[GE LOGO OMITTED]
GE
Investments
Funds, Inc.
Semi-Annual Report
June 30, 1998
<PAGE>
GE Investments Funds, Inc.
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Understanding Your Report
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A Letter from the Chairman .................................. 2
Review of Performance and Schedule of Investments
GE Investments Funds' Portfolio Managers' Q&As and
Schedules of Investments
International Equity Fund ................................ 3
Real Estate Securities Fund .............................. 7
Premier Growth Equity Fund ............................... 10
Value Equity Fund ........................................ 13
U.S. Equity Fund ......................................... 16
S&P 500 Index Fund ....................................... 21
Total Return Fund ........................................ 28
Global Income Fund ....................................... 35
Fixed Income Funds ....................................... 38
Income Fund
Money Market Fund
Notes to Performance and Notes to Schedules of
Investments ............................................ 46
Financial Statements ........................................ 47
Financial Highlights and Statements of Assets and
Liabilities, Operations, and Changes in Net Assets
Notes to the Financial Statements ........................... 60
GE Investments Funds' Investment Team ....................... inside back cover
This report has been prepared for the shareholders of GE Investments Funds, Inc.
It is not authorized for use as an offer of sale or a solicitation of an offer
to buy the GE Investment Funds, Inc. unless accompanied or preceded by the
current prospectus of the GE Investments Funds, Inc.
1
<PAGE>
A LETTER FROM THE CHAIRMAN
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Dear Shareholder:
Following its best consecutive three-year performance history, the S&P 500 Index
continued to record solid investment results during the first half of 1998,
advancing 17.74%. While few can find fault with a market that continues to
deliver superior investment results, one must wonder if stocks may be due for a
correction. Indeed, market valuations are at historical highs, and the economic
and currency problems along the Pacific Rim could affect the state of our
economy. However, the factors that have helped drive domestic stock prices
higher over the past three and a half years -- namely benign inflation, good
corporate earnings and low interest rates -- remain in place.
During the first six months of 1998, bond prices also posted solid investment
results, as the yield on the benchmark 30-year Treasury Bond declined from 5.92%
at the start of the year to 5.62% on June 30, 1998. Bonds realized most of their
gains during the second quarter, thanks in large part to weaker-than-expected
economic reports and the re-emergence of Asia's economic woes. Should the U.S.
economy continue to slow in the second half of the year, we may see the Federal
Reserve abandon its neutral monetary policy and reduce short-term interest
rates, which could be positive for bond prices.
During the first half of 1998, the most impressive gains took place in Europe.
In fact, 13 of the top performing countries that comprise the Dow Jones Global
Indexes are located in Europe. Improving economic conditions, the ongoing wave
of corporate restructuring across the continent and lower interest rates helped
fuel the advance. We believe the outlook for European stocks remains attractive
for many reasons.
Beginning in January 1999, 11 countries are slated to go to a single currency,
creating a marketplace rivaling that of the U.S. With it, new investment
opportunities will emerge. Additionally, governments are privatizing key
industries. With Europe's population aging, countries are adopting 401(k)-type
savings plans, encouraging equity investing. Falling interest rates are also
motivating investors to turn to equities for potentially higher returns.
Even Japan, which has been mired in a slump throughout the 1990s, may be about
to turn the proverbial corner. On June 17, the Federal Reserve intervened in the
currency markets to help stabilize the falling yen. Since then, the Japanese
government has taken steps to improve its underlying economic problems. But the
change in political leadership will delay the process for the next several
months.
In Latin America, the growth prospects appear favorable, provided countries in
the region maintain constructive monetary and fiscal policies and keep inflation
under control. While the Asian crisis has had a significant impact on markets in
this region, the economies in Latin America are much stronger than their
southeast Asian counterparts.
If you have yet to diversify your portfolio to include international
investments, you may want to consider doing so during the second half of 1998.
On balance, many high-quality growth companies outside the U.S. are trading at
attractive valuations, both on a historical as well as absolute basis. And when
investing long-term, that's usually a good time to invest.
Sincerely,
/S/ SIGNATURE
Michael J. Cosgrove
Chairman, GE Investments Funds, Inc.
Mike Cosgrove is the President of the Investment Services Group of GE Financial
Assurance Holdings, Inc. and GE Investment Distributors, Inc., the funds'
distributor. In this role, he is responsible for the marketing, product
development and sales of the funds. Mike is also a Trustee of the GE Pension
Trust and GE's employee savings program.
In Mike's previous position as Chief Financial Officer of GE Investments and
Assistant Treasurer-GE Company, he had financial responsibility for all assets
under GE Investments' management. Mike joined GE in 1970. After completing the
GE Financial Management Program he held a number of managerial positions in
finance and sales in the International Operation, including serving as Vice
President and Treasurer and later as Vice President - Countertrade and Barter
for GE Trading Company.
Mike graduated from Fordham University in 1970 with a B.S. degree in
Economics and received his M.B.A. degree from St. John's University in 1973.
2
<PAGE>
INTERNATIONAL EQUITY FUND
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Q&A
Ralph Layman manages the international equity investment process at GE
Investments, with total international equity assets under management exceeding
$11 billion. Prior to joining GE Investments in 1991, Ralph was Executive Vice
President and Partner and Portfolio Manager of International Equity Operations
at Northern Capital Management. Previously, he was a Vice President and
Portfolio Manager at Templeton Investment Counsel, Inc. He was instrumental in
forming Templeton's Emerging Markets Fund, the first listed emerging markets
equity fund in the U.S. Ralph is a Trustee of the GE Pension Trust and GE's
employee savings program, and serves on GE Investments' Asset Allocation
Committee. He is a Chartered Financial Analyst (CFA), a charter member of the
International Society of Security Analysts and a member of the New York Society
of Security Analysts. Ralph is a graduate of the University of Wisconsin with a
B.S. in Economics and a M.S. in Finance.
Q. HOW DID THE INTERNATIONAL EQUITY FUND PERFORM COMPARED TO ITS BENCHMARK AND
LIPPER PEER GROUP FOR THE SIX MONTHS ENDED JUNE 30, 1998?
A. The International Equity Fund posted a total return of 20.04% for the six
months ended June 30, 1998. For the same period, the MSCI EAFE returned
15.93% and our Lipper peer group of 110 International annuity funds
returned 16.25%.
Q. WHY DID THE FUND OUTPERFORM ITS BENCHMARK?
A. The second quarter of 1998 was dominated by the European markets; MSCI
Europe rose 5.1%, followed by the U.S. +3.3%, while Japan (-4.6%) and
Asia-Pacific (-8.8%) continued to decline. Our disciplined stock selection
process led to significant outperformance against the MSCI EAFE benchmark
in all regions except Latin America, with the strongest returns coming from
Europe where the fund outperformed the regional index.
Q. WHICH INVESTMENTS STAND OUT?
A. Telecommunication stocks performed exceptionally well during the period.
Nokia continues to benefit strongly from the proliferation of digital
technology in the cellular world and Mannesman, a German engineering
company that transformed to a telecommunications company, has moved from
being a restructuring play to a growth stock. The fund's holding in French
auto group Renault recently had considerable success with its "new model"
program and is just beginning to realize the benefits of a major
restructuring program. European financial stocks, such as ING Groep and
AXA-UAP, continued to perform well driven primarily by the benign economic
environment coupled with industry consolidation and an improving return
outlook.
Q. WHAT EVENTS HAD A MAJOR IMPACT ON THE FINANCIAL MARKETS IN THE PAST SIX
MONTHS AND HOW DID THIS IMPACT YOUR FUND?
A. The convergence of the economies and currencies in preparation for the
introduction of a common European currency in January 1999 and the
continued weakness in the Japanese economy had a major impact on the
financial markets. European markets were driven by the official monetary
union announcement in May and were marked by persistent cash flows into the
European equity markets. Meanwhile, Japan's turmoil threatens a second
round of Asian currency devaluation and fears of another correction had
negatively effected other regional markets - specifically Latin America.
Our fund's overweighted positions in Continental Europe and underweighted
positions in Asia benefited from these events. As always, all allocations
are based on our bottom-up stock selection process.
Q. WHAT IS YOUR OUTLOOK FOR THE MARKET AND HOW HAVE YOU POSITIONED THE FUND
GOING FORWARD?
A. The key to recovery in the Asian and Latin American economies is held by
the Japanese and there is unlikely to be a sustained, fundamentally-driven
recovery in these markets until the Japanese government restructures their
financial systems. Until we are convinced that measures taken will be
successful, we will remain underweighted in both the Japanese and Asian
markets and will keep a nominal exposure to Latin America. The underlying
environment in Europe remains positive. With corporate restructuring in
full swing and an improved economic environment, we believe that we will
continue to find good, quality stocks whose valuations stand at a discount
to their long-term growth.
3
<PAGE>
INTERNATIONAL EQUITY FUND
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===============================================================================
TOP TEN LARGEST HOLDINGS
AT JUNE 30, 1998
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Mannesmann AG 3.35%
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ING Groep N.V. 2.95%
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Total S.A. (Class B) 2.84%
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AXA-UAP 2.81%
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Siebe PLC 2.57%
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Cap Gemini S.A. 2.44%
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Repsol S.A. 2.28%
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Nokia AB Oy (Series A) 2.18%
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Airtours PLC 2.01%
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Preussag AG 1.99%
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===============================================================================
AVERAGE ANNUAL TOTAL RETURN
FOR THE PERIODS ENDED JUNE 30, 1998
===============================================================================
SIX ONE SINCE
MONTH YEAR COMMENCEMENT
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International
Equity Fund 20.04% 12.51% 14.87%
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MSCI EAFE 15.93% 6.10%
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Lipper peer group
average* 16.25% 9.42%
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Commencement date 5/1/95
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INVESTMENT PROFILE
A fund designed for investors who seek long-term capital growth by
investing primarily in foreign equity and equity-related securities.
===============================================================================
PORTFOLIO COMPOSITION
AS OF JUNE 30, 1998
===============================================================================
[PIE CHART OMITTED]
CASH & OTHER 3.0%
EUROPE 77.6%
OTHER REGIONS 8.9%
JAPAN 5.9%
PACIFIC RIM 4.6%
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SECTOR DIVERSIFICATION
AS OF JUNE 30, 1998
===============================================================================
[PIE CHART OMITTED]
CASH & OTHER 5.6%
FINANCIAL 27.0%
CAPITAL GOODS 21.6%
CONSUMER 19.0%
SERVICES 15.3%
ENERGY 8.2%
BASIC MATERIALS 3.3%
* Lipper performance comparisons are based on average annual total returns
for the periods indicated in the International peer group consisting of 110
and 104 underlying annuity funds for the six month and one year periods,
respectively.
See page 46 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, 1998 (UNAUDITED)
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INTERNATIONAL EQUITY FUND
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NUMBER
OF SHARES VALUE
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Common & Preferred Stocks -- 97.0%
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Australia -- 2.0%
Brambles Industries Ltd. 22,925 $ 450,971
Coca Cola Amatil Ltd. 43,026 288,450
739,421
Austria -- 0.5%
VA Technologie AG 1,444 179,824
Brazil -- 2.7%
Telecomunicacoes Brasileiras
S.A. ADR 4,373 477,477
Telecomunicacoes de Rio de
Janiero S.A. 2,186,425 163,296(a)
Telecomunicacoes de Sao Paulo
S.A.-Telesp 72,629 16,367(a)
Telerj Celular S.A. 1,961,500 116,667(a)
Telesp Celular S.A. 69,369 5,758(a)
Uniao de Banco Brasiliero S.A. GDR 8,497 250,661
1,030,226
Canada -- 0.4%
Newcourt Credit Group Inc. 2,994 146,999
Croatia -- 0.1%
Pliva D D GDR (Regd.) 2,966 47,456
Finland -- 4.9%
Merita Ltd. (Series A) 59,036 389,908
Nokia AB Oy (Series A) 11,150 820,833
Pohjola Insurance Group (Series B) 1,846 91,945
Sampo Insurance Co. Ltd.
(Series A) 11,589 549,738
1,852,424
France -- 20.7%
Alstom 10,836 356,677(a)
AXA-UAP 9,418 1,059,305
Cap Gemini S.A. 5,842 917,991
Carrefour S.A. 836 528,921
Coflexip S.A. ADR 7,613 465,345
Elf Aquitaine S.A. ADR 2,294 322,527
Lyonnaise Des Eaux S.A. 3,556 585,246
Michelin CGDE (Regd.) (Class B) 1,837 106,044
Renault S.A. 9,364 532,656
Rhone Poulenc S.A. 11,032 622,246
Schneider S.A. 9,020 719,279
Societe Generale 2,514 522,702
Total S.A. (Class B) 8,224 1,069,200
7,808,139
Germany -- 11.4%
Bayerische Vereinsbank AG 6,681 566,799
Daimler-Benz AG 4,937 485,912
Fresenius Medical Care AG 4,907 307,461
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NUMBER
OF SHARES VALUE
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Fresenius Medical Care AG 1,779 $ 82,368(i)
Mannesmann AG 12,284 1,263,513
Munchener Ruckvers (Regd.) 1,210 601,159
Preussag AG 2,092 749,359
Volkswagen AG 232 224,223
4,280,794
Greece -- 0.5%
Alpha Credit Bank (Regd.) 1,678 136,180
Alpha Credit Bank 1,678 2,982(a,j)
National Bank Greece S.A. GDR 1,712 43,132(b)
182,294
Hong Kong -- 1.5%
Cheung Kong (Holdings) Ltd. 15,000 28,362
Giordano International Ltd. 186,000 37,690
HSBC Holdings PLC (Regd.) 14,400 352,194
Johnson Electric Holdings 44,500 164,836
583,082
Indonesia -- 0.0%
PT Astra International Inc. 90,500 6,177
PT Mulia Industrindo 32,000 546
6,723
Israel -- 2.9%
Comverse Technology Inc. 5,063 262,643(a)
ECI Telecommunications Ltd. 15,979 605,205
Teva Pharmaceutical Industries Ltd.
ADR 6,547 230,372
1,098,220
Italy -- 5.8%
Banca Intesa S.p.A. 58,845 329,373
Credito Italiano 78,796 412,662
Industrie Natuzzi S.p.A. ADR 2,856 74,256
Montedison S.p.A. 438,491 544,180
Saipem 45,344 233,005
Telecom Italia Mobile S.p.A. 95,439 583,887
2,177,363
Japan -- 5.9%
Canon Inc. 25,000 569,538
Credit Saison Co. Ltd. 1,165 23,170
Honda Motor Co. 4,000 142,909
Minebea Co. Ltd. 8,000 79,901
NTT Data Corp. 7 253,634
Shin-Etsu Chemical Co. 8,000 138,859
Sony Corp. 8,500 734,613
Sumitomo Realty & Development 30,000 132,784
Takefuji Corp. 3,000 138,859
2,214,267
Mexico -- 1.2%
Gruma S.A. de C.V. (Series B) 24,270 52,886
Grupo Carso S.A. de C.V. ADR 27,646 227,647
Grupo Financiero Bancomer S.A
ADR (Series C) 25,287 180,170(b)
460,703
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See Notes to Schedule of Investments and Notes to Financial Statements.
5
<PAGE>
INTERNATIONAL EQUITY FUND JUNE 30, 1998 (UNAUDITED)
- --------------------------------------------------------------------------------
NUMBER
OF SHARES VALUE
- --------------------------------------------------------------------------------
Netherlands -- 5.8%
IHC Caland N.V 8,416 $ 474,065
ING Groep N.V 16,971 1,112,087
Ispat International N.V. (Regd.)
(Class A) 1,644 30,825(a)
Philips Electronics N.V 6,726 565,808
2,182,785
Norway -- 0.5%
Den Norske Bank ASA 36,124 189,469
Panama -- 0.8%
Panamerican Beverages Inc.
(Class A) 9,430 296,456
Peru -- 0.4%
Telefonica del Peru S.A. ADR
(Class B) 7,670 156,756
Philippines -- 0.4%
Metro Bank & Trust Co. 15,610 91,714
San Miguel Corp. 38,180 50,357
142,071
Portugal -- 1.7%
Banco Comercial Portugues (Regd.) 14,993 425,993
Jeronimo Martins SGPS 4,095 196,853
622,846
South Africa -- 0.5%
Barlow Ltd. 17,037 89,782
Dimension Data Holdings Ltd. 18,931 102,157
Iscor Ltd. 69,011 13,034
204,973
South Korea -- 0.1%
Kookmin Bank GDR 5 19(b)
Pohang Iron & Steel Co. Ltd. ADR 3,283 39,396
39,415
Spain -- 3.8%
Argentaria S.A 25,932 581,716
Repsol S.A 15,599 859,547
1,441,263
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NUMBER
OF SHARES VALUE
- --------------------------------------------------------------------------------
Sweden -- 4.4%
Autoliv Inc. SDR 17,795 $ 568,923
Ericson LM Telephone (Series B) 3,021 88,251
Investor AB (Series B) 1,210 70,619
Kinnevik AB (Series B) 2,028 65,981
NetCom Systems AB (Series B) 7,118 272,637
Pharmacia & Upjohn Inc. 12,795 590,169
Societe Europeene
de Communicion 2,028 0(a,j)
1,656,580
Switzerland -- 4.0%
ABB AG 313 462,999
Novartis AG (Regd.) 243 405,027
Zurich Versicherungsgesellschaft
(Regd.) 1,014 648,189
1,516,215
Taiwan -- 0.6%
Taiwan Semiconductor
Manufacturing Co. 108,750 224,713
United Kingdom -- 13.5%
Airtours PLC 101,217 758,819
Bank of Scotland PLC 34,903 391,042
Commercial Union PLC 14,971 279,467
FKI PLC 58,828 171,403
Granada Group PLC 35,538 653,903
Johnson Matthey PLC 9,034 81,152
LucasVarity PLC 126,992 504,652
Railtrack Group PLC 11,909 292,103
Reed International PLC 27,903 252,516
Royal & Sun Alliance Insurance
Group PLC 43,442 449,355
Saatchi & Saatchi PLC 28,749 79,684
SEMA Group PLC 4,792 56,818
Siebe PLC 48,547 970,275
Vodafone Group PLC 11,171 141,850
5,083,039
Total Investments in Securities
(Cost $31,028,356) 36,564,516
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Short-Term Investments -- 2.3%
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GEI Short Term Investment Fund
(Cost $855,851) 855,851 855,851
Other Assets and Liabilities,
net 0.7% 267,516
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NET ASSETS -- 100% $37,687,883
================================================================================
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See Notes to Schedule of Investments and Notes to Financial Statements.
6
<PAGE>
REAL ESTATE SECURITIES FUND
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Q&A
David A. Shapiro of Seneca Capital Management (Seneca), with total assets under
management over $5 billion, is the portfolio manager of the Real Estate
Securities Fund. David joined Seneca in 1995. In 1992 David became a principal
of Asset Holdings Group (he has remained a principal of Asset Holdings Group).
From 1982 to 1992, he was a Managing Director of The Adco Group, a real estate
development and finance company. David received a B.A. from Columbia University
and a J.D. from the University of Arizona.
Q. HOW DID THE REAL ESTATE SECURITIES FUND PERFORM COMPARED TO ITS BENCHMARK
AND LIPPER PEER GROUP FOR THE SIX MONTHS ENDED JUNE 30, 1998?
A. The Real Estate Securities Fund posted a total return of -5.43% for the six
months ended June 30, 1998. For the same period, the Wilshire REIT returned
-5.31% and our Lipper peer group of 13 Real Estate annuity funds returned
-5.12%.
Q. WHY DID THE FUND UNDERPERFORM THE BENCHMARK?
A. The fund's overweighting in the Office/Industrial sectors contributed to
its underperforming its benchmark. According to the Wilshire REIT, the
Office sector returned -8.80% and the Industrial sector returned -2.32%
during the first half of 1998. The Hotel sector, the fund's third largest
position, also did poorly (-11.38%). While the industry encounters these
setbacks, however, we continue to select companies that have a strong
record of increasing shareholder value with a combination of good dividend
payout and value-added growth.
Q. WHICH SECTORS HAVE YOU LIKED?
A. Despite negative returns, the fund continues to maintain large positions in
the Office/Industrial and Hotel sectors. We believe that these sectors
present the greatest opportunity for continued growth based upon the lead
time and costs associated with producing competitive properties.
Additionally, they appear to us to be extremely cheap relative to stocks in
other sectors. In the Hotel sector, we like Patriot American Hospitality
and Starwood Lodging Trust. In the Office/Industrial sectors, we like
Crescent Real Estate Equities, Duke Realty Investments, and Mack-Cali
Realty.
Q. WHAT HAS YOUR INVESTMENT STRATEGY BEEN?
A. At this point in the real estate cycle, we have positioned the portfolio
for a balance between growth and value. We continue to favor those
companies with superior growth prospects (both internal and external)
balanced with value real estate companies (i.e., companies selling at a
discount or at small premium to net asset value).
Q. WHAT IS YOUR OUTLOOK FOR THE MARKET AND HOW HAVE YOU POSITIONED THE FUND
GOING FORWARD?
A. The real estate securities market continues to be an active one with new
common stock issues of over $21 billion in the first two quarters of 1998.
With prices declining in recent months, yields have increased, leading
investors back into the market. We have invested heavily in dividend paying
companies to insulate the portfolio. We have also increased our weighting
in the Apartment sector to add stability to the fund's base. As ever, we
have invested in sectors with strong property fundamentals, and though
short term results may not be positive, we believe that long term returns
will prove otherwise.
7
<PAGE>
REAL ESTATE SECURITIES FUND
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===============================================================================
TOP TEN LARGEST HOLDINGS
AT JUNE 30, 1998
===============================================================================
Starwood Lodging Trust 4.05%
- -------------------------------------------------------------------------------
Equity Residential Properties Trust 3.93%
- -------------------------------------------------------------------------------
Crescent Real Estate Equities Co. 3.63%
- -------------------------------------------------------------------------------
Patriot American Hospitality Inc. 3.32%
- -------------------------------------------------------------------------------
Prentiss Properties Trust 3.20%
- -------------------------------------------------------------------------------
Mack-Cali Realty Corp. 3.15%
- -------------------------------------------------------------------------------
Avalon Properties Inc. 2.99%
- -------------------------------------------------------------------------------
Duke Realty Investments Inc. 2.94%
- -------------------------------------------------------------------------------
Urban Shopping Centers Inc. 2.82%
- -------------------------------------------------------------------------------
Equity Office Properties Trust 2.81%
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===============================================================================
AVERAGE ANNUAL TOTAL RETURN
FOR THE PERIODS ENDED JUNE 30, 1998
===============================================================================
Six One Three Since
Month Year Year Commencement
- -------------------------------------------------------------------------------
Real Estate Securities
Fund -5.43% 4.08% 19.45% 20.40%
- -------------------------------------------------------------------------------
Wilshire REIT -5.31% 6.50% 18.99%
- -------------------------------------------------------------------------------
Lipper peer group
average* -5.12% 8.13% 19.11%
- -------------------------------------------------------------------------------
Commencement date 5/1/95
===============================================================================
INVESTMENT PROFILE
A fund designed for investors who seek to maximize total
returns through current income and capital appreciation by investing primarily
in equity and debt securities of U.S. issuers that are principally engaged in or
related to the real estate industry.
===============================================================================
PORTFOLIO COMPOSITION
AS OF JUNE 30, 1998
===============================================================================
[PIE CHART OMITTED]
MANUFACTURED HOMES 4.3%
OFFICE/INDUSTRIAL 35.5%
APARTMENTS 18.5%
HOTEL 14.2%
CASH & OTHER 7.9%
SHORT-TERM INVESTMENTS 7.6%
REGIONAL MALLS 7.2%
DIVERSIFIED 4.8%
===============================================================================
DURING THE SIX MONTH PERIOD ENDED
JUNE 30, 1998
===============================================================================
TOP THREE PERFORMERS:
Avalon Properties Inc. +99%
Glenborough Realty Trust Inc. +14%
Security Capital Atlantic Inc. + 9%
BOTTOM THREE PERFORMERS:
Sunstone Hotel Investors Inc. -22%
Patriot American Hospitality Inc. -15%
Mack-Cali Realty Corp. -14%
* Lipper performance comparisons are based on average annual total returns
for the periods indicated in the Real Estate peer group consisting of 13,
12 and 7 underlying annuity funds for the six month, one year and, three
year periods, respectively.
See page 46 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.
8
<PAGE>
SCHEDULE OF INVESTMENTS JUNE 30, 1998 (UNAUDITED)
- --------------------------------------------------------------------------------
REAL ESTATE SECURITIES FUND
- --------------------------------------------------------------------------------
NUMBER
OF SHARES VALUE
- --------------------------------------------------------------------------------
Common Stock -- 92.0%
- --------------------------------------------------------------------------------
Apartments -- 18.5%
Avalon Properties Inc. 44,260 $ 1,681,885
Berkshire Realty Company Inc. 84,500 987,594
Equity Residential Properties Trust 46,600 2,210,587
Essex Property Trust Inc. 50,000 1,550,000
Irvine Apartment Communities Inc. 27,900 807,356
Merry Land & Investment Co. Inc. 46,000 968,875
Security Capital Atlantic Inc. 54,500 1,216,031
Security Capital Pacific Trust 45,085 1,014,413
10,436,741
Diversified -- 4.8%
Entertainment Properties Trust 19,000 346,750
Glenborough Realty Trust Inc. 28,000 682,500
Northstar Capital Investment Corp. 30,000 637,500(a,b)
Pacific Gulf Properties Inc. 47,700 1,031,512
2,698,262
Hotel -- 14.2%
American General Hospitality Corp. 44,500 945,625
Boykin Lodging Co. 40,800 884,850
FelCor Suite Hotels Inc. 28,700 900,463
Patriot American Hospitality Inc. 78,020 1,867,604
Starwood Lodging Trust 47,200 2,280,350
Sunstone Hotel Investors Inc. 86,200 1,147,537
8,026,429
Manufactured Home -- 4.3%
Chateau Communities Inc. 40,000 1,150,000
Manufactured Home
Communities Inc. 52,500 1,266,563
2,416,563
Mortgage -- 1.9%
Capital Trust 71,000 683,375(a)
Clarion Commercial Holdings Inc. 25,000 384,375
1,067,750
Net Lease -- 2.2%
TriNet Corporation Realty
Trust Inc. 36,000 1,224,000
- --------------------------------------------------------------------------------
NUMBER
OF SHARES VALUE
- --------------------------------------------------------------------------------
Office/Industrial -- 35.5%
AMB Property Corp. 33,100 $ 810,950
Arden Realty Inc. 41,000 1,060,875
Bedford Property Investors Inc. 50,500 921,625
Boston Properties Inc. 31,300 1,079,850
Catellus Development Corp. 49,600 877,300(a)
Cornerstone Properties Inc. 87,000 1,533,375
Crescent Real Estate Equities Co. 60,700 2,041,037
Duke Realty Investments Inc. 70,000 1,653,750
Equity Office Properties Trust 55,700 1,580,487
First Industrial Realty Trust Inc. 47,600 1,514,275
Liberty Property Trust 47,000 1,201,438
Mack-Cali Realty Corp. 51,600 1,773,750
Prentiss Properties Trust 74,000 1,799,125
Reckson Associates Realty Corp. 29,000 683,313(a)
Spieker Properties Inc. 37,000 1,433,750
19,964,900
Regional Malls -- 7.2%
Macerich Co. 47,000 1,377,687
Simon DeBartolo Group Inc. 33,300 1,082,250
Urban Shopping Centers Inc. 50,400 1,587,600
4,047,537
Self Storage -- 0.5%
Sovran Self Storage Inc. 9,500 268,375
Shopping Center -- 2.9%
Burnham Pacific Properties Inc. 35,700 506,494
Developers Diversified Realty
Corp. 28,400 1,112,925
1,619,419
Total Investments in Securities
(Cost $49,230,653) 51,769,976
- --------------------------------------------------------------------------------
Short-Term Investments -- 7.6%
- --------------------------------------------------------------------------------
GEI Short Term Investment Fund
(Cost $4,277,787) 4,277,787 4,277,787
Other Assets and Liabilities,
net 0.4% 251,046
- --------------------------------------------------------------------------------
NET ASSETS -- 100% $56,298,809
================================================================================
- --------------------------------------------------------------------------------
See Notes to Schedule of Investments and Notes to Financial Statements.
9
<PAGE>
PREMIER GROWTH EQUITY FUND
- --------------------------------------------------------------------------------
Q&A
David Carlson manages pension and mutual fund portfolios with total assets of
approximately $6 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 PREMIER GROWTH EQUITY FUND PERFORM COMPARED TO ITS BENCHMARK
AND LIPPER PEER GROUP FOR THE SIX MONTHS ENDED JUNE 30, 1998?
A. The Premier Growth Equity Fund posted a total return of 17.85% for the six
months ended June 30, 1998. For the same period, the S&P 500 Index returned
17.74% and our Lipper peer group of 151 Growth annuity funds returned
16.23%.
Q. WHY DID THE FUND OUTPERFORM ITS BENCHMARK?
A. Several of the fund's holdings advanced substantially during the first half
of the year. Since the fund owns only 34 securities, good performance of
several stocks can have a significant impact on the fund's performance.
Q. WHICH INVESTMENTS STOOD OUT?
A. The fund particularly enjoyed good performance from its holdings in the
communications industry. Specifically, NTL, and Comcast UK Cable Partners,
two UK based telecommunications companies, were up 92% and 66%,
respectively, after they announced their intention to merge. Another strong
performer was Airtouch Communications, the largest cellular company in the
world, which was up 41% in the first half.
Q. WHAT IS YOUR INVESTMENT STRATEGY?
A. The fund focuses on high quality growth companies that have the dominant
share in their respective industries, hence the "Premier" name. We seek to
invest in financially strong companies with a growth rate in the mid-teens
or better and shareholder-oriented management. We employ a bottoms-up
approach to stock selection and hope to find names we can own for many
years. This will keep turnover low.
Q. WHAT INDUSTRY SECTORS ARE WIDELY REPRESENTED IN THE FUND?
A. Currently, the fund is overweighted in healthcare, business services (e.g.,
Automatic Data Processing and Equifax) and consumer stocks. The fund is
underweighted in commodities and cyclicals.
Q. WHAT IS YOUR OUTLOOK?
A. Due to the stock market's strong performance over the past three and a half
years, good values are becoming increasingly harder to find. What's more,
the economic problems in southeast Asia continue to pose a threat to U.S.
corporate earnings. Given this backdrop, stock selection will be
increasingly important in achieving superior investment results in the
coming months. Since the fund currently invests in a select group of
securities, we believe our strategy - focusing on select companies that
meet specific investment criteria - can achieve above-average returns over
the long term.
10
<PAGE>
PREMIER GROWTH EQUITY FUND
- --------------------------------------------------------------------------------
================================================================================
TOP TEN LARGEST HOLDINGS
AT JUNE 30, 1998
================================================================================
Tele-Communications Inc. Liberty Media Group
(Series A) 3.66%
- --------------------------------------------------------------------------------
Airtouch Communications Inc. 3.65%
- --------------------------------------------------------------------------------
Scherer (R.P.) Corp. 3.62%
- --------------------------------------------------------------------------------
Carnival Corp. (Class A) 3.37%
- --------------------------------------------------------------------------------
Cisco Systems Inc. 3.31%
- --------------------------------------------------------------------------------
Microsoft Corp. 3.26%
- --------------------------------------------------------------------------------
Cardinal Health Inc. 3.22%
- --------------------------------------------------------------------------------
NTL Inc. 3.15%
- --------------------------------------------------------------------------------
First Data Corp. 3.09%
- --------------------------------------------------------------------------------
Interpublic Group Cos. Inc. 3.08%
- --------------------------------------------------------------------------------
================================================================================
AVERAGE ANNUAL TOTAL RETURN
FOR THE PERIODS ENDED JUNE 30, 1998
================================================================================
SIX SINCE
MONTH COMMENCEMENT
- --------------------------------------------------------------------------------
Premier Growth
Equity Fund 17.85% 21.93%
- --------------------------------------------------------------------------------
S&P 500 Index 17.74%
- --------------------------------------------------------------------------------
Lipper peer
group average* 16.23%
- --------------------------------------------------------------------------------
Commencement date 12/12/97
================================================================================
INVESTMENT PROFILE
A fund designed for investors who seek long-term growth of capital as well as
future income by investing primarily in growth-oriented equity securities.
================================================================================
PORTFOLIO COMPOSITION
AS OF JUNE 30, 1998
================================================================================
[PIE CHART OMITTED]
CASH & OTHER 0.7%
HEALTHCARE 22.0%
CONSUMER-CYCLICAL 19.1%
TECHNOLOGY - SOFTWARE & SERVICES 14.8%
CAPITAL GOODS 9.1%
SHORT-TERM INVESTMENTS 7.6%
UTILITIES 6.2%
TECHNOLOGY - ELECTRONICS & EQUIPMENT 5.4%
FINANCIAL 5.2%
RETAIL TRADE 5.1%
ENERGY 4.8%
================================================================================
DURING THE SIX MONTH PERIOD ENDED
JUNE 30, 1998
================================================================================
TOP THREE PERFORMERS:
NTL, Inc. +92%
Microsoft Corp. +68%
Comcast UK Cable Partners Ltd. +66%
BOTTOM THREE PERFORMERS:
Cendant Corp. -22%(Sold)
Baker Hughes Inc. -21%
Molex Inc. -19%
* Lipper performance comparisons are based on average annual total returns
for the periods indicated in the Growth peer group consisting of 151
underlying annuity funds for the six month periods.
See page 46 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, 1998 (UNAUDITED)
- --------------------------------------------------------------------------------
PREMIER GROWTH EQUITY FUND
- --------------------------------------------------------------------------------
NUMBER
OF SHARES VALUE
================================================================================
Common Stock -- 91.7%
- --------------------------------------------------------------------------------
Capital Goods -- 9.1%
AlliedSignal Inc. 7,398 $ 328,286
Dover Corp. 12,634 432,715
Molex Inc. (Class A) 15,992 373,813
Waste Management Inc. 13,089 458,115
1,592,929
Consumer - Cyclical -- 19.1%
Carnival Corp. (Class A) 14,796 586,292
Catalina Marketing Corp. 9,959 517,246(a)
Comcast UK Cable Partners Ltd.
(Class A) 16,845 264,256(a)
Interpublic Group Cos. Inc. 8,821 535,324
NTL Inc. 10,244 548,054(a)
Tele-Communications Inc. Liberty
Media Group (Series A) 16,390 636,137(a)
Walt Disney Co. 2,276 239,122(h)
3,326,431
Energy -- 4.8%
Baker Hughes Inc. 11,951 413,057
Schlumberger Ltd. 6,260 427,636
840,693
Financial -- 5.2%
Citicorp 2,959 441,631
Travelers Group Inc. 7,569 458,870
900,501
Healthcare -- 22.0%
Cardinal Health Inc. 5,976 560,250
Dentsply International Inc. 14,284 357,100(h)
Johnson & Johnson 6,317 465,879
Lincare Holdings Inc. 11,382 478,755(a)
Omnicare Inc. 12,520 477,325
Scherer (R.P.) Corp. 7,114 630,478(a)
Sybron International Corp. 17,642 445,461(a)
Tenet Healthcare Corp. 13,032 407,250(a)
3,822,498
Retail Trade -- 5.1%
CVS Corp. 9,054 352,540
Home Depot Inc. 6,431 534,175
886,715
- --------------------------------------------------------------------------------
NUMBER
OF SHARES VALUE
- --------------------------------------------------------------------------------
Technology - Electronics & Equipment -- 5.4%
Cisco Systems Inc. 6,260 $ 576,311(a)
Intel Corp. 4,951 366,993
943,304
Technology - Software & Services -- 14.8%
Automatic Data Processing Inc. 7,171 522,587
EMC Corp. 9,674 433,516(a)
Equifax Inc. 14,114 512,515(h)
First Data Corp. 16,162 538,396
Microsoft Corp. 5,236 567,451(a)
2,574,465
Utilities -- 6.2%
Airtouch Communications Inc. 10,870 635,216(a)
WorldCom Inc. 9,105 441,023
1,076,239
Total Investments in Securities
(Cost $13,112,404) 15,963,775
- --------------------------------------------------------------------------------
Short-Term Investments -- 7.6%
- --------------------------------------------------------------------------------
GEI Short Term Investment Fund
(Cost $1,315,746) 1,315,746 1,315,746
Other Assets and Liabilities,
net 0.7% 121,387
- --------------------------------------------------------------------------------
NET ASSETS -- 100% $17,400,908
================================================================================
- -------------------------------------------------------------------------------
OTHER INFORMATION
- -------------------------------------------------------------------------------
The Premier Growth Equity Fund had the following long futures contract open at
June 30, 1998:
Number
Expiration of Underlying Unrealized
Description Date Contracts Face Value Gain
- --------------------------------------------------------------------------------
S&P 500 September 1998 1 $285,750 $5,838
- --------------------------------------------------------------------------------
See Notes to Schedule of Investments and Notes to Financial Statements.
12
<PAGE>
VALUE EQUITY FUND
- --------------------------------------------------------------------------------
Q&A
Jon D. Bosse of NWQ Investment Management Company (NWQ), with total assets
exceeding $9 billion, is the portfolio manager of the Value Equity Fund. Prior
to joining NWQ in 1996, he spent ten years with ARCO Investment Management
Company where he was Director of Equity Research and managed a value-oriented
fund. Previous to this, he spent four years in the corporate finance department
of ARCO. Jon received his B.A. (summa cum laude) in Economics from Washington
University in St. Louis where he received the John M. Olin Award for excellence
in economics and his M.B.A. from Wharton Business School, University of
Pennsylvania. Jon is also a Chartered Financial Analyst (CFA) and a member of
the Association for Investment Management and Research and the Los Angeles
Society of Financial Analysts.
Q. HOW DID THE VALUE EQUITY FUND PERFORM COMPARED TO ITS BENCHMARK AND LIPPER
PEER GROUP FOR THE SIX MONTHS ENDED JUNE 30, 1998?
A. The Value Equity Fund posted a total return of 12.97% for the six months
ended June 30, 1998. For the same period, the S&P 500 Index returned 17.74%
and our Lipper peer group of 153 Growth and Income annuity funds returned
12.26%.
Q. WHY DID THE FUND UNDERPERFORM ITS BENCHMARK?
A. While underperforming the S&P 500 Index, the Value Equity Fund, an all cap
portfolio, did outperform the S&P Mid-Cap 400 Index by 430 basis points and
the Russell 3000 Value Index by 157 basis points. The Value Equity Fund's
performance was negatively impacted by investments in the oil service
sector and by the poor relative performance of small and mid-capitalization
value investments. Although performance through April was particularly
strong, results in May and June reflected the markets bias toward large
capitalization, visible growth stocks.
Q. WHICH SECTORS HAVE YOU LIKED?
A. We have emphasized several sectors including cable/media, cellular
communications, financial services, and oil services. The cable and
cellular communications sectors have performed exceptionally well, driven
by solid fundamentals and industry consolidation. The oil service sector
has done poorly, but the longer-term outlook is very positive and current
valuations reflect potential bad news.
Q. WHICH INVESTMENTS STAND OUT?
A. Three of the best investments are in the cellular services industry, namely
CoreComm (a new purchase), 360 Communications (acquired by Alltel) and
Cellular Communications International. Cable investments including MediaOne
Group, NTL (a UK cable/telephone company), Cox Communications, and
Tele-Communications, Inc. Liberty Media Group added substantially to
performance. Other successful investments include Chase Manhattan, Storage
Technology, Hasbro, Darden Restaurants, Ford Motor, and Hartford Financial
Services Group.
Q. WHAT IS THE OUTLOOK FOR THE FUND?
A. There is no question that there are significant investment issues to
consider while investing today (Asian financial crisis, potential economic
slowdown, earnings risk, etc.). This market's extreme preoccupation with
highly visible growth stocks has created many investment opportunities. Our
focus, as always, will be to identify and invest in undervalued companies
with attractive risk-reward characteristics and catalysts that will improve
profitability and recognize value.
13
<PAGE>
VALUE EQUITY FUND
- --------------------------------------------------------------------------------
================================================================================
TOP TEN LARGEST HOLDINGS
AT JUNE 30, 1998
================================================================================
Loews Corp. 3.60%
- --------------------------------------------------------------------------------
Ocean Energy Inc. 3.51%
- --------------------------------------------------------------------------------
CoreComm Inc. 3.44%
- --------------------------------------------------------------------------------
Cellular Communications International Inc. 3.40%
- --------------------------------------------------------------------------------
Chase Manhattan Corp. 3.35%
- --------------------------------------------------------------------------------
NTL Inc. 3.34%
- --------------------------------------------------------------------------------
Philip Morris Cos. Inc. 3.02%
- --------------------------------------------------------------------------------
MediaOne Group Inc. 2.92%
- --------------------------------------------------------------------------------
First Union Corp. 2.58%
- --------------------------------------------------------------------------------
Tele-Communications Inc. Liberty Media Group
(Series A) 2.46%
- --------------------------------------------------------------------------------
================================================================================
AVERAGE ANNUAL TOTAL RETURN
FOR THE PERIODS ENDED JUNE 30, 1998
================================================================================
SIX ONE SINCE
MONTH YEAR COMMENCEMENT
- --------------------------------------------------------------------------------
Value Equity Fund 12.97% 30.78% 41.33%
- --------------------------------------------------------------------------------
S&P 500 Index 17.74% 30.20%
- --------------------------------------------------------------------------------
Lipper peer
group average* 12.26% 23.02%
- --------------------------------------------------------------------------------
Commencement date 5/1/97
================================================================================
INVESTMENT PROFILE
A fund designed for investors who seek long-term growth in capital by investing
primarily in common stock and other equity securities that are undervalued by
the market at the time of purchase and offer above-average potential for capital
growth.
================================================================================
PORTFOLIO COMPOSITION
AS OF JUNE 30, 1998
================================================================================
[PIE CHART OMITTED]
CONSUMER 27.5%
ENERGY 14.8%
FINANCIAL 13.8%
INSURANCE 11.8%
TECHNOLOGY - ELECTRONIC & EQUIPMENT 10.4%
TELECOMMUNICATIONS 8.2%
CASH & OTHER 7.9%
SHORT-TERM INVESTMENTS 5.6%
================================================================================
DURING THE SIX MONTH PERIOD ENDED
JUNE 30, 1998
================================================================================
TOP THREE PERFORMERS:
CoreComm Inc. +136%
NTL Inc. +92%
360 Communications Co. +64%
BOTTOM THREE PERFORMERS:
Allen Telecomm Inc. -37%
Forcenergy Inc. -32%
Meridian Resource Corp. -26%
* Lipper performance comparisons are based on average annual total returns
for the periods indicated in the Growth and Income peer group consisting of
153 and 134 underlying annuity funds for the six month and one year
periods, respectively.
See page 46 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.
14
<PAGE>
SCHEDULE OF INVESTMENTS JUNE 30, 1998 (UNAUDITED)
- --------------------------------------------------------------------------------
VALUE EQUITY FUND
- --------------------------------------------------------------------------------
NUMBER
OF SHARES VALUE
- --------------------------------------------------------------------------------
Common Stock -- 97.6%
- --------------------------------------------------------------------------------
Basic Materials -- 1.6%
Praxair Inc. 16,500 $ 772,406
Capital Goods -- 2.6%
Atchison Casting Corp. 10,500 187,688(a)
Case Corp. 22,500 1,085,625
1,273,313
Consumer - Cyclical -- 22.9%
@ Entertainment Inc. 47,900 526,900(a)
Bon-Ton Stores Inc. 26,000 417,625(a)
Circus Circus Enterprises Inc. 36,000 609,750(a)
Cox Communications Inc. 20,000 968,750(a)
Dal-Tile International Inc. 48,000 471,000(a)
Darden Restaurants Inc. 30,000 476,250
Ford Motor Co. 14,800 873,200
Hasbro Inc. 30,000 1,179,375
Hayes Lemmerz International Inc. 28,700 1,140,825(a)
NTL Inc. 31,000 1,658,500(a)
Tele-Communications Inc. (Series A) 36,500 733,422(a)
Tele-Communications Inc. Liberty
Media Group (Series A) 31,500 1,222,594(a)
The E.W. Scripps Co. Inc 19,400 1,063,362
11,341,553
Consumer - Stable -- 4.6%
Alberto-Culver Co. 32,000 812,000
Philip Morris Cos. Inc. 38,000 1,496,250
2,308,250
Energy -- 14.8%
BJ Services Co. 24,000 697,500(a)
Diamond Offshore Drilling Inc. 17,500 700,000
Forcenergy Inc. 48,300 860,344(a)
Meridian Resource Corp. 25,000 176,563(a)
Noble Affiliates Inc. 16,000 608,000
Ocean Energy Inc. 89,050 1,742,041(a)
Santa Fe International Corp. 25,000 756,250
Tosco Corp. 17,900 525,812
Transocean Offshore Inc. 17,500 778,750
Triton Energy Ltd. 13,500 481,781(a)
7,327,041
Financial -- 13.8%
BankAmerica Corp. 12,400 1,071,825
Chase Manhattan Corp. 22,000 1,661,000
First Union Corp. 22,000 1,281,500
Fleet Financial Group Inc. 10,000 835,000
Heller Financial Inc. 34,000 1,020,000(a)
Waddell & Reed Financial Inc.
(Class A) 42,000 1,005,375
6,874,700
- --------------------------------------------------------------------------------
NUMBER
OF SHARES VALUE
- --------------------------------------------------------------------------------
Healthcare -- 3.5%
Integrated Health Services Inc. 27,000 $1,012,500
Pharmacia & Upjohn Inc. 16,000 738,000
1,750,500
Insurance -- 11.8%
Aetna Inc. 12,800 974,400
Hartford Financial Services
Group Inc. 8,000 915,000
Loews Corp. 20,500 1,786,062
Provident Cos. Inc. 29,800 1,028,100
Torchmark Corp. 25,200 1,152,900
5,856,462
Real Estate Investment Trust -- 0.9%
Indymac Mortgage Holdings Inc. 19,000 432,250
Technology - Electronics & Equipment -- 10.4%
Allen Telecomm Inc. 40,000 465,000(a)
Berg Electronics Corp. 33,000 645,562(a)
MasTec Inc. 20,300 484,663(a)
MediaOne Group Inc. 33,000 1,449,938
Quantum Corp. 53,000 1,099,750(a)
Storage Technology Corp. 23,600 1,023,650(a)
5,168,563
Telecommunications -- 8.2%
Cellular Communications
International Inc. 33,812 1,686,373(a)
CoreComm Inc. 65,000 1,706,250(a)
Telephone & Data Systems Inc. 17,400 685,125
4,077,748
Utilities -- 2.5%
360 Communications Co. 37,000 1,184,000
U.S. WEST Inc. 901 42,358(a)
1,226,358
Total Investments in Securities
(Cost $42,773,799) 48,409,144
- --------------------------------------------------------------------------------
Short-Term Investments -- 5.6%
- --------------------------------------------------------------------------------
GEI Short Term Investment Fund
(Cost $2,799,012) 2,799,012 2,799,012
Other Assets and Liabilities,
net (3.2%) (1,582,713)
- --------------------------------------------------------------------------------
NET ASSETS -- 100% $49,625,443
================================================================================
See Notes to Schedule of Investments and Notes to Financial Statements.
15
<PAGE>
U.S. EQUITY FUND
- --------------------------------------------------------------------------------
Q&A
Gene Bolton is responsible for the overall management of the U.S. equity
investment process at GE Investments with total assets of over $30 billion. He
leads a team of portfolio managers for the U.S. Equity Fund. Gene joined GE in
1964. After completing GE's Financial Management Program, he held a number of
financial and strategic planning positions in the U.S. and Europe. Joining GE
Investments in 1984 as Chief Financial Officer, he moved to equities as a
Portfolio Manager in 1986 and was named to his present position in 1991. Gene is
a Trustee of the GE Pension Trust and GE's employee savings program, as well as
Chairman of the Asset Allocation Committee of GE Investments. He also serves as
a Trustee of the Investment Management Workshop, sponsored by the Association
for Investment Management and Research. Gene is a graduate of Mundelein College
with a B.A. in Business Management.
Q. HOW DID THE U.S. EQUITY FUND PERFORM COMPARED TO ITS BENCHMARK AND LIPPER
PEER GROUP FOR THE SIX MONTHS ENDED JUNE 30, 1998?
A. The U.S. Equity Fund posted a total return of 14.60% for the six months
ended June 30, 1998. For the same period, the S&P 500 Index returned 17.74%
and our Lipper peer group of 153 Growth and Income annuity funds returned
12.26%.
Q. WHY DID THE FUND UNDERPERFORM ITS BENCHMARK?
A. Traditional valuation strategies did not prove extremely useful, as
companies with high price to earnings ratios compared to the market
outperformed attractively priced stocks of fundamentally sound companies.
Q. WHICH INVESTMENTS RECORDED GOOD RESULTS?
A. The fund enjoyed good performance from many of its stocks in the financial
sector, most notably American Express, General Reinsurance and Morgan
Stanley, Dean Witter. We were also helped by our traditional underweighting
in the utility sector, and by our large holding in Airtouch Communications,
a cellular telephone company that continued to show good performance.
Several of our generic drug companies holdings contributed favorably to
performance, including Watson Pharmaceuticals, R.P. Scherer and Allergan.
The fund also benefited from its exposure to several cable TV stocks, such
as NTL, Tele-communications Inc. and Comcast UK Cable Partners.
Q. WHAT DETRACTED FROM THE FUND'S PERFORMANCE?
A. Our underweighting in technology and particularly Microsoft hampered
performance. Despite having a price to earnings ratio roughly three times
higher than the market average and continuing pressure from the antitrust
suit brought by the Department of Justice, Microsoft gained 67% during the
period. Our overweighting in energy and capital goods also detracted from
performance. Currently, the world has a surplus of oil due to warm weather,
the Asian slow down, increased Iraqi exports and the Saudi decision to
raise quotas last fall. This surplus has lasted longer than expected, but
should reverse itself over the next year. In capital goods we experienced
weak performance from Hubbell, Dover and Textron, three quality companies
that continue to show earnings growth in the face of sluggish export
demand. We continue to believe these holdings will show good performance
longer term.
Q. WHAT IS YOUR OUTLOOK FOR THE MARKET AND HOW HAVE YOU POSITIONED THE FUND
GOING FORWARD?
A. Our outlook is generally positive, longer-term, but we are concerned about
valuation levels and earnings growth in the short-term. Inflation is still
under control, interest rates remain low and cash flows into mutual funds
continue to be strong. The problems in Asia, however, could have a negative
impact on the U.S. economy, particularly corporate earnings, in the second
half of 1998. Given this backdrop, we will continue to focus on
fundamentally sound companies selling at relatively attractive prices and
whose growth prospects are unlikely to be significantly affected by the
crisis in Asia.
16
<PAGE>
U.S. EQUITY FUND
- --------------------------------------------------------------------------------
================================================================================
TOP TEN LARGEST HOLDINGS
AT JUNE 30, 1998
================================================================================
Travelers Group Inc. 2.13%
- --------------------------------------------------------------------------------
Merck & Co. Inc. 2.13%
- --------------------------------------------------------------------------------
Bristol-Myers Squibb Co. 2.08%
- --------------------------------------------------------------------------------
AlliedSignal Inc. 2.00%
- --------------------------------------------------------------------------------
Federal National Mortgage Assoc. 1.95%
- --------------------------------------------------------------------------------
International Business Machines 1.77%
- --------------------------------------------------------------------------------
Johnson & Johnson 1.65%
- --------------------------------------------------------------------------------
Exxon Corp. 1.58%
- --------------------------------------------------------------------------------
Airtouch Communications Inc. 1.51%
- --------------------------------------------------------------------------------
First Data Corp. 1.44%
- --------------------------------------------------------------------------------
================================================================================
AVERAGE ANNUAL TOTAL RETURN
FOR THE PERIODS ENDED JUNE 30, 1998
================================================================================
SIX ONE THREE SINCE
MONTH YEAR YEAR COMMENCEMENT
- --------------------------------------------------------------------------------
U.S. Equity Fund 14.60% 27.51% 27.79% 30.00%
- --------------------------------------------------------------------------------
S&P 500 Index 17.74% 30.20% 30.26%
- --------------------------------------------------------------------------------
Lipper peer
group average* 12.26% 23.02% 24.98%
- --------------------------------------------------------------------------------
Commencement date 1/3/95
================================================================================
INVESTMENT PROFILE
A fund designed for investors who seek long-term growth of capital by
investing primarily in equity securities of U.S. companies.
================================================================================
PORTFOLIO COMPOSITION
AS OF JUNE 30, 1998
================================================================================
[PIE CHART OMITTED]
HEALTHCARE 13.7%
FINANCIAL 13.2%
CAPITAL GOODS 10.1%
CASH & OTHER 9.5%
CONSUMER - CYCLICAL 8.6%
ENERGY 8.5%
CONSUMER - STABLE 7.5%
UTILITIES 7.3%
TECHNOLOGY - ELECTRONICS & EQUIPMENT 6.0%
INSURANCE 5.9%
RETAIL TRADE 4.8%
TECHNOLOGY - SOFTWARE & SERVICES 4.9%
================================================================================
DURING THE SIX MONTH PERIOD ENDED
JUNE 30, 1998
================================================================================
TOP THREE PERFORMERS:
NTL Inc. +92%
Beneficial Corp. +86%
Ford Motor Co. +85%
BOTTOM THREE PERFORMERS:
Cendant Corp. -40%
MCN Energy Group Inc. -37%
Nabors Industries Inc. -37%
* Lipper performance comparisons are based on average annual total returns
for the periods indicated in the Growth and Income peer group consisting of
153, 134 and 79 underlying annuity funds for the six month, one year, and
three year periods, respectively.
See page 46 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.
17
<PAGE>
SCHEDULE OF INVESTMENTS JUNE 30, 1998 (UNAUDITED)
- --------------------------------------------------------------------------------
U.S. EQUITY FUND
- --------------------------------------------------------------------------------
NUMBER
OF SHARES VALUE
- --------------------------------------------------------------------------------
Common Stock -- 95.9%
- --------------------------------------------------------------------------------
Basic Materials -- 3.2%
Air Products & Chemicals Inc. 1,984 $ 79,360
Airgas Inc. 1,735 24,941(a)
Avery Dennison Corp. 508 27,305
Barrick Gold Corp. 1,508 28,935
Champion International Corp. 377 18,544
Delta & Pine Land Co. 176 7,867
Du Pont de Nemours (E.I.) & Co. 5,032 375,513
FMC Corp. 93 6,341(a)
Fort James Corp. 120 5,340
IMC Global Inc. 527 15,876
Mead Corp. 1,433 45,498
Morton International Inc. 2,927 73,175
Newmont Mining Corp. 3,546 83,774
Rayonier Inc. 1,020 46,920
Union Camp Corp. 236 11,711
W.R. Grace & Co. 199 3,395(a)
Weyerhaeuser Co. 547 25,265
879,760
Capital Goods -- 10.1%
AlliedSignal Inc. 12,291 545,413
Cooper Industries Inc. 1,056 58,014
Deere & Co. 1,940 102,577
Dover Corp. 10,719 367,126
Emerson Electric Co. 4,345 262,329
Harman International
Industries Inc. 716 27,566
Hubbell Inc. (Class B) 5,171 215,243
Jacobs Engineering Group Inc. 395 12,689(a)
Laidlaw Environmental Services Inc. 2,104 7,626(a)
Lockheed Martin Corp. 527 55,796
Mannesmann AG 280 28,800
Martin Marietta Materials Inc. 3,046 137,070
Masco Corp. 705 42,653
Minnesota Mining &
Manufacturing Co. 151 12,410
Molex Inc. (Class A) 2,703 63,183
National Service Industries Inc. 562 28,592
Parker Hannifin Corp. 528 20,130
Philips Electronics N.V 179 15,093
Sherwin-Williams Co. 3,174 105,139
Textron Inc. 4,046 290,048
Timken Co. 445 13,712
Tyco International Ltd. 692 43,596
U.S.A. Waste Services Inc. 1,717 84,777(a)
United Technologies Corp. 1,447 133,847
Waste Management Inc. 2,092 73,220
2,746,649
Consumer - Cyclical -- 8.6%
ACNielsen Corp. 1,925 48,606(a)
Carnival Corp. (Class A) 1,506 59,675
Catalina Marketing Corp. 1,001 51,989(a)
Cendant Corp. 640 13,360(a)
Circus Circus Enterprises Inc. 1,239 20,986(a)
Comcast Corp. (Class A) 3,204 130,062
- --------------------------------------------------------------------------------
NUMBER
OF SHARES VALUE
- --------------------------------------------------------------------------------
Comcast UK Cable Partners Ltd.
(Class A) 1,622 $ 25,445(a)
Ford Motor Co. 1,755 103,545
Gannett Inc. 3,337 237,136
General Motors Corp. 240 16,035
Goodyear Tire & Rubber Co. 830 53,483
Interpublic Group Cos. Inc. 3,207 194,625
ITT Industries Inc. 829 30,984
Knight-Ridder Inc. 1,282 70,590
McDonald's Corp. 3,057 210,933
McGraw Hill Cos. Inc. 170 13,866
Metromedia International
Group Inc. 432 5,157(a)
NTL Inc. 3,853 206,136(a)
Stanley Works 1,191 49,501
Tele-Communications Inc. (Series A) 4,450 171,047(a)
Tele-Communications Inc. Liberty
Media Group (Series A) 1,515 58,801(a)
Tele-Communications TCI
Ventures Group 1,303 26,141(a)
Time Warner Inc. 1,012 86,463
Walt Disney Co. 2,647 278,100
Xerox Corp. 1,751 177,945
2,340,611
Consumer - Stable -- 7.5%
Anheuser Busch Cos. Inc. 3,339 157,559
Archer-Daniels Midland Co. 1,697 32,879
Avon Products Inc. 1,125 87,187
Bestfoods 2,242 130,176
Coca Cola Co. 159 13,595
Colgate-Palmolive Co. 1,230 108,240
Conagra Inc. 1,771 56,119
General Mills Inc. 832 56,888
Gillette Co. 610 34,579
Hershey Foods Corp. 358 24,702
International Multifoods Corp. 220 6,050
Kellogg Co. 484 18,180
Kimberly Clark Corp. 4,346 199,373
Nestle S.A. (Regd.) 30 64,307
Pepsico Inc. 7,666 315,743
Philip Morris Cos. Inc. 5,803 228,493(h)
Procter & Gamble Co. 2,121 193,144
Ralston Purina Co. 1,035 120,901
Sara Lee Corp. 2,157 120,657
Sysco Corp. 1,056 27,060
Unilever N.V 661 52,178
2,048,010
Energy -- 8.5%
Anadarko Petroleum Co. 628 42,194
Atlantic Richfield Co. 1,110 86,719
Baker Hughes Inc. 2,554 88,273
British Petroleum PLC ADR 1,153 101,752
Burlington Resources Inc. 4,333 186,590
Chevron Corp. 717 59,556
Elf Aquitaine S.A. ADR 346 24,566
Exxon Corp. 6,066 432,582(h)
Halliburton Co. 490 21,836
Mobil Corp. 3,205 245,583
Nabors Industries Inc. 2,523 49,987(a)
Pennzoil Co. 196 9,923
R & B Falcon Corp. 1,429 32,331(a)
Royal Dutch Petroleum Co. ADR 4,511 247,259
Schlumberger Ltd. 5,329 364,037
Texaco Inc. 1,600 95,500
- --------------------------------------------------------------------------------
See Notes to Schedule of Investments and Notes to Financial Statements.
18
<PAGE>
SCHEDULE OF INVESTMENTS JUNE 30, 1998 (UNAUDITED)
- --------------------------------------------------------------------------------
NUMBER
OF SHARES VALUE
- --------------------------------------------------------------------------------
Tosco Corp. 734 $ 21,561
Total S.A. ADR 678 44,324
Transocean Offshore Inc. 227 10,101
Unocal Corp. 3,217 115,008
USX-Marathon Group 220 7,709
Western Atlas Inc. 85 7,214
YPF S.A. ADR (Class D) 834 25,072
2,319,677
Financial -- 13.2%
American Express Co. 2,923 333,222(h)
AmSouth Bancorp 528 20,757
Associates First Capital Corp. 659 50,661
Bank of New York Inc. 937 56,864
BankAmerica Corp. 2,302 198,979
BankBoston Corp. 2,789 155,138
Beneficial Corp. 73 11,183
Chase Manhattan Corp. 2,338 176,519
Citicorp 2,550 380,587
Comerica Inc. 282 18,682
Countrywide Credit Industries 580 29,435
Crestar Financial Corp. 397 21,660
Edwards A.G. Inc. 730 31,162
Federal National Mortgage Assoc 8,754 531,805
First Chicago NBD Corp. 433 38,375
First Union Corp. 679 39,552
Fleet Financial Group Inc. 282 23,547
GATX Corp. 248 10,881
ING Groep N.V. ADR 570 37,236
Mellon Bank Corp. 1,247 86,822
Merrill Lynch & Co. Inc. 264 24,354
Morgan (J.P.) & Co. Inc. 189 22,137
Morgan Stanley, Dean Witter 3,023 276,227
National City Corp. 1,216 86,336
NationsBank Corp. 94 7,191
Norwest Corp. 791 29,564
State Street Corp. 1,138 79,091
T. Rowe Price & Associates 610 22,913
Travelers Group Inc. 9,608 582,485
United States Bancorp 1,904 81,872
Wachovia Corp. 415 35,067
Waddell & Reed Financial Inc.
(Class A) 661 15,823
Wells Fargo & Co. 257 94,833
3,610,960
Healthcare -- 13.7%
Abbott Laboratories 9,080 371,145(h)
Allergan Inc. 3,094 143,484
American Home Products Corp. 3,713 192,148
Bristol-Myers Squibb Co. 4,955 569,515
Cardinal Health Inc. 2,243 210,281
Dentsply International Inc. 1,264 31,600
Eli Lilly & Co. 497 32,833
Henry Schein Inc. 189 8,718(a)
Johnson & Johnson 6,097 449,654
Lincare Holdings Inc. 1,506 63,346(a)
Merck & Co. Inc. 4,343 580,876
Mylan Laboratories Inc. 176 5,534
Omnicare Inc. 339 12,924
Pfizer Inc. 2,291 249,003
Pharmacia & Upjohn Inc. 1,792 82,656
Pharmerica Inc. 677 8,166(a)
Scherer (R.P.) Corp. 2,217 196,482(a)
- --------------------------------------------------------------------------------
NUMBER
OF SHARES VALUE
- --------------------------------------------------------------------------------
Schering Plough Corp. 1,989 $ 182,242
Shire Pharmaceuticals Group
PLC ADR 359 7,674(a)
Smithkline Beecham PLC ADR 1,351 81,735
Sun Healthcare Group Inc. 817 11,949(a)
Sybron International Corp. 1,819 45,930(a)
Tenet Healthcare Corp. 736 23,000(a)
Watson Pharmaceuticals Inc. 4,081 190,532(a)
3,751,427
Insurance -- 5.9%
American International Group Inc. 2,081 303,826
AXA-UAP 302 33,968
Chubb Corp. 1,550 124,581
Equitable Cos. Inc. 320 23,980
General Reinsurance Corp. 1,303 330,310
Hartford Financial Services
Group Inc. 415 47,466
Jefferson-Pilot Corp. 246 14,253
Lincoln National Corp. 1,174 107,274
Loews Corp. 2,117 184,444
Marsh & McLennan Cos. Inc. 3,113 188,112
Provident Cos. Inc. 3,582 123,579
Reliastar Financial Corp. 1,312 62,976
UNUM Corp. 1,165 64,657
1,609,426
Retail Trade -- 4.8%
Costco Cos. Inc. 1,206 76,053(a)
CVS Corp. 2,038 79,355
Dayton Hudson Corp. 3,799 184,252
Federated Department Stores Inc. 1,878 101,060(a)
Home Depot Inc. 2,861 237,642
Lowes Cos. Inc. 2,518 102,136
Sears Roebuck & Co. 3,008 183,676
Wal-Mart Stores Inc. 5,850 355,387
1,319,561
Technology - Electronics & Equipment -- 6.0%
3Com Corp. 233 7,150(a)
Analog Devices Inc. 1,309 32,152(a)
Applied Materials Inc. 1,001 29,529(a,h)
Cisco Systems Inc. 2,793 257,131(a)
EG & G Inc. 622 18,660
GTECH Holdings Corp. 433 14,587(a)
Hewlett Packard Co. 2,128 127,414
Intel Corp. 4,150 307,619
International Business Machines 4,221 484,624
Perkin Elmer Corp. 404 25,124
Pitney Bowes Inc. 4,434 213,386
Storage Technology Corp. 830 36,001(a)
Sun Microsystems Inc. 1,885 81,880(a)
Varian Associates Inc. 245 9,555
1,644,812
Technology - Software & Services -- 4.9%
Automatic Data Processing Inc. 3,349 244,058
Computer Associates
International Inc. 474 26,337
Computer Sciences Corp. 263 16,832
EMC Corp. 2,397 107,416(a)
Equifax Inc. 9,305 337,888
- --------------------------------------------------------------------------------
See Notes to Schedule of Investments and Notes to Financial Statements.
19
<PAGE>
U.S. EQUITY FUND JUNE 30, 1998 (UNAUDITED)
- --------------------------------------------------------------------------------
NUMBER
OF SHARES VALUE
- --------------------------------------------------------------------------------
First Data Corp. 11,802 $ 393,154
Microsoft Corp. 534 57,872(a)
Reuters Holdings PLC ADR 1,978 135,493
Symantec Corp. 452 11,808(a)
UNOVA Inc. 522 11,223(a)
1,342,081
Transportation -- 2.2%
AMR Corp. 340 28,305(a)
Burlington Northern Santa Fe 1,884 184,985
Canadian Pacific Ltd. 2,807 79,649
Continental Airlines Inc. (Class B) 2,433 148,109(a)
Delta Air Lines Inc. 395 51,054
FDX Corp. 378 23,719(a)
Pittston Brinks Group 735 27,103
U.S. Airways Group Inc. 132 10,461(a)
UAL Corp. 567 44,226(a)
597,611
Utilities -- 7.3%
Airtouch Communications Inc. 7,048 411,867(a)
American Electric Power Inc. 1,397 63,389
American Telephone &
Telegraph Corp. 2,336 133,444(h)
Bell Atlantic Corp. 3,298 150,471(h)
Bellsouth Corp. 1,094 73,435
CMS Energy Corp. 867 38,148
Duke Energy Corp. 2,148 127,269
Edison International 415 12,268
El Paso Natural Gas Co. 1,193 45,632
Florida Progress Corp. 1,170 48,116
FPL Group Inc. 974 61,362
GTE Corp. 1,688 93,895
Illinova Corp. 549 16,470
MCI Communications Corp. 302 17,554
MCN Energy Group Inc. 1,254 31,193
New Century Energies Inc. 791 35,941
Northern States Power Co. 974 27,881
Pinnacle West Capital Corp. 565 25,425
SBC Communications Inc. 7,073 282,920
Sprint Corp. 990 69,795
Telecomunicacoes Brasileiras
S.A. ADR 57 6,224
Teleport Communications
Group Inc. 302 16,384(a)
Texas Utilities Co. 452 18,815
U.S. WEST Inc. 1,358 63,826(a)
WorldCom Inc. 2,486 120,416
1,992,140
Total Common Stock
(Cost $22,681,379) 26,202,725
- --------------------------------------------------------------------------------
NUMBER
OF SHARES VALUE
- --------------------------------------------------------------------------------
Preferred Stock -- 0.5%
- --------------------------------------------------------------------------------
Microsoft Corp. (Series A), $2.20
(Cost $142,050) 1,579 $ 150,005
Total Investments in Securities
(Cost $22,823,429) 26,352,730
- --------------------------------------------------------------------------------
Short-Term Investments -- 3.6%
- --------------------------------------------------------------------------------
GEI Short Term Investment Fund
(Cost $974,445) 974,445 974,445
Other Assets and Liabilities,
net 0.0% (2,591)
- --------------------------------------------------------------------------------
NET ASSETS -- 100% $27,324,584
================================================================================
- --------------------------------------------------------------------------------
OTHER INFORMATION
- --------------------------------------------------------------------------------
The U.S. Equity Fund had the following long futures contracts open at June 30,
1998:
Number
Expiration of Underlying Unrealized
Description Date Contracts Face Value Gain
- --------------------------------------------------------------------------------
S&P 500 September 1998 2 $571,500 $5,963
- --------------------------------------------------------------------------------
See Notes to Schedule of Investments and Notes to Financial Statements.
20
<PAGE>
S&P 500 INDEX FUND
- --------------------------------------------------------------------------------
Q&A
James B. May leads a team of portfolio managers at State Street Global Advisors,
the sub-adviser, for the S&P 500 Index Fund. Since 1994, James has been an
investment officer and portfolio manager in the U.S. Structured Products Group
at State Street Bank and Trust Company with total assets under management
exceeding $470 billion. From 1991 to 1993, James served as an Investment Support
Analyst in the U.S. Passive Services Group at State Street. James holds a B.S.
in Finance from Bentley College and an M.B.A. from Boston College.
Q. HOW DID THE S&P 500 INDEX FUND PERFORM COMPARED TO ITS BENCHMARK AND LIPPER
PEER GROUP FOR THE SIX MONTHS ENDED JUNE 30, 1998?
A. The S&P 500 Index Fund posted a total return of 17.52% for the six months
ended June 30, 1998. For the same period, the S&P 500 Index returned 17.74%
and our Lipper peer group of 31 S&P 500 Index Objective annuity funds
returned 17.42%.
Q. WHY DID THE FUND UNDERPERFORM ITS BENCHMARK?
A. The S&P 500 Index is an unmanaged index and does not reflect the actual
cost of investing in the instruments that comprise the index or expenses
related to managing a mutual fund. If these expenses (0.22% for the six
month period ended June 30, 1998) were taken into account, the fund's
performance would track that of the S&P 500 Index.
Q. WHAT HAS YOUR INVESTMENT STRATEGY BEEN?
A. We continue to utilize a full replication strategy to manage the S&P 500
Index Fund. With this strategy, all 500 constituents of the S&P 500 Index
are owned by the fund in the approximate capitalization weight of the S&P
500 Index. This methodology provided consistent tracking with the S&P 500
Index.
Q. WHAT DOMESTIC AND WORLD EVENTS HAD A MAJOR IMPACT ON THE FINANCIAL MARKETS
IN THE PAST SIX MONTHS AND HOW DID THIS IMPACT YOUR FUND?
A. The Asian financial crisis was a major concern for the U. S. equity markets
over the past six months. The uncertainty of the final fallout from the
crisis pushed many investors to well known large cap stocks believing that
these securities, most of which are in the S&P 500 Index, should fare
better than their small cap counterparts if the markets experience any
downturn. In a more positive light, interest rates continued to remain low
for the first six months of 1998 while consumer confidence remained high.
Although the U. S. equity markets experienced increased volatility, these
three factors combined to help the S&P 500 post healthy returns.
Q. WHAT IS THE OUTLOOK FOR THE MARKET AND HOW HAVE YOU POSITIONED THE FUND
GOING FORWARD?
A. With the onset of the recession in Japan, the full impact of the Asian
crisis has yet to be felt. As its major trading partner, the severity and
duration of the difficulty in Japan will have repercussions on the U.S.
economy. If the Japanese economy does not fair well in the coming months,
the U.S. economy may experience slower economic growth and U.S. firms may
experience lower-than-expected earnings. The uncertainty of the situation
may also result in an increasingly volatile U.S. equity market. With the
passively managed strategy of the fund, it will remain properly positioned
to track the return of the S&P 500 Index.
S&P 500 IS A REGISTERED TRADEMARK OF THE MCGRAW-HILL COMPANIES, INC. AND HAS
BEEN LICENSED FOR USE. THE S&P 500 INDEX FUND IS NOT SPONSORED, ENDORSED, SOLD
OR PROMOTED BY S&P AND S&P MAKES NO REPRESENTATION REGARDING THE ADVISABILITY OF
INVESTING IN THE S&P 500 INDEX FUND.
21
<PAGE>
S&P 500 INDEX FUND
- --------------------------------------------------------------------------------
================================================================================
TOP TEN LARGEST HOLDINGS
AT JUNE 30, 1998
================================================================================
General Electric Co. 3.22%
- --------------------------------------------------------------------------------
Microsoft Corp. 2.89%
- --------------------------------------------------------------------------------
Coca Cola Co. 2.28%
- --------------------------------------------------------------------------------
Exxon Corp. 1.89%
- --------------------------------------------------------------------------------
Merck & Co. Inc. 1.73%
- --------------------------------------------------------------------------------
Pfizer Inc. 1.54%
- --------------------------------------------------------------------------------
Wal-Mart Stores Inc. 1.48%
- --------------------------------------------------------------------------------
Intel Corp. 1.36%
- --------------------------------------------------------------------------------
Procter & Gamble Co. 1.32%
- --------------------------------------------------------------------------------
Royal Dutch Petroleum Co. ADR 1.27%
- --------------------------------------------------------------------------------
================================================================================
AVERAGE ANNUAL TOTAL RETURN
FOR THE PERIODS ENDED JUNE 30, 1998
================================================================================
SIX ONE FIVE TEN
MONTH YEAR YEAR YEAR
- --------------------------------------------------------------------------------
S&P 500 Index
Fund 17.52% 29.69% 22.21% 17.37%
- --------------------------------------------------------------------------------
S&P 500 Index 17.74% 30.20% 23.08% 18.56%
- --------------------------------------------------------------------------------
Lipper peer
group average* 17.42% 29.59% 22.52% 17.93%
- --------------------------------------------------------------------------------
Commencement date 4/15/85
================================================================================
INVESTMENT PROFILE
A fund designed for investors who seek long-term growth of capital and
accumulation of income by investing in common stocks comprised in the Standard &
Poor's 500 Composite Stock Price Index.
================================================================================
PORTFOLIO COMPOSITION
AS OF JUNE 30, 1998
================================================================================
[PIE CHART OMITTED]
CONSUMER 18.5%
FINANCIAL 13.5%
CASH & OTHER 12.9%
HEALTHCARE 11.7%
UTILITIES 9.5%
TECHNOLOGY - ELECTRONICS & EQUIPMENT 9.3%
CAPITAL GOODS 8.7%
ENERGY 7.1%
RETAIL TRADE 5.4%
SHORT-TERM INVESTMENTS 3.4%
================================================================================
DURING THE SIX MONTH PERIOD ENDED
JUNE 30, 1998
================================================================================
TOP THREE PERFORMERS:
Dell Computer Corp. +121%
Apple Computer +119%
Lucent Technologies Inc. +108%
BOTTOM THREE PERFORMERS:
National Semiconductor Corp. -49%
Ikon Office Solutions Inc. -48%
Sealed Air Corp. -40%
* Lipper performance comparisons are based on average annual total returns
for the periods indicated in the S&P 500 Objective peer group consisting of
31, 29, 18 and 7 underlying annuity funds for the six month, one year, five
year, and ten year periods, respectively.
See page 46 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.
22
<PAGE>
SCHEDULE OF INVESTMENTS JUNE 30, 1998 (UNAUDITED)
- --------------------------------------------------------------------------------
S&P 500 INDEX FUND
- --------------------------------------------------------------------------------
NUMBER
OF SHARES VALUE
- --------------------------------------------------------------------------------
Common Stock -- 96.7%
- --------------------------------------------------------------------------------
Basic Materials -- 3.8%
Air Products & Chemicals Inc. 6,432 $ 257,280(h)
Alcan Aluminum Ltd. 6,177 170,640(h)
Allegheny Teldyne Inc. 5,102 116,708(h)
Aluminum Co. of America 4,588 302,521(h)
Armco Inc. 2,591 16,518(a)
Asarco Inc. 838 18,646
Avery Dennison Corp. 3,255 174,956
Barrick Gold Corp. 10,033 192,508(h)
Battle Mountain Gold Co. 5,453 32,377
Bethlehem Steel Corp. 2,666 33,158(a)
Boise Cascade Corp. 1,323 43,328
Champion International Corp. 2,625 129,117
Cyprus Amax Minerals Co. 2,191 29,031
Dow Chemical Co. 5,920 572,390
Du Pont de Nemours (E.I.) & Co. 30,311 2,261,958
Eastman Chemical Co. 2,159 134,398
Ecolab Inc. 3,126 96,906
Engelhard Corp. 3,446 69,781
FMC Corp. 853 58,164(a)
Fort James Corp. 5,984 266,288
Freeport McMoran Copper & Gold
Inc. (Class B) 4,584 69,620
Georgia Pacific Corp. 2,664 157,009
Goodrich (B.F.) Co. 2,001 99,300
Great Lakes Chemical Corp. 1,397 55,094
Hercules Inc. 2,428 99,851
Homestake Mining Co. 5,589 57,986
Inco Ltd. 4,312 58,751
Inland Steel Industries Inc. 1,131 31,880
International Paper Co. 8,181 351,783
Louisiana Pacific Corp. 2,822 51,502
Mead Corp. 2,458 78,041
Millipore Corp. 945 25,751
Monsanto Co. 16,179 904,002
Morton International Inc. 3,123 78,075
Nalco Chemical Co. 1,805 63,401
Newmont Mining Corp. 3,728 88,074
Nucor Corp. 2,409 110,814
Pall Corp. 2,978 61,049
Phelps Dodge Corp. 1,567 89,613
Placer Dome Inc. 6,374 74,894
Potlatch Corp. 730 30,660
PPG Industries Inc. 4,837 336,474
Praxair Inc. 4,135 193,570
Reynolds Metals Co. 1,785 99,848
Rohm & Haas Co. 1,654 171,913
Sealed Air Corp. 1,957 71,920(a)
Sigma-Aldrich Corp. 2,991 105,059
Union Camp Corp. 1,939 96,223
Union Carbide Corp. 3,701 197,541
USX-US Steel Group Inc. 2,065 68,145
W.R. Grace & Co. 1,787 30,491(a)
Westvaco Corp. 2,420 68,365
Weyerhaeuser Co. 5,560 256,802
Willamette Industries Inc. 2,950 94,400
Worthington Industries Inc. 2,141 32,249
9,436,823
- --------------------------------------------------------------------------------
NUMBER
OF SHARES VALUE
- --------------------------------------------------------------------------------
Capital Goods -- 8.7%
Aeroquip-Vickers Inc. 717 $ 41,855
AlliedSignal Inc. 15,144 672,015(h)
AMP Inc. 5,977 205,459(h)
Armstrong World Industries Inc. 1,015 68,386
Boeing Co. 27,116 1,208,357
Browning-Ferris Industries Inc. 4,680 162,630
Case Corp. 1,795 86,609
Caterpillar Inc. 10,016 529,596
CBS Corp. 19,170 608,647
Centex Corp. 1,460 55,115
Cincinnati Milacron Inc. 994 24,167
Cooper Industries Inc. 3,171 174,207
Corning Inc. 6,313 219,377
Crane Co. 1,085 52,690
Cummins Engine Co. Inc. 889 45,561
Deere & Co. 6,520 344,745
Dover Corp. 5,758 197,212
Eaton Corp. 1,850 143,838
Emerson Electric Co. 11,874 716,893
Fleetwood Enterprises Inc. 830 33,200
Fluor Corp. 2,052 104,652
Foster Wheeler Corp. 1,006 21,566
General Dynamics Corp. 3,482 161,913
General Electric Co. 87,165 7,932,015
General Signal Corp. 1,144 41,184
Grainger (W.W.) Inc. 2,782 138,578
Harnischfeger Industries Inc. 1,133 32,078
Honeywell Inc. 3,492 291,800
Illinois Tool Works Inc. 6,897 459,944
Ingersoll Rand Co. 4,299 189,425
Johnson Controls Inc. 2,341 133,876
Kaufman & Broad Home Corp. 880 27,940
Laidlaw Environmental Services Inc. 7,888 96,135
Lockheed Martin Corp. 5,276 558,596
Masco Corp. 4,495 271,947
McDermott International Inc. 1,719 59,198
Minnesota Mining &
Manufacturing Co. 10,940 899,131
Nacco Industries Inc. 222 28,694
National Service Industries Inc. 976 49,654
Navistar International Corp. Inc. 1,595 46,056(a)
Northrop Grumman Corp. 1,961 202,228
Owens Corning 1,176 47,996
PACCAR Inc. 2,160 112,860
Parker Hannifin Corp. 3,115 118,759
Pulte Corp. 822 24,557
Raychem Corp. 2,032 60,071
Raytheon Co. (Class B) 8,924 527,631
Rockwell International Corp. 5,068 243,581
Sherwin-Williams Co. 4,763 157,774
Tenneco Inc. 4,448 169,302
Textron Inc. 4,468 320,300
Thermo Electron Corp. 4,228 144,545(a)
Thomas & Betts Corp. 1,393 68,605
Timken Co. 1,531 47,174
Tyco International Ltd. 15,700 989,100
United Technologies Corp. 6,043 558,977
Waste Management Inc. 12,720 445,200
21,373,601
Consumer - Cyclical -- 8.1%
American Greetings Corp.
(Class A) 1,817 92,553(h)
Black & Decker Corp. 2,507 152,927
Block H & R Inc. 2,752 115,928
- --------------------------------------------------------------------------------
See Notes to Schedule of Investments and Notes to Financial Statements.
23
<PAGE>
S&P 500 INDEX FUND JUNE 30, 1998 (UNAUDITED)
- --------------------------------------------------------------------------------
NUMBER
OF SHARES VALUE
- --------------------------------------------------------------------------------
Briggs & Stratton Corp. 534 $ 19,992
Brunswick Corp. 2,368 58,608
Cendant Corp. 22,807 476,096(a)
Chrysler Corp. 17,290 974,724
Clear Channel Communications Inc. 3,400 371,025(a)
Cognizant Corp. 4,242 267,246
Comcast Corp. (Class A) 9,872 400,741
Cooper Tire & Rubber Co. 1,823 37,599
Dana Corp. 2,919 156,167
Darden Restaurants Inc. 3,586 56,928
Deluxe Corp. 1,929 69,082
Donnelley (R.R.) & Sons Co. 3,852 176,229
Dow Jones & Co. Inc. 2,542 141,717
Dun & Bradstreet Corp. 4,442 160,467
Eastman Kodak Co. 8,475 619,205
Echlin Inc. 1,531 75,115
Ford Motor Co. 32,600 1,923,400
Fruit of the Loom Inc. 1,647 54,660(a)
Gannett Inc. 7,608 540,643
General Motors Corp. 18,194 1,215,587
Genuine Parts Co. 4,896 169,218
Goodyear Tire & Rubber Co. 4,419 284,749
Harrahs Entertainment Inc. 2,735 63,589(a)
Hasbro Inc. 3,531 138,812
Hilton Hotels Corp. 6,588 187,758
Interpublic Group Cos. Inc. 3,715 225,454
ITT Industries Inc. 3,163 118,217
Jostens Inc. 776 18,527
King World Productions Inc. 1,714 43,707
Knight-Ridder Inc. 2,000 110,125
Liz Claiborne Inc. 1,765 92,221
Marriott International Inc. 6,922 224,100
Mattel Inc. 7,911 334,734
Maytag Corp. 2,395 118,253
McDonald's Corp. 18,317 1,263,873
McGraw Hill Cos. Inc. 2,585 210,839
Meredith Corp. 1,298 60,925
Mirage Resorts Inc. 5,300 112,956(a)
New York Times Co. 2,544 201,612
Newell Co. 4,271 212,749
Nike Inc. 7,604 370,220
Omnicom Group 4,600 229,425
Polaroid Corp. 978 34,780
Reebok International Ltd. 1,330 36,824(a)
Rubbermaid Inc. 3,936 130,626
Russell Corp. 770 23,244
Service Corp. International 6,918 296,609
Snap-On Inc. 1,409 51,076
Springs Industries Inc. 400 18,450
Stanley Works 2,126 88,362
Tele-Communications Inc. (Series A) 13,325 512,180(a)
Time Warner Inc. 15,888 1,357,431
Times Mirror Co. 2,295 144,298
Tribune Co. 3,238 222,815
Tricon Global Restaurants Inc. 4,311 136,605(a)
TRW Inc. 3,195 174,527
Tupperware Corp. 1,428 40,163
VF Corp. 3,302 170,053
Viacom Inc. (Class B) 9,482 552,326(a)
Walt Disney Co. 18,279 1,920,437
Wendy's International Inc. 3,131 73,579
Whirlpool Corp. 2,109 144,994
Xerox Corp. 8,745 888,711
19,966,792
Consumer - Stable -- 10.4%
Adolph Coors Co. 765 26,010
Alberto-Culver Co. 1,333 38,657
- --------------------------------------------------------------------------------
NUMBER
OF SHARES VALUE
- --------------------------------------------------------------------------------
Anheuser Busch Cos. Inc. 12,754 $ 601,829(h)
Archer-Daniels Midland Co. 15,735 304,866
Avon Products Inc. 3,682 285,355
Ball Corp. 754 30,301
Bemis Inc. 1,281 52,361
Bestfoods 7,890 458,113
Brown-Forman Corp. 1,929 123,938
Campbell Soup Co. 12,276 652,163
Clorox Co. 2,942 280,593
Coca Cola Co. 65,851 5,630,260(h)
Colgate-Palmolive Co. 7,886 693,968
Conagra Inc. 12,868 407,755
Crown Cork & Seal Inc. 3,314 157,415
Fortune Brands Inc. 4,741 182,232
General Mills Inc. 4,311 294,765
Gillette Co. 30,066 1,704,366
Heinz (H.J.) Co. 9,797 549,857
Hershey Foods Corp. 3,692 254,748
International Flavours 2,647 114,979
Kellogg Co. 11,090 416,568
Kimberly Clark Corp. 14,836 680,602
Owens Illinois Inc. 4,100 183,475(a)
Pepsico Inc. 40,210 1,656,149
Philip Morris Cos. Inc. 64,979 2,558,548
Pioneer Hi-Bred International Inc. 6,800 281,350
Procter & Gamble Co. 35,788 3,258,945
Quaker Oats Co. 3,528 193,820
Ralston Purina Co. 2,786 325,440
Sara Lee Corp. 12,681 709,343
Seagram Ltd. 9,235 378,058
Stone Container Corp. 2,379 37,172
Supervalu Inc. 1,600 71,000
Sysco Corp. 8,772 224,783
Temple Inland Inc. 1,326 71,438
Unilever N.V 17,256 1,362,145
UST Inc. 4,579 123,633
Wrigley (W.M.) Junior Co. 3,134 307,132
25,684,132
Energy -- 7.1%
Amerada Hess Corp. 2,490 135,238(h)
Amoco Corp. 25,946 1,080,002(h)
Anadarko Petroleum Co. 1,600 107,500
Apache Corp. 3,000 94,500
Ashland Oil Inc. 2,107 108,774
Atlantic Richfield Co. 8,709 680,391(h)
Baker Hughes Inc. 4,600 158,987
Burlington Resources Inc. 4,741 204,159
Chevron Corp. 17,441 1,448,693
Dresser Industries Inc. 4,624 203,745
Exxon Corp. 65,289 4,655,922
Halliburton Co. 6,836 304,629
Helmerich & Payne Inc. 1,242 27,635
Kerr-McGee Corp. 1,123 64,994
Mobil Corp. 20,762 1,590,888
Occidental Petroleum Corp. 9,910 267,570
ONEOK Inc. 707 28,192
Oryx Energy Co. 2,564 56,729(a)
Pennzoil Co. 1,094 55,384
Phillips Petroleum Co. 6,829 329,072
Rowan Cos. Inc. 2,077 40,372(a)
Royal Dutch Petroleum Co. ADR 57,316 3,141,633
Schlumberger Ltd. 13,254 905,414
Sempra Energy 3,262 90,513(a)
Sun Co. Inc. 2,588 100,447
Texaco Inc. 14,596 871,199
Union Pacific Resources Group Inc. 6,829 119,934
Unocal Corp. 6,338 226,583
- --------------------------------------------------------------------------------
See Notes to Schedule of Investments and Notes to Financial Statements.
24
<PAGE>
SCHEDULE OF INVESTMENTS JUNE 30, 1998 (UNAUDITED)
- --------------------------------------------------------------------------------
NUMBER
OF SHARES VALUE
- --------------------------------------------------------------------------------
USX-Marathon Group 7,492 $ 257,069
Western Atlas Inc. 1,500 127,312
17,483,480
Financial -- 13.5%
Ahmanson (H.F.) & Co. 3,074 218,254(h)
American Express Co. 12,374 1,410,636(h)
American General Corp. 6,903 491,409(h)
Associates First Capital Corp. 9,326 716,936
Banc One Corp. 18,670 1,042,019(h)
Bank of New York Inc. 10,255 622,350(h)
BankAmerica Corp. 18,414 1,591,660
BankBoston Corp. 7,766 431,984
Bankers Trust New York Corp. 2,619 303,968
BB&T Corp. 3,700 250,213
Beneficial Corp. 1,406 215,382
Charles Schwab Corp. 7,458 242,385
Chase Manhattan Corp. 22,654 1,710,377
Citicorp 12,116 1,808,313
Comerica Inc. 4,056 268,710
Countrywide Credit Industries 2,700 137,025
Federal Home Loan Mortgage Corp. 18,565 873,715
Federal National Mortgage Assoc 27,676 1,681,317
Fifth Third Bancorp 6,856 431,928
First Chicago NBD Corp. 7,760 687,730
First Union Corp. 26,048 1,517,296
Fleet Financial Group Inc. 7,516 627,586
Franklin Resources Inc. 6,700 361,800
Golden West Financial Corp. 1,455 154,685
Green Tree Financial Corp. 3,751 160,590
Household International Inc. 8,400 417,900
Huntington Bancshares Inc. 5,200 174,200
KeyCorp 11,628 414,247
Lehman Brothers Holdings Inc. 3,100 240,444
MBIA Inc. 2,490 186,439
Mellon Bank Corp. 6,864 477,906
Mercantile Bancorp. Inc. 3,400 171,275
Merrill Lynch & Co. Inc. 9,317 859,493
MGIC Investment Corp. 3,059 174,554
Morgan (J.P.) & Co. Inc. 4,864 569,696
Morgan Stanley, Dean Witter 16,198 1,480,092
National City Corp. 8,832 627,072
NationsBank Corp. 25,772 1,971,558
Northern Trust Corp. 2,900 221,125
Norwest Corp. 20,158 753,405
PNC Bank Corp. 8,008 430,930
Providian Financial Corp. 2,598 204,105
Republic of New York Corp. 2,946 185,414
State Street Corp. 4,300 298,850
Summit Bancorp 5,000 237,500
Suntrust Banks Inc. 5,629 457,708
Synovus Financial Corp. 6,850 162,688
Transamerica Corp. 1,788 205,844
Travelers Group Inc. 30,845 1,869,978
United States Bancorp 19,627 843,961
Wachovia Corp. 5,666 478,777
Washington Mutual Inc. 10,150 440,891
Wells Fargo & Co. 2,346 865,674
33,379,994
Healthcare -- 11.7%
Abbott Laboratories 41,096 1,679,799(h)
Aetna Inc. 3,852 293,234(h)
Allergan Inc. 1,576 73,087
- --------------------------------------------------------------------------------
NUMBER
OF SHARES VALUE
- --------------------------------------------------------------------------------
Alza Corp. 2,561 $ 110,763(h)
American Home Products Corp. 35,254 1,824,394(h)
Amgen Inc. 7,148 467,301(h)
Bard (C.R.) Inc. 1,251 47,616
Bausch & Lomb Inc. 1,328 66,566
Baxter International Inc. 7,574 407,576
Becton Dickinson & Co. 3,435 266,642
Biomet Inc. 3,107 102,725
Boston Scientific Corp. 5,294 379,183(a)
Bristol-Myers Squibb Co. 26,554 3,052,050(h)
Cardinal Health Inc. 2,849 267,094
Columbia/HCA Healthcare Corp. 17,423 507,445(h)
Eli Lilly & Co. 29,416 1,943,294
Guidant Corp. 4,112 293,237
HBO & Co. 11,800 415,950
Healthsouth Corp. 10,836 289,186(a)
Humana Inc. 4,527 141,186(a)
Johnson & Johnson 35,983 2,653,746
Mallinckrodt Inc. 1,704 50,588
Manor Care Inc. 1,537 59,078
Medtronic Inc. 12,566 801,083
Merck & Co. Inc. 31,875 4,263,281
Pfizer Inc. 34,848 3,787,542
Pharmacia & Upjohn Inc. 13,785 635,833
Schering Plough Corp. 19,729 1,807,670(h)
St. Jude Medical Inc. 2,323 85,515(a)
Tenet Healthcare Corp. 8,297 259,281(a)
United Healthcare Corp. 5,147 326,835
United States Surgical Corp. 2,045 93,303
Warner-Lambert Co. 21,947 1,522,573
28,974,656
Insurance -- 3.5%
Allstate Corp. 11,438 1,047,292(h)
American International Group Inc. 18,715 2,732,390(h)
Aon Corp. 4,624 324,836
Chubb Corp. 4,397 353,409
CIGNA Corp. 5,763 397,647
Cincinnati Financial Corp. 4,200 161,175
Conseco Inc. 5,247 245,297
General Reinsurance Corp. 2,028 514,098
Hartford Financial Services
Group Inc. 3,052 349,073
Jefferson-Pilot Corp. 2,782 161,182
Lincoln National Corp. 2,656 242,692
Loews Corp. 3,016 262,769
Marsh & McLennan Cos. Inc. 6,954 420,282
Progressive Corp. 1,900 267,900
Safeco Corp. 3,881 176,343
St. Paul Cos. Inc. 6,081 255,794
SunAmerica Inc. 5,100 292,931
Torchmark Corp. 3,800 173,850
UNUM Corp. 3,782 209,901
8,588,861
Retail Trade -- 5.4%
Albertsons Inc. 6,647 344,398(h)
American Stores Co. 7,652 185,083(h)
Autozone Inc. 4,144 132,349(a)
Circuit City Stores Inc. 2,463 115,453
Consolidated Stores Corp. 2,600 94,250(a)
Costco Cos. Inc. 5,833 367,844(a)
CVS Corp. 10,356 403,237
Dayton Hudson Corp. 11,876 575,986
Dillards Inc. 2,795 115,818
Federated Department Stores Inc. 5,804 312,328(a)
- --------------------------------------------------------------------------------
See Notes to Schedule of Investments and Notes to Financial Statements.
25
<PAGE>
S&P 500 INDEX FUND JUNE 30, 1998 (UNAUDITED)
- --------------------------------------------------------------------------------
NUMBER
OF SHARES VALUE
- --------------------------------------------------------------------------------
Gap Inc. 10,653 $ 656,491
Great Atlantic & Pacific Tea Co.Inc 770 25,458
Harcourt General Inc. 1,761 104,780
Home Depot Inc. 19,656 1,632,676
J.C. Penney Company Inc. 6,587 476,322
K Mart Corp. 12,631 243,147(a)
Kroger Co. 7,065 302,912(a)
Limited Inc. 6,547 216,869
Longs Drug Stores Corp. 782 22,580
Lowes Cos. Inc. 9,364 379,827
May Department Stores Co. 6,256 409,768
Mercantile Stores Inc. 849 67,018
Nordstrom Inc. 2,096 161,916
Pep Boys Manny Moe & Jack 1,803 34,144
Rite Aid Corp. 7,158 268,872
Sears Roebuck & Co. 10,545 643,904
Tandy Corp. 2,728 144,755
TJX Cos. Inc. 8,640 208,440
Toys 'R Us Inc. 7,435 175,187(a)
Venator Group Inc. 3,400 65,025(a)
Wal-Mart Stores Inc. 60,012 3,645,729
Walgreen Co. 13,550 559,784
Winn Dixie Stores Inc. 3,940 201,679
13,294,029
Technology - Electronics & Equipment -- 9.3%
3Com Corp. 9,154 280,913(a)
Advanced Micro Devices Inc. 3,337 56,938(a,h)
Andrew Corp. 2,156 38,943(a)
Apple Computer 3,960 113,603(a)
Applied Materials Inc. 9,700 286,150(a)
Ascend Communications Inc. 5,100 252,769(a)
Bay Networks Inc. 5,745 185,276(a)
Cabletron Systems Inc. 3,726 50,068(a)
Cisco Systems Inc. 27,234 2,507,230(a)
Compaq Computer Corp. 43,905 1,245,816
Data General Corp. 895 13,369(a)
Dell Computer Corp. 17,312 1,606,770(a)
DSC Communications Corp. 2,850 85,500(a)
EG & G Inc. 1,205 36,150
Gateway 2000 Inc. 4,100 207,563(a)
General Instrument Corp. 4,543 123,513(a)
Harris Corp. 2,062 92,146
Hewlett Packard Co. 27,541 1,649,017
Ikon Office Solutions Inc. 3,210 46,746
Intel Corp. 45,302 3,358,011
International Business Machines 25,265 2,900,738
KLA-Tencor Corp. 2,000 55,375(a)
LSI Logic Corp. 3,396 78,320(a)
Lucent Technologies Inc. 35,054 2,916,055
MediaOne Group Inc. 16,226 712,930
Micron Technology Inc. 5,427 134,657(a)
Moore Corp. Ltd. 2,074 27,481
Motorola Inc. 15,951 838,424
National Semiconductor Corp. 3,883 51,207(a)
Northern Telecom Ltd. 13,814 783,944
Perkin Elmer Corp. 1,150 71,516
Pitney Bowes Inc. 7,132 343,227
Scientific-Atlanta Inc. 1,853 47,020
Seagate Technology 6,390 152,162(a)
Silicon Graphics Inc. 4,633 56,175(a)
Sun Microsystems Inc. 10,195 442,845(a)
Tektronix Inc. 1,238 43,794
Tellabs Inc. 4,976 356,406(a)
Texas Instruments Inc. 10,584 617,179
22,865,946
- --------------------------------------------------------------------------------
NUMBER
OF SHARES VALUE
- --------------------------------------------------------------------------------
Technology - Software & Services -- 4.6%
Adobe Systems Inc. 1,598 $ 67,815(h)
Autodesk Inc. 1,312 50,676
Automatic Data Processing Inc. 8,059 587,300
Computer Associates
International Inc. 14,581 810,157
Computer Sciences Corp. 4,082 261,248
EMC Corp. 13,536 606,582(a)
Equifax Inc. 4,000 145,250
First Data Corp. 11,681 389,123
Microsoft Corp. 65,728 7,123,272(a)
Novell Inc. 9,866 125,792(a)
Oracle Systems Corp. 25,572 628,112(a)
Parametric Technology Corp. 7,306 198,175(a)
Shared Medical System Corp. 653 47,955
Unisys Corp. 6,909 195,179(a)
11,236,636
Transportation -- 1.1%
AMR Corp. 5,014 417,415(a,h)
Burlington Northern Santa Fe 4,183 410,718
CSX Corp. 5,738 261,079
Delta Air Lines Inc. 1,991 257,337
FDX Corp. 3,830 240,333(a)
Norfolk Southern Corp. 10,101 301,136
Ryder System Inc. 1,831 57,791
Southwest Airlines Co. 5,896 174,669
U.S. Airways Group Inc. 2,707 214,530(a)
Union Pacific Corp. N.V 6,554 289,195
2,624,203
Utilities -- 9.5%
Airtouch Communications Inc. 15,486 904,963(a,h)
Alltel Corp. 4,994 232,221(h)
Ameren Corp. 3,642 144,770
American Electric Power Inc. 4,897 222,201(h)
American Telephone & Telegraph
Corp. 43,392 2,478,768(h)
Ameritech Corp. 29,604 1,328,479(h)
Baltimore Gas & Electric Co. 3,703 115,024
Bell Atlantic Corp. 41,468 1,891,977(h)
Bellsouth Corp. 26,299 1,765,320(h)
Carolina Power & Light Co. 4,060 176,102
Central & South West Corp. 5,548 149,103
CINergy Corp. 4,153 145,355
Coastal Corp. 2,871 200,432
Columbia Gas Systems Inc. 2,285 127,075
Consolidated Edison Inc. 6,107 281,304
Consolidated Natural Gas Co. 2,515 148,071
Dominion Resources Inc. 4,989 203,302
DTE Energy Co. 3,766 152,052
Duke Energy Corp. 9,666 572,710
Eastern Enterprises 402 17,236
Edison International 9,842 290,954
Enron Corp. 8,900 481,156
Entergy Corp. 6,347 182,476
FirstEnergy Corp. 6,277 193,018
FPL Group Inc. 4,931 310,653
Frontier Corp. 4,343 136,805
GPU Inc. 3,500 132,344
GTE Corp. 25,861 1,438,518
Houston Industries Inc. 8,218 253,731
MCI Communications Corp. 19,525 1,134,891
Nextel Communications Inc. 7,000 174,125(a)
Niagara Mohawk Power Corp. 5,254 78,482(a)
Nicor Inc. 1,143 45,863
- --------------------------------------------------------------------------------
See Notes to Schedule of Investments and Notes to Financial Statements.
26
<PAGE>
SCHEDULE OF INVESTMENTS JUNE 30, 1998 (UNAUDITED)
- --------------------------------------------------------------------------------
NUMBER
OF SHARES VALUE
- --------------------------------------------------------------------------------
Northern States Power Co. 3,960 $ 113,355
Pacificorp 7,799 176,452
Peco Energy Co. 5,822 169,930
Peoples Energy Corp. 721 27,849
PG&E Corp. 10,754 339,423
PP&L Resources Inc. 4,222 95,787
Public Service Enterprise Group 6,159 212,101
SBC Communications Inc. 49,280 1,971,200
Sonat Inc. 2,687 103,785
Southern Co. 18,658 516,593
Sprint Corp. 11,426 805,533
Texas Utilities Co. 6,386 265,817
U.S. WEST Inc. 13,388 629,246(a)
Unicom Corp. 5,919 207,535
Williams Cos. Inc. 11,186 377,527
WorldCom Inc. 27,698 1,341,622
23,463,236
Total Common Stock
(Cost $185,152,436) 238,372,389
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Preferred Stock -- 0.2%
- --------------------------------------------------------------------------------
Ceridian Corp. 1,804 105,985(a)
MBNA Corp. 13,183 435,039
Total Preferred Stock
(Cost $383,914) 541,024
Total Investments in Securities
(Cost $185,536,350) 238,913,413
- --------------------------------------------------------------------------------
NUMBER
OF SHARES VALUE
- --------------------------------------------------------------------------------
Short-Term Investments -- 3.4%
- --------------------------------------------------------------------------------
GEI Short Term Investment Fund 2,105,910 $ 2,105,910
Money Market Obligations Trust 4,687,942 2,690,433
Short Term Investment Co. 720,037 2,717,546
PRINCIPAL
AMOUNT VALUE
- --------------------------------------------------------------------------------
U.S. GOVERNMENT
U.S. Treasury Bill
4.95% 9/17/98 $ 700,000 692,500
Total Short-Term Investments
(Cost $8,206,389) 8,206,389
Other Assets and Liabilities,
net (0.3%) (628,887)
- --------------------------------------------------------------------------------
NET ASSETS -- 100% $246,490,915
================================================================================
- --------------------------------------------------------------------------------
OTHER INFORMATION
- --------------------------------------------------------------------------------
The S&P 500 Index Fund had the following long futures contracts open at June 30,
1998:
Number
Expiration of Underlying Unrealized
Description Date Contracts Face Value Gain
- --------------------------------------------------------------------------------
S&P 500 September 1998 25 $7,143,750 $223,125
- --------------------------------------------------------------------------------
See Notes to Schedule of Investments and Notes to Financial Statements.
27
<PAGE>
TOTAL RETURN FUND
- --------------------------------------------------------------------------------
Q&A
David Carlson, Ralph Layman and Robert MacDougall share portfolio management
responsibility for the Total Return Fund. Dave Carlson manages the domestic
equity portion, Ralph Layman manages the international equity portion and Bob
MacDougall manages the fixed income portion of the Fund. Please refer to page 3
for Ralph's biographical details, page 10 for Dave's biographical details, and
page 38 for Bob's biographical details.
Q. HOW DID THE TOTAL RETURN FUND PERFORM COMPARED TO ITS BENCHMARK AND LIPPER
PEER GROUP FOR THE SIX MONTHS ENDED JUNE 30, 1998?
A. The Total Return Fund posted a total return of 10.98% for the six months
ended June 30, 1998. For the same period, the S&P 500 Index, as a measure
of U.S. stocks, returned 17.74% and the LB Aggregate, as a measure of fixed
income securities, returned 3.92% while our Lipper peer group of 91
Flexible annuity funds returned 9.73%.
Q. WHAT DROVE THE FUND'S PERFORMANCE?
A. The fund allocates its investments among several asset classes,
specifically domestic equities, foreign equities, and fixed income
securities. The fund's performance is therefore driven by the weighting of
and the market movement within each asset class. Although the fund's asset
allocation remained similar relative to its position at the end of 1997,
individual markets shifted significantly during the past six months.
Domestic equities continued to provide strong returns; rallies in the bond
market pushed yields lower; and foreign markets, which could only manage a
dismal 1.78% return in 1997 as measured by the MSCI EAFE, rebounded during
the first half of 1998, returning 15.93%.
Q. WHICH INVESTMENTS STAND OUT?
A. In domestic equities, the financial sector provided good performance for
the fund, most notably were American Express, General Reinsurance and
Morgan Stanley, Dean Witter. In foreign equities, telecommunication stocks
such as, Nokia and Mannesman, contributed to the fund's performance.
Q. WHAT EVENTS HAD A MAJOR IMPACT ON THE FINANCIAL MARKETS IN THE PAST SIX
MONTHS AND HOW DID THIS IMPACT YOUR FUND?
A. The Asian crisis continues to play havoc with the financial markets during
the past six months. As investors await the final fallout, many have flown
to the safety and quality of U.S. stocks and bonds. This influx of cash
helped bolster the domestic equity market, even in the face of numerous
earning downgrades, as well as rallied the bond market. As our fund is
allocated among several asset classes, it benefited from the good
performance in both the domestic equity and bond markets. Due to our
underweighting in Asian stocks, the fund has limited its exposure to the
poor performance from that region.
Q. WHAT IS THE OUTLOOK FOR THE MARKET AND HOW HAVE YOU POSITIONED THE FUND
GOING FORWARD?
A. It appears that the U.S. is headed for a slowdown based on Asia's recession
and the strong dollar's impact on exports. Analysts earnings estimates for
the second half of the year are quite optimistic, setting the stage for
what we believe could be additional disappointments. Considering this risk,
along with expensive valuations, stock selection will become paramount in
achieving the fund's objective. Interest, unemployment and inflation rates
continue to remain at low levels. Provided that these elements remain in
place, we believe that bonds should provide good value. Although the Asian
financial crisis has depressed many foreign markets, we believe that
recovery of these markets are forthcoming as significant structural changes
are taken. The formal announcement in May of the European Union strengthen
economic prospects in the region. We believe European markets continue to
offer strong value on a global basis and our fund's overweighting in
European stocks will benefit from such growth.
28
<PAGE>
TOTAL RETURN FUND
- --------------------------------------------------------------------------------
================================================================================
TOP TEN LARGEST HOLDINGS
AT JUNE 30, 1998
================================================================================
Federal National Mortgage Assoc. (7.00% TBA) 3.77%
- --------------------------------------------------------------------------------
SPDR Trust 3.08%
- --------------------------------------------------------------------------------
U.S. Treasury Notes (5.875% 8/31/99) 2.13%
- --------------------------------------------------------------------------------
U.S. Treasury Bonds (6.125% 11/15/27) 1.75%
- --------------------------------------------------------------------------------
Travelers Group Inc. 1.53%
- --------------------------------------------------------------------------------
U.S. Treasury Notes (6.50% 8/31/01) 1.52%
- --------------------------------------------------------------------------------
Airtouch Communications Inc. 1.38%
- --------------------------------------------------------------------------------
AlliedSignal Inc. 1.33%
- --------------------------------------------------------------------------------
Federal National Mortgage Assoc. (Stock) 1.24%
- --------------------------------------------------------------------------------
U.S. Treasury Notes (7.75% 1/31/00) 1.14%
- --------------------------------------------------------------------------------
================================================================================
AVERAGE ANNUAL TOTAL RETURN
FOR THE PERIODS ENDED JUNE 30, 1998
================================================================================
SIX ONE FIVE TEN
MONTH YEAR YEAR YEAR
- --------------------------------------------------------------------------------
Total Return Fund 10.98% 18.64% 14.75% 13.27%
- --------------------------------------------------------------------------------
S&P 500 Index 17.74% 30.20% 23.08% 18.56%
- --------------------------------------------------------------------------------
LB Aggregate 3.92% 10.54% 6.88% 9.06%
- --------------------------------------------------------------------------------
Lipper peer
group average* 9.73% 18.12% 13.91% 13.26%
- --------------------------------------------------------------------------------
Commencement
date 7/1/85
================================================================================
INVESTMENT PROFILE
A fund designed for investors who seek to maximize total return through current
income and capital appreciation by investing in a range of securities,
including, common stocks, bonds and money market instruments.
================================================================================
PORTFOLIO COMPOSITION
AS OF JUNE 30, 1998
================================================================================
[PIE CHART OMITTED]
DOMESTIC EQUITIES 45.0%
BONDS & NOTES 36.0%
FOREIGN EQUITY 15.3%
CASH & OTHER 3.7%
================================================================================
SECTOR DIVERSIFICATION
AS OF JUNE 30, 1998
================================================================================
[PIE CHART OMITTED]
MORTGAGE/ASSET BACKED 14.2%
U.S. TREASURIES/AGENCIES 12.9%
FINANCIAL SERVICES 12.2%
CONSUMER 11.1%
HEALTHCARE 9.7%
CORPORATE NOTES 8.9%
SHORT-TERM INVESTMENTS 7.6%
TECHNOLOGY 7.4%
CAPITAL GOODS 7.0%
ENERGY 4.8%
CASH & OTHER 4.2%
* Lipper performance comparisons are based on average annual total returns
for the periods indicated in the Flexible peer group consisting of 91, 87,
56 and 30 underlying annuity funds for the six month, one year, five year,
and ten year periods, respectively.
See page 46 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.
29
<PAGE>
SCHEDULE OF INVESTMENTS JUNE 30, 1998 (UNAUDITED)
- --------------------------------------------------------------------------------
TOTAL RETURN FUND
- --------------------------------------------------------------------------------
NUMBER
OF SHARES VALUE
- --------------------------------------------------------------------------------
Domestic Equity -- 44.7%
- --------------------------------------------------------------------------------
Basic Materials -- 0.7%
Air Products & Chemicals Inc. 2,790 $ 111,600
Airgas Inc. 6,601 94,889(a)
Du Pont de Nemours (E.I.) & Co. 718 53,581
Morton International Inc. 6,817 170,425
430,495
Capital Goods -- 4.6%
Alleghany Corp. Delaware 301 70,208
AlliedSignal Inc. 17,938 795,999
Dover Corp. 19,021 651,469
Emerson Electric Co. 1,460 88,147
Hubbell Inc. (Class B) 6,833 284,424(h)
Molex Inc. (Class A) 9,687 226,434
Sherwin-Williams Co. 2,440 80,825
Textron Inc. 1,132 81,150
Tyco International Ltd. 2,633 165,879
U.S.A. Waste Services Inc. 1,797 88,727(a)
United Technologies Corp. 790 73,075
Waste Management Inc. 4,666 163,310
2,769,647
Consumer - Cyclical -- 5.6%
Carnival Corp. (Class A) 6,028 238,860
Catalina Marketing Corp. 3,807 197,726(a)
Circus Circus Enterprises Inc. 1,840 31,165(a)
Comcast Corp. (Class A) 8,036 326,211
Comcast UK Cable Partners Ltd.
(Class A) 3,659 57,401(a)
Gannett Inc. 3,659 260,018
Harman International
Industries Inc. 2,726 104,951
Interpublic Group Cos. Inc. 5,101 309,567
McDonald's Corp. 2,338 161,322
Metromedia International
Group Inc. 1,645 19,637(a)
NTL Inc. 8,773 469,355(a)
Stanley Works 1,586 65,918
Tele-Communications Inc. (Series A) 5,166 198,568
Tele-Communications Inc. Liberty
Media Group (Series A) 5,766 223,793(a)
Tele-Communications
TCI Ventures Group 4,951 99,329(a)
Time Warner Inc. 1,558 133,112
Walt Disney Co. 4,108 431,597
3,328,530
Consumer - Stable -- 2.7%
Anheuser Busch Cos. Inc. 2,685 126,698(h)
Avon Products Inc. 2,942 228,005
Coca Cola Co. 606 51,813
Colgate-Palmolive Co. 1,316 115,808
Gillette Co. 2,318 131,402
Kimberly Clark Corp. 6,314 289,655(h)
Pepsico Inc. 9,030 371,923
Philip Morris Cos. Inc. 8,237 324,332
1,639,636
- --------------------------------------------------------------------------------
NUMBER
OF SHARES VALUE
- --------------------------------------------------------------------------------
Energy -- 2.8%
Anadarko Petroleum Co. 2,296 $ 154,262
Atlantic Richfield Co. 2,009 156,953
Baker Hughes Inc. 5,095 176,096
Burlington Resources Inc. 2,269 97,709
Exxon Corp. 3,075 219,286
Nabors Industries Inc. 3,660 72,514(a)
Schlumberger Ltd. 8,710 595,002
Unocal Corp. 4,951 176,998
1,648,820
Financial -- 5.5%
American Express Co. 2,656 302,784
Chicago Title Corp. 903 41,707(a)
Citicorp 3,558 531,032
Countrywide Credit Industries 1,636 83,027
Federal National Mortgage Assoc 12,257 744,613
Morgan Stanley, Dean Witter 718 65,607
State Street Corp. 4,332 301,074
Travelers Group Inc. 15,172 919,802
Wells Fargo & Co. 761 280,809
3,270,455
Healthcare -- 8.8%
Abbott Laboratories 15,130 618,439
American Home Products Corp. 4,593 237,688
Bristol-Myers Squibb Co. 4,327 497,335
Cardinal Health Inc. 5,669 531,469
Dentsply International Inc. 4,809 120,225
Eli Lilly & Co. 1,219 80,530
Henry Schein Inc. 717 33,072(a)
Johnson & Johnson 8,421 621,049(h)
Lincare Holdings Inc. 5,734 241,186(a,h)
Merck & Co. Inc. 4,880 652,700
Omnicare Inc. 1,289 49,143
Pfizer Inc. 4,157 451,814
Pharmerica Inc. 2,584 31,170(a)
Scherer (R.P.) Corp. 3,516 311,605(a)
Smithkline Beecham PLC ADR 3,659 221,369
Sun Healthcare Group Inc. 3,111 45,498(a)
Sybron International Corp. 6,910 174,477(a)
Tenet Healthcare Corp. 2,798 87,438(a)
Watson Pharmaceuticals Inc. 6,346 296,279(a)
5,302,486
Insurance -- 2.7%
American International Group Inc. 3,068 447,928
Chubb Corp. 2,623 210,824
General Reinsurance Corp. 1,148 291,018
Loews Corp. 3,173 276,447
Marsh & McLennan Cos. Inc. 5,490 331,802
UNUM Corp. 1,342 74,481
1,632,500
Miscellaneous -- 3.1%
SPDR Trust 16,300 1,848,013
Retail Trade -- 0.6%
CVS Corp. 3,880 151,077
Home Depot Inc. 2,858 237,393
388,470
- --------------------------------------------------------------------------------
See Notes to Schedule of Investments and Notes to Financial Statements.
30
<PAGE>
SCHEDULE OF INVESTMENTS JUNE 30, 1998 (UNAUDITED)
- --------------------------------------------------------------------------------
NUMBER
OF SHARES VALUE
- --------------------------------------------------------------------------------
Technology - Electronics & Equipment -- 1.2%
Applied Materials Inc. 1,219 $ 35,960(a)
Cisco Systems Inc. 2,379 219,017(a)
Hewlett Packard Co. 1,464 87,657
Intel Corp. 4,592 340,382
Pitney Bowes Inc. 1,077 51,831
734,847
Technology - Software & Services -- 4.3%
Automatic Data Processing Inc. 7,077 515,736
EMC Corp. 2,154 96,526(a)
Equifax Inc. 17,579 638,337
First Data Corp. 20,521 683,606
Microsoft Corp. 2,469 267,578(a)
Reuters Holdings PLC ADR 5,669 388,327
2,590,110
Transportation -- 0.2%
Pittston Brinks Group 2,799 103,213
Utilities -- 1.9%
Airtouch Communications Inc. 14,155 827,183(a)
GTE Corp. 610 33,931
SBC Communications Inc. 3,662 146,480
WorldCom Inc. 2,798 135,528
1,143,122
Total Domestic Equity
(Cost $19,719,768) 26,830,344
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Foreign Equity -- 15.3%
- --------------------------------------------------------------------------------
Basic Materials -- 0.4%
Barlow Ltd. 4,080 21,501
Iscor Ltd. 17,944 3,389
Ispat International N.V. (Regd.)
(Class A) 395 7,406(a)
Johnson Matthey PLC 2,108 18,936
Montedison S.p.A 105,181 130,533
Pohang Iron & Steel Co. Ltd. ADR 337 4,044
Shin-Etsu Chemical Co. 2,000 34,715
220,524
Capital Goods -- 2.4%
ABB AG 75 110,942
Alstom 2,603 85,680(a)
Cheung Kong (Holdings) Ltd. 4,000 7,563
FKI PLC 14,137 41,190
Grupo Carso S.A. de C.V. ADR 6,444 53,062
Lyonnaise Des Eaux S.A 853 140,387
Mannesmann AG 2,944 302,815
Minebea Co. Ltd. 2,000 19,975
Nokia AB 2,681 197,368
Preussag AG 502 179,818
PT Mulia Industrindo 7,500 128
Siebe PLC 11,641 232,661
VA Technologie AG 348 43,337
1,414,926
- --------------------------------------------------------------------------------
NUMBER
OF SHARES VALUE
- --------------------------------------------------------------------------------
Consumer - Cyclical -- 2.5%
Airtours PLC 24,270 $ 181,951
Autoliv Inc. SDR 4,268 136,452
Canon Inc. 6,000 136,689
Daimler-Benz AG 1,183 116,434
Granada Group PLC 8,520 156,769
Industrie Natuzzi S.p.A. ADR 685 17,810
Johnson Electric Holdings 10,500 38,894
Kinnevik AB (Series B) 487 15,845
LucasVarity PLC 30,389 120,762
Michelin CGDE (Regd.) (Class B) 438 25,284
Philips Electronics N.V 1,615 135,858
PT Astra International Inc. 20,500 1,399
Reed International PLC 6,685 60,498
Renault S.A 2,245 127,703
Saatchi & Saatchi PLC 6,894 19,108
SEMA Group PLC 1,188 14,086
Sony Corp. 2,000 172,850
Volkswagen AG 37 35,760
1,514,152
Consumer - Stable -- 0.3%
Coca Cola Amatil Ltd. 10,321 69,193
Gruma S.A. de C.V. (Series B) 5,819 12,680
Panamerican Beverages Inc. (Class A) 2,262 71,111
San Miguel Corp. 11,130 14,680
167,664
Energy -- 2.0%
Coflexip S.A. ADR 1,825 111,553
Elf Aquitaine S.A. ADR 551 77,469
Repsol S.A 3,740 206,084
Royal Dutch Petroleum Co. ADR 8,610 471,936
Saipem 10,896 55,990
Total S.A. (Class B) 1,972 256,379
1,179,411
Financial -- 2.5%
Alpha Credit Bank (Regd.) 420 34,086
Alpha Credit Bank 420 746(a,j)
Argentaria S.A 6,232 139,798
Banca Intesa S.p.A 14,140 79,146
Banco Comercial Portugues (Regd.) 3,764 106,946
Bank of Scotland PLC 8,375 93,831
Bayerische Vereinsbank AG 1,618 137,267
Credit Saison Co. Ltd. 300 5,967
Credito Italiano 18,874 98,845
Den Norske Bank ASA 8,681 45,531
HSBC Holdings PLC (Regd.) 3,706 90,641
ING Groep N.V 4,069 266,622
Investor AB (Series B) 290 16,925
Merita Ltd. (Series A) 14,148 93,441
Metro Bank & Trust Co. 3,780 22,209
Newcourt Credit Group Inc. 720 35,350
Societe Generale 603 125,374
Sumitomo Realty & Development 7,000 30,983
Takefuji Corp. 1,000 46,286
Uniao de Banco Brasiliero S.A. GDR 2,038 60,121
1,530,115
Healthcare -- 0.9%
Fresenius Medical Care AG 1,181 73,999
Novartis AG (Regd.) 56 93,340
Pharmacia & Upjohn Inc. 3,075 141,834
Pliva D D GDR (Regd.) 286 4,576
- --------------------------------------------------------------------------------
See Notes to Schedule of Investments and Notes to Financial Statements.
31
<PAGE>
TOTAL RETURN FUND JUNE 30, 1998 (UNAUDITED)
- --------------------------------------------------------------------------------
NUMBER
OF SHARES VALUE
- --------------------------------------------------------------------------------
Rhone Poulenc S.A. (Class A) 2,653 $ 149,639
Shire Pharmaceuticals Group PLC
ADR 1,363 29,134
Teva Pharmaceutical
Industries Ltd. ADR 1,571 55,280
547,802
Insurance -- 1.5%
AXA-UAP 2,258 253,972
Commercial Union PLC 3,590 67,015
Munchener Ruckvers (Regd.) 291 144,576
Pohjola Insurance Group (Series B) 444 22,115
Royal & Sun Alliance Insurance
Group PLC 10,425 107,834
Sampo Insurance Co. Ltd. (Series A) 2,783 132,015
Zurich Versicherungsgesellschaft
(Regd.) 242 154,696
882,223
Retail Trade -- 0.3%
Carrefour S.A 200 126,537
Giordano International Ltd. 46,000 9,321
Jeronimo Martins SGPS 982 47,206
183,064
Technology - Electronics & Equipment -- 1.1%
Brambles Industries Ltd. 5,495 108,095
Comverse Technology Inc. 1,215 63,028(a)
ECI Telecommunications Ltd. 3,831 145,099
Ericson LM Telephone (Series B) 723 21,121
NetCom Systems AB (Series B) 1,707 65,382
Schneider S.A 2,162 172,404
Taiwan Semiconductor
Manufacturing Co. 26,100 53,931
Telerj Celular S.A 469,500 27,925(a)
Telesp Celular S.A 14,661 1,217(a)
658,202
Technology - Software & Services -- 0.5%
Cap Gemini S.A 1,228 192,964
Dimension Data Holdings Ltd. 4,353 23,490
NTT Data Corp. 2 72,467
288,921
Transportation -- 0.3%
IHC Caland N.V 2,018 113,695
Railtrack Group PLC 2,836 69,561
183,256
Utilities -- 0.6%
Telecom Italia Mobile S.p.A 22,868 139,905
Telecomunicacoes Brasileiras
S.A. ADR 1,051 114,756
Telecomunicacoes de Rio de
Janiero S.A 523,539 39,101(a)
- --------------------------------------------------------------------------------
NUMBER
OF SHARES VALUE
- --------------------------------------------------------------------------------
Telecomunicacoes de Sao Paulo
S.A.-Telesp 15,350 $ 3,459(a)
Telefonica del Peru S.A. ADR
(Class B) 1,837 37,544
Vodafone Group PLC 2,686 34,107
368,872
Total Foreign Equity
(Cost $7,588,583) 9,139,132
- --------------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
- --------------------------------------------------------------------------------
Bonds and Notes -- 36.0%
- --------------------------------------------------------------------------------
U.S. Treasuries -- 10.1%
U.S. Treasury Bonds
12.50% 08/15/14 $ 25,000 38,938(h)
10.63% 08/15/15 344,000 528,793(h)
8.125% 08/15/19 354,000 456,880
6.125% 11/15/27 977,000 1,046,914(h)
2,071,525
U.S. Treasury Notes
5.875% 08/31/99 1,274,000 1,278,981(h)
7.125% 09/30/99 339,000 345,461(h)
7.75% 01/31/00 663,000 684,959(h)
5.50% 05/31/00 161,000 160,974
6.50% 08/31/01 890,000 914,199(h)
5.75% 11/30/02 32,000 32,265
6.625% 05/15/07 81,000 86,999
3,503,838
U.S. Treasury STRIPs
5.72% 08/15/11 568,000 271,124(d)
5.74% 02/15/12 505,000 233,739(d)
504,863
Total U.S. Treasuries
(Cost $5,945,446) 6,080,226
- --------------------------------------------------------------------------------
Federal Agencies -- 2.8%
Federal Home Loan Mortgage Corp.
6.22% 03/18/08 85,000 85,385
5.75% 04/15/08 65,000 64,655
150,040
Federal National Mortgage Assoc.
7.05% 12/10/98 105,000 105,721
5.96% 07/23/99 120,000 120,374
5.82% 08/25/99 50,000 50,102
5.60% 03/27/00 100,000 99,875
5.67% 05/26/00 345,000 344,838
5.38% 01/16/01 250,000 248,008
6.41% 07/08/02 45,000 46,132
5.75% 04/15/03 115,000 115,108
5.45% 10/10/03 40,000 39,456
5.75% 06/15/05 105,000 104,886
6.99% 07/09/07 80,000 82,762
6.00% 05/15/08 95,000 96,306
1,453,568
Small Business Administration
6.55% 10/01/17 - 12/01/17 68,492 70,096
Total Federal Agencies
(Cost $1,667,302) 1,673,704
- --------------------------------------------------------------------------------
See Notes to Schedule of Investments and Notes to Financial Statements.
32
<PAGE>
SCHEDULE OF INVESTMENTS JUNE 30, 1998 (UNAUDITED)
- --------------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
- --------------------------------------------------------------------------------
Agency Mortgage Backed -- 12.2%
Federal Home Loan Mortgage Corp.
7.50% 06/01/10 $ 160,846 $ 165,762
9.00% 10/01/25 31,639 33,458
6.50% 04/01/28 - 05/01/28 403,479 402,342
601,562
Federal National Mortgage Assoc.
6.65% 08/25/07 70,000 72,253
6.00% 06/01/13 341,939 338,198
7.00% 08/01/27 - 11/01/27 459,455 467,204
7.50% 11/01/27 409,578 420,071
6.50% 03/01/28 - 06/01/28 1,090,022 1,085,585
6.103% 03/01/33 25,188 25,346(e)
6.154% 11/01/35 74,728 75,195(e)
6.139% 05/01/36 34,622 34,839(e)
6.50% TBA 746,800 743,619(c)
7.00% TBA 2,232,000 2,259,304(c)
5,521,614
Government National Mortgage Assoc.
7.50% 01/15/23 - 12/15/23 104,354 107,359
6.50% 04/15/24 183,112 183,455
6.50% 04/15/28 403,111 402,228
7.50% 04/15/28 502,520 516,495
1,209,537
Total Agency Mortgage Backed
(Cost $7,313,282) 7,332,713
- -------------------------------------------------------------------------------
Agency Collateralized Mortgage Obligations -- 0.6%
Federal Home Loan Mortgage Corp.
6.50% 04/15/28 - 06/15/28 326,000 326,645
Federal National Mortgage Assoc. REMIC
8.00% 10/25/20 18,594 19,424
Total Agency Collateralized
Mortgage Obligations
(Cost $345,003) 346,069
- --------------------------------------------------------------------------------
Asset Backed -- 0.4%
Carco Auto Loan Master Trust
6.689% 08/15/04 55,000 55,533
First Union Lehman Brothers Bank
6.28% 11/15/35 128,505 129,428
Fleetwood Credit Grantor Trust
6.40% 05/15/13 23,484 23,631
Tiers Trust
6.68% 11/17/03 35,000 35,087
Total Asset Backed
(Cost $242,569) 243,679
- -------------------------------------------------------------------------------
Corporate Notes -- 8.9%
Abbey National PLC
6.70% 06/29/49 105,000 105,131
Airtouch Communications Inc.
7.00% 10/01/03 212,000 219,418
Applied Materials Inc.
7.125% 10/15/17 15,000 15,270
Bellsouth Telecomm Inc.
6.375% 06/01/28 50,000 49,647
Boston University
7.625% 07/15/97 80,000 93,600
Brascan Ltd.
7.375% 10/01/02 25,000 25,707
PRINCIPAL
AMOUNT VALUE
- --------------------------------------------------------------------------------
Brunswick Corp. - Pennsylvania
6.75% 12/15/06 $ 200,000 $ 204,576
Carnival Corp. (Class A)
5.65% 10/15/00 50,000 49,720
Chrysler Financial Corp.
6.95% 03/25/02 500,000 514,965
Columbia University Trustees
6.83% 12/15/20 25,000 26,850
Commercial Credit Group Inc.
6.00% 06/15/00 64,000 64,026
Conseco Inc.
6.40% 06/15/01 50,000 49,968
6.80% 06/15/05 55,000 55,092
Corporacion Andina De Fomento
6.75% 03/15/05 130,000 128,300
Fairfax Financial Holdings Ltd.
7.375% 04/15/18 40,000 41,033
Ford Motor Credit Corp.
7.32% 05/23/02 69,000 69,690
Heritage Media Corp.
8.75% 02/15/01 40,000 43,050
Hydro-Quebec
8.25% 04/15/26 125,000 151,526
International Lease Finance Corp.
5.62% 02/01/00 100,000 99,723
Korea Development Bank
6.625% 11/21/03 20,000 16,159
Lasmo USA Inc.
6.75% 12/15/07 25,000 24,748
LCI International Inc.
7.25% 06/15/07 25,000 25,418
Lehman Brothers Holdings Inc.
6.25% 04/01/03 100,000 100,125
7.50% 08/01/26 45,000 50,187
Liberty Property Ltd. Partnership
7.50% 01/15/18 30,000 30,525
MCI Communications Corp.
6.125% 04/15/02 50,000 49,814
Merrill Lynch & Co. Inc.
7.00% 01/15/07 500,000 524,340
National Rural Utilities Cooperative
6.046% 04/15/03 25,000 24,988
NationsBank Corp.
7.50% 09/15/06 424,000 458,531
New Jersey Economic Development Authority
7.425% 02/15/29 25,000 28,605
Niagara Mohawk Power Corp.
9.50% 06/01/00 25,000 26,248
Norfolk Southern Corp.
7.90% 05/15/97 55,000 64,124
Oracle Corp.
6.72% 02/15/04 250,000 254,465
Paramount Communications Inc.
7.50% 01/15/02 75,000 77,026
Philip Morris Cos. Inc.
7.25% 09/15/01 25,000 25,643
Republic New York Corp.
7.20% 07/15/97 25,000 26,664
RJR Nabisco Inc.
6.125% 02/01/03 30,000 29,653
Southdown Inc.
10.00% 03/01/06 212,000 236,115
Stop & Shop Cos. Inc.
9.75% 02/01/02 20,000 22,100
Suntrust Banks Inc.
6.00% 01/15/08 25,000 24,625
Talisman Energy Inc.
7.25% 10/15/27 20,000 20,632
TCI Communications Inc.
10.00% 05/31/45 1,200 32,550
- --------------------------------------------------------------------------------
See Notes to Schedule of Investments and Notes to Financial Statements.
33
<PAGE>
TOTAL RETURN FUND
- --------------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
- --------------------------------------------------------------------------------
Tele-Communications Inc.
6.469% 12/20/00 $ 26,000 $ 26,348
9.65% 10/01/03 25,000 27,284
9.80% 02/01/12 30,000 38,589
Teleport Communications Group
11.13% 07/01/01 50,000 43,000
Tribune Co. (new)
6.875% 11/01/06 200,000 209,386
Turner Broadcasting Systems Inc.
8.375% 07/01/13 35,000 40,116
Tyco International Group S.A.
6.25% 06/15/03 50,000 49,878
7.00% 06/15/28 130,000 131,494
United Parcel Service Inc.
8.375% 04/01/30 45,000 57,061
US West Capital Funding Inc.
6.125% 07/15/02 15,000 15,000
6.875% 07/15/28 20,000 20,002
USX Marathon Group
9.80% 07/01/01 25,000 27,408
8.125% 07/15/23 25,000 28,062
Videotron Holdings PLC
11.13% 07/01/99 220,000 216,154
Washington Mutual Capital
8.375% 06/01/27 22,000 24,818
Westdeutsche Landesbank
6.75% 06/15/05 100,000 103,810
Williams Cos. Inc.
6.125% 02/15/02 50,000 49,820
Worldcom Inc.
8.875% 01/15/06 35,000 38,075
Total Corporate Notes
(Cost $5,156,763) 5,326,882
- --------------------------------------------------------------------------------
Non-Agency Mortgage Backed Securities -- 0.1%
Mid State Trust
7.07% 07/01/25 14,781 15,193
Residential Assets Securitization Trust
7.75% 06/25/27 32,610 34,039
Structured Asset Securities Corp.
6.79% 11/01/27 27,588 28,346
Total Non-Agency Mortgage Backed
Securities
(Cost $75,961) 77,578
- --------------------------------------------------------------------------------
Non-Agency Collateralized Mortgage Obligations -- 0.9%
Merrill Lynch Mortgage Investors Inc.
6.36% 11/15/26 160,000 161,650
Morgan Stanley Capital Inc.
6.52% 01/15/08 110,000 111,788
6.54% 07/15/30 135,000 137,510
6.70% 10/03/30 18,651 19,027
Salomon Brothers Mortgage
Securities Inc.
7.00% 10/01/27 84,294 85,321
Total Non-Agency Collateralized
Mortgage Obligations
(Cost $511,394) 515,296
- --------------------------------------------------------------------------------
Total Bonds and Notes
(Cost $21,257,720) 21,596,147
- --------------------------------------------------------------------------------
NUMBER
OF SHARES VALUE
- --------------------------------------------------------------------------------
Preferred Stock -- 0.3%
- --------------------------------------------------------------------------------
Domestic Preferred Stock -- 0.3%
Alabama Power Co. 1,087 $ 27,065
Microsoft Corp. (Series A), $2.20 1,292 122,740
New Plan Realty Trust, 7.80% 593 29,751
179,556
Foreign Preferred Stock -- 0.0%
Fresenius Medical Care AG 427 19,770
Total Preferred Stock
(Cost $191,770) 199,326
Total Investments in Securities
(Cost $48,757,841) 57,764,949
- --------------------------------------------------------------------------------
Short-Term Investments -- 7.6%
- --------------------------------------------------------------------------------
GEI Short Term Investment Fund
(Cost $4,569,217) 4,569,217 4,569,217
- --------------------------------------------------------------------------------
Number
Expiration Date/ of
Strike Price Contracts Value
- --------------------------------------------------------------------------------
Call Options -- 0.0%
- --------------------------------------------------------------------------------
U.S. Treasury Bond(w) Jul 98/109.78 (160,000) (400)
U.S. Treasury Bond(p) Jul 98/99.84 255,000 498
U.S. Treasury Bond(w) Jul 98/107.75 (170,000) (584)
Total Call Options
((w) - Written Option Premium $(746);
(p) - Purchased Option Cost $359) (486)
- --------------------------------------------------------------------------------
Put Options -- 0.0%
- --------------------------------------------------------------------------------
U.S. Treasury Bond(w) Jul 98/103.78 (160,000) (275)
U.S. Treasury Bond(p) Jul 98/99.84 255,000 40
U.S. Treasury Bond(w) Jul 98/101.75 (170,000) (14)
Total Put Options
((w)- Written Option Premium $(872);
(p)- Purchased Option Cost $358) (249)
- --------------------------------------------------------------------------------
Other Assets and Liabilities,
net (3.9%) (2,339,212)
- --------------------------------------------------------------------------------
NET ASSETS -- 100% $59,994,219
================================================================================
- --------------------------------------------------------------------------------
Other Information
- --------------------------------------------------------------------------------
The Total Return Fund invested in the following regions as of June 30, 1998:
Amount (based
Region on Total Net Assets)
- ------ --------------------
United States 80.7%
Europe 12.6%
Other 1.4%
Pacific Rim 0.7%
Cash & Other 4.6%
- --------------------------------------------------------------------------------
See Notes to Schedule of Investments and Notes to Financial Statements.
34
<PAGE>
GLOBAL INCOME FUND
- --------------------------------------------------------------------------------
Q&A
William R. Wright of GE Investments (US) Limited (GEIUS), with total assets over
a half billion dollars, is the portfolio manager of the Global Income Fund.
Bill joined GEIM in 1993 and assumed responsibility for GEIUS at its inception
in 1995. He is also a Vice President of GEIM. Prior to joining GEIM, Bill worked
for Continental Asset Management Corp. where he was a portfolio manager of its
U.K. subsidiary. After serving as a language specialist in the U.S. Army
Security Agency, he began his career in 1979 with Coopers & Lybrand, and joined
Bankers Trust Company in 1980. Bill received his B.A. in Political Science/Asian
Studies from Wittenberg University and an MBA in Finance from New York
University. He is a member of the Association for Investment Management and
Research and the New York Society of Security Analysts.
Q. HOW DID THE GLOBAL INCOME FUND PERFORM COMPARED TO ITS BENCHMARK AND LIPPER
PEER GROUP FOR THE SIX MONTHS ENDED JUNE 30, 1998?
A. The Global Income Fund posted a total return of 3.76% for the six months
ended June 30, 1998. For the same period, the JPM Global Bond returned
3.27% and our Lipper peer group of 37 Global Income annuity funds returned
2.31%.
Q. WHAT FACTORS CONTRIBUTED TO THE FUND OUTPERFORMING ITS BENCHMARK?
A. The fund performance was due to a combination of limiting market and
currency exposures. First, the fund was overweighted in the European bond
markets, which generally outperforms the U.S. and Japanese bond markets. In
particular, our U.K. bond weighting, which was twice that of the fund's
benchmark, benefited the fund as this country sector had the highest return
in the benchmark. Second, a large portion of the fund's foreign holdings
were hedged against adverse currency movements, especially those positions
in Australia, Canada and Japan. This decision proved to be the greatest
contributor to the fund's performance in the face of a generally stronger
U.S. dollar.
Q. HOW DID THE JAPANESE BANKING CRISIS IMPACT THE FUND?
A. The Japanese government has been unable to deal effectively with their
severe financial problems since their asset bubble burst in 1989. As the
government continues to "stage manage" the financial markets instead of
taking the necessary steps to reform their banking, commercial and tax
systems, the country has drifted into a recession despite historically low
interest rates. The fund has been significantly underweighted in the
Japanese bond market, although the fund's Japanese holdings have tended to
have a longer duration in order to capture the benefit of falling interest
rates. More importantly, the fund continued to hedg its entire Japanese yen
exposure, which significantly helped the overall fund performance.
Q. WHAT EVENTS HAD A MAJOR IMPACT ON THE FINANCIAL MARKETS IN THE PAST SIX
MONTHS AND HOW DID THIS IMPACT YOUR FUND?
A. We believe that the most important event impacting the world financial
markets has been the continued Asian financial crisis. While this crisis
has had minimal direct effect on the fund, due to the fund's limited
exposure in the Japanese bond market, the disinflationary forces spreading
from Southeast Asia to the West have kept interest rates low in markets
where the fund has invested. Another significant event has been the
convergence of European economies and currencies in preparation of a single
European currency (the "Euro") in 1999. This consolidation of economic
zones creates the world's second largest capital market after the U.S. The
fund benefited from this by being overweighted in European bonds during the
period.
Q. WHAT IS THE OUTLOOK FOR THE MARKET AND HOW HAVE YOU POSITIONED THE FUND
GOING FORWARD?
A. With interest rates worldwide at historic lows, the fund is taking a
cautious stance, maintaining duration somewhat below that of its benchmark.
The fund continues to maintain currency hedges against the yen, but has
removed the hedges against the core European currencies which will convert
into the Euro in January. As the year progresses, the fund will make asset
allocation changes to reflect the birth of the new European currency as
opportunities arise.
35
<PAGE>
GLOBAL INCOME FUND
- --------------------------------------------------------------------------------
================================================================================
TOP TEN LARGEST HOLDINGS
AT JUNE 30, 1998
================================================================================
U.S. Treasury Note (5.50% 2/15/08) 16.60%
- --------------------------------------------------------------------------------
Kingdom of Spain (10.10% 2/28/01) 6.49%
- --------------------------------------------------------------------------------
Government of Spain (6.00% 1/31/08) 6.45%
- --------------------------------------------------------------------------------
Government of Canada (4.875% 7/7/08) 3.81%
- --------------------------------------------------------------------------------
Kredit Fuer Wiederaufbau (5.00% 1/4/09) 3.67%
- --------------------------------------------------------------------------------
Merrill Lynch & Co. Inc. (4.52% 5/18/00) 3.39%
- --------------------------------------------------------------------------------
Dresdner Finance (5.50% 4/30/04) 3.35%
- --------------------------------------------------------------------------------
SmithKline Beecham PLC (8.375% 12/29/00) 3.30%
- --------------------------------------------------------------------------------
Thomson Corp. (7.15% 10/23/06) 3.26%
- --------------------------------------------------------------------------------
Bayerische Vereinsbank (4.50% 6/24/02) 3.16%
- --------------------------------------------------------------------------------
================================================================================
AVERAGE ANNUAL TOTAL RETURN
FOR THE PERIODS ENDED JUNE 30, 1998
================================================================================
SIX ONE SINCE
MONTH YEAR COMMENCEMENT
- --------------------------------------------------------------------------------
Global Income Fund 3.76% 5.29% 6.22%
- --------------------------------------------------------------------------------
JPM Global Bond 3.27% 5.87%
- --------------------------------------------------------------------------------
Lipper peer
group average * 2.31% 4.74%
- --------------------------------------------------------------------------------
Commencement
date 5/1/97
================================================================================
INVESTMENT PROFILE
A fund designed for investors who seek total return through emphasis on current
income and less emphasis on capital appreciation by investing primarily in
foreign and domestic income-bearing debt securities and instruments.
================================================================================
PORTFOLIO COMPOSITION
AS OF JUNE 30, 1998
================================================================================
[PIE CHART OMITTED]
UNITED STATES 21.5%
CANADA 16.7%
SPAIN 13.5%
UNITED KINGDOM 12.8%
GERMANY 10.2%
ITALY 8.0%
CASH & OTHER 7.5%
OTHER COUNTRIES 5.1%
JAPAN 4.7%
================================================================================
DURING THE SIX MONTH PERIOD ENDED
JUNE 30, 1998
================================================================================
TOP THREE PERFORMING COUNTRIES:
Australia +6%
Germany +5%
United Kingdom +5%
BOTTOM THREE PERFORMING COUNTRIES:
United States +1%
Canada +3%
Japan +4%
* Lipper performance comparisons are based on average annual total returns
for the periods indicated in the Global Income peer group consisting of 37
and 35 underlying annuity funds after the six month and one year periods,
respectively.
See page 46 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.
36
<PAGE>
SCHEDULE OF INVESTMENTS JUNE 30, 1998 (UNAUDITED)
- --------------------------------------------------------------------------------
GLOBAL INCOME FUND
- --------------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
- --------------------------------------------------------------------------------
Bonds and Notes -- 92.5%
- --------------------------------------------------------------------------------
Austria -- 1.3%
Republic of Austria
6.25% 10/16/03 JPY 10,000,000 $ 91,217
Canada -- 16.7%
Government of Canada
7.00% 12/01/06 CAD 170,000 128,255
6.00% 06/01/08 CAD 200,000 142,594
4.875% 07/07/08 DEM 500,000 275,576
Province of New Brunswick
11.25% 12/13/00 CAD 270,000 207,509
Thomson Corp.
7.15% 10/23/06 CAD 320,000 235,714
Toyota Credit Canada Inc.
7.375% 12/31/01 CAD 310,000 221,590
1,211,238
Germany -- 10.2%
Bayerische Vereinsbank
4.50% 06/24/02 DEM 410,000 228,001
Dresdner Finance
5.50% 04/30/04 DEM 420,000 241,853
Kredit Fuer Wiederaufbau
5.00% 01/04/09 DEM 475,000 264,866
734,720
Italy -- 8.0%
Republic of Italy
6.00% 05/15/00 ITL 120,000,000 69,410
4.50% 04/15/01 ITL 85,000,000 47,859
6.25% 03/01/02 ITL 115,000,000 68,298
4.75% 05/01/03 ITL 85,000,000 47,993
8.50% 08/01/04 ITL 110,000,000 73,637
3.75% 06/08/05 JPY 14,000,000 116,945
6.75% 02/01/07 ITL 120,000,000 75,657
5.00% 05/01/08 ITL 85,000,000 47,783
6.50% 11/01/27 ITL 50,000,000 32,033
579,615
Japan -- 4.7%
Government of Japan
3.00% 09/20/17 JPY 15,000,000 121,948
International Bank for
Reconstruction & Development
4.50% 03/20/03 JPY 16,900,000 141,552
2.00% 02/18/08 JPY 10,000,000 74,989
338,489
Netherlands -- 2.2%
Dutch Government
9.00% 05/15/00 NLG 30,000 16,045
5.75% 09/15/02 NLG 95,000 49,113
5.25% 07/15/08 NLG 180,000 91,384
156,542
Spain -- 13.5%
Government of Spain
6.00% 01/31/08 ESP 66,500,000 466,324
Kingdom of Spain
10.10% 02/28/01 ESP 63,000,000 469,182
3.10% 09/20/06 JPY 5,000,000 40,591
976,097
- --------------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
- --------------------------------------------------------------------------------
Sweden -- 1.6%
Kingdom of Sweden
10.25% 05/05/00 SEK 400,000 $ 55,349
8.00% 08/15/07 SEK 400,000 61,252
116,601
United Kingdom -- 12.8%
Commonwealth Bank of Australia
8.125% 12/07/06 GBP 99,000 181,004
European Investment Bank
6.25% 12/07/08 GBP 100,000 167,825
Halifax Building Society
8.75% 07/10/06 GBP 100,000 186,797
SmithKline Beecham PLC
8.375% 12/29/00 GBP 140,000 238,141
Treasury
8.00% 06/07/21 GBP 70,000 151,943
925,710
United States -- 21.5%
Federal National Mortgage Assoc.
5.75% 09/05/00 AUD 100,000 62,435
6.375% 08/15/07 AUD 70,000 44,843
Merrill Lynch & Co. Inc.
4.52% 05/18/00 DEM 480,000 244,864(d)
U.S. Treasury Note
5.50% 02/15/08 USD 1,200,000 1,199,244
1,551,386
Total Investments in Securities
(Cost $6,809,131) 6,681,615
- --------------------------------------------------------------------------------
NUMBER
OF SHARES VALUE
- --------------------------------------------------------------------------------
Short-Term Investments -- 3.3%
- --------------------------------------------------------------------------------
GEI Short Term Investment Fund
(Cost $240,527) 240,527 240,527
Other Assets and Liabilities,
net 4.2% 304,026
- --------------------------------------------------------------------------------
NET ASSETS -- 100% $7,226,168
================================================================================
- --------------------------------------------------------------------------------
OTHER INFORMATION
- --------------------------------------------------------------------------------
At June 30, 1998, the outstanding forward foreign currency contracts, which
obligate the Global Income Fund to deliver or receive currencies at a specified
date, were as follows:
<TABLE>
<CAPTION>
U.S. $ Cost U.S. $ Unrealized
Foreign on Origination Current Appreciation/
Foreign Currency Purchase Contracts Currency Date Value Depreciation
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CAD, expiring 07/02/98 1,450,000 $ 985,737 $ 985,401 $ (336)
GBP, expiring 07/02/98 292,000 486,600 487,500 900
JPY, expiring 07/02/98 84,000,000 603,665 607,689 4,024
---------- ---------- -------
$2,076,002 $2,080,590 $ 4,588
========== ========== =======
Foreign Currency Sale Contracts
AUD, expiring 07/02/98 180,000 111,663 111,738 (75)
CAD, expiring 07/02/98 1,450,000 996,221 985,401 10,820
CAD, expiring 08/04/98 1,450,000 986,395 986,123 272
GBP, expiring 07/02/98 292,000 478,611 487,500 (8,889)
GBP, expiring 07/02/98 292,000 484,136 485,039 (903)
JPY, expiring 07/02/98 84,000,000 613,139 607,689 5,450
JPY, expiring 10/01/98 84,000,000 611,609 615,746 (4,137)
---------- ---------- -------
$4,281,774 $4,279,236 $ 2,538
========== ========== =======
$ 7,126
=======
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Schedule of Investments and Notes to Financial Statements.
37
<PAGE>
FIXED INCOME FUND
- --------------------------------------------------------------------------------
Q&A
Robert MacDougall leads the fixed income team at GE Investments. Fixed income
assets under management exceeds $28 billion. His responsibilities include
managing the income and money market funds. Bob joined GE Investments in 1986 as
Mutual Fund Portfolio Manager, became Senior Vice President - Fixed Income in
1992 and was named to his present position in 1997. Previously he was with GE's
Corporate Treasury Operation, managing the Company's $2 billion portfolio of
marketable securities and supporting the Treasurer in debt management and
capital structure planning. Prior to that, Bob has held various financial
management positions since joining GE in 1973. He holds Bachelor's and Master's
degrees in Business Administration from the University of Massachusetts.
Q. DESCRIBE WHAT HAPPENED IN THE FIXED INCOME MARKETS OVER THE SIX MONTHS
ENDED JUNE 30, 1998?
A. Volatility in Asian markets and instability in Russia dominated the
financial news during the first half of 1998. As investors assessed the
impact of these crisis on the U.S. economy and inflation, they were
attracted to U.S. Treasury bonds for their high quality and good relative
value. This rising demand rallied the market, bringing the 30-year Treasury
Bond yield to a low of 5.57% in mid June. The anticipated slowdown in the
U.S. economy has not yet materialized. While inflation remains benign,
tight labor markets continue to concern both the bond market and the
Federal Reserve.
Income Fund
Q. HOW DID THE INCOME FUND PERFORM COMPARED TO ITS BENCHMARK AND LIPPER PEER
GROUP FOR THE SIX MONTH PERIOD ENDED JUNE 30, 1998?
A. The Income Fund posted a total return of 3.96% for the six months ended
June 30, 1998. For the same period, the LB Aggregate returned 3.92% and our
Lipper peer group of 18 Intermediate Investment Grade Debt annuity funds
returned 3.79%.
Q. WHAT WERE THE DRIVERS OF FUND PERFORMANCE?
A. Factors contributing to the fund's performance during the past six months
were three-fold. Our outlook for declining interest rates prompted us to
extend the average maturity of the fund relative to the benchmark.
Secondly, we increased the excess return of the fund by overweighting the
corporate sector in the second quarter. Lastly, our lower coupon mortgages
outperformed as prepayment rates surged.
Money Market Fund
Q. HOW DID THE MONEY MARKET FUND PERFORM COMPARED TO ITS BENCHMARK AND LIPPER
PEER GROUP FOR THE SIX MONTH PERIOD ENDED JUNE 30, 1998?
A. The Money Market Fund posted a total return of 2.63% for the six months
ended June 30, 1998. For the same period, the 90-day Treasury Bill returned
2.53% and our Lipper peer group of 108 Money Market annuity funds returned
2.54%.
Q. WHAT HAS BEEN YOUR INVESTMENT STRATEGY?
A. As always, our goal is to maintain a diversified high quality, liquid
portfolio. We purchase securities with maturities that offer the best yield
opportunity based on our view of Federal Reserve monetary policy. The
average maturity of the fund during the first six months of the year was 48
days.
Overall
Q. WHAT IS YOUR OUTLOOK FOR THE BOND MARKET?
A. The impact of foreign crisis on the U.S. market has been significant as the
yield on the 30-year Treasury Bond has reached 5.57%, its all time low
since the first issue was brought to market in 1977. On the other hand, the
growth of the U.S. economy has been surprisingly strong. The unemployment
rate has fallen to levels not seen since the 1970's. While tight labor
markets can lead to higher inflation, we believe that global competition
and productivity improvements will limit price increases and keep inflation
under control. If so, bonds should continue to offer good value.
38
<PAGE>
INCOME FUND
- --------------------------------------------------------------------------------
================================================================================
TOP TEN LARGEST HOLDINGS
AT JUNE 30, 1998
================================================================================
U.S. Treasury Note (5.625% 11/30/99) 10.18%
- --------------------------------------------------------------------------------
Federal National Mortgage Assoc. (6.50% TBA) 3.62%
- --------------------------------------------------------------------------------
U.S. Treasury Bond (6.125% 11/15/27) 3.35%
- --------------------------------------------------------------------------------
Federal Home Loan Mortgage Corp. (5.85% 7/1/98) 2.83%
- --------------------------------------------------------------------------------
Federal National Mortgage Assoc. (6.424% 12/25/23) 2.18%
- --------------------------------------------------------------------------------
Federal National Mortgage Assoc. (6.50% TBA) 2.11%
- --------------------------------------------------------------------------------
Government National Mortgage Assoc.
(6.50% 4/15/28) 1.86%
- --------------------------------------------------------------------------------
U.S. Treasury Note (6.625% 7/31/01) 1.65%
- --------------------------------------------------------------------------------
Federal Home Loan Mortgage Corp.(7.00% 8/1/25) 1.61%
- --------------------------------------------------------------------------------
Federal National Mortgage Assoc.(6.50% 6/1/28) 1.50%
- --------------------------------------------------------------------------------
================================================================================
AVERAGE ANNUAL TOTAL RETURN
FOR THE PERIODS ENDED JUNE 30, 1998
================================================================================
SIX ONE THREE SINCE
MONTH YEAR YEAR COMMENCEMENT
- --------------------------------------------------------------------------------
Income Fund 3.96% 10.08% 7.34% 9.27%
- --------------------------------------------------------------------------------
LB Aggregate 3.92% 10.54% 7.88%
- --------------------------------------------------------------------------------
Lipper peer
group average* 3.79% 9.78% 7.37%
- --------------------------------------------------------------------------------
Commencement
date 1/3/95
================================================================================
INVESTMENT PROFILE
A fund designed for investors who seek to maximize income consistent with
prudent investment management and preservation of capital by investing primarily
in income-bearing debt securities and instruments.
================================================================================
PORTFOLIO COMPOSITION
AS OF JUNE 30, 1998
================================================================================
[PIE CHART OMITTED]
MORTGAGE-BACKED 37.4%
U.S. TREASURIES/AGENCIES 35.6%
CORPORATE NOTES 25.2%
CASH & OTHER 1.8%
================================================================================
5 YEAR TREASURY NOTE YIELD HISTORY
07/01/97 - 06/30/98
================================================================================
[LINE CHART OMITTED]
HIGH 6.32%
LOW 5.30%
AVG. 5.77%
* Lipper performance comparisons are based on average annual total returns
for the periods indicated in the Intermediate Investment Grade Debt peer
group consisting of 18, 16 and 12 underlying annuity funds six month, one
year and, three year periods, respectively.
See page 46 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.
39
<PAGE>
SCHEDULE OF INVESTMENTS JUNE 30, 1998 (UNAUDITED)
- --------------------------------------------------------------------------------
INCOME FUND
- --------------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
- --------------------------------------------------------------------------------
Bonds and Notes -- 102.3%
- --------------------------------------------------------------------------------
U.S. Treasuries -- 23.7%
U.S. Treasury Bonds
12.50% 08/15/14 $ 24,000 $ 37,380
10.625% 08/15/15 288,000 442,711
8.125% 08/15/19 400,000 516,248
7.875% 02/15/21 450,000 571,009
6.125% 11/15/27 1,521,000 1,629,843(h)
3,197,191
U.S. Treasury Notes
5.625% 11/30/99 4,949,000 4,955,186
7.75% 12/31/99 44,000 45,388
5.50% 05/31/00 251,000 250,960
5.625% 05/15/01 156,000 156,560
6.625% 07/31/01 778,000 801,581
6.625% 03/31/02 73,000 75,612
5.75% 04/30/03 433,000 437,261
5.50% 02/15/08 481,000 480,697
5.625% 05/15/08 91,000 92,237
7,295,482
U.S. Treasury STRIPs
5.50% 02/15/00 100,000 91,571(d)
5.72% 08/15/11 375,000 178,999(d)
5.74% 02/15/12 560,000 259,196(d)
5.80% 02/15/19 1,750,000 538,177(d)
1,067,943
Total U.S. Treasuries
(Cost $11,439,606) 11,560,616
- --------------------------------------------------------------------------------
Federal Agencies -- 11.9%
Federal Farm Credit Bank
5.27% 02/01/99 500,000 499,140
9.15% 02/14/05 100,000 118,312
8.60% 05/30/06 400,000 429,000
1,046,452
Federal Home Loan Bank
5.72% 11/22/00 360,000 358,257
Federal Home Loan Mortgage Corp.
5.85% 07/01/98 1,380,000 1,380,000
6.22% 03/18/08 160,000 160,725
5.75% 04/15/08 290,000 288,460
8.25% 06/01/26 60,000 76,650
1,905,835
Federal National Mortgage Assoc.
5.96% 07/23/99 35,000 35,109
5.82% 08/25/99 35,000 35,071
5.60% 03/27/00 270,000 269,662
5.67% 05/26/00 600,000 599,718
5.38% 01/16/01 70,000 69,442
6.41% 07/08/02 20,000 20,503
5.75% 04/15/03 480,000 480,451
7.70% 08/10/04 100,000 102,000
5.75% 06/15/05 100,000 99,891
6.99% 07/09/07 50,000 51,727
6.00% 05/15/08 190,000 192,613
1,956,187
- --------------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
- --------------------------------------------------------------------------------
Private Export Funding Corp.
9.10% 10/30/98 $ 100,000 $ 101,141
Small Business Administration
6.125% 01/01/18 275,000 273,883
Tennessee Valley Authority
6.125% 07/15/03 133,000 133,270
Total Federal Agencies
(Cost $5,759,620) 5,775,025
- --------------------------------------------------------------------------------
Agency Mortgage Backed -- 31.9%
Federal Home Loan Mortgage Corp.
8.00% 01/01/00 - 04/01/00 41,280 41,766
8.50% 12/01/01 53,017 54,034
9.00% 11/01/04 12,556 13,001
6.75% 10/01/08 135,697 137,322
8.00% 09/01/09 139,466 143,828
7.50% 06/01/10 48,254 49,728
8.50% 07/01/10 161,678 168,517
6.50% 02/01/11 50,927 51,500
9.00% 02/01/17 52,497 55,889
8.00% 04/01/17 174,226 181,556
7.00% 04/01/24 - 09/01/24 652,865 663,070
7.00% 08/01/25 771,467 783,278
6.50% TBA 409,581 408,455(c)
2,751,944
Federal National Mortgage Assoc.
8.00% 07/01/98 13,989 14,009
7.00% 09/01/99 5,956 5,997
7.50% 07/01/02 34,590 35,081
6.50% 02/01/03 191,999 193,339
6.50% 01/01/04 1,639 1,647
6.00% 08/01/08 77,291 76,867
6.50% 12/01/10 58,893 59,298
6.00% 04/01/13 - 06/01/13 947,251 936,888
8.506% 07/01/19 139,146 142,038(e)
7.00% 06/18/20 22,926 23,047
6.424% 12/25/23 1,050,000 1,061,812
7.00% 10/01/27 - 11/01/27 1,035,522 1,052,963
6.50% 04/01/28 - 06/01/28 1,922,644 1,914,819
6.103% 03/01/33 704,153 708,554(e)
6.154% 11/01/35 104,620 105,274(e)
6.139% 05/01/36 53,346 53,680(e)
6.50% TBA 1,768,270 1,760,758(c)
7.00% TBA 580,000 587,250(c)
8,733,321
Government National Mortgage Assoc.
7.50% 04/15/01 12,945 13,088
8.50% 02/15/02 45,162 46,286
8.50% 05/15/03 52,106 53,697
6.50% 10/15/10 81,887 83,013
8.50% 10/15/17 453,606 481,952
9.00% 12/15/17 257,940 277,283
6.875% 11/20/22 60,770 61,862
7.00% 02/20/23 180,504 184,183(e)
7.50% 09/15/23 84,856 87,295
5.50% 11/20/23 60,770 62,214(e)
6.50% 02/15/24 - 03/15/24 501,649 502,432
6.875% 12/20/24 96,553 98,771(e)
7.00% 02/20/26 44,808 45,844
7.50% 03/15/28 623,256 640,589
6.50% 04/15/28 907,020 905,034
7.00% 04/15/28 494,067 501,937
4,045,480
Total Agency Mortgage Backed
(Cost $15,501,477) 15,530,745
- --------------------------------------------------------------------------------
See Notes to Schedule of Investments and Notes to Financial Statements.
40
<PAGE>
SCHEDULE OF INVESTMENTS JUNE 30, 1998 (UNAUDITED)
- --------------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
- --------------------------------------------------------------------------------
Agency Collateralized Mortgage Obligations -- 3.9%
Federal Home Loan Mortgage Corp.
6.50% 02/15/21 $ 98,479 $ 98,971
6.247% 03/25/21 196,000 196,796
6.50% 04/15/28 - 06/15/28 725,000 726,436
1,022,203
Federal Home Loan Mortgage PC
5.85% 02/15/08 110,000 109,862
6.50% 07/15/08 50,000 51,078
7.00% 02/15/21 50,000 50,813
211,753
Federal National Mortgage Assoc.
9.00% 05/25/22 10,220 2,548(g)
8.50% 07/25/22 15,834 3,460(g)
7.50% 05/01/23 59,583 11,916(g)
4.18% 07/01/26 2,308 1,956(d,f)
4.19% 04/01/27 7,795 6,635(d,f)
26,515
Federal National Mortgage Assoc. REMIC
6.00% 06/25/01 62,723 61,822
7.623% 12/17/04 13,430 14,030
6.856% 06/17/11 11,000 11,289
6.909% 06/25/16 373,000 386,055
6.00% 03/25/19 86,400 86,292
4.52% 07/25/20 11,039 10,509(d,f)
7.00% 09/25/20 25,000 25,469
8.00% 10/25/20 45,639 47,678
5.51% 12/25/22 10,036 8,213(d,f)
651,357
Total Agency Collateralized Mortgage
Obligations
(Cost $1,903,429) 1,911,828
- --------------------------------------------------------------------------------
Asset Backed -- 0.2%
Advanta Mortgage Loan Trust Corp.
6.30% 07/25/25 4,333 4,315
Carco Auto Loan Master Trust
6.689% 08/15/04 20,000 20,194
Fleetwood Credit Grantor Trust
6.40% 05/15/13 8,908 8,963
Iroquois Trust
6.68% 11/10/03 16,000 16,097(b)
6.752% 06/25/07 19,000 19,125(b)
Tiers Trust
6.688% 11/17/03 13,000 13,033
Total Asset Backed
(Cost $81,520) 81,727
- --------------------------------------------------------------------------------
Corporate Notes -- 25.2%
Abbey National PLC
7.35% 10/15/06 131,000 139,103
6.70% 06/29/49 15,000 15,019
Alabama Power Co.
7.00% 03/31/48 2,609 64,964(a,i)
Applied Materials Inc.
7.125% 10/15/17 50,000 50,900
Arizona Public Service Co.
6.25% 01/15/05 65,000 64,500
- --------------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
- --------------------------------------------------------------------------------
Associated Estates Realty Corp.
6.18% 09/27/99 $ 245,000 $ 246,041
Atlantic City Electric Co.
6.19% 01/17/06 160,000 159,280
Bancomer S.A.
9.00% 06/01/00 7,000 7,000(b)
Banesto Holdings Ltd. (Series A)
10.50% 2,400 78,960(a,b,i)
Bank of Scotland
7.00% 11/20/07 110,000 112,145(b)
Beckman Instruments Inc.
7.10% 03/04/03 40,000 40,276(b)
Bell Telephone Co. - Canada
9.50% 10/15/10 10,000 12,709
Bell Telephone Co. - Pennsylvania
8.35% 12/15/30 243,000 306,396
Bellsouth Telecomm Inc.
6.375% 06/01/28 75,000 74,471
Black & Decker Holdings Inc.
7.05% 07/01/28 60,000 60,150(b)
Boston University
7.625% 07/15/97 100,000 117,000
Brascan Ltd.
7.375% 10/01/02 60,000 61,697
BT Preferred Capital Trust
7.875% 02/25/27 230,000 242,213
Carnival Corp.
5.65% 10/15/00 100,000 99,440
Carter Holt Harvey Ltd.
8.875% 12/01/04 50,000 55,950
Circus Circus Enterprises Inc.
6.70% 11/15/03 10,000 9,700
Cleveland Electric Co.
7.19% 07/01/00 5,000 5,077
Columbia University Trustees New York
6.83% 12/15/20 5,000 5,370
Conseco Inc.
6.40% 06/15/01 279,000 278,821
6.80% 06/15/05 140,000 140,234
8.70% 11/15/26 192,000 215,850
Continental Cablevision Inc.
8.50% 09/15/01 160,000 169,939
8.30% 05/15/06 233,000 258,700
Corporacion Andina De Fomento
6.75% 03/15/05 130,000 128,300
DDR Pass-Through Asset Trust
7.125% 03/15/02 65,000 65,481(b)
Dow Chemical Co.
8.55% 10/15/09 65,000 76,126
Energy Group Overseas
7.375% 10/15/17 10,000 10,679
Fairfax Financial Holdings Ltd.
7.375% 04/15/18 125,000 128,227
Farmers Insurance Exchange
8.625% 05/01/24 120,000 142,975(b)
Federated Department Stores Inc.
10.00% 02/15/01 30,000 32,628
First Security Capital
8.41% 12/15/26 7,000 7,805
Ford Motor Credit Corp.
7.32% 05/23/02 26,000 26,260
Goldman Sachs Group L.P.
6.20% 12/15/00 100,000 100,525(b)
Guangdong International Trust &
Investment Corp.
8.75% 10/24/16 10,000 7,393(b)
Heritage Media Corp.
8.75% 02/15/01 95,000 102,244
Hydro-Quebec
8.05% 07/07/24 260,000 309,327
Ikon Capital Resource Inc.
6.27% 07/19/99 50,000 50,198
- --------------------------------------------------------------------------------
See Notes to Schedule of Investments and Notes to Financial Statements.
41
<PAGE>
INCOME FUND JUNE 30, 1998 (UNAUDITED)
- --------------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
- --------------------------------------------------------------------------------
International Lease Finance Corp.
5.62% 02/01/00 $ 185,000 $ 184,488
Korea Development Bank
7.125% 09/17/01 20,000 17,775
6.625% 11/21/03 5,000 4,040
Landeskreditbank Baden
7.875% 04/15/04 218,000 237,805
Lasmo USA Inc.
6.75% 12/15/07 85,000 84,142
LCI International Inc.
7.25% 06/15/07 78,000 79,305
Lehman Brothers Holdings Inc.
6.90% 03/30/01 235,000 239,759
6.25% 04/01/03 150,000 150,187
7.50% 08/01/26 100,000 111,526
Liberty Property Ltd. Partnership
7.50% 01/15/18 65,000 66,137
Loewen Group International Inc.
6.70% 10/01/99 322,000 321,353(b)
7.50% 04/15/01 368,000 374,933
Long Island Lighting
7.30% 07/15/99 10,000 10,105
MBNA Corp.
6.306% 04/22/03 100,000 99,510
MCI Communications Corp.
6.125% 04/15/02 125,000 124,535
MIC Financing Trust
8.375% 02/01/27 15,000 16,013(b)
Morgan Stanley Finance PLC
8.03% 02/28/17 5,000 5,518
National Rural Utilities Cooperative
6.046% 04/15/03 100,000 99,950
National Westminster Bank PLC
7.75% 04/29/49 185,000 198,573
New Jersey Economic Development
Authority
7.425% 02/15/29 10,000 11,442
New Plan Realty Trust
7.80% 567 28,446(i)
News America Holdings Inc.
8.15% 10/17/36 279,000 314,402
News Corp. Exchange Trust
5.00% 11/12/16 80 5,260(b,i)
Norfolk Southern Corp.
7.90% 05/15/97 312,000 363,761
North Atlantic Energy Corp.
9.05% 06/01/02 12,000 12,335
NRG Energy Inc.
7.50% 06/15/07 15,000 15,534
NWCG Holding Corp.
6.18% 06/15/99 266,000 251,229(d)
Oryx Energy Co.
10.00% 06/15/99 50,000 51,535
Paramount Communications Inc.
5.875% 07/15/00 50,000 49,699
Petroleos Mexicanos
7.75% 10/29/99 15,000 15,075(b)
Philip Morris Cos. Inc.
7.25% 09/15/01 60,000 61,544
Pinto Totta International Finance Ltd.
7.77% 181 185,471(b,i)
Reliance Industries Ltd.
10.50% 08/06/46 5,000 4,535(b)
Republic New York Corp.
7.20% 07/15/97 10,000 10,666
Riggs Capital Trust
8.625% 12/31/26 10,000 10,985(b)
RJR Nabisco Inc.
8.00% 07/15/01 50,000 50,730
- --------------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
- --------------------------------------------------------------------------------
6.125% 02/01/03 $ 75,000 $ 74,132
7.625% 09/15/03 155,000 154,109
Simon DeBartolo Group Inc. (Series C)
7.89% 205 10,071(i)
Stop & Shop Companies Inc.
9.75% 02/01/02 40,000 44,200
Sun Life Canada Capital Trust
8.526% 05/29/49 214,000 241,460(b)
Suntrust Banks Inc.
6.00% 01/15/08 60,000 59,100
Talisman Energy Inc.
7.25% 10/15/27 75,000 77,368
Taubman Realty Group L.P.
8.00% 06/15/99 264,000 268,324
TCI Communications Inc.
8.65% 09/15/04 35,000 39,146
10.00% 05/31/45 2,400 65,100(i)
Tele-Communications Inc.
6.469% 12/20/00 10,000 10,134
9.65% 10/01/03 70,000 76,395
9.80% 02/01/12 65,000 83,610
Teleport Communications Group
11.125% 07/01/01 100,000 86,000
Tenet Healthcare Corp.
8.00% 01/15/05 10,000 10,275
Time Warner Entertainment Co. L.P.
10.15% 05/01/12 224,000 293,668
Time Warner Inc.
4.90% 07/29/99 400,000 394,092(b)
6.10% 12/30/01 25,000 24,878(b)
Toledo Edison Co.
7.38% 03/31/00 272,000 275,272
Turner Broadcasting Systems Inc.
8.375% 07/01/13 80,000 91,694
Tyco International Group S.A.
6.25% 06/15/03 10,000 9,976
7.00% 06/15/28 95,000 96,092
United Parcel Service Inc.
8.375% 04/01/30 95,000 120,463
US West Capital Funding Inc.
6.125% 07/15/02 30,000 30,001
6.875% 07/15/28 40,000 40,003
USX Marathon Group
9.80% 07/01/01 60,000 65,780
8.125% 07/15/23 60,000 67,349
Viacom Inc.
7.75% 06/01/05 368,000 392,086
Videotron Holdings PLC
11.125% 07/01/99 166,000 163,098
Washington Mutual Capital
8.375% 06/01/27 12,000 13,537
Westdeutsche Landesbank
6.75% 06/15/05 100,000 103,810
Williams Cos. Inc.
6.125% 02/15/02 120,000 119,568
Worldcom Inc.
8.875% 01/15/06 100,000 108,787
Yale University Notes
7.375% 04/15/96 305,000 355,599
Zurich Capital Trust
8.376% 06/01/37 50,000 55,330(b)
Total Corporate Notes
(Cost $12,157,231) 12,268,883
- --------------------------------------------------------------------------------
Non-Agency Mortgage Backed Securities -- 5.5%
BHN Mortgage Trust
7.54% 04/30/07 9,167 9,048(b)
7.916% 02/15/12 100,615 100,552(b)
DLJ Mortgage Acceptance Corp.
6.55% 11/15/06 38,492 39,081(b)
- --------------------------------------------------------------------------------
See Notes to Schedule of Investments and Notes to Financial Statements.
42
<PAGE>
SCHEDULE OF INVESTMENTS JUNE 30, 1998 (UNAUDITED)
- --------------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
- --------------------------------------------------------------------------------
GS Mortgage Securities Corp.
6.14% 07/13/30 $ 219,000 $ 227,007
Merrill Lynch Mortgage Investors Inc.
6.36% 11/15/26 100,000 101,032
Mid State Trust
7.07% 07/01/25 7,391 7,596
Morgan Stanley Capital Inc.
6.52% 01/15/08 100,000 101,625
6.476% 10/15/10 132,188 133,572(b)
6.86% 07/15/29 236,051 242,506(b)
6.70% 10/03/30 9,816 10,014
Residential Assets Securitization Trust
7.75% 04/25/27 - 06/25/27 334,640 349,282
7.50% 08/25/27 19,440 20,041
Salomon Brothers Mortgage
Securities Inc.
7.00% 10/01/27 533,527 537,824
Sawgrass Finance REMIC Trust
6.45% 01/20/06 272,000 275,060
Structured Asset Securities Corp.
5.65% 09/25/99 3,205 3,203(b)
6.79% 11/01/27 9,853 10,124
Vornado Finance Corp.
6.36% 12/01/00 521,000 523,605(b)
Total Non-Agency Mortgage Backed
Securities
(Cost $2,662,972) 2,691,172
- --------------------------------------------------------------------------------
Total Investments in Securities
(Cost $49,505,854) 49,819,996
- --------------------------------------------------------------------------------
NUMBER
OF SHARES VALUE
- --------------------------------------------------------------------------------
Short-Term Investments -- 0.1%
- --------------------------------------------------------------------------------
GEI Short Term Investment Fund
(Cost $33,774) 33,774 33,774
Number
Expiration Date/ of
Strike Price Contracts Value
- -------------------------------------------------------------------------------
Call Options -- 0.0%
- -------------------------------------------------------------------------------
U.S. Treasury Bond(w) Jul 98/109.78 (360,000) (900)
U.S. Treasury Bond(p) Jul 98/ 99.84 570,000 1,114
U.S. Treasury Bond(w) Jul 98/107.75 (380,000) (1,307)
- --------------------------------------------------------------------------------
Total Call Options
((w) Written Option Premium $(1,672);
(p) Purchased Option Cost $802) (1,093)
- --------------------------------------------------------------------------------
Put Options -- 0.0%
- --------------------------------------------------------------------------------
U.S. Treasury Bond (w) Jul 98/103.78 (360,000) (619)
U.S. Treasury Bond (p) Jul 98/ 99.84 570,000 89
U.S. Treasury Bond (w) Jul 98/101.75 (380,000) (29)
Total Put Options
((w) Written Option Premium $(1,957);
(p) Purchased Option Cost $802) (559)
- --------------------------------------------------------------------------------
Other Assets and Liabilities,
net (2.4%) (1,173,933)
- --------------------------------------------------------------------------------
NET ASSETS -- 100% $48,678,185
================================================================================
See Notes to Schedule of Investments and Notes to Financial Statements.
43
<PAGE>
MONEY MARKET FUND
- --------------------------------------------------------------------------------
================================================================================
TOP TEN LARGEST HOLDINGS
AT JUNE 30, 1998
================================================================================
Canadian Imperial 3.96%
- --------------------------------------------------------------------------------
Federal National Mortgage Assoc. (5.60%) 3.96%
- --------------------------------------------------------------------------------
NationsBank Corp. 3.81%
- --------------------------------------------------------------------------------
Bank of Nova Scotia 3.80%
- --------------------------------------------------------------------------------
Chase Manhattan Corp. 3.80%
- --------------------------------------------------------------------------------
Morgan (J.P.) & Co. Inc. 3.77%
- --------------------------------------------------------------------------------
Federal Home Loan Mortgage Corp. (5.53%) 3.74%
- --------------------------------------------------------------------------------
Merrill Lynch & Co. Inc. 3.71%
- --------------------------------------------------------------------------------
Credit Suisse 3.69%
- --------------------------------------------------------------------------------
Societe Generale 3.64%
- --------------------------------------------------------------------------------
================================================================================
AVERAGE ANNUAL TOTAL RETURN
FOR THE PERIODS ENDED JUNE 30, 1998
================================================================================
SIX ONE FIVE TEN
MONTH YEAR YEAR YEAR
- --------------------------------------------------------------------------------
Money Market Fund 2.63% 5.37% 4.85% 5.29%
- --------------------------------------------------------------------------------
90-Day T-Bill 2.53% 5.17% 4.89% 5.49%
- --------------------------------------------------------------------------------
Lipper peer
group average* 2.54% 5.21% 4.68% 5.57%
- --------------------------------------------------------------------------------
Commencement
date 7/1/85
================================================================================
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.
INVESTMENT PROFILE
A fund designed for investors who seek to current income as is consistent with
high liquidity and safety of principal by investing in various types of good
quality money market securities.
================================================================================
PORTFOLIO COMPOSITION
AS OF JUNE 30, 1998
================================================================================
[PIE CHART OMITTED]
COMMERCIAL PAPER 38.2%
U.S. GOVERNMENT 31.4%
CERTIFICATES OF DEPOSIT 20.4%
CASH & OTHER 10.0%
================================================================================
FUND YIELD AS OF JUNE 30, 1998
================================================================================
FUND IBC MONEY FUND
================================================================================
7 day current 5.24%+ 5.04%
- --------------------------------------------------------------------------------
7 day effective 5.37% 5.12%
- --------------------------------------------------------------------------------
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 rein-vested dividends.
+ The seven day yield, rather than the total return, more closely reflects
the current earning of the Money Market Fund at June 30, 1998.
* Lipper performance comparisons are based on average annual total returns
for the periods indicated in the Money Market peer group consisting of 108,
107, 80 and 45 underlying annuity funds for the six month, one year, five
year, and ten year periods, respectively.
See page 46 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.
44
<PAGE>
SCHEDULE OF INVESTMENTS JUNE 30, 1998 (UNAUDITED)
- --------------------------------------------------------------------------------
MONEY MARKET FUND
- --------------------------------------------------------------------------------
PRINCIPAL AMORTIZED
AMOUNT COST
- --------------------------------------------------------------------------------
Short-Term Investments -- 90.0%
- --------------------------------------------------------------------------------
U.S. Government (d) -- 31.4%
Federal Home Loan Bank
5.47% 07/29/98 $5,900,000 $ 5,875,725
Federal Home Loan Mortgage Corp.
5.85% 07/01/98 2,880,000 2,880,000
5.53% 07/09/98 7,270,000 7,261,276
5.47% 07/15/98 3,300,000 3,293,070
5.55% 07/28/98 - 07/31/98 3,980,000 3,962,589
5.601% 09/29/98 7,000,000 6,905,360
5.58% 09/30/98 5,500,000 5,425,690
29,727,985
Federal National Mortgage Assoc.
5.47% 07/17/98 6,000,000 5,985,600
5.56% 07/27/98 - 08/24/98 8,226,000 8,188,783
5.58% 08/24/98 3,500,000 3,471,979
5.60% 10/08/98 7,800,000 7,685,028
25,331,390
Total U.S. Government
(Cost $60,935,100) 60,935,100
- --------------------------------------------------------------------------------
Commercial Paper(d) -- 38.2%
Abbey National PLC
5.58% 07/27/98 6,800,000 6,773,038
Associates Corp. of North America
5.55% 07/01/98 6,100,000 6,100,000
Bank of Nova Scotia
5.56% 07/15/98 7,400,000 7,384,143
Chase Manhattan Corp.
5.55% 07/21/98 7,400,000 7,377,389
Credit Suisse
5.57% 08/07/98 7,200,000 7,159,152
Dresdner Bank AG
5.53% 07/06/98 5,220,000 5,220,000
First Union Corp.
5.54% 07/31/98 6,900,000 6,868,605
Halifax Building Society
5.54% 07/01/98 6,360,000 6,360,000
Merrill Lynch & Co. Inc.
5.59% 09/18/98 7,300,000 7,211,733
Morgan (J.P.) & Co. Inc.
5.58% 08/17/98 7,370,000 7,317,079
Norwest Corp.
5.56% 07/24/98 2,760,000 2,750,284
SBC Finance Delaware Inc.
5.54% 07/02/98 3,600,000 3,599,450
Total Commercial Paper
(Cost $74,120,873) 74,120,873
- --------------------------------------------------------------------------------
PRINCIPAL AMORTIZED
AMOUNT COST
- --------------------------------------------------------------------------------
Certificates of Deposit -- 20.4%
Bank of Montreal
5.55% 07/22/98 $ 6,500,000 $ 6,500,000
Bayerische Hypotheken
5.53% 07/23/98 7,000,000 7,000,000
Canadian Imperial
5.57% 08/17/98 7,700,000 7,700,000
NationsBank Corp.
5.59% 09/17/98 7,400,000 7,400,000
Societe Generale
5.55% 08/03/98 7,070,000 7,070,000
Swiss Bank New York
5.54% 07/02/98 3,920,000 3,920,000
Total Certificates of Deposit
(Cost $39,590,000) 39,590,000
- --------------------------------------------------------------------------------
Time Deposit -- 0.0%
State Street Cayman Islands
5.75% 07/01/98 115,194 115,194
(Cost $115,194)
Total Short-Term Investments
(Cost $174,761,167) 174,761,167
Other Assets and Liabilities,
net 10.0% 19,458,122
- --------------------------------------------------------------------------------
NET ASSETS -- 100% $194,219,289
================================================================================
See Notes to Schedule of Investments and Notes to Financial Statements.
45
<PAGE>
NOTES TO PERFORMANCE JUNE 30, 1998 (UNAUDITED)
- --------------------------------------------------------------------------------
Total returns take into account changes in share price and assume reinvestment
of dividends and capital gains, if any. Investment returns and net asset value
on an investment will fluctuate and you may have a gain or loss when you sell
your shares. Periods less than one year are not annualized.
The performance data related to the shares of the U.S. Equity Fund and the
Income Fund, for the periods through December 12, 1997, reflect the prior
performance and expense ratios of the Variable Investment Trust GE U.S. Equity
Portfolio and GE Fixed Income Portfolio, the assets of which were transferred to
corresponding GE Investments Funds, Inc. pursuant to an exemptive order granted
by the Securities and Exchange Commission permitting a substitution of funds
that occurred on December 12, 1997.
Certain fees and fund expenses have been waived and/or borne by the funds' prior
investment advisers. GEIM currently waives certain fees for the Money Market
Fund. Had these fees and expenses not been absorbed, the returns (and/or
yields)would have been lower.
The Standard & Poor's ("S&P") 500 Composite Price Index of stocks (S&P 500
Index), 90-Day U.S. Treasury Index (90-Day T-Bill), Lehman Brothers Aggregate
Bond Index (LB Aggregate), Morgan Stanley Capital International EAFE Index (MSCI
EAFE), Wilshire Real Estate Index (Wilshire REIT), and JP Morgan Global
Government Bond Index (JPM Global Bond) are unmanaged indices and do not reflect
the actual cost of investing in the instruments that comprise each index. The
S&P 500 Index is a composite of the prices of 500 widely held stocks recognized
by investors to be representative of the stock market in general. The 90-Day
T-Bill is the average return on three month U.S. Treasury Bills. The LB
Aggregate is a composite index of short-, medium-, and long-term bond
performance and is widely recognized as a barometer of the bond market in
general. MSCI EAFE is a composite of 1,107 stocks of companies from 21 countries
representing stock markets of Europe, Australasia, New Zealand and the Far East.
The Wilshire REIT is a market capitalization-weighted index comprised of
publicly traded real estate investment trusts (REITs), real estate operating
companies (REOCs) and partnerships. The JPM Global Bond is an unhedged index
comprised of government bonds from several countries including the U.S. The IBC
Money Fund Report yields represent the average yields of 504 taxable money
market funds. The results shown for the foregoing indices assume the
reinvestment of net dividends or interest.
The peer universe of the underlying annuity funds used in our peer ranking
calculation is based on the average returns of Lipper peer categories, as shown.
Lipper is an independent mutual fund rating service.
The views expressed in this document reflect our judgment as of the publication
date and are subject to change at any time without notice. The securities cited
may not represent future holdings and should not be considered as a
recommendation to purchase or sell a particular security. See the prospectus for
complete descriptions of investment objectives, policies, risks and permissible
investments.
NOTES TO SCHEDULES OF INVESTMENTS (UNAUDITED)
- --------------------------------------------------------------------------------
(a) Non-income producing security.
(b) Pursuant to Rule 144A under the Securities Act of 1933, these securities
may be resold in transactions exempt from registration, normally to
qualified institutional buyers. At June 30, 1998, these securities amounted
to $223,321, $637,500 and $2,976,146 or 0.6%, 1.1% and 6.1% of net assets
for the International Equity, Real Estate Securities and Income Funds,
respectively.
(c) Settlement is on a delayed delivery or when-issued basis with final
maturity to be announced (TBA) in the future.
(d) Coupon amount represents effective yield.
(e) Adjustable rate mortgage coupon. The stated rate represents the rate at
June 30,1998.
(f) Principal only securities represent the right to receive the monthly
principal payments on an underlying pool of mortgages. No payments of
interest on the pool are passed through to the "principal only" holder.
(g) Interest only securities represent the right to receive the monthly
interest payments on an underlying pool of mortgages. Payments of principal
on the pool reduce the value of the interest only holding.
(h) At June 30, 1998, all or a portion of this security was pledged to cover
collateral requirements for futures, options or TBAs.
(i) Preferred shares or securities.
(j) Rights - Alpha Credit Bank rights expires 7/24/98 and Societe Europeene de
Communicion rights expires 8/18/98.
ABBREVIATIONS:
ADR -- American Depositary Receipt
GDR -- Global Depositary Receipt
PC -- Participation Certificate
Regd. -- Registered
REIT -- Real Estate Investment Trust
REMIC -- Real Estate Mortgage Investment Conduit
SDR -- Special Drawing Rights
STRIPs -- Separate Trading of Registered Interest and Principal of Securities
CURRENCY TERMS:
AUD -- Australian Dollar
CAD -- Canadian Dollar
DEM -- Deutsche Mark
ESP -- Spanish Peseta
GBP -- Pound Sterling
ITL -- Italian Lira
JPY -- Japanese Yen
NLG -- Netherland Guilder
SEK -- Swedish Krona
USD -- United States Dollar
46
<PAGE>
FINANCIAL HIGHLIGHTS
Selected data based on a share outstanding throughout the period(s) indicated
(June 30, 1998 data is unaudited)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
INTERNATIONAL EQUITY FUND
6/30/98 12/31/97(i) 12/30/96 12/31/95(f)
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INCEPTION DATE -- -- -- 5/1/95
Net asset value, beginning of period $10.68 $10.83 $10.47 $10.00
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income 0.09 0.02 0.03 0.20
Net realized and unrealized
gains (losses) on investments 2.05 1.10 1.01 0.47
- --------------------------------------------------------------------------------------------------------------------------
TOTAL INCOME (LOSS) FROM INVESTMENT OPERATIONS 2.14 1.12 1.04 0.67
- --------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM:
Net investment income 0.00 0.08 0.03 0.20
Net realized gains 0.00 1.19 0.65 0.00
- --------------------------------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS 0.00 1.27 0.68 0.20
- --------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $12.82 $10.68 $10.83 $10.47
==========================================================================================================================
TOTAL RETURN (A) 20.04% 10.17% 9.91% 6.70%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in thousands) $37,688 $31,931 $17,644 $15,348
Ratios to average net assets:
Net investment income* 1.52% 0.14% 0.23% 0.44%
Net expenses* 1.13% 1.34% 1.50% 1.54%
Gross expenses* 1.13% 1.43% 1.56% 2.17%
Portfolio turnover rate 36% 166% 150% 58%
</TABLE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
REAL ESTATE SECURITIES FUND
6/30/98 12/31/97(i) 12/30/96 12/31/95(f)
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INCEPTION DATE -- -- -- 5/1/95
Net asset value, beginning of period $15.28 $14.11 $11.05 $10.00
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income 0.33 0.74 0.64 0.46
Net realized and unrealized
gains (losses) on investments (1.16) 2.01 3.36 1.23
- --------------------------------------------------------------------------------------------------------------------------
TOTAL INCOME (LOSS) FROM INVESTMENT OPERATIONS (0.83) 2.75 4.00 1.69
- --------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM:
Net investment income 0.00 0.53 0.65 0.46
Net realized gains 0.00 1.05 0.29 0.18
- --------------------------------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS 0.00 1.58 0.94 0.64
- --------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $14.45 $15.28 $14.11 $11.05
==========================================================================================================================
TOTAL RETURN (A) (5.43)% 19.49% 36.24% 17.00%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in thousands) $56,299 $48,887 $24,533 $13,429
Ratios to average net assets:
Net investment income* 4.69% 4.83% 5.90% 6.85%
Net expenses* 0.96% 0.95% 1.07% 1.31%
Gross expenses* 0.96% 0.95% 1.07% 1.61%
Portfolio turnover rate 17% 58% 30% 54%
</TABLE>
- ----------
See Notes to Financial Highlights on page 52 and Notes to Financial Statements.
47
<PAGE>
FINANCIAL HIGHLIGHTS
Selected data based on a share outstanding throughout the period(s) indicated
(June 30, 1998 data is unaudited)
- --------------------------------------------------------------------------------
PREMIER GROWTH EQUITY FUND
6/30/98 12/31/97(d)
- --------------------------------------------------------------------------------
INCEPTION DATE -- 12/12/97
Net asset value, beginning of period $51.48 $49.79
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income 0.25 0.03
Net realized and unrealized
gains (losses) on investments 8.96 1.69
- --------------------------------------------------------------------------------
TOTAL INCOME (LOSS) FROM INVESTMENT OPERATIONS 9.21 1.72
- --------------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM:
Net investment income 0.00 0.03
Net realized gains 0.00 0.00
- --------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS 0.00 0.03
- --------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $60.69 $51.48
================================================================================
TOTAL RETURN (a) 17.85% 3.46%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in thousands) $17,401 $16,237
Ratios to average net assets:
Net investment income* 0.83% 1.04%
Expenses* 0.78% 0.69%
Portfolio turnover rate 18% 3%
- --------------------------------------------------------------------------------
VALUE EQUITY FUND
6/30/98 12/31/97(g)
- --------------------------------------------------------------------------------
INCEPTION DATE -- 5/1/97
Net asset value, beginning of period $13.11 $10.00
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income 0.02 0.02
Net realized and unrealized
gains (losses) on investments 1.68 3.23
- --------------------------------------------------------------------------------
TOTAL INCOME (LOSS) FROM INVESTMENT OPERATIONS 1.70 3.25
- --------------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM:
Net investment income 0.00 0.02
Net realized gains 0.00 0.12
- --------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS 0.00 0.14
- --------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $14.81 $13.11
================================================================================
TOTAL RETURN (a) 12.97% 32.56%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in thousands) $49,625 $30,856
Ratios to average net assets:
Net investment income* 0.40% 0.38%
Expenses* 0.72% 0.69%
Portfolio turnover rate 6% 18%
- ----------
See Notes to Financial Highlights on page 52 and Notes to Financial Statements.
48
<PAGE>
FINANCIAL HIGHLIGHTS
Selected data based on a share outstanding throughout the period(s) indicated
(June 30, 1998 data is unaudited)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
U.S. EQUITY FUND
6/30/98 12/31/97(i) 12/31/96 12/31/95(h)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INCEPTION DATE -- -- -- 1/3/95
Net asset value, beginning of period $27.88 $21.11 $19.27 $15.00
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income 0.15 0.24 0.34 0.46
Net realized and unrealized
gains (losses) on investments 3.91 6.54 3.90 4.87
- ----------------------------------------------------------------------------------------------------------------------
TOTAL INCOME (LOSS) FROM INVESTMENT OPERATIONS 4.06 6.78 4.24 5.33
- ----------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM:
Net investment income 0.00 0.00 0.35 0.47
Net realized gains 0.00 0.01 2.05 0.59
- ----------------------------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS 0.00 0.01 2.40 1.06
- ----------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $31.94 $27.88 $21.11 $19.27
======================================================================================================================
TOTAL RETURN (a) 14.60% 32.13% 21.72% 35.58%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in thousands) $27,325 $23,917 $18,027 $9,071
Ratios to average net assets:
Net investment income* 1.00% 0.94% 1.80% 2.10%
Net expenses* 0.75% 0.80% 0.80% 0.80%
Gross expenses* 0.75% 0.86% 0.88% 1.03%
Portfolio turnover rate 15% 33% 35% 71%
======================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
S&P 500 INDEX FUND
6/30/98 12/31/97(b,i) 12/30/96 12/31/95 12/31/94 12/31/93(c)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INCEPTION DATE -- -- -- -- -- 4/15/85
Net asset value, beginning
of period $19.23 $15.14 $20.99 $15.72 $15.99 $17.04
INCOME (LOSS) FROM INVESTMENT
OPERATIONS:
Net investment income 0.12 0.23 0.78 0.27 0.22 0.31
Net realized and unrealized gains
(losses) on investments 3.25 4.36 4.36 5.41 (0.23) 2.16
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL INCOME (LOSS) FROM INVESTMENT
OPERATIONS 3.37 4.59 5.14 5.68 (0.01) 2.47
- ------------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM:
Net investment income 0.00 0.23 0.77 0.27 0.22 0.31
Net realized gains 0.00 0.27 10.22 0.14 0.04 3.21
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS 0.00 0.50 10.99 0.41 0.26 3.52
- ------------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $22.60 $19.23 $15.14 $20.99 $15.72 $15.99
====================================================================================================================================
TOTAL RETURN (a) 17.52% 30.33% 24.51% 36.14% (0.06%) 14.52%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(in thousands) $246,491 $164,294 $35,522 $66,017 $23,930 $8,277
Ratios to average net assets:
Net investment income* 1.27% 1.70% 1.91% 1.98% 2.22% 2.00%
Net expenses* 0.43% 0.46% 0.48% 0.66% 0.75% 0.87%
Gross expenses* 0.43% 0.46% 0.48% 0.66% 1.10% 0.87%
Portfolio turnover rate 8% 6% 63% 15% 4% 73%
</TABLE>
- ----------
See Notes to Financial Highlights on page 52 and Notes to Financial Statements.
49
<PAGE>
FINANCIAL HIGHLIGHTS
Selected data based on a share outstanding throughout the period(s) indicated
(June 30, 1998 data is unaudited)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN FUND
6/30/98 12/31/97(i) 12/30/96 12/31/95 12/31/94 12/31/93
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INCEPTION DATE -- -- -- -- -- 7/1/85
Net asset value, beginning
of period $13.21 $12.73 $15.93 $13.40 $13.59 $13.00
INCOME (LOSS) FROM INVESTMENT
OPERATIONS:
Net investment income 0.20 0.34 1.02 0.41 0.35 0.42
Net realized and unrealized gains
(losses) on investments 1.25 1.95 0.67 3.34 (0.01) 1.35
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL INCOME (LOSS) FROM INVESTMENT
OPERATIONS 1.45 2.29 1.69 3.75 0.34 1.77
- ------------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM:
Net investment income 0.00 0.34 1.02 0.42 0.35 0.41
Net realized gains 0.00 1.47 3.87 0.80 0.18 0.76
Tax return of capital 0.00 0.00 0.00 0.00 0.00 0.01
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS 0.00 1.81 4.89 1.22 0.53 1.18
- ------------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $14.66 $13.21 $12.73 $15.93 $13.40 $13.59
=========================================================================---========================================================
TOTAL RETURN (a) 10.98% 17.99% 10.60% 28.07% 2.54% 13.67%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(in thousands) $59,994 $50,007 $27,814 $70,507 $34,708 $12,609
Ratios to average net assets:
Net investment income* 3.04% 2.56% 2.73% 3.42% 4.00% 3.80%
Expenses* 0.61% 0.65% 0.60% 0.65% 0.77% 0.85%
Portfolio turnover rate 72% 135% 144% 106% 67% 48%
</TABLE>
- --------------------------------------------------------------------------------
GLOBAL INCOME FUND
6/30/98 12/31/97(g)
- --------------------------------------------------------------------------------
INCEPTION DATE -- 5/1/97
Net asset value, beginning of period $9.85 $10.00
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income 0.24 0.35
Net realized and unrealized
gains (losses) on investments 0.13 (0.01)
- --------------------------------------------------------------------------------
TOTAL INCOME (LOSS) FROM INVESTMENT OPERATIONS 0.37 0.34
- --------------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM:
Net investment income 0.00 0.45
Net realized gains 0.00 0.04
- --------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS 0.00 0.49
- --------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $10.22 $9.85
================================================================================
TOTAL RETURN (a) 3.76% 3.41%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in thousands) $7,226 $5,851
Ratios to average net assets:
Net investment income* 4.98% 5.54%
Expenses* 0.81% 0.84%
Portfolio turnover rate 48% 119%
- ----------
See Notes to Financial Highlights on page 52 and Notes to Financial Statements.
50
<PAGE>
FINANCIAL HIGHLIGHTS
Selected data based on a share outstanding throughout the period(s) indicated
(June 30, 1998 data is unaudited)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
INCOME FUND
6/30/98 12/31/97(i) 12/31/96 12/31/95(h)
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INCEPTION DATE -- -- 1/3/95
Net asset value, beginning of period $12.11 $11.84 $12.53 $12.00
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income 0.35 0.76 0.76 0.82
Net realized and unrealized
gains (losses) on investments 0.13 0.27 (0.43) 1.13
- ------------------------------------------------------------------------------------------------------------------------
TOTAL INCOME (LOSS) FROM INVESTMENT OPERATIONS 0.48 1.03 0.33 1.95
- ------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM:
Net investment income 0.00 0.76 0.76 0.84
Net realized gains 0.00 0.00 0.26 0.58
- ------------------------------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS 0.00 0.76 1.02 1.42
- ------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $12.59 $12.11 $11.84 $12.53
========================================================================================================================
TOTAL RETURN (a) 3.96% 9.00% 2.92% 16.83%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in thousands) $48,678 $45,555 $5,388 $3,271
Ratios to average net assets:
Net investment income* 5.77% 5.11% 6.37% 6.52%
Net expenses* 0.57% 0.59% 0.75% 0.75%
Gross expenses* 0.57% 0.77% 1.03% 1.15%
Portfolio turnover rate 95% 356% 222% 253%
========================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
MONEY MARKET FUND
6/30/98 12/31/97(e,i) 12/30/96 12/31/95 12/31/94 12/31/93
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INCEPTION DATE -- -- -- -- -- 7/1/85
Net asset value, beginning of period $1.00 $1.00 $1.00 $0.98 $0.97 $0.97
INCOME (LOSS) FROM INVESTMENT
OPERATIONS:
Net investment income 0.03 0.05 0.05 0.06 0.03 0.02
Net realized and unrealized gains
(losses) on investments 0.00 0.00 0.00 0.00 0.01 0.00
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL INCOME (LOSS) FROM INVESTMENT
OPERATIONS 0.03 0.05 0.05 0.06 0.04 0.02
- ------------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM:
Net investment income 0.03 0.05 0.05 0.04 0.03 0.02
Net realized gains 0.00 0.00 0.00 0.00 0.00 0.00
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS 0.03 0.05 0.05 0.04 0.03 0.02
- ------------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $1.00 $1.00 $1.00 $1.00 $0.98 $0.97
====================================================================================================================================
TOTAL RETURN (a) 2.63% 5.41% 5.41% 5.90% 3.77% 2.39%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(in thousands) $194,219 $144,815 $113,263 $63,083 $33,529 $9,094
Ratios to average net assets:
Net investment income* 5.28% 5.17% 5.29% 5.74% 4.04% 2.53%
Net expenses* 0.35% 0.32% 0.15% 0.23% 0.42% 0.75%
Gross expenses* 0.58% 0.48% 0.55% 0.63% 0.70% 0.75%
</TABLE>
- ----------
See Notes to Financial Highlights on page 52 and Notes to Financial Statements.
51
<PAGE>
NOTES TO FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(a) Total returns are historical and assume changes in share price and
reinvestment of dividends and capital gains. Had the adviser not absorbed a
portion of expenses, total returns would have been lower. Periods less than
one year are not annualized.
(b) As of April 30, 1997, the fund's name was changed to S&P 500 Index Fund
from Common Stock Index Portfolio.
(c) As of May 1, 1993, the fund's name was changed to Common Stock Index
Portfolio from Common Stock Portfolio.
(d) Information is for the period December 12, 1997, inception of investment
operations, through June 30, 1998.
(e) Effective May 5, 1997, the fund's primary investment policy was amended to
comply with Rule 2a-7 of the Investment Company Act of 1940 governing money
market funds. The Fund's investment objective, however, remains to seek a
high level of current income consistent with high liquidity and safety of
principal. Per share information prior to January 1, 1997 have been
restated to reflect the 10.41 to 1 stock split.
(f) Information is for the period May 1, 1995, inception of investment
operations, through December 31, 1995.
(g) Information is for the period May 1, 1997, inception of investment
operations, through June 30, 1998.
(h) Information is for the period January 3, 1995, inception of investment
operations, through December 31, 1995.
(i) GEIM assumed management responsibilities for the Funds effective May 1,
1997. See Note 3 in the Notes to Financial Statements for further
information.
* Annualized for periods less than one year.
- ----------
See Notes to Financial Statements.
52
<PAGE>
[This page intentionally left blank]
53
<PAGE>
STATEMENTS OF ASSETS
AND LIABILITIES JUNE 30, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
PREMIER
INTERNATIONAL REAL ESTATE GROWTH VALUE
EQUITY SECURITIES EQUITY EQUITY
FUND FUND FUND FUND
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ASSETS
Investments in securities, at market
(cost $31,028,356; $49,230,653; $13,112,404;
$42,773,799; $22,823,429; $185,536,350; $48,758,558;
$6,809,131; $49,507,458; and $0, respectively) $36,564,516 $51,769,976 $15,963,775 $48,409,144
Short-term investments (at amortized cost) 855,851 4,277,787 1,315,746 2,799,012
Foreign currency (cost $291,853; $0; $0; $0; $1,140; $0;
$84,378; $458,601; $0; and $0, respectively) 291,817 0 0 0
Receivable for investments sold 65,298 107,944 287,832 0
Income receivables 153,675 399,590 10,072 36,465
Receivable for fund shares sold 0 0 0 9,804
Receivable on forward foreign currency contracts 0 0 0 0
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS 37,931,157 56,555,297 17,577,425 51,254,425
- ------------------------------------------------------------------------------------------------------------------------------------
LIABILITIES
Options written, at market* 0 0 0 0
Distributions payable to shareholders 0 0 0 0
Payable for investments purchased 108,340 0 82,240 1,600,342
Payable for fund shares redeemed 9,311 211,905 80,986 0
Payable to GEIM 125,623 44,583 11,166 28,640
Variation margin payable 0 0 2,125 0
Payable to custodian 0 0 0 0
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 243,274 256,488 176,517 1,628,982
- ------------------------------------------------------------------------------------------------------------------------------------
NET ASSETS $37,687,883 $56,298,809 $17,400,908 $49,625,443
====================================================================================================================================
NET ASSETS CONSIST OF:
Capital paid in $30,187,988 $51,257,845 $14,022,008 $43,096,485
Undistributed net investment income 254,831 1,378,971 70,019 89,978
Accumulated net realized gain (loss) 1,710,996 1,122,670 451,672 803,635
Net unrealized appreciation / (depreciation) on:
Investments 5,536,160 2,539,323 2,851,371 5,635,345
Futures 0 0 5,838 0
Written options 0 0 0 0
Foreign currency related transactions (2,092) 0 0 0
- ------------------------------------------------------------------------------------------------------------------------------------
NET ASSETS $37,687,883 $56,298,809 $17,400,908 $49,625,443
====================================================================================================================================
Shares outstanding ($.001 par value) 2,940,469 3,896,393 286,720 3,351,587
Net asset value, offering and redemption price per share $ 12.82 $ 14.45 $ 60.69 $ 14.81
54
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
U.S. S&P 500 TOTAL GLOBAL MONEY
EQUITY INDEX RETURN INCOME INCOME MARKET
FUND FUND FUND FUND FUND FUND
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Investments in securities, at market
(cost $31,028,356; $49,230,653;
$13,112,404; $42,773,799; $22,823,429;
$185,536,350; $48,758,558; $6,809,131;
$49,507,458; and $0, respectively) $26,352,730 $238,913,413 $57,765,487 $6,681,615 $49,821,199 $ 0
Short-term investments (at amortized cost) 974,445 8,206,389 4,569,217 240,527 33,774 174,761,167
Foreign currency (cost $291,853;
$0; $0; $0; $1,140; $0;
$84,378; $458,601; $0; and $0,
respectively) 1,119 0 84,331 454,676 0 0
Receivable for investments sold 166,294 68,735 2,458,867 244,265 1,359,073 0
Income receivables 29,837 278,585 337,528 135,167 483,407 307,605
Receivable for fund shares sold 122 0 0 0 15,499 19,352,696
Receivable on forward
foreign currency contracts 0 0 0 7,126 0 0
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS 27,524,547 247,467,122 65,215,430 7,763,376 51,712,952 194,421,468
- ------------------------------------------------------------------------------------------------------------------------------------
LIABILITIES
Options written, at market* 0 0 1,273 0 2,855 0
Distributions payable to shareholders 1,294 0 0 0 0 141,066
Payable for investments purchased 160,282 752,006 5,172,998 529,218 2,927,762 0
Payable for fund shares redeemed 17,084 91,892 16,818 4,051 73,115 0
Payable to GEIM 17,053 85,148 30,122 3,939 31,035 61,113
Variation margin payable 4,250 0 0 0 0 0
Payable to custodian 0 47,161 0 0 0 0
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 199,963 976,207 5,221,211 537,208 3,034,767 202,179
- ------------------------------------------------------------------------------------------------------------------------------------
NET ASSETS $27,324,584 $246,490,915 $59,994,219 $7,226,168 $48,678,185 $194,219,289
====================================================================================================================================
NET ASSETS CONSIST OF:
Capital paid in $23,294,668 $183,962,431 $48,545,731 $7,095,433 $46,902,597 $194,220,579
Undistributed net investment income 128,185 1,292,452 829,288 129,353 1,341,822 0
Accumulated net realized gain (loss) 366,500 7,635,844 1,612,227 123,793 119,251 (1,290)
Net unrealized appreciation /
(depreciation) on:
Investments 3,529,301 53,377,063 9,006,929 (127,516) 313,741 0
Futures 5,963 223,125 0 0 0 0
Written options 0 0 345 0 774 0
Foreign currency related transactions (33) 0 (301) 5,105 0 0
- ------------------------------------------------------------------------------------------------------------------------------------
NET ASSETS $27,324,584 $246,490,915 $59,994,219 $7,226,168 $48,678,185 $194,219,289
====================================================================================================================================
Shares outstanding ($.001 par value) 855,372 10,904,916 4,091,537 707,282 3,867,188 194,219,595
Net asset value, offering and
redemption price per share $31.94 $22.60 $14.66 $10.22 $12.59 $1.00
</TABLE>
* Premiums received for the Total Return Fund and Income Fund were $1,618 and
$3,629, respectively.
- ----------
See Notes to Financial Statements.
55
<PAGE>
STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS PERIOD ENDED JUNE 30, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
PREMIER
INTERNATIONAL REAL ESTATE GROWTH VALUE
EQUITY SECURITIES EQUITY EQUITY
FUND FUND FUND FUND
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME
INCOME:
Dividends $ 511,445 $1,469,144 $ 107,710 $ 175,406
Interest 20,505 100,597 31,301 58,637
Less: Foreign taxes withheld (59,692) 0 (1,126) 0
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL INCOME 472,258 1,569,741 137,885 234,043
- ------------------------------------------------------------------------------------------------------------------------------------
EXPENSES:
Advisory and administration fees 178,761 236,132 55,005 133,780
Transfer agent fees 3,968 3,968 3,968 3,968
Trustees' fees 1,491 2,121 610 959
Custody and accounting expenses 8,943 12,733 3,654 5,758
Professional fees 7,636 10,922 3,218 5,886
Other expenses 662 943 271 427
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL EXPENSES BEFORE WAIVER 201,461 266,819 66,726 150,778
Less: Expenses waived or borne by
the adviser 0 0 0 0
- ------------------------------------------------------------------------------------------------------------------------------------
Net expenses 201,461 266,819 66,726 150,778
- ------------------------------------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME 270,797 1,302,922 71,159 83,265
====================================================================================================================================
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS
REALIZED GAIN (LOSS) ON:
Investments 1,990,936 1,696,411 445,667 738,825
Futures 0 0 10,775 0
Written options 0 0 0 0
Foreign currency related transactions (44,330) 0 0 0
INCREASE (DECREASE) IN UNREALIZED APPRECIATION/
DEPRECIATION ON:
Investments 4,191,866 (6,103,410) 2,309,670 4,123,946
Futures 0 0 5,838 0
Written options 0 0 0 0
Foreign currency related transactions 300 0 (3) 0
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain
(loss) on investments 6,138,772 (4,406,999) 2,771,947 4,862,771
- ------------------------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS $6,409,569 $(3,104,077) $2,843,106 $4,946,036
====================================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
U.S. S&P 500 TOTAL GLOBAL MONEY
EQUITY INDEX RETURN INCOME INCOME MARKET
FUND FUND FUND FUND FUND FUND
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME
INCOME:
Dividends $ 201,716 $ 1,457,321 $ 328,587 $ 0 $ 12,744 $ 0
Interest 24,778 273,510 686,163 192,481 1,460,273 4,615,978
Less: Foreign taxes withheld (1,959) (9,408) (16,590) (1,117) 0 0
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL INCOME 224,535 1,721,423 998,160 191,364 1,473,017 4,615,978
- ------------------------------------------------------------------------------------------------------------------------------------
EXPENSES:
Advisory and administration fees 64,226 355,528 136,721 19,808 104,541 394,082
Transfer agent fees 3,968 3,968 3,967 3,968 3,968 3,967
Trustees' fees 1,016 5,801 2,020 243 1,852 6,201
Custody and accounting expenses 6,092 34,812 12,118 1,459 11,113 37,208
Professional fees 5,235 32,872 10,572 1,269 9,421 32,446
Other expenses 15,813 2,579 898 108 823 2,757
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL EXPENSES BEFORE WAIVER 96,350 435,560 166,296 26,855 131,718 476,661
Less: Expenses waived or borne by
the adviser 0 0 0 0 0 (188,845)
- ------------------------------------------------------------------------------------------------------------------------------------
Net expenses 96,350 435,560 166,296 26,855 131,718 287,816
- ------------------------------------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME 128,185 1,285,863 831,864 164,509 1,341,299 4,328,162
====================================================================================================================================
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS REALIZED GAIN (LOSS) ON:
Investments 312,581 6,679,668 1,631,563 21,682 137,193 0
Futures 51,175 1,009,551 0 0 0 0
Written options 0 0 6,586 0 14,427 0
Foreign currency related transactions (171) 0 (8,794) 102,111 0 0
INCREASE (DECREASE) IN UNREALIZED
APPRECIATION/DEPRECIATION ON:
Investments 2,977,727 22,899,506 3,219,318 (5,681) 317,405 0
Futures 8,063 140,100 0 0 0 0
Written options 0 0 345 0 137 0
Foreign currency related transactions (10) 0 206 (42,829) 0 0
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain
(loss) on investments 3,349,365 30,728,825 4,849,224 75,283 469,162 0
- ------------------------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS $3,477,550 $32,014,688 $5,681,088 $239,792 $1,810,461 $4,328,162
====================================================================================================================================
</TABLE>
- ----------
See Notes to Financial Statements.
56 & 57
<PAGE>
<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS
- ------------------------------------------------------------------------------------------------------------------------------------
PREMIER
INTERNATIONAL REAL ESTATE GROWTH
EQUITY SECURITIES EQUITY
FUND FUND FUND
- ------------------------------------------------------------------------------------------------------------------------------------
Six Months Year Six Months Year Six Months Period
Ended Ended Ended Ended Ended Ended
June 30, December 31, June 30, December 31, June 30, December 31,
1998 1997 1998 1997 1998 1997*
(unaudited) (unaudited) (unaudited)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net investment income $ 270,797 $ 33,663 $ 1,302,922 $ 1,972,098 $ 71,159 $ 8,781
Net realized gain (loss) on
investments, futures, written
options, and foreign currency
related transactions 1,946,606 2,324,754 1,696,411 2,605,868 456,442 (4,770)
Net increase (decrease) in
unrealized appreciation/
depreciation 4,192,166 (165,586) (6,103,410) 2,450,338 2,315,505 541,704
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease)
from operations 6,409,569 2,192,831 (3,104,077) 7,028,304 2,843,106 545,715
- ------------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income -- (155,651) -- (1,694,121) -- (9,921)
Net realized gains -- (2,349,968) -- (3,372,241) -- --
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS -- (2,505,619) -- (5,066,362) -- (9,921)
- ------------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets
from operations and
distributions 6,409,569 (312,788) (3,104,077) 1,961,942 2,843,106 535,794
- ------------------------------------------------------------------------------------------------------------------------------------
SHARE TRANSACTIONS:
Proceeds from sale of shares 4,259,255 14,820,466 7,739,330 27,924,962 137,370 11,437
Value of distributions
reinvested -- 3,610,282 5,066,391 1,643,298 9,920 --
Cost of shares redeemed (4,911,539) (12,355,053) (2,289,357) (7,176,928) (1,826,397) (13,785)
Proceeds from substitution
of fund -- 8,523,846 -- -- -- 15,703,463
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) from
share transactions (652,284) 14,599,541 10,516,364 22,391,332 (1,679,107) 15,701,115
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL INCREASE (DECREASE) IN
NET ASSETS 5,757,285 14,286,753 7,412,287 24,353,274 1,163,999 16,236,909
NET ASSETS
Beginning of period 31,930,598 17,643,845 48,886,522 24,533,248 16,236,909 --
- ------------------------------------------------------------------------------------------------------------------------------------
End of period $37,687,883 $31,930,598 $56,298,809 $48,886,522 $17,400,908 $16,236,909
====================================================================================================================================
UNDISTRIBUTED (OVERDISTRIBUTED)
NET INVESTMENT INCOME, END
OF PERIOD $ 254,831 $ (15,966) $ 1,378,971 $ 76,049 $ 70,019 $ (1,140)
- ------------------------------------------------------------------------------------------------------------------------------------
CHANGES IN PORTFOLIO SHARES:
Shares sold by subscription 345,335 1,235,204 520,120 1,808,623 2,487 256
Issued for distributions
reinvested -- 333,787 331,570 116,463 193 --
Shares redeemed (395,145) (1,022,876) (155,676) (463,647) (31,336) (274)
Shares from substitution of fund -- 814,899 -- -- -- 315,394
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease)
in fund shares (49,810) 1,361,014 696,014 1,461,439 (28,656) 315,376
====================================================================================================================================
</TABLE>
58
<PAGE>
<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS
- ------------------------------------------------------------------------------------------------------------------------------------
VALUE U.S. S&P 500
EQUITY EQUITY INDEX
FUND FUND FUND
- ------------------------------------------------------------------------------------------------------------------------------------
Six Months Period Six Months Year Six Months Year
Ended Ended Ended Ended Ended Ended
June 30, December 31, June 30, December 31, June 30, December 31,
1998 1997** 1998 1997 1998 1997
(unaudited) (unaudited) (unaudited)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net investment income $ 83,265 $ 26,741 $ 128,185 $ 202,766 $ 1,285,863 $ 1,909,480
Net realized gain (loss) on
investments, futures, written
options, and foreign currency
related transactions 738,825 189,159 363,585 8,213,694 7,689,219 2,191,543
Net increase (decrease) in
unrealized appreciation/
depreciation 4,123,946 1,511,399 2,985,780 (2,556,091) 23,039,606 22,450,767
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease)
from operations 4,946,036 1,727,299 3,477,550 5,860,369 32,014,688 26,551,790
- ------------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income -- (20,028) -- (4,168) -- (1,914,729)
Net realized gains -- (124,349) -- (7,464) -- (2,259,212)
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS -- (144,377) -- (11,632) -- (4,173,941)
- ------------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets
from operations and
distributions 4,946,036 1,582,922 3,477,550 5,848,737 32,014,688 22,377,849
- ------------------------------------------------------------------------------------------------------------------------------------
SHARE TRANSACTIONS:
Proceeds from sale of shares 22,080,310 15,768,462 404,988 1,013,255 68,291,535 82,623,523
Value of distributions
reinvested -- 144,380 11,628 -- -- 29,965,259
Cost of shares redeemed (8,256,553) (1,016,670) (486,386) (971,729) (18,109,389) (6,194,702)
Proceeds from substitution
of fund -- 14,376,556 -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) from
share transactions 13,823,757 29,272,728 (69,770) 41,526 50,182,146 106,394,080
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL INCREASE (DECREASE) IN
NET ASSETS 18,769,793 30,855,650 3,407,780 5,890,263 82,196,834 128,771,929
NET ASSETS
Beginning of period 30,855,650 -- 23,916,804 18,026,541 164,294,081 35,522,152
- ------------------------------------------------------------------------------------------------------------------------------------
End of period $49,625,443 $30,855,650 $27,324,584 $23,916,804 $246,490,915 $164,294,081
====================================================================================================================================
UNDISTRIBUTED (OVERDISTRIBUTED)
NET INVESTMENT INCOME, END
OF PERIOD $ 89,978 $ 6,713 $ 128,185 $ -- $ 1,292,452 $ 6,589
- ------------------------------------------------------------------------------------------------------------------------------------
CHANGES IN PORTFOLIO SHARES:
Shares sold by subscription 1,589,110 1,297,933 13,106 42,501 3,241,747 4,614,080
Issued for distributions
reinvested -- 11,140 417 -- -- 1,921,660
Shares redeemed (591,147) (77,741) (16,095) (38,356) (880,218) (338,017)
Shares from substitution of fund -- 1,122,292 -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease)
in fund shares 997,963 2,353,624 (2,572) 4,145 2,361,529 6,197,723
====================================================================================================================================
</TABLE>
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL GLOBAL
RETURN INCOME INCOME
FUND FUND FUND
- ------------------------------------------------------------------------------------------------------------------------------------
Six Months Year Six Months Period Six Months Year
Ended Ended Ended Ended Ended Ended
June 30, December 31, June 30, December 31, June 30, December 31,
1998 1997 1998 1997** 1998 1997
(unaudited) (unaudited) (unaudited)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net investment income $ 831,864 $ 1,125,446 $ 164,509 $ 204,414 $ 1,341,299 $ 438,991
Net realized gain (loss) on
investments, futures, written
options, and foreign currency
related transactions 1,629,355 4,914,136 123,793 47,675 151,620 135,787
Net increase (decrease) in
unrealized appreciation/
depreciation 3,219,869 1,112,523 (48,510) (73,901) 317,542 (45,723)
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease)
from operations 5,681,088 7,152,105 239,792 178,188 1,810,461 529,055
- ------------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income -- (1,108,399) -- (263,343) -- (438,469)
Net realized gains -- (4,917,675) -- (23,902) -- --
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS -- (6,026,074) -- (287,245) -- (438,469)
- ------------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets
from operations and
distributions 5,681,088 1,126,031 239,792 (109,057) 1,810,461 90,586
- ------------------------------------------------------------------------------------------------------------------------------------
SHARE TRANSACTIONS:
Proceeds from sale of shares 5,287,121 8,490,461 964,917 6,089,468 3,565,856 621,763
Value of distributions
reinvested -- 16,704,749 287,249 -- 118,617 308,539
Cost of shares redeemed (981,185) (4,128,074) (117,130) (129,071) (2,370,040) (749,066)
Proceeds from substitution
of fund -- -- -- -- -- 39,893,774
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) from
share transactions 4,305,936 21,067,136 1,135,036 5,960,397 1,314,433 40,075,010
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL INCREASE (DECREASE) IN
NET ASSETS 9,987,024 22,193,167 1,374,828 5,851,340 3,124,894 40,165,596
NET ASSETS
Beginning of period 50,007,195 27,814,028 5,851,340 -- 45,553,291 5,387,695
- ------------------------------------------------------------------------------------------------------------------------------------
End of period $59,994,219 $ 50,007,195 $ 7,226,168 $ 5,851,340 $ 48,678,185 $ 45,553,291
====================================================================================================================================
UNDISTRIBUTED (OVERDISTRIBUTED)
NET INVESTMENT INCOME, END
OF PERIOD $ 829,288 $ (2,576) $ 129,353 $ (35,156) $ 1,341,822 $ 523
- ------------------------------------------------------------------------------------------------------------------------------------
CHANGES IN PORTFOLIO SHARES:
Shares sold by subscription 374,690 610,645 95,608 606,644 289,176 50,870
Issued for distributions
reinvested -- 1,295,034 29,162 -- 9,795 26,070
Shares redeemed (69,368) (304,136) (11,608) (12,524) (192,517) (63,001)
Shares from substitution of fund -- -- -- -- -- 3,291,565
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease)
in fund shares 305,322 1,601,543 113,162 594,120 106,454 3,305,504
====================================================================================================================================
</TABLE>
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
MONEY
MARKET
FUND
- --------------------------------------------------------------------------------
Six Months Year
Ended Ended
June 30, December 31,
1998 1997
(unaudited)
- --------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net investment income $ 4,328,162 $ 6,479,092
Net realized gain (loss) on
investments, futures, written
options, and foreign currency -- (544)
related transactions
Net increase (decrease) in
unrealized appreciation/
depreciation -- --
- --------------------------------------------------------------------------------
Net increase (decrease)
from operations 4,328,162 6,478,548
- --------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (4,328,162) (6,487,022)
Net realized gains -- --
- --------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS (4,328,162) (6,487,022)
- --------------------------------------------------------------------------------
Increase (decrease) in net assets
from operations and
distributions -- (8,474)
- --------------------------------------------------------------------------------
SHARE TRANSACTIONS:
Proceeds from sale of shares 403,464,384 271,188,589
Value of distributions
reinvested 4,327,543 12,245,586
Cost of shares redeemed (358,388,125) (274,705,155)
Proceeds from substitution
of fund -- 22,832,172
- --------------------------------------------------------------------------------
Net increase (decrease) from
share transactions 49,403,802 31,561,192
- --------------------------------------------------------------------------------
TOTAL INCREASE (DECREASE) IN
NET ASSETS 49,403,802 31,552,718
NET ASSETS
Beginning of period 144,815,487 113,262,769
- --------------------------------------------------------------------------------
End of period $ 194,219,289 $ 144,815,487
================================================================================
UNDISTRIBUTED (OVERDISTRIBUTED)
NET INVESTMENT INCOME, END
OF PERIOD $ -- $ --
- --------------------------------------------------------------------------------
CHANGES IN PORTFOLIO SHARES:
Shares sold by subscription 403,464,384 198,347,812
Issued for distributions
reinvested 4,327,543 121,908,143
Shares redeemed (358,388,125) (209,183,555)
Shares from substitution of fund -- 22,832,172
- --------------------------------------------------------------------------------
Net increase (decrease)
in fund shares 49,403,802 133,904,572
================================================================================
</TABLE>
* For the period December 12, 1997 (inception) thru December 31, 1997.
** For the period May 1, 1997 (inception) thru December 31, 1997.
- ----------
See Notes to Financial Statements.
59
<PAGE>
NOTES TO FINANCIAL STATEMENTS JUNE 30, 1998 (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, (the "1940 Act") as an open-end, diversified, management investment
company. The Company is comprised of eleven investment Funds (each a "Fund" and
collectively the "Funds"), only ten of which are currently being offered, as
follows: International Equity Fund, Real Estate Securities Fund, Premier Growth
Equity Fund, Value Equity Fund, U.S. Equity Fund, S&P 500 Index Fund, Total
Return Fund, Global Income Fund, Income Fund, and Money Market Fund. The
Government Securities Fund is not currently being offered by the Company.
The inception dates of the Funds were as follows:
FUND
International Equity Fund 5/1/95
Real Estate Securities Fund 5/1/95
Premier Growth Equity Fund 12/12/97
Value Equity Fund 5/1/97
U.S. Equity Fund 1/3/95
S&P 500 Index Fund 4/15/85
Total Return Fund 7/1/85
Global Income Fund 5/1/97
Income Fund 1/3/95
Money Market Fund 7/1/85
Effective May 1, 1997, the Common Stock Index Portfolio changed its name to S&P
500 Index Fund. On May 5, 1997, the Money Market Fund's investment policy was
changed to maintain a constant net asset value in accordance with Rule 2a-7 of
the 1940 Act, as amended, governing money market funds. To effect this change
the Money Market Fund declared a stock split in the ratio of 10.41 to 1. As a
result of the stock split, the Money Market Fund began maintaining a constant
net asset value per share of $1.00. The financial highlights of the Money Market
Fund have been restated to reflect this stock split.
As of December 12, 1997, shares of the Government Securities Fund were no longer
offered.
Shares of the Company are offered only to insurance company separate accounts
that fund certain variable life insurance contracts and variable annuity
contracts. These insurance companies may include insurance companies affiliated
with GE Investment Management Incorporated ("GEIM"), the investment adviser and
administrator of each Fund. As of June 30, 1998, The Life Insurance Company of
Virginia ("Life of Virginia") and Great Northern Insured Annuity Corporation
("GNA"), each an affiliated insurance company, controlled the Funds by
ownership, through separate accounts, of virtually all of the Funds' shares of
beneficial interest. Life of Virginia and GNA are indirect wholly-owned
subsidiaries of General Electric Capital Corporation and, as such are affiliates
of GEIM.
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, but are
expected to be immaterial.
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, in
accordance with Rule 2a-7 of the 1940 Act, under which securities initially are
valued at cost and, thereafter, are assumed to have a constant amortization of
any discount or premium to maturity. Amortized cost approximates fair value.
60
<PAGE>
NOTES TO FINANCIAL STATEMENTS JUNE 30, 1998 (UNAUDITED)
- --------------------------------------------------------------------------------
Transactions are accounted for as of the trade date. Realized gains and losses
on investments sold are recorded on the basis of specific identified cost for
both financial statement and federal tax purposes.
FOREIGN CURRENCY
Accounting records of the Funds are maintained in U.S. dollars. Investment
securities and other assets and liabilities denominated in a foreign currency
are translated to U.S. dollars at the prevailing rates of exchange at period
end. Purchases and sales of securities, income receipts and expense payments are
translated into U.S. dollars at the prevailing exchange rate on the respective
dates of the transactions.
The Funds do not isolate the portion of the results of operations resulting from
changes in foreign exchange rates on investments from the fluctuations arising
from changes in their market prices. Such fluctuations are included in net
realized 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, net realized gains and losses on
sales and maturities of forward foreign currency contracts, and the difference
between the amounts of net investment income accrued on the Funds' books and the
U.S. dollar equivalent of the amounts actually received or paid. Net unrealized
foreign exchange gains and losses arise from changes in the value of assets and
liabilities, other than investments in securities as a result of changes in
exchange rates.
INCOME TAXES
The Funds intend to comply with all sections of the Internal Revenue Code
applicable to regulated investment companies and to distribute all of 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. 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 accreted or amortized to call or
maturity date, whichever is shorter, using the effective yield method.
EXPENSES
Expenses of the Company which are directly identifiable to a specific Fund are
allocated to that Fund. Expenses which are not 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 up to the voluntary expense limitations.
DISTRIBUTIONS TO SHAREHOLDERS
The Money Market Fund declares investment income dividends daily and pays them
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 is determined in
accordance with income tax regulations which may differ from generally accepted
accounting principles. These differences include treatment of realized and
unrealized gains and losses on forward foreign currency contracts, paydown gains
and losses on mortgage-backed securities, losses deferred due to wash sale
transactions, and deferred organization expenses. Reclassifications are made to
the Funds' capital accounts to reflect income and gains available for
distribution (or available capital loss carryovers) under income tax
regulations. The calculation of net investment income per share in the Financial
Highlights table excludes these adjustments. During any particular year, net
realized gains from investment transactions in excess of any applicable capital
loss carryforwards would be taxable to the Funds if not distributed and,
therefore, will be declared and paid to their shareholders annually.
WHEN-ISSUED SECURITIES
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
maintain cash or liquid
61
<PAGE>
NOTES TO FINANCIAL STATEMENTS JUNE 30, 1998 (UNAUDITED)
- --------------------------------------------------------------------------------
assets in value, market-to-market on a daily basis, equal to commitments for
such when-issued securities.
FOREIGN SECURITIES
All Funds may invest in foreign securities, subject to certain limitations.
There are certain additional risks involved when investing in foreign securities
(including those denominated in foreign currencies) that are not inherent in
domestic securities. These risks may involve, among others; foreign currency
exchange rate fluctuations; lack of uniform accounting, auditing and financial
reporting standards; adverse political and economic developments; and the
imposition of unfavorable foreign governmental laws and restrictions.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
The International Equity Fund, U.S. Equity Fund, Total Return Fund, Global
Income Fund and the Income Fund, may each purchase or sell forward foreign
currency exchange contracts for 1) hedging purposes; 2) protection against
declines in value of its foreign currency denominated or quoted portfolio
securities; or 3) protection against an anticipated rise in the U.S. dollar
prices of securities it intends to purchase. In addition, the International
Equity Fund, Total Return Fund and Global Income Fund may purchase or sell such
contracts for speculative purposes.
Daily fluctuations in the value of such contracts are recorded as unrealized
gains or losses. When the contract is closed, the Fund records a 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. Such gains and losses are disclosed in the
realized or unrealized gain (loss) on foreign currency related transactions in
the accompanying Statements of Operations.
REPURCHASE AGREEMENTS
Each of the Funds enters into repurchase agreements. The Funds' custodian takes
possession of the collateral pledged for investments in repurchase agreements on
behalf of the Funds. The Funds value the underlying collateral daily on a
mark-to-market basis to determine that the value, including accrued interest, is
at least equal to the repurchase price. In the event of default of the
obligation to repurchase, the Funds have the right to liquidate the collateral
and apply the proceeds in satisfaction of the obligation.
FUTURES CONTRACTS AND OPTIONS
Certain Funds may invest in futures contracts and options to manage their
exposure to the stock and bond markets and to fluctuations in interest rates and
currency values. Buying futures, writing puts and buying calls tend to increase
a Fund's exposure to the underlying instrument. Selling futures, buying puts and
writing calls tend to decrease a Fund's exposure to the underlying instrument,
or hedge other Fund investments. Futures contracts and written options involve,
to varying degrees, risks in excess of each applicable Fund's variation margin
or the option value reflected in each applicable Fund's Statement of Assets and
Liabilities. The underlying face value shown in the Schedule of Investments
under the captions "Other Information", "Call Options" and "Put Options" reflect
the extent of the involvement the Funds have, if any, in the particular classes
of these instruments. Losses may be caused by an imperfect correlation between
movements in the price of the instruments and the price of the underlying
securities and interest rates. Losses also may arise if there is an illiquid
secondary market for the instruments, or an inability of counterparties to
perform.
Upon entering into a futures contract, the Funds are required to deposit with
the Funds' custodian, in a segregated account either cash or securities in an
amount (initial margin) equal to a certain percentage of the contract value.
Subsequent payments (variation margin) are made or received by the Funds each
day. The variation margin payments are equal to the daily change in the contract
value and are recorded as unrealized gains and losses. The Funds recognize a
realized gain or loss when the futures contract is closed.
The Funds will realize a gain or loss upon the expiration or closing of an
option transaction. When an option is exercised, the proceeds on 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.
SECURITY LENDING
The Funds may loan securities to brokers, dealers, and financial institutions
determined by GEIM to be creditworthy, up to a maximum of 20% (30% for the
Income Fund, U.S. Equity Fund and Premier Growth Equity Fund) of the total value
of the Fund's assets. The loans of securities will be secured by collateral in
the form of cash or other liquid assets, which will be segregated and maintained
with the custodian in an amount at least equal to the current market value of
the loaned securities. The Funds receive a lender fee in addition to the
interest and dividends on the loaned securities during the term of the
62
<PAGE>
NOTES TO FINANCIAL STATEMENTS JUNE 30, 1998 (UNAUDITED)
- --------------------------------------------------------------------------------
loan. A Fund will receive any gain or loss in the market value of its loaned
securities and of securities in which cash collateral is invested during the
term of the loan. In the event the counterparty (borrower) does not meet its
contracted obligation to return the securities, the Fund may be exposed to the
risk of loss of reacquiring the loaned securities at prevailing market prices.
3. Fees and Compensation Paid to Affiliates
ADVISORY AND ADMINISTRATION FEES
GE Investment Management, Incorporated ("GEIM"), a registered investment
adviser, was retained by the Company's Board of Directors effective May 1, 1997
to act as investment adviser and administrator of the Funds.
Compensation of GEIM, a wholly-owned subsidiary of General Electric Company, for
investment advisory and administrative services, is paid monthly based on the
average daily net assets of each Fund. The advisory and administration fee for
International Equity Fund, Real Estate Securities Fund, Total Return Fund,
Income Fund and Money Market Fund decline incrementally as each Fund's assets
increase. The advisory and administrative fee is stated in the following
schedule:
Annualized based on average daily net assets
--------------------------------------------
Average Daily Advisory and
Net Assets of Fund Administration Fees
- --------------------------------------------------------------------------------
International Equity Fund First $100 million 1.00%
Next $100 million .95%
Over $200 million .90%
Real Estate Securities Fund First $100 million .85%
Next $100 million .80%
Over $200 million .75%
Premier Growth Equity Fund All assets .65%
U.S Equity Fund All assets .55%
Value Equity Fund All assets .65%
S&P 500 Index Fund All assets .35%
Total Return Fund First $100 million .50%
Next $100 million .45%
Next $100 million .40%
Next $100 million .35%
Over $400 million .30%
Global Income Fund All assets .60%
Average Daily Advisory and
Net Assets of Fund Administration Fees
- --------------------------------------------------------------------------------
Income Fund First $100 million .50%
Next $100 million .45%
Next $100 million .40%
Next $100 million .35%
Over $400 million .30%
Money Market Fund* First $100 million .50%
Next $100 million .45%
Next $100 million .40%
Next $100 million .35%
Over $400 million .30%
* The Adviser has voluntarily agreed to waive a portion of the fee payable by
the Money Market Fund so that the fee paid is equal to .25%.
From time to time, GEIM may waive or reimburse advisory or administrative fees
paid by a Fund.
DIRECTORS COMPENSATION
The Funds pay no compensation to their Directors who are officers or employees
of Life of Virginia or GEIM or its affiliates. Directors who are not such
officers or employees receive an annual fee of $6,000 and an additional fee of
$500 per Directors' meeting attended in person and an additional fee of $250 for
each Directors' conference call meeting attended.
4. Sub-advisory Fees
Pursuant to an investment sub-advisory agreement with GEIM, effective July 23,
1997, Seneca Capital Management, L.L.C. ("Seneca") is the sub-adviser to the
Real Estate Securities Fund, and pursuant to investment sub-advisory agreements
with GEIM, effective May 1, 1997, GE Investments (US) Limited ("GEIUS") is the
sub-adviser to the Global Income Fund and NWQ Investment Management Company
("NWQ") is the sub-adviser to the Value Equity Fund. Pursuant to an investment
sub-advisory agreement with GEIM, effective July 24, 1997, State Street Global
Advisors ("SSGA"), a division of State Street Bank and Trust Company, is the
sub-adviser to the S&P 500 Index Fund.
For their services GEIM pays Seneca, GEIUS, NWQ and SSGA monthly compensation in
the form of a sub-advisory fee. Seneca, GEIUS, NWQ and SSGA are responsible for
the day-to-day portfolio management of their respective funds, including the
responsibility for making decisions and placing orders to buy, sell or hold a
particular security, under the general supervision of GEIM and the Board.
63
<PAGE>
NOTES TO FINANCIAL STATEMENTS JUNE 30, 1998 (UNAUDITED)
- --------------------------------------------------------------------------------
5. Aggregate Unrealized Appreciation and Depreciation
Aggregate gross unrealized appreciation/(depreciation) of investments for each
Fund at June 30, 1998, were as follows:
NET
GROSS GROSS UNREALIZED
UNREALIZED UNREALIZED APPRECIATION
APPRECIATION DEPRECIATION (DEPRECIATION)
- --------------------------------------------------------------------------------
International
Equity Fund $ 7,214,947 $ 1,678,787 $ 5,536,160
Real Estate
Securities Fund 4,154,555 1,615,232 2,539,323
Premier Growth
Equity Fund 3,095,609 244,238 2,851,371
Value Equity Fund 8,189,617 2,554,272 5,635,345
U.S. Equity Fund 3,945,129 415,828 3,529,301
S&P 500 Index
Fund 55,913,524 2,536,461 53,377,063
Total Return Fund 9,737,740 730,811 9,006,929
Global Income
Fund 49,238 176,754 (127,516)
Income Fund 970,311 658,570 311,741
The aggregate cost of each Fund's investments was substantially the same for
book and federal income tax purposes at June 30, 1998.
6. Options
During the period ended June 30, 1998, the following option contracts were
written:
TOTAL RETURN FUND INCOME FUND
- --------------------------------------------------------------------------------
NUMBER NUMBER
OF CONTRACTS PREMIUM OF CONTRACTS PREMIUM
- --------------------------------------------------------------------------------
Balance as of
December
31, 1997 520 $ 1,825 720 $ 2,278
Written 2,355 8,273 5,770 22,279
Closed and
Expired (1,885) (6,586) (4,645) (17,678)
Exercised (330) (1,894) (365) (3,250)
- --------------------------------------------------------------------------------
Balance as of
June 30, 1998 660 $ 1,618 1,480 $ 3,629
- --------------------------------------------------------------------------------
7. Investment Transactions
The cost of purchases and the proceeds from sales of investments, other than
U.S. Government securities, short-term securities and options, for the period
ended June 30, 1998, were as follows:
PURCHASES SALES
- --------------------------------------------------------------
International
Equity Fund $12,721,546 $12,670,635
Real Estate
Securities Fund 18,340,958 9,066,195
Premier Growth
Equity Fund 2,929,878 4,657,686
Value Equity Fund 16,337,290 2,389,849
U.S. Equity Fund 3,967,291 3,788,709
S&P 500 Index Fund 70,267,270 15,581,184
Total Return Fund 10,412,235 9,638,526
Global Income Fund 260,002 0
Income Fund 8,079,395 4,014,532
The cost of purchases and the proceeds from sales of long-term U.S. Government
securities for the period ended June 30, 1998, were as follows:
PURCHASES SALES
- --------------------------------------------------------------
U.S. Equity Fund $ 35,975 $ 48,409
S&P 500 Index Fund 838,938 963,090
Total Return Fund 32,321,095 28,417,835
Global Income Fund 4,266,776 2,604,211
Income Fund 42,095,857 39,048,940
8. Substitution Order
On or about May 16, 1997, Life of Virginia, GNA and several other applicants
filed an application with the Securities and Exchange Commission ("SEC") seeking
an order approving the substitution of shares of certain investment funds of the
Company for shares of the portfolios of GNA Variable Series Trust ("VST") and
Variable Investment Trust ("VIT"), the Money Market Portfolio of Variable
Insurance Products Fund ("VIPF"), the Oppenheimer Money Market Fund of
Oppenheimer Variable Account Funds ("OVAF") and the Limited Maturity Bond
Portfolio of Neuberger &
64
<PAGE>
NOTES TO FINANCIAL STATEMENTS JUNE 30, 1998 (UNAUDITED)
- --------------------------------------------------------------------------------
Berman Advisers Management Trust ("AMT"), each a diversified, open-end
investment company (collectively the "Substituted Portfolios").
The effect of such a share substitution was to replace the Substituted
Portfolios with investment funds of the Company as investment options under
certain variable annuity contracts. The substitution order also involved the
proposed substitution of shares of the Company's Government Securities Fund for
shares of the Income Fund.
On December 12, 1997, the substitution order was executed. Shares of the
Substituted Portfolios and the Government Securities Fund were substituted by
shares of specified investment funds of the Company. Information related to the
substitution order for the Substituted Portfolios are as follows:
<TABLE>
<CAPTION>
SUBSTITUTED SHARES NET ASSETS NET ASSETS AFTER
FUNDS SUBSTITUTED BY ISSUED SUBSTITUTED SUBSTITUTION
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
VIT GE Money Market Portfolio Money Market Fund 22,832,172 $22,832,172 $144,797,288
VIPF Money Market Portfolio
OVAF Oppenheimer Money
Market Fund
Government Securities Fund Income Fund 3,726,789 45,168,688 45,168,688
VST GNA Adjustable Rate
Portfolio
VST GNA Government Portfolio
VIT GE Fixed Income Portfolio*
AMT Limited Maturity Bond
Portfolio
VST GNA Value Portfolio Value Equity Fund 1,122,292 14,376,556 29,448,743
VIT GE International International Equity 814,899 8,523,846 31,174,385
Equity Portfolio Fund
VIT GE U.S. Equity Portfolio* U.S. Equity Fund 857,652 23,353,860 23,353,860
VST GNA Growth Portfolio Premier Growth Equity Fund 315,394 15,703,463 15,703,463
</TABLE>
The VIT GE U.S. Equity Portfolio and VIT GE Fixed Income Portfolio were deemed
the accounting survivors in the transaction; therefore, the financial statements
of the U.S. Equity Fund and Income Fund reflect the financial information of VIT
GE U.S. Equity Portfolio and VIT GE Fixed Income Portfolio, respectively.
* Shares and proceeds from the substitution from the VIT GE U.S. Equity
Portfolio and the VIT GE Fixed Income Portfolio into the U.S. Equity Fund
and the Income Fund, respectively, are reflected in the above table.
However, these amounts are netted from the "proceeds from substitution of
fund" and "shares from substitution of fund" in the Statements of Changes
in Net Assets on pages 58 and 59 for each of the respective funds.
65
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<PAGE>
GE INVESTMENTS FUNDS' INVESTMENT TEAM
- --------------------------------------------------------------------------------
Portfolio Managers
INTERNATIONAL EQUITY FUND
Team led by
Ralph R. Layman, GEIM
REAL ESTATE SECURITIES FUND
David A. Shapiro, Seneca
PREMIER GROWTH EQUITY FUND
David B. Carlson, GEIM
VALUE EQUITY FUND
Jon D. Bosse, NWQ
U.S. EQUITY FUND
Team led by
Eugene K. Bolton, GEIM
S&P 500 INDEX FUND
Team led by
James B. May, SSGA
TOTAL RETURN FUND
David B. Carlson, GEIM
Ralph R. Layman, GEIM
Robert A. MacDougall, GEIM
GLOBAL INCOME FUND
William R. Wright, GEIUS
INCOME FUND
MONEY MARKET FUND
Team led by
Robert A. MacDougall, GEIM
Board of Directors
Michael J.Cosgrove, Chairman
John R. Costantino
William J. Lucas
Robert P. Martin, Jr.
J. Clifford Miller, III
J. Garnett Nelson
Lee A. Putney
Robert P. Quinn
Secretary
Matthew J. Simpson
Treasurer
Jeffrey A. Groh
Assistant Treasurer
Robert J. Zalucki
Distributor
GE Investment Distributors, Inc.
Member NASD and SIPC
Counsel
Sutherland, Asbill & Brennan, L.L.P.
Custodian
State Street Bank & Trust Company
Independent Accountants
KPMG Peat Marwick LLP
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
Geoffrey R. Norman, EVP, Institutional Marketing
Thomas J. Szkutak, EVP, Chief Financial Officer
Don W. Torey, EVP, Alternative Investments and Real Estate
<PAGE>
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<PAGE>
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<PAGE>
{GE LOGO OMITTED]
- --------------------------------------------------------------------------------
For additional information please write or call your financial representative.
Distributed by GE Investment Distributors, Inc., member NASD and SIPC
