GE Investment Management Incorporated
GE
Investments
Funds, Inc.
Semiannual Report
June 30, 1997
<PAGE>
GE Investments Funds
- --------------------------------------------------------------------------------
Understanding Your Report
- -------------------------
A Letter from the Investment Manager ...................................... 2
GE Investments Funds portfolio manager Q&A and
Schedules of Investments
S&P 500 Index Fund ................................................... 4
Government Securities Fund ........................................... 11
Money Market Fund .................................................... 13
Total Return Fund .................................................... 15
International Equity Fund ............................................ 20
Real Estate Securities Fund .......................................... 24
Global Income Fund ................................................... 26
Value Equity Fund .................................................... 28
Notes to Performance and Notes to Schedules of Investments ........... 30
Financial Statements ...................................................... 31
Financial Highlights and Statements of Assets and
Liabilities, Operations, and Changes in Net Assets
Notes ..................................................................... 42
Notes to the Financial Statements
GE Investments Funds Investment Team ........................ inside back cover
- --------------------------------------------------------------------------------
This information is intended for shareholder use only, and is not to be
reproduced or shown to the public or used in oral or written form as sales
literature.
1
<PAGE>
A Letter from the Investment Manager
- --------------------------------------------------------------------------------
Dear Shareholder:
Welcome to the GE family of mutual funds. As you know, on May 1, GE Investment
Management Incorporated (GEIM) was named the new investment manager of the GE
Investments Funds (formerly known as Life of Virginia Funds). This is our first
report to you, and we would like to take this opportunity to tell you how
pleased we are to serve as your investment manager.
On the day we assumed our new position, we also added two new Funds: the Value
Equity Fund and the Global Income Fund. Our ongoing mission is to provide you,
our valued shareholders, with a broad spectrum of investment options and the
highest level of quality investment management expertise available.
GEIM is part of GE Investments, the investment management arm of General
Electric Company ("GE"). The investment professionals at GE Investments and
their predecessors have a long investment management history, having managed
GE's pension assets since 1927. As of June 30, 1997, GE Investments managed
roughly $66 billion in assets, including more than $12 billion in mutual funds.
Performance Highlights
As shown in the various performance profiles contained in this report, the GE
Investments Funds generated strong returns for the first half of 1997. Four of
the Funds with equity exposure, namely the S&P 500 Index Fund, Total Return
Fund, International Equity Fund and Value Equity Fund, all achieved double digit
returns for the six months ended June 30, 1997. The Money Market, International
Equity and Real Estate Securities Funds outperformed their market benchmarks for
both the six month and one year periods ended June 30, 1997. The Value Equity
Fund had a great start, beating its market benchmark by more than 350 basis
points since its inception on May 1, 1997. Additionally, for the six original
funds (excluding Value Equity and Global Fixed Income Funds which commenced on
May 1, 1997), all but the Government Securities Fund outperformed the average
return for their annuity peers for the six months and year ended June 30, 1997,
as measured by Lipper Analytical, an independent fund rating service. Three of
the Funds', Money Market, International Equity and Real Estate Securities, six
month returns were in the top 10% of their peers, as measured by Lipper
Analytical Services.
Financial Market Review
In the second quarter, the U.S. stock market rose to record levels, following a
brief downturn early in the period due to concerns over higher inflation. Since
many major non-U.S. markets have followed the lead of U.S. equities in recent
years, most major global markets recorded generally good performance, as well.
A slow growth economy, low inflation, good corporate earnings and continuing
strong cash flows into mutual funds helped fuel the rise in domestic equity
prices. A slow growth scenario is bullish for stocks at that stage of the
business cycle because it is viewed as enabling the economy to expand without
inflation becoming a problem. Signs of a slow economy included weakness in
retail sales and new home sales, stronger-than-expected jobless claims and a
slowdown in manufacturing. Given this backdrop, the Federal Reserve opted not to
raise short-term interest rates at its two Federal Open Market Committee (FOMC)
meetings during the period. The U.S. bond market fared well in this environment.
Bond prices also rallied when President Clinton and the Republicans agreed on a
framework to balance the budget by 2002.
European markets recorded impressive results, as many companies benefited from
having adopted the U.S. model of cost restructuring and industry consolidation
- -- albeit at a slower pace. France lagged other European markets due to high
unemployment, a generally sluggish economy and uncertainty over political
elections. The United Kingdom showed strength at the end of the period as
investors responded favorably to the election of the Labor Party's Tony Blair.
2
<PAGE>
For the first six months of 1997, all markets except the United Kingdom
outperformed the U.S. year-to-date in local currency terms; however, the dollar
strengthened against all European currencies reducing their returns in U.S.
dollar terms. Switzerland was Europe's best performer, followed by the
Netherlands and Spain.
Japan continued to struggle, though its economy showed signs of strength. Japan
has been plagued by a banking crisis fueled by depressed real estate prices and
related bad loans, anemic economic growth, and financial scandals. While
exporters, such as the auto companies, have benefited from the weak Yen,
domestic demand-related sectors such as real estate, telecoms and software have
begun attracting investors.
Other Asian markets were volatile. As Hong Kong nervously awaited the July
transition from a British colony to China rule, property stocks tried to fight
off claims that they were overvalued. Political concerns in Indonesia
intensified as the gap between the wealthy and poor continued to widen rapidly,
and Thailand experienced the world's worst performing market. Overall, Asian
markets, excluding Japan, have underperformed world markets in 1997 due to a
slowdown in earnings growth and high valuations. Funds have been shifting out of
this region and into Latin America, where markets have been more attractive.
Looking Ahead
Our outlook for the global financial market remains favorable for the rest of
1997. Inflation appears to be under control, the Federal Reserve is likely to
maintain a neutral interest-rate policy, assuming interest rates hover near
their current levels. Specifically, we believe the restructuring in Europe
should create investment opportunities on the Continent. And despite the sharp
rise in U.S. equity prices, we believe good values can still be found.
Please review the portfolio manager commentaries for the Funds in which you are
invested. At this time, we would like to thank you for your investment. We look
forward to serving your investment needs for many years to come.
Sincerely,
Michael J. Cosgrove
President, GE Mutual Funds
GE Investment Management Incorporated
Mike Cosgrove is responsible for the marketing, product development and sales of
the GE Investments Funds, and is 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 the 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.
3
<PAGE>
S&P 500 Index Fund
Q&A
Gene Bolton is responsible for the overall management of the U.S. equity
operation at GE Investments with total assets of over $24 billion. 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 S&P 500 Index Fund perform compared to its benchmarks for the
six months ended June 30, 1997?
A. The S&P 500 Index Fund had a return of 18.1% for the period December 30,
1996 through June 30, 1997 while the S&P 500 Index had a return of 18.5%
for the same period.
GE Investment Management Incorporated assumed portfolio management
responsibility for the Fund on May 1, 1997.
Q. What factors contributed to the Fund's performance?
A. The S&P 500 Index Fund is managed to provide investment results that,
before the deduction of operating expenses, replicate the performance of
the S&P 500 Index.
The S&P 500 Index had a strong second quarter rising 17.5%, representing
the strongest second quarter performance in the index since 1938.
Additionally, the year-to-date total return for the index is the fourth
strongest first-half gain over the last 50 years. Such large gains usually
occur following long bear markets but are unprecedented in modern times,
when stocks had already risen more than 20% in the prior two years.
The catalysts to this extraordinary performance are very familiar: low
inflation, strong corporate profits, enormous free cash flow and an
economic cycle that remains muted but persistent. The prospect of a
balanced budget and a capital gain tax cut may also have played a role. The
environment created by the above mentioned elements is ideal for equities,
and the baby boomers are taking full advantage of this by continuing to
pour money into mutual funds. While the funds flow in 1997 is below 1996
levels, stock buybacks and M&A activity have combined to fully offset IPO
and secondary stock offerings, meaning that all mutual fund inflows must be
invested in existing securities.
Another factor helping the performance of the S&P 500 Index may be the
changing composition of the index. Since 1990, 111 new companies have been
added, most of them growing faster, earning higher margins, selling at
higher multiples and having less volatile earnings than the companies they
replaced. In many respects the index has taken on characteristics more
resembling a stock that has historically grown 8 - 10% per annum rather
than at the 6 - 7% rate typically used as a proxy for corporate America.
<PAGE>
Q. What is your outlook for the S&P 500 Index Fund?
A. Despite the current optimism, the key questionmark going forward continues
to be valuation. Valuation levels have been at the very high end of the
historic range for the last several years, and yet the stock market
continues to rise. The bullish case is that price-to-earning ratios over 20
times earnings and dividend yields well below 2% are appropriate in this
current very favorable environment of low inflation and strong profit
growth. There is not a lot of margin for error, however and any pick up in
inflation or slowdown in earnings could leave the market vulnerable to a
major correction.
The market will continue to be fixated on economic releases and earnings
reports, reacting quickly to signs of either inflation or recession.
Currently there appears little liklihood of Federal Reserve action for the
rest of the summer, but the situation is less clear in the fall. What is
clear is that market volatility has picked up substantially in 1997, and we
expect it to continue for the rest of the year. Long term, we remain
confident that large U.S. multinational companies will continue to do well
in a growing world economy where they remain very competitive and are able
to gain market share.
For the remainder of 1997 we intend to remain fully invested in the stock
market to meet our objective while continuing to minimize expenses.
Effective July 24, 1997 State Street Global Advisors, a division of State
Street Bank and Trust Company, became invsetment sub-advisor of the S&P 500
Index Fund.
Average Annual Total Return %
for the periods ended June 30, 1997
Fund S&P 500
---- -------
6 Month 18.10% 18.53%
1 Year 33.90% 34.67%
5 Year 20.37% 19.77%
10 Year 14.28% 14.63%
Inception date 4/14/85
See page 30 for Notes to Performance.
Past performance is no guarantee of future results.
The performance data shown does not reflect charges made by
the separate account. Inclusion of these charges would
reduce the performance quoted.
4
<PAGE>
Schedule of Investments June 30, 1997 (unaudited)
- --------------------------------------------------------------------------------
S&P 500 INDEX FUND
Number
of Shares Value
- --------------------------------------------------------------------------------
Common Stock -- 95.4%
- --------------------------------------------------------------------------------
Basic Materials -- 4.8%
Air Products & Chemicals Inc. ......... 1,666 $ 135,362
Alcan Aluminum Ltd. ................... 3,377 117,140
Allegheny Teldyne Inc. ................ 2,602 70,254
Aluminum Co. of America ............... 2,588 195,070
Armco Inc. ............................ 1,591 6,165(a)
Asarco Inc. ........................... 638 19,539
Barrick Gold Corp. .................... 5,333 117,326(f)
Battle Gold Co. ....................... 3,353 19,070
Bethleham Steel Corp. ................. 1,666 17,389(a)
Boise Cascade Corp. ................... 723 25,531
Champion International Corp. .......... 1,425 78,731
Cyprus Amax Minerals Co. .............. 1,391 34,080
Dow Chemical Co. ...................... 3,520 306,680
Du Pont de Nemours (E.I.) &
Co .................................. 16,811 1,056,992
Eastman Chemical Co. .................. 1,159 73,597
Echo Bay Mines Ltd. ................... 2,079 11,954
Ecolab Inc. ........................... 963 45,983
Engelhard Corp. ....................... 2,146 44,932
FMC Corp. ............................. 553 43,929(a)
Freeport McMoran Copper &
Gold Inc. (Class A) ................. 2,884 89,764
Georgia Pacific Corp. ................. 1,364 116,451
Goodrich (B.F.) Co. ................... 801 34,693
Grace (WR) & Co. ...................... 1,087 59,921
Great Lakes Chemical Corp. ............ 897 46,980
Hercules Inc. ......................... 1,528 73,153
Homestake Mining Co. .................. 2,189 28,594
Inco Ltd. ............................. 2,512 75,517
Inland Steel Industries Inc. .......... 731 19,097
International Paper Co. ............... 4,481 217,609
James River Corp. of Virginia ......... 1,284 47,508
Louisiana Pacific Corp. ............... 1,622 34,265
Mead Corp. ............................ 779 48,493
Monsanto Co. .......................... 8,779 378,046
Morton International Inc. ............. 2,123 64,088
Nalco Chemical Co. .................... 1,005 38,818
Newmont Mining Corp. .................. 2,328 90,792
Nucor Corp. ........................... 1,309 73,959
Phelps Dodge Corp. .................... 967 82,376
Placer Dome Inc. ...................... 3,574 58,524
Potlatch Corp. ........................ 430 19,458
PPG Industries Inc. ................... 2,737 159,088
Praxair Inc. .......................... 2,335 130,760
Reynolds Metals Co. ................... 1,085 77,306
Rohm & Haas Co. ....................... 954 85,920
Sigma-Aldrich Corp. ................... 1,491 52,278
Union Camp Corp. ...................... 1,039 51,950
Union Carbide Corp. ................... 1,901 89,466
USX-US Steel Group Inc. ............... 1,265 44,354
Westvaco Corp. ........................ 1,520 47,785
Weyerhaeuser Co. ...................... 2,960 153,920
Willamette Industries Inc. ............ 825 57,750
Worthington Industries Inc. ........... 1,441 26,388
5,094,795
Capital Goods -- 9.7%
Aeroquip-Vickers Inc. ................. 417 19,703
AlliedSignal Inc. ..................... 4,222 354,648
AMP Inc. .............................. 3,277 136,815
Armstrong World Industries Inc. ....... 615 45,126
Avery Dennison Corp. .................. 1,555 62,394
Boeing Co. ............................ 10,699 567,716
Browning-Ferris Industries Inc. ....... 3,180 105,735
Case Corp. ............................ 1,095 75,418
Caterpillar Inc. ...................... 2,858 306,878
Centex Corp. .......................... 430 17,469
Cincinnati Milacron Inc. .............. 594 15,407
Cooper Industries Inc. ................ 1,771 88,107
Corning Inc. .......................... 3,413 189,848
Crane Co. ............................. 685 28,642
Cummins Engine Co. Inc. ............... 589 41,561
Deere & Co. ........................... 3,820 209,622
Dover Corp. ........................... 1,679 103,258
Eaton Corp. ........................... 1,150 100,409
Emerson Electric Co. .................. 6,674 367,487
Fleetwood Enterprises Inc. ............ 530 15,801
Fluor Corp. ........................... 1,252 69,095
Foster Wheeler Corp. .................. 606 24,543
General Dynamics Corp. ................ 941 70,575
General Electric Co. .................. 49,165 3,214,162
General Signal Corp. .................. 744 32,457
Giddings & Lewis Inc. ................. 494 10,312
Grainger (W.W.) Inc. .................. 791 61,846
Harnischfeger Industries Inc. ......... 733 30,420
Honeywell Inc. ........................ 1,892 143,555
Illinois Tool Works Inc. .............. 3,697 184,619
Ingersoll Rand Co. .................... 1,633 100,838
Johnson Controls Inc. ................. 1,241 50,959
Kaufman & Broad Home Corp. ............ 580 10,186
Laidlaw Inc. .......................... 4,688 64,753
Lockheed Martin Corp. ................. 2,876 297,846
Masco Corp. ........................... 2,395 99,991
McDermott International Inc. .......... 819 23,905
McDonnell Douglas Corp. ............... 3,167 216,939
Millipore Corp. ....................... 645 28,380
Minnesota Mining &
Manufacturing Co. ..................... 6,240 636,480
Nacco Industries Inc. ................. 122 6,885
National Service Industries Inc. ...... 676 32,913
Navistar International Corp. Inc. ..... 1,095 18,889(a)
Northrop Grumman Corp. ................ 861 75,607
Owens Illinois Inc. ................... 776 33,465
PACCAR Inc. ........................... 1,160 53,867
Pall Corp. ............................ 1,878 43,663
- ----------
See Notes to Schedule of Investments and Financial Statements
5
<PAGE>
S&P 500 Index Fund June 30, 1997 (unaudited) (continued)
- --------------------------------------------------------------------------------
Number
of Shares Value
- --------------------------------------------------------------------------------
Parker Hannifin Corp. ................. 1,110 $ 67,363
Pulte Corp. ........................... 311 10,749
Raychem Corp. ......................... 666 49,534
Raytheon Co. .......................... 3,524 179,724
Rockwell International Corp. .......... 3,268 192,812
Sherwin Williams Co. .................. 2,563 79,133
Tenneco Inc. .......................... 2,548 115,138
Textron Inc. .......................... 2,468 163,813
Thermo Electron Corp. ................. 2,228 75,752
Thomas & Betts Corp. .................. 793 41,682
Timken Co. ............................ 931 33,109
Tyco International Ltd. ............... 2,489 173,141
United Technologies Corp. ............. 3,543 294,069
Waste Management Inc. ................. 6,720 215,880
Westinghouse Electric Corp. ........... 9,062 209,559
10,390,652
Consumer - Cyclical -- 8.2%
American Greetings Corp.
(Class A) .............................. 1,117 41,469
Automatic Data Processing Inc. .......... 4,359 204,873
Black & Decker Corp. .................... 1,407 52,323
Block H & R Inc. ........................ 1,552 50,052
Briggs & Stratton Corp. ................. 334 16,700
Brunswick Corp. ......................... 1,468 45,875
Chrysler Corp. .......................... 10,490 344,203
Cognizant Corp. ......................... 2,542 102,951
Comcast Corp. (Class A) ................. 4,872 104,139
Cooper Tire & Rubber Co. ................ 1,223 26,906
CUC International Inc. .................. 5,922 152,862(a)
Dana Corp. .............................. 1,519 57,722
Darden Restaurants Inc. ................. 2,386 21,623
Deluxe Corp. ............................ 1,229 41,940
Disney (Walt) Co. ....................... 10,079 808,840
Donnelley (R.R.) & Sons Co. ............. 2,252 82,479
Dow Jones & Co. Inc. .................... 1,442 57,950
Dun & Bradstreet Corp. .................. 2,542 66,727
Eastman Kodak Co. ....................... 4,975 381,831
Echlin Inc. ............................. 931 33,516
Ford Motor Co. .......................... 17,700 668,175
Fruit of the Loom Inc. .................. 1,147 35,557(a)
Gannett Inc. ............................ 2,104 207,770
General Motors Corp. .................... 10,994 612,228
Genuine Parts Co. ....................... 2,696 91,327
Goodyear Tire & Rubber Co. .............. 2,319 146,822
Harland (John H.) Co. ................... 460 10,494
Harrahs Entertainment Inc. .............. 1,535 28,014(a)
Hasbro Inc. ............................. 1,931 54,792
HFS Inc. ................................ 2,315 134,270(a)
Hilton Hotels Corp. ..................... 3,688 97,962
Interpublic Group Cos. Inc. ............. 1,210 74,188
ITT Corp. ............................... 1,736 106,004(a)
ITT Industries Inc. ..................... 1,763 45,397
Jostens Inc. ............................ 576 15,408
King World Productions Inc. ............. 557 19,495
Knight Ridder Inc. ...................... 1,400 $ 68,687
Liz Claiborne Inc. ...................... 1,065 49,656
Marriot International Inc. .............. 1,911 117,288
Mattel Inc. ............................. 4,311 146,035
Maytag Corp. ............................ 1,495 39,057
McDonalds Corp. ......................... 10,417 503,271
McGraw Hill Cos. Inc. ................... 1,485 87,337
Meredith Corp. .......................... 798 23,142
New York Times Co. ...................... 1,444 71,478
Newell Co. .............................. 2,371 93,951
Nike Inc. ............................... 4,304 251,246
Polaroid Corp. .......................... 678 37,629
Reebok International Ltd. ............... 830 38,803
Rubbermaid Inc. ......................... 2,236 66,521
Russell Corp. ........................... 570 16,886
Safety-Kleen Corp. ...................... 868 14,648
Service Corp. International ............. 3,518 115,654
Shared Medical System Corp. ............. 353 19,062
Snap-On Inc. ............................ 909 35,792
Springs Industries Inc. ................. 300 15,825
Stanley Works ........................... 1,326 53,040
Stride Rite Corp. ....................... 739 9,515
Tele-Communications Inc. (Series A) ..... 9,914 147,471
Time Warner Inc. ........................ 8,488 409,546
Times Mirror Co. ........................ 1,395 77,074
Tribune Co. ............................. 1,838 88,339
TRW Inc. ................................ 1,895 107,660
Tupperware Corp. ........................ 928 33,872
U.S. West Communications Group .......... 9,326 188,851(a)
VF Corp. ................................ 951 80,597
Viacom Inc. (Class B) ................... 5,282 158,460(a)
Wendy's International Inc. .............. 1,931 50,085
Whirlpool Corp. ......................... 1,109 60,510
Xerox Corp. ............................. 4,845 382,149
8,702,021
Consumer - Stable -- 11.7%
Adolph Coors Co. ........................ 565 15,043
Alberto-Culver Co. ...................... 833 23,324
Anheuser Busch Cos. Inc. ................ 7,454 312,602
Archer-Daniels Midland Co. .............. 8,015 188,353
Avon Products Inc. ...................... 1,982 139,855
Ball Corp. .............................. 454 13,648
Bemis Inc. .............................. 781 33,778
Brown-Forman Corp. ...................... 1,029 50,228
Campbell Soup Co. ....................... 6,976 348,800
Clorox Co. .............................. 771 101,772
Coca Cola Co. ........................... 37,151 2,507,693(f)
Colgate Palmolive Co. ................... 4,386 286,187
Conagra Inc. ............................ 3,584 229,824
CPC International Inc. .................. 2,145 198,010
Crown Cork & Seal Inc. .................. 1,914 102,279
Fleming Cos. Inc. ....................... 563 10,134
Fortune Brands Inc. ..................... 2,541 94,811
General Mills Inc. ...................... 2,411 157,016
- ----------
See Notes to Schedule of Investments and Financial Statements
6
<PAGE>
Schedule of Investments June 30, 1997 (unaudited) (continued)
- --------------------------------------------------------------------------------
Number
of Shares Value
- --------------------------------------------------------------------------------
Gillette Co. ............................ 8,283 $ 784,814
Heinz (H.J.) Co. ........................ 5,497 253,549
Hershey Foods Corp. ..................... 2,292 126,776
International Flavours .................. 1,647 83,174
Kellogg Co. ............................. 3,145 269,291
Kimberly Clark Corp. .................... 8,436 419,691
Pepsico Inc. ............................ 23,010 864,313
Philip Morris Cos. Inc. ................. 36,479 1,618,756
Pioneer Hi-Bred International Inc. ...... 1,229 98,320
Procter & Gamble Co. .................... 10,144 1,432,840
Quaker Oats Co. ......................... 2,028 91,007
Ralston Purina Co. ...................... 1,586 130,349
Sara Lee Corp. .......................... 7,181 298,909
Seagram Ltd. ............................ 5,535 222,784
Stone Container Corp. ................... 1,479 21,168
Supervalu Inc. .......................... 998 34,431
Sysco Corp. ............................. 2,636 96,214
Temple Inland Inc. ...................... 826 44,604
Unilever N.V ............................ 2,389 520,802
UST Inc. ................................ 2,779 77,117
Whitman Corp. ........................... 1,549 39,209
Wrigley (W.M.) Junior Co. ............... 1,734 116,178
12,457,653
Energy -- 8.4%
Amerada Hess Corp. ...................... 1,390 77,232
Amoco Corp. ............................. 7,423 645,337(f)
Ashland Oil Inc. ........................ 1,107 51,337
Atlantic Richfield Co. .................. 4,809 339,034
Baker Hughes Inc. ....................... 2,171 83,991
Burlington Resources Inc. ............... 1,865 82,293
Chevron Corp. ........................... 9,741 720,225
Dresser Industries Inc. ................. 2,624 97,744
Exxon Corp. ............................. 37,089 2,280,973
Halliburton Co. ......................... 1,868 148,039
Helmerich & Payne Inc. .................. 371 21,379
Kerr-McGee Corp. ........................ 723 45,820
Louisiana Land & Exploration Co. ........ 509 29,077
Mobil Corp. ............................. 11,762 821,870
Occidental Petroleum Corp. .............. 4,910 123,057
Oryx Energy Co. ......................... 1,564 33,040(a)
Pennzoil Co. ............................ 694 53,265
Phillips Petroleum Co. .................. 3,929 171,894
Rowan Cos. Inc. ......................... 1,277 35,995(a)
Royal Dutch Petroleum Co. ADR ........... 32,016 1,740,870
Santa Fe Energy Resources Inc. .......... 1,366 20,063(a)
Schlumberger Ltd. ....................... 3,677 459,625
Sun Co. Inc. ............................ 1,088 33,728
Texaco Inc. ............................. 3,948 429,345
Union Pacific Resources Group Inc. ...... 3,729 92,759
Unocal Corp. ............................ 3,738 145,081
USX Marathon Group ...................... 4,292 123,931
Western Atlas Inc. ...................... 800 58,600(a)
8,965,604
Financial -- 11.2%
Ahmanson (H.F.) & Co. ................... 1,574 $ 67,682
American Express Co. .................... 7,074 527,013(f)
American General Corp. .................. 3,604 172,084
Banc One Corp. .......................... 6,381 309,080(f)
Bank of New York Inc. ................... 5,855 254,692(f)
BankAmerica Corp. ....................... 10,714 691,723
BankBoston Corp. ........................ 2,283 164,519
Bankers Trust New York Corp. ............ 1,219 106,053
Barnett Banks Inc. ...................... 3,115 163,538
Beneficial Corp. ........................ 806 57,276
Charles Schwab Corp. .................... 2,189 89,065
Chase Manhattan Corp. ................... 6,477 628,674
Citicorp ................................ 6,916 833,810
Comerica Inc. ........................... 1,604 109,072
Corestates Financial Corp. .............. 3,140 168,775
Countrywide Credit Industries ........... 1,400 43,663
Federal Home Loan Mortgage Corp. ........ 10,465 359,734
Federal National Mortgage Assoc ......... 15,976 696,953
Fifth Third Bancorp ..................... 1,581 129,741
First Bank Systems Inc. ................. 2,008 171,433
First Chicago Corp. ..................... 4,760 287,980
First Union Corp. ....................... 4,235 391,737
Fleet Financial Group Inc. .............. 3,916 247,687
Golden West Financial Corp. ............. 855 59,850
Great Western Financial Corp. ........... 2,055 110,456
Green Tree Financial Corp. .............. 2,051 73,067
Household International Inc. ............ 1,447 169,932
KeyCorp ................................. 3,364 187,963
MBIA Inc. ............................... 645 72,764
MBNA Corp. .............................. 4,989 182,722
Mellon Bank Corp. ....................... 3,864 174,363
Merrill Lynch & Co. Inc. ................ 4,917 293,176
MGIC Investment Corp. ................... 1,759 84,322
Morgan (J.P.) & Co. Inc. ................ 2,764 288,492
Morgan Stanley, Dean Witter,
Discover & Co. ........................ 8,498 365,945 (a)
National City Corp. ..................... 3,332 174,930
Nationsbank Corp. ....................... 10,905 703,372
Norwest Corp. ........................... 5,529 311,006
PNC Bank Corp. .......................... 5,008 208,458
Providian Financial Corp. ............... 1,398 44,911 (a)
Republic of New York Corp. .............. 823 88,473
Salomon Inc. ............................ 1,627 90,502
Suntrust Banks Inc. ..................... 3,329 183,303
Transamerica Corp. ...................... 988 92,440
Travelers Group Inc. .................... 9,540 601,616
US Bancorp .............................. 2,254 144,538
Wachovia Corp. .......................... 2,466 143,799
Wells Fargo & Co. ...................... 1,346 362,747
11,885,131
Healthcare -- 10.9%
Abbott Laboratories ..................... 11,598 774,166 (f)
Allergan Inc. ........................... 976 31,049
Alza Corp. .............................. 1,261 36,569 (a)
- ----------
See Notes to Schedule of Investments and Financial Statements
7
<PAGE>
S&P 500 Index Fund June 30, 1997 (unaudited) (continued)
- --------------------------------------------------------------------------------
Number
of Shares Value
- --------------------------------------------------------------------------------
American Home Products Corp. ............ 9,627 $ 736,465 (f)
Amgen Inc. .............................. 3,948 229,478 (f)
Bard (C.R.) Inc. ........................ 851 30,902
Bausch & Lomb Inc. ...................... 828 39,020
Baxter International Inc. ............... 4,074 212,867
Becton, Dickinson & Co. ................. 1,835 92,897
Beverly Enterprises ..................... 1,482 24,083 (a)
Biomet Inc. ............................. 1,707 31,793
Boston Scientific Corp. ................. 2,894 177,800 (a)
Bristol-Myers Squibb Co. ................ 14,954 1,211,274 (f)
Cardinal Health Inc. .................... 1,649 94,405
Columbia/HCA Healthcare Corp. ........... 10,023 394,029
Eli Lilly & Co. ......................... 8,308 908,168
Guidant Corp. ........................... 1,106 94,010
Healthsouth Corp. ....................... 5,136 128,079 (a)
Humana Inc. ............................. 2,427 56,124 (a)
Johnson & Johnson ....................... 19,883 1,279,968
Mallinckrodt Inc. ....................... 1,104 41,952
Manor Care Inc. ......................... 937 30,570
Medtronic Inc. .......................... 3,583 290,223
Merck & Co. Inc. ........................ 18,075 1,870,762
Pfizer Inc. ............................. 9,624 1,150,068
Pharmacia & Upjohn Inc. ................. 7,585 263,579
Schering Plough Corp. ................... 11,029 528,013 (f)
St. Jude Medical Inc. ................... 1,223 47,697 (a)
Tenet Healthcare Corp. .................. 4,497 132,943 (a)
United Healthcare Corp. ................. 2,747 142,844
United States Surgical Corp ............. 1,045 38,926
Warner-Lambert Co. ...................... 4,049 503,088
11,623,811
Insurance -- 3.5%
Aegon ................................... 552 38,654
Aetna Inc. .............................. 2,252 230,548
Allstate Corp. .......................... 6,638 484,574 (f)
American International Group Inc. ....... 7,010 1,047,119 (f)
Aon Corp. ............................... 2,424 125,442
Chubb Corp. ............................. 2,597 173,674
CIGNA Corp. ............................. 1,121 198,977
Conseco Inc. ............................ 2,847 105,339
General Reinsurance Corp. ............... 1,228 223,496
Hartford Financial Services Group ....... 1,752 144,978
Jefferson-Pilot Corp. ................... 1,055 73,718
Lincoln National Corp. .................. 1,556 100,168
Loews Corp. ............................. 1,716 171,815
Marsh & McLennan Cos. Inc. .............. 2,436 173,869
Safeco Corp. ............................ 1,881 87,819
St. Paul Cos. Inc. ...................... 1,238 94,398
Torchmark Corp. ......................... 1,050 74,813
UNUM Corp. .............................. 2,182 91,644
USF & G Corp. ........................... 1,568 37,632
3,678,677
Miscellaneous -- 0.2%
SPDR Trust .............................. 3,000 $ 264,938
Retail Trade -- 4.4%
Albertsons Inc. ......................... 3,747 136,766
American Stores Co. ..................... 2,176 107,440
Autozone Inc. ........................... 2,244 52,874 (a)
Charming Shoppes Inc. ................... 1,573 8,209 (a)
Circuit City Stores Inc. ................ 1,463 52,028
Costco Cos. Inc. ........................ 3,133 102,997 (a)
CVS Corp. ............................... 2,149 110,136
Dayton Hudson Corp. ..................... 3,238 172,221
Dillards Inc. ........................... 1,695 58,689
Federated Department Stores Inc. ........ 3,104 107,864 (a)
Gap Inc. ................................ 4,169 162,070
Giant Foods Inc. ........................ 892 29,102
Great Atlantic & Pacific Tea Co. Inc. ... 570 15,497
Harcourt General Inc. ................... 1,061 50,530
Home Depot Inc. ......................... 7,171 494,351
K Mart Corp. ............................ 7,231 88,580 (a)
Kroger Co. .............................. 3,765 109,185 (a)
Limited Inc. ............................ 4,047 81,952
Longs Drug Stores Corp. ................. 582 15,241
Lowes Cos. Inc. ......................... 2,582 95,857
May Department Stores Co. ............... 3,656 172,746
Mercantile Stores Inc. .................. 549 34,553
Nordstrom Inc. .......................... 1,196 58,679
Penney J.C. Inc. ........................ 3,687 192,415
Pep Boys Manny Moe & Jack ............... 903 30,758
Rite Aid Corp. .......................... 1,829 91,221
Sears Roebuck & Co. ..................... 5,845 314,169
Tandy Corp. ............................. 864 48,384
TJX Cos. Inc. ........................... 2,320 61,190
Toys 'R Us Inc. ......................... 4,335 151,725 (a)
Wal Mart Stores Inc. .................... 34,012 1,150,031
Walgreen Co. ............................ 3,675 197,072
Winn Dixie Stores Inc. .................. 2,240 83,440
Woolworth Corp. ......................... 2,000 48,000 (a)
4,685,972
Software & Services -- 3.5%
Adobe Systems Inc. ...................... 1,098 38,499
Autodesk Inc. ........................... 712 27,278
Computer Associates International Inc. .. 5,421 301,882
Computer Sciences Corp. ................. 1,141 82,295 (a)
Equifax Inc. ............................ 979 36,407
First Data Corp. ........................ 6,681 293,546
Microsoft Corp. ......................... 17,964 2,270,200 (a)
Novell Inc. ............................. 5,166 35,839 (a)
Oracle Systems Corp. .................... 9,848 496,093 (a)
Parametric Technology Corp. ............. 1,903 80,996 (a)
Unisys Corp. ............................ 2,609 19,894 (a)
3,682,929
- ----------
See Notes to Schedule of Investments and Financial Statements
8
<PAGE>
Schedule of Investments June 30, 1997 (unaudited) (continued)
- --------------------------------------------------------------------------------
Number
of Shares Value
- --------------------------------------------------------------------------------
Technology -- 8.9%
3Com Corp. .............................. 4,954 $ 222,930 (a)
Advanced Micro Devices Inc. ............. 2,037 73,332 (a)
Amdahl Corp. ............................ 1,811 15,846 (a)
Andrew Corp. ............................ 1,356 38,138 (a)
Apple Computer .......................... 1,860 26,505
Applied Materials Inc. .................. 2,700 191,194 (a)
Bay Networks Inc. ....................... 2,945 78,227 (a)
Cabletron Systems Inc. .................. 2,326 65,855 (a)
Cisco Systems Inc. ...................... 9,923 666,081 (a)
Compaq Computer Corp. ................... 4,042 401,168 (a)
Data General Corp. ...................... 595 15,470 (a)
Dell Computer Corp. ..................... 2,528 296,882 (a)
Digital Equipment Corp. ................. 2,347 83,172 (a)
DSC Communications Corp. ................ 1,750 38,937 (a)
EG & G Inc. ............................. 705 15,863
EMC Corp. of Massachusetts .............. 3,668 143,052 (a)
General Instrument Corp. ................ 2,043 51,075 (a)
Harris Corp. ............................ 581 48,804
Hewlett Packard Co. ..................... 15,141 847,896
Ikon Office Solutions Inc. .............. 2,010 50,124
Intel Corp. ............................. 12,251 1,737,345
Intergraph Corp. ........................ 710 6,035 (a)
International Business Machines ......... 14,865 1,340,637
LSI Logic Corp. ......................... 2,096 67,072 (a)
Lucent Technologies Inc. ................ 9,527 686,539
Micron Technology Inc. .................. 3,127 124,885
Moore Corp. Ltd. ........................ 1,474 29,019
Motorola Inc. ........................... 8,851 672,676
National Semiconductor Corp. ............ 2,083 63,792 (a)
Northern Telecom Ltd. ................... 3,857 350,987
Perkin Elmer Corp. ...................... 650 51,716
Pitney Bowes Inc. ....................... 2,216 154,012
Scientific-Atlanta Inc. ................. 1,153 25,222
Seagate Technology ...................... 3,690 129,842 (a)
Silicon Graphics Inc. ................... 2,633 39,495 (a)
Sun Microsystems Inc. ................... 5,495 204,517 (a)
Tandem Computers Inc. ................... 1,773 35,903 (a)
Tektronix Inc. .......................... 492 29,520
Tellabs Inc. ............................ 2,676 149,521
Texas Instruments Inc. .................. 2,842 238,906
9,508,192
Transportation -- 1.2%
AMR Corp. ............................... 1,357 125,522 (a)
Burlington Northern Santa Fe ............ 2,283 205,185
Caliber Systems Inc. .................... 584 21,754
CSX Corp. ............................... 3,238 179,709
Delta Air Lines Inc. .................... 1,091 89,462
Federal Express Corp. ................... 1,703 98,348 (a)
Norfolk Southern Corp. .................. 1,867 188,100
Ryder System Inc. ....................... 1,131 37,323
Southwest Airlines Co. .................. 2,164 55,994
U.S. Airways Group Inc. ................. 1,207 42,245 (a)
Union Pacific Corp. N.V ................. 3,654 257,607
1,301,249
Utilities -- 8.8%
Airtouch Communications Inc. ............ 7,486 204,929 (a,f)
Alltel Corp. ............................ 2,794 93,424 (f)
American Electric Power Inc. ............ 2,797 117,474
American Telephone &
Telegraph Corp. ....................... 24,192 848,232 (f)
Ameritech Corp. ......................... 8,202 557,223 (f)
Baltimore Gas & Electric Co. ............ 2,203 58,792
Bell Atlantic Corp. ..................... 6,536 495,919 (f)
Bellsouth Corp. ......................... 14,799 686,304 (f)
Carolina Power & Light Co. .............. 2,260 81,077
Central & South West Corp. .............. 3,148 66,895
CINergy Corp. ........................... 2,353 81,914
Coastal Corp. ........................... 1,571 83,557
Columbia Gas Systems Inc. ............... 823 53,701
Consolidated Edison Co.
of New York Inc. ...................... 3,507 103,237
Consolidated Natural Gas Co. ............ 1,415 76,145
Dominion Resources Inc. ................. 2,689 98,485
DTE Energy Co. .......................... 2,166 59,836
Duke Power Co. .......................... 5,167 247,697
Eastern Enterprises ..................... 302 10,476
Edison International .................... 6,142 152,782
Enron Corp. ............................. 3,798 155,006
Enserch Corp. ........................... 1,039 23,118
Entergy Corp. ........................... 3,447 94,362
FPL Group Inc. .......................... 2,731 125,797
Frontier Corp. .......................... 2,443 48,707
GPU Inc. ................................ 1,800 64,575
GTE Corp. ............................... 14,361 630,089
Houston Industries Inc. ................. 3,500 75,031
MCI Communications Corp. ................ 10,225 391,426
Niagara Mohawk Power Corp. .............. 2,154 18,444
Nicor Inc. .............................. 743 26,655
Noram Energy Corp. ...................... 2,049 31,247
Northern States Power Co.
of Minnesota .......................... 1,030 53,302
NYNEX Corp. ............................. 6,569 378,539
Ohio Edison Co. ......................... 2,277 49,667
Oneok Inc. .............................. 407 13,100
Pacific Enterprises ..................... 1,269 42,670
Pacificorp .............................. 4,399 96,778
Peco Energy Co. ......................... 3,322 69,762
Peoples Energy Corp. .................... 521 19,505
PG&E Corp. .............................. 6,154 149,234
PP&L Resources Inc. ..................... 2,422 48,289
Public Service Enterprise Group ......... 3,559 88,975
SBC Communications Inc. ................. 13,690 847,069
Sonat Inc. .............................. 1,287 65,959
Southern Co. ............................ 10,058 220,019
Sprint Corp. ............................ 6,426 338,168
Texas Utilities Co. ..................... 3,353 115,469
U.S. West Inc. .......................... 7,156 269,692
- ----------
See Notes to Schedule of Investments and Financial Statements
9
<PAGE>
S&P 500 Index Fund June 30, 1997 (unaudited) (continued)
- --------------------------------------------------------------------------------
Number
of Shares Value
- --------------------------------------------------------------------------------
Unicom Corp. ............................ 3,219 $ 71,623
Union Electric Co. ...................... 1,524 57,436
Williams Cos. Inc. ...................... 2,343 102,506
WorldCom Inc. ........................... 13,298 425,536 (a)
9,385,854
Total Common Stock
(Cost $81,600,191) .................... 101,627,478
- --------------------------------------------------------------------------------
Preferred Stock -- 0.0%
- --------------------------------------------------------------------------------
Ceridian Corp.
(Cost $49,149) ........................ 1,204 50,869 (a)
Total Investments in Securities
(Cost $81,649,340) .................... 101,678,347
- --------------------------------------------------------------------------------
Short Term Investments -- 4.3%
- --------------------------------------------------------------------------------
GEI Short Term Investment Fund
(Cost $4,575,083) ..................... 4,575,083 $ 4,575,083
Other Assets and Liabilities,
net 0.3% .............................. 291,990
------------
NET ASSETS -- 100% ...................... $106,545,420
============
Other Information
The S&P 500 Index Fund had the following long Futures contracts open at June 30,
1997:
Number
Expiration of Underlying Unrealized
Description Date Contracts Face Value (Loss)
- -------------------------------------------------------------------------------
S&P 500 September 1997 10 $4,451,250 ($50,500)
- ----------
See Notes to Schedule of Investments and Financial Statements
10
<PAGE>
Government Securities Fund
Q&A
Bob MacDougall leads the fixed income team at GE Investments. Assets under
management exceed $19 billion. Bob joined GE Investments in 1986 as Mutual Fund
Portfolio Manager, became Senior Vice President - Fixed Income in 1992 and was
named to his present position in 1997. Previously he was with GE's Corporate
Treasury Operation managing the Company's $2 billion portfolio of marketable
securities and supporting the Treasurer in the areas of debt management and
capital structure planning. Prior to that, Bob held various financial management
positions since joining GE in 1973. He holds Bachelor's and Master's degrees in
Business Administration from the University of Massachusetts.
Q. How did the Government Securities Fund perform compared to its benchmark
for the six months ended June 30, 1997?
A. The Government Securities Fund had a total return of 1.2% for the period
December 30,1996 through June 30, 1997. The Lehman Brothers Government Bond
Index returned 2.1% for the same period.
GE Investment Management Incorporated assumed portfolio management
responsibility for the Fund on May 1, 1997.
Q. How has the investment strategy of this Fund changed since the end of the
year?
A. As of the end of 1996, the Fund was totally invested in U.S. Treasury
issues. The most significant change in strategy that occurred during the
last six months was to diversify the portfolio by reducing the U.S.
Treasury weighting and adding exposure to U.S. Government Agency issues.
These securities have the same high quality rating as U.S. Treasuries and
offer additional yield to the fund. Although the majority of the portfolio
still remains in U.S. Treasuries, an allocation to Agencies will most
likely continue to be a part of the strategy going forward in order to
enhance the yield without compromising the quality of the Fund.
Q. What happened in the bond market during the past six months?
A. Data released at the end of 1996 indicated that the economy was growing
moderately while inflation remained low. Investors were concerned with how
fast the economy could grow without seeing signs of rising inflation.
Volatility increased during February as a result of Federal Reserve
Chairman Greenspan's semi-annual monetary policy testimony before the
Senate. He expressed concerns about an overvalued stock market and warned
that rates could be increased in a preemptive inflation strike. The Federal
Reserve raised interest rates in March as above trend growth continued. In
April, rumor of a balanced budget deal and additional non-inflationary
economic data reduced the negative tone in the market. Growth began to slow
down as consumers increased their debt levels from above average spending.
Yields continued to fall at the end of the second quarter as investors
started to perceive that the economy might be moderating to a level that
would keep inflation low reducing the need for the Federal Reserve to raise
interest rates in the near term. Although the market changed frequently
during the six month period, the yield on long Treasuries rose only
slightly from 6.6% on December 31, 1996 to 6.8% at the end of June 1997.
Q. What is the outlook for the Government Fund?
A. We are slightly defensive on the market and maintain a yield advantage
versus the index. We expect interest rates to rise during the fall as the
second quarter slowdown will be temporary and not severe enough to ease the
extremely tight labor markets. We expect the Federal Reserve to tighten
before year end, and since market yields do not reflect this view, we will
stay defensive. We believe that the additional tightening of monetary
policy will be a relatively small 25-50 basis points (.25% - .50%) over the
next six months, and as a result, we would view any rise in rates as an
opportunity to extend the average maturity of the Fund.
Average Annual Total Return %
for the periods ended June 30, 1997
Fund LB Government
---- -------------
6 Month 1.15% 2.09%
1 Year 5.63% 7.40%
5 Year 5.41% 6.97%
10 Year 7.08% 8.47%
Inception date 6/30/85
See page 30 for Notes to Performance.
Past performance is no guarantee of future results.
The performance data shown does not reflect charges made by
the separate account. Inclusion of these charges would
reduce the performance quoted.
11
<PAGE>
Schedule of Investments June 30, 1997 (unaudited)
- --------------------------------------------------------------------------------
GOVERNMENT SECURITIES FUND
Principal
Amount Value
------ -----
Bonds and Notes -- 95.3%
- --------------------------------------------------------------------------------
U.S. Governments -- 95.3%
Federal Farm Credit Bank
6.80% 04/04/02 $1,500,000 $1,514,535
Federal Home Loan Mortgage Corp.
6.33% 09/21/05 1,500,000 1,456,410
Federal National Mortgage Assoc.
6.43% 04/11/99 1,000,000 1,003,590
Private Export Funding Corp.
7.01% 04/30/04 1,000,000 1,020,930
Student Loan Marketing Assoc.
5.20% 02/26/99 1,000,000 986,410
Tennessee Valley Authority
6.00% 11/01/00 1,000,000 986,410
U.S. Treasury Notes
5.25% 01/31/01 271,000 261,981
5.75% 09/30/97 44,000 44,034
5.875% 11/30/01 1,000,000 980,780
6.25% 08/31/00 - 02/15/03 2,681,000 2,678,141
6.50% 08/31/01 1,357,000 1,363,568
6.875% 03/31/00 814,000 827,227
6,155,731
Total Investments in Securities
(Cost $13,061,247) 13,124,016
Number of
Shares
- --------------------------------------------------------------------------------
Short Term Investments -- 2.7%
- --------------------------------------------------------------------------------
GEI Short Term Investment Fund
(Cost $372,300) 372,300 372,300
Other Assets and Liabilities,
net 2.0% 274,090
-----------
NET ASSETS -- 100% $13,770,406
===========
- ----------
See Notes to Schedule of Investments and Financial Statements
12
<PAGE>
Money Market Fund
Q&A
Refer to page 11 for Bob MacDougall's biographical details.
Q. How did the Money Market Fund perform compared to its benchmark for the six
months ended June 30, 1997?
A. The Money Market Fund had a total return of 2.7% for the period December
30, 1996 through June 30, 1997. The 90 Day Treasury Bill returned 2.6% for
the same period.
GE Investment Management Incorporated assumed portfolio management
responsibility for the Fund on May 1, 1997.
Q. What is your investment strategy?
A. Our top priority for this Fund is to ensure that we have sufficient
liquidity to meet investors needs and to maintain a high quality portfolio.
Along this end, we are changing the composition of the Fund from 100% Bank
and Corporate securities to at least 35% U.S. Government debt and the
balance in the highest quality, Tier 1 rated securities (Moody's P-1/S&P
A-1). This allocation will be completed at the start of the third quarter
and will improve the overall credit worthiness of the Fund without
adversely affecting the yield. We do not buy what we would consider to be
exotic derivatives in order to reach for yield. We do adjust our average
portfolio maturity depending upon our outlook for the direction of
short-term interest rates.
Q. What happened in the market over the past six months?
A. At the close of 1996, the Federal Funds Rate was 5.25% with the 1 Year
Treasury Bill yield of 5.48%. With the economy starting to show signs of
growth early in the first quarter, interest rates rose in anticipation of a
Federal Reserve interest rate hike. This increase officially occurred at
the March Federal Open Market Committee (FOMC) meeting. Fed Funds were
raised 25 basis points (.25%) to 5.50% and the yield on the 1 Year T-Bill
reached 6.00%. The economic data released to that point indicated further
rate increases were forthcoming.
Q. What is the outlook for the Money Market Fund?
A. As short term rates have flattened due to low unemployment and slow rising
inflation, the probability of an immediate rate hike by the Federal Reserve
is minimal. We expect interest rates to rise in early fall as the second
quarter slowdown will be temporary and not severe enough to ease the
extremely tight labor markets. We expect the Fed to tighten before year end
(.25% - .50% over the next six months) and as a result, we would view any
rise in rates as an opportunity to extend the average maturity of the Fund.
Average Annual Total Return %
for the periods ended June 30, 1997
Fund 90 Day T-Bill
---- -------------
6 Month 2.66% 2.57%
1 Year 5.47% 5.19%
5 Year 4.27% 4.48%
10 Year 5.39% 5.59%
Inception date 6/30/85
Fund Yield
as of June 30, 1997
Fund IBC Money Fund
---- --------------
7 day current 5.4% 5.0%
7 day effective 5.6% 5.2%
Current Yield represents income earned on an investment in the Money Market Fund
for a seven day period and then annualized.
Effective Yield is calculated similarly but is slightly higher because it
reflects the compounding effect of earnings on reinvested dividends.
An investment in the 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.
See page 30 for Notes to Performance.
Past performance is no guarantee of future results.
The performance data shown does not reflect charges made by
the separate account. Inclusion of these charges would
reduce the performance quoted.
13
<PAGE>
Schedule of Investments June 30, 1997 (unaudited)
- --------------------------------------------------------------------------------
MONEY MARKET FUND
Principal Amortized
Amount Cost
- --------------------------------------------------------------------------------
Short Term Investments -- 96.1%
U.S. Governments(d) -- 26.1%
Federal Home Loan Mortgage Corp.
5.53% 07/08/97 - 07/10/97 $7,000,000 $ 6,991,402
5.58% 07/02/97 5,530,000 5,529,155
5.73% 08/08/97 5,080,000 5,050,347
17,570,904
Federal National Mortgage Assoc.
5.51% 09/12/97 3,760,000 3,718,523
5.60% 07/01/97 1,000,000 1,000,000
5.64% 07/18/97 - 09/15/97 8,100,000 8,043,414
5.88% 11/06/97 4,100,000 4,018,583
16,780,520
Total U.S. Governments
(Cost $34,351,424) 34,351,424
Commercial Paper(d)-- 39.8%
Abbey National PLC
5.64% 09/25/97 4,800,000 4,736,303
Ameritech Corp.
5.63% 07/03/97 5,000,000 4,998,458
Halifax Building Society
5.56% 08/18/97 4,800,000 4,764,736
International Lease Finance Corp.
5.68% 07/17/97 4,465,000 4,453,887
Koch Industries
5.54% 07/03/97 4,800,000 4,798,525
Merrill Lynch & Co. Inc.
5.64% 09/02/97 1,170,000 1,158,595
5.69% 08/27/97 2,870,000 2,844,507
Nalco Chemical Co.
5.71% 07/14/97 5,000,000 4,989,835
Norwest Corp.
5.61% 09/24/97 4,870,000 4,806,413
Prudential Funding Corp.
5.44% 07/03/97 915,000 915,000
Schering Plough Corp.
5.64% 07/01/97 5,000,000 5,000,000
Toronto Dominion Bank
5.65% 08/22/97 5,250,000 5,207,761
UBS Finance Delaware Inc.
5.13% 07/01/97 3,700,000 3,700,000
Total Commercial Paper
(Cost $52,374,020) 52,374,020
Certificates of Deposit -- 30.2%
Algemene Yankee
5.59% 07/30/97 $ 5,100,000 $ 5,100,000
Bank of Montreal
5.59% 07/31/97 5,250,000 5,250,000
Bank of Nova Scotia
5.72% 08/07/97 5,000,000 5,000,000
Bayerische Hypotheken Bank
5.65% 09/09/97 5,100,000 5,100,000
Bayerische Vereinsbank AG
5.61% 07/16/97 5,000,000 5,000,000
Credit Suisse
5.63% 08/27/97 4,000,000 4,000,063 (d)
Societe Generale
5.59% 08/18/97 4,800,000 4,800,000
Swiss Bank Corp.
5.63% 07/03/97 5,500,000 5,500,000
Total Certificates of Deposit
(Cost $39,750,063) 39,750,063
Total Short Term Investments
(Cost $126,475,507) 126,475,507
Other Assets and Liabilities,
net 3.9% 5,135,300
------------
NET ASSETS -- 100% $131,610,807
============
- ----------
See Notes to Schedule of Investments and Financial Statements
14
<PAGE>
Total Return Fund
- --------------------------------------------------------------------------------
Q&A
David Carlson, Ralph Layman and Bob MacDougall share portfolio management
responsibility for the Total Return Fund. Dave Carlson manages the equity
portion, Ralph Layman manages the international equity portion and Bob
MacDougall manages the fixed income portion of the Fund. Please refer to page 20
for Ralph's biographical details and page 11 for Bob's biographical details.
David Carlson manages pension and mutual fund portfolios with total assets of
over $4 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. 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 Total Return Fund perform compared to its benchmarks for the
six months ended June 30, 1997?
A. The Total Return Fund had a return of 10.4% for the period December 30,
1996 through June 30, 1997. For the same period the market benchmarks had
the following returns: U.S. stocks (S&P 500 Index) up 18.5%, international
stocks (MSCI EAFE) up 11.8%, and bonds (LB Aggregate) up 2.6%.
GE Investment Management Incorporated assumed portfolio management
responsibility for the Fund on May 1, 1997.
Q. What is the current breakdown of asset allocation in the Total Return Fund?
A. Currently, U.S. stocks comprise 42% of the total net asset value,
international stocks 19%, fixed income 31% and cash 8%.
Q. How do you decide the allocation to each asset class?
A. We have a rigorous analytical approach to asset allocation. The asset
allocation committee that sets the policy for the GE Pension Trust also
sets the policy for the Total Return Fund. We employ a variety of
quantitative models that compare the expected return for each asset class
against the other asset classes, with a look at current levels and
historical levels. Essentially, we try to assess the risk/reward offered in
each market and recommend an appropriate weight for each asset class.
Q. What is your investment philosophy?
A. There are several investment characteristics that cut across all asset
classes. First, we are investors as opposed to traders. We take a long term
value approach rather than chase the hot idea of the moment. Second, we
have a bottom-up approach to portfolio construction, meaning we seek
attractive investments on a case by case basis. As a result, our turnover
is low by industry standards. Finally, we have a quality orientation. In
stocks, we look for industry leadership, and in bonds, we will not
sacrifice quality by reaching for yield.
Q. What is the outlook for the Total Return Fund?
A. We would characterize the positioning of the Fund as somewhat defensive.
Equities are lower than normal in weight, and cash is higher than normal.
Within each asset class the focus remains on finding high quality
investment vehicles at attractive valuation levels. Should the market sell
off in the near future, we believe we are positioned to take advantage of
the volatility.
Average Annual Total Return %
for the periods ended June 30, 1997
MSCI LB
Fund S&P 500 EAFE Aggregate
---- ------- ---- ---------
6 Month 10.37% 18.53% 11.84% 2.58%
1 Year 19.66% 34.67% 12.84% 8.15%
5 Year 14.27% 19.77% 12.83% 7.12%
10 Year 11.44% 14.63% 6.51% 8.81%
Inception date 6/30/85
See page 30 for Notes to Performance.
Past performance is no guarantee of future results.
The performance data shown does not reflect charges made by
the separate account. Inclusion of these charges would
reduce the performance quoted.
15
<PAGE>
Schedule of Investments June 30, 1997 (unaudited)
- --------------------------------------------------------------------------------
TOTAL RETURN FUND
Number
of Shares Value
- --------------------------------------------------------------------------------
Common Stock -- 60.8%
- --------------------------------------------------------------------------------
Basic Materials -- 1.6%
Air Products & Chemicals Inc. .......... 1,200 $ 97,500
Airgas Inc. ............................ 5,900 116,894 (a)
Banpu PLC .............................. 900 13,132
BASF AG ................................ 1,329 49,111
Holderbank Financiere Glarus AG ........ 30 28,335
Morton International Inc. .............. 6,000 181,125
SGL Carbon AG .......................... 841 115,149
South African Iron & Steel ............. 83,110 54,955
Tokyo Steel Manufacturing .............. 2,200 24,568
Usinor Sacilor ......................... 1,974 35,606
716,375
Capital Goods -- 6.9%
ABB AG ................................. 104 157,425
AlliedSignal Inc. ...................... 5,600 470,400
AMP Inc. ............................... 3,400 141,950
Bombardier Inc. (Class B) .............. 2,844 64,564
Dover Corp. ............................ 8,600 528,900
Emerson Electric Co. ................... 2,100 115,631
Grupo Carso S.A. de C.V. ADR ........... 3,394 47,007
Hubbell Inc. (Class B) ................. 6,000 268,875
Lyonnaise Des Eaux S.A ................. 542 54,599
Mannesmann AG .......................... 264 117,612
Metra AB ............................... 154 4,641
Molex Inc. (Class A) ................... 4,800 167,400
NEC Corp. .............................. 6,000 83,755
PT Mulia Industrindo ................... 30,500 15,990
Schneider S.A .......................... 228 12,136
Siam Cement PLC ........................ 200 3,459
Siebe PLC .............................. 8,068 136,775
Siemens AG ............................. 1,697 100,754
Tyco International Ltd. ................ 1,400 97,387
VA Technologie AG ...................... 740 135,422
Valeo S.A .............................. 1,440 89,438
Valmet Corp. ........................... 1,869 32,321
Waste Management Inc. .................. 4,200 134,925
2,981,366
Consumer - Cyclical -- 7.8%
Airtours PLC ........................... 7,574 146,563
Autoliv Inc. ........................... 1,400 54,775
Autoliv Inc. SDR ....................... 100 3,846 (a)
Automatic Data Processing Inc. ......... 5,800 272,600
Canon Inc. ............................. 6,000 163,322
Carnival Corp. (Class A) ............... 3,300 136,125
Catalina Marketing Corp. ............... 2,800 134,750 (a)
Circus Circus Enterprises Inc. ......... 3,600 88,650 (a)
Comcast Corp. (Class A) ................ 6,600 141,075
Comcast UK Cable Partners Ltd.
(Class A) ............................ 7,700 92,400 (a)
CUC International Inc. ................. 5,000 129,062 (a)
Disney (Walt) Co. ...................... 3,000 240,750
Electrolux AB (Series B) ............... 864 62,325
Gannett Inc. ........................... 2,000 197,500
Granada Group PLC ...................... 7,089 93,262
Gucci Group N.V. ADR ................... 145 9,334
Harman International Industries Inc. ... 2,700 113,738
Honda Motor Co. ........................ 3,000 90,298
Industrie Natuzzi Spa ADR .............. 432 11,070
Interpublic Group Cos. Inc. ............ 3,100 190,069
Johnson Electric Holdings .............. 7,000 20,872
Kinnevik (Series B) .................... 1,080 30,087
Lucas Varity PLC ....................... 12,511 43,336
McDonalds Corp. ........................ 2,300 111,119
Michelin CGDE (Regd.) .................. 768 46,119
Polygram N.V ........................... 1,664 87,316
Reed International PLC ................. 10,482 101,243
Saatchi & Saatchi ...................... 26,293 54,732
Sony Corp. ............................. 1,400 122,021
Suzuki Motor Corp. ..................... 5,000 63,252
Tele-Communications Inc. (Class A) ..... 7,600 113,050
Tele-Communications Inc.
Liberty Media Group (Series A) ....... 4,600 109,250 (a)
Television Broadcasts Ltd. ADR ......... 9,000 40,427
Time Warner Inc. ....................... 1,900 91,675
3,406,013
<PAGE>
Consumer - Stable -- 4.7%
Anheuser Busch Cos. Inc. ............... 2,000 83,875
Avon Products Inc. ..................... 2,800 197,575
Coca Cola Amatil Ltd. .................. 4,121 53,568
Coca Cola Co. .......................... 1,400 94,500
Colgate Palmolive Co. .................. 1,600 104,400
Gehe AG ................................ 1,241 84,674
Gillette Co. ........................... 1,200 113,700
Gruma S.A. de C.V ...................... 1,818 8,371
Kimberly Clark Corp. ................... 7,100 353,225
Nestle S.A. (Regd.) .................... 66 87,066
Panamerican Beverages Inc.
(Class A) ............................ 1,670 54,901
Pepsico Inc. ........................... 8,500 319,281
Philip Morris Cos. Inc. ................ 7,800 346,125
Procter & Gamble Co. ................... 700 98,875
San Miguel Corp. ....................... 16,930 44,610
2,044,746
Energy -- 5.8%
Amoco Corp. ............................ 1,500 130,406
Anadarko Petroleum Corp. ............... 2,200 132,000
Atlantic Richfield Co. ................. 2,600 183,300
Baker Hughes Inc. ...................... 2,500 96,719
- ----------
See Notes to Schedule of Investments and Financial Statements
16
<PAGE>
Schedule of Investments June 30, 1997 (unaudited) (continued)
- --------------------------------------------------------------------------------
Number
of Shares Value
- --------------------------------------------------------------------------------
Coflexip S.A. ADR ...................... 1,622 $ 48,863
ENI Spa (Regd.) ........................ 4,461 25,263
Exxon Corp. ............................ 3,100 190,650
OMV AG ................................. 296 37,916
Repsol S.A ............................. 2,161 91,368
Royal Dutch Petroleum Co. ADR .......... 6,800 369,750
Saga Petroleum ......................... 785 14,888
Schlumberger Ltd. ...................... 3,900 487,500
Texaco Inc. ............................ 1,200 130,500
Total S.A. (Class B) ................... 1,923 194,371
Union Pacific Resources Group Inc. ..... 3,200 79,600
Unocal Corp. ........................... 6,000 232,875
Veba AG ................................ 951 53,436
2,499,405
Financial -- 7.2%
Alpha Credit Bank (Regd.) .............. 365 24,837
American Express Co. ................... 2,100 156,450
AMMB Holdings .......................... 1,200 7,464
Banco Comercial Portugues ADR .......... 4,715 88,689
Banco Santander ........................ 1,419 43,721
Cheung Kong (Holdings) Ltd. ............ 7,000 69,121
China Resources Development Inc. ....... 6,000 29,430
Citicorp ............................... 2,600 313,463
Countrywide Credit Industries Inc. ..... 3,900 121,631
DBS Land ............................... 6,000 18,969
Den Danske Bank ........................ 1,075 104,587
Dresdner Bank AG ....................... 749 25,896
Federal National Mortgage Assoc ........ 11,000 479,875
First Industrial Realty Trust Inc. ..... 428 10,700 (a)
HSBC Holdings PLC ...................... 4,800 144,360
ING Groep N.V .......................... 2,489 114,756
Investor AB ............................ 178 9,377
Lai Sun Development Co. Ltd. ........... 17,000 19,091
Merita Ltd. ............................ 3,751 12,497
Metro Bank & Trust Co. ................. 1,800 38,217
Morgan (J.P.) & Co. Inc. ............... 1,200 125,250
New World Development Co. Ltd. ......... 4,000 23,853
Promise Co. ............................ 500 28,616
State Street Corp. ..................... 5,100 235,875
Sumitomo Realty & Development .......... 2,000 17,623
Thai Farmers Bank PLC .................. 1,400 5,945
Travelers Group Inc. ................... 9,400 592,787
Wells Fargo & Co. ..................... 1,000 269,500
3,132,580
Healthcare -- 9.3%
Abbott Laboratories .................... 6,300 420,525
American Home Products Corp. ........... 3,700 283,050
Bristol-Myers Squibb Co. ............... 4,000 324,000
Cardinal Health Inc. ................... 3,500 200,375
Dentsply International Inc. ............ 1,800 88,200
Eli Lilly & Co. ........................ 1,600 174,900
FH Faulding & Co. Ltd. ................. 2,970 17,059
Fresenius Medical Care ................. 853 66,995
Johnson & Johnson ...................... 7,500 482,812
Lincare Holdings Inc. .................. 2,800 120,400 (a)
Medeva PLC ............................. 27,055 115,791
Merck & Co. Inc. ....................... 3,100 320,850
Novartis AG (Regd.) .................... 142 227,005
Pfizer Inc. ............................ 3,500 418,250
Astra AB (Series B) .................... 536 9,458
Astra International (Series B) ......... 26,000 106,908
Roche Holdings AG ...................... 9 81,401
Scherer (R.P.) Corp. Delaware .......... 1,900 98,088 (a)
Smithkline Beecham PLC ADR ............. 2,400 219,900
Sun Healthcare Group Inc. .............. 2,000 41,625 (a)
Tenet Healthcare Corp. ................. 3,000 88,688 (a)
Watson Pharmaceuticals Inc. ............ 2,900 122,525 (a)
4,028,805
<PAGE>
Insurance -- 3.1%
American International Group Inc. ...... 1,800 268,875
AXA-UAP ................................ 776 48,263
Chubb Corp. ............................ 2,100 140,438
General Reinsurance Corp. .............. 1,000 182,000
Loews Corp. ............................ 3,200 320,400
Marsh & McLennan Cos. Inc. ............. 2,800 199,850
Pohjola Insurance Group ................ 527 15,629
Sampo Insurance Co. Ltd. ............... 93 9,044
Schw Ruckversicher (Regd.) ............. 37 52,332
TIG Holdings Inc. ...................... 2,000 62,500
Zurich Versicherungsgesellschaft
(Regd.) .............................. 89 35,417
1,334,748
Miscellaneous -- 0.6%
SPDR Trust ............................. 3,000 264,938
Retail Trade -- 2.0%
Arbor Drugs Inc. ....................... 9,500 191,187
Carrefour S.A .......................... 202 146,704
Credit Saison Co. Ltd. ................. 5,200 127,028
Giordano International Ltd. ............ 52,000 35,574
Home Depot Inc. ........................ 2,500 172,344
Thorn PLC .............................. 4,758 13,470
Toys 'R Us Inc. ........................ 5,500 192,500 (a)
878,807
Software & Services -- 4.3%
Cap Gemini S.A ......................... 310 16,353
Dimension Data Holdings Ltd. ........... 7,981 31,664
Equifax Inc. ........................... 12,700 472,281
First Data Corp. ....................... 16,700 733,756
Microsoft Corp. ........................ 1,400 176,925 (a)
NTT Data Corp. ......................... 2 77,299
Reuters Holdings PLC ADR (Class B) ..... 5,700 359,100
1,867,378
- ----------
See Notes to Schedule of Investments and Financial Statements
17
<PAGE>
Total Return Fund June 30, 1997 (unaudited) (continued)
- --------------------------------------------------------------------------------
Number
of Shares Value
- --------------------------------------------------------------------------------
Technology -- 2.5%
Applied Materials Inc. ................. 1,600 $ 113,300 (a)
Brambles Industries Ltd. ............... 4,820 95,406
Cisco Systems Inc. ..................... 2,000 134,250 (a)
ECI Telecommunications Ltd. ............ 3,605 107,249
Hewlett Packard Co. .................... 1,700 95,200
Intel Corp. ............................ 2,600 368,712
Murata Manufacturing Co. Ltd. .......... 1,000 39,784
Rohm Co. ............................... 1,000 102,949
Wolters Kluwer N.V ..................... 209 25,448
1,082,298
Transportation -- 1.2%
Burns, Philp & Co. Ltd. ................ 51,603 95,937
IHC Caland N.V ......................... 1,666 91,070
Pittston Brinks Group .................. 2,700 81,000
Railtrack Group PLC .................... 10,217 106,000
Union Pacific Corp. N.V ................ 2,200 155,100
529,107
Utilities -- 3.8%
Airtouch Communications Inc. ........... 17,100 468,112 (a)
DDI Corp. .............................. 15 110,714
Edison Spa ............................. 8,042 40,007
Electricidade De Portugal .............. 440 8,075 (a)
GTE Corp. .............................. 2,000 87,750
Korea Electric Power ................... 3,877 72,451
NetCom Systems AB (Series B) ........... 949 13,495 (a)
NTL Inc. ............................... 10,700 266,162 (a)
NYNEX Corp. ............................ 1,700 97,963
Panamsat Corp. (new) ................... 4,235 122,819 (a)
Tele Danmark AS (Series B) ............. 109 5,663
Telecom Italia Mobilire ................ 40,266 130,305
Telecomunicacoes Brasileiras ........... 708 107,439
Telefonaktiebolaget LM Ericson
(Series B) ........................... 661 26,020
Telefonica del Peru S.A. ADR
(Class B) ............................ 3,108 81,391
Telekom Malaysia Berhad ................ 3,500 16,363
1,654,729
Total Common Stock
(Cost $22,684,466) .................... 26,421,295
Principal
Amount Value
- --------------------------------------------------------------------------------
Bonds and Notes -- 30.9%
- --------------------------------------------------------------------------------
Federal Agencies -- 0.7%
Federal Home Loan Mortgage Corp.
6.32% 12/04/97 $ 210,000 $ 210,590
Federal National Mortgage Assoc.
7.05% 12/10/98 $ 105,000 106,362
Total Federal Agencies
(Cost $315,033) 316,952
U.S. Treasuries -- 13.9%
U.S. Treasury Bonds
6.50% 11/15/26 1,649,000 1,581,490 (f)
U.S. Treasury Notes
6.00% 05/31/98 1,357,000 1,359,538
6.25% 06/30/02 65,000 64,614
6.50% 08/31/01 - 05/31/02 1,901,000 1,909,711
7.125% 09/30/99 339,000 345,939
7.75% 01/31/00 742,000 769,016
4,448,818
Total U.S. Treasuries
(Cost $5,956,429) 6,030,308
<PAGE>
Asset Backed -- 0.2%
First USA Credit Card Master Trust
5.7975% 02/17/05 42,000 41,980
IMC Home Equity Loan Trust
7.23% 05/20/27 28,000 28,158
Total Asset Backed
(Cost $70,311) 70,138
Corporate Notes -- 7.1%
Airtouch Communications Inc.
7.00% 10/01/03 212,000 211,828
Bangko Sentral Ng Philipinas
8.60% 06/15/27 15,000 14,850
Brunswick Corp.
6.75% 12/15/06 200,000 194,076
Chrysler Financial Corp.
6.95% 03/25/02 500,000 502,565
Cobb Theatres
10.625% 03/01/03 212,000 234,260
Commercial Credit Group Inc.
6.00% 06/15/00 64,000 62,906
Merrill Lynch & Co. Inc.
7.00% 01/15/07 500,000 496,680
Nationsbank Corp.
7.50% 09/15/06 424,000 435,350
Norfolk Southern Corp.
7.90% 05/15/97 55,000 56,798
Oracle Corp.
6.72% 02/15/04 250,000 246,682
Southdown Inc.
10.00% 03/01/06 212,000 230,550
- ----------
See Notes to Schedule of Investments and Financial Statements
18
<PAGE>
Schedule of Investments June 30, 1997 (unaudited) (continued)
- --------------------------------------------------------------------------------
Number
of Shares Value
- --------------------------------------------------------------------------------
Tribune Co. (new)
6.875% 11/01/06 $ 200,000 $ 197,256
US West Capital Funding Inc.
6.85% 01/15/02 200,000 199,786
Washington Mutual Capital
8.375% 06/01/27 22,000 22,354
Total Corporate Notes
(Cost $3,054,709) 3,105,941
Mortgage-Backed -- 9.0%
Federal Home Loan Mortgage Corp.
7.50% TBA 1,250,000 1,255,469 (c)
9.00% 04/01/25 - 12/01/25 290,719 307,676
1,563,145
Federal National Mortgage Assoc.
5.45% 10/10/03 40,000 37,675
8.00% TBA 2,000,000 2,044,375 (c)
2,082,050
Government National Mortgage Assoc.
7.00% 08/20/26 173,633 177,485 (e)
7.50% 12/15/23 23,139 23,312
200,797
Mid State Trust
7.54% 07/01/35 20,000 20,122
Collateralized Mortgage Obligation
Morgan Stanley Capital Inc.
6.86% 07/15/29 52,000 52,000
Total Mortgage-Backed
(Cost $3,885,249) 3,918,114
Total Bonds and Notes
(Cost $13,281,731) 13,441,453
Number
of Shares Value
- --------------------------------------------------------------------------------
Preferred Stock -- 0.1%
- --------------------------------------------------------------------------------
Beacon Properties Corp.
(Cost $29,625) 1,185 29,847
Total Investments in Securities
(Cost $35,995,822) 39,892,595
Short Term Investments -- 15.8%
- --------------------------------------------------------------------------------
GEI Short Term Investment Fund
(Cost $6,861,631) 6,861,631 $ 6,861,631
Other Assets and Liabilities,
net (7.6%) (3,312,829)
-----------
NET ASSETS -- 100% $43,441,397
===========
- ----------
See Notes to Schedule of Investments and Financial Statements
19
<PAGE>
International Equity Fund
Q&A
Ralph Layman manages the international equity team of GE Investments with total
assets of over $8 billion. Prior to joining GE Investments in 1991, Ralph was
Executive Vice President and Director of International Equity Operations at
Northern Capital Management. Previously, he was a Vice President and Portfolio
Manager at Templeton Investment Counsel, Inc. He was instrumental in forming
Templeton's Emerging Markets Fund, the first listed emerging markets equity fund
in the U.S. Ralph is a Trustee of the GE Pension Trust and GE's employee savings
program, and serves on the GE Investments' Asset Allocation Committee. He is a
Chartered Financial Analyst (CFA), a charter member of the International Society
of Security Analysts and a member of the New York Society of Security Analysts.
Ralph is a graduate of the University of Wisconsin with a B.S. in Economics and
a M.S. in Finance.
Q. How did the International Equity Fund perform compared to its benchmark for
the six months ended June 30, 1997?
A. The GEI International Fund had a return of 17.5% for the period December
30, 1996 through June 30, 1997. The MSCI EAFE Index returned 11.8% for the
same period.
GE Investment Management Incorporated (GEIM) assumed portfolio management
responsibility for the Fund on May 1, 1997.
Q. What is your investment strategy?
A. GEIM uses an active fundamental investment approach for managing it's
international equity portfolios. We strive to outperform the benchmark by
buying stocks which are undervalued relative to their 3 to 5 year cash
earnings growth potential and selling stocks when they are fairly valued
relative to their cash earnings potential. Bottom-up analysis is the
cornerstone of our investment process.
Q. How do you pick stocks?
A. All international issuers which meet our liquidity parameters are
candidates for investments. These companies are screened for their relative
valuation using a ratio of price-to-cash earnings divided by the 3 to 5
year growth rate. Our stock selection is based on detailed knowledge of
companies gained through extensive internal research, direct contact with
company management and access to GE's global, multi-industry network.
Attractively valued companies are then analyzed quantitatively and
qualitatively to determine if a catalyst exists for a revaluation of the
company by the market. The best ideas with the highest levels of conviction
are then included in the portfolio.
Country allocation is a direct result of the stock selection process.
Country weightings are examined to diversify risk relative to the
benchmark. Political and economic risks are also considered to control
overall portfolio risk.
Q. What is the outlook for the International Equity Fund?
A. Looking ahead, we still feel there is good value in Europe and the emerging
markets. In Europe, we believe corporate restructuring will continue with a
focus on shareholder value, corporate clarity and globalization. While we
have low expectations for economic growth in these countries, we believe
the region's economies have bottomed and should improve going forward.
Although it is difficult to find value in Japan, the Fund has some Japanese
global companies with leading products and competitive costs. We will
continue to look for reasonably priced, domestic companies with strong
growth prospects and competitive positions. Until we find them, we expect
to remain significantly underweighted in Japan.
Average Annual Total Return %
for the periods ended June 30, 1997
Fund MSCI EAFE
---- ---------
6 Month 17.54% 11.84%
1 Year 18.55% 12.84%
Since Inception 15.95% 10.47%
Inception date 5/1/95
See page 30 for Notes to Performance.
Past performance is no guarantee of future results.
The performance data shown does not reflect charges made by
the separate account. Inclusion of these charges would
reduce the performance quoted.
20
<PAGE>
Schedule of Investments June 30, 1997 (unaudited)
- --------------------------------------------------------------------------------
INTERNATIONAL EQUITY FUND
Number
of Shares Value
- --------------------------------------------------------------------------------
Common Stock -- 97.7%
- --------------------------------------------------------------------------------
Australia -- 3.7%
Brambles Industries Ltd. ............... 20,381 $ 403,418
Burns, Philp & Co. Ltd. ................ 155,044 288,249
Coca Cola Amatil Ltd. .................. 13,945 181,270
Colonial Ltd. .......................... 8,714 22,259 (a)
F.H. Faulding & Co. Ltd. ............... 8,363 48,035
943,231
Austria -- 2.3%
OMV AG ................................. 1,002 128,352
VA Technologie AG ...................... 2,503 458,055
586,407
Brazil -- 1.3%
Telecomunicacoes Brasileiras
S.A. ADR ............................. 2,217 336,430
Canada -- 0.9%
Bombardier Inc. (Class B) .............. 10,278 233,329
Denmark -- 1.5%
Den Danske Bank ........................ 3,639 354,040
Tele Danmark AS (Series B) ............. 274 14,237
368,277
Finland -- 1.3%
Merita Ltd. ............................ 26,185 87,237
Metra AB ............................... 521 15,702
Pohjola Insurance Group ................ 1,584 46,976
Sampo Insurance Co., Ltd. .............. 631 61,365
Valmet Corp. ........................... 6,325 109,381
320,661
France -- 11.0%
Alcatel Alsthom ........................ 2,197 275,153
AXA-UAP ................................ 2,632 163,697
Cap Gemini S.A ......................... 1,058 55,810
Carrefour S.A .......................... 683 496,034
Cie General des Eaux (Wts.) ............ 1,460 875
Coflexip S.A. ADR ...................... 5,488 165,326
Lyonnaise Des Eaux S.A ................. 2,335 235,220
Michelin CGDE (Regd.) .................. 2,905 174,447
Schneider S.A .......................... 2,266 120,613
Total S.A. (Class B) ................... 6,326 639,414
Usinor Sacilor ......................... 6,688 120,634
Valeo S.A .............................. 5,141 319,306
2,766,529
Germany -- 8.4%
BASF AG ................................ 5,568 205,755
Dresdner Bank AG ....................... 2,536 87,679
Fresenius Medical Care ................. 1,181 104,279
Fresenius Medical Care
(Pfd. stock) ......................... 1,704 122,321
Gehe AG ................................ 4,200 286,566
Mannesmann AG .......................... 894 398,279
SGL Carbon AG .......................... 2,659 364,067
Siemens AG ............................. 5,742 340,912
Veba AG ................................ 3,604 202,507
2,112,365
Greece -- 0.4%
Alpha Credit Bank (Regd.) .............. 1,528 103,973
<PAGE>
Hong Kong -- 4.8%
Cheung Kong (Holdings) Ltd. ............ 22,000 217,237
China Resources Development ............ 20,000 98,099
Giordano International Ltd. ............ 154,000 105,353
GZI Transport Ltd. (Wts.) .............. 24,000 2,478 (a)
HSBC Holdings PLC ...................... 16,265 489,170
Johnson Electric Holdings .............. 22,000 65,597
Lai Sun Development Co. Ltd. ........... 67,000 75,239
Lai Sun Hotels International Ltd. ...... 4,014 352 (a)
New World Development Corp. ............ 12,904 76,951
Television Broadcasts Ltd. ............. 20,000 89,838
1,220,314
India -- 0.4%
BSES Ltd. GDR .......................... 2,098 55,597
Tata Engineering &
Locomotive Co. Ltd. GDR .............. 3,180 47,223
Tata Engineering &
Locomotive Co. Ltd. GDR .............. 367 5,809 (b)
108,629
Indonesia -- 1.9%
Astra International Inc. ............... 88,000 361,842
Bank Dagang Nasional ................... 25,000 17,732 (a)
Bank Dagang Nasional (Wts.) ............ 17,500 5,577
Mulia Industrindo ...................... 118,500 62,125
Tambang Timah GDR ...................... 2,266 33,423 (b)
480,699
- ----------
See Notes to Schedule of Investments and Financial Statements
21
<PAGE>
International Equity Fund June 30, 1997 (unaudited)
- --------------------------------------------------------------------------------
Number
of Shares Value
- --------------------------------------------------------------------------------
Israel -- 1.5%
ECI Telecommunications Ltd. ............ 12,718 $ 378,360
Italy -- 2.8%
Edison Spa ............................. 21,652 107,714
ENI Spa (Regd.) ........................ 15,097 85,497
Gucci Group N.V. ADR ................... 490 31,544
Industrie Natuzzi Spa ADR .............. 1,462 37,464
Telecom Italia Mobiliare ............... 136,269 440,982
703,201
Japan -- 15.1%
Canon Inc. ............................. 21,000 571,628
Credit Saison Co. Ltd. ................. 17,600 429,942
DDI Corp. .............................. 50 369,046
Honda Motor Co. ........................ 11,000 331,094
Murata Manufacturing Co. Ltd. .......... 4,000 159,135
NEC Corp. .............................. 21,000 293,143
NTT Data Corp. ......................... 9 347,845
Promise Co. ............................ 1,600 91,572
Rohm Co. ............................... 4,000 411,795
Sony Corp. ............................. 5,500 479,367
Sumitomo Realty & Development .......... 11,000 96,929
Suzuki Motor Corp. ..................... 16,000 202,408
Tokyo Steel Manufacturing .............. 3,300 36,852
3,820,756
Malaysia -- 0.3%
ACP Industries (Rts.) .................. 10,000 6,735 (a)
AMMB Holdings .......................... 3,000 18,661
Telekom Malaysia ....................... 10,000 46,751
72,147
Mexico -- 1.1%
Desc S.A. de C.V. ADR (Class C) ........ 1 23
Gruma S.A. de C.V ...................... 15,937 73,394
Grupo Carso S.A. de C.V. ADR ........... 11,487 159,095
Grupo Financiero Bancomer S.A
ADR (Series C) ....................... 5,744 55,286 (a,b)
287,798
Netherlands -- 4.3%
IHC Caland N.V ......................... 5,638 308,196
ING Groep N.V .......................... 8,550 394,200
PolyGram N.V ........................... 5,633 295,582
Wolters Kluwer N.V ..................... 788 95,946
1,093,924
Norway -- 0.1%
Saga Petroleum ASA .................... 1,888 35,806
Panama -- 0.7%
Panamerican Beverages Inc.
(Class A) ........................... 5,571 183,147
Peru -- 1.1%
Telefonica del Peru S.A. ADR
(Class B) ........................... 10,926 286,125
Philippines -- 1.1%
Metro Bank & Trust Co. ................ 6,000 127,389
San Miguel Corp. ...................... 53,500 140,971
268,360
<PAGE>
Portugal -- 1.3%
Banco Comercial Portugues ............. 10,757 203,149
Banco Comercial Portugues
ADR ................................. 4,096 76,288
Banco Commercial Portugues
International Ltd. (Series A) ....... 390 26,715
Electricidade de Portugal S.A ......... 1,555 28,536
334,688
Singapore -- 0.3%
Acma Ltd. (Wts.) ...................... 4,500 2,266
DBS Land Ltd. ......................... 19,000 60,069
Jardine Strategic Holdings Ltd.
(Wts.) .............................. 600 6
United Overseas Land &
Investment (Wts.) ................... 1,600 867 (a)
63,208
South Africa -- 1.2%
Dimension Data Holdings Ltd. .......... 31,693 125,738
South African Iron & Steel ............ 266,162 175,994
301,732
South Korea -- 1.0%
CITC Seoul Excel IDR .................. 2 14,500 (a)
Kookmin Bank GDR ...................... 430 9,138 (b)
Korea Electric Power Corp. ADR ........ 11,648 217,672
241,310
Spain -- 2.0%
Banco Santander ....................... 6,105 188,101
Repsol S.A ............................ 7,312 309,154
497,255
- ----------
See Notes to Schedule of Investments and Financial Statements
22
<PAGE>
Schedule of Investments June 30, 1997 (unaudited) (continued)
- --------------------------------------------------------------------------------
Number
of Shares Value
- --------------------------------------------------------------------------------
Sweden -- 3.6%
Astra AB (Series B) ................... 614 $ 10,834
Autoliv Inc. .......................... 8,043 314,682
Autoliv Inc. SDR ...................... 2,186 84,071 (a)
Electrolux AB (Series B) .............. 2,925 210,995
Granges AB ............................ 1 7 (a)
Investor AB ........................... 929 48,939
Kinnevik (Series B) ................... 2,696 75,107
NetCom Systems AB (Series B) .......... 5,271 74,954 (a)
Telefonaktiebolaget LM Ericson
(Series B) .......................... 1,958 77,075
896,664
Switzerland -- 9.6%
ABB AG ................................ 353 534,336
Holderbank Financiere Glarus AG ....... 124 117,121
Nestle S.A. (Regd.) ................... 222 292,857
Novartis AG (Regd.) ................... 482 770,540
Roche Holdings AG ..................... 31 280,380
Schw Ruckversicher (Regd.) ............ 134 189,527
Zurich Versicherungsgesellschaft
(Regd.) ............................. 602 239,563
2,424,324
Taiwan -- 0.9%
Formosa Growth Fund Inc. .............. 5,000 117,600
Taipei Fund ........................... 1,000 117,300
234,900
Thailand -- 0.3%
Banpu PLC ............................. 3,400 49,612
Siam Cement PLC ....................... 500 8,647
Thai Farmers Bank PLC ................. 4,400 18,684
76,943
United Kingdom -- 11.5%
Airtours PLC .......................... 25,631 495,980
Cordiant PLC .......................... 88,981 185,225
Granada Group PLC ..................... 26,094 343,289
Indian Opportunities Fund Ltd. ........ 6,000 59,220 (a)
Lucas Varity PLC ...................... 56,616 196,108
Medeva PLC ............................ 88,548 378,970
Railtrack Group PLC ................... 34,578 358,741
Reed International PLC ................ 35,472 342,615
Siebe PLC ............................. 28,857 489,206
Thorn PLC ............................. 19,690 55,743
United Assurance Group PLC ............ 53,700 3,577 (a)
2,908,674
Total Investments in Securities
(Cost $22,130,159) .................. 24,690,166
Number of
Shares Value
Short Term Investments -- 4.6%
GEI Short Term Investment Fund
(Cost $1,148,992).................... 1,148,992 $ 1,148,992
Other Assets and Liabilities,
net (2.3%)........................... (577,982)
-----------
NET ASSETS - 100%...................... $25,261,176
===========
<PAGE>
FORWARD FOREIGN CURRENCY CONTRACTS
- --------------------------------------------------------------------------------
At June 30, 1997, the outstanding forward foreign currency contracts, which
contractually obligate the International Equity Fund to deliver currencies at a
specified date, were as follows:
U.S. $ Cost U.S. $ Unrealized
Foreign Currency Foreign on Origination Current Appreciation
Purchase Contracts Currency Date Value (Depreciation)
- --------------------------------------------------------------------------------
CHF, expiring 07/15/97 1,164,240 $799,396 $800,100 $ 704
Foreign Currency Sale Contracts
- -------------------------------
CHF, expiring 07/15/97 1,164,240 $800,000 $800,100 $(100)
-----
$ 604
=====
- ----------
See Notes to Schedule of Investments and Financial Statements
23
<PAGE>
Real Estate Securities Fund
Q&A
David A. Shapiro, portfolio manager of the Real Estate Securities Fund, joined
Seneca Capital Management, LLC as a portfolio manager 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
for the six months ended June 30, 1997?
A. The Real Estate Securities Fund had a return of 8.6% for the period
December 30, 1996 through June 30, 1997. The Wilshire REIT Index returned
5.0% for the same period.
Q. Why did the Fund overperform its benchmark?
A. The Fund outperformed the Wilshire REIT Index based on our conservative
discipline of selecting real estate companies that trade within a narrow
band of their net asset value. To this end, we continue to select companies
that have a strong record of increasing shareholder value by a combination
of good dividend payout and valued-added growth.
Q. Which stocks/sectors have you liked?
A. The Real Estate Securities Fund continues to be overweighted in the Hotel
sector (particularly the full service Hotel sector) and the Office and
Industrial sectors. We believe that these sectors continue to represent the
greatest opportunities for continued growth based upon the lead time and
costs associated with producing competitive properties.
In the full-service Hotel sector, we have liked Patriot American Hotel,
Felcor Suite Hotel and Host Marriott Corp. In the Office and Industrial
sectors, we have liked Spieker Properties, Catellus and First Industrial
Realty.
Q. How do you pick stocks? What has your investment strategy been?
A. We first determine where we are in the real estate cycle. The typical cycle
is 7 to 9 years. We then determine the appropriate sector weighting (i.e.
Apartments, Industrial, Office, Home building). We determine the
appropriate geographical weighting and screen the individual REIT
securities universe.
In screening the REIT universe we look for liquidity: at least $200mm in
market capitalization; for management incentive: at least 5% management
ownership; and finally for capital structure: leverage less than 40% of
market capitalization. We then determine a list of potential candidates for
purchase. For each qualified candidate for purchase, we analyze premium or
discount to net asset value and management quality. We then select final
candidates for purchase.
Q. What is the outlook of the Real Estate Securities Fund?
A. The Fund continues to be positioned to take advantage of a stable interest
rate environment and supply/demand imbalances that currently exist in
certain sectors of the REIT industry. Presently, the Office/Industrial
sector and the full service Hotel sector represent the greatest opportunity
for total return.
Average Annual Total Return %
for the periods ended June 30, 1997
Fund Wilshire REIT
---- -------------
6 Month 8.58% 4.96%
1 Year 38.29% 26.06%
Since Inception 28.76% 18.60%
Inception date 1/2/95
See page 30 for Notes to Performance.
Past performance is no guarantee of future results.
The performance data shown does not reflect charges made by
the separate account. Inclusion of these charges would
reduce the performance quoted.
24
<PAGE>
Schedule of Investments June 30, 1997 (unaudited)
- --------------------------------------------------------------------------------
REAL ESTATE SECURITIES FUND
Number
of Shares Value
- --------------------------------------------------------------------------------
Common Stock -- 92.0%
- --------------------------------------------------------------------------------
Financial -- 6.4%
Green Tree Financial Corp. ......... 29,000 $ 1,033,125
Redwood Trust Inc. ................. 31,900 1,491,325
2,524,450
Hotels / Restaurants -- 3.7%
Circus Circus Enterprises Inc. ..... 33,000 812,625 (a)
Host Marriott Corp. ................ 36,000 641,250
1,453,875
Real Estate -- 73.3%
Ambassador Apartments Inc. ......... 32,900 818,387
Apartment Investment &
Management Co. (Class A) ......... 50,100 1,415,325
Avalon Properties Inc. ............. 22,800 652,650
Boston Properties Inc. ............. 34,300 943,250 (a)
Burnham Pacific Properties Inc. .... 18,000 247,500
Cali Realty Corp. .................. 23,600 802,400
CarrAmerica Realty Corp. ........... 15,000 431,250
Catellus Development Corp. ......... 55,600 1,007,750 (a)
Centerpoint Properties Corp. ....... 25,000 793,750
Developers Diversified Realty
Corp. ............................ 20,000 800,000
Equity Residential Properties
Trust .............................. 38,900 1,847,750
Evans Withycombe Residential
Inc. ............................. 27,000 560,250
First Industrial Realty Trust Inc. . 50,100 1,465,425
General Growth Properties .......... 700 23,450
Glenborough Realty Trust Inc. ...... 12,200 308,050
Irvine Apartment Communities Inc. .. 27,900 823,050
Liberty Property ................... 47,000 1,169,125
Macerich Co. ....................... 8,000 222,000
Manufactured Home Communities
Inc. ............................. 51,500 1,187,719
Merry Land & Investment Co. Inc. ... 31,000 672,313
Oakwood Homes Corp. ................ 14,000 336,000
Pacific Gulf Properties Inc. ....... 33,700 741,400
Patriot American Hospitality Inc. .. 78,020 1,989,510
Prentiss Properties Trust .......... 51,000 1,306,875
Security Capital Atlantic Inc. ..... 44,000 1,053,250
Security Capital Pacific Trust ..... 46,100 1,054,537
Shurgard Storage Centers Inc.
(Class A) ........................ 12,600 352,800
Simon DeBartolo Group Inc. ......... 39,300 1,257,600
Spieker Properties Inc. ............ 32,000 1,126,000
Sun Communities Inc. ............... 23,000 771,938
Thornburg Mortgage Asset
Corp. ............................ 44,500 956,750
TriNet Corporation Realty Trust
Inc. ............................. 26,000 859,625
Urban Shopping Centers Inc. ........ 33,100 1,055,062
29,052,741
Real Estate Investment Trust -- 8.6%
American General Hospitality
Corp. ............................ 39,500 977,625
Bedford Property Investments
Inc. ............................. 45,000 905,625
FelCor Suite Hotels Inc. ........... 18,200 677,950
Sunstone Hotel Investors Inc. ...... 57,700 836,650
3,397,850
Total Investments in Securities
(Cost $30,875,887) ............... 36,428,916
<PAGE>
- --------------------------------------------------------------------------------
Short Term Investments -- 7.6%
- --------------------------------------------------------------------------------
GEI Short Term Investment Fund
(Cost $3,027,234) .................. 3,027,234 3,027,234
Other Assets and Liabilities,
net 0.4% ........................... 156,560
-----------
NET ASSETS -- 100%................... $39,612,710
===========
- ----------
See Notes to Schedule of Investments and Financial Statements
25
<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. He is also a Vice President of GEIM. Prior to joining GEIUS,
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 since
inception in May 1997 through June 30, 1997?
A. The Global Income Fund had a return of 1.9% for the two months ended June
30, 1997. The JP Morgan Global Government Bond Index returned 3.5% for the
same period.
Q. Why did the Fund underperform its benchmark?
A. Some of the underperformance was due to startup transaction costs incurred
as the Fund was initially invested. However, the primary reason behind the
low relative return was the decision not to invest in the Japanese bond
market, which represents about 14% of the benchmark. This decision was
sound in terms of the Japanese bond market alone, which returned only about
0.33% in yen terms, but the unexpected surge in the Japanese yen caused the
total dollar return on Japanese bonds to be about 11% during May and June,
accounting for about 1.5% of the total 1.6% under performance.
Q. What is your investment strategy?
A. We follow a top-down approach in selecting investments for the Fund,
utilizing various macroeconomic analytical tools to forecast which markets
and currencies will provide better returns over an intermediate investment
horizon of six months to a year. Our analysis has lead us to a strategy of
overweighting the higher-yielding bond markets in Europe, with large
positions in Sweden, Spain and the U.K. We have also taken a large position
in Canada, where we feel there is significant potential for the currency to
rally against the U.S. dollar. For risk control, we have rounded out the
portfolio with a position in German bonds, which we believe are likely to
have a lower volatility.
Q. What world events had a major impact on the financial markets in the recent
past, and how did these impact the Fund?
A. First, the recent widening of the Japanese trade surplus and renewed
optimism for Japan's economy spurred reversal of opinion on the yen, which
surged from 127 to 113 over two months. Not having any yen exposure in the
Fund resulted in a significant underperformance. Second, opinions on the
probability of European Monetary Union (EMU) occurring on time and with
broad membership have waxed and waned, affecting the interest rate spread
between German bonds and those of the high yielding European markets, such
as Italy. We have taken an aggressive view of EMU, resulting in a large
holding of high yielding markets.
Q. What is the outlook for the Global Income Fund?
A. We feel that the U.S. dollar will likely maintain its strength against most
other currencies and therefore are keeping the Fund partially hedged for
the time being. Despite the large rise in the yen, we will continue to
avoid the Japanese bond market, as it has the lowest yields and highest
risk of the major markets.
Average Annual Total Return %
for the period ended June 30, 1997
Fund JPM Global Bond
---- ---------------
2 Month/Since Inception 1.90% 3.52%
Inception date 5/1/97
See page 30 for Notes to Performance.
Past performance is no guarantee of future results.
The performance data shown does not reflect charges made by
the separate account. Inclusion of these charges would
reduce the performance quoted.
26
<PAGE>
Schedule of Investments June 30, 1997 (unaudited)
- --------------------------------------------------------------------------------
GLOBAL INCOME FUND
Principal
Amount Value
- --------------------------------------------------------------------------------
Bonds and Notes -- 91.4%
- --------------------------------------------------------------------------------
Canada -- 18.5%
Government of Canada
7.00% 12/01/06 CAD 170,000 $ 129,136
7.50% 03/01/01 CAD 150,000 115,724
Province of New Brunswick
11.25% 12/13/00 CAD 270,000 231,212
Thomson Corp.
7.15% 10/23/06 CAD 320,000 239,624
Toyota Credit Canada Inc.
7.375% 12/31/01 CAD 310,000 238,093
953,789
Germany -- 23.3%
Bayerische Vereinsbank AG
4.50% 06/24/02 DEM 410,000 233,033
Dresdner Finance
5.50% 04/30/04 DEM 420,000 243,220
Federal Republic of Germany
6.00% 01/04/07 DEM 420,000 247,193
Merrill Lynch & Co. Inc.
4.43% 05/18/00 DEM 480,000 242,876 (d)
World Bank
7.25% 10/13/99 DEM 390,000 240,382
1,206,704
Spain -- 18.3%
Government of Spain
8.80% 04/30/06 ESP 20,000,000 158,493
10.10% 02/28/01 ESP 100,000,000 784,866
943,359
Sweden -- 15.3%
Kingdom of Sweden
9.00% 04/20/09 SEK 1,600,000 244,152
10.25% 05/05/03 SEK 1,100,000 171,581
11.00% 01/21/99 SEK 1,500,000 211,712
13.00% 06/15/01 SEK 1,000,000 163,013
790,458
United Kingdom -- 16.0%
Commonwealth Bank of Australia
8.125% 12/07/06 GBP 99,000 $ 171,253
Royal Bank of Scotland
7.875% 12/07/06 GBP 100,000 169,653
SmithKline Beecham Plc
8.375% 12/29/00 GBP 140,000 239,117
Treasury
8.00% 09/25/09 GBP 140,000 248,879
828,902
Total Investments in Securities
(Cost $4,726,721) 4,723,212
Number of
Shares
- --------------------------------------------------------------------------------
Short Term Investments -- 6.4%
- --------------------------------------------------------------------------------
GEI Short Term Investment Fund
(Cost $327,538) 327,538 327,538
Other Assets and Liabilities,
net 2.2% 115,558
----------
NET ASSETS -- 100% $5,166,308
==========
<PAGE>
FORWARD FOREIGN CURRENCY CONTRACTS
- --------------------------------------------------------------------------------
At June 30, 1997, the outstanding forward foreign currency contracts, which
contractually obligate the Global Income Fund to deliver currencies at a
specified date, were as follows:
<TABLE>
<CAPTION>
U.S. $ Cost U.S. $ Unrealized
Foreign on Origination Current Appreciation
Foreign Currency Sale Contracts Currency Date Value (Depreciation)
- ------------------------------- -------- ---- ----- --------------
<S> <C> <C> <C> <C>
DEM, expiring 08/08/97 1,096,830 $ 639,383 $ 631,267 $ 8,116
GBP, expiring 08/08/97 255,100 413,173 424,077 (10,904)
SEK, expiring 08/08/97 3,177,347 407,572 411,549 (3,977)
----------- ----------- -----------
$ 1,460,128 $ 1,466,893 $ (6,765)
=========== =========== ===========
</TABLE>
- ----------
See Notes to Schedule of Investments and Financial Statements
27
<PAGE>
Value Equity Fund
Q&A
Jon D. Bosse, portfolio manager of the Value Equity Fund, joined NWQ Investment
Management Company in 1996. Prior to joining NWQ, he spent ten years with ARCO
Investment Management Company where he was Director of Equity Research and
managed a value-oriented fund. Previous to this, he spent four years in the
corporate finance department of ARCO. Jon received his B.A. (summa cum laude) in
economics from Washington University in St. Louis were he received the John M.
Olin Award for excellence in economics and his M.B.A. from Wharton Business
School, University of Pennsylvania. Jon is also a Chartered Financial Analyst
and a member of the Association for Investment Management and Research and the
Los Angeles Society of Financial Analysts.
Q. How did the Value Equity Fund perform compared to its benchmark since
inception in May, 1997 through June 30, 1997?
A. The Value Equity Fund had a return of 14.5% for the two months ended June
30, 1997. The S&P 500 Index returned 10.9% for the same period.
Q. Why did the Fund outperform its benchmark?
A. The Value Equity Fund's strong performance (3.8% greater than the S&P 500
Index) since the inception of the fund on May 1 is principally due to large
weightings in the Oil Service and Cable industries, as well as strong
individual stock performance across diverse industries (see discussion
below on individual investments). In the Oil Service industry, Diamond
Offshore, Transocean Offshore, and Santa Fe International each appreciated
more than 20%. Higher drilling rates, attractive valuations, and favorable
industry supply/demand conditions continue to make this group attractive.
In the Cable industry, a lessening of the competitive threat of direct
broadcast satellite and Microsoft's investment in Comcast helped fuel a
strong advance in portfolio holdings including Cox Communications, Liberty
Media, U.S. West Media Group, and NTL Inc. (a U.K. cable/telephone
company).
Q. What is your investment strategy?
A. Our strategy is to add value through opportunistic stock selection by
identifying undervalued companies that have catalysts present to improve
profitability and recognize value. We utilize a broader definition of value
that permits opportunistic stock selection across all capitalization
ranges. The catalysts we look for include new management, industry
consolidation, and corporate restructuring. The investment process employs
fundamental, bottom-up research analyzing company valuation, management
strength and competitive position, and the identification of catalysts that
will generate higher returns.
Q. Which investments stand out?
A. In the Telecommunications sector, a successful investment was Cellular
Communications International which appreciated 35%. This small
capitalization company holds an interest in the second cellular carrier in
Italy, one of the best cellular markets in the world. Other top performers
included Mercantile Stores (Retailing), Case Corp. and Chicago Bridge &
Iron (Capital Goods), Countrywide Mortgage and USF&G (Finance), Storage
Technology (Technology), and FMC Corp. (Chemicals/Industrial), each of
which substantially outperformed the S&P 500 Index return for the two month
period.
Q. What is the outlook for the Value Equity Fund?
A. Notwithstanding the significant appreciation of the market, we believe we
are still able to find attractive investment opportunities. We expect the
Oil Service and Cable industries to continue to perform well. We do not
index or market time, but are driven to provide value-added performance
through our disciplined investment process.
Average Annual Total Return %
for the period ended June 30, 1997
Fund S&P 500
---- -------
2 Month/Since Inception 14.50% 10.86%
Inception date 5/1/97
See page 30 for Notes to Performance.
Past performance is no guarantee of future results.
The performance data shown does not reflect charges made by
the separate account. Inclusion of these charges would
reduce the performance quoted.
28
<PAGE>
Schedule of Investments June 30, 1997 (unaudited)
- --------------------------------------------------------------------------------
VALUE EQUITY FUND
Number
of Shares Value
- --------------------------------------------------------------------------------
Common Stock -- 93.1%
- --------------------------------------------------------------------------------
Basic Materials -- 1.9%
FMC Corp. ......................... 1,000 $ 79,438 (a)
Capital Goods -- 7.3%
Atchison Casting Corp. ............ 5,800 96,425 (a)
Case Corp. ........................ 2,000 137,750
Chicago Bridge & Iron ............. 3,600 79,650
313,825
Consumer - Cyclical -- 16.6%
Cox Communications Inc. ........... 4,800 115,200 (a)
Darden Restaurants Inc. ........... 9,000 81,562
Ford Motor Co. .................... 2,000 75,500
Tele-Communications Inc. Liberty
Media Group (Series A) .......... 5,000 118,750 (a)
Tele-Communications
International Inc. (Series A) ... 6,000 92,625 (a)
Time Warner Inc. .................. 2,200 106,150
U.S. West Communications
Group Inc. ...................... 6,000 121,500 (a)
711,287
Consumer - Stable -- 3.0%
Unilever PLC ADR .................. 1,100 127,806
Energy -- 19.0%
BJ Services Co. ................... 1,600 85,800 (a)
Cairn Energy USA Inc. ............. 7,000 91,875 (a)
Diamond Offshore Drilling Inc. .... 1,100 85,937 (a)
Noble Affiliates Inc. ............. 2,500 96,719
Ocean Energy Inc. ................. 1,800 83,250 (a)
Santa Fe International Corp. ...... 2,800 95,200 (a)
Tosco Corp. ....................... 2,300 68,856
Transocean Offshore Inc. .......... 1,100 79,888
United Meridian Corp. ............. 4,200 126,000 (a)
813,525
Financial -- 12.8%
BankAmerica Corp. ................. 2,200 142,037
Bear Stearns Cos. Inc. ............ 3,000 102,563
Chase Manhattan Corp. ............. 1,300 126,181
CWM Mortgage Holdings Inc. ........ 4,000 95,750
First Union Corp. ................. 900 83,250
549,781
Health Services -- 2.4%
Aetna Inc. ........................ 1,000 102,375
Insurance -- 10.9%
Hartford Financial Services Group . 1,500 124,125
Hartford Life Inc. ................ 2,000 75,000 (a)
Loews Corp. ....................... 1,900 190,238
USF&G Corp. ....................... 3,200 76,800
466,163
Retail Trade -- 1.8%
Mercantile Stores Inc. ............ 1,200 75,525
Technology -- 8.0%
Allen Telecom Inc. ................ 3,600 74,700
Ceridian Corp. .................... 2,200 92,950 (a)
Intel Corp. ....................... 600 85,088
Storage Technology Corp. .......... 2,000 89,000 (a)
341,738
Utilities -- 9.4%
360 Communications Co. ............ 6,000 102,750 (a)
Cellular Communications
International ................... 6,000 201,000 (a)
NTL Inc. .......................... 4,000 99,500 (a)
403,250
Total Investments in Securities
(Cost $3,530,017) ............... 3,984,713
<PAGE>
- --------------------------------------------------------------------------------
Short Term Investments -- 6.4%
- --------------------------------------------------------------------------------
GEI Short Term Investment Fund
(Cost $273,049) ................. 273,049 273,049
Other Assets and Liabilities,
net 0.5% ........................ 22,480
----------
NET ASSETS -- 100%................. $4,280,242
==========
- ----------
See Notes to Schedule of Investments and Financial Statements
29
<PAGE>
Notes to Performance June 30, 1997 (unaudited)
- --------------------------------------------------------------------------------
Average annual total returns take into account changes in share price and assume
reinvestment of dividends and capital gains. Investment returns and net asset
value on an investment will fluctuate and you may have a loss or gain when you
sell your shares.
Shares of the Government Securities Fund are neither insured nor guaranteed by
the U.S. Government, and their prices will fluctuate with market conditions.
The advisor has voluntarily agreed to waive and/or bear certain fees and
expenses of the Money Market Fund. Without these provisions, the Money Market
Fund performance returns (and/or yields) would have been lower. These provisions
may be terminated in the future. The returns of the International Equity, S&P
500 Index, and Real Estate Securities Funds reflect prior fee waivers or expense
reimbursements. Without them, the returns would have been lower.
The Standard & Poor's Composite Index of 500 Stocks (S&P 500 Index), Lehman
Brothers Government Bond Index (LB Government), 90 Day U.S. Treasury Index (90
Day T-Bill), Lehman Brothers Aggregate Bond Index (LB Aggregate), Morgan Stanley
Capital International Europe Australia Far East Index (MSCI EAFE), Wilshire Real
Estate Index, and JP Morgan Global Government Bond Index are unmanaged indices
and do not reflect the actual cost of investing in the instruments that comprise
each index. The S&P 500 Index is a composite of the prices of 500 widely held
U.S. stocks recognized by investors to be representative of the stock market in
general. The Lehman Brothers Government Bond Index is primarily made up of all
public obligations of the U.S. Treasury and all publically issued debt of U.S.
Government Agencies and corporate debt guaranteed by the U.S. Government. The 90
Day U.S. T-Bill is the average return on three month U.S. Treasury Bills. The LB
Aggregate Bond Index is a composite index of short-, medium-, and long-term bond
performance and is widely recognized as a barometer of the bond market in
general. The MSCI EAFE is a composite of 1,093 stocks of companies in 20
countries located in Europe, Australia, New Zealand and the Far East. The
Wilshire Real Estate Index is a market capitalization-weighted index comprised
of publically traded real estate investment trusts (REITs) and real estate
operating companies. The JP Morgan Global Government Bond Index (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 845 taxable money market funds. The results shown for the foregoing indices
assume reinvestment of net dividends or interest.
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.
<PAGE>
Notes to Schedules of Investments
- --------------------------------------------------------------------------------
(a) Non-income producing security.
(b) Pursuant to Rule 144A of Securities Act of 1933, these securities may be
only resold in transactions exempt from registration, normally to qualified
institutional buyers. At June 30, 1997, these securities amounted to
$103,656 or 0.4% of net assets for the International Equity Fund.
(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
June 30, 1997.
(f) At June 30, 1997, all or a portion of this security was pledged to cover
collateral requirements for futures and TBA's.
Abbreviations:
ADR -- American Depositary Receipt
GDR -- Global Depositary Receipt
IDR -- International Depositary Receipt
SDR -- Special Drawing Rights
Rts. -- Rights
Wts. -- Warrants
Regd. -- Registered
Pfd. -- Preferred
Currency Terms:
CAD -- Canadian Dollar
CHF -- Swiss Franc
DEM -- Deutsche Mark
ESP -- Spanish Peseta
FIM -- Finnish Markka
FRF -- French Franc
GBP -- Pound Sterling
HKD -- Hong Kong Dollar
IDR -- Indonesian Rupiah
MYR -- Malaysian Ringgit
PHP -- Philippine Peso
SEK -- Swedish Krona
ZAR -- South African Rand
30
<PAGE>
Financial Highlights
Selected data based on a share outstanding throughout the period(s) indicated --
(June 30, 1997 data is unaudited)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
S&P 500 Index Fund
6/30/97 12/31/96(c,d) 12/31/95(c,d) 12/31/94(d) 12/31/93(d) 12/31/92(e)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period ......... $15.14 $20.99 $15.72 $15.99 $17.04 $16.21
Income (loss) from investment operations:
Net investment income .................... 0.12 0.78 0.27 0.22 0.31 0.35
Net realized and unrealized
gains (losses) on investments ........ 2.62 4.36 5.41 (0.23) 2.16 1.01
- ------------------------------------------------------------------------------------------------------------------------------------
Total income (loss) from investment operations 2.74 5.14 5.68 (0.01) 2.47 1.36
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions from:
Net investment income .................... 0.00 0.77 0.27 0.22 0.31 0.35
Net realized gains ....................... 0.00 10.22 0.14 0.04 3.21 0.17
Return of Capital ........................ 0.00 0.00 0.00 0.00 0.00 0.01
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions .......................... 0.00 10.99 0.41 0.26 3.52 0.53
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period ............... $17.88 $15.14 $20.99 $15.72 $15.99 $17.04
====================================================================================================================================
TOTAL RETURN (a) ............................. 18.10% 24.51% 36.14 (0.06%) 14.52% 8.39%
RATIOS/SUPPLEMENTAL DATA:
Net Assets, end of period (in thousands) . $106,545 $35,522 $66,017 $23,930 $8,277 $5,178
Ratios to average net assets:
Net investment income* .............. 1.83% 1.91% 1.98% 2.22% 2.00% 2.24%
Expenses* ............................ 0.51% 0.48% 0.66% 0.75% 0.87% 1.03%
Gross expenses* ...................... 0.51% 0.48% 0.66% 1.10% 0.87% 1.03%
Portfolio turnover rate .................. 5% 63% 15% 4% 73% 10%
Average brokerage commissions (b) ........ $.036 $0.050 N/A N/A N/A N/A
- ------------------------------------------------------------------------------------------------------------------------------------
Government Securities Fund
6/30/97 12/31/96(c) 12/31/95(c) 12/31/94 12/31/93 12/31/92(f)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period ......... $9.56 $10.48 $9.51 $10.49 $10.54 $10.54
Income (loss) from investment operations:
Net investment income .................... 0.27 1.01 0.49 0.42 0.45 0.69
Net realized and unrealized
gains (losses) on investments ........ (0.16) (0.87) 1.13 (0.98) 0.50 0.06
- ------------------------------------------------------------------------------------------------------------------------------------
Total income (loss) from investment operations 0.11 0.14 1.62 (0.56) 0.95 0.75
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions from:
Net investment income .................... 0.00 1.02 0.49 0.42 0.45 0.69
Net realized gains ....................... 0.00 0.04 0.16 0.00 0.54 0.05
Return of Capital ........................ 0.00 0.00 0.00 0.00 0.01 0.01
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions .......................... 0.00 1.06 0.65 0.42 1.00 0.75
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period ............... $9.67 $9.56 $10.48 $9.51 $10.49 $10.54
====================================================================================================================================
TOTAL RETURN (a) ............................. 1.15% 1.34% 17.08% (5.34%) 8.96% 7.13%
RATIOS/SUPPLEMENTAL DATA:
Net Assets, end of period (in thousands) . $13,770 $13,771 $23,708 $12,598 $7,885 $5,053
Ratios to average net assets:
Net investment income* ............... 5.52% 5.64% 5.92% 5.44% 5.41% 6.69%
Expenses* ............................ 0.82% 0.67% 0.74% 0.81% 0.86% 0.99%
Portfolio turnover rate .................. 68% 322% 131% 566% 113% 14%
</TABLE>
- ----------
See Notes to Financial Highlights on page 35 and Notes to Financial Statements
31
<PAGE>
Financial Highlights (continued)
Selected data based on a share outstanding throughout the period(s) indicated --
(June 30, 1997 data is unaudited)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Money Market Fund
6/30/97 12/31/96(c,g) 12/31/95(c,g) 12/31/94(g) 12/31/93(g) 12/31/92(g)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period ......... $1.00 $1.00 $0.98 $0.97 $0.97 $0.96
Income (loss) from investment operations:
Net investment income ..................... 0.02 0.05 0.06 0.03 0.02 0.03
Net realized and unrealized
gains (losses) on investments ......... 0.00 0.00 0.00 0.01 0.00 0.00
- ------------------------------------------------------------------------------------------------------------------------------------
Total income (loss) from investment operations 0.02 0.05 0.06 0.04 0.02 0.03
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions from:
Net investment income ..................... 0.02 0.05 0.04 0.03 0.02 0.02
Net realized gains ........................ 0.00 0.00 0.00 0.00 0.00 0.00
Return of Capital ......................... 0.00 0.00 0.00 0.00 0.00 0.00
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions .......................... 0.02 0.05 0.04 0.03 0.02 0.02
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period ............... $1.00 $1.00 $1.00 $0.98 $0.97 $0.97
====================================================================================================================================
TOTAL RETURN (a) ............................. 2.66% 5.41% 5.90% 3.77% 2.39% 3.10%
RATIOS/SUPPLEMENTAL DATA:
Net Assets, end of period (in thousands) .. $131,611 $113,263 $63,083 $33,529 $9,094 $5,845
Ratios to average net assets:
Net investment income* ................ 5.21% 5.29% 5.74% 4.04% 2.53% 3.06%
Expenses* ............................. 0.25% 0.15% 0.23% 0.42% 0.75% 0.75%
Gross expenses* ....................... 0.59% 0.55% 0.63% 0.70% 0.75% 0.75%
- ------------------------------------------------------------------------------------------------------------------------------------
Total Return Fund
6/30/97 12/31/96(c) 12/31/95(c) 12/31/94 12/31/93 12/31/92
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period ......... $12.73 $15.93 $13.40 $13.59 $13.00 $12.62
Income (loss) from investment operations:
Net investment income ..................... 0.17 1.02 0.41 0.35 0.42 0.44
Net realized and unrealized
gains (losses) on investments ......... 1.15 0.67 3.34 (0.01) 1.35 0.51
- ------------------------------------------------------------------------------------------------------------------------------------
Total income (loss) from investment operations 1.32 1.69 3.75 0.34 1.77 0.95
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions from:
Net investment income ..................... 0.00 1.02 0.42 0.35 0.41 0.44
Net realized gains ........................ 0.00 3.87 0.80 0.18 0.76 0.12
Return of Capital ......................... 0.00 0.00 0.00 0.00 0.01 0.01
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions .......................... 0.00 4.89 1.22 0.53 1.18 0.57
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period ............... $14.05 $12.73 $15.93 $13.40 $13.59 $13.00
====================================================================================================================================
TOTAL RETURN (a) ............................. 10.37% 10.60% 28.07% 2.54% 13.67% 7.53%
RATIOS/SUPPLEMENTAL DATA:
Net Assets, end of period (in thousands) .. $43,411 $27,814 $70,507 $34,708 $12,609 $7,248
Ratios to average net assets:
Net investment income* ................ 2.63% 2.73% 3.42% 4.00% 3.80% 4.13%
Expenses* ............................. 0.68% 0.60% 0.65% 0.77% 0.85% 0.98%
Portfolio turnover rate.................... 87% 144% 106% 67% 48% 12%
Average brokerage commissions (b).......... $0.026 $0.060 N/A N/A N/A N/A
</TABLE>
- ----------
See Notes to Financial Highlights on page 35 and Notes to Financial Statements
32
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------
International Equity Fund
6/30/97 12/31/96(h) 12/31/95(i)
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Inception date ............................... 5/1/95
Net asset value, beginning of period ......... $10.83 $10.47 $10.00
Income (loss) from investment operations:
Net investment income ..................... 0.05 0.03 0.20
Net realized and unrealized
gains (losses) on investments ......... 1.85 1.01 0.47
- -------------------------------------------------------------------------------------------
Total income (loss) from investment operations 1.90 1.04 0.67
- -------------------------------------------------------------------------------------------
Less distributions from:
Net investment income ..................... 0.00 0.03 0.20
Net realized gains ........................ 0.00 0.65 0.00
- -------------------------------------------------------------------------------------------
Total distributions .......................... 0.00 0.68 0.20
- -------------------------------------------------------------------------------------------
Net asset value, end of period ............... $12.73 $10.83 $10.47
===========================================================================================
TOTAL RETURN (a) ............................. 17.54% 9.91% 6.70%
RATIOS/SUPPLEMENTAL DATA:
Net Assets, end of period (in thousands) .. $25,261 $17,644 $15,348
Ratios to average net assets:
Net investment income* ................ 0.99% 0.23% 0.44%
Expenses* ............................. 1.34% 1.50% 1.54%
Gross expenses* ....................... 1.56% 1.56% 2.17%
Portfolio turnover rate ................... 120% 150% 58%
Average brokerage commissions (b) ......... $.017 $0.030 N/A
- -------------------------------------------------------------------------------------------
Real Estate Securities Fund
6/30/97 12/31/96 12/31/95(i)
- -------------------------------------------------------------------------------------------
Inception date ............................... 5/1/95
Net asset value, beginning of period ......... $14.11 $11.05 $10.00
Income (loss) from investment operations:
Net investment income ..................... 0.32 0.64 0.46
Net realized and unrealized
gains (losses) on investments ......... 0.89 3.36 1.23
- -------------------------------------------------------------------------------------------
Total income (loss) from investment operations 1.21 4.00 1.69
- -------------------------------------------------------------------------------------------
Less distributions from:
Net investment income ..................... 0.00 0.65 0.46
Net realized gains ........................ 0.00 0.29 0.18
- -------------------------------------------------------------------------------------------
Total distributions .......................... 0.00 0.94 0.64
- -------------------------------------------------------------------------------------------
Net asset value, end of period ............... $15.32 $14.11 $11.05
===========================================================================================
TOTAL RETURN (a) ............................. 8.58% 36.24% 17.00%
RATIOS/SUPPLEMENTAL DATA:
Net Assets, end of period (in thousands) .. $39,613 $24,533 $13,429
Ratios to average net assets:
Net investment income* ................ 4.82% 5.90% 6.85%
Expenses* ............................. 0.99% 1.07% 1.31%
Gross expenses* ....................... 0.99% 1.07% 1.61%
Portfolio turnover rate ................... 39% 30% 54%
Average brokerage commissions (b) ......... $.055 $0.060 N/A
</TABLE>
- ----------
See Notes to Financial Highlights on page 35 and Notes to Financial Statements
33
<PAGE>
Financial Highlights (continued)
Selected data based on a share outstanding throughout the period(s) indicated --
(June 30, 1997 data is unaudited)
- --------------------------------------------------------------------------------
Global Income Fund
6/30/97(j)
----------
Inception date ..................................................... 5/1/97
Net asset value, beginning of period ............................ $10.00
Income (loss) from investment operations:
Net investment income ............................................ 0.11
Net realized and unrealized
gains (losses) on investments ................................ 0.08
- --------------------------------------------------------------------------------
Total income (loss) from investment operations ..................... 0.19
- --------------------------------------------------------------------------------
Less distributions from:
Net investment income ............................................ 0.00
Net realized gains ............................................... 0.00
Total distributions ................................................ 0.00
- --------------------------------------------------------------------------------
Net asset value, end of period ..................................... $10.19
================================================================================
TOTAL RETURN (a) ................................................... 1.90%
RATIOS/SUPPLEMENTAL DATA:
Net Assets, end of period (in thousands) $5,166
Ratios to average net assets:
Net investment income* ....................................... 6.25%
Expenses* .................................................... 0.78%
Portfolio turnover rate .......................................... 141%
- --------------------------------------------------------------------------------
Value Equity Fund
6/30/97(j)
----------
Inception date ..................................................... 5/1/97
Net asset value, beginning of period ............................ $10.00
Income (loss) from investment operations:
Net investment income ............................................ 0.01
Net realized and unrealized
gains (losses) on investments ................................ 1.44
- --------------------------------------------------------------------------------
Total income (loss) from investment operations ..................... 1.45
- --------------------------------------------------------------------------------
Less distributions from:
Net investment income ........................................... 0.00
Net realized gains .............................................. 0.00
- --------------------------------------------------------------------------------
Total distributions ................................................ 0.00
- --------------------------------------------------------------------------------
Net asset value, end of period ..................................... $11.45
================================================================================
TOTAL RETURN (a) ................................................... 14.50%
RATIOS/SUPPLEMENTAL DATA:
Net Assets, end of period (in thousands) ........................ $4,280
Ratios to average net assets:
Net investment income* ....................................... 0.35%
Expenses* .................................................... 0.83%
Portfolio turnover rate .......................................... 2%
Average brokerage commissions(b) ................................. $0.053
- ----------
See Notes to Financial Highlights on page 35 and Notes to Financial Statements
34
<PAGE>
Notes to Financial Highlights
(a) Total returns assume changes in share price and reinvestment of dividends
and capital gains. Had the adviser not absorbed a portion of the expenses,
for certain funds, total returns would have been lower. Periods less than
one year are not annualized.
(b) For the fiscal years beginning on or after September 1, 1995, a fund is
required to disclose its average commission rate per share for trades on
which commissions are charged. Mark-ups, mark-downs and spreads on shares
traded on a principal basis are not included unless they are disclosed on
confirmations prepared in accordance with rule 10b-10 under the 1934 Act.
(c) Due to the significant increase in Fund shares in 1995 and the significant
decrease in 1996 related to Aon Savings Plan, the net changes from the 1994
and 1995 Net Asset Value per share as calculated in accordance with the
requirements of Form N-1A are not commensurate with the Statement of
Changes in Net Assets.
(d) As of April 30, 1997, the Fund's name was changed to S&P 500 Index Fund
from Common Stock Index Portfolio.
(e) As of May 1, 1993, the Fund's name was changed to Common Stock Index
Portfolio from Common Stock Portfolio.
(f) As of May 1, 1993, the Fund's name was changed to Government Securities
Fund from Bond Portfolio.
(g) 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 the
highest level of current income as is consistent with high liquidity and
safety of principal. Per share information prior to January 1, 1997 has
been restated to reflect the 10.41 to 1 stock dividend.
(h) Yen-based convertible bonds are excluded from the average commission rate
paid due to the nominal commissions paid which dilutes the results. Had
those securities been included, the average commission rate from the period
ended December 31, 1996 would have been $0.000.
(i) Information is for the period May 1, 1995, commencement of investment
operations, through December 31, 1995.
(j) Information is for the period May 1, 1997, commencement of investment
operations, through June 30, 1997.
* Annualized for periods less than one year.
- ----------
See Notes to Financial Statements
35
<PAGE>
Statements Of Assets
And Liabilities June 30, 1997 (unaudited)
<TABLE>
<CAPTION>
S&P 500 GOVERNMENT MONEY
INDEX SECURITIES MARKET
FUND FUND FUND
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS
Investments in securities, at market
(cost $81,649,340, $13,061,247, $0,
$35,995,822, $22,130,159, $30,875,887,
$4,726,721, and $3,530,017, respectively) ........ $101,678,347 $13,124,016 $ 0
Short term investments (at amortized cost) ........... 4,575,083 372,300 126,475,507
Cash ................................................. 4,399 4 14,287
Foreign currency (cost $0, $0, $0, $17,581,
$502,877, $0, $19,793 and $0, respectively) ...... 0 0 0
Receivable for investments sold ...................... 1,264,044 0 0
Income receivables ................................... 151,692 248,212 273,486
Receivable for fund shares sold ...................... 263,204 43,147 5,022,880
Receivable on forward foreign currency contracts ..... 0 0 0
- ------------------------------------------------------------------------------------------------------------------
Total assets ..................................... 107,936,769 13,787,679 131,786,160
- ------------------------------------------------------------------------------------------------------------------
LIABILITIES
Distributions payable to shareholders ................ 0 0 91,588
Payable for investments purchased .................... 1,285,713 0 0
Payable to GEIM ...................................... 75,565 17,273 83,765
Variation margin payable ............................. 30,071 0 0
Payable on forward foreign currency contracts ........ 0 0 0
- ------------------------------------------------------------------------------------------------------------------
Total liabilities ................................ 1,391,349 17,273 175,353
- ------------------------------------------------------------------------------------------------------------------
NET ASSETS ............................................. $106,545,420 $13,770,406 $131,610,807
==================================================================================================================
NET ASSETS CONSIST OF:
Capital paid in ....................................... $ 84,195,860 $14,259,957 $131,611,746
Undistributed (overdistributed) net investment income . 809,152 382,900 0
Accumulated net realized gain (loss) .................. 1,561,901 (935,220) (939)
Net unrealized appreciation / (depreciation) on:
Investments ....................................... 20,029,007 62,769 0
Futures ........................................... (50,500) 0 0
Foreign currency transactions ..................... 0 0 0
- ------------------------------------------------------------------------------------------------------------------
NET ASSETS ............................................. $106,545,420 $13,770,406 $131,610,807
==================================================================================================================
Shares outstanding ($.001 par value) ................... 5,959,209 1,423,407 131,610,743
Net asset value, offering and redemption price per share $17.88 $9.67 $1.00
</TABLE>
- ----------
* For the period May 1, 1997 (inception) through June 30, 1997.
See Notes to Financial Statements
36
<PAGE>
<TABLE>
<CAPTION>
TOTAL INTERNATIONAL REAL ESTATE GLOBAL VALUE
RETURN EQUITY SECURITIES INCOME EQUITY
FUND FUND FUND FUND* FUND*
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$39,892,595 $24,690,166 $36,428,916 $4,723,212 $3,984,713
6,861,631 1,148,992 3,027,234 327,538 273,049
13 160,001 979 3 396
17,461 502,892 0 19,795 0
1,292,204 279,287 0 0 0
225,750 139,461 242,092 109,189 1,622
31,317 31,380 67,001 0 25,986
0 604 0 0 0
- -------------------------------------------------------------------------------------------
48,320,971 26,952,783 39,766,222 5,179,737 4,285,766
- -------------------------------------------------------------------------------------------
0 0 0 0 0
4,834,944 1,557,219 95,434 0 0
44,630 134,388 58,078 6,664 5,524
0 0 0 0 0
0 0 0 6,765 0
- -------------------------------------------------------------------------------------------
4,879,574 1,691,607 153,512 13,429 5,524
- -------------------------------------------------------------------------------------------
$43,441,397 $25,261,176 $39,612,710 $5,166,308 $4,280,242
===========================================================================================
$34,641,859 $20,709,239 $30,725,515 $5,073,408 $3,810,225
532,393 103,698 823,094 53,409 2,303
4,370,506 1,887,631 2,511,072 50,386 13,018
3,896,773 2,560,007 5,553,029 (3,509) 454,696
0 0 0 0 0
(134) 601 0 (7,386) 0
- -------------------------------------------------------------------------------------------
$43,441,397 $25,261,176 $39,612,710 $5,166,308 $4,280,242
===========================================================================================
3,092,527 1,984,970 2,586,366 507,226 373,707
$14.05 $12.73 $15.32 $0.19 $11.45
</TABLE>
37
<PAGE>
Statements Of Operations
For the six months ended June 30, 1997 (unaudited)
<TABLE>
<CAPTION>
S&P 500 GOVERNMENT MONEY
INDEX SECURITIES MARKET
FUND FUND FUND
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INVESTMENT INCOME
Income:
Dividends ....................... $ 673,523 $ 0 $ 0
Interest ........................ 312,912 439,534 3,279,262
Less: Foreign taxes withheld .... (4,721) 0 0
- -------------------------------------------------------------------------------------------------
Total income ....................... 981,714 439,534 3,279,262
- -------------------------------------------------------------------------------------------------
Expenses:
Advisory and administration fees 140,933 34,967 290,927
Trustees' fees .................. 5,230 3,333 6,580
Custody and accounting expenses . 47,892 8,389 24,214
Professional fees ............... 16,397 8,250 21,647
Other expenses .................. 2,746 2,043 3,346
- -------------------------------------------------------------------------------------------------
Total expenses before waiver ....... 213,198 56,982 346,714
Less: Expenses waived or borne by
the adviser ............... 0 0 (199,285)
- -------------------------------------------------------------------------------------------------
Net expenses .................... 213,198 56,982 147,429
- -------------------------------------------------------------------------------------------------
Net investment income .............. 768,516 382,552 3,131,833
=================================================================================================
NET REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS
Realized gain (loss) on:
Investments .................... 1,424,471 (92,085) (193)
Futures ........................ 137,430 0 0
Foreign currency transactions .. 0 0 0
Increase (decrease) in unrealized
appreciation/depreciation on:
Investments .................... 11,919,192 (149,223) 0
Futures ........................ (50,500) 0 0
Foreign currency transactions .. 0 0 0
- -------------------------------------------------------------------------------------------------
Net realized and unrealized gain
(loss) on investments ............ 13,430,593 (241,308) (193)
- -------------------------------------------------------------------------------------------------
Net increase in net assets
resulting from operations ....... $ 14,199,109 $ 141,244 $ 3,131,640
=================================================================================================
</TABLE>
- ----------
* For the period May 1, 1997 (inception) thru June 30, 1997.
See Notes to Financial Statements
38
<PAGE>
<TABLE>
<CAPTION>
TOTAL INTERNATIONAL REAL ESTATE GLOBAL VALUE
RETURN EQUITY SECURITIES INCOME EQUITY
FUND FUND FUND FUND* FUND*
- -----------------------------------------------------------------------------------
<C> <C> <C> <C> <C>
$ 233,237 $ 274,309 $ 906,163 $ 0 $ 3,267
442,267 3,946 85,340 63,883 4,560
(5,184) (32,557) 0 3,810 0
- -----------------------------------------------------------------------------------
670,320 245,698 991,503 60,073 7,827
- -----------------------------------------------------------------------------------
101,009 101,684 140,027 5,099 3,960
4,028 1,377 3,680 192 191
18,659 53,302 12,248 543 543
11,721 6,412 10,367 745 745
2,211 1,077 2,057 85 85
- -----------------------------------------------------------------------------------
137,628 163,852 168,379 6,664 5,524
0 (22,680) 0 0 0
- -----------------------------------------------------------------------------------
137,628 141,172 168,379 6,664 5,524
- -----------------------------------------------------------------------------------
532,692 104,526 823,124 53,409 2,303
===================================================================================
4,303,444 2,150,731 2,510,944 53,526 13,018
0 0 0 0 0
4,799 123,058 0 (3,140) 0
(777,808) 1,045,350 (639,366) (3,509) 454,696
0 0 0 0 0
(134) 7,770 0 (7,386) 0
- -----------------------------------------------------------------------------------
3,530,301 3,326,909 1,871,578 39,491 467,714
- -----------------------------------------------------------------------------------
$ 4,062,993 $ 3,431,435 $ 2,694,702 $ 92,900 $ 470,017
===================================================================================
</TABLE>
39
<PAGE>
Statements Of Changes
In Net Assets
<TABLE>
<CAPTION>
S&P 500 GOVERNMENT MONEY
INDEX SECURITIES MARKET
FUND FUND FUND
- ------------------------------------------------------------------------------------------------------------------------------------
Six Months Ended Year Ended Six Months Ended Year Ended Six Months Ended Year Ended
June 30, 1997 December 31, June 30, 1997 December 31, June 30, 1997 December 31,
(unaudited) 1996 (unaudited) 1996 (unaudited) 1996
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INCREASE IN NET ASSETS
Operations:
Net investment income ........ $ 768,516 $ 1,833,619 $ 382,552 $ 1,456,380 $ 3,131,833 $ 5,899,989
Net realized gain (loss) on
investments, futures, and
foreign currency
transactions ................ 1,561,901 23,983,222 (92,085) 62,255 (193) (745)
Net increase (decrease)
in unrealized
appreciation/depreciation ... 11,868,692 (3,717,302) (149,223) (1,084,049) 0 0
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease)
from operations.............. 14,199,109 22,099,539 141,244 434,586 3,131,640 5,899,244
- ------------------------------------------------------------------------------------------------------------------------------------
Distributions to
shareholders from:
Net investment income ........ 0 (1,807,487) 0 (1,463,959) (3,139,763) (5,892,059)
Net realized gains ........... 0 (23,983,222) 0 (62,255) 0 0
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions ............ 0 (25,790,709) 0 (1,526,214) (3,139,763) (5,892,059)
- ------------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net
assets from operations
and distributions ............ 14,199,109 (3,691,170) 141,244 (1,091,628) (8,123) 7,185
- ------------------------------------------------------------------------------------------------------------------------------------
Share transactions:
Proceeds from sale of shares . 32,604,729 46,416,381 1,697,920 9,778,053 108,394,356 190,250,466
Value of distributions
reinvested .................. 25,790,709 0 1,526,214 0 8,940,234 0
Cost of shares redeemed ...... (1,571,279) (73,219,899) (3,366,422) (18,623,156) (98,978,429) (140,078,242)
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) from
share transactions .......... 56,824,159 (26,803,518) (142,288) (8,845,103) 18,356,161 50,172,224
- ------------------------------------------------------------------------------------------------------------------------------------
Total increase (decrease)
in net assets .............. 71,023,268 (30,494,688) (1,044) (9,936,731) 18,348,038 50,179,409
NET ASSETS
Beginning of year .............. 35,522,152 66,016,840 13,771,450 23,708,181 113,262,769 63,083,360
- ------------------------------------------------------------------------------------------------------------------------------------
End of period .................. $ 106,545,420 $ 35,522,152 $ 13,770,406 $ 13,771,450 $ 131,610,807 $113,262,769
====================================================================================================================================
Undistributed (overdistributed)
net investment income,
end of period .................. $ 809,152 $ 40,636 $ 382,900 $ 348 $ 0 $ 7,930
- ------------------------------------------------------------------------------------------------------------------------------------
Changes in portfolio shares:
Shares sold by subscription ... 2,006,773 2,040,664 177,480 946,788 35,553,560 17,868,330
Issued for distributions
reinvested ................... 1,704,607 0 159,646 0 118,602,790 0
Shares redeemed ............... (97,835) (2,839,987) (353,544) (1,768,841) (33,456,828) (13,044,358)
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in
portfolio shares ............. 3,613,545 (799,323) (16,418) (882,053) 120,699,522 4,823,972
====================================================================================================================================
</TABLE>
- ----------
* For the period May 1, 1997 (inception) thru June 30, 1997.
See Notes to Financial Statements
40
<PAGE>
<TABLE>
<CAPTION>
TOTAL INTERNATIONAL REAL ESTATE GLOBAL VALUE
RETURN EQUITY SECURITIES INCOME EQUITY
FUND FUND FUND FUND* FUND*
- ----------------------------------------------------------------------------------------------------------------------------------
Six Months Ended Year Ended Six Months Ended Year Ended Six Months Ended Year Ended Period Ended Period Ended
June 30, 1997 December 31, June 30, 1997 December 31, June 30, 1997 December 31, June 30, 1997 June 30, 1997
(unaudited) 1996 (unaudited) 1996 (unaudited) 1996 (unaudited) (unaudited)
- ----------------------------------------------------------------------------------------------------------------------------------
<C> <C> <C> <C> <C> <C> <C> <C>
$ 532,692 $ 2,215,251 $ 104,526 $ 55,092 $ 823,124 $ 1,124,059 $ 53,409 $ 2,303
4,308,243 8,450,564 2,273,789 1,034,935 2,510,944 509,943 50,386 13,018
(777,942) (3,141,042) 1,053,120 571,033 (639,366) 5,092,453 (10,895) 454,696
- ----------------------------------------------------------------------------------------------------------------------------------
4,062,993 7,524,773 3,431,435 1,661,060 2,694,702 6,726,455 92,900 470,017
- ----------------------------------------------------------------------------------------------------------------------------------
0 (2,230,657) 0 (69,707) 0 (1,133,355) 0 0
0 (8,448,019) 0 (1,034,935) 0 (509,943) 0 0
- ----------------------------------------------------------------------------------------------------------------------------------
0 (10,678,676) 0 (1,104,642) 0 (1,643,298) 0 0
- ----------------------------------------------------------------------------------------------------------------------------------
4,062,993 (3,153,903) 3,431,435 556,418 2,694,702 5,083,157 92,900 470,017
- ----------------------------------------------------------------------------------------------------------------------------------
4,155,992 21,203,447 8,520,879 26,614,888 13,761,217 11,868,291 5,073,449 3,911,212
10,678,676 0 1,104,642 0 1,643,298 0 0 0
(3,270,292) (60,742,609) (5,439,625) (24,875,243) (3,019,755) (5,847,077) (41) (100,987)
- ----------------------------------------------------------------------------------------------------------------------------------
11,564,376 (39,539,162) 4,185,896 1,739,645 12,384,760 6,021,214 5,073,408 3,810,225
- ----------------------------------------------------------------------------------------------------------------------------------
15,627,369 (42,693,065) 7,617,331 2,296,063 15,079,462 11,104,371 5,166,308 4,280,242
27,814,028 70,507,093 17,643,845 15,347,782 24,533,248 13,428,877 0 0
- ----------------------------------------------------------------------------------------------------------------------------------
$ 43,441,397 $ 27,814,028 $ 25,261,176 $ 17,643,845 $ 39,612,710 $ 24,533,248 $ 5,166,308 $ 4,280,242
==================================================================================================================================
$ 532,393 $ 0 $ 103,698 $ 0 $ 823,094 $ 0 $ 53,409 $ 2,303
- ----------------------------------------------------------------------------------------------------------------------------------
314,163 1,306,831 724,674 2,420,951 937,725 962,667 507,230 382,429
838,859 0 101,998 0 116,463 0 0 0
(245,167) (3,548,503) (470,967) (2,258,249) (206,762) (438,509) (4) (8,722)
- ----------------------------------------------------------------------------------------------------------------------------------
907,855 (2,241,672) 355,705 162,702 847,426 524,158 507,226 373,707
==================================================================================================================================
</TABLE>
41
<PAGE>
Notes To Financial Statements June 30, 1997 (unaudited)
- --------------------------------------------------------------------------------
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, as an open-end management investment company. The Company is comprised
of eight investment funds (the "Funds"), which are currently being offered
through the separate accounts of The Life Insurance Company of Virginia ("Life
of Virginia") and other life insurance companies. The separate accounts fund
certain benefits for flexible and single premium variable life insurance and
annuity policies issued by Life of Virginia. Life of Virginia is an indirect
wholly-owned subsidiary of General Electric Capital Corporation. As of June 30,
1997, Life of Virginia controlled the Funds by ownership, through separate
accounts, of virtually all of the Funds' shares of beneficial interest.
Effective April 30, 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 objective
was amended to comply with Rule 2a-7 of the Investment Company Act of 1940, as
amended, governing money market funds. To effect this change the Money Market
Fund declared a stock dividend in the ratio of 10.41 to 1. As a result of the
stock dividend, the Money Market Fund's net asset value per share reverted to
$1.00. The financial highlights of the Money Market Fund have been restated to
reflect this stock dividend. The Global Income Fund and Value Equity Fund
commenced operations on May 1, 1997.
2. Summary of Significant Accounting Policies
The following summarizes the significant accounting policies of the Company:
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results may differ from those estimates.
Security Valuation and Transactions
Securities for which exchange quotations are readily available are valued at the
last sale price, or if no sales occurred on that day, at the last quoted bid
price. Certain fixed income securities are valued by a dealer or by a pricing
service based upon a computerized matrix system, which considers market
transactions and dealer supplied valuations. 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. 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.
The Money Market Fund values its securities using the amortized cost method,
which values securities initially at cost and thereafter assumes a constant
amortization to maturity of any discount or premium. Amortized cost approximates
fair value.
Transactions are accounted for as of the trade date. Cost is determined and
gains and losses are based upon the specific identification method for both
financial statement and federal tax purposes.
Foreign Currency
Accounting records of the Funds are maintained in U.S. dollars. Investment
securities and other assets and liabilities and purchases and sales of
investment securities denominated in a foreign currency are translated to U.S.
dollars at the prevailing exchange rate on the respective dates of such
transactions.
42
<PAGE>
Notes To Financial Statements June 30, 1997 (unaudited)
- --------------------------------------------------------------------------------
The Funds do not isolate the portion of the results of operations resulting from
changes in foreign exchange rates on investments from the fluctuations arising
from changes in their market prices. Such fluctuations are included in net
realized and unrealized gain or loss from investments. Reported net realized
exchange gains or losses from foreign currency transactions represent sale of
foreign currencies, currency gains or losses between the trade date and the
settlement date on securities transactions, realized gains and losses on forward
foreign currency contracts, and the difference between the amounts of dividends,
interest, and foreign withholding taxes recorded on the Funds' books, and the
U.S. dollar equivalent of the amounts actually received or paid. Net unrealized
foreign exchange gains and losses arise from changes in the value of assets and
liabilities, other than investments in securities at fiscal year end, as a
result of changes in exchange rates.
Income Taxes
It is each Fund's policy to comply with all sections of the Internal Revenue
Code applicable to regulated investment companies and to distribute all of its
taxable income and gains to its shareholders and, therefore, no provision for
federal income tax has been made. Each Fund is treated as a separate taxpayer
for federal income tax purposes. Capital loss carryovers are available to offset
future realized capital gains. To the extent that these carryover losses are
used to offset future capital gains, it is probable that the gains so offset
will not be distributed to shareholders because they would be taxable as
ordinary income. 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.
Investment Income
Corporate actions (including cash dividends) are recorded net of nonreclaimable
tax withholdings on the ex-dividend date, except for certain foreign securities
for which corporate actions are recorded as soon after ex-dividend date as such
information is available. Interest income is recorded on the accrual basis. All
discounts and premiums on taxable bonds are 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 readily identifiable to a
specific Fund are allocated in such a manner as deemed equitable, taking into
consideration the nature and type of expense and the relative sizes of the
Funds. All expenses of the Funds are paid by 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
monthly. All other Funds declare and pay dividends of net investment income
annually. All Funds declare and pay net realized capital gain distributions
annually. The character of income and gains to be distributed are determined in
accordance with income tax regulations which may differ from generally accepted
accounting principles. These differences include treatment of realized and
unrealized gains and losses on forward foreign currency contracts, paydown gains
and losses on mortgage-backed securities, losses on 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. The calculation of net
investment income per share in the Financial Highlights table excludes these
adjustments.
When-Issued Securities
The Funds may purchase or sell securities on a when-issued or forward commitment
basis. Payment and delivery may take place a month or more after the date of the
transaction. The price of the underlying securities and the date when the
securities will be delivered and paid for are fixed at the time the transaction
is negotiated. This may increase the risk if the other party involved in the
transaction fails to deliver and causes the Fund to subsequently invest at less
advantageous yields. In connection with such purchases, the Fund is required to
hold liquid assets as collateral with the Funds' custodian sufficient to cover
the purchase price, unless they enter into an offsetting contract for the sale
of equal securities and value.
43
<PAGE>
Notes To Financial Statements June 30, 1997 (unaudited)
- --------------------------------------------------------------------------------
Forward Foreign Currency Contracts
A forward foreign currency contract ("Forward") is an agreement between two
parties to buy and sell a currency at a set price on a future date. The market
value of the Forward fluctuates with changes in currency exchange rates. The
Forward is marked-to-market daily and the change in the market value is recorded
by the Fund as an unrealized gain or loss. When the Forward is closed, the Fund
records a realized gain or loss equal to the difference between the value at the
time it was opened and the value at the time it was closed. The Fund could be
exposed to risk if a counterparty is unable to meet the terms of the contract or
if the value of the currency changes unfavorably. The Fund may enter into
Forwards in connection with planned purchases and sales of securities, to hedge
specific receivables or payables against changes in future exchange rates or to
hedge the U.S. dollar value of portfolio securities denominated in a foreign
currency.
Futures and Options
The Funds, other than the Money Market Fund, may invest in futures contracts and
purchase and write options. These investments involve, to varying degrees,
elements of market risk and risks in excess of the amount recognized in the
Statements of Assets and Liabilities. The face or contract amounts reflect the
extent of the involvement the Funds have in the particular classes of these
instruments. Risks may be caused by an imperfect correlation between movements
in the price of the instruments and the price of the underlying securities and
interest rates. Risks also may arise if there is an illiquid secondary market
for the instruments, or an inability of counterparties to perform. The Funds may
invest in futures 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.
Upon entering into a futures contract, the Fund is required to deposit either
cash or securities in an amount (initial margin) equal to a certain percentage
of the contract value. Subsequent payments (variation margin) are made or
received by the Fund each day. The variation margin payments are equal to the
daily change in the contract value and are recorded as unrealized gains and
losses. The Fund recognizes a realized gain or loss when the futures contract is
closed. The Fund will realize a gain or loss upon the expiration or closing of
an option transaction. When an option is exercised, the proceeds on sales for a
written call option, the purchase cost for a written put option, or the proceeds
on the sale of the security for a purchased put or cost of the security for a
call option is adjusted by the amount of premium received or paid.
Other
There are certain additional risks involved when investing in foreign securities
that are not inherent in domestic securities. These risks may involve foreign
currency exchange rate fluctuations, adverse political and economic developments
and the imposition of unfavorable foreign governmental laws and restrictions.
3. Fees and Compensation Paid to Affiliates Advisory and Administration Fees
Compensation of GEIM, the Funds' Investment Adviser and Administrator, 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 administrative and advisory fees payable to GEIM for each Fund
are at the following annual rates, based on average daily net assets:
Government Securities Fund, Money Market Fund and Total Return Fund: .50% of the
first $100,000,000; .45% of the next $100,000,000; .40% of the next
$100,000,000; .35% of the next $100,000,000; and .30% of the amounts in excess
of $400,000,000*
44
<PAGE>
Notes To Financial Statements June 30, 1997 (unaudited)
- --------------------------------------------------------------------------------
International Equity Fund: 1.00% of the first $100,000,000; .95% of the next
$100,000,000; and .90% of the amounts in excess of $200,000,000**
Real Estate Securities Fund: .85% of the first $100,000,000; .80% of the next
$100,000,000; and .75% of the amounts in excess of $200,000,000
S&P 500 Index Fund: .35%
Global Income Fund: .60%
Value Equity Fund: .65%
* The Adviser has voluntarily agreed to waive a portion of the fee paid by
the Money Market Fund so that the fee paid by the Money Market Fund is
equal to .25%.
** Prior to May 1, 1997, the Adviser agreed to reimburse for any amount by
which the total operating expenses of the International Equity Fund
exceeded 1.75% of the first $30 million of the aggregate average daily net
assets of the Fund and 1% of the aggregate average daily net assets in
excess of $30 million.
Directors' Fees
The Funds pay no compensation to their Directors who are employees of Life of
Virginia or GEIM. Directors who are not employees of Life of Virginia or GEIM
receive an annual fee of $6,000 plus $500 per Directors' board meeting attended
in person and an additional fee of $250 for each Directors' conference call
meeting attended.
4. Sub-advisory Fees
Effective May, 1, 1997, GMG/Seneca Management, LLC ("Seneca") is the investment
sub-adviser to the Real Estate Securities Fund pursuant to investment
sub-advisory agreements with GEIM. GE Investments (US) Limited ("GEIUS") is the
investment sub-adviser to the Global Income Fund and NWQ Investment Management
Company ("NWQ") is the investment sub-adviser to the Value Equity Fund.
For their services GEIM pays Seneca, GEIUS and NWQ monthly compensation in the
form of an investment sub-advisory fee. The fee is paid by GEIM monthly and is a
percentage of the average daily net assets of the Fund that each sub-adviser
manages at the following annual rates:
Real Estate Securities Fund: .425% of the first $100,000,000; .40% of the next
$100,000,000; and .375% of amounts in excess of $200,000,000
Global Income Fund: .05%
Value Equity Fund: .4875% of the first $50,000,000; .325% of amounts in excess
of $50,000,000
5. Aggregate Unrealized Appreciation and Depreciation
Aggregate gross unrealized appreciation/(depreciation) of investments for each
Fund at June 30, 1997, were as follows:
Net
Gross Gross Unrealized
Unrealized Unrealized Appreciation
Appreciation Depreciation (Depreciation)
------------ ------------ --------------
S&P 500 Index Fund $20,641,235 $612,228 $20,029,007
Government Securities Fund 95,280 32,511 62,769
Total Return Fund 4,054,906 158,133 3,896,773
International Equity Fund 2,794,463 234,456 2,560,007
Real Estate Securities Fund 5,941,824 388,795 5,553,029
Global Income Fund 21,807 25,316 (3,509)
Value Equity Fund 461,183 6,487 454,696
The aggregate cost of each Fund's investments was substantially the same for
book and federal income tax purposes at June 30, 1997.
45
<PAGE>
Notes To Financial Statements June 30, 1997 (unaudited)
- --------------------------------------------------------------------------------
6. 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 June 30, 1997, were as follows:
Purchases Sales
--------- -----
S&P 500 Index Fund $36,253,118 $ 3,842,571
Total Return Fund 28,440,949 29,144,194
International Equity Fund 27,665,157 24,532,963
Real Estate Securities Fund 21,074,969 11,772,562
Global Income Fund 9,128,323 4,455,128
Value Equity Fund 3,572,392 55,393
The cost of purchases and the proceeds from sales of long term U.S. Government
securities for the period ended June 30, 1997, were as follows:
Purchases Sales
--------- -----
Government Securities Fund $8,864,972 $9,146,159
Total Return Fund 5,207,882 1,607,974
46
<PAGE>
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47
<PAGE>
[This Page Left Intentionally Blank]
48
<PAGE>
GE Investments Funds Investment Team
- --------------------------------------------------------------------------------
Portfolio Managers
S&P 500 Index Fund
Eugene K. Bolton, GEIM
Value Equity Fund
Jon D. Bosse, NWQ,
Total Return Fund
David B. Carlson, GEIM
Ralph R. Layman, GEIM
Robert A. MacDougall, GEIM
International Equity Fund
Ralph R. Layman, GEIM
Government Securities Fund
Money Market Fund
Robert A. MacDougall, GEIM
Real Estate Securities Fund
David A. Shapiro, Seneca
Global Income Fund
William R. Wright, GEIUS
Board of Directors
Michael J. Cosgrove
John R. Costantino
William J. Lucas
Robert P. Martin, Jr.
J. Clifford Miller, III
J. Garnett Nelson
Lee A. Putney
Robert P. Quinn
Paul E. Rutledge
Secretary
Matthew J. Simpson
Treasurer
Jeffrey A. Groh
Distributor
Forth Financial Securities Corporation
Member NASD and SIPC
Counsel
Sutherland, Asbill & Brennan, L.L.P.
Custodian
State Street Bank & Trust Company
Investment Adviser
and Administrator
GE Investment Management Incorporated
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
Don W. Torey, EVP, Alternative Investments and Real Estate
Geoffrey R. Norman, EVP, Institutional Marketing
Thomas J. Szkutak, EVP, Finance and Administration
<PAGE>
GE Investment Management Incorporated
For additional information please write or call your financial representative.
Distributed by Forth Financial Services Corporation, member NASD and SIPC
