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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT
INVESTMENT COMPANIES
Investment Company Act file
number 811-04041
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GE INVESTMENTS FUNDS, INC.
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(Exact name of registrant as specified in charter)
3001, SUMMER STREET,STAMFORD, CONNECTICUT, 06905
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(Address of principal executive offices) (Zip code)
GE ASSET MANAGEMENT INC,3001, SUMMER STREET,STAMFORD,CONNECTICUT, 06905
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(Name and address of agent for service)
Registrant"s telephone number, including area code: 800-242-0134
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Date of fiscal year end: 12/31
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Date of reporting period: : 12/31/05
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<page>
ITEM 1. REPORTS TO STOCKHOLDERS.
GE Investments Funds, Inc.
U.S. Equity Fund
Annual Report
DECEMBER 31, 2005
[GE LOGO OMITTED]
GE Investments Funds, Inc.
U.S. Equity Fund Contents
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MANAGER REVIEW AND SCHEDULE OF INVESTMENTS ............................... 1
NOTES TO PERFORMANCE ..................................................... 8
NOTES TO SCHEDULE OF INVESTMENTS ......................................... 8
FINANCIAL STATEMENTS
Financial Highlights ................................................ 9
Statement of Assets and Liabilities ................................. 10
Statement of Operations ............................................. 11
Statements of Changes in Net Assets ................................. 12
Notes to Financial Statements ....................................... 13
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM .................. 18
ADVISORY AND ADMINISTRATIVE AGREEMENT RENEWAL ............................ 19
ADDITIONAL INFORMATION ................................................... 22
INVESTMENT TEAM .......................................................... 25
This report is prepared for Policyholders of certain variable contracts and may
be distributed to others only if preceded or accompanied by the variable
contract's current prospectus and the current prospectus of the Funds available
for investments thereunder.
U.S. Equity Fund
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Q&A
THE U.S. EQUITY FUND IS MANAGED BY A TEAM OF PORTFOLIO MANAGERS THAT INCLUDES
RICHARD L. SANDERSON, PAUL C. REINHARDT, STEPHEN V. GELHAUS, AND CHRISTOPHER D.
BROWN (PICTURED BELOW FROM TOP LEFT TO BOTTOM RIGHT). EACH OF THE FOREGOING
PORTFOLIO MANAGERS MANAGES ONE OF THREE SUB-PORTFOLIOS, WHICH COMPRISE THE FUND.
MR. BROWN MANAGES THE DISCIPLINED GROWTH PORTFOLIO, MESSRS. REINHARDT AND
GELHAUS CO-MANAGE THE LARGE-CAP VALUE PORTFOLIO AND MR. SANDERSON MANAGES THE
RESEARCH SELECT PORTFOLIO.
RICHARD L. SANDERSON IS A SENIOR VICE PRESIDENT OF GE ASSET MANAGEMENT. HE HAS
BEEN A PORTFOLIO MANAGER OF THE U.S. EQUITY FUND SINCE SEPTEMBER 1997 AS VICE
PRESIDENT -- DOMESTIC EQUITIES.
PAUL C. REINHARDT IS A SENIOR VICE PRESIDENT OF GE ASSET MANAGEMENT. HE HAS BEEN
A PORTFOLIO MANAGER FOR THE U.S. EQUITY FUND SINCE JANUARY 2001. MR. REINHARDT
JOINED GE ASSET MANAGEMENT IN 1982 AS AN EQUITY ANALYST AND HAS BEEN A PORTFOLIO
MANAGER SINCE 1987.
STEPHEN V. GELHAUS IS A VICE PRESIDENT OF GE ASSET MANAGEMENT. HE HAS BEEN A
MEMBER OF THE PORTFOLIO MANAGEMENT TEAM FOR THE U.S. EQUITY FUND SINCE JANUARY
2002. MR. GELHAUS JOINED GE ASSET MANAGEMENT IN JUNE 1991 AND WAS A RESEARCH
ANALYST IN THE U.S. EQUITY DEPARTMENT FROM 1995 THROUGH 2001.
CHRISTOPHER D. BROWN IS A SENIOR VICE PRESIDENT OF GE ASSET MANAGEMENT. HE HAS
SERVED ON THE PORTFOLIO MANAGEMENT TEAM FOR THE U.S. EQUITY FUND SINCE DECEMBER
1998. MR. BROWN JOINED GE ASSET MANAGEMENT IN 1985 AS A MANAGER OF FUNDS
ACCOUNTING. HE BECAME A U.S. EQUITY ANALYST IN 1989, A VICE PRESIDENT AND
PORTFOLIO MANAGER IN 1992, AND A SENIOR VICE PRESIDENT IN 1996.
Q. HOW DID THE U.S. EQUITY FUND PERFORM COMPARED TO ITS BENCHMARK AND LIPPER
PEER GROUP FOR THE TWELVE-MONTH PERIOD ENDED DECEMBER 31, 2005?
A. For the twelve-month period ended December 31, 2005, the U.S. Equity Fund
returned 2.51%. The S&P 500 Index, the Fund's benchmark, returned 4.92% and
the Fund's Lipper peer group of 220 Large-Cap Core funds returned an average
of 5.77% for the same period.
Q. WHAT MARKET CONDITIONS IMPACTED THE FUND PERFORMANCE?
A. In the past twelve months, skyrocketing energy prices have weighed on the
stock market, and this concern intensified in the second half of the year,
as two major hurricanes disrupted U.S. petroleum production. With crude oil
prices above $60 a barrel, investors worried about the economy slowing.
Against this backdrop,
[PHOTO OF RICHARD L. SANDERSON, PAUL C. REINHARDT, STEPHEN V. GELHAUS AND
CHRSTOPHER D. BROWN OMITTED]
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1
U.S. Equity Fund
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Q&A
the Federal Reserve Board endeavored to dampen the inflationary effects of
high energy costs, and tightened short rates at a measured pace throughout
the year. Within the stock market, energy stocks remained strong (despite a
4th quarter pullback as commodity prices moderated), many cyclical stocks
declined, and less cyclical stocks such as utilities and health care
outperformed. Financials rallied late in the year, as the market
contemplated an end to the Federal Reserve's tightening cycle. Large-cap
stocks continued to lag the broad market, and value stocks once again
outperformed growth stocks -- although the Russell 1000 Growth beat the
Russell 1000 Value in the last three quarters of the year.
Q. WHAT WERE THE PRIMARY DRIVERS OF FUND PERFORMANCE?
A. Our diversified large-cap strategy has been challenged in the past year's
market environment where small and mid-cap names have led performance. In
addition, the very highest quality companies, those rated A by Standard &
Poor's, have underperformed B- and C-rated companies by -4.3% and -6.3%
respectively. The lower quality companies that have led performance this
year generally do not fit our selection criteria, creating a further
headwind. However, over the 12-month period, large-cap companies with steady
earnings growth prospects traded at a discount to their historic valuation
ranges making them attractive long-term investments.
The energy sector not only led the market's returns during the past
12-months, but also contributed most to the Fund's performance, led by
Burlington Resources (+99%), EnCana (+69%) and Schlumberger (+47%). The
Fund's basic materials holdings also outperformed, with copper and gold
mining company, Freeport McMoran (+49%) and agricultural products innovator,
Monsanto (+41%) contributing to sector strength.
However, the Fund's technology, health care and financials holdings more
than offset the strength in energy and materials. Underweighting high-flying
consumer-oriented technology companies hurt the portfolio's performance this
year. Preferring the relatively steady returns offered by technology
services companies, we overweighted names like First Data (+2%) that
underperformed. We have also leaned towards tech companies that derive a
majority of revenues from enterprise spending, a trend that had hurt the
Fund's performance in 2005 but could help as consumer spending slows. In
health care, our pharmaceutical holdings have lagged, including Abbott Labs
(-13%) and Pfizer (-11%). We continued to like the dividend yields and
attractive valuations among pharmaceutical companies, especially as we face
the prospect of slowing earnings growth in the year ahead. In Financials,
Fannie Mae (-30%) contributed negatively in the midst of regulatory issues.
Although we reduced our Fannie Mae position in light of the risks, we have
met with company management over the past year and will continue to closely
monitor Fannie Mae for changes to our investment thesis.
Q. WERE THERE ANY SIGNIFICANT CHANGES TO THE FUND DURING THE PERIOD?
A. Despite recent challenges, we remained highly committed to investing in high
quality large-cap stocks with predictable and steady earnings growth. As
energy prices have soared and interest rates have risen, we have increased
our exposure to the less cyclical health care sector. Valuation compression
in the markets has also given us the opportunity to increase our exposure to
information technology, a sector with above-average earnings growth. Given a
more financially challenged consumer, we have been cautious on
consumer-related sectors, and favor industries with sustainable growth
prospects (e.g., specialty retail), or where valuations have been compressed
(e.g., media). We have gone from a market-weight to an underweight in
financials, including reducing our position within Fannie Mae, a key
detractor from this year's performance. We have also increased our weighting
in the materials space, which has benefited from high commodity costs.
2
U.S. Equity Fund
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Understanding Your Fund's Expenses
As a shareholder of the Fund you incur transaction and ongoing expenses.
Transaction expenses including sales charges on purchase payments, reinvested
dividends (or other distributions), and redemption fees directly reduce the
investment return of the Fund. Ongoing costs include portfolio management fees,
distribution and service fees, professional fees, administrative fees and other
Fund expenses. The following example is intended to help you understand your
ongoing costs (in dollars) of investing in the Fund and to compare these costs
with the ongoing costs of investing in other mutual funds.
To illustrate these ongoing costs, we have provided an example and calculated
the expenses paid by investors during the period. The information in the
following table is based on an investment of $1,000, which is invested at the
beginning of the period and held for the entire six-month period ended December
31, 2005.
ACTUAL EXPENSES
The first section of the table provides information about actual account values
and actual expenses. You may use the information in this section, together with
the amount you invested, to estimate the expenses that you paid over the period.
To do so, simply divide your account value by $1,000 (for example, an $8,600
account value divided by $1,000 = 8.6), then multiply the result by the number
given for your class under the heading "Expenses Paid During Period."
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The second section of the table provides information about hypothetical account
values and hypothetical expenses based on the Fund's actual expense ratio and an
assumed rate of return of 5% per year before expenses, which is not the Fund's
actual return. You may use this information to compare the ongoing costs of
investing in the Fund and other funds. To do so, compare this 5% hypothetical
example with the 5% hypothetical examples that appear in the shareholders
reports of other funds.
Please note that the expenses shown in the table do not reflect any transaction
costs, such as sales charges or redemption fees.
JULY 1, 2005 - DECEMBER 31, 2005
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ACCOUNT VALUE AT ACCOUNT VALUE EXPENSES
THE BEGINNING OF AT THE END OF PAID DURING
THE PERIOD ($) THE PERIOD ($) THE PERIOD ($)*
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Actual Fund Return** 1,000.00 1,037.44 3.22
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Hypothetical 5% Return
(2.5% for the period) 1,000.00 1,021.82 3.19
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<FN>
* EXPENSES ARE EQUAL TO THE FUND'S ANNUALIZED EXPENSE RATIO OF 0.63% (FROM
PERIOD JULY 1, 2005 - DECEMBER 31, 2005), MULTIPLIED BY THE AVERAGE ACCOUNT
VALUE OVER THE PERIOD, MULTIPLIED BY 184/365 (TO REFLECT THE SIX MONTH
PERIOD).
** ACTUAL FUND RETURN FOR SIX-MONTH PERIOD ENDED DECEMBER 31, 2005 WAS: 3.74%.
</FN>
3
U.S. Equity Fund
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CHANGE IN VALUE
OF A $10,000 INVESTMENT
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[LINE GRAPH OMITTED]
U.S. Equity Fund S&P 500 Index
12/95 $10,000.00 $10,000.00
12/96 12,171.75 12,311.39
12/97 16,083.06 16,409.82
12/98 19,848.36 21,119.11
12/99 23,739.99 25,568.45
12/00 23,599.92 23,220.38
12/01 21,600.28 20,454.37
12/02 17,439.46 15,933.57
12/03 21,498.62 20,510.99
12/04 23,254.27 22,742.86
12/05 23,837.69 23,861.46
AVERAGE ANNUAL TOTAL RETURN
FOR THE PERIODS ENDED DECEMBER 31, 2005
ONE FIVE TEN
YEAR YEAR YEAR
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U.S. Equity Fund 2.51% 0.20% 9.08%
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S&P 500 Index 4.92% 0.55% 9.09%
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Lipper peer group average* 5.77% -0.48% 7.27%
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Inception date 1/3/95
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INVESTMENT PROFILE
A fund designed for investors who seek long-term growth of capital by investing
at least 80% of its net assets in equity securities of issuers that are tied
economically to the U.S. under normal market conditions.
TOP TEN HOLDINGS
AS OF DECEMBER 31, 2005
as a % of Market Value
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Microsoft Corp. 3.61%
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Exxon Mobil Corp. 3.13%
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Industrial Select Sector SPDR Fund 2.63%
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Pfizer Inc. 2.60%
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First Data Corp. 2.46%
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Bank of America Corp. 2.40%
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PepsiCo, Inc. 2.05%
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Johnson & Johnson 1.92%
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Schlumberger Ltd. 1.86%
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Abbott Laboratories 1.84%
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PORTFOLIO COMPOSITION
AS OF DECEMBER 31, 2005
as a % of Market Value
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Market Value of $101,880 (in thousands)
[PIE GRAPH OMITTED]
Information Technology 17.3%
Financials 16.8%
Healthcare 13.4%
Consumer Discretionary 11.9%
Industrials 10.4%
Consumer Staples 8.9%
Energy 8.8%
Materials 4.2%
Short-Term 3.7%
Telecommunication Services 2.4%
Utilities 2.2%
* LIPPER PERFORMANCE COMPARISONS ARE BASED ON AVERAGE ANNUAL TOTAL RETURNS FOR
THE ONE YEAR, FIVE-YEAR, AND TEN-YEAR PERIODS INDICATED IN THE LARGE-CAP CORE
PEER GROUP CONSISTING OF 220, 140 AND 61 UNDERLYING ANNUITY FUNDS,
RESPECTIVELY.
SEE NOTES TO PERFORMANCE ON PAGE 8 FOR FURTHER INFORMATION, INCLUDING AN
EXPLANATION OF LIPPER PEER CATEGORIES.
PAST PERFORMANCE DOES NOT PREDICT FUTURE PERFORMANCE AND THE GRAPH AND TABLE
DO NOT REFLECT THE DEDUCTION OF TAXES.
4
U.S. EQUITY FUND
Schedule of Investments December 31, 2005
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U.S. EQUITY FUND
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NUMBER
OF SHARES VALUE
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COMMON STOCK -- 95.8%+
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CONSUMER DISCRETIONARY -- 12.2%
Bed Bath & Beyond, Inc.................. 12,886 $ 465,829 (a)
Cablevision Systems Corp. (Class A)..... 6,191 145,303 (a)
Carnival Corp........................... 17,661 944,334
Comcast Corp. (Class A)................. 63,599 1,633,858 (a)
Comcast Corp. (Class A)................. 394 10,228 (a)
Discovery Holding Co. (Series A)........ 5,304 80,356 (a,e)
eBay, Inc............................... 4,344 187,878 (a)
Kohl's Corp............................. 4,472 217,339 (a)
Koninklijke Philips
Electronics N.V. ADR................. 11,936 371,210
Liberty Global Inc. (Series C).......... 14,260 302,312 (a)
Liberty Global, Inc. (Series A)......... 11,126 250,335 (a)
Liberty Media Corp. (Series A).......... 146,488 1,152,861 (a,d)
Lowe's Companies, Inc................... 8,839 589,208
News Corp. (Class A).................... 18,836 292,900
Omnicom Group, Inc...................... 10,465 890,885
Ross Stores, Inc........................ 7,695 222,385 (e)
Starwood Hotels & Resorts
Worldwide Inc. (Class B) (REIT)...... 4,636 296,055
Target Corp............................. 16,655 915,525
The Home Depot, Inc..................... 27,064 1,095,551
Time Warner Inc......................... 30,137 525,589
Viacom Inc. (Class B)................... 46,109 1,503,153
12,093,094
CONSUMER STAPLES -- 9.2%
Altria Group, Inc....................... 900 67,248
Anheuser-Busch Companies, Inc........... 1,769 75,996
Clorox Co............................... 23,771 1,352,332
Colgate-Palmolive Co.................... 23,434 1,285,355
General Mills, Inc...................... 5,307 261,741
Kellogg Co.............................. 17,797 769,186
Kimberly-Clark Corp..................... 8,844 527,545
PepsiCo, Inc............................ 35,378 2,090,132 (d)
Procter & Gamble Co..................... 7,940 459,567
Sara Lee Corp........................... 17,674 334,039
The Coca-Cola Co........................ 40,135 1,617,842
Wal-Mart Stores, Inc.................... 4,776 223,517
9,064,500
ENERGY -- 9.1%
Amerada Hess Corp....................... 4,503 571,070
Burlington Resources, Inc............... 11,010 949,062
EnCana Corp............................. 7,187 324,565
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NUMBER
OF SHARES VALUE
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EOG Resources, Inc...................... 3,538 $ 259,583
Exxon Mobil Corp........................ 56,779 3,189,276 (d)
Halliburton Co.......................... 19,145 1,186,224
Occidental Petroleum Corp............... 7,958 635,685
Schlumberger Ltd........................ 19,474 1,891,899
9,007,364
FINANCIALS -- 16.6%
AFLAC Incorporated...................... 9,689 449,763
Allstate Corp........................... 18,914 1,022,680
American International Group, Inc....... 25,396 1,732,769
Bank of America Corp.................... 53,088 2,450,011 (d)
Berkshire Hathaway, Inc. (Class B)...... 148 434,454 (a)
BlackRock Inc. (Class A)................ 1,505 163,262 (e)
Chubb Corp.............................. 9,731 950,232
Citigroup, Inc.......................... 26,623 1,292,014 (d)
Federal Home Loan
Mortgage Corp........................ 6,810 445,034
Federal National Mortgage Assoc......... 20,748 1,012,710
HCC Insurance Holdings, Inc............. 4,953 147,005 (e)
JPMorgan Chase & Co..................... 2,388 94,780
MBNA Corp............................... 24,954 677,501
Mellon Financial Corp................... 28,179 965,131
Merrill Lynch & Company, Inc............ 11,137 754,309
Morgan Stanley.......................... 12,484 708,342
Principal Financial Group............... 4,261 202,099
Prudential Financial, Inc............... 3,670 268,607
SLM Corp................................ 4,602 253,524
State Street Corp....................... 24,190 1,341,094 (c)
SunTrust Banks, Inc..................... 12,250 891,310
Wells Fargo & Co........................ 2,653 166,688
16,423,319
HEALTHCARE -- 13.8%
Abbott Laboratories..................... 47,435 1,870,362 (d)
Aetna, Inc.............................. 10,646 1,004,024
Amgen, Inc.............................. 15,497 1,222,093 (a)
Boston Scientific Corp.................. 4,472 109,519 (a)
Bristol-Myers Squibb Co................. 1,768 40,629
Eli Lilly & Co.......................... 5,504 311,471
GlaxoSmithKline PLC ADR................. 9,592 484,204
HCA Inc................................. 3,538 178,669 (e)
Johnson & Johnson....................... 32,609 1,959,801
LIncare Holdings Inc.................... 11,479 481,085 (a)
Medco Health Solutions, Inc............. 6,191 345,458 (a)
Medtronic Inc........................... 3,872 222,911
Novartis AG ADR......................... 5,130 269,222
Pfizer Inc.............................. 113,507 2,646,983
Smith & Nephew PLC ADR.................. 2,459 113,975 (e)
UnitedHealth Group Incorporated......... 13,013 808,628
Wyeth................................... 35,289 1,625,764
13,694,798
See Notes to Schedule of Investments on page 8 and Notes to Financial
Statements.
5
U.S. EQUITY FUND
Schedule of Investments December 31, 2005
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NUMBER
OF SHARES VALUE
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INDUSTRIALS -- 8.0%
ABB Ltd. ADR............................ 23,881 $ 232,123 (a,e)
Burlington Northern
Santa Fe Corp........................ 4,636 328,322
Cooper Industries Ltd................... 1,946 142,058
Corinthian Colleges, Inc................ 8,185 96,419 (a,e)
Danaher Corp............................ 2,742 152,949
Deere & Co.............................. 8,225 560,205
Dover Corp.............................. 31,421 1,272,236 (d)
Eaton Corp.............................. 13,323 893,840
General Dynamics Corp................... 2,536 289,231
Honeywell International Inc............. 2,317 86,308
ITT Industries, Inc..................... 752 77,321
Northrop Grumman Corp................... 8,404 505,164
Rockwell Collins, Inc................... 1,854 86,155
Southwest Airlines Co................... 24,551 403,373
Textron Inc............................. 7,119 548,021
3M Co................................... 1,449 112,298
Tyco International Ltd.................. 33,568 968,772
United Technologies Corp................ 16,970 948,793
Waste Management, Inc................... 5,494 166,743
7,870,331
INFORMATION TECHNOLOGY -- 17.8%
Activision, Inc......................... 6,305 86,631 (a,e)
Analog Devices, Inc..................... 22,216 796,888
Applied Materials, Inc.................. 8,844 158,661 (d)
Automatic Data Processing, Inc.......... 12,166 558,298
Certegy, Inc............................ 4,952 200,853 (e)
Checkfree Corp.......................... 2,654 121,819 (a)
Cisco Systems, Inc...................... 65,125 1,114,940 (a)
Dell, Inc............................... 18,832 564,772 (a)
EMC Corporation......................... 50,087 682,185 (a)
First Data Corp......................... 58,381 2,510,967
Hewlett-Packard Co...................... 6,971 199,580
Intel Corp.............................. 47,669 1,189,818
International Business
Machines Corp........................ 9,905 814,191
Intuit Inc.............................. 22,610 1,205,113 (a)
Linear Technology Corp.................. 7,588 273,699
Microsoft Corp.......................... 140,732 3,680,142
Molex Inc. (Class A).................... 31,398 772,077
Novell, Inc............................. 11,591 102,349 (a)
Novellus Systems, Inc................... 13,933 336,064 (a)
Oracle Corp............................. 136,115 1,661,964 (a)
Sun Microsystems, Inc................... 33,036 138,421 (a)
Xerox Corp.............................. 12,382 181,396 (a)
Yahoo! Inc.............................. 6,440 252,319 (a)
17,603,147
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NUMBER
OF SHARES VALUE
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MATERIALS -- 4.3%
Air Products & Chemicals, Inc........... 6,402 $ 378,934
Alcan Inc............................... 2,317 94,881
Alcoa, Inc.............................. 4,636 137,087 (e)
Barrick Gold Corp....................... 13,302 370,727 (e)
Dow Chemical Co......................... 6,412 280,974
Freeport-McMoRan Copper &
Gold Inc. (Class B).................. 13,140 706,932
MeadWestvaco Corp....................... 3,539 99,198
Monsanto Co............................. 15,328 1,188,380
Newmont Mining Corp..................... 9,169 489,625
Praxair, Inc............................ 5,466 289,479
Weyerhaeuser Co......................... 3,592 238,293 (e)
4,274,510
TELECOMMUNICATION SERVICES -- 2.5%
Alltel Corp............................. 11,929 752,720 (e)
Sprint Corporation...................... 25,808 602,875
Verizon Communications Inc.............. 6,955 209,485 (d)
Vodafone Group PLC ADR.................. 41,400 888,858 (e)
2,453,938
UTILITIES -- 2.3%
American Electric Power
Company, Inc......................... 4,776 177,142
Constellation Energy Group, Inc......... 7,959 458,438
Dominion Resources, Inc................. 5,099 393,643
Entergy Corp............................ 4,404 302,335
PG&E Corp............................... 13,289 493,288
PPL Corp................................ 6,458 189,865
Southern Co............................. 6,932 239,362
2,254,073
TOTAL COMMON STOCK
(COST $86,601,092)................... 94,739,074
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EXCHANGE TRADED FUNDS -- 3.4%
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Financial Select Sector
SPDR Fund............................ 20,709 655,854 (g)
Industrial Select Sector
SPDR Fund............................ 85,126 2,674,659 (g)
TOTAL EXCHANGE TRADED FUNDS
(COST $2,828,036).................... 3,330,513
TOTAL INVESTMENTS IN SECURITIES
(COST $89,429,128)................... 98,069,587
See Notes to Schedule of Investments on page 8 and Notes to Financial
Statements.
6
U.S. EQUITY FUND
Schedule of Investments December 31, 2005
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NUMBER
OF SHARES VALUE
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SHORT-TERM INVESTMENTS -- 3.8%
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SHORT-TERM INVESTMENTS -- 0.8%
GEI Short Term
Investment Fund
4.42% ............................ 847,289 $ 847,289 (b,f)
SHORT-TERM SECURITIES PURCHASED WITH COLLATERAL
FROM SECURITIES ON LOAN -- 3.0%
State Street Navigator Securities
Lending Prime Portfolio
4.29% ............................ 2,963,530 2,963,530 (b,c,g)
TOTAL SHORT-TERM INVESTMENTS
(COST $3,810,819).................... 3,810,819
TOTAL INVESTMENTS
(COST $93,239,947)................... 101,880,406
LIABILITIES IN EXCESS OF OTHER ASSETS,
NET-- (3.0)%......................... (2,997,505)
------------
NET ASSETS-- 100.0% .................... $98,882,901
============
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OTHER INFORMATION
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The GEI U.S. Equity had the following short futures contracts open at December
31, 2005:
NUMBER CURRENT
EXPIRATION OF NOTIONAL UNREALIZED
DESCRIPTION DATE CONTRACTS VALUE APPRECIATION
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S&P 500 Index
Futures March 2006 5 $(1,568,500) $20,725
See Notes to Schedule of Investments on page 8 and Notes to Financial
Statements.
7
Notes to Performance December 31, 2005 (unaudited)
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Total returns take into account changes in share price and assume reinvestment
of dividends and capital gains distributions, 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.
Current performance may be lower or higher than that shown. You may call
toll-free (800) 242-0134 for performance information as of the most recent month
end.
The performance data for the periods through December 12, 1997, reflect the
prior performance and expense ratios of the Variable Investment Trust GE U.S.
Equity Portfolio, the assets of which were transferred to the GE Investments
U.S. Equity Fund, Inc. pursuant to an exemptive order granted by the Securities
and Exchange Commission permitting a substitution of funds that occurred on
December 12, 1997.
Total returns do not reflect expenses associated with the separate account such
as administrative fees, account charges and surrender charges, which, if
reflected, would reduce the total returns for all periods shown.
Shares of the Fund are neither insured nor guaranteed by the U.S. Government,
and their prices will fluctuate with market conditions.
The Standard & Poor's ("S&P") 500 Composite Price Index of stocks (S&P 500) is
an unmanaged index and do not reflect the actual cost of investing in the
instruments that comprise the index.
The S&P 500 is a market capitalization-weighted index of stocks of 500 large
U.S. companies, which is widely used as a measure of large-cap stock market
performance. The results shown for the foregoing index 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 blend of Lipper peer categories, as shown. Lipper is
an independent mutual fund rating service. A Fund's performance may be compared
to or ranked within a universe of mutual funds with investment objectives and
policies similar but not necessarily identical to the Fund's. Such comparisons
or rankings are made on the basis of several factors, including the Fund's
objectives and policies, management style and strategy, and portfolio
composition, and may change over time if any of those factors change. Lipper is
an independent mutual fund rating service.
Notes to Schedule of Investments
- --------------------------------------------------------------------------------
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 current or 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.
(a) Non-income producing security.
(b) Coupon amount represents effective yield.
(c) State Street Corp. is the parent company of State Street Bank & Trust Co.,
the Fund's custodian and accounting agent.
(d) At December 31, 2005, all or a portion of this security was pledged to
cover collateral requirements for futures, options, forward foreign
currency contracts and/or TBA's.
(e) All or a portion of the security is out on loan.
(f) GEAM, the investment adviser of the Fund, also serves as investment adviser
of the GEI Short Term Investment Fund.
(g) Sponsored by SSgA Funds Management, Inc., an affiliate of State Street Bank
& Trust Co., the Fund's custodian and accounting agent.
+ Percentages are based on net assets as of December 31, 2005.
Abbreviations:
ADR American Depository Receipt
REIT Real Estate Investment Trust
SPDR Standard & Poors Depository Receipts
8
Financial Highlights
Selected data based on a share outstanding throughout the periods indicated
- --------------------------------------------------------------------------------
U.S. EQUITY FUND
12/31/05 12/31/04 12/31/0 12/31/02 12/31/01
- ------------------------------------------------------------------------------------------------------------------------------------
INCEPTION DATE -- -- -- -- 1/3/95
Net asset value, beginning of period ............................. $33.61 $31.48 $25.75 $32.21 $35.56
INCOME/(LOSS) FROM INVESTMENT OPERATIONS:
Net investment income ......................................... 0.39 0.44 0.26 0.24 0.23
Net realized and unrealized
gains/(losses) on investments .............................. 0.46 2.13 5.73 (6.45) (3.24)
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL INCOME/(LOSS) FROM INVESTMENT OPERATIONS ................... 0.85 2.57 5.99 (6.21) (3.01)
- ------------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM:
Net investment income ......................................... 0.40 0.44 0.26 0.25 0.22
Net realized gains ............................................ -- -- -- -- 0.12
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS .............................................. 0.40 0.44 0.26 0.25 0.34
- ------------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD ................................... $34.06 $33.61 $31.48 $25.75 $32.21
====================================================================================================================================
TOTAL RETURN (A) ................................................. 2.51% 8.17% 23.28% (19.26)% (8.47)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in thousands) ...................... $98,883 $112,545 $114,123 $102,112 $115,578
Ratios to average net assets:
Net investment income ...................................... 1.06% 1.30% 0.95% 0.87% 0.78%
Expenses ................................................... 0.63% 0.63% 0.61% 0.58% 0.58%
Portfolio turnover rate ....................................... 40% 30% 39% 37% 48%
NOTES TO FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(a) Total returns are historical and assume changes in share price and
reinvestment of dividends and capital gains and do not include the effect
of insurance contract charges.
See Notes to Financial Statements.
9
U.S.
Statement of Assets EQUITY
and Liabilities DECEMBER 31, 2005 FUND
- ----------------------------------------------------------------------------------------------------------------------------
ASSETS
Investments in securities, at market* (cost $89,429,128).............................................. $ 98,069,587
Short-term investments (at amortized cost) ........................................................... 2,963,530
Short-term affiliated investments (at amortized cost)................................................. 847,289
Income receivables ................................................................................... 137,847
Receivable for fund shares sold....................................................................... 59
Variation margin receivable........................................................................... 6,625
- ----------------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS ...................................................................................... 102,024,937
- ----------------------------------------------------------------------------------------------------------------------------
LIABILITIES
Payable upon return of securities loaned.............................................................. 2,963,530
Payable for investments purchased .................................................................... 40,211
Payable for fund shares redeemed...................................................................... 84,694
Payable to GEAM....................................................................................... 53,601
- ----------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES ................................................................................. 3,142,036
- ----------------------------------------------------------------------------------------------------------------------------
NET ASSETS ............................................................................................... $ 98,882,901
============================================================================================================================
NET ASSETS CONSIST OF:
Capital paid in ...................................................................................... 101,013,572
Undistributed (distribution in excess of) net investment income....................................... --
Accumulated net realized loss......................................................................... (10,791,854)
Net unrealized appreciation/(depreciation) on:
Investments........................................................................................ 8,640,459
Futures............................................................................................ 20,725
Foreign currency related translation............................................................... (1)
- ----------------------------------------------------------------------------------------------------------------------------
NET ASSETS ............................................................................................... $ 98,882,901
============================================================================================================================
Shares outstanding ($0.01 par value; unlimited shares authorized) ........................................ 2,903,263
Net asset value per share ................................................................................ $34.06
* Includes $2,872,358 of securities on loan.
See Notes to Financial Statements.
10
U.S.
Statement of Operations EQUITY
FOR THE YEAR ENDED DECEMBER 31, 2005 FUND
- ----------------------------------------------------------------------------------------------------------------------------
INVESTMENT INCOME
INCOME:
Dividend ............................................................................... $1,734,117
Interest*............................................................................... 2,116
Interest from affliated investments..................................................... 40,613
Less: Foreign taxes withheld............................................................ (5,434)
- ----------------------------------------------------------------------------------------------------------------------------
TOTAL INCOME ............................................................................. 1,771,412
- ----------------------------------------------------------------------------------------------------------------------------
EXPENSES:
Advisory and administrative fees........................................................ 579,778
Custody and accounting expenses......................................................... 48,686
Professional fees....................................................................... 17,436
Transfer agent ......................................................................... 218
Director's fees......................................................................... 2,887
Registration expenses................................................................... 799
Other expenses.......................................................................... 9,363
- ----------------------------------------------------------------------------------------------------------------------------
TOTAL EXPENSES ........................................................................... 659,167
- ----------------------------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME .................................................................... 1,112,245
============================================================================================================================
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS
REALIZED GAIN (LOSS) ON:
Investments ......................................................................... 7,712,099
Futures ............................................................................. (8,973)
INCREASE (DECREASE) IN UNREALIZED APPRECIATION/
(DEPRECIATION) ON:
Investments ......................................................................... (6,453,865)
Futures ............................................................................. 20,100
- ----------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain on investments ........................................ 1,269,361
- ----------------------------------------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS ..................................... $2,381,606
============================================================================================================================
* Income attributable to security lending activity, net of rebate expenses.
See Notes to Financial Statements.
11
U.S.
Statements of EQUITY
Changes in Net Assets FUND
- -------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
2005 2004
- -------------------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net investments income ........................................................... $ 1,112,245 $ 1,448,232
Net realized gain on investments, futures, written options,
foreign currency transactions and swaps ........................................ 7,703,126 3,405,421
Net increase (decrease) in unrealized appreciation/(depreciation)
on investments, futures, written options, foreign
currency translation ........................................................... (6,433,765) 3,718,272
- -------------------------------------------------------------------------------------------------------------------------------
Net increase from operations ..................................................... 2,381,606 8,571,925
- -------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income ............................................................ (1,138,355) (1,456,440)
- -------------------------------------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS ................................................................ (1,138,355) (1,456,440)
- -------------------------------------------------------------------------------------------------------------------------------
Increase in net assets from operations and distributions ........................... 1,243,251 7,115,485
- -------------------------------------------------------------------------------------------------------------------------------
SHARE TRANSACTIONS:
Proceeds from sale of shares ..................................................... 2,289,141 7,341,779
Value of distributions reinvested ................................................ 1,138,344 1,456,454
Cost of shares redeemed .......................................................... (18,333,312) (17,491,217)
- -------------------------------------------------------------------------------------------------------------------------------
Net decrease from share transactions ............................................. (14,905,827) (8,692,984)
- -------------------------------------------------------------------------------------------------------------------------------
TOTAL DECREASE IN NET ASSETS ....................................................... (13,662,576) (1,577,499)
NET ASSETS
Beginning of period ................................................................ 112,545,477 114,122,976
- -------------------------------------------------------------------------------------------------------------------------------
End of period ...................................................................... $ 98,882,901 $112,545,477
===============================================================================================================================
UNDISTRIBUTED (DISTRIBUTION IN EXCESS OF) NET INVESTMENT INCOME, END OF PERIOD ........ $ -- $ 5,868
- -------------------------------------------------------------------------------------------------------------------------------
CHANGES IN PORTFOLIO SHARES
Shares sold ...................................................................... 68,648 230,695
Issued for distributions reinvested .............................................. 33,178 43,360
Shares redeemed .................................................................. (547,125) (550,499)
- -------------------------------------------------------------------------------------------------------------------------------
Net decrease in fund shares ........................................................... (445,299) (276,444)
===============================================================================================================================
See Notes to Financial Statements.
12
Notes to Financial Statements December 31, 2005
- --------------------------------------------------------------------------------
1. ORGANIZATION OF THE COMPANY
GE Investments Funds, Inc. (the "Company") was incorporated under the laws of
the Commonwealth of Virginia on May 14, 1984 and is registered under the
Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end
management investment company. The Company is composed of thirteen investment
portfolios (collectively the "Funds"), although only the following eleven are
currently being offered: U.S. Equity Fund, (the "Fund") S&P 500 Index Fund,
Premier Growth Equity Fund, Value Equity Fund, Mid-Cap Equity Fund, Small-Cap
Equity Fund (formerly known as Small-Cap Value Equity Fund, prior to January 3,
2006), International Equity Fund, Total Return Fund, Money Market
Fund and Real Estate Securities Fund.
Shares of the Funds 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 Asset Management Incorporated ("GEAM"), the
investment adviser and administrator of each of the Funds.
As of December 31, 2005, GE Life and Annuity Assurance Company ("GE Life") and
General Electric Capital Assurance Company, each an affiliated insurance
company, controlled the Funds by ownership, through separate accounts, of
virtually all of the Funds' shares of beneficial interest.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions at the date of the financial statements. Actual
results may differ from those estimates.
The following summarizes the significant accounting policies of the Company:
SECURITY VALUATION AND TRANSACTIONS 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. Securities listed on the NASDAQ will be
valued at the NASDAQ's official close price. Certain fixed income securities are
valued by a dealer or by a pricing service based upon a matrix system, which
considers market transactions as well as dealer supplied valuations. Short-term
investments maturing within sixty days are valued at amortized cost. If
quotations are not readily available for a portfolio security, or if it is
believed that a quotation or other market price for a portfolio security does
not represent its fair value, the security may be valued using procedures
approved by the Fund's Board of Directors that are designed to establish its
"fair value." These procedures require that the fair value of a security be
established by the valuation committee. The fair value committee follows
different protocols for different types of investments and circumstances.
Foreign securities may be valued with the assistance of an independent fair
value pricing service in circumstances where it is believed that they have been
or would be materially affected by events occurring after the close of the
portfolio security's primary market and before the close of regular trading on
the NYSE. This independent fair value pricing service uses a computerized system
to appraise affected securities and portfolios taking into consideration various
factors and the fair value of such securities may be something other than the
last available quotation or other market price. GE Asset Management may also
separately monitor portfolio securities and, consistent with the Fund's fair
value procedures, apply a different value to a portfolio security than would be
applied had it been priced using market quotations or by an independent fair
value pricing service.
Determining the fair value of securities involves the application of both
subjective and objective considerations. Security values may differ depending on
the methodology used to determine their values, and may differ from the last
quoted sale or closing price. No assurance can be given that use of these fair
value procedures will always better represent the price at which a Fund could
sell the affected portfolio security.
Security transactions are accounted for as of the trade date. Realized gains and
losses on investments sold are recorded on the basis of identified cost for both
financial statement and federal tax purposes.
REPURCHASE AGREEMENTS The Fund may enter into repurchase agreements. The Fund's
or a third party custodian takes possession of the collateral pledged for
investments in repurchase agreements on behalf of the Fund. The Fund values the
underlying collateral daily on a
13
Notes to Financial Statements December 31, 2005
- --------------------------------------------------------------------------------
mark-to-market basis to determine that the value, including accrued interest, is
at least equal to 102% of the repurchase price. In the event the seller defaults
and the value of the security declines, or if the seller enters an insolvency
proceeding, realization of the collateral by the Fund may be delayed or limited.
SECURITY LENDING The Fund may loan securities to brokers, dealers, and financial
institutions determined by GEAM to be creditworthy, subject to certain
limitations. The Fund continues to receive the interest and dividends on the
loaned securities during the term of the loan. The loans of securities are
secured by collateral in the form of cash or other liquid assets, which are
segregated and maintained with the custodian in an amount at least equal to 102%
of the current market value of the loaned securities. During the term of the
loan, the Fund will record any gain or loss in the market value of its loaned
securities and of securities in which cash collateral is invested. The Fund will
also earn interest, net of any rebate, from securities in which cash collateral
is invested. In the event the counterparty (borrower) does not meet its
contracted obligation to return the securities, the Fund may be exposed to the
risk of loss of reacquiring the loaned securities at prevailing market prices
using the proceeds of the sale of the collateral.
FOREIGN CURRENCY Accounting records of the Fund are maintained in U.S. dollars.
Investment securities and other assets and liabilities denominated in a foreign
currency are translated into U.S. dollars at the prevailing rates of exchange at
period end. Purchases and sales of securities, income receipts and expense
payments denominated in foreign currencies are translated into U.S. dollars at
the prevailing exchange rate on the respective dates of such transactions.
The Fund does not isolate the portion of the results of operations resulting
from changes in foreign exchange rates from the fluctuations arising from
changes in the market prices of securities during the period. Such fluctuations
are included in the net realized or unrealized gain or loss from investments.
Net realized gains or losses on foreign currency transactions represent net
gains or losses on sales and maturities of foreign currency contracts,
disposition of foreign currencies, the difference between the amount of net
investment income and withholding taxes accrued and the U.S. dollar amount
actually received or paid, and gains or losses between the trade and settlement
date on purchases and sales of securities. Net unrealized foreign exchange gains
and losses arising from changes in the value of other assets and liabilities as
a result of changes in foreign exchange rates are included as increases or
decreases in unrealized appreciation/depreciation on foreign currency related
transactions.
FUTURES CONTRACTS The Fund may invest in interest rate, financial or stock or
bond index futures contracts subject to certain limitations. The Fund may invest
in futures contracts to manage its exposure to the stock and bond markets and
fluctuations in currency values. Buying futures tends to increase the Fund's
exposure to the underlying instrument while selling futures tends to decrease
the Fund's exposure to the underlying instrument, or hedge other Fund
investments. The Fund will not enter into a transaction involving futures for
speculative purposes. The Fund's risks in using these contracts include changes
in the value of the underlying instruments, non-performance of the
counterparties under the contracts' terms and changes in the liquidity of the
secondary market for the contracts. Futures contracts are valued at the
settlement price established each day by the board of trade or exchange on which
they principally trade.
Upon entering into a futures contract, the Fund is required to pledge to the
broker an amount of cash and/or other assets equal to a certain percentage of
the contract amount, known as initial margin deposit. Subsequent payments, known
as variation margin, are made or received by the Fund each day, depending on the
daily fluctuation in the fair value of the underlying security. The Fund records
an unrealized gain or loss equal to the daily variation margin. Should market
conditions move unexpectedly, the Fund may not achieve the anticipated benefits
of the futures contracts and may incur a loss. The Fund recognizes a realized
gain or loss on the expiration or closing of a futures contract.
OPTIONS The Fund may purchase and write options, subject to certain limitations.
The Fund may invest in options contracts to manage its exposure to the stock and
bond markets and fluctuations in foreign currency values. Writing puts and
buying calls tend to increase the Fund's exposure to the underlying instrument
while buying puts and writing calls tend to decrease the Fund's exposure to the
underlying instrument, or hedge other Fund
14
Notes to Financial Statements December 31, 2005
- --------------------------------------------------------------------------------
investments. The Fund will not enter into a transaction involving options for
speculative purposes. The Fund's risks in using these contracts include changes
in the value of the underlying instruments, non-performance of the
counterparties under the contracts' terms and changes in the liquidity of the
secondary market for the contracts. Options are valued at the last sale price,
or if no sales occurred on that day, at the last quoted bid price.
When the Fund writes an option, the amount of the premium received is recorded
as a liability and is subsequently adjusted to the current fair value of the
option written. Premiums received from writing options that expire unexercised
are treated by the Fund on the expiration date as realized gains from
investments. The difference between the premium and the amount paid on effecting
a closing purchase transaction, including brokerage commissions, is also treated
as a realized gain, or if the premium is less than the amount paid for the
closing purchase, as a realized loss. When an option is exercised, the proceeds
from the sale of the underlying security or the cost basis of the securities
purchased is adjusted by the original premium received or paid.
INVESTMENTS IN FOREIGN MARKETS Investments in foreign markets may involve
special risks and considerations not typically associated with investing in the
United States. These risks include revaluation of currencies, high rates of
inflation, repatriation on income and capital, and adverse political and
economic developments. Moreover, securities issued in these markets may be less
liquid, subject to government ownership controls, tariffs and taxes, subject to
delays in settlements, and their prices may be more volatile.
The Fund may be subject to capital gains and repatriation taxes imposed by
certain countries in which it invests. Such taxes are generally based on income
and/or capital gains earned or repatriated. Taxes are accrued based upon net
investment income, net realized gains and net unrealized appreciation as income
and/or capital gains are earned.
INCOME TAXES The Fund intends to comply with all sections of the Internal
Revenue Code applicable to regulated investment companies including the
distribution of substantially all of its taxable net investment income and net
realized capital gains to its shareholders. Therefore, no provision for federal
income tax has been made. The Fund is treated as a separate taxpayer for federal
income tax purposes.
At December 31, 2005, information on the tax components of capital is as
follows:
Net Tax
Cost of Gross Tax Gross Tax Appreciation/
Investments for Unrealized Unrealized (Depreciation)
Tax Purposes Appreciation Depreciation on Investments
- ------------------------------------------------------------------------------------------------------------------------------------
$96,661,250 $11,484,217 $(6,265,061) $5,219,156
Net Tax
Appreciation/ Undistributed Undistributed Post
(Depreciation) on Income/ Long-Term Gains/ October
Derivatives, Currency (Accumulated (Accumulated Losses
and Other Net Assets Ordinary Loss) Capital Loss) (see Detail Below)
- ------------------------------------------------------------------------------------------------------------------------------------
$(1) $-- $(7,349,826) $--
15
Notes to Financial Statements December 31, 2005
- --------------------------------------------------------------------------------
As of December 31, 2005, the Fund has capital loss carryovers as indicated
below. Capital loss carryovers are available to offset future realized capital
gains to the extent provided in the Internal Revenue Code and regulations
thereunder. To the extent that these carryover losses are used to offset future
capital gains, it is probable that the gains so offset will not be distributed
to shareholders because they would be taxable as ordinary income.
Amount Expires
- --------------------------------------------------------------------------------
$2,267,542 12/31/10
5,082,284 12/31/11
During the year ended December 31, 2005, the Fund utilized approximately
$6,678,063 of capital loss carryovers.
Any net capital and currency losses incurred after October 31, within the Fund's
tax year, are deemed to arise on the first day of the Fund's next tax year if
the Fund so elects to defer such losses.
The Fund had no losses incurred after October 31, 2005.
The tax composition of distributions paid (other than return of capital
distributions for the year) during the year ended December 31, 2005 was as
follows:
Ordinary Long-Term
Income Capital Gains Total
- --------------------------------------------------------------------------------
$1,138,355 $-- $1,138,355
DISTRIBUTIONS TO SHAREHOLDERS The Fund declares and pays dividends from net
investment income annually. The Fund declares and pays net realized capital
gains in excess of capital loss carryforwards 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 (but are not limited to) futures and
losses deferred due to wash sale transactions. Reclassifications due to
permanent book/tax differences are made to the Fund's capital accounts to
reflect income and gains available for distribution (or available capital oss
carryovers) under income tax regulations. These reclassifications have no impact
on net investment income, realized gains or losses, or the net asset value of
the Fund. The calculation of net investment income per share in the Financial
Highlights table excludes these adjustments.
The reclassifications for the year ended December 31, 2005 were as follows:
Undistributed
(Distribution
in Excess of)
Net Investment Accumulated Paid in
Income Net Realized Loss Capital
- --------------------------------------------------------------------------------
$20,242 $-- $(20,242)
INVESTMENT INCOME Corporate actions (including cash dividends) are recorded on
the ex-dividend date, net of applicable withholding taxes, except for certain
foreign corporate actions, which are recorded as soon after ex-dividend date as
such information becomes available. Interest income is recorded on the accrual
basis. All discounts and premiums on bonds are accreted to call or maturity
date, whichever is shorter, using the effective yield method.
EXPENSES Expenses of the Company which are directly identifiable to one of the
Funds are allocated to that portfolio. Expenses which are not directly
identifiable to one of the Funds are allocated in such a manner as deemed
equitable, taking into consideration the nature and type of expenses and
relative sizes of the Funds. All expenses of the Fund are paid by GEAM and
reimbursed by the Fund.
3. LINE OF CREDIT
The Fund shares a revolving credit facility of up to $25 million with a number
of its affiliates. The credit facility is with its custodian bank, State Street
Bank and Trust Company. The revolving credit facility requires the payment of a
commitment fee equal to 0.09% per annum on the daily unused portion of the
credit facility, payable quarterly. The portion borne by the Funds generally is
borne proportionally based upon net assets. Generally, borrowings under the
credit facility would accrue interest at the Federal Funds Rate plus 50 basis
points and is borne by each of the borrowing Funds. The maximum amount allowed
to be borrowed by any one of the Funds is the lesser of its prospectus
limitation, 20% of its net assets, or $25 million. The credit facility was not
utilized by the Fund during the period ended December 31, 2005.
16
Notes to Financial Statements December 31, 2005
- --------------------------------------------------------------------------------
4. AMOUNTS PAID TO AFFILIATES
ADVISORY AND ADMINISTRATION FEES GEAM, 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 Fund. Compensation of GEAM for
investment advisory and administrative services is paid monthly based on the
average daily net assets of the Fund at an annualized rate of .55%.
GENPACT (formerly General Electric Capital International Services*) performs
certain accounting and certain administration services not provided by GEAM. For
the year ending December 31, 2005, $1,369 was charged to the Fund.
Administrative services not performed by GEAM or GENPACT were provided by an
unaffiliated service provider.
* AS OF SEPTEMBER 28, 2005, THE NAME WAS CHANGED FROM GENERAL ELECTRIC CAPITAL
INTERNATIONAL SERVICES TO GENPACT.
DIRECTORS' COMPENSATION The Fund pays no compensation to its directors who are
officers or employees of GEAM or its affiliates. Directors who are not such
officers or employees also serve in a similar capacity for other funds advised
by GEAM. Compensation paid to unaffiliated directors are reflected on the
Statement of Operations. These fees are allocated pro rata across all of the
mutual fund platforms and share classes served by the directors, including the
Fund, and are based upon the relative net assets of each Fund within such
platforms. (For additional information about directors compensation please refer
to the Statement of Additional Information.)
5. INVESTMENT TRANSACTIONS
PURCHASES AND SALES OF SECURITIES The cost of purchases and the proceeds from
sales of investments, other than short-term securities and options, for the
period ended December 31, 2005 were as follows:
Purchases Sales
- --------------------------------------------------------------------------------
$41,101,594 $54,686,485
SECURITY LENDING At December 31, 2005, the Fund participated in securities
lending:
Loaned
securities at Cash
market value Collateral*
- --------------------------------------------------------------------------------
$2,872,358 $2,942,735
* COLLATERAL OF $2,963,530 DECREASED BY $20,795 ON JANUARY 3, 2006 TO REFLECT
THE DECEMBER 30, 2005 CHANGE IN VALUE OF SECURITIES ON LOAN.
17
Report of Independent Registered Public Accounting Firm
- --------------------------------------------------------------------------------
The Shareholders and Board of Directors
GE Investments Funds, Inc.
We have audited the accompanying statement of assets and liabilities of the U.S.
Equity Fund, a series of GE Investments Funds, Inc., including the schedule of
investments, as of December 31, 2005, and the related statement of operations
for the year then ended, the statements of changes in net assets for each of the
years in the two-year period then ended, and the financial highlights for each
of the years in the five-year period then ended. These financial statements and
financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included confirmation of
securities owned as of December 31, 2005 by correspondence with the custodians
and brokers, or by other appropriate auditing procedures where replies from
brokers were not received. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
U.S. Equity Fund as of December 31, 2005, and the results of its operations, the
changes in its net assets and the financial highlights for each of the years
described above, in conformity with U.S. generally accepted accounting
principles.
/S/ KPMG LLP
Boston, Massachusetts
February 17, 2006
18
Advisory and Administrative Agreement Renewal (unaudited)
- --------------------------------------------------------------------------------
The Fund Board, including the independent Board members, considered and
unanimously approved the continuance of the Fund's investment advisory agreement
with GE Asset Management Incorporated ("GEAM") at meetings held on December 9
and December 16, 2005.
In considering whether to approve the Fund's investment advisory agreement, the
Board members, including the independent members, considered and discussed a
substantial amount of information and analysis provided, at the Board's request,
by GEAM. The Board members also considered detailed information regarding
performance and expenses of other investment companies with similar investment
objectives and sizes, which was prepared by an independent third party provider,
Lipper Inc. ("Lipper"). The Board members reviewed the fees charged by GEAM for
other mutual funds and investment products other than mutual funds that employ
the same investment strategy as the Fund. Before approving the Fund's advisory
agreement, the Board members reviewed the proposed continuance of the agreement
with management of GEAM and with independent legal counsel. The Board members
also reviewed a memorandum prepared by independent legal counsel discussing the
legal standards for the consideration of the proposed continuance. The
independent Board members discussed the proposed continuance in a private
session with their independent legal counsel at which no representatives of GEAM
were present.
In advance of the meeting, and in response to their request, the Board members
received from GEAM written responses to their inquiries, which included
substantial exhibits and other materials related to GEAM's business and the
services it provides to the Fund. The Board members took into account their
multi-year experience as Board members and particularly their consideration of
these agreements in 2004, noting that the information was presented in a similar
manner and format. To focus their review, the Board members asked GEAM
management, in its oral presentation, to highlight material differences from the
information presented in 2004. During the meeting, the Board members had an
opportunity to discuss this information with GEAM managers, including senior
executives, representatives from the legal and compliance departments, and
senior investment personnel. The Board members posed questions to these
representatives and engaged in substantive discussions with them concerning
GEAM's investment process.
In reaching their determination relating to continuance of the agreement, the
Board members considered all factors they believed relevant, including the
factors discussed below. In their deliberations, the Board members did not
identify any particular information that was all-important or controlling, and
each Board member attributed different weights to the various factors. In
particular, the Board members focused on the following:
THE NATURE, EXTENT AND QUALITY OF SERVICES PROVIDED.
The Board members reviewed the services provided by GEAM, and the Board members,
including the independent members, concurred that GEAM provides high quality
advisory and administrative services to the Fund.
In connection with their consideration of GEAM's services, the Board members
focused on the favorable attributes of GEAM, including (i) an investment
philosophy oriented toward long-term performance; (ii) effective processes used
for selecting investments, selecting brokers and with respect to Fund
administration, controllership and compliance activities; (iii) highly skilled
professionals, including analysts, research professionals and portfolio managers
with a depth of experience; (iv) access to significant technological resources
from which the Fund may benefit; and (v) a favorable history and reputation. The
Board members discussed with senior officers of GEAM the personnel changes made,
and proposed to be made, by GEAM, and that GEAM would be expending significant
sums to enhance services, including improvements to its information technology
capabilities. The Board members noted that the Fund represents only a small
portion of the assets managed by GEAM, but benefits from a full array of
services and resources provided by GEAM. In light of these discussions, the
Board members, including the independent members, concluded that GEAM's services
were of a high quality and had benefited the Fund.
19
Advisory and Administrative Agreement Renewal (unaudited)
- --------------------------------------------------------------------------------
INVESTMENT PERFORMANCE OF THE FUND.
The Board members considered the investment performance of the Fund for various
periods. The Board members reviewed detailed comparisons of the performance of
the Fund with the relevant securities indexes and peer groupings of mutual funds
prepared by Lipper with respect to various periods. The Board members also
engaged in detailed discussions with GEAM management about the investment
process, focusing on the Fund's investment objective, the number and experience
of portfolio management personnel, the investment style and approach employed,
the likely market cycles for the investment style, and the relative
underperformance of the Fund in certain periods in light of GEAM's commitment to
long-term satisfactory performance with respect to the Fund's investment
objective and investment approach. The Board members, including the independent
members, concluded that the Fund's performance was acceptable over the relevant
periods, particularly from a longer term perspective, which the Board members
believed was most relevant.
COST OF THE SERVICES TO BE PROVIDED AND PROFITS TO BE REALIZED FROM THE
RELATIONSHIP WITH THE FUND.
The Board members considered the cost of the services provided by GEAM. The
Board members reviewed the information they had requested from GEAM concerning
its profitability from the fees and services it provides to the Fund and the
financial condition of GEAM for various past periods. The Board members
considered the profit margin information for GEAM's investment company business
as a whole, as well as GEAM's profitability data for the Fund. The Board members
reviewed GEAM's assumptions and the methods of cost allocation used by GEAM in
preparing Fund-specific profitability data. The Board members also discussed
with GEAM the basis for its belief that the methods of allocation used were
reasonable and consistent across its business.
The Board members noted and discussed the additional services provided by GEAM
to the Fund compared to other investment products managed by GEAM. The Board
members determined that GEAM should be entitled to earn a reasonable level of
profits for the services it provides to the Fund. The Board members also
recognized that GEAM had made significant investments in its business and had
not fully recovered the sums invested. Based on their review, the Board members,
including the independent members, concluded that they were satisfied that the
level of profitability achieved by GEAM from its relationship with the Fund was
not unreasonable or excessive.
THE EXTENT TO WHICH ECONOMIES OF SCALE WOULD BE REALIZED AS THE FUND GROWS AND
WHETHER FEE LEVELS WOULD REFLECT SUCH ECONOMIES OF SCALE.
The Board members considered the extent to which economies of scale would be
realized as the Fund grows, and whether fee levels reflect these economies of
scale for the benefit of Fund investors. The Board members considered the
substantial infrastructure investments that GEAM has made with respect to its
operations and its commitment to continue investing resources to enhance
services to Fund shareholders, including its anticipated information technology
expenditures. The Board members recognized the benefits to the Fund of GEAM's
past investment in its operations through the expenditure of sums to support its
substantial infrastructure, and that, in general, GEAM has not yet fully
recouped that investment. The Board members also recognized the benefits to the
Fund of being able to leverage a favorable cost structure achieved with respect
to the Fund's other operating expenses as a result of GEAM's large overall base
of assets under management and its vendor management practices. The Board
members considered the potential institution of advisory fee breakpoints for the
Fund, but concluded that GEAM had already appropriately shared the economies of
scale.
COMPARISON OF SERVICES TO BE RENDERED AND FEES TO BE PAID.
The Board members discussed the services provided to the Fund by GEAM, and the
fees charged for those services. The Board members reviewed information
concerning the fee and expense ratios for the Fund, and comparative information
with respect to similar products. They discussed that the Fund's figures were
within the applicable peer group range. The Board members considered that the
comparative data provided by Lipper showed no material difference from last year
in the fees being charged as compared to those being charged by other advisers
to similar investment products, as
20
Advisory and Administrative Agreement Renewal (unaudited)
- --------------------------------------------------------------------------------
determined by Lipper. In addition, the Board members considered their discussion
with representatives of GEAM about the fees being charged to the Fund and, to
the extent applicable, the potential effect, if any, of the Securities and
Exchange Commission staff's recently proposed soft dollar interpretation on
those fees. In light of the foregoing, the Board members, including the
independent members, determined that the advisory fees were reasonable in
relation to the services provided to the Fund.
FALL-OUT BENEFITS.
The Board members considered other actual and potential financial benefits to
GEAM, including, to the extent applicable, soft dollar commission benefits
generated through Fund portfolio transactions. The Board members noted, however,
that the Fund benefits from the vast array of resources available through GEAM,
and that the Fund represents only a small portion of the assets managed by GEAM.
CONCLUSION.
No single factor was determinative to the Board members' decision. Based on
their discussion and such other matters as were deemed relevant, the Board
members, including the independent members, concluded that the proposed advisory
fee and projected total expense ratio are reasonable in relation to the services
provided to the Fund. In view of these facts, the Board members, including the
independent members, concluded that the renewal of the advisory agreement was in
the best interests of the Fund and its shareholders.
21
Additional Information (unaudited)
- --------------------------------------------------------------------------------
INFORMATION ABOUT DIRECTORS AND EXECUTIVE OFFICERS:
The business and affairs of the Company are managed under the direction of the
Company's Board of Directors. Information pertaining to the Directors and
officers of the Company is set forth below.
INTERESTED DIRECTORS AND EXECUTIVE OFFICERS
- --------------------------------------------------------------------------------
MICHAEL J. COSGROVE
- --------------------------------------------------------------------------------
ADDRESS c/o GEAM 3001 Summer St. Stamford, CT 06905
AGE 56
POSITION(S) HELD WITH FUND Chairman of the Board and President
TERM OF OFFICE AND LENGTH OF TIME SERVED Until successor is elected and
qualified - 9 years
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS Executive Vice President - Chief
Commercial Officer of GEAM (formerly President, GE Asset Management Services
division ("GEAMS") of GE Financial Assurance Holdings, Inc., an indirect
wholly-owned subsidiary of General Electric Company ("GE")), since February
1997; Vice President, GE Capital Corporation, an indirect wholly-owned
subsidiary of GE, since December 1999; Executive Vice President - Sales and
Marketing of GEAM, a wholly-owned subsidiary of GE that is registered as an
investment adviser under the Investment Advisers Act of 1940, as amended, since
March 1993; Director of GEAM since 1988.
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR 48
OTHER DIRECTORSHIPS HELD BY DIRECTOR Chairman of the Board and President of GE
Funds since 1993, and GE Institutional Funds and GE LifeStyle Funds since their
inception; Trustee of Elfun Funds, GE Savings & Security Funds and General
Electric Pension Trust since 1988; Trustee of Fordham University since 2003 and
Marymount College from 1994 through 2002.
- --------------------------------------------------------------------------------
ALAN M. LEWIS
- --------------------------------------------------------------------------------
ADDRESS c/o GEAM 3001 Summer St. Stamford, CT 06905
AGE 59
POSITION(S) HELD WITH FUND Director and Executive Vice President
TERM OF OFFICE AND LENGTH OF TIME SERVED Until successor is elected and
qualified - 6 years
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS Executive Vice President,
General Counsel and Secretary of GEAM since 1987
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR 48
OTHER DIRECTORSHIPS HELD BY DIRECTOR Trustee and Executive Vice President of GE
Funds, GE Institutional Funds and GE LifeStyle Funds since their inception.
Trustee of Elfun Funds, GE Savings & Security Funds and General Electric Pension
Trust since 1987.
22
Additional Information (unaudited)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SCOTT H. RHODES
- --------------------------------------------------------------------------------
ADDRESS c/o GEAM 3001 Summer St. Stamford, CT 06905
AGE 47
POSITION(S) HELD WITH FUND Treasurer
TERM OF OFFICE AND LENGTH OF TIME SERVED Until successor is elected and
qualified - less than one year
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS GEAM Mutual Funds Operations
Manager since September 2005; Treasurer of GE Institutional Funds, GE LifeStyle
Funds and GE Investments Funds since November 2005 and Elfun Funds and GE
Savings & Security Funds since September 2005; from August 2004 to September
2005 Vice President, U.S. Trust Company, N.A. and Assistant Treasurer of
Excelsior Funds, Inc., Excelsior Funds Trust, and Excelsior Tax Exempt Funds,
Inc.; from January 2004 to August 2004, Vice President BlackRock Financial
Management, Inc.; from December 1996 to November 2003, Controller - Mutual
Funds, American Skandia Investment Services, Inc. and Assistant Treasurer of
American Skandia Trust and American Skandia Advisor Funds, Inc.
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR N/A
OTHER DIRECTORSHIPS HELD BY DIRECTOR N/A
- --------------------------------------------------------------------------------
MATTHEW J. SIMPSON
- --------------------------------------------------------------------------------
ADDRESS c/o GEAM 3001 Summer St. Stamford, CT 06905
AGE 44
POSITION(S) HELD WITH FUND Vice President and Secretary
TERM OF OFFICE AND LENGTH OF TIME SERVED Until successor is elected and
qualified - 9 years
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS Senior Vice President and General
Counsel - Marketing and Client Services (formerly Asset Management Services), at
GEAM and Senior Vice President and General Counsel of GEAMS since February 1997;
from October 1992 to February 1997, Vice President and Associate General Counsel
of GEAM; Secretary of GE Funds since 1993 and Vice President since September
2003; Secretary of GE Institutional Funds and GE LifeStyle Funds since their
inception and Vice President since September 2003; Assistant Secretary of Elfun
Funds and GE Savings & Security Funds since 1998 and Vice President since
October 2003.
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR N/A
OTHER DIRECTORSHIPS HELD BY DIRECTOR N/A
- --------------------------------------------------------------------------------
JEANNE M. LAPORTA
- --------------------------------------------------------------------------------
ADDRESS c/o GEAM 3001 Summer St. Stamford, CT 06905
AGE 40
POSITION(S) HELD WITH FUND Vice President and Assistant Secretary
TERM OF OFFICE AND LENGTH OF TIME SERVED Until successor is elected and
qualified - 2 years
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS Vice President and Associate
General Counsel - Marketing and Client Services (formerly Asset Management
Services) at GEAM since May 1997; Vice President and Assistant Secretary of GE
Funds, GE Institutional Funds and GE LifeStyle Funds since September 2003; Vice
President and Assistant Secretary of Elfun Funds and GE Savings & Security Funds
since October 2003.
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR N/A
OTHER DIRECTORSHIPS HELD BY DIRECTOR N/A
23
Additional Information (unaudited)
- --------------------------------------------------------------------------------
NON-INTERESTED DIRECTORS
- --------------------------------------------------------------------------------
JOHN R. COSTANTINO
- --------------------------------------------------------------------------------
ADDRESS c/o GEAM 3001 Summer St. Stamford, CT 06905
AGE 59
POSITION(S) HELD WITH FUND Director
TERM OF OFFICE AND LENGTH OF TIME SERVED Until successor is elected and
qualified - 9 years
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS Managing Director, Walden Partners,
Ltd., consultants and investors, since August 1992.
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR 40
OTHER DIRECTORSHIPS HELD BY DIRECTOR Trustee of GE Funds since 1993, GE
Institutional Funds and GE LifeStyle Funds since their inception; Trustee of
Fordham University since 2002 and Marymount College from 2001 through 2002;
Neuroscience Research Institute since 1986; Diocesan Finance Counsel of the
Dioceses of Brooklyn & Queens since 2001; Gregorian University Foundation since
1994.
- --------------------------------------------------------------------------------
WILLIAM J. LUCAS
- --------------------------------------------------------------------------------
ADDRESS c/o GEAM 3001 Summer St. Stamford, CT 06905
AGE 58
POSITION(S) HELD WITH FUND Director
TERM OF OFFICE AND LENGTH OF TIME SERVED Until successor is elected and
qualified - 9 years
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS Vice President and Treasurer of
Fairfield University since 1983.
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR 40
OTHER DIRECTORSHIPS HELD BY DIRECTOR Trustee of GE Funds since 1993, and GE
Institutional Funds and GE LifeStyle Funds since their inception.
- --------------------------------------------------------------------------------
ROBERT P. QUINN
- --------------------------------------------------------------------------------
ADDRESS c/o GEAM 3001 Summer St. Stamford, CT 06905
AGE 69
POSITION(S) HELD WITH FUND Director
TERM OF OFFICE AND LENGTH OF TIME SERVED Until successor is elected and
qualified - 9 years
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS Retired since 1983 from Salomon
Brothers Inc.
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR 40
OTHER DIRECTORSHIPS HELD BY DIRECTOR GP Financial Corp, holding company; The
Greenpoint Savings Bank, a financial institution. Trustee of GE Funds since
1993, and GE Institutional Funds and GE LifeStyle Funds since their inception.
- --------------------------------------------------------------------------------
The Statement of Additional Information for the Fund includes additional
information about the Directors and Officers and is available, without charge,
upon request by calling 1-800-242-0134.
24
Investment Team
- --------------------------------------------------------------------------------
INVESTMENT ADVISER AND ADMINISTRATOR
GE Asset Management Incorporated
BOARD OF DIRECTORS
Michael J.Cosgrove, CHAIRMAN
John R. Costantino
Alan M. Lewis
William J. Lucas
Robert P. Quinn
SECRETARY
Matthew J. Simpson
TREASURER
Scott H. Rhodes
ASSISTANT TREASURER
Christopher M. Isaacs
DISTRIBUTOR
GE Investment Distributors, Inc.
Member NASD and SIPC
COUNSEL
Sutherland, Asbill & Brennan, LLP
CUSTODIAN
State Street Bank & Trust Company
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
KPMG LLP
OFFICERS OF THE INVESTMENT ADVISER
John H. Myers, CHIEF EXECUTIVE OFFICER
David B. Carlson, EVP, DOMESTIC EQUITIES
Michael J. Cosgrove, EVP, CHIEF COMMERCIAL OFFICER
Robert A. MacDougall, EVP, FIXED INCOME (RETIRED FROM ALL POSITIONS AS
OF JANUARY 31, 2006)
Kathryn D. Karlic, EVP, FIXED INCOME (AS OF FEBRUARY 1, 2006)
Ralph R. Layman, EVP, INTERNATIONAL EQUITIES
Alan M. Lewis, EVP, GENERAL COUNSEL AND SECRETARY
Don W. Torey, EVP, ALTERNATIVE INVESTMENTS AND REAL ESTATE
John J. Walker, EVP, CHIEF FINANCIAL OFFICER
25
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[This page intentionally left blank.]
[This page intentionally left blank.]
INVESTMENT ADVISER
GE ASSET MANAGEMENT INCORPORATED
3001 SUMMER STREET
PO BOX 7900
STAMFORD, CT 06904-7900
DISTRIBUTOR
GE INVESTMENT DISTRIBUTORS, INC.
MEMBER NASD AND SIPC
3001 SUMMER STREET
PO BOX 7900
STAMFORD, CT 06904-7900
- --------------------------------------------------------------------------------
The Fund files its complete schedule of portfolio holdings with the Securities
and Exchange Commission for the first and third quarters of each fiscal year on
Form N-Q. The Fund's Forms N-Q, as well as a description of the policies and
procedures that the Fund uses to determine how to vote proxies (if any) relating
to portfolio securities is available without charge (i) upon request, by calling
1-800-242-0134; (ii) on the Fund's website at HTTP://WWW.GEFUNDS.COM; and (iii)
on the Commission's website at HTTP://WWW.SEC.GOV. The Fund's Forms N-Q may be
reviewed and copied at the Commission's Public Reference Room in Washington, DC
information on the operation of the Public Reference Room may be obtained by
calling 1-800-SEC-0330.
Information (if any) regarding how the Fund voted proxies relating to portfolio
securities during the most recently disclosed 12-months period ended June 30 is
available without charge (i) through the Fund's website at
HTTP://WWW.GEFUNDS.COM; and (ii) on the Commission's website at
HTTP://WWW.SEC.GOV.
- --------------------------------------------------------------------------------
[GE LOGO OMITTED]
GE Investments Funds, Inc.
S&P 500 Index Fund
Annual Report
DECEMBER 31, 2005
[GE LOGO OMITTED]
GE Investments Funds, Inc.
S&P 500 Index Fund Contents
- --------------------------------------------------------------------------------
MANAGER REVIEW AND SCHEDULE OF INVESTMENTS ............................... 1
NOTES TO PERFORMANCE ..................................................... 11
NOTES TO SCHEDULE OF INVESTMENTS ......................................... 11
FINANCIAL STATEMENTS
Financial Highlights ................................................ 12
Statement of Assets and Liabilities ................................. 13
Statement of Operations ............................................. 14
Statements of Changes in Net Assets ................................. 15
Notes to Financial Statements ....................................... 16
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM .................. 21
ADVISORY AND ADMINISTRATIVE AGREEMENT RENEWAL ............................ 22
ADDITIONAL INFORMATION ................................................... 25
INVESTMENT TEAM .......................................................... 28
This report is prepared for Policyholders of certain variable contracts and may
be distributed to others only if preceded or accompanied by the variable
contract's current prospectus and the current prospectus of the Funds available
for investments thereunder.
S&P 500 Index Fund
- --------------------------------------------------------------------------------
Q&A
SSGA FUNDS MANAGEMENT, INC. ("SSGA FM") IS THE SUB- ADVISER FOR THE S&P 500
INDEX FUND. SSGA IS ONE OF THE STATE STREET GLOBAL ADVISORS COMPANIES, WHICH
CONSTITUTE THE INVESTMENT MANAGEMENT BUSINESS OF STATE STREET CORPORATION. STATE
STREET GLOBAL ADVISORS HAS BEEN IN THE BUSINESS OF PROVIDING INVESTMENT ADVISORY
SERVICES SINCE 1978. SSGA FM WAS FORMED IN MAY 2001 AS A RESULT OF A CHANGE IN
FEDERAL LAW. THE FUND IS MANAGED BY A TEAM OF PORTFOLIO MANAGERS COMPOSED OF THE
FOLLOWING MEMBERS: KARL SCHNEIDER, JAMES MAY**, MICHAEL FEEHILY, TOM RAWLINGS*,
AND DAVID CHIN**.
KARL SCHNEIDER, LEAD PORTFOLIO MANAGER FOR THE FUND, IS A PRINCIPAL OF STATE
STREET GLOBAL ADVISORS, SSGA FM AND A PORTFOLIO MANAGER WITHIN THE GLOBAL
STRUCTURED PRODUCTS GROUP. HE JOINED STATE STREET IN 1996 AND CURRENTLY MANAGES
THE FIRM'S COMMINGLED WILSHIRE 5000, WILSHIRE 4500, AND RUSSELL 2000 FUNDS, AS
WELL AS OTHER COMMINGLED AND SEPARATELY MANAGED DOMESTIC AND INTERNATIONAL
FUNDS. PRIOR TO JOINING THE GLOBAL STRUCTURED PRODUCTS GROUP, KARL WORKED AS A
PORTFOLIO MANAGER IN SSGA'S CURRENCY MANAGEMENT GROUP, MANAGING BOTH ACTIVE
CURRENCY SELECTION AND TRADITIONAL PASSIVE HEDGING OVERLAY PORTFOLIOS. PRIOR TO
THIS, HE WORKED AS AN ANALYST IN STATE STREET'S PROCESS ENGINEERING DIVISION
WHERE HE BOTH ASSISTED AND LED A NUMBER OF INTERNAL CONSULTING ENGAGEMENTS AIMED
AT IMPROVING OPERATIONAL EFFICIENCIES WITHIN THE CUSTODY BANK.
JAMES MAY IS A PRINCIPAL OF STATE STREET GLOBAL ADVISORS, SSGA FM AND A SENIOR
PORTFOLIO MANAGER IN THE FIRM'S GLOBAL STRUCTURED PRODUCTS GROUP. HE MANAGES A
VARIETY OF PORTFOLIOS FOR THE DEVELOPED MARKETS TEAM BENCHMARKED TO INDEXES
INCLUDING MSCI, STANDARD & POOR'S, AND RUSSELL. JIM IS ALSO RESPONSIBLE FOR
MANAGING SEVERAL MUTUAL FUNDS. JIM JOINED SSGA IN 1991. PRIOR TO THE GLOBAL
STRUCTURED PRODUCTS GROUP, JIM WORKED IN THE FIRM'S PASSIVE U.S. EQUITY
OPERATIONS DEPARTMENT AS A SENIOR ANALYST. AS A MEMBER OF THE DEVELOPED MARKETS
TEAM, HE WORKED ON THE FORMULATION OF TRADING STRATEGIES FOR INDEX CHANGE
TRADES, RUSSELL RECONSTITUTION, AND MSCI QUARTERLY REBALANCING AND PROVISIONAL
TRADES. JIM ALSO SERVED ON THE RUSSELL 1000 ADVISORY COMMITTEE AT THE NEW YORK
BOARD OF TRADE. HE HAS BEEN WORKING IN THE INVESTMENT MANAGEMENT FIELD SINCE
1989 WHEN HE JOINED STATE STREET CORPORATION'S CUSTODY OPERATION.
MICHAEL FEEHILY IS A PRINCIPAL OF STATE STREET GLOBAL ADVISORS, SSGA FM AND HEAD
OF THE U.S. EQUITY TEAM WITHIN THE GLOBAL STRUCTURED PRODUCTS GROUP. MIKE IS
RESPONSIBLE FOR OVERSEEING THE MANAGEMENT OF ALL U.S. EQUITY INDEX FUNDS FOR
STATE STREET GLOBAL ADVISORS. HE ALSO SERVES AS PORTFOLIO MANAGER FOR SEVERAL
MUTUAL FUNDS, IN ADDITION TO SEVERAL OTHER COMMINGLED AND SEPARATELY MANAGED
PRODUCTS. MIKE JOINED SSGA IN 1997, INITIALLY WORKING IN THE PERFORMANCE AND
ANALYTICS GROUP. PRECEDING THIS, HE WAS PART OF THE GLOBAL OPERATIONS DEPARTMENT
OF STATE STREET CORPORATION WHERE HE HELPED TO DEVELOP PRIVATE EDGE, A
PROPRIETARY APPLICATION USED TO ANALYZE VENTURE CAPITAL, REAL ESTATE, AND OTHER
PRIVATE INVESTMENTS. MIKE HAS BEEN WORKING IN THE INVESTMENT MANAGEMENT FIELD
SINCE 1992.
TOM RAWLINGS IS A PRINCIPAL AT STATE STREET GLOBAL ADVISORS, SSGA FM AND A
PORTFOLIO MANAGER IN THE GLOBAL STRUCTURED PRODUCTS GROUP. THROUGHOUT HIS CAREER
TOM HAS MANAGED A WIDE VARIETY OF FUNDS, RANGING FROM EMERGING MARKETS TO THE US
MARKET. TOM'S CURRENT FOCUS AREAS INCLUDE FUNDS BENCHMARKED TO THE STANDARD AND
POOR'S, DOW JONES, AND RUSSELL INDICES. IN ADDITION TO HIS FUND
RESPONSIBILITIES, TOM HAS WORKED ON FORMULATING TRADE STRATEGIES FOR INDEX
CHANGES, AND THE RUSSELL RECONSTITUTION, AND HAS WORKED ON SEVERAL PROJECT
GROUPS FOCUSING ON PROCESS EFFICIENCY, REVIEW, AND RECOVERY SERVICES. TOM ALSO
CONDUCTS OPTIMIZATION ANALYSIS FOR SOCIALLY SCREENED PORTFOLIOS, AND PERFORMS
ANALYSIS FOR GENERAL RESEARCH TOPICS WITHIN THE GLOBAL STRUCTURED PRODUCTS
GROUP. PRIOR TO TOM'S CURRENT POSITION, HE WAS THE EQUITY TECHNICAL SUPPORT
ANALYST IN THE OPERATIONS GROUP. IN THIS ROLE TOM'S RESPONSIBILITIES INCLUDED
PROJECT MANAGEMENT, TECHNICAL ASSISTANCE AND TRAINING, AND PROGRAMMING AND
OPERATIONS PROCESS REVIEW WORLDWIDE. TOM HAS BEEN WORKING IN THE INVESTMENT
MANAGEMENT FIELD SINCE HE JOINED SSGA IN DECEMBER 1995.
DAVID CHIN IS A PRINCIPAL AND SENIOR PORTFOLIO MANAGER IN THE GLOBAL STRUCTURED
PRODUCTS GROUP AT STATE STREET GLOBAL ADVISORS AND SSGA FM. HE IS RESPONSIBLE
FOR MANAGING BOTH U.S. AND INTERNATIONAL FUNDS. PRIOR TO JOINING SSGA IN 1999,
DAVID WAS A PRODUCT ANALYST IN THE ANALYTICAL SERVICES GROUP AT FRANK RUSSELL
COMPANY. BEFORE THIS, HE WORKED AT ONESOURCE INFORMATION SYSTEMS DEVELOPING
INVESTMENT SOFTWARE. PRECEDING THIS, HE WAS AFFILIATED WITH PANAGORA ASSET
MANAGEMENT IN THE RESEARCH AND DEVELOPMENT GROUP CREATING QUANTITATIVE
INVESTMENT MODELS FOR INTERNATIONAL EQUITIES. DAVID HAS BEEN WORKING IN THE
INVESTMENT MANAGEMENT FIELD SINCE 1992.
* TOM RAWLINGS RESIGNED FROM SSGA FM IN THE 4TH QUARTER OF 2005 AND NO LONGER
SERVES AS PORTFOLIO MANAGER TO THE FUND.
** EFFECTIVE JANUARY 1, 2006, JAMES MAY AND DAVID CHIN NO LONGER SERVE AS
PORTFOLIO MANAGERS TO THE FUND.
1
S&P 500 Index Fund
- --------------------------------------------------------------------------------
Q&A
Q. HOW DID THE S&P 500 INDEX FUND PERFORM COMPARED TO ITS BENCHMARK AND LIPPER
PEER GROUP FOR THE TWELVE-MONTH PERIOD ENDED DECEMBER 31, 2005?
A. For the twelve-month period ended December 31, 2005, the S&P 500 Index Fund
returned 4.51%. The S&P 500 Index, the Fund's benchmark, returned 4.92% and
the Fund's Lipper peer group of 55 S&P 500 Index Objective funds returned an
average of 4.52% for the same period.
Q. WHAT MARKET CONDITIONS IMPACTED FUND PERFORMANCE?
A. While the market traded flat for much of the first half of 2005, economic
resilience, combined with healthy business prospects for companies involved
in disaster recovery and infrastructure repair, helped investors look past
the potential for near-term earnings disruptions in the wake of hurricanes
Katrina and Rita. The S&P 500 did notch its best close of the year on
December 14, revisiting levels it had not seen since the spring of 2001, but
a holiday swoon left the benchmark flat for the month and up a respectable,
if uninspiring 4.92% for the year.
Q. WHAT INVESTMENT STRATEGIES AND TECHNIQUES EMPLOYED BY THE FUND IMPACTED
PERFORMANCE?
A. We are utilizing a full replication strategy to manage the GE Investments
S&P 500 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 Index.
Cash is generally held to less than 5% of the total portfolio value, and is
equitized using S&P 500 Index futures contracts. This methodology has
provided consistent tracking.
Q. WHICH STOCKS/SECTORS HAVE YOU LIKED?
A. By utilizing a passive, full replication investment style, the fund owns the
same stocks and sectors in approximately the same weights as the S&P 500
Index. As of December 31st, 2005, the four largest sectors in the S&P 500
Index were Financials (21.2%), Information Technology (15.1%), Health Care
(13.3%) and Industrials (11.3%).
Q. WHY DID THE FUND OVER OR UNDER PERFORM ITS BENCHMARK?
A. The Fund under performed its benchmark due to the investment of fund cash
flows and fund fees and expenses.
Q. DID THE WEIGHTINGS/COUNTRY ALLOCATION OF THE FUND CHANGE?
A. By utilizing a passive, full replication investment style, the fund owns the
same stocks and sectors in approximately the same weights as the S&P 500
Index.
Q. WHICH STOCKS/SECTORS HAVE PERFORMED WELL? WHICH HAVE NOT PERFORMED WELL?
A. The top five returning stocks for the last twelve months were Valero Energy
(+128%), Apple Computer (+123%), Express Scripts (+119%), EOG Resources
(+106%) and Burlington Resources (+99%). The bottom five returning stocks
for the last year were Gateway (-58%), Dana Corp (-56%), Sanmina Corp
(-49%), Lexmark International (-47%) and General Motors (-46%). The highest
returning sectors for the last twelve months were Energy (+29%) and
Utilities (+12%) while the lowest returning sectors were Telecommunications
(-9%) and Consumer Discretionary (-7%).
Q. WHAT WERE THE MAJOR BUYS AND SELLS FOR THE QUARTER AND WHY?
A. For the 4th quarter of 2005, there were eight index changes announced by
Standard & Poors that impacted the Fund. The additions to the S&P500 were
Lennar Corp (Oct 3), Patterson Companies (Oct 10), Amazon.com (Nov 18),
Genworth Financial (Dec 1), Scripps E.W. (Dec 19), CBS Corp (Dec 30), Viacom
Inc New (Dec 30), and Whole Foods Market (Dec 30). The deletions for the
quarter were Delphi Corp (Oct 10), AT&T Corp (Nov 18), Calpine Corp (Dec 1),
Georgia-Pacific Group (Dec 19), Viacom Inc Old (Dec 30), Visteon Corp (Dec
30), and MBNA Corp (Dec 30). Not all the additions and deletions were bought
and sold in the fund, however, as several changes were as a result of a
merger or acquisition involving another S&P 500 constituent.
2
S&P 500 Index Fund
- --------------------------------------------------------------------------------
Understanding Your Fund's Expenses
As a shareholder of the Fund you incur transaction and ongoing expenses.
Transaction expenses including sales charges on purchase payments, reinvested
dividends (or other distributions), and redemption fees directly reduce the
investment return of the Fund. Ongoing costs include portfolio management fees,
distribution and service fees, professional fees, administrative fees and other
Fund expenses. The following example is intended to help you understand your
ongoing costs (in dollars) of investing in the Fund and to compare these costs
with the ongoing costs of investing in other mutual funds.
To illustrate these ongoing costs, we have provided an example and calculated
the expenses paid by investors during the period. The information in the
following table is based on an investment of $1,000, which is invested at the
beginning of the period and held for the entire six-month period ended December
31, 2005.
ACTUAL EXPENSES
The first section of the table provides information about actual account values
and actual expenses. You may use the information in this section, together with
the amount you invested, to estimate the expenses that you paid over the period.
To do so, simply divide your account value by $1,000 (for example, an $8,600
account value divided by $1,000 = 8.6), then multiply the result by the number
given for your class under the heading "Expenses Paid During Period."
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The second section of the table provides information about hypothetical account
values and hypothetical expenses based on the Fund's actual expense ratio and an
assumed rate of return of 5% per year before expenses, which is not the Fund's
actual return. You may use this information to compare the ongoing costs of
investing in the Fund and other funds. To do so, compare this 5% hypothetical
example with the 5% hypothetical examples that appear in the shareholders
reports of other funds.
Please note that the expenses shown in the table do not reflect any transaction
costs, such as sales charges or redemption fees.
JULY 1, 2005 - DECEMBER 31, 2005
- ------------------------------------------------------------------------------------------------------------------------------
ACCOUNT VALUE AT ACCOUNT VALUE EXPENSES
THE BEGINNING OF AT THE END OF PAID DURING
THE PERIOD ($) THE PERIOD ($) THE PERIOD ($)*
- ------------------------------------------------------------------------------------------------------------------------------
Actual Fund Return** 1,000.00 1,055.48 2.03
- ------------------------------------------------------------------------------------------------------------------------------
Hypothetical 5% Return
(2.5% for the period) 1,000.00 1,022.98 1.99
- ------------------------------------------------------------------------------------------------------------------------------
<FN>
* EXPENSES ARE EQUAL TO THE FUND'S ANNUALIZED EXPENSE RATIO OF 0.39% (FROM
PERIOD JULY 1, 2005 - DECEMBER 31, 2005), MULTIPLIED BY THE AVERAGE ACCOUNT
VALUE OVER THE PERIOD, MULTIPLIED BY 184/365 (TO REFLECT THE SIX MONTH
PERIOD).
** ACTUAL FUND RETURN FOR SIX-MONTH PERIOD ENDED DECEMBER 31, 2005 WAS: 5.55%.
</FN>
3
S&P 500 Index Fund
- --------------------------------------------------------------------------------
CHANGE IN VALUE
OF A $10,000 INVESTMENT
- --------------------------------------------------------------------------------
[LINE GRAPH OMITTED]
S&P 500 Index Fund S&P 500 Index
12/95 $10,000.00 $10,000.00
12/96 12,451.17 12,311.39
12/97 16,227.19 16,409.82
12/98 20,810.00 21,119.11
12/99 25,099.20 25,568.45
12/00 22,733.36 23,220.38
12/01 19,944.87 20,454.37
12/02 15,483.85 15,933.57
12/03 19,861.67 20,510.99
12/04 21,939.46 22,742.86
12/05 22,928.23 23,861.46
AVERAGE ANNUAL TOTAL RETURN
FOR THE PERIODS ENDED DECEMBER 31, 2005
- --------------------------------------------------------------------------------
ONE FIVE TEN
YEAR YEAR YEAR
- --------------------------------------------------------------------------------
S&P 500 Index Fund 4.51% 0.17% 8.65%
- --------------------------------------------------------------------------------
S&P 500 Index 4.92% 0.55% 9.09%
- --------------------------------------------------------------------------------
Lipper peer group average* 4.52% 0.16% 8.74%
- --------------------------------------------------------------------------------
Inception date 4/15/85
- --------------------------------------------------------------------------------
INVESTMENT PROFILE
A fund designed for investors who seek growth of capital and accumulation of
income that corresponds to the investment return of the Standard & Poor's 500
Composite Stock Index by investing at least 80% of its net assets in equity
securities of companies contained in that Index.
TOP TEN LARGEST HOLDINGS
AS OF DECEMBER 31, 2005
as a % of Market Value
- --------------------------------------------------------------------------------
General Electric Co.** 3.24%
- --------------------------------------------------------------------------------
Exxon Mobil Corp. 3.06%
- --------------------------------------------------------------------------------
Citigroup, Inc. 2.15%
- --------------------------------------------------------------------------------
Microsoft Corp. 2.10%
- --------------------------------------------------------------------------------
Procter & Gamble Co. 1.70%
- --------------------------------------------------------------------------------
Bank of America Corp. 1.61%
- --------------------------------------------------------------------------------
Johnson & Johnson 1.57%
- --------------------------------------------------------------------------------
American International Group, Inc. 1.55%
- --------------------------------------------------------------------------------
Pfizer Inc. 1.51%
- --------------------------------------------------------------------------------
Altria Group, Inc. 1.36%
- --------------------------------------------------------------------------------
PORTFOLIO COMPOSITION
AS OF DECEMBER 31, 2005
as a % of Market Value
- --------------------------------------------------------------------------------
Market Value of $531,327 (in thousands)
[PIE GRAPH OMITTED]
Telecommunications Services 3.0%
Utilities 3.3%
Energy 9.1%
Consumer Staples 9.4%
Industrials 11.2%
Consumer Discretionary 10.7%
Healthcare 13.2%
Information Technology 14.9%
Financials 21.0%
Short-Term 1.2%
Materials 3.0%
* LIPPER PERFORMANCE COMPARISONS ARE BASED ON AVERAGE ANNUAL TOTAL RETURNS FOR
THE ONE YEAR, FIVE-YEAR, AND TEN-YEAR PERIODS INDICATED IN THE S&P 500 INDEX
OBJECTIVE PEER GROUP CONSISTING OF 55, 44 AND 18 UNDERLYING ANNUITY FUNDS,
RESPECTIVELY.
** GENERAL ELECTRIC CO. IS THE PARENT COMPANY OF GE ASSET MANAGEMENT
INCORPORATED, THE FUND'S INVESTMENT ADVISER.
SEE NOTES TO PERFORMANCE ON PAGE 11 FOR FURTHER INFORMATION, INCLUDING AN
EXPLANATION OF LIPPER PEER CATEGORIES.
PAST PERFORMANCE DOES NOT PREDICT FUTURE PERFORMANCE AND THE GRAPH AND TABLE DO
NOT REFLECT THE DEDUCTION OF TAXES.
4
S&P 500 INDEX FUND
Schedule of Investments December 31, 2005
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
S&P 500 INDEX FUND
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NUMBER
OF SHARES VALUE
- --------------------------------------------------------------------------------
COMMON STOCK -- 98.8%+
- --------------------------------------------------------------------------------
CONSUMER DISCRETIONARY -- 10.7%
Amazon.Com, Inc. ................ 14,500 $ 683,675(a)
Apollo Group, Inc. (Class A) .... 6,700 405,082(a)
Autonation, Inc. ................ 8,700 189,051(a)
Autozone, Inc. .................. 2,544 233,412(a)
Bed Bath & Beyond, Inc. ......... 14,200 513,330(a)
Best Buy Company, Inc. .......... 19,000 826,120
Big Lots, Inc. .................. 4,400 52,844(a)
Black & Decker Corp. ............ 3,707 322,361
Brunswick Corp. ................. 4,768 193,867
Carnival Corp. .................. 20,300 1,085,441
CCE Spinco Inc. ................. 3,175 41,593(a)
Centex Corp. .................... 6,120 437,519
Circuit City Stores, Inc. ....... 7,326 165,494
Clear Channel
Communications, Inc. ......... 25,400 798,830
Coach, Inc. ..................... 17,500 583,450(a)
Comcast Corp. (Class A) ......... 101,039 2,622,972(a)
Cooper Tire & Rubber Co. ........ 2,923 44,780
D.R. Horton, Inc. ............... 12,900 460,917
Dana Corp. ...................... 8,441 60,606
Darden Restaurants, Inc. ........ 6,029 234,408
Dillard's, Inc. (Class A) ....... 2,295 56,962
Dollar General Corp. ............ 14,791 282,064
Dow Jones & Company, Inc. ....... 2,442 86,667
Eastman Kodak Co. ............... 12,875 301,275
eBay, Inc. ...................... 53,100 2,296,575(a)
Family Dollar Stores, Inc. ...... 7,300 180,967
Federated Department Stores Inc. 12,615 836,753
Ford Motor Co. .................. 88,299 681,668
Fortune Brands, Inc. ............ 6,941 541,537
Gannett Company, Inc. ........... 11,408 690,983
General Motors Corp. ............ 26,347 511,659
Genuine Parts Co. ............... 8,196 359,968
Goodyear Tire & Rubber Co. ...... 8,619 149,798(a)
H&R Block, Inc. ................. 14,708 361,081
Harley-Davidson, Inc. ........... 12,800 659,072
Harrah's Entertainment, Inc. .... 8,635 615,589
Hasbro, Inc. .................... 7,896 159,341
Hilton Hotels Corp. ............. 15,988 385,471
International Game Technology ... 15,400 474,012
Interpublic Group of
Companies, Inc. .............. 19,730 190,395(a)
J.C. Penney Company, Inc. ....... 10,687 594,197
Johnson Controls, Inc. .......... 9,082 662,169
Jones Apparel Group, Inc. ....... 6,000 184,320
KB Home ......................... 3,460 251,404
Knight-Ridder, Inc. ............. 3,400 215,220
Kohl's Corp. .................... 16,200 787,320(a)
Leggett & Platt Incorporated .... 9,300 213,528
- --------------------------------------------------------------------------------
NUMBER
OF SHARES VALUE
- --------------------------------------------------------------------------------
Lennar Corp. (Class A) .......... 6,400 $ 390,528
Limited Brands .................. 16,288 364,037
Liz Claiborne Inc. .............. 5,130 183,757
Lowe's Companies, Inc. .......... 36,328 2,421,624
Marriott International Inc. (Class A) 7,822 523,839
Mattel, Inc. .................... 19,851 314,043
Maytag Corp. .................... 4,395 82,714
McDonald's Corp. 58,534 1,973,766
McGraw-Hill Companies Inc. ...... 17,540 905,590
Meredith Corp. .................. 1,998 104,575
New York Times Co. (Class A) .... 7,088 187,478
Newell Rubbermaid Inc. .......... 12,456 296,204
News Corp. (Class A) ............ 112,500 1,749,375
Nike Inc. (Class B) ............. 8,904 772,778
Nordstrom, Inc. ................. 9,784 365,922
Office Depot, Inc. .............. 14,900 467,860(a)
OfficeMax, Inc. ................. 3,023 76,663
Omnicom Group, Inc. ............. 8,400 715,092
Pulte Homes, Inc. ............... 9,788 385,256
RadioShack Corp. ................ 5,956 125,255
Reebok International Ltd. ....... 2,730 158,968
Sears Holdings Corp. ............ 4,819 556,739(a)
Sherwin-Williams Co. ............ 5,263 239,045
Snap-On Incorporated ............ 2,409 90,482
Stanley Works ................... 3,526 169,389
Staples, Inc. ................... 34,050 773,275
Starbucks Corp. ................. 36,200 1,086,362(a)
Starwood Hotels & Resorts
Worldwide Inc. (Class B) (REIT) 10,400 664,144
Target Corp. .................... 41,152 2,262,125
The E.W. Scripps Co. (Class A) .. 3,900 187,278
The Gap, Inc. ................... 26,518 467,778
The Home Depot, Inc. ............ 98,618 3,992,057
The Walt Disney Co. ............. 89,437 2,143,805
Tiffany & Co. ................... 6,400 245,056
Time Warner Inc. ................ 217,214 3,788,212(d)
TJX Companies, Inc. ............. 21,580 501,303
Tribune Co. ..................... 11,718 354,587
Univision Communications
Inc. (Class A) ............... 10,000 293,900(a)
VF Corp. ........................ 4,102 227,005
Viacom Inc. (Class B) ........... 71,827 2,341,560
Wendy's International, Inc. ..... 5,131 283,539
Whirlpool Corp. ................. 3,109 260,410
Yum! Brands, Inc. ............... 13,422 629,223
56,808,345
CONSUMER STAPLES -- 9.4%
Alberto-Culver Company .......... 3,399 155,504
Albertson's, Inc. ............... 16,561 353,577(d)
Altria Group, Inc. .............. 96,979 7,246,271
Anheuser-Busch Companies, Inc. .. 35,908 1,542,608(d)
Archer-Daniels-Midland Co. ...... 30,086 741,921
Avon Products, Inc. ............. 21,028 600,349
Brown-Forman Corp. (Class B) .... 3,758 260,505
Campbell Soup Co. ............... 8,976 267,216
Clorox Co. ...................... 6,784 385,942
See Notes to Schedule of Investments on page 11 and Notes to Financial
Statements.
5
S&P 500 INDEX FUND
Schedule of Investments December 31, 2005
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NUMBER
OF SHARES VALUE
- --------------------------------------------------------------------------------
Coca-Cola Enterprises, Inc. ..... 14,700 $ 281,799
Colgate-Palmolive Co. ........... 24,372 1,336,804
ConAgra Foods, Inc. ............. 24,568 498,239
Constellation Brands, Inc. (Class A) 9,200 241,316(a)
Costco Wholesale Corp. .......... 22,366 1,106,446
CVS Corp. ....................... 38,012 1,004,277
General Mills, Inc. ............. 16,422 809,933
HJ Heinz Co. .................... 15,997 539,419
Kellogg Co. ..................... 11,790 509,564
Kimberly-Clark Corp. 21,536 1,284,622
Kroger Co. ...................... 33,930 640,598(a)
McCormick & Company, Inc. ....... 6,200 191,704
Molson Coors Brewing Co. (Class B) 2,765 185,227
Pepsi Bottling Group, Inc. ...... 6,300 180,243
PepsiCo, Inc. ................... 77,074 4,553,532
Procter & Gamble Co. ............ 156,345 9,049,249
Reynolds American Inc. .......... 3,700 352,721
Safeway Inc. .................... 21,200 501,592
Sara Lee Corp. .................. 36,157 683,367
Supervalu Inc. .................. 6,400 207,872
Sysco Corp. ..................... 29,444 914,236
The Coca-Cola Co. ............... 96,051 3,871,816(d)
The Hershey Company ............. 8,484 468,741
Tyson Foods, Inc. (Class A) ..... 12,300 210,330
UST Inc. ........................ 8,079 329,866
Walgreen Co. .................... 46,800 2,071,368
Wal-Mart Stores, Inc. ........... 116,624 5,458,003
Whole Foods Market, Inc. ........ 6,300 487,557
WM Wrigley Jr. Co. .............. 8,168 543,090
50,067,424
ENERGY -- 9.2%
Amerada Hess Corp. .............. 3,690 467,966(d)
Anadarko Petroleum Corp. ........ 10,928 1,035,428
Apache Corp. .................... 15,148 1,037,941
Baker Hughes Incorporated ....... 15,750 957,285
BJ Services Co. ................. 15,300 561,051
Burlington Resources, Inc. ...... 17,482 1,506,948
Chevron Corporation ............. 104,369 5,925,028
ConocoPhillips .................. 64,742 3,766,690
Devon Energy Corp. .............. 20,492 1,281,570
El Paso Corp. ................... 31,482 382,821
EOG Resources, Inc. ............. 11,300 829,081
Exxon Mobil Corp. ............... 289,624 16,268,180(d)
Halliburton Co. ................. 23,760 1,472,170
Kerr-McGee Corp. ................ 5,248 476,833
Kinder Morgan, Inc. ............. 4,400 404,580
Marathon Oil Corp. .............. 17,021 1,037,770
Murphy Oil Corp. ................ 7,400 399,526
Nabors Industries Ltd. .......... 7,100 537,825(a)
National Oilwell Varco, Inc. .... 8,100 507,870(a)
Noble Corp. ..................... 6,600 465,564
Occidental Petroleum Corp. ...... 18,610 1,486,567
Rowan Companies, Inc. ........... 5,177 184,508
Schlumberger Ltd. ............... 27,354 2,657,441
Sunoco, Inc. .................... 6,276 491,913
The Williams Companies, Inc. .... 26,486 613,681
- --------------------------------------------------------------------------------
NUMBER
OF SHARES VALUE
- --------------------------------------------------------------------------------
Transocean Inc. ................. 15,166 $ 1,056,919(a)
Valero Energy Corp. ............. 28,600 1,475,760
Weatherford International Ltd. .. 16,000 579,200(a)
XTO Energy Inc. ................. 16,633 730,854
48,598,970
FINANCIALS -- 21.0%
ACE Ltd. ........................ 14,700 785,568
AFLAC Incorporated .............. 23,600 1,095,512
Allstate Corp. .................. 29,976 1,620,802(d)
AMBAC Financial Group, Inc. ..... 4,900 377,594
American Express Co. ............ 58,222 2,996,104(d)
American International Group, Inc. 120,909 8,249,621(d)
Ameriprise Financial Inc. ....... 11,404 467,564
AmSouth Bancorp ................. 16,150 423,291
AON Corp. ....................... 15,036 540,544
Apartment Investment &
Management Co. (Class A) (REIT) 4,300 162,841
Archstone-Smith Trust (REIT) .... 9,500 397,955
Bank of America Corp. ........... 184,884 8,532,397
BB&T Corp. ...................... 25,300 1,060,323
Capital One Financial Corp. ..... 13,600 1,175,040
Charles Schwab Corp. ............ 48,511 711,656
Chubb Corp. ..................... 9,297 907,852
Cincinnati Financial Corp. ...... 8,292 370,487
CIT Group, Inc. ................. 9,400 486,732
Citigroup, Inc. ................. 235,376 11,422,797(d)
Comerica Incorporated ........... 7,956 451,583
Compass Bancshares, Inc. ........ 5,800 280,082
Countrywide Financial Corp. ..... 27,898 953,833
E*Trade Financial Corp. ......... 17,400 362,964(a)
Equity Office Properties Trust (REIT) 19,500 591,435
Equity Residential (REIT) ....... 13,600 532,032
Federal Home Loan
Mortgage Corp. ............... 32,165 2,101,983
Federal National Mortgage Assoc. 44,976 2,195,279
Federated Investors Inc. (Class B) 4,400 162,976
Fifth Third Bancorp ............. 26,216 988,868
First Horizon National Corp. .... 5,700 219,108
Franklin Resources, Inc. ........ 6,800 639,268
Genworth Financial, Inc. (Class A) 17,700 612,066
Golden West Financial Corp. ..... 11,930 787,380
Goldman Sachs Group, Inc. ....... 21,000 2,681,910
Huntington Bancshares
Incorporated ................. 11,234 266,808
Janus Capital Group, Inc. ....... 11,100 206,793
Jefferson-Pilot Corp. ........... 6,323 359,968
JPMorgan Chase & Co. ............ 162,676 6,456,610(d)
Keycorp ......................... 18,628 613,420
Lehman Brothers Holdings Inc. ... 12,400 1,589,308
Lincoln National Corp. .......... 8,212 435,482
Loews Corp. ..................... 6,332 600,590
M&T Bank Corp. .................. 3,700 403,485
Marsh & McLennan
Companies Inc. ............... 25,208 800,606
Marshall & Ilsley Corp. ......... 9,300 400,272
MBIA Inc. ....................... 6,035 363,066
See Notes to Schedule of Investments on page 11 and Notes to Financial
Statements.
6
S&P 500 INDEX FUND
Schedule of Investments December 31, 2005
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NUMBER
OF SHARES VALUE
- --------------------------------------------------------------------------------
MBNA Corp. ..................... 62,961 $ 1,709,391
Mellon Financial Corp. ......... 19,928 682,534
Merrill Lynch & Company, Inc. .. 42,634 2,887,601
Metlife, Inc. .................. 35,400 1,734,600
MGIC Investment Corp. .......... 4,459 293,491
Moody's Corp. .................. 11,784 723,773
Morgan Stanley ................. 49,996 2,836,773
National City Corp. ............ 26,064 874,968
North Fork Bancorporation, Inc. 22,700 621,072
Northern Trust Corp. ........... 8,400 435,288
Plum Creek Timber
Company, Inc (REIT) ......... 8,300 299,215
Principal Financial Group ...... 13,200 626,076
Progressive Corp. .............. 9,300 1,086,054
Prologis (REIT) ................ 11,600 541,952
Prudential Financial, Inc. ..... 23,400 1,712,646
Public Storage, Inc. (REIT) .... 4,000 270,880
Regions Financial Corp. ........ 21,582 737,241
Safeco Corp. ................... 5,981 337,926
Simon Property Group, Inc. (REIT) 8,500 651,355
SLM Corp. ...................... 19,700 1,085,273
Sovereign Bancorp, Inc. ........ 16,500 356,730
State Street Corp. ............. 15,300 848,232(c)
SunTrust Banks, Inc. ........... 16,629 1,209,926
Synovus Financial Corp. ........ 14,650 395,696
T Rowe Price Group, Inc. ....... 6,100 439,383
The Bank of New York
Company, Inc. ............... 36,010 1,146,918(d)
The Bear Stearns Companies Inc. 5,269 608,728
The Hartford Financial
Services Group, Inc. ........ 14,104 1,211,393
The PNC Financial Services
Group, Inc. ................. 13,808 853,749
The St. Paul Travelers
Companies, Inc. ............. 31,299 1,398,126
Torchmark Corp. ................ 4,800 266,880
UnumProvident Corp. ............ 14,089 320,525
US Bancorp ..................... 84,199 2,516,708
Vornado Realty Trust (REIT) .... 5,600 467,432
Wachovia Corp. ................. 72,311 3,822,359
Washington Mutual Inc. ......... 46,181 2,008,873
Wells Fargo & Co. .............. 77,918 4,895,588
XL Capital Ltd. ................ 8,100 545,778
Zions Bancorporation ........... 4,700 355,132
111,658,120
HEALTHCARE -- 13.2%
Abbott Laboratories ............ 72,196 2,846,688(d)
Aetna, Inc. .................... 13,404 1,264,131
Allergan, Inc. ................. 6,252 674,966
AmerisourceBergen Corp. ........ 9,942 411,599
Amgen, Inc. .................... 57,548 4,538,235(a,d)
Applera Corp. - Applied Biosystems
Group ....................... 9,500 252,320
Bausch & Lomb Inc. ............. 2,628 178,441
Baxter International, Inc. ..... 29,048 1,093,657
Becton Dickinson & Co. ......... 11,570 695,126
- --------------------------------------------------------------------------------
NUMBER
OF SHARES VALUE
- --------------------------------------------------------------------------------
Biogen Idec, Inc. .............. 15,600 $ 707,148(a)
Biomet, Inc. ................... 11,915 435,732
Boston Scientific Corp. ........ 27,576 675,336(a)
Bristol-Myers Squibb Co. ....... 90,908 2,089,066(d)
C.R. Bard, Inc. ................ 4,702 309,956
Cardinal Health, Inc. .......... 19,901 1,368,194
Caremark Rx, Inc. .............. 20,970 1,086,036(a)
Chiron Corp. ................... 5,300 235,638(a)
Cigna Corp. .................... 5,963 666,067
Coventry Health Care, Inc. ..... 7,800 444,288(a)
Eli Lilly & Co. ................ 53,016 3,000,175
Express Scripts, Inc. .......... 7,000 586,600(a)
Fisher Scientific International Inc. 5,900 364,974(a)
Forest Laboratories, Inc. ...... 16,200 659,016(a)
Genzyme Corp. .................. 12,000 849,360(a)
Gilead Sciences, Inc. .......... 21,600 1,136,808(a)
Guidant Corp. .................. 15,224 985,754
HCA Inc. ....................... 19,600 989,800
Health Management
Associates Inc. (Class A) ... 12,000 263,520
Hospira, Inc. .................. 7,539 322,518(a)
Humana Inc. .................... 7,627 414,375(a)
IMS Health Inc. ................ 10,057 250,620
Johnson & Johnson .............. 138,593 8,329,439
King Pharmaceuticals, Inc. ..... 11,933 201,906(a)
Laboratory Corporation
of America Holdings ......... 6,300 339,255(a)
Manor Care, Inc. ............... 3,637 144,643
McKesson Corp. ................. 14,161 730,566
Medco Health Solutions, Inc. ... 14,283 796,991(a)
Medimmune, Inc. ................ 11,600 406,232(a)
Medtronic Inc. ................. 56,232 3,237,276
Merck & Company, Inc. .......... 101,950 3,243,029
Millipore Corp. ................ 2,245 148,260(a)
Mylan Laboratories Inc. ........ 10,600 211,576
Patterson Companies, Inc. ...... 6,200 207,080(a)
PerkinElmer, Inc. .............. 5,410 127,460
Pfizer Inc. .................... 343,177 8,002,888
Quest Diagnostics Inc. ......... 7,800 401,544
Schering-Plough Corp. .......... 69,358 1,446,114(d)
St. Jude Medical, Inc. ......... 16,692 837,938(a)
Stryker Corp. .................. 13,500 599,805
Tenet Healthcare Corp. ......... 23,295 178,440(a)
Thermo Electron Corp. .......... 7,828 235,858(a)
UnitedHealth Group Incorporated 63,676 3,956,827
Waters Corp. ................... 5,500 207,900(a)
Watson Pharmaceuticals, Inc. ... 4,400 143,044(a)
WellPoint, Inc. ................ 28,700 2,289,973(a)
Wyeth .......................... 62,654 2,886,470(d)
Zimmer Holdings, Inc. .......... 11,700 789,048(a)
69,895,706
INDUSTRIALS -- 11.2%
Allied Waste Industries, Inc. .. 9,000 78,660(a)
American Power Conversion Corp. 8,300 182,600
American Standard
Companies, Inc. ............. 8,500 339,575
See Notes to Schedule of Investments on page 11 and Notes to Financial
Statements.
7
S&P 500 INDEX FUND
Schedule of Investments December 31, 2005
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NUMBER
OF SHARES VALUE
- --------------------------------------------------------------------------------
Avery Dennison Corp. ............ 5,055 $ 279,390
Boeing Co. ...................... 37,516 2,635,124(d)
Burlington Northern
Santa Fe Corp. ............... 17,549 1,242,820
Caterpillar, Inc. ............... 31,432 1,815,827
Cendant Corp. ................... 48,146 830,518(d)
Cintas Corp. .................... 6,300 259,434
Cooper Industries Ltd. .......... 4,071 297,183
CSX Corp. ....................... 10,038 509,629
Cummins, Inc. ................... 1,989 178,473
Danaher Corp. ................... 11,000 613,580
Deere & Co. ..................... 11,420 777,816
Dover Corp. ..................... 9,558 387,003
Eaton Corp. ..................... 6,800 456,212
Emerson Electric Co. ............ 18,974 1,417,358
Equifax, Inc. ................... 5,800 220,516
FedEx Corp. ..................... 14,260 1,474,341
Fluor Corp. ..................... 3,952 305,332
General Dynamics Corp. .......... 9,282 1,058,612
General Electric Co. ............ 491,795 17,237,415(f)
Goodrich Corp. .................. 5,701 234,311
Honeywell International Inc. .... 39,616 1,475,696
Illinois Tool Works Inc. ........ 9,597 844,440
Ingersoll-Rand Co. Ltd. (Class .. 15,598 629,691
ITT Industries, Inc. ............ 4,463 458,886
L-3 Communications Holdings, Inc. 5,600 416,360
Lockheed Martin Corp. ........... 16,452 1,046,841
Masco Corp. ..................... 20,390 615,574
Monster Worldwide, Inc. ......... 5,900 240,838(a)
Navistar International Corp. .... 2,795 79,993(a)
Norfolk Southern Corp. .......... 18,501 829,400
Northrop Grumman Corp. .......... 16,422 987,126
Paccar Inc. ..................... 8,010 554,532
Pall Corp. ...................... 5,878 157,883
Parker Hannifin Corp. ........... 5,715 376,961
Pitney Bowes Inc. ............... 10,532 444,977
Raytheon Co. .................... 20,724 832,069
Robert Half International Inc. .. 7,400 280,386
Rockwell Automation, Inc. ....... 8,268 489,135
Rockwell Collins, Inc. .......... 8,368 388,861
RR Donnelley & Sons Co. ......... 9,552 326,774
Ryder System, Inc. .............. 3,131 128,434
Southwest Airlines Co. .......... 32,449 533,137
Textron Inc. .................... 6,068 467,115
3M Co. .......................... 35,380 2,741,950
Tyco International Ltd. ......... 93,339 2,693,764
Union Pacific Corp. ............. 12,154 978,519
United Parcel Service Inc. (Class B) 51,600 3,877,740
United Technologies Corp. ....... 47,172 2,637,387
W.W. Grainger, Inc. ............. 3,482 247,570
Waste Management, Inc. .......... 25,312 768,219
59,381,987
INFORMATION TECHNOLOGY -- 14.9%
ADC Telecommunications, Inc. .... 5,057 112,973(a)
Adobe Systems Incorporated ...... 27,984 1,034,289(d)
Advanced Micro Devices, Inc. .... 18,274 559,184(a,d)
- --------------------------------------------------------------------------------
NUMBER
OF SHARES VALUE
- --------------------------------------------------------------------------------
Affiliated Computer Services,
Inc. (Class A) ............... 6,100 $ 360,998(a)
Agilent Technologies, Inc. ...... 18,785 625,353(a)
Altera Corp. .................... 16,200 300,186(a)
Analog Devices, Inc. ............ 17,300 620,551
Andrew Corp. .................... 8,656 92,879(a)
Apple Computer, Inc. ............ 38,740 2,785,019(a)
Applied Materials, Inc. ......... 74,900 1,343,706(d)
Applied Micro Circuits Corp. .... 18,100 46,517(a)
Autodesk, Inc. .................. 10,648 457,332
Automatic Data Processing, Inc. . 27,118 1,244,445
Avaya, Inc. ..................... 19,401 207,009(a)
BMC Software, Inc. .............. 10,900 223,341(a)
Broadcom Corp. (Class A) ........ 13,300 627,095(a)
Ciena Corp. ..................... 31,000 92,070(a)
Cisco Systems, Inc. ............. 286,304 4,901,524(a,d)
Citrix Systems, Inc. ............ 8,400 241,752(a)
Computer Associates
International, Inc. .......... 21,481 605,549
Computer Sciences Corp. ......... 8,682 439,656(a)
Compuware Corp. ................. 17,100 153,387(a)
Comverse Technology, Inc. ....... 9,500 252,605(a)
Convergys Corp. ................. 5,900 93,515(a)
Corning Incorporated ............ 70,639 1,388,763(a)
Dell, Inc. ...................... 109,648 3,288,344(a,d)
Electronic Arts, Inc. ........... 14,200 742,802(a)
Electronic Data Systems Corp. ... 24,700 593,788
EMC Corporation ................. 112,414 1,531,079(a)
First Data Corp. ................ 35,660 1,533,737
Fiserv, Inc. .................... 8,650 374,286(a)
Freescale Semiconductor
Inc. (Class B) ............... 19,219 483,742(a)
Gateway, Inc. ................... 11,200 28,112(a)
Hewlett-Packard Co. ............. 133,165 3,812,514
Intel Corp. ..................... 281,208 7,018,952
International Business
Machines Corp. ............... 73,630 6,052,386
Intuit Inc. ..................... 8,400 447,720(a)
Jabil Circuit, Inc. ............. 7,900 293,011(a)
JDS Uniphase Corp. .............. 77,300 182,428(a)
Kla-Tencor Corp. ................ 9,100 448,903
Lexmark International Inc.
(Class A) .................... 5,500 246,565(a)
Linear Technology Corp. ......... 14,100 508,587
LSI Logic Corp. ................. 18,592 148,736(a)
Lucent Technologies Inc. ........ 204,418 543,752(a,d)
Maxim Integrated Products, Inc. . 15,200 550,848
Mercury Interactive Corp. ....... 4,500 125,055(a)
Micron Technology, Inc. ......... 28,954 385,378(a)
Microsoft Corp. ................. 425,912 11,137,599(d)
Molex, Inc. ..................... 6,550 169,973
Motorola, Inc. .................. 115,350 2,605,756
National Semiconductor Corp. .... 16,366 425,189
NCR Corp. ....................... 8,700 295,278(a)
Network Appliance, Inc. ......... 17,400 469,800(a)
Novell, Inc. .................... 17,066 150,693(a)
Novellus Systems, Inc. .......... 6,300 151,956(a)
Nvidia Corp. .................... 7,900 288,824(a)
See Notes to Schedule of Investments on page 11 and Notes to Financial
Statements.
8
S&P 500 INDEX FUND
Schedule of Investments December 31, 2005
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NUMBER
OF SHARES VALUE
- --------------------------------------------------------------------------------
Oracle Corp. ................... 175,432 $ 2,142,025(a)
Parametric Technology Corp. .... 14,906 90,927(a)
Paychex, Inc. .................. 15,425 588,001
PMC - Sierra, Inc. ............. 9,900 76,329(a)
QLogic Corp. ................... 3,400 110,534(a)
QUALCOMM, Inc. ................. 76,600 3,299,928
Sabre Holdings Corp. (Class A) . 5,508 132,798
Sanmina-SCI Corp. .............. 25,700 109,482(a)
Scientific-Atlanta, Inc. ....... 7,406 318,976
Siebel Systems, Inc. ........... 25,900 274,022
Solectron Corp. ................ 45,200 165,432(a)
Sun Microsystems, Inc. ......... 158,260 663,109(a)
Symantec Corp. ................. 50,345 881,037(a)
Symbol Technologies, Inc. ...... 10,250 131,405
Tektronix, Inc. ................ 3,476 98,058
Tellabs, Inc. .................. 22,252 242,547(a)
Teradyne, Inc. ................. 9,500 138,415(a)
Texas Instruments Incorporated . 75,536 2,422,440
Unisys Corp. ................... 17,809 103,826(a)
Xerox Corp. .................... 45,590 667,893(a)
Xilinx, Inc. ................... 16,000 403,360
Yahoo! Inc. .................... 58,800 2,303,784(a)
79,209,819
MATERIALS -- 2.9%
Air Products & Chemicals, Inc. . 10,432 617,470(d)
Alcoa, Inc. .................... 40,640 1,201,725(d)
Allegheny Technologies
Incorporated ................ 3,851 138,944
Ashland, Inc. .................. 3,307 191,475
Ball Corp. ..................... 5,016 199,236
Bemis Co. ...................... 5,062 141,078
Dow Chemical Co. ............... 44,794 1,962,873
E.I. du Pont de Nemours and Co. 42,713 1,815,302
Eastman Chemical Co. ........... 3,659 188,768
Ecolab Inc. .................... 8,952 324,689
Engelhard Corp. ................ 5,946 179,272
Freeport-McMoRan Copper &
Gold Inc. (Class B) ......... 8,384 451,059
Hercules Incorporated .......... 6,128 69,246(a)
International Flavors &
Fragrances Inc. ............. 3,947 132,225
International Paper Co. ........ 23,175 778,912
Louisiana-Pacific Corp. ........ 5,622 154,436
MeadWestvaco Corp. ............. 7,900 221,437
Monsanto Co. ................... 12,458 965,869
Newmont Mining Corp. ........... 20,728 1,106,875
Nucor Corp. .................... 7,318 488,257
Pactiv Corp. ................... 6,648 146,256(a)
Phelps Dodge Corp. ............. 4,510 648,854
PPG Industries, Inc. ........... 7,537 436,392
Praxair, Inc. .................. 15,170 803,403
Rohm & Haas Co. ................ 7,114 344,460
Sealed Air Corp. ............... 3,557 199,797(a)
Sigma-Aldrich Corp. ............ 3,191 201,958
Temple-Inland Inc. ............. 5,252 235,552
- --------------------------------------------------------------------------------
NUMBER
OF SHARES VALUE
- --------------------------------------------------------------------------------
United States Steel Corp. ...... 5,065 $ 243,475
Vulcan Materials Co. ........... 5,000 338,750
Weyerhaeuser Co. ............... 11,260 746,988
15,675,033
TELECOMMUNICATION SERVICES -- 3.0%
Alltel Corp. ................... 17,794 1,122,801
AT&T, Inc. ..................... 182,029 4,457,890
BellSouth Corp. ................ 84,998 2,303,446(d)
CenturyTel, Inc. ............... 6,450 213,882
Citizens Communications Co. .... 16,600 203,018
Qwest Communications
International Inc. .......... 70,348 397,466(a)
Sprint Corporation ............. 136,300 3,183,968
Verizon Communications Inc. .... 129,386 3,897,106
15,779,577
UTILITIES -- 3.3%
AES Corp. ...................... 30,800 487,564(a)
Allegheny Energy, Inc. ......... 7,300 231,045(a)
Ameren Corp. ................... 9,642 494,056
American Electric Power
Company, Inc. ............... 18,725 694,510(d)
Centerpoint Energy, Inc. ....... 13,818 177,561
Cinergy Corp. .................. 9,053 384,390
CMS Energy Corp. ............... 10,700 155,257(a)
Consolidated Edison, Inc. ...... 11,507 533,119
Constellation Energy Group, Inc. 8,503 489,773
Dominion Resources, Inc. ....... 15,918 1,228,870
DTE Energy Co. ................. 8,466 365,647
Duke Energy Corp. .............. 42,832 1,175,738
Dynegy Inc. (Class A) .......... 15,500 75,020(a)
Edison International ........... 15,542 677,787
Entergy Corp. .................. 9,847 675,997
Exelon Corp. ................... 31,326 1,664,664
FirstEnergy Corp. .............. 15,620 765,224
FPL Group, Inc. ................ 18,062 750,657
KeySpan Corp. .................. 7,900 281,951
Nicor Inc. ..................... 2,043 80,310
NiSource Inc. .................. 13,015 271,493
Peoples Energy Corp. ........... 1,921 67,369
PG&E Corp. ..................... 15,654 581,076
Pinnacle West Capital Corp. .... 4,700 194,345
PPL Corp. ...................... 18,244 536,374
Progress Energy, Inc. .......... 11,756 516,324
Public Service Enterprise
Group Incorporated .......... 11,559 750,988
Sempra Energy .................. 11,775 527,991
Southern Co. ................... 34,158 1,179,476
TECO Energy, Inc. .............. 10,200 175,236
TXU Corp. ...................... 22,372 1,122,851
Xcel Energy Inc. ............... 18,780 346,679
17,659,342
TOTAL INVESTMENTS IN SECURITIES
(COST $523,728,403) ......... 524,734,323
See Notes to Schedule of Investments on page 11 and Notes to Financial
Statements.
9
S&P 500 INDEX FUND
Schedule of Investments December 31, 2005
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NUMBER
OF SHARES VALUE
- --------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS -- 1.3%
- --------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS -- 1.0%
GEI Short Term Investment Fund
4.42% ....................... 5,103,310 $ 5,103,310(b,e)
Money Market Obligations Trust
4.16% ....................... 417 417(g)
PRINCIPAL
AMOUNT
- ---------------------------------------------
U.S. GOVERNMENT -- 0.3%
U. S. Treasury Bill
3.88% 03/09/06 ........... $1,500,000 1,489,168
TOTAL SHORT-TERM INVESTMENTS
(COST $6,592,895) ........... 6,592,895
TOTAL INVESTMENTS
(COST $530,321,298) ......... 531,327,218
LIABILITIES IN EXCESS OF OTHER ASSETS,
NET-- (0.1)% ................ (312,232)
------------
NET ASSETS-- 100.0% ............ $531,014,986
============
- --------------------------------------------------------------------------------
OTHER INFORMATION
- --------------------------------------------------------------------------------
The GEI S&P 500 Index had the following long futures contracts open at December
31, 2005:
NUMBER CURRENT
EXPIRATION OF NOTIONAL UNREALIZED
DESCRIPTION DATE CONTRACTS VALUE DEPRECIATION
- --------------------------------------------------------------------------------
S&P Mini 500
Index Futures March 2006 113 $7,089,620 (81,982)
See Notes to Schedule of Investments on page 11 and Notes to Financial
Statements.
10
Notes to Performance December 31, 2005 (unaudited)
- --------------------------------------------------------------------------------
Total returns take into account changes in share price and assume reinvestment
of dividends and capital gains distributions, 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.
Current performance may be lower or higher than that shown. You may call
toll-free (800) 242-0134 for performance information as of the most recent month
end.
Total returns do not reflect expenses associated with the separate account such
as administrative fees, account charges and surrender charges, which, if
reflected, would reduce the total returns for all periods shown.
Shares of the Fund are neither insured nor guaranteed by the U.S. Government,
and their prices will fluctuate with market conditions.
The Standard & Poor's ("S&P") 500 Composite Price Index of stocks (S&P 500) is
an unmanaged index and do not reflect the actual cost of investing in the
instruments that comprise the index.
The S&P 500 is a market capitalization-weighted index of stocks of 500 large
U.S. companies, which is widely used as a measure of large-cap stock market
performance. The results shown for the foregoing index 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 blend of Lipper peer categories, as shown. Lipper is
an independent mutual fund rating service. A Fund's performance may be compared
to or ranked within a universe of mutual funds with investment objectives and
policies similar but not necessarily identical to the Fund's. Such comparisons
or rankings are made on the basis of several factors, including the Fund's
objectives and policies, management style and strategy, and portfolio
composition, and may change over time if any of those factors change. Lipper is
an independent mutual fund rating service.
The S&P 500 Index Fund is not sponsored, endorsed, sold or promoted by Standard
& Poor's, and Standard & Poor's makes no representation or warranty, express or
implied, to the investors of the Fund or any member of the public regarding the
advisability of investing in the securities generally or in this Fund
particularly or the ability of the S&P 500 Index Fund to track general stock
market performance.
Notes to Schedule of Investments
- --------------------------------------------------------------------------------
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 current or 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.
(a) Non-income producing security.
(b) Coupon amount represents effective yield.
(c) State Street Corp. is the parent company of State Street Bank & Trust Co.
and SSgA Funds Management, Inc., the Fund's custodian, accounting agent and
sub-adviser, respectively.
(d) At December 31, 2005, all or a portion of this security was pledged to cover
collateral requirements for futures, options, forward foreign currency
contracts and/or TBA's.
(e) GEAM, the investment adviser of the Fund, also serves as investment adviser
of the GEI Short Term Investment Fund.
(f) General Electric Co. is the parent company of GE Asset Management
Incorporated, the Fund's investment adviser.
(g) Managed by SSgA Funds Management, Inc., the Fund's sub-adviser.
+ Percentages are based on net assets as of December 31, 2005.
Abbreviations:
REIT Real Estate Investment Trust
11
Financial Highlights
Selected data based on a share outstanding throughout the periods indicated
- --------------------------------------------------------------------------------
S&P 500 INDEX FUND
12/31/05 12/31/04 12/31/03 12/31/02 12/31/01
- ------------------------------------------------------------------------------------------------------------------------------------
INCEPTION DATE -- -- -- -- 4/15/85
Net asset value, beginning of period ......................... $22.30 $20.51 $16.18 $21.19 $24.71
INCOME/(LOSS) FROM INVESTMENT OPERATIONS:
Net investment income ..................................... 0.36 0.36 0.24 0.24 0.22
Net realized and unrealized
gains/(losses) on investments .......................... 0.65 1.79 4.33 (4.98) (3.25)
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL INCOME/(LOSS) FROM INVESTMENT OPERATIONS ............... 1.01 2.15 4.57 (4.74) (3.03)
- ------------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM:
Net investment income ..................................... 0.37 0.36 0.24 0.24 0.22
Net realized gains ........................................ -- -- -- 0.03 0.27
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS .......................................... 0.37 0.36 0.24 0.27 0.49
- ------------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD ............................... $22.94 $22.30 $20.51 $16.18 $21.19
====================================================================================================================================
TOTAL RETURN (A) ............................................. 4.51% 10.46% 28.27% (22.37)% (12.27)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in thousands) .................. $531,015 $601,008 $597,185 $449,173 $650,169
Ratios to average net assets:
Net investment income .................................. 1.47% 1.62% 1.41% 1.20% 0.99%
Expenses ............................................... 0.40% 0.40% 0.37% 0.40% 0.39%
Portfolio turnover rate ................................... 4% 5% 5% 11% 7%
<FN>
NOTES TO FINANCIAL HIGHLIGHTS
- ------------------------------------------------------------------------------------------------------------------------------------
(a) Total returns are historical and assume changes in share price and reinvestment of dividends and capital gains and do
not include the effect of insurance contract charges.
</FN>
See Notes to Financial Statements.
12
Statement of Assets S&P 500
and Liabilities DECEMBER 31, 2005 INDEX FUND
- ------------------------------------------------------------------------------------------------------------------------------
ASSETS
Investments in securities, at market (cost $504,281,081)............................................... $507,496,908
Investments in affiliated securities, at market (cost $19,447,322)..................................... 17,237,415
Short-term investments (at amortized cost) ............................................................ 1,489,585
Short-term affiliated investments (at amortized cost).................................................. 5,103,310
Receivable for investments sold........................................................................ 46,939
Income receivables .................................................................................... 715,455
Receivable for fund shares sold........................................................................ 45,887
- ------------------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS........................................................................................... 532,135,499
- ------------------------------------------------------------------------------------------------------------------------------
LIABILITIES
Payable for investments purchased ..................................................................... 572,403
Payable for fund shares redeemed....................................................................... 341,970
Payable to GEAM........................................................................................ 171,285
Variation margin payable............................................................................... 34,855
- ------------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES.................................................................................. 1,120,513
- ------------------------------------------------------------------------------------------------------------------------------
NET ASSETS................................................................................................ $531,014,986
==============================================================================================================================
NET ASSETS CONSIST OF:
Capital paid in .......................................................................................... 540,048,498
Undistributed (distribution in excess of) net investment income........................................ --
Accumulated net realized loss.......................................................................... (9,957,450)
Net unrealized appreciation/(depreciation) on:
Investments........................................................................................ 1,005,920
Futures............................................................................................ (81,982)
- ------------------------------------------------------------------------------------------------------------------------------
NET ASSETS................................................................................................ $531,014,986
==============================================================================================================================
Shares outstanding ($0.01 par value; unlimited shares authorized)......................................... 23,147,859
Net asset value per share................................................................................. $22.94
See Notes to Financial Statements.
13
Statement of Operations S&P 500
FOR THE YEAR ENDED DECEMBER 31, 2005 INDEX FUND
- ------------------------------------------------------------------------------------------------------------------
INVESTMENT INCOME
INCOME:
Dividend ............................................................................... $ 9,706,054
Dividend from affliated investments..................................................... 472,512
Interest................................................................................ 44,212
Interest from affliated investments..................................................... 195,580
- ------------------------------------------------------------------------------------------------------------------
TOTAL INCOME.............................................................................. 10,418,358
- ------------------------------------------------------------------------------------------------------------------
EXPENSES:
Advisory and administrative fees........................................................ 1,959,032
Custody and accounting expenses......................................................... 49,742
Professional fees....................................................................... 92,661
Registration expenses................................................................... 64,853
Transfer agent ......................................................................... 172
Director's fees......................................................................... 15,342
Other expenses.......................................................................... 38,345
- ------------------------------------------------------------------------------------------------------------------
TOTAL EXPENSES............................................................................ 2,220,147
- ------------------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME..................................................................... 8,198,211
==================================================================================================================
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS
REALIZED GAIN ON:
Investments.......................................................................... 1,547,194
Futures.............................................................................. 178,895
INCREASE (DECREASE) IN UNREALIZED APPRECIATION/
(DEPRECIATION) ON:
Investments.......................................................................... 13,572,601
Futures.............................................................................. (187,891)
- ------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain on investments......................................... 15,110,799
- ------------------------------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS...................................... $23,309,010
==================================================================================================================
See Notes to Financial Statements.
14
Statements of S&P 500
Changes in Net Assets INDEX FUND
- ------------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
2005 2004
- ------------------------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net investments income............................................................ $ 8,198,211 $ 9,448,801
Net realized gain on investments, futures, written options,
foreign currency transactions and swaps......................................... 1,726,089 7,333,434
Net increase in unrealized appreciation/(depreciation) on investments, futures,
written options, foreign currency translation .................................. 13,384,710 40,789,693
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase from operations...................................................... 23,309,010 57,571,928
- ------------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income............................................................. (8,404,383) (9,455,276)
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS................................................................. (8,404,383) (9,455,276)
- ------------------------------------------------------------------------------------------------------------------------------------
Increase in net assets from operations and distributions............................ 14,904,627 48,116,652
- ------------------------------------------------------------------------------------------------------------------------------------
SHARE TRANSACTIONS:
Proceeds from sale of shares ..................................................... 12,229,014 40,343,468
Value of distributions reinvested................................................. 8,404,349 9,455,217
Cost of shares redeemed........................................................... (105,531,086) (94,091,872)
- ------------------------------------------------------------------------------------------------------------------------------------
Net decrease from share transactions.............................................. (84,897,723) (44,293,187)
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL INCREASE (DECREASE) IN NET ASSETS............................................. (69,993,096) 3,823,465
NET ASSETS
Beginning of period ................................................................ 601,008,082 597,184,617
- ------------------------------------------------------------------------------------------------------------------------------------
End of period ...................................................................... $ 531,014,986 $601,008,082
====================================================================================================================================
UNDISTRIBUTED (DISTRIBUTION IN EXCESS OF) NET INVESTMENT INCOME, END OF PERIOD......... $ -- $ 8,025
- ------------------------------------------------------------------------------------------------------------------------------------
CHANGES IN PORTFOLIO SHARES
Shares sold....................................................................... 551,685 1,921,018
Issued for distributions reinvested............................................... 363,510 423,621
Shares redeemed................................................................... (4,723,549) (4,511,931)
- ------------------------------------------------------------------------------------------------------------------------------------
Net decrease in fund shares............................................................ (3,808,354) (2,167,292)
====================================================================================================================================
See Notes to Financial Statements.
15
Notes to Financial Statements December 31, 2005
- --------------------------------------------------------------------------------
1. ORGANIZATION OF THE COMPANY
GE Investments Funds, Inc. (the "Company") was incorporated under the laws of
the Commonwealth of Virginia on May 14, 1984 and is registered under the
Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end
management investment company. The Company is composed of thirteen investment
portfolios (collectively the "Funds"), although only the following eleven are
currently being offered: U.S. Equity Fund, S&P 500 Index Fund (the "Fund"),
Premier Growth Equity Fund, Value Equity Fund, Mid-Cap Equity Fund, Small-Cap
Equity Fund (formerly known as Small-Cap Value Equity Fund, prior to January 3,
2006), International Equity Fund, Total Return Fund, Income Fund, Money Market
Fund and Real Estate Securities Fund.
Shares of the Funds 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 Asset Management Incorporated ("GEAM"), the
investment adviser and administrator of each of the Funds.
As of December 31, 2005, GE Life and Annuity Assurance Company ("GE Life") and
General Electric Capital Assurance Company, each an affiliated insurance
company, controlled the Funds by ownership, through separate accounts, of
virtually all of the Funds' shares of beneficial interest.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions at the date of the financial statements. Actual
results may differ from those estimates.
The following summarizes the significant accounting policies of the Company:
SECURITY VALUATION AND TRANSACTIONS Securities for which exchange quotations are
readily available are valued at the last sale price, or if no sales occurred on
that day, at the last quoted bid price. Securities listed on the NASDAQ will be
valued at the NASDAQ's official close price. Certain fixed income securities are
valued by a dealer or by a pricing service based upon a matrix system, which
considers market transactions as well as dealer supplied valuations. Short-term
investments maturing within sixty days are valued at amortized cost. If
quotations are not readily available for a portfolio security, or if it is
believed that a quotation or other market price for a portfolio security does
not represent its fair value, the security may be valued using procedures
approved by the Fund's Board of Directors that are designed to establish its
"fair value." These procedures require that the fair value of a security be
established by the valuation committee. The fair value committee follows
different protocols for different types of investments and circumstances.
Foreign securities may be valued with the assistance of an independent fair
value pricing service in circumstances where it is believed that they have been
or would be materially affected by events occurring after the close of the
portfolio security's primary market and before the close of regular trading on
the NYSE. This independent fair value pricing service uses a computerized system
to appraise affected securities and portfolios taking into consideration various
factors and the fair value of such securities may be something other than the
last available quotation or other market price. GE Asset Management may also
separately monitor portfolio securities and, consistent with the Fund's fair
value procedures, apply a different value to a portfolio security than would be
applied had it been priced using market quotations or by an independent fair
value pricing service.
Determining the fair value of securities involves the application of both
subjective and objective considerations. Security values may differ depending on
the methodology used to determine their values, and may differ from the last
quoted sale or closing price. No assurance can be given that use of these fair
value procedures will always better represent the price at which a Fund could
sell the affected portfolio security.
Security transactions are accounted for as of the trade date. Realized gains and
losses on investments sold are recorded on the basis of identified cost for both
financial statement and federal tax purposes.
REPURCHASE AGREEMENTS The Fund may enter into repurchase agreements. The Fund's
or a third party custodian takes possession of the collateral pledged for
investments in repurchase agreements on behalf of the Fund. The Fund values the
underlying collateral daily on a mark-to-market basis to determine that the
value, including accrued interest, is at least equal to 102% of the
16
Notes to Financial Statements December 31, 2005
- --------------------------------------------------------------------------------
repurchase price. In the event the seller defaults and the value of the security
declines, or if the seller enters an insolvency proceeding, realization of the
collateral by the Fund may be delayed or limited.
SECURITY LENDING The Fund may loan securities to brokers, dealers, and financial
institutions determined by GEAM to be creditworthy, subject to certain
limitations. The Fund continues to receive the interest and dividends on the
loaned securities during the term of the loan. The loans of securities are
secured by collateral in the form of cash or other liquid assets, which are
segregated and maintained with the custodian in an amount at least equal to 102%
of the current market value of the loaned securities. During the term of the
loan, the Fund will record any gain or loss in the market value of its loaned
securities and of securities in which cash collateral is invested. The Fund will
also earn interest, net of any rebate, from securities in which cash collateral
is invested. In the event the counterparty (borrower) does not meet its
contracted obligation to return the securities, the Fund may be exposed to the
risk of loss of reacquiring the loaned securities at prevailing market prices
using the proceeds of the sale of the collateral.
FOREIGN CURRENCY Accounting records of the Fund are maintained in U.S. dollars.
Investment securities and other assets and liabilities denominated in a foreign
currency are translated into U.S. dollars at the prevailing rates of exchange at
period end. Purchases and sales of securities, income receipts and expense
payments denominated in foreign currencies are translated into U.S. dollars at
the prevailing exchange rate on the respective dates of such transactions.
The Fund does not isolate the portion of the results of operations resulting
from changes in foreign exchange rates from the fluctuations arising from
changes in the market prices of securities during the period. Such fluctuations
are included in the net realized or unrealized gain or loss from investments.
Net realized gains or losses on foreign currency transactions represent net
gains or losses on sales and maturities of foreign currency contracts,
disposition of foreign currencies, the difference between the amount of net
investment income and withholding taxes accrued and the U.S. dollar amount
actually received or paid, and gains or losses between the trade and settlement
date on purchases and sales of securities. Net unrealized foreign exchange gains
and losses arising from changes in the value of other assets and liabilities as
a result of changes in foreign exchange rates are included as increases or
decreases in unrealized appreciation/depreciation on foreign currency related
transactions.
FUTURES CONTRACTS The Fund may invest in interest rate, financial or stock or
bond index futures contracts subject to certain limitations. The Fund may invest
in futures contracts to manage its exposure to the stock and bond markets and
fluctuations in currency values. Buying futures tends to increase the Fund's
exposure to the underlying instrument while selling futures tends to decrease
the Fund's exposure to the underlying instrument, or hedge other Fund
investments. The Fund will not enter into a transaction involving futures for
speculative purposes. The Fund's risks in using these contracts include changes
in the value of the underlying instruments, non-performance of the
counterparties under the contracts' terms and changes in the liquidity of the
secondary market for the contracts. Futures contracts are valued at the
settlement price established each day by the board of trade or exchange on which
they principally trade.
Upon entering into a futures contract, the Fund is required to pledge to the
broker an amount of cash and/or other assets equal to a certain percentage of
the contract amount, known as initial margin deposit. Subsequent payments, known
as variation margin, are made or received by the Fund each day, depending on the
daily fluctuation in the fair value of the underlying security. The Fund records
an unrealized gain or loss equal to the daily variation margin. Should market
conditions move unexpectedly, the Fund may not achieve the anticipated benefits
of the futures contracts and may incur a loss. The Fund recognizes a realized
gain or loss on the expiration or closing of a futures contract.
OPTIONS The Fund may purchase and write options, subject to certain limitations.
The Fund may invest in options contracts to manage its exposure to the stock and
bond markets and fluctuations in foreign currency values. Writing puts and
buying calls tend to increase the Fund's exposure to the underlying instrument
while buying puts and writing calls tend to decrease the Fund's exposure to the
underlying instrument, or hedge other Fund investments. The Fund will not enter
into a transaction involving options for speculative purposes. The Fund's risks
in using these contracts include changes in the value of the underlying
instruments, non-performance of the
17
Notes to Financial Statements December 31, 2005
- --------------------------------------------------------------------------------
counterparties under the contracts' terms and changes in the liquidity of the
secondary market for the contracts. Options are valued at the last sale price,
or if no sales occurred on that day, at the last quoted bid price.
When the Fund writes an option, the amount of the premium received is recorded
as a liability and is subsequently adjusted to the current fair value of the
option written. Premiums received from writing options that expire unexercised
are treated by the Fund on the expiration date as realized gains from
investments. The difference between the premium and the amount paid on effecting
a closing purchase transaction, including brokerage commissions, is also treated
as a realized gain, or if the premium is less than the amount paid for the
closing purchase, as a realized loss. When an option is exercised, the proceeds
from the sale of the underlying security or the cost basis of the securities
purchased is adjusted by the original premium received or paid.
INVESTMENTS IN FOREIGN MARKETS Investments in foreign markets may involve
special risks and considerations not typically associated with investing in the
United States. These risks include revaluation of currencies, high rates of
inflation, repatriation on income and capital, and adverse political and
economic developments. Moreover, securities issued in these markets may be less
liquid, subject to government ownership controls, tariffs and taxes, subject to
delays in settlements, and their prices may be more volatile.
The Fund may be subject to capital gains and repatriation taxes imposed by
certain countries in which it invests. Such taxes are generally based on income
and/or capital gains earned or repatriated. Taxes are accrued based upon net
investment income, net realized gains and net unrealized appreciation as income
and/or capital gains are earned.
INCOME TAXES The Fund intends to comply with all sections of the Internal
Revenue Code applicable to regulated investment companies including the
distribution of substantially all of its taxable net investment income and net
realized capital gains to its shareholders. Therefore, no provision for federal
income tax has been made. The Fund is treated as a separate taxpayer for federal
income tax purposes.
At December 31, 2005, information on the tax components of capital is as
follows:
Net Tax
Cost of Gross Tax Gross Tax Appreciation
Investments for Unrealized Unrealized (Depreciation)
Tax Purposes Appreciation Depreciation on Investments
- ------------------------------------------------------------------------------------------------------------------------------------
$536,218,273 $108,646,187 $(113,537,242) $(4,891,055)
Net Tax
Appreciation/ Undistributed Undistributed Post
(Depreciation) on Income/ Long-Term Gains/ October
Derivatives, Currency (Accumulated (Accumulated Losses
and Other Net Assets Ordinary Loss) Capital Loss) (see Detail Below)
- ------------------------------------------------------------------------------------------------------------------------------------
$-- $-- $(3,496,001) $(646,456)
18
Notes to Financial Statements December 31, 2005
- --------------------------------------------------------------------------------
As of December 31, 2005, the Fund has capital loss carryovers as indicated
below. Capital loss carryovers are available to offset future realized capital
gains to the extent provided in the Internal Revenue Code and regulations
thereunder. To the extent that these carryover losses are used to offset future
capital gains, it is probable that the gains so offset will not be distributed
to shareholders because they would be taxable as ordinary income.
Amount Expires
- --------------------------------------------------------------------------------
$2,638,198 12/31/10
857,803 12/31/11
During the year ended December 31, 2005, the Fund utilized approximately
$3,204,983 of capital loss carryovers.
Any net capital and currency losses incurred after October 31, within the Fund's
tax year, are deemed to arise on the first day of the Fund's next tax year if
the Fund so elects to defer such losses.
The Fund elected to defer losses incurred after October 31, 2005 as follows:
Capital Currency
- --------------------------------------------------------------------------------
$646,456 $--
The tax composition of distributions paid (other than return of capital
distributions for the year) during the year ended December 31, 2005 was as
follows:
Ordinary Long-Term
Income Capital Gains Total
- --------------------------------------------------------------------------------
$8,404,383 $-- $8,404,383
DISTRIBUTIONS TO SHAREHOLDERS The Fund declares and pays dividends from net
investment income annually. The Fund declares and pays net realized capital
gains in excess of capital loss carryforwards 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 (but are not limited to) futures,
distributions from Real Estate Investment Trusts (REITS), and losses deferred
due to wash sale transactions. Reclassifications due to permanent book/tax
differences are made to the Fund's capital accounts to reflect income and gains
available for distribution (or available capital loss carryovers) under income
tax regulations. These reclassifications have no impact on net investment
income, realized gains or losses, or the net asset value of the Fund. The
calculation of net investment income per share in the Financial Highlights table
excludes these adjustments.
The reclassifications for the year ended December 31, 2005 were as follows:
Undistributed
(Distribution
in Excess of)
Net Investment Accumulated Paid in
Income Net Realized Loss Capital
- --------------------------------------------------------------------------------
$198,147 $44,095 $(242,242)
INVESTMENT INCOME Corporate actions (including cash dividends) are recorded on
the ex-dividend date, net of applicable withholding taxes, except for certain
foreign corporate actions, which are recorded as soon after ex-dividend date as
such information becomes available. Interest income is recorded on the accrual
basis. All discounts and premiums on bonds are accreted to call or maturity
date, whichever is shorter, using the effective yield method.
EXPENSES Expenses of the Company which are directly identifiable to one of the
Funds are allocated to that portfolio. Expenses which are not directly
identifiable to one of the Funds are allocated in such a manner as deemed
equitable, taking into consideration the nature and type of expenses and
relative sizes of the Funds. All expenses of the Fund are paid by GEAM and
reimbursed by the Fund.
3. AMOUNTS PAID TO AFFILIATES
ADVISORY AND ADMINISTRATION FEES GEAM, 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 Fund. Compensation of GEAM for
investment advisory and administrative services is paid monthly based on the
average daily net assets of the Fund at an annualized rate of .35%.
GENPACT (formerly General Electric Capital International Services*) performs
certain accounting and certain administration services not provided by GEAM. For
the year ending December 31, 2005, $7,310 was charged to the Fund.
Administrative services not performed by GEAM or GENPACT were provided by an
unaffiliated service provider.
* AS OF SEPTEMBER 28, 2005, THE NAME WAS CHANGED FROM GENERAL ELECTRIC CAPITAL
INTERNATIONAL SERVICES TO GENPACT.
19
Notes to Financial Statements December 31, 2005
- --------------------------------------------------------------------------------
DIRECTORS' COMPENSATION The Fund pays no compensation to its directors who are
officers or employees of GEAM or its affiliates. Directors who are not such
officers or employees also serve in a similar capacity for other funds advised
by GEAM. Compensation paid to unaffiliated directors are reflected on the
Statement of Operations. These fees are allocated pro rata across all of the
mutual fund platforms and share classes served by the directors, including the
Fund, and are based upon the relative net assets of each fund within such
platforms. (For additional information about directors compensation please refer
to the Statement of Additional Information.)
4. SUB-ADVISORY FEES
Pursuant to an investment sub-advisory agreement with GEAM, SSgA Funds
Management, Inc. ("SSgA") is the Sub-Adviser to the S&P 500 Index Fund. SSgA is
responsible for the day-to-day portfolio management of the assets of the Fund,
including the responsibility for making decisions to buy, sell or hold a
particular security, under the general supervision of GEAM and the Board.
For its services, GEAM pays SSgA monthly sub-advisory fees which are calculated
as a percentage of the average daily net assets of the Fund.
5. INVESTMENT TRANSACTIONS
PURCHASES AND SALES OF SECURITIES The cost of purchases and the proceeds from
sales of investments, other than short-term securities and options, for the
period ended December 31, 2005 were as follows:
Purchases Sales
- --------------------------------------------------------------------------------
$21,970,205 $102,092,387
20
Report of Independent Registered Public Accounting Firm
- --------------------------------------------------------------------------------
The Shareholders and Board of Directors
GE Investments Funds, Inc.
We have audited the accompanying statement of assets and liabilities of the S&P
500 Index Fund, a series of GE Investments Funds, Inc., including the schedule
of investments, as of December 31, 2005, and the related statement of operations
for the year then ended, the statements of changes in net assets for each of the
years in the two-year period then ended, and the financial highlights for each
of the years in the five-year period then ended. These financial statements and
financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included confirmation of
securities owned as of December 31, 2005 by correspondence with the custodians
and brokers, or by other appropriate auditing procedures where replies from
brokers were not received. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
S&P 500 Index Fund as of December 31, 2005, and the results of its operations,
the changes in its net assets and the financial highlights for each of the years
described above, in conformity with U.S. generally accepted accounting
principles.
/S/KPMG LLP
Boston, Massachusetts
February 17, 2006
21
Advisory and Administrative Agreement Renewal (unaudited)
- --------------------------------------------------------------------------------
The Fund Board, including the independent Board members, considered and
unanimously approved the continuance of the Fund's investment advisory and
sub-advisory agreements with GE Asset Management Incorporated ("GEAM") and the
Fund's sub-adviser at meetings held on December 9 and December 16, 2005.
In considering whether to approve the Fund's investment advisory and
sub-advisory agreements, the Board members, including the independent members,
considered and discussed a substantial amount of information and analysis
provided, at the Board's request, by GEAM and the sub-adviser. The Board members
also considered detailed information regarding performance and expenses of other
investment companies with similar investment objectives and sizes, which was
prepared by an independent third party provider, Lipper Inc. ("Lipper"). Before
approving the Fund's advisory and sub-advisory agreements, the Board members
reviewed the proposed continuance of the agreements with management of GEAM and
with independent legal counsel. The Board members also reviewed a memorandum
prepared by independent legal counsel discussing the legal standards for the
consideration of the proposed continuances. The independent Board members
discussed the proposed continuances in a private session with their independent
legal counsel at which no representatives of GEAM or the sub-adviser were
present.
In advance of the meeting, and in response to their request, the Board members
received from GEAM written responses to their inquiries, which included
substantial exhibits and other materials related to GEAM's business and the
services it provides to the Fund. The Board members took into account their
multi-year experience as Board members and particularly their consideration of
these agreements in 2004, noting that the information was presented in a similar
manner and format. To focus their review, the Board members asked GEAM
management, in its oral presentation, to highlight material differences from the
information presented in 2004. Also in advance of the meeting, the Board members
received from the sub-adviser a written response to a letter of inquiry prepared
by GEAM at the Board's request, which included substantial exhibits and other
materials related to the business of, and services provided by the sub-adviser.
During the meeting, the Board members had an opportunity to discuss this
information with GEAM managers, including senior executives, representatives
from the legal and compliance departments, and senior investment personnel. The
Board members also had an opportunity to hear presentations by representatives
of the sub-adviser. The Board members posed questions to these representatives
and engaged in substantive discussions with them concerning the sub-adviser's
investment process.
In reaching their determinations relating to continuance of the agreements, the
Board members considered all factors they believed relevant, including the
factors discussed below. In their deliberations, the Board members did not
identify any particular information that was all-important or controlling, and
each Board member attributed different weights to the various factors. In
particular, the Board members focused on the following:
THE NATURE, EXTENT AND QUALITY OF SERVICES PROVIDED.
The Board members reviewed the services provided by GEAM and the sub-adviser,
and the Board members, including the independent members, concurred that GEAM
and the sub-adviser provide high quality advisory and administrative services to
the Fund.
In connection with their consideration of GEAM's services specifically, the
Board members focused on the favorable attributes of GEAM, including (i) an
investment philosophy oriented toward long-term performance; (ii) effective
processes used in overseeing the sub-adviser's activities and with respect to
Fund administration, controllership and compliance activities; (iii) highly
skilled professionals with a depth of experience; (iv) access to significant
technological resources from which the Fund may benefit; and (v) a favorable
history and reputation. The Board members discussed with senior officers of GEAM
the personnel changes made, and proposed to be made, by GEAM, and that GEAM
would be expending significant sums to enhance services, including improvements
to its information technology capabilities. The Board members noted that the
Fund represents only a small portion of the assets managed by GEAM, but benefits
from a full array of services and resources provided by GEAM.
In connection with their consideration of the services provided by the
sub-adviser, the Board members focused on the sub-adviser's favorable
attributes, including its substantial experience managing funds of this type,
its
22
Advisory and Administrative Agreement Renewal (unaudited)
- --------------------------------------------------------------------------------
investment philosophy and discipline, its high caliber investment and trading
personnel, its systems and other resources, and its favorable history and
reputation.
In light of the foregoing, the Board members, including the independent members,
concluded that the services provided by GEAM and the sub-adviser were of a high
quality and had benefited the Fund.
INVESTMENT PERFORMANCE OF THE FUND.
The Board members considered the investment performance of the Fund for various
periods. The Board members reviewed detailed comparisons of the performance of
the Fund with the relevant securities indexes and peer groupings of mutual funds
prepared by Lipper with respect to various periods. The Board members also
engaged in detailed discussions with GEAM management and representatives of the
sub-adviser about the investment process, focusing on the Fund's investment
objective, the number and experience of portfolio management personnel and the
investment strategy employed with respect to the Fund's investment objective and
investment approach. The Board members, including the independent members,
concluded that the Fund's performance was acceptable over the relevant periods.
COST OF THE SERVICES TO BE PROVIDED AND PROFITS TO BE REALIZED FROM THE
RELATIONSHIP WITH THE FUND.
The Board members considered the cost of the services provided by GEAM and the
sub-adviser. The Board members reviewed the information they had requested from
GEAM and the sub-adviser concerning their profitability from the fees and
services they provide to the Fund and the financial condition of GEAM and the
sub-adviser for various past periods. The Board members considered the profit
margin information for GEAM's investment company business as a whole, as well as
GEAM's profitability data for the Fund. The Board members reviewed GEAM's
assumptions and the methods of cost allocation used by GEAM in preparing
Fund-specific profitability data. The Board members also discussed with GEAM the
basis for its belief that the methods of allocation used were reasonable and
consistent across its business. The Board members reviewed the assumptions and
cost allocation methods used by the sub-adviser in preparing its profitability
data.
The Board members noted and discussed the additional services provided by GEAM
to the Fund compared to other investment products managed by GEAM. The Board
members determined that GEAM and the sub-adviser should be entitled to earn a
reasonable level of profits for the services they provide to the Fund. The Board
members also recognized that GEAM had made significant investments in its
business and had not fully recovered the sums invested. Based on their review,
the Board members, including the independent members, concluded that they were
satisfied that the level of profitability achieved by GEAM and the sub-adviser
from their relationship with the Fund was not unreasonable or excessive.
THE EXTENT TO WHICH ECONOMIES OF SCALE WOULD BE REALIZED AS THE FUND GROWS AND
WHETHER FEE LEVELS WOULD REFLECT SUCH ECONOMIES OF SCALE.
The Board members considered the extent to which economies of scale would be
realized as the Fund grows, and whether fee levels reflect these economies of
scale for the benefit of Fund investors. The Board members considered the
substantial infrastructure investments that GEAM has made with respect to its
operations and its commitment to continue investing resources to enhance
services to Fund shareholders, including its anticipated information technology
expenditures. The Board members recognized the benefits to the Funds of GEAM's
past investment in its operations through the expenditure of sums to support its
substantial infrastructure, and that, in general, GEAM has not yet fully
recouped that investment. The Board members also recognized the benefits to the
Fund of being able to leverage a favorable cost structure achieved with respect
to the Fund's other operating expenses as a result of GEAM's large overall base
of assets under management and its vendor management practices. The Board
members considered the potential institution of advisory fee breakpoints for the
Fund, but concluded that GEAM had already appropriately shared the economies of
scale.
COMPARISON OF SERVICES TO BE RENDERED
AND FEES TO BE PAID.
The Board members discussed the services provided to the Fund by GEAM, and the
fees charged for those services. The Board members reviewed information
concerning the fee and expense ratios for the Fund, and
23
Advisory and Administrative Agreement Renewal (unaudited)
- --------------------------------------------------------------------------------
comparative information with respect to similar products. They discussed that
the Fund's figures were within the applicable peer group range. The Board
members considered that the comparative data provided by Lipper showed no
material difference from last year in the fees being charged as compared to
those being charged by other advisers to similar investment products, as
determined by Lipper. In addition, the Board members considered their discussion
with representatives of GEAM and the sub-adviser about the fees being charged to
the Fund and, to the extent applicable, the potential effect, if any, of the
Securities and Exchange Commission staff's recently proposed soft dollar
interpretation on those fees. In light of the foregoing, the Board members,
including the independent members, determined that the advisory fees were
reasonable in relation to the services provided to the Fund.
The Board members reviewed comparative fee information with respect to any
comparable mutual fund client accounts managed by the sub-adviser and with
respect to any other client accounts managed by the sub-adviser in a similar
style to that of the Fund. The Board members, including the independent members,
concluded that, based on this information, the sub-advisory fees were reasonable
in light of the services provided to the Fund.
FALL-OUT BENEFITS.
The Board members considered other actual and potential financial benefits to
GEAM and the sub-adviser, including, to the extent applicable, soft dollar
commission benefits generated through Fund portfolio transactions. The Board
members noted, however, that the Fund benefits from the vast array of resources
available through GEAM, and that the Fund represents only a small portion of the
assets managed by GEAM.
CONCLUSION.
No single factor was determinative to the Board members' decision. Based on
their discussion and such other matters as were deemed relevant, the Board
members, including the independent members, concluded that the proposed advisory
fee and projected total expense ratio are reasonable in relation to the services
provided to the Fund. In view of these facts, the Board members, including the
independent members, concluded that the renewal of the advisory agreement was in
the best interests of the Fund and its shareholders, and that renewal of the
sub-advisory agreement was in the best interest of the shareholders of the Fund.
24
Additional Information (unaudited)
- --------------------------------------------------------------------------------
INFORMATION ABOUT DIRECTORS AND EXECUTIVE OFFICERS:
The business and affairs of the Company are managed under the direction of the
Company's Board of Directors. Information pertaining to the Directors and
officers of the Company is set forth below.
INTERESTED DIRECTORS AND EXECUTIVE OFFICERS
- --------------------------------------------------------------------------------
MICHAEL J. COSGROVE
- --------------------------------------------------------------------------------
ADDRESS c/o GEAM 3001 Summer St. Stamford, CT 06905
AGE 56
POSITION(S) HELD WITH FUND Chairman of the Board and President
TERM OF OFFICE AND LENGTH OF TIME SERVED Until successor is elected and
qualified - 9 years
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS Executive Vice President - Chief
Commercial Officer of GEAM (formerly President, GE Asset Management Services
division ("GEAMS") of GE Financial Assurance Holdings, Inc., an indirect
wholly-owned subsidiary of General Electric Company ("GE")), since February
1997; Vice President, GE Capital Corporation, an indirect wholly-owned
subsidiary of GE, since December 1999; Executive Vice President - Sales and
Marketing of GEAM, a wholly-owned subsidiary of GE that is registered as an
investment adviser under the Investment Advisers Act of 1940, as amended, since
March 1993; Director of GEAM since 1988.
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR 48
OTHER DIRECTORSHIPS HELD BY DIRECTOR Chairman of the Board and President of GE
Funds since 1993, and GE Institutional Funds and GE LifeStyle Funds since their
inception; Trustee of Elfun Funds, GE Savings & Security Funds and General
Electric Pension Trust since 1988; Trustee of Fordham University since 2003 and
Marymount College from 1994 through 2002.
- --------------------------------------------------------------------------------
ALAN M. LEWIS
- --------------------------------------------------------------------------------
ADDRESS c/o GEAM 3001 Summer St. Stamford, CT 06905
AGE 59
POSITION(S) HELD WITH FUND Director and Executive Vice President
TERM OF OFFICE AND LENGTH OF TIME SERVED Until successor is elected and
qualified - 6 years
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS Executive Vice President, General
Counsel and Secretary of GEAM since 1987
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR 48
OTHER DIRECTORSHIPS HELD BY DIRECTOR Trustee and Executive Vice President of GE
Funds, GE Institutional Funds and GE LifeStyle Funds since their inception.
Trustee of Elfun Funds, GE Savings & Security Funds and General Electric Pension
Trust since 1987.
25
Additional Information (unaudited)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SCOTT H. RHODES
- --------------------------------------------------------------------------------
ADDRESS c/o GEAM 3001 Summer St. Stamford, CT 06905
AGE 47
POSITION(S) HELD WITH FUND Treasurer
TERM OF OFFICE AND LENGTH OF TIME SERVED Until successor is elected and
qualified - less than one year
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS GEAM Mutual Funds Operations Manager
since September 2005; Treasurer of GE Institutional Funds, GE LifeStyle Funds
and GE Investments Funds since November 2005 and Elfun Funds and GE Savings &
Security Funds since September 2005; from August 2004 to September 2005 Vice
President, U.S. Trust Company, N.A. and Assistant Treasurer of Excelsior Funds,
Inc., Excelsior Funds Trust, and Excelsior Tax Exempt Funds, Inc.; from January
2004 to August 2004, Vice President BlackRock Financial Management, Inc.; from
December 1996 to November 2003, Controller - Mutual Funds, American Skandia
Investment Services, Inc. and Assistant Treasurer of American Skandia Trust and
American Skandia Advisor Funds, Inc.
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR N/A
OTHER DIRECTORSHIPS HELD BY DIRECTOR N/A
- --------------------------------------------------------------------------------
MATTHEW J. SIMPSON
- --------------------------------------------------------------------------------
ADDRESS c/o GEAM 3001 Summer St. Stamford, CT 06905
AGE 44
POSITION(S) HELD WITH FUND Vice President and Secretary
TERM OF OFFICE AND LENGTH OF TIME SERVED Until successor is elected and
qualified - 9 years
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS Senior Vice President and General
Counsel - Marketing and Client Services (formerly Asset Management Services), at
GEAM and Senior Vice President and General Counsel of GEAMS since February 1997;
from October 1992 to February 1997, Vice President and Associate General Counsel
of GEAM; Secretary of GE Funds since 1993 and Vice President since September
2003; Secretary of GE Institutional Funds and GE LifeStyle Funds since their
inception and Vice President since September 2003; Assistant Secretary of Elfun
Funds and GE Savings & Security Funds since 1998 and Vice President since
October 2003.
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR N/A
OTHER DIRECTORSHIPS HELD BY DIRECTOR N/A
- --------------------------------------------------------------------------------
JEANNE M. LAPORTA
- --------------------------------------------------------------------------------
ADDRESS c/o GEAM 3001 Summer St. Stamford, CT 06905
AGE 40
POSITION(S) HELD WITH FUND Vice President and Assistant Secretary
TERM OF OFFICE AND LENGTH OF TIME SERVED Until successor is elected and
qualified - 2 years
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS Vice President and Associate General
Counsel - Marketing and Client Services (formerly Asset Management Services) at
GEAM since May 1997; Vice President and Assistant Secretary of GE Funds, GE
Institutional Funds and GE LifeStyle Funds since September 2003; Vice President
and Assistant Secretary of Elfun Funds and GE Savings & Security Funds since
October 2003.
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR N/A
OTHER DIRECTORSHIPS HELD BY DIRECTOR N/A
26
Additional Information (unaudited)
- --------------------------------------------------------------------------------
NON-INTERESTED DIRECTORS
- --------------------------------------------------------------------------------
JOHN R. COSTANTINO
- --------------------------------------------------------------------------------
ADDRESS c/o GEAM 3001 Summer St. Stamford, CT 06905
AGE 59
POSITION(S) HELD WITH FUND Director
TERM OF OFFICE AND LENGTH OF TIME SERVED Until successor is elected and
qualified - 9 years
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS Managing Director, Walden Partners,
Ltd., consultants and investors, since August 1992.
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR 40
OTHER DIRECTORSHIPS HELD BY DIRECTOR Trustee of GE Funds since 1993, GE
Institutional Funds and GE LifeStyle Funds since their inception; Trustee of
Fordham University since 2002 and Marymount College from 2001 through 2002;
Neuroscience Research Institute since 1986; Diocesan Finance Counsel of the
Dioceses of Brooklyn & Queens since 2001; Gregorian University Foundation since
1994.
- --------------------------------------------------------------------------------
WILLIAM J. LUCAS
- --------------------------------------------------------------------------------
ADDRESS c/o GEAM 3001 Summer St. Stamford, CT 06905
AGE 58
POSITION(S) HELD WITH FUND Director
TERM OF OFFICE AND LENGTH OF TIME SERVED Until successor is elected and
qualified - 9 years
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS Vice President and Treasurer of
Fairfield University since 1983.
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR 40
OTHER DIRECTORSHIPS HELD BY DIRECTOR Trustee of GE Funds since 1993, and GE
Institutional Funds and GE LifeStyle Funds since their inception.
- --------------------------------------------------------------------------------
ROBERT P. QUINN
- --------------------------------------------------------------------------------
ADDRESS c/o GEAM 3001 Summer St. Stamford, CT 06905
AGE 69
POSITION(S) HELD WITH FUND Director
TERM OF OFFICE AND LENGTH OF TIME SERVED Until successor is elected and
qualified - 9 years
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS Retired since 1983 from Salomon
Brothers Inc.
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR 40
OTHER DIRECTORSHIPS HELD BY DIRECTOR GP Financial Corp, holding company; The
Greenpoint Savings Bank, a financial institution. Trustee of GE Funds since
1993, and GE Institutional Funds and GE LifeStyle Funds since their inception.
- --------------------------------------------------------------------------------
The Statement of Additional Information for the Fund includes additional
information about the Directors and Officers and is available, without charge,
upon request by calling 1-800-242-0134.
27
Investment Team
- --------------------------------------------------------------------------------
INVESTMENT ADVISER AND ADMINISTRATOR
GE Asset Management Incorporated
BOARD OF DIRECTORS
Michael J.Cosgrove, CHAIRMAN
John R. Costantino
Alan M. Lewis
William J. Lucas
Robert P. Quinn
SECRETARY
Matthew J. Simpson
TREASURER
Scott H. Rhodes
ASSISTANT TREASURER
Christopher M. Isaacs
DISTRIBUTOR
GE Investment Distributors, Inc.
Member NASD and SIPC
COUNSEL
Sutherland, Asbill & Brennan, LLP
CUSTODIAN
State Street Bank & Trust Company
INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM
KPMG LLP
OFFICERS OF THE INVESTMENT ADVISER
John H. Myers, CHIEF EXECUTIVE OFFICER
David B. Carlson, EVP, DOMESTIC EQUITIES
Michael J. Cosgrove, EVP, CHIEF COMMERCIAL OFFICER
Robert A. MacDougall, EVP, FIXED INCOME (RETIRED FROM ALL POSITIONS AS OF
JANUARY 31, 2006)
Kathryn D. Karlic, EVP, FIXED INCOME (AS OF FEBRUARY 1, 2006)
Ralph R. Layman, EVP, INTERNATIONAL EQUITIES
Alan M. Lewis, EVP, GENERAL COUNSEL AND SECRETARY
Don W. Torey, EVP, ALTERNATIVE INVESTMENTS AND REAL ESTATE
John J. Walker, EVP, CHIEF FINANCIAL OFFICER
28
[This page intentionally left blank.]
INVESTMENT ADVISER
GE ASSET MANAGEMENT INCORPORATED
3001 SUMMER STREET
PO BOX 7900
STAMFORD, CT 06904-7900
DISTRIBUTOR
GE INVESTMENT DISTRIBUTORS, INC.
MEMBER NASD AND SIPC
3001 SUMMER STREET
PO BOX 7900
STAMFORD, CT 06904-7900
- --------------------------------------------------------------------------------
The Fund files its complete schedule of portfolio holdings with the Securities
and Exchange Commission for the first and third quarters of each fiscal year on
Form N-Q. The Fund's Forms N-Q, as well as a description of the policies and
procedures that the Fund uses to determine how to vote proxies (if any) relating
to portfolio securities is available without charge (i) upon request, by calling
1-800-242-0134; (ii) on the Fund's website at HTTP://WWW.GEFUNDS.COM; and (iii)
on the Commission's website at HTTP://WWW.SEC.GOV. The Fund's Forms N-Q may be
reviewed and copied at the Commission's Public Reference Room in Washington, DC
information on the operation of the Public Reference Room may be obtained by
calling 1-800-SEC-0330.
Information (if any) regarding how the Fund voted proxies relating to portfolio
securities during the most recently disclosed 12-months period ended June 30 is
available without charge (i) through the Fund's website at
HTTP://WWW.GEFUNDS.COM; and (ii) on the Commission's website at
HTTP://WWW.SEC.GOV.
- --------------------------------------------------------------------------------
[GE LOGO OMITTED]
GE Investments Funds, Inc.
Premier Growth Equity Fund
Annual Report
DECEMBER 31, 2005
[GE LOGO OMITTED]
GE Investments Funds, Inc.
Premier Growth Equity Fund Contents
- --------------------------------------------------------------------------------
MANAGER REVIEW AND SCHEDULE OF INVESTMENTS.............................. 1
NOTES TO PERFORMANCE.................................................... 6
NOTES TO SCHEDULE OF INVESTMENTS........................................ 6
FINANCIAL STATEMENTS
Financial Highlights............................................... 7
Statement of Assets and Liabilities................................ 8
Statement of Operations............................................ 9
Statements of Changes in Net Assets................................ 10
Notes to Financial Statements...................................... 11
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM................. 16
ADVISORY AND ADMINISTRATIVE AGREEMENT RENEWAL........................... 17
ADDITIONAL INFORMATION.................................................. 20
INVESTMENT TEAM......................................................... 23
This report is prepared for Policyholders of certain variable contracts and may
be distributed to others only if preceded or accompanied by the variable
contract's current prospectus and the current prospectus of the Funds available
for investments thereunder.
Premier Growth Equity Fund
- --------------------------------------------------------------------------------
Q&A
DAVID B. CARLSON IS A DIRECTOR AND EXECUTIVE VICE PRESIDENT OF GE ASSET
MANAGEMENT. HE MANAGES THE OVERALL U.S. EQUITY INVESTMENTS FOR GE ASSET
MANAGEMENT. MR. CARLSON IS PORTFOLIO MANAGER FOR THE PREMIER GROWTH EQUITY FUND
AND HAS SERVED IN THAT CAPACITY SINCE THE FUND'S COMMENCEMENT. MR. CARLSON
JOINED GE ASSET MANAGEMENT IN 1982 AS A SECURITIES ANALYST FOR INVESTMENT
OPERATIONS. HE BECAME A VICE PRESIDENT FOR MUTUAL FUND PORTFOLIOS IN 1987, A
SENIOR VICE PRESIDENT IN 1989 AND A DIRECTOR AND EXECUTIVE VICE PRESIDENT IN
2003.
Q. HOW DID THE PREMIER GROWTH FUND PERFORM COMPARED TO ITS BENCHMARK AND LIPPER
PEER GROUP FOR THE TWELVE-MONTH PERIOD ENDED DECEMBER 31, 2005?
A. For the twelve-month period ended December 31, 2005, the Premier Growth Fund
returned 1.29%. The S&P 500 Index, the Fund's benchmark, returned 4.92% and
the Fund's Lipper peer group of 183 Large-Cap Growth funds returned an
average of 7.33% for the same period.
Q. WHAT MARKET CONDITIONS IMPACTED THE FUND PERFORMANCE?
A. In the past twelve months, skyrocketing energy prices have weighed on the
stock market, and this concern intensified in the second half of the year,
as hurricanes Katrina and Rita disrupted U.S. petroleum production. With
crude oil prices above $60 a barrel, investors worried about the economy
slowing. Against this backdrop, the Federal Reserve Board endeavored to
dampen the inflationary effects of high energy costs, and tightened short
rates at a measured pace throughout the year. Within the stock market,
energy stocks remained strong (despite a 4th quarter pullback as commodity
prices moderated), many cyclical stocks declined, and less cyclical stocks
such as utilities and health care outperformed. Financials rallied late in
the year, as the market contemplated an end to the Federal Reserve's
tightening cycle. Large-cap stocks continued to lag the broad market, and
value stocks once again outperformed growth stocks-- although the Russell
1000 Growth beat the Russell 1000 Value in the last three quarters of the
year.
Q. WHAT WERE THE PRIMARY DRIVERS OF FUND PERFORMANCE?
A. The energy and utility sectors led the market during the twelve-month
period, rising 31% and 17%, respectively. As a growth oriented portfolio,
the Fund owned no utility stocks and only one energy stock (Schlumberger, up
47%) for most of the year, making it difficult to perform in line with the
major market averages. In an environment of rising interest rates and high
energy prices, many of our consumer-oriented names were weak, including
media companies Liberty Media (-16%) and Comcast (-22%); specialty retailer
Bed Bath & Beyond (-12.7%); and cruise company Carnival (-6%). Within the
benchmark, the financials sector returned over +6% during the period and the
Fund benefited from owning State Street (+15%) and AFLAC (+18%), but this
was not enough to offset the negative impact of underweighting the sector
and owning Fannie Mae (-30%). Vodafone, our only telecom services holding,
declined (-19%), facing increased European competition and challenges in
Japan.
[PHOTO OF DAVID B. CARLSON OMITTED]
- --------------------------------------------------------------------------------
1
Premier Growth Equity Fund
- --------------------------------------------------------------------------------
Q&A
Strong performance of our sole materials holding benefited the Fund.
Monsanto (+41%) significantly outperformed the sector return of +5% as the
company continued to report solid results and provided positive guidance for
the future of its genetically modified seed operations. Within healthcare,
our results were helped by both an overweight position in the sector (+6%)
and positive security selection driven by UnitedHealth (+41%), Amgen (+23%),
and Medtronic (+17%). Not owning underperforming stocks within the consumer
staples sector also benefited the Fund. Our investment process has
historically led us to underweight consumer staples, as many of the
companies do not possess the investment criteria required for inclusion in
the portfolio.
Q. WERE THERE ANY SIGNIFICANT CHANGES TO THE FUND DURING THE PERIOD?
A. The Fund held 35 high quality growth companies at the end of the period.
During the year the Fund significantly reduced its exposure to financials.
In addition we reduced our position in Vodafone, our only holding in the
telecom services sector. Throughout the year we opportunistically added to
positions in the information technology, materials, energy and consumer
discretionary sectors. Early in the year, we added to our position in
Monsanto. This holding was one of the largest contributors to performance
during the period. We initiated positions in eBay and Qualcomm after sharp
sell-offs in the first half of 2005, both names contributed positively to
performance since purchase. Bed Bath & Beyond, a well-managed retailer with
above average long-term growth prospects, was a more recent addition. In the
energy sector we initiated a position in oil services company, Baker Hughes,
increasing our exposure to the oil services industry due to strong
fundamentals and demand from oil and gas producers. Portfolio turnover for
the period ran 25-30%, slightly higher than the historical range for the
Fund, but low by industry standards.
Despite the challenging environment, our investment strategy, which has
provided the Fund's strong historical returns, remains unchanged. We
continue to focus our efforts on fundamental, bottom-up stock selection and
believe that the Fund remains well positioned for good relative performance
over the long-term.
2
Premier Growth Equity Fund
- --------------------------------------------------------------------------------
Understanding Your Fund's Expenses
As a shareholder of the Fund you incur transaction and ongoing expenses.
Transaction expenses including sales charges on purchase payments, reinvested
dividends (or other distributions), and redemption fees directly reduce the
investment return of the Fund. Ongoing costs include portfolio management fees,
distribution and service fees, professional fees, administrative fees and other
Fund expenses. The following example is intended to help you understand your
ongoing costs (in dollars) of investing in the Fund and to compare these costs
with the ongoing costs of investing in other mutual funds.
To illustrate these ongoing costs, we have provided an example and calculated
the expenses paid by investors during the period. The information in the
following table is based on an investment of $1,000, which is invested at the
beginning of the period and held for the entire six-month period ended December
31, 2005.
ACTUAL EXPENSES
The first section of the table provides information about actual account values
and actual expenses. You may use the information in this section, together with
the amount you invested, to estimate the expenses that you paid over the period.
To do so, simply divide your account value by $1,000 (for example, an $8,600
account value divided by $1,000 = 8.6), then multiply the result by the number
given for your class under the heading "Expenses Paid During Period."
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The second section of the table provides information about hypothetical account
values and hypothetical expenses based on the Fund's actual expense ratio and an
assumed rate of return of 5% per year before expenses, which is not the Fund's
actual return. You may use this information to compare the ongoing costs of
investing in the Fund and other funds. To do so, compare this 5% hypothetical
example with the 5% hypothetical examples that appear in the shareholders
reports of other funds.
Please note that the expenses shown in the table do not reflect any transaction
costs, such as sales charges or redemption fees.
JULY 1, 2005 - DECEMBER 31, 2005
- ------------------------------------------------------------------------------------------------------------------------------
ACCOUNT VALUE AT ACCOUNT VALUE EXPENSES
THE BEGINNING OF AT THE END OF PAID DURING
THE PERIOD ($) THE PERIOD ($) THE PERIOD ($)*
- ------------------------------------------------------------------------------------------------------------------------------
Actual Fund Return** 1,000.00 1,043.12 3.64
- ------------------------------------------------------------------------------------------------------------------------------
Hypothetical 5% Return
(2.5% for the period) 1,000.00 1,021.45 3.57
- ------------------------------------------------------------------------------------------------------------------------------
<FN>
* EXPENSES ARE EQUAL TO THE FUND'S ANNUALIZED EXPENSE RATIO OF 0.70% (FROM
PERIOD JULY 1, 2005 - DECEMBER 31, 2005), MULTIPLIED BY THE AVERAGE ACCOUNT
VALUE OVER THE PERIOD, MULTIPLIED BY 184/365 (TO REFLECT THE SIX MONTH
PERIOD).
** ACTUAL FUND RETURN FOR SIX-MONTH PERIOD ENDED DECEMBER 31, 2005 WAS: 4.31%.
</FN>
3
Premier Growth Equity Fund
- --------------------------------------------------------------------------------
CHANGE IN VALUE
OF A $10,000 INVESTMENT
- --------------------------------------------------------------------------------
[LINE CHART OMITTED]
Premier Growth Equity Fund S&P 500 Index
12/12/97 $10,000.00 $10,000.00
12/97 10,345.74 10,168.40
12/98 14,125.24 13,086.53
12/99 19,247.20 15,843.58
12/00 18,240.70 14,388.59
12/01 16,573.75 12,674.62
12/02 13,090.75 9,873.29
12/03 16,875.83 12,709.71
12/04 18,062.45 14,092.69
12/05 18,295.86 14,785.84
AVERAGE ANNUAL TOTAL RETURN
FOR THE PERIODS ENDED DECEMBER 31, 2005
- --------------------------------------------------------------------------------
ONE FIVE SINCE
YEAR YEAR INCEPTION
- --------------------------------------------------------------------------------
Premier Growth Equity Fund 1.29% 0.06% 7.79%
- --------------------------------------------------------------------------------
S&P 500 Index 4.92% 0.55% 4.96%
- --------------------------------------------------------------------------------
Lipper peer group average* 7.33% -3.18% 7.24%
- --------------------------------------------------------------------------------
Inception date 12/12/97
- --------------------------------------------------------------------------------
INVESTMENT PROFILE
A fund designed for investors who seek long-term growth of capital and future
income rather than current income by investing at least 80% of its net assets in
equity securities under normal market conditions. The Fund invests primarily in
a limited number of large- and medium-sized companies that the portfolio manager
believes have above-average growth histories and/or growth potential.
TOP TEN LARGEST HOLDINGS
AS OF DECEMBER 31, 2005
as a % of Market Value
- --------------------------------------------------------------------------------
Intuit Inc. 4.44%
- --------------------------------------------------------------------------------
Schlumberger Ltd. 4.24%
- --------------------------------------------------------------------------------
State Street Corp. 3.93%
- --------------------------------------------------------------------------------
First Data Corp. 3.92%
- --------------------------------------------------------------------------------
Microsoft Corp. 3.73%
- --------------------------------------------------------------------------------
SLM Corp. 3.71%
- --------------------------------------------------------------------------------
Dover Corp. 3.64%
- --------------------------------------------------------------------------------
Amgen, Inc. 3.54%
- --------------------------------------------------------------------------------
Johnson & Johnson 3.33%
- --------------------------------------------------------------------------------
UnitedHealth Group Incorporated 3.28%
- --------------------------------------------------------------------------------
PORTFOLIO COMPOSITION
AS OF DECEMBER 31, 2005
as a % of Market Value
- --------------------------------------------------------------------------------
Market Value of $131,307 (in thousands)
[PIE CHART OMITTED]
Materials 3.3%
Industrials 3.7%
Short-Term 4.8%
Energy 6.4%
Financials 12.4%
Consumer Discretionary 19.1%
Healthcare 19.4%
Information Technology 28.3%
Telecommunications Services 2.6%
* LIPPER PERFORMANCE COMPARISONS ARE BASED ON AVERAGE ANNUAL TOTAL RETURNS FOR
THE ONE YEAR AND FIVE-YEAR PERIODS INDICATED IN THE LARGE-CAP GROWTH PEER
GROUP CONSISTING OF 183 AND 108 UNDERLYING ANNUITY FUNDS, RESPECTIVELY.
SEE NOTES TO PERFORMANCE ON PAGE 6 FOR FURTHER INFORMATION, INCLUDING AN
EXPLANATION OF LIPPER PEER CATEGORIES.
PAST PERFORMANCE DOES NOT PREDICT FUTURE PERFORMANCE AND THE GRAPH AND TABLE
DO NOT REFLECT THE DEDUCTION OF TAXES.
4
PREMIER GROWTH EQUITY FUND
Schedule of Investments December 31, 2005
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PREMIER GROWTH EQUITY FUND
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NUMBER
OF SHARES VALUE
- --------------------------------------------------------------------------------
COMMON STOCK -- 98.7%+
- --------------------------------------------------------------------------------
CONSUMER DISCRETIONARY -- 19.8%
Bed Bath & Beyond, Inc. ....... 74,944 $ 2,709,226 (a)
Carnival Corp. ................ 79,800 4,266,906
Comcast Corp. (Class A) ....... 131,843 3,387,047 (a)
eBay, Inc. .................... 69,391 3,001,161 (a)
Liberty Global Inc. (Series C) 188,052 3,986,702 (a,e)
Liberty Media Corp. (Series A) 464,920 3,658,920 (a,d)
The Home Depot, Inc. .......... 101,312 4,101,110
25,111,072
ENERGY -- 6.6%
Baker Hughes Incorporated ..... 46,840 2,846,935
Schlumberger Ltd. ............. 57,246 5,561,449
8,408,384
FINANCIALS -- 12.9%
AFLAC Incorporated ............ 91,943 4,267,994 (d)
Federal National Mortgage Assoc. 41,635 2,032,204
SLM Corp. ..................... 88,474 4,874,033
State Street Corp. ............ 92,984 5,155,033 (c)
16,329,264
HEALTHCARE -- 20.1%
Amgen, Inc. ................... 58,983 4,651,399 (a)
Johnson & Johnson ............. 72,861 4,378,946
Lincare Holdings Inc. ......... 57,248 2,399,264 (a,e)
Medtronic Inc. ................ 65,922 3,795,129
Pfizer Inc. ................... 135,313 3,155,499
UnitedHealth Group Incorporated 69,391 4,311,957
Zimmer Holdings, Inc. ......... 41,635 2,807,864 (a)
25,500,058
INDUSTRIALS -- 3.8%
Dover Corp. ................... 117,965 4,776,403 (d)
INFORMATION TECHNOLOGY -- 29.3%
Analog Devices, Inc. .......... 79,801 2,862,462 (e)
Cisco Systems, Inc. ........... 171,743 2,940,240 (a,d)
Dell, Inc. .................... 95,413 2,861,436 (a)
First Data Corp. .............. 119,699 5,148,254
Intel Corp. ................... 64,187 1,602,107
Intuit Inc. ................... 109,291 5,825,210 (a)
Linear Technology Corp. ....... 35,741 1,289,178
Microsoft Corp. ............... 187,357 4,899,386
Molex Inc. (Class A) .......... 161,334 3,967,203 (e)
- --------------------------------------------------------------------------------
NUMBER
OF SHARES VALUE
- --------------------------------------------------------------------------------
Paychex, Inc. ................. 38,159 $ 1,454,621 (e)
QUALCOMM, Inc. ................ 46,145 1,987,927
Yahoo! Inc. ................... 58,982 2,310,915 (a,e)
37,148,939
MATERIALS -- 3.4%
Monsanto Co. .................. 55,513 4,303,923
TELECOMMUNICATION SERVICES -- 2.8%
Vodafone Group PLC ADR ........ 161,334 3,463,841(d)
TOTAL INVESTMENTS IN SECURITIES
(COST $110,716,432) ........ 125,041,884
- --------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS -- 4.9%
- --------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS -- 1.7%
GEI Short Term Investment Fund
4.42% ...................... 2,180,039 2,180,039 (b,f)
SHORT-TERM SECURITIES PURCHASED WITH
COLLATERAL FROM SECURITIES ON LOAN -- 3.2%
State Street Navigator Securities
Lending Prime Portfolio
4.29% ...................... 4,085,541 4,085,541 (b,c)
TOTAL SHORT-TERM INVESTMENTS
(COST $6,265,580) .......... 6,265,580
TOTAL INVESTMENTS
(COST $116,982,012) ........ 131,307,464
LIABILITIES IN EXCESS OF OTHER ASSETS,
NET-- (3.6)% ............... (4,625,275)
------------
NET ASSETS-- 100.0% ........... $126,682,189
============
- --------------------------------------------------------------------------------
OTHER INFORMATION
- --------------------------------------------------------------------------------
The GEI Premier Growth Equity had the following short futures contracts open at
December 31, 2005:
NUMBER CURRENT
EXPIRATION OF NOTIONAL UNREALIZED
DESCRIPTION DATE CONTRACTS VALUE APPRECIATION
- --------------------------------------------------------------------------------
S&P 500 Index
Futures March 2006 8 $(2,509,600) $31,833
See Notes to Schedule of Investments on page 6 and Notes to Financial
Statements.
5
Notes to Performance December 31, 2005 (unaudited)
- --------------------------------------------------------------------------------
Total returns take into account changes in share price and assume reinvestment
of dividends and capital gains distributions, 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.
Current performance may be lower or higher than that shown. You may call
toll-free (800) 242-0134 for performance information as of the most recent month
end.
Total returns do not reflect expenses associated with the separate account such
as administrative fees, account charges and surrender charges, which, if
reflected, would reduce the total returns for all periods shown.
Shares of the Fund are neither insured nor guaranteed by the U.S. Government,
and their prices will fluctuate with market conditions.
The Standard & Poor's ("S&P") 500 Composite Price Index of stocks (S&P 500) is
an unmanaged index and do not reflect the actual cost of investing in the
instruments that comprise the index. The S&P 500 is a market
capitalization-weighted index of stocks of 500 large U.S. companies, which is
widely used as a measure of large-cap stock market performance. The results
shown for the foregoing index 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 blend of Lipper peer categories, as shown. Lipper is
an independent mutual fund rating service. A Fund's performance may be compared
to or ranked within a universe of mutual funds with investment objectives and
policies similar but not necessarily identical to the Fund's. Such comparisons
or rankings are made on the basis of several factors, including the Fund's
objectives and policies, management style and strategy, and portfolio
composition, and may change over time if any of those factors change. Lipper is
an independent mutual fund rating service.
Notes to Schedule of Investments
- --------------------------------------------------------------------------------
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 current or 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.
(a) Non-income producing security.
(b) Coupon amount represents effective yield.
(c) State Street Corp. is the parent company of State Street Bank & Trust Co.,
the Fund's custodian and accounting agent.
(d) At December 31, 2005, all or a portion of this security was pledged to cover
collateral requirements for futures, options, forward foreign currency
contracts and/or TBA's.
(e) All or a portion of the security is out on loan.
(f) GEAM, the investment adviser of the Fund, also serves as investment adviser
of the GEI Short Term Investment Fund.
+ Percentages are based on net assets as of December 31, 2005.
Abbreviations:
ADR American Depository Receipt
6
Financial Highlights
Selected data based on a share outstanding throughout the periods indicated
- --------------------------------------------------------------------------------
PREMIER GROWTH EQUITY FUND
12/31/05 12/31/04 12/31/03 12/31/02 12/31/01
- -----------------------------------------------------------------------------------------------------------------------------------
INCEPTION DATE -- -- -- -- 12/12/97
Net asset value, beginning of period ..................... $74.95 $70.46 $54.74 $69.34 $78.68
INCOME/(LOSS) FROM INVESTMENT OPERATIONS:
Net investment income ................................. 0.24 0.47 0.11 0.03 0.06
Net realized and unrealized
gains/(losses) on investments ...................... 0.73 4.48 15.72 (14.60) (7.24)
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL INCOME/(LOSS) FROM INVESTMENT OPERATIONS ........... 0.97 4.95 15.83 (14.57) (7.18)
- -----------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM:
Net investment income ................................. 0.27 0.46 0.11 0.03 0.07
Net realized gains .................................... -- -- -- -- 2.09
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS ...................................... 0.27 0.46 0.11 0.03 2.16
- -----------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD ........................... $75.65 $74.95 $70.46 $54.74 $69.34
===================================================================================================================================
TOTAL RETURN (A) ......................................... 1.29% 7.03% 28.91% (21.02)% (9.14)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in thousands) .............. $126,682 $137,801 $143,202 $87,569 $104,185
Ratios to average net assets:
Net investment income .............................. 0.30% 0.62% 0.20% 0.05% 0.10%
Expenses ........................................... 0.71% 0.71% 0.70% 0.67% 0.67%
Portfolio turnover rate ............................... 34% 22% 24% 25% 21%
NOTES TO FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(a) Total returns are historical and assume changes in share price and
reinvestment of dividends and capital gains and do not include the effect
of insurance contract charges.
See Notes to Financial Statements.
7
PREMIER
Statement of Assets GROWTH
and Liabilities DECEMBER 31, 2005 EQUITY FUND
- --------------------------------------------------------------------------------------------------------------------------------
ASSETS
Investments in securities, at market* (cost $110,716,432).............................................. $125,041,884
Short-term investments (at amortized cost) ............................................................ 4,085,541
Short-term affiliated investments (at amortized cost).................................................. 2,180,039
Income receivables .................................................................................... 123,432
Variation margin receivable............................................................................ 10,600
- --------------------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS....................................................................................... 131,441,496
- --------------------------------------------------------------------------------------------------------------------------------
LIABILITIES
Payable upon return of securities loaned............................................................... 4,085,541
Payable for fund shares redeemed....................................................................... 597,849
Payable to GEAM........................................................................................ 75,917
- --------------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES.................................................................................. 4,759,307
- --------------------------------------------------------------------------------------------------------------------------------
NET ASSETS................................................................................................ $126,682,189
================================================================================================================================
NET ASSETS CONSIST OF:
Capital paid in ....................................................................................... 121,052,631
Undistributed (distribution in excess of) net investment income........................................ --
Accumulated net realized loss.......................................................................... (8,727,727)
Net unrealized appreciation on:
Investments........................................................................................ 14,325,452
Futures............................................................................................ 31,833
- --------------------------------------------------------------------------------------------------------------------------------
NET ASSETS................................................................................................ $126,682,189
================================================================================================================================
Shares outstanding ($0.01 par value; unlimited shares authorized)......................................... 1,674,477
Net asset value per share................................................................................. $75.65
<FN>
* Includes $3,953,857 of securities on loan.
</FN>
See Notes to Financial Statements.
8
PREMIER
Statement of Operations GROWTH
FOR THE YEAR ENDED DECEMBER 31, 2005 EQUITY FUND
- --------------------------------------------------------------------------------------------------------------------
INVESTMENT INCOME
INCOME:
Dividend ............................................................................... $1,222,004
Interest*............................................................................... 5,229
Interest from affliated investments..................................................... 128,966
Less: Foreign taxes withheld............................................................ (9,121)
- --------------------------------------------------------------------------------------------------------------------
TOTAL INCOME.............................................................................. 1,347,078
- --------------------------------------------------------------------------------------------------------------------
EXPENSES:
Advisory and administrative fees........................................................ 872,615
Custody and accounting expenses......................................................... 36,517
Professional fees....................................................................... 22,115
Transfer agent ......................................................................... 218
Director's fees......................................................................... 3,662
Registration expenses................................................................... 1,013
Other expenses.......................................................................... 16,184
- --------------------------------------------------------------------------------------------------------------------
TOTAL EXPENSES............................................................................ 952,324
- --------------------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME .................................................................... 394,754
====================================================================================================================
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS
REALIZED GAIN (LOSS) ON:
Investments.......................................................................... 6,194,513
Futures.............................................................................. (116,412)
INCREASE (DECREASE) IN UNREALIZED APPRECIATION/
(DEPRECIATION) ON:
Investments.......................................................................... (4,812,894)
Futures.............................................................................. 35,012
- --------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain
on investments....................................................................... 1,300,219
- --------------------------------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS......................................................................... $1,694,973
====================================================================================================================
<FN>
* Income attributable to security lending activity, net of rebate expenses, was $4,305.
</FN>
See Notes to Financial Statements.
9
PREMIER
Statements of GROWTH
Changes in Net Assets EQUITY FUND
- --------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
2005 2004
- --------------------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net investments income............................................................ $ 394,754 $ 853,012
Net realized gain on investments, futures, written options,
foreign currency transactions and swaps......................................... 6,078,101 809,496
Net increase (decrease) in unrealized appreciation/(depreciation)
on investments, futures, written options, foreign
currency translation ........................................................... (4,777,882) 7,021,414
- --------------------------------------------------------------------------------------------------------------------------------
Net increase from operations...................................................... 1,694,973 8,683,922
- --------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income............................................................. (454,489) (848,815)
- --------------------------------------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS................................................................. (454,489) (848,815)
- --------------------------------------------------------------------------------------------------------------------------------
Increase in net assets from operations and distributions............................ 1,240,484 7,835,107
- --------------------------------------------------------------------------------------------------------------------------------
SHARE TRANSACTIONS:
Proceeds from sale of shares ..................................................... 15,512,338 12,671,278
Value of distributions reinvested................................................. 454,492 848,814
Cost of shares redeemed........................................................... (28,325,838) (26,756,524)
- --------------------------------------------------------------------------------------------------------------------------------
Net decrease from share transactions.............................................. (12,359,008) (13,236,432)
- --------------------------------------------------------------------------------------------------------------------------------
TOTAL DECREASE IN NET ASSETS........................................................ (11,118,524) (5,401,325)
NET ASSETS
Beginning of period ................................................................ 137,800,713 143,202,038
- --------------------------------------------------------------------------------------------------------------------------------
End of period ...................................................................... $126,682,189 $137,800,713
- --------------------------------------------------------------------------------------------------------------------------------
UNDISTRIBUTED (DISTRIBUTION IN EXCESS OF) NET INVESTMENT INCOME, END OF PERIOD......... $ -- $ 9,215
================================================================================================================================
CHANGES IN PORTFOLIO SHARES
Shares sold....................................................................... 214,046 178,487
Issued for distributions reinvested............................................... 5,954 11,322
Shares redeemed................................................................... (383,987) (383,795)
- --------------------------------------------------------------------------------------------------------------------------------
Net decrease in fund shares............................................................ (163,987) (193,986)
================================================================================================================================
See Notes to Financial Statements.
10
Notes to Financial Statements December 31, 2005
- --------------------------------------------------------------------------------
1. ORGANIZATION OF THE COMPANY
GE Investments Funds, Inc. (the "Company") was incorporated under the laws of
the Commonwealth of Virginia on May 14, 1984 and is registered under the
Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end
management investment company. The Company is composed of thirteen investment
portfolios (collectively the "Funds"), although only the following eleven are
currently being offered: U.S. Equity Fund, S&P 500 Index Fund, Premier Growth
Equity Fund (the "Fund"), Value Equity Fund, Mid-Cap Equity Fund, Small-Cap
Equity Fund (formerly known as Small-Cap Value Equity Fund, prior to January 3,
2006), International Equity Fund, Total Return Fund, Income Fund, Money Market
Fund and Real Estate Securities Fund.
Shares of the Funds 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 Asset Management Incorporated ("GEAM"), the
investment adviser and administrator of each of the Funds.
As of December 31, 2005, GE Life and Annuity Assurance Company ("GE Life") and
General Electric Capital Assurance Company, each an affiliated insurance
company, controlled the Funds by ownership, through separate accounts, of
virtually all of the Funds' shares of beneficial interest.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The preparation of financial statements in conformity
with accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions at the date of the
financial statements. Actual results may differ from those estimates.
The following summarizes the significant accounting policies of the Company:
SECURITY VALUATION AND TRANSACTION 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. Securities listed on the NASDAQ will be
valued at the NASDAQ's official close price. Certain fixed income securities are
valued by a dealer or by a pricing service based upon a matrix system, which
considers market transactions as well as dealer supplied valuations. Short-term
investments maturing within sixty days are valued at amortized cost. If
quotations are not readily available for a portfolio security, or if it is
believed that a quotation or other market price for a portfolio security does
not represent its fair value, the security may be valued using procedures
approved by the Fund's Board of Directors that are designed to establish its
"fair value." These procedures require that the fair value of a security be
established by the valuation committee. The fair value committee follows
different protocols for different types of investments and circumstances.
Foreign securities may be valued with the assistance of an independent fair
value pricing service in circumstances where it is believed that they have been
or would be materially affected by events occurring after the close of the
portfolio security's primary market and before the close of regular trading on
the NYSE. This independent fair value pricing service uses a computerized system
to appraise affected securities and portfolios taking into consideration various
factors and the fair value of such securities may be something other than the
last available quotation or other market price. GE Asset Management may also
separately monitor portfolio securities and, consistent with the Fund's fair
value procedures, apply a different value to a portfolio security than would be
applied had it been priced using market quotations or by an independent fair
value pricing service.
Determining the fair value of securities involves the application of both
subjective and objective considerations. Security values may differ depending on
the methodology used to determine their values, and may differ from the last
quoted sale or closing price. No assurance can be given that use of these fair
value procedures will always better represent the price at which a Fund could
sell the affected portfolio security.
Security transactions are accounted for as of the trade date. Realized gains and
losses on investments sold are recorded on the basis of identified cost for both
financial statement and federal tax purposes.
REPURCHASE AGREEMENTS The Fund may enter into repurchase agreements. The Fund's
or a third party custodian takes possession of the collateral pledged for
investments in repurchase agreements on behalf of the Fund. The Fund values the
underlying collateral daily on a mark-to-market basis to determine that the
value, including accrued interest, is at least equal to 102% of the repurchase
price. In the event the seller defaults and the value of the security declines,
or if the seller enters an insolvency proceeding, realization of the collateral
by the Fund may be delayed or limited.
11
Notes to Financial Statements December 31, 2005
- --------------------------------------------------------------------------------
SECURITY LENDING The Fund may loan securities to brokers, dealers, and financial
institutions determined by GEAM to be creditworthy, subject to certain
limitations. The Fund continues to receive the interest and dividends on the
loaned securities during the term of the loan. The loans of securities are
secured by collateral in the form of cash or other liquid assets, which are
segregated and maintained with the custodian in an amount at least equal to 102%
of the current market value of the loaned securities. During the term of the
loan, the Fund will record any gain or loss in the market value of its loaned
securities and of securities in which cash collateral is invested. The Fund will
also earn interest, net of any rebate, from securities in which cash collateral
is invested. In the event the counterparty (borrower) does not meet its
contracted obligation to return the securities, the Fund may be exposed to the
risk of loss of reacquiring the loaned securities at prevailing market prices
using the proceeds of the sale of the collateral.
FOREIGN CURRENCY Accounting records of the Fund are maintained in U.S. dollars.
Investment securities and other assets and liabilities denominated in a foreign
currency are translated into U.S. dollars at the prevailing rates of exchange at
period end. Purchases and sales of securities, income receipts and expense
payments denominated in foreign currencies are translated into U.S. dollars at
the prevailing exchange rate on the respective dates of such transactions.
The Fund does not isolate the portion of the results of operations resulting
from changes in foreign exchange rates from the fluctuations arising from
changes in the market prices of securities during the period. Such fluctuations
are included in the net realized or unrealized gain or loss from investments.
Net realized gains or losses on foreign currency transactions represent net
gains or losses on sales and maturities of foreign currency contracts,
disposition of foreign currencies, the difference between the amount of net
investment income and withholding taxes accrued and the U.S. dollar amount
actually received or paid, and gains or losses between the trade and settlement
date on purchases and sales of securities. Net unrealized foreign exchange gains
and losses arising from changes in the value of other assets and liabilities as
a result of changes in foreign exchange rates are included as increases or
decreases in unrealized appreciation/depreciation on foreign currency related
transactions.
FUTURES CONTRACTS The Fund may invest in interest rate, financial or stock or
bond index futures contracts subject to certain limitations. The Fund may invest
in futures contracts to manage its exposure to the stock and bond markets and
fluctuations in currency values. Buying futures tends to increase the Fund's
exposure to the underlying instrument while selling futures tends to decrease
the Fund's exposure to the underlying instrument, or hedge other Fund
investments. The Fund will not enter into a transaction involving futures for
speculative purposes. The Fund's risks in using these contracts include changes
in the value of the underlying instruments, non-performance of the
counterparties under the contracts' terms and changes in the liquidity of the
secondary market for the contracts. Futures contracts are valued at the
settlement price established each day by the board of trade or exchange on which
they principally trade.
Upon entering into a futures contract, the Fund is required to pledge to the
broker an amount of cash and/or other assets equal to a certain percentage of
the contract amount, known as initial margin deposit. Subsequent payments, known
as variation margin, are made or received by the Fund each day, depending on the
daily fluctuation in the fair value of the underlying security. The Fund records
an unrealized gain or loss equal to the daily variation margin. Should market
conditions move unexpectedly, the Fund may not achieve the anticipated benefits
of the futures contracts and may incur a loss. The Fund recognizes a realized
gain or loss on the expiration or closing of a futures contract.
OPTIONS The Fund may purchase and write options, subject to certain limitations.
The Fund may invest in options contracts to manage its exposure to the stock and
bond markets and fluctuations in foreign currency values. Writing puts and
buying calls tend to increase the Fund's exposure to the underlying instrument
while buying puts and writing calls tend to decrease the Fund's exposure to the
underlying instrument, or hedge other Fund investments. The Fund will not enter
into a transaction involving options for speculative purposes. The Fund's risks
in using these contracts include changes in the value of the underlying
instruments, non-performance of the counterparties under the contracts' terms
and changes in the liquidity of the secondary market for the contracts. Options
are valued at the last sale price, or if no sales occurred on that day, at the
last quoted bid price.
When the Fund writes an option, the amount of the premium received is recorded
as a liability and is subsequently adjusted to the current fair value of the
option written. Premiums received from writing options that expire unexercised
are treated by the Fund on the expiration date as realized gains from
investments. The
12
Notes to Financial Statements December 31, 2005
- --------------------------------------------------------------------------------
difference between the premium and the amount paid on effecting a closing
purchase transaction, including brokerage commissions, is also treated as a
realized gain, or if the premium is less than the amount paid for the closing
purchase, as a realized loss. When an option is exercised, the proceeds from the
sale of the underlying security or the cost basis of the securities purchased is
adjusted by the original premium received or paid.
INVESTMENTS IN FOREIGN MARKETS Investments in foreign markets may involve
special risks and considerations not typically associated with investing in the
United States. These risks include revaluation of currencies, high rates of
inflation, repatriation on income and capital, and adverse political and
economic developments. Moreover, securities issued in these markets may be less
liquid, subject to government ownership controls, tariffs and taxes, subject to
delays in settlements, and their prices may be more volatile.
The Fund may be subject to capital gains and repatriation taxes imposed by
certain countries in which it invests. Such taxes are generally based on income
and/or capital gains earned or repatriated. Taxes are accrued based upon net
investment income, net realized gains and net unrealized appreciation as income
and/or capital gains are earned.
INCOME TAXES The Fund intends to comply with all sections of the Internal
Revenue Code applicable to regulated investment companies including the
distribution of substantially all of its taxable net investment income and net
realized capital gains to its shareholders. Therefore, no provision for federal
income tax has been made. The Fund is treated as a separate taxpayer for federal
income tax purposes.
At December 31, 2005, information on the tax components of capital is as
follows:
Net Tax
Cost of Gross Tax Gross Tax Appreciation/
Investments for Unrealized Unrealized (Depreciation)
Tax Purposes Appreciation Depreciation on Investments
- --------------------------------------------------------------------------------------------------------------------------
$122,327,890 $19,042,218 $(10,062,644) $8,979,574
Net Tax
Appreciation/ Undistributed Undistributed Post
(Depreciation) on Income/ Long-Term Gains/ October
Derivatives, Currency (Accumulated (Accumulated Losses
and Other Net Assets Ordinary Loss) Capital Loss) (see Detail Below)
- --------------------------------------------------------------------------------------------------------------------------
$-- $-- $(3,350,016) $--
As of December 31, 2005, the Fund has capital loss carryovers as indicated
below. Capital loss carryovers are available to offset future realized capital
gains to the extent provided in the Internal Revenue Code and regulations
thereunder. To the extent that these carryover losses are used to offset future
capital gains, it is probable that the gains so offset will not be distributed
to shareholders because they would be taxable as ordinary income.
Amount Expires
- --------------------------------------------------------------------------------
$ 311,312 12/31/10
3,038,704 12/31/11
During the year ended December 31, 2005, the Fund utilized approximately
$5,723,682 of capital loss carryovers.
Any net capital and currency losses incurred after October 31, within the Fund's
tax year, are deemed to arise on the first day of the Fund's next tax year if
the Fund so elects to defer such losses.
The Fund had no losses incurred after October 31, 2005.
13
Notes to Financial Statements December 31, 2005
- --------------------------------------------------------------------------------
The tax composition of distributions paid (other than return of capital
distributions for the year) during the year ended December 31, 2005 was as
follows:
Ordinary Long-Term
Income Capital Gains Total
- --------------------------------------------------------------------------------
$454,489 $-- $454,489
DISTRIBUTIONS TO SHAREHOLDERS The Fund declares and pays dividends from net
investment income annually. The Fund declares and pays net realized capital
gains in excess of capital loss carryforwards 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 (but are not limited to) futures and
losses deferred due to wash sale transactions. Reclassifications due to
permanent book/tax differences are made to the Fund's capital accounts to
reflect income and gains available for distribution (or available capital loss
carryovers) under income tax regulations. These reclassifications have no impact
on net investment income, realized gains or losses, or the net asset value of
the Fund. The calculation of net investment income per share in the Financial
Highlights table excludes these adjustments.
The reclassifications for the year ended December 31, 2005 were as follows:
Undistributed
(Distribution
in Excess of)
Net Investment Accumulated Paid in
Income Net Realized Loss Capital
- --------------------------------------------------------------------------------
$50,520 $-- $(50,520)
INVESTMENT INCOME Corporate actions (including cash dividends) are recorded on
the ex-dividend date, net of applicable withholding taxes, except for certain
foreign corporate actions, which are recorded as soon after ex-dividend date as
such information becomes available. Interest income is recorded on the accrual
basis. All discounts and premiums on bonds are accreted to call or maturity
date, whichever is shorter, using the effective yield method.
EXPENSES Expenses of the Company which are directly identifiable to one of the
Funds are allocated to that portfolio. Expenses which are not directly
identifiable to one of the Funds are allocated in such a manner as deemed
equitable, taking into consideration the nature and type of expenses and
relative sizes of the Funds. All expenses of the Fund are paid by GEAM and
reimbursed by the Fund.
3. LINE OF CREDIT
The Fund shares a revolving credit facility of up to $25 million with a number
of its affiliates. The credit facility is with its custodian bank, State Street
Bank and Trust Company. The revolving credit facility requires the payment of a
commitment fee equal to 0.09% per annum on the daily unused portion of the
credit facility, payable quarterly. The portion borne by the Funds generally is
borne proportionally based upon net assets. Generally, borrowings under the
credit facility would accrue interest at the Federal Funds Rate plus 50 basis
points and is borne by each of the borrowing Funds. The maximum amount allowed
to be borrowed by any one of the Funds is the lesser of its prospectus
limitation, 20% of its net assets, or $25 million. The credit facility was not
utilized by the Fund during the period ended December 31, 2005.
4. AMOUNTS PAID TO AFFILIATES
ADVISORY AND ADMINISTRATION FEES GEAM, 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 Fund. Compensation of GEAM for
investment advisory and administrative services is paid monthly based on the
average daily net assets of the Fund at an annualized rate of .65%.
GENPACT (formerly General Electric Capital International Services*) performs
certain accounting and certain administration services not provided by GEAM. For
the year ending December 31, 2005, $1,745 was charged to the Fund.
Administrative services not performed by GEAM or GENPACT were provided by an
unaffiliated service provider.
* AS OF SEPTEMBER 28, 2005, THE NAME WAS CHANGED FROM GENERAL ELECTRIC CAPITAL
INTERNATIONAL SERVICES TO GENPACT.
DIRECTORS' COMPENSATION The Fund pays no compensation to its directors who are
officers or employees of GEAM or its affiliates. Directors who are not such
officers or employees also serve in a similar capacity for other funds advised
by GEAM. Compensation paid to unaffiliated directors are reflected on the
Statement of Operations. These fees are allocated pro rata across all of the
mutual fund platforms and share classes served by
14
Notes to Financial Statements December 31, 2005
- --------------------------------------------------------------------------------
the directors, including the Fund, and are based upon the relative net assets of
each fund within such platforms. (For additional information about directors
compensation please refer to the Statement of Additional Information.)
5. INVESTMENT TRANSACTIONS
PURCHASES AND SALES OF SECURITIES The cost of purchases and the proceeds from
sales of investments, other than short-term securities and options, for the
period ended December 31, 2005 were as follows:
Purchases Sales
- --------------------------------------------------------------------------------
$44,399,418 $53,628,101
SECURITY LENDING At December 31, 2005, the Fund participated in securities
lending:
Loaned
securities at Cash
market value Collateral*
- --------------------------------------------------------------------------------
$3,953,857 $4,044,021
* COLLATERAL OF $4,085,541 DECREASED BY $41,520 ON JANUARY 3, 2006 TO REFLECT
THE DECEMBER 30, 2005 CHANGE IN VALUE OF SECURITIES ON LOAN.
15
Report of Independent Registered Public Accounting Firm
- --------------------------------------------------------------------------------
The Shareholders and Board of Directors
GE Investments Funds, Inc.
We have audited the accompanying statement of assets and liabilities of the
Premier Growth Equity Fund, a series of GE Investments Funds, Inc., including
the schedule of investments, as of December 31, 2005, and the related statement
of operations for the year then ended, the statements of changes in net assets
for each of the years in the two-year period then ended, and the financial
highlights for each of the years in the five-year period then ended. These
financial statements and financial highlights are the responsibility of the
Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included confirmation of
securities owned as of December 31, 2005 by correspondence with the custodians
and brokers, or by other appropriate auditing procedures where replies from
brokers were not received. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
Premier Growth Equity Fund as of December 31, 2005, and the results of its
operations, the changes in its net assets and the financial highlights for each
of the years described above, in conformity with U.S. generally accepted
accounting principles.
/S/KPMG LLP
Boston, Massachusetts
February 17, 2006
16
Advisory and Administrative Agreement Renewal (unaudited)
- --------------------------------------------------------------------------------
The Fund Board, including the independent Board members, considered and
unanimously approved the continuance of the Fund's investment advisory agreement
with GE Asset Management Incorporated ("GEAM") at meetings held on December 9
and December 16, 2005.
In considering whether to approve the Fund's investment advisory agreement, the
Board members, including the independent members, considered and discussed a
substantial amount of information and analysis provided, at the Board's request,
by GEAM. The Board members also considered detailed information regarding
performance and expenses of other investment companies with similar investment
objectives and sizes, which was prepared by an independent third party provider,
Lipper Inc. ("Lipper"). The Board members reviewed the fees charged by GEAM for
other mutual funds and investment products other than mutual funds that employ
the same investment strategy as the Fund. Before approving the Fund's advisory
agreement, the Board members reviewed the proposed continuance of the agreement
with management of GEAM and with independent legal counsel. The Board members
also reviewed a memorandum prepared by independent legal counsel discussing the
legal standards for the consideration of the proposed continuance. The
independent Board members discussed the proposed continuance in a private
session with their independent legal counsel at which no representatives of GEAM
were present.
In advance of the meeting, and in response to their request, the Board members
received from GEAM written responses to their inquiries, which included
substantial exhibits and other materials related to GEAM's business and the
services it provides to the Fund. The Board members took into account their
multi-year experience as Board members and particularly their consideration of
these agreements in 2004, noting that the information was presented in a similar
manner and format. To focus their review, the Board members asked GEAM
management, in its oral presentation, to highlight material differences from the
information presented in 2004. During the meeting, the Board members had an
opportunity to discuss this information with GEAM managers, including senior
executives, representatives from the legal and compliance departments, and
senior investment personnel. The Board members posed questions to these
representatives and engaged in substantive discussions with them concerning
GEAM's investment process.
In reaching their determination relating to continuance of the agreement, the
Board members considered all factors they believed relevant, including the
factors discussed below. In their deliberations, the Board members did not
identify any particular information that was all-important or controlling, and
each Board member attributed different weights to the various factors. In
particular, the Board members focused on the following:
THE NATURE, EXTENT AND QUALITY OF SERVICES PROVIDED.
The Board members reviewed the services provided by GEAM, and the Board members,
including the independent members, concurred that GEAM provides high quality
advisory and administrative services to the Fund.
In connection with their consideration of GEAM's services, the Board members
focused on the favorable attributes of GEAM, including (i) an investment
philosophy oriented toward long-term performance; (ii) effective processes used
for selecting investments, selecting brokers and with respect to Fund
administration, controllership and compliance activities; (iii) highly skilled
professionals, including analysts, research professionals and portfolio managers
with a depth of experience; (iv) access to significant technological resources
from which the Fund may benefit; and (v) a favorable history and reputation. The
Board members discussed with senior officers of GEAM the personnel changes made,
and proposed to be made, by GEAM, and that GEAM would be expending significant
sums to enhance services, including improvements to its information technology
capabilities. The Board members noted that the Fund represents only a small
portion of the assets managed by GEAM, but benefits from a full array of
services and resources provided by GEAM. In light of these discussions, the
Board members, including the independent members, concluded that GEAM's services
were of a high quality and had benefited the Fund.
17
Advisory and Administrative Agreement Renewal (unaudited)
- --------------------------------------------------------------------------------
INVESTMENT PERFORMANCE OF THE FUND.
The Board members considered the investment performance of the Fund for various
periods. The Board members reviewed detailed comparisons of the performance of
the Fund with the relevant securities indexes and peer groupings of mutual funds
prepared by Lipper with respect to various periods. The Board members also
engaged in detailed discussions with GEAM management about the investment
process, focusing on the Fund's investment objective, the number and experience
of portfolio management personnel, the investment style and approach employed,
the likely market cycles for the investment style, and the relative
underperformance of the Fund in certain periods in light of GEAM's commitment to
long-term satisfactory performance with respect to the Fund's investment
objective and investment approach. The Board members, including the independent
members, concluded that the Fund's performance was acceptable over the relevant
periods, particularly from a longer term perspective, which the Board members
believed was most relevant.
COST OF THE SERVICES TO BE PROVIDED AND PROFITS TO BE REALIZED FROM THE
RELATIONSHIP WITH THE FUND.
The Board members considered the cost of the services provided by GEAM. The
Board members reviewed the information they had requested from GEAM concerning
its profitability from the fees and services it provides to the Fund and the
financial condition of GEAM for various past periods. The Board members
considered the profit margin information for GEAM's investment company business
as a whole, as well as GEAM's profitability data for the Fund. The Board members
reviewed GEAM's assumptions and the methods of cost allocation used by GEAM in
preparing Fund-specific profitability data. The Board members also discussed
with GEAM the basis for its belief that the methods of allocation used were
reasonable and consistent across its business.
The Board members noted and discussed the additional services provided by GEAM
to the Fund compared to other investment products managed by GEAM. The Board
members determined that GEAM should be entitled to earn a reasonable level of
profits for the services it provides to the Fund. The Board members also
recognized that GEAM had made significant investments in its business and had
not fully recovered the sums invested. Based on their review, the Board members,
including the independent members, concluded that they were satisfied that the
level of profitability achieved by GEAM from its relationship with the Fund was
not unreasonable or excessive.
THE EXTENT TO WHICH ECONOMIES OF SCALE WOULD BE REALIZED AS THE FUND GROWS AND
WHETHER FEE LEVELS WOULD REFLECT SUCH ECONOMIES OF SCALE.
The Board members considered the extent to which economies of scale would be
realized as the Fund grows, and whether fee levels reflect these economies of
scale for the benefit of Fund investors. The Board members considered the
substantial infrastructure investments that GEAM has made with respect to its
operations and its commitment to continue investing resources to enhance
services to Fund shareholders, including its anticipated information technology
expenditures. The Board members recognized the benefits to the Fund of GEAM's
past investment in its operations through the expenditure of sums to support its
substantial infrastructure, and that, in general, GEAM has not yet fully
recouped that investment. The Board members also recognized the benefits to the
Fund of being able to leverage a favorable cost structure achieved with respect
to the Fund's other operating expenses as a result of GEAM's large overall base
of assets under management and its vendor management practices. The Board
members considered the potential institution of advisory fee breakpoints for the
Fund, but concluded that GEAM had already appropriately shared the economies of
scale.
COMPARISON OF SERVICES TO BE RENDERED AND FEES TO BE PAID.
The Board members discussed the services provided to the Fund by GEAM, and the
fees charged for those services. The Board members reviewed information
concerning the fee and expense ratios for the Fund, and comparative information
with respect to similar products. They discussed that the Fund's figures were
within the applicable peer group range. The Board members considered that the
comparative data provided by Lipper showed no material difference from last year
in the fees being charged as compared to those being charged by other advisers
to similar investment products, as determined by Lipper. In addition, the Board
members
18
Advisory and Administrative Agreement Renewal (unaudited)
- --------------------------------------------------------------------------------
considered their discussion with representatives of GEAM about the fees being
charged to the Fund and, to the extent applicable, the potential effect, if any,
of the Securities and Exchange Commission staff's recently proposed soft dollar
interpretation on those fees. In light of the foregoing, the Board members,
including the independent members, determined that the advisory fees were
reasonable in relation to the services provided to the Fund.
FALL-OUT BENEFITS.
The Board members considered other actual and potential financial benefits to
GEAM, including, to the extent applicable, soft dollar commission benefits
generated through Fund portfolio transactions. The Board members noted, however,
that the Fund benefits from the vast array of resources available through GEAM,
and that the Fund represents only a small portion of the assets managed by GEAM.
CONCLUSION.
No single factor was determinative to the Board members' decision. Based on
their discussion and such other matters as were deemed relevant, the Board
members, including the independent members, concluded that the proposed advisory
fee and projected total expense ratio are reasonable in relation to the services
provided to the Fund. In view of these facts, the Board members, including the
independent members, concluded that the renewal of the advisory agreement was in
the best interests of the Fund and its shareholders.
19
Additional Information (unaudited)
- --------------------------------------------------------------------------------
INFORMATION ABOUT DIRECTORS AND EXECUTIVE OFFICERS:
The business and affairs of the Company are managed under the direction of the
Company's Board of Directors. Information pertaining to the Directors and
officers of the Company is set forth below.
INTERESTED DIRECTORS AND EXECUTIVE OFFICERS
- --------------------------------------------------------------------------------
MICHAEL J. COSGROVE
- --------------------------------------------------------------------------------
ADDRESS c/o GEAM 3001 Summer St. Stamford, CT 06905
AGE 56
POSITION(S) HELD WITH FUND Chairman of the Board and President
TERM OF OFFICE AND LENGTH OF TIME SERVED Until successor is elected and
qualified - 9 years
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS Executive Vice President - Chief
Commercial Officer of GEAM (formerly President, GE Asset Management Services
division ("GEAMS") of GE Financial Assurance Holdings, Inc., an indirect
wholly-owned subsidiary of General Electric Company ("GE")), since February
1997; Vice President, GE Capital Corporation, an indirect wholly-owned
subsidiary of GE, since December 1999; Executive Vice President - Sales and
Marketing of GEAM, a wholly-owned subsidiary of GE that is registered as an
investment adviser under the Investment Advisers Act of 1940, as amended, since
March 1993; Director of GEAM since 1988.
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR 48
OTHER DIRECTORSHIPS HELD BY DIRECTOR Chairman of the Board and President of GE
Funds since 1993, and GE Institutional Funds and GE LifeStyle Funds since their
inception; Trustee of Elfun Funds, GE Savings & Security Funds and General
Electric Pension Trust since 1988; Trustee of Fordham University since 2003 and
Marymount College from 1994 through 2002.
- --------------------------------------------------------------------------------
ALAN M. LEWIS
- --------------------------------------------------------------------------------
ADDRESS c/o GEAM 3001 Summer St. Stamford, CT 06905
AGE 59
POSITION(S) HELD WITH FUND Director and Executive Vice President
TERM OF OFFICE AND LENGTH OF TIME SERVED Until successor is elected and
qualified - 6 years
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS Executive Vice President,
General Counsel and Secretary of GEAM since 1987
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR 48
OTHER DIRECTORSHIPS HELD BY DIRECTOR Trustee and Executive Vice President of GE
Funds, GE Institutional Funds and GE LifeStyle Funds since their inception.
Trustee of Elfun Funds, GE Savings & Security Funds and General Electric Pension
Trust since 1987.
20
Additional Information (unaudited)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SCOTT H. RHODES
- --------------------------------------------------------------------------------
ADDRESS c/o GEAM 3001 Summer St. Stamford, CT 06905
AGE 47
POSITION(S) HELD WITH FUND Treasurer
TERM OF OFFICE AND LENGTH OF TIME SERVED Until successor is elected and
qualified - less than one year
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS GEAM Mutual Funds Operations Manager
since September 2005; Treasurer of GE Institutional Funds, GE LifeStyle Funds
and GE Investments Funds since November 2005 and Elfun Funds and GE Savings &
Security Funds since September 2005; from August 2004 to September 2005 Vice
President, U.S. Trust Company, N.A. and Assistant Treasurer of Excelsior Funds,
Inc., Excelsior Funds Trust, and Excelsior Tax Exempt Funds, Inc.; from January
2004 to August 2004, Vice President BlackRock Financial Management, Inc.; from
December 1996 to November 2003, Controller - Mutual Funds, American Skandia
Investment Services, Inc. and Assistant Treasurer of American Skandia Trust and
American Skandia Advisor Funds, Inc.
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR N/A
OTHER DIRECTORSHIPS HELD BY DIRECTOR N/A
- --------------------------------------------------------------------------------
MATTHEW J. SIMPSON
- --------------------------------------------------------------------------------
ADDRESS c/o GEAM 3001 Summer St. Stamford, CT 06905
AGE 44
POSITION(S) HELD WITH FUND Vice President and Secretary
TERM OF OFFICE AND LENGTH OF TIME SERVED Until successor is elected and
qualified - 9 years
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS Senior Vice President and General
Counsel - Marketing and Client Services (formerly Asset Management Services), at
GEAM and Senior Vice President and General Counsel of GEAMS since February 1997;
from October 1992 to February 1997, Vice President and Associate General Counsel
of GEAM; Secretary of GE Funds since 1993 and Vice President since September
2003; Secretary of GE Institutional Funds and GE LifeStyle Funds since their
inception and Vice President since September 2003; Assistant Secretary of Elfun
Funds and GE Savings & Security Funds since 1998 and Vice President since
October 2003.
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR N/A
OTHER DIRECTORSHIPS HELD BY DIRECTOR N/A
- --------------------------------------------------------------------------------
JEANNE M. LAPORTA
- --------------------------------------------------------------------------------
ADDRESS c/o GEAM 3001 Summer St. Stamford, CT 06905
AGE 40
POSITION(S) HELD WITH FUND Vice President and Assistant Secretary
TERM OF OFFICE AND LENGTH OF TIME SERVED Until successor is elected and
qualified - 2 years
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS Vice President and Associate General
Counsel - Marketing and Client Services (formerly Asset Management Services) at
GEAM since May 1997; Vice President and Assistant Secretary of GE Funds, GE
Institutional Funds and GE LifeStyle Funds since September 2003; Vice President
and Assistant Secretary of Elfun Funds and GE Savings & Security Funds since
October 2003.
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR N/A
OTHER DIRECTORSHIPS HELD BY DIRECTOR N/A
21
Additional Information (unaudited)
- --------------------------------------------------------------------------------
NON-INTERESTED DIRECTORS
- --------------------------------------------------------------------------------
JOHN R. COSTANTINO
- --------------------------------------------------------------------------------
ADDRESS c/o GEAM 3001 Summer St. Stamford, CT 06905
AGE 59
POSITION(S) HELD WITH FUND Director
TERM OF OFFICE AND LENGTH OF TIME SERVED Until successor is elected and
qualified - 9 years
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS Managing Director, Walden Partners,
Ltd., consultants and investors, since August 1992.
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR 40
OTHER DIRECTORSHIPS HELD BY DIRECTOR Trustee of GE Funds since 1993, GE
Institutional Funds and GE LifeStyle Funds since their inception; Trustee of
Fordham University since 2002 and Marymount College from 2001 through 2002;
Neuroscience Research Institute since 1986; Diocesan Finance Counsel of the
Dioceses of Brooklyn & Queens since 2001; Gregorian University Foundation since
1994.
- --------------------------------------------------------------------------------
WILLIAM J. LUCAS
- --------------------------------------------------------------------------------
ADDRESS c/o GEAM 3001 Summer St. Stamford, CT 06905
AGE 58
POSITION(S) HELD WITH FUND Director
TERM OF OFFICE AND LENGTH OF TIME SERVED Until successor is elected and
qualified - 9 years
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS Vice President and Treasurer of
Fairfield University since 1983.
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR 40
OTHER DIRECTORSHIPS HELD BY DIRECTOR Trustee of GE Funds since 1993, and GE
Institutional Funds and GE LifeStyle Funds since their inception.
- --------------------------------------------------------------------------------
ROBERT P. QUINN
- --------------------------------------------------------------------------------
ADDRESS c/o GEAM 3001 Summer St. Stamford, CT 06905
AGE 69
POSITION(S) HELD WITH FUND Director
TERM OF OFFICE AND LENGTH OF TIME SERVED Until successor is elected and
qualified - 9 years
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS Retired since 1983 from Salomon
Brothers Inc.
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR 40
OTHER DIRECTORSHIPS HELD BY DIRECTOR GP Financial Corp, holding company; The
Greenpoint Savings Bank, a financial institution. Trustee of GE Funds since
1993, and GE Institutional Funds and GE LifeStyle Funds since their inception.
- --------------------------------------------------------------------------------
The Statement of Additional Information for the Fund includes additional
information about the Directors and Officers and is available, without charge,
upon request by calling 1-800-242-0134.
22
Investment Team
- --------------------------------------------------------------------------------
INVESTMENT ADVISER AND ADMINISTRATOR
GE Asset Management Incorporated
BOARD OF DIRECTORS
Michael J.Cosgrove, CHAIRMAN
John R. Costantino
Alan M. Lewis
William J. Lucas
Robert P. Quinn
SECRETARY
Matthew J. Simpson
TREASURER
Scott H. Rhodes
ASSISTANT TREASURER
Christopher M. Isaacs
DISTRIBUTOR
GE Investment Distributors, Inc.
Member NASD and SIPC
COUNSEL
Sutherland, Asbill & Brennan, LLP
CUSTODIAN
State Street Bank & Trust Company
INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM
KPMG LLP
OFFICERS OF THE INVESTMENT ADVISER
John H. Myers, CHIEF EXECUTIVE OFFICER
David B. Carlson, EVP, DOMESTIC EQUITIES
Michael J. Cosgrove, EVP, CHIEF COMMERCIAL OFFICER
Robert A. MacDougall, EVP, FIXED INCOME (RETIRED FROM ALL POSITIONS AS
OF JANUARY 31, 2006)
Kathryn D. Karlic, EVP, FIXED INCOME (AS OF FEBRUARY 1, 2006)
Ralph R. Layman, EVP, INTERNATIONAL EQUITIES
Alan M. Lewis, EVP, GENERAL COUNSEL AND SECRETARY
Don W. Torey, EVP, ALTERNATIVE INVESTMENTS AND REAL ESTATE
John J. Walker, EVP, CHIEF FINANCIAL OFFICER
23
[This page intentionally left blank.]
[This page intentionally left blank.]
INVESTMENT ADVISER
GE ASSET MANAGEMENT INCORPORATED
3001 SUMMER STREET
PO BOX 7900
STAMFORD, CT 06904-7900
DISTRIBUTOR
GE INVESTMENT DISTRIBUTORS, INC.
MEMBER NASD AND SIPC
3001 SUMMER STREET
PO BOX 7900
STAMFORD, CT 06904-7900
- --------------------------------------------------------------------------------
The Fund files its complete schedule of portfolio holdings with the Securities
and Exchange Commission for the first and third quarters of each fiscal year on
Form N-Q. The Fund's Forms N-Q, as well as a description of the policies and
procedures that the Fund uses to determine how to vote proxies (if any) relating
to portfolio securities is available without charge (i) upon request, by calling
1-800-242-0134; (ii) on the Fund's website at HTTP://WWW.GEFUNDS.COM; and (iii)
on the Commission's website at HTTP://WWW.SEC.GOV. The Fund's Forms N-Q may be
reviewed and copied at the Commission's Public Reference Room in Washington, DC
information on the operation of the Public Reference Room may be obtained by
calling 1-800-SEC-0330.
Information (if any) regarding how the Fund voted proxies relating to portfolio
securities during the most recently disclosed 12-months period ended June 30 is
available without charge (i) through the Fund's website at
HTTP://WWW.GEFUNDS.COM; and (ii) on the Commission's website at
HTTP://WWW.SEC.GOV.
- --------------------------------------------------------------------------------
[GE LOGO OMITTED]
GE Investments Funds, Inc.
Value Equity Fund
Annual Report
DECEMBER 31, 2005
[GE LOGO OMITTED]
GE Investments Funds, Inc.
Value Equity Fund Contents
- --------------------------------------------------------------------------------
MANAGER REVIEW AND SCHEDULE OF INVESTMENTS ................................ 1
NOTES TO PERFORMANCE ...................................................... 7
NOTES TO SCHEDULE OF INVESTMENTS .......................................... 7
FINANCIAL STATEMENTS
Financial Highlights ................................................. 8
Statement of Assets and Liabilities .................................. 9
Statement of Operations .............................................. 10
Statements of Changes in Net Assets .................................. 11
Notes to Financial Statements ........................................ 12
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ................... 17
TAX INFORMATION ........................................................... 18
ADVISORY AND ADMINISTRATIVE AGREEMENT RENEWAL ............................. 19
ADDITIONAL INFORMATION .................................................... 22
INVESTMENT TEAM ........................................................... 25
This report is prepared for Policyholders of certain variable contracts and may
be distributed to others only if preceded or accompanied by the variable
contract's current prospectus and the current prospectus of the Funds available
for investments thereunder.
Value Equity Fund
- --------------------------------------------------------------------------------
Q&A
THE VALUE EQUITY FUND IS CO-MANAGED BY PAUL C. REINHARDT AND STEPHEN V. GELHAUS.
MR. REINHARDT AS LEAD MANAGER IS VESTED WITH THE AUTHORITY TO PURCHASE
SECURITIES THAT ARE NEW TO THE FUND OR TO DIVEST THE FUND OF ITS ENTIRE POSITION
IN A SECURITY. MR. REINHARDT ALSO HAS VETO AUTHORITY OVER MR. GELHAUS' TRADE
DECISIONS.
PAUL REINHARDT (PICTURED BELOW) IS A SENIOR VICE PRESIDENT OF GE ASSET
MANAGEMENT AND LEAD PORTFOLIO MANAGER OF THE VALUE EQUITY FUND. HE HAS SERVED IN
THIS CAPACITY SINCE APRIL 2002. MR. REINHARDT JOINED GE ASSET MANAGEMENT IN 1982
AS AN EQUITY ANALYST AND HAS BEEN A PORTFOLIO MANAGER SINCE 1987.
STEPHEN V. GELHAUS IS A VICE PRESIDENT OF GE ASSET MANAGEMENT. HE HAS BEEN A
MEMBER OF THE PORTFOLIO MANAGEMENT TEAM FOR THE VALUE EQUITY FUND SINCE JANUARY
2002. MR. GELHAUS JOINED GE ASSET MANAGEMENT IN JUNE 1991 AND WAS A RESEARCH
ANALYST IN THE U.S. EQUITY DEPARTMENT FROM 1995 THROUGH 2001 AND BECAME AN
ASSOCIATE PORTFOLIO MANAGER FOR THE VALUE EQUITY FUND IN AUGUST 1999.
Q. HOW DID THE VALUE EQUITY FUND PERFORM COMPARED TO ITS BENCHMARK AND LIPPER
PEER GROUP FOR THE TWELVE-MONTH PERIOD ENDED DECEMBER 31, 2005?
A. For the twelve-month period ended December 31, 2005, the Value Equity Fund
returned 4.06%. The S&P 500 Index, the Fund's benchmark, returned 4.92% and
the Fund's Lipper peer group of 93 Multi-Cap Value funds returned an average
of 6.30% for the same period.
Q. WHAT MARKET CONDITIONS IMPACTED THE FUND PERFORMANCE?
A. In the past twelve months skyrocketing energy prices have weighed on the
stock market, and this concern intensified in the second half of the year,
as hurricanes Katrina and Rita disrupted U.S. petroleum production. With
crude oil prices above $60 a barrel, investors worried about the economy
slowing. Against this backdrop, the Federal Reserve endeavored to dampen the
inflationary effects of high energy costs, and tightened short rates at a
measured pace throughout the year. Within the stock market, energy stocks
remained strong (despite a 4th quarter pullback as commodity prices
moderated), many cyclical stocks declined, and less cyclical stocks such as
utilities and health care outperformed. Financials rallied late in the year,
as the market contemplated an end to the Federal Reserve's tightening cycle.
Large-cap stocks continued to lag the broad market, and value stocks once
again outperformed growth stocks-- although the Russell 1000 Growth beat the
Russell 1000 Value in the last three quarters of the year.
Q. WHAT WERE THE PRIMARY DRIVERS OF FUND PERFORMANCE?
A. Energy has been the year's best performing S&P Index sector rising over
+31%; owning more energy stocks than the benchmark helped performance in the
twelve months ended December 31, 2005. The Fund's energy holdings also
performed better than the benchmark's, returning 37%. Among our energy
holdings, Burlington Resources (+99%), EnCana Corp. (+69%), and Schlumberger
(+47%) led performance. Utilities (+17%) showed incredible strength over the
past twelve months, and the Fund's overweight position in the sector
contributed positively to performance. Strength in our materials holdings
also benefited the Fund.
[PHOTO OF PAUL REINHARDT OMITTED]
- --------------------------------------------------------------------------------
1
Value Equity Fund
- --------------------------------------------------------------------------------
Q&A
Freeport-McMoran Copper and Gold (+49%), Monsanto (+41%) and Praxair (+22%),
each significantly outperformed the benchmark's materials sector return of
+5%. Within the consumer discretionary space, not owning beleaguered
automobile stocks helped, and picking winners amongst specialty retailers
and household durables companies also contributed to performance -- Lowe's
and Philips Electronics were both up +16% over the period.
The main detractors from performance during the period were consumer
staples, information technology, and health care stocks. In consumer
staples, owning less Altria (+28%) than the benchmark hurt relative
performance the most, with the stock up due to positive litigation
developments. We have been concerned with further legal troubles and the
secular decline of Altria's core tobacco business. Overweights in Sara Lee
(-19%) and Kimberly-Clark (-7%) also hurt performance, and we reduced our
weightings in these companies as they restructure. In information
technology, not owning Apple Computer hurt our performance relative to the
S&P 500 Index, as the stock more than doubled. However, this expensive name
does not fit our value discipline. Overweighting Unisys (-39%) and Oracle
(-11%) hurt Fund performance, as well as avoiding some of the lower-quality
technology names that have been fueling sector performance. We eliminated
Unisys during the year. In health care, our pharmaceutical holdings have
lagged, including Abbott Labs (-13%) and Pfizer (-11%) -- we reduced both
positions over the period. However, we continued to like the dividend yields
and attractive valuations in the pharmaceutical space, especially as we
faced the prospect of slowing earnings growth in 2006.
Q. WERE THERE ANY SIGNIFICANT CHANGES TO THE FUND OVER THE PERIOD?
A. Our process has remained consistent during the year, and we continue to
employ a bottom-up relative value process to seek out underappreciated
stocks with catalysts for growth or improving fundamentals. We positioned
the Fund for a mid-cycle slowdown, including lightening up on industrials
such as Tyco and Burlington Northern Santa Fe. We reduced the Fund's
holdings in financial companies on concerns that higher interest rates could
pressure earnings power for the group (e.g., reducing our weightings in
Citigroup, Bank of America and Wells Fargo and eliminating US Bancorp). Also
within financials, we reduced our weighting in Fannie Mae as the company
struggled with an earnings restatement over the period. As we prepared
ourselves for slowing economic growth, we increased our weighting in the
steady-growth health care sector, initiating positions in Aetna, Eli Lilly
and Novartis. Valuation compression in the markets also gave us the
opportunity to increase our exposure to information technology, historically
a sector with above-average earnings growth.
2
Value Equity Fund
- --------------------------------------------------------------------------------
Understanding Your Fund's Expenses
As a shareholder of the Fund you incur transaction and ongoing expenses.
Transaction expenses including sales charges on purchase payments, reinvested
dividends (or other distributions), and redemption fees directly reduce the
investment return of the Fund. Ongoing costs include portfolio management fees,
distribution and service fees, professional fees, administrative fees and other
Fund expenses. The following example is intended to help you understand your
ongoing costs (in dollars) of investing in the Fund and to compare these costs
with the ongoing costs of investing in other mutual funds.
To illustrate these ongoing costs, we have provided an example and calculated
the expenses paid by investors
during the period. The information in the following table is based on an
investment of $1,000, which is invested at the beginning of the period and held
for the entire six-month period ended December 31, 2005.
ACTUAL EXPENSES
The first section of the table provides information about actual account values
and actual expenses. You may use the information in this section, together with
the amount you invested, to estimate the expenses that you paid over the period.
To do so, simply divide your account value by $1,000 (for example, an $8,600
account value divided by $1,000 = 8.6), then multiply the result by the number
given for your class under the heading "Expenses Paid During Period."
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The second section of the table provides information about hypothetical account
values and hypothetical expenses based on the Fund's actual expense ratio and an
assumed rate of return of 5% per year before expenses, which is not the Fund's
actual return. You may use this information to compare the ongoing costs of
investing in the Fund and other funds. To do so, compare this 5% hypothetical
example with the 5% hypothetical examples that appear in the shareholders
reports of other funds.
Please note that the expenses shown in the table do not reflect any transaction
costs, such as sales charges or redemption fees.
JULY 1, 2005 - DECEMBER 31, 2005
- ---------------------------------------------------------------------------------------------------------------
ACCOUNT VALUE AT ACCOUNT VALUE EXPENSES
THE BEGINNING OF AT THE END OF PAID DURING
THE PERIOD ($) THE PERIOD ($) THE PERIOD ($)*
- ---------------------------------------------------------------------------------------------------------------
Actual Fund Return** 1,000.00 1,042.73 4.09
- ---------------------------------------------------------------------------------------------------------------
Hypothetical 5% Return
(2.5% for the period) 1,000.00 1,020.98 4.05
- ---------------------------------------------------------------------------------------------------------------
<FN>
* EXPENSES ARE EQUAL TO THE FUND'S ANNUALIZED EXPENSE RATIO OF 0.79% (FROM
PERIOD JULY 1, 2005 - DECEMBER 31, 2005), MULTIPLIED BY THE AVERAGE ACCOUNT
VALUE OVER THE PERIOD, MULTIPLIED BY 184/365 (TO REFLECT THE SIX MONTH
PERIOD).
** ACTUAL FUND RETURN FOR SIX-MONTH PERIOD ENDED DECEMBER 31, 2005 WAS: 4.27%.
</FN>
3
Value Equity Fund
- --------------------------------------------------------------------------------
CHANGE IN VALUE
OF A $10,000 INVESTMENT
- --------------------------------------------------------------------------------
[LINE GRAPH OMITTED]
Value Equity Fund S&P 500 Index
04/28/00 $10,000 $10,000
6/00 9,970 10,035
12/00 9,979 9,155
6/01 9,486 8,543
12/01 9,105 8,064
6/02 8,357 7,004
12/02 7,506 6,282
6/03 8,220 7,022
12/03 9,311 8,087
6/04 9,517 8,365
12/04 10,202 8,967
6/05 10,181 8,894
12/05 10,616 9,408
AVERAGE ANNUAL TOTAL RETURN
FOR THE PERIODS ENDED DECEMBER 31, 2005
- --------------------------------------------------------------------------------
ONE FIVE SINCE
YEAR YEAR INCEPTION
- --------------------------------------------------------------------------------
Value Equity Fund 4.06% 1.25% 1.06%
- --------------------------------------------------------------------------------
S&P 500 Index 4.92% 0.55% -1.07%
- --------------------------------------------------------------------------------
Lipper peer group average* 6.30% 4.87% N/A
- --------------------------------------------------------------------------------
Inception date 4/28/00
- --------------------------------------------------------------------------------
INVESTMENT PROFILE
A fund designed for investors who seek long-term growth of capital and future
income by investing at least 80% of its net assets in equity securities under
normal market conditions. The Fund invests primarily in U.S. companies that the
portfolio manager believes are undervalued by the market but have solid growth
prospects.
TOP TEN LARGEST HOLDINGS
AS OF DECEMBER 31, 2005
as a % of Market Value
- --------------------------------------------------------------------------------
Exxon Mobil Corp. 3.94%
- --------------------------------------------------------------------------------
Microsoft Corp. 3.05%
- --------------------------------------------------------------------------------
Industrial Select Sector SPDR Fund 2.56%
- --------------------------------------------------------------------------------
Bank of America Corp. 2.31%
- --------------------------------------------------------------------------------
Pfizer Inc. 2.24%
- --------------------------------------------------------------------------------
Citigroup, Inc. 1.99%
- --------------------------------------------------------------------------------
International Business Machines Corp. 1.99%
- --------------------------------------------------------------------------------
PepsiCo, Inc. 1.96%
- --------------------------------------------------------------------------------
First Data Corp. 1.81%
- --------------------------------------------------------------------------------
Abbott Laboratories 1.80%
- --------------------------------------------------------------------------------
PORTFOLIO COMPOSITION
AS OF DECEMBER 31, 2005
as a % of Market Value
- --------------------------------------------------------------------------------
Market Value of $37,438 (in thousands)
[PIE GRAPH OMITTED]
Telecommunications Services 3.0%
Utilities 3.9%
Materials 6.6%
Energy 8.7%
Consumer Discretionary 9.2%
Consumer Staples 10.0%
Industrials 12.1%
Healthcare 12.8%
Information Technology 14.0%
Financials 17.4%
Short-Term 2.3%
* LIPPER PERFORMANCE COMPARISONS ARE BASED ON AVERAGE ANNUAL TOTAL RETURNS FOR
THE ONE YEAR AND FIVE-YEAR PERIODS INDICATED IN THE MULTI-CAP VALUE PEER
GROUP CONSISTING OF 93 AND 45 UNDERLYING ANNUITY FUNDS, RESPECTIVELY.
SEE NOTES TO PERFORMANCE ON PAGE 7 FOR FURTHER INFORMATION, INCLUDING AN
EXPLANATION OF LIPPER PEER CATEGORIES.
PAST PERFORMANCE DOES NOT PREDICT FUTURE PERFORMANCE AND THE GRAPH AND TABLE
DO NOT REFLECT THE DEDUCTION OF TAXES.
4
VALUE EQUITY FUND
Schedule of Investments December 31, 2005
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
VALUE EQUITY FUND
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NUMBER
OF SHARES VALUE
- --------------------------------------------------------------------------------
COMMON STOCK -- 95.3%+
- --------------------------------------------------------------------------------
CONSUMER DISCRETIONARY -- 9.3%
Cablevision Systems Corp.
(Class A) .................... 5,658 $ 132,793(a)
Comcast Corp. (Class A) ......... 12,124 311,466(a)
Koninklijke Philips
Electronics N.V. ADR ......... 10,857 337,653
Liberty Global Inc. (Series C) .. 3,707 78,588(a)
Liberty Global, Inc. (Series A) . 3,178 71,505(a)
Lowe's Companies, Inc. .......... 4,502 300,103
News Corp. (Class A) ............ 17,214 267,678
Omnicom Group, Inc. ............. 4,237 360,696
Ross Stores, Inc. ............... 7,032 203,225
Starwood Hotels & Resorts
Worldwide Inc. (Class B) (REIT) 4,237 270,575
Target Corp. .................... 4,729 259,953
Time Warner Inc. ................ 27,542 480,332
Viacom Inc. (Class B) ........... 11,639 379,431
3,453,998
CONSUMER STAPLES -- 10.1%
Altria Group, Inc. .............. 823 61,495
Anheuser-Busch Companies, Inc. .. 1,634 70,197
Clorox Co. ...................... 11,720 666,751
General Mills, Inc. ............. 4,850 239,202
Kellogg Co. ..................... 8,083 349,347
Kimberly-Clark Corp. ............ 8,083 482,151
PepsiCo, Inc. ................... 12,394 732,238
Procter & Gamble Co. ............ 7,257 420,035
Sara Lee Corp. .................. 8,083 152,769
The Coca-Cola Co. ............... 8,810 355,131
Wal-Mart Stores, Inc. ........... 4,364 204,235
3,733,551
ENERGY -- 8.7%
Amerada Hess Corp. .............. 1,112 141,024
Burlington Resources, Inc. ...... 7,415 639,173
EnCana Corp. .................... 6,568 296,611
Exxon Mobil Corp. ............... 26,268 1,475,474(d)
Halliburton Co. ................. 3,071 190,279
Occidental Petroleum Corp. ...... 3,178 253,859
Schlumberger Ltd. ............... 2,506 243,458
3,239,878
FINANCIALS -- 16.9%
AFLAC Incorporated .............. 1,344 62,388
Allstate Corp. .................. 9,534 515,503
American International Group, Inc. 5,296 361,346
Bank of America Corp. ........... 18,751 865,359
BlackRock Inc. (Class A) ........ 1,376 149,268(e)
Chubb Corp. ..................... 4,355 425,266
- --------------------------------------------------------------------------------
NUMBER
OF SHARES VALUE
- --------------------------------------------------------------------------------
Citigroup, Inc. ................. 15,360 $ 745,421
Federal Home Loan
Mortgage Corp. ............... 6,224 406,738
Federal National Mortgage Assoc. 3,718 181,476
JPMorgan Chase & Co. ............ 2,182 86,604
MBNA Corp. ...................... 9,534 258,848
Mellon Financial Corp. .......... 10,328 353,734
Merrill Lynch & Company, Inc. ... 4,769 323,004
Morgan Stanley .................. 8,461 480,077
Principal Financial Group ....... 1,778 84,331
Prudential Financial, Inc. ...... 3,354 245,479
State Street Corp. .............. 5,658 313,680(c)
SunTrust Banks, Inc. ............ 3,395 247,020
Wells Fargo & Co. ............... 2,425 152,363
6,257,905
HEALTHCARE -- 12.9%
Abbott Laboratories ............. 17,135 675,633(d)
Aetna, Inc. ..................... 4,290 404,590
Bristol-Myers Squibb Co. ........ 1,622 37,274
Eli Lilly & Co. ................. 5,031 284,704
GlaxoSmithKline PLC ADR ......... 8,837 446,092
HCA Inc. ........................ 3,233 163,266
Johnson & Johnson ............... 7,678 461,448
Medco Health Solutions, Inc. .... 5,658 315,716(a)
Novartis AG ADR ................. 4,688 246,026
Pfizer Inc. ..................... 36,018 839,940(d)
UnitedHealth Group Incorporated 7,194 447,035
Wyeth ........................... 10,459 481,846
4,803,570
INDUSTRIALS -- 9.6%
ABB Ltd. ADR .................... 22,276 216,523(a)
Burlington Northern
Santa Fe Corp. ............... 4,237 300,064
Cooper Industries Ltd. .......... 1,778 129,794
Deere & Co. ..................... 7,517 511,983
Eaton Corp. ..................... 6,749 452,790
General Dynamics Corp. .......... 2,318 264,368
Honeywell International Inc. .... 2,118 78,895
ITT Industries, Inc. ............ 687 70,637
Northrop Grumman Corp. .......... 7,680 461,645
Rockwell Collins, Inc. .......... 1,694 78,720
Textron Inc. .................... 2,586 199,070
3M Co. .......................... 1,324 102,610
Tyco International Ltd. ......... 12,924 372,987
United Technologies Corp. ....... 5,931 331,602
3,571,688
INFORMATION TECHNOLOGY -- 14.1%
Analog Devices, Inc. ............ 11,639 417,491
Applied Materials, Inc. ......... 8,082 144,991
Cisco Systems, Inc. ............. 24,894 426,185(a,d)
EMC Corporation ................. 4,767 64,927(a)
First Data Corp. ................ 15,761 677,881
Hewlett-Packard Co. ............. 6,371 182,402
Intel Corp. ..................... 17,296 431,708
See Notes to Schedule of Investments on page 7 and Notes to Financial
Statements.
5
VALUE EQUITY FUND
Schedule of Investments December 31, 2005
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NUMBER
OF SHARES VALUE
- --------------------------------------------------------------------------------
International Business
Machines Corp. ............... 9,053 $ 744,157
Microsoft Corp. ................. 43,646 1,141,343
Novell, Inc. .................... 10,593 93,536(a)
Oracle Corp. .................... 50,920 621,733(a,d)
Sun Microsystems, Inc. .......... 30,192 126,504(a)
Xerox Corp. ..................... 11,315 165,765(a)
5,238,623
MATERIALS -- 6.6%
Air Products & Chemicals, Inc. .. 5,852 346,380
Alcan Inc. ...................... 2,118 86,732
Alcoa, Inc. ..................... 4,237 125,288
Barrick Gold Corp. .............. 7,953 221,650(e)
Dow Chemical Co. ................ 5,860 256,785
Freeport-McMoRan Copper &
Gold Inc. (Class B) .......... 8,487 456,601
MeadWestvaco Corp. .............. 3,233 90,621
Monsanto Co. .................... 2,142 166,069
Newmont Mining Corp. ............ 4,237 226,256
Praxair, Inc. ................... 4,995 264,535
Weyerhaeuser Co. ................ 3,283 217,794
2,458,711
TELECOMMUNICATION SERVICES -- 3.1%
Alltel Corp. .................... 6,305 397,845
Sprint Corporation .............. 12,552 293,215
Verizon Communications Inc. ..... 6,356 191,443
Vodafone Group PLC ADR .......... 11,652 250,168
1,132,671
UTILITIES -- 4.0%
American Electric Power
Company, Inc. ................ 4,365 161,898
Constellation Energy Group, Inc. 7,275 419,040
Dominion Resources, Inc. ........ 4,660 359,752
Entergy Corp. ................... 4,025 276,316
PG&E Corp. ...................... 7,032 261,028
1,478,034
TOTAL COMMON STOCK
(COST $31,091,451) ........... 35,368,629
- --------------------------------------------------------------------------------
EXCHANGE TRADED FUNDS -- 3.2%
- --------------------------------------------------------------------------------
Financial Select Sector
SPDR Fund .................... 7,562 239,489(g)
Industrial Select Sector
SPDR Fund .................... 30,525 959,095(g)
TOTAL EXCHANGE TRADED FUNDS
(COST $1,027,226) ............ 1,198,584
TOTAL INVESTMENTS IN SECURITIES
(COST $32,118,677) ........... 36,567,213
- --------------------------------------------------------------------------------
NUMBER
OF SHARES VALUE
- --------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS -- 2.4%
- --------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS -- 1.4%
GEI Short Term Investment Fund
4.42% ........................ 513,525 $ 513,525(b,f)
SHORT-TERM SECURITIES PURCHASED WITH
COLLATERAL FROM SECURITIES ON LOAN -- 1.0%
State Street Navigator Securities
Lending Prime Portfolio
4.29% ........................ 357,231 357,231(b,c)
TOTAL SHORT-TERM INVESTMENTS
(COST $870,756) .............. 870,756
TOTAL INVESTMENTS
(COST $32,989,433) ........... 37,437,969
LIABILITIES IN EXCESS OF OTHER ASSETS,
NET-- (0.9)% ................. (323,029)
-----------
NET ASSETS-- 100.0% ............. $37,114,940
===========
- --------------------------------------------------------------------------------
OTHER INFORMATION
- --------------------------------------------------------------------------------
The GEI Value Equity Fund had the following long futures contracts open at
December 31, 2005:
NUMBER CURRENT
EXPIRATION OF NOTIONAL UNREALIZED
DESCRIPTION DATE CONTRACTS VALUE DEPRECIATION
- --------------------------------------------------------------------------------
S & P 500 Index
Futures March 2006 1 $313,700 $(4,650)
See Notes to Schedule of Investments on page 7 and Notes to Financial
Statements.
6
Notes to Performance December 31, 2005 (unaudited)
- --------------------------------------------------------------------------------
Total returns take into account changes in share price and assume reinvestment
of dividends and capital gains distributions, 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.
Current performance may be lower or higher than that shown. You may call
toll-free (800) 242-0134 for performance information as of the most recent month
end.
Total returns do not reflect expenses associated with the separate account such
as administrative fees, account charges and surrender charges, which, if
reflected, would reduce the total returns for all periods shown.
Shares of the Fund are neither insured nor guaranteed by the U.S. Government,
and their prices will fluctuate with market conditions.
The Standard & Poor's ("S&P") 500 Composite Price Index of stocks (S&P 500) and
Russell 1000 Value Index (Russell 1000 Value) are unmanaged indices and do not
reflect the actual cost of investing in the instruments that comprise each
index.
The S&P 500 is an unmanaged, market capitalization-weighted index of stocks of
500 large U.S. companies, which is widely used as a measure of large-cap stock
market performance. The results shown for the foregoing index 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 blend of Lipper peer categories, as shown. Lipper is
an independent mutual fund rating service. A Fund's performance may be compared
to or ranked within a universe of mutual funds with investment objectives and
policies similar but not necessarily identical to the Fund's. Such comparisons
or rankings are made on the basis of several factors, including the Fund's
objectives and policies, management style and strategy, and portfolio
composition, and may change over time if any of those factors change. Lipper is
an independent mutual fund rating service.
Notes to Schedule of Investments
- --------------------------------------------------------------------------------
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 current or 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.
(a) Non-income producing security.
(b) Coupon amount represents effective yield.
(c) State Street Corp. is the parent company of State Street Bank & Trust Co.,
the Fund's custodian and accounting agent.
(d) At December 31, 2005, all or a portion of this security was pledged to cover
collateral requirements for futures, options, forward foreign currency
contracts and/or TBA's.
(e) All or a portion of the security is out on loan.
(f) GEAM, the investment adviser of the Fund, also serves as investment adviser
of the GEI Short Term Investment Fund.
(g) Sponsored by SSgA Funds Management, Inc., an affiliate of State Street Bank
& Trust Co., the Fund's custodian and accounting agent.
+ Percentages are based on net assets as of December 31, 2005.
Abbreviations:
ADR American Depository Receipt
REIT Real Estate Investment Trust
SPDR Standard & Poors Depository Receipts
7
Financial Highlights
Selected data based on a share outstanding throughout the periods indicated
- --------------------------------------------------------------------------------
VALUE EQUITY FUND
12/31/05 12/31/04 12/31/03 12/31/02 12/31/01
INCEPTION DATE -- -- -- -- 4/28/00
Net asset value, beginning of period ........................ $9.77 $9.02 $7.36 $9.01 $9.93
INCOME/(LOSS) FROM INVESTMENT OPERATIONS:
Net investment income .................................... 0.11 0.11 0.11 0.07 0.05
Net realized and unrealized
gains/(losses) on investments ......................... 0.29 0.75 1.66 (1.65) (0.92)
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL INCOME/(LOSS) FROM INVESTMENT OPERATIONS .............. 0.40 0.86 1.77 (1.58) (0.87)
- -----------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM:
Net investment income .................................... 0.12 0.11 0.11 0.07 0.05
Net realized gains ....................................... 0.04 -- -- -- --
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS ......................................... 0.16 0.11 0.11 0.07 0.05
- -----------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD .............................. $10.01 $9.77 $9.02 $7.36 $9.01
===================================================================================================================================
TOTAL RETURN (A) ............................................ 4.06% 9.57% 24.05% (17.57)% (8.75)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in thousands) ................. $37,115 $37,128 $29,989 $24,623 $18,202
Ratios to average net assets:
Net investment income ................................. 1.13% 1.26% 1.16% 1.01% 0.76%
Expenses .............................................. 0.80% 0.80% 0.73% 0.74% 0.79%
Portfolio turnover rate .................................. 36% 53% 78% 76% 103%
NOTES TO FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(a) Total returns are historical and assume changes in share price and
reinvestment of dividends and capital gains and do not include the effect
of insurance contract charges.
See Notes to Financial Statements.
8
VALUE
Statement of Assets EQUITY
and Liabilities DECEMBER 31, 2005 FUND
- -------------------------------------------------------------------------------------------------------------------
ASSETS
Investments in securities, at market* (cost $32,118,677).................................. $36,567,213
Short-term investments (at amortized cost) ............................................... 357,231
Short-term affiliated investments (at amortized cost)..................................... 513,525
Income receivables ....................................................................... 60,918
Receivable for fund shares sold........................................................... 16
- -------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS.......................................................................... 37,498,903
- -------------------------------------------------------------------------------------------------------------------
LIABILITIES
Payable upon return of securities loaned.................................................. 357,231
Payable for fund shares redeemed.......................................................... 377
Payable to GEAM........................................................................... 25,030
Variation margin payable.................................................................. 1,325
- -------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES..................................................................... 383,963
- -------------------------------------------------------------------------------------------------------------------
NET ASSETS................................................................................... $37,114,940
===================================================================================================================
NET ASSETS CONSIST OF:
Capital paid in .......................................................................... 32,610,076
Undistributed (distribution in excess of) net investment income........................... --
Accumulated net realized gain............................................................. 60,978
Net unrealized appreciation/(depreciation) on:
Investments........................................................................... 4,448,536
Futures............................................................................... (4,650)
- -------------------------------------------------------------------------------------------------------------------
NET ASSETS................................................................................... $37,114,940
===================================================================================================================
Shares outstanding ($0.01 par value; unlimited shares authorized)............................ 3,706,362
Net asset value per share.................................................................... $10.01
<FN>
* Includes $347,118 of securities on loan.
</FN>
See Notes to Financial Statements.
9
VALUE
Statement of Operations EQUITY
FOR THE YEAR ENDED DECEMBER 31, 2005 FUND
- -------------------------------------------------------------------------------------------------------------------
INVESTMENT INCOME
INCOME:
Dividend ............................................................................... $ 700,613
Interest*............................................................................... 380
Interest from affliated investments..................................................... 13,848
Less: Foreign taxes withheld............................................................ (1,981)
- -------------------------------------------------------------------------------------------------------------------
TOTAL INCOME.............................................................................. 712,860
- -------------------------------------------------------------------------------------------------------------------
EXPENSES:
Advisory and administrative fees........................................................ 242,537
Custody and accounting expenses......................................................... 38,313
Professional fees....................................................................... 6,047
Transfer agent ......................................................................... 211
Director's fees......................................................................... 1,001
Registration expenses................................................................... 277
Other expenses.......................................................................... 5,827
- -------------------------------------------------------------------------------------------------------------------
TOTAL EXPENSES............................................................................ 294,213
- -------------------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME..................................................................... 418,647
===================================================================================================================
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS
REALIZED GAIN (LOSS) ON:
Investments.......................................................................... 1,730,100
Futures.............................................................................. (10,435)
DECREASE IN UNREALIZED APPRECIATION/(DEPRECIATION) ON:
Investments.......................................................................... (618,876)
Futures.............................................................................. (6,713)
- -------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain on investments......................................... 1,094,076
- -------------------------------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS...................................... $1,512,723
===================================================================================================================
<FN>
* Income attributable to security lending activity, net of rebate expenses.
</FN>
See Notes to Financial Statements.
10
VALUE
Statements of EQUITY
Changes in Net Assets FUND
- -------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
2005 2004
- -------------------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net investments income............................................................ $ 418,647 $ 423,677
Net realized gain on investments, futures, written options,
foreign currency transactions and swaps......................................... 1,719,665 1,450,082
Net increase (decrease) in unrealized appreciation/(depreciation)
on investments, futures, written options and foreign
currency translation ........................................................... (625,589) 1,311,332
- -------------------------------------------------------------------------------------------------------------------------------
Net increase from operations...................................................... 1,512,723 3,185,091
- -------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income............................................................. (436,545) (424,576)
Net realized gains................................................................ (139,602) --
- -------------------------------------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS................................................................. (576,147) (424,576)
- -------------------------------------------------------------------------------------------------------------------------------
Increase in net assets from operations and distributions............................ 936,576 2,760,515
- -------------------------------------------------------------------------------------------------------------------------------
SHARE TRANSACTIONS:
Proceeds from sale of shares ..................................................... 2,384,068 6,996,302
Value of distributions reinvested................................................. 576,173 424,564
Cost of shares redeemed........................................................... (3,910,331) (3,042,386)
- -------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) from share transactions................................... (950,090) 4,378,480
- -------------------------------------------------------------------------------------------------------------------------------
TOTAL INCREASE (DECREASE) IN NET ASSETS............................................. (13,514) 7,138,995
NET ASSETS
Beginning of period ................................................................ 37,128,454 29,989,459
- -------------------------------------------------------------------------------------------------------------------------------
End of period ...................................................................... $37,114,940 $37,128,454
===============================================================================================================================
UNDISTRIBUTED (DISTRIBUTION IN EXCESS OF) NET INVESTMENT INCOME, END OF PERIOD......... $ -- $ 2,406
- -------------------------------------------------------------------------------------------------------------------------------
CHANGES IN PORTFOLIO SHARES
Shares sold....................................................................... 244,856 766,154
Issued for distributions reinvested............................................... 57,103 43,500
Shares redeemed................................................................... (397,704) (333,250)
- -------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in fund shares................................................. (95,745) 476,404
===============================================================================================================================
See Notes to Financial Statements.
11
Notes to Financial Statements December 31, 2005
- --------------------------------------------------------------------------------
1. ORGANIZATION OF THE COMPANY
GE Investments Funds, Inc. (the "Company") was incorporated under the laws of
the Commonwealth of Virginia on May 14, 1984 and is registered under the
Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end
management investment company. The Company is composed of thirteen investment
portfolios (collectively the "Funds"), although only the following eleven are
currently being offered: U.S. Equity Fund, S&P 500 Index Fund, Premier Growth
Equity Fund, Value Equity Fund (the "Fund"), Mid-Cap Equity Fund, Small-Cap
Equity Fund (formerly known as Small-Cap Value Equity Fund, prior to January 3,
2006), International Equity Fund, Total Return Fund, Income Fund, Money Market
Fund and Real Estate Securities Fund.
Shares of the Funds 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 Asset Management Incorporated ("GEAM"), the
investment adviser and administrator of each of the Funds.
As of December 31, 2005, GE Life and Annuity Assurance Company ("GE Life") and
General Electric Capital Assurance Company, each an affiliated insurance
company, controlled the Funds by ownership, through separate accounts, of
virtually all of the Funds' shares of beneficial interest.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions at the date of the financial statements. Actual
results may differ from those estimates.
The following summarizes the significant accounting policies of the Company:
SECURITY VALUATION AND TRANSACTIONS Securities for which exchange quotations are
readily available are valued at the last sale price, or if no sales occurred on
that day, at the last quoted bid price. Securities listed on the NASDAQ will be
valued at the NASDAQ's official close price. Certain fixed income securities are
valued by a dealer or by a pricing service based upon a matrix system, which
considers market transactions as well as dealer supplied valuations. Short-term
investments maturing within sixty days are valued at amortized cost. If
quotations are not readily available for a portfolio security, or if it is
believed that a quotation or other market price for a portfolio security does
not represent its fair value, the security may be valued using procedures
approved by the Fund's Board of Directors that are designed to establish its
"fair value." These procedures require that the fair value of a security be
established by the valuation committee. The fair value committee follows
different protocols for different types of investments and circumstances.
Foreign securities may be valued with the assistance of an independent fair
value pricing service in circumstances where it is believed that they have been
or would be materially affected by events occurring after the close of the
portfolio security's primary market and before the close of regular trading on
the NYSE. This independent fair value pricing service uses a computerized system
to appraise affected securities and portfolios taking into consideration various
factors and the fair value of such securities may be something other than the
last available quotation or other market price. GE Asset Management may also
separately monitor portfolio securities and, consistent with the Fund's fair
value procedures, apply a different value to a portfolio security than would be
applied had it been priced using market quotations or by an independent fair
value pricing service.
Determining the fair value of securities involves the application of both
subjective and objective considerations. Security values may differ depending on
the methodology used to determine their values, and may differ from the last
quoted sale or closing price. No assurance can be given that use of these fair
value procedures will always better represent the price at which a Fund could
sell the affected portfolio security.
Security transactions are accounted for as of the trade date. Realized gains and
losses on investments sold are recorded on the basis of identified cost for both
financial statement and federal tax purposes.
REPURCHASE AGREEMENTS The Fund may enter into repurchase agreements. The Fund's
or a third party custodian takes possession of the collateral pledged for
investments in repurchase agreements on behalf of the Fund. The Fund values the
underlying collateral daily on a mark-to-market basis to determine that the
value, including accrued interest, is at least equal to 102% of the
12
Notes to Financial Statements December 31, 2005
- --------------------------------------------------------------------------------
repurchase price. In the event the seller defaults and the value of the security
declines, or if the seller enters an insolvency proceeding, realization of the
collateral by the Fund may be delayed or limited.
SECURITY LENDING The Fund may loan securities to brokers, dealers, and financial
institutions determined by GEAM to be creditworthy, subject to certain
limitations. The Fund continues to receive the interest and dividends on the
loaned securities during the term of the loan. The loans of securities are
secured by collateral in the form of cash or other liquid assets, which are
segregated and maintained with the custodian in an amount at least equal to 102%
of the current market value of the loaned securities. During the term of the
loan, the Fund will record any gain or loss in the market value of its loaned
securities and of securities in which cash collateral is invested. The Fund will
also earn interest, net of any rebate, from securities in which cash collateral
is invested. In the event the counterparty (borrower) does not meet its
contracted obligation to return the securities, the Fund may be exposed to the
risk of loss of reacquiring the loaned securities at prevailing market prices
using the proceeds of the sale of the collateral.
FOREIGN CURRENCY Accounting records of the Fund are maintained in U.S. dollars.
Investment securities and other assets and liabilities denominated in a foreign
currency are translated into U.S. dollars at the prevailing rates of exchange at
period end. Purchases and sales of securities, income receipts and expense
payments denominated in foreign currencies are translated into U.S. dollars at
the prevailing exchange rate on the respective dates of such transactions.
The Fund does not isolate the portion of the results of operations resulting
from changes in foreign exchange rates from the fluctuations arising from
changes in the market prices of securities during the period. Such fluctuations
are included in the net realized or unrealized gain or loss from investments.
Net realized gains or losses on foreign currency transactions represent net
gains or losses on sales and maturities of foreign currency contracts,
disposition of foreign currencies, the difference between the amount of net
investment income and withholding taxes accrued and the U.S. dollar amount
actually received or paid, and gains or losses between the trade and settlement
date on purchases and sales of securities. Net unrealized foreign exchange gains
and losses arising from changes in the value of other assets and liabilities as
a result of changes in foreign exchange rates are included as increases or
decreases in unrealized appreciation/depreciation on foreign currency related
transactions.
FUTURES CONTRACTS The Fund may invest in interest rate, financial or stock or
bond index futures contracts subject to certain limitations. The Fund may invest
in futures contracts to manage its exposure to the stock and bond markets and
fluctuations in currency values. Buying futures tends to increase the Fund's
exposure to the underlying instrument while selling futures tends to decrease
the Fund's exposure to the underlying instrument, or hedge other Fund
investments. The Fund will not enter into a transaction involving futures for
speculative purposes. The Fund's risks in using these contracts include changes
in the value of the underlying instruments, non-performance of the
counterparties under the contracts' terms and changes in the liquidity of the
secondary market for the contracts. Futures contracts are valued at the
settlement price established each day by the board of trade or exchange on which
they principally trade.
Upon entering into a futures contract, the Fund is required to pledge to the
broker an amount of cash and/or other assets equal to a certain percentage of
the contract amount, known as initial margin deposit. Subsequent payments, known
as variation margin, are made or received by the Fund each day, depending on the
daily fluctuation in the fair value of the underlying security. The Fund records
an unrealized gain or loss equal to the daily variation margin. Should market
conditions move unexpectedly, the Fund may not achieve the anticipated benefits
of the futures contracts and may incur a loss. The Fund recognizes a realized
gain or loss on the expiration or closing of a futures contract.
OPTIONS The Fund may purchase and write options, subject to certain limitations.
The Fund may invest in options contracts to manage its exposure to the stock and
bond markets and fluctuations in foreign currency values. Writing puts and
buying calls tend to increase the Fund's exposure to the underlying instrument
while buying puts and writing calls tend to decrease the Fund's exposure to the
underlying instrument, or hedge other Fund investments. The Fund will not enter
into a transaction involving options for speculative purposes. The Fund's risks
in using these contracts include changes in the value of the underlying
instruments, non-performance of the counterparties under the contracts' terms
and changes in
13
Notes to Financial Statements December 31, 2005
- --------------------------------------------------------------------------------
the liquidity of the secondary market for the contracts. Options are valued at
the last sale price, or if no sales occurred on that day, at the last quoted bid
price.
When the Fund writes an option, the amount of the premium received is recorded
as a liability and is subsequently adjusted to the current fair value of the
option written. Premiums received from writing options that expire unexercised
are treated by the Fund on the expiration date as realized gains from
investments. The difference between the premium and the amount paid on effecting
a closing purchase transaction, including brokerage commissions, is also treated
as a realized gain, or if the premium is less than the amount paid for the
closing purchase, as a realized loss. When an option is exercised, the proceeds
from the sale of the underlying security or the cost basis of the securities
purchased is adjusted by the original premium received or paid.
INVESTMENTS IN FOREIGN MARKETS Investments in foreign markets may involve
special risks and considerations not typically associated with investing in the
United States. These risks include revaluation of currencies, high rates of
inflation, repatriation on income and capital, and adverse political and
economic developments. Moreover, securities issued in these markets may be less
liquid, subject to government ownership controls, tariffs and taxes, subject to
delays in settlements, and their prices may be more volatile.
The Fund may be subject to capital gains and repatriation taxes imposed by
certain countries in which it invests. Such taxes are generally based on income
and/or capital gains earned or repatriated. Taxes are accrued based upon net
investment income, net realized gains and net unrealized appreciation as income
and/or capital gains are earned.
INCOME TAXES The Fund intends to comply with all sections of the Internal
Revenue Code applicable to regulated investment companies including the
distribution of substantially all of its taxable net investment income and net
realized capital gains to its shareholders. Therefore, no provision for federal
income tax has been made. The Fund is treated as a separate taxpayer for federal
income tax purposes.
At December 31, 2005, information on the tax components of capital is as
follows:
Net Tax
Cost of Gross Tax Gross Tax Appreciation/
Investments for Unrealized Unrealized (Depreciation)
Tax Purposes Appreciation Depreciation on Investments
- ------------------------------------------------------------------------------------------------------------------------------
$33,343,519 $5,226,615 $(1,132,165) $4,094,450
Net Tax
Appreciation/ Undistributed Undistributed Post
(Depreciation) on Income/ Long-Term Gains/ October
Derivatives, Currency (Accumulated (Accumulated Losses
and Other Net Assets Ordinary Loss) Capital Loss) (see Detail Below)
- ------------------------------------------------------------------------------------------------------------------------------
$-- $-- $410,414 $--
As of December 31, 2005, the Fund has no capital loss carryovers. Capital loss
carryovers are available to offset future realized capital gains to the extent
provided in the Internal Revenue Code and regulations thereunder. To the extent
that these carryover losses are used to offset future capital gains, it is
probable that the gains so offset will not be distributed to shareholders
because they would be taxable as ordinary income.
During the year ended December 31, 2005, the Fund utilized approximately
$1,098,588 of capital loss carryovers.
Any net capital and currency losses incurred after October 31, within the Fund's
tax year, are deemed to arise on the first day of the Fund's next tax year if
the Fund so elects to defer such losses.
The Fund had no losses incurred after October 31, 2005.
14
Notes to Financial Statements December 31, 2005
- --------------------------------------------------------------------------------
The tax composition of distributions paid (other than return of capital
distributions for the year) during the year ended December 31, 2005 was as
follows:
Long-Term
Ordinary Capital
Income Gains Total
- --------------------------------------------------------------------------------
$421,053 $155,094 $576,147
DISTRIBUTIONS TO SHAREHOLDERS The Fund declares and pays dividends from net
investment income annually. The Fund declares and pays net realized capital
gains in excess of capital loss carryforwards 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 (but are not limited to) futures and
losses deferred due to wash sale transactions. Reclassifications due to
permanent book/tax differences are made to the Fund's capital accounts to
reflect income and gains available for distribution (or available capital loss
carryovers) under income tax regulations. These reclassifications have no impact
on net investment income, realized gains or losses, or the net asset value of
the Fund. The calculation of net investment income per share in the Financial
Highlights table excludes these adjustments.
The reclassifications for the year ended December 31, 2005 were as follows:
Undistributed
(Distribution
in Excess of)
Net Investment Accumulated Paid in
Income Net Realized Gain Capital
- --------------------------------------------------------------------------------
$15,492 $(15,492) $--
INVESTMENT INCOME Corporate actions (including cash dividends) are recorded on
the ex-dividend date, net of applicable withholding taxes, except for certain
foreign corporate actions, which are recorded as soon after ex-dividend date as
such information becomes available. Interest income is recorded on the accrual
basis. All discounts and premiums on bonds are accreted to call or maturity
date, whichever is shorter, using the effective yield method.
EXPENSES Expenses of the Company which are directly identifiable to one of the
Funds are allocated to that portfolio. Expenses which are not directly
identifiable to one of the Funds are allocated in such a manner as deemed
equitable, taking into consideration the nature and type of expenses and
relative sizes of the Funds. All expenses of the Fund are paid by GEAM and
reimbursed by the Fund.
3. LINE OF CREDIT
The Fund shares a revolving credit facility of up to $25 million with a number
of its affiliates. The credit facility is with its custodian bank, State Street
Bank and Trust Company. The revolving credit facility requires the payment of a
commitment fee equal to 0.09% per annum on the daily unused portion of the
credit facility, payable quarterly. The portion borne by the Funds generally is
borne proportionally based upon net assets. Generally, borrowings under the
credit facility would accrue interest at the Federal Funds Rate plus 50 basis
points and is borne by each of the borrowing Funds. The maximum amount allowed
to be borrowed by any one of the Funds is the lesser of its prospectus
limitation, 20% of its net assets, or $25 million. The credit facility was not
utilized by the Fund during the period ended December 31, 2005.
4. AMOUNTS PAID TO AFFILIATES
ADVISORY AND ADMINISTRATION FEES GEAM, 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 Fund. Compensation of GEAM for
investment advisory and administrative services is paid monthly based on the
average daily net assets of the Fund at an annualized rate of .65%.
GENPACT (formerly General Electric Capital International Services*) performs
certain accounting and certain administration services not provided by GEAM. For
the year ending December 31, 2005, $478 was charged to the Fund. Administrative
services not performed by GEAM or GENPACT were provided by an unaffiliated
service provider.
* AS OF SEPTEMBER 28, 2005, THE NAME WAS CHANGED FROM GENERAL ELECTRIC CAPITAL
INTERNATIONAL SERVICES TO GENPACT.
DIRECTORS' COMPENSATION The Fund pays no compensation to its directors who are
officers or employees of GEAM or its affiliates. Directors who are not such
officers or employees also serve in a similar capacity for other funds advised
by GEAM. Compensation paid to unaffiliated directors are reflected on the
Statement of Operations. These fees are allocated pro rata across all of the
mutual fund platforms and share classes served by
15
Notes to Financial Statements December 31, 2005
- --------------------------------------------------------------------------------
the directors, including the Fund, and are based upon the relative net assets of
each fund within such platforms. (For additional information about directors
compensation please refer to the Statement of Additional Information.)
5. INVESTMENT TRANSACTIONS
PURCHASES AND SALES OF SECURITIES The cost of purchases and the proceeds from
sales of investments, other than short-term securities and options, for the
period ended December 31, 2005 were as follows:
Purchases Sales
- --------------------------------------------------------------------------------
$12,972,986 $13,709,397
SECURITY LENDING At December 31, 2005, the Fund participated in securities
lending:
Loaned
securities at Cash
market value Collateral*
- --------------------------------------------------------------------------------
$347,118 $354,714
* COLLATERAL OF $357,231 DECREASED BY $2,517 ON JANUARY 3, 2006 TO REFLECT THE
DECEMBER 30, 2005 CHANGE IN VALUE OF SECURITIES ON LOAN.
16
Report of Independent Registered Public Accounting Firm
- --------------------------------------------------------------------------------
The Shareholders and Board of Directors
GE Investments Funds, Inc.
We have audited the accompanying statement of assets and liabilities of the
Value Equity Fund, a series of GE Investments Funds, Inc., including the
schedule of investments, as of December 31, 2005, and the related statement of
operations for the year then ended, the statements of changes in net assets for
each of the years in the two-year period then ended, and the financial
highlights for each of the years in the five-year period then ended. These
financial statements and financial highlights are the responsibility of the
Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included confirmation of
securities owned as of December 31, 2005 by correspondence with the custodians
and brokers, or by other appropriate auditing procedures where replies from
brokers were not received. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
Value Equity Fund as of December 31, 2005, and the results of its operations,
the changes in its net assets and the financial highlights for each of the years
described above, in conformity with U.S. generally accepted accounting
principles.
/S/KPMG LLP
Boston, Massachusetts
February 17, 2006
17
Tax Information (unaudited)
- --------------------------------------------------------------------------------
During the calendar year ended December 31, 2005, the Fund paid to shareholders
$0.03825 per share of long-term capital gain dividends.
18
Advisory and Administrative Agreement Renewal (unaudited)
- --------------------------------------------------------------------------------
The Fund Board, including the independent Board members, considered and
unanimously approved the continuance of the Fund's investment advisory agreement
with GE Asset Management Incorporated ("GEAM") at meetings held on December 9
and December 16, 2005.
In considering whether to approve the Fund's investment advisory agreement, the
Board members, including the independent members, considered and discussed a
substantial amount of information and analysis provided, at the Board's request,
by GEAM. The Board members also considered detailed information regarding
performance and expenses of other investment companies with similar investment
objectives and sizes, which was prepared by an independent third party provider,
Lipper Inc. ("Lipper"). The Board members reviewed the fees charged by GEAM for
other mutual funds and investment products other than mutual funds that employ
the same investment strategy as the Fund. Before approving the Fund's advisory
agreement, the Board members reviewed the proposed continuance of the agreement
with management of GEAM and with independent legal counsel. The Board members
also reviewed a memorandum prepared by independent legal counsel discussing the
legal standards for the consideration of the proposed continuance. The
independent Board members discussed the proposed continuance in a private
session with their independent legal counsel at which no representatives of GEAM
were present.
In advance of the meeting, and in response to their request, the Board members
received from GEAM written responses to their inquiries, which included
substantial exhibits and other materials related to GEAM's business and the
services it provides to the Fund. The Board members took into account their
multi-year experience as Board members and particularly their consideration of
these agreements in 2004, noting that the information was presented in a similar
manner and format. To focus their review, the Board members asked GEAM
management, in its oral presentation, to highlight material differences from the
information presented in 2004. During the meeting, the Board members had an
opportunity to discuss this information with GEAM managers, including senior
executives, representatives from the legal and compliance departments, and
senior investment personnel. The Board members posed questions to these
representatives and engaged in substantive discussions with them concerning
GEAM's investment process.
In reaching their determination relating to continuance of the agreement, the
Board members considered all factors they believed relevant, including the
factors discussed below. In their deliberations, the Board members did not
identify any particular information that was all-important or controlling, and
each Board member attributed different weights to the various factors. In
particular, the Board members focused on the following:
THE NATURE, EXTENT AND QUALITY OF SERVICES PROVIDED.
The Board members reviewed the services provided by GEAM, and the Board members,
including the independent members, concurred that GEAM provides high quality
advisory and administrative services to the Fund.
In connection with their consideration of GEAM's services, the Board members
focused on the favorable attributes of GEAM, including (i) an investment
philosophy oriented toward long-term performance; (ii) effective processes used
for selecting investments, selecting brokers and with respect to Fund
administration, controllership and compliance activities; (iii) highly skilled
professionals, including analysts, research professionals and portfolio managers
with a depth of experience; (iv) access to significant technological resources
from which the Fund may benefit; and (v) a favorable history and reputation. The
Board members discussed with senior officers of GEAM the personnel changes made,
and proposed to be made, by GEAM, and that GEAM would be expending significant
sums to enhance services, including improvements to its information technology
capabilities. The Board members noted that the Fund represents only a small
portion of the assets managed by GEAM, but benefits from a full array of
services and resources provided by GEAM. In light of these discussions, the
Board members, including the independent members, concluded that GEAM's services
were of a high quality and had benefited the Fund.
19
Advisory and Administrative Agreement Renewal (unaudited)
- --------------------------------------------------------------------------------
INVESTMENT PERFORMANCE OF THE FUND.
The Board members considered the investment performance of the Fund for various
periods. The Board members reviewed detailed comparisons of the performance of
the Fund with the relevant securities indexes and peer groupings of mutual funds
prepared by Lipper with respect to various periods. The Board members also
engaged in detailed discussions with GEAM management about the investment
process, focusing on the Fund's investment objective, the number and experience
of portfolio management personnel, the investment style and approach employed,
the likely market cycles for the investment style, and the relative
underperformance of the Fund in certain periods in light of GEAM's commitment to
long-term satisfactory performance with respect to the Fund's investment
objective and investment approach. The Board members, including the independent
members, concluded that the Fund's performance was acceptable over the relevant
periods, particularly from a longer term perspective, which the Board members
believed was most relevant.
COST OF THE SERVICES TO BE PROVIDED AND PROFITS TO BE REALIZED FROM THE
RELATIONSHIP WITH THE FUND.
The Board members considered the cost of the services provided by GEAM. The
Board members reviewed the information they had requested from GEAM concerning
its profitability from the fees and services it provides to the Fund and the
financial condition of GEAM for various past periods. The Board members
considered the profit margin information for GEAM's investment company business
as a whole, as well as GEAM's profitability data for the Fund. The Board members
reviewed GEAM's assumptions and the methods of cost allocation used by GEAM in
preparing Fund-specific profitability data. The Board members also discussed
with GEAM the basis for its belief that the methods of allocation used were
reasonable and consistent across its business.
The Board members noted and discussed the additional services provided by GEAM
to the Fund compared to other investment products managed by GEAM. The Board
members determined that GEAM should be entitled to earn a reasonable level of
profits for the services it provides to the Fund. The Board members also
recognized that GEAM had made significant investments in its business and had
not fully recovered the sums invested. Based on their review, the Board members,
including the independent members, concluded that they were satisfied that the
level of profitability achieved by GEAM from its relationship with the Fund was
not unreasonable or excessive.
THE EXTENT TO WHICH ECONOMIES OF SCALE WOULD BE REALIZED AS THE FUND GROWS AND
WHETHER FEE LEVELS WOULD REFLECT SUCH ECONOMIES OF SCALE.
The Board members considered the extent to which economies of scale would be
realized as the Fund grows, and whether fee levels reflect these economies of
scale for the benefit of Fund investors. The Board members considered the
substantial infrastructure investments that GEAM has made with respect to its
operations and its commitment to continue investing resources to enhance
services to Fund shareholders, including its anticipated information technology
expenditures. The Board members recognized the benefits to the Fund of GEAM's
past investment in its operations through the expenditure of sums to support its
substantial infrastructure, and that, in general, GEAM has not yet fully
recouped that investment. The Board members also recognized the benefits to the
Fund of being able to leverage a favorable cost structure achieved with respect
to the Fund's other operating expenses as a result of GEAM's large overall base
of assets under management and its vendor management practices. The Board
members considered the potential institution of advisory fee breakpoints for the
Fund, but concluded that GEAM had already appropriately shared the economies of
scale.
COMPARISON OF SERVICES TO BE RENDERED
AND FEES TO BE PAID.
The Board members discussed the services provided to the Fund by GEAM, and the
fees charged for those services. The Board members reviewed information
concerning the fee and expense ratios for the Fund, and comparative information
with respect to similar products. They discussed that the Fund's figures were
within the applicable peer group range. The Board members considered that the
comparative data provided by Lipper showed no material difference from last year
in the fees
20
Advisory and Administrative Agreement Renewal (unaudited)
- --------------------------------------------------------------------------------
being charged as compared to those being charged by other advisers to similar
investment products, as determined by Lipper. In addition, the Board members
considered their discussion with representatives of GEAM about the fees being
charged to the Fund and, to the extent applicable, the potential effect, if any,
of the Securities and Exchange Commission staff's recently proposed soft dollar
interpretation on those fees. In light of the foregoing, the Board members,
including the independent members, determined that the advisory fees were
reasonable in relation to the services provided to the Fund.
FALL-OUT BENEFITS.
The Board members considered other actual and potential financial benefits to
GEAM, including, to the extent applicable, soft dollar commission benefits
generated through Fund portfolio transactions. The Board members noted, however,
that the Fund benefits from the vast array of resources available through GEAM,
and that the Fund represents only a small portion of the assets managed by GEAM.
CONCLUSION.
No single factor was determinative to the Board members' decision. Based on
their discussion and such other matters as were deemed relevant, the Board
members, including the independent members, concluded that the proposed advisory
fee and projected total expense ratio are reasonable in relation to the services
provided to the Fund. In view of these facts, the Board members, including the
independent members, concluded that the renewal of the advisory agreement was in
the best interests of the Fund and its shareholders.
21
Additional Information (unaudited)
- --------------------------------------------------------------------------------
INFORMATION ABOUT DIRECTORS AND EXECUTIVE OFFICERS:
The business and affairs of the Company are managed under the direction of the
Company's Board of Directors. Information pertaining to the Directors and
officers of the Company is set forth below.
INTERESTED DIRECTORS AND EXECUTIVE OFFICERS
- --------------------------------------------------------------------------------
MICHAEL J. COSGROVE
- --------------------------------------------------------------------------------
ADDRESS c/o GEAM 3001 Summer St. Stamford, CT 06905
AGE 56
POSITION(S) HELD WITH FUND Chairman of the Board and President
TERM OF OFFICE AND LENGTH OF TIME SERVED Until successor is elected and
qualified - 9 years
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS Executive Vice President - Chief
Commercial Officer of GEAM (formerly President, GE Asset Management Services
division ("GEAMS") of GE Financial Assurance Holdings, Inc., an indirect
wholly-owned subsidiary of General Electric Company ("GE")), since February
1997; Vice President, GE Capital Corporation, an indirect wholly-owned
subsidiary of GE, since December 1999; Executive Vice President - Sales and
Marketing of GEAM, a wholly-owned subsidiary of GE that is registered as an
investment adviser under the Investment Advisers Act of 1940, as amended, since
March 1993; Director of GEAM since 1988.
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR 48
OTHER DIRECTORSHIPS HELD BY DIRECTOR Chairman of the Board and President of GE
Funds since 1993, and GE Institutional Funds and GE LifeStyle Funds since their
inception; Trustee of Elfun Funds, GE Savings & Security Funds and General
Electric Pension Trust since 1988; Trustee of Fordham University since 2003 and
Marymount College from 1994 through 2002.
- --------------------------------------------------------------------------------
ALAN M. LEWIS
- --------------------------------------------------------------------------------
ADDRESS c/o GEAM 3001 Summer St. Stamford, CT 06905
AGE 59
POSITION(S) HELD WITH FUND Director and Executive Vice President
TERM OF OFFICE AND LENGTH OF TIME SERVED Until successor is elected and
qualified - 6 years
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS Executive Vice President, General
Counsel and Secretary of GEAM since 1987
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR 48
OTHER DIRECTORSHIPS HELD BY DIRECTOR Trustee and Executive Vice President of GE
Funds, GE Institutional Funds and GE LifeStyle Funds since their inception.
Trustee of Elfun Funds, GE Savings & Security Funds and General Electric Pension
Trust since 1987.
22
Additional Information (unaudited)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SCOTT H. RHODES
- --------------------------------------------------------------------------------
ADDRESS c/o GEAM 3001 Summer St. Stamford, CT 06905
AGE 47
POSITION(S) HELD WITH FUND Treasurer
TERM OF OFFICE AND LENGTH OF TIME SERVED Until successor is elected and
qualified - less than one year
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS GEAM Mutual Funds Operations Manager
since September 2005; Treasurer of GE Institutional Funds, GE LifeStyle Funds
and GE Investments Funds since November 2005 and Elfun Funds and GE Savings &
Security Funds since September 2005; from August 2004 to September 2005 Vice
President, U.S. Trust Company, N.A. and Assistant Treasurer of Excelsior Funds,
Inc., Excelsior Funds Trust, and Excelsior Tax Exempt Funds, Inc.; from January
2004 to August 2004, Vice President BlackRock Financial Management, Inc.; from
December 1996 to November 2003, Controller - Mutual Funds, American Skandia
Investment Services, Inc. and Assistant Treasurer of American Skandia Trust and
American Skandia Advisor Funds, Inc.
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR N/A
OTHER DIRECTORSHIPS HELD BY DIRECTOR N/A
- --------------------------------------------------------------------------------
MATTHEW J. SIMPSON
- --------------------------------------------------------------------------------
ADDRESS c/o GEAM 3001 Summer St. Stamford, CT 06905
AGE 44
POSITION(S) HELD WITH FUND Vice President and Secretary
TERM OF OFFICE AND LENGTH OF TIME SERVED Until successor is elected and
qualified - 9 years
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS Senior Vice President and General
Counsel - Marketing and Client Services (formerly Asset Management Services), at
GEAM and Senior Vice President and General Counsel of GEAMS since February 1997;
from October 1992 to February 1997, Vice President and Associate General Counsel
of GEAM; Secretary of GE Funds since 1993 and Vice President since September
2003; Secretary of GE Institutional Funds and GE LifeStyle Funds since their
inception and Vice President since September 2003; Assistant Secretary of Elfun
Funds and GE Savings & Security Funds since 1998 and Vice President since
October 2003.
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR N/A
OTHER DIRECTORSHIPS HELD BY DIRECTOR N/A
- --------------------------------------------------------------------------------
JEANNE M. LAPORTA
- --------------------------------------------------------------------------------
ADDRESS c/o GEAM 3001 Summer St. Stamford, CT 06905
AGE 40
POSITION(S) HELD WITH FUND Vice President and Assistant Secretary
TERM OF OFFICE AND LENGTH OF TIME SERVED Until successor is elected and
qualified - 2 years
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS Vice President and Associate General
Counsel - Marketing and Client Services (formerly Asset Management Services) at
GEAM since May 1997; Vice President and Assistant Secretary of GE Funds, GE
Institutional Funds and GE LifeStyle Funds since September 2003; Vice President
and Assistant Secretary of Elfun Funds and GE Savings & Security Funds since
October 2003.
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR N/A
OTHER DIRECTORSHIPS HELD BY DIRECTOR N/A
23
Additional Information (unaudited)
- --------------------------------------------------------------------------------
NON-INTERESTED DIRECTORS
- --------------------------------------------------------------------------------
JOHN R. COSTANTINO
- --------------------------------------------------------------------------------
ADDRESS c/o GEAM 3001 Summer St. Stamford, CT 06905
AGE 59
POSITION(S) HELD WITH FUND Director
TERM OF OFFICE AND LENGTH OF TIME SERVED Until successor is elected and
qualified - 9 years
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS Managing Director, Walden Partners,
Ltd., consultants and investors, since August 1992.
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR 40
OTHER DIRECTORSHIPS HELD BY DIRECTOR Trustee of GE Funds since 1993, GE
Institutional Funds and GE LifeStyle Funds since their inception; Trustee of
Fordham University since 2002 and Marymount College from 2001 through 2002;
Neuroscience Research Institute since 1986; Diocesan Finance Counsel of the
Dioceses of Brooklyn & Queens since 2001; Gregorian University Foundation since
1994.
- --------------------------------------------------------------------------------
WILLIAM J. LUCAS
- --------------------------------------------------------------------------------
ADDRESS c/o GEAM 3001 Summer St. Stamford, CT 06905
AGE 58
POSITION(S) HELD WITH FUND Director
TERM OF OFFICE AND LENGTH OF TIME SERVED Until successor is elected and
qualified - 9 years
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS Vice President and Treasurer of
Fairfield University since 1983.
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR 40
OTHER DIRECTORSHIPS HELD BY DIRECTOR Trustee of GE Funds since 1993, and GE
Institutional Funds and GE LifeStyle Funds since their inception.
- --------------------------------------------------------------------------------
ROBERT P. QUINN
- --------------------------------------------------------------------------------
ADDRESS c/o GEAM 3001 Summer St. Stamford, CT 06905
AGE 69
POSITION(S) HELD WITH FUND Director
TERM OF OFFICE AND LENGTH OF TIME SERVED Until successor is elected and
qualified - 9 years
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS Retired since 1983 from Salomon
Brothers Inc.
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR 40
OTHER DIRECTORSHIPS HELD BY DIRECTOR GP Financial Corp, holding company; The
Greenpoint Savings Bank, a financial institution. Trustee of GE Funds since
1993, and GE Institutional Funds and GE LifeStyle Funds since their inception.
- --------------------------------------------------------------------------------
The Statement of Additional Information for the Fund includes additional
information about the Directors and Officers and is available, without charge,
upon request by calling 1-800-242-0134.
24
Investment Team
- --------------------------------------------------------------------------------
INVESTMENT ADVISER AND ADMINISTRATOR
GE Asset Management Incorporated
BOARD OF DIRECTORS
Michael J.Cosgrove, CHAIRMAN
John R. Costantino
Alan M. Lewis
William J. Lucas
Robert P. Quinn
SECRETARY
Matthew J. Simpson
TREASURER
Scott H. Rhodes
ASSISTANT TREASURER
Christopher M. Isaacs
DISTRIBUTOR
GE Investment Distributors, Inc.
Member NASD and SIPC
COUNSEL
Sutherland, Asbill & Brennan, LLP
CUSTODIAN
State Street Bank & Trust Company
INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM
KPMG LLP
OFFICERS OF THE INVESTMENT ADVISER
John H. Myers, CHIEF EXECUTIVE OFFICER
David B. Carlson, EVP, DOMESTIC EQUITIES
Michael J. Cosgrove, EVP, CHIEF COMMERCIAL OFFICER
Robert A. MacDougall, EVP, FIXED INCOME (RETIRED FROM ALL POSITIONS AS OF
JANUARY 31, 2006)
Kathryn D. Karlic, EVP, FIXED INCOME (AS OF FEBRUARY 1, 2006)
Ralph R. Layman, EVP, INTERNATIONAL EQUITIES
Alan M. Lewis, EVP, GENERAL COUNSEL AND SECRETARY
Don W. Torey, EVP, ALTERNATIVE INVESTMENTS AND REAL ESTATE
John J. Walker, EVP, CHIEF FINANCIAL OFFICER
25
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[This page intentionally left blank.]
[This page intentionally left blank.]
INVESTMENT ADVISER
GE ASSET MANAGEMENT INCORPORATED
3001 SUMMER STREET
PO BOX 7900
STAMFORD, CT 06904-7900
DISTRIBUTOR
GE INVESTMENT DISTRIBUTORS, INC.
MEMBER NASD AND SIPC
3001 SUMMER STREET
PO BOX 7900
STAMFORD, CT 06904-7900
- --------------------------------------------------------------------------------
The Fund files its complete schedule of portfolio holdings with the Securities
and Exchange Commission for the first and third quarters of each fiscal year on
Form N-Q. The Fund's Forms N-Q, as well as a description of the policies and
procedures that the Fund uses to determine how to vote proxies (if any) relating
to portfolio securities is available without charge (i) upon request, by calling
1-800-242-0134; (ii) on the Fund's website at HTTP://WWW.GEFUNDS.COM; and (iii)
on the Commission's website at HTTP://WWW.SEC.GOV. The Fund's Forms N-Q may be
reviewed and copied at the Commission's Public Reference Room in Washington, DC
information on the operation of the Public Reference Room may be obtained by
calling 1-800-SEC-0330.
Information (if any) regarding how the Fund voted proxies relating to portfolio
securities during the most recently disclosed 12-months period ended June 30 is
available without charge (i) through the Fund's website at
HTTP://WWW.GEFUNDS.COM; and (ii) on the Commission's website at
HTTP://WWW.SEC.GOV.
- --------------------------------------------------------------------------------
[GE LOGO OMITTED]
GE Investments Funds, Inc.
Mid-Cap Equity Fund
Annual Report
DECEMBER 31, 2005
[GE LOGO OMITTED]
GE Investments Funds, Inc.
Mid-Cap Equity Fund Contents
- --------------------------------------------------------------------------------
MANAGER REVIEW AND SCHEDULE OF INVESTMENTS ............................... 1
NOTES TO PERFORMANCE ..................................................... 7
NOTES TO SCHEDULE OF INVESTMENTS ......................................... 7
FINANCIAL STATEMENTS
Financial Highlights ................................................ 8
Statement of Assets and Liabilities ................................. 9
Statement of Operations ............................................. 10
Statements of Changes in Net Assets ................................. 11
Notes to Financial Statements ....................................... 12
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM .................. 17
TAX INFORMATION .......................................................... 18
ADVISORY AND ADMINISTRATIVE AGREEMENT RENEWAL ............................ 19
ADDITIONAL INFORMATION ................................................... 22
INVESTMENT TEAM .......................................................... 25
This report is prepared for Policyholders of certain variable contracts and may
be distributed to others only if preceded or accompanied by the variable
contract's current prospectus and the current prospectus of the Funds available
for investments thereunder.
Mid-Cap Equity Fund
- --------------------------------------------------------------------------------
Q&A
DIANE M. WEHNER IS A VICE PRESIDENT OF GE ASSET MANAGEMENT AND PORTFOLIO MANAGER
OF THE MID-CAP EQUITY FUND (FORMERLY NAMED THE MID-CAP VALUE EQUITY FUND). SHE
HAS SERVED IN THIS CAPACITY SINCE SEPTEMBER 2004. BEFORE JOINING GE ASSET
MANAGEMENT, MS. WEHNER WAS A VICE PRESIDENT AND SENIOR PORTFOLIO MANAGER FROM
JANUARY 1997 TO JUNE 2001, AND ASSOCIATE PORTFOLIO MANAGER FROM MAY 1995 TO
JANUARY 1997, WITH BENEFIT CAPITAL MANAGEMENT CORPORATION. MS. WEHNER HAS SERVED
AS AN ANALYST/PORTFOLIO MANAGER IN THE INVESTMENT MANAGEMENT INDUSTRY SINCE
1985.
Q. HOW DID THE MID-CAP EQUITY FUND PERFORM COMPARED TO ITS BENCHMARK FOR THE
TWELVE-MONTH PERIOD ENDED DECEMBER 31, 2005?
A. For the twelve-month period ended December 31, 2005, the Mid-Cap Equity Fund
returned 11.74%. The Russell Mid-Cap Index, the Fund's benchmark, returned
12.65% and the Fund's Lipper peer group of 77 Mid-Cap Core funds returned an
average of 11.77% for the same period.
Q. WHAT MARKET CONDITIONS IMPACTED THE FUND PERFORMANCE?
A. High oil prices continued to fuel stock price appreciation in the Energy
sector. The Fund's overweight in Energy, the best performing sector during
2005, and more specifically, investments in Valero, a refining company, up
128%, and EOG and Murphy Oil, both exploration and production companies,
which increased by 115% and 35%, respectively, added positively to
performance, as did coal supplier, Peabody Energy, which rose 105% for the
year.
High-dividend paying companies, such as those in the Utility sector, were
top performing stocks during 2005. The Fund, which is skewed toward more
growth-oriented companies, was negatively impacted by our underweight in
Utilities.
Q. WHAT WERE THE PRIMARY DRIVERS OF FUND PERFORMANCE?
A. On the positive side, the Fund continued to benefit from our overweight in
Energy as highlighted above. Additional outperformance within the sector
included Global SantaFe, which rose 47%, BJ Services which increased 59% and
Weatherford International, up 41%.
While there was no particular theme within the Information Technology
sector, the Fund was negatively affected by a few individual stocks that
weighed on the Fund's return. Lexmark, down 53%, posted disappointing
earnings while Symantec, which declined 32%, fell on concerns over its
planned acquisition of Veritas.
Results within the Health Care sector were mixed. Medical-Technology company
Kinetic Concepts detracted from performance, falling 48%, due to concerns
about competition for its wound care technology. Meanwhile, the Fund
benefited from its overweight in Generic Pharmaceutical companies Barr
Pharmaceuticals, up 37%, and IVAX Corporation, up 98%, as well as the Fund's
investment in Alcon, an ophthalmology company, up 62%, due to strong
earnings growth and the launch of promising new products. Likewise, within
Biotechnology, the Fund
[PHOTO OF DIANE M. WEHNER OMITTED]
- --------------------------------------------------------------------------------
1
Mid-Cap Equity Fund
- --------------------------------------------------------------------------------
Q&A
was negatively affected by Martek Biosciences and Biogen Idec, which fell
52% and 38%, respectively, and benefited from overweights in Amylin
Pharmaceuticals and Gilead Sciences, up 71% and 50%, respectively. Martek
Biosciences declined as the company announced disappointing quarterly
results and lowered near-term earnings expectations. Biogen Idec declined
due to a recall of its once-promising multiple sclerosis drug. On the
positive side, Gilead Sciences appreciated due to the success of its AIDS
drug Truvada, while Amylin increased due to FDA approval and launch of its
promising diabetes drug Byetta.
Within Financials, our stock selection was very strong, with Legg Mason up
64%, as this asset manager continues to grow assets under management.
Greenhill & Co., an investment bank, appreciated 98% as the company
benefited from an active M&A environment. Real estate services company C.B.
Richard Ellis, up 75% for the year, benefited from its strong investment
sales business, as well as a strengthening commercial leasing market.
Q. WERE THERE ANY SIGNIFICANT CHANGES TO THE FUND OVER THE PERIOD?
A. The Fund's sector weightings did not change dramatically during 2005. We
maintained our underweight in Financial Services as well as in Consumer
Discretionary companies. We focused on investing in attractively valued
companies with solid earnings prospects, strong market share and superior
long-term fundamentals. With an emphasis on growth, we continued to look to
invest in innovative companies that provide prospects for above-average
earnings growth, and therefore, Healthcare and Information Technology
companies represented a more meaningful percentage of the Fund.
2
Mid-Cap Equity Fund
- --------------------------------------------------------------------------------
Understanding Your Fund's Expenses
As a shareholder of the Fund you incur transaction and ongoing expenses.
Transaction expenses including sales charges on purchase payments, reinvested
dividends (or other distributions), and redemption fees directly reduce the
investment return of the Fund. Ongoing costs include portfolio management fees,
distribution and service fees, professional fees, administrative fees and other
Fund expenses. The following example is intended to help you understand your
ongoing costs (in dollars) of investing in the Fund and to compare these costs
with the ongoing costs of investing in other mutual funds.
To illustrate these ongoing costs, we have provided an example and calculated
the expenses paid by investors during the period. The information in the
following table is based on an investment of $1,000, which is invested at the
beginning of the period and held for the entire six-month period ended December
31, 2005.
ACTUAL EXPENSES
The first section of the table provides information about actual account values
and actual expenses. You may use the information in this section, together with
the amount you invested, to estimate the expenses that you paid over the period.
To do so, simply divide your account value by $1,000 (for example, an $8,600
account value divided by $1,000 = 8.6), then multiply the result by the number
given for your class under the heading "Expenses Paid During Period."
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The second section of the table provides information about hypothetical account
values and hypothetical expenses based on the Fund's actual expense ratio and an
assumed rate of return of 5% per year before expenses, which is not the Fund's
actual return. You may use this information to compare the ongoing costs of
investing in the Fund and other funds. To do so, compare this 5% hypothetical
example with the 5% hypothetical examples that appear in the shareholders
reports of other funds.
Please note that the expenses shown in the table do not reflect any transaction
costs, such as sales charges or redemption fees.
JULY 1, 2005 - DECEMBER 31, 2005
- ------------------------------------------------------------------------------------------------------------------------------
ACCOUNT VALUE AT ACCOUNT VALUE EXPENSES
THE BEGINNING OF AT THE END OF PAID DURING
THE PERIOD ($) THE PERIOD ($) THE PERIOD ($)*
- ------------------------------------------------------------------------------------------------------------------------------
Actual Fund Return** 1,000.00 1,083.12 3.63
- ------------------------------------------------------------------------------------------------------------------------------
Hypothetical 5% Return
(2.5% for the period) 1,000.00 1,021.52 3.50
- ------------------------------------------------------------------------------------------------------------------------------
<FN>
* EXPENSES ARE EQUAL TO THE FUND'S ANNUALIZED EXPENSE RATIO OF 0.69% (FROM
PERIOD JULY 1, 2005 - DECEMBER 31, 2005), MULTIPLIED BY THE AVERAGE ACCOUNT
VALUE OVER THE PERIOD, MULTIPLIED BY 184/365 (TO REFLECT THE SIX MONTH
PERIOD).
** ACTUAL FUND RETURN FOR SIX-MONTH PERIOD ENDED DECEMBER 31, 2005 WAS: 8.31%.
</FN>
3
Mid-Cap Equity Fund
- --------------------------------------------------------------------------------
CHANGE IN VALUE
OF A $10,000 INVESTMENT
- --------------------------------------------------------------------------------
[LINE GRAPH OMITTED]
Mid-Cap Equity Fund Russell MidCap Index
5/1/97 $10,000.00 $10,000.00
12/97 13,255.63 12,690.32
12/98 14,141.95 13,966.07
12/99 16,583.39 16,507.21
12/00 17,957.86 17,870.35
12/01 18,016.39 16,861.85
12/02 15,536.50 14,134.45
12/03 20,653.98 19,801.72
12/04 23,963.34 23,795.64
12/05 26,776.52 26,806.00
AVERAGE ANNUAL TOTAL RETURN
FOR THE PERIODS ENDED DECEMBER 31, 2005
- --------------------------------------------------------------------------------
ONE FIVE SINCE
YEAR YEAR INCEPTION
- --------------------------------------------------------------------------------
Mid-Cap Equity Fund 11.74% 8.32% 12.03%
- --------------------------------------------------------------------------------
Russell MidCap Index 12.65% 8.45% 12.05%
- --------------------------------------------------------------------------------
Lipper peer group average* 11.77% 8.93% 12.70%
- --------------------------------------------------------------------------------
Inception date 5/1/97
- --------------------------------------------------------------------------------
INVESTMENT PROFILE
A fund designed for investors who seek long-term growth of capital and future
income by investing at least 80% of its net assets in equity securities of mid
cap companies under normal market conditions. The Fund invests primarily in
mid-cap companies that the portfolio manager believes are undervalued by the
market and have above-average growth potential.
TOP TEN LARGEST HOLDINGS
AS OF DECEMBER 31, 2005
as a % of Market Value
- --------------------------------------------------------------------------------
Legg Mason, Inc. 1.58%
- --------------------------------------------------------------------------------
CB Richard Ellis Group, Inc. (Class A) 1.54%
- --------------------------------------------------------------------------------
Harris Corp. 1.48%
- --------------------------------------------------------------------------------
Barr Pharmaceuticals, Inc. 1.38%
- --------------------------------------------------------------------------------
Alcon, Inc. 1.34%
- --------------------------------------------------------------------------------
Amylin Pharmaceuticals, Inc. 1.30%
- --------------------------------------------------------------------------------
Caremark Rx, Inc. 1.29%
- --------------------------------------------------------------------------------
Thermo Electron Corp. 1.28%
- --------------------------------------------------------------------------------
Gilead Sciences, Inc. 1.24%
- --------------------------------------------------------------------------------
Danaher Corp. 1.18%
- --------------------------------------------------------------------------------
PORTFOLIO COMPOSITION
AS OF DECEMBER 31, 2005
as a % of Market Value
- --------------------------------------------------------------------------------
Market Value of $267,444 (in thousands)
[PIE GRAPH OMITTED]
Consumer Staples 2.5%
Utilities 3.5%
Materials 3.7%
Energy 7.6%
Consumer Discretionary 10.0%
Industrials 11.0%
Financials 12.8%
Healthcare 15.3%
Short Term 16.3%
Information Technology 16.5%
Telecommunications Services 0.8%
* LIPPER PERFORMANCE COMPARISONS ARE BASED ON AVERAGE ANNUAL TOTAL RETURNS FOR
THE ONE YEAR AND FIVE-YEAR PERIODS INDICATED IN THE MID-CAP CORE PEER GROUP
CONSISTING OF 77 AND 37 UNDERLYING ANNUITY FUNDS, RESPECTIVELY.
SEE NOTES TO PERFORMANCE ON PAGE 7 FOR FURTHER INFORMATION, INCLUDING AN
EXPLANATION OF LIPPER PEER CATEGORIES.
PAST PERFORMANCE DOES NOT PREDICT FUTURE PERFORMANCE AND THE GRAPH AND TABLE DO
NOT REFLECT THE DEDUCTION OF TAXES.
4
MID-CAP EQUITY FUND
Schedule of Investments December 31, 2005
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
MID-CAP EQUITY FUND
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NUMBER
OF SHARES VALUE
- --------------------------------------------------------------------------------
COMMON STOCK -- 97.7%+
- --------------------------------------------------------------------------------
CONSUMER DISCRETIONARY -- 11.7%
Bed Bath & Beyond, Inc. ......... 73,384 $ 2,652,832(a)
Boyd Gaming Corp. ............... 28,087 1,338,626
Cheesecake Factory .............. 58,905 2,202,458(a)
Federated Department Stores Inc. 25,994 1,724,182(d)
Getty Images, Inc. .............. 21,735 1,940,283(a,e)
Global Cash Access Holdings, Inc. 90,560 1,321,270(a)
Life Time Fitness, Inc. ......... 5,168 196,849(a,e)
Michaels Stores, Inc. ........... 87,950 3,110,792
Pulte Homes, Inc. ............... 48,639 1,914,431
Regal Entertainment
Group (Class A) .............. 75,520 1,436,390(e)
Starwood Hotels & Resorts
Worldwide Inc. (Class B) (REIT) 29,800 1,903,028
The E.W. Scripps Co. (Class A) .. 54,056 2,595,769(e)
Univision Communications
Inc. (Class A) ............... 45,213 1,328,810(a)
Westwood One Inc. ............... 65,424 1,066,411
Williams-Sonoma, Inc. ........... 45,556 1,965,741(a)
26,697,872
CONSUMER STAPLES -- 2.9%
Clorox Co. ...................... 32,540 1,851,201
Kroger Co. ...................... 68,231 1,288,201(a,d)
Reynolds American Inc. .......... 9,762 930,611
The Estee Lauder Companies
Inc. (Class A) ............... 22,475 752,463
Weight Watchers International Inc. 39,048 1,930,143(a,e)
6,752,619
ENERGY -- 8.9%
Amerada Hess Corp. .............. 11,988 1,520,318
BJ Services Co. ................. 70,436 2,582,888
Dresser-Rand Group, Inc. ........ 62,507 1,511,419(a,e)
EOG Resources, Inc. ............. 34,975 2,566,116
GlobalSantaFe Corp. ............. 58,431 2,813,453
Murphy Oil Corp. ................ 44,528 2,404,067
Peabody Energy Corp. ............ 25,271 2,082,836
Valero Energy Corp. ............. 47,480 2,449,968
Weatherford International Ltd. .. 67,820 2,455,084(a)
20,386,149
FINANCIALS -- 14.9%
Affiliated Managers Group ....... 38,534 3,092,354(a,e)
Calamos Asset Management
Inc. (Class A) ............... 86,889 2,732,659(e)
CB Richard Ellis Group,
Inc. (Class A) ............... 70,049 4,122,384(a)
City National Corp. ............. 12,682 918,684
CVB Financial Corp. ............. 12,020 244,126(e)
- --------------------------------------------------------------------------------
NUMBER
OF SHARES VALUE
- --------------------------------------------------------------------------------
Everest Re Group, Ltd. .......... 26,880 $ 2,697,408
Greenhill & Company, Inc. ....... 34,938 1,962,118(e)
HCC Insurance Holdings, Inc. .... 59,086 1,753,673(e)
Legg Mason, Inc. ................ 35,280 4,222,663(e)
M&T Bank Corp. .................. 13,348 1,455,599
Maguire Properties, Inc. (REIT) . 38,376 1,185,818
MBIA Inc. ....................... 17,126 1,030,300
North Fork Bancorporation, Inc. . 86,830 2,375,669
SEI Investments Co. ............. 23,497 869,389
The Bear Stearns Companies Inc. . 7,193 831,007
The Hartford Financial
Services Group, Inc. ......... 27,005 2,319,459
Zions Bancorporation ............ 32,228 2,435,132
34,248,442
HEALTHCARE -- 17.9%
Advanced Medical Optics, Inc. ... 34,722 1,451,380(a,e)
Alcon, Inc. ..................... 27,745 3,595,752
Amylin Pharmaceuticals, Inc. .... 87,344 3,486,772(a,e)
Angiotech Pharmaceuticals, Inc. . 166,607 2,190,882(a,e)
Barr Pharmaceuticals, Inc. ...... 59,465 3,704,075(a)
Caremark Rx, Inc. ............... 66,810 3,460,090(a)
DENTSPLY International, Inc. .... 39,219 2,105,668
Gilead Sciences, Inc. ........... 63,074 3,319,585(a)
Henry Schein, Inc. .............. 65,679 2,866,232(a,e)
IVAX Corp. ...................... 58,794 1,842,016(a,e)
Kinetic Concepts, Inc. .......... 22,264 885,217(a)
Manor Care, Inc. ................ 62,314 2,478,228(e)
Martek Biosciences Corp. ........ 52,064 1,281,295(a,e)
Quest Diagnostics Inc. .......... 53,434 2,750,782
Smith & Nephew PLC ADR .......... 46,283 2,145,217(e)
Thermo Electron Corp. ........... 113,650 3,424,275(a,d)
40,987,466
INDUSTRIALS -- 12.8%
ChoicePoint, Inc. ............... 43,510 1,936,630(a)
Corinthian Colleges, Inc. ....... 81,178 956,277(a,e)
Corporate Executive Board Co. ... 21,551 1,933,125(e)
CoStar Group, Inc. .............. 35,965 1,552,609(a,e)
Danaher Corp. ................... 56,795 3,168,025
Dover Corp. ..................... 33,567 1,359,128
Eaton Corp. ..................... 35,965 2,412,892
Harsco Corp. .................... 39,980 2,699,050
Hexcel Corp. .................... 127,525 2,301,826(a,e)
L-3 Communications
Holdings, Inc. ............... 32,198 2,393,921
MoneyGram International, Inc. ... 101,391 2,644,277
Rockwell Collins, Inc. .......... 42,816 1,989,660
Stericycle, Inc. ................ 37,335 2,198,285(a,e)
Sunpower Corp. (Class A) ........ 50,659 1,721,899(a,e)
29,267,604
INFORMATION TECHNOLOGY -- 19.3%
Activision, Inc. ................ 213,894 2,938,904(a,d)
Affiliated Computer Services,
Inc. (Class A) ............... 33,720 1,995,550(a)
Analog Devices, Inc. ............ 66,290 2,377,822(d)
CDW Corp. ....................... 28,426 1,636,485
See Notes to Schedule of Investments on page 7 and Notes to Financial
Statements.
5
MID-CAP EQUITY FUND
Schedule of Investments December 31, 2005
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NUMBER
OF SHARES VALUE
- --------------------------------------------------------------------------------
Cogent, Inc. .................... 113,709 $ 2,578,920(a,e)
Comverse Technology, Inc. ....... 109,608 2,914,477(a)
DST Systems, Inc. ............... 33,910 2,031,548(a)
Fiserv, Inc. .................... 26,289 1,137,525(a)
Harris Corp. .................... 91,797 3,948,189
Intuit Inc. ..................... 31,126 1,659,016(a)
Juniper Networks, Inc. .......... 61,861 1,379,500(a)
Linear Technology Corp. ......... 72,958 2,631,595
Macrovision Corp. ............... 65,765 1,100,248(a,e)
Manhattan Associates, Inc. ...... 78,096 1,599,406(a,e)
Mettler Toledo International Inc. 28,918 1,596,274(a)
Microchip Technology Inc. ....... 71,588 2,301,554
Molex Inc. (Class A) ............ 106,868 2,627,884(d)
NAVTEQ Corp. .................... 37,678 1,652,934(a)
Neustar, Inc. (Class A) ......... 37,571 1,145,540(a,e)
Polycom, Inc. ................... 89,965 1,376,465(a,e)
Symantec Corp. .................. 97,766 1,710,905(a)
Xilinx, Inc. .................... 71,930 1,813,355
44,154,096
MATERIALS -- 4.3%
Cabot Corp. ..................... 30,827 1,103,607
Martin Marietta Materials, Inc. . 29,286 2,246,822
Monsanto Co. .................... 30,827 2,390,017
Praxair, Inc. ................... 49,050 2,597,688
Sealed Air Corp. ................ 28,325 1,591,015(a,e)
9,929,149
TELECOMMUNICATION SERVICES -- 0.9%
American Tower Corp. (Class A) .. 47,954 1,299,553(a)
Telephone and Data Systems Inc. . 11,456 396,492
Telephone and Data Systems Inc. . 11,456 412,760
2,108,805
UTILITIES -- 4.1%
Ameren Corp. .................... 46,241 2,369,389
DTE Energy Co. .................. 48,639 2,100,718
PPL Corp. ....................... 85,631 2,517,551
SCANA Corp. ..................... 59,338 2,336,730
9,324,388
TOTAL INVESTMENTS IN SECURITIES
(COST $175,362,257) .......... 223,856,590
- --------------------------------------------------------------------------------
NUMBER
OF SHARES VALUE
- --------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS -- 19.0%
- --------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS -- 2.4%
GEI Short Term Investment Fund
4.42% ........................ 5,502,641 $ 5,502,641(b,f)
SHORT-TERM SECURITIES PURCHASED WITH
COLLATERAL FROM SECURITIES ON LOAN -- 16.6%
State Street Navigator Securities
Lending Prime Portfolio
4.29% ........................ 38,084,570 38,084,570(b,c)
TOTAL SHORT-TERM INVESTMENTS
(COST $43,587,211) ........... 43,587,211
TOTAL INVESTMENTS
(COST $218,949,468) .......... 267,443,801
LIABILITIES IN EXCESS OF OTHER ASSETS,
NET-- (16.7)% ................ (38,347,044)
-------------
NET ASSETS-- 100.0% ............. $229,096,757
=============
- --------------------------------------------------------------------------------
OTHER INFORMATION
- --------------------------------------------------------------------------------
The GEI Mid-Cap Equity had the following short futures contracts open at
December 31, 2005:
NUMBER CURRENT
EXPIRATION OF NOTIONAL UNREALIZED
DESCRIPTION DATE CONTRACTS VALUE APPRECIATION
- --------------------------------------------------------------------------------
S&P 400 Midcap
Futures March 2006 14 $(5,202,400) $50,725
See Notes to Schedule of Investments on page 7 and Notes to Financial
Statements.
6
Notes to Performance December 31, 2005 (unaudited)
- --------------------------------------------------------------------------------
Total returns take into account changes in share price and assume reinvestment
of dividends and capital gains distributions, 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.
Current performance may be lower or higher than that shown. You may call
toll-free (800) 242-0134 for performance information as of the most recent month
end.
Total returns do not reflect expenses associated with the separate account such
as administrative fees, account charges and surrender charges, which, if
reflected, would reduce the total returns for all periods shown.
Shares of the Fund are neither insured nor guaranteed by the U.S. Government,
and their prices will fluctuate with market conditions.
The Russell Mid Cap Index (Russell Mid Cap) is an unmanaged index and does not
reflect the actual cost of investing in the instruments that comprise each
index.
Russell Mid Cap is a market capitalization-weighted index of the smallest 800
companies included in the Russell 1000 Index that represent approximately 25% of
the total market capitalization of the Russell 1000 Index. The results shown for
the foregoing index 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 blend of Lipper peer categories, as shown. Lipper is
an independent mutual fund rating service. A Fund's performance may be compared
to or ranked within a universe of mutual funds with investment objectives and
policies similar but not necessarily identical to the Fund's. Such comparisons
or rankings are made on the basis of several factors, including the Fund's
objectives and policies, management style and strategy, and portfolio
composition, and may change over time if any of those factors change. Lipper is
an independent mutual fund rating service.
Notes to Schedule of Investments
- --------------------------------------------------------------------------------
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 current or 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.
(a) Non-income producing security.
(b) Coupon amount represents effective yield.
(c) State Street Corp. is the parent company of State Street Bank & Trust Co.,
the Fund's custodian and accounting agent.
(d) At December 31, 2005, all or a portion of this security was pledged to cover
collateral requirements for futures, options, forward foreign currency
contracts and/or TBA's.
(e) All or a portion of the security is out on loan.
(f) GEAM is the investment advisor of the fund serves as investment adviser of
the GEI Short Term Investment Fund.
+ Percentages are based on net assets as of December 31, 2005.
Abbreviations:
ADR American Depository Receipt
REIT Real Estate Investment Trust
7
Financial Highlights
Selected data based on a share outstanding throughout the periods indicated
- --------------------------------------------------------------------------------
MID-CAP EQUITY FUND
12/31/05 12/31/04 12/31/03 12/31/02 12/31/01
- ----------------------------------------------------------------------------------------------------------------------------------
INCEPTION DATE -- -- -- -- 5/1/97
Net asset value, beginning of period .......................... $18.33 $17.48 $13.30 $15.66 $16.31
INCOME/(LOSS) FROM INVESTMENT OPERATIONS:
Net investment income ...................................... 0.05 0.17 0.19 0.12 0.11
Net realized and unrealized
gains/(losses) on investments ........................... 2.11 2.63 4.19 (2.28) (0.06)
- ----------------------------------------------------------------------------------------------------------------------------------
TOTAL INCOME/(LOSS) FROM INVESTMENT OPERATIONS ................ 2.16 2.80 4.38 (2.16) 0.05
- ----------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM:
Net investment income ...................................... 0.06 0.14 0.18 0.12 0.11
Net realized gains ......................................... 1.21 1.81 0.02 0.08 0.59
- ----------------------------------------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS ........................................... 1.27 1.95 0.20 0.20 0.70
- ----------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD ................................ $19.22 $18.33 $17.48 $13.30 $15.66
==================================================================================================================================
TOTAL RETURN (A) .............................................. 11.74% 16.02% 32.94% (13.76)% 0.33%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in thousands) ................... $229,097 $239,831 $226,929 $170,422 $179,044
Ratios to average net assets:
Net investment income ................................... 0.24% 0.89% 1.36% 0.82% 0.85%
Expenses ................................................ 0.70% 0.70% 0.69% 0.68% 0.68%
Portfolio turnover rate .................................... 27% 78% 28% 37% 42%
<FN>
NOTES TO FINANCIAL HIGHLIGHTS
- ----------------------------------------------------------------------------------------------------------------------------------
(a) Total returns are historical and assume changes in share price and reinvestment of dividends and capital gains and
do not include the effect of insurance contract charges.
</FN>
See Notes to Financial Statements.
8
MID-CAP
Statement of Assets EQUITY
and Liabilities DECEMBER 31, 2005 FUND
- ------------------------------------------------------------------------------------------------------------------------------
ASSETS
Investments in securities, at market* (cost $175,362,257).............................................. $223,856,590
Short-term investments (at amortized cost) ............................................................ 38,084,570
Short-term affiliated investments (at amortized cost).................................................. 5,502,641
Income receivables .................................................................................... 218,034
Receivable for fund shares sold........................................................................ 53
Variation margin receivable............................................................................ 15,950
- ------------------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS....................................................................................... 267,677,838
- ------------------------------------------------------------------------------------------------------------------------------
LIABILITIES
Payable upon return of securities loaned............................................................... 38,084,570
Payable for investments purchased ..................................................................... 126,945
Payable for fund shares redeemed....................................................................... 237,755
Payable to GEAM........................................................................................ 131,811
- ------------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES.................................................................................. 38,581,081
- ------------------------------------------------------------------------------------------------------------------------------
NET ASSETS................................................................................................ $229,096,757
==============================================================================================================================
NET ASSETS CONSIST OF:
Capital paid in ....................................................................................... 178,105,882
Undistributed (distribution in excess of) net investment income........................................ 15,350
Accumulated net realized gain.......................................................................... 2,430,467
Net unrealized appreciation on:
Investments........................................................................................ 48,494,333
Futures............................................................................................ 50,725
- ------------------------------------------------------------------------------------------------------------------------------
NET ASSETS................................................................................................ $229,096,757
==============================================================================================================================
Shares outstanding ($0.01 par value; unlimited shares authorized)......................................... 11,921,800
Net asset value per share................................................................................. $19.22
<FN>
* Includes $36,932,269 of securities on loan.
</FN>
See Notes to Financial Statements.
9
MID-CAP
Statement of Operations EQUITY
FOR THE YEAR ENDED DECEMBER 31, 2005 FUND
- -----------------------------------------------------------------------------------------------------------------
INVESTMENT INCOME
INCOME:
Dividend ............................................................................... $ 1,892,272
Interest*............................................................................... 43,561
Interest from affliated investments..................................................... 237,949
Less: Foreign taxes withheld............................................................ (6,283)
- -----------------------------------------------------------------------------------------------------------------
TOTAL INCOME.............................................................................. 2,167,499
- -----------------------------------------------------------------------------------------------------------------
EXPENSES:
Advisory and administrative fees........................................................ 1,500,073
Custody and accounting expenses......................................................... 33,820
Professional fees....................................................................... 37,629
Transfer agent ......................................................................... 163
Director's fees......................................................................... 6,230
Registration expenses................................................................... 1,723
Other expenses.......................................................................... 24,574
- -----------------------------------------------------------------------------------------------------------------
TOTAL EXPENSES............................................................................ 1,604,212
- -----------------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME..................................................................... 563,287
=================================================================================================================
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS
REALIZED GAIN/(LOSS) ON:
Investments.......................................................................... 15,316,951
Futures.............................................................................. (393,230)
INCREASE IN UNREALIZED APPRECIATION/(DEPRECIATION) ON:
Investments.......................................................................... 9,609,992
Futures.............................................................................. 75,000
- -----------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain on investments......................................... 24,608,713
- -----------------------------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS...................................... $25,172,000
=================================================================================================================
<FN>
* Income attributable to security lending activity, net of rebate expenses, was $43,554.
</FN>
See Notes to Financial Statements.
10
MID-CAP
Statements of EQUITY
Changes in Net Assets FUND
- -------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
2005 2004
- -------------------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net investments income............................................................ $ 563,287 $ 1,697,801
Net realized gain on investments, futures, written options,
foreign currency transactions and swaps......................................... 14,923,721 22,472,727
Net increase in unrealized appreciation/(depreciation) on investments, futures,
written options and foreign currency translation ............................... 9,684,992 9,399,305
- -------------------------------------------------------------------------------------------------------------------------------
Net increase from operations...................................................... 25,172,000 33,569,833
- -------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income............................................................. (677,879) (1,626,264)
Net realized gains................................................................ (13,537,932) (21,434,077)
- -------------------------------------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS................................................................. (14,215,811) (23,060,341)
- -------------------------------------------------------------------------------------------------------------------------------
Increase in net assets from operations and distributions............................ 10,956,189 10,509,492
- -------------------------------------------------------------------------------------------------------------------------------
SHARE TRANSACTIONS:
Proceeds from sale of shares ..................................................... 2,208,712 11,551,811
Value of distributions reinvested................................................. 14,215,740 23,060,403
Cost of shares redeemed........................................................... (38,115,372) (32,218,761)
- -------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) from share transactions................................... (21,690,920) 2,393,453
- -------------------------------------------------------------------------------------------------------------------------------
TOTAL INCREASE (DECREASE) IN NET ASSETS............................................. (10,734,731) 12,902,945
NET ASSETS
Beginning of period ................................................................ 239,831,488 226,928,543
- -------------------------------------------------------------------------------------------------------------------------------
End of period ...................................................................... $229,096,757 $239,831,488
===============================================================================================================================
UNDISTRIBUTED (DISTRIBUTION IN EXCESS OF) NET INVESTMENT INCOME, END OF PERIOD......... $ 15,350 $ 119,985
- -------------------------------------------------------------------------------------------------------------------------------
CHANGES IN PORTFOLIO SHARES
Shares sold....................................................................... 117,331 635,489
Issued for distributions reinvested............................................... 735,424 1,258,756
Shares redeemed................................................................... (2,013,679) (1,794,333)
- -------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in fund shares................................................. (1,160,924) 99,912
===============================================================================================================================
See Notes to Financial Statements.
11
Notes to Financial Statements December 31, 2005
- --------------------------------------------------------------------------------
1. ORGANIZATION OF THE COMPANY
GE Investments Funds, Inc. (the "Company") was incorporated under the laws of
the Commonwealth of Virginia on May 14, 1984 and is registered under the
Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end
management investment company. The Company is composed of thirteen investment
portfolios (collectively the "Funds"), although only the following eleven are
currently being offered: U.S. Equity Fund, S&P 500 Index Fund, Premier Growth
Equity Fund, Value Equity Fund, Mid-Cap Equity Fund (the "Fund"), Small-Cap
Equity Fund (formerly known as Small-Cap Value Equity Fund, prior to January 3,
2006), International Equity Fund, Total Return Fund, Income Fund, Money Market
Fund and Real Estate Securities Fund.
Shares of the Funds 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 Asset Management Incorporated ("GEAM"), the
investment adviser and administrator of each of the Funds.
As of December 31, 2005, GE Life and Annuity Assurance Company ("GE Life") and
General Electric Capital Assurance Company, each an affiliated insurance
company, controlled the Funds by ownership, through separate accounts, of
virtually all of the Funds' shares of beneficial interest.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions at the date of the financial statements. Actual
results may differ from those estimates.
The following summarizes the significant accounting policies of the Company:
SECURITY VALUATION AND TRANSACTIONS Securities for which exchange quotations are
readily available are valued at the last sale price, or if no sales occurred on
that day, at the last quoted bid price. Securities listed on the NASDAQ will be
valued at the NASDAQ's official close price. Certain fixed income securities are
valued by a dealer or by a pricing service based upon a matrix system, which
considers market transactions as well as dealer supplied valuations. Short-term
investments maturing within sixty days are valued at amortized cost. If
quotations are not readily available for a portfolio security, or if it is
believed that a quotation or other market price for a portfolio security does
not represent its fair value, the security may be valued using procedures
approved by the Fund's Board of Directors that are designed to establish its
"fair value." These procedures require that the fair value of a security be
established by the valuation committee. The fair value committee follows
different protocols for different types of investments and circumstances.
Foreign securities may be valued with the assistance of an independent fair
value pricing service in circumstances where it is believed that they have been
or would be materially affected by events occurring after the close of the
portfolio security's primary market and before the close of regular trading on
the NYSE. This independent fair value pricing service uses a computerized system
to appraise affected securities and portfolios taking into consideration various
factors and the fair value of such securities may be something other than the
last available quotation or other market price. GE Asset Management may also
separately monitor portfolio securities and, consistent with the Fund's fair
value procedures, apply a different value to a portfolio security than would be
applied had it been priced using market quotations or by an independent fair
value pricing service.
Determining the fair value of securities involves the application of both
subjective and objective considerations. Security values may differ depending on
the methodology used to determine their values, and may differ from the last
quoted sale or closing price. No assurance can be given that use of these fair
value procedures will always better represent the price at which a Fund could
sell the affected portfolio security.
Security transactions are accounted for as of the trade date. Realized gains and
losses on investments sold are recorded on the basis of identified cost for both
financial statement and federal tax purposes.
REPURCHASE AGREEMENTS The Fund may enter into repurchase agreements. The Fund's
or a third party custodian takes possession of the collateral pledged for
investments in repurchase agreements on behalf of the Fund. The Fund values the
underlying collateral daily on a mark-to-market basis to determine that the
value,
12
Notes to Financial Statements December 31, 2005
- --------------------------------------------------------------------------------
including accrued interest, is at least equal to 102% of the repurchase price.
In the event the seller defaults and the value of the security declines, or if
the seller enters an insolvency proceeding, realization of the collateral by the
Fund may be delayed or limited.
SECURITY LENDING The Fund may loan securities to brokers, dealers, and financial
institutions determined by GEAM to be creditworthy, subject to certain
limitations. The Fund continues to receive the interest and dividends on the
loaned securities during the term of the loan. The loans of securities are
secured by collateral in the form of cash or other liquid assets, which are
segregated and maintained with the custodian in an amount at least equal to 102%
of the current market value of the loaned securities. During the term of the
loan, the Fund will record any gain or loss in the market value of its loaned
securities and of securities in which cash collateral is invested. The Fund will
also earn interest, net of any rebate, from securities in which cash collateral
is invested. In the event the counterparty (borrower) does not meet its
contracted obligation to return the securities, the Fund may be exposed to the
risk of loss of reacquiring the loaned securities at prevailing market prices
using the proceeds of the sale of the collateral.
FOREIGN CURRENCY Accounting records of the Fund are maintained in U.S. dollars.
Investment securities and other assets and liabilities denominated in a foreign
currency are translated into U.S. dollars at the prevailing rates of exchange at
period end. Purchases and sales of securities, income receipts and expense
payments denominated in foreign currencies are translated into U.S. dollars at
the prevailing exchange rate on the respective dates of such transactions.
The Fund does not isolate the portion of the results of operations resulting
from changes in foreign exchange rates from the fluctuations arising from
changes in the market prices of securities during the period. Such fluctuations
are included in the net realized or unrealized gain or loss from investments.
Net realized gains or losses on foreign currency transactions represent net
gains or losses on sales and maturities of foreign currency contracts,
disposition of foreign currencies, the difference between the amount of net
investment income and withholding taxes accrued and the U.S. dollar amount
actually received or paid, and gains or losses between the trade and settlement
date on purchases and sales of securities. Net unrealized foreign exchange gains
and losses arising from changes in the value of other assets and liabilities as
a result of changes in foreign exchange rates are included as increases or
decreases in unrealized appreciation/depreciation on foreign currency related
transactions.
FUTURES CONTRACTS The Fund may invest in interest rate, financial or stock or
bond index futures contracts subject to certain limitations. The Fund may invest
in futures contracts to manage its exposure to the stock and bond markets and
fluctuations in currency values. Buying futures tends to increase the Fund's
exposure to the underlying instrument while selling futures tends to decrease
the Fund's exposure to the underlying instrument, or hedge other Fund
investments. The Fund will not enter into a transaction involving futures for
speculative purposes. The Fund's risks in using these contracts include changes
in the value of the underlying instruments, non-performance of the
counterparties under the contracts' terms and changes in the liquidity of the
secondary market for the contracts. Futures contracts are valued at the
settlement price established each day by the board of trade or exchange on which
they principally trade.
Upon entering into a futures contract, the Fund is required to pledge to the
broker an amount of cash and/or other assets equal to a certain percentage of
the contract amount, known as initial margin deposit. Subsequent payments, known
as variation margin, are made or received by the Fund each day, depending on the
daily fluctuation in the fair value of the underlying security. The Fund records
an unrealized gain or loss equal to the daily variation margin. Should market
conditions move unexpectedly, the Fund may not achieve the anticipated benefits
of the futures contracts and may incur a loss. The Fund recognizes a realized
gain or loss on the expiration or closing of a futures contract.
OPTIONS The Fund may purchase and write options, subject to certain limitations.
The Fund may invest in options contracts to manage its exposure to the stock and
bond markets and fluctuations in foreign currency values. Writing puts and
buying calls tend to increase the Fund's exposure to the underlying instrument
while buying puts and writing calls tend to decrease the Fund's exposure to the
underlying instrument, or hedge other Fund investments. The Fund will not enter
into a transaction involving options for speculative purposes. The Fund's risks
in using these contracts include changes in the value of
13
Notes to Financial Statements December 31, 2005
- --------------------------------------------------------------------------------
the underlying instruments, non-performance of the counterparties under the
contracts' terms and changes in the liquidity of the secondary market for the
contracts. Options are valued at the last sale price, or if no sales occurred on
that day, at the last quoted bid price.
When the Fund writes an option, the amount of the premium received is recorded
as a liability and is subsequently adjusted to the current fair value of the
option written. Premiums received from writing options that expire unexercised
are treated by the Fund on the expiration date as realized gains from
investments. The difference between the premium and the amount paid on effecting
a closing purchase transaction, including brokerage commissions, is also treated
as a realized gain, or if the premium is less than the amount paid for the
closing purchase, as a realized loss. When an option is exercised, the proceeds
from the sale of the underlying security or the cost basis of the securities
purchased is adjusted by the original premium received or paid.
INVESTMENTS IN FOREIGN MARKETS Investments in foreign markets may involve
special risks and considerations not typically associated with investing in the
United States. These risks include revaluation of currencies, high rates of
inflation, repatriation on income and capital, and adverse political and
economic developments. Moreover, securities issued in these markets may be less
liquid, subject to government ownership controls, tariffs and taxes, subject to
delays in settlements, and their prices may be more volatile.
The Fund may be subject to capital gains and repatriation taxes imposed by
certain countries in which it invests. Such taxes are generally based on income
and/or capital gains earned or repatriated. Taxes are accrued based upon net
investment income, net realized gains and net unrealized appreciation as income
and/or capital gains are earned.
INCOME TAXES The Fund intends to comply with all sections of the Internal
Revenue Code applicable to regulated investment companies including the
distribution of substantially all of its taxable net investment income and net
realized capital gains to its shareholders. Therefore, no provision for federal
income tax has been made. The Fund is treated as a separate taxpayer for federal
income tax purposes.
At December 31, 2005, information on the tax components of capital is as
follows:
Cost of Gross Tax Gross Tax Net Tax Appreciation/
Investments for Unrealized Unrealized (Depreciation)
Tax Purposes Appreciation Depreciation on Investments
- ---------------------------------------------------------------------------------------------------------------------------------
$219,426,165 $53,135,155 $(5,117,519) $48,017,636
Net Tax Appreciation/ Undistributed Undistributed Post
(Depreciation) on Income/ Long-Term Gains/ October
Derivatives, Currency (Accumulated (Accumulated Losses
and Other Net Assets Ordinary Loss) Capital Loss) (see Detail Below)
- ---------------------------------------------------------------------------------------------------------------------------------
$-- $305,252 $2,667,987 $--
As of December 31, 2005, the Fund has no capital loss carryovers. Capital loss
carryovers are available to offset future realized capital gains to the extent
provided in the Internal Revenue Code and regulations thereunder. To the extent
that these carryover losses are used to offset future capital gains, it is
probable that the gains so offset will not be distributed to shareholders
because they would be taxable as ordinary income.
Any net capital and currency losses incurred after October 31, within the Fund's
tax year, are deemed to arise on the first day of the Fund's next tax year if
the Fund so elects to defer such losses.
The Fund has no losses incurred after October 31, 2005.
The tax composition of distributions paid (other than return of capital
distributions for the year) during the year ended December 31, 2005 was as
follows:
Long-Term
Ordinary Capital
Income Gains Total
- --------------------------------------------------------------------------------
$5,367,448 $8,848,363 $14,215,811
14
Notes to Financial Statements December 31, 2005
- --------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS The Fund declares and pays dividends from net
investment income annually. The Fund declares and pays net realized capital
gains in excess of capital loss carryforwards 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 (but are not limited to) futures,
distributions from Real Estate Investment Trusts (REITS), and losses deferred
due to wash sale transactions. Reclassifications due to permanent book/tax
differences are made to the Fund's capital accounts to reflect income and gains
available for distribution (or available capital loss carryovers) under income
tax regulations. These reclassifications have no impact on net investment
income, realized gains or losses, or the net asset value of the Fund. The
calculation of net investment income per share in the Financial Highlights table
excludes these adjustments.
The reclassifications for the year ended December 31, 2005 were as follows:
Undistributed
(Distribution
in Excess of)
Net Investment Accumulated Paid in
Income Net Realized Gain Capital
- --------------------------------------------------------------------------------
$9,957 $(9,957) $--
INVESTMENT INCOME Corporate actions (including cash dividends) are recorded on
the ex-dividend date, net of applicable withholding taxes, except for certain
foreign corporate actions, which are recorded as soon after ex-dividend date as
such information becomes available. Interest income is recorded on the accrual
basis. All discounts and premiums on bonds are accreted to call or maturity
date, whichever is shorter, using the effective yield method.
EXPENSES Expenses of the Company which are directly identifiable to one of the
Funds are allocated to that portfolio. Expenses which are not directly
identifiable to one of the Funds are allocated in such a manner as deemed
equitable, taking into consideration the nature and type of expenses and
relative sizes of the Funds. All expenses of the Fund are paid by GEAM and
reimbursed by the Fund.
3. LINE OF CREDIT
The Fund shares a revolving credit facility of up to $25 million with a number
of its affiliates. The credit facility is with its custodian bank, State Street
Bank and Trust Company. The revolving credit facility requires the payment of a
commitment fee equal to 0.09% per annum on the daily unused portion of the
credit facility, payable quarterly. The portion borne by the Funds generally is
borne proportionally based upon net assets. Generally, borrowings under the
credit facility would accrue interest at the Federal Funds Rate plus 50 basis
points and is borne by each of the borrowing Funds. The maximum amount allowed
to be borrowed by any one of the Funds is the lesser of its prospectus
limitation, 20% of its net assets, or $25 million. The credit facility was not
utilized by the Fund during the period ended December 31, 2005.
4. AMOUNTS PAID TO AFFILIATES
ADVISORY AND ADMINISTRATION FEES GEAM, 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 Fund. Compensation of GEAM for
investment advisory and administrative services is paid monthly based on the
average daily net assets of the Fund at an annualized rate of .65%.
GENPACT (formerly General Electric Capital International Services*) performs
certain accounting and certain administration services not provided by GEAM. For
the year ending December 31, 2005, $2,952 was charged to the Fund.
Administrative services not performed by GEAM or GENPACT were provided by an
unaffiliated service provider.
* AS OF SEPTEMBER 28, 2005, THE NAME WAS CHANGED FROM GENERAL ELECTRIC CAPITAL
INTERNATIONAL SERVICES TO GENPACT.
DIRECTORS' COMPENSATION The Fund pays no compensation to its directors who are
officers or employees of GEAM or its affiliates. Directors who are not such
officers or employees also serve in a similar capacity for other funds advised
by GEAM. Compensation paid to unaffiliated directors are reflected on the
Statement of Operations. These fees are allocated pro rata across all of the
mutual fund platforms and share classes served by the directors, including the
Fund, and are based upon the relative net assets of each fund within such
platforms. (For additional information about directors compensation please refer
to the Statement of Additional Information.)
15
Notes to Financial Statements December 31, 2005
- --------------------------------------------------------------------------------
5. INVESTMENT TRANSACTIONS
PURCHASES AND SALES OF SECURITIES The cost of purchases and the proceeds from
sales of investments, other than short-term securities and options, for the
period ended December 31, 2005 were as follows:
Purchases Sales
- --------------------------------------------------------------------------------
$60,489,270 $90,961,363
SECURITY LENDING At December 31, 2005, the Fund participated in securities
lending:
Loaned
securities at Cash
market value Collateral*
- --------------------------------------------------------------------------------
$36,932,269 $37,813,617
* COLLATERAL OF $38,084,570 DECREASED BY $270,953 ON JANUARY 3, 2006 TO REFLECT
THE DECEMBER 30, 2005 CHANGE IN VALUE OF SECURITIES ON LOAN.
16
Report of Independent Registered Public Accounting Firm
- --------------------------------------------------------------------------------
The Shareholders and Board of Directors
GE Investments Funds, Inc.
We have audited the accompanying statement of assets and liabilities of the
Mid-Cap Equity Fund, a series of GE Investments Funds, Inc., including the
schedule of investments, as of December 31, 2005, and the related statement of
operations for the year then ended, the statements of changes in net assets for
each of the years in the two-year period then ended, and the financial
highlights for each of the years in the five-year period then ended. These
financial statements and financial highlights are the responsibility of the
Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included confirmation of
securities owned as of December 31, 2005 by correspondence with the custodians
and brokers, or by other appropriate auditing procedures where replies from
brokers were not received. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
Mid-Cap Equity Fund as of December 31, 2005, and the results of its operations,
the changes in its net assets and the financial highlights for each of the years
described above, in conformity with U.S. generally accepted accounting
principles.
/S/KPMG LLP
Boston, Massachusetts
February 17, 2006
17
Tax Information (unaudited)
- --------------------------------------------------------------------------------
During the calendar year ended December 31, 2005, the Fund paid to shareholders
$0.78992 per share of long-term capital gain dividends.
18
Advisory and Administrative Agreement Renewal (unaudited)
- --------------------------------------------------------------------------------
The Fund Board, including the independent Board members, considered and
unanimously approved the continuance of the Fund's investment advisory agreement
with GE Asset Management Incorporated ("GEAM") at meetings held on December 9
and December 16, 2005.
In considering whether to approve the Fund's investment advisory agreement, the
Board members, including the independent members, considered and discussed a
substantial amount of information and analysis provided, at the Board's request,
by GEAM. The Board members also considered detailed information regarding
performance and expenses of other investment companies with similar investment
objectives and sizes, which was prepared by an independent third party provider,
Lipper Inc. ("Lipper"). The Board members reviewed the fees charged by GEAM for
other mutual funds and investment products other than mutual funds that employ
the same investment strategy as the Fund. Before approving the Fund's advisory
agreement, the Board members reviewed the proposed continuance of the agreement
with management of GEAM and with independent legal counsel. The Board members
also reviewed a memorandum prepared by independent legal counsel discussing the
legal standards for the consideration of the proposed continuance. The
independent Board members discussed the proposed continuance in a private
session with their independent legal counsel at which no representatives of GEAM
were present.
In advance of the meeting, and in response to their request, the Board members
received from GEAM written responses to their inquiries, which included
substantial exhibits and other materials related to GEAM's business and the
services it provides to the Fund. The Board members took into account their
multi-year experience as Board members and particularly their consideration of
these agreements in 2004, noting that the information was presented in a similar
manner and format. To focus their review, the Board members asked GEAM
management, in its oral presentation, to highlight material differences from the
information presented in 2004. During the meeting, the Board members had an
opportunity to discuss this information with GEAM managers, including senior
executives, representatives from the legal and compliance departments, and
senior investment personnel. The Board members posed questions to these
representatives and engaged in substantive discussions with them concerning
GEAM's investment process.
In reaching their determination relating to continuance of the agreement, the
Board members considered all factors they believed relevant, including the
factors discussed below. In their deliberations, the Board members did not
identify any particular information that was all-important or controlling, and
each Board member attributed different weights to the various factors. In
particular, the Board members focused on the following:
THE NATURE, EXTENT AND QUALITY OF SERVICES PROVIDED.
The Board members reviewed the services provided by GEAM, and the Board members,
including the independent members, concurred that GEAM provides high quality
advisory and administrative services to the Fund.
In connection with their consideration of GEAM's services, the Board members
focused on the favorable attributes of GEAM, including (i) an investment
philosophy oriented toward long-term performance; (ii) effective processes used
for selecting investments, selecting brokers and with respect to Fund
administration, controllership and compliance activities; (iii) highly skilled
professionals, including analysts, research professionals and portfolio managers
with a depth of experience; (iv) access to significant technological resources
from which the Fund may benefit; and (v) a favorable history and reputation. The
Board members discussed with senior officers of GEAM the personnel changes made,
and proposed to be made, by GEAM, and that GEAM would be expending significant
sums to enhance services, including improvements to its information technology
capabilities. The Board members noted that the Fund represents only a small
portion of the assets managed by GEAM, but benefits from a full array of
services and resources provided by GEAM. In light of these discussions, the
Board members, including the independent members, concluded that GEAM's services
were of a high quality and had benefited the Fund.
19
Advisory and Administrative Agreement Renewal (unaudited)
- --------------------------------------------------------------------------------
INVESTMENT PERFORMANCE OF THE FUND.
The Board members considered the investment performance of the Fund for various
periods. The Board members reviewed detailed comparisons of the performance of
the Fund with the relevant securities indexes and peer groupings of mutual funds
prepared by Lipper with respect to various periods. The Board members also
engaged in detailed discussions with GEAM management about the investment
process, focusing on the Fund's investment objective, the number and experience
of portfolio management personnel, the investment style and approach employed,
the likely market cycles for the investment style, and the relative
underperformance of the Fund in certain periods in light of GEAM's commitment to
long-term satisfactory performance with respect to the Fund's investment
objective and investment approach. The Board members, including the independent
members, concluded that the Fund's performance was acceptable over the relevant
periods, particularly from a longer term perspective, which the Board members
believed was most relevant.
COST OF THE SERVICES TO BE PROVIDED AND PROFITS TO BE REALIZED FROM THE
RELATIONSHIP WITH THE FUND.
The Board members considered the cost of the services provided by GEAM. The
Board members reviewed the information they had requested from GEAM concerning
its profitability from the fees and services it provides to the Fund and the
financial condition of GEAM for various past periods. The Board members
considered the profit margin information for GEAM's investment company business
as a whole, as well as GEAM's profitability data for the Fund. The Board members
reviewed GEAM's assumptions and the methods of cost allocation used by GEAM in
preparing Fund-specific profitability data. The Board members also discussed
with GEAM the basis for its belief that the methods of allocation used were
reasonable and consistent across its business.
The Board members noted and discussed the additional services provided by GEAM
to the Fund compared to other investment products managed by GEAM. The Board
members determined that GEAM should be entitled to earn a reasonable level of
profits for the services it provides to the Fund. The Board members also
recognized that GEAM had made significant investments in its business and had
not fully recovered the sums invested. Based on their review, the Board members,
including the independent members, concluded that they were satisfied that the
level of profitability achieved by GEAM from its relationship with the Fund was
not unreasonable or excessive.
THE EXTENT TO WHICH ECONOMIES OF SCALE WOULD BE REALIZED AS THE FUND GROWS AND
WHETHER FEE LEVELS WOULD REFLECT SUCH ECONOMIES OF SCALE.
The Board members considered the extent to which economies of scale would be
realized as the Fund grows, and whether fee levels reflect these economies of
scale for the benefit of Fund investors. The Board members considered the
substantial infrastructure investments that GEAM has made with respect to its
operations and its commitment to continue investing resources to enhance
services to Fund shareholders, including its anticipated information technology
expenditures. The Board members recognized the benefits to the Fund of GEAM's
past investment in its operations through the expenditure of sums to support its
substantial infrastructure, and that, in general, GEAM has not yet fully
recouped that investment. The Board members also recognized the benefits to the
Fund of being able to leverage a favorable cost structure achieved with respect
to the Fund's other operating expenses as a result of GEAM's large overall base
of assets under management and its vendor management practices. The Board
members considered the potential institution of advisory fee breakpoints for the
Fund, but concluded that GEAM had already appropriately shared the economies of
scale.
COMPARISON OF SERVICES TO BE RENDERED
AND FEES TO BE PAID.
The Board members discussed the services provided to the Fund by GEAM, and the
fees charged for those services. The Board members reviewed information
concerning the fee and expense ratios for the Fund, and comparative information
with respect to similar products. They discussed that the Fund's figures were
within the applicable peer group range. The Board members considered that the
comparative data provided by Lipper showed no material difference from last year
in the fees being charged as compared to those being charged by other advisers
to similar investment products, as
20
Advisory and Administrative Agreement Renewal (unaudited)
- --------------------------------------------------------------------------------
determined by Lipper. In addition, the Board members considered their discussion
with representatives of GEAM about the fees being charged to the Fund and, to
the extent applicable, the potential effect, if any, of the Securities and
Exchange Commission staff's recently proposed soft dollar interpretation on
those fees. In light of the foregoing, the Board members, including the
independent members, determined that the advisory fees were reasonable in
relation to the services provided to the Fund.
FALL-OUT BENEFITS.
The Board members considered other actual and potential financial benefits to
GEAM, including, to the extent applicable, soft dollar commission benefits
generated through Fund portfolio transactions. The Board members noted, however,
that the Fund benefits from the vast array of resources available through GEAM,
and that the Fund represents only a small portion of the assets managed by GEAM.
CONCLUSION.
No single factor was determinative to the Board members' decision. Based on
their discussion and such other matters as were deemed relevant, the Board
members, including the independent members, concluded that the proposed advisory
fee and projected total expense ratio are reasonable in relation to the services
provided to the Fund. In view of these facts, the Board members, including the
independent members, concluded that the renewal of the advisory agreement was in
the best interests of the Fund and its shareholders.
21
Additional Information (unaudited)
- --------------------------------------------------------------------------------
INFORMATION ABOUT DIRECTORS AND EXECUTIVE OFFICERS:
The business and affairs of the Company are managed under the direction of the
Company's Board of Directors. Information pertaining to the Directors and
officers of the Company is set forth below.
INTERESTED DIRECTORS AND EXECUTIVE OFFICERS
- --------------------------------------------------------------------------------
MICHAEL J. COSGROVE
- --------------------------------------------------------------------------------
ADDRESS c/o GEAM 3001 Summer St. Stamford, CT 06905
AGE 56
POSITION(S) HELD WITH FUND Chairman of the Board and President
TERM OF OFFICE AND LENGTH OF TIME SERVED Until successor is elected and
qualified - 9 years
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS Executive Vice President - Chief
Commercial Officer of GEAM (formerly President, GE Asset Management Services
division ("GEAMS") of GE Financial Assurance Holdings, Inc., an indirect
wholly-owned subsidiary of General Electric Company ("GE")), since February
1997; Vice President, GE Capital Corporation, an indirect wholly-owned
subsidiary of GE, since December 1999; Executive Vice President - Sales and
Marketing of GEAM, a wholly-owned subsidiary of GE that is registered as an
investment adviser under the Investment Advisers Act of 1940, as amended, since
March 1993; Director of GEAM since 1988.
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR 48
OTHER DIRECTORSHIPS HELD BY DIRECTOR Chairman of the Board and President of GE
Funds since 1993, and GE Institutional Funds and GE LifeStyle Funds since their
inception; Trustee of Elfun Funds, GE Savings & Security Funds and General
Electric Pension Trust since 1988; Trustee of Fordham University since 2003 and
Marymount College from 1994 through 2002.
- --------------------------------------------------------------------------------
ALAN M. LEWIS
- --------------------------------------------------------------------------------
ADDRESS c/o GEAM 3001 Summer St. Stamford, CT 06905
AGE 59
POSITION(S) HELD WITH FUND Director and Executive Vice President
TERM OF OFFICE AND LENGTH OF TIME SERVED Until successor is elected and
qualified - 6 years
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS Executive Vice President, General
Counsel and Secretary of GEAM since 1987
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR 48
OTHER DIRECTORSHIPS HELD BY DIRECTOR Trustee and Executive Vice President of GE
Funds, GE Institutional Funds and GE LifeStyle Funds since their inception.
Trustee of Elfun Funds, GE Savings & Security Funds and General Electric Pension
Trust since 1987.
22
Additional Information (unaudited)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SCOTT H. RHODES
- --------------------------------------------------------------------------------
ADDRESS c/o GEAM 3001 Summer St. Stamford, CT 06905
AGE 47
POSITION(S) HELD WITH FUND Treasurer
TERM OF OFFICE AND LENGTH OF TIME SERVED Until successor is elected and
qualified - less than one year
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS GEAM Mutual Funds Operations Manager
since September 2005; Treasurer of GE Institutional Funds, GE LifeStyle Funds
and GE Investments Funds since November 2005 and Elfun Funds and GE Savings &
Security Funds since September 2005; from August 2004 to September 2005 Vice
President, U.S. Trust Company, N.A. and Assistant Treasurer of Excelsior Funds,
Inc., Excelsior Funds Trust, and Excelsior Tax Exempt Funds, Inc.; from January
2004 to August 2004, Vice President BlackRock Financial Management, Inc.; from
December 1996 to November 2003, Controller - Mutual Funds, American Skandia
Investment Services, Inc. and Assistant Treasurer of American Skandia Trust and
American Skandia Advisor Funds, Inc.
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR N/A
OTHER DIRECTORSHIPS HELD BY DIRECTOR N/A
- --------------------------------------------------------------------------------
MATTHEW J. SIMPSON
- --------------------------------------------------------------------------------
ADDRESS c/o GEAM 3001 Summer St. Stamford, CT 06905
AGE 44
POSITION(S) HELD WITH FUND Vice President and Secretary
TERM OF OFFICE AND LENGTH OF TIME SERVED Until successor is elected and
qualified - 9 years
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS Senior Vice President and General
Counsel - Marketing and Client Services (formerly Asset Management Services), at
GEAM and Senior Vice President and General Counsel of GEAMS since February 1997;
from October 1992 to February 1997, Vice President and Associate General Counsel
of GEAM; Secretary of GE Funds since 1993 and Vice President since September
2003; Secretary of GE Institutional Funds and GE LifeStyle Funds since their
inception and Vice President since September 2003; Assistant Secretary of Elfun
Funds and GE Savings & Security Funds since 1998 and Vice President since
October 2003.
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR N/A
OTHER DIRECTORSHIPS HELD BY DIRECTOR N/A
- --------------------------------------------------------------------------------
JEANNE M. LAPORTA
- --------------------------------------------------------------------------------
ADDRESS c/o GEAM 3001 Summer St. Stamford, CT 06905
AGE 40
POSITION(S) HELD WITH FUND Vice President and Assistant Secretary
TERM OF OFFICE AND LENGTH OF TIME SERVED Until successor is elected and
qualified - 2 years
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS Vice President and Associate General
Counsel - Marketing and Client Services (formerly Asset Management Services) at
GEAM since May 1997; Vice President and Assistant Secretary of GE Funds, GE
Institutional Funds and GE LifeStyle Funds since September 2003; Vice President
and Assistant Secretary of Elfun Funds and GE Savings & Security Funds since
October 2003.
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR N/A
OTHER DIRECTORSHIPS HELD BY DIRECTOR N/A
23
Additional Information (unaudited)
- --------------------------------------------------------------------------------
NON-INTERESTED DIRECTORS
- --------------------------------------------------------------------------------
JOHN R. COSTANTINO
- --------------------------------------------------------------------------------
ADDRESS c/o GEAM 3001 Summer St. Stamford, CT 06905
AGE 59
POSITION(S) HELD WITH FUND Director
TERM OF OFFICE AND LENGTH OF TIME SERVED Until successor is elected and
qualified - 9 years
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS Managing Director, Walden Partners,
Ltd., consultants and investors, since August 1992.
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR 40
OTHER DIRECTORSHIPS HELD BY DIRECTOR Trustee of GE Funds since 1993, GE
Institutional Funds and GE LifeStyle Funds since their inception; Trustee of
Fordham University since 2002 and Marymount College from 2001 through 2002;
Neuroscience Research Institute since 1986; Diocesan Finance Counsel of the
Dioceses of Brooklyn & Queens since 2001; Gregorian University Foundation since
1994.
- --------------------------------------------------------------------------------
WILLIAM J. LUCAS
- --------------------------------------------------------------------------------
ADDRESS c/o GEAM 3001 Summer St. Stamford, CT 06905
AGE 58
POSITION(S) HELD WITH FUND Director
TERM OF OFFICE AND LENGTH OF TIME SERVED Until successor is elected and
qualified - 9 years
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS Vice President and Treasurer of
Fairfield University since 1983.
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR 40
OTHER DIRECTORSHIPS HELD BY DIRECTOR Trustee of GE Funds since 1993, and GE
Institutional Funds and GE LifeStyle Funds since their inception.
- --------------------------------------------------------------------------------
ROBERT P. QUINN
- --------------------------------------------------------------------------------
ADDRESS c/o GEAM 3001 Summer St. Stamford, CT 06905
AGE 69
POSITION(S) HELD WITH FUND Director
TERM OF OFFICE AND LENGTH OF TIME SERVED Until successor is elected and
qualified - 9 years
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS Retired since 1983 from Salomon
Brothers Inc.
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR 40
OTHER DIRECTORSHIPS HELD BY DIRECTOR GP Financial Corp, holding company; The
Greenpoint Savings Bank, a financial institution. Trustee of GE Funds since
1993, and GE Institutional Funds and GE LifeStyle Funds since their inception.
- --------------------------------------------------------------------------------
The Statement of Additional Information for the Fund includes additional
information about the Directors and Officers and is available, without charge,
upon request by calling 1-800-242-0134.
24
Investment Team
- --------------------------------------------------------------------------------
INVESTMENT ADVISER AND ADMINISTRATOR
GE Asset Management Incorporated
BOARD OF DIRECTORS
Michael J.Cosgrove, CHAIRMAN
John R. Costantino
Alan M. Lewis
William J. Lucas
Robert P. Quinn
SECRETARY
Matthew J. Simpson
TREASURER
Scott H. Rhodes
ASSISTANT TREASURER
Christopher M. Isaacs
DISTRIBUTOR
GE Investment Distributors, Inc.
Member NASD and SIPC
COUNSEL
Sutherland, Asbill & Brennan, LLP
CUSTODIAN
State Street Bank & Trust Company
INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM
KPMG LLP
OFFICERS OF THE INVESTMENT ADVISER
John H. Myers, CHIEF EXECUTIVE OFFICER
David B. Carlson, EVP, DOMESTIC EQUITIES
Michael J. Cosgrove, EVP, CHIEF COMMERCIAL OFFICER
Robert A. MacDougall, EVP, FIXED INCOME (RETIRED FROM ALL POSITIONS AS
OF JANUARY 31, 2006)
Kathryn D. Karlic, EVP, FIXED INCOME (AS OF FEBRUARY 1, 2006)
Ralph R. Layman, EVP, INTERNATIONAL EQUITIES
Alan M. Lewis, EVP, GENERAL COUNSEL AND SECRETARY
Don W. Torey, EVP, ALTERNATIVE INVESTMENTS AND REAL ESTATE
John J. Walker, EVP, CHIEF FINANCIAL OFFICER
25
[This page intentionally left blank.]
[This page intentionally left blank.]
[This page intentionally left blank.]
[This page intentionally left blank.]
INVESTMENT ADVISER
GE ASSET MANAGEMENT INCORPORATED
3001 SUMMER STREET
PO BOX 7900
STAMFORD, CT 06904-7900
DISTRIBUTOR
GE INVESTMENT DISTRIBUTORS, INC.
MEMBER NASD AND SIPC
3001 SUMMER STREET
PO BOX 7900
STAMFORD, CT 06904-7900
- --------------------------------------------------------------------------------
The Fund files its complete schedule of portfolio holdings with the Securities
and Exchange Commission for the first and third quarters of each fiscal year on
Form N-Q. The Fund's Forms N-Q, as well as a description of the policies and
procedures that the Fund uses to determine how to vote proxies (if any) relating
to portfolio securities is available without charge (i) upon request, by calling
1-800-242-0134; (ii) on the Fund's website at HTTP://WWW.GEFUNDS.COM; and (iii)
on the Commission's website at HTTP://WWW.SEC.GOV. The Fund's Forms N-Q may be
reviewed and copied at the Commission's Public Reference Room in Washington, DC
information on the operation of the Public Reference Room may be obtained by
calling 1-800-SEC-0330.
Information (if any) regarding how the Fund voted proxies relating to portfolio
securities during the most recently disclosed 12-months period ended June 30 is
available without charge (i) through the Fund's website at
HTTP://WWW.GEFUNDS.COM; and (ii) on the Commission's website at
HTTP://WWW.SEC.GOV.
- --------------------------------------------------------------------------------
[GE LOGO OMITTED]
GE Investments Funds, Inc.
Small-Cap Equity Fund
Annual Report
DECEMBER 31, 2005
[GE LOGO OMITTED]
GE Investments Funds, Inc.
Small-Cap Equity Fund Contents
- --------------------------------------------------------------------------------
MANAGER REVIEW AND SCHEDULE OF INVESTMENTS ................................. 1
NOTES TO PERFORMANCE ....................................................... 7
NOTES TO SCHEDULE OF INVESTMENTS ........................................... 7
FINANCIAL STATEMENTS
Financial Highlights .................................................. 8
Statement of Assets and Liabilities ................................... 9
Statement of Operations ............................................... 10
Statements of Changes in Net Assets ................................... 11
Notes to Financial Statements ......................................... 12
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM .................... 16
TAX INFORMATION ............................................................ 17
ADVISORY AND ADMINISTRATIVE AGREEMENT RENEWAL .............................. 18
ADDITIONAL INFORMATION ..................................................... 21
INVESTMENT TEAM ............................................................ 24
This report is prepared for Policyholders of certain variable contracts and may
be distributed to others only if preceded or accompanied by the variable
contract's current prospectus and the current prospectus of the Funds available
for investments thereunder.
Small-Cap Equity Fund*
- --------------------------------------------------------------------------------
Q&A
PALISADE CAPITAL MANAGEMENT, L.L.C. ("PALISADE") HAS A HISTORY OF MANAGING
SMALL-CAP EQUITY PORTFOLIOS AND FOR SEVERAL YEARS HAS PROVIDED PENSION FUND
SERVICES TO GE. PALISADE TRANSLATES ITS EXPERIENCE FROM VARIOUS INSTITUTIONAL
AND PRIVATE ACCOUNTS TO MUTUAL FUND PORTFOLIOS IT SUB-ADVISES FOR GE ASSET
MANAGEMENT. PALISADE HAS MANAGED THE SMALL-CAP EQUITY FUND SINCE ITS INCEPTION.
SMALL-CAP EQUITY FUND IS MANAGED BY JACK FEILER, JEFFREY SCHWARTZ AND DENNISON
VERU, MEMBERS OF PALISADE'S INVESTMENT POLICY COMMITTEE.
JACK FEILER, PRESIDENT AND CHIEF INVESTMENT OFFICER, HAS DAY-TO-DAY
RESPONSIBILITY FOR MANAGING THE SMALL-CAP EQUITY FUND. MR. FEILER HAS MORE THAN
33 YEARS OF INVESTMENT EXPERIENCE AND HAS SERVED AS THE PRINCIPAL SMALL-CAP
PORTFOLIO MANAGER AT PALISADE SINCE THE COMMENCEMENT OF PALISADE'S OPERATIONS IN
APRIL 1995. HE HAS SERVED AS A PORTFOLIO MANAGER OF THE SMALL-CAP EQUITY FUND
SINCE ITS INCEPTION. PRIOR TO JOINING PALISADE, MR. FEILER WAS A SENIOR VICE
PRESIDENT-INVESTMENTS AT SMITH BARNEY FROM 1990 TO 1995.
JEFFREY SCHWARTZ, SENIOR PORTFOLIO MANAGER, JOINED PALISADE IN OCTOBER 2004.
PRIOR TO JOINING PALISADE, MR. SCHWARTZ WAS VICE PRESIDENT AND SENIOR PORTFOLIO
MANAGER OF SAFECO ASSET MANAGEMENT FROM SEPTEMBER 2003 TO SEPTEMBER 2004. FROM
JUNE 2001 TO AUGUST 2003, MR. SCHWARTZ FOUNDED NANTUCKET INVESTMENT RESEARCH IN
FARMINGTON HILLS, MI, CONDUCTED INDEPENDENT INVESTMENT RESEARCH AND WAS A
PRIVATE INVESTOR. FROM JUNE 1992 UNTIL MAY 2001, MR. SCHWARTZ WAS AT MUNDER
CAPITAL MANAGEMENT, MOST RECENTLY AS A SENIOR PORTFOLIO MANAGER AND PRINCIPAL.
DENNISON T. ("DAN") VERU IS AN EXECUTIVE VICE-PRESIDENT AND CO-INVESTMENT
OFFICER OF PALISADE. SINCE JOINING PALISADE IN MARCH 2000, MR. VERU HAS BEEN A
MEMBER OF THE INVESTMENT POLICY COMMITTEE. MR. VERU BECAME A PRINCIPAL OF
PALISADE IN JULY 2004. SINCE JOINING PALISADE IN MARCH 2000, MR. VERU HAS BEEN A
MEMBER OF THE INVESTMENT POLICY COMMITTEE. PRIOR TO JOINING PALISADE, HE WAS
PRESIDENT AND DIRECTOR OF RESEARCH OF AWAD ASSET MANAGEMENT, A DIVISION OF
RAYMOND JAMES & ASSOCIATES. MR. VERU HAS BEEN A FREQUENT GUEST ON CNBC, CNN AND
BLOOMBERG TELEVISION. PRIOR TO AWAD, MR. VERU WORKED WITH THE PALISADE TEAM FROM
1984 THROUGH 1992.
Q. HOW DID THE SMALL-CAP EQUITY FUND PERFORM COMPARED TO ITS BENCHMARK FOR THE
TWELVE-MONTH PERIOD ENDED DECEMBER 31, 2005?
A. For the twelve-month period ended December 31, 2005, the Small-Cap Equity
Fund returned 9.53%. The Russell 2000 Index, the Fund's benchmark, returned
4.52% and the Fund's Lipper peer group of 125 Small-Cap Core funds returned
an average of 5.35% for the same period.
Q. WHAT MARKET CONDITIONS IMPACTED FUND PERFORMANCE?
A. There were many hurdles faced by investors last year: terrorism, the war in
Iraq, and several hurricanes. However, despite good corporate earnings, the
market could not overcome its age-old nemesis: the Federal Reserve's
monetary tightening. Nevertheless, the small-cap market proved resilient in
the face of these troubles and the equity market closed the year with modest
single-digit returns. We positioned the Fund for more consistent earnings
growth, high return-on-invested capital, and increasing free cash flow
generation.
Q. WHAT INVESTMENT STRATEGIES AND TECHNIQUES EMPLOYED BY THE FUND IMPACTED
PERFORMANCE?
A. Strong stock selection combined with disciplined buying and selling is
imperative to Fund performance. We sought high-quality companies that can
finance internal growth to grow earnings. The valuation metrics on which we
focused included predictable earnings, recurring revenues, high and
increasing return on equity, high and increasing return on invested capital,
and the generation of significant free cash flow.
Q. WHICH PARTICULAR STOCKS/SECTORS SIGNIFICANTLY CONTRIBUTED TO THE FUND'S
PERFORMANCE?
A. The sectors that contributed significantly to the Fund's performance
included: Information Technology (401 basis points (bps)) and Industrials
(136 bps). Strong stock selection in the Energy sector resulted in
- ----------------------
* EFFECTIVE JANUARY 3, 2006, THE NAME OF THE FUND WAS CHANGED FROM SMALL-CAP
VALUE EQUITY FUND TO SMALL-CAP EQUITY FUND. THERE WAS NO CHANGE TO THE FUND'S
INVESTMENT STRATEGY.
1
Small-Cap Equity Fund
- --------------------------------------------------------------------------------
Q&A
outperformance on a comparative return basis and 38 basis points contributed
to the total return. We have found many compelling and reasonably valued
stocks in the Industrials sector. We redistributed the Fund's Information
Technology holdings to include more software and productivity-enhancement
companies, as we believed these investments offer better value in this
sector.
Q. WHY DID THE FUND OVERPERFORM ITS BENCHMARK FOR THE PAST TWELVE MONTHS?
A. The Fund outpaced its benchmark due to strong stock selection. For the
twelve-month period, holdings in the Information Technology, Energy, and
Industrials sectors provided strong results and were the primary
contributors to return. Companies with stable growth and solid financial
characteristics continued to provide strong returns.
Q. DID THE WEIGHTINGS OF THE FUND CHANGE? WHY?
A. The most significant changes in sector allocation include reductions in the
Consumer Discretionary and Financials sectors and increases in the Energy
and Information Technology sectors. Investors' fears of inflation and
diminished consumer resilience increased selling pressure on the Consumer
Discretionary and Financials sectors. Despite the surge in prices of Energy
stocks, the forward Price/Earnings and Price/Cash Flow ratios remain below
historic levels.
Q. WHICH STOCKS/SECTORS HAVE PERFORMED WELL? WHICH HAVE NOT PERFORMED WELL?
A. Among the top contributors to return over the last 12 months were: Oil
States International (+140 bps), Computer Programs & Science (+115 bps),
Intergraph (+ 111 bps), Thoratec (+110 bps), and Manitowoc Company (+109
bps). The common theme among the top contributors were: profitability, free
cash flow and good valuations. Among the detractors were WHolding (-89 bps),
Cooper Companies (-82 bps), Santarus (-38 bps), Fleetwood Enterprises (-36
bps), and Centene (-32 bps). The Fund's holdings in Fleetwood Enterprises
and Santarus Inc. were sold during the period.
Q. WHICH INVESTMENTS STAND OUT IN TERMS OF OVER OR UNDER PERFORMANCE IMPACT?
A. Over the past twelve months, holdings in all sectors provided positive
results, except Consumer Discretionary and Utilities, which declined
minimally. Among the prime contributors to return, Energy holdings gained
69.3%, Information Technology stocks rose 21.8%, and Industrial companies
advanced 15.1%.
2
Small-Cap Equity Fund
- --------------------------------------------------------------------------------
Understanding Your Fund's Expenses
As a shareholder of the Fund you incur transaction and ongoing expenses.
Transaction expenses including sales charges on purchase payments, reinvested
dividends (or other distributions), and redemption fees directly reduce the
investment return of the Fund. Ongoing costs include portfolio management fees,
distribution and service fees, professional fees, administrative fees and other
Fund expenses. The following example is intended to help you understand your
ongoing costs (in dollars) of investing in the Fund and to compare these costs
with the ongoing costs of investing in other mutual funds.
To illustrate these ongoing costs, we have provided an example and calculated
the expenses paid by investors during the period. The information in the
following table is based on an investment of $1,000, which is invested at the
beginning of the period and held for the entire six-month period ended December
31, 2005.
ACTUAL EXPENSES
The first section of the table provides information about actual account values
and actual expenses. You may use the information in this section, together with
the amount you invested, to estimate the expenses that you paid over the period.
To do so, simply divide your account value by $1,000 (for example, an $8,600
account value divided by $1,000 = 8.6), then multiply the result by the number
given for your class under the heading "Expenses Paid During Period."
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The second section of the table provides information about hypothetical account
values and hypothetical expenses based on the Fund's actual expense ratio and an
assumed rate of return of 5% per year before expenses, which is not the Fund's
actual return. You may use this information to compare the ongoing costs of
investing in the Fund and other funds. To do so, compare this 5% hypothetical
example with the 5% hypothetical examples that appear in the shareholders
reports of other funds.
Please note that the expenses shown in the table do not reflect any transaction
costs, such as sales charges or redemption fees.
JULY 1, 2005 - DECEMBER 31, 2005
- ----------------------------------------------------------------------------------------------------------
ACCOUNT VALUE AT ACCOUNT VALUE EXPENSES
THE BEGINNING OF AT THE END OF PAID DURING
THE PERIOD ($) THE PERIOD ($) THE PERIOD ($)*
- ----------------------------------------------------------------------------------------------------------
Actual Fund Return** 1,000.00 1,054.28 4.46
- ----------------------------------------------------------------------------------------------------------
Hypothetical 5% Return
(2.5% for the period) 1,000.00 1,020.69 4.35
- ----------------------------------------------------------------------------------------------------------
<FN>
* EXPENSES ARE EQUAL TO THE FUND'S ANNUALIZED EXPENSE RATIO OF 0.85% (FROM
PERIOD JULY 1, 2005 - DECEMBER 31, 2005), MULTIPLIED BY THE AVERAGE ACCOUNT
VALUE OVER THE PERIOD, MULTIPLIED BY 184/365 (TO REFLECT THE SIX MONTH
PERIOD).
**ACTUAL FUND RETURN FOR SIX-MONTH PERIOD ENDED DECEMBER 31, 2005 WAS: 5.43%.
</FN>
3
Small-Cap Equity Fund
- --------------------------------------------------------------------------------
CHANGE IN VALUE
OF A $10,000 INVESTMENT
- --------------------------------------------------------------------------------
[LINE CHART OMITTED]
Small-Cap Equity Fund Russell 2000 Index
4/28/00 $10,000.00 $10,000.00
6/00 9,890.00 10,240.84
12/00 11,325.90 9,650.02
6/01 12,029.37 10,312.23
12/01 12,455.23 9,896.45
6/02 12,465.60 9,432.91
12/02 10,729.52 7,876.43
6/03 11,116.07 9,287.89
12/03 13,316.94 11,601.44
6/04 14,247.25 12,385.21
12/04 15,334.17 13,727.92
6/05 15,930.88 13,554.49
12/05 16,795.59 14,348.21
AVERAGE ANNUAL TOTAL RETURN
FOR THE PERIODS ENDED DECEMBER 31, 2005
- --------------------------------------------------------------------------------
ONE FIVE SINCE
YEAR YEAR INCEPTION
- --------------------------------------------------------------------------------
Small-Cap Equity Fund 9.53% 8.20% 9.56%
- --------------------------------------------------------------------------------
Russell 2000 Index 4.52% 8.26% 6.58%
- --------------------------------------------------------------------------------
Lipper peer group average* 5.35% 8.21% N/A
- --------------------------------------------------------------------------------
Inception date 4/28/00
- --------------------------------------------------------------------------------
INVESTMENT PROFILE
A fund designed for investors who seek long-term growth of capital by investing
at least 80% of its net assets in equity securities of small-cap companies under
normal market conditions. The Fund invests primarily in small-cap companies that
the portfolio managers believe are undervalued by the market but have solid
growth prospects.
TOP TEN LARGEST HOLDINGS
AS OF DECEMBER 31, 2005
as a % of Market Value
- --------------------------------------------------------------------------------
Genesee & Wyoming Inc. (Class A) 2.77%
- --------------------------------------------------------------------------------
Centene Corp. 2.36%
- --------------------------------------------------------------------------------
DRS Technologies, Inc. 2.20%
- --------------------------------------------------------------------------------
Oshkosh Truck Corp. 2.08%
- --------------------------------------------------------------------------------
Oil States International, Inc. 2.06%
- --------------------------------------------------------------------------------
Manitowoc Co. 2.06%
- --------------------------------------------------------------------------------
Micros Systems, Inc. 2.00%
- --------------------------------------------------------------------------------
Federal Realty Investment Trust (REIT) 1.68%
- --------------------------------------------------------------------------------
St. Mary Land & Exploration Co. 1.67%
- --------------------------------------------------------------------------------
Chesapeake Energy Corp. 1.66%
- --------------------------------------------------------------------------------
PORTFOLIO COMPOSITION
AS OF DECEMBER 31, 2005
as a % of Market Value
- --------------------------------------------------------------------------------
Market Value of $150,851 (in thousands)
[PIE CHART OMITTED]
Materials 2.3%
Energy 6.4%
Consumer Discretionary 11.0%
Healthcare 13.3%
Information Technology 14.6%
Financials 15.2%
Short-Term 16.9%
Industrials 18.0%
Utilities 0.4%
Consumer Staples 1.9%
* LIPPER PERFORMANCE COMPARISONS ARE BASED ON AVERAGE ANNUAL TOTAL RETURNS FOR
THE ONE YEAR AND FIVE-YEAR PERIODS INDICATED IN THE SMALL-CAP CORE PEER GROUP
CONSISTING OF 125 AND 66 UNDERLYING ANNUITY FUNDS, RESPECTIVELY.
SEE NOTES TO PERFORMANCE ON PAGE 7 FOR FURTHER INFORMATION, INCLUDING AN
EXPLANATION OF LIPPER PEER CATEGORIES.
PAST PERFORMANCE DOES NOT PREDICT FUTURE PERFORMANCE AND THE GRAPH AND TABLE
DO NOT REFLECT THE DEDUCTION OF TAXES.
4
SMALL-CAP EQUITY FUND
Schedule of Investments December 31, 2005
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SMALL-CAP EQUITY FUND
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NUMBER
OF SHARES VALUE
- --------------------------------------------------------------------------------
COMMON STOCK -- 97.9%+
- --------------------------------------------------------------------------------
CONSUMER DISCRETIONARY -- 13.0%
American Eagle Outfitters ........ 57,900 $ 1,330,542(d)
Arbitron, Inc. ................... 33,800 1,283,724(d)
Brinker International, Inc. ...... 36,800 1,422,688
Finish Line (Class A) ............ 94,400 1,644,448
Interactive Data Corp. ........... 82,600 1,875,846
Meritage Homes Corp. ............. 25,900 1,629,628(a)
RARE Hospitality
International, Inc. ........... 21,800 662,502(a)
Standard-Pacific Corp. ........... 60,800 2,237,440
The Talbots, Inc. ................ 38,300 1,065,506
The Warnaco Group, Inc. .......... 33,000 881,760(a)
Timberland Co. (Class A) ......... 51,100 1,663,305(a)
Triarc Companies, Inc. (Class B) . 62,700 931,095(d)
16,628,484
CONSUMER STAPLES -- 2.2%
Central European
Distribution Corp. ............ 25,100 1,007,514(a,d)
Smithfield Foods, Inc. ........... 59,900 1,832,940(a)
2,840,454
ENERGY -- 7.6%
Chesapeake Energy Corp. .......... 79,000 2,506,670(d)
Hydril Company ................... 24,300 1,521,180(a,d)
Oil States International, Inc. ... 98,300 3,114,144(a,d)
St. Mary Land & Exploration Co. .. 68,300 2,514,123(d)
9,656,117
FINANCIALS -- 17.9%
American Equity Investment Life
Holding Company ............... 30,700 400,635(d)
BioMed Realty Trust, Inc. (REIT) . 78,900 1,925,160
Cullen/Frost Bankers, Inc. ....... 27,700 1,486,936
Federal Realty Investment
Trust (REIT) .................. 41,900 2,541,235
HCC Insurance Holdings, Inc. ..... 74,500 2,211,160
Hilb Rogal & Hobbs Co. ........... 46,800 1,802,268(d)
Jones Lang LaSalle Inc. .......... 43,100 2,170,085
Omega Healthcare
Investors, Inc. (REIT) ........ 110,300 1,388,677
Platinum Underwriters
Holdings Ltd. ................. 4,200 130,494
Raymond James Financial, Inc. .... 56,150 2,115,171
Sandy Spring Bancorp, Inc. ....... 21,700 756,896(d)
Sky Financial Group, Inc. ........ 32,400 901,368(d)
- --------------------------------------------------------------------------------
NUMBER
OF SHARES VALUE
- --------------------------------------------------------------------------------
Sterling Bancorp ................. 33,662 $ 664,151
W Holding Company, Inc. .......... 136,782 1,125,716(d)
Webster Financial Corp. .......... 36,700 1,721,230
Westamerica Bancorporation ....... 29,900 1,586,793
22,927,975
HEALTHCARE -- 15.7%
Centene Corp. .................... 135,500 3,562,295(a,d)
Computer Programs and
Systems, Inc. ................. 53,200 2,204,076(d)
Immunicon Corp. .................. 65,000 222,950(a,d)
Intermagnetics General Corp. ..... 72,500 2,312,750(a,d)
KV Pharmaceutical Co. (Class A) .. 71,300 1,468,780(a,d)
LifePoint Hospitals, Inc. ........ 32,500 1,218,750(a,d)
Medical Action Industries Inc. ... 47,200 964,768(a)
Molina Healthcare, Inc. .......... 32,600 868,464(a,d)
Noven Pharmaceuticals Inc. ....... 110,800 1,676,404(a,d)
The Cooper Companies, Inc. ....... 34,200 1,754,460(d)
Thoratec Corp. ................... 88,200 1,824,858(a,d)
Varian, Inc. ..................... 51,100 2,033,269(a)
20,111,824
INDUSTRIALS -- 21.1%
ADESA, Inc. ...................... 97,400 2,378,508
Comfort Systems USA, Inc. ........ 66,300 609,960(d)
DRS Technologies, Inc. ........... 64,600 3,321,732
EDO Corp. ........................ 27,400 741,444(d)
Genesee & Wyoming Inc. (Class A) . 111,100 4,171,805(a)
Harsco Corp. ..................... 14,800 999,148
Manitowoc Co. .................... 62,000 3,113,640(d)
Mine Safety Appliances Co. ....... 29,600 1,071,816(d)
Mueller Industries, Inc. ......... 43,900 1,203,738
Oshkosh Truck Corp. .............. 70,300 3,134,677
Quanta Services, Inc. ............ 62,500 823,125(a,d)
RailAmerica, Inc. ................ 36,600 402,234(a)
Teledyne Technologies Inc. ....... 55,400 1,612,140(a)
TeleTech Holdings Inc. ........... 128,700 1,550,835(a,d)
Woodward Governor Co. ............ 22,600 1,943,826
27,078,628
INFORMATION TECHNOLOGY -- 17.2%
Blackbaud, Inc. .................. 75,800 1,294,664(d)
Digital Insight Corp. ............ 39,300 1,258,386(a,d)
Intergraph Corp. ................. 48,100 2,395,861(a,d)
Itron, Inc. ...................... 22,100 884,884(a,d)
Lipman Electronic Engineering Ltd. 13,600 316,472(a)
Manhattan Associates, Inc. ....... 42,700 874,496(a)
Micros Systems, Inc. ............. 62,400 3,015,168(a)
Mobility Electronics, Inc. ....... 125,700 1,214,262(a,d)
MoneyGram International, Inc. .... 87,300 2,276,784
Parametric Technology Corp. ...... 375,000 2,287,500(a)
Photon Dynamics, Inc. ............ 48,600 888,408(a,d)
Plantronics, Inc. ................ 24,200 684,860(d)
Rudolph Technologies, Inc. ....... 61,800 795,984(a)
See Notes to Schedule of Investments on page 7 and Notes to Financial
Statements.
5
SMALL-CAP EQUITY FUND
Schedule of Investments December 31, 2005
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NUMBER
OF SHARES VALUE
- --------------------------------------------------------------------------------
Semtech Corp. .................... 54,700 $ 998,822(a)
The BISYS Group, Inc. ............ 58,900 825,189(a)
TNS, Inc. ........................ 33,800 648,284(a)
Websense, Inc. ................... 21,000 1,378,440(a)
22,038,464
MATERIALS -- 2.7%
Commercial Metals Co. ............ 61,000 2,289,940
Packaging Corporation
of America .................... 53,500 1,227,825(d)
3,517,765
UTILITIES -- 0.5%
IDACORP, Inc. .................... 20,700 606,510(d)
TOTAL INVESTMENTS IN SECURITIES
(COST $102,040,094) ........... 125,406,221
- --------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS -- 19.8%
- --------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS -- 2.1%
GEI Short Term Investment Fund
4.42% ......................... 2,742,076 2,742,076(b,e)
SHORT-TERM SECURITIES PURCHASED WITH
COLLATERAL FROM SECURITIES ON LOAN -- 17.7%
State Street Navigator Securities
Lending Prime Portfolio
4.29% .........................22,702,290 22,702,290(b,c)
TOTAL SHORT-TERM INVESTMENTS
(COST $25,444,366) ............ 25,444,366
TOTAL INVESTMENTS
(COST $127,484,460) ........... 150,850,587
LIABILITIES IN EXCESS OF
OTHER ASSETS-- (17.7)% ........ (22,708,166)
------------
NET ASSETS-- 100.0% .............. $128,142,421
============
See Notes to Schedule of Investments on page 7 and Notes to Financial
Statements.
6
Notes to Performance December 31, 2005 (unaudited)
- --------------------------------------------------------------------------------
Total returns take into account changes in share price and assume reinvestment
of dividends and capital gains distributions, 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.
Current performance may be lower or higher than that shown. You may call
toll-free (800) 242-0134 for performance information as of the most recent month
end.
Total returns do not reflect expenses associated with the separate account such
as administrative fees, account charges and surrender charges, which, if
reflected, would reduce the total returns for all periods shown.
Shares of the Fund are neither insured nor guaranteed by the U.S. Government,
and their prices will fluctuate with market conditions.
The Russell 2000 Index (Russell 2000) is an unmanaged index and do not reflect
the actual cost of investing in the instruments that comprise the index.
The Russell 2000 Index is a market capitalization-weighted index consisting of
approximately 2,000 of the smallest U.S.-domiciled publicly traded common stocks
that are included in the Russell 3000(R) Index. The Russell 3000 Index is
comprised of the 3,000 largest U.S. domiciled companies. The results shown for
the foregoing index 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 blend of Lipper peer categories, as shown. Lipper is
an independent mutual fund rating service. A Fund's performance may be compared
to or ranked within a universe of mutual funds with investment objectives and
policies similar but not necessarily identical to the Fund's. Such comparisons
or rankings are made on the basis of several factors, including the Fund's
objectives and policies, management style and strategy, and portfolio
composition, and may change over time if any of those factors change. Lipper is
an independent mutual fund rating service.
Notes to Schedule of Investments
- --------------------------------------------------------------------------------
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 current or 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.
(a) Non-income producing security.
(b) Coupon amount represents effective yield.
(c) State Street Corp. is the parent company of State Street Bank & Trust Co.,
the Fund's custodian and accounting agent.
(d) All or a portion of the security is out on loan.
(e) GEAM, the investment adviser of the Fund, also serves as investment adviser
of the GEI Short Term Investment Fund.
+ Percentages are based on net assets as of December 31, 2005.
Abbreviations:
REIT Real Estate Investment Trusts
7
Financial Highlights
Selected data based on a share outstanding throughout the periods indicated
- --------------------------------------------------------------------------------
SMALL-CAP EQUITY FUND
12/31/05 12/31/04 12/31/03 12/31/02 12/31/01
- -------------------------------------------------------------------------------------------------------------------------------
INCEPTION DATE -- -- -- -- 4/28/00
Net asset value, beginning of period ............................ $13.62 $12.74 $10.27 $12.01 $11.27
INCOME/(LOSS) FROM INVESTMENT OPERATIONS:
Net investment income ........................................ 0.02 0.08 0.02 0.03 0.04
Net realized and unrealized
gains/(losses) on investments ............................. 1.28 1.85 2.46 (1.69) 1.08
- -------------------------------------------------------------------------------------------------------------------------------
TOTAL INCOME/(LOSS) FROM INVESTMENT OPERATIONS .................. 1.30 1.93 2.48 (1.66) 1.12
- -------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM:
Net investment income ........................................ 0.03 0.07 0.01 0.02 0.04
Net realized gains ........................................... 0.45 0.98 -- 0.05 0.34
Return of capital ............................................ -- -- -- 0.01 --
- -------------------------------------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS ............................................. 0.48 1.05 0.01 0.08 0.38
- -------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD .................................. $14.44 $13.62 $12.74 $10.27 $12.01
===============================================================================================================================
TOTAL RETURN (A) ................................................ 9.53% 15.15% 24.11% (13.86)% 9.97%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in thousands) ..................... $128,142 $117,158 $86,330 $52,359 $32,787
Ratios to average net assets:
Net investment income ..................................... 0.11% 0.67% 0.17% 0.34% 0.56%
Expenses .................................................. 0.86% 0.88% 0.86% 0.84% 0.91%
Portfolio turnover rate ...................................... 33% 101% 119% 108% 130%
<FN>
NOTES TO FINANCIAL HIGHLIGHTS
- ---------------------------------------------------------------------------------------------------------------------------
(a) Total returns are historical and assume changes in share price and reinvestment of dividends and capital gains and do not
include the effect of insurance contract charges.
</FN>
See Notes to Financial Statements.
8
SMALL-CAP
Statement of Assets EQUITY
and Liabilities DECEMBER 31, 2005 FUND
- ---------------------------------------------------------------------------------------------------------------------------
ASSETS
Investments in securities, at market* (cost $102,040,094).............................................. $125,406,221
Short-term investments (at amortized cost) ............................................................ 22,702,290
Short-term affiliated investments (at amortized cost).................................................. 2,742,076
Income receivables .................................................................................... 117,300
Receivable for fund shares sold........................................................................ 143
- ---------------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS....................................................................................... 150,968,030
- ---------------------------------------------------------------------------------------------------------------------------
LIABILITIES
Payable upon return of securities loaned............................................................... 22,702,290
Payable for investments purchased ..................................................................... 10,349
Payable for fund shares redeemed....................................................................... 19,821
Payable to GEAM........................................................................................ 93,149
- ---------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES.................................................................................. 22,825,609
- ---------------------------------------------------------------------------------------------------------------------------
NET ASSETS................................................................................................ $128,142,421
===========================================================================================================================
NET ASSETS CONSIST OF:
Capital paid in ....................................................................................... 104,186,605
Undistributed (distribution in excess of) net investment income........................................ 16,231
Accumulated net realized gain.......................................................................... 573,458
Net unrealized appreciation on:
Investments........................................................................................ 23,366,127
- ---------------------------------------------------------------------------------------------------------------------------
NET ASSETS................................................................................................ $128,142,421
===========================================================================================================================
Shares outstanding ($0.01 par value; unlimited shares authorized)......................................... 8,874,347
Net asset value per share................................................................................. $14.44
<FN>
* Includes $21,986,522 of securities on loan.
</FN>
See Notes to Financial Statements.
9
SMALL-CAP
Statement of Operations EQUITY
FOR THE YEAR ENDED DECEMBER 31, 2005 FUND
- -----------------------------------------------------------------------------------------------------------------
INVESTMENT INCOME
INCOME:
Dividend ............................................................................... $ 1,056,573
Interest*............................................................................... 19,353
Interest from affliated investments..................................................... 94,208
Less: Foreign taxes withheld............................................................ (2,134)
- -----------------------------------------------------------------------------------------------------------------
TOTAL INCOME.............................................................................. 1,168,000
- -----------------------------------------------------------------------------------------------------------------
EXPENSES:
Advisory and administrative fees........................................................ 965,409
Custody and accounting expenses......................................................... 33,084
Professional fees....................................................................... 19,210
Transfer agent ......................................................................... 166
Director's fees......................................................................... 3,181
Registration expenses................................................................... 879
Other expenses.......................................................................... 16,062
- -----------------------------------------------------------------------------------------------------------------
TOTAL EXPENSES............................................................................ 1,037,991
- -----------------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME..................................................................... 130,009
=================================================================================================================
NET REALIZED AND UNREALIZED GAIN
ON INVESTMENTS
REALIZED GAIN ON:
Investments.......................................................................... 4,114,988
Written options...................................................................... 271,627
INCREASE IN UNREALIZED APPRECIATION/(DEPRECIATION) ON:
Investments.......................................................................... 6,216,327
Written options...................................................................... 41,095
- -----------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain on investments......................................... 10,644,037
- -----------------------------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS...................................... $10,774,046
=================================================================================================================
<FN>
* Income attributable to security lending activity, net of rebate expenses, was $19,380.
</FN>
See Notes to Financial Statements.
10
SMALL-CAP
Statements of EQUITY
Changes in Net Assets FUND
- ---------------------------------------------------------------------------------------------------------------------------
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
2005 2004
- ---------------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net investments income............................................................ $ 130,009 $ 578,820
Net realized gain on investments, futures, written options,
foreign currency transactions and swaps......................................... 4,386,615 10,226,228
Net increase in unrealized appreciation/(depreciation) on investments, futures,
written options and foreign currency translation ............................... 6,257,422 3,230,752
- ---------------------------------------------------------------------------------------------------------------------------
Net increase from operations...................................................... 10,774,046 14,035,800
- ---------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income............................................................. (232,361) (568,969)
Net realized gains................................................................ (3,909,633) (7,815,312)
- ---------------------------------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS................................................................. (4,141,994) (8,384,281)
- ---------------------------------------------------------------------------------------------------------------------------
Increase in net assets from operations and distributions............................ 6,632,052 5,651,519
- ---------------------------------------------------------------------------------------------------------------------------
SHARE TRANSACTIONS:
Proceeds from sale of shares ..................................................... 18,002,125 36,966,138
Value of distributions reinvested................................................. 4,142,073 8,384,229
Cost of shares redeemed........................................................... (17,792,113) (20,173,962)
- ---------------------------------------------------------------------------------------------------------------------------
Net increase from share transactions.............................................. 4,352,085 25,176,405
- ---------------------------------------------------------------------------------------------------------------------------
TOTAL INCREASE IN NET ASSETS........................................................ 10,984,137 30,827,924
NET ASSETS
Beginning of period ................................................................ 117,158,284 86,330,360
- ---------------------------------------------------------------------------------------------------------------------------
End of period ...................................................................... $128,142,421 $117,158,284
===========================================================================================================================
UNDISTRIBUTED (DISTRIBUTION IN EXCESS OF) NET INVESTMENT INCOME, END OF PERIOD......... $ 16,231 $ 29,498
- ---------------------------------------------------------------------------------------------------------------------------
CHANGES IN PORTFOLIO SHARES
Shares sold....................................................................... 1,282,518 2,753,656
Issued for distributions reinvested............................................... 284,483 613,780
Shares redeemed................................................................... (1,292,377) (1,546,267)
- ---------------------------------------------------------------------------------------------------------------------------
Net increase in fund shares............................................................ 274,624 1,821,169
===========================================================================================================================
See Notes to Financial Statements.
11
Notes to Financial Statements December 31, 2005
- --------------------------------------------------------------------------------
1. ORGANIZATION OF THE COMPANY
GE Investments Funds, Inc. (the "Company") was incorporated under the laws of
the Commonwealth of Virginia on May 14, 1984 and is registered under the
Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end
management investment company. The Company is composed of thirteen investment
portfolios (collectively the "Funds"), although only the following eleven are
currently being offered: U.S. Equity Fund, S&P 500 Index Fund, Premier Growth
Equity Fund, Value Equity Fund, Mid-Cap Equity Fund, Small-Cap Equity Fund (the
"Fund"; formerly known as Small-Cap Value Equity Fund, prior to January 3,
2006), International Equity Fund, Total Return Fund, Income Fund, Money Market
Fund and Real Estate Securities Fund.
Shares of the Funds 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 Asset Management Incorporated ("GEAM"), the
investment adviser and administrator of each of the Funds.
As of December 31, 2005, GE Life and Annuity Assurance Company ("GE Life") and
General Electric Capital Assurance Company, each an affiliated insurance
company, controlled the Funds by ownership, through separate accounts, of
virtually all of the Funds' shares of beneficial interest.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions at the date of the financial statements. Actual
results may differ from those estimates.
The following summarizes the significant accounting policies of the Company:
SECURITY VALUATION AND TRANSACTIONS 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. Securities listed on the NASDAQ will be
valued at the NASDAQ's official close price. Certain fixed income securities are
valued by a dealer or by a pricing service based upon a matrix system, which
considers market transactions as well as dealer supplied valuations. Short-term
investments maturing within sixty days are valued at amortized cost. If
quotations are not readily available for a portfolio security, or if it is
believed that a quotation or other market price for a portfolio security does
not represent its fair value, the security may be valued using procedures
approved by the Fund's Board of Directors that are designed to establish its
"fair value." These procedures require that the fair value of a security be
established by the valuation committee. The fair value committee follows
different protocols for different types of investments and circumstances.
Foreign securities may be valued with the assistance of an independent fair
value pricing service in circumstances where it is believed that they have been
or would be materially affected by events occurring after the close of the
portfolio security's primary market and before the close of regular trading on
the NYSE. This independent fair value pricing service uses a computerized system
to appraise affected securities and portfolios taking into consideration various
factors and the fair value of such securities may be something other than the
last available quotation or other market price. GE Asset Management may also
separately monitor portfolio securities and, consistent with the Fund's fair
value procedures, apply a different value to a portfolio security than would be
applied had it been priced using market quotations or by an independent fair
value pricing service.
Determining the fair value of securities involves the application of both
subjective and objective considerations. Security values may differ depending on
the methodology used to determine their values, and may differ from the last
quoted sale or closing price. No assurance can be given that use of these fair
value procedures will always better represent the price at which a Fund could
sell the affected portfolio security.
Security transactions are accounted for as of the trade date. Realized gains and
losses on investments sold are recorded on the basis of identified cost for both
financial statement and federal tax purposes.
REPURCHASE AGREEMENTS The Fund may enter into repurchase agreements. The Fund's
or a third party custodian takes possession of the collateral pledged for
investments in repurchase agreements on behalf of the Fund. The Fund values the
underlying collateral daily on a mark-to-market basis to determine that the
value, including accrued interest, is at least equal to 102% of the repurchase
price. In the event the seller defaults and the value of the security declines,
or if the seller enters an insolvency proceeding, realization of the collateral
by the Fund may be delayed or limited.
12
Notes to Financial Statements December 31, 2005
- --------------------------------------------------------------------------------
SECURITY LENDING The Fund may loan securities to brokers, dealers, and financial
institutions determined by GEAM to be creditworthy, subject to certain
limitations. The Fund continues to receive the interest and dividends on the
loaned securities during the term of the loan. The loans of securities are
secured by collateral in the form of cash or other liquid assets, which are
segregated and maintained with the custodian in an amount at least equal to 102%
of the current market value of the loaned securities. During the term of the
loan, the Fund will record any gain or loss in the market value of its loaned
securities and of securities in which cash collateral is invested. The Fund will
also earn interest, net of any rebate, from securities in which cash collateral
is invested. In the event the counterparty (borrower) does not meet its
contracted obligation to return the securities, the Fund may be exposed to the
risk of loss of reacquiring the loaned securities at prevailing market prices
using the proceeds of the sale of the collateral.
FOREIGN CURRENCY Accounting records of the Fund are maintained in U.S. dollars.
Investment securities and other assets and liabilities denominated in a foreign
currency are translated into U.S. dollars at the prevailing rates of exchange at
period end. Purchases and sales of securities, income receipts and expense
payments denominated in foreign currencies are translated into U.S. dollars at
the prevailing exchange rate on the respective dates of such transactions.
The Fund does not isolate the portion of the results of operations resulting
from changes in foreign exchange rates from the fluctuations arising from
changes in the market prices of securities during the period. Such fluctuations
are included in the net realized or unrealized gain or loss from investments.
Net realized gains or losses on foreign currency transactions represent net
gains or losses on sales and maturities of foreign currency contracts,
disposition of foreign currencies, the difference between the amount of net
investment income and withholding taxes accrued and the U.S. dollar amount
actually received or paid, and gains or losses between the trade and settlement
date on purchases and sales of securities. Net unrealized foreign exchange gains
and losses arising from changes in the value of other assets and liabilities as
a result of changes in foreign exchange rates are included as increases or
decreases in unrealized appreciation/depreciation on foreign currency related
transactions.
INVESTMENTS IN FOREIGN MARKETS Investments in foreign markets may involve
special risks and considerations not typically associated with investing in the
United States. These risks include revaluation of currencies, high rates of
inflation, repatriation on income and capital, and adverse political and
economic developments. Moreover, securities issued in these markets may be less
liquid, subject to government ownership controls, tariffs and taxes, subject to
delays in settlements, and their prices may be more volatile.
The Fund may be subject to capital gains and repatriation taxes imposed by
certain countries in which it invests. Such taxes are generally based on income
and/or capital gains earned or repatriated. Taxes are accrued based upon net
investment income, net realized gains and net unrealized appreciation as income
and/or capital gains are earned.
INCOME TAXES The Fund intends to comply with all sections of the Internal
Revenue Code applicable to regulated investment companies including the
distribution of substantially all of its taxable net investment income and net
realized capital gains to its shareholders. Therefore, no provision for federal
income tax has been made. The Fund is treated as a separate taxpayer for federal
income tax purposes.
At December 31, 2005, information on the tax components of capital is as
follows:
Cost of Gross Tax Gross Tax Net Tax Appreciation/
Investments for Unrealized Unrealized (Depreciation)
Tax Purposes Appreciation Depreciation on Investments
- ---------------------------------------------------------------------------------------------------------------------
$127,536,315 $27,574,338 $(4,260,066) $23,314,272
Net Tax Appreciation/ Undistributed Undistributed Post
(Depreciation) on Income/ Long-Term Gains/ October
Derivatives, Currency (Accumulated (Accumulated Losses
and Other Net Assets Ordinary Loss) Capital Loss) (see Detail Below)
- ---------------------------------------------------------------------------------------------------------------------------
$-- $16,231 $625,313 $--
13
Notes to Financial Statements December 31, 2005
- --------------------------------------------------------------------------------
As of December 31, 2005, the Fund has no capital loss carryovers. Capital loss
carryovers are available to offset future realized capital gain to the extent
provided in the Internal Revenue Code and regulations thereunder. To the extent
that these carryover losses are used to offset future capital gains, it is
probable that gains so offset will not be distributed to shareholders because
they would be taxable as ordinary income.
Any net capital and currency losses incurred after October 31, within the Fund's
tax year, are deemed to arise on the first day of the Fund's next tax year if
the Fund so elects to defer such losses.
The Fund had no losses incurred after October 31, 2005.
The tax composition of distributions paid (other than return of capital
distributions for the year) during the year ended December 31, 2005 was as
follows:
Long-Term
Ordinary Capital
Income Gains Total
- --------------------------------------------------------------------------------
$1,243,127 $2,898,867 $4,141,994
DISTRIBUTIONS TO SHAREHOLDERS The Fund declares and pays dividends from net
investment income annually. The Fund declares and pays net realized capital
gains in excess of capital loss carryforwards 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 (but are not limited to) distributions
from Real Estate Investment Trusts (REITS) and losses deferred due to wash sale
transactions. Reclassifications due to permanent book/tax differences are made
to the Fund's capital accounts to reflect income and gains available for
distribution (or available capital loss carryovers) under income tax
regulations. These reclassifications have no impact on net investment income,
realized gains or losses, or the net asset value of the Fund. The calculation of
net investment income per share in the Financial Highlights table excludes these
adjustments.
The reclassifications for the year ended December 31, 2005 were as follows:
Undistributed
(Distribution
in Excess of)
Net Investment Accumulated Paid in
Income Net Realized Gain Capital
- --------------------------------------------------------------------------------
$89,085 $(89,085) $--
INVESTMENT INCOME Corporate actions (including cash dividends) are recorded on
the ex-dividend date, net of applicable withholding taxes, except for certain
foreign corporate actions, which are recorded as soon after ex-dividend date as
such information becomes available. Interest income is recorded on the accrual
basis. All discounts and premiums on bonds are accreted to call or maturity
date, whichever is shorter, using the effective yield method.
EXPENSES Expenses of the Company which are directly identifiable to one of the
Funds are allocated to that portfolio. Expenses which are not directly
identifiable to one of the Funds are allocated in such a manner as deemed
equitable, taking into consideration the nature and type of expenses and
relative sizes of the Funds. All expenses of the Fund are paid by GEAM and
reimbursed by the Fund.
3. LINE OF CREDIT
The Fund shares a revolving credit facility of up to $25 million with a number
of its affiliates. The credit facility is with its custodian bank, State Street
Bank and Trust Company. The revolving credit facility requires the payment of a
commitment fee equal to 0.09% per annum on the daily unused portion of the
credit facility, payable quarterly. The portion borne by the Funds generally is
borne proportionally based upon net assets. Generally, borrowings under the
credit facility would accrue interest at the Federal Funds Rate plus 50 basis
points and is borne by each of the borrowing Funds. The maximum amount allowed
to be borrowed by any one of the Funds is the lesser of its prospectus
limitation, 20% of its net assets, or $25 million. The credit facility was not
utilized by the Fund during the period ended December 31, 2005.
4. AMOUNTS PAID TO AFFILIATES
ADVISORY AND ADMINISTRATION FEES GEAM, 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 Fund. Compensation of GEAM for
investment advisory and administrative services is paid monthly based on the
average daily net assets of the Fund at an annualized rate of .80%.
14
Notes to Financial Statements December 31, 2005
- --------------------------------------------------------------------------------
GENPACT (formerly General Electric Capital International Services*) performs
certain accounting and certain administration services not provided by GEAM. For
the year ending December 31, 2005, $1,508 was charged to the Fund.
Administrative services not performed by GEAM or GENPACT were provided by an
unaffiliated service provider.
* AS OF SEPTEMBER 28, 2005, THE NAME WAS CHANGED FROM GENERAL ELECTRIC CAPITAL
INTERNATIONAL SERVICES TO GENPACT.
DIRECTORS' COMPENSATION The Fund pays no compensation to its directors who are
officers or employees of GEAM or its affiliates. Directors who are not such
officers or employees also serve in a similar capacity for other funds advised
by GEAM. Compensation paid to unaffiliated directors are reflected on the
Statement of Operations. These fees are allocated pro rata across all of the
mutual fund platforms and share classes served by the directors, including the
Fund, and are based upon the relative net assets of each fund within such
platforms. (For additional information about directors compensation please refer
to the Statement of Additional Information.)
5. SUB-ADVISORY FEES
Pursuant to an investment sub-advisory agreement with GEAM, Palisade Capital
Management, LLC ("Palisade") is the Sub-Adviser to the Small-Cap Equity Fund.
Palisade is responsible for the day-to-day portfolio management of the assets of
the Fund, including the responsibility for making decisions to buy, sell or hold
a particular security, under the general supervision of GEAM and the Board.
For their services, GEAM pays Palisade monthly sub-advisory fees which are
calculated as a percentage of the average daily net assets of the Fund.
6. INVESTMENT TRANSACTIONS
PURCHASES AND SALES OF SECURITIES The cost of purchases and the proceeds from
sales of investments, other than short-term securities and options, for the
period ended December 31, 2005 were as follows:
Purchases Sales
- --------------------------------------------------------------------------------
$41,611,226 $39,146,598
OPTIONS During the year ended December 31, 2005, the following option contracts
were written:
Number of
Contracts Premium
- --------------------------------------------------------------------------------
Balance as of
December 31, 2004 (292) $ (93,225)
Written 1,050 191,725
- --------------------------------------------------------------------------------
Closed and expired (1,342) (284,950)
- --------------------------------------------------------------------------------
Balance as of
December 31, 2005 -- --
- --------------------------------------------------------------------------------
SECURITY LENDING At December 31, 2005, the Fund participated in securities
lending:
Loaned
securities at Cash
market value Collateral*
- --------------------------------------------------------------------------------
$21,986,522 $22,563,245
* COLLATERAL OF $22,702,290 DECREASED BY $139,045 ON JANUARY 3, 2006 TO
REFLECT THE DECEMBER 30, 2005 CHANGE IN VALUE OF SECURITIES ON LOAN.
15
Report of Independent Registered Public Accounting Firm
- --------------------------------------------------------------------------------
The Shareholders and Board of Directors
GE Investments Funds, Inc.
We have audited the accompanying statement of assets and liabilities of the
Small-Cap Equity Fund (formerly Small-Cap Value Equity Fund), a series of GE
Investments Funds, Inc., including the schedule of investments, as of December
31, 2005, and the related statement of operations for the year then ended, the
statements of changes in net assets for each of the years in the two-year period
then ended, and the financial highlights for each of the years in the five-year
period then ended. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included confirmation of
securities owned as of December 31, 2005 by correspondence with the custodians
and brokers, or by other appropriate auditing procedures where replies from
brokers were not received. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
Small-Cap Equity Fund as of December 31, 2005, and the results of its
operations, the changes in its net assets and the financial highlights for each
of the years described above, in conformity with U.S.
generally accepted accounting principles.
/S/KPMG LLP
Boston, Massachusetts
February 17, 2006
16
Tax Information (unaudited)
- --------------------------------------------------------------------------------
During the calendar year ended December 31, 2005, the Fund paid to shareholders
$0.33234 per share of long-term capital gain dividends.
17
Advisory and Administrative Agreement Renewal (unaudited)
- --------------------------------------------------------------------------------
The Fund Board, including the independent Board members, considered and
unanimously approved the continuance of the Fund's investment advisory and
sub-advisory agreements with GE Asset Management Incorporated ("GEAM") and the
Fund's sub-adviser at meetings held on December 9 and December 16, 2005.
In considering whether to approve the Fund's investment advisory and
sub-advisory agreements, the Board members, including the independent members,
considered and discussed a substantial amount of information and analysis
provided, at the Board's request, by GEAM and the sub-adviser. The Board members
also considered detailed information regarding performance and expenses of other
investment companies with similar investment objectives and sizes, which was
prepared by an independent third party provider, Lipper Inc. ("Lipper"). Before
approving the Fund's advisory and sub-advisory agreements, the Board members
reviewed the proposed continuance of the agreements with management of GEAM and
with independent legal counsel. The Board members also reviewed a memorandum
prepared by independent legal counsel discussing the legal standards for the
consideration of the proposed continuances. The independent Board members
discussed the proposed continuances in a private session with their independent
legal counsel at which no representatives of GEAM or the sub-adviser were
present.
In advance of the meeting, and in response to their request, the Board members
received from GEAM written responses to their inquiries, which included
substantial exhibits and other materials related to GEAM's business and the
services it provides to the Fund. The Board members took into account their
multi-year experience as Board members and particularly their consideration of
these agreements in 2004, noting that the information was presented in a similar
manner and format. To focus their review, the Board members asked GEAM
management, in its oral presentation, to highlight material differences from the
information presented in 2004. Also in advance of the meeting, the Board members
received from the sub-adviser a written response to a letter of inquiry prepared
by GEAM at the Board's request, which included substantial exhibits and other
materials related to the business of, and services provided by the sub-adviser.
During the meeting, the Board members had an opportunity to discuss this
information with GEAM managers, including senior executives, representatives
from the legal and compliance departments, and senior investment personnel. The
Board members also had an opportunity to hear presentations by representatives
of the sub-adviser. The Board members posed questions to these representatives
and engaged in substantive discussions with them concerning the sub-adviser's
investment process.
In reaching their determinations relating to continuance of the agreements, the
Board members considered all factors they believed relevant, including the
factors discussed below. In their deliberations, the Board members did not
identify any particular information that was all-important or controlling, and
each Board member attributed different weights to the various factors. In
particular, the Board members focused on the following:
THE NATURE, EXTENT AND QUALITY OF SERVICES PROVIDED.
The Board members reviewed the services provided by GEAM and the sub-adviser,
and the Board members, including the independent members, concurred that GEAM
and the sub-adviser provide high quality advisory and administrative services to
the Fund.
In connection with their consideration of GEAM's services specifically, the
Board members focused on the favorable attributes of GEAM, including (i) an
investment philosophy oriented toward long-term performance; (ii) effective
processes used in overseeing the sub-adviser's activities and with respect to
Fund administration, controllership and compliance activities; (iii) highly
skilled professionals with a depth of experience; (iv) access to significant
technological resources from which the Fund may benefit; and (v) a favorable
history and reputation. The Board members discussed with senior officers of GEAM
the personnel changes made, and proposed to be made, by GEAM, and that GEAM
would be expending significant sums to enhance services, including improvements
to its information technology capabilities. The Board members noted that the
Fund represents only a small portion of the assets managed by GEAM, but benefits
from a full array of services and resources provided by GEAM.
In connection with their consideration of the services provided by the
sub-adviser, the Board members focused on the sub-adviser's favorable attributes
relating to its investment philosophy and discipline, its high caliber
18
Advisory and Administrative Agreement Renewal (unaudited)
- --------------------------------------------------------------------------------
investment and trading personnel, its systems and other resources, including
research capabilities, and its favorable history and reputation.
In light of the foregoing, the Board members, including the independent members,
concluded that the services provided by GEAM and the sub-adviser were of a high
quality and had benefited the Fund.
INVESTMENT PERFORMANCE OF THE FUND.
The Board members considered the investment performance of the Fund for various
periods. The Board members reviewed detailed comparisons of the performance of
the Fund with the relevant securities indexes and peer groupings of mutual funds
prepared by Lipper with respect to various periods. The Board members also
engaged in detailed discussions with GEAM management and representatives of the
sub-adviser about the investment process, focusing on the Fund's investment
objective, the number and experience of portfolio management personnel, the
investment style and approach employed, the likely market cycles for the
investment style, and the relative underperformance of the Fund in certain
periods in light of the sub-adviser's commitment to long-term satisfactory
performance with respect to the Fund's investment objective and investment
approach. The Board members, including the independent members, concluded that
the Fund's performance was acceptable over the relevant periods, particularly
from a longer term perspective, which the Board members believed was most
relevant.
COST OF THE SERVICES TO BE PROVIDED AND PROFITS TO BE REALIZED FROM THE
RELATIONSHIP WITH THE FUND.
The Board members considered the cost of the services provided by GEAM and the
sub-adviser. The Board members reviewed the information they had requested from
GEAM and the sub-adviser concerning their profitability from the fees and
services they provide to the Fund and the financial condition of GEAM and the
sub-adviser for various past periods. The Board members considered the profit
margin information for GEAM's investment company business as a whole, as well as
GEAM's profitability data for the Fund. The Board members reviewed GEAM's
assumptions and the methods of cost allocation used by GEAM in preparing
Fund-specific profitability data. The Board members also discussed with GEAM the
basis for its belief that the methods of allocation used were reasonable and
consistent across its business. The Board members reviewed the assumptions and
cost allocation methods used by the sub-adviser in preparing its profitability
data.
The Board members noted and discussed the additional services provided by GEAM
to the Fund compared to other investment products managed by GEAM. The Board
members determined that GEAM and the sub-adviser should be entitled to earn a
reasonable level of profits for the services they provide to the Fund. The Board
members also recognized that GEAM had made significant investments in its
business and had not fully recovered the sums invested. Based on their review,
the Board members, including the independent members, concluded that they were
satisfied that the level of profitability achieved by GEAM and the sub-adviser
from their relationship with the Fund was not unreasonable or excessive.
THE EXTENT TO WHICH ECONOMIES OF SCALE WOULD BE REALIZED AS THE FUND GROWS AND
WHETHER FEE LEVELS WOULD REFLECT SUCH ECONOMIES OF SCALE.
The Board members considered the extent to which economies of scale would be
realized as the Fund grows, and whether fee levels reflect these economies of
scale for the benefit of Fund investors. The Board members considered the
substantial infrastructure investments that GEAM has made with respect to its
operations and its commitment to continue investing resources to enhance
services to Fund shareholders, including its anticipated information technology
expenditures. The Board members recognized the benefits to the Funds of GEAM's
past investment in its operations through the expenditure of sums to support its
substantial infrastructure, and that, in general, GEAM has not yet fully
recouped that investment. The Board members also recognized the benefits to the
Fund of being able to leverage a favorable cost structure achieved with respect
to the Fund's other operating expenses as a result of GEAM's large overall base
of assets under management and its vendor management practices. The Board
members considered the potential institution of advisory fee breakpoints for the
Fund, but concluded that GEAM had already appropriately shared the economies of
scale.
19
Advisory and Administrative Agreement Renewal (unaudited)
- --------------------------------------------------------------------------------
COMPARISON OF SERVICES TO BE RENDERED AND FEES TO BE PAID.
The Board members discussed the services provided to the Fund by GEAM, and the
fees charged for those services. The Board members reviewed information
concerning the fee and expense ratios for the Fund, and comparative information
with respect to similar products. They discussed that the Fund's figures were
within the applicable peer group range. The Board members considered that the
comparative data provided by Lipper showed no material difference from last year
in the fees being charged as compared to those being charged by other advisers
to similar investment products, as determined by Lipper. In addition, the Board
members considered their discussion with representatives of GEAM and the
sub-adviser about the fees being charged to the Fund and, to the extent
applicable, the potential effect, if any, of the Securities and Exchange
Commission staff's recently proposed soft dollar interpretation on those fees.
In light of the foregoing, the Board members, including the independent members,
determined that the advisory fees were reasonable in relation to the services
provided to the Fund.
The Board members reviewed comparative fee information with respect to any
comparable mutual fund client accounts managed by the sub-adviser and with
respect to any other client accounts managed by the sub-adviser in a similar
style to that of the Fund. The Board members, including the independent members,
concluded that, based on this information, the sub-advisory fees were reasonable
in light of the services provided to the Fund.
FALL-OUT BENEFITS.
The Board members considered other actual and potential financial benefits to
GEAM and the sub-adviser, including, to the extent applicable, soft dollar
commission benefits generated through Fund portfolio transactions. The Board
members noted, however, that the Fund benefits from the vast array of resources
available through GEAM, and that the Fund represents only a small portion of the
assets managed by GEAM.
CONCLUSION.
No single factor was determinative to the Board members' decision. Based on
their discussion and such other matters as were deemed relevant, the Board
members, including the independent members, concluded that the proposed advisory
fee and projected total expense ratios are reasonable in relation to the
services provided to the Fund. In view of these facts, the Board members,
including the independent members, concluded that the renewal of the advisory
agreement was in the best interests of the Fund and its shareholders, and that
renewal of the sub-advisory agreement was in the best interest of the
shareholders of the Fund.
20
Additional Information (unaudited)
- --------------------------------------------------------------------------------
INFORMATION ABOUT DIRECTORS AND EXECUTIVE OFFICERS:
The business and affairs of the Company are managed under the direction of the
Company's Board of Directors. Information pertaining to the Directors and
officers of the Company is set forth below.
INTERESTED DIRECTORS AND EXECUTIVE OFFICERS
- --------------------------------------------------------------------------------
MICHAEL J. COSGROVE
- --------------------------------------------------------------------------------
ADDRESS c/o GEAM 3001 Summer St. Stamford, CT 06905
AGE 56
POSITION(S) HELD WITH FUND Chairman of the Board and President
TERM OF OFFICE AND LENGTH OF TIME SERVED Until successor is elected and
qualified - 9 years
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS Executive Vice President - Chief
Commercial Officer of GEAM (formerly President, GE Asset Management Services
division ("GEAMS") of GE Financial Assurance Holdings, Inc., an indirect
wholly-owned subsidiary of General Electric Company ("GE")), since February
1997; Vice President, GE Capital Corporation, an indirect wholly-owned
subsidiary of GE, since December 1999; Executive Vice President - Sales and
Marketing of GEAM, a wholly-owned subsidiary of GE that is registered as an
investment adviser under the Investment Advisers Act of 1940, as amended, since
March 1993; Director of GEAM since 1988.
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR 48
OTHER DIRECTORSHIPS HELD BY DIRECTOR Chairman of the Board and President of GE
Funds since 1993, and GE Institutional Funds and GE LifeStyle Funds since their
inception; Trustee of Elfun Funds, GE Savings & Security Funds and General
Electric Pension Trust since 1988; Trustee of Fordham University since 2003 and
Marymount College from 1994 through 2002.
- --------------------------------------------------------------------------------
ALAN M. LEWIS
- --------------------------------------------------------------------------------
ADDRESS c/o GEAM 3001 Summer St. Stamford, CT 06905
AGE 59
POSITION(S) HELD WITH FUND Director and Executive Vice President
TERM OF OFFICE AND LENGTH OF TIME SERVED Until successor is elected and
qualified - 6 years
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS Executive Vice President, General
Counsel and Secretary of GEAM since 1987
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR 48
OTHER DIRECTORSHIPS HELD BY DIRECTOR Trustee and Executive Vice President of GE
Funds, GE Institutional Funds and GE LifeStyle Funds since their inception.
Trustee of Elfun Funds, GE Savings & Security Funds and General Electric Pension
Trust since 1987.
21
Additional Information (unaudited)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SCOTT H. RHODES
- --------------------------------------------------------------------------------
ADDRESS c/o GEAM 3001 Summer St. Stamford, CT 06905
AGE 47
POSITION(S) HELD WITH FUND Treasurer
TERM OF OFFICE AND LENGTH OF TIME SERVED Until successor is elected and
qualified - less than one year
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS GEAM Mutual Funds Operations Manager
since September 2005; Treasurer of GE Institutional Funds, GE LifeStyle Funds
and GE Investments Funds since November 2005 and Elfun Funds and GE Savings &
Security Funds since September 2005; from August 2004 to September 2005 Vice
President, U.S. Trust Company, N.A. and Assistant Treasurer of Excelsior Funds,
Inc., Excelsior Funds Trust, and Excelsior Tax Exempt Funds, Inc.; from January
2004 to August 2004, Vice President BlackRock Financial Management, Inc.; from
December 1996 to November 2003, Controller - Mutual Funds, American Skandia
Investment Services, Inc. and Assistant Treasurer of American Skandia Trust and
American Skandia Advisor Funds, Inc.
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR N/A
OTHER DIRECTORSHIPS HELD BY DIRECTOR N/A
- --------------------------------------------------------------------------------
MATTHEW J. SIMPSON
- --------------------------------------------------------------------------------
ADDRESS c/o GEAM 3001 Summer St. Stamford, CT 06905
AGE 44
POSITION(S) HELD WITH FUND Vice President and Secretary
TERM OF OFFICE AND LENGTH OF TIME SERVED Until successor is elected and
qualified - 9 years
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS Senior Vice President and General
Counsel - Marketing and Client Services (formerly Asset Management Services), at
GEAM and Senior Vice President and General Counsel of GEAMS since February 1997;
from October 1992 to February 1997, Vice President and Associate General Counsel
of GEAM; Secretary of GE Funds since 1993 and Vice President since September
2003; Secretary of GE Institutional Funds and GE LifeStyle Funds since their
inception and Vice President since September 2003; Assistant Secretary of Elfun
Funds and GE Savings & Security Funds since 1998 and Vice President since
October 2003.
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR N/A
OTHER DIRECTORSHIPS HELD BY DIRECTOR N/A
- --------------------------------------------------------------------------------
JEANNE M. LAPORTA
- --------------------------------------------------------------------------------
ADDRESS c/o GEAM 3001 Summer St. Stamford, CT 06905
AGE 40
POSITION(S) HELD WITH FUND Vice President and Assistant Secretary
TERM OF OFFICE AND LENGTH OF TIME SERVED Until successor is elected and
qualified - 2 years
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS Vice President and Associate General
Counsel - Marketing and Client Services (formerly Asset Management Services) at
GEAM since May 1997; Vice President and Assistant Secretary of GE Funds, GE
Institutional Funds and GE LifeStyle Funds since September 2003; Vice President
and Assistant Secretary of Elfun Funds and GE Savings & Security Funds since
October 2003.
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR N/A
OTHER DIRECTORSHIPS HELD BY DIRECTOR N/A
22
Additional Information (unaudited)
- --------------------------------------------------------------------------------
NON-INTERESTED DIRECTORS
- --------------------------------------------------------------------------------
JOHN R. COSTANTINO
- --------------------------------------------------------------------------------
ADDRESS c/o GEAM 3001 Summer St. Stamford, CT 06905
AGE 59
POSITION(S) HELD WITH FUND Director
TERM OF OFFICE AND LENGTH OF TIME SERVED Until successor is elected and
qualified - 9 years
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS Managing Director, Walden Partners,
Ltd., consultants and investors, since August 1992.
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR 40
OTHER DIRECTORSHIPS HELD BY DIRECTOR Trustee of GE Funds since 1993, GE
Institutional Funds and GE LifeStyle Funds since their inception; Trustee of
Fordham University since 2002 and Marymount College from 2001 through 2002;
Neuroscience Research Institute since 1986; Diocesan Finance Counsel of the
Dioceses of Brooklyn & Queens since 2001; Gregorian University Foundation since
1994.
- --------------------------------------------------------------------------------
WILLIAM J. LUCAS
- --------------------------------------------------------------------------------
ADDRESS c/o GEAM 3001 Summer St. Stamford, CT 06905
AGE 58
POSITION(S) HELD WITH FUND Director
TERM OF OFFICE AND LENGTH OF TIME SERVED Until successor is elected and
qualified - 9 years
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS Vice President and Treasurer of
Fairfield University since 1983.
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR 40
OTHER DIRECTORSHIPS HELD BY DIRECTOR Trustee of GE Funds since 1993, and GE
Institutional Funds and GE LifeStyle Funds since their inception.
- --------------------------------------------------------------------------------
ROBERT P. QUINN
- --------------------------------------------------------------------------------
ADDRESS c/o GEAM 3001 Summer St. Stamford, CT 06905
AGE 69
POSITION(S) HELD WITH FUND Director
TERM OF OFFICE AND LENGTH OF TIME SERVED Until successor is elected and
qualified - 9 years
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS Retired since 1983 from Salomon
Brothers Inc.
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR 40
OTHER DIRECTORSHIPS HELD BY DIRECTOR GP Financial Corp, holding company; The
Greenpoint Savings Bank, a financial institution. Trustee of GE Funds since
1993, and GE Institutional Funds and GE LifeStyle Funds since their inception.
- --------------------------------------------------------------------------------
The Statement of Additional Information for the Fund includes additional
information about the Directors and Officers and is available, without charge,
upon request by calling 1-800-242-0134.
23
Investment Team
- --------------------------------------------------------------------------------
INVESTMENT ADVISER AND ADMINISTRATOR
GE Asset Management Incorporated
BOARD OF DIRECTORS
Michael J.Cosgrove, CHAIRMAN
John R. Costantino
Alan M. Lewis
William J. Lucas
Robert P. Quinn
SECRETARY
Matthew J. Simpson
TREASURER
Scott H. Rhodes
ASSISTANT TREASURER
Christopher M. Isaacs
DISTRIBUTOR
GE Investment Distributors, Inc.
Member NASD and SIPC
COUNSEL
Sutherland, Asbill & Brennan, LLP
CUSTODIAN
State Street Bank & Trust Company
INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM
KPMG LLP
OFFICERS OF THE INVESTMENT ADVISER
John H. Myers, CHIEF EXECUTIVE OFFICER
David B. Carlson, EVP, DOMESTIC EQUITIES
Michael J. Cosgrove, EVP, CHIEF COMMERCIAL OFFICER
Robert A. MacDougall, EVP, FIXED INCOME (RETIRED FROM ALL POSITIONS AS OF
JANUARY 31, 2006)
Kathryn D. Karlic, EVP, FIXED INCOME (AS OF FEBRUARY 1, 2006)
Ralph R. Layman, EVP, INTERNATIONAL EQUITIES
Alan M. Lewis, EVP, GENERAL COUNSEL AND SECRETARY
Don W. Torey, EVP, ALTERNATIVE INVESTMENTS AND REAL ESTATE
John J. Walker, EVP, CHIEF FINANCIAL OFFICER
24
[This page intentionally left blank.]
INVESTMENT ADVISER
GE ASSET MANAGEMENT INCORPORATED
3001 SUMMER STREET
PO BOX 7900
STAMFORD, CT 06904-7900
DISTRIBUTOR
GE INVESTMENT DISTRIBUTORS, INC.
MEMBER NASD AND SIPC
3001 SUMMER STREET
PO BOX 7900
STAMFORD, CT 06904-7900
- --------------------------------------------------------------------------------
The Fund files its complete schedule of portfolio holdings with the Securities
and Exchange Commission for the first and third quarters of each fiscal year on
Form N-Q. The Fund's Forms N-Q, as well as a description of the policies and
procedures that the Fund uses to determine how to vote proxies (if any) relating
to portfolio securities is available without charge (i) upon request, by calling
1-800-242-0134; (ii) on the Fund's website at HTTP://WWW.GEFUNDS.COM; and (iii)
on the Commission's website at HTTP://WWW.SEC.GOV. The Fund's Forms N-Q may be
reviewed and copied at the Commission's Public Reference Room in Washington, DC
- - information on the operation of the Public Reference Room may be obtained by
calling 1-800-SEC-0330.
Information (if any) regarding how the Fund voted proxies relating to portfolio
securities during the most recently disclosed 12-months period ended June 30 is
available without charge (i) through the Fund's website at
HTTP://WWW.GEFUNDS.COM; and (ii) on the Commission's website at
HTTP://WWW.SEC.GOV.
- --------------------------------------------------------------------------------
[GE LOGO OMITTED]
GE Investments Funds, Inc.
International Equity Fund
Annual Report
DECEMBER 31, 2005
[GE LOGO OMITTED]
GE Investments Funds, Inc.
International Equity Fund Contents
- --------------------------------------------------------------------------------
MANAGER REVIEW AND SCHEDULE OF INVESTMENTS ............................... 1
NOTES TO PERFORMANCE ..................................................... 8
NOTES TO SCHEDULE OF INVESTMENTS ......................................... 8
FINANCIAL STATEMENTS
Financial Highlights ................................................ 9
Statement of Assets and Liabilities ................................. 10
Statement of Operations ............................................. 11
Statements of Changes in Net Assets ................................. 12
Notes to Financial Statements ....................................... 13
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM .................. 18
TAX INFORMATION .......................................................... 19
ADVISORY AND ADMINISTRATIVE AGREEMENT RENEWAL ............................ 20
ADDITIONAL INFORMATION ................................................... 23
INVESTMENT TEAM .......................................................... 26
This report is prepared for Policyholders of certain variable contracts and may
be distributed to others only if preceded or accompanied by the variable
contract's current prospectus and the current prospectus of the Funds available
for investments thereunder.
International Equity Fund
- --------------------------------------------------------------------------------
Q&A
THE INTERNATIONAL EQUITY FUND IS MANAGED BY A TEAM OF PORTFOLIO MANAGERS THAT
INCLUDES BRIAN HOPKINSON, RALPH R. LAYMAN, JONATHAN L. PASSMORE, MICHAEL J.
SOLECKI AND JUDITH A. STUDER. AS LEAD PORTFOLIO MANAGER FOR THE FUND, MR. LAYMAN
(PICTURED BELOW) OVERSEES THE ENTIRE TEAM AND ASSIGNS A PORTION OF THE FUND TO
EACH MANAGER, INCLUDING HIMSELF.
RALPH R. LAYMAN IS A DIRECTOR AND EXECUTIVE VICE PRESIDENT OF GE ASSET
MANAGEMENT. HE MANAGES THE OVERALL INTERNATIONAL EQUITY INVESTMENTS FOR GE ASSET
MANAGEMENT. MR. LAYMAN HAS LED THE TEAM OF PORTFOLIO MANAGERS FOR THE FUND SINCE
1997. MR. LAYMAN JOINED GE ASSET MANAGEMENT IN 1991 AS SENIOR VICE PRESIDENT FOR
INTERNATIONAL INVESTMENTS AND BECAME AN EXECUTIVE VICE PRESIDENT IN 1992.
BRIAN HOPKINSON IS A SENIOR VICE PRESIDENT OF GE ASSET MANAGEMENT. HE HAS BEEN A
PORTFOLIO MANAGER FOR THE FUND SINCE SEPTEMBER 1997. PRIOR TO JOINING GE ASSET
MANAGEMENT, MR. HOPKINSON WORKED FOR FIDUCIARY TRUST INTERNATIONAL IN BOTH
LONDON AND NEW YORK.
JONATHAN L. PASSMORE IS A SENIOR VICE PRESIDENT OF GE ASSET MANAGEMENT. HE HAS
SERVED AS A PORTFOLIO MANAGER OF THE FUND SINCE JANUARY 2002. PRIOR TO JOINING
GE ASSET MANAGEMENT IN JANUARY 2001, HE WAS WITH MERRILL LYNCH FOR SIX YEARS,
MOST RECENTLY AS DIRECTOR, INTERNATIONAL EQUITY.
MICHAEL J. SOLECKI IS A SENIOR VICE PRESIDENT OF GE ASSET MANAGEMENT. HE HAS
SERVED AS A PORTFOLIO MANAGER OF THE FUND SINCE SEPTEMBER 1997 HE JOINED GE
ASSET MANAGEMENT IN 1990 AS AN INTERNATIONAL EQUITY ANALYST. HE BECAME A VICE
PRESIDENT FOR INTERNATIONAL EQUITY PORTFOLIOS IN 1996 AND SENIOR VICE PRESIDENT
IN 2000.
JUDITH A. STUDER IS A SENIOR VICE PRESIDENT OF GE ASSET MANAGEMENT. SHE HAS
SERVED AS A PORTFOLIO MANAGER OF THE FUND SINCE SEPTEMBER 1997. MS. STUDER
JOINED GE ASSET MANAGEMENT IN AUGUST 1984. SHE BECAME SENIOR VICE PRESIDENT --
DOMESTIC EQUITIES IN 1991 AND SENIOR VICE PRESIDENT -- INTERNATIONAL EQUITIES IN
1995.
Q. HOW DID THE INTERNATIONAL EQUITY FUND PERFORM COMPARED TO ITS BENCHMARK AND
LIPPER PEER GROUP FOR THE TWELVE-MONTH PERIOD ENDED DECEMBER 31, 2005?
A. For the twelve-month period ended December 31, 2005, the International
Equity Fund returned 18.19%. The MSCI EAFE Index, the Fund's benchmark,
returned 13.54% and the Fund's Lipper peer group of 127 International Core
funds returned an average of 14.83% for the same period.
Q. WHAT MARKET CONDITIONS IMPACTED FUND PERFORMANCE?
A. The international markets experienced strong absolute returns despite a
major recovery in the value of the U.S. Dollar. Reforms in Japan sparked a
powerful rally in the second half of the year, while emerging markets
continued to outperform, driven by sustained global growth. A strong U.S.
Dollar helped foreign exporters regain some competitive advantage after
three years of Dollar weakness.
[PHOTO OF RALPH R. LAYMAN OMITTED]
- --------------------------------------------------------------------------------
1
International Equity Fund
- --------------------------------------------------------------------------------
Q&A
Q. WHAT WORLD EVENTS HAD A MAJOR IMPACT ON FINANCIAL MARKETS?
A. The record-high energy prices and Asia's massive demand for raw materials
provided a field day for the owners of these assets but high prices put
pressure on consumers. Rising interest rates and weakness in overseas
currencies sparked a major turnaround in the U.S. Dollar, which supported
global companies over smaller, local operators. Inflation fears briefly
loomed late in the year but subsided in the face of cheap consumer products
flooding the major markets.
Q. WHICH STOCKS AND SECTORS SIGNIFICANTLY AFFECTED THE FUND'S PERFORMANCE?
A. Emerging energy plays, including Lukoil (Russia) and Petrobras (Brazil),
were major contributors, as were oil service stocks such as Stolt Offshore
(Norway). Japanese financials including Mitsubishi Estates (property) and
Nomura Holdings (brokerage) rallied strongly in the second half, and IT
holdings including Samsung Electronics (Korea) and Nidec (Japan - brushless
motors) also made major contributions. Weakness was seen in stocks where
competition was fierce such as in Smith & Nephew (UK - healthcare equipment)
and where the consumer is over-stretched as witnessed with UK food retailer
Tesco.
Q. DID THE WEIGHTINGS/COUNTRY ALLOCATION OF THE FUND CHANGE?
A. The overall weight to emerging markets was reduced during the period as
strong performances led to tactical trims of some stocks. The cash from
these sells was redeployed into new opportunities in Japan, raising the
weight in that country to the highest levels in many years, although the
Fund is still underweight versus the index. There was a modest increase in
the weight in the Pacific Rim, mainly in real estate opportunities, and
equally modest reductions in UK and European holdings.
Q. WHAT WERE THE MAJOR BUYS AND SELLS FOR THE PERIOD AND WHY?
A. Holdings were added in Japanese companies that met our criteria, including
brokerage and retail banking, on renewed vigor in those industries.
Positions were added in real estate on a major shift in valuations and
technology due to sheer competitive superiority. There was also a shift from
energy asset plays to oil service stocks. Embraer (Brazil - aerospace),
Daikin (Japan - industrial) and Svenska Handelsbanken (Sweden) were
eliminated for valuation reasons. Other key sales, including Canon (Japan)
and Alcan (Canada), were due to competitive pressure or severe pricing
issues.
2
International Equity Fund
- --------------------------------------------------------------------------------
Understanding Your Fund's Expenses
As a shareholder of the Fund you incur transaction and ongoing expenses.
Transaction expenses including sales charges on purchase payments, reinvested
dividends (or other distributions), and redemption fees directly reduce the
investment return of the Fund. Ongoing costs include portfolio management fees,
distribution and service fees, professional fees, administrative fees and other
Fund expenses. The following example is intended to help you understand your
ongoing costs (in dollars) of investing in the Fund and to compare these costs
with the ongoing costs of investing in other mutual funds.
To illustrate these ongoing costs, we have provided an example and calculated
the expenses paid by investors during the period. The information in the
following table is based on an investment of $1,000, which is invested at the
beginning of the period and held for the entire six-month period ended December
31, 2005.
ACTUAL EXPENSES
The first section of the table provides information about actual account values
and actual expenses. You may use the information in this section, together with
the amount you invested, to estimate the expenses that you paid over the period.
To do so, simply divide your account value by $1,000 (for example, an $8,600
account value divided by $1,000 = 8.6), then multiply the result by the number
given for your class under the heading "Expenses Paid During Period."
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The second section of the table provides information about hypothetical account
values and hypothetical expenses based on the Fund's actual expense ratio and an
assumed rate of return of 5% per year before expenses, which is not the Fund's
actual return. You may use this information to compare the ongoing costs of
investing in the Fund and other funds. To do so, compare this 5% hypothetical
example with the 5% hypothetical examples that appear in the shareholders
reports of other funds.
Please note that the expenses shown in the table do not reflect any transaction
costs, such as sales charges or redemption fees.
JULY 1, 2005 - DECEMBER 31, 2005
- -----------------------------------------------------------------------------------------------------------
ACCOUNT VALUE AT ACCOUNT VALUE EXPENSES
THE BEGINNING OF AT THE END OF PAID DURING
THE PERIOD ($) THE PERIOD ($) THE PERIOD ($)*
- -----------------------------------------------------------------------------------------------------------
Actual Fund Return** 1,000.00 1,191.72 7.37
- -----------------------------------------------------------------------------------------------------------
Hypothetical 5% Return
(2.5% for the period) 1,000.00 1,018.27 6.83
- -----------------------------------------------------------------------------------------------------------
<FN>
* EXPENSES ARE EQUAL TO THE FUND'S ANNUALIZED EXPENSE RATIO OF 1.34% (FROM
PERIOD JULY 1, 2005 - DECEMBER 31, 2005), MULTIPLIED BY THE AVERAGE ACCOUNT
VALUE OVER THE PERIOD, MULTIPLIED BY 184/365 (TO REFLECT THE SIX MONTH
PERIOD).
** ACTUAL FUND RETURN FOR SIX-MONTH PERIOD ENDED DECEMBER 31, 2005 WAS:
19.17%.
</FN>
3
International Equity Fund
- --------------------------------------------------------------------------------
CHANGE IN VALUE
OF A $10,000 INVESTMENT
- --------------------------------------------------------------------------------
[LINE GRAPH OMITTED]
International Equity Fund MSCI EAFE
12/95 $10,000.00 $10,000.00
12/96 10,991.40 10,604.11
12/97 12,109.57 10,792.29
12/98 14,222.12 12,950.08
12/99 18,535.56 16,442.04
12/00 16,177.95 14,112.66
12/01 12,803.51 11,062.36
12/02 9,752.40 9,299.02
12/03 13,449.29 12,887.11
12/04 15,580.84 15,496.38
12/05 18,415.74 17,593.91
AVERAGE ANNUAL TOTAL RETURN
FOR THE PERIODS ENDED DECEMBER 31, 2005
- --------------------------------------------------------------------------------
ONE FIVE TEN
YEAR YEAR YEAR
- --------------------------------------------------------------------------------
International Equity Fund 18.19% 2.63% 6.30%
- --------------------------------------------------------------------------------
MSCI EAFE 13.54% 4.51% 5.81%
- --------------------------------------------------------------------------------
Lipper peer group average* 14.83% 3.93% 6.83%
- --------------------------------------------------------------------------------
Inception date 5/1/95
- --------------------------------------------------------------------------------
INVESTMENT PROFILE
A fund designed for investors who seek long-term growth of capital by investing
at least 80% of its net assets in equity securities under normal market
conditions. The Fund invests primarily in developed and developing countries
outside the United States.
TOP TEN LARGEST HOLDINGS
AS OF DECEMBER 31, 2005
as a % of Market Value
- --------------------------------------------------------------------------------
BHP Billiton PLC 2.55%
- --------------------------------------------------------------------------------
Nomura Holdings, Inc. 2.37%
- --------------------------------------------------------------------------------
Total S.A. 2.13%
- --------------------------------------------------------------------------------
GlaxoSmithKline PLC 2.08%
- --------------------------------------------------------------------------------
Roche Holding AG 1.98%
- --------------------------------------------------------------------------------
Koninklijke Philips Electronics N.V. 1.89%
- --------------------------------------------------------------------------------
Toyota Motor Corp. 1.84%
- --------------------------------------------------------------------------------
Ente Nazionale Idrocarburi S.p.A. 1.83%
- --------------------------------------------------------------------------------
Nestle S.A. (Regd.) 1.73%
- --------------------------------------------------------------------------------
Nokia OYJ 1.71%
- --------------------------------------------------------------------------------
PORTFOLIO COMPOSITION
AS OF DECEMBER 31, 2005
as a % of Market Value
- --------------------------------------------------------------------------------
Market Value of $73,292 (in thousands)
[PIE GRAPH OMITTED]
Pacific Rim 2.9%
Latin America 3.7%
Emerging Asia 5.6%
United States 12.4%
United Kingdom 17.1%
Japan 17.8%
Continental Europe 38.6%
Emerging Europe 0.8%
Canada 1.1%
* LIPPER PERFORMANCE COMPARISONS ARE BASED ON AVERAGE ANNUAL TOTAL RETURNS FOR
THE ONE YEAR, FIVE-YEAR AND TEN-YEAR PERIODS INDICATED IN THE INTERNATIONAL
PEER GROUP CONSISTING OF 127, 73 AND 38 UNDERLYING ANNUITY FUNDS,
RESPECTIVELY.
SEE NOTES TO PERFORMANCE ON PAGE 8 FOR FURTHER INFORMATION, INCLUDING AN
EXPLANATION OF LIPPER PEER CATEGORIES.
PAST PERFORMANCE DOES NOT PREDICT FUTURE PERFORMANCE AND THE GRAPH AND TABLE
DO NOT REFLECT THE DEDUCTION OF TAXES.
4
INTERNATIONAL EQUITY FUND
- --------------------------------------------------------------------------------
Schedule of Investments December 31, 2005
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
INTERNATIONAL EQUITY FUND
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NUMBER
OF SHARES VALUE
- --------------------------------------------------------------------------------
COMMON STOCK -- 98.1%+
- --------------------------------------------------------------------------------
BRAZIL -- 3.1%
Cia Vale do Rio Doce ADR ....... 30,364 $ 1,249,175
Petroleo Brasileiro S.A. ADR ... 11,770 757,635
2,006,810
CANADA -- 1.3%
Canadian National Railway Co. .. 5,189 413,734
Nortel Networks Corp. .......... 41,039 124,717(a)
Potash Corp of Saskatchewan .... 3,642 290,239
828,690
CHINA -- 0.5%
China Petroleum & Chemical Corp. 620,000 305,860
DENMARK -- 0.5%
Group 4 Securicor PLC .......... 109,267 307,578
EGYPT -- 0.3%
Orascom Construction Industries 4,359 167,106
FINLAND -- 1.9%
Nokia OYJ ...................... 68,868 1,255,054
FRANCE -- 11.3%
Accor S.A. ..................... 1,820 99,739(f)
AXA S.A. ....................... 25,096 806,950(f)
BNP Paribas .................... 14,060 1,133,549(e)
Carrefour S.A. ................. 9,723 453,934
Credit Agricole S.A. ........... 20,768 651,862
France Telecom S.A. ............ 15,120 374,352
Lagardere S.C.A. (Regd.) ....... 2,439 187,000(f)
LVMH Moet Hennessy
Louis Vuitton S.A. .......... 5,603 496,007(f)
Renault S.A. ................... 1,266 102,889(f)
Sanofi-Aventis ................. 7,287 636,058
Total S.A. ..................... 6,226 1,558,371(f)
Veolia Environnement ........... 19,659 886,739
7,387,450
GERMANY -- 5.6%
Allianz AG (Regd.) ............. 4,072 614,512
BASF AG ........................ 7,772 593,226
Bayerische Motoren Werke AG .... 3,001 131,151
E.ON AG ........................ 9,508 980,093
- --------------------------------------------------------------------------------
NUMBER
OF SHARES VALUE
- --------------------------------------------------------------------------------
Linde AG ....................... 4,339 $ 336,615
Siemens AG (Regd.) ............. 11,947 1,020,267
3,675,864
HONG KONG -- 1.8%
Hongkong Land Holdings Ltd. .... 114,999 361,097
Jardine Matheson Holdings Ltd. . 16,541 284,505
Sun Hung Kai Properties Ltd. (REIT) 55,930 546,420(f)
1,192,022
INDIA -- 1.6%
ICICI Bank Ltd. ADR ............ 14,134 407,059
Reliance Industries Ltd. GDR ... 16,683 659,479(b)
1,066,538
ITALY -- 5.3%
Banca Intesa S.p.A. ............ 106,862 564,070(f)
Ente Nazionale Idrocarburi S.p.A. 48,630 1,343,980(f)
Saipem S.p.A. .................. 17,780 290,677
Telecom Italia S.p.A ........... 16,408 40,547
UniCredito Italiano S.p.A. ..... 179,434 1,231,811(f)
3,471,085
JAPAN -- 20.0%
Acom Co. Ltd. .................. 8,133 522,309
Aiful Corp. .................... 700 58,417
Asahi Glass Co. Ltd. ........... 59,003 761,345(f)
Bank of Yokohama Ltd. .......... 67,506 551,921(f)
Chiyoda Corp. .................. 39,618 909,640(f)
Hoya Corp. ..................... 19,500 700,500
Komatsu Ltd. ................... 30,811 509,296
Kubota Corp. ................... 31,000 260,281(f)
Mitsubishi Estate Co. Ltd. ..... 55,982 1,162,043(f)
Mitsubishi UFJ Financial
Group, Inc. ................. 90 1,220,029
Mitsui Sumitomo
Insurance Co. Ltd. .......... 87,000 1,063,636
Nidec Corp. .................... 11,862 1,008,014(f)
Nomura Holdings, Inc. .......... 90,899 1,740,504
SMC Corp. ...................... 3,571 509,797
Tokyu Corp. .................... 28,000 197,848(f)
Toray Industries Inc. .......... 67,999 554,224
Toyota Motor Corp. ............. 25,997 1,347,976
13,077,780
MALAYSIA -- 0.4%
Malaysia International
Shipping Corp. BHD .......... 99,632 260,975
MEXICO -- 1.1%
America Movil S.A.
de C.V. ADR (Series L) ...... 25,179 736,738
See Notes to Schedule of Investments on page 8 and Notes to Financial
Statements.
5
INTERNATIONAL EQUITY FUND
- --------------------------------------------------------------------------------
Schedule of Investments December 31, 2005
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NUMBER
OF SHARES VALUE
- --------------------------------------------------------------------------------
NETHERLANDS -- 3.1%
ING Groep N.V. ................. 19,241 $ 664,985
Koninklijke Philips Electronics N.V. 44,852 1,388,761
2,053,746
NORWAY -- 2.1%
Stolt Offshore S.A. ............ 81,040 939,508(a)
Telenor ASA .................... 41,935 410,293
1,349,801
RUSSIA -- 0.6%
LUKOIL ADR ..................... 5,891 350,515(b)
LUKOIL ADR ..................... 647 38,173
388,688
SINGAPORE -- 1.4%
CapitaLand Ltd. ................ 230,000 475,824
Singapore Telecommunications Ltd. 291,896 458,172
............................... 933,996
SOUTH KOREA -- 2.5%
Kookmin Bank ................... 3,400 257,308(a)
Kookmin Bank ADR ............... 8,054 601,714
Samsung Electronics Co. Ltd. GDR 2,378 783,551(b)
1,642,573
SPAIN -- 2.3%
Banco Santander Central
Hispano S.A. (Regd.) ........ 70,832 931,581(f)
Telefonica S.A. ................ 37,393 560,599
Telefonica S.A. ADR ............ 295 13,281
1,505,461
SWEDEN -- 2.0%
Sandvik AB ..................... 16,445 764,538
Telefonaktiebolaget LM Ericsson 165,538 567,837
1,332,375
SWITZERLAND -- 9.0%
ABB Ltd. (Regd.) ............... 86,958 841,242(a)
Adecco S.A. (Regd.) ............ 6,487 298,276
Credit Suisse Group (Regd.) .... 19,637 998,277(e)
Holcim Ltd. (Regd.) ............ 6,040 410,167
Nestle S.A. (Regd.) ............ 4,257 1,269,396(e)
Novartis AG (Regd.) ............ 4,713 246,923
Roche Holding AG ............... 9,704 1,452,710
Swiss Reinsurance .............. 5,397 393,939
5,910,930
- --------------------------------------------------------------------------------
NUMBER
OF SHARES VALUE
- --------------------------------------------------------------------------------
TAIWAN -- 1.3%
Taiwan Semiconductor
Manufacturing Co. Ltd. ...... 426,889 $ 812,367
UNITED KINGDOM -- 19.1%
BG Group PLC ................... 52,652 519,292
BHP Billiton PLC ............... 114,526 1,866,836(e)
Brambles Industries PLC ........ 86,424 618,696
Diageo PLC ..................... 58,552 846,874
GlaxoSmithKline PLC ............ 60,358 1,522,172(e)
Group 4 Securicor PLC .......... 106,380 294,031
Kingfisher PLC ................. 39,460 160,720
Lloyds TSB Group PLC ........... 68,542 574,815
National Grid PLC 10,122 98,791
Prudential PLC ................. 65,321 616,769
Reed Elsevier PLC .............. 43,442 407,202
Rio Tinto PLC (Regd.) .......... 18,562 846,051
Royal Bank of Scotland Group PLC 29,791 897,572
Smith & Nephew PLC ............. 38,531 354,223
Smiths Group PLC ............... 53,468 960,136
Tesco PLC ...................... 144,430 821,955
Vodafone Group PLC ............. 392,461 845,566(e)
Wolseley PLC ................... 12,714 267,378
12,519,079
TOTAL INVESTMENTS IN SECURITIES
(COST $49,176,777) .......... 64,188,566
- --------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS -- 13.9%
- --------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS -- 1.9%
GEI Short Term Investment Fund
4.42% ....................... 1,244,990 1,244,990(c,g)
SHORT-TERM SECURITIES PURCHASED WITH
COLLATERAL FROM SECURITIES ON LOAN -- 12.0%
State Street Navigator Securities
Lending Prime Portfolio
4.29% ....................... 7,858,253 7,858,253(c,d)
TOTAL SHORT-TERM INVESTMENTS
(COST $9,103,243) ........... 9,103,243
TOTAL INVESTMENTS
(COST $58,280,020) .......... 73,291,809
LIABILITIES IN EXCESS OF OTHER ASSETS,
NET-- (12.0)% ............... (7,841,595)
-----------
NET ASSETS-- 100.0% ............ $65,450,214
===========
See Notes to Schedule of Investments on page 8 and Notes to Financial
Statements.
6
INTERNATIONAL EQUITY FUND
Schedule of Investments December 31, 2005
- --------------------------------------------------------------------------------
OTHER INFORMATION
- --------------------------------------------------------------------------------
The GEI International Equity had the following long futures contracts open at
December 31, 2005:
NUMBER CURRENT
EXPIRATION OF NOTIONAL UNREALIZED
DESCRIPTION DATE CONTRACTS VALUE APPRECIATION
- --------------------------------------------------------------------------------
DJ EURO STOXX 50
Index Futures March 2006 8 $338,578 $ 6,669
FTSE 100 Index
Futures March 2006 2 192,825 3,222
TOPIX Index
Futures March 2006 1 139,244 4,579
--------
$14,470
========
The GEI International Equity was invested in the following sectors at December
31, 2005:
SECTOR PERCENTAGE (BASED ON MARKET VALUE)
- --------------------------------------------------------------------------------
Financials 26.38%
Industrials 12.77%
Short-Term 12.42%
Energy 9.23%
Materials 8.39%
Information Technology 7.16%
Consumer Discretionary 5.90%
Healthcare 5.75%
Telecommunication Services 4.69%
Consumer Staples 4.63%
Utilities 2.68%
-------
100.00%
=======
See Notes to Schedule of Investments on page 8 and Notes to Financial
Statements.
7
Notes to Performance December 31, 2005 (unaudited)
- --------------------------------------------------------------------------------
Total returns take into account changes in share price and assume reinvestment
of dividends and capital gains distributions, 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.
Current performance may be lower or higher than that shown. You may call
toll-free (800) 242-0134 for performance information as of the most recent month
end.
Total returns do not reflect expenses associated with the separate account such
as administrative fees, account charges and surrender charges, which, if
reflected, would reduce the total returns for all periods shown.
Shares of the Fund are neither insured nor guaranteed by the U.S. Government,
and their prices will fluctuate with market conditions.
The Morgan Stanley Capital International EAFE Index (MSCI EAFE) is an unmanaged
index and do not reflect the actual cost of investing in the instruments that
comprise the index. The MSCI(R) EAFE(R) Index is a market
capitalization-weighted index of equity securities of companies domiciled in
various countries. The Index is designed to represent the performance of
developed stock markets outside the U.S. and Canada and excludes certain market
segments unavailable to U.S. based investors. The results shown for the
foregoing index 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 blend of Lipper peer categories, as shown. Lipper is
an independent mutual fund rating service. A Fund's performance may be compared
to or ranked within a universe of mutual funds with investment objectives and
policies similar but not necessarily identical to the Fund's. Such comparisons
or rankings are made on the basis of several factors, including the Fund's
objectives and policies, management style and strategy, and portfolio
composition, and may change over time if any of those factors change. Lipper is
an independent mutual fund rating service.
Notes to Schedule of Investments
- --------------------------------------------------------------------------------
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 current or 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.
(a) Non-income producing security.
(b) Pursuant to Rule 144A of the Securities Act of 1933, these securities may
be resold in transactions exempt from registration, normally to qualified
institutional buyers. At December 31, 2005, these securities amounted to
$1,793,545, or 2.74% of net assets for the GE Investments International
Equity Fund. These securities have been determined to be liquid using
procedures established by the Board of Trustees.
(c) Coupon amount represents effective yield.
(d) State Street Corp. is the parent company of State Street Bank & Trust Co.,
the Fund's custodian and accounting agent.
(e) At December 31, 2005, all or a portion of this security was pledged to
cover collateral requirements for futures, options, forward foreign
currency contracts and/or TBA's.
(f) All or a portion of the security is out on loan.
(g) GEAM, the investment adviser of the Fund, also serves as investment adviser
of the GEI Short Term Investment Fund.
+ Percentages are based on net assets as of December 31, 2005.
Abbreviations:
ADR American Depository Receipt
GDR Global Depository Receipt
REGD. Registered
REIT Real Estate Investment Trust
8
Financial Highlights
Selected data based on a share outstanding throughout the periods indicated
INTERNATIONAL EQUITY FUND
12/31/05 12/31/04 12/31/03 12/31/02 12/31/01
- -----------------------------------------------------------------------------------------------------------------------------------
INCEPTION DATE -- -- -- -- 5/1/95
Net asset value, beginning of period ......................... $9.76 $8.52 $6.23 $8.28 $10.61
INCOME/(LOSS) FROM INVESTMENT OPERATIONS:
Net investment income ..................................... 0.13 0.11 0.07 0.07 0.09
Net realized and unrealized
gains/(losses) on investments .......................... 1.65 1.24 2.29 (2.04) (2.30)
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL INCOME/(LOSS) FROM INVESTMENT OPERATIONS ............... 1.78 1.35 2.36 (1.97) (2.21)
- -----------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM:
Net investment income ..................................... 0.12 0.11 0.07 0.08 0.08
Net realized gains ........................................ -- -- -- -- 0.04
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS .......................................... 0.12 0.11 0.07 0.08 0.12
- -----------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD ............................... $11.42 $9.76 $8.52 $6.23 $8.28
===================================================================================================================================
TOTAL RETURN (A) ............................................. 18.19% 15.85% 37.91% (23.83)% (20.86)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in thousands) .................. $65,450 $55,714 $45,198 $31,683 $42,119
Ratios to average net assets:
Net investment income .................................. 1.19% 1.31% 1.13% 0.88% 0.99%
Expenses ............................................... 1.25% 1.15% 1.07% 1.09% 1.07%
Portfolio turnover rate ................................... 53% 38% 35% 42% 42%
<FN>
NOTES TO FINANCIAL HIGHLIGHTS
- -----------------------------------------------------------------------------------------------------------------------------------
(a) Total returns are historical and assume changes in share price and reinvestment of dividends and capital gains and
do not include the effect of insurance contract charges.
</FN>
See Notes to Financial Statements.
9
Statement of Assets INTERNATIONAL
and Liabilities DECEMBER 31, 2005 EQUITY FUND
- -------------------------------------------------------------------------------------------------------------------------
ASSETS
Investments in securities, at market* (cost $49,176,777)............................................... $64,188,566
Short-term investments (at amortized cost) ............................................................ 7,858,253
Short-term affiliated investments (at amortized cost).................................................. 1,244,990
Restricted cash**...................................................................................... 102,739
Foreign cash (cost $120,371)........................................................................... 119,825
Receivable for investments sold........................................................................ 30,821
Income receivables .................................................................................... 87,555
Receivable for fund shares sold........................................................................ 12
- -------------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS....................................................................................... 73,632,761
- -------------------------------------------------------------------------------------------------------------------------
LIABILITIES
Payable upon return of securities loaned............................................................... 7,858,253
Payable for investments purchased ..................................................................... 233,046
Payable for fund shares redeemed....................................................................... 2,220
Payable to GEAM........................................................................................ 82,365
Variation margin payable............................................................................... 6,663
- -------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES.................................................................................. 8,182,547
- -------------------------------------------------------------------------------------------------------------------------
NET ASSETS................................................................................................ $65,450,214
=========================================================================================================================
NET ASSETS CONSIST OF:
Capital paid in ....................................................................................... 57,573,103
Undistributed (distribution in excess of) net investment income........................................ 26,984
Accumulated net realized loss.......................................................................... (7,174,640)
Net unrealized appreciation/(depreciation) on:
Investments......................................................................................... 15,011,789
Futures............................................................................................. 14,470
Foreign currency related translation................................................................ (1,492)
- -------------------------------------------------------------------------------------------------------------------------
NET ASSETS................................................................................................ $65,450,214
=========================================================================================================================
Shares outstanding ($0.01 par value; unlimited shares authorized)......................................... 5,732,086
Net asset value per share................................................................................. $11.42
<FN>
* Includes of securities on loan.
** Cash on deposit with a broker as collateral for international futures contracts.
</FN>
See Notes to Financial Statements.
10
Statement of Operations INTERNATIONAL
FOR THE YEAR ENDED DECEMBER 31, 2005 EQUITY FUND
- -------------------------------------------------------------------------------------------------------------
INVESTMENT INCOME
INCOME:
Dividend ............................................................................... $ 1,502,441
Interest*............................................................................... 57,816
Interest from affliated investments..................................................... 36,374
Less: Foreign taxes withheld............................................................ (135,360)
- -------------------------------------------------------------------------------------------------------------
TOTAL INCOME.............................................................................. 1,461,271
- -------------------------------------------------------------------------------------------------------------
EXPENSES:
Advisory and administrative fees........................................................ 602,778
Custody and accounting expenses......................................................... 114,363
Professional fees....................................................................... 9,652
Transfer agent ......................................................................... 217
Director's fees......................................................................... 1,598
Registration expenses................................................................... 442
Other expenses.......................................................................... 18,758
- -------------------------------------------------------------------------------------------------------------
TOTAL EXPENSES............................................................................ 747,808
- -------------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME..................................................................... 713,463
=============================================================================================================
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS
REALIZED GAIN (LOSS) ON:
Investments.......................................................................... 6,819,261
Futures.............................................................................. 164,066
Foreign currency transactions........................................................ (64,527)
INCREASE (DECREASE) IN UNREALIZED APPRECIATION/
(DEPRECIATION) ON:
Investments.......................................................................... 2,832,649
Futures.............................................................................. (385)
Foreign currency translation......................................................... (7,176)
- -------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain on investments......................................... 9,743,888
- -------------------------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS...................................... $10,457,351
=============================================================================================================
<FN>
* Income attributable to security lending activity, net of rebate expenses, was $50,248.
</FN>
See Notes to Financial Statements.
11
Statements of INTERNATIONAL
Changes in Net Assets EQUITY FUND
- ---------------------------------------------------------------------------------------------------------------------
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
2005 2004
- ---------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net investments income............................................................ $ 713,463 $ 627,917
Net realized gain on investments, futures, written options,
foreign currency transactions and swaps......................................... 6,918,800 3,272,608
Net increase in unrealized appreciation/(depreciation)
on investments, futures, written options and foreign
currency translation ........................................................... 2,825,088 3,550,278
- ---------------------------------------------------------------------------------------------------------------------
Net increase from operations...................................................... 10,457,351 7,450,803
- ---------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income............................................................. (662,460) (615,816)
- ---------------------------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS................................................................. (662,460) (615,816)
- ---------------------------------------------------------------------------------------------------------------------
Increase in net assets from operations and distributions............................ 9,794,891 6,834,987
- ---------------------------------------------------------------------------------------------------------------------
SHARE TRANSACTIONS:
Proceeds from sale of shares ..................................................... 15,506,966 17,104,398
Value of distributions reinvested................................................. 662,453 615,816
Cost of shares redeemed........................................................... (16,228,136) (14,039,465)
- ---------------------------------------------------------------------------------------------------------------------
Net increase (decrease) from share transactions................................... (58,717) 3,680,749
- ---------------------------------------------------------------------------------------------------------------------
TOTAL INCREASE IN NET ASSETS........................................................ 9,736,174 10,515,736
NET ASSETS
Beginning of period ................................................................ 55,714,040 45,198,304
End of period ...................................................................... $ 65,450,214 $ 55,714,040
=====================================================================================================================
UNDISTRIBUTED (DISTRIBUTION IN EXCESS OF) NET INVESTMENT INCOME, END OF PERIOD......... $ 26,984 $ 40,737
- ---------------------------------------------------------------------------------------------------------------------
CHANGES IN PORTFOLIO SHARES
Shares sold....................................................................... 1,576,351 1,955,767
Issued for distributions reinvested............................................... 57,505 63,421
Shares redeemed................................................................... (1,607,573) (1,620,965)
- ---------------------------------------------------------------------------------------------------------------------
Net increase in fund shares............................................................ 26,283 398,223
=====================================================================================================================
See Notes to Financial Statements.
12
Notes to Financial Statements December 31, 2005
- --------------------------------------------------------------------------------
1. ORGANIZATION OF THE COMPANY
GE Investments Funds, Inc. (the "Company") was incorporated under the laws of
the Commonwealth of Virginia on May 14, 1984 and is registered under the
Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end
management investment company. The Company is composed of thirteen investment
portfolios (collectively the "Funds"), although only the following eleven are
currently being offered: U.S. Equity Fund, S&P 500 Index Fund, Premier Growth
Equity Fund, Value Equity Fund, Mid-Cap Equity Fund, Small-Cap Equity Fund
(formerly known as Small-Cap Value Equity Fund, prior to January 3, 2006),
International Equity Fund (the "Fund"), Total Return Fund, Income Fund, Money
Market Fund and Real Estate Securities Fund.
Shares of the Funds 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 Asset Management Incorporated ("GEAM"), the
investment adviser and administrator of each of the Funds.
As of December 31, 2005, GE Life and Annuity Assurance Company ("GE Life") and
General Electric Capital Assurance Company, each an affiliated insurance
company, controlled the Funds by ownership, through separate accounts, of
virtually all of the Funds' shares of beneficial interest.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The preparation of financial statements in conformity
with accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions at the date of the
financial statements. Actual results may differ from those estimates.
The following summarizes the significant accounting policies of the Company:
SECURITY VALUATION AND TRANSACTIONS 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. Securities listed on the NASDAQ will be
valued at the NASDAQ's official close price. Certain fixed income securities are
valued by a dealer or by a pricing service based upon a matrix system, which
considers market transactions as well as dealer supplied valuations. Short-term
investments maturing within sixty days are valued at amortized cost. If
quotations are not readily available for a portfolio security, or if it is
believed that a quotation or other market price for a portfolio security does
not represent its fair value, the security may be valued using procedures
approved by the Fund's Board of Directors that are designed to establish its
"fair value." These procedures require that the fair value of a security be
established by the valuation committee. The fair value committee follows
different protocols for different types of investments and circumstances.
Foreign securities may be valued with the assistance of an independent fair
value pricing service in circumstances where it is believed that they have been
or would be materially affected by events occurring after the close of the
portfolio security's primary market and before the close of regular trading on
the NYSE. This independent fair value pricing service uses a computerized system
to appraise affected securities and portfolios taking into consideration various
factors and the fair value of such securities may be something other than the
last available quotation or other market price. GE Asset Management may also
separately monitor portfolio securities and, consistent with the Fund's fair
value procedures, apply a different value to a portfolio security than would be
applied had it been priced using market quotations or by an independent fair
value pricing service.
Determining the fair value of securities involves the application of both
subjective and objective considerations. Security values may differ depending on
the methodology used to determine their values, and may differ from the last
quoted sale or closing price. No assurance can be given that use of these fair
value procedures will always better represent the price at which a Fund could
sell the affected portfolio security.
Security transactions are accounted for as of the trade date. Realized gains and
losses on investments sold are recorded on the basis of identified cost for both
financial statement and federal tax purposes.
REPURCHASE AGREEMENTS The Fund may enter into repurchase agreements. The Fund's
or a third party custodian takes possession of the collateral pledged for
investments in repurchase agreements on behalf of the Fund. The Fund values the
underlying collateral daily on a mark-to-market basis to determine that the
value, including accrued interest, is at least equal to 102% of the repurchase
price. In the event the seller defaults and the
13
Notes to Financial Statements December 31, 2005
- --------------------------------------------------------------------------------
value of the security declines, or if the seller enters an insolvency
proceeding, realization of the collateral by the Fund may be delayed or limited.
SECURITY LENDING The Fund may loan securities to brokers, dealers, and financial
institutions determined by GEAM to be creditworthy, subject to certain
limitations. The Fund continues to receive the interest and dividends on the
loaned securities during the term of the loan. The loans of securities are
secured by collateral in the form of cash or other liquid assets, which are
segregated and maintained with the custodian in an amount at least equal to 102%
of the current market value of the loaned securities. During the term of the
loan, the Fund will record any gain or loss in the market value of its loaned
securities and of securities in which cash collateral is invested. The Fund will
also earn interest, net of any rebate, from securities in which cash collateral
is invested. In the event the counterparty (borrower) does not meet its
contracted obligation to return the securities, the Fund may be exposed to the
risk of loss of reacquiring the loaned securities at prevailing market prices
using the proceeds of the sale of the collateral.
FOREIGN CURRENCY Accounting records of the Fund are maintained in U.S. dollars.
Investment securities and other assets and liabilities denominated in a foreign
currency are translated into U.S. dollars at the prevailing rates of exchange at
period end. Purchases and sales of securities, income receipts and expense
payments denominated in foreign currencies are translated into U.S. dollars at
the prevailing exchange rate on the respective dates of such transactions.
The Fund does not isolate the portion of the results of operations resulting
from changes in foreign exchange rates from the fluctuations arising from
changes in the market prices of securities during the period. Such fluctuations
are included in the net realized or unrealized gain or loss from investments.
Net realized gains or losses on foreign currency transactions represent net
gains or losses on sales and maturities of foreign currency contracts,
disposition of foreign currencies, the difference between the amount of net
investment income and withholding taxes accrued and the U.S. dollar amount
actually received or paid, and gains or losses between the trade and settlement
date on purchases and sales of securities. Net unrealized foreign exchange gains
and losses arising from changes in the value of other assets and liabilities as
a result of changes in foreign exchange rates are included as increases or
decreases in unrealized appreciation/depreciation on foreign currency related
transactions.
FUTURES CONTRACTS The Fund may invest in interest rate, financial or stock or
bond index futures contracts subject to certain limitations. The Fund may invest
in futures contracts to manage its exposure to the stock and bond markets and
fluctuations in currency values. Buying futures tends to increase the Fund's
exposure to the underlying instrument while selling futures tends to decrease
the Fund's exposure to the underlying instrument, or hedge other Fund
investments. The Fund will not enter into a transaction involving futures for
speculative purposes. The Fund's risks in using these contracts include changes
in the value of the underlying instruments, non-performance of the
counterparties under the contracts' terms and changes in the liquidity of the
secondary market for the contracts. Futures contracts are valued at the
settlement price established each day by the board of trade or exchange on which
they principally trade.
Upon entering into a futures contract, the Fund is required to pledge to the
broker an amount of cash and/or other assets equal to a certain percentage of
the contract amount, known as initial margin deposit. Subsequent payments, known
as variation margin, are made or received by the Fund each day, depending on the
daily fluctuation in the fair value of the underlying security. The Fund records
an unrealized gain or loss equal to the daily variation margin. Should market
conditions move unexpectedly, the Fund may not achieve the anticipated benefits
of the futures contracts and may incur a loss. The Fund recognizes a realized
gain or loss on the expiration or closing of a futures contract.
OPTIONS The Fund may purchase and write options, subject to certain limitations.
The Fund may invest in options contracts to manage its exposure to the stock and
bond markets and fluctuations in foreign currency values. Writing puts and
buying calls tend to increase the Fund's exposure to the underlying instrument
while buying puts and writing calls tend to decrease the Fund's exposure to the
underlying instrument, or hedge other Fund investments. The Fund will not enter
into a transaction involving options for speculative purposes. The Fund's risks
in using these contracts include changes in the value of the underlying
instruments, non-performance of the counterparties under the contracts' terms
and changes in
14
Notes to Financial Statements December 31, 2005
- --------------------------------------------------------------------------------
the liquidity of the secondary market for the contracts. Options are valued at
the last sale price, or if no sales occurred on that day, at the last quoted bid
price.
When the Fund writes an option, the amount of the premium received is recorded
as a liability and is subsequently adjusted to the current fair value of the
option written. Premiums received from writing options that expire unexercised
are treated by the Fund on the expiration date as realized gains from
investments. The difference between the premium and the amount paid on effecting
a closing purchase transaction, including brokerage commissions, is also treated
as a realized gain, or if the premium is less than the amount paid for the
closing purchase, as a realized loss. When an option is exercised, the proceeds
from the sale of the underlying security or the cost basis of the securities
purchased is adjusted by the original premium received or paid.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
The Fund may enter into forward foreign currency exchange contracts to
facilitate transactions in foreign denominated securities and to manage the
Fund's currency exposure. Forward foreign currency exchange contracts are valued
at the mean between the bid and the offered forward rates as last quoted by a
recognized dealer. The aggregate principal amounts of the contracts are not
recorded in the Fund's financial statements. Such amounts appear under the
caption forward foreign currency contracts in the Schedule of Investments.
Fluctuations in the value of the contracts are recorded in the Statement of
Assets and Liabilities as an asset (or liability) and in the Statement of
Operations as unrealized appreciation (depreciation) until the contracts are
closed, when they are recorded as realized gains or losses on foreign currency
related transactions. The Fund's risks in using these contracts include changes
in the value of foreign currency or the possibility that the counterparties do
not perform under the contracts' terms. When the Fund enters into a forward
foreign currency exchange contract, it is required to segregate cash or liquid
securities with its custodian in an amount equal to the value of the Fund's
total assets committed to the consummation of the forward contract. If the value
of the segregated securities declines, additional cash or securities is
segregated so that the value of the account will equal the amount of the Fund's
commitment with respect to the contract.
INVESTMENTS IN FOREIGN MARKETS Investments in foreign markets may involve
special risks and considerations not typically associated with investing in the
United States. These risks include revaluation of currencies, high rates of
inflation, repatriation on income and capital, and adverse political and
economic developments. Moreover, securities issued in these markets may be less
liquid, subject to government ownership controls, tariffs and taxes, subject to
delays in settlements, and their prices may be more volatile.
The Fund may be subject to capital gains and repatriation taxes imposed by
certain countries in which it invests. Such taxes are generally based on income
and/or capital gains earned or repatriated. Taxes are accrued based upon net
investment income, net realized gains and net unrealized appreciation as income
and/or capital gains are earned.
INCOME TAXES The Fund intends to comply with all sections of the Internal
Revenue Code applicable to regulated investment companies including the
distribution of substantially all of its taxable net investment income and net
realized capital gains to its shareholders. Therefore, no provision for federal
income tax has been made. The Fund is treated as a separate taxpayer for federal
income tax purposes.
At December 31, 2005, information on the tax components of capital is as
follows:
Cost of Gross Tax Gross Tax Net Tax Appreciation/
Investments for Unrealized Unrealized (Depreciation)
Tax Purposes Appreciation Depreciation on Investments
- -------------------------------------------------------------------------------------------------------------------
$58,523,576 $15,435,758 $(667,525) $14,768,233
Net Tax Appreciation/ Undistributed Undistributed Post
(Depreciation) on Income/ Long-Term Gains/ October
Derivatives, Currency (Accumulated (Accumulated Losses
and Other Net Assets Ordinary Loss) Capital Loss) (see Detail Below)
- -------------------------------------------------------------------------------------------------------------------
$12,978 $32,482 $(6,931,084) $(5,498)
15
Notes to Financial Statements December 31, 2005
- --------------------------------------------------------------------------------
As of December 31, 2005, the Fund has capital loss carryovers as indicated
below. Capital loss carryovers are available to offset future realized capital
gains to the extent provided in the Internal Revenue Code and regulations
thereunder. To the extent that these carryover losses are used to offset future
capital gains, it is probable that the gains so offset will not be distributed
to shareholders because they would be taxable as ordinary income.
Amount Expires
- --------------------------------------------------------------------------------
$2,393,579 12/31/10
4,537,505 12/31/11
During the year ended December 31, 2005, the Fund utilized approximately
$6,861,177 of capital loss carryovers.
Any net capital and currency losses incurred after October 31, within the Fund's
tax year, are deemed to arise on the first day of the Fund's next tax year if
the Fund so elects to defer such losses.
The Fund elected to defer losses incurred after October 31, 2005 as follows:
Capital Currency
- --------------------------------------------------------------------------------
$-- $5,498
The tax composition of distributions paid (other than return of capital
distributions for the year) during the year ended December 31, 2005 was as
follows:
Ordinary Long-Term
Income Capital Gains Total
- --------------------------------------------------------------------------------
$662,460 $-- $662,460
DISTRIBUTIONS TO SHAREHOLDERS The Fund declares and pays dividends from net
investment income annually. The Fund declares and pays net realized capital
gains in excess of capital loss carryforwards 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 (but are not limited to) futures,
treatment of realized gains and losses on foreign currency contracts, and losses
deferred due to wash sale transactions. Reclassifications due to permanent
book/tax differences are made to the Fund's capital accounts to reflect income
and gains available for distribution (or available capital loss carryovers)
under income tax regulations. These reclassifications have no impact on net
investment income, realized gains or losses, or the net asset value of the Fund.
The calculation of net investment income per share in the Financial Highlights
table excludes these adjustments.
The reclassifications for the year ended December 31, 2005 were as follows:
Undistributed
(Distribution
in Excess of)
Net Investment Accumulated Paid in
Income Net Realized Loss Capital
- --------------------------------------------------------------------------------
$(64,756) $64,527 $229
INVESTMENT INCOME Corporate actions (including cash dividends) are recorded on
the ex-dividend date, net of applicable withholding taxes, except for certain
foreign corporate actions, which are recorded as soon after ex-dividend date as
such information becomes available. Interest income is recorded on the accrual
basis. All discounts and premiums on bonds are accreted to call or maturity
date, whichever is shorter, using the effective yield method.
EXPENSES Expenses of the Company which are directly identifiable to one of the
Funds are allocated to that portfolio. Expenses which are not directly
identifiable to one of the Funds are allocated in such a manner as deemed
equitable, taking into consideration the nature and type of expenses and
relative sizes of the Funds. All expenses of the Fund are paid by GEAM and
reimbursed by the Fund.
3. LINE OF CREDIT
The Fund shares a revolving credit facility of up to $25 million with a number
of its affiliates. The credit facility is with its custodian bank, State Street
Bank and Trust Company. The revolving credit facility requires the payment of a
commitment fee equal to 0.09% per annum on the daily unused portion of the
credit facility, payable quarterly. The portion borne by the Funds generally is
borne proportionally based upon net assets. Generally, borrowings under the
credit facility would accrue interest at the Federal Funds Rate plus 50 basis
points and is borne by each of the borrowing Funds. The maximum amount allowed
to be borrowed by any one of the Funds is the lesser of its prospectus
limitation, 20% of its net assets, or $25 million. The credit facility was not
utilized by the Fund during the period ended December 31, 2005.
16
Notes to Financial Statements December 31, 2005
- --------------------------------------------------------------------------------
4. AMOUNTS PAID TO AFFILIATES
ADVISORY AND ADMINISTRATION FEES GEAM, 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 Fund. Compensation of GEAM for
investment advisory and administrative services is paid monthly based on the
average daily net assets of the Fund. The advisory and administrative fee is
stated in the following schedule:
Annualized based on
average daily net assets
-------------------------------------------
Average Daily Advisory and
Net Assets Administration
of Fund Fees
-------------------------------------------
First $100 million 1.00%
Next $100 million .95%
Over $200 million .90%
GENPACT (formerly General Electric Capital International Services*) performs
certain accounting and certain administration services not provided by GEAM. For
the year ending December 31, 2005, $743 was charged to the Fund. Administrative
services not performed by GEAM or GENPACT were provided by an unaffiliated
service provider.
* AS OF SEPTEMBER 28, 2005, THE NAME WAS CHANGED FROM GENERAL ELECTRIC CAPITAL
INTERNATIONAL SERVICES TO GENPACT.
DIRECTORS' COMPENSATION The Fund pays no compensation to its directors who are
officers or employees of GEAM or its affiliates. Directors who are not such
officers or employees also serve in a similar capacity for other funds advised
by GEAM. Compensation paid to unaffiliated directors are reflected on the
Statement of Operations. These fees are allocated pro rata across all of the
mutual fund platforms and share classes served by the directors, including the
Fund, and are based upon the relative net assets of each fund within such
platforms. (For additional information about directors compensation please refer
to the Statement of Additional Information.)
5. INVESTMENT TRANSACTIONS
PURCHASES AND SALES OF SECURITIES The cost of purchases and the proceeds from
sales of investments, other than short-term securities and options, for the
period ended December 31, 2005 were as follows:
Purchases Sales
- --------------------------------------------------------------------------------
$30,689,862
SECURITY LENDING At December 31, 2005, the Fund participated in securities
lending:
Loaned
securities at Cash
market value Collateral*
- --------------------------------------------------------------------------------
$7,452,931 $7,836,844
* COLLATERAL OF $7,858,253 DECREASED BY $21,409 ON JANUARY 3, 2006 TO REFLECT
THE DECEMBER 30, 2005 CHANGE IN VALUE OF SECURITIES ON LOAN.
17
Report of Independent Registered Public Accounting Firm
The Shareholders and Board of Directors
GE Investments Funds, Inc.
We have audited the accompanying statement of assets and liabilities of the
International Equity Fund, a series of GE Investments Funds, Inc., including the
schedule of investments, as of December 31, 2005, and the related statement of
operations for the year then ended, the statements of changes in net assets for
each of the years in the two-year period then ended, and the financial
highlights for each of the years in the five-year period then ended. These
financial statements and financial highlights are the responsibility of the
Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included confirmation of
securities owned as of December 31, 2005 by correspondence with the custodians
and brokers, or by other appropriate auditing procedures where replies from
brokers were not received. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
International Equity Fund as of December 31, 2005, and the results of its
operations, the changes in its net assets and the financial highlights for each
of the years described above, in conformity with U.S. generally accepted
accounting principles.
/S/KPMG LLP
Boston, Massachusetts
February 17, 2006
18
Tax Information (unaudited)
- --------------------------------------------------------------------------------
The Fund intends to make an election under Internal Revenue Code Section 853.
The election will allow shareholders to treat their attributable share of
foreign taxes paid by them directly. For the calendar year ended December 31,
2005, the total amount of incoame received by the Fund from sources within
foreign countries and possession of the United States was $1,527,290 and the
total amount of taxes paid by the Fund was $133,201.
19
Advisory and Administrative Agreement Renewal (unaudited)
- --------------------------------------------------------------------------------
The Fund Board, including the independent Board members, considered and
unanimously approved the continuance of the Fund's investment advisory agreement
with GE Asset Management Incorporated ("GEAM") at meetings held on December 9
and December 16, 2005.
In considering whether to approve the Fund's investment advisory agreement, the
Board members, including the independent members, considered and discussed a
substantial amount of information and analysis provided, at the Board's request,
by GEAM. The Board members also considered detailed information regarding
performance and expenses of other investment companies with similar investment
objectives and sizes, which was prepared by an independent third party provider,
Lipper Inc. ("Lipper"). The Board members reviewed the fees charged by GEAM for
other mutual funds and investment products other than mutual funds that employ
the same investment strategy as the Fund. Before approving the Fund's advisory
agreement, the Board members reviewed the proposed continuance of the agreement
with management of GEAM and with independent legal counsel. The Board members
also reviewed a memorandum prepared by independent legal counsel discussing the
legal standards for the consideration of the proposed continuance. The
independent Board members discussed the proposed continuance in a private
session with their independent legal counsel at which no representatives of GEAM
were present.
In advance of the meeting, and in response to their request, the Board members
received from GEAM written responses to their inquiries, which included
substantial exhibits and other materials related to GEAM's business and the
services it provides to the Fund. The Board members took into account their
multi-year experience as Board members and particularly their consideration of
these agreements in 2004, noting that the information was presented in a similar
manner and format. To focus their review, the Board members asked GEAM
management, in its oral presentation, to highlight material differences from the
information presented in 2004. During the meeting, the Board members had an
opportunity to discuss this information with GEAM managers, including senior
executives, representatives from the legal and compliance departments, and
senior investment personnel. The Board members posed questions to these
representatives and engaged in substantive discussions with them concerning
GEAM's investment process.
In reaching their determination relating to continuance of the agreement, the
Board members considered all factors they believed relevant, including the
factors discussed below. In their deliberations, the Board members did not
identify any particular information that was all-important or controlling, and
each Board member attributed different weights to the various factors. In
particular, the Board members focused on the following:
THE NATURE, EXTENT AND QUALITY OF SERVICES PROVIDED.
The Board members reviewed the services provided
by GEAM, and the Board members, including the independent members, concurred
that GEAM provides high quality advisory and administrative services to the
Fund.
In connection with their consideration of GEAM's services, the Board members
focused on the favorable attributes of GEAM, including (i) an investment
philosophy oriented toward long-term performance; (ii) effective processes used
for selecting investments, selecting brokers and with respect to Fund
administration, controllership and compliance activities; (iii) highly skilled
professionals, including analysts, research professionals and portfolio managers
with a depth of experience; (iv) access to significant technological resources
from which the Fund may benefit; and (v) a favorable history and reputation. The
Board members discussed with senior officers of GEAM the personnel changes made,
and proposed to be made, by GEAM, and that GEAM would be expending significant
sums to enhance services, including improvements to its information technology
capabilities. The Board members noted that the Fund represents only a small
portion of the assets managed by GEAM, but benefits from a full array of
services and resources provided by GEAM. In light of these discussions, the
Board members, including the independent members, concluded that GEAM's services
were of a high quality and had benefited the Fund.
20
Advisory and Administrative Agreement Renewal (unaudited)
- --------------------------------------------------------------------------------
INVESTMENT PERFORMANCE OF THE FUND.
The Board members considered the investment performance of the Fund for various
periods. The Board members reviewed detailed comparisons of the performance of
the Fund with the relevant securities indexes and peer groupings of mutual funds
prepared by Lipper with respect to various periods. The Board members also
engaged in detailed discussions with GEAM management about the investment
process, focusing on the Fund's investment objective, the number and experience
of portfolio management personnel, the investment style and approach employed,
the likely market cycles for the investment style, and the relative
underperformance of the Fund in certain periods in light of GEAM's commitment to
long-term satisfactory performance with respect to the Fund's investment
objective and investment approach. The Board members, including the independent
members, concluded that the Fund's performance was acceptable over the relevant
periods, particularly from a longer term perspective, which the Board members
believed was most relevant.
COST OF THE SERVICES TO BE PROVIDED AND PROFITS TO BE REALIZED FROM THE
RELATIONSHIP WITH THE FUND.
The Board members considered the cost of the services provided by GEAM. The
Board members reviewed the information they had requested from GEAM concerning
its profitability from the fees and services it provides to the Fund and the
financial condition of GEAM for various past periods. The Board members
considered the profit margin information for GEAM's investment company business
as a whole, as well as GEAM's profitability data for the Fund. The Board members
reviewed GEAM's assumptions and the methods of cost allocation used by GEAM in
preparing Fund-specific profitability data. The Board members also discussed
with GEAM the basis for its belief that the methods of allocation used were
reasonable and consistent across its business.
The Board members noted and discussed the additional services provided by GEAM
to the Fund compared to other investment products managed by GEAM. The Board
members determined that GEAM should be entitled to earn a reasonable level of
profits for the services it provides to the Fund. The Board members also
recognized that GEAM had made significant investments in its business and had
not fully recovered the sums invested. Based on their review, the Board members,
including the independent members, concluded that they were satisfied that the
level of profitability achieved by GEAM from its relationship with the Fund was
not unreasonable or excessive.
THE EXTENT TO WHICH ECONOMIES OF SCALE WOULD BE REALIZED AS THE FUND GROWS AND
WHETHER FEE LEVELS WOULD REFLECT SUCH ECONOMIES OF SCALE.
The Board members considered the extent to which economies of scale would be
realized as the Fund grows, and whether fee levels reflect these economies of
scale for the benefit of Fund investors. The Board members considered the
substantial infrastructure investments that GEAM has made with respect to its
operations and its commitment to continue investing resources to enhance
services to Fund shareholders, including its anticipated information technology
expenditures. The Board members recognized the benefits to the Funds of GEAM's
past investment in its operations through the expenditure of sums to support its
substantial infrastructure, and that, in general, GEAM has not yet fully
recouped that investment. The Board members reviewed the applicable advisory fee
breakpoints for the Fund and concluded that no changes were needed. The Board
members recognized the economies of scale benefits derived by the Fund as a
result of this fee structure. The Board members also recognized the benefits to
the Fund of being able to leverage a favorable cost structure achieved with
respect to the Fund's other operating expenses as a result of GEAM's large
overall base of assets under management and its vendor management practices.
COMPARISON OF SERVICES TO BE RENDERED
AND FEES TO BE PAID.
The Board members discussed the services provided to the Fund by GEAM, and the
fees charged for those services. The Board members reviewed information
concerning the fee and expense ratios for the Fund, and comparative information
with respect to similar products. They discussed that the Fund's figures were
within the applicable peer group range. The Board members considered that the
comparative data provided by Lipper
21
Advisory and Administrative Agreement Renewal (unaudited)
- --------------------------------------------------------------------------------
showed no material difference from last year in the fees being charged as
compared to those being charged by other advisers to similar investment
products, as determined by Lipper. In addition, the Board members considered
their discussion with representatives of GEAM about the fees being charged to
the Fund and, to the extent applicable, the potential effect, if any, of the
Securities and Exchange Commission staff's recently proposed soft dollar
interpretation on those fees. In light of the foregoing, the Board members,
including the independent members, determined that the advisory fees were
reasonable in relation to the services provided to the Fund.
FALL-OUT BENEFITS.
The Board members considered other actual and potential financial benefits to
GEAM, including, to the extent applicable, soft dollar commission benefits
generated through Fund portfolio transactions. The Board members noted, however,
that the Fund benefits from the vast array of resources available through GEAM,
and that the Fund represents only a small portion of the assets managed by GEAM.
CONCLUSION.
No single factor was determinative to the Board members' decision. Based on
their discussion and such other matters as were deemed relevant, the Board
members, including the independent members, concluded that the proposed advisory
fee and projected total expense ratio are reasonable in relation to the services
provided to the Fund. In view of these facts, the Board members, including the
independent members, concluded that the renewal of the advisory agreement was in
the best interests of the Fund and its shareholders.
22
Additional Information (unaudited)
- --------------------------------------------------------------------------------
INFORMATION ABOUT DIRECTORS AND EXECUTIVE OFFICERS:
The business and affairs of the Company are managed under the direction of the
Company's Board of Directors. Information pertaining to the Directors and
officers of the Company is set forth below.
INTERESTED DIRECTORS AND EXECUTIVE OFFICERS
- --------------------------------------------------------------------------------
MICHAEL J. COSGROVE
- --------------------------------------------------------------------------------
ADDRESS c/o GEAM 3001 Summer St. Stamford, CT 06905
AGE 56
POSITION(S) HELD WITH FUND Chairman of the Board and President
TERM OF OFFICE AND LENGTH OF TIME SERVED Until successor is elected and
qualified - 9 years
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS Executive Vice President - Chief
Commercial Officer of GEAM (formerly President, GE Asset Management Services
division ("GEAMS") of GE Financial Assurance Holdings, Inc., an indirect
wholly-owned subsidiary of General Electric Company ("GE")), since February
1997; Vice President, GE Capital Corporation, an indirect wholly-owned
subsidiary of GE, since December 1999; Executive Vice President - Sales and
Marketing of GEAM, a wholly-owned subsidiary of GE that is registered as an
investment adviser under the Investment Advisers Act of 1940, as amended, since
March 1993; Director of GEAM since 1988.
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR 48
OTHER DIRECTORSHIPS HELD BY DIRECTOR Chairman of the Board and President of GE
Funds since 1993, and GE Institutional Funds and GE LifeStyle Funds since their
inception; Trustee of Elfun Funds, GE Savings & Security Funds and General
Electric Pension Trust since 1988; Trustee of Fordham University since 2003 and
Marymount College from 1994 through 2002.
- --------------------------------------------------------------------------------
ALAN M. LEWIS
- --------------------------------------------------------------------------------
ADDRESS c/o GEAM 3001 Summer St. Stamford, CT 06905
AGE 59
POSITION(S) HELD WITH FUND Director and Executive Vice President
TERM OF OFFICE AND LENGTH OF TIME SERVED Until successor is elected and
qualified - 6 years
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS Executive Vice President, General
Counsel and Secretary of GEAM since 1987
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR 48
OTHER DIRECTORSHIPS HELD BY DIRECTOR Trustee and Executive Vice President of GE
Funds, GE Institutional Funds and GE LifeStyle Funds since their inception.
Trustee of Elfun Funds, GE Savings & Security Funds and General Electric Pension
Trust since 1987.
23
Additional Information (unaudited)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SCOTT H. RHODES
- --------------------------------------------------------------------------------
ADDRESS c/o GEAM 3001 Summer St. Stamford, CT 06905
AGE 47
POSITION(S) HELD WITH FUND Treasurer
TERM OF OFFICE AND LENGTH OF TIME SERVED Until successor is elected and
qualified - less than one year
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS GEAM Mutual Funds Operations Manager
since September 2005; Treasurer of GE Institutional Funds, GE LifeStyle Funds
and GE Investments Funds since November 2005 and Elfun Funds and GE Savings &
Security Funds since September 2005; from August 2004 to September 2005 Vice
President, U.S. Trust Company, N.A. and Assistant Treasurer of Excelsior Funds,
Inc., Excelsior Funds Trust, and Excelsior Tax Exempt Funds, Inc.; from January
2004 to August 2004, Vice President BlackRock Financial Management, Inc.; from
December 1996 to November 2003, Controller - Mutual Funds, American Skandia
Investment Services, Inc. and Assistant Treasurer of American Skandia Trust and
American Skandia Advisor Funds, Inc.
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR N/A
OTHER DIRECTORSHIPS HELD BY DIRECTOR N/A
- --------------------------------------------------------------------------------
MATTHEW J. SIMPSON
- --------------------------------------------------------------------------------
ADDRESS c/o GEAM 3001 Summer St. Stamford, CT 06905
AGE 44
POSITION(S) HELD WITH FUND Vice President and Secretary
TERM OF OFFICE AND LENGTH OF TIME SERVED Until successor is elected and
qualified - 9 years
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS Senior Vice President and General
Counsel - Marketing and Client Services (formerly Asset Management Services), at
GEAM and Senior Vice President and General Counsel of GEAMS since February 1997;
from October 1992 to February 1997, Vice President and Associate General Counsel
of GEAM; Secretary of GE Funds since 1993 and Vice President since September
2003; Secretary of GE Institutional Funds and GE LifeStyle Funds since their
inception and Vice President since September 2003; Assistant Secretary of Elfun
Funds and GE Savings & Security Funds since 1998 and Vice President since
October 2003.
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR N/A
OTHER DIRECTORSHIPS HELD BY DIRECTOR N/A
- --------------------------------------------------------------------------------
JEANNE M. LAPORTA
- --------------------------------------------------------------------------------
ADDRESS c/o GEAM 3001 Summer St. Stamford, CT 06905
AGE 40
POSITION(S) HELD WITH FUND Vice President and Assistant Secretary
TERM OF OFFICE AND LENGTH OF TIME SERVED Until successor is elected and
qualified - 2 years
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS Vice President and Associate General
Counsel - Marketing and Client Services (formerly Asset Management Services) at
GEAM since May 1997; Vice President and Assistant Secretary of GE Funds, GE
Institutional Funds and GE LifeStyle Funds since September 2003; Vice President
and Assistant Secretary of Elfun Funds and GE Savings & Security Funds since
October 2003.
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR N/A
OTHER DIRECTORSHIPS HELD BY DIRECTOR N/A
24
Additional Information (unaudited)
- --------------------------------------------------------------------------------
NON-INTERESTED DIRECTORS
- --------------------------------------------------------------------------------
JOHN R. COSTANTINO
- --------------------------------------------------------------------------------
ADDRESS c/o GEAM 3001 Summer St. Stamford, CT 06905
AGE 59
POSITION(S) HELD WITH FUND Director
TERM OF OFFICE AND LENGTH OF TIME SERVED Until successor is elected and
qualified - 9 years
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS Managing Director, Walden Partners,
Ltd., consultants and investors, since August 1992.
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR 40
OTHER DIRECTORSHIPS HELD BY DIRECTOR Trustee of GE Funds since 1993, GE
Institutional Funds and GE LifeStyle Funds since their inception; Trustee of
Fordham University since 2002 and Marymount College from 2001 through 2002;
Neuroscience Research Institute since 1986; Diocesan Finance Counsel of the
Dioceses of Brooklyn & Queens since 2001; Gregorian University Foundation since
1994.
- --------------------------------------------------------------------------------
WILLIAM J. LUCAS
- --------------------------------------------------------------------------------
ADDRESS c/o GEAM 3001 Summer St. Stamford, CT 06905
AGE 58
POSITION(S) HELD WITH FUND Director
TERM OF OFFICE AND LENGTH OF TIME SERVED Until successor is elected and
qualified - 9 years
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS Vice President and Treasurer of
Fairfield University since 1983.
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR 40
OTHER DIRECTORSHIPS HELD BY DIRECTOR Trustee of GE Funds since 1993, and GE
Institutional Funds and GE LifeStyle Funds since their inception.
- --------------------------------------------------------------------------------
ROBERT P. QUINN
- --------------------------------------------------------------------------------
ADDRESS c/o GEAM 3001 Summer St. Stamford, CT 06905
AGE 69
POSITION(S) HELD WITH FUND Director
TERM OF OFFICE AND LENGTH OF TIME SERVED Until successor is elected and
qualified - 9 years
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS Retired since 1983 from Salomon
Brothers Inc.
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR 40
OTHER DIRECTORSHIPS HELD BY DIRECTOR GP Financial Corp, holding company; The
Greenpoint Savings Bank, a financial institution. Trustee of GE Funds since
1993, and GE Institutional Funds and GE LifeStyle Funds since their inception.
- --------------------------------------------------------------------------------
The Statement of Additional Information for the Fund includes additional
information about the Directors and Officers and is available, without charge,
upon request by calling 1-800-242-0134.
25
Investment Team
INVESTMENT ADVISER AND ADMINISTRATOR
GE Asset Management Incorporated
BOARD OF DIRECTORS
Michael J.Cosgrove, CHAIRMAN
John R. Costantino
Alan M. Lewis
William J. Lucas
Robert P. Quinn
SECRETARY
Matthew J. Simpson
TREASURER
Scott H. Rhodes
ASSISTANT TREASURER
Christopher M. Isaacs
DISTRIBUTOR
GE Investment Distributors, Inc.
Member NASD and SIPC
COUNSEL
Sutherland, Asbill & Brennan, LLP
CUSTODIAN
State Street Bank & Trust Company
INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM
KPMG LLP
OFFICERS OF THE INVESTMENT ADVISER
John H. Myers, CHIEF EXECUTIVE OFFICER
David B. Carlson, EVP, DOMESTIC EQUITIES
Michael J. Cosgrove, EVP, CHIEF COMMERCIAL OFFICER
Robert A. MacDougall, EVP, FIXED INCOME (RETIRED FROM ALL POSITIONS AS
OF JANUARY 31, 2006)
Kathryn D. Karlic, EVP, FIXED INCOME (AS OF FEBRUARY 1, 2006)
Ralph R. Layman, EVP, INTERNATIONAL EQUITIES
Alan M. Lewis, EVP, GENERAL COUNSEL AND SECRETARY
Don W. Torey, EVP, ALTERNATIVE INVESTMENTS AND REAL ESTATE
John J. Walker, EVP, CHIEF FINANCIAL OFFICER
26
[This page intentionally left blank.]
[This page intentionally left blank.]
[This page intentionally left blank.]
INVESTMENT ADVISER
GE ASSET MANAGEMENT INCORPORATED
3001 SUMMER STREET
PO BOX 7900
STAMFORD, CT 06904-7900
DISTRIBUTOR
GE INVESTMENT DISTRIBUTORS, INC.
MEMBER NASD AND SIPC
3001 SUMMER STREET
PO BOX 7900
STAMFORD, CT 06904-7900
- --------------------------------------------------------------------------------
The Fund files its complete schedule of portfolio holdings with the Securities
and Exchange Commission for the first and third quarters of each fiscal year on
Form N-Q. The Fund's Forms N-Q, as well as a description of the policies and
procedures that the Fund uses to determine how to vote proxies (if any) relating
to portfolio securities is available without charge (i) upon request, by calling
1-800-242-0134; (ii) on the Fund's website at HTTP://WWW.GEFUNDS.COM; and (iii)
on the Commission's website at HTTP://WWW.SEC.GOV. The Fund's Forms N-Q may be
reviewed and copied at the Commission's Public Reference Room in Washington, DC
- - information on the operation of the Public Reference Room may be obtained by
calling 1-800-SEC-0330.
Information (if any) regarding how the Fund voted proxies relating to portfolio
securities during the most recently disclosed 12-months period ended June 30 is
available without charge (i) through the Fund's website at
HTTP://WWW.GEFUNDS.COM; and (ii) on the Commission's website at
HTTP://WWW.SEC.GOV.
- --------------------------------------------------------------------------------
[GE LOGO OMITTED]
GE Investments Funds, Inc.
Total Return Fund
Annual Report
DECEMBER 31, 2005
[GE LOGO OMITTED]
GE Investments Funds, Inc.
Total Return Fund Contents
- --------------------------------------------------------------------------------
MANAGER REVIEW AND SCHEDULE OF INVESTMENTS ............................. 1
NOTES TO PERFORMANCE ................................................... 14
NOTES TO SCHEDULE OF INVESTMENTS ....................................... 15
FINANCIAL STATEMENTS
Financial Highlights .............................................. 16
Statement of Assets and Liabilities ............................... 17
Statement of Operations ........................................... 18
Statements of Changes in Net Assets ............................... 19
Notes to Financial Statements ..................................... 20
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ................ 26
TAX INFORMATION ........................................................ 27
ADVISORY AND ADMINISTRATIVE AGREEMENT RENEWAL .......................... 28
ADDITIONAL INFORMATION ................................................. 31
INVESTMENT TEAM ........................................................ 34
This report is prepared for Policyholders of certain variable contracts and may
be distributed to others only if preceded or accompanied by the variable
contract's current prospectus and the current prospectus of the Funds available
for investments thereunder.
Total Return Fund
- --------------------------------------------------------------------------------
Q&A
THE TOTAL RETURN FUND IS MANAGED BY A TEAM OF PORTFOLIO MANAGERS LED BY RALPH R.
LAYMAN, CHRISTOPHER D. BROWN, AND PAUL M. COLONNA (PICTURED BELOW FROM LEFT TO
RIGHT). EACH OF THE FOREGOING PORTFOLIO MANAGERS IS RESPONSIBLE FOR MANAGING ONE
OF THREE SUB-PORTFOLIOS: INTERNATIONAL EQUITY, U.S. EQUITY, AND FIXED INCOME.
MR. LAYMAN MANAGES THE INTERNATIONAL EQUITY SUB-PORTFOLIO, MR. BROWN MANAGES THE
U.S. EQUITY SUB-PORTFOLIO, AND MR. COLONNA MANAGES THE FIXED INCOME
SUB-PORTFOLIO.
RALPH R. LAYMAN IS A DIRECTOR AND EXECUTIVE VICE PRESIDENT OF GE ASSET
MANAGEMENT. HE MANAGES THE OVERALL INTERNATIONAL EQUITY INVESTMENTS FOR GE ASSET
MANAGEMENT. MR. LAYMAN MANAGES THE FOREIGN INVESTMENTS FOR THE TOTAL RETURN
FUND. HE HAS SERVED IN THIS CAPACITY SINCE 1997. MR. LAYMAN JOINED GE ASSET
MANAGEMENT IN 1991 AS SENIOR VICE PRESIDENT FOR INTERNATIONAL INVESTMENTS AND
BECAME AN EXECUTIVE VICE PRESIDENT IN 1992.
CHRISTOPHER D. BROWN IS A SENIOR VICE PRESIDENT OF GE ASSET MANAGEMENT. HE
MANAGES DOMESTIC EQUITY INVESTMENTS FOR THE TOTAL RETURN FUND AND HAS SERVED IN
THIS CAPACITY SINCE SEPTEMBER 2003. MR. BROWN JOINED GE ASSET MANAGEMENT IN 1985
AS A MANAGER OF FUND ACCOUNTING. HE BECAME A U.S. EQUITY ANALYST IN 1989, A VICE
PRESIDENT AND PORTFOLIO MANAGER IN 1992 AND A SENIOR VICE PRESIDENT IN 1996.
PAUL M. COLONNA IS A SENIOR VICE PRESIDENT OF GE ASSET MANAGEMENT. SINCE JANUARY
2005, HE HAS LED THE TEAM OF PORTFOLIO MANAGERS FOR THE FIXED INCOME INVESTMENTS
FOR GE ASSET MANAGEMENT AND HAS BEEN RESPONSIBLE FOR THE FIXED INCOME PORTION OF
THE TOTAL RETURN FUND. MR. COLONNA HAS SERVED ON THE FUND'S PORTFOLIO MANAGEMENT
TEAM SINCE JOINING GE ASSET MANAGEMENT IN 2000. PRIOR TO JOINING GE ASSET
MANAGEMENT, MR. COLONNA WAS A SENIOR PORTFOLIO MANAGER WITH THE FEDERAL HOME
LOAN MORTGAGE CORPORATION, OVERSEEING THE MORTGAGE INVESTMENT GROUP.
[PHOTO OF RALPH R. LAYMAN, CHRISTOPHER D. BROWN, AND PAUL M. COLONNA OMITTED]
- --------------------------------------------------------------------------------
1
Total Return Fund
- --------------------------------------------------------------------------------
Q. HOW DID THE TOTAL RETURN FUND PERFORM COMPARED TO ITS BENCHMARK AND LIPPER
PEER GROUP FOR THE TWELVE-MONTH PERIOD ENDED DECEMBER 31, 2005?
A. For the twelve-month period ended December 31, 2005, the Total Return Fund
returned 3.67%. The Fund's broad-based benchmarks, the S&P 500 Index and the
Lehman Brothers Aggregate Bond Index, returned 4.92% and 2.43%,
respectively. The Fund's Lipper peer group of 91 Flexible Portfolio funds
returned an average of 4.88% for the same period.
Q. WHAT WERE THE PRIMARY DRIVERS OF FUND PERFORMANCE DURING THE TWELVE-MONTH
PERIOD ENDED DECEMBER 31, 2005?
A. In the past twelve months, skyrocketing energy prices have weighed on the
stock market, and this concern intensified in the second half of the year,
as hurricanes Katrina and Rita disrupted U.S. petroleum production. With
crude oil prices above $60 a barrel, investors worried about the economy
slowing. Against this backdrop, the Federal Reserve Board endeavored to
dampen the inflationary effects of high energy costs, and tightened short
rates at a measured pace throughout the year. Within the stock market,
energy stocks remained strong (despite a 4th quarter pullback as commodity
prices moderated), many cyclical stocks declined, and less cyclical stocks
such as utilities and health care outperformed. Financials rallied late in
the year, as the market contemplated an end to the Federal Reserve's
tightening cycle. Large-cap stocks continued to lag the broad market, and
value stocks once again outperformed growth stocks - although the Russell
1000 Growth beat the Russell 1000 Value in the last three quarters of the
year.
For the year ending December 31, 2005, the sectors that negatively impacted
performance included consumer discretionary, financials, health care, and
information technology. An overweight position in the lagging sector
consumer discretionary sector was the single largest detractor from
portfolio performance for the year. The underperformance was driven by
declines in: media, namely Liberty Media (-16%) and Comcast (-22%);
specialty retailer Home Depot (-4%); and leisure company Carnival (-6%). The
financials sector returned a strong +6.5% relative to the benchmark during
the period and the Fund benefited from owning State Street (+15%), HCC
Insurance (+36%) and AFLAC (+18%); but this was not enough to offset the
negative impact of underweighting the sector and owning Citigroup (+5%) and
Fannie Mae (-30%). Health care detracted from portfolio performance during
the year as our holdings underperformed those of the benchmark sector.
Strong performances from Amgen (+23%) and Wyeth (+11%) were overshadowed by
lagging performance from holdings of Abbott (-13%) and Pfizer (-11%).
Additionally, an overweight position in information technology and
underperformance from portfolio holdings such as Dell (-29%) and Molex (-7%)
hurt relative performance.
The primary positive contributors to performance for the year were the
materials and energy sectors. Materials benefited from the strong
performance of our sole holding, Monsanto (+41%), which significantly
outperformed the sector return of +5%. The company continued to report solid
earnings and to provide positive guidance for future results. Despite the
Fund's underweight position in energy, the S&P 500 Index's best performing
sector (+31%), strong security selection drove outperformance relative to
the benchmark sector. Burlington Resources (+99%), Schlumberger (+47%) and
Nabors (+48%) were the biggest contributors to the Fund's outperformance in
this sector.
Despite recent challenges, we remain highly committed to investing in high
quality large-cap stocks with predictable and steady above-average earnings
growth. In the last twelve months we initiated positions in companies such
as Monsanto, which was one of the Fund's best performing stocks during the
period. In addition we eliminated names such as Burlington Resources and
Nabors during the year after they became fully valued and more attractive
investment options became available. The Fund remains overweight in
information technology, consumer discretionary and healthcare. During the
period, we added to positions in the energy, healthcare, materials, consumer
staples and information technology sectors. Over the year, we reduced our
position in telecom services and were net sellers of financial stocks. We
continue to believe that a portfolio comprised of high quality companies
will be well positioned for long-term results.
- --------------------------------------------------------------------------------
Q&A
In the fixed income markets, despite major problems announced by both
General Motors and Ford in the spring, hurricanes hitting the gulf coast in
early fall, and continued high energy prices, the U.S. economy maintained a
robust pace of growth in 2005. Low interest rates and new affordability
mortgage-products (e.g. interest-only, negative amortization) have helped
home sales stay at lofty levels. Consumer health improved which supported
spending and business investment improved as well. Although still moderate
by historical standards, inflation figures picked up slightly during the
year, which kept the Federal Reserve Board steadfast in its goal of removing
accommodation by raising rates. In 2005, the Federal Reserve Board met and
raised its target fed funds rate 8 times, in increments of 25 basis points
(bps) to 4.25%. As a result of the Federal Reserve's continued endorsement
of higher rates, the yield on the 2-year treasuries increased 133 bps to
4.4%. Due to moderate inflation expectations and strong foreign buying,
10-year treasury yields rose only 17 bps to 4.39%.
Primary drivers of Fund performance during the year were sector allocation
and curve positioning. The Fund made non-index allocations to high yield and
emerging market sectors and away from high grade benchmark sectors, as these
markets (especially emerging market debt) outperformed The Lehman Aggregate
benchmark. The Fund's yield curve exposure was positioned to take advantage
of a flattening yield curve, which proved correct as the yield spread
between 2-year and 10-year notes narrowed by 116 bps. Security selection in
BBB-rated corporate securities also added value. Duration positioning
throughout the year was detrimental to Fund performance.
The international markets experienced strong absolute returns despite a
major recovery in the value of the U.S. Dollar. Reforms in Japan sparked a
powerful rally in the second half of the year, while emerging markets
continued to outperform, driven by sustained global growth. A strong U.S.
Dollar helped foreign exporters regain some competitive advantage after
three years of Dollar weakness.
The record-high energy prices and Asia's massive demand for raw materials
provided a field day for the owners of these assets but high prices put
pressure on consumers. Rising interest rates and weakness in overseas
currencies sparked a major turnaround in the U.S. Dollar, which supported
global companies over smaller local operators. Inflation fears briefly
loomed late in the year but subsided in the face of cheap consumer products
flooding the major markets.
Emerging energy plays, including Lukoil (Russia) and Petrobras (Brazil),
were major contributors, as were oil service stocks such as Stolt Offshore
(Norway). Japanese financials including Mitsubishi Estates (property) and
Nomura Holdings (brokerage) rallied strongly in the second half, and IT
holdings including Samsung Electronics (Korea) and Nidec (Japan - brushless
motors) also made major contributions. Weakness was seen in stocks where
competition was fierce such as in Smith & Nephew (UK - healthcare equipment)
and where the consumer is over-stretched as witnessed with UK food retailer
Tesco.
The overall weight to emerging markets was reduced during the period as
strong performances led to tactical trims of some stocks. The cash from
these sells was redeployed into new opportunities in Japan, raising the
weight in that country to the highest levels in many years, although the
Fund is still underweight versus the index. There was a modest increase in
the weight in the Pacific Rim, mainly in real estate opportunities, and
equally modest reductions in UK and European holdings.
Holdings were added in Japanese companies that met our criteria, including
brokerage and retail banking, on renewed vigor in those industries.
Positions were added in the real estate sector because of a major shift in
valuations and technology sectors due to sheer competitive superiority.
There was also a shift from energy asset plays to oil service stocks.
Embraer (Brazil aerospace), Daikin (Japan - industrial) and Svenska
Handelsbanken (Sweden) were eliminated for valuation reasons. Other key
sales, including Canon (Japan) and Alcan (Canada), were made due to
competitive pressure or severe pricing issues.
3
Total Return Fund
- --------------------------------------------------------------------------------
Understanding Your Fund's Expenses
As a shareholder of the Fund you incur transaction and ongoing expenses.
Transaction expenses including sales charges on purchase payments, reinvested
dividends (or other distributions), and redemption fees directly reduce the
investment return of the Fund. Ongoing costs include portfolio management fees,
distribution and service fees, professional fees, administrative fees and other
Fund expenses. The following example is intended to help you understand your
ongoing costs (in dollars) of investing in the Fund and to compare these costs
with the ongoing costs of investing in other mutual funds.
To illustrate these ongoing costs, we have provided an example and calculated
the expenses paid by investors during the period. The information in the
following table is based on an investment of $1,000, which is invested at the
beginning of the period and held for the entire six-month period ended December
31, 2005.
ACTUAL EXPENSES
The first section of the table provides information about actual account values
and actual expenses. You may use the information in this section, together with
the amount you invested, to estimate the expenses that you paid over the period.
To do so, simply divide your account value by $1,000 (for example, an $8,600
account value divided by $1,000 = 8.6), then multiply the result by the number
given for your class under the heading "Expenses Paid During Period."
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The second section of the table provides information about hypothetical account
values and hypothetical expenses based on the Fund's actual expense ratio and an
assumed rate of return of 5% per year before expenses, which is not the Fund's
actual return. You may use this information to compare the ongoing costs of
investing in the Fund and other funds. To do so, compare this 5% hypothetical
example with the 5% hypothetical examples that appear in the shareholders
reports of other funds.
Please note that the expenses shown in the table do not reflect any transaction
costs, such as sales charges or redemption fees.
JULY 1, 2005 - DECEMBER 31, 2005
- --------------------------------------------------------------------------------------------------------------------------------
ACCOUNT VALUE AT ACCOUNT VALUE EXPENSES
THE BEGINNING OF AT THE END OF PAID DURING
THE PERIOD ($) THE PERIOD ($) THE PERIOD ($)*
- --------------------------------------------------------------------------------------------------------------------------------
Actual Fund Return** 1,000.00 1,050.51 2.39
- --------------------------------------------------------------------------------------------------------------------------------
Hypothetical 5% Return
(2.5% for the period) 1,000.00 1,022.62 2.36
- --------------------------------------------------------------------------------------------------------------------------------
<FN>
* EXPENSES ARE EQUAL TO THE FUND'S ANNUALIZED EXPENSE RATIO OF 0.46% (FROM
PERIOD JULY 1, 2005 - DECEMBER 31, 2005), MULTIPLIED BY THE AVERAGE ACCOUNT
VALUE OVER THE PERIOD, MULTIPLIED BY 184/365 (TO REFLECT THE SIX MONTH
PERIOD).
** ACTUAL FUND RETURN FOR SIX-MONTH PERIOD ENDED DECEMBER 31, 2005 WAS: 5.05%.
</FN>
4
Total Return Fund
- --------------------------------------------------------------------------------
CHANGE IN VALUE
OF A $10,000 INVESTMENT
- --------------------------------------------------------------------------------
[LINE GRAPH OMITTED]
Total Return Fund S&P 500 Index LB Aggregate Bond Index
12/95 $10,000.00 $10,000.00 $10,000.00
12/96 11,059.64 12,311.39 10,363.06
12/97 13,048.82 16,409.82 11,363.50
12/98 15,280.25 21,119.11 12,350.60
12/99 17,304.87 25,568.45 12,249.16
12/00 18,160.39 23,220.38 13,673.26
12/01 17,635.61 20,454.37 14,827.75
12/02 15,993.37 15,933.57 16,348.34
12/03 19,242.21 20,510.99 17,019.36
12/04 20,817.81 22,742.86 17,757.79
12/05 21,581.74 23,861.46 18,189.04
AVERAGE ANNUAL TOTAL RETURN
FOR THE PERIODS ENDED DECEMBER 31, 2005
- --------------------------------------------------------------------------------
ONE FIVE TEN
YEAR YEAR YEAR
- --------------------------------------------------------------------------------
Total Return Fund 3.67% 3.51% 8.00%
- --------------------------------------------------------------------------------
S&P 500 Index 4.92% 0.55% 9.09%
- --------------------------------------------------------------------------------
LB Aggregate Bond Index 2.43% 5.87% 6.16%
- --------------------------------------------------------------------------------
Lipper peer group average* 4.88% 3.40% 7.89%
- --------------------------------------------------------------------------------
Inception date 7/1/85
- --------------------------------------------------------------------------------
INVESTMENT PROFILE
A fund designed for investors who seek the highest total return, composed of
current income and capital appreciation, as is consistent with prudent
investment risk by investing primarily in a combination of equity securities and
investment grade debt securities.
TOP TEN LARGEST HOLDINGS
AS OF DECEMBER 31, 2005
as a % of Market Value
- --------------------------------------------------------------------------------
U.S. Treasury Notes, 4.25%, 11/30/07 2.76%
- --------------------------------------------------------------------------------
U.S. Treasury Notes, 4.38%, 11/15/08 - 12/15/10 2.52%
- --------------------------------------------------------------------------------
Microsoft Corp. 2.01%
- --------------------------------------------------------------------------------
Exxon Mobil Corp. 1.93%
- --------------------------------------------------------------------------------
First Data Corp. 1.87%
- --------------------------------------------------------------------------------
U.S. Treasury Notes, 4.50%, 11/15/15 1.78%
- --------------------------------------------------------------------------------
American International Group, Inc. 1.64%
- --------------------------------------------------------------------------------
Wyeth 1.35%
- --------------------------------------------------------------------------------
The Home Depot, Inc. 1.34%
- --------------------------------------------------------------------------------
Pfizer Inc. 1.34%
- --------------------------------------------------------------------------------
PORTFOLIO COMPOSITION
AS OF DECEMBER 31, 2005
as a % of Market Value
- --------------------------------------------------------------------------------
Market Value of $1,033,195 (in thousands)
[PIE GRAPH OMITTED]
Short Term & Others 8.9%
Domestic Equity 46.7%
Foreign Equity 20.4%
Bonds & Notes 24.0%
* LIPPER PERFORMANCE COMPARISONS ARE BASED ON AVERAGE ANNUAL TOTAL RETURNS FOR
THE ONE YEAR, FIVE-YEAR, AND TEN-YEAR PERIODS INDICATED IN THE FLEXIBLE PEER
GROUP CONSISTING OF 91, 58 AND 42 UNDERLYING ANNUITY FUNDS, RESPECTIVELY.
SEE NOTES TO PERFORMANCE ON PAGE 14 FOR FURTHER INFORMATION, INCLUDING AN
EXPLANATION OF LIPPER PEER CATEGORIES.
PAST PERFORMANCE DOES NOT PREDICT FUTURE PERFORMANCE AND THE GRAPH AND TABLE
DO NOT REFLECT THE DEDUCTION OF TAXES.
5
TOTAL RETURN FUND
Schedule of Investments December 31, 2005
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
TOTAL RETURN FUND
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NUMBER
OF SHARES VALUE
- --------------------------------------------------------------------------------
DOMESTIC EQUITY -- 48.5%+
- --------------------------------------------------------------------------------
CONSUMER DISCRETIONARY -- 8.3%
Bed Bath & Beyond, Inc. ......... 64,071 $ 2,316,167(a)
Carnival Corp. .................. 223,835 11,968,457(g)
Comcast Corp. (Class A) ......... 476,363 12,237,765(a,g)
Discovery Holding Co. (Series A) 72,551 1,099,148(a,i)
eBay, Inc. ...................... 55,056 2,381,172(a)
Liberty Global Inc. (Series C) .. 129,324 2,741,669(a,i)
Liberty Global, Inc. (Series A) . 96,931 2,180,948(a)
Liberty Media Corp. (Series A) .. 1,504,702 11,842,005(a)
Omnicom Group, Inc. ............. 70,614 6,011,370
Target Corp. .................... 87,427 4,805,862
The Home Depot, Inc. ............ 342,981 13,883,871
Viacom Inc. (Class B) ........... 248,695 8,107,457
79,575,891
CONSUMER STAPLES -- 4.2%
Clorox Co. ...................... 67,251 3,825,909(i)
Colgate-Palmolive Co. ........... 227,937 12,502,344
PepsiCo, Inc. ................... 181,556 10,726,329
Sara Lee Corp. .................. 111,906 2,115,023
The Coca-Cola Co. ............... 280,214 11,295,426
40,465,031
ENERGY -- 4.4%
EOG Resources, Inc. ............. 44,834 3,289,471
Exxon Mobil Corp. ............... 355,311 19,957,819
Halliburton Co. ................. 89,534 5,547,527
Schlumberger Ltd. ............... 133,157 12,936,203
41,731,020
FINANCIALS -- 8.0%
AFLAC Incorporated .............. 104,441 4,848,151(g)
Alleghany Corp. ................. 337 95,708(a)
American International Group, Inc. 248,426 16,950,106(g)
Bank of America Corp. ........... 210,160 9,698,884(g)
Berkshire Hathaway, Inc. (Class B) 1,839 5,398,385(a)
Citigroup, Inc. ................. 124,415 6,037,860(g)
Federal National Mortgage Assoc. 211,393 10,318,092
HCC Insurance Holdings, Inc. .... 62,768 1,862,954
MBNA Corp. ...................... 184,044 4,996,795
Mellon Financial Corp. .......... 96,304 3,298,412
State Street Corp. .............. 174,853 9,693,850(d)
SunTrust Banks, Inc. ............ 49,318 3,588,378
76,787,575
HEALTHCARE -- 7.6%
Abbott Laboratories ............. 278,555 10,983,424(g)
Aetna, Inc. ..................... 42,279 3,987,333
- --------------------------------------------------------------------------------
NUMBER
OF SHARES VALUE
- --------------------------------------------------------------------------------
Amgen, Inc. ..................... 133,045 $ 10,491,929(a)
Johnson & Johnson ............... 228,811 13,751,541
Lincare Holdings Inc. ........... 145,487 6,097,360(a)
Pfizer Inc. ..................... 593,768 13,846,670
Wyeth ........................... 302,631 13,942,210
73,100,467
INDUSTRIALS -- 2.9%
Corinthian Colleges, Inc. ....... 103,734 1,221,987(a,i)
Dover Corp. ..................... 273,578 11,077,173
Southwest Airlines Co. .......... 311,149 5,112,178
Tyco International Ltd. ......... 246,207 7,105,534
United Technologies Corp. ....... 26,901 1,504,035
Waste Management, Inc. .......... 69,627 2,113,179
28,134,086
INFORMATION TECHNOLOGY -- 12.3%
Activision, Inc. ................ 78,460 1,078,040(a)
Automatic Data Processing, Inc. . 154,185 7,075,550(g)
Certegy, Inc. ................... 62,768 2,545,870
Checkfree Corp. ................. 33,626 1,543,433(a)
Cisco Systems, Inc. ............. 473,840 8,112,141(a)
Dell, Inc. ...................... 174,069 5,220,329(a)
EMC Corporation ................. 341,973 4,657,672(a)
First Data Corp. ................ 448,342 19,283,189(g)
Intel Corp. ..................... 364,278 9,092,379
Intuit Inc. ..................... 231,299 12,328,237(a)
Microsoft Corp. ................. 794,087 20,765,375
Molex Inc. (Class A) ............ 397,926 9,785,000(i)
Novellus Systems, Inc. .......... 176,579 4,259,085(a)
Oracle Corp. .................... 694,930 8,485,095(a)
Yahoo! Inc. ..................... 81,621 3,197,911(a)
117,429,306
MATERIALS -- 0.8%
Monsanto Co. .................... 103,208 8,001,716
TOTAL DOMESTIC EQUITY
(COST $452,240,444) .......... 465,225,092
- --------------------------------------------------------------------------------
FOREIGN EQUITY -- 22.0%
- --------------------------------------------------------------------------------
COMMON STOCK -- 21.9%
- --------------------------------------------------------------------------------
CONSUMER DISCRETIONARY -- 1.4%
Accor S.A. ...................... 5,649 309,576(i)
Bayerische Motoren Werke AG ..... 9,489 414,691(i)
Kingfisher PLC .................. 122,460 498,778
Koninklijke Philips Electronics N.V. 141,813 4,390,982
Lagardere S.C.A. (Regd.) ........ 7,712 591,285(i)
LVMH Moet Hennessy
Louis Vuitton S.A. ........... 17,715 1,568,224(i)
See Notes to Schedule of Investments on page 15 and Notes to Financial
Statements.
6
TOTAL RETURN FUND
Schedule of Investments December 31, 2005
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NUMBER
OF SHARES VALUE
- --------------------------------------------------------------------------------
Reed Elsevier PLC ............... 137,358 $ 1,287,519
Renault S.A. .................... 4,003 325,328(i)
Toyota Motor Corp. .............. 81,994 4,251,489
13,637,872
CONSUMER STAPLES -- 1.1%
Carrefour S.A. .................. 30,742 1,435,239(i)
Diageo PLC ...................... 185,132 2,677,679
Nestle S.A. (Regd.) ............. 13,459 4,013,344
Tesco PLC ....................... 456,503 2,597,971
10,724,233
ENERGY -- 2.2%
BG Group PLC .................... 166,451 1,641,661
China Petroleum &
Chemical Corp. ............... 1,936,000 955,072
Ente Nazionale Idrocarburi S.p.A. 182,466 5,042,786(i)
LUKOIL ADR ...................... 22,294 1,315,346(i)
Petroleo Brasileiro S.A. ADR .... 43,715 2,813,935(i)
Saipem S.p.A. ................... 56,238 919,410
Stolt Offshore S.A. ............. 256,013 2,967,993(a)
Total S.A. ...................... 22,816 5,710,856(i)
21,367,059
FINANCIALS -- 6.4%
Acom Co. Ltd. ................... 25,696 1,650,222
Aiful Corp. ..................... 2,400 200,288
Allianz AG (Regd.) .............. 12,875 1,942,987
AXA S.A. ........................ 79,350 2,551,462(i)
Banca Intesa S.p.A. ............. 322,710 1,703,420(i)
Banco Santander Central
Hispano S.A. (Regd.) ......... 214,227 2,817,510(i)
Bank of Yokohama Ltd. ........... 203,012 1,659,803
BNP Paribas ..................... 48,982 3,949,038(i)
CapitaLand Ltd. ................. 727,000 1,504,017
Credit Agricole S.A. ............ 62,813 1,971,563
Credit Suisse Group (Regd.) ..... 62,087 3,156,287
Hongkong Land Holdings Ltd. ..... 361,999 1,136,677
ICICI Bank Ltd. ADR ............. 40,094 1,154,707
ING Groep N.V. .................. 60,838 2,102,611
Jardine Matheson Holdings Ltd. .. 51,906 892,783
Kookmin Bank .................... 35,401 2,679,108(a)
Lloyds TSB Group PLC ............ 207,647 1,741,395
Mitsubishi Estate Co. Ltd. (REIT) 177,982 3,694,450(i)
Mitsubishi UFJ Financial
Group, Inc. .................. 309 4,188,766
Mitsui Sumitomo
Insurance Co. Ltd. ........... 276,000 3,374,295
Nomura Holdings, Inc. ........... 287,498 5,504,918
Prudential PLC .................. 206,369 1,948,562
Royal Bank of Scotland
Group PLC .................... 90,102 2,714,680
Sun Hung Kai Properties
Ltd. (REIT) .................. 176,476 1,724,121(i)
Swiss Reinsurance ............... 17,066 1,245,684
UniCredito Italiano S.p.A. ...... 619,767 4,254,688(i)
61,464,042
- --------------------------------------------------------------------------------
NUMBER
OF SHARES VALUE
- --------------------------------------------------------------------------------
HEALTHCARE -- 1.4%
GlaxoSmithKline PLC ............. 190,842 $ 4,812,855
Novartis AG (Regd.) ............. 14,901 780,693
Roche Holding AG ................ 30,683 4,593,312
Sanofi-Aventis .................. 23,040 2,011,085(i)
Smith & Nephew PLC .............. 121,825 1,119,961
13,317,906
INDUSTRIALS -- 3.1%
ABB Ltd. (Regd.) ................ 274,948 2,659,879(a)
Adecco S.A. (Regd.) ............. 20,586 946,555
Asahi Glass Co. Ltd. ............ 185,005 2,387,212(i)
Brambles Industries PLC ......... 276,847 1,981,905
Canadian National Railway Co. ... 16,405 1,308,018
Chiyoda Corp. ................... 124,676 2,862,594(i)
Group 4 Securicor PLC ........... 336,356 929,677
Group 4 Securicor PLC ........... 345,483 972,507
Komatsu Ltd. .................... 99,075 1,637,680
Kubota Corp. .................... 97,000 814,429(i)
Malaysia International Shipping
Corp. BHD .................... 314,982 825,062
Orascom Construction Industries . 5,075 194,555
Sandvik AB ...................... 51,694 2,403,284(i)
Siemens AG (Regd.) .............. 37,773 3,225,792
SMC Corp. ....................... 11,645 1,662,444
Smiths Group PLC ................ 169,058 3,035,809
Tokyu Corp. ..................... 91,000 643,006(i)
Wolseley PLC .................... 40,200 845,414
29,335,822
INFORMATION TECHNOLOGY -- 1.7%
Hoya Corp. ...................... 61,400 2,205,676
Nidec Corp. ..................... 37,614 3,196,377(i)
Nokia OYJ ....................... 217,718 3,967,703
Nortel Networks Corp. ........... 127,360 387,046(a)
Samsung Electronics Co. Ltd. .... 3,720 2,425,167
Taiwan Semiconductor
Manufacturing Co. Ltd. ....... 1,362,819 2,593,435
Telefonaktiebolaget LM Ericsson . 525,472 1,802,501
16,577,905
MATERIALS -- 1.9%
BASF AG ......................... 24,572 1,875,548
BHP Billiton PLC ................ 362,112 5,902,622
Cia Vale do Rio Doce ADR ........ 72,814 2,995,568(i)
Holcim Ltd. (Regd.) ............. 19,097 1,296,848
Linde AG ........................ 13,720 1,064,384
Potash Corp of Saskatchewan ..... 11,514 917,700
Rio Tinto PLC (Regd.) ........... 58,689 2,675,028
Toray Industries Inc. ........... 212,998 1,736,034
18,463,732
TELECOMMUNICATION SERVICES -- 2.0%
America Movil S.A.
de C.V. ADR (Series L) ....... 79,439 2,324,385
France Telecom S.A. ............. 47,806 1,183,617
See Notes to Schedule of Investments on page 15 and Notes to Financial
Statements.
7
TOTAL RETURN FUND
Schedule of Investments December 31, 2005
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NUMBER
OF SHARES VALUE
- --------------------------------------------------------------------------------
Singapore
Telecommunications Ltd. ...... 910,415 $ 1,429,025
Telecom Italia S.p.A ............ 49,757 122,957
Telefonica S.A. ................. 118,630 1,778,510
Telefonica S.A. ADR ............. 928 41,779
Telenor ASA ..................... 132,760 1,298,926
Vodafone Group PLC .............. 1,240,911 2,673,569
Vodafone Group PLC ADR .......... 363,112 7,796,015(i)
18,648,783
UTILITIES -- 0.7%
E.ON AG ......................... 30,063 3,098,920
National Grid PLC ............... 32,004 312,347
Veolia Environnement ............ 62,159 2,803,743(i)
6,215,010
TOTAL COMMON STOCK
(COST $181,082,506) .......... 209,752,364
PREFERRED STOCK -- 0.1%
Cia Vale do Rio Doce ADR ........ 27,211 986,399(i)
(Cost $421,459)
TOTAL FOREIGN EQUITY
(COST $181,503,965) .......... 210,738,763
PRINCIPAL
AMOUNT VALUE
- --------------------------------------------------------------------------------
BONDS AND NOTES -- 25.9%
- --------------------------------------------------------------------------------
U.S. TREASURIES -- 8.5%
U.S. Treasury Bonds
5.38% 02/15/31 ............$ 6,817,000 7,661,694(g)
8.13% 08/15/19 - 08/15/21 . 540,000 738,951(g)
U.S. Treasury Inflation-Protected
Securities
2.00% 01/15/14 ............ 571,266 568,455
3.88% 04/15/29 ............ 100,554 135,935
U.S. Treasury Notes
4.25% 11/30/07 ............ 28,640,000 28,559,808
4.38% 11/15/08 - 12/15/10 . 26,020,000 26,045,063(g)
4.50% 11/15/15 ............ 18,190,000 18,349,163
82,059,069
FEDERAL AGENCIES -- 0.4%
Federal Farm Credit Bank
3.75% 01/15/09 ............ 650,000 632,919(g)
Federal Home Loan Bank
2.38% 02/15/06 ............ 1,405,000 1,401,303(g)
Federal Home Loan Mortgage Corp.
3.63% 09/15/08 ............ 438,000 426,503(g)
4.13% 07/12/10 ............ 1,105,000 1,077,094(g)
4.75% 12/08/10 ............ 335,000 333,299(g)
6.75% 03/15/31 ............ 140,000 175,812(g)
4,046,930
- --------------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
- --------------------------------------------------------------------------------
AGENCY MORTGAGE BACKED -- 7.3%
Federal Home Loan Mortgage Corp.
4.50% 06/01/33 - 10/01/35 .$ 799,853 $ 752,611
5.00% 07/01/35 - 10/01/35 . 10,737,722 10,394,427
5.50% 05/01/20 ............ 131,868 132,649
6.00% 04/01/17 - 05/01/35 . 949,593 963,781
6.50% 01/01/27 - 12/01/34 . 717,447 735,025
7.00% 10/01/25 - 09/01/33 . 212,905 222,049
8.00% 01/01/30 - 11/01/30 . 19,549 20,950
9.00% 10/01/25 ............ 1,119 1,227
Federal National Mortgage Assoc.
4.00% 05/01/19 - 06/01/19 . 314,845 300,376
4.50% 05/01/18 - 02/01/35 . 3,614,709 3,479,049
5.00% 06/01/20 - 08/01/35 . 5,305,887 5,151,118
5.50% 04/01/14 - 08/01/35 . 2,418,826 2,416,604
6.00% 01/01/19 - 08/01/35 . 6,235,414 6,298,600
6.50% 09/01/17 - 02/01/35 . 2,823,684 2,895,240
7.00% 04/01/17 - 05/01/35 . 480,338 500,830
7.50% 12/01/09 - 03/01/34 . 164,612 172,405
8.00% 12/01/11 - 11/01/33 . 71,781 75,810
8.50% 06/01/30 244 264
9.00% 06/01/09 - 12/01/22 . 43,435 45,993
4.50% TBA ................. 855,000 831,754(b)
5.00% TBA ................. 11,950,000 11,672,841(b)
5.50% TBA ................. 7,005,000 6,934,950(b)
6.00% TBA ................. 13,000,000 13,117,806(b)
Government National
Mortgage Assoc.
4.50% 08/15/33 - 09/15/34 . 587,667 564,155
6.00% 04/15/27 - 06/15/35 . 646,634 661,826
6.50% 04/15/24 - 08/15/34 . 186,897 194,780
7.00% 03/15/12 - 06/15/34 . 74,588 77,406
8.00% 03/15/30 ............ 3,446 3,706
9.00% 11/15/16 - 12/15/21 . 28,219 30,875
5.50% TBA ................. 1,000,000 1,005,938(b)
69,655,045
AGENCY COLLATERALIZED MORTGAGE OBLIGATIONS -- 0.9%
Federal Home Loan Mortgage Corp.
2.28% 10/15/18 ............ 435,253 26,069(f,g,h)
2.78% 12/15/30 ............ 573,142 32,956(f,g,h)
4.08% 10/15/33 ............ 70,000 50,236(h)
4.50% 04/15/13 - 03/15/19 . 815,226 69,269(f)
4.50% 05/15/17 - 11/15/19 . 400,000 385,127
5.00% 01/15/11 - 12/01/34 . 5,331,772 1,052,139(f)
5.00% 05/15/20 - 02/15/35 . 2,665,000 2,529,944(g)
5.03% 12/15/33 ............ 45,000 35,475(h)
5.50% 04/15/17 - 06/15/33 . 297,407 45,870(f)
5.50% 10/15/34 ............ 313,289 315,917
7.50% 01/15/16 ............ 14,719 15,377
7.50% 07/15/27 ............ 8,531 1,777(f)
8.00% 02/01/23 - 07/01/24 . 6,374 1,534(f)
14.77% 09/25/43 ............ 613,217 6,823(c,f,h)
Federal Home Loan Mortgage STRIPS
4.72% 08/01/27 ............ 1,452 1,214(c,e)
See Notes to Schedule of Investments on page 15 and Notes to Financial
Statements.
8
TOTAL RETURN FUND
Schedule of Investments December 31, 2005
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
- --------------------------------------------------------------------------------
Federal National Mortgage Assoc.
1.16% 12/25/42 ............$ 358,201 $ 8,563(f,h)
2.23% 06/25/43 ............ 480,721 24,344(f,h)
3.22% 09/25/42 ............ 361,571 29,830(f,h)
3.27% 04/25/17 - 10/25/17 . 254,802 18,880(f,h)
3.32% 08/25/16 ............ 106,369 5,946(f,h)
4.50% 05/25/18 ............ 181,275 18,241(f)
4.50% 12/25/19 ............ 100,000 94,443
4.75% 11/25/14 ............ 39,120 3,184(f)
5.00% 02/25/11 - 02/25/32 . 98,229 6,360(f)
5.00% 03/25/35 ............ 175,000 165,399
5.44% 09/25/31 ............ 65,195 61,459(h)
5.50% 01/25/27 ............ 68,942 8,338(f)
5.50% 07/25/34 - 02/25/35 . 578,116 582,297(g)
5.75% 02/25/35 ............ 425,000 432,087
6.00% 12/25/34 ............ 150,000 153,011
6.50% 12/25/34 ............ 202,989 211,045
8.00% 07/25/14 ............ 58,199 59,831
Federal National Mortgage
Assoc. (Class 1)
4.21% 11/01/34 ............ 2,015,940 1,534,634(c,e)
Federal National Mortgage
Assoc. (Class S)
2.72% 02/25/31 ............ 104,405 5,092(f,h)
Federal National Mortgage
Assoc. REMIC
4.50% 11/25/13 ............ 238,177 11,156(f)
5.00% 10/25/22 ............ 140,679 21,373(f)
5.50% 08/25/33 ............ 706,141 163,294(f)
6.98% 03/25/31 ............ 110,576 109,055(h)
Federal National Mortgage Assoc.
REMIC (Class J)
1080.91% 03/25/22 ............ 19 307(f)
Federal National Mortgage Assoc.
REMIC (Class K)
1008.00% 05/25/22 ............ 8 239(f)
Federal National Mortgage Assoc.
STRIPS (Class 2)
7.50% 11/01/23 ............ 27,686 6,969(f)
8.00% 08/01/23 - 07/01/24 . 13,384 2,670(f)
Government National
Mortgage Assoc.
5.00% 02/16/34 ............ 65,000 61,702(g)
Vendee Mortgage Trust
16.77% 05/15/33 ............ 403,048 12,343(c,f,h)
8,381,819
ASSET BACKED -- 1.6%
American Express Credit Account
Master Trust (Class A)
4.50% 11/17/08 ............ 2,575,000 2,576,084(h)
Bank One Issuance Trust
3.59% 05/17/10 ............ 20,000 19,612
- --------------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
- --------------------------------------------------------------------------------
Bear Stearns Asset Backed
Securities Inc. (Class A)
4.75% 01/25/34 ............... $ 39,945 $ 40,031(g,h)
BMW Vehicle Owner Trust (Class B)
2.93% 03/25/09 ............ 28,000 27,673
Capital One Prime Auto Receivables
Trust (Class A)
4.45% 09/17/07 ............ 53,588 53,595(h)
Carmax Auto Owner Trust
4.35% 03/15/10 ............ 154,000 152,130
Citibank Credit Card Issuance Trust
4.45% 04/07/10 ............ 35,000 34,506
4.75% 03/07/08 ............ 275,000 275,125(h)
Citifinancial Mortgage Securities, Inc.
4.58% 04/25/34 ............ 17,995 17,997(g,h)
Countrywide Home Equity Loan
Trust (Class A)
4.60% 07/15/27 ............ 75,912 75,947(g,h)
Ford Credit Floorplan Master Owner
Trust (Class A)
4.41% 07/15/09 ............ 2,000,000 1,997,716(h)
GMAC Mortgage Corp. Loan
Trust (Class A)
4.48% 06/25/34 ............ 500,000 500,058(g,h)
Gracechurch Card Funding PLC
(Class A)
4.40% 02/17/09 ............ 2,000,000 2,000,535(h)
Honda Auto Receivables Owner
Trust (Class A)
4.15% 10/15/10 ............ 138,000 135,900
Long Beach Mortgage Loan Trust
4.66% 09/25/35 ............ 1,500,000 1,501,496(h)
Metris Master Trust (Class A)
4.52% 10/20/10 ............ 2,000,000 2,000,858(h)
Mid-State Trust
7.54% 07/01/35 ............ 6,266 6,532
Peco Energy Transition Trust
6.52% 12/31/10 ............ 50,000 53,210
Residential Asset Mortgage
Products, Inc.
4.62% 03/25/34 ............ 125,284 125,400(h)
Residential Asset Securities Corp.
4.63% 07/25/32 - 01/25/36 . 3,026,115 3,026,137(h)
Residential Asset Securities
Corp. (Class A)
4.16% 07/25/30 ............ 350,000 344,960(h)
SLM Student Loan Trust (Class A)
4.54% 06/15/18 ............ 434,247 434,430(h)
Volkswagen Auto Lease
Trust (Class A)
3.94% 10/20/10 ............ 103,000 101,414
Wells Fargo Home Equity Trust
3.97% 09/25/24 ............ 54,000 52,862(h)
15,554,208
See Notes to Schedule of Investments on page 15 and Notes to Financial
Statements.
9
TOTAL RETURN FUND
Schedule of Investments December 31, 2005
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
- --------------------------------------------------------------------------------
CORPORATE NOTES -- 4.9%
Abbey National PLC
7.95% 10/26/29 ............ $340,000 $ 439,376
Albertson's, Inc.
7.50% 02/15/11 ............ 130,000 133,686
Allegiance Corp.
7.00% 10/15/26 ............ 245,000 271,052
Allstate Life Global Funding Trusts
3.85% 01/25/08 ............ 130,000 127,390
Alltel Corp.
4.66% 05/17/07 ............ 455,000 452,937
Altria Group, Inc.
7.20% 02/01/07 ............ 100,000 102,177
America Movil S.A. de C.V.
6.38% 03/01/35 ............ 595,000 584,314
American Electric Power
Company, Inc. (Series D)
5.25% 06/01/15 ............ 790,000 787,688
American General Corp.
7.50% 08/11/10 ............ 750,000 819,173
Appalachian Power Co. (Series G)
3.60% 05/15/08 ............ 20,000 19,375
Appalachian Power Co. (Series K)
5.00% 06/01/17 ............ 135,000 129,446
Archer-Daniels-Midland Co.
5.38% 09/15/35 ............ 165,000 158,432
Assurant, Inc.
6.75% 02/15/34 ............ 145,000 158,780
AT&T Corp.
9.05% 11/15/11 ............ 435,000 481,469
AT&T, Inc.
4.13% 09/15/09 ............ 330,000 318,792
5.88% 08/15/12 ............ 165,000 170,144
6.15% 09/15/34 ............ 300,000 301,478
BAC CAP TRUST V
5.63% 03/08/35 ............ 425,000 416,161(g)
Bank One Corp.
6.50% 02/01/06 ............ 185,000 185,246
BellSouth Corp.
6.55% 06/15/34 ............ 510,000 543,491
BNSF Funding Trust I
6.61% 12/15/55 ............ 700,000 733,430(h)
Boeing Co.
8.75% 09/15/31 ............ 250,000 361,407
Burlington Northern Santa Fe Corp.
8.13% 04/15/20 ............ 170,000 213,721
Campbell Soup Co.
5.50% 03/15/07 ............ 50,000 50,307
Capital One Bank
6.50% 06/13/13 ............ 25,000 26,527
Capital One Financial Corp.
8.75% 02/01/07 ............ 200,000 207,537
Carolina Power & Light Co.
5.15% 04/01/15 ............ 60,000 59,578
5.70% 04/01/35 ............ 155,000 155,072
6.13% 09/15/33 ............ 190,000 201,270
- --------------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
- --------------------------------------------------------------------------------
Centex Corp.
7.88% 02/01/11 ............ $180,000 $ 197,205(g)
Citigroup, Inc.
5.00% 03/06/07 ............ 90,000 90,165
6.63% 06/15/32 ............ 705,000 795,345
CNA Financial Corp.
5.85% 12/15/14 ............ 570,000 572,376
6.95% 01/15/18 ............ 105,000 111,844
Comcast Cable Communications
Holdings, Inc.
9.46% 11/15/22 ............ 865,000 1,137,019(g)
Consolidated Natural Gas Co.
5.38% 11/01/06 ............ 175,000 175,495
Consumers Energy Co.
5.15% 02/15/17 ............ 55,000 52,577
5.80% 09/15/35 ............ 165,000 160,523
Countrywide Home Loans, Inc.
5.63% 05/15/07 ............ 50,000 50,372
COX Communications, Inc.
7.75% 11/01/10 ............ 465,000 504,696
CSX Transportation, Inc.
9.75% 06/15/20 ............ 21,000 28,670
DaimlerChrysler NA Holding Corp.
4.05% 06/04/08 ............ 280,000 272,980
4.75% 01/15/08 ............ 280,000 277,790
6.40% 05/15/06 ............ 500,000 502,480
6.50% 11/15/13 ............ 395,000 413,024
8.50% 01/18/31 ............ 165,000 199,828
Detroit Edison Co. (Series B)
5.45% 02/15/35 ............ 400,000 377,940
Deutsche Telekom International
Finance BV
3.88% 07/22/08 ............ 490,000 478,488
Dominion Resources Inc. (Series B)
4.13% 02/15/08 ............ 90,000 88,408
Dominion Resources Inc. (Series G)
3.66% 11/15/06 ............ 20,000 19,765(j)
Duke Capital LLC
4.30% 05/18/06 ............ 130,000 129,691
4.33% 11/16/06 ............ 230,000 228,399
5.67% 08/15/14 ............ 295,000 297,556
8.00% 10/01/19 ............ 225,000 269,305
El Paso Electric Co.
6.00% 05/15/35 ............ 365,000 365,343
Enterprise Products Operating LP
4.00% 10/15/07 ............ 550,000 538,507
EOP Operating LP (REIT)
7.75% 11/15/07 ............ 835,000 872,267
FirstEnergy Corp. (Series B)
6.45% 11/15/11 ............ 685,000 726,098
Ford Motor Credit Co.
6.50% 01/25/07 ............ 225,000 216,844
6.63% 06/16/08 ............ 425,000 385,687(g)
FPL Group Capital, Inc. (Series B)
5.55% 02/16/08 ............ 430,000 433,728
General Mills, Inc.
3.88% 11/30/07 ............ 50,000 49,143
See Notes to Schedule of Investments on page 15 and Notes to Financial
Statements.
10
TOTAL RETURN FUND
Schedule of Investments December 31, 2005
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
- --------------------------------------------------------------------------------
Georgia Power Co.
4.88% 07/15/07 ............$ 65,000 $ 65,059
Goldman Sachs Group, Inc.
5.13% 01/15/15 ............ 700,000 691,314
6.60% 01/15/12 ............ 1,000,000 1,072,847
Goodrich Corp.
7.10% 11/15/27 ............ 240,000 273,487
Greater Bay Bancorp
5.25% 03/31/08 ............ 50,000 50,032
Grupo Televisa S.A.
6.63% 03/18/25 ............ 300,000 305,283
GTE Corp.
6.94% 04/15/28 ............ 100,000 107,064
7.51% 04/01/09 ............ 165,000 175,224
Halliburton Co.
8.75% 02/15/21 ............ 390,000 513,192
HSBC Bank USA NA
3.88% 09/15/09 ............ 920,000 887,396
HSBC Finance Corp.
6.50% 11/15/08 ............ 625,000 649,211
6.75% 05/15/11 ............ 165,000 176,749
Hudson United Bank
7.00% 05/15/12 ............ 80,000 87,680
ING Groep N.V.
5.78% 12/29/49 ............ 165,000 167,683(h)
International Business Machines Corp.
3.80% 02/01/08 ............ 100,000 98,208
4.75% 11/29/12 ............ 250,000 247,680
International Lease Finance Corp.
5.00% 04/15/10 ............ 165,000 164,116
Ispat Inland ULC
9.75% 04/01/14 ............ 260,000 294,450
iStar Financial, Inc.
4.88% 01/15/09 ............ 305,000 301,386
Kansas Gas & Electric
5.65% 03/29/21 ............ 425,000 417,797
Kimco Realty Corp. (REIT)
4.82% 06/01/14 ............ 150,000 144,603
Kinder Morgan Energy Partners LP
5.13% 11/15/14 ............ 70,000 68,464
Kinder Morgan, Inc.
6.50% 09/01/12 ............ 140,000 148,600
Laboratory Corp of America Holdings
5.63% 12/15/15 ............ 165,000 167,074
Lehman Brothers Holdings, Inc.
5.00% 01/14/11 ............ 850,000 848,399
Marsh & McLennan Companies Inc.
4.27% 07/13/07 ............ 1,500,000 1,495,156(h)
5.15% 09/15/10 ............ 564,000 559,745
Midamerican Energy Holdings Co.
3.50% 05/15/08 ............ 425,000 410,136
Morgan Stanley
4.75% 04/01/14 ............ 260,000 249,194
5.30% 03/01/13 ............ 500,000 501,166
Motorola, Inc.
4.61% 11/16/07 ............ 565,000 561,470
- --------------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
- --------------------------------------------------------------------------------
NB Capital Trust IV
8.25% 04/15/27 ............ $ 215,000 $ 230,509
New Cingular Wireless Services Inc.
8.75% 03/01/31 ............ 500,000 662,709
News America, Inc.
7.25% 05/18/18 ............ 50,000 55,917
Nextel Communications, Inc.
(Series D)
7.38% 08/01/15 ............ 335,000 353,532
Nordic Investment Bank
2.75% 01/11/06 ............ 60,000 59,985
Norfolk Southern Corp.
6.00% 04/30/08 ............ 20,000 20,379
Norfolk Southern Railway Co.
9.75% 06/15/20 ............ 64,000 90,420
Northeast Utilities (Series B)
3.30% 06/01/08 ............ 30,000 28,747
Northrop Grumman Corp.
4.08% 11/16/06 ............ 300,000 297,682
Ocean Energy, Inc.
4.38% 10/01/07 ............ 15,000 14,836
Odyssey Re Holdings Corp.
7.65% 11/01/13 ............ 730,000 762,781
Pacific Gas & Electric Co.
6.05% 03/01/34 ............ 305,000 314,519
Pemex Finance Ltd.
9.03% 02/15/11 ............ 20,000 21,849
Pemex Project Funding Master Trust
7.38% 12/15/14 ............ 1,305,000 1,449,803
8.63% 02/01/22 ............ 60,000 74,160
Pepco Holdings, Inc.
5.04% 06/01/10 ............ 40,000 40,172(h)
5.50% 08/15/07 ............ 305,000 307,270
Procter & Gamble - Esop (Series A)
9.36% 01/01/21 ............ 180,000 231,559
Puget Energy, Inc.
3.36% 06/01/08 ............ 30,000 28,867
5.48% 06/01/35 ............ 130,000 126,126
Quest Diagnostics Inc.
6.75% 07/12/06 ............ 45,000 45,396
RBS Capital Trust I
5.51% 09/29/49 ............ 595,000 592,611(h)
Reckson Operating
Partnership LP (REIT)
5.88% 08/15/14 ............ 65,000 65,454
Residential Capital Corp.
6.13% 11/21/08 ............ 580,000 581,978
Royal Bank of Scotland Group PLC
7.65% 08/31/49 ............ 305,000 368,494(h)
Royal Bank of Scotland
Group PLC ADR
9.12% 03/31/49 ............ 140,000 160,384
SBC Communications, Inc.
5.10% 09/15/14 ............ 675,000 659,232
Simon Property Group LP (REIT)
4.88% 08/15/10 ............ 500,000 492,737
See Notes to Schedule of Investments on page 15 and Notes to Financial
Statements.
11
TOTAL RETURN FUND
Schedule of Investments December 31, 2005
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
- --------------------------------------------------------------------------------
Sprint Capital Corp.
6.00% 01/15/07 ............ $250,000 $ 252,362
8.38% 03/15/12 ............ 575,000 666,764
8.75% 03/15/32 ............ 620,000 820,189
St. Paul Travelers Companies, Inc.
5.50% 12/01/15 ............ 165,000 166,380
Standard Chartered Bank
Hong Kong Ltd.
4.38% 12/03/14 ............ 40,000 40,000(h)
State of Illinois
4.95% 06/01/23 ............ 420,000 410,399
Telefonos de Mexico S.A. de C.V.
4.50% 11/19/08 ............ 325,000 318,789
TELUS Corp.
7.50% 06/01/07 ............ 375,000 387,373
8.00% 06/01/11 ............ 110,000 123,536
The Kroger Company
6.80% 12/15/18 ............ 160,000 170,825
Thomson Corp.
5.50% 08/15/35 ............ 165,000 160,464
Time Warner Entertainment Co. LP
8.38% 07/15/33 ............ 500,000 590,176
Time Warner, Inc.
6.88% 05/01/12 ............ 25,000 26,624
TXU Electric Delivery Co.
5.00% 09/01/07 ............ 140,000 139,749
6.38% 05/01/12 ............ 580,000 610,282
Tyson Foods, Inc.
7.25% 10/01/06 ............ 102,000 103,633
UBS Preferred Funding Trust I
8.62% 10/29/49 ............ 70,000 80,017(h)
UFJ Bank Ltd.
7.40% 06/15/11 ............ 415,000 457,428
UFJ Finance Aruba AEC
6.75% 07/15/13 ............ 205,000 223,414
Union Pacific Corp.
6.65% 01/15/11 ............ 205,000 219,691
United Utilities PLC
6.45% 04/01/08 ............ 125,000 128,634
Valero Energy Corp.
3.50% 04/01/09 ............ 185,000 176,463
Verizon
6.50% 09/15/11 ............ 50,000 51,548
Verizon Global Funding Corp.
7.75% 06/15/32 ............ 490,000 582,868
Verizon Pennsylvania Inc.
8.75% 08/15/31 ............ 165,000 202,684
Viacom, Inc.
5.63% 05/01/07 ............ 25,000 25,132
Wells Fargo & Co.
5.25% 12/01/07 ............ 90,000 90,693
Weyerhaeuser Co.
6.13% 03/15/07 ............ 20,000 20,267
Wisconsin Electric Power
3.50% 12/01/07 ............ 70,000 68,210
XTO Energy, Inc.
7.50% 04/15/12 ............ 215,000 240,734
47,222,315
- --------------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
- --------------------------------------------------------------------------------
NON-AGENCY COLLATERALIZED MORTGAGE OBLIGATIONS -- 2.2%
Bank of America Alternative
Loan Trust
6.50% 07/25/35 ............$ 283,120 $ 288,675(g)
Bear Stearns Commercial
Mortgage Securities
6.02% 02/14/31 ............ 75,000 76,928(g)
Crusade Global Trust (Class A)
4.35% 01/17/34 ............ 4,014,461 4,021,025(g,h)
CS First Boston Mortgage
Securities Corp.
6.13% 04/15/37 ............ 50,000 52,620(g)
CS First Boston Mortgage
Securities Corp. (Class A)
4.51% 07/15/37 ............ 500,000 488,653(g)
DLJ Commercial Mortgage Corp.
6.24% 11/12/31 ............ 228,000 234,816(g)
GMAC Commercial Mortgage
Securities, Inc.
6.42% 05/15/35 ............ 483,872 498,485(g)
6.47% 04/15/34 ............ 400,000 423,488(g)
GMAC Commercial Mortgage
Securities, Inc. (Class X)
5.00% 12/10/41 ............ 3,947,473 107,741(c,g,h)
Greenwich Capital Commercial
Funding Corp.
5.12% 04/10/37 ............ 500,000 501,214(g)
Impac CMB Trust
4.64% 04/25/35 ............ 772,277 772,638(g,h)
Impac CMB Trust (Class A)
4.76% 12/25/33 ............ 240,743 240,834(g,h)
JPMorgan Chase Commercial
Mortgage Securities Corp.
6.47% 11/15/35 ............ 40,000 42,663
LB-UBS Commercial Mortgage Trust
4.06% 09/15/27 ............ 108,000 104,962(h)
4.51% 12/15/29 135,000 131,019
4.92% 01/18/12 ............ 5,000,000 164,090(c,h)
6.23% 03/15/26 ............ 53,000 54,844
LB-UBS Commercial Mortgage
Trust (Class A)
6.65% 11/15/27 ............ 704,000 754,031
Master Alternative Loans Trust
5.00% 08/25/18 ............ 71,089 9,508(f)
6.50% 08/25/34 - 05/25/35 . 660,892 672,969(g)
Master Alternative Loans
Trust (Class 3)
6.50% 01/25/35 ............ 148,563 150,606
Medallion Trust (Class A)
4.41% 08/22/36 ............ 2,540,682 2,539,829(h)
Morgan Stanley Capital I
6.53% 03/15/31 ............ 287,000 297,619
7.11% 04/15/33 ............ 73,000 77,646
Morgan Stanley Dean
Witter Capital I
6.96% 10/15/33 ............ 35,398 36,387
7.20% 10/15/33 ............ 50,000 53,889
See Notes to Schedule of Investments on page 15 and Notes to Financial
Statements.
12
TOTAL RETURN FUND
Schedule of Investments December 31, 2005
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
- --------------------------------------------------------------------------------
MortgageIT Trust (Class A)
4.68% 08/25/35 ............ $3,608,300 $ 3,607,517(h)
Nomura Asset Securities
Corp. (Class A)
6.59% 03/15/30 ............ 500,000 516,724
Opteum Mortgage Acceptance Corp.
4.68% 02/25/35 ............ 744,272 743,923(h)
Residential Asset Securitization
Trust (Class A)
4.78% 05/25/35 ............ 1,930,590 1,935,459(g,h)
Wachovia Bank Commercial
Mortgage Trust
5.22% 07/15/42 ............ 700,000 701,318(h)
Washington Mutual Inc.
4.72% 01/25/45 ............ 400,850 401,615(h)
20,703,735
SOVEREIGN BONDS -- 0.1%
Province of Ontario
3.38% 01/15/08 ............ 500,000 487,806
Province of Saskatchewan Canada
8.50% 07/15/22 ............ 85,000 117,113
604,919
TOTAL BONDS AND NOTES
(COST $250,011,688) .......... 248,228,040
NUMBER
OF SHARES VALUE
- --------------------------------------------------------------------------------
EXCHANGE TRADED FUNDS -- 1.7%
- --------------------------------------------------------------------------------
Financial Select Sector
SPDR Fund .................... 104,703 3,315,944(l)
Industrial Select Sector
SPDR Fund .................... 424,146 13,326,668(l)
TOTAL EXCHANGE TRADED FUNDS
(COST $15,028,861) ........... 16,642,612
TOTAL INVESTMENTS IN SECURITIES
(COST $898,784,958) .......... 940,834,507
- --------------------------------------------------------------------------------
NUMBER
OF SHARES VALUE
- --------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS -- 9.6%
- --------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS -- 5.0%
GEI Short Term Investment Fund
4.42% ........................ 48,444,069 $ 48,444,069(c,k)
SHORT-TERM SECURITIES PURCHASED WITH
COLLATERAL FROM SECURITIES ON LOAN -- 4.6%
State Street Navigator Securities
Lending Prime Portfolio
4.29% ........................ 43,916,835 43,916,835(c,d)
TOTAL SHORT-TERM INVESTMENTS
(COST $92,360,904) ........... 92,360,904
TOTAL INVESTMENTS
(COST $991,145,862) .......... 1,033,195,411
LIABILITIES IN EXCESS OF OTHER ASSETS,
NET-- (7.7)% ................. (73,664,496)
-------------
NET ASSETS-- 100.0% ............. $ 959,530,915
=============
- --------------------------------------------------------------------------------
OTHER INFORMATION
- --------------------------------------------------------------------------------
The GEI Total Return Fund had the following long futures contracts open at
December 31, 2005:
NUMBER CURRENT
EXPIRATION OF NOTIONAL UNREALIZED
DESCRIPTION DATE CONTRACTS VALUE DEPRECIATION
- --------------------------------------------------------------------------------
S&P 500 Index
Futures March 2006 48 $15,057,600 $(190,522)
U.S. Treasury
Notes 5 Yr.
Futures March 2006 20 2,126,875 (2,091)
---------
$(192,613)
=========
See Notes to Schedule of Investments on page 15 and Notes to Financial
Statements.
13
Notes to Performance December 31, 2005 (unaudited)
- --------------------------------------------------------------------------------
Total returns take into account changes in share price and assume reinvestment
of dividends and capital gains distributions, 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.
Current performance may be lower or higher than that shown. You may call
toll-free (800) 242-0134 for performance information as of the most recent month
end.
Total returns do not reflect expenses associated with the separate account such
as administrative fees, account charges and surrender charges, which, if
reflected, would reduce the total returns for all periods shown.
Shares of the Fund are neither insured nor guaranteed by the U.S. Government,
and their prices will fluctuate with market conditions.
The Standard & Poor's ("S&P") 500 Composite Price Index of stocks (S&P 500) and
Lehman Brothers Aggregate Bond Index (LB Aggregate) are unmanaged indices and do
not reflect the actual cost of investing in the instruments that comprise each
index.
The S&P 500 is an unmanaged, market capitalization-weighted index of stocks of
500 large U.S. companies, which is widely used as a measure of large-cap stock
market performance. The LB Aggregate Bond Index is a market value-weighted index
of investment-grade debt issues, including government, corporate, asset-backed
and mortgage-backed securities, with maturities of one year or more. 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 blend of Lipper peer categories, as shown. Lipper is
an independent mutual fund rating service. A Fund's performance may be compared
to or ranked within a universe of mutual funds with investment objectives and
policies similar but not necessarily identical to the Fund's. Such comparisons
or rankings are made on the basis of several factors, including the Fund's
objectives and policies, management style and strategy, and portfolio
composition, and may change over time if any of those factors change. Lipper is
an independent mutual fund rating service.
14
Notes to Schedule of Investments December 31, 2005
- --------------------------------------------------------------------------------
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 current or 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.
(a) Non-income producing security.
(b) Settlement is on a delayed delivery or when-issued basis with final maturity
to be announced (TBA) in the future.
(c) Coupon amount represents effective yield.
(d) State Street Corp. is the parent company of State Street Bank & Trust Co.,
the Fund's custodian and accounting agent.
(e) 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.
(f) 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.
(g) At December 31, 2005, all or a portion of this security was pledged to cover
collateral requirements for futures, options, forward foreign currency
contracts and/or TBA's.
(h) Variable or floating rate security. The stated rate represents the rate at
December 31, 2005.
(i) All or a portion of the security is out on loan.
(j) Step coupon bond. Security becomes interest bearing at a future date.
(k) GEAM, the investment adviser of the Fund, also serves as investment adviser
of the GEI Short Term Investment Fund.
(l) Sponsored by SSgA Funds Management, Inc., an affiliate of State Street Bank
& Trust Co., the Fund's custodian and accounting agent.
+ Percentages are based on net assets as of December 31, 2005.
Abbreviations:
ADR American Depository Receipt
REGD. Registered
REIT Real Estate Investment Trust
REMIC Real Estate Mortgage Investment Conduit
SPDR Standard & Poors Depository Receipts
STRIPS Separate Trading of Registered Interest and Principal of Security
15
Financial Highlights
Selected data based on a share outstanding throughout the periods indicated
- --------------------------------------------------------------------------------
TOTAL RETURN FUND
12/31/05 12/31/04 12/31/03 12/31/02 12/31/01
- ----------------------------------------------------------------------------------------------------------------------------------
INCEPTION DATE -- -- -- -- 7/1/85
Net asset value, beginning of period ............................. $15.97 $15.09 $12.68 $14.49 $15.51
INCOME/(LOSS) FROM INVESTMENT OPERATIONS:
Net investment income ......................................... 0.23 0.20 0.16 0.31 0.38
Net realized and unrealized
gains/(losses) on investments .............................. 0.36 1.04 2.41 (1.67) (0.83)
- ----------------------------------------------------------------------------------------------------------------------------------
TOTAL INCOME/(LOSS) FROM INVESTMENT OPERATIONS ................... 0.59 1.24 2.57 (1.36) (0.45)
- ----------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM:
Net investment income ......................................... 0.23 0.20 0.16 0.32 0.38
Net realized gains ............................................ 0.29 0.16 -- 0.13 0.19
- ----------------------------------------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS .............................................. 0.52 0.36 0.16 0.45 0.57
- ----------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD ................................... $16.04 $15.97 $15.09 $12.68 $14.49
==================================================================================================================================
TOTAL RETURN (A) ................................................. 3.67% 8.19% 20.31% (9.31)% (2.89)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in thousands) ...................... $959,531 $515,506 $225,867 $112,747 $130,757
Ratios to average net assets:
Net investment income ...................................... 1.89% 1.81% 1.58% 2.22% 2.54%
Expenses ................................................... 0.45% 0.49% 0.53% 0.54% 0.53%
Portfolio turnover rate ....................................... 146% 141% 115% 126% 122%
<FN>
NOTES TO FINANCIAL HIGHLIGHTS
- ----------------------------------------------------------------------------------------------------------------------------------
(a) Total returns are historical and assume changes in share price and reinvestment of dividends and capital gains and
do not include the effect of insurance contract charges.
</FN>
See Notes to Financial Statements.
16
TOTAL
Statement of Assets RETURN
and Liabilities DECEMBER 31, 2005 FUND
- -------------------------------------------------------------------------------------------------------------------
ASSETS
Investments in securities, at market* (cost $898,784,958)............................... $ 940,834,507
Short-term investments (at amortized cost) ............................................. 43,916,835
Short-term affiliated investments (at amortized cost)................................... 48,444,069
Foreign cash (cost $158,839)............................................................ 158,408
Receivable for investments sold......................................................... 3,981,360
Income receivables ..................................................................... 2,466,254
Receivable for fund shares sold......................................................... 2,641,975
- -------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS........................................................................ 1,042,443,408
- -------------------------------------------------------------------------------------------------------------------
LIABILITIES
Payable upon return of securities loaned................................................ 43,916,835
Payable for investments purchased ...................................................... 38,457,547
Payable for fund shares redeemed........................................................ 14,900
Payable to GEAM......................................................................... 462,123
Variation margin payable................................................................ 61,088
- -------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES................................................................... 82,912,493
- -------------------------------------------------------------------------------------------------------------------
NET ASSETS................................................................................. $ 959,530,915
===================================================================================================================
NET ASSETS CONSIST OF:
Capital paid in ........................................................................ 914,225,107
Undistributed (distribution in excess of) net investment income......................... (20,632)
Accumulated net realized gain........................................................... 3,474,567
Net unrealized appreciation/(depreciation) on:
Investments......................................................................... 42,049,549
Futures............................................................................. (192,613)
Foreign currency related translation................................................ (5,063)
- -------------------------------------------------------------------------------------------------------------------
NET ASSETS................................................................................. $ 959,530,915
===================================================================================================================
Shares outstanding ($0.01 par value; unlimited shares authorized).......................... 59,811,078
Net asset value per share.................................................................. $16.04
<FN>
* Includes $41,970,779 of securities on loan.
</FN>
See Notes to Financial Statements.
17
TOTAL
Statement of Operations RETURN
FOR THE YEAR ENDED DECEMBER 31, 2005 FUND
- ---------------------------------------------------------------------------------------------------------------------
INVESTMENT INCOME
INCOME:
Dividend ............................................................................... $ 8,356,596
Interest*............................................................................... 6,471,795
Interest from affliated investments..................................................... 1,949,476
Less: Foreign taxes withheld............................................................ (331,851)
- ---------------------------------------------------------------------------------------------------------------------
TOTAL INCOME.............................................................................. 16,446,016
- ---------------------------------------------------------------------------------------------------------------------
EXPENSES:
Advisory and administrative fees........................................................ 2,622,779
Custody and accounting expenses......................................................... 194,955
Professional fees....................................................................... 203,711
Transfer agent ......................................................................... 172
Director's fees......................................................................... 17,172
Registration expenses................................................................... 4,750
Other expenses.......................................................................... 105,826
- ---------------------------------------------------------------------------------------------------------------------
TOTAL EXPENSES............................................................................ 3,149,365
- ---------------------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME..................................................................... 13,296,651
=====================================================================================================================
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS
REALIZED GAIN (LOSS) ON:
Investments.......................................................................... 17,242,918
Futures.............................................................................. 1,392,967
Written options...................................................................... 10,730
Foreign currency transactions........................................................ (98,055)
INCREASE (DECREASE) IN UNREALIZED APPRECIATION/
(DEPRECIATION) ON:
Investments.......................................................................... 2,695,868
Futures.............................................................................. (229,654)
Written options...................................................................... (9,808)
Foreign currency translation......................................................... (17,783)
- ---------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain on investments......................................... 20,987,183
- ---------------------------------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS...................................... $34,283,834
=====================================================================================================================
<FN>
* Income attributable to security lending activity, net of rebate expenses, was $119,498.
</FN>
See Notes to Financial Statements.
18
TOTAL
Statements of RETURN
Changes in Net Assets FUND
- --------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
2005 2004
- --------------------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net investments income............................................................ $ 13,296,651 $ 6,146,470
Net realized gain on investments, futures, written options,
foreign currency transactions and swaps......................................... 18,548,560 9,958,081
Net increase in unrealized appreciation/(depreciation) on investments,
futures, written options and foreign currency translation ...................... 2,438,623 18,997,932
- --------------------------------------------------------------------------------------------------------------------------------
Net increase from operations...................................................... 34,283,834 35,102,483
- --------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income............................................................. (13,261,759) (6,141,806)
Net realized gains................................................................ (16,598,435) (4,967,338)
- --------------------------------------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS................................................................. (29,860,194) (11,109,144)
- --------------------------------------------------------------------------------------------------------------------------------
Increase in net assets from operations and distributions............................ 4,423,640 23,993,339
- --------------------------------------------------------------------------------------------------------------------------------
SHARE TRANSACTIONS:
Proceeds from sale of shares ..................................................... 414,284,705 255,422,494
Value of distributions reinvested................................................. 29,860,187 11,109,252
Cost of shares redeemed........................................................... (4,544,063) (885,224)
- --------------------------------------------------------------------------------------------------------------------------------
Net increase from share transactions.............................................. 439,600,829 265,646,522
- --------------------------------------------------------------------------------------------------------------------------------
TOTAL INCREASE IN NET ASSETS........................................................ 444,024,469 289,639,861
NET ASSETS
Beginning of period ................................................................ 515,506,446 225,866,585
- --------------------------------------------------------------------------------------------------------------------------------
End of period ...................................................................... $ 959,530,915 $515,506,446
================================================================================================================================
UNDISTRIBUTED (DISTRIBUTION IN EXCESS OF) NET INVESTMENT INCOME, END OF PERIOD......... $ (20,632) $ 42,531
- --------------------------------------------------------------------------------------------------------------------------------
CHANGES IN PORTFOLIO SHARES
Shares sold....................................................................... 25,964,206 16,668,080
Issued for distributions reinvested............................................... 1,850,074 696,942
Shares redeemed................................................................... (281,159) (58,639)
- --------------------------------------------------------------------------------------------------------------------------------
Net increase in fund shares............................................................ 27,533,121 17,306,383
================================================================================================================================
See Notes to Financial Statements.
19
Notes to Financial Statements December 31, 2005
- --------------------------------------------------------------------------------
1. ORGANIZATION OF THE COMPANY
GE Investments Funds, Inc. (the "Company") was incorporated under the laws of
the Commonwealth of Virginia on May 14, 1984 and is registered under the
Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end
management investment company. The Company is composed of thirteen investment
portfolios (collectively the "Funds"), although only the following eleven are
currently being offered: U.S. Equity Fund, S&P 500 Index Fund, Premier Growth
Equity Fund, Value Equity Fund, Mid-Cap Equity Fund, Small-Cap Equity Fund
(formerly known as Small-Cap Value Equity Fund, prior to January 3, 2006),
International Equity Fund, Total Return Fund (the "Fund"), Income Fund, Money
Market Fund and Real Estate Securities Fund.
Shares of the Funds 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 Asset Management Incorporated ("GEAM"), the
investment adviser and administrator of each of the Funds.
As of December 31, 2005, GE Life and Annuity Assurance Company ("GE Life") and
General Electric Capital Assurance Company, each an affiliated insurance
company, controlled the Funds by ownership, through separate accounts, of
virtually all of the Funds' shares of beneficial interest.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions at the date of the financial statements. Actual
results may differ from those estimates.
The following summarizes the significant accounting policies of the Company:
SECURITY VALUATION AND TRANSACTIONS 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. Securities listed on the NASDAQ will be
valued at the NASDAQ's official close price. Certain fixed income securities are
valued by a dealer or by a pricing service based upon a matrix system, which
considers market transactions as well as dealer supplied valuations. Short-term
investments maturing within sixty days are valued at amortized cost. If
quotations are not readily available for a portfolio security, or if it is
believed that a quotation or other market price for a portfolio security does
not represent its fair value, the security may be valued using procedures
approved by the Fund's Board of Directors that are designed to establish its
"fair value." These procedures require that the fair value of a security be
established by the valuation committee. The fair value committee follows
different protocols for different types of investments and circumstances.
Foreign securities may be valued with the assistance of an independent fair
value pricing service in circumstances where it is believed that they have been
or would be materially affected by events occurring after the close of the
portfolio security's primary market and before the close of regular trading on
the NYSE. This independent fair value pricing service uses a computerized system
to appraise affected securities and portfolios taking into consideration various
factors and the fair value of such securities may be something other than the
last available quotation or other market price. GE Asset Management may also
separately monitor portfolio securities and, consistent with the Fund's fair
value procedures, apply a different value to a portfolio security than would be
applied had it been priced using market quotations or by an independent fair
value pricing service.
Determining the fair value of securities involves the application of both
subjective and objective considerations. Security values may differ depending on
the methodology used to determine their values, and may differ from the last
quoted sale or closing price. No assurance can be given that use of these fair
value procedures will always better represent the price at which a Fund could
sell the affected portfolio security.
Security transactions are accounted for as of the trade date. Realized gains and
losses on investments sold are recorded on the basis of identified cost for both
financial statement and federal tax purposes.
REPURCHASE AGREEMENTS The Fund may enter into repurchase agreements. The Fund's
or a third party custodian takes possession of the collateral pledged for
investments in repurchase agreements on behalf of the Fund. The Fund values the
underlying collateral daily on a mark-to-market basis to determine that the
value, including accrued interest, is at least equal to 102% of the repurchase
price. In the event the seller defaults and the value of the security declines,
or if the seller enters an insolvency proceeding, realization of the collateral
by the Fund may be delayed or limited.
20
Notes to Financial Statements December 31, 2005
- --------------------------------------------------------------------------------
SECURITY LENDING The Fund may loan securities to brokers, dealers, and financial
institutions determined by GEAM to be creditworthy, subject to certain
limitations. The Fund continues to receive the interest and dividends on the
loaned securities during the term of the loan. The loans of securities are
secured by collateral in the form of cash or other liquid assets, which are
segregated and maintained with the custodian in an amount at least equal to 102%
of the current market value of the loaned securities. During the term of the
loan, the Fund will record any gain or loss in the market value of its loaned
securities and of securities in which cash collateral is invested. The Fund will
also earn interest, net of any rebate, from securities in which cash collateral
is invested. In the event the counterparty (borrower) does not meet its
contracted obligation to return the securities, the Fund may be exposed to the
risk of loss of reacquiring the loaned securities at prevailing market prices
using the proceeds of the sale of the collateral.
FOREIGN CURRENCY Accounting records of the Fund are maintained in U.S. dollars.
Investment securities and other assets and liabilities denominated in a foreign
currency are translated into U.S. dollars at the prevailing rates of exchange at
period end. Purchases and sales of securities, income receipts and expense
payments denominated in foreign currencies are translated into U.S. dollars at
the prevailing exchange rate on the respective dates of such transactions.
The Fund does not isolate the portion of the results of operations resulting
from changes in foreign exchange rates from the fluctuations arising from
changes in the market prices of securities during the period. Such fluctuations
are included in the net realized or unrealized gain or loss from investments.
Net realized gains or losses on foreign currency transactions represent net
gains or losses on sales and maturities of foreign currency contracts,
disposition of foreign currencies, the difference between the amount of net
investment income and withholding taxes accrued and the U.S. dollar amount
actually received or paid, and gains or losses between the trade and settlement
date on purchases and sales of securities. Net unrealized foreign exchange gains
and losses arising from changes in the value of other assets and liabilities as
a result of changes in foreign exchange rates are included as increases or
decreases in unrealized appreciation/depreciation on foreign currency related
transactions.
FUTURES CONTRACTS The Fund may invest in interest rate, financial or stock or
bond index futures contracts subject to certain limitations. The Fund may invest
in futures contracts to manage its exposure to the stock and bond markets and
fluctuations in currency values. Buying futures tends to increase the Fund's
exposure to the underlying instrument while selling futures tends to decrease
the Fund's exposure to the underlying instrument, or hedge other Fund
investments. The Fund will not enter into a transaction involving futures for
speculative purposes. The Fund's risks in using these contracts include changes
in the value of the underlying instruments, non-performance of the
counterparties under the contracts' terms and changes in the liquidity of the
secondary market for the contracts. Futures contracts are valued at the
settlement price established each day by the board of trade or exchange on which
they principally trade.
Upon entering into a futures contract, the Fund is required to pledge to the
broker an amount of cash and/or other assets equal to a certain percentage of
the contract amount, known as initial margin deposit. Subsequent payments, known
as variation margin, are made or received by the Fund each day, depending on the
daily fluctuation in the fair value of the underlying security. The Fund records
an unrealized gain or loss equal to the daily variation margin. Should market
conditions move unexpectedly, the Fund may not achieve the anticipated benefits
of the futures contracts and may incur a loss. The Fund recognizes a realized
gain or loss on the expiration or closing of a futures contract.
OPTIONS The Fund may purchase and write options, subject to certain limitations.
The Fund may invest in options contracts to manage its exposure to the stock and
bond markets and fluctuations in foreign currency values. Writing puts and
buying calls tend to increase the Fund's exposure to the underlying instrument
while buying puts and writing calls tend to decrease the Fund's exposure to the
underlying instrument, or hedge other Fund investments. The Fund will not enter
into a transaction involving options for speculative purposes. The Fund's risks
in using these contracts include changes in the value of the underlying
instruments, non-performance of the counterparties under the contracts' terms
and changes in the liquidity of the secondary market for the contracts. Options
are valued at the last sale price, or if no sales occurred on that day, at the
last quoted bid price.
21
Notes to Financial Statements December 31, 2005
- --------------------------------------------------------------------------------
When the Fund writes an option, the amount of the premium received is recorded
as a liability and is subsequently adjusted to the current fair value of the
option written. Premiums received from writing options that expire unexercised
are treated by the Fund on the expiration date as realized gains from
investments. The difference between the premium and the amount paid on effecting
a closing purchase transaction, including brokerage commissions, is also treated
as a realized gain, or if the premium is less than the amount paid for the
closing purchase, as a realized loss. When an option is exercised, the proceeds
from the sale of the underlying security or the cost basis of the securities
purchased is adjusted by the original premium received or paid.
SWAP CONTRACTS As part of the investment strategy, the Fund may invest in swap
agreements, which are agreements to exchange the return generated by one
instrument for the return generated by another instrument. Total return swap
agreements involve commitments to pay interest in exchange for a market linked
return based upon a notional principal amount. To the extent the total return of
the security or index underlying the agreement exceeds or falls short of the
offsetting interest rate obligation, the Fund will receive a payment from or
make a payment to the counterparty. Swaps are marked to market daily based upon
the underlying security or index. Payments received or made are recorded as
realized gain or loss in the Statement of Operations. Entering into swap
agreements involves, to varying degrees, elements of credit and market risk in
excess of the amounts recognized on the Statement of Assets and Liabilities.
Such risks involve the possibility that there will be no liquid market for these
agreements, that the counterparty to the agreements may default on its
obligation to perform and that there may be unfavorable changes in the value of
the index or securities underlying the agreement. Notional principal amounts are
used to express the extent of involvement in these transactions, but the amounts
potentially subject to credit risk are much smaller.
WHEN-ISSUED SECURITIES AND FORWARD COMMITMENTS The Fund may purchase or sell
securities on a when-issued or forward commitment basis. These transactions are
arrangements in which the Fund purchases and sells securities with payment and
delivery scheduled a month or more after entering into the transactions. The
price of the underlying securities and the date when these securities will be
delivered and paid for are fixed at the time the transaction is negotiated.
Losses may arise due to changes in the market value of the underlying securities
or if the counterparty does not perform under the contracts. In connection with
such purchases, the Fund maintain cash or liquid assets in an amount equal to
purchase commitments for such underlying securities until settlement date and
for sales commitments, the Fund maintains equivalent deliverable securities as
"cover" for the transaction. Unsettled commitments are valued at the current
market value of the underlying security. Daily fluctuations in the value of such
contracts are recorded as unrealized gains or losses. The Fund will not enter
into such commitments for the purpose of investment leverage.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS The Fund may enter into forward
foreign currency exchange contracts to facilitate transactions in foreign
denominated securities and to manage the Fund's currency exposure. Forward
foreign currency exchange contracts are valued at the mean between the bid and
the offered forward rates as last quoted by a recognized dealer. The aggregate
principal amounts of the contracts are not recorded in the Fund's financial
statements. Such amounts appear under the caption forward foreign currency
contracts in the Schedule of Investments. Fluctuations in the value of the
contracts are recorded in the Statement of Assets and Liabilities as an asset
(or liability) and in the Statement of Operations as unrealized appreciation
(depreciation) until the contracts are closed, when they are recorded as
realized gains or losses on foreign currency related transactions. The Fund's
risks in using these contracts include changes in the value of foreign currency
or the possibility that the counterparties do not perform under the contracts'
terms. When the Fund enters into a forward foreign currency exchange contract,
it is required to segregate cash or liquid securities with its custodian in an
amount equal to the value of the Fund's total assets committed to the
consummation of the forward contract. If the value of the segregated securities
declines, additional cash or securities is segregated so that the value of the
account will equal the amount of the Fund's commitment with respect to the
contract.
INVESTMENTS IN FOREIGN MARKETS Investments in foreign markets may involve
special risks and considerations not typically associated with investing in the
United States. These risks include revaluation of currencies, high rates of
inflation, repatriation on income and capital, and adverse political and
economic developments. Moreover, securities issued in these markets may be less
liquid, subject to government ownership controls, tariffs and taxes, subject to
delays in settlements, and their prices may be more volatile.
22
Notes to Financial Statements December 31, 2005
- --------------------------------------------------------------------------------
The Fund may be subject to capital gains and repatriation taxes imposed by
certain countries in which it invests. Such taxes are generally based on income
and/or capital gains earned or repatriated. Taxes are accrued based upon net
investment income, net realized gains and net unrealized appreciation as income
and/or capital gains are earned.
INCOME TAXES The Fund intends to comply with all sections of the Internal
Revenue Code applicable to regulated investment companies including the
distribution of substantially all of its taxable net investment income and net
realized capital gains to its shareholders. Therefore, no provision for federal
income tax has been made. The Fund is treated as a separate taxpayer for federal
income tax purposes.
At December 31, 2005, information on the tax components of capital is as
follows:
Net Tax
Cost of Gross Tax Gross Tax Appreciation/
Investments for Unrealized Unrealized (Depreciation)
Tax Purposes Appreciation Depreciation on Investments
- --------------------------------------------------------------------------------------------------------------------------
$993,720,754 $63,803,196 $(24,328,539) $39,474,657
Net Tax
Appreciation/ Undistributed Undistributed Post
(Depreciation) on Income/ Long-Term Gains/ October
Derivatives, Currency (Accumulated (Accumulated Losses
and Other Net Assets Ordinary Loss) Capital Loss) (see Detail Below)
- --------------------------------------------------------------------------------------------------------------------------
$(5,063) $985,587 $4,896,272 $(45,645)
As of December 31, 2005, the Fund has no capital loss carryovers.
Any net capital and currency losses incurred after October 31, within the Fund's
tax year, are deemed to arise on the first day of the Fund's next tax year if
the Fund so elects to defer such losses.
The Fund elected to defer losses incurred after October 31, 2005 as follows:
Capital Currency
- --------------------------------------------------------------------------------
$-- $45,645
The tax composition of distributions paid (other than return of capital
distributions for the year) during the year ended December 31, 2005 was as
follows:
Long-Term
Ordinary Capital
Income Gains Total
- --------------------------------------------------------------------------------
$14,947,799 $14,912,395 $29,860,194
DISTRIBUTIONS TO SHAREHOLDERS The Fund declares and pays net realized capital
gains in excess of capital loss carryforwards 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 (but are not limited to) futures and
losses deferred due to wash sale transactions. Reclassifications due to
permanent book/tax differences are made to the Fund's capital accounts to
reflect income and gains available for distribution (or available capital loss
carryovers) under income tax regulations. These reclassifications have no impact
on net investment income, realized gains or losses, or the net asset value of
the Fund. The calculation of net investment income per share in the Financial
Highlights table excludes these adjustments.
The reclassifications for the year ended December 31, 2005 were as follows:
Undistributed
(Distribution
in Excess of)
Net Investment Accumulated Paid in
Income Net Realized Gain Capital
- --------------------------------------------------------------------------------
$(98,055) $98,055 $--
23
Notes to Financial Statements December 31, 2005
- --------------------------------------------------------------------------------
INVESTMENT INCOME Corporate actions (including cash dividends) are recorded on
the ex-dividend date, net of applicable withholding taxes, except for certain
foreign corporate actions, which are recorded as soon after ex-dividend date as
such information becomes available. Interest income is recorded on the accrual
basis. All discounts and premiums on bonds are accreted to call or maturity
date, whichever is shorter, using the effective yield method.
EXPENSES Expenses of the Company which are directly identifiable to one of the
Funds are allocated to that portfolio. Expenses which are not directly
identifiable to one of the Funds are allocated in such a manner as deemed
equitable, taking into consideration the nature and type of expenses and
relative sizes of the Funds. All expenses of the Fund are paid by GEAM and
reimbursed by the Fund.
3. LINE OF CREDIT
The Fund shares a revolving credit facility of up to $25 million with a number
of its affiliates. The credit facility is with its custodian bank, State Street
Bank and Trust Company. The revolving credit facility requires the payment of a
commitment fee equal to 0.09% per annum on the daily unused portion of the
credit facility, payable quarterly. The portion borne by the Funds generally is
borne proportionally based upon net assets. Generally, borrowings under the
credit facility would accrue interest at the Federal Funds Rate plus 50 basis
points and is borne by each of the borrowing Funds. The maximum amount allowed
to be borrowed by any one of the Funds is the lesser of its prospectus
limitation, 20% of its net assets, or $25 million. The credit facility was not
utilized by the Fund during the period ended December 31, 2005.
4. AMOUNTS PAID TO AFFILIATES
ADVISORY AND ADMINISTRATION FEES GEAM, 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 Fund. Compensation of GEAM for
investment advisory and administrative services is paid monthly based on the
average daily net assets of the Fund. The advisory and administrative fee is
stated in the following schedule:
Annualized based on
average daily net assets
- -------------------------------------------------
Average Daily Advisory and
Net Assets Administration
of Fund Fees
- -------------------------------------------------
First $100 million .50%
Next $100 million .45%
Next $100 million .40%
Next $100 million .35%
Over $400 million .30%
GENPACT (formerly General Electric Capital International Services*) performs
certain accounting and certain administration services not provided by GEAM. For
the year ending December 31, 2005, $7,682 was charged to the Fund.
Administrative services not performed by GEAM or GENPACT were provided by an
unaffiliated service provider.
* AS OF SEPTEMBER 28, 2005, THE NAME WAS CHANGED FROM GENERAL ELECTRIC CAPITAL
INTERNATIONAL SERVICES TO GENPACT.
DIRECTORS' COMPENSATION The Fund pays no compensation to its Directors who are
officers or employees of GEAM or its affiliates. Directors who are not such
officers or employees also serve in a similar capacity for other funds advised
by GEAM. Compensation paid to unaffiliated directors are reflected on the
Statement of Operations. These fees are allocated pro rata across all of the
mutual Fund platforms and share classes served by the directors, including the
Fund, and are based upon the relative net assets of each fund within such
platforms. (For additional information about directors compensation please refer
to the Statement of Additional Information.)
5. INVESTMENT TRANSACTIONS
PURCHASES AND SALES OF SECURITIES The cost of purchases and the proceeds from
sales of investments, other than short-term securities and options, for the
period ended December 31, 2005 were as follows:
Purchases Sales
- ------------------------------------------------------------------------------
$1,454,660,646 $1,019,128,993
24
Notes to Financial Statements December 31, 2005
- ------------------------------------------------------------------------------
OPTIONS During the period ended December 31, 2005, the following option
contracts were written:
Number of
of Contracts Premium
- ------------------------------------------------------------------------------
Balance as of
December 31, 2004 64 $ 24,808
Written 1,095,287 57,721
Closed and Expired (1,095,351) (82,529)
- ------------------------------------------------------------------------------
Balance as of
December 31, 2005 -- --
- ------------------------------------------------------------------------------
SECURITY LENDING At December 31, 2005, the Fund participated in securities
lending:
Loaned
securities at Cash
market value Collateral*
- ------------------------------------------------------------------------------
$41,970,779 $43,725,931
* COLLATERAL OF $43,916,835 DECREASED BY $190,904 ON JANUARY 3, 2006 TO REFLECT
THE DECEMBER 30, 2005 CHANGE IN VALUE OF SECURITIES ON LOAN.
25
Report of Independent Registered Public Accounting Firm
- ------------------------------------------------------------------------------
The Shareholders and Board of Directors
GE Investments Funds, Inc.
We have audited the accompanying statement of assets and liabilities of the
Total Return Fund, a series of GE Investments Funds, Inc., including the
schedule of investments, as of December 31, 2005, and the related statement of
operations for the year then ended, the statements of changes in net assets for
each of the years in the two-year period then ended, and the financial
highlights for each of the years in the five-year period then ended. These
financial statements and financial highlights are the responsibility of the
Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included confirmation of
securities owned as of December 31, 2005 by correspondence with the custodians
and brokers, or by other appropriate auditing procedures where replies from
brokers were not received. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
Total Return Fund as of December 31, 2005, and the results of its operations,
the changes in its net assets and the financial highlights for each of the years
described above, in conformity with U.S. generally accepted accounting
principles.
/S/KPMG LLP
Boston, Massachusetts
February 17, 2006
26
Tax Information (unaudited)
- ------------------------------------------------------------------------------
During the calendar year ended December 31, 2005, the Fund paid to shareholders
$0.25932 per share of long-term capital gain dividends.
27
Advisory and Administrative Agreement Renewal (unaudited)
- ------------------------------------------------------------------------------
The Fund Board, including the independent Board members, considered and
unanimously approved the continuance of the Fund's investment advisory agreement
with GE Asset Management Incorporated ("GEAM") at meetings held on December 9
and December 16, 2005.
In considering whether to approve the Fund's investment advisory agreement, the
Board members, including the independent members, considered and discussed a
substantial amount of information and analysis provided, at the Board's request,
by GEAM. The Board members also considered detailed information regarding
performance and expenses of other investment companies with similar investment
objectives and sizes, which was prepared by an independent third party provider,
Lipper Inc. ("Lipper"). The Board members reviewed the fees charged by GEAM for
other mutual funds and investment products other than mutual funds that employ
the same investment strategy as the Fund. Before approving the Fund's advisory
agreement, the Board members reviewed the proposed continuance of the agreement
with management of GEAM and with independent legal counsel. The Board members
also reviewed a memorandum prepared by independent legal counsel discussing the
legal standards for the consideration of the proposed continuance. The
independent Board members discussed the proposed continuance in a private
session with their independent legal counsel at which no representatives of GEAM
were present.
In advance of the meeting, and in response to their request, the Board members
received from GEAM written responses to their inquiries, which included
substantial exhibits and other materials related to GEAM's business and the
services it provides to the Fund. The Board members took into account their
multi-year experience as Board members and particularly their consideration of
these agreements in 2004, noting that the information was presented in a similar
manner and format. To focus their review, the Board members asked GEAM
management, in its oral presentation, to highlight material differences from the
information presented in 2004. During the meeting, the Board members had an
opportunity to discuss this information with GEAM managers, including senior
executives, representatives from the legal and compliance departments, and
senior investment personnel. The Board members posed questions to these
representatives and engaged in substantive discussions with them concerning
GEAM's investment process.
In reaching their determination relating to continuance of the agreement, the
Board members considered all factors they believed relevant, including the
factors discussed below. In their deliberations, the Board members did not
identify any particular information that was all-important or controlling, and
each Board member attributed different weights to the various factors. In
particular, the Board members focused on the following:
THE NATURE, EXTENT AND QUALITY OF SERVICES PROVIDED.
The Board members reviewed the services provided by GEAM, and the Board members,
including the independent members, concurred that GEAM provides high quality
advisory and administrative services to the Fund.
In connection with their consideration of GEAM's services, the Board members
focused on the favorable attributes of GEAM, including (i) an investment
philosophy oriented toward long-term performance; (ii) effective processes used
for selecting investments, selecting brokers and with respect to Fund
administration, controllership and compliance activities; (iii) highly skilled
professionals, including analysts, research professionals and portfolio managers
with a depth of experience; (iv) access to significant technological resources
from which the Fund may benefit; and (v) a favorable history and reputation. The
Board members discussed with senior officers of GEAM the personnel changes made,
and proposed to be made, by GEAM, and that GEAM would be expending significant
sums to enhance services, including improvements to its information technology
capabilities. The Board members noted that the Fund represents only a small
portion of the assets managed by GEAM, but benefits from a full array of
services and resources provided by GEAM. In light of these discussions, the
Board members, including the independent members, concluded that GEAM's services
were of a high quality and had benefited the Fund.
28
Advisory and Administrative Agreement Renewal (unaudited)
- ------------------------------------------------------------------------------
INVESTMENT PERFORMANCE OF THE FUND.
The Board members considered the investment performance of the Fund for various
periods. The Board members reviewed detailed comparisons of the performance of
the Fund with the relevant securities indexes and peer groupings of mutual funds
prepared by Lipper with respect to various periods. The Board members also
engaged in detailed discussions with GEAM management about the investment
process, focusing on the Fund's investment objective, the number and experience
of portfolio management personnel, the investment style and approach employed,
the likely market cycles for the investment style, and the relative
underperformance of the Fund in certain periods in light of GEAM's commitment to
long-term satisfactory performance with respect to the Fund's investment
objective and investment approach. The Board members, including the independent
members, concluded that the Fund's performance was acceptable over the relevant
periods, particularly from a longer term perspective, which the Board members
believed was most relevant.
COST OF THE SERVICES TO BE PROVIDED AND PROFITS TO BE REALIZED FROM THE
RELATIONSHIP WITH THE FUND.
The Board members considered the cost of the services provided by GEAM. The
Board members reviewed the information they had requested from GEAM concerning
its profitability from the fees and services it provides to the Fund and the
financial condition of GEAM for various past periods. The Board members
considered the profit margin information for GEAM's investment company business
as a whole, as well as GEAM's profitability data for the Fund. The Board members
reviewed GEAM's assumptions and the methods of cost allocation used by GEAM in
preparing Fund-specific profitability data. The Board members also discussed
with GEAM the basis for its belief that the methods of allocation used were
reasonable and consistent across its business.
The Board members noted and discussed the additional services provided by GEAM
to the Fund compared to other investment products managed by GEAM. The Board
members determined that GEAM should be entitled to earn a reasonable level of
profits for the services it provides to the Fund. The Board members also
recognized that GEAM had made significant investments in its business and had
not fully recovered the sums invested. Based on their review, the Board members,
including the independent members, concluded that they were satisfied that the
level of profitability achieved by GEAM from its relationship with the Fund was
not unreasonable or excessive.
THE EXTENT TO WHICH ECONOMIES OF SCALE WOULD BE REALIZED AS THE FUND GROWS AND
WHETHER FEE LEVELS WOULD REFLECT SUCH ECONOMIES OF SCALE.
The Board members considered the extent to which economies of scale would be
realized as the Fund grows, and whether fee levels reflect these economies of
scale for the benefit of Fund investors. The Board members considered the
substantial infrastructure investments that GEAM has made with respect to its
operations and its commitment to continue investing resources to enhance
services to Fund shareholders, including its anticipated information technology
expenditures. The Board members recognized the benefits to the Funds of GEAM's
past investment in its operations through the expenditure of sums to support its
substantial infrastructure, and that, in general, GEAM has not yet fully
recouped that investment. The Board members reviewed the applicable advisory fee
breakpoints for the Fund and concluded that no changes were needed. The Board
members recognized the economies of scale benefits derived by the Fund as a
result of this fee structure. The Board members also recognized the benefits to
the Fund of being able to leverage a favorable cost structure achieved with
respect to the Fund's other operating expenses as a result of GEAM's large
overall base of assets under management and its vendor management practices.
COMPARISON OF SERVICES TO BE RENDERED AND FEES TO BE PAID.
The Board members discussed the services provided to the Fund by GEAM, and the
fees charged for those services. The Board members reviewed information
concerning the fee and expense ratios for the Fund, and comparative information
with respect to similar products. They discussed that the Fund's figures were
within the applicable peer group range. The Board members considered that the
comparative data provided by Lipper
29
Advisory and Administrative Agreement Renewal (unaudited)
- --------------------------------------------------------------------------------
showed no material difference from last year in the fees being charged as
compared to those being charged by other advisers to similar investment
products, as determined by Lipper. In addition, the Board members considered
their discussion with representatives of GEAM about the fees being charged to
the Fund and, to the extent applicable, the potential effect, if any, of the
Securities and Exchange Commission staff's recently proposed soft dollar
interpretation on those fees. In light of the foregoing, the Board members,
including the independent members, determined that the advisory fees were
reasonable in relation to the services provided to the Fund.
FALL-OUT BENEFITS.
The Board members considered other actual and potential financial benefits to
GEAM, including, to the extent applicable, soft dollar commission benefits
generated through Fund portfolio transactions. The Board members noted, however,
that the Fund benefits from the vast array of resources available through GEAM,
and that the Fund represents only a small portion of the assets managed by GEAM.
CONCLUSION.
No single factor was determinative to the Board members' decision. Based on
their discussion and such other matters as were deemed relevant, the Board
members, including the independent members, concluded that the proposed advisory
fee and projected total expense ratio are reasonable in relation to the services
provided to the Fund. In view of these facts, the Board members, including the
independent members, concluded that the renewal of the advisory agreement was in
the best interests of the Fund and its shareholders.
30
Additional Information (unaudited)
- ------------------------------------------------------------------------------
INFORMATION ABOUT DIRECTORS AND EXECUTIVE OFFICERS:
The business and affairs of the Company are managed under the direction of the
Company's Board of Directors. Information pertaining to the Directors and
officers of the Company is set forth below.
INTERESTED DIRECTORS AND EXECUTIVE OFFICERS
- --------------------------------------------------------------------------------
MICHAEL J. COSGROVE
- --------------------------------------------------------------------------------
ADDRESS c/o GEAM 3001 Summer St. Stamford, CT 06905
AGE 56
POSITION(S) HELD WITH FUND Chairman of the Board and President
TERM OF OFFICE AND LENGTH OF TIME SERVED Until successor is elected and
qualified - 9 years
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS Executive Vice President - Chief
Commercial Officer of GEAM (formerly President, GE Asset Management Services
division ("GEAMS") of GE Financial Assurance Holdings, Inc., an indirect
wholly-owned subsidiary of General Electric Company ("GE")), since February
1997; Vice President, GE Capital Corporation, an indirect wholly-owned
subsidiary of GE, since December 1999; Executive Vice President - Sales and
Marketing of GEAM, a wholly-owned subsidiary of GE that is registered as an
investment adviser under the Investment Advisers Act of 1940, as amended, since
March 1993; Director of GEAM since 1988.
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR 48
OTHER DIRECTORSHIPS HELD BY DIRECTOR Chairman of the Board and President of GE
Funds since 1993, and GE Institutional Funds and GE LifeStyle Funds since their
inception; Trustee of Elfun Funds, GE Savings & Security Funds and General
Electric Pension Trust since 1988; Trustee of Fordham University since 2003 and
Marymount College from 1994 through 2002.
- --------------------------------------------------------------------------------
ALAN M. LEWIS
- --------------------------------------------------------------------------------
ADDRESS c/o GEAM 3001 Summer St. Stamford, CT 06905
AGE 59
POSITION(S) HELD WITH FUND Director and Executive Vice President
TERM OF OFFICE AND LENGTH OF TIME SERVED Until successor is elected and
qualified - 6 years
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS Executive Vice President, General
Counsel and Secretary of GEAM since 1987
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR 48
OTHER DIRECTORSHIPS HELD BY DIRECTOR Trustee and Executive Vice President of GE
Funds, GE Institutional Funds and GE LifeStyle Funds since their inception.
Trustee of Elfun Funds, GE Savings & Security Funds and General Electric Pension
Trust since 1987.
31
Additional Information (unaudited)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SCOTT H. RHODES
- --------------------------------------------------------------------------------
ADDRESS c/o GEAM 3001 Summer St. Stamford, CT 06905
AGE 47
POSITION(S) HELD WITH FUND Treasurer
TERM OF OFFICE AND LENGTH OF TIME SERVED Until successor is elected and
qualified - less than one year
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS GEAM Mutual Funds Operations Manager
since September 2005; Treasurer of GE Institutional Funds, GE LifeStyle Funds
and GE Investments Funds since November 2005 and Elfun Funds and GE Savings &
Security Funds since September 2005; from August 2004 to September 2005 Vice
President, U.S. Trust Company, N.A. and Assistant Treasurer of Excelsior Funds,
Inc., Excelsior Funds Trust, and Excelsior Tax Exempt Funds, Inc.; from January
2004 to August 2004, Vice President BlackRock Financial Management, Inc.; from
December 1996 to November 2003, Controller - Mutual Funds, American Skandia
Investment Services, Inc. and Assistant Treasurer of American Skandia Trust and
American Skandia Advisor Funds, Inc.
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR N/A
OTHER DIRECTORSHIPS HELD BY DIRECTOR N/A
- --------------------------------------------------------------------------------
MATTHEW J. SIMPSON
- --------------------------------------------------------------------------------
ADDRESS c/o GEAM 3001 Summer St. Stamford, CT 06905
AGE 44
POSITION(S) HELD WITH FUND Vice President and Secretary
TERM OF OFFICE AND LENGTH OF TIME SERVED Until successor is elected and
qualified - 9 years
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS Senior Vice President and General
Counsel - Marketing and Client Services (formerly Asset Management Services), at
GEAM and Senior Vice President and General Counsel of GEAMS since February 1997;
from October 1992 to February 1997, Vice President and Associate General Counsel
of GEAM; Secretary of GE Funds since 1993 and Vice President since September
2003; Secretary of GE Institutional Funds and GE LifeStyle Funds since their
inception and Vice President since September 2003; Assistant Secretary of Elfun
Funds and GE Savings & Security Funds since 1998 and Vice President since
October 2003.
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR N/A
OTHER DIRECTORSHIPS HELD BY DIRECTOR N/A
- --------------------------------------------------------------------------------
JEANNE M. LAPORTA
- --------------------------------------------------------------------------------
ADDRESS c/o GEAM 3001 Summer St. Stamford, CT 06905
AGE 40
POSITION(S) HELD WITH FUND Vice President and Assistant Secretary
TERM OF OFFICE AND LENGTH OF TIME SERVED Until successor is elected and
qualified - 2 years
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS Vice President and Associate General
Counsel - Marketing and Client Services (formerly Asset Management Services) at
GEAM since May 1997; Vice President and Assistant Secretary of GE Funds, GE
Institutional Funds and GE LifeStyle Funds since September 2003; Vice President
and Assistant Secretary of Elfun Funds and GE Savings & Security Funds since
October 2003.
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR N/A
OTHER DIRECTORSHIPS HELD BY DIRECTOR N/A
32
Additional Information (unaudited)
- --------------------------------------------------------------------------------
NON-INTERESTED DIRECTORS
- --------------------------------------------------------------------------------
JOHN R. COSTANTINO
- --------------------------------------------------------------------------------
ADDRESS c/o GEAM 3001 Summer St. Stamford, CT 06905
AGE 59
POSITION(S) HELD WITH FUND Director
TERM OF OFFICE AND LENGTH OF TIME SERVED Until successor is elected and
qualified - 9 years
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS Managing Director, Walden Partners,
Ltd., consultants and investors, since August 1992.
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR 40
OTHER DIRECTORSHIPS HELD BY DIRECTOR Trustee of GE Funds since 1993, GE
Institutional Funds and GE LifeStyle Funds since their inception; Trustee of
Fordham University since 2002 and Marymount College from 2001 through 2002;
Neuroscience Research Institute since 1986; Diocesan Finance Counsel of the
Dioceses of Brooklyn & Queens since 2001; Gregorian University Foundation since
1994.
- --------------------------------------------------------------------------------
WILLIAM J. LUCAS
- --------------------------------------------------------------------------------
ADDRESS c/o GEAM 3001 Summer St. Stamford, CT 06905
AGE 58
POSITION(S) HELD WITH FUND Director
TERM OF OFFICE AND LENGTH OF TIME SERVED Until successor is elected and
qualified - 9 years
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS Vice President and Treasurer of
Fairfield University since 1983.
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR 40
OTHER DIRECTORSHIPS HELD BY DIRECTOR Trustee of GE Funds since 1993, and GE
Institutional Funds and GE LifeStyle Funds since their inception.
- --------------------------------------------------------------------------------
ROBERT P. QUINN
- --------------------------------------------------------------------------------
ADDRESS c/o GEAM 3001 Summer St. Stamford, CT 06905
AGE 69
POSITION(S) HELD WITH FUND Director
TERM OF OFFICE AND LENGTH OF TIME SERVED Until successor is elected and
qualified - 9 years
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS Retired since 1983 from Salomon
Brothers Inc.
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR 40
OTHER DIRECTORSHIPS HELD BY DIRECTOR GP Financial Corp, holding company; The
Greenpoint Savings Bank, a financial institution. Trustee of GE Funds since
1993, and GE Institutional Funds and GE LifeStyle Funds since their inception.
- --------------------------------------------------------------------------------
The Statement of Additional Information for the Fund includes additional
information about the Directors and Officers and is available, without charge,
upon request by calling 1-800-242-0134.
33
Investment Team
- --------------------------------------------------------------------------------
INVESTMENT ADVISER AND ADMINISTRATOR
GE Asset Management Incorporated
BOARD OF DIRECTORS
Michael J.Cosgrove, CHAIRMAN
John R. Costantino
Alan M. Lewis
William J. Lucas
Robert P. Quinn
SECRETARY
Matthew J. Simpson
TREASURER
Scott H. Rhodes
ASSISTANT TREASURER
Christopher M. Isaacs
DISTRIBUTOR
GE Investment Distributors, Inc.
Member NASD and SIPC
COUNSEL
Sutherland, Asbill & Brennan, LLP
CUSTODIAN
State Street Bank & Trust Company
INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM
KPMG LLP
OFFICERS OF THE INVESTMENT ADVISER
John H. Myers, CHIEF EXECUTIVE OFFICER
David B. Carlson, EVP, DOMESTIC EQUITIES
Michael J. Cosgrove, EVP, CHIEF COMMERCIAL OFFICER
Robert A. MacDougall, EVP, FIXED INCOME (RETIRED FROM ALL POSITIONS AS OF
JANUARY 31, 2006)
Kathryn D. Karlic, EVP, FIXED INCOME (AS OF FEBRUARY 1, 2006)
Ralph R. Layman, EVP, INTERNATIONAL EQUITIES
Alan M. Lewis, EVP, GENERAL COUNSEL AND SECRETARY
Don W. Torey, EVP, ALTERNATIVE INVESTMENTS AND REAL ESTATE
John J. Walker, EVP, CHIEF FINANCIAL OFFICER
34
[This page intentionally left blank.]
[This page intentionally left blank.]
[This page intentionally left blank.]
INVESTMENT ADVISER
GE ASSET MANAGEMENT INCORPORATED
3001 SUMMER STREET
PO BOX 7900
STAMFORD, CT 06904-7900
DISTRIBUTOR
GE INVESTMENT DISTRIBUTORS, INC.
MEMBER NASD AND SIPC
3001 SUMMER STREET
PO BOX 7900
STAMFORD, CT 06904-7900
- --------------------------------------------------------------------------------
The Fund files its complete schedule of portfolio holdings with the Securities
and Exchange Commission for the first and third quarters of each fiscal year on
Form N-Q. The Fund's Forms N-Q, as well as a description of the policies and
procedures that the Fund uses to determine how to vote proxies (if any) relating
to portfolio securities is available without charge (i) upon request, by calling
1-800-242-0134; (ii) on the Fund's website at HTTP://WWW.GEFUNDS.COM; and (iii)
on the Commission's website at HTTP://WWW.SEC.GOV. The Fund's Forms N-Q may be
reviewed and copied at the Commission's Public Reference Room in Washington, DC
information on the operation of the Public Reference Room may be obtained by
calling 1-800-SEC-0330.
Information (if any) regarding how the Fund voted proxies relating to portfolio
securities during the most recently disclosed 12-months period ended June 30 is
available without charge (i) through the Fund's website at
HTTP://WWW.GEFUNDS.COM; and (ii) on the Commission's website at
HTTP://WWW.SEC.GOV.
- --------------------------------------------------------------------------------
[GE LOGO OMITTED]
GE Investments Funds, Inc.
Income Fund
Annual Report
DECEMBER 31, 2005
[GE LOGO OMITTED]
GE Investments Funds, Inc.
Income Fund Contents
- --------------------------------------------------------------------------------
MANAGER REVIEW AND SCHEDULE OF INVESTMENTS .............................. 1
NOTES TO PERFORMANCE .................................................... 12
NOTES TO SCHEDULE OF INVESTMENTS ........................................ 13
FINANCIAL STATEMENTS
Financial Highlights ............................................... 14
Statement of Assets and Liabilities ................................ 15
Statement of Operations ............................................ 16
Statements of Changes in Net Assets ................................ 17
Notes to Financial Statements ...................................... 18
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ................. 23
TAX INFORMATION ......................................................... 24
ADVISORY AND ADMINISTRATIVE AGREEMENT RENEWAL ........................... 25
ADDITIONAL INFORMATION .................................................. 28
INVESTMENT TEAM ......................................................... 31
This report is prepared for Policyholders of certain variable contracts and may
be distributed to others only if preceded or accompanied by the variable
contract's current prospectus and the current prospectus of the Funds available
for investments thereunder.
Income Fund
- --------------------------------------------------------------------------------
Q&A
THE INCOME FUND IS MANAGED BY A TEAM OF PORTFOLIO MANAGERS THAT INCLUDES ALFREDO
CHANG, PAUL M. COLONNA, MARK DELANEY, ERIC H. GOULD, WILLIAM M. HEALEY AND VITA
MARIE PIKE. AS LEAD PORTFOLIO MANAGER FOR THE INCOME FUND, MR. COLONNA (PICTURED
BELOW) HAS OVERSIGHT AUTHORITY BUT DOES NOT POSSESS THE POWER TO VETO THE
INVESTMENT DECISIONS OF HIS CO-MANAGERS.
PAUL M. COLONNA IS A SENIOR VICE PRESIDENT OF GE ASSET MANAGEMENT. SINCE JANUARY
2005, HE HAS LED THE TEAM OF PORTFOLIO MANAGERS FOR THE FIXED INCOME INVESTMENTS
FOR GE ASSET MANAGEMENT AND HE HAS LED THE TEAM OF PORTFOLIO MANAGERS FOR THE
INCOME FUND. PRIOR TO JOINING GE ASSET MANAGEMENT IN FEBRUARY 2000, MR. COLONNA
WAS A SENIOR PORTFOLIO MANAGER WITH THE FEDERAL HOME LOAN MORTGAGE CORPORATION,
OVERSEEING THE MORTGAGE INVESTMENT GROUP.
ALFREDO CHANG IS A VICE PRESIDENT OF GE ASSET MANAGEMENT. HE HAS BEEN A
PORTFOLIO MANAGER OF THE INCOME FUND SINCE MARCH 2005. MR. CHANG JOINED GE ASSET
MANAGEMENT IN JULY 2002 AS A PORTFOLIO MANAGER AND WAS MADE RESPONSIBLE FOR THE
EMERGING MARKET FIXED INCOME EFFORT AT GE ASSET MANAGEMENT IN NOVEMBER 2003. MR.
CHANG WAS AN ASSISTANT PORTFOLIO MANAGER WITH GENWORTH FINANCIAL, FORMERLY KNOWN
AS GE FINANCIAL ASSURANCE, AN AFFILIATE OF GE ASSET MANAGEMENT, FROM AUGUST 2000
UNTIL HE JOINED GE ASSET MANAGEMENT IN JULY 2002. PRIOR TO THAT HE OVERSAW
OFFSHORE INVESTMENT PORTFOLIOS AT AIG GLOBAL INVESTMENT CORPORATION.
MARK DELANEY IS A VICE PRESIDENT OF GE ASSET MANAGEMENT. HE HAS BEEN A MEMBER OF
THE PORTFOLIO MANAGEMENT TEAM FOR THE INCOME FUND SINCE JOINING GE ASSET
MANAGEMENT IN APRIL 2002. PRIOR TO JOINING GE ASSET MANAGEMENT, MR. DELANEY WAS
THE ASSISTANT INVESTMENT OFFICER FOR THE PUBLIC EMPLOYEES RETIREMENT SYSTEM OF
OHIO.
ERIC H. GOULD IS A VICE PRESIDENT OF GE ASSET MANAGEMENT. HE HAS BEEN A
PORTFOLIO MANAGER FOR THE INCOME FUND SINCE JOINING GE ASSET MANAGEMENT IN
SEPTEMBER 2000. PRIOR TO JOINING GE ASSET MANAGEMENT, MR. GOULD WAS A SENIOR
ASSET MANAGER FOR METROPOLITAN LIFE INSURANCE COMPANY.
WILLIAM M. HEALEY IS A SENIOR VICE PRESIDENT OF GE ASSET MANAGEMENT. HE HAS
SERVED ON THE PORTFOLIO MANAGEMENT TEAMS FOR THE INCOME FUND SINCE SEPTEMBER
1997. PRIOR TO JOINING GE ASSET MANAGEMENT, MR. HEALEY SPENT OVER 10 YEARS IN
THE FIXED INCOME GROUP AT METLIFE.
VITA MARIE PIKE IS A VICE PRESIDENT OF GE ASSET MANAGEMENT. SHE HAS SERVED ON
THE PORTFOLIO MANAGEMENT TEAM FOR THE INCOME FUND SINCE JUNE 2004. PRIOR TO
JOINING GE ASSET MANAGEMENT IN JANUARY 2001, SHE WAS WITH ALLIANCE CAPITAL FOR
OVER NINE YEARS SERVING IN A NUMBER OF DIFFERENT CAPACITIES INCLUDING PORTFOLIO
MANAGER.
[PHOTO OF PAUL M. COLONNA OMITTED]
- --------------------------------------------------------------------------------
1
Income Fund
- --------------------------------------------------------------------------------
Q&A
Q. HOW DID THE INCOME FUND PERFORM COMPARED TO ITS BENCHMARK AND LIPPER PEER
GROUP FOR THE TWELVE-MONTH PERIOD ENDED DECEMBER 31, 2005?
A. For the twelve-month period ended December 31, 2005, the Income Fund
returned 2.04%. The Lehman Brothers Aggregate Bond Index, the Fund's
benchmark, returned 2.43% and the Fund's Lipper peer group of 50
Intermediate Investment Grade Debt funds returned an average of 1.99% for
the same period.
Q. DESCRIBE WHAT HAPPENED IN THE U.S. ECONOMY DURING THE TWELVE-MONTH PERIOD
ENDING DECEMBER 31, 2005.
A. Despite major problems announced by both General Motors and Ford in the
spring, hurricanes hitting the gulf coast in early fall, and continued high
energy prices throughout, the U.S. economy maintained a robust pace of
growth in 2005. Low interest rates and new affordability mortgage-products
(e.g. interest-only, negative amortization) have helped home sales stay at
lofty levels. Consumer health improved which supported spending and business
investment improved as well. Although still moderate by historical
standards, inflation figures picked up slightly during the year, which kept
the Federal Reserve Board steadfast in its goal of removing accommodation by
raising rates. In 2005, the Federal Reserve met and raised its target Fed
funds rate 8 times, in increments of 25 basis points (bps) to 4.25%. As a
result of the Federal Reserve's continued endorsement of higher rates, the
yield on the 2-year treasuries increased 133 bps to 4.4%. Due to moderate
inflation expectations and strong foreign buying, 10-year treasury yields
rose only 17 bps to 4.39%.
Q. WHAT WERE THE PRIMARY DRIVERS OF FUND PERFORMANCE?
A. Primary drivers of Fund performance during the year were sector allocation
and curve positioning. Non-index allocations to high yield and emerging
market sectors, away from high grade benchmark sectors as these markets,
especially emerging market debt, outperformed The Lehman Aggregate
benchmark. The Fund's yield curve exposure was positioned to take advantage
of a flattening yield curve, which proved correct as the yield spread
between the 2-year and 10-year notes narrowed by 116 bps. Security selection
in BBB-rated corporate securities also added value. Duration positioning
throughout the year was detrimental to Fund performance.
2
Income Fund
- --------------------------------------------------------------------------------
Understanding Your Fund's Expenses
As a shareholder of the Fund you incur transaction and ongoing expenses.
Transaction expenses including sales charges on purchase payments, reinvested
dividends (or other distributions), and redemption fees directly reduce the
investment return of the Fund. Ongoing costs include portfolio management fees,
distribution and service fees, professional fees, administrative fees and other
Fund expenses. The following example is intended to help you understand your
ongoing costs (in dollars) of investing in the Fund and to compare these costs
with the ongoing costs of investing in other mutual funds.
To illustrate these ongoing costs, we have provided an example and calculated
the expenses paid by investors during the period. The information in the
following table is based on an investment of $1,000, which is invested at the
beginning of the period and held for the entire six-month period ended December
31, 2005.
ACTUAL EXPENSES
The first section of the table provides information about actual account values
and actual expenses. You may use the information in this section, together with
the amount you invested, to estimate the expenses that you paid over the period.
To do so, simply divide your account value by $1,000 (for example, an $8,600
account value divided by $1,000 = 8.6), then multiply the result by the number
given for your class under the heading "Expenses Paid During Period."
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The second section of the table provides information about hypothetical account
values and hypothetical expenses based on the Fund's actual expense ratio and an
assumed rate of return of 5% per year before expenses, which is not the Fund's
actual return. You may use this information to compare the ongoing costs of
investing in the Fund and other funds. To do so, compare this 5% hypothetical
example with the 5% hypothetical examples that appear in the shareholders
reports of other funds.
Please note that the expenses shown in the table do not reflect any transaction
costs, such as sales charges or redemption fees.
JULY 1, 2005 - DECEMBER 31, 2005
- ---------------------------------------------------------------------------------------------------------------------------
ACCOUNT VALUE AT ACCOUNT VALUE EXPENSES
THE BEGINNING OF AT THE END OF PAID DURING
THE PERIOD ($) THE PERIOD ($) THE PERIOD ($)*
- ---------------------------------------------------------------------------------------------------------------------------
Actual Fund Return** 1,000.00 999.97 3.01
- ---------------------------------------------------------------------------------------------------------------------------
Hypothetical 5% Return
(2.5% for the period) 1,000.00 1,021.95 3.05
- ---------------------------------------------------------------------------------------------------------------------------
<FN>
* EXPENSES ARE EQUAL TO THE FUND'S ANNUALIZED EXPENSE RATIO OF 0.60% (FROM
PERIOD JULY 1, 2005 - DECEMBER 31, 2005), MULTIPLIED BY THE AVERAGE ACCOUNT
VALUE OVER THE PERIOD, MULTIPLIED BY 184/365 (TO REFLECT THE SIX MONTH
PERIOD).
** ACTUAL FUND RETURN FOR SIX-MONTH PERIOD ENDED DECEMBER 31, 2005 WAS:
(0.003)%.
</FN>
3
Income Fund
- --------------------------------------------------------------------------------
CHANGE IN VALUE
OF A $10,000 INVESTMENT
- --------------------------------------------------------------------------------
[LINE GRAPH OMITTED]
Income Fund LB Aggregate Bond Index
12/95 $10,000.00 $10,000.00
12/96 10,292.42 10,363.06
12/97 11,218.34 11,363.50
12/98 12,109.96 12,350.60
12/99 11,937.31 12,249.16
12/00 13,219.36 13,673.26
12/01 14,201.19 14,827.75
12/02 15,605.00 16,348.34
12/03 16,166.77 17,019.36
12/04 16,719.67 17,757.79
12/05 17,060.31 18,189.04
AVERAGE ANNUAL TOTAL RETURN
FOR THE PERIODS ENDED DECEMBER 31, 2005
- --------------------------------------------------------------------------------
ONE FIVE TEN
YEAR YEAR YEAR
- --------------------------------------------------------------------------------
Income Fund 2.04% 5.23% 5.49%
- --------------------------------------------------------------------------------
LB Aggregate Bond Index 2.43% 5.87% 6.16%
- --------------------------------------------------------------------------------
Lipper peer group average* 1.99% 5.60% 5.62%
- --------------------------------------------------------------------------------
Inception date 1/3/95
- --------------------------------------------------------------------------------
INVESTMENT PROFILE
A fund designed for investors who seek maximum income consistent with prudent
investment management and the preservation of capital by investing at least 80%
of its net assets in debt securities under normal market conditions.
QUALITY RATINGS
AS OF DECEMBER 31, 2005
as a % of Market Value
- --------------------------------------------------------------------------------
MOODY'S/S&P/ PERCENTAGE OF
FITCH RATING+ MARKET VALUE
- --------------------------------------------------------------------------------
Aaa / AAA 64.28%
- --------------------------------------------------------------------------------
Aa / AA 3.36%
- --------------------------------------------------------------------------------
A / A 9.18%
- --------------------------------------------------------------------------------
Baa / BBB 11.53%
- --------------------------------------------------------------------------------
Ba / BB and lower 11.65%
- --------------------------------------------------------------------------------
PORTFOLIO COMPOSITION
AS OF DECEMBER 31, 2005
as a % of Market Value
- --------------------------------------------------------------------------------
Market Value of $121,379 (in thousands)
[PIE GRAPH OMITTED]
Asset Backed 10.6%
Federal Agencies 4.0%
U.S. Treasuries 17.2%
Corporate Notes 33.2%
Mortgage Backed 35.0%
* LIPPER PERFORMANCE COMPARISONS ARE BASED ON AVERAGE ANNUAL TOTAL RETURNS FOR
THE ONE YEAR, FIVE-YEAR, AND TEN-YEAR PERIODS INDICATED IN THE INTERMEDIATE
INVESTMENT GRADE DEBT PEER GROUP CONSISTING OF 50, 32 AND 15 UNDERLYING
ANNUITY FUNDS, RESPECTIVELY.
+ MOODY'S INVESTORS SERVICES INC, STANDARD & POOR'S AND FITCH ARE NATIONALLY
RECOGNIZED STATISTICAL RATING ORGANIZATIONS.
SEE NOTES TO PERFORMANCE ON PAGE 12 FOR FURTHER INFORMATION, INCLUDING AN
EXPLANATION OF LIPPER PEER CATEGORIES.
PAST PERFORMANCE DOES NOT PREDICT FUTURE PERFORMANCE AND THE GRAPH AND TABLE
DO NOT REFLECT THE DEDUCTION OF TAXES.
4
INCOME FUND
Schedule of Investments December 31, 2005
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
INCOME FUND
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
- --------------------------------------------------------------------------------
BONDS AND NOTES -- 99.6%+
- --------------------------------------------------------------------------------
U.S. TREASURIES -- 17.9%
U.S. Treasury Bonds
5.38% 02/15/31 ............ $ 684,000 $ 768,754(f)
8.13% 08/15/19 - 08/15/21 . 1,725,000 2,356,557(f)
U.S. Treasury Inflation-Protected
Securities
2.00% 01/15/14 ............ 619,770 616,720(f)
3.88% 04/15/29 ............ 128,418 173,604(f)
U.S. Treasury Notes
4.13% 08/15/08 ............ 230,000 228,769(f)
4.25% 11/30/07 ............ 7,640,000 7,618,608
4.38% 11/15/08 - 12/15/10 . 6,145,000 6,150,898(f)
4.50% 11/15/15 ............ 2,955,000 2,980,856
20,894,766
FEDERAL AGENCIES -- 4.2%
Federal Farm Credit Bank
3.75% 01/15/09 ............ 670,000 652,393(f)
Federal Home Loan Bank
2.38% 02/15/06 ............ 600,000 598,421(f)
Federal Home Loan Mortgage Corp.
3.63% 09/15/08 ............ 255,000 248,307(f)
4.13% 07/12/10 ............ 1,415,000 1,379,266(f)
4.75% 12/08/10 ............ 1,065,000 1,059,591(f)
6.75% 03/15/31 ............ 730,000 916,732(f)
4,854,710
AGENCY MORTGAGE BACKED -- 20.5%
Federal Home Loan Mortgage Corp.
4.50% 06/01/33 - 10/01/35 . 591,530 556,613
5.00% 07/01/35 - 10/01/35 . 553,062 535,392
5.50% 05/01/20 ............ 95,518 96,084
6.00% 04/01/17 - 05/01/35 . 1,277,318 1,293,718
6.50% 01/01/27 - 12/01/34 . 686,967 703,958
7.00% 10/01/16 - 02/01/35 . 244,392 254,438
7.50% 11/01/09 - 09/01/33 . 41,020 42,944
8.00% 09/01/09 - 11/01/30 . 37,756 39,676
8.50% 04/01/30 - 05/01/30 . 37,884 41,012
Federal National Mortgage Assoc.
4.00% 05/01/19 - 06/01/19 . 335,875 320,440
4.50% 05/01/18 - 12/01/34 . 2,542,369 2,449,948
5.00% 03/01/34 - 08/01/35 . 700,090 678,671
5.50% 12/01/13 - 08/01/33 . 982,236 983,223
6.00% 06/01/14 - 07/01/35 . 2,730,559 2,760,817
6.50% 03/01/15 - 02/01/35 . 3,263,256 3,345,060
7.00% 03/01/15 - 05/01/35 . 1,068,618 1,112,976
7.50% 12/01/09 - 03/01/34 . 320,003 334,882
8.00% 12/01/12 - 11/01/33 . 226,993 242,951
- --------------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
- --------------------------------------------------------------------------------
8.50% 05/01/31 ............ $ 8,832 $ 9,555
9.00% 04/01/16 - 12/01/22.. 41,326 44,212
4.50% TBA ................. 80,000 77,825(b)
5.00% TBA ................. 2,450,000 2,385,015(b)
5.50% TBA ................. 1,470,000 1,455,300(b)
6.00% TBA ................. 1,500,000 1,513,593(b)
Government National
Mortgage Assoc.
4.13% 11/20/22 - 12/20/24 . 9,452 9,530(g)
4.38% 02/20/23 - 02/20/26 . 27,082 27,262(g)
4.50% 08/15/33 - 09/15/34 . 645,441 619,617
6.00% 04/15/27 - 06/15/35 . 663,780 679,302
6.50% 04/15/19 - 08/15/34 . 554,996 578,287
7.00% 03/15/12 - 06/15/34 . 273,642 286,694
7.50% 11/15/31 - 10/15/33 . 16,295 17,145
8.00% 12/15/29 - 04/15/30 . 13,979 15,032
8.50% 10/15/17 ............ 34,233 37,103
9.00% 11/15/16 - 12/15/21 . 79,402 86,883
5.50% TBA ................. 300,000 301,781(b)
23,936,939
AGENCY COLLATERALIZED MORTGAGE OBLIGATIONS -- 8.9%
Federal Home Loan Mortgage Corp.
2.28% 10/15/18 ............ 487,484 29,197(e,g)
2.78% 12/15/30 ............ 1,289,568 74,150(e,g)
4.08% 10/15/33 ............ 235,000 168,648(g)
4.50% 04/15/13 - 03/15/19 . 1,146,417 115,156(e)
4.50% 05/15/17 - 11/15/19 . 350,000 336,010
5.00% 01/15/11 - 12/01/34 . 5,579,696 901,701(e)
5.00% 05/15/20 - 02/15/35 . 2,530,000 2,399,257
5.03% 12/15/33 ............ 150,000 118,250(g)
5.50% 04/15/17 - 06/15/33 . 744,915 144,103(e)
5.50% 10/15/34 ............ 250,631 252,734
6.50% 02/15/21 ............ 804 802
6.84% 06/15/33 ............ 640,668 621,320(g)
7.50% 01/15/16 ............ 80,954 84,576
7.50% 07/15/27 ............ 19,890 4,143(e)
8.00% 02/01/23 - 07/01/24 . 10,424 2,509(e)
8.25% 06/01/26 ............ 60,000 80,031(f,h)
14.77% 09/25/43 ............ 2,525,011 28,094(c,e,g)
Federal Home Loan Mortgage STRIPS
4.72% 08/01/27 ............ 2,559 2,139(c,d)
Federal National Mortgage Assoc.
1.16% 12/25/42 ............ 179,100 4,282(e,g)
2.23% 06/25/43 ............ 2,500,456 126,623(e,g)
2.62% 10/25/29 ............ 653,906 39,061(e,g)
2.72% 12/25/30 ............ 651,452 32,389(e,g)
3.12% 05/25/18 ............ 1,146,773 83,141(e,g)
3.22% 09/25/42 ............ 1,903,007 156,998(e,g)
3.27% 04/25/17 - 10/25/17 . 1,456,986 106,578(e,g)
3.32% 08/25/16 ............ 460,108 25,720(e,g)
3.72% 06/25/42 ............ 617,232 50,529(e,g)
4.00% 02/25/28 ............ 44,873 44,041
4.50% 05/25/18 ............ 197,754 19,899(e)
4.50% 12/25/19 ............ 125,000 118,054
4.75% 11/25/14 ............ 117,359 9,553(e)
5.00% 02/25/11 - 02/25/32 . 386,886 36,169(e)
See Notes to Schedule of Investments on page 13 and Notes to Financial
Statements.
5
INCOME FUND
Schedule of Investments December 31, 2005
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
- --------------------------------------------------------------------------------
5.00% 03/25/35 ............ $ 175,000 $ 165,399
5.44% 09/25/31 ............ 416,519 392,650(g)
5.50% 01/25/27 ............ 361,947 43,773(e)
5.50% 07/25/34 - 02/25/35 . 505,262 508,828(f)
5.75% 02/25/35 ............ 250,000 254,169
6.00% 12/25/34 ............ 175,000 178,513
6.50% 12/25/34 ............ 112,772 117,247
8.00% 07/25/14 ............ 269,439 276,996
Federal National Mortgage
Assoc. (Class 1)
4.21% 11/01/34 ............ 1,184,415 901,636(c,d)
Federal National Mortgage
Assoc. (Class S)
2.72% 02/25/31 ............ 619,693 30,222(e,g)
Federal National Mortgage
Assoc. REMIC
4.50% 11/25/13 ............ 552,258 25,768(e)
5.00% 10/25/22 ............ 166,257 25,259(e)
5.50% 08/25/33 ............ 590,782 136,617(e)
6.98% 03/25/31 ............ 604,915 596,597(g)
7.00% 09/25/20 ............ 1,363 1,383
Federal National Mortgage Assoc.
REMIC (Class B)
4.43% 12/25/22 ............ 685 578(c,d)
Federal National Mortgage Assoc.
REMIC (Class J)
1080.91% 03/25/22 ............ 19 307(e)
Federal National Mortgage Assoc.
REMIC (Class K)
1008.00% 05/25/22 ............ 15 477(e)
Federal National Mortgage Assoc.
STRIPS (Class 2)
7.50% 11/01/23 ............ 61,809 15,558(e)
8.00% 08/01/23 - 07/01/24 . 22,444 4,420(e)
8.50% 07/25/22 ............ 1,074 232(e)
9.00% 05/25/22 ............ 697 194(e)
Government National
Mortgage Assoc.
5.00% 02/16/34 ............ 400,000 379,704(f)
Vendee Mortgage Trust
16.77% 05/15/33 ............ 1,662,574 50,916(c,e,g)
10,323,300
ASSET BACKED -- 4.8%
American Express Credit Account
Master Trust (Class A)
4.49% 12/15/08 ............ 150,000 150,074(g)
Bank One Issuance Trust
3.59% 05/17/10 ............ 85,000 83,352
BMW Vehicle Owner Trust (Class B)
2.93% 03/25/09 ............ 213,000 210,515
Capital One Master Trust (Class C)
6.70% 06/15/11 ............ 200,000 208,031(a,f)
Carmax Auto Owner Trust
4.35% 03/15/10 ............ 131,000 129,410
- --------------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
- --------------------------------------------------------------------------------
Chase Funding Mortgage Loan
Asset-Backed Certificates
4.66% 02/25/33 ............ $ 154,632 $ 154,947(f,g)
5.75% 05/25/32 ............ 32,000 30,342(f)
Citibank Credit Card Issuance Trust
4.45% 04/07/10 ............ 274,000 270,137
4.75% 03/07/08 ............ 325,000 325,148(g)
Countrywide Asset-Backed
Certificates
4.81% 05/25/33 ............ 30,840 30,915(f,g)
Countrywide Home Equity Loan
Trust (Class A)
4.60% 07/15/27 ............ 151,825 151,894(f,g)
Fleet Home Equity Loan
Trust (Class A)
4.62% 01/20/33 ............ 556,002 556,565(f,g)
Ford Credit Floorplan Master Owner
Trust (Class A)
4.41% 07/15/09 ............ 2,500,000 2,497,145(g)
Honda Auto Receivables Owner
Trust (Class A)
4.15% 10/15/10 ............ 146,000 143,778
Mid-State Trust
7.54% 07/01/35 ............ 3,133 3,266(f)
Peco Energy Transition Trust
6.52% 12/31/10 ............ 192,000 204,326(f)
Residential Asset Mortgage
Products, Inc.
4.71% 12/25/33 ............ 208,640 208,899(g)
Residential Asset Mortgage
Products, Inc. (Class A)
4.66% 06/25/32 ............ 85,297 85,405(g)
Residential Asset Securities Corp.
4.63% 07/25/32 ............ 23,741 23,761(f,g)
Volkswagen Auto Lease
Trust (Class A)
3.94% 10/20/10 ............ 88,000 86,645
Wells Fargo Home Equity Trust
3.97% 09/25/24 ............ 77,000 75,378(f,g)
5,629,933
CORPORATE NOTES -- 34.5%
Abbey National PLC
7.95% 10/26/29 ............ 200,000 258,457
Adaro Finance B.V.
8.50% 12/08/10 ............ 140,000 141,050(a)
AES Corp.
8.75% 06/15/08 ............ 275,000 288,750
AIG SunAmerica Global Financing VII
5.85% 08/01/08 ............ 220,000 224,627(a)
Air Jamaica Ltd.
9.38% 07/08/15 ............ 150,000 148,875(a)
Albertson's, Inc.
7.50% 02/15/11 ............ 90,000 92,552
Allegiance Corp.
7.00% 10/15/26 ............ 210,000 232,330
Allied Waste North America
7.25% 03/15/15 ............ 350,000 353,500
See Notes to Schedule of Investments on page 13 and Notes to Financial
Statements.
6
INCOME FUND
Schedule of Investments December 31, 2005
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
- --------------------------------------------------------------------------------
Allstate Life Global Funding Trusts
3.85% 01/25/08 ............ $220,000 $ 215,583
ALROSA Finance S.A.
8.88% 11/17/14 ............ 200,000 229,220(a)
Altria Group, Inc.
7.20% 02/01/07 ............ 125,000 127,722
America Movil S.A. de C.V.
6.38% 03/01/35 ............ 15,000 14,731
American Electric Power
Company, Inc. (Series D)
5.25% 06/01/15 ............ 90,000 89,737
American General Corp.
7.50% 08/11/10 ............ 130,000 141,990
American General Finance Corp.
4.88% 07/15/12 ............ 190,000 185,911
ANZ Capital Trust
4.48% 12/31/49 ............ 170,000 164,508(a)
Appalachian Power Co. (Series G)
3.60% 05/15/08 ............ 150,000 145,316
Appalachian Power Co. (Series K)
5.00% 06/01/17 ............ 110,000 105,474
Archer-Daniels-Midland Co.
5.38% 09/15/35 ............ 110,000 105,621
Assurant, Inc.
6.75% 02/15/34 ............ 175,000 191,631
AT&T Corp.
9.05% 11/15/11 ............ 280,000 309,911
AT&T, Inc.
4.13% 09/15/09 ............ 220,000 212,528
5.88% 08/15/12 ............ 110,000 113,429
6.15% 09/15/34 ............ 150,000 150,739
BAC CAP TRUST V
5.63% 03/08/35 ............ 180,000 176,256
Banco BMG S.A.
9.15% 01/15/16 ............ 145,000 143,188(a)
Banco Mercantil del Norte S.A.
5.88% 02/17/14 ............ 225,000 223,313(a,g)
Banco Santander Chile
5.38% 12/09/14 ............ 215,000 214,674(a)
Barclays Bank PLC
7.38% 06/29/49 ............ 225,000 248,942(a,g)
Bavaria S.A.
8.88% 11/01/10 ............ 115,000 124,919(a)
8.88% 11/01/10 ............ 90,000 98,442
BBVA Bancomer Capital Trust I
10.50% 02/16/11 ............ 30,000 30,150(a)
BellSouth Corp.
6.55% 06/15/34 ............ 185,000 197,149
BNP US Funding LLC (Series A)
7.74% 12/31/49 ............ 80,000 83,762(a,g)
BNSF Funding Trust I
6.61% 12/15/55 ............ 135,000 141,447(g)
Boeing Co.
8.75% 09/15/31 ............ 75,000 108,422
British Aerospace Finance, Inc.
7.50% 07/01/27 ............ 125,000 148,222(a)
Burlington Northern Santa Fe Corp.
8.13% 04/15/20 ............ 340,000 427,443
- --------------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
- --------------------------------------------------------------------------------
Campbell Soup Co.
5.50% 03/15/07 ............ $160,000 $ 160,981
Capital One Bank
6.50% 06/13/13 ............ 75,000 79,582
Capital One Financial Corp.
8.75% 02/01/07 ............ 170,000 176,406
Carolina Power & Light Co.
5.15% 04/01/15 ............ 80,000 79,437
5.70% 04/01/35 ............ 45,000 45,021
6.13% 09/15/33 ............ 235,000 248,939
Case New Holland Inc.
6.00% 06/01/09 ............ 480,000 465,600(f)
Centex Corp.
7.88% 02/01/11 ............ 120,000 131,470
Chesapeake Energy Corp.
7.75% 01/15/15 ............ 295,000 312,700
Citigroup, Inc.
6.63% 06/15/32 ............ 260,000 293,319
Clear Channel Communications, Inc.
4.63% 01/15/08 ............ 255,000 251,411
CNA Financial Corp.
5.85% 12/15/14 ............ 260,000 261,084
CNF Inc.
6.70% 05/01/34 ............ 135,000 141,296
Comcast Cable Communications
Holdings, Inc.
9.46% 11/15/22 ............ 155,000 203,743
Consolidated Natural Gas Co.
5.38% 11/01/06 ............ 255,000 255,721
Consumers Energy Co.
5.15% 02/15/17 ............ 125,000 119,492
5.80% 09/15/35 ............ 110,000 107,015
Corp Interamericana de
Entretenimiento S.A.
8.88% 06/14/15 ............ 150,000 146,625(a)
Countrywide Home Loans, Inc.
5.63% 05/15/07 ............ 100,000 100,743
COX Communications, Inc.
5.45% 12/15/14 ............ 200,000 195,032
Credit Suisse First Boston
International
8.00% 11/06/15 ............ 145,000 149,647(a)
Crown Americas LLC and Crown
Americas Capital Corp.
7.75% 11/15/15 ............ 395,000 408,825(a)
CSX Transportation, Inc.
9.75% 06/15/20 ............ 105,000 143,351
DaimlerChrysler NA Holding Corp.
4.05% 06/04/08 ............ 110,000 107,242
4.75% 01/15/08 ............ 110,000 109,132
6.50% 11/15/13 ............ 335,000 350,286
8.50% 01/18/31 ............ 110,000 133,219
DBS Bank Ltd.
5.00% 11/15/19 ............ 235,000 228,659(a,g)
Desarrolladora Homex
S.A. de C.V. (REIT)
7.50% 09/28/15 ............ 270,000 265,275(a)
Detroit Edison Co. (Series B)
5.45% 02/15/35 ............ 190,000 179,522
See Notes to Schedule of Investments on page 13 and Notes to Financial
Statements.
7
INCOME FUND
Schedule of Investments December 31, 2005
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
- --------------------------------------------------------------------------------
Dex Media, Inc.
8.50% 08/15/10 ............ $405,000 $ 424,238
6.38% 06/15/15 ............ 325,000 317,688
Dominion Resources Inc. (Series B)
4.13% 02/15/08 ............ 130,000 127,700
Dominion Resources Inc. (Series G)
3.66% 11/15/06 ............ 220,000 217,417(h)
Duke Capital LLC
4.30% 05/18/06 ............ 90,000 89,786
4.33% 11/16/06 ............ 135,000 134,060
5.67% 08/15/14 ............ 50,000 50,433
Echostar DBS Corp.
5.75% 10/01/08 ............ 460,000 450,800(f)
El Paso Electric Co.
6.00% 05/15/35 ............ 165,000 165,155
Emmis Communications Corp.
10.37% 06/15/12 ............ 140,000 140,525(g)
Enterprise Products Operating LP
4.00% 10/15/07 ............ 245,000 239,880(f)
EOP Operating LP (REIT)
7.75% 11/15/07 ............ 340,000 355,174
Evraz Group S.A.
8.25% 11/10/15 ............... 175,000 173,075(a)
FirstEnergy Corp. (Series B)
6.45% 11/15/11 ............ 225,000 238,499
Flextronics International Ltd.
6.25% 11/15/14 ............ 480,000 473,400(f)
Ford Motor Credit Co.
6.63% 06/16/08 ............ 285,000 258,638(f)
FPL Group Capital, Inc. (Series B)
5.55% 02/16/08 ............ 220,000 221,907
Gaz Capital for Gazprom
8.63% 04/28/34 ............ 295,000 373,175(a)
Genentech, Inc.
5.25% 07/15/35 ............ 80,000 76,392
Georgia Power Co.
4.88% 07/15/07 ............ 200,000 200,181
Gerdau S.A.
8.88% 12/31/49 ............ 110,000 113,575(a)
Goldman Sachs Group, Inc.
5.13% 01/15/15 ............ 375,000 370,347
Goodrich Corp.
7.10% 11/15/27 ............ 185,000 210,813
Greater Bay Bancorp
5.25% 03/31/08 ............ 155,000 155,100
Grupo Televisa S.A.
6.63% 03/18/25 ............ 210,000 213,698
Grupo Transportacion Ferroviaria
Mexicana S.A. de C.V.
9.38% 05/01/12 ............ 100,000 109,500(a)
GS Caltex Corp.
5.50% 10/15/15 ............ 170,000 169,527(a)
GTE Corp.
6.94% 04/15/28 ............ 240,000 256,955
7.51% 04/01/09 ............ 110,000 116,816
Halliburton Co.
8.75% 02/15/21 ............ 365,000 480,295
Hertz Corp.
8.88% 01/01/14 ............ 130,000 132,438(a)
- --------------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
- --------------------------------------------------------------------------------
Hopson Development Holdings Ltd.
8.13% 11/09/12 ............ $145,000 $ 148,988(a)
HSBC Bank USA NA
3.88% 09/15/09 ............ 425,000 409,938
HSBC Capital Funding LP (Series 1)
9.55% 12/31/49 ............ 65,000 76,071(a,g)
HSBC Finance Corp.
6.50% 11/15/08 ............ 365,000 379,139
6.75% 05/15/11 ............ 455,000 487,400(f)
IBM Canada Credit
Services Company
3.75% 11/30/07 ............ 95,000 93,009(a)
ILFC E-Capital Trust I
5.90% 12/21/65 ............ 170,000 170,668(a,g)
ING Groep N.V.
5.78% 12/29/49 ............ 110,000 111,789(g)
International Business
Machines Corp.
3.80% 02/01/08 ............ 115,000 112,939
International Lease Finance Corp.
5.00% 04/15/10 ............ 170,000 169,090
iStar Financial, Inc.
4.88% 01/15/09 ............ 55,000 54,348
7.00% 03/15/08 ............ 40,000 41,299
Jefferson Smurfit Corp. US
7.50% 06/01/13 ............ 120,000 110,400
Kansas Gas & Electric
5.65% 03/29/21 ............ 105,000 103,220
Kimco Realty Corp. (REIT)
4.82% 06/01/14 ............ 110,000 106,042
Kinder Morgan Energy Partners LP
5.13% 11/15/14 ............ 155,000 151,598
Kinder Morgan, Inc.
6.50% 09/01/12 ............ 160,000 169,828
Kraft Foods, Inc.
5.25% 06/01/07 ............ 100,000 100,330
L-3 Communications Corp.
6.38% 10/15/15 ............ 165,000 164,588(a)
Laboratory Corp of
America Holdings
5.63% 12/15/15 ............ 110,000 111,383
Lyondell Chemical Co. (Series A)
9.63% 05/01/07 ............ 270,000 281,813
MacDermid, Inc.
9.13% 07/15/11 ............ 410,000 434,088
Marsh & McLennan Companies, Inc.
5.15% 09/15/10 ............ 170,000 168,717
Meritage Homes Corp.
6.25% 03/15/15 ............ 480,000 436,800(f)
MGM Mirage
5.88% 02/27/14 ............ 495,000 472,725(f)
Midamerican Energy Holdings Co.
3.50% 05/15/08 ............ 200,000 193,005
Mohegan Tribal Gaming Authority
8.00% 04/01/12 ............ 270,000 284,175
Morgan Stanley
4.75% 04/01/14 ............ 170,000 162,935
See Notes to Schedule of Investments on page 13 and Notes to Financial
Statements.
8
INCOME FUND
Schedule of Investments December 31, 2005
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
- --------------------------------------------------------------------------------
Morgan Stanley Bank AG
for OAO Gazprom
9.63% 03/01/13 ............ $140,000 $ 168,000
Motorola, Inc.
4.61% 11/16/07 ............ 285,000 283,219
National Power Corp.
8.63% 08/23/11 ............ 110,000 118,193(a,g)
Navistar International Corp. (Series B)
6.25% 03/01/12 ............ 495,000 443,025(f)
NB Capital Trust IV
8.25% 04/15/27 ............ 110,000 117,935
Nell AF SARL
8.38% 08/15/15 ............ 100,000 99,000(a)
Nelnet, Inc.
5.13% 06/01/10 ............ 205,000 200,433
New Cingular Wireless Services Inc.
8.75% 03/01/31 ............ 220,000 291,592
News America, Inc.
7.25% 05/18/18 ............ 110,000 123,017
Nexstar Broadcasting Group, Inc.
7.00% 01/15/14 ............ 320,000 293,200
Nextel Communications,
Inc. (Series D)
7.38% 08/01/15 ............ 275,000 290,212
Nordea Bank AB
5.42% 12/29/49 ............ 115,000 113,997(a,g)
Norfolk Southern Railway Co.
9.75% 06/15/20 ............ 170,000 240,178
Northeast Utilities (Series B)
3.30% 06/01/08 ............ 235,000 225,186
Northrop Grumman Corp.
4.08% 11/16/06 ............ 70,000 69,459
Novelis Inc.
7.50% 02/15/15 ............ 320,000 298,400(a)
Ocean Energy, Inc.
4.38% 10/01/07 ............ 75,000 74,179
Odyssey Re Holdings Corp.
7.65% 11/01/13 ............ 205,000 214,206
Ohio Power Co. (Series E)
6.60% 02/15/33 ............ 65,000 71,654
Owens Brockway Glass
Container Inc.
6.75% 12/01/14 ............ 235,000 227,950
Pacific Gas & Electric Co.
6.05% 03/01/34 ............ 95,000 97,965
PanAmSat Corp.
9.00% 08/15/14 ............ 320,000 335,200
Pemex Finance Ltd.
9.03% 02/15/11 ............ 250,000 273,115
9.69% 08/15/09 ............ 202,500 218,206(f)
Pemex Project Funding Master Trust
6.13% 08/15/08 ............ 265,000 270,819
7.38% 12/15/14 ............ 30,000 33,329
Pepco Holdings, Inc.
5.04% 06/01/10 ............ 45,000 45,193(g)
5.35% 11/15/14 ............ 95,000 94,953
9.36% 01/01/21 ............ 305,000 392,364
- --------------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
- --------------------------------------------------------------------------------
Puget Energy, Inc.
3.36% 06/01/08 ............ $125,000 $ 120,278
5.48% 06/01/35 ............ 110,000 106,722
Quest Diagnostics Inc.
6.75% 07/12/06 ............ 115,000 116,013
Qwest Corp.
7.63% 06/15/15 ............ 400,000 428,000(a,f)
Rabobank Capital Funding II
5.26% 12/31/49 ............ 275,000 272,447(a,g)
Rabobank Capital Funding Trust
5.25% 12/29/49 ............ 130,000 127,468(a,g)
RBS Capital Trust I
5.51% 09/29/49 ............ 195,000 194,217(g)
Reckson Operating
Partnership LP (REIT)
5.88% 08/15/14 ............ 140,000 140,977
Residential Capital Corp.
6.13% 11/21/08 ............ 225,000 225,767
Road King Infrastructure
Finance 2004 Ltd.
6.25% 07/15/11 ............ 145,000 144,752
Rogers Cable Inc.
5.50% 03/15/14 ............ 250,000 234,063
Royal Bank of Scotland Group PLC
7.65% 08/31/49 ............ 155,000 187,267(g)
SBC Communications, Inc.
5.10% 09/15/14 ............ 170,000 166,029
Simon Property Group LP (REIT)
4.60% 06/15/10 ............ 115,000 112,108
4.88% 08/15/10 ............ 150,000 147,821
Sinclair Broadcast Group, Inc.
8.00% 03/15/12 ............ 320,000 329,600
Smithfield Foods Inc.
7.63% 02/15/08 ............ 270,000 278,775
Sprint Capital Corp.
6.00% 01/15/07 ............ 290,000 292,740
8.38% 03/15/12 ............ 75,000 86,969
8.75% 03/15/32 ............ 360,000 476,239(f)
St. Paul Travelers Companies, Inc.
5.50% 12/01/15 ............ 110,000 110,920
Standard Chartered Bank
Hong Kong Ltd.
4.38% 12/03/14 ............ 130,000 130,000(g)
State of Illinois
4.95% 06/01/23 ............ 85,000 83,057
5.10% 06/01/33 ............ 130,000 128,404
Stewart Enterprises, Inc.
7.75% 02/15/13 ............ 350,000 336,000(a,f)
Sumitomo Mitsui Banking Corp.
5.63% 07/29/49 ............ 80,000 79,700(a,g)
Telefonos de Mexico S.A. de C.V.
4.50% 11/19/08 ............ 125,000 122,611
TELUS Corp.
7.50% 06/01/07 ............ 220,000 227,259
8.00% 06/01/11 ............ 110,000 123,536
Tesoro Corp.
6.25% 11/01/12 ............ 85,000 85,425(a)
6.63% 11/01/15 ............ 130,000 131,300(a)
See Notes to Schedule of Investments on page 13 and Notes to Financial
Statements.
9
INCOME FUND
Schedule of Investments December 31, 2005
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
- --------------------------------------------------------------------------------
The Kroger Company
6.80% 12/15/18 ............ $110,000 $ 117,442
Thomson Corp.
5.50% 08/15/35 ............ 115,000 111,839
Time Warner Entertainment Co. LP
8.38% 07/15/33 ............ 160,000 188,856
TXU Electric Delivery Co.
5.00% 09/01/07 ............ 115,000 114,794
6.38% 05/01/12 ............ 250,000 263,053
Tyson Foods, Inc.
7.25% 10/01/06 ............ 6,000 6,096
UBS Preferred Funding Trust I
8.62% 10/29/49 ............ 130,000 148,603(g)
UFJ Finance Aruba AEC
6.75% 07/15/13 ............ 130,000 141,677
Union Pacific Corp.
6.65% 01/15/11 ............ 170,000 182,183
United Rentals North America, Inc.
7.75% 11/15/13 ............ 335,000 326,625(f)
Valero Energy Corp.
3.50% 04/01/09 ............ 180,000 171,693
Verizon
6.50% 09/15/11 ............ 135,000 139,180
Verizon Global Funding Corp.
7.75% 06/15/32 ............ 20,000 23,791
Verizon Pennsylvania Inc.
8.75% 08/15/31 ............ 110,000 135,123
Viacom, Inc.
5.63% 05/01/07 ............ 200,000 201,059
VTB Capital SA for Vneshtorgbank
5.25% 09/21/07 ............ 360,000 360,000(a,g)
Westar Energy, Inc.
5.15% 01/01/17 ............ 90,000 87,528
Westfield Capital
Corporation Limited
4.38% 11/15/10 ............ 175,000 169,391(a)
Westlake Chemical Corp.
8.75% 07/15/11 ............ 242,000 258,940
Weyerhaeuser Co.
6.13% 03/15/07 ............ 74,000 74,989
Wisconsin Electric Power
3.50% 12/01/07 ............ 160,000 155,909
XTO Energy, Inc.
7.50% 04/15/12 ............ 145,000 162,355
40,236,577
NON-AGENCY COLLATERALIZED MORTGAGE OBLIGATIONS -- 7.0%
Bank of America Alternative Loan Trust
6.50% 07/25/35 ............ 94,373 96,225
Bear Stearns Commercial
Mortgage Securities
6.02% 02/14/31 ............ 300,000 307,712
CalSTRS Trust
4.13% 11/20/12 ............ 529,000 521,245(a,f)
Crusade Global Trust (Class A)
4.69% 09/18/34 ............ 179,223 179,646(f,g)
- --------------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
- --------------------------------------------------------------------------------
CS First Boston Mortgage
Securities Corp.
1.54% 03/15/35 ............ $3,917,645 $ 179,791(a,f,g)
5.00% 07/15/37 ............ 2,633,000 81,951(a,c,f,g)
6.13% 04/15/37 ............ 175,000 184,170(f)
First Union-Lehman Brothers-
Bank of America
6.56% 11/18/35 ............ 152,152 156,337(f)
GMAC Commercial Mortgage
Securities, Inc.
6.42% 05/15/35 ............ 349,355 359,906(f)
6.47% 04/15/34 ............ 159,000 168,337(f)
GMAC Commercial Mortgage
Securities, Inc. (Class X)
5.00% 12/10/41 ............ 4,515,448 123,243(c,f,g)
Granite Mortgages PLC (Class 1)
3.80% 01/20/43 ............ 1,113,062 1,114,843(f,g)
Greenwich Capital Commercial
Funding Corp.
5.12% 04/10/37 ............ 301,000 301,731(f)
JPMorgan Chase Commercial
Mortgage Securities Corp.
1.16% 01/12/39 ............ 2,900,131 119,759(a,f,g)
6.47% 11/15/35 ............ 190,000 202,649(f)
LB-UBS Commercial Mortgage Trust
4.06% 09/15/27 ............ 495,000 481,076(f,g)
4.51% 12/15/29 ............ 163,000 158,193(f)
4.74% 03/15/34 ............ 682,879 10,491(a,c,f,g)
4.92% 01/18/12 ............ 3,527,000 115,749(c,f,g)
6.23% 03/15/26 ............ 130,000 134,522(f)
7.01% 02/15/40 ............ 2,736,759 58,935(a,c,f,g)
7.33% 03/15/36 ............ 3,246,245 94,065(a,c,f,g)
LB-UBS Commercial Mortgage
Trust (Class A)
6.13% 12/15/30 ............ 172,000 181,054(f)
6.65% 11/15/27 ............ 144,000 154,234(f)
LB-UBS Commercial Mortgage
Trust (Class B)
6.65% 07/14/16 ............ 34,000 36,288(a,f)
Master Alternative Loans Trust
5.00% 08/25/18 ............ 227,484 30,426(e,f)
6.50% 08/25/34 - 05/25/35 . 658,875 669,502(f)
Master Alternative Loans
Trust (Class 3)
6.50% 01/25/35 ............ 169,786 172,121(f)
Morgan Stanley Capital I
7.11% 04/15/33 ............ 513,000 545,651(f)
Morgan Stanley Dean
Witter Capital I
4.57% 04/15/34 ............ 497,636 11,761(a,c,f,g)
4.81% 10/15/35 ............ 772,261 17,480(a,c,f,g)
7.20% 10/15/33 ............ 199,000 214,477(f)
Morgan Stanley Dean
Witter Capital I (Class A)
6.39% 10/15/35 ............ 150,000 159,720(f)
Morgan Stanley Dean
Witter Capital I (Class A)
6.54% 02/15/31 ............ 37,690 38,935(f)
See Notes to Schedule of Investments on page 13 and Notes to Financial
Statements.
10
INCOME FUND
Schedule of Investments December 31, 2005
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NUMBER
OF SHARES VALUE
- --------------------------------------------------------------------------------
Morgan Stanley Dean
Witter Capital I (Class X)
1.46% 02/01/31 ............ $413,505 $ 18,491(a,f,g)
Nomura Asset Securities
Corp. (Class A)
6.59% 03/15/30 ............ 500,000 516,724
Puma Finance Ltd. (Class A)
4.31% 10/11/34 ............ 298,437 298,327(g)
8,215,767
SOVEREIGN BONDS -- 1.8%
Government of Bahamas
6.63% 05/15/33 ............ 135,000 156,429(a,f)
Government of Brazil
8.75% 02/04/25 ............ 145,000 160,225
Government of Brazilian
11.00% 08/17/40 ............ 300,000 386,700(f)
Government of Colombia
6.14% 11/16/15 ............ 100,000 102,000(f,g)
Government of Indonesia
7.50% 01/15/16 ............ 145,000 150,438(a,f)
8.50% 10/12/35 ............ 145,000 157,688(a)
Government of Peru
7.35% 07/21/25 ............ 345,000 339,825
Government of Turkey
7.38% 02/05/25 ............ 140,000 144,550
11.88% 01/15/30 ............ 140,000 215,250
Government of Vietnam
6.88% 01/15/16 ............ 145,000 151,163(a)
Province of Saskatchewan Canada
8.50% 07/15/22 ............ 55,000 75,779
2,040,047
TOTAL BONDS AND NOTES
(COST $118,991,800) .......... 116,132,039
NUMBER
OF SHARES
- --------------------------------------------------------------------------------
PREFERRED STOCK -- 0.2%
- --------------------------------------------------------------------------------
Zurich Regcaps Funding Trust I
(COST $268,450) .............. 260 261,625(a)
TOTAL INVESTMENTS IN SECURITIES
(COST $119,260,250) .......... 116,393,664
- --------------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
- --------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS -- 4.3%
- --------------------------------------------------------------------------------
GEI Short Term Investment Fund
4.42%
(COST $4,985,182) ............ 4,985,182 $ 4,985,182(c,i)
TOTAL INVESTMENTS
(COST $124,245,432) .......... 121,378,846
LIABILITIES IN EXCESS OF OTHER ASSETS,
NET-- (4.1)% ................. (4,820,672)
------------
NET ASSETS-- 100.0% ............. $116,558,174
============
- --------------------------------------------------------------------------------
OTHER INFORMATION
- --------------------------------------------------------------------------------
The GEI Income Fund had the following long futures contracts open at December
31, 2005:
NUMBER CURRENT UNREALIZED
EXPIRATION OF NOTIONAL APPRECIATION/
DESCRIPTION DATE CONTRACTS VALUE (DEPRECIATION)
- --------------------------------------------------------------------------------
U.S. Treasury
Notes 5 Yr.
Futures March 2006 45 $4,785,469 $(4,718)
The GEI Income Fund had the following short futures contracts open at December
31, 2005:
NUMBER CURRENT UNREALIZED
EXPIRATION OF NOTIONAL APPRECIATION/
DESCRIPTION DATE CONTRACTS VALUE (DEPRECIATION)
- --------------------------------------------------------------------------------
U.S. Treasury
Notes 10 Yr.
Futures March 2006 15 $(1,641,094) $ 2,436
---------
$(2,282)
=========
See Notes to Schedule of Investments on page 13 and Notes to Financial
Statements.
11
Notes to Performance December 31, 2005 (unaudited)
- --------------------------------------------------------------------------------
Total returns take into account changes in share price and assume reinvestment
of dividends and capital gains distributions, 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.
Current performance may be lower or higher than that shown. You may call
toll-free (800) 242-0134 for performance information as of the most recent month
end.
Total returns do not reflect expenses associated with the separate account such
as administrative fees, account charges and surrender charges, which, if
reflected, would reduce the total returns for all periods shown.
Shares of the Fund are neither insured nor guaranteed by the U.S. Government,
and their prices will fluctuate with market conditions.
The Lehman Brothers Aggregate Bond Index (LB Aggregate) is an unmanaged index
and do not reflect the actual cost of investing in the instruments that comprise
the index.
The LB Aggregate Bond Index is a market value-weighted index of investment-grade
debt issues, including government, corporate, asset-backed and mortgage-backed
securities, with maturities of one year or more. The results shown for the
foregoing index 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 blend of Lipper peer categories, as shown. Lipper is
an independent mutual fund rating service. A Fund's performance may be compared
to or ranked within a universe of mutual funds with investment objectives and
policies similar but not necessarily identical to the Fund's. Such comparisons
or rankings are made on the basis of several factors, including the Fund's
objectives and policies, management style and strategy, and portfolio
composition, and may change over time if any of those factors change. Lipper is
an independent mutual fund rating service.
12
Notes to Schedule of Investments December 31, 2005
- --------------------------------------------------------------------------------
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 current or 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.
(a) Pursuant to Rule 144A of the Securities Act of 1933, these securities may be
resold in transactions exempt from registration, normally to qualified
institutional buyers. At December 31, 2005, these securities amounted to
$9,904,047 or 8.50% of net assets for the GE Investments Income Fund. These
securities have been determined to be liquid using procedures established by
the Board of Trustees.
(b) Settlement is on a delayed delivery or when-issued basis with final maturity
to be announced (TBA) in the future.
(c) Coupon amount represents effective yield.
(d) 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.
(e) 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.
(f) At December 31, 2005, all or a portion of this security was pledged to cover
collateral requirements for futures, options, forward foreign currency
contracts and/or TBA's.
(g) Variable or floating rate security. The stated rate represents the rate at
December 31, 2005.
(h) Step coupon bond. Security becomes interest bearing at a future date.
(i) GEAM, the investment adviser of the Fund, also serves as investment adviser
of the GEI Short Term Investment Fund.
+ Percentages are based on net assets as of December 31, 2005.
Abbreviations:
REIT Real Estate Investment Trust
REMIC Real Estate Mortgage Investment Conduit
STRIPS Separate Trading of Registered Interest and Principal of Security
TBA To be Announced
13
Financial Highlights
Selected data based on a share outstanding throughout the periods indicated
- --------------------------------------------------------------------------------
INCOME FUND
12/31/05 12/31/04 12/31/03 12/31/02 12/31/01
- --------------------------------------------------------------------------------------------------------------------------------
INCEPTION DATE -- -- -- -- 1/3/95
Net asset value, beginning of period.................. $12.25 $12.61 $12.93 $12.26 $11.99
INCOME/(LOSS) FROM INVESTMENT OPERATIONS:
Net investment income.............................. 0.61 0.55 0.51 0.37 0.60
Net realized and unrealized
gains/(losses) on investments................... (0.36) (0.12) (0.04) 0.84 0.29
- --------------------------------------------------------------------------------------------------------------------------------
TOTAL INCOME FROM INVESTMENT OPERATIONS............... 0.25 0.43 0.47 1.21 0.89
- --------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM:
Net investment income.............................. 0.61 0.57 0.56 0.38 0.62
Net realized gains................................. 0.05 0.22 0.23 0.16 --
Return of capital.................................. 0.00(b) -- -- -- --
- --------------------------------------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS................................... 0.66 0.79 0.79 0.54 0.62
- --------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD........................ $11.84 $12.25 $12.61 $12.93 $12.26
================================================================================================================================
TOTAL RETURN (A)...................................... 2.04% 3.42% 3.60% 9.89% 7.43%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in thousands)........... $116,558 $135,172 $189,318 $220,800 $117,740
Ratios to average net assets:
Net investment income........................... 4.49% 3.82% 3.24% 3.79% 5.39%
Expenses........................................ 0.60% 0.59% 0.55% 0.53% 0.55%
Portfolio turnover rate............................ 311% 343% 419% 385% 278%
<FN>
NOTES TO FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------------------------------------------------------
(a) Total returns are historical and assume changes in share price and reinvestment of dividends and capital gains and
do not include the effect of insurance contract charges.
(b) Less than $0.01 per share.
</FN>
See Notes to Financial Statements.
14
Statement of Assets INCOME
and Liabilities DECEMBER 31, 2005 FUND
- ---------------------------------------------------------------------------------------------------------------------------
ASSETS
Investments in securities, at market (cost $119,260,250)............................................... $116,393,664
Short-term affiliated investments (at amortized cost).................................................. 4,985,182
Receivable for investments sold........................................................................ 3,819,096
Income receivables .................................................................................... 1,136,930
Receivable for fund shares sold........................................................................ 1,352
Variation margin receivable............................................................................ 469
- ---------------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS....................................................................................... 126,336,693
- ---------------------------------------------------------------------------------------------------------------------------
LIABILITIES
Payable for investments purchased ..................................................................... 9,613,238
Payable for fund shares redeemed....................................................................... 105,867
Payable to GEAM........................................................................................ 59,414
- ---------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES.................................................................................. 9,778,519
- ---------------------------------------------------------------------------------------------------------------------------
NET ASSETS................................................................................................ $116,558,174
===========================================================================================================================
NET ASSETS CONSIST OF:
Capital paid in ....................................................................................... 120,829,570
Undistributed (distribution in excess of) net investment income........................................ (11,711)
Accumulated net realized loss.......................................................................... (1,390,817)
Net unrealized appreciation/(depreciation) on:
Investments........................................................................................ (2,866,586)
Futures............................................................................................ (2,282)
- ---------------------------------------------------------------------------------------------------------------------------
NET ASSETS................................................................................................ $116,558,174
===========================================================================================================================
Shares outstanding ($0.01 par value; unlimited shares authorized)......................................... 9,841,609
Net asset value per share................................................................................. $11.84
See Notes to Financial Statements.
15
Statement of Operations INCOME
FOR THE YEAR ENDED DECEMBER 31, 2005 FUND
- ------------------------------------------------------------------------------------------------------------------
INVESTMENT INCOME
INCOME:
Dividend ............................................................................... $ 15,626
Interest................................................................................ 6,156,930
Interest from affliated investments..................................................... 249,637
- ------------------------------------------------------------------------------------------------------------------
TOTAL INCOME.............................................................................. 6,422,193
- ------------------------------------------------------------------------------------------------------------------
EXPENSES:
Advisory and administrative fees........................................................ 634,548
Custody and accounting expenses......................................................... 73,127
Professional fees....................................................................... 21,169
Transfer agent ......................................................................... 218
Director's fees......................................................................... 3,505
Registration expenses................................................................... 969
Other expenses.......................................................................... 21,466
- ------------------------------------------------------------------------------------------------------------------
TOTAL EXPENSES............................................................................ 755,002
- ------------------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME..................................................................... 5,667,191
==================================================================================================================
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS
REALIZED GAIN (LOSS) ON:
Investments.......................................................................... (949,694)
Futures.............................................................................. (180,972)
Written options...................................................................... 17,784
Foreign currency transactions........................................................ (18,747)
DECREASE IN UNREALIZED APPRECIATION/(DEPRECIATION) ON:
Investments.......................................................................... (1,889,226)
Futures.............................................................................. (46,279)
Written options...................................................................... (17,164)
Foreign currency translation......................................................... (11,835)
- ------------------------------------------------------------------------------------------------------------------
Net realized and unrealized loss on investments......................................... (3,096,133)
- ------------------------------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS......................................................................... $2,571,058
==================================================================================================================
See Notes to Financial Statements.
16
Statements of INCOME
Changes in Net Assets FUND
- ---------------------------------------------------------------------------------------------------------------------------
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
2005 2004
- ---------------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net investments income............................................................ $ 5,667,191 $ 5,738,504
Net realized gain (loss) on investments, futures, written options,
foreign currency transactions and swaps......................................... (1,131,629) 1,856,911
Net decrease in unrealized appreciation/(depreciation) on investments,
futures, written options and foreign currency translation ...................... (1,964,504) (2,460,643)
- ---------------------------------------------------------------------------------------------------------------------------
Net increase from operations...................................................... 2,571,058 5,134,772
- ---------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income............................................................. (5,660,155) (5,924,783)
Net realized gains................................................................ (471,683) (2,242,508)
Return of capital................................................................. (28,414) --
- ---------------------------------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS................................................................. (6,160,252) (8,167,291)
- ---------------------------------------------------------------------------------------------------------------------------
Decrease in net assets from operations and distributions............................ (3,589,194) (3,032,519)
- ---------------------------------------------------------------------------------------------------------------------------
SHARE TRANSACTIONS:
Proceeds from sale of shares ..................................................... 4,387,459 5,445,156
Value of distributions reinvested................................................. 6,160,341 8,167,256
Cost of shares redeemed........................................................... (25,572,505) (64,725,364)
- ---------------------------------------------------------------------------------------------------------------------------
Net decrease from share transactions.............................................. (15,024,705) (51,112,952)
- ---------------------------------------------------------------------------------------------------------------------------
TOTAL DECREASE IN NET ASSETS........................................................ (18,613,899) (54,145,471)
NET ASSETS
Beginning of period ................................................................ 135,172,073 189,317,544
- ---------------------------------------------------------------------------------------------------------------------------
End of period ...................................................................... $116,558,174 $135,172,073
===========================================================================================================================
UNDISTRIBUTED (DISTRIBUTION IN EXCESS OF) NET INVESTMENT INCOME, END OF PERIOD......... $ (11,711) $ --
- ---------------------------------------------------------------------------------------------------------------------------
CHANGES IN PORTFOLIO SHARES
Shares sold....................................................................... 354,588 426,297
Issued for distributions reinvested............................................... 520,299 669,447
Shares redeemed................................................................... (2,069,626) (5,071,450)
- ---------------------------------------------------------------------------------------------------------------------------
Net decrease in fund shares............................................................ (1,194,739) (3,975,706)
===========================================================================================================================
See Notes to Financial Statements.
17
Notes to Financial Statements December 31, 2005
- --------------------------------------------------------------------------------
1. ORGANIZATION OF THE COMPANY
GE Investments Funds, Inc. (the "Company") was incorporated under the laws of
the Commonwealth of Virginia on May 14, 1984 and is registered under the
Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end
management investment company. The Company is composed of thirteen investment
portfolios (collectively the "Funds"), although only the following eleven are
currently being offered: U.S. Equity Fund, S&P 500 Index Fund, Premier Growth
Equity Fund, Value Equity Fund, Mid-Cap Equity Fund, Small-Cap Equity Fund
(formerly known as Small-Cap Value Equity Fund, prior to January 3, 2006),
International Equity Fund, Total Return Fund, Income Fund (the "Fund"), Money
Market Fund and Real Estate Securities Fund.
Shares of the Funds 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 Asset Management Incorporated ("GEAM"), the
investment adviser and administrator of each of the Funds.
As of December 31, 2005, GE Life and Annuity Assurance Company ("GE Life") and
General Electric Capital Assurance Company, each an affiliated insurance
company, controlled the Funds by ownership, through separate accounts, of
virtually all of the Funds' shares of beneficial interest.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions at the date of the financial statements. Actual
results may differ from those estimates.
The following summarizes the significant accounting policies of the Company:
SECURITY VALUATION AND TRANSACTIONS SECURITIES for which exchange quotations are
readily available are valued at the last sale price, or if no sales occurred on
that day, at the last quoted bid price. Securities listed on the NASDAQ will be
valued at the NASDAQ's official close price. Certain fixed income securities are
valued by a dealer or by a pricing service based upon a matrix system, which
considers market transactions as well as dealer supplied valuations. Short-term
investments maturing within sixty days are valued at amortized cost. If
quotations are not readily available for a portfolio security, or if it is
believed that a quotation or other market price for a portfolio security does
not represent its fair value, the security may be valued using procedures
approved by the Fund's Board of Directors that are designed to establish its
"fair value." These procedures require that the fair value of a security be
established by the valuation committee. The fair value committee follows
different protocols for different types of investments and circumstances.
Foreign securities may be valued with the assistance of an independent fair
value pricing service in circumstances where it is believed that they have been
or would be materially affected by events occurring after the close of the
portfolio security's primary market and before the close of regular trading on
the NYSE. This independent fair value pricing service uses a computerized system
to appraise affected securities and portfolios taking into consideration various
factors and the fair value of such securities may be something other than the
last available quotation or other market price. GE Asset Management may also
separately monitor portfolio securities and, consistent with the Fund's fair
value procedures, apply a different value to a portfolio security than would be
applied had it been priced using market quotations or by an independent fair
value pricing service.
Determining the fair value of securities involves the application of both
subjective and objective considerations. Security values may differ depending on
the methodology used to determine their values, and may differ from the last
quoted sale or closing price. No assurance can be given that use of these fair
value procedures will always better represent the price at which a Fund could
sell the affected portfolio security.
Security transactions are accounted for as of the trade date. Realized gains and
losses on investments sold are recorded on the basis of identified cost for both
financial statement and federal tax purposes.
REPURCHASE AGREEMENTS The Fund may enter into repurchase agreements. The Fund's
or a third party custodian takes possession of the collateral pledged for
investments in repurchase agreements on behalf of the Fund. The Fund values the
underlying collateral daily on a mark-to-market basis to determine that the
value, including accrued interest, is at least equal to 102% of the repurchase
price. In the event the seller defaults and the value of the security declines,
or if the seller enters an insolvency proceeding, realization of the collateral
by the Fund may be delayed or limited.
18
Notes to Financial Statements December 31, 2005
- --------------------------------------------------------------------------------
SECURITY LENDING The Fund may loan securities to brokers, dealers, and financial
institutions determined by GEAM to be creditworthy, subject to certain
limitations. The Fund continues to receive the interest and dividends on the
loaned securities during the term of the loan. The loans of securities are
secured by collateral in the form of cash or other liquid assets, which are
segregated and maintained with the custodian in an amount at least equal to 102%
of the current market value of the loaned securities. During the term of the
loan, the Fund will record any gain or loss in the market value of its loaned
securities and of securities in which cash collateral is invested. The Fund will
also earn interest, net of any rebate, from securities in which cash collateral
is invested. In the event the counterparty (borrower) does not meet its
contracted obligation to return the securities, the Fund may be exposed to the
risk of loss of reacquiring the loaned securities at prevailing market prices
using the proceeds of the sale of the collateral.
FOREIGN CURRENCY Accounting records of the Fund are maintained in U.S. dollars.
Investment securities and other assets and liabilities denominated in a foreign
currency are translated into U.S. dollars at the prevailing rates of exchange at
period end. Purchases and sales of securities, income receipts and expense
payments denominated in foreign currencies are translated into U.S. dollars at
the prevailing exchange rate on the respective dates of such transactions.
The Fund does not isolate the portion of the results of operations resulting
from changes in foreign exchange rates from the fluctuations arising from
changes in the market prices of securities during the period. Such fluctuations
are included in the net realized or unrealized gain or loss from investments.
Net realized gains or losses on foreign currency transactions represent net
gains or losses on sales and maturities of foreign currency contracts,
disposition of foreign currencies, the difference between the amount of net
investment income and withholding taxes accrued and the U.S. dollar amount
actually received or paid, and gains or losses between the trade and settlement
date on purchases and sales of securities. Net unrealized foreign exchange gains
and losses arising from changes in the value of other assets and liabilities as
a result of changes in foreign exchange rates are included as increases or
decreases in unrealized appreciation/depreciation on foreign currency related
transactions.
FUTURES CONTRACTS The Fund may invest in interest rate, financial or stock or
bond index futures contracts subject to certain limitations. The Fund may invest
in futures contracts to manage its exposure to the stock and bond markets and
fluctuations in currency values. Buying futures tends to increase the Fund's
exposure to the underlying instrument while selling futures tends to decrease
the Fund's exposure to the underlying instrument, or hedge other Fund
investments. The Fund will not enter into a transaction involving futures for
speculative purposes. The Fund's risks in using these contracts include changes
in the value of the underlying instruments, non-performance of the
counterparties under the contracts' terms and changes in the liquidity of the
secondary market for the contracts. Futures contracts are valued at the
settlement price established each day by the board of trade or exchange on which
they principally trade.
Upon entering into a futures contract, the Fund is required to pledge to the
broker an amount of cash and/or other assets equal to a certain percentage of
the contract amount, known as initial margin deposit. Subsequent payments, known
as variation margin, are made or received by the Fund each day, depending on the
daily fluctuation in the fair value of the underlying security. The Fund records
an unrealized gain or loss equal to the daily variation margin. Should market
conditions move unexpectedly, the Fund may not achieve the anticipated benefits
of the futures contracts and may incur a loss. The Fund recognizes a realized
gain or loss on the expiration or closing of a futures contract.
OPTIONS The Fund may purchase and write options, subject to certain limitations.
The Fund may invest in options contracts to manage its exposure to the stock and
bond markets and fluctuations in foreign currency values. Writing puts and
buying calls tend to increase the Fund's exposure to the underlying instrument
while buying puts and writing calls tend to decrease the Fund's exposure to the
underlying instrument, or hedge other Fund investments. The Fund will not enter
into a transaction involving options for speculative purposes. The Fund's risks
in using these contracts include changes in the value of the underlying
instruments, non-performance of the counterparties under the contracts' terms
and changes in the liquidity of the secondary market for the contracts. Options
are valued at the last sale price, or if no sales occurred on that day, at the
last quoted bid price.
When the Fund writes an option, the amount of the premium received is recorded
as a liability and is subsequently adjusted to the current fair value of the
option written. Premiums received from writing options that expire unexercised
are treated by the Fund on the expiration date as realized gains from
investments. The
19
Notes to Financial Statements December 31, 2005
- --------------------------------------------------------------------------------
difference between the premium and the amount paid on effecting a closing
purchase transaction, including brokerage commissions, is also treated as a
realized gain, or if the premium is less than the amount paid for the closing
purchase, as a realized loss. When an option is exercised, the proceeds from the
sale of the underlying security or the cost basis of the securities purchased is
adjusted by the original premium received or paid.
SWAP CONTRACTS As part of the investment strategy, the Fund may invest in swap
agreements, which are agreements to exchange the return generated by one
instrument for the return generated by another instrument. Total return swap
agreements involve commitments to pay interest in exchange for a market linked
return based upon a notional principal amount. To the extent the total return of
the security or index underlying the agreement exceeds or falls short of the
offsetting interest rate obligation, the Fund will receive a payment from or
make a payment to the counterparty. Swaps are marked to market daily based upon
the underlying security or index. Payments received or made are recorded as
realized gain or loss in the Statement of Operations. Entering into swap
agreements involves, to varying degrees, elements of credit and market risk in
excess of the amounts recognized on the Statement of Assets and Liabilities.
Such risks involve the possibility that there will be no liquid market for these
agreements, that the counterparty to the agreements may default on its
obligation to perform and that there may be unfavorable changes in the value of
the index or securities underlying the agreement. Notional principal amounts are
used to express the extent of involvement in these transactions, but the amounts
potentially subject to credit risk are much smaller.
WHEN-ISSUED SECURITIES AND FORWARD COMMITMENTS The Fund may purchase or sell
securities on a when-issued or forward commitment basis. These transactions are
arrangements in which the Fund purchases and sells securities with payment and
delivery scheduled a month or more after entering into the transactions. The
price of the underlying securities and the date when these securities will be
delivered and paid for are fixed at the time the transaction is negotiated.
Losses may arise due to changes in the market value of the underlying securities
or if the counterparty does not perform under the contracts. In connection with
such purchases, the Fund maintain cash or liquid assets in an amount equal to
purchase commitments for such underlying securities until settlement date and
for sales commitments, the Fund maintains equivalent deliverable securities as
"cover" for the transaction. Unsettled commitments are valued at the current
market value of the underlying security. Daily fluctuations in the value of such
contracts are recorded as unrealized gains or losses. The Fund will not enter
into such commitments for the purpose of investment leverage.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS The Fund may enter into forward
foreign currency exchange contracts to facilitate transactions in foreign
denominated securities and to manage the Fund's currency exposure. Forward
foreign currency exchange contracts are valued at the mean between the bid and
the offered forward rates as last quoted by a recognized dealer. The aggregate
principal amounts of the contracts are not recorded in the Fund's financial
statements. Such amounts appear under the caption forward foreign currency
contracts in the Schedule of Investments. Fluctuations in the value of the
contracts are recorded in the Statement of Assets and Liabilities as an asset
(or liability) and in the Statement of Operations as unrealized appreciation
(depreciation) until the contracts are closed, when they are recorded as
realized gains or losses on foreign currency related transactions. The Fund's
risks in using these contracts include changes in the value of foreign currency
or the possibility that the counterparties do not perform under the contracts'
terms. When the Fund enters into a forward foreign currency exchange contract,
it is required to segregate cash or liquid securities with its custodian in an
amount equal to the value of the Fund's total assets committed to the
consummation of the forward contract. If the value of the segregated securities
declines, additional cash or securities is segregated so that the value of the
account will equal the amount of the Fund's commitment with respect to the
contract.
INVESTMENTS IN FOREIGN MARKETS Investments in foreign markets may involve
special risks and considerations not typically associated with investing in the
United States. These risks include revaluation of currencies, high rates of
inflation, repatriation on income and capital, and adverse political and
economic developments. Moreover, securities issued in these markets may be less
liquid, subject to government ownership controls, tariffs and taxes, subject to
delays in settlements, and their prices may be more volatile.
The Fund may be subject to capital gains and repatriation taxes imposed by
certain countries in which it invests. Such taxes are generally based on income
and/or capital gains earned or repatriated. Taxes are accrued based
20
Notes to Financial Statements December 31, 2005
- --------------------------------------------------------------------------------
upon net investment income, net realized gains and net unrealized appreciation
as income and/or capital gains are earned.
INCOME TAXES The Fund intends to comply with all sections of the Internal
Revenue Code applicable to regulated investment companies including the
distribution of substantially all of its taxable net investment income and net
realized capital gains to its shareholders. Therefore, no provision for federal
income tax has been made. The Fund is treated as a separate taxpayer for federal
income tax purposes.
At December 31, 2005, information on the tax components of capital is as
follows:
Cost of Gross Tax Gross Tax Net Tax Appreciation/
Investments for Unrealized Unrealized (Depreciation)
Tax Purposes Appreciation Depreciation on Investments
- ---------------------------------------------------------------------------------------------------------------------------
$124,325,228 $626,317 $(3,572,699) $(2,946,382)
Net Tax Appreciation/ Undistributed Undistributed Post
(Depreciation) on Income/ Long-Term Gains/ October
Derivatives, Currency (Accumulated (Accumulated Losses
and Other Net Assets Ordinary Loss) Capital Loss) (see Detail Below)
- ---------------------------------------------------------------------------------------------------------------------------
$-- $-- $(1,055,894) $(269,120)
As of December 31, 2005, the Fund has capital loss carryovers as indicated
below. Capital loss carryovers are available to offset future realized capital
gains to the extent provided in the Internal Revenue Code and regulations
thereunder. To the extent that these carryover losses are used to offset future
capital gains, it is probable that the gains so offset will not be distributed
to shareholders because they would be taxable as ordinary income.
Amount Expires
- --------------------------------------------------------------------------------
$1,055,894 12/31/13
Any net capital and currency losses incurred after October 31, within the Fund's
tax year, are deemed to arise on the first day of the Fund's next tax year if
the Fund so elects to defer such losses.
The Fund elected to defer losses incurred after October 31, 2005 as follows:
Capital Currency
- --------------------------------------------------------------------------------
$257,409 $11,711
The tax composition of distributions paid during the year ended December 31,
2005 was as follows:
Long-Term
Ordinary Capital Return of
Income Gains Capital Total
- --------------------------------------------------------------------------------
$6,053,503 $78,335 $28,414 $6,160,252
DISTRIBUTIONS TO SHAREHOLDERS The Fund declares and pays dividends from net
investment income annually. The Fund declares and pays net realized capital
gains in excess of capital loss carryforwards 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 (but are not limited to) futures, and
losses deferred due to wash sale transactions. Reclassifications due to
permanent book/tax differences are made to the Fund's capital accounts to
reflect income and gains available for distribution (or available capital loss
carryovers) under income tax regulations. These reclassifications have no impact
on net investment income, realized gains or losses, or the net asset value of
the Fund. The calculation of net investment income per share in the Financial
Highlights table excludes these adjustments.
The reclassifications for the year ended December 31, 2005 were as follows:
Undistributed
(Distribution
in Excess of)
Net Investment Accumulated Paid in
Income Net Realized Loss Capital
- --------------------------------------------------------------------------------
$9,667 $7,713 $(17,380)
21
Notes to Financial Statements December 31, 2005
- --------------------------------------------------------------------------------
INVESTMENT INCOME Corporate actions (including cash dividends) are recorded on
the ex-dividend date, net of applicable withholding taxes, except for certain
foreign corporate actions, which are recorded as soon after ex-dividend date as
such information becomes available. Interest income is recorded on the accrual
basis. All discounts and premiums on bonds are accreted to call or maturity
date, whichever is shorter, using the effective yield method.
EXPENSES Expenses of the Company which are directly identifiable to one of the
Funds are allocated to that portfolio. Expenses which are not directly
identifiable to one of the Funds are allocated in such a manner as deemed
equitable, taking into consideration the nature and type of expenses and
relative sizes of the Funds. All expenses of the Fund are paid by GEAM and
reimbursed by the Fund.
3. LINE OF CREDIT
The Fund shares a revolving credit facility of up to $25 million with a number
of its affiliates. The credit facility is with its custodian bank, State Street
Bank and Trust Company. The revolving credit facility requires the payment of a
commitment fee equal to 0.09% per annum on the daily unused portion of the
credit facility, payable quarterly. The portion borne by the Funds generally is
borne proportionally based upon net assets. Generally, borrowings under the
credit facility would accrue interest at the Federal Funds Rate plus 50 basis
points and is borne by each of the borrowing Funds. The maximum amount allowed
to be borrowed by any one of the Funds is the lesser of its prospectus
limitation, 20% of its net assets, or $25 million. The credit facility was not
utilized by the Fund during the period ended December 31, 2005.
4. AMOUNTS PAID TO AFFILIATES
ADVISORY AND ADMINISTRATION FEES GEAM, 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 Fund. Compensation of GEAM for
investment advisory and administrative services is paid monthly based on the
average daily net assets of the Fund at an annualized rate of .50%.
GENPACT (formerly General Electric Capital International Services*) performs
certain accounting and certain administration services not provided by GEAM. For
the year ending December 31, 2005, $1,663 was charged to the Fund.
Administrative services not performed by GEAM or GENPACT were provided by an
unaffiliated service provider.
* AS OF SEPTEMBER 28, 2005, THE NAME WAS CHANGED FROM GENERAL ELECTRIC CAPITAL
INTERNATIONAL SERVICES TO GENPACT.
DIRECTORS' COMPENSATION The Fund pays no compensation to its directors who are
officers or employees of GEAM or its affiliates. Directors who are not such
officers or employees also serve in a similar capacity for other funds advised
by GEAM. Compensation paid to unaffiliated directors are reflected on the
Statement of Operations. These fees are allocated pro rata across all of the
mutual fund platforms and share classes served by the directors, including the
Fund, and are based upon the relative net assets of each fund within such
platforms. (For additional information about directors compensation please refer
to the Statement of Additional Information.)
5. INVESTMENT TRANSACTIONS
PURCHASES AND SALES OF SECURITIES The cost of purchases and the proceeds from
sales of investments, other than short-term securities and options, for the
period ended December 31, 2005 were as follows:
Purchases Sales
- --------------------------------------------------------------------------------
$413,345,523 $426,905,354
OPTIONS During the period ended December 31, 2005, the following option
contracts were written:
Number of
of Contracts Premium
- --------------------------------------------------------------------------------
Balance as of
December 31, 2004 112 $ 43,414
Written 640,416 89,151
Closed and Expired (640,528) (132,565)
- --------------------------------------------------------------------------------
Balance as of
December 31, 2005 -- --
- --------------------------------------------------------------------------------
22
Report of Independent Registered Public Accounting Firm
- --------------------------------------------------------------------------------
The Shareholders and Board of Directors
GE Investments Funds, Inc.
We have audited the accompanying statement of assets and liabilities of the
Income Fund, a series of GE Investments Funds, Inc., including the schedule of
investments, as of December 31, 2005, and the related statement of operations
for the year then ended, the statements of changes in net assets for each of the
years in the two-year period then ended, and the financial highlights for each
of the years in the five-year period then ended. These financial statements and
financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included confirmation of
securities owned as of December 31, 2005 by correspondence with the custodians
and brokers, or by other appropriate auditing procedures where replies from
brokers were not received. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
Income Fund as of December 31, 2005, and the results of its operations, the
changes in its net assets and the financial highlights for each of the years
described above, in conformity with U.S.
generally accepted accounting principles.
/S/KPMG LLP
Boston, Massachusetts
February 17, 2006
23
Tax Information (unaudited)
- --------------------------------------------------------------------------------
During the calendar year ended December 31, 2005, the Fund paid to shareholders
$0.00839 per share of long-term capital gain dividends.
24
Advisory and Administrative Agreement Renewal (unaudited)
- --------------------------------------------------------------------------------
The Fund Board, including the independent Board members, considered and
unanimously approved the continuance of the Fund's investment advisory agreement
with GE Asset Management Incorporated ("GEAM") at meetings held on December 9
and December 16, 2005.
In considering whether to approve the Fund's investment advisory agreement, the
Board members, including the independent members, considered and discussed a
substantial amount of information and analysis provided, at the Board's request,
by GEAM. The Board members also considered detailed information regarding
performance and expenses of other investment companies with similar investment
objectives and sizes, which was prepared by an independent third party provider,
Lipper Inc. ("Lipper"). The Board members reviewed the fees charged by GEAM for
other mutual funds and investment products other than mutual funds that employ
the same investment strategy as the Fund. Before approving the Fund's advisory
agreement, the Board members reviewed the proposed continuance of the agreement
with management of GEAM and with independent legal counsel. The Board members
also reviewed a memorandum prepared by independent legal counsel discussing the
legal standards for the consideration of the proposed continuance. The
independent Board members discussed the proposed continuance in a private
session with their independent legal counsel at which no representatives of GEAM
were present.
In advance of the meeting, and in response to their request, the Board members
received from GEAM written responses to their inquiries, which included
substantial exhibits and other materials related to GEAM's business and the
services it provides to the Fund. The Board members took into account their
multi-year experience as Board members and particularly their consideration of
these agreements in 2004, noting that the information was presented in a similar
manner and format. To focus their review, the Board members asked GEAM
management, in its oral presentation, to highlight material differences from the
information presented in 2004. During the meeting, the Board members had an
opportunity to discuss this information with GEAM managers, including senior
executives, representatives from the legal and compliance departments, and
senior investment personnel. The Board members posed questions to these
representatives and engaged in substantive discussions with them concerning
GEAM's investment process.
In reaching their determination relating to continuance of the agreement, the
Board members considered all factors they believed relevant, including the
factors discussed below. In their deliberations, the Board members did not
identify any particular information that was all-important or controlling, and
each Board member attributed different weights to the various factors. In
particular, the Board members focused on the following:
THE NATURE, EXTENT AND QUALITY OF SERVICES PROVIDED.
The Board members reviewed the services provided by GEAM, and the Board members,
including the independent members, concurred that GEAM provides high quality
advisory and administrative services to the Fund.
In connection with their consideration of GEAM's services, the Board members
focused on the favorable attributes of GEAM, including (i) an investment
philosophy oriented toward long-term performance; (ii) effective processes used
for selecting investments, selecting brokers and with respect to Fund
administration, controllership and compliance activities; (iii) highly skilled
professionals, including analysts, research professionals and portfolio managers
with a depth of experience; (iv) access to significant technological resources
from which the Fund may benefit; and (v) a favorable history and reputation. The
Board members discussed with senior officers of GEAM the personnel changes made,
and proposed to be made, by GEAM, and that GEAM would be expending significant
sums to enhance services, including improvements to its information technology
capabilities. The Board members noted that the Fund represents only a small
portion of the assets managed by GEAM, but benefits from a full array of
services and resources provided by GEAM. In light of these discussions, the
Board members, including the independent members, concluded that GEAM's services
were of a high quality and had benefited the Fund.
25
Advisory and Administrative Agreement Renewal (unaudited)
- --------------------------------------------------------------------------------
INVESTMENT PERFORMANCE OF THE FUND.
The Board members considered the investment performance of the Fund for various
periods. The Board members reviewed detailed comparisons of the performance of
the Fund with the relevant securities indexes and peer groupings of mutual funds
prepared by Lipper with respect to various periods. The Board members also
engaged in detailed discussions with GEAM management about the investment
process, focusing on the Fund's investment objective, the number and experience
of portfolio management personnel, the investment style and approach employed,
the likely market cycles for the investment style, and the relative
underperformance of the Fund in certain periods in light of GEAM's commitment to
long-term satisfactory performance with respect to the Fund's investment
objective and investment approach. The Board members, including the independent
members, concluded that the Fund's performance was acceptable over the relevant
periods, particularly from a longer term perspective, which the Board members
believed was most relevant.
COST OF THE SERVICES TO BE PROVIDED AND PROFITS TO BE REALIZED FROM THE
RELATIONSHIP WITH THE FUND.
The Board members considered the cost of the services provided by GEAM. The
Board members reviewed the information they had requested from GEAM concerning
its profitability from the fees and services it provides to the Fund and the
financial condition of GEAM for various past periods. The Board members
considered the profit margin information for GEAM's investment company business
as a whole, as well as GEAM's profitability data for the Fund. The Board members
reviewed GEAM's assumptions and the methods of cost allocation used by GEAM in
preparing Fund-specific profitability data. The Board members also discussed
with GEAM the basis for its belief that the methods of allocation used were
reasonable and consistent across its business.
The Board members noted and discussed the additional services provided by GEAM
to the Fund compared to other investment products managed by GEAM. The Board
members determined that GEAM should be entitled to earn a reasonable level of
profits for the services it provides to the Fund. The Board members also
recognized that GEAM had made significant investments in its business and had
not fully recovered the sums invested. Based on their review, the Board members,
including the independent members, concluded that they were satisfied that the
level of profitability achieved by GEAM from its relationship with the Fund was
not unreasonable or excessive.
THE EXTENT TO WHICH ECONOMIES OF SCALE WOULD BE REALIZED AS THE FUND GROWS AND
WHETHER FEE LEVELS WOULD REFLECT SUCH ECONOMIES OF SCALE.
The Board members considered the extent to which economies of scale would be
realized as the Fund grows, and whether fee levels reflect these economies of
scale for the benefit of Fund investors. The Board members considered the
substantial infrastructure investments that GEAM has made with respect to its
operations and its commitment to continue investing resources to enhance
services to Fund shareholders, including its anticipated information technology
expenditures. The Board members recognized the benefits to the Fund of GEAM's
past investment in its operations through the expenditure of sums to support its
substantial infrastructure, and that, in general, GEAM has not yet fully
recouped that investment. The Board members also recognized the benefits to the
Fund of being able to leverage a favorable cost structure achieved with respect
to the Fund's other operating expenses as a result of GEAM's large overall base
of assets under management and its vendor management practices. The Board
members considered the potential institution of advisory fee breakpoints for the
Fund, but concluded that GEAM had already appropriately shared the economies of
scale.
COMPARISON OF SERVICES TO BE RENDERED
AND FEES TO BE PAID.
The Board members discussed the services provided to the Fund by GEAM, and the
fees charged for those services. The Board members reviewed information
concerning the fee and expense ratios for the Fund, and comparative information
with respect to similar products. They discussed that the Fund's figures were
within the applicable peer group range. The Board members considered that the
comparative data provided by Lipper showed no material difference from last year
in the fees being charged as compared to those being charged by other advisers
to similar investment products, as determined by Lipper. In addition, the Board
members considered their discussion with representatives of GEAM
26
Advisory and Administrative Agreement Renewal (unaudited)
- --------------------------------------------------------------------------------
about the fees being charged to the Fund and, to the extent applicable, the
potential effect, if any, of the Securities and Exchange Commission staff's
recently proposed soft dollar interpretation on those fees. In light of the
foregoing, the Board members, including the independent members, determined that
the advisory fees were reasonable in relation to the services provided to the
Fund.
FALL-OUT BENEFITS.
The Board members considered other actual and potential financial benefits to
GEAM, including, to the extent applicable, soft dollar commission benefits
generated through Fund portfolio transactions. The Board members noted, however,
that the Fund benefits from the vast array of resources available through GEAM,
and that the Fund represents only a small portion of the assets managed by GEAM.
CONCLUSION.
No single factor was determinative to the Board members' decision. Based on
their discussion and such other matters as were deemed relevant, the Board
members, including the independent members, concluded that the proposed advisory
fee and projected total expense ratio are reasonable in relation to the services
provided to the Fund. In view of these facts, the Board members, including the
independent members, concluded that the renewal of the advisory agreement was in
the best interests of the Fund and its shareholders.
27
Additional Information (unaudited)
- --------------------------------------------------------------------------------
INFORMATION ABOUT DIRECTORS AND EXECUTIVE OFFICERS:
The business and affairs of the Company are managed under the direction of the
Company's Board of Directors. Information pertaining to the Directors and
officers of the Company is set forth below.
INTERESTED DIRECTORS AND EXECUTIVE OFFICERS
- --------------------------------------------------------------------------------
MICHAEL J. COSGROVE
- --------------------------------------------------------------------------------
ADDRESS c/o GEAM 3001 Summer St. Stamford, CT 06905
AGE 56
POSITION(S) HELD WITH FUND Chairman of the Board and President
TERM OF OFFICE AND LENGTH OF TIME SERVED Until successor is elected and
qualified - 9 years
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS Executive Vice President - Chief
Commercial Officer of GEAM (formerly President, GE Asset Management Services
division ("GEAMS") of GE Financial Assurance Holdings, Inc., an indirect
wholly-owned subsidiary of General Electric Company ("GE")), since February
1997; Vice President, GE Capital Corporation, an indirect wholly-owned
subsidiary of GE, since December 1999; Executive Vice President - Sales and
Marketing of GEAM, a wholly-owned subsidiary of GE that is registered as an
investment adviser under the Investment Advisers Act of 1940, as amended, since
March 1993; Director of GEAM since 1988.
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR 48
OTHER DIRECTORSHIPS HELD BY DIRECTOR Chairman of the Board and President of GE
Funds since 1993, and GE Institutional Funds and GE LifeStyle Funds since their
inception; Trustee of Elfun Funds, GE Savings & Security Funds and General
Electric Pension Trust since 1988; Trustee of Fordham University since 2003 and
Marymount College from 1994 through 2002.
- --------------------------------------------------------------------------------
ALAN M. LEWIS
- --------------------------------------------------------------------------------
ADDRESS c/o GEAM 3001 Summer St. Stamford, CT 06905
AGE 59
POSITION(S) HELD WITH FUND Director and Executive Vice President
TERM OF OFFICE AND LENGTH OF TIME SERVED Until successor is elected and
qualified - 6 years
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS Executive Vice President, General
Counsel and Secretary of GEAM since 1987
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR 48
OTHER DIRECTORSHIPS HELD BY DIRECTOR Trustee and Executive Vice President of GE
Funds, GE Institutional Funds and GE LifeStyle Funds since their inception.
Trustee of Elfun Funds, GE Savings & Security Funds and General Electric Pension
Trust since 1987.
28
Additional Information (unaudited)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SCOTT H. RHODES
- --------------------------------------------------------------------------------
ADDRESS c/o GEAM 3001 Summer St. Stamford, CT 06905
AGE 47
POSITION(S) HELD WITH FUND Treasurer
TERM OF OFFICE AND LENGTH OF TIME SERVED Until successor is elected and
qualified - less than one year
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS GEAM Mutual Funds Operations Manager
since September 2005; Treasurer of GE Institutional Funds, GE LifeStyle Funds
and GE Investments Funds since November 2005 and Elfun Funds and GE Savings &
Security Funds since September 2005; from August 2004 to September 2005 Vice
President, U.S. Trust Company, N.A. and Assistant Treasurer of Excelsior Funds,
Inc., Excelsior Funds Trust, and Excelsior Tax Exempt Funds, Inc.; from January
2004 to August 2004, Vice President BlackRock Financial Management, Inc.; from
December 1996 to November 2003, Controller - Mutual Funds, American Skandia
Investment Services, Inc. and Assistant Treasurer of American Skandia Trust and
American Skandia Advisor Funds, Inc.
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR N/A
OTHER DIRECTORSHIPS HELD BY DIRECTOR N/A
- --------------------------------------------------------------------------------
MATTHEW J. SIMPSON
- --------------------------------------------------------------------------------
ADDRESS c/o GEAM 3001 Summer St. Stamford, CT 06905
AGE 44
POSITION(S) HELD WITH FUND Vice President and Secretary
TERM OF OFFICE AND LENGTH OF TIME SERVED Until successor is elected and
qualified - 9 years
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS Senior Vice President and General
Counsel - Marketing and Client Services (formerly Asset Management Services), at
GEAM and Senior Vice President and General Counsel of GEAMS since February 1997;
from October 1992 to February 1997, Vice President and Associate General Counsel
of GEAM; Secretary of GE Funds since 1993 and Vice President since September
2003; Secretary of GE Institutional Funds and GE LifeStyle Funds since their
inception and Vice President since September 2003; Assistant Secretary of Elfun
Funds and GE Savings & Security Funds since 1998 and Vice President since
October 2003.
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR N/A
OTHER DIRECTORSHIPS HELD BY DIRECTOR N/A
- --------------------------------------------------------------------------------
JEANNE M. LAPORTA
- --------------------------------------------------------------------------------
ADDRESS c/o GEAM 3001 Summer St. Stamford, CT 06905
AGE 40
POSITION(S) HELD WITH FUND Vice President and Assistant Secretary
TERM OF OFFICE AND LENGTH OF TIME SERVED Until successor is elected and
qualified - 2 years
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS Vice President and Associate General
Counsel - Marketing and Client Services (formerly Asset Management Services) at
GEAM since May 1997; Vice President and Assistant Secretary of GE Funds, GE
Institutional Funds and GE LifeStyle Funds since September 2003; Vice President
and Assistant Secretary of Elfun Funds and GE Savings & Security Funds since
October 2003.
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR N/A
OTHER DIRECTORSHIPS HELD BY DIRECTOR N/A
29
Additional Information (unaudited)
- --------------------------------------------------------------------------------
NON-INTERESTED DIRECTORS
- --------------------------------------------------------------------------------
JOHN R. COSTANTINO
- --------------------------------------------------------------------------------
ADDRESS c/o GEAM 3001 Summer St. Stamford, CT 06905
AGE 59
POSITION(S) HELD WITH FUND Director
TERM OF OFFICE AND LENGTH OF TIME SERVED Until successor is elected and
qualified - 9 years
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS Managing Director, Walden Partners,
Ltd., consultants and investors, since August 1992.
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR 40
OTHER DIRECTORSHIPS HELD BY DIRECTOR Trustee of GE Funds since 1993, GE
Institutional Funds and GE LifeStyle Funds since their inception; Trustee of
Fordham University since 2002 and Marymount College from 2001 through 2002;
Neuroscience Research Institute since 1986; Diocesan Finance Counsel of the
Dioceses of Brooklyn & Queens since 2001; Gregorian University Foundation since
1994.
- --------------------------------------------------------------------------------
WILLIAM J. LUCAS
- --------------------------------------------------------------------------------
ADDRESS c/o GEAM 3001 Summer St. Stamford, CT 06905
AGE 58
POSITION(S) HELD WITH FUND Director
TERM OF OFFICE AND LENGTH OF TIME SERVED Until successor is elected and
qualified - 9 years
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS Vice President and Treasurer of
Fairfield University since 1983.
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR 40
OTHER DIRECTORSHIPS HELD BY DIRECTOR Trustee of GE Funds since 1993, and GE
Institutional Funds and GE LifeStyle Funds since their inception.
- --------------------------------------------------------------------------------
ROBERT P. QUINN
- --------------------------------------------------------------------------------
ADDRESS c/o GEAM 3001 Summer St. Stamford, CT 06905
AGE 69
POSITION(S) HELD WITH FUND Director
TERM OF OFFICE AND LENGTH OF TIME SERVED Until successor is elected and
qualified - 9 years
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS Retired since 1983 from Salomon
Brothers Inc.
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR 40
OTHER DIRECTORSHIPS HELD BY DIRECTOR GP Financial Corp, holding company; The
Greenpoint Savings Bank, a financial institution. Trustee of GE Funds since
1993, and GE Institutional Funds and GE LifeStyle Funds since their inception.
- --------------------------------------------------------------------------------
The Statement of Additional Information for the Fund includes additional
information about the Directors and Officers and is available, without charge,
upon request by calling 1-800-242-0134.
30
Investment Team
- --------------------------------------------------------------------------------
INVESTMENT ADVISER AND ADMINISTRATOR
GE Asset Management Incorporated
BOARD OF DIRECTORS
Michael J.Cosgrove, CHAIRMAN
John R. Costantino
Alan M. Lewis
William J. Lucas
Robert P. Quinn
SECRETARY
Matthew J. Simpson
TREASURER
Scott H. Rhodes
ASSISTANT TREASURER
Christopher M. Isaacs
DISTRIBUTOR
GE Investment Distributors, Inc.
Member NASD and SIPC
COUNSEL
Sutherland, Asbill & Brennan, LLP
CUSTODIAN
State Street Bank & Trust Company
INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM
KPMG LLP
OFFICERS OF THE INVESTMENT ADVISER
John H. Myers, CHIEF EXECUTIVE OFFICER
David B. Carlson, EVP, DOMESTIC EQUITIES
Michael J. Cosgrove, EVP, CHIEF COMMERCIAL OFFICER
Robert A. MacDougall, EVP, FIXED INCOME (RETIRED FROM ALL POSITIONS AS OF
JANUARY 31, 2006)
Kathryn D. Karlic, EVP, FIXED INCOME (AS OF FEBRUARY 1, 2006)
Ralph R. Layman, EVP, INTERNATIONAL EQUITIES
Alan M. Lewis, EVP, GENERAL COUNSEL AND SECRETARY
Don W. Torey, EVP, ALTERNATIVE INVESTMENTS AND REAL ESTATE
John J. Walker, EVP, CHIEF FINANCIAL OFFICER
31
[This page intentionally left blank.]
[This page intentionally left blank.]
INVESTMENT ADVISER
GE ASSET MANAGEMENT INCORPORATED
3001 SUMMER STREET
PO BOX 7900
STAMFORD, CT 06904-7900
DISTRIBUTOR
GE INVESTMENT DISTRIBUTORS, INC.
MEMBER NASD AND SIPC
3001 SUMMER STREET
PO BOX 7900
STAMFORD, CT 06904-7900
- --------------------------------------------------------------------------------
The Fund files its complete schedule of portfolio holdings with the Securities
and Exchange Commission for the first and third quarters of each fiscal year on
Form N-Q. The Fund's Forms N-Q, as well as a description of the policies and
procedures that the Fund uses to determine how to vote proxies (if any) relating
to portfolio securities is available without charge (i) upon request, by calling
1-800-242-0134; (ii) on the Fund's website at HTTP://WWW.GEFUNDS.COM; and (iii)
on the Commission's website at HTTP://WWW.SEC.GOV. The Fund's Forms N-Q may be
reviewed and copied at the Commission's Public Reference Room in Washington, DC
- - information on the operation of the Public Reference Room may be obtained by
calling 1-800-SEC-0330.
Information (if any) regarding how the Fund voted proxies relating to portfolio
securities during the most recently disclosed 12-months period ended June 30 is
available without charge (i) through the Fund's website at
HTTP://WWW.GEFUNDS.COM; and (ii) on the Commission's website at
HTTP://WWW.SEC.GOV.
- --------------------------------------------------------------------------------
[GE LOGO OMITTED]
GE Investments Funds, Inc.
Money Market Fund
Annual Report
DECEMBER 31, 2005
[GE LOGO OMITTED]
GE Investments Funds, Inc.
Money Market Fund Contents
- --------------------------------------------------------------------------------
MANAGER REVIEW AND SCHEDULE OF INVESTMENTS .............................. 1
NOTES TO PERFORMANCE .................................................... 5
NOTES TO SCHEDULE OF INVESTMENTS ........................................ 5
FINANCIAL STATEMENTS
Financial Highlights ............................................... 6
Statement of Assets and Liabilities ................................ 7
Statement of Operations ............................................ 8
Statements of Changes in Net Assets ................................ 9
Notes to Financial Statements ...................................... 10
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ................. 14
ADVISORY AND ADMINISTRATIVE AGREEMENT RENEWAL ........................... 15
ADDITIONAL INFORMATION .................................................. 18
INVESTMENT TEAM ......................................................... 21
This report is prepared for Policyholders of certain variable contracts and may
be distributed to others only if preceded or accompanied by the variable
contract's current prospectus and the current prospectus of the Funds available
for investments thereunder.
Money Market Fund
- --------------------------------------------------------------------------------
Q&A
DONALD J. DUNCAN IS A VICE PRESIDENT OF GE ASSET MANAGEMENT AND PORTFOLIO
MANAGER OF THE MONEY MARKET FUND. MR. DUNCAN JOINED GE ASSET MANAGEMENT IN 1988
IN TRADE SUPPORT AND HELD SEVERAL POSITIONS INCLUDING MUTUAL FUND CONTROLLER. HE
WAS APPOINTED INVESTMENT MANAGER - SHORT TERM SECURITIES IN 1990 AND VICE
PRESIDENT - MONEY MARKETS IN 2002.
Q. HOW DID THE MONEY MARKET FUND PERFORM COMPARED TO ITS BENCHMARK AND LIPPER
PEER GROUP FOR THE TWELVE-MONTH PERIOD ENDED DECEMBER 31, 2005?
A. For the twelve-month period ended December 31, 2005, the Money Market Fund
returned 2.79%. The 90-day Treasury Bill, the Fund's benchmark, returned
3.22% and the Fund's Lipper peer group of 109 Money Market funds returned an
average of 2.69% for the same period.
Q. DESCRIBE WHAT HAPPENED IN THE U.S. ECONOMY DURING THE TWELVE-MONTH PERIOD
ENDING DECEMBER 31, 2005.
A. Despite major problems announced by both General Motors and Ford in the
spring, hurricanes hitting the gulf coast in early fall, and continued high
energy prices, the U.S. economy maintained a robust pace of growth in 2005.
Low interest rates and new affordability mortgage-products (e.g.
interest-only, negative amortization) have helped home sales stay at lofty
levels. Consumer health improved which supported spending, and business
investment improved as well. Although still moderate by historical
standards, inflation figures picked up slightly during the year, which kept
the Federal Reserve Board steadfast in its goal of removing accommodation by
raising rates. In 2005, the Federal Reserve Board met and raised its target
Fed funds rate 8 times, in increments of 25 basis points (bps) to 4.25%. As
a result of the Federal Reserve's continued endorsement of higher rates, the
yield on the 2-year treasuries increased 133 bps to 4.4%. Due to moderate
inflation expectations and strong foreign buying, 10-year treasury yields
rose only 17 bps to 4.39%.
Q. WHAT WERE THE PRIMARY DRIVERS OF FUND PERFORMANCE?
A. The primary driver of Fund performance relative to the benchmark resulted
from positioning the Fund along the short end of the yield curve. The
average maturity of the Fund was kept shorter than the 90-day benchmark to
take advantage of rising short-term rates as a result of the Federal
Reserve's policy during the year. However, as the yield curve flattened, the
benchmark yield rose less than yields in the Fund, which proved detrimental
to Fund performance.
[PHOTO OF DONALD J. DUNCAN OMITTED]
- --------------------------------------------------------------------------------
1
Money Market Fund
- --------------------------------------------------------------------------------
Understanding Your Fund's Expenses
As a shareholder of the Fund you incur transaction and ongoing expenses.
Transaction expenses including sales charges on purchase payments, reinvested
dividends (or other distributions), and redemption fees directly reduce the
investment return of the Fund. Ongoing costs include portfolio management fees,
distribution and service fees, professional fees, administrative fees and other
Fund expenses. The following example is intended to help you understand your
ongoing costs (in dollars) of investing in the Fund and to compare these costs
with the ongoing costs of investing in other mutual funds.
To illustrate these ongoing costs, we have provided an example and calculated
the expenses paid by investors during the period. The information in the
following table is based on an investment of $1,000, which is invested at the
beginning of the period and held for the entire six-month period ended December
31, 2005.
ACTUAL EXPENSES
The first section of the table provides information about actual account values
and actual expenses. You may use the information in this section, together with
the amount you invested, to estimate the expenses that you paid over the period.
To do so, simply divide your account value by $1,000 (for example, an $8,600
account value divided by $1,000 = 8.6), then multiply the result by the number
given for your class under the heading "Expenses Paid During Period."
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The second section of the table provides information about hypothetical account
values and hypothetical expenses based on the Fund's actual expense ratio and an
assumed rate of return of 5% per year before expenses, which is not the Fund's
actual return. You may use this information to compare the ongoing costs of
investing in the Fund and other funds. To do so, compare this 5% hypothetical
example with the 5% hypothetical examples that appear in the shareholders
reports of other funds.
Please note that the expenses shown in the table do not reflect any transaction
costs, such as sales charges or redemption fees.
JULY 1, 2005 - DECEMBER 31, 2005
- -------------------------------------------------------------------------------------------------------------------------------
ACCOUNT VALUE AT ACCOUNT VALUE EXPENSES
THE BEGINNING OF AT THE END OF PAID DURING
THE PERIOD ($) THE PERIOD ($) THE PERIOD ($)*
- -------------------------------------------------------------------------------------------------------------------------------
Actual Fund Return** 1,000.00 1,016.63 2.48
- -------------------------------------------------------------------------------------------------------------------------------
Hypothetical 5% Return
(2.5% for the period) 1,000.00 1,022.50 2.48
- -------------------------------------------------------------------------------------------------------------------------------
<FN>
* EXPENSES ARE EQUAL TO THE FUND'S ANNUALIZED EXPENSE RATIO OF 0.49% (FROM
PERIOD JULY 1, 2005 - DECEMBER 31, 2005), MULTIPLIED BY THE AVERAGE ACCOUNT
VALUE OVER THE PERIOD, MULTIPLIED BY 184/365 (TO REFLECT THE SIX MONTH
PERIOD).
** ACTUAL FUND RETURN FOR SIX-MONTH PERIOD ENDED DECEMBER 31, 2005 WAS: 1.66%.
</FN>
2
Money Market Fund
- --------------------------------------------------------------------------------
CHANGE IN VALUE
OF A $10,000 INVESTMENT
- --------------------------------------------------------------------------------
[LINE GRAPH OMITTED]
Money Market Fund 90-Day T-Bill
12/95 $10,000.00 $10,000.00
12/96 10,540.54 10,515.71
12/97 11,110.61 11,062.53
12/98 11,695.05 11,604.58
12/99 12,280.09 12,158.65
12/00 13,045.86 12,888.82
12/01 13,565.89 13,335.04
12/02 13,767.31 13,552.48
12/03 13,874.81 13,691.66
12/04 14,005.97 13,883.02
12/05 14,397.28 14,329.60
INVESTMENT PROFILE
A fund designed for investors who seek a high level of current income consistent
with the preservation of capital and maintenance of liquidity by investing
primarily in short-term U.S. dollar-denominated money market instruments.
AVERAGE ANNUAL TOTAL RETURN
FOR THE PERIODS ENDED DECEMBER 31, 2005
- --------------------------------------------------------------------------------
ONE FIVE TEN
YEAR YEAR YEAR
- --------------------------------------------------------------------------------
Money Market Fund 2.79% 1.99% 3.71%
- --------------------------------------------------------------------------------
90 Day T-Bill 3.22% 2.14% 3.66%
- --------------------------------------------------------------------------------
Lipper peer group average* 2.69% 1.85% 3.55%
- --------------------------------------------------------------------------------
Inception date 07/01/85
- --------------------------------------------------------------------------------
FUND YIELD AT DECEMBER 31, 2005
- --------------------------------------------------------------------------------
FUND IBC'S MONEY FUND**
- --------------------------------------------------------------------------------
7-DAY CURRENT 3.79%+ 3.65%
- --------------------------------------------------------------------------------
7-DAY EFFECTIVE 3.86% 3.72%
- --------------------------------------------------------------------------------
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 COULD BE SLIGHTLY HIGHER BECAUSE IT
REFLECTS THE COMPOUNDING EFFECT OF EARNINGS ON REINVESTED DIVIDENDS.
+ THE SEVEN DAY CURRENT YIELD, RATHER THAN THE TOTAL RETURN, MORE CLOSELY
REFLECTS THE CURRENT EARNINGS OF THE MONEY MARKET FUND AT DECEMBER 31, 2005.
** IBC'S MONEY FUND REPORT PROVIDES AVERAGE YIELD FOR ALL MAJOR MONEY MARKET
FUNDS.
AN INVESTMENT IN THE MONEY MARKET FUND IS NOT INSURED OR GUARANTEED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT AGENCY. ALTHOUGH
THE FUND SEEKS TO PRESERVE THE VALUE OF YOUR INVESTMENT AT $1.00 PER SHARE, IT
IS POSSIBLE TO LOSE MONEY BY INVESTING IN THE FUND.
* LIPPER PERFORMANCE COMPARISONS ARE BASED ON AVERAGE ANNUAL TOTAL RETURNS FOR
THE ONE YEAR, FIVE-YEAR, AND TEN-YEAR PERIODS INDICATED IN THE MONEY MARKET
PEER GROUP CONSISTING OF 109, 91 AND 70 UNDERLYING ANNUITY FUNDS,
RESPECTIVELY.
SEE NOTES TO PERFORMANCE ON PAGE 5 FOR FURTHER INFORMATION, INCLUDING AN
EXPLANATION OF LIPPER PEER CATEGORIES.
PAST PERFORMANCE DOES NOT PREDICT FUTURE PERFORMANCE AND THE GRAPH AND TABLE
DO NOT REFLECT THE DEDUCTION OF TAXES.
3
MONEY MARKET FUND
Schedule of Investments December 31, 2005
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
MONEY MARKET FUND
- --------------------------------------------------------------------------------
Portfolio Composition based on a Market Value of $249,943
(in thousands) as of December 31, 2005
[PIE CHART OMITTED]
TIME DEPOSITS 0.1%
COMMERCIAL PAPER 30.7%
CERTIFICATES OF DEPOSIT 23.9%
CORPORATE NOTES 20.8%
U.S. GOVERNMENTS 19.8%
REPURCHASE AGREEMENTS 4.7%
- --------------------------------------------------------------------------------
PRINCIPAL AMORTIZED
AMOUNT COST
- --------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS -- 99.9%+
- --------------------------------------------------------------------------------
U.S. GOVERNMENTS -- 19.8%
Federal Home Loan Mortgage Corp.
3.73% 01/10/06............ $13,280,000 $ 13,267,832 (a)
3.80% 07/12/06............ 11,380,000 11,380,000
4.01% 01/17/06............ 15,000,000 14,973,533 (a)
4.32% 04/25/06............ 9,910,000 9,777,412 (a)
49,398,777
COMMERCIAL PAPER -- 30.7%
Abbey National PLC
4.50% 01/03/06............ 12,390,000 12,386,903
Bank of America Corp.
4.19% 01/31/06............ 11,040,000 11,001,452
Barclays PLC
4.16% 01/09/06............ 11,050,000 11,039,785
Credit Suisse First Boston
4.21% 01/23/06............ 10,600,000 10,572,729
Deutsche Bank AG
4.39% 01/03/06............ 9,870,000 9,867,593
Goldman Sachs Group
4.36% 01/04/06............ 9,870,000 9,866,414
HBOS PLC
4.16% 02/02/06............ 12,150,000 12,105,072
76,839,948
- --------------------------------------------------------------------------------
PRINCIPAL AMORTIZED
AMOUNT COST
- --------------------------------------------------------------------------------
REPURCHASE AGREEMENTS -- 4.7%
UBS
4.27% date 12/31/05,
$11,775,584 to be received
on 01/03/06, collateralized
by $12,008,927 Government-
Sponsored Enterprise Bond,
5.125%, maturing 07/15/12.... $11,770,000 $ 11,770,000
CORPORATE NOTES -- 20.8%
American Express Credit Corp.
4.39% 01/05/06............ 6,940,000 6,945,594 (c)
Canadian Imperial Bank
4.35% 01/23/06............ 10,580,000 10,580,000 (c)
HSBC Finance Corp.
4.55% 06/22/06............ 12,430,000 12,435,121 (c)
Morgan Stanley
4.30% 02/03/06............ 11,130,000 11,130,000 (c)
Societe Generale
4.33% 10/31/06............ 11,050,000 11,048,424 (c)
52,139,139
TIME DEPOSIT -- 0.1%
State Street Corp.
3.95% 01/03/06............ 155,034 155,034 (b)
CERTIFICATES OF DEPOSIT -- 23.8%
Calyon
4.17% 01/09/06............ 11,180,000 11,180,000
Dexia Credit Local S.A.
4.34% 02/02/06............ 7,460,000 7,460,000
First Tennessee Bank
4.35% 01/31/06............ 9,930,000 9,930,000
Lloyds Bank PLC
4.04% 01/06/06............ 11,200,000 11,199,663
Toronto-Dominion Bank
4.45% 03/23/06............ 9,990,000 9,990,000
Wells Fargo Bank
4.34% 01/09/06............ 8,470,000 8,470,000
4.40% 01/06/06............ 1,410,000 1,410,000
59,639,663
TOTAL SHORT-TERM INVESTMENTS
(COST $249,942,561) ......... 249,942,561
OTHER ASSETS AND LIABILITIES-- 0.1% 205,984
------------
NET ASSETS-- 100.0% ......... $250,148,545
============
See Notes to Schedule of Investments on page 5 and Notes to Financial
Statements.
4
Notes to Performance December 31, 2005 (unaudited)
- --------------------------------------------------------------------------------
Total returns take into account changes in share price and assume reinvestment
of dividends and capital gains distributions, 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.
Current performance may be lower or higher than that shown. You may call
toll-free (800) 242-0134 for performance information as of the most recent month
end.
Certain fees and Fund expenses have been waived and/or borne by the Fund's prior
investment advisers. In addition, GE Asset Management waived certain fees for
the Money Market Fund prior to fiscal 2002. Had these fees and expenses not been
waived, the returns (and/or yields) would have been lower.
Shares of the Fund are neither insured nor guaranteed by the U.S. Government,
and their prices will fluctuate with market conditions. The 90 Day T-Bill is an
unmanaged measure/index of the performance of U.S. Treasury bills currently
available in the marketplace having a remaining maturity of 90 days.
The peer universe of the underlying annuity funds used in our peer ranking
calculation is based on the blend of Lipper peer categories, as shown. Lipper is
an independent mutual fund rating service. A Fund's performance may be compared
to or ranked within a universe of mutual funds with investment objectives and
policies similar but not necessarily identical to the Fund's. Such comparisons
or rankings are made on the basis of several factors, including the Fund's
objectives and policies, management style and strategy, and portfolio
composition, and may change over time if any of those factors change. Lipper is
an independent mutual fund rating service.
Notes to Schedule of Investments
- --------------------------------------------------------------------------------
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 current or 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.
(a) Coupon amount represents effective yield.
(b) State Street Corp. is the parent company of State Street Bank & Trust Co.,
the Fund's custodian and accounting agent.
(c) Variable or floating rate security. The stated rate represents the rate at
December 31, 2005.
+ Percentages are based on net assets as of December 31, 2005.
5
Financial Highlights
Selected data based on a share outstanding throughout the periods indicated
- --------------------------------------------------------------------------------
MONEY MARKET FUND
12/31/05 12/31/04 12/31/03 12/31/02 12/31/01
- ----------------------------------------------------------------------------------------------------------------------------------
INCEPTION DATE -- -- -- -- 7/1/85
Net asset value, beginning of period................... $1.00 $1.00 $1.00 $1.00 $1.00
INCOME FROM INVESTMENT OPERATIONS:
Net investment income............................... 0.03 0.01 0.01 0.01 0.04
Net realized and unrealized
gains on investments............................. -- -- 0.00(b) 0.00(b) 0.00(b)
- ----------------------------------------------------------------------------------------------------------------------------------
TOTAL INCOME FROM INVESTMENT OPERATIONS................ 0.03 0.01 0.01 0.01 0.04
- ----------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM:
Net investment income............................... 0.03 0.01 0.01 0.01 0.04
Return of capital................................... 0.00(b) -- -- -- --
- ----------------------------------------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS.................................... 0.03 0.01 0.01 0.01 0.04
- ----------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD......................... $1.00 $1.00 $1.00 $1.00 $1.00
==================================================================================================================================
TOTAL RETURN (A)....................................... 2.79% 0.95% 0.78% 1.48% 3.99%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in thousands)............ $250,149 $278,703 $392,533 $685,353 $712,156
Ratios to average net assets:
Net investment income............................ 2.74% 0.92% 0.80% 1.46% 3.80%
Net expenses..................................... 0.49% 0.47% 0.43% 0.40% 0.34%
Gross expenses................................... 0.49% 0.47% 0.43% 0.40% 0.42%
<FN>
NOTES TO FINANCIAL HIGHLIGHTS
- ----------------------------------------------------------------------------------------------------------------------------------
(a) Total returns are historical and assume changes in share price and reinvestment of dividends and capital gains and do not
include the effect of insurance contract charges. Had the adviser not absorbed a portion of the expense, total returns
would have been lower.
(b) Less than $0.01 per share.
</FN>
See Notes to Financial Statements.
6
MONEY
Statement of Assets MARKET
and Liabilities DECEMBER 31, 2005 FUND
- ------------------------------------------------------------------------------------------------------------------------
ASSETS
Short-term investments (at amortized cost) .................................................... $249,942,561
Income receivables ............................................................................ 387,800
Receivable for fund shares sold................................................................ 2,045
- ------------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS............................................................................... 250,332,406
- ------------------------------------------------------------------------------------------------------------------------
LIABILITIES
Payable for fund shares redeemed............................................................... 83,584
Payable to GEAM................................................................................ 100,150
Other liabilities.............................................................................. 127
- ------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES.......................................................................... 183,861
- ------------------------------------------------------------------------------------------------------------------------
NET ASSETS........................................................................................ $250,148,545
========================================================================================================================
NET ASSETS CONSIST OF:
Capital paid in ............................................................................... 250,212,414
Undistributed (distribution in excess of) net investment income................................ --
Accumulated net realized loss.................................................................. (63,869)
- ------------------------------------------------------------------------------------------------------------------------
NET ASSETS........................................................................................ $250,148,545
========================================================================================================================
Shares outstanding ($0.01 par value; unlimited shares authorized)................................. 250,254,416
Net asset value per share......................................................................... $1.00
See Notes to Financial Statements.
7
MONEY
Statement of Operations MARKET
FOR THE YEAR ENDED DECEMBER 31, 2005 FUND
- ----------------------------------------------------------------------------------------------------------------------
INVESTMENT INCOME
INCOME:
Interest................................................................................ $9,116,044
- ----------------------------------------------------------------------------------------------------------------------
TOTAL INCOME.............................................................................. 9,116,044
- ----------------------------------------------------------------------------------------------------------------------
EXPENSES:
Advisory and administrative fees........................................................ 1,285,413
Custody and accounting expenses......................................................... 34,805
Professional fees....................................................................... 47,167
Transfer agent ......................................................................... 210
Director's fees......................................................................... 7,810
Registration expenses................................................................... 2,160
Other expenses.......................................................................... 11,655
- ----------------------------------------------------------------------------------------------------------------------
TOTAL EXPENSES............................................................................ 1,389,220
- ----------------------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME..................................................................... 7,726,824
======================================================================================================================
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS...................................... $7,726,824
======================================================================================================================
See Notes to Financial Statements.
8
MONEY
Statements of MARKET
Changes in Net Assets FUND
- --------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
2005 2004
- --------------------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net investments income............................................................ $ 7,726,824 $ 3,285,144
- --------------------------------------------------------------------------------------------------------------------------------
Net increase from operations...................................................... 7,726,824 3,285,144
- --------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income............................................................. (7,736,548) (3,285,144)
Return of capital................................................................. (42,984) --
- --------------------------------------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS................................................................. (7,779,532) (3,285,144)
- --------------------------------------------------------------------------------------------------------------------------------
Decrease in net assets from operations and distributions............................ (52,708) --
- --------------------------------------------------------------------------------------------------------------------------------
SHARE TRANSACTIONS:
Proceeds from sale of shares ..................................................... 199,487,509 231,281,670
Value of distributions reinvested................................................. 7,752,316 3,304,813
Cost of shares redeemed........................................................... (235,741,886) (348,415,986)
- --------------------------------------------------------------------------------------------------------------------------------
Net decrease from share transactions.............................................. (28,502,061) (113,829,503)
- --------------------------------------------------------------------------------------------------------------------------------
TOTAL DECREASE IN NET ASSETS........................................................ (28,554,769) (113,829,503)
NET ASSETS
Beginning of period ................................................................ 278,703,314 392,532,817
- --------------------------------------------------------------------------------------------------------------------------------
End of period ...................................................................... $250,148,545 $ 278,703,314
================================================================================================================================
UNDISTRIBUTED (DISTRIBUTION IN EXCESS OF) NET INVESTMENT INCOME, END OF PERIOD......... $ -- $ 9,724
- --------------------------------------------------------------------------------------------------------------------------------
CHANGES IN PORTFOLIO SHARES
Shares sold....................................................................... 199,487,510 231,281,670
Issued for distributions reinvested............................................... 7,752,316 3,304,813
Shares redeemed................................................................... (235,741,886) (348,415,986)
- --------------------------------------------------------------------------------------------------------------------------------
Net decrease in fund shares............................................................ (28,502,060) (113,829,503)
================================================================================================================================
See Notes to Financial Statements.
9
Notes to Financial Statements December 31, 2005
- --------------------------------------------------------------------------------
1. ORGANIZATION OF THE COMPANY
GE Investments Funds, Inc. (the "Company") was incorporated under the laws of
the Commonwealth of Virginia on May 14, 1984 and is registered under the
Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end
management investment company. The Company is composed of thirteen investment
portfolios (collectively the "Funds"), although only the following eleven are
currently being offered: U.S. Equity Fund, S&P 500 Index Fund, Premier Growth
Equity Fund, Value Equity Fund, Mid-Cap Equity Fund, Small-Cap Equity Fund
(formerly known as Small-Cap Value Equity Fund, prior to January 3, 2006),
International Equity Fund, Total Return Fund, Income Fund, Money Market Fund
(the "Fund") and Real Estate Securities Fund.
Shares of the Funds 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 Asset Management Incorporated ("GEAM"), the
investment adviser and administrator of each of the Funds.
As of December 31, 2005, GE Life and Annuity Assurance Company ("GE Life") and
General Electric Capital Assurance Company, each an affiliated insurance
company, controlled the Funds by ownership, through separate accounts, of
virtually all of the Funds' shares of beneficial interest.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions at the date of the financial statements. Actual
results may differ from those estimates.
The following summarizes the significant accounting policies of the Company:
SECURITY VALUATION AND TRANSACTIONS Securities for which exchange quotations are
readily available are valued at the last sale price, or if no sales occurred on
that day, at the last quoted bid price. Securities listed on the NASDAQ will be
valued at the NASDAQ's official close price. Certain fixed income securities are
valued by a dealer or by a pricing service based upon a matrix system, which
considers market transactions as well as dealer supplied valuations. Short-term
investments maturing within sixty days are valued at amortized cost. If
quotations are not readily available for a portfolio security, or if it is
believed that a quotation or other market price for a portfolio security does
not represent its fair value, the security may be valued using procedures
approved by the Fund's Board of Directors that are designed to establish its
"fair value." These procedures require that the fair value of a security be
established by the valuation committee. The fair value committee follows
different protocols for different types of investments and circumstances.
Foreign securities may be valued with the assistance of an independent fair
value pricing service in circumstances where it is believed that they have been
or would be materially affected by events occurring after the close of the
portfolio security's primary market and before the close of regular trading on
the NYSE. This independent fair value pricing service uses a computerized system
to appraise affected securities and portfolios taking into consideration various
factors and the fair value of such securities may be something other than the
last available quotation or other market price. GE Asset Management may also
separately monitor portfolio securities and, consistent with the Fund's fair
value procedures, apply a different value to a portfolio security than would be
applied had it been priced using market quotations or by an independent fair
value pricing service.
Determining the fair value of securities involves the application of both
subjective and objective considerations. Security values may differ depending on
the methodology used to determine their values, and may differ from the last
quoted sale or closing price. No assurance can be given that use of these fair
value procedures will always better represent the price at which a Fund could
sell the affected portfolio security.
In accordance with Rule 2a-7 of the 1940 Act, GE Money Market Fund values
securities initially at cost and, thereafter, securities are assumed to have a
constant amortization to maturity of any discount or premium. Amortized cost
approximates fair value.
Security transactions are accounted for as of the trade date. Realized gains and
losses on investments sold are recorded on the basis of identified cost for both
financial statement and federal tax purposes.
REPURCHASE AGREEMENTS The Fund may enter into repurchase agreements. The Fund's
or a third party custodian takes possession of the collateral pledged for
10
Notes to Financial Statements December 31, 2005
- --------------------------------------------------------------------------------
investments in repurchase agreements on behalf of the Fund. The Fund values the
underlying collateral daily on a mark-to-market basis to determine that the
value, including accrued interest, is at least equal to 102% of the repurchase
price. In the event the seller defaults and the value of the security declines,
or if the seller enters an insolvency proceeding, realization of the collateral
by the Fund may be delayed or limited.
SECURITY LENDING The Fund may loan securities to brokers, dealers, and financial
institutions determined by GEAM to be creditworthy, subject to certain
limitations. The Fund continues to receive the interest and dividends on the
loaned securities during the term of the loan. The loans of securities are
secured by collateral in the form of cash or other liquid assets, which are
segregated and maintained with the custodian in an amount at least equal to 102%
of the current market value of the loaned securities. During the term of the
loan, the Fund will record any gain or loss in the market value of its loaned
securities and of securities in which cash collateral is invested. The Fund will
also earn interest, net of any rebate, from securities in which cash collateral
is invested. In the event the counterparty (borrower) does not meet its
contracted obligation to return the securities, the Fund may be exposed to the
risk of loss of reacquiring the loaned securities at prevailing market prices
using the proceeds of the sale of the collateral.
FOREIGN CURRENCY Accounting records of the Fund are maintained in U.S. dollars.
Investment securities and other assets and liabilities denominated in a foreign
currency are translated into U.S. dollars at the prevailing rates of exchange at
period end. Purchases and sales of securities, income receipts and expense
payments denominated in foreign currencies are translated into U.S. dollars at
the prevailing exchange rate on the respective dates of such transactions.
The Fund does not isolate the portion of the results of operations resulting
from changes in foreign exchange rates from the fluctuations arising from
changes in the market prices of securities during the period. Such fluctuations
are included in the net realized or unrealized gain or loss from investments.
Net realized gains or losses on foreign currency transactions represent net
gains or losses on sales and maturities of foreign currency contracts,
disposition of foreign currencies, the difference between the amount of net
investment income and withholding taxes accrued and the U.S. dollar amount
actually received or paid, and gains or losses between the trade and settlement
date on purchases and sales of securities. Net unrealized foreign exchange gains
and losses arising from changes in the value of other assets and liabilities as
a result of changes in foreign exchange rates are included as increases or
decreases in unrealized appreciation/depreciation on foreign currency related
transactions.
INVESTMENTS IN FOREIGN MARKETS Investments in foreign markets may involve
special risks and considerations not typically associated with investing in the
United States. These risks include revaluation of currencies, high rates of
inflation, repatriation on income and capital, and adverse political and
economic developments. Moreover, securities issued in these markets may be less
liquid, subject to government ownership controls, tariffs and taxes, subject to
delays in settlements, and their prices may be more volatile.
The Fund may be subject to capital gains and repatriation taxes imposed by
certain countries in which it invests. Such taxes are generally based on income
and/or capital gains earned or repatriated. Taxes are accrued based upon net
investment income, net realized gains and net unrealized appreciation as income
and/or capital gains are earned.
INCOME TAXES The Fund intends to comply with all sections of the Internal
Revenue Code applicable to regulated investment companies including the
distribution of substantially all of its taxable net investment income and net
realized capital gains to its shareholders. Therefore, no provision for federal
income tax has been made. The Fund is treated as a separate taxpayer for federal
income tax purposes.
At December 31, 2005, information on the tax components of capital is as
follows:
Net Tax
Cost of Gross Tax Gross Tax Appreciation/
Investments for Unrealized Unrealized (Depreciation)
Tax Purposes Appreciation Depreciation on Investments
- ----------------------------------------------------------------------------------------------------------------------------
$249,942,561 $-- $-- $--
11
Notes to Financial Statements December 31, 2005
- --------------------------------------------------------------------------------
Net Tax
Appreciation/ Undistributed Undistributed Post
(Depreciation) on Income/ Long-Term Gains/ October
Derivatives, Currency (Accumulated (Accumulated Losses
and Other Net Assets Ordinary Loss) Capital Loss) (see Detail Below)
- ----------------------------------------------------------------------------------------------------------------------------
$-- $-- $(63,869) $--
As of December 31, 2005, the Fund has capital loss carryovers as indicated
below. Capital loss carryovers are available to offset future realized capital
gains to the extent provided in the Internal Revenue Code and regulations
thereunder. To the extent that these carryover losses are used to offset future
capital gains, it is probable that the gains so offset will not be distributed
to shareholders because they would be taxable as ordinary income.
Amount Expires
- --------------------------------------------------------------------------------
$63,869 12/31/10
Any net capital and currency losses incurred after October 31, within the Fund's
tax year, are deemed to arise on the first day of the Fund's next tax year if
the Fund so elects to defer such losses.
The Fund had no losses incurred after October 31, 2005.
The tax composition of distributions paid during the year ended December 31,
2005 was as follows:
Long-Term
Ordinary Capital Return of
Income Gains Capital Total
- --------------------------------------------------------------------------------
$7,736,548 $-- $42,984 $7,779,532
DISTRIBUTIONS TO SHAREHOLDERS The Fund declares net investment income dividends
daily and pays them monthly. 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. Reclassifications due to permanent
book/tax differences are made to the Fund's capital accounts to reflect income
and gains available for distribution (or available capital loss carryovers)
under income tax regulations. These reclassifications have no impact on net
investment income, realized gains or losses, or the net asset value of the Fund.
The calculation of net investment income per share in the Financial Highlights
table excludes these adjustments.
The reclassifications for the year ended December 31, 2005 were as follows:
Undistributed
(Distribution
in Excess of)
Net Investment Accumulated Paid in
Income Net Realized Gain Capital
- --------------------------------------------------------------------------------
$42,984 $-- $(42,984)
INVESTMENT INCOME Corporate actions (including cash dividends) are recorded on
the ex-dividend date, net of applicable withholding taxes, except for certain
foreign corporate actions, which are recorded as soon after ex-dividend date as
such information becomes available. Interest income is recorded on the accrual
basis. All discounts and premiums on bonds are accreted to call or maturity
date, whichever is shorter, using the effective yield method.
EXPENSES Expenses of the Company which are directly identifiable to one of the
Funds are allocated to that portfolio. Expenses which are not directly
identifiable to one of the Funds are allocated in such a manner as deemed
equitable, taking into consideration the nature and type of expenses and
relative sizes of the Funds. All expenses of the Fund are paid by GEAM and
reimbursed by the Fund.
3. LINE OF CREDIT
The Fund shares a revolving credit facility of up to $25 million with a number
of its affiliates. The credit facility is with its custodian bank, State Street
Bank and Trust Company. The revolving credit facility requires the payment of a
commitment fee equal to 0.09% per annum on the daily unused portion of the
credit facility, payable quarterly. The portion borne by the Funds generally is
borne proportionally based upon net assets. Generally, borrowings under the
credit facility would accrue interest at the Federal Funds Rate plus 50 basis
points and is borne by each of the borrowing Funds. The maximum amount allowed
to be borrowed by any one of the
12
Notes to Financial Statements December 31, 2005
- --------------------------------------------------------------------------------
Funds is the lesser of its prospectus limitation, 20% of its net assets, or $25
million. The credit facility was not utilized by the Fund during the period
ended December 31, 2005.
4. AMOUNTS PAID TO AFFILIATES
ADVISORY AND ADMINISTRATION FEES GEAM, 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 Fund. Compensation of GEAM for
investment advisory and administrative services is paid monthly based on the
average daily net assets of the Fund. The advisory and administrative fee is
stated in the following schedule:
Annualized based on
average daily net assets
--------------------------------
Average Daily Advisory and
Net Assets Administration
of Fund Fees
- -----------------------------------------------------------
Money Market Fund First $100 million .50%
Next $100 million .45%
Next $100 million .40%
Next $100 million .35%
Over $400 million .30%
GENPACT (formerly General Electric Capital International Services*) performs
certain accounting and certain administration services not provided by GEAM. For
the year ending December 31, 2005, $3,759 was charged to the Fund.
Administrative services not performed by GEAM or GENPACT were provided by an
unaffiliated service provider.
* AS OF SEPTEMBER 28, 2005, THE NAME WAS CHANGED FROM GENERAL ELECTRIC CAPITAL
INTERNATIONAL SERVICES TO GENPACT.
DIRECTORS' COMPENSATION The Fund pays no compensation to its directors who are
officers or employees of GEAM or its affiliates. Directors who are not such
officers or employees also serve in a similar capacity for other funds advised
by GEAM. Compensation paid to unaffiliated directors are reflected on the
Statement of Operations. These fees are allocated pro rata across all of the
mutual fund platforms and share classes served by the directors, including the
Fund, and are based upon the relative net assets of each fund within such
platforms. (For additional information about directors compensation please refer
to the Statement of Additional Information.)
13
Report of Independent Registered Public Accounting Firm
- --------------------------------------------------------------------------------
The Shareholders and Board of Directors
GE Investments Funds, Inc.
We have audited the accompanying statement of assets and liabilities of the
Money Market Fund, a series of GE Investments Funds, Inc., including the
schedule of investments, as of December 31, 2005, and the related statement of
operations for the year then ended, the statements of changes in net assets for
each of the years in the two-year period then ended, and the financial
highlights for each of the years in the five-year period then ended. These
financial statements and financial highlights are the responsibility of the
Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included confirmation of
securities owned as of December 31, 2005 by correspondence with the custodians
and brokers, or by other appropriate auditing procedures where replies from
brokers were not received. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
Money Market Fund as of December 31, 2005, and the results of its operations,
the changes in its net assets and the financial highlights for each of the years
described above, in conformity with U.S. generally accepted accounting
principles.
/S/KPMG LLP
Boston, Massachusetts
February 17, 2006
14
Advisory and Administrative Agreement Renewal (unaudited)
- --------------------------------------------------------------------------------
The Fund Board, including the independent Board members, considered and
unanimously approved the continuance of the Fund's investment advisory agreement
with GE Asset Management Incorporated ("GEAM") at meetings held on December 9
and December 16, 2005.
In considering whether to approve the Fund's investment advisory agreement, the
Board members, including the independent members, considered and discussed a
substantial amount of information and analysis provided, at the Board's request,
by GEAM. The Board members also considered detailed information regarding
performance and expenses of other investment companies with similar investment
objectives and sizes, which was prepared by an independent third party provider,
Lipper Inc. ("Lipper"). The Board members reviewed the fees charged by GEAM for
other mutual funds and investment products other than mutual funds that employ
the same investment strategy as the Fund. Before approving the Fund's advisory
agreement, the Board members reviewed the proposed continuance of the agreement
with management of GEAM and with independent legal counsel. The Board members
also reviewed a memorandum prepared by independent legal counsel discussing the
legal standards for the consideration of the proposed continuance. The
independent Board members discussed the proposed continuance in a private
session with their independent legal counsel at which no representatives of GEAM
were present.
In advance of the meeting, and in response to their request, the Board members
received from GEAM written responses to their inquiries, which included
substantial exhibits and other materials related to GEAM's business and the
services it provides to the Fund. The Board members took into account their
multi-year experience as Board members and particularly their consideration of
these agreements in 2004, noting that the information was presented in a similar
manner and format. To focus their review, the Board members asked GEAM
management, in its oral presentation, to highlight material differences from the
information presented in 2004. During the meeting, the Board members had an
opportunity to discuss this information with GEAM managers, including senior
executives, representatives from the legal and compliance departments, and
senior investment personnel. The Board members posed questions to these
representatives and engaged in substantive discussions with them concerning
GEAM's investment process.
In reaching their determination relating to continuance of the agreement, the
Board members considered all factors they believed relevant, including the
factors discussed below. In their deliberations, the Board members did not
identify any particular information that was all-important or controlling, and
each Board member attributed different weights to the various factors. In
particular, the Board members focused on the following:
THE NATURE, EXTENT AND QUALITY OF SERVICES PROVIDED.
The Board members reviewed the services provided by GEAM, and the Board members,
including the independent members, concurred that GEAM provides high quality
advisory and administrative services to the Fund.
In connection with their consideration of GEAM's services, the Board members
focused on the favorable attributes of GEAM, including (i) an investment
philosophy oriented toward long-term performance; (ii) effective processes used
for selecting investments, selecting brokers and with respect to Fund
administration, controllership and compliance activities; (iii) highly skilled
professionals, including analysts, research professionals and portfolio managers
with a depth of experience; (iv) access to significant technological resources
from which the Fund may benefit; and (v) a favorable history and reputation. The
Board members discussed with senior officers of GEAM the personnel changes made,
and proposed to be made, by GEAM, and that GEAM would be expending significant
sums to enhance services, including improvements to its information technology
capabilities. The Board members noted that the Fund represents only a small
portion of the assets managed by GEAM, but benefits from a full array of
services and resources provided by GEAM. In light of these discussions, the
Board members, including the independent members, concluded that GEAM's services
were of a high quality and had benefited the Fund.
15
Advisory and Administrative Agreement Renewal (unaudited)
- --------------------------------------------------------------------------------
INVESTMENT PERFORMANCE OF THE FUND.
The Board members considered the investment performance of the Fund for various
periods. The Board members reviewed detailed comparisons of the performance of
the Fund with the relevant securities indexes and peer groupings of mutual funds
prepared by Lipper with respect to various periods. The Board members also
engaged in detailed discussions with GEAM management about the investment
process, focusing on the Fund's investment objective, the number and experience
of portfolio management personnel, and the investment strategy employed with
respect to the Fund's investment objective and investment approach. The Board
members, including the independent members, concluded that the Fund's
performance was acceptable over the relevant periods.
COST OF THE SERVICES TO BE PROVIDED AND PROFITS TO BE REALIZED FROM THE
RELATIONSHIP WITH THE FUND.
The Board members considered the cost of the services provided by GEAM. The
Board members reviewed the information they had requested from GEAM concerning
its profitability from the fees and services it provides to the Fund and the
financial condition of GEAM for various past periods. The Board members
considered the profit margin information for GEAM's investment company business
as a whole, as well as GEAM's profitability data for the Fund. The Board members
reviewed GEAM's assumptions and the methods of cost allocation used by GEAM in
preparing Fund-specific profitability data. The Board members also discussed
with GEAM the basis for its belief that the methods of allocation used were
reasonable and consistent across its business.
The Board members noted and discussed the additional services provided by GEAM
to the Fund compared to other investment products managed by GEAM. The Board
members determined that GEAM should be entitled to earn a reasonable level of
profits for the services it provides to the Fund. The Board members also
recognized that GEAM had made significant investments in its business and had
not fully recovered the sums invested. Based on their review, the Board members,
including the independent members, concluded that they were satisfied that the
level of profitability achieved by GEAM from its relationship with the Fund was
not unreasonable or excessive.
THE EXTENT TO WHICH ECONOMIES OF SCALE WOULD BE REALIZED AS THE FUND GROWS AND
WHETHER FEE LEVELS WOULD REFLECT SUCH ECONOMIES OF SCALE.
The Board members considered the extent to which economies of scale would be
realized as the Fund grows, and whether fee levels reflect these economies of
scale for the benefit of Fund investors. The Board members considered the
substantial infrastructure investments that GEAM has made with respect to its
operations and its commitment to continue investing resources to enhance
services to Fund shareholders, including its anticipated information technology
expenditures. The Board members recognized the benefits to the Fund of GEAM's
past investment in its operations through the expenditure of sums to support its
substantial infrastructure, and that, in general, GEAM has not yet fully
recouped that investment. The Board members reviewed the applicable advisory fee
breakpoints for the Fund and concluded that no changes were needed. The Board
members recognized the economies of scale benefits derived by the Fund as a
result of this fee structure. The Board members also recognized the benefits to
the Fund of being able to leverage a favorable cost structure achieved with
respect to the Fund's other operating expenses as a result of GEAM's large
overall base of assets under management and its vendor management practices.
COMPARISON OF SERVICES TO BE RENDERED
AND FEES TO BE PAID.
The Board members discussed the services provided to the Fund by GEAM, and the
fees charged for those services. The Board members reviewed information
concerning the fee and expense ratios for the Fund, and comparative information
with respect to similar products. They discussed that the Fund's figures were
within the applicable peer group range. The Board members considered that the
comparative data provided by Lipper showed no material difference from last year
in the fees being charged as compared to those being charged by other advisers
to similar investment products, as
16
Advisory and Administrative Agreement Renewal (unaudited)
- --------------------------------------------------------------------------------
determined by Lipper. In addition, the Board members considered their discussion
with representatives of GEAM about the fees being charged to the Fund and, to
the extent applicable, the potential effect, if any, of the Securities and
Exchange Commission staff's recently proposed soft dollar interpretation on
those fees. In light of the foregoing, the Board members, including the
independent members, determined that the advisory fees were reasonable in
relation to the services provided to the Fund.
FALL-OUT BENEFITS.
The Board members considered other actual and potential financial benefits to
GEAM, including, to the extent applicable, soft dollar commission benefits
generated through Fund portfolio transactions. The Board members noted, however,
that the Fund benefits from the vast array of resources available through GEAM,
and that the Fund represents only a small portion of the assets managed by GEAM.
CONCLUSION.
No single factor was determinative to the Board members' decision. Based on
their discussion and such other matters as were deemed relevant, the Board
members, including the independent members, concluded that the proposed advisory
fee and projected total expense ratio are reasonable in relation to the services
provided to the Fund. In view of these facts, the Board members, including the
independent members, concluded that the renewal of the advisory agreement was in
the best interests of the Fund and its shareholders.
17
Additional Information (unaudited)
- --------------------------------------------------------------------------------
INFORMATION ABOUT DIRECTORS AND EXECUTIVE OFFICERS:
The business and affairs of the Company are managed under the direction of the
Company's Board of Directors. Information pertaining to the Directors and
officers of the Company is set forth below.
INTERESTED DIRECTORS AND EXECUTIVE OFFICERS
- --------------------------------------------------------------------------------
MICHAEL J. COSGROVE
- --------------------------------------------------------------------------------
ADDRESS c/o GEAM 3001 Summer St. Stamford, CT 06905
AGE 56
POSITION(S) HELD WITH FUND Chairman of the Board and President
TERM OF OFFICE AND LENGTH OF TIME SERVED Until successor is elected and
qualified - 9 years
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS Executive Vice President - Chief
Commercial Officer of GEAM (formerly President, GE Asset Management Services
division ("GEAMS") of GE Financial Assurance Holdings, Inc., an indirect
wholly-owned subsidiary of General Electric Company ("GE")), since February
1997; Vice President, GE Capital Corporation, an indirect wholly-owned
subsidiary of GE, since December 1999; Executive Vice President - Sales and
Marketing of GEAM, a wholly-owned subsidiary of GE that is registered as an
investment adviser under the Investment Advisers Act of 1940, as amended, since
March 1993; Director of GEAM since 1988.
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR 48
OTHER DIRECTORSHIPS HELD BY DIRECTOR Chairman of the Board and President of GE
Funds since 1993, and GE Institutional Funds and GE LifeStyle Funds since their
inception; Trustee of Elfun Funds, GE Savings & Security Funds and General
Electric Pension Trust since 1988; Trustee of Fordham University since 2003 and
Marymount College from 1994 through 2002.
- --------------------------------------------------------------------------------
ALAN M. LEWIS
- --------------------------------------------------------------------------------
ADDRESS c/o GEAM 3001 Summer St. Stamford, CT 06905
AGE 59
POSITION(S) HELD WITH FUND Director and Executive Vice President
TERM OF OFFICE AND LENGTH OF TIME SERVED Until successor is elected and
qualified - 6 years
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS Executive Vice President, General
Counsel and Secretary of GEAM since 1987
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR 48
OTHER DIRECTORSHIPS HELD BY DIRECTOR Trustee and Executive Vice President of GE
Funds, GE Institutional Funds and GE LifeStyle Funds since their inception.
Trustee of Elfun Funds, GE Savings & Security Funds and General Electric Pension
Trust since 1987.
18
Additional Information (unaudited)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SCOTT H. RHODES
- --------------------------------------------------------------------------------
ADDRESS c/o GEAM 3001 Summer St. Stamford, CT 06905
AGE 47
POSITION(S) HELD WITH FUND Treasurer
TERM OF OFFICE AND LENGTH OF TIME SERVED Until successor is elected and
qualified - less than one year
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS GEAM Mutual Funds Operations Manager
since September 2005; Treasurer of GE Institutional Funds, GE LifeStyle Funds
and GE Investments Funds since November 2005 and Elfun Funds and GE Savings &
Security Funds since September 2005; from August 2004 to September 2005 Vice
President, U.S. Trust Company, N.A. and Assistant Treasurer of Excelsior Funds,
Inc., Excelsior Funds Trust, and Excelsior Tax Exempt Funds, Inc.; from January
2004 to August 2004, Vice President BlackRock Financial Management, Inc.; from
December 1996 to November 2003, Controller - Mutual Funds, American Skandia
Investment Services, Inc. and Assistant Treasurer of American Skandia Trust and
American Skandia Advisor Funds, Inc.
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR N/A
OTHER DIRECTORSHIPS HELD BY DIRECTOR N/A
- --------------------------------------------------------------------------------
MATTHEW J. SIMPSON
- --------------------------------------------------------------------------------
ADDRESS c/o GEAM 3001 Summer St. Stamford, CT 06905
AGE 44
POSITION(S) HELD WITH FUND Vice President and Secretary
TERM OF OFFICE AND LENGTH OF TIME SERVED Until successor is elected and
qualified - 9 years
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS Senior Vice President and General
Counsel - Marketing and Client Services (formerly Asset Management Services), at
GEAM and Senior Vice President and General Counsel of GEAMS since February 1997;
from October 1992 to February 1997, Vice President and Associate General Counsel
of GEAM; Secretary of GE Funds since 1993 and Vice President since September
2003; Secretary of GE Institutional Funds and GE LifeStyle Funds since their
inception and Vice President since September 2003; Assistant Secretary of Elfun
Funds and GE Savings & Security Funds since 1998 and Vice President since
October 2003.
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR N/A
OTHER DIRECTORSHIPS HELD BY DIRECTOR N/A
- --------------------------------------------------------------------------------
JEANNE M. LAPORTA
- --------------------------------------------------------------------------------
ADDRESS c/o GEAM 3001 Summer St. Stamford, CT 06905
AGE 40
POSITION(S) HELD WITH FUND Vice President and Assistant Secretary
TERM OF OFFICE AND LENGTH OF TIME SERVED Until successor is elected and
qualified - 2 years
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS Vice President and Associate General
Counsel - Marketing and Client Services (formerly Asset Management Services) at
GEAM since May 1997; Vice President and Assistant Secretary of GE Funds, GE
Institutional Funds and GE LifeStyle Funds since September 2003; Vice President
and Assistant Secretary of Elfun Funds and GE Savings & Security Funds since
October 2003.
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR N/A
OTHER DIRECTORSHIPS HELD BY DIRECTOR N/A
19
Additional Information (unaudited)
- --------------------------------------------------------------------------------
NON-INTERESTED DIRECTORS
- --------------------------------------------------------------------------------
JOHN R. COSTANTINO
- --------------------------------------------------------------------------------
ADDRESS c/o GEAM 3001 Summer St. Stamford, CT 06905
AGE 59
POSITION(S) HELD WITH FUND Director
TERM OF OFFICE AND LENGTH OF TIME SERVED Until successor is elected and
qualified - 9 years
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS Managing Director, Walden Partners,
Ltd., consultants and investors, since August 1992.
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR 40
OTHER DIRECTORSHIPS HELD BY DIRECTOR Trustee of GE Funds since 1993, GE
Institutional Funds and GE LifeStyle Funds since their inception; Trustee of
Fordham University since 2002 and Marymount College from 2001 through 2002;
Neuroscience Research Institute since 1986; Diocesan Finance Counsel of the
Dioceses of Brooklyn & Queens since 2001; Gregorian University Foundation since
1994.
- --------------------------------------------------------------------------------
WILLIAM J. LUCAS
- --------------------------------------------------------------------------------
ADDRESS c/o GEAM 3001 Summer St. Stamford, CT 06905
AGE 58
POSITION(S) HELD WITH FUND Director
TERM OF OFFICE AND LENGTH OF TIME SERVED Until successor is elected and
qualified - 9 years
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS Vice President and Treasurer of
Fairfield University since 1983.
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR 40
OTHER DIRECTORSHIPS HELD BY DIRECTOR Trustee of GE Funds since 1993, and GE
Institutional Funds and GE LifeStyle Funds since their inception.
- --------------------------------------------------------------------------------
ROBERT P. QUINN
- --------------------------------------------------------------------------------
ADDRESS c/o GEAM 3001 Summer St. Stamford, CT 06905
AGE 69
POSITION(S) HELD WITH FUND Director
TERM OF OFFICE AND LENGTH OF TIME SERVED Until successor is elected and
qualified - 9 years
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS Retired since 1983 from Salomon
Brothers Inc.
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR 40
OTHER DIRECTORSHIPS HELD BY DIRECTOR GP Financial Corp, holding company; The
Greenpoint Savings Bank, a financial institution. Trustee of GE Funds since
1993, and GE Institutional Funds and GE LifeStyle Funds since their inception.
- --------------------------------------------------------------------------------
The Statement of Additional Information for the Fund includes additional
information about the Directors and Officers and is available, without charge,
upon request by calling 1-800-242-0134.
20
Investment Team
- --------------------------------------------------------------------------------
INVESTMENT ADVISER AND ADMINISTRATOR
GE Asset Management Incorporated
BOARD OF DIRECTORS
Michael J.Cosgrove, CHAIRMAN
John R. Costantino
Alan M. Lewis
William J. Lucas
Robert P. Quinn
SECRETARY
Matthew J. Simpson
TREASURER
Scott H. Rhodes
ASSISTANT TREASURER
Christopher M. Isaacs
DISTRIBUTOR
GE Investment Distributors, Inc.
Member NASD and SIPC
COUNSEL
Sutherland, Asbill & Brennan, LLP
CUSTODIAN
State Street Bank & Trust Company
INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM
KPMG LLP
OFFICERS OF THE INVESTMENT ADVISER
John H. Myers, CHIEF EXECUTIVE OFFICER
David B. Carlson, EVP, DOMESTIC EQUITIES
Michael J. Cosgrove, EVP, CHIEF COMMERCIAL OFFICER
Robert A. MacDougall, EVP, FIXED INCOME (RETIRED FROM ALL POSITIONS AS OF
JANUARY 31, 2006)
Kathryn D. Karlic, EVP, FIXED INCOME (AS OF FEBRUARY 1, 2006)
Ralph R. Layman, EVP, INTERNATIONAL EQUITIES
Alan M. Lewis, EVP, GENERAL COUNSEL AND SECRETARY
Don W. Torey, EVP, ALTERNATIVE INVESTMENTS AND REAL ESTATE
John J. Walker, EVP, CHIEF FINANCIAL OFFICER
21
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INVESTMENT ADVISER
GE ASSET MANAGEMENT INCORPORATED
3001 SUMMER STREET
PO BOX 7900
STAMFORD, CT 06904-7900
DISTRIBUTOR
GE INVESTMENT DISTRIBUTORS, INC.
MEMBER NASD AND SIPC
3001 SUMMER STREET
PO BOX 7900
STAMFORD, CT 06904-7900
- --------------------------------------------------------------------------------
The Fund files its complete schedule of portfolio holdings with the Securities
and Exchange Commission for the first and third quarters of each fiscal year on
Form N-Q. The Fund's Forms N-Q, as well as a description of the policies and
procedures that the Fund uses to determine how to vote proxies (if any) relating
to portfolio securities is available without charge (i) upon request, by calling
1-800-242-0134; (ii) on the Fund's website at HTTP://WWW.GEFUNDS.COM; and (iii)
on the Commission's website at HTTP://WWW.SEC.GOV. The Fund's Forms N-Q may be
reviewed and copied at the Commission's Public Reference Room in Washington, DC
information on the operation of the Public Reference Room may be obtained by
calling 1-800-SEC-0330.
Information (if any) regarding how the Fund voted proxies relating to portfolio
securities during the most recently disclosed 12-months period ended June 30 is
available without charge (i) through the Fund's website at
HTTP://WWW.GEFUNDS.COM; and (ii) on the Commission's website at
HTTP://WWW.SEC.GOV.
- --------------------------------------------------------------------------------
[GE LOGO OMITTED]
GE Investments Funds, Inc.
Real Estate Securities Fund
Annual Report
DECEMBER 31, 2005
[GE LOGO OMITTED]
GE Investments Funds, Inc.
Real Estate Securities Fund Contents
- --------------------------------------------------------------------------------
MANAGER REVIEW AND SCHEDULE OF INVESTMENTS................................ 1
NOTES TO PERFORMANCE...................................................... 6
NOTES TO SCHEDULE OF INVESTMENTS.......................................... 6
FINANCIAL STATEMENTS
Financial Highlights................................................. 7
Statement of Assets and Liabilities.................................. 8
Statement of Operations.............................................. 9
Statements of Changes in Net Assets.................................. 10
Notes to Financial Statements........................................ 11
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM................... 16
TAX INFORMATION........................................................... 17
ADVISORY AND ADMINISTRATIVE AGREEMENT RENEWAL............................. 18
ADDITIONAL INFORMATION.................................................... 21
INVESTMENT TEAM........................................................... 24
This report is prepared for Policyholders of certain variable contracts and may
be distributed to others only if preceded or accompanied by the variable
contract's current prospectus and the current prospectus of the Funds available
for investments thereunder.
Real Estate Securities Fund
- --------------------------------------------------------------------------------
Q&A
SENECA CAPITAL MANAGEMENT ("SENECA") IS THE SUB-ADVISER FOR THE REAL ESTATE
SECURITIES FUND. SENECA IS A MAJORITY OWNED SUBSIDIARY OF PHOENIX INVESTMENT
PARTNERS, LTD. ("PHOENIX"). PHOENIX IS A WHOLLY-OWNED SUBSIDIARY OF THE PHOENIX
COMPANIES, INC. ("PNX"). PNX IS A PUBLICLY-TRADED COMPANY LISTED ON THE NEW YORK
STOCK EXCHANGE. SENECA IS AN INVESTMENT ADVISER THAT PROVIDES INVESTMENT
MANAGEMENT SERVICES TO FOUNDATIONS, ENDOWMENTS, CORPORATIONS, MUTUAL FUNDS AND
PRIVATE CLIENTS. THE FOLLOWING PORTFOLIO MANAGERS HAVE PRIMARY RESPONSIBILITY
FOR THE DAY-TO-DAY MANAGEMENT OF THE REAL ESTATE SECURITIES FUND: GAIL P.
SENECA*, PH.D., ALBERT J. GUTIERREZ, CFA, MICHAEL P. WHITE, MBA, AND WARREN H.
GOODRICH, CFA. THE TEAM IS LED BY MR. GUTIERREZ WHO HAS ULTIMATE AUTHORITY WITH
REGARD TO SECURITIES PURCHASED OR SOLD ON BEHALF OF THE FUND.
GAIL P. SENECA FOUNDED SENECA IN 1989, AND SERVES AS MANAGING PARTNER AND CHIEF
INVESTMENT OFFICER OF THE FIRM. MS. SENECA HAS BEEN INVOLVED IN THE MANAGEMENT
OF THE REAL ESTATE SECURITIES FUND SINCE 1995. HER BACKGROUND SPANS OVER TWENTY
YEARS IN THE INVESTMENT MANAGEMENT BUSINESS, INCLUDING KEY INVESTMENT ROLES AT
WELLS FARGO AND CHASE BANK. MS. SENECA ALSO SERVES AS CHAIRMAN OF THE BOARD AND
CEO OF LUMINENT MORTGAGE CAPITAL, INC., A REAL ESTATE INVESTMENT TRUST THAT WAS
FORMED IN APRIL 2003 AND IS ADVISED BY SENECA.
ALBERT J. GUTIERREZ IS CHIEF INVESTMENT OFFICER OF FIXED INCOME FOR SENECA AND
HAS SERVED IN THAT CAPACITY SINCE APRIL 2002. PRIOR TO JOINING SENECA, MR.
GUTIERREZ HEADED PORTFOLIO MANAGEMENT, TRADING AND INVESTMENT SYSTEMS AT
AMERICAN GENERAL INVESTMENT MANAGEMENT FROM APRIL 2000 TO JANUARY 2002 AND HELD
A SIMILAR ROLE AT CONSECO CAPITAL FOR TWELVE YEARS PRIOR TO THAT ASSIGNMENT. MR.
GUTIERREZ ALSO SERVES AS PRESIDENT AND DIRECTOR OF LUMINENT MORTGAGE CAPITAL,
INC.
MICHAEL P. WHITE IS AN EQUITY ANALYST COVERING FINANCE AND INTEREST RATE
SENSITIVE COMPANIES AS WELL AS HEALTHCARE COMPANIES, AND IS A PRINCIPAL FOR
SENECA. MR. WHITE HAS SERVED AS AN EQUITY ANALYST SINCE FEBRUARY 1998.
WARREN H. GOODRICH IS A FIXED INCOME ANALYST COVERING INTEREST RATE SENSITIVE
COMPANIES, INCLUDING HOUSING AND REAL ESTATE COMPANIES, ASSET BACKED SECURITIES
AND DIVERSIFIED INDUSTRIALS. MR. GOODRICH HAS SERVED AS A FIXED INCOME ANALYST
SINCE MARCH 2001. PRIOR TO JOINING SENECA IN FEBRUARY 2001, MR. GOODRICH WAS A
RESEARCH ANALYST FOR BARCLAYS GLOBAL INVESTORS FROM OCTOBER 1999 TO FEBRUARY
2001.
Q. HOW DID THE REAL ESTATE SECURITIES FUND PERFORM COMPARED TO ITS BENCHMARK
AND LIPPER PEER GROUP FOR THE TWELVE-MONTH PERIOD ENDED DECEMBER 31, 2005?
A. For the twelve-month period ended December 31, 2005, the Real Estate
Securities Fund returned 11.78%. The DJ Wilshire Real Estate Index, the
Fund's benchmark, returned 13.83% and the Fund's Lipper peer group of 45
Real Estate funds returned an average of 12.85% for the same period.
Q. WHAT MARKET CONDITIONS IMPACTED THE FUND'S PERFORMANCE?
A. The overall economic background was generally favorable to real estate
investments. While short-term interest rates rose, long-term rates were held
in check by international demand and other technical factors. This reduced
the borrowing costs for portfolio companies, which historically take
advantage of debt financing for growth, and was a positive for their
fundamentals. Job growth and the economy grew steadily, helping fill
offices, commercial and residential properties. On the demand side, real
estate securities benefited from the low returns of equity investments. The
corporate equity market, particularly large capitalization stocks, provided
weak returns, topping off five years of anemic performance. In 2005,
investors hunted for alternatives, particularly securities which paid an
assured dividend, thus buoying the public and private ownership of real
estate securities.
- ------------------------
* MS. SENECA RESIGNED FROM THE FIRM EFFECTIVE DECEMBER 31, 2005, AND NO LONGER
SERVES AS PORTFOLIO MANAGER TO THE FUND.
1
Real Estate Securities Fund
- --------------------------------------------------------------------------------
Q&A
The REIT sector performed well over the last twelve months. Improving
fundamentals, industry consolidation, and the continuation of low interest
rates continued to benefit the sector. Uncertainty over domestic interest
rates and the shape of the yield curve caused volatility in the early and
latter parts of the year. However, most REIT indexes closed out the year
near their highs of the last twelve months. The outlook for interest rates
continues to be a major factor influencing the REIT sector. The hurricanes
had no material impact on our portfolio companies due to their relatively
low exposure to the affected areas.
Q. WHAT INVESTMENT STRATEGIES AND TECHNIQUES EMPLOYED BY THE FUND IMPACTED
PERFORMANCE, AND WHICH PARTICULAR STOCKS/SECTORS SIGNIFICANTLY CONTRIBUTED
TO FUND PERFORMANCE?
A. The Fund benefited from overweight positions in the lodging, industrial, and
retail outlet sectors during the past twelve months. These benefits were
somewhat offset by our underweight positions in the self-storage, office,
and specialty sectors. Additionally, the Fund's non-index positions
detracted from performance. General Growth Properties and Simon Property
Group were the biggest contributors to performance. Northstar Capital
Investment Corp was the biggest detractor to performance, and is not in the
benchmark. Northstar was sold in the fourth quarter.
Q. WHY DID THE FUND UNDERPERFORM ITS BENCHMARK?
A. Bottom-up security analysis and selection, sub-sector rotation, and our
positioning based on macroeconomic factors affected our annual performance.
Additionally, inclusion of non-benchmark securities affected the Fund's
return.
Q. DID THE WEIGHTINGS/COUNTRY ALLOCATION OF THE FUND CHANGE? WHY?
A. Over the last twelve months, the Fund increased its exposure to the
Office/Industrial sector. The outlook for stabilizing rents and global trade
supported this decision. The Fund reduced overweight positions in the
Lodging and Regional Mall sectors due to the weakening consumer outlook.
Additionally, the Fund decreased the exposure to the Local Retail sector due
to increased industry risk. In the second quarter, the Fund initiated a
position in the Self-Storage sector due to the continued positive outlook in
that area. In the fourth quarter, the Fund initiated positions in the Home
Building industry through both equity and bond positions.
We are positive on Self-Storage based on higher rents and increased
occupancy rates. This is due to both a healthy economy and consolidation in
the sector.
Seneca initiated positions in the home building industry based on a forward
view of moderate interest rates, strong cash flows, and reasonable
valuations.
Q. WHICH STOCKS/SECTORS HAVE PERFORMED WELL? WHICH HAVE NOT PERFORMED WELL?
A. Over the last twelve months, the Self-Storage, Industrial, and Regional Mall
sectors exhibited the strongest performance, up approximately 26%, 19%, and
16% respectively. Industry consolidation, along with strong industry
outlooks were the primary drivers. The Manufactured Housing and Home Finance
sectors underperformed the benchmark, with twelve-month returns of -3% and
1% respectively. Periodic uncertainty regarding interest rates and the
economy negatively impacted both groups.
2
Real Estate Securities Fund
- --------------------------------------------------------------------------------
Understanding Your Fund's Expenses
As a shareholder of the Fund you incur transaction and ongoing expenses.
Transaction expenses including sales charges on purchase payments, reinvested
dividends (or other distributions), and redemption fees directly reduce the
investment return of the Fund. Ongoing costs include portfolio management fees,
distribution and service fees, professional fees, administrative fees and other
Fund expenses. The following example is intended to help you understand your
ongoing costs (in dollars) of investing in the Fund and to compare these costs
with the ongoing costs of investing in other mutual funds.
To illustrate these ongoing costs, we have provided an example and calculated
the expenses paid by investors during the period. The information in the
following table is based on an investment of $1,000, which is invested at the
beginning of the period and held for the entire six-month period ended December
31, 2005.
ACTUAL EXPENSES
The first section of the table provides information about actual account values
and actual expenses. You may use the information in this section, together with
the amount you invested, to estimate the expenses that you paid over the period.
To do so, simply divide your account value by $1,000 (for example, an $8,600
account value divided by $1,000 = 8.6), then multiply the result by the number
given for your class under the heading "Expenses Paid During Period."
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The second section of the table provides information about hypothetical account
values and hypothetical expenses based on the Fund's actual expense ratio and an
assumed rate of return of 5% per year before expenses, which is not the Fund's
actual return. You may use this information to compare the ongoing costs of
investing in the Fund and other funds. To do so, compare this 5% hypothetical
example with the 5% hypothetical examples that appear in the shareholders
reports of other funds.
Please note that the expenses shown in the table do not reflect any transaction
costs, such as sales charges or redemption fees.
JULY 1, 2005 - DECEMBER 31, 2005
- ------------------------------------------------------------------------------------------------------------
ACCOUNT VALUE AT ACCOUNT VALUE EXPENSES
THE BEGINNING OF AT THE END OF PAID DURING
THE PERIOD ($) THE PERIOD ($) THE PERIOD ($)*
- ------------------------------------------------------------------------------------------------------------
Actual Fund Return** 1,000.00 1,067.03 4.66
- ------------------------------------------------------------------------------------------------------------
Hypothetical 5% Return
(2.5% for the period) 1,000.00 1,020.51 4.53
- ------------------------------------------------------------------------------------------------------------
<FN>
* EXPENSES ARE EQUAL TO THE FUND'S ANNUALIZED EXPENSE RATIO OF 0.89% (FROM
PERIOD JULY 1, 2005 - DECEMBER 31, 2005), MULTIPLIED BY THE AVERAGE ACCOUNT
VALUE OVER THE PERIOD, MULTIPLIED BY 184/365 (TO REFLECT THE SIX MONTH
PERIOD).
** ACTUAL FUND RETURN FOR SIX-MONTH PERIOD ENDED DECEMBER 31, 2005 WAS: 6.70%.
</FN>
3
Real Estate Securities Fund
- --------------------------------------------------------------------------------
CHANGE IN VALUE
OF A $10,000 INVESTMENT
- --------------------------------------------------------------------------------
[LINE GRAPH OMITTED]
Real Estate Securities Fund Wilshire RES Index
12/95 $10,000.00 $10,000.00
12/96 13,624.43 13,687.33
12/97 16,280.39 16,397.18
12/98 13,401.24 13,539.88
12/99 13,372.10 13,108.42
12/00 17,723.54 17,108.87
12/01 19,821.55 18,875.98
12/02 19,554.78 19,364.52
12/03 26,879.55 26,543.75
12/04 35,558.91 35,802.56
12/05 39,748.19 40,753.47
AVERAGE ANNUAL TOTAL RETURN
FOR THE PERIODS ENDED DECEMBER 31, 2005
- --------------------------------------------------------------------------------
ONE FIVE TEN
YEAR YEAR YEAR
- --------------------------------------------------------------------------------
Real Estate Securities Fund 11.78% 17.53% 14.80%
- --------------------------------------------------------------------------------
Wilshire RES Index 13.83% 18.96% 15.08%
- --------------------------------------------------------------------------------
Lipper peer group average* 12.85% 18.37% 14.71%
- --------------------------------------------------------------------------------
Inception date 5/1/95
- --------------------------------------------------------------------------------
INVESTMENT PROFILE
A fund designed for investors who seek maximum total return through current
income and capital appreciation by investing at least 80% of its net assets in
equity securities and debt securities of U.S. issuers that are principally
engaged in or related to the real estate industry, including those that own
significant real estate assets, under normal market conditions.
TOP TEN LARGEST HOLDINGS
AS OF DECEMBER 31, 2005
as a % of Market Value
- --------------------------------------------------------------------------------
Simon Property Group, Inc. 7.48%
- --------------------------------------------------------------------------------
Prologis 6.04%
- --------------------------------------------------------------------------------
General Growth Properties, Inc. 5.78%
- --------------------------------------------------------------------------------
Archstone-Smith Trust 5.30%
- --------------------------------------------------------------------------------
Boston Properties, Inc. 4.57%
- --------------------------------------------------------------------------------
Vornado Realty Trust 4.49%
- --------------------------------------------------------------------------------
Equity Office Properties Trust 4.44%
- --------------------------------------------------------------------------------
AMB Property Corp. 4.38%
- --------------------------------------------------------------------------------
Starwood Hotels & Resorts Worldwide Inc. (Class B) 4.18%
- --------------------------------------------------------------------------------
AvalonBay Communities, Inc. 4.17%
- --------------------------------------------------------------------------------
PORTFOLIO COMPOSITION
AS OF DECEMBER 31, 2005
as a % of Market Value
- --------------------------------------------------------------------------------
Market Value of $142,874 (in thousands)
[PIE GRAPH OMITTED]
Consumer Cyclical 2.7%
Self Storage 2.9%
Consumer Non-Cyclical 3.8%
Diversified 4.5%
Home Building 4.9%
Hotel 7.1%
Shopping Center 12.0%
Apartment 16.5%
Regional Mall 17.2%
Office/Industrial 24.6%
Short Term 1.9%
Mortgage 1.9%
* LIPPER PERFORMANCE COMPARISONS ARE BASED ON AVERAGE ANNUAL TOTAL RETURNS FOR
THE ONE YEAR, FIVE-YEAR, AND TEN-YEAR PERIODS INDICATED IN THE REAL ESTATE
PEER GROUP CONSISTING OF 45, 24 AND 6 UNDERLYING ANNUITY FUNDS, RESPECTIVELY.
SEE NOTES TO PERFORMANCE ON PAGE 6 FOR FURTHER INFORMATION, INCLUDING AN
EXPLANATION OF LIPPER PEER CATEGORIES.
PAST PERFORMANCE DOES NOT PREDICT FUTURE PERFORMANCE AND THE GRAPH AND TABLE
DO NOT REFLECT THE DEDUCTION OF TAXES.
4
REAL ESTATE SECURITIES FUND
Schedule of Investments December 31, 2005
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
REAL ESTATE SECURITIES FUND
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NUMBER
OF SHARES VALUE
- --------------------------------------------------------------------------------
COMMON STOCK (REIT) -- 86.1%
- --------------------------------------------------------------------------------
APARTMENT -- 16.4%
Archstone-Smith Trust................... 180,707 $ 7,569,816
AvalonBay Communities, Inc.............. 66,780 5,960,115
Camden Property Trust................... 26,950 1,560,944
Equity Residential...................... 129,180 5,053,522
Essex Property Trust, Inc............... 36,670 3,380,974
23,525,371
DIVERSIFIED -- 4.4%
Vornado Realty Trust.................... 76,860 6,415,504
HOTEL -- 7.1%
Host Marriott Corp...................... 220,050 4,169,947
Starwood Hotels & Resorts
Worldwide Inc. (Class B)............. 93,610 5,977,935
10,147,882
MORTGAGE -- 1.9%
Deerfield Triarc Capital Corp........... 200,650 2,748,905
OFFICE/INDUSTRIAL -- 24.4%
AMB Property Corp....................... 127,350 6,261,800
Arden Realty, Inc....................... 97,840 4,386,167
Boston Properties, Inc.................. 88,020 6,524,923
Equity Office Properties Trust.......... 209,190 6,344,733
Prologis................................ 184,860 8,636,659
SL Green Realty Corp.................... 39,380 3,008,238
35,162,520
REGIONAL MALL -- 17.1%
General Growth Properties, Inc.......... 175,690 8,255,673
Macerich Co............................. 62,210 4,176,779
Simon Property Group, Inc............... 139,520 10,691,418
Taubman Centers, Inc.................... 42,010 1,459,848
24,583,718
SELF STORAGE -- 2.8%
Public Storage, Inc..................... 60,490 4,096,383
SHOPPING CENTER -- 12.0%
Federal Realty Investment Trust......... 69,700 4,227,305
Kimco Realty Corp....................... 149,300 4,789,544
Regency Centers Corp.................... 63,740 3,757,473
Tanger Factory Outlet Centers........... 154,080 4,428,259
17,202,581
TOTAL COMMON STOCK (REIT)
(COST $98,890,637)................... 123,882,864
- --------------------------------------------------------------------------------
NUMBER
OF SHARES VALUE
- --------------------------------------------------------------------------------
COMMON STOCK -- 8.7%
- --------------------------------------------------------------------------------
CONSUMER NON-CYCLICAL -- 3.8%
B&G Foods, Inc.......................... 373,120 $ 5,417,702
HOME BUILDING-- 4.9%
D.R. Horton, Inc........................ 39,100 1,397,043
Lennar Corp. (Class A).................. 23,400 1,427,868
Ryland Group, Inc....................... 19,430 1,401,486
Technical Olympic USA, Inc.............. 69,370 1,463,013
Toll Brothers, Inc...................... 39,270 1,360,313 (a)
7,049,723
TOTAL COMMON STOCK
(COST $12,952,650)................... 12,467,425
PRINCIPAL
AMOUNT
- --------------------------------------------------------------------------------
CORPORATE BONDS -- 2.7%
- --------------------------------------------------------------------------------
CONSUMER CYCLICAL -- 2.7%
Meritage Homes Corp.
6.25% 03/15/15.................... $2,000,000 1,820,000
Technical Olympic USA, Inc.
9.00% 07/01/10.................... 2,000,000 2,022,500
TOTAL CORPORATE BONDS
(COST $3,808,798).................... 3,842,500
TOTAL INVESTMENTS IN SECURITIES
(COST $115,652,085).................. 140,192,789
NUMBER
OF SHARES
- --------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS -- 1.9%
- --------------------------------------------------------------------------------
GEI Short Term Investment Fund
4.42%
(COST $2,681,266).................... 2,681,266 2,681,266(b,c)
TOTAL INVESTMENTS
(COST $118,333,351).................. 142,874,055
OTHER ASSETS AND LIABILITIES,
NET-- 0.6%........................... 926,865
------------
NET ASSETS-- 100.0% .................... $143,800,920
============
See Notes to Schedule of Investments on page 6 and Notes to Financial
Statements.
5
Notes to Performance December 31, 2005 (unaudited)
- --------------------------------------------------------------------------------
Total returns take into account changes in share price and assume reinvestment
of dividends and capital gains distributions, 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.
Current performance may be lower or higher than that shown. You may call
toll-free (800) 242-0134 for performance information as of the most recent month
end.
Total returns do not reflect expenses associated with the separate account such
as administrative fees, account charges and surrender charges, which, if
reflected, would reduce the total returns for all periods shown.
Shares of the Fund are neither insured nor guaranteed by the U.S. Government,
and their prices will fluctuate with market conditions.
The Wilshire Real Estate Securities Index (Wilshire RES) is an unmanaged index
and do not reflect the actual cost of investing in the instruments that comprise
the index. The Wilshire RES Index is a market capitalization-weighted index
comprised of publicly traded real estate securities, such as real estate
investment trusts (REITs) and real estate operating companies (REOCs). The
results shown for the foregoing index 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 blend of Lipper peer categories, as shown. Lipper is
an independent mutual fund rating service. A Fund's performance may be compared
to or ranked within a universe of mutual funds with investment objectives and
policies similar but not necessarily identical to the Fund's. Such comparisons
or rankings are made on the basis of several factors, including the Fund's
objectives and policies, management style and strategy, and portfolio
composition, and may change over time if any of those factors change. Lipper is
an independent mutual fund rating service.
Notes to Schedule of Investments
- --------------------------------------------------------------------------------
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 current or 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.
(a) Non-income producing security.
(b) Coupon amount represents effective yield.
(c) GEAM, the investment adviser of the Fund, also serves as investment adviser
of the GEI Short Term Investment Fund.
+ Percentages are based on net assets as of December 31, 2005.
Abbreviations:
REIT Real Estate Investment Trust
6
Financial Highlights
Selected data based on a share outstanding throughout the periods indicated
- --------------------------------------------------------------------------------
REAL ESTATE SECURITIES FUND
12/31/05 12/31/04 12/31/03 12/31/02 12/31/01
- --------------------------------------------------------------------------------------------------------------------------------
INCEPTION DATE -- -- -- -- 5/1/95
Net asset value, beginning of period ....................... $19.54 $16.78 $13.14 $14.78 $13.82
INCOME/(LOSS) FROM INVESTMENT OPERATIONS:
Net investment income ................................... 0.70 0.65 0.50 0.80 0.64
Net realized and unrealized
gains/(losses) on investments ......................... 1.62 4.76 4.42 (1.01) 1.00
- --------------------------------------------------------------------------------------------------------------------------------
TOTAL INCOME/(LOSS) FROM INVESTMENT OPERATIONS ............. 2.32 5.41 4.92 (0.21) 1.64
- --------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM:
Net investment income ................................... 0.75 0.52 0.41 0.66 0.53
Net realized gains ...................................... 1.91 2.13 0.87 0.77 0.15
- --------------------------------------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS ........................................ 2.66 2.65 1.28 1.43 0.68
- --------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD ............................. $19.20 $19.54 $16.78 $13.14 $14.78
================================================================================================================================
TOTAL RETURN (A) ........................................... 11.78% 32.29% 37.38% (1.35)% 11.84%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in thousands) ................ $143,801 $146,221 $98,294 $70,164 $87,306
Ratios to average net assets:
Net investment income ................................ 3.21% 4.15% 4.65% 4.81% 5.05%
Expenses ............................................. 0.89% 0.90% 0.89% 0.89% 0.90%
Portfolio turnover rate ................................. 52% 78% 52% 90% 49%
NOTES TO FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(a) Total returns are historical and assume changes in share price and
reinvestment of dividends and capital gains and do not include the effect
of insurance contract charges.
See Notes to Financial Statements.
7
REAL ESATE
Statement of Assets SECURITIES
and Liabilities DECEMBER 31, 2005 FUND
- ----------------------------------------------------------------------------------------------------
ASSETS
Investments in securities, at market (cost $115,652,085) ..................... $140,192,789
Short-term affiliated investments (at amortized cost) ........................ 2,681,266
Income receivables ........................................................... 925,924
Receivable for fund shares sold .............................................. 111,965
- ----------------------------------------------------------------------------------------------------
TOTAL ASSETS ............................................................. 143,911,944
- ----------------------------------------------------------------------------------------------------
LIABILITIES
Payable for fund shares redeemed ............................................. 256
Payable to GEAM .............................................................. 110,768
- ----------------------------------------------------------------------------------------------------
TOTAL LIABILITIES ........................................................ 111,024
- ----------------------------------------------------------------------------------------------------
NET ASSETS ...................................................................... $143,800,920
====================================================================================================
NET ASSETS CONSIST OF:
Capital paid in .............................................................. 114,641,552
Undistributed (distribution in excess of) net investment income .............. 109,263
Accumulated net realized gain ................................................ 4,509,401
Net unrealized appreciation on:
Investments .............................................................. 24,540,704
- ----------------------------------------------------------------------------------------------------
NET ASSETS ...................................................................... $143,800,920
====================================================================================================
Shares outstanding ($0.01 par value; unlimited shares authorized) ............... 7,489,384
Net asset value per share ....................................................... $19.20
See Notes to Financial Statements.
8
REAL ESATE
Statement of Operations SECURITIES
FOR THE YEAR ENDED DECEMBER 31, 2005 FUND
- ------------------------------------------------------------------------------------------------------
INVESTMENT INCOME
INCOME:
Dividend .................................................................... $ 5,728,129
Interest .................................................................... 30,296
Interest from affliated investments ......................................... 80,695
- ------------------------------------------------------------------------------------------------------
TOTAL INCOME .................................................................. 5,839,120
- ------------------------------------------------------------------------------------------------------
EXPENSES:
Advisory and administrative fees ............................................ 1,192,699
Custody and accounting expenses ............................................. 27,897
Professional fees ........................................................... 23,203
Transfer agent .............................................................. 172
Director's fees ............................................................. 3,842
Registration expenses ....................................................... 1,063
Other expenses .............................................................. 19,673
- ------------------------------------------------------------------------------------------------------
TOTAL EXPENSES ................................................................ 1,268,549
- ------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME ......................................................... 4,570,571
======================================================================================================
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS
REALIZED GAIN ON:
Investments .............................................................. 14,590,401
DECREASE IN UNREALIZED APPRECIATION/(DEPRECIATION) ON:
Investments .............................................................. (3,889,363)
- ------------------------------------------------------------------------------------------------------
Net realized and unrealized gain on investments ............................. 10,701,038
- ------------------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS .......................... $15,271,609
======================================================================================================
See Notes to Financial Statements.
9
REAL ESTATE
Statements of SECURITIES
Changes in Net Assets FUND
- ---------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
2005 2004
- ---------------------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net investment income ............................................................. $ 4,570,571 $ 3,152,526
Net realized gain on investments .................................................. 14,590,401 15,297,682
Net increase (decrease) in unrealized appreciation/(depreciation) on investments .. (3,889,363) 14,766,874
- ---------------------------------------------------------------------------------------------------------------------------------
Net increase from operations ...................................................... 15,271,609 33,217,082
- ---------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income ............................................................. (4,983,011) (3,391,797)
Net realized gains ................................................................ (12,622,830) (14,020,602)
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS ................................................................. (17,605,841) (17,412,399)
- ---------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets from operations and distributions ................. (2,334,232) 15,804,683
- ---------------------------------------------------------------------------------------------------------------------------------
SHARE TRANSACTIONS:
Proceeds from sale of shares ...................................................... 13,870,109 29,780,694
Value of distributions reinvested ................................................. 17,605,807 17,412,393
Cost of shares redeemed ........................................................... (31,561,870) (15,070,866)
- ---------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) from share transactions ................................... (85,954) 32,122,221
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL INCREASE (DECREASE) IN NET ASSETS ............................................. (2,420,186) 47,926,904
NET ASSETS
Beginning of period ................................................................. 146,221,106 98,294,202
- ---------------------------------------------------------------------------------------------------------------------------------
End of period ....................................................................... $143,800,920 $146,221,106
=================================================================================================================================
UNDISTRIBUTED (DISTRIBUTION IN EXCESS OF) NET INVESTMENT INCOME, END OF PERIOD ......... $ 109,263 $ 226,740
- ---------------------------------------------------------------------------------------------------------------------------------
CHANGES IN PORTFOLIO SHARES
Shares sold ....................................................................... 692,127 1,604,663
Issued for distributions reinvested ............................................... 910,802 894,319
Shares redeemed ................................................................... (1,596,846) (874,623)
- ---------------------------------------------------------------------------------------------------------------------------------
Net increase in fund shares ............................................................ 6,083 1,624,359
=================================================================================================================================
See Notes to Financial Statements.
10
Notes to Financial Statements December 31, 2005
- --------------------------------------------------------------------------------
1. ORGANIZATION OF THE COMPANY
GE Investments Funds, Inc. (the "Company") was incorporated under the laws of
the Commonwealth of Virginia on May 14, 1984 and is registered under the
Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end
management investment company. The Company is composed of thirteen investment
portfolios (collectively the "Funds"), although only the following eleven are
currently being offered: U.S. Equity Fund, S&P 500 Index Fund, Premier Growth
Equity Fund, Value Equity Fund, Mid-Cap Equity Fund, Small-Cap Equity Fund
(formerly known as Small-Cap Value Equity Fund, prior to January 3, 2006),
International Equity Fund, Total Return Fund, Income Fund, Money Market Fund and
Real Estate Securities Fund (the "Fund").
Shares of the Funds 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 Asset Management Incorporated ("GEAM"), the
investment adviser and administrator of each of the Funds.
As of December 31, 2005, GE Life and Annuity Assurance Company ("GE Life") and
General Electric Capital Assurance Company, each an affiliated insurance
company, controlled the Funds by ownership, through separate accounts, of
virtually all of the Funds' shares of beneficial interest.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions at the date of the financial statements. Actual
results may differ from those estimates.
The following summarizes the significant accounting policies of the Company:
SECURITY VALUATION AND TRANSACTIONS Securities for which exchange quotations are
readily available are valued at the last sale price, or if no sales occurred on
that day, at the last quoted bid price. Securities listed on the NASDAQ will be
valued at the NASDAQ's official close price. Certain fixed income securities are
valued by a dealer or by a pricing service based upon a matrix system, which
considers market transactions as well as dealer supplied valuations. Short-term
investments maturing within sixty days are valued at amortized cost. If
quotations are not readily available for a portfolio security, or if it is
believed that a quotation or other market price for a portfolio security does
not represent its fair value, the security may be valued using procedures
approved by the Fund's Board of Directors that are designed to establish its
"fair value." These procedures require that the fair value of a security be
established by the valuation committee. The fair value committee follows
different protocols for different types of investments and circumstances.
Foreign securities may be valued with the assistance of an independent fair
value pricing service in circumstances where it is believed that they have been
or would be materially affected by events occurring after the close of the
portfolio security's primary market and before the close of regular trading on
the NYSE. This independent fair value pricing service uses a computerized system
to appraise affected securities and portfolios taking into consideration various
factors and the fair value of such securities may be something other than the
last available quotation or other market price. GE Asset Management may also
separately monitor portfolio securities and, consistent with the Fund's fair
value procedures, apply a different value to a portfolio security than would be
applied had it been priced using market quotations or by an independent fair
value pricing service.
Determining the fair value of securities involves the application of both
subjective and objective considerations. Security values may differ depending on
the methodology used to determine their values, and may differ from the last
quoted sale or closing price. No assurance can be given that use of these fair
value procedures will always better represent the price at which a Fund could
sell the affected portfolio security.
Security transactions are accounted for as of the trade date. Realized gains and
losses on investments sold are recorded on the basis of identified cost for both
financial statement and federal tax purposes.
REPURCHASE AGREEMENTS The Fund may enter into repurchase agreements. The Fund's
or a third party custodian takes possession of the collateral pledged for
investments in repurchase agreements on behalf of the Fund. The Fund values the
underlying collateral daily on a mark-to-market basis to determine that the
value, including accrued interest, is at least equal to 102% of the
11
Notes to Financial Statements December 31, 2005
- --------------------------------------------------------------------------------
repurchase price. In the event the seller defaults and the value of the security
declines, or if the seller enters an insolvency proceeding, realization of the
collateral by the Fund may be delayed or limited.
SECURITY LENDING The Fund may loan securities to brokers, dealers, and financial
institutions determined by GEAM to be creditworthy, subject to certain
limitations. The Fund continues to receive the interest and dividends on the
loaned securities during the term of the loan. The loans of securities are
secured by collateral in the form of cash or other liquid assets, which are
segregated and maintained with the custodian in an amount at least equal to 102%
of the current market value of the loaned securities. During the term of the
loan, the Fund will record any gain or loss in the market value of its loaned
securities and of securities in which cash collateral is invested. The Fund will
also earn interest, net of any rebate, from securities in which cash collateral
is invested. In the event the counterparty (borrower) does not meet its
contracted obligation to return the securities, the Fund may be exposed to the
risk of loss of reacquiring the loaned securities at prevailing market prices
using the proceeds of the sale of the collateral.
FOREIGN CURRENCY Accounting records of the Fund are maintained in U.S. dollars.
Investment securities and other assets and liabilities denominated in a foreign
currency are translated into U.S. dollars at the prevailing rates of exchange at
period end. Purchases and sales of securities, income receipts and expense
payments denominated in foreign currencies are translated into U.S. dollars at
the prevailing exchange rate on the respective dates of such transactions.
The Fund does not isolate the portion of the results of operations resulting
from changes in foreign exchange rates from the fluctuations arising from
changes in the market prices of securities during the period. Such fluctuations
are included in the net realized or unrealized gain or loss from investments.
Net realized gains or losses on foreign currency transactions represent net
gains or losses on sales and maturities of foreign currency contracts,
disposition of foreign currencies, the difference between the amount of net
investment income and withholding taxes accrued and the U.S. dollar amount
actually received or paid, and gains or losses between the trade and settlement
date on purchases and sales of securities. Net unrealized foreign exchange gains
and losses arising from changes in the value of other assets and liabilities as
a result of changes in foreign exchange rates are included as increases or
decreases in unrealized appreciation/depreciation on foreign currency related
transactions.
FUTURES CONTRACTS The Fund may invest in interest rate, financial or stock or
bond index futures contracts subject to certain limitations. The Fund may invest
in futures contracts to manage its exposure to the stock and bond markets and
fluctuations in currency values. Buying futures tends to increase the Fund's
exposure to the underlying instrument while selling futures tends to decrease
the Fund's exposure to the underlying instrument, or hedge other Fund
investments. The Fund will not enter into a transaction involving futures for
speculative purposes. The Fund's risks in using these contracts include changes
in the value of the underlying instruments, non-performance of the
counterparties under the contracts' terms and changes in the liquidity of the
secondary market for the contracts. Futures contracts are valued at the
settlement price established each day by the board of trade or exchange on which
they principally trade.
Upon entering into a futures contract, the Fund is required to pledge to the
broker an amount of cash and/or other assets equal to a certain percentage of
the contract amount, known as initial margin deposit. Subsequent payments, known
as variation margin, are made or received by the Fund each day, depending on the
daily fluctuation in the fair value of the underlying security. The Fund records
an unrealized gain or loss equal to the daily variation margin. Should market
conditions move unexpectedly, the Fund may not achieve the anticipated benefits
of the futures contracts and may incur a loss. The Fund recognizes a realized
gain or loss on the expiration or closing of a futures contract.
OPTIONS The Fund may purchase and write options, subject to certain limitations.
The Fund may invest in options contracts to manage its exposure to the stock and
bond markets and fluctuations in foreign currency values. Writing puts and
buying calls tend to increase the Fund's exposure to the underlying instrument
while buying puts and writing calls tend to decrease the Fund's exposure to the
underlying instrument, or hedge other Fund investments. The Fund will not enter
into a transaction involving options for speculative purposes. The Fund's risks
in using these contracts include changes in the value of the underlying
instruments, non-performance of the counterparties under the contracts' terms
and changes in
12
Notes to Financial Statements December 31, 2005
- --------------------------------------------------------------------------------
the liquidity of the secondary market for the contracts. Options are valued at
the last sale price, or if no sales occurred on that day, at the last quoted bid
price.
When the Fund writes an option, the amount of the premium received is recorded
as a liability and is subsequently adjusted to the current fair value of the
option written. Premiums received from writing options that expire unexercised
are treated by the Fund on the expiration date as realized gains from
investments. The difference between the premium and the amount paid on effecting
a closing purchase transaction, including brokerage commissions, is also treated
as a realized gain, or if the premium is less than the amount paid for the
closing purchase, as a realized loss. When an option is exercised, the proceeds
from the sale of the underlying security or the cost basis of the securities
purchased is adjusted by the original premium received or paid.
REAL ESTATE INVESTMENT TRUSTS Dividend income, attributable to real estate
investment trusts ("REITs"), is recorded based on management's estimate of the
income included in the distributions received. Distributions received in excess
of this amount are recorded as a reduction of the cost of the investments. The
actual amounts of income and return of capital are determined by each REIT only
after its fiscal year-end, and may differ from the estimated amounts.
INVESTMENTS IN FOREIGN MARKETS Investments in foreign markets may involve
special risks and considerations not typically associated with investing in the
United States. These risks include revaluation of currencies, high rates of
inflation, repatriation on income and capital, and adverse political and
economic developments. Moreover, securities issued in these markets may be less
liquid, subject to government ownership controls, tariffs and taxes, subject to
delays in settlements, and their prices may be more volatile.
The Fund may be subject to capital gains and repatriation taxes imposed by
certain countries in which it invests. Such taxes are generally based on income
and/or capital gains earned or repatriated. Taxes are accrued based upon net
investment income, net realized gains and net unrealized appreciation as income
and/or capital gains are earned.
INCOME TAXES The Fund intends to comply with all sections of the Internal
Revenue Code applicable to regulated investment companies including the
distribution of substantially all of its taxable net investment income and net
realized capital gains to its shareholders. Therefore, no provision for federal
income tax has been made. The Fund is treated as a separate taxpayer for federal
income tax purposes.
At December 31, 2005, information on the tax components of capital is as
follows:
Cost of Gross Tax Gross Tax Net Tax Appreciation/
Investments for Unrealized Unrealized (Depreciation)
Tax Purposes Appreciation Depreciation on Investments
- ------------------------------------------------------------------------------------------------------------------------------------
$118,334,101 $25,717,338 $(1,177,384) $24,539,954
Net Tax Appreciation/ Undistributed Undistributed Post
(Depreciation) on Income/ Long-Term Gains/ October
Derivatives, Currency (Accumulated (Accumulated Losses
and Other Net Assets Ordinary Loss) Capital Loss) (see Detail Below)
- ------------------------------------------------------------------------------------------------------------------------------------
$-- $109,263 $4,510,151 $--
As of December 31, 2005, the Fund has no capital loss carryovers.
Any net capital and currency losses incurred after October 31, within the Fund's
tax year, are deemed to arise on the first day of the Fund's next tax year if
the Fund so elects to defer such losses.
The Fund has no losses incurred after October 31, 2005.
The tax composition of distributions paid (other than return of capital
distributions for the year) during the year ended December 31, 2005 was as
follows:
Ordinary Long-Term
Income Capital Gains Total
- --------------------------------------------------------------------------------
$6,858,021 $10,747,820 $17,605,841
13
Notes to Financial Statements December 31, 2005
- --------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS The Fund declares and pays dividends from net
investment income annually. The Fund declares and pays net realized capital
gains in excess of capital loss carryforwards 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 (but are not limited to) distributions
from Real Estate Investment Trusts (REITS), and losses deferred due to wash sale
transactions. Reclassifications due to permanent book/tax differences are made
to the Fund's capital accounts to reflect income and gains available for
distribution (or available capital loss carryovers) under income tax
regulations. These reclassifications have no impact on net investment income,
realized gains or losses, or the net asset value of the Fund. The calculation of
net investment income per share in the Financial Highlights table excludes these
adjustments.
The reclassifications for the year ended December 31, 2005 were as follows:
Undistributed
(Distribution
in Excess of)
Net Investment Accumulated Paid in
Income Net Realized Gain Capital
- --------------------------------------------------------------------------------
$294,963 $(294,963) $--
INVESTMENT INCOME Corporate actions (including cash dividends) are recorded on
the ex-dividend date, net of applicable withholding taxes, except for certain
foreign corporate actions, which are recorded as soon after ex-dividend date as
such information becomes available. Interest income is recorded on the accrual
basis. All discounts and premiums on bonds are accreted to call or maturity
date, whichever is shorter, using the effective yield method.
EXPENSES Expenses of the Company which are directly identifiable to one of the
Funds are allocated to that portfolio. Expenses which are not directly
identifiable to one of the Funds are allocated in such a manner as deemed
equitable, taking into consideration the nature and type of expenses and
relative sizes of the Funds. All expenses of the Fund are paid by GEAM and
reimbursed by the Fund.
3. LINE OF CREDIT
The Fund shares a revolving credit facility of up to $25 million with a number
of its affiliates. The credit facility is with its custodian bank, State Street
Bank and Trust Company. The revolving credit facility requires the payment of a
commitment fee equal to 0.09% per annum on the daily unused portion of the
credit facility, payable quarterly. The portion borne by the Funds generally is
borne proportionally based upon net assets. Generally, borrowings under the
credit facility would accrue interest at the Federal Funds Rate plus 50 basis
points and is borne by each of the borrowing Funds. The maximum amount allowed
to be borrowed by any one of the Funds is the lesser of its prospectus
limitation, 20% of its net assets, or $25 million. The credit facility was not
utilized by the Fund during the period ended December 31, 2005.
4. AMOUNTS PAID TO AFFILIATES
ADVISORY AND ADMINISTRATION FEES GEAM, 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 Fund. Compensation of GEAM for
investment advisory and administrative services is paid monthly based on the
average daily net assets of the Fund. The advisory and administrative fee is
stated in the following schedule:
Annualized based on
average daily net assets
- --------------------------------------------------------------------------------
Average Daily Advisory and
Net Assets Administration
of Fund Fees
- --------------------------------------------------------------------------------
First $100 million .85%
Next $100 million .80%
Over $200 million .75%
GENPACT (formerly General Electric Capital International Services*) performs
certain accounting and certain administration services not provided by GEAM. For
the year ending December 31, 2005, $1,726 was charged to the Fund.
Administrative services not performed by GEAM or GENPACT were provided by an
unaffiliated service provider.
* AS OF SEPTEMBER 28, 2005, THE NAME WAS CHANGED FROM GENERAL ELECTRIC CAPITAL
INTERNATIONAL SERVICES TO GENPACT.
14
Notes to Financial Statements December 31, 2005
- --------------------------------------------------------------------------------
DIRECTORS' COMPENSATION The Fund pays no compensation to its directors who are
officers or employees of GEAM or its affiliates. Directors who are not such
officers or employees also serve in a similar capacity for other funds advised
by GEAM. Compensation paid to unaffiliated directors are reflected on the
Statement of Operations. These fees are allocated pro rata across all of the
mutual fund platforms and share classes served by the directors, including the
Fund, and are based upon the relative net assets of each fund within such
platforms. (For additional information about directors compensation please refer
to the Statement of Additional Information.)
5. SUB-ADVISORY FEES
Pursuant to an investment sub-advisory agreement with GEAM, Seneca Capital
Management, L.L.C. ("Seneca") is the Sub-Adviser to the Real Estate Securities
Fund. Seneca is responsible for the day-to-day portfolio management of the
assets of the Fund, including the responsibility for making decisions to buy,
sell or hold a particular security, under the general supervision of GEAM and
the Board.
For their services, GEAM pays Seneca monthly sub-advisory fees which are
calculated as a percentage of the average daily net assets of the Fund.
6. INVESTMENT TRANSACTIONS
PURCHASES AND SALES OF SECURITIES The cost of purchases and the proceeds from
sales of investments, other than short-term securities and options, for the
period ended December 31, 2005 were as follows:
Purchases Sales
- --------------------------------------------------------------------------------
$ 72,921,897 $ 81,695,820
15
Report of Independent Registered Public Accounting Firm
- --------------------------------------------------------------------------------
The Shareholders and Board of Directors
GE Investments Funds, Inc.
We have audited the accompanying statement of assets and liabilities of the Real
Estate Securities Fund, a series of GE Investments Funds, Inc., including the
schedule of investments, as of December 31, 2005, and the related statement of
operations for the year then ended, the statements of changes in net assets for
each of the years in the two-year period then ended, and the financial
highlights for each of the years in the five-year period then ended. These
financial statements and financial highlights are the responsibility of the
Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included confirmation of
securities owned as of December 31, 2005 by correspondence with the custodians
and brokers, or by other appropriate auditing procedures where replies from
brokers were not received. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
Real Estate Securities Fund as of December 31, 2005, and the results of its
operations, the changes in its net assets and the financial highlights for each
of the years described above, in conformity with U.S. generally accepted
accounting principles.
/S/KPMG LLP
Boston, Massachusetts
February 17, 2006
16
Tax Information (unaudited)
- --------------------------------------------------------------------------------
During the calendar year ended December 31, 2005, the Fund paid to shareholders
$1.62381 per share of long-term capital gain dividends.
17
Advisory and Administrative Agreement Renewal (unaudited)
- --------------------------------------------------------------------------------
The Fund Board, including the independent Board members, considered and
unanimously approved the continuance of the Fund's investment advisory and
sub-advisory agreements with GE Asset Management Incorporated ("GEAM") and the
Fund's sub-adviser at meetings held on December 9 and December 16, 2005.
In considering whether to approve the Fund's investment advisory and
sub-advisory agreements, the Board members, including the independent members,
considered and discussed a substantial amount of information and analysis
provided, at the Board's request, by GEAM and the sub-adviser. The Board members
also considered detailed information regarding performance and expenses of other
investment companies with similar investment objectives and sizes, which was
prepared by an independent third party provider, Lipper Inc. ("Lipper"). Before
approving the Fund's advisory and sub-advisory agreements, the Board members
reviewed the proposed continuance of the agreements with management of GEAM and
with independent legal counsel. The Board members also reviewed a memorandum
prepared by independent legal counsel discussing the legal standards for the
consideration of the proposed continuances. The independent Board members
discussed the proposed continuances in a private session with their independent
legal counsel at which no representatives of GEAM or the sub-adviser were
present.
In advance of the meeting, and in response to their request, the Board members
received from GEAM written responses to their inquiries, which included
substantial exhibits and other materials related to GEAM's business and the
services it provides to the Fund. The Board members took into account their
multi-year experience as Board members and particularly their consideration of
these agreements in 2004, noting that the information was presented in a similar
manner and format. To focus their review, the Board members asked GEAM
management, in its oral presentation, to highlight material differences from the
information presented in 2004. Also in advance of the meeting, the Board members
received from the sub-adviser a written response to a letter of inquiry prepared
by GEAM at the Board's request, which included substantial exhibits and other
materials related to the business of, and services provided by the sub-adviser.
During the meeting, the Board members had an opportunity to discuss this
information with GEAM managers, including senior executives, representatives
from the legal and compliance departments, and senior investment personnel. The
Board members also had an opportunity to hear presentations by representatives
of the sub-adviser. The Board members posed questions to these representatives
and engaged in substantive discussions with them concerning the sub-adviser's
investment process.
In reaching their determinations relating to continuance of the agreements, the
Board members considered all factors they believed relevant, including the
factors discussed below. In their deliberations, the Board members did not
identify any particular information that was all-important or controlling, and
each Board member attributed different weights to the various factors. In
particular, the Board members focused on the following:
THE NATURE, EXTENT AND QUALITY OF SERVICES PROVIDED.
The Board members reviewed the services provided by GEAM and the sub-adviser,
and the Board members, including the independent members, concurred that GEAM
and the sub-adviser provide high quality advisory and administrative services to
the Fund.
In connection with their consideration of GEAM's services specifically, the
Board members focused on the favorable attributes of GEAM, including (i) an
investment philosophy oriented toward long-term performance; (ii) effective
processes used in overseeing the sub-adviser's activities and with respect to
Fund administration, controllership and compliance activities; (iii) highly
skilled professionals with a depth of experience; (iv) access to significant
technological resources from which the Fund may benefit; and (v) a favorable
history and reputation. The Board members discussed with senior officers of GEAM
the personnel changes made, and proposed to be made, by GEAM, and that GEAM
would be expending significant sums to enhance services, including improvements
to its information technology capabilities. The Board members noted that the
Fund represents only a small portion of the assets managed by GEAM, but benefits
from a full array of services and resources provided by GEAM.
In connection with their consideration of the services provided by the
sub-adviser, the Board members noted that at a future date GEAM intended to
recommend a replacement for the Fund's sub-adviser, Seneca Capital Management
LLC ("Seneca"), as a consequence of certain
18
Advisory and Administrative Agreement Renewal (unaudited)
- --------------------------------------------------------------------------------
changes occurring with respect to its business leadership. Specifically, it was
announced that Ms. Gail Seneca, Managing Partner and Chief Investment Officer of
Seneca, would be leaving her firm effective at the end of 2005. Because Ms.
Seneca was responsible for positioning the real estate securities investment
strategy utilized by the Fund as a core aspect of Seneca's investment management
business, her impending departure raised questions about the continued emphasis
of this strategy in Seneca's future business plans. As a result, GEAM gave
consideration to replacing Seneca, and informed the Board that it would take
appropriate action to identify a suitable replacement. GEAM recommended to the
Board that it should consider approving the continuation of Seneca's
sub-advisory agreement until such time as a replacement for Seneca has been
identified and approved. With that in mind, the Board members focused on the
sub-adviser's favorable attributes relating to its investment philosophy and
discipline, its high caliber investment and trading personnel, its systems and
other resources, including research capabilities, and its favorable history and
reputation.
In light of the foregoing, the Board members, including the independent members,
concluded that the services provided by GEAM and the sub-adviser were of a high
quality and had benefited the Fund.
INVESTMENT PERFORMANCE OF THE FUND.
The Board members considered the investment performance of the Fund for various
periods. The Board members reviewed detailed comparisons of the performance of
the Fund with the relevant securities indexes and peer groupings of mutual funds
prepared by Lipper with respect to various periods. The Board members also
engaged in detailed discussions with GEAM management and representatives of the
sub-adviser about the investment process, focusing on the Fund's investment
objective, the number and experience of portfolio management and supporting
research personnel, the investment style and approach employed, the likely
market cycles for the investment style, and the relative underperformance of the
Fund in certain periods in light of the sub-adviser's commitment to long-term
satisfactory performance with respect to the Fund's investment objective and
investment approach. The Board members, including the independent members,
concluded that the Funds' performance was acceptable over the relevant periods,
particularly from a longer-term perspective, which the Board members believed
was most relevant.
COST OF THE SERVICES TO BE PROVIDED AND PROFITS TO BE REALIZED FROM THE
RELATIONSHIP WITH THE FUND.
The Board members considered the cost of the services provided by GEAM and the
sub-adviser. The Board members reviewed the information they had requested from
GEAM and the sub-adviser concerning their profitability from the fees and
services they provide to the Fund and the financial condition of GEAM and the
sub-adviser for various past periods. The Board members considered the profit
margin information for GEAM's investment company business as a whole, as well as
GEAM's profitability data for the Fund. The Board members reviewed GEAM's
assumptions and the methods of cost allocation used by GEAM in preparing
Fund-specific profitability data. The Board members also discussed with GEAM the
basis for its belief that the methods of allocation used were reasonable and
consistent across its business. The Board members reviewed the assumptions and
cost allocation methods used by the sub-adviser in preparing its profitability
data.
The Board members noted and discussed the additional services provided by GEAM
to the Fund compared to other investment products managed by GEAM. The Board
members determined that GEAM and the sub-adviser should be entitled to earn a
reasonable level of profits for the services they provide to the Fund. The Board
members also recognized that GEAM had made significant investments in its
business and had not fully recovered the sums invested. Based on their review,
the Board members, including the independent members, concluded that they were
satisfied that the level of profitability achieved by GEAM and the sub-adviser
from their relationship with the Fund was not unreasonable or excessive.
THE EXTENT TO WHICH ECONOMIES OF SCALE WOULD BE REALIZED AS THE FUND GROWS AND
WHETHER FEE LEVELS WOULD REFLECT SUCH ECONOMIES OF SCALE.
The Board members considered the extent to which economies of scale would be
realized as the Fund grows, and whether fee levels reflect these economies of
scale for the benefit of Fund investors. The Board members considered the
substantial infrastructure investments that
19
Advisory and Administrative Agreement Renewal (unaudited)
- --------------------------------------------------------------------------------
GEAM has made with respect to its operations and its commitment to continue
investing resources to enhance services to Fund shareholders, including its
anticipated information technology expenditures. The Board members recognized
the benefits to the Fund of GEAM's past investment in its operations through the
expenditure of sums to support its substantial infrastructure, and that, in
general, GEAM has not yet fully recouped that investment. The Board members also
recognized the benefits to the Fund of being able to leverage a favorable cost
structure achieved with respect to the Fund's other operating expenses as a
result of GEAM's large overall base of assets under management and its vendor
management practices. The Board members reviewed the applicable advisory fee
breakpoints for the Fund and concluded that no changes were needed. The Board
members recognized the economies of scale benefits derived by the Fund as a
result of this fee structure.
COMPARISON OF SERVICES TO BE RENDERED AND FEES TO BE PAID.
The Board members discussed the services provided to the Fund by GEAM, and the
fees charged for those services. The Board members reviewed information
concerning the fee and expense ratios for the Fund, and comparative information
with respect to similar products. They discussed that the Fund's figures were
within the applicable peer group range. The Board members considered that the
comparative data provided by Lipper showed no material difference from last year
in the fees being charged as compared to those being charged by other advisers
to similar investment products, as determined by Lipper. In addition, the Board
members considered their discussion with representatives of GEAM and the
sub-adviser about the fees being charged to the Fund and, to the extent
applicable, the potential effect, if any, of the Securities and Exchange
Commission staff's recently proposed soft dollar interpretation on those fees.
In light of the foregoing, the Board members, including the independent members,
determined that the advisory fees were reasonable in relation to the services
provided to the Fund.
The Board members reviewed comparative fee information with respect to any
comparable mutual fund client accounts managed by the sub-adviser and with
respect to any other client accounts managed by the sub-adviser in a similar
style to that of the Fund. The Board members, including the independent members,
concluded that, based on this information, the sub-advisory fees were reasonable
in light of the services provided to the Fund.
FALL-OUT BENEFITS.
The Board members considered other actual and potential financial benefits to
GEAM and the sub-adviser, including, to the extent applicable, soft dollar
commission benefits generated through Fund portfolio transactions. The Board
members noted, however, that the Fund benefits from the vast array of resources
available through GEAM, and that the Fund represents only a small portion of the
assets managed by GEAM.
CONCLUSION.
No single factor was determinative to the Board members' decision. Based on
their discussion and such other matters as were deemed relevant, the Board
members, including the independent members, concluded that the proposed advisory
fee and projected total expense ratio are reasonable in relation to the services
provided to the Fund. In view of these facts, the Board members, including the
independent members, concluded that the renewal of the advisory agreement was in
the best interests of the Fund and its shareholders, and that renewal of the
sub-advisory agreement was in the best interest of the shareholders of the Fund.
20
Additional Information (unaudited)
- --------------------------------------------------------------------------------
INFORMATION ABOUT DIRECTORS AND EXECUTIVE OFFICERS:
The business and affairs of the Company are managed under the direction of the
Company's Board of Directors. Information pertaining to the Directors and
officers of the Company is set forth below.
INTERESTED DIRECTORS AND EXECUTIVE OFFICERS
- --------------------------------------------------------------------------------
MICHAEL J. COSGROVE
- --------------------------------------------------------------------------------
ADDRESS c/o GEAM 3001 Summer St. Stamford, CT 06905
AGE 56
POSITION(S) HELD WITH FUND Chairman of the Board and President
TERM OF OFFICE AND LENGTH OF TIME SERVED Until successor is elected and
qualified - 9 years
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS Executive Vice President - Chief
Commercial Officer of GEAM (formerly President, GE Asset Management Services
division ("GEAMS") of GE Financial Assurance Holdings, Inc., an indirect
wholly-owned subsidiary of General Electric Company ("GE")), since February
1997; Vice President, GE Capital Corporation, an indirect wholly-owned
subsidiary of GE, since December 1999; Executive Vice President - Sales and
Marketing of GEAM, a wholly-owned subsidiary of GE that is registered as an
investment adviser under the Investment Advisers Act of 1940, as amended, since
March 1993; Director of GEAM since 1988.
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR 48
OTHER DIRECTORSHIPS HELD BY DIRECTOR Chairman of the Board and President of GE
Funds since 1993, and GE Institutional Funds and GE LifeStyle Funds since their
inception; Trustee of Elfun Funds, GE Savings & Security Funds and General
Electric Pension Trust since 1988; Trustee of Fordham University since 2003 and
Marymount College from 1994 through 2002.
- --------------------------------------------------------------------------------
ALAN M. LEWIS
- --------------------------------------------------------------------------------
ADDRESS c/o GEAM 3001 Summer St. Stamford, CT 06905
AGE 59
POSITION(S) HELD WITH FUND Director and Executive Vice President
TERM OF OFFICE AND LENGTH OF TIME SERVED Until successor is elected and
qualified - 6 years
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS Executive Vice President, General
Counsel and Secretary of GEAM since 1987
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR 48
OTHER DIRECTORSHIPS HELD BY DIRECTOR Trustee and Executive Vice President of GE
Funds, GE Institutional Funds and GE LifeStyle Funds since their inception.
Trustee of Elfun Funds, GE Savings & Security Funds and General Electric Pension
Trust since 1987.
21
Additional Information (unaudited)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SCOTT H. RHODES
- --------------------------------------------------------------------------------
ADDRESS c/o GEAM 3001 Summer St. Stamford, CT 06905
AGE 47
POSITION(S) HELD WITH FUND Treasurer
TERM OF OFFICE AND LENGTH OF TIME SERVED Until successor is elected and
qualified - less than one year
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS GEAM Mutual Funds Operations Manager
since September 2005; Treasurer of GE Institutional Funds, GE LifeStyle Funds
and GE Investments Funds since November 2005 and Elfun Funds and GE Savings &
Security Funds since September 2005; from August 2004 to September 2005 Vice
President, U.S. Trust Company, N.A. and Assistant Treasurer of Excelsior Funds,
Inc., Excelsior Funds Trust, and Excelsior Tax Exempt Funds, Inc.; from January
2004 to August 2004, Vice President BlackRock Financial Management, Inc.; from
December 1996 to November 2003, Controller - Mutual Funds, American Skandia
Investment Services, Inc. and Assistant Treasurer of American Skandia Trust and
American Skandia Advisor Funds, Inc.
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR N/A
OTHER DIRECTORSHIPS HELD BY DIRECTOR N/A
- --------------------------------------------------------------------------------
MATTHEW J. SIMPSON
- --------------------------------------------------------------------------------
ADDRESS c/o GEAM 3001 Summer St. Stamford, CT 06905
AGE 44
POSITION(S) HELD WITH FUND Vice President and Secretary
TERM OF OFFICE AND LENGTH OF TIME SERVED Until successor is elected and
qualified - 9 years
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS Senior Vice President and General
Counsel - Marketing and Client Services (formerly Asset Management Services), at
GEAM and Senior Vice President and General Counsel of GEAMS since February 1997;
from October 1992 to February 1997, Vice President and Associate General Counsel
of GEAM; Secretary of GE Funds since 1993 and Vice President since September
2003; Secretary of GE Institutional Funds and GE LifeStyle Funds since their
inception and Vice President since September 2003; Assistant Secretary of Elfun
Funds and GE Savings & Security Funds since 1998 and Vice President since
October 2003.
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR N/A
OTHER DIRECTORSHIPS HELD BY DIRECTOR N/A
- --------------------------------------------------------------------------------
JEANNE M. LAPORTA
- --------------------------------------------------------------------------------
ADDRESS c/o GEAM 3001 Summer St. Stamford, CT 06905
AGE 40
POSITION(S) HELD WITH FUND Vice President and Assistant Secretary
TERM OF OFFICE AND LENGTH OF TIME SERVED Until successor is elected and
qualified - 2 years
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS Vice President and Associate General
Counsel - Marketing and Client Services (formerly Asset Management Services) at
GEAM since May 1997; Vice President and Assistant Secretary of GE Funds, GE
Institutional Funds and GE LifeStyle Funds since September 2003; Vice President
and Assistant Secretary of Elfun Funds and GE Savings & Security Funds since
October 2003.
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR N/A
OTHER DIRECTORSHIPS HELD BY DIRECTOR N/A
22
Additional Information (unaudited)
- --------------------------------------------------------------------------------
NON-INTERESTED DIRECTORS
- --------------------------------------------------------------------------------
JOHN R. COSTANTINO
- --------------------------------------------------------------------------------
ADDRESS c/o GEAM 3001 Summer St. Stamford, CT 06905
AGE 59
POSITION(S) HELD WITH FUND Director
TERM OF OFFICE AND LENGTH OF TIME SERVED Until successor is elected and
qualified - 9 years
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS Managing Director, Walden Partners,
Ltd., consultants and investors, since August 1992.
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR 40
OTHER DIRECTORSHIPS HELD BY DIRECTOR Trustee of GE Funds since 1993, GE
Institutional Funds and GE LifeStyle Funds since their inception; Trustee of
Fordham University since 2002 and Marymount College from 2001 through 2002;
Neuroscience Research Institute since 1986; Diocesan Finance Counsel of the
Dioceses of Brooklyn & Queens since 2001; Gregorian University Foundation since
1994.
- --------------------------------------------------------------------------------
WILLIAM J. LUCAS
- --------------------------------------------------------------------------------
ADDRESS c/o GEAM 3001 Summer St. Stamford, CT 06905
AGE 58
POSITION(S) HELD WITH FUND Director
TERM OF OFFICE AND LENGTH OF TIME SERVED Until successor is elected and
qualified - 9 years
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS Vice President and Treasurer of
Fairfield University since 1983.
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR 40
OTHER DIRECTORSHIPS HELD BY DIRECTOR Trustee of GE Funds since 1993, and GE
Institutional Funds and GE LifeStyle Funds since their inception.
- --------------------------------------------------------------------------------
ROBERT P. QUINN
- --------------------------------------------------------------------------------
ADDRESS c/o GEAM 3001 Summer St. Stamford, CT 06905
AGE 69
POSITION(S) HELD WITH FUND Director
TERM OF OFFICE AND LENGTH OF TIME SERVED Until successor is elected and
qualified - 9 years
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS Retired since 1983 from Salomon
Brothers Inc.
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR 40
OTHER DIRECTORSHIPS HELD BY DIRECTOR GP Financial Corp, holding company; The
Greenpoint Savings Bank, a financial institution. Trustee of GE Funds since
1993, and GE Institutional Funds and GE LifeStyle Funds since their inception.
- --------------------------------------------------------------------------------
The Statement of Additional Information for the Fund includes additional
information about the Directors and Officers and is available, without charge,
upon request by calling 1-800-242-0134.
23
Investment Team
- --------------------------------------------------------------------------------
INVESTMENT ADVISER AND ADMINISTRATOR
GE Asset Management Incorporated
BOARD OF DIRECTORS
Michael J.Cosgrove, CHAIRMAN
John R. Costantino
Alan M. Lewis
William J. Lucas
Robert P. Quinn
SECRETARY
Matthew J. Simpson
TREASURER
Scott H. Rhodes
ASSISTANT TREASURER
Christopher M. Isaacs
DISTRIBUTOR
GE Investment Distributors, Inc.
Member NASD and SIPC
COUNSEL
Sutherland, Asbill & Brennan, LLP
CUSTODIAN
State Street Bank & Trust Company
INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM
KPMG LLP
OFFICERS OF THE INVESTMENT ADVISER
John H. Myers, CHIEF EXECUTIVE OFFICER
David B. Carlson, EVP, DOMESTIC EQUITIES
Michael J. Cosgrove, EVP, CHIEF COMMERCIAL OFFICER
Robert A. MacDougall, EVP, FIXED INCOME (RETIRED FROM ALL POSITIONS AS OF
JANUARY 31, 2006)
Kathryn D. Karlic, EVP, FIXED INCOME (AS OF FEBRUARY 1, 2006)
Ralph R. Layman, EVP, INTERNATIONAL EQUITIES
Alan M. Lewis, EVP, GENERAL COUNSEL AND SECRETARY
Don W. Torey, EVP, ALTERNATIVE INVESTMENTS AND REAL ESTATE
John J. Walker, EVP, CHIEF FINANCIAL OFFICER
24
[This page intentionally left blank.]
INVESTMENT ADVISER
GE ASSET MANAGEMENT INCORPORATED
3001 SUMMER STREET
PO BOX 7900
STAMFORD, CT 06904-7900
DISTRIBUTOR
GE INVESTMENT DISTRIBUTORS, INC.
MEMBER NASD AND SIPC
3001 SUMMER STREET
PO BOX 7900
STAMFORD, CT 06904-7900
- --------------------------------------------------------------------------------
The Fund files its complete schedule of portfolio holdings with the Securities
and Exchange Commission for the first and third quarters of each fiscal year on
Form N-Q. The Fund's Forms N-Q, as well as a description of the policies and
procedures that the Fund uses to determine how to vote proxies (if any) relating
to portfolio securities is available without charge (i) upon request, by calling
1-800-242-0134; (ii) on the Fund's website at HTTP://WWW.GEFUNDS.COM; and (iii)
on the Commission's website at HTTP://WWW.SEC.GOV. The Fund's Forms N-Q may be
reviewed and copied at the Commission's Public Reference Room in Washington, DC
information on the operation of the Public Reference Room may be obtained by
calling 1-800-SEC-0330.
Information (if any) regarding how the Fund voted proxies relating to portfolio
securities during the most recently disclosed 12-months period ended June 30 is
available without charge (i) through the Fund's website at
HTTP://WWW.GEFUNDS.COM; and (ii) on the Commission's website at
HTTP://WWW.SEC.GOV.
- --------------------------------------------------------------------------------
[GE LOGO OMITTED]
ITEM 2. CODE OF ETHICS.
Please refer to the Code of Ethics included in the following link:
www.ge.com/files/usa/en/commitment/social/integrity/downloads/english.pdf
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
The Board of Trustees of the registrant has determined that both John R.
Costantino and William J. Lucas are designated as audit committee financial
experts for the Funds; and further that it is the finding of the Boards that
Messrs. Costantino and Lucas, the audit committee financial experts, qualify
as being 'independent' pursuant to paragraph (a)(2) of Item 3 to Form N-CSR.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
(a) AUDIT FEES. The aggregate fees billed for each of the last two fiscal
years (the "Reporting Periods") for professional services rendered by the
Registrant's principal accountant (the "Auditor") for the audit of the
Registrant's annual financial statements, or services that are normally
provide by the Auditor in connection with the statutory and regulatory
filings or engagements for the Reporting Periods were $173,000 in 2004 and
$179,100 in 2005.
(b) AUDIT RELATED FEES. There were no fees billed by the Auditor for
assurance and related services that were related to the performance of the
audit for the Registrant during the Reporting Periods.
(c) TAX FEES. There were no fees billed for professional services
rendered by the Auditor for tax compliance, tax advice or tax planning for
the Registrant during the Reporting Periods.
(d) ALL OTHER FEES. There were no fees billed for products and services
provided by the Auditor, other than the services reported in paragraphs
(a) through (c) of this Item for the Registrant during the Reporting Periods.
(e) (1) AUDIT COMMITTEE PRE-APPROVAL POLICIES AND PROCEDURES.
The Audit Committee of the GE Investments Funds (the "Funds") Board of
Trustees is responsible, among other things, for the appointment,
compensation and oversight of the work of the Fund's independent
accountants/auditors (the "Auditor"). As part of this responsibility and
to ensure that the Auditor's independence is not impaired, the Audit Committee
(1) pre-approves the audit and non-audit services provided to the Funds by
the Auditor, and (2) all non-audit services provided to the Funds' investment
adviser and covered affiliates (as defined in the Audit Committee Charter) that
provide ongoing services to the Funds if the services directly impact the
Funds' operations or financial reporting, in accordance with the Audit
Committee Charter. Following are excerpts from the Audit Committee Charter
that sets forth the pre-approval policies and procedures:
1. Selection and Pre-Approval of Auditor and Approval of Fees.
(i) The Audit Committee shall pre-approve the selection of the Auditor and
shall recommend for ratification the selection, retention or termination of the
Auditor by the full Board, including the independent Trustees/Directors, and,
in connection therewith, shall evaluate the independence of the Auditor,
including: (i) an evaluation of whether the Auditor provides any consulting
services to the Fund's investment adviser and the extent to which the Auditor
provides non-audit services to the Fund's investment adviser and certain other
affiliated service providers as defined in Section 2(f) below, which services
are not subject to the pre-approval requirements set forth in Section 4 below;
(ii) an evaluation of the extent to which the Auditor has any relationships
with the Fund or its affiliated persons that are brought to the attention of
the Audit Committee by the Auditor in accordance with applicable standards of
the Independence Standards Board ("ISB"), because, in the Auditor's
professional judgment, such relationships may reasonably be thought to bear
on the Auditor's independence with respect to the Fund; and (iii) monitoring
the Auditor's compliance with respect to the rotation requirements for the
lead and coordinating partners having primary responsibility for the Fund's
audits and any partner responsible for the reviewing the Fund's audits.
The Audit Committee shall review the Auditor's specific representations as
to its independence.
(b) The Audit Committee shall pre-approve and review the fees charged by
the Auditor for audit and non-audit services to be provided to the Fund and
certain affiliated service providers (as defined in Section 2(f) below) in
accordance with the pre-approval requirements set forth in Section 4 below.
The Fund shall provide for appropriate funding, as determined by the Audit
Committee, to compensate the Auditor for any authorized service provided to
the Fund.
2. Meetings with the Auditor. The Audit Committee shall meet with the
Auditor, including private meetings, prior to the commencement of substantial
work on the audit and following the conclusion of the audit, as well as such
other times as the Audit Committee shall deem necessary or appropriate. The
Auditor shall report directly to the Audit Committee. The Auditor shall
report at least annually, concerning the following and other pertinent matters:
(a) to review the arrangements for and scope of the annual audit and any
special audits;
(b) to provide the Auditor the opportunity to report to the Audit
Committee, on a timely basis, all critical accounting policies and practices
to be used;
(c) to discuss any matters of concern relating to the Fund's financial
statements, including: (i) any adjustments to such statements recommended by
the Auditor, or other results of said audit(s), and (ii) any alternative
treatments of financial information within GAAP that have been discussed with
Fund management, the ramifications of the use of such alternative disclosures
and treatments, and the treatment preferred by the Auditor;
(d) to provide the Auditor the opportunity to report to the Audit
Committee, on a timely basis, any material written communication between the
Auditor and Fund management, such as any management letter or schedule of
unadjusted differences;
(e) to discuss the opinion the Auditor has rendered regarding the Fund's
financial statements;
(f) to report all non-audit services that do not require Audit Committee
pre-approval and are provided to certain affiliated persons of the Fund,
including: (1) the Fund's investment adviser or sub-advisers (but excluding
any investment sub-adviser whose role is primarily portfolio management and
is overseen by the investment adviser), (2) the Fund's principal underwriter,
and (3) any entity controlling, controlled by, or under common control with
the investment adviser or principal underwriter, that provides "ongoing"
services to the Funds in accordance with the pre-approval requirements of
paragraph (c)(7)(i) of Rule 2-01 of Regulation S-X (each, a "Covered Affiliate"
and collectively, "Covered Affiliates");
(g) to review, in accordance with current standards of ISB, all
relationships between the Auditor and the Fund or its affiliated persons that,
in the Auditor's professional judgment, may reasonably be thought to bear
on its independence, and to confirm, in light of such information, whether
the Auditor believes, in its professional judgment, that it may properly serve
as independent accountants/auditors with respect to the Fund;
(h) to consider the Auditor's comments with respect to the Fund's financial
policies, procedures and internal accounting controls and responses thereto by
the Fund's officers and Fund management, as well as other personnel;
(i) to investigate any improprieties or suspected improprieties in the
operations of the Fund to the extent necessary or appropriate in light of any
internal investigations by the Fund's officers and/or by officers or employees
of the Fund management of such improprieties;
(j) to receive periodic reports concerning regulatory changes and new
accounting pronouncements that significantly affect the value of the Fund's
assets and their financial reporting;
(k) to report on the Fund's qualification under Subchapter M of the Internal
Revenue Code, amounts distributed and reported to shareholders for Federal tax
purposes and the Fund's tax returns; and
(l) to provide the Auditor the opportunity to report on any other matter
that the Auditor deems necessary or appropriate to discuss with the Audit
Committee.
If the Auditor's report on the above-listed (and other pertinent)
matters is not made in person to the Audit Committee within 60 days following
the end of the Fund's fiscal year, the Auditor shall deliver a written report
to the Audit Committee concerning these matters within such 60 day period.
3. Change in Accounting Principles. The Audit Committee shall consider
the effect upon the Fund of any changes in accounting principles or practices
proposed by the Auditor or the Fund's officers.
4. Pre-Approval of Audit Related Services and Permissible Non-Audit
Services. The Audit Committee shall pre-approve both audit (including audit,
review, and attest) services and permissible non-audit services provided to
the Fund and, if the nature of the engagement relates directly to the
operations and financial reporting of the Fund, permissible non-audit services
provided to any Covered Affiliate.
The Audit Committee may determine to delegate the authority to grant
pre-approvals to one or more Audit Committee members, each acting on behalf
of the Audit Committee. In this event, the member of the Audit Committee so
delegated shall report each delegated pre-approval to the Audit Committee at
its next regularly scheduled meeting. The Audit Committee may also adopt and
follow, in lieu of explicit pre-approval described above, written policies
and procedures detailed as to the particular service, designed to safeguard
the continued independence of the Auditor, consistent with the requirements
of the Act and SEC regulations thereunder.
Notwithstanding the foregoing, the pre-approval requirement concerning
permissible non-audit services provided to the Fund or any Covered Affiliate
is waived if: (1) the aggregate amount of all such non-audit services provided
constitutes no more than five percent (5%) of the total amount of revenues paid
to the Auditor by the Fund and the Covered Affiliates during the fiscal year in
which the services are provided that would have to be pre-approved by the Audit
Committee, (2) the non-audit services were not recognized as non-audit services
at the time of the engagement, and (3) such non-audit services are promptly
brought to the attention of the Audit Committee and approved by the Audit
Committee or one or more designated members of the Audit Committee prior to the
completion of the audit.
5. Prohibited Activities of the Auditor. The Audit Committee shall confirm
with the Auditor that it is not performing contemporaneously (during the audit
and professional engagement period) non-audit services for the Fund that the
Audit Committee believes may taint the independence of the Auditor.
The Auditor will be responsible for informing the Audit Committee of whether it
believes that a particular non-audit service is permissible or prohibited
pursuant to applicable regulations and standards.
(2) PERCENTAGE OF SERVICES IN PARAGRAGHS (b) THROUGH (d) APPROVED BY AUDIT
COMMITTEE. No fees were charged during 2003 or 2004 for audit related, tax or
other services as indicated in sections (b) through (d) of this Item.
(f) Not applicable.
(g) NON-AUDIT FEES. The aggregate non-audit fees billed by the Auditor
for services rendered to the Registrant, and rendered to Service Affiliates,
for the Reporting Periods were $334,355 in 2004 and $159,743 in 2005.
(h) AUDITOR INDEPENDENCE. There were no non-audit services rendered to
Service Affiliates that were not pre-approved.
ITEM 5. Audit Committee of Listed Registrants
The Registrant has a separately-designated standing audit committee
established in accordance with Section 3(a)(58)(A) of the Exchange Act.
The Registrant's audit committee members are: John R. Costantino,
William J. Lucas and Robert P. Quinn.
ITEM 6. Schedule of Investments.
Attached as part of ITEM 1.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
Applicable only to Closed-End Management Investment Companies.
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
Applicable only to Closed-End Management Investment Companies.
ITEM 9. Purchases of Equity Securities by Closed-End Management
Investment Company and Affiliated Purchasers.
Applicable only to Closed-End Management Investment Companies.
ITEM 10. Submission of Matters to a Vote of Security Holders.
No material changes.
ITEM 11. CONTROLS AND PROCEDURES.
The officers providing the certifications in this report in accordance
with Rule 30a-3 under the Investment Company Act of 1940 have concluded,
based on their evaluation of the registrant's disclosure controls and
procedures (as such term is defined in such rule), that such controls and
procedures are adequate and reasonably designed to achieve the purpose
described in paragraph (c) of such rule.
There were no significant changes in the registrant's internal controls or
in other factors that could significantly affect these controls subsequent
to the date of their last evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
ITEM 12. EXHIBITS.
(a) Not applicable.
(b) Attached hereto as Exhibit 1 and Exhibit 2 are the Certifications of
Michael J. Cosgrove and Scott Rhodes as principal executive officer and
principal financial officer, respectively, as required by Rule 30a-2 under
the Investment Company Act of 1940.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934
and the Investment Company Act of 1940, the Registrant has duly
caused this Report to be signed on its behalf by the undersigned,
thereunto duly authorized.
GE INVESTMENTS FUNDS, INC
By: /S/MICHAEL J. COSGROVE
Michael J. Cosgrove
Chairman, GE INVESTMENTS FUNDS, INC.
Date: March 07, 2006
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this Report has been signed below by the
following persons on behalf of the Registrant and in the capacities and on
the dates indicated.
By: /S/MICHAEL J. COSGROVE
Michael J. Cosgrove
Chairman, GE INVESTMENTS FUNDS, INC.
Date: March 07, 2006
By: /S/SCOTT RHODES
Scott Rhodes
TREASURER, GE INVESTMENTS FUNDS, INC.
Date: March 07, 2006
EXHIBIT INDEX
(b)(1) Certifications of principal executive officer and
principal financial officer as required by Rule 30a-2 under the
Investment Company Act of 1940.
(b)(2) Certification of principal executive officer and
principal financial officer as required by Section 906 of the
Sarbanes-Oxley Act of 2002.