The Funds pay no compensation to their Directors who are officers or employees
of Life of Virginia or GEIM. Directors who are not officers or employees receive
an annual fee of $6,000 and an additional fee of $500 per Directors' meeting
attended in person and an additional fee of $250 for each Directors' conference
call meeting attended. These fees are allocated proportionally among the funds
based upon the relative net assets of each fund.
4. SUB-ADVISORY FEES
Pursuant to an investment sub-advisory agreement with GEIM, effective July 23,
1997, Seneca Capital Management, L.L.C. ("Seneca") is the sub-adviser to the
Real Estate Securities Fund, and pursuant to investment sub-advisory agreements
with GEIM, effective May 1, 1997, GE Investments (US) Limited ("GEIUS") is the
sub-adviser to the Global Income Fund and NWQ Investment Management Company
("NWQ") is the sub-adviser to the Value Equity Fund. Pursuant to an investment
sub-advisory agreement with GEIM, effective July 24, 1997, State Street Global
Advisors ("SSgA"), a division of State Street Bank and Trust Company, is the
sub-adviser to the S&P 500 Index Fund.
For their services GEIM pays Seneca, GEIUS, NWQ and SSgA monthly compensation in
the form of a sub-advisory fee. Seneca, GEIUS, NWQ and SSgA are responsible for
the day-to-day portfolio management of their respective funds, including the
responsibility for making decisions and placing orders to buy, sell or hold a
particular security, under the general supervision of GEIM and the Board.
63
<PAGE>
NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1998
- --------------------------------------------------------------------------------
5. AGGREGATE UNREALIZED
APPRECIATION AND DEPRECIATION
Aggregate gross unrealized appreciation/(depreciation) of investments for each
Fund at December 31, 1998, were as follows:
NET
GROSS GROSS UNREALIZED
UNREALIZED UNREALIZED APPRECIATION/
APPRECIATION DEPRECIATION (DEPRECIATION)
- --------------------------------------------------------------
International
Equity Fund $ 6,752,996 $ 2,121,566 $ 4,631,430
Real Estate
Securities Fund 1,170,789 7,797,870 (6,627,081)
Premier Growth
Equity Fund 5,578,361 723,434 4,854,927
Value Equity Fund 10,733,982 5,315,103 5,418,879
U.S. Equity Fund 5,935,388 657,693 5,277,695
S&P 500
Index Fund 81,311,396 6,502,839 74,808,557
Total Return
Fund 12,387,109 1,116,126 11,270,983
Global Income
Fund 508,339 95,234 413,105
Income Fund 660,123 245,123 415,000
The aggregate cost of each Fund's investments was substantially the same for
book and federal income tax purposes at December 31, 1998.
6. OPTIONS
During the period ended December 31, 1998, the following option contracts were
written:
TOTAL RETURN FUND INCOME FUND
- --------------------------------------------------------------
NUMBER NUMBER
OF CONTRACTS PREMIUM OF CONTRACTS PREMIUM
- --------------------------------------------------------------
Balance as of
December
31, 1997 520,000 $ 1,825 720,000 $ 2,278
Written 5,775,000 21,987 15,055,000 60,315
Closed and
Expired (4,530,000) (16,245) (11,435,000) (42,273)
Exercised (1,005,000) (4,419) (2,630,000) (13,225)
- ---------------------------------------------------------------
Balance as of
December
31, 1998 760,000 $ 3,148 1,710,000 $ 7,095
- ---------------------------------------------------------------
7. INVESTMENT TRANSACTIONS
The cost of purchases and the proceeds from sales of investments, other than
U.S. Government securities, short-term securities and options, for the period
ended December 31, 1998, were as follows:
PURCHASES SALES
- -----------------------------------------------------------
International
Equity Fund $ 20,657,794 $ 20,454,022
Real Estate
Securities Fund 23,693,658 14,035,603
Premier Growth
Equity Fund 5,435,362 6,956,492
Value Equity Fund 24,903,986 5,917,582
U.S. Equity Fund 12,016,887 10,286,184
S&P 500
Index Fund 134,717,707 28,393,917
Total Return Fund 29,119,012 20,035,387
Global Income Fund 4,697,257 4,092,541
Income Fund 16,720,799 9,797,162
The cost of purchases and the proceeds from sales of long-term U.S. Government
securities for the period ended December 31, 1998, were as follows:
PURCHASES SALES
- -----------------------------------------------------------
U.S. Equity Fund $ 68,351 $ 113,523
S&P 500
Index Fund 1,448,496 357,480
Total Return Fund 55,213,042 50,497,516
Global Income Fund 2,723,141 --
Income Fund 103,727,643 95,451,480
64
<PAGE>
NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1998
- --------------------------------------------------------------------------------
8. SUBSTITUTION ORDER
On or about May 16, 1997, GE Life and Annuity Assurance Co., GE Capital
Assurance Company and several other applicants filed an application with the
Securities and Exchange Commission ("SEC") seeking an order approving the
substitution of shares of certain investment funds of the Company for shares of
the portfolios of GNA Variable Series Trust ("VST") and Variable Investment
Trust ("VIT"), the Money Market Portfolio of Variable Insurance Products Fund
("VIPF"), the Oppenheimer Money Market Fund of Oppenheimer Variable Account
Funds ("OVAF") and the Limited Maturity Bond Portfolio of Neuberger & Berman
Advisers Management Trust ("AMT"), each a diversified, open-end investment
company (collectively the "Substituted Portfolios").
The effect of such a share substitution was to replace the Substituted
Portfolios with investment funds of the Company as investment options under
certain variable annuity contracts. The substitution order also involved the
proposed substitution of shares of the Company's Government Securities Fund for
shares of the Income Fund.
On December 12, 1997, the substitution order was executed. Shares of the
Substituted Portfolios and the Government Securities Fund were substituted by
shares of specified investment funds of the Company. Information related to the
substitution order for the Substituted Portfolios are as follows:
<TABLE>
<CAPTION>
SUBSTITUTED SHARES NET ASSETS NET ASSETS AFTER
FUNDS SUBSTITUTED BY ISSUED SUBSTITUTED SUBSTITUTION
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
VIT GE Money Market Portfolio Money Market Fund 22,832,172 $22,832,172 $144,797,288
VIPF Money Market Portfolio
OVAF Oppenheimer Money
Market Fund
Government Securities Fund Income Fund 3,726,789 45,168,688 45,168,688
VST GNA Adjustable Rate Portfolio
VST GNA Government Portfolio
VIT GE Fixed Income Portfolio*
AMT Limited Maturity Bond
Portfolio
VST GNA Value Portfolio Value Equity Fund 1,122,292 14,376,556 29,448,743
VIT GE International International Equity 814,899 8,523,846 31,174,385
Equity Portfolio Fund
VIT GE U.S. Equity Portfolio* U.S. Equity Fund 857,652 23,353,860 23,353,860
VST GNA Growth Portfolio Premier Growth Equity 315,394 15,703,463 15,703,463
Fund
<FN>
The VIT GE U.S. Equity Portfolio and VIT GE Fixed Income Portfolio were deemed
the accounting survivors in the transaction; therefore, the financial statements
of the U.S. Equity Fund and Income Fund reflect the financial information of VIT
GE U.S. Equity Portfolio and VIT GE Fixed Income Portfolio, respectively.
* SHARES AND PROCEEDS FROM THE SUBSTITUTION FROM THE VIT GE U.S. EQUITY
PORTFOLIO AND THE VIT GE FIXED INCOME PORTFOLIO INTO THE U.S. EQUITY FUND AND
THE INCOME FUND, RESPECTIVELY, ARE REFLECTED IN THE ABOVE TABLE. HOWEVER, THESE
AMOUNTS ARE NETTED FROM THE "PROCEEDS FROM SUBSTITUTION OF FUND" AND "SHARES
FROM SUBSTITUTION OF FUND" IN THE STATEMENTS OF CHANGES IN NET ASSETS, FOR THE
PERIODS ENDED DECEMBER 31, 1997, ON PAGE 58 AND 59 FOR EACH OF THE RESPECTIVE
FUNDS.
</FN>
</TABLE>
65
<PAGE>
INDEPENDENT AUDITORS' REPORT
- --------------------------------------------------------------------------------
The Board of Directors and Shareholders
GE Investments Funds, Inc.:
We have audited the accompanying statements of assets and liabilities, including
the schedules of investments, of the International Equity Fund, Real Estate
Securities Fund, Premier Growth Equity Fund, Value Equity Fund, U.S. Equity Fund
(formerly, Variable Investment Trust - GE U.S. Equity Portfolio), S&P 500 Index
Fund (formerly, Common Stock Index Portfolio), Total Return Fund, Global Income
Fund, Income Fund (formerly, Variable Investment Trust - GE Fixed Income
Portfolio) and Money Market Fund of GE Investments Funds, Inc. (formerly, Life
of Virginia Series Fund, Inc.) (the "Funds"), as of December 31, 1998, and the
related statements of operations for the year then ended, and the statements of
changes in net assets and financial highlights for each of the years in the
two-year period then ended. These financial statements and financial highlights
are the responsibility of the Funds' management. Our responsibility is to
express an opinion on these financial statements and financial highlights based
on our audits.The financial highlights for each of the years in the three-year
period ended December 30, 1996 for the International Equity Fund, Real Estate
Securities Fund, S&P 500 Index Fund, Total Return Fund and Money Market Fund and
the financial highlights for the year ended December 31, 1996 and for the period
from January 3, 1995 to December 31, 1995 for the U.S. Equity Fund and Income
Fund were audited by other auditors whose reports thereon dated February 12,
1997 and February 11, 1997, respectively, expressed unqualified opinions on
those financial statements and financial highlights.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1998, by correspondence with the custodian. As to securities
purchased or sold but not yet received or delivered, we performed other
appropriate auditing procedures. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
Funds as of December 31, 1998, the results of their operations for the year then
ended, and the changes in their net assets and financial highlights for each the
years in the two-year period then ended, in conformity with generally accepted
accounting principles.
/S/SIGNATURE
KPMG Peat Marwick LLP
New York, New York
February 4, 1999
66
<PAGE>
GE INVESTMENTS FUNDS INVESTMENT TEAM
- --------------------------------------------------------------------------------
PORTFOLIO MANAGERS
INTERNATIONAL EQUITY FUND
Team led by
Ralph R. Layman, GEIM
REAL ESTATE SECURITIES FUND
David A. Shapiro, Seneca
PREMIER GROWTH EQUITY FUND
David B. Carlson, GEIM
VALUE EQUITY FUND
Jon D. Bosse, NWQ,
U.S. EQUITY FUND
Team led by
Eugene K. Bolton, GEIM
S&P 500 INDEX FUND
Team led by
James B. May, SSGA
TOTAL RETURN FUND
David B. Carlson, GEIM
Ralph R. Layman, GEIM
Robert A. MacDougall, GEIM
GLOBAL INCOME FUND
William R. Wright, GEIUS
INCOME FUND
MONEY MARKET FUND
Team led by
Robert A. MacDougall, GEIM
INVESTMENT ADVISER
AND ADMINISTRATOR
GE Investment Management Incorporated
BOARD OF DIRECTORS
Michael J.Cosgrove, CHAIRMAN
John R. Costantino
William J. Lucas
Robert P. Martin, Jr.
J. Clifford Miller, III
J. Garnett Nelson
Lee A. Putney
Robert P. Quinn
SECRETARY
Matthew J. Simpson
TREASURER
Jeffrey A. Groh
ASSISTANT TREASURERS
Michael M. D'Ambrosio
Michael J. Tansley
DISTRIBUTOR
GE Investment Distributors, Inc.
Member NASD and SIPC
COUNSEL
Sutherland, Asbill & Brennan, L.L.P.
CUSTODIAN
State Street Bank & Trust Company
INDEPENDENT ACCOUNTANTS
KPMG LLP
OFFICERS OF THE INVESTMENT ADVISER
John H. Myers, CHAIRMAN OF THE BOARD AND PRESIDENT
Eugene K. Bolton, EVP, DOMESTIC EQUITIES
Michael J. Cosgrove, EVP, MUTUAL FUNDS
Ralph R. Layman, EVP, INTERNATIONAL EQUITIES
Alan M. Lewis, EVP, GENERAL COUNSEL AND SECRETARY
Robert A. MacDougall, EVP, FIXED INCOME
Geoffrey R. Norman, EVP, INSTITUTIONAL MARKETING
Thomas J. Szkutak, EVP, CHIEF FINANCIAL OFFICER
Don W. Torey, EVP, ALTERNATIVE INVESTMENTS AND REAL ESTATE
67
<PAGE>
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- --------------------------------------------------------------------------------
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