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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: : 06/30/06
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<page>
ITEM 1. REPORTS TO STOCKHOLDERS.
GE Investments Funds, Inc.
U.S. Equity Fund
Semi-Annual Report
JUNE 30, 2006
[GE LOGO OMITTED]
GE Investments Funds, Inc.
U.S. Equity Fund Contents
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NOTES TO PERFORMANCE................................................... 1
MANAGER REVIEW AND SCHEDULE OF INVESTMENTS............................. 2
NOTES TO SCHEDULE OF INVESTMENTS....................................... 9
FINANCIAL STATEMENTS
Financial Highlights.............................................. 10
Statement of Assets and Liabilities............................... 11
Statement of Operations........................................... 12
Statements of Changes in Net Assets............................... 13
Notes to Financial Statements..................................... 14
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.
Notes to Performance June 30, 2006 (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.
1
U.S. Equity Fund
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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 CO-MANAGES ONE OF THREE SUB-PORTFOLIOS, WHICH COMPRISE THE
FUND.
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. MR.
SANDERSON JOINED GE ASSET MANAGEMENT IN OCTOBER 1995 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 SIX-MONTH PERIOD ENDED JUNE 30, 2006?
A. For the six-month period ended June 30, 2006, the U.S. Equity Fund returned
3.35%. The S&P 500 Index, the Fund's benchmark, returned 2.70% and the
Fund's Lipper peer group of 222 Large-Cap Core funds returned an average of
1.25% for the same period.
Q. WHAT MARKET CONDITIONS IMPACTED THE FUND'S PERFORMANCE?
A. The U.S. stock market began the year on a bullish note, however volatility
rose by the end of the period, upsetting all global financial markets. The
S&P 500 rallied through April as investors anticipated an end to the
Federal Reserve's tightening campaign. By May 10th, the Dow Jones
Industrials were up more than 8% for the year, less than 100 points short
of the record. However as growth persisted and inflationary data mounted,
Federal Reserve members became more
[PHOTO OMITTED]
2
Q&A
hawkish in their public comments. At the same time, central bankers around
the world tightened monetary policy, reducing appetite for risk. Investors
began to worry about the sustainability of the global expansion, given the
inflation and liquidity concerns. For most of May and June riskier asset
classes--from developing country stocks to industrial commodities to
Florida condos--came under pressure. U.S. equities swooned amid the
uncertainty, and the Dow gave back half of the year's gains.
Technology and health care were hit the hardest in this environment, and
were the only sectors posting negative returns year-to-date. In fact,
health care dropped to a 12-month low in the last week of June, while
consumer staples registered a new high. This contrasting performance
between two defensive sectors highlighted the importance of careful stock
selection in a volatile market. Value continued to lead growth as the
Russell 1000 Value Index gained 6.6% year-to-date, while the Russell 1000
Growth Index lost -0.9%.
Q. WHAT WERE THE PRIMARY DRIVERS OF FUND PERFORMANCE?
A. Strong stock selection within information technology was the primary
contributor to Fund performance over the past six months as many of the
higher quality names that held performance back last year performed well in
the first half of 2006. For example, Oracle (18.7%) rallied on synergies
from recent acquisitions, Intuit (13.6%) had a strong TurboTax season, and
electronic components manufacturer Molex (17.4%) surged in a favorable
business environment. In a reversal from last year, not owning Apple
(-20.3%) helped portfolio returns. In addition, First Data Corp. (5.0%)
also boosted performance as the technology services company announced a
spin-off of its Western Union business. All of these positives more than
offset the drag from Microsoft (-10.3%), which has been suffering a
competitive assault from Google; however, we remained invested in light of
upcoming major new product introductions. Within energy, positive stock
selection in the oilfield services area helped our holdings to return 18.6%
versus 13.7% for the benchmark. In a positive environment for industrials
stocks, Dover (22.6%), Eaton (13.5%), Textron (20.8%) and Deere (23.8%) led
our holdings to outpace the benchmark sectors by almost 2%. On the other
hand, financials, telecommunications services and consumer discretionary
detracted from performance year-to-date, but not enough to offset the
aforementioned positives. Within financials, American International Group's
(-13.0%) international business suffered in the second quarter, while
Freddie Mac (-11.4%) languished amidst uncertain operating conditions for
GSE's. Underweighting real estate investment trusts hurt relative
performance, as REITs rose over 14% since the beginning of the year. And
underweighting commercial banks also hurt, despite particular strength in
our SunTrust (6.8%) holding. Telecom lagged the index due to our lack of
exposure to traditional telecom services companies, which rallied close to
20% during the period. The Bells have benefited from restructuring
initiatives and heightened M&A activity. BellSouth has risen 36.2% so far
this year on their announced combination with AT&T (16.9%)--both of which
we do not own. Despite renewed strength within the media stocks, the
consumer discretionary sector as a whole has lagged as investors expressed
caution on the consumer. In this environment, holdings such as Carnival
(-21.1%), Home Depot (-10.9%) and Target (-10.8%) have held back returns.
Q. WERE THERE ANY SIGNIFICANT CHANGES TO THE FUND OVER THE PERIOD?
A. We have remained steadfastly committed to investing in high quality
large-cap stocks with predictable and steady earnings growth, and that
discipline served us well during the period. 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 companies with sustainable growth prospects (e.g.,
within specialty retail and consumer staples), or where valuations have
been compressed (e.g., media). We have remained underweight in financials
in this environment. We did take some profits in industrials during the
period.
3
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 June 30,
2006.
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 $1,000 = 8.6), then multiply the result by the number
given for your class under the heading "Expenses Paid During Period."
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The second section of the table provides information about hypothetical account
values and hypothetical expenses based on the Fund's actual expense ratio and an
assumed rate of return of 5% per year before expenses, which is not the Fund's
actual return. You may use this information to compare the ongoing costs of
investing in the Fund and other funds. To do so, compare this 5% hypothetical
example with the 5% hypothetical examples that appear in the shareholders
reports of other funds.
Please note that the expenses shown in the table do not reflect any transaction
costs, such as sales charges or redemption fees.
JANUARY 1, 2006 - JUNE 30, 2006
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ACCOUNT VALUE AT ACCOUNT VALUE EXPENSES
THE BEGINNING OF AT THE END OF PAID DURING
THE PERIOD ($) THE PERIOD ($) THE PERIOD ($)*
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Actual Fund Return** 1,000.00 1,033.47 3.24
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Hypothetical 5% Return
(2.5% for the period) 1,000.00 1,021.44 3.16
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* EXPENSES ARE EQUAL TO THE FUND'S ANNUALIZED EXPENSE RATIO OF 0.63% (FROM
PERIOD JANUARY 1, 2006 - JUNE 30, 2006), MULTIPLIED BY THE AVERAGE ACCOUNT
VALUE OVER THE PERIOD, MULTIPLIED BY 181/365 (TO REFLECT THE SIX-MONTH
PERIOD).
** ACTUAL FUND RETURN FOR THE SIX-MONTH PERIOD ENDED JUNE 30, 2006 WAS 3.35%.
4
U.S. Equity Fund
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CHANGE IN VALUE
OF A $10,000 INVESTMENT
[LINE CHART OMITTED, PLOT POINTS FOLLOWS]
GEI U.S. Equity S&P 500 Index
6/96 $ 10000.00 $ 10000.00
12/96 11084.58 11172.20
12/97 14646.54 14891.40
12/98 18075.52 19164.94
12/99 21619.56 23202.58
12/00 21492.00 21071.78
12/01 19670.97 18561.71
12/02 15881.79 14459.22
12/03 19578.38 18613.09
12/04 21177.22 20638.45
12/05 21708.53 21653.55
6/06/ 22435.12 22238.88
AVERAGE ANNUAL TOTAL RETURN
FOR THE PERIODS ENDED JUNE 30, 2006
SIX ONE FIVE TEN
MONTHS YEAR YEAR YEAR
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U.S. Equity Fund 3.35% 7.22% 1.95% 8.42%
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S&P 500 Index 2.70% 8.63% 2.49% 8.32%
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Lipper peer group average* 1.25% 7.82% 1.55% 6.57%
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Inception date 1/3/95
==============================================================
U.S. Equity Fund (ending value $22,435)
S&P 500 Index (ending value $22,239)
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 JUNE 30, 2006
as a % of Market Value
==============================================================
Exxon Mobil Corp. 3.45%
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Microsoft Corp. 2.87%
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Bank of America Corp. 2.74%
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First Data Corp. 2.57%
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Pfizer Inc. 2.54%
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PepsiCo, Inc. 2.52%
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Industrial Select Sector SPDR Fund 2.25%
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American International Group, Inc. 2.09%
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The Coca-Cola Co. 1.89%
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Wyeth 1.70%
==============================================================
PORTFOLIO COMPOSITION
AS OF JUNE 30, 2006
as a % of Market Value
========================================
Market Value of $99,865 (in thousands)
[PIE CHART OMITTED, PLOT POINTS FOLLOWS]
Financials 16.8%
Information Technology 16.1%
Healthcare 13.0%
Consumer Discretionary 10.6%
Industrials 10.2%
Consumer Staples 9.5%
Energy 8.8%
Short-Term 7.0%
Materials 3.3%
Utilities 2.5%
Telecommunication Services 2.2%
* LIPPER PERFORMANCE COMPARISONS ARE BASED ON AVERAGE ANNUAL TOTAL RETURNS FOR
THE SIX-MONTH, ONE-YEAR, FIVE-YEAR AND TEN-YEAR PERIODS INDICATED IN THE
LARGE-CAP CORE FUNDS PEER GROUP CONSISTING OF 222, 220, 147 AND 60 UNDERLYING
ANNUITY FUNDS, RESPECTIVELY.
SEE NOTES TO PERFORMANCE ON PAGE 1 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
U.S. EQUITY FUND
Schedule of Investments June 30, 2006 (unaudited)
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U.S. EQUITY FUND
NUMBER
OF SHARES VALUE
COMMON STOCK -- 94.7%+
CONSUMER DISCRETIONARY -- 11.1%
Autozone, Inc.................. 3,901 $ 344,068(a,e)
Bed Bath & Beyond, Inc......... 16,658 552,546(a)
Cablevision Systems Corp.
(Class A) 9,67120 7,443
Carnival Corp.................. 14,506 605,480
CBS Corp....................... 8,941 241,854
Comcast Corp. (Class A)........ 45,203 1,481,754(a)
Federated Department Stores Inc. 5,319 194,675
Koninklijke Philips
Electronics N.V. ADR......... 10,936 340,547
Liberty Global, Inc. (Series A) 2,878 61,877(a,e)
Liberty Global, Inc. (Series C) 28,507 586,389(a)
Liberty Media Holding Corp -
Capital (Series A)........... 5,410 453,196(a)
Liberty Media Holding Corp -
Interactive (Series A)....... 27,048 466,848(a)
News Corp. (Class A)........... 16,118 309,143
Omnicom Group, Inc............. 12,576 1,120,396
Ross Stores, Inc............... 9,107 255,451
Staples, Inc................... 6,286 152,876
Starwood Hotels & Resorts
Worldwide, Inc............... 4,030 243,170
Target Corp.................... 16,668 814,565
The Home Depot, Inc............ 29,496 1,055,662
Time Warner, Inc............... 32,236 557,683
Viacom Inc. (Class B).......... 13,781 493,911(a)
10,539,534
CONSUMER STAPLES -- 10.0%
Alberto-Culver Co.............. 8,140 396,581(a)
Altria Group, Inc.............. 820 60,213
Clorox Co...................... 19,324 1,178,184
Colgate-Palmolive Co........... 20,710 1,240,529
Diageo PLC ADR................. 2,619 176,913(e)
General Mills, Inc............. 7,334 378,874
Kellogg Co..................... 17,266 836,192(e)
Kimberly-Clark Corp............ 5,400 333,180
PepsiCo, Inc................... 41,964 2,519,519(d)
Procter & Gamble Co............ 6,524 362,734
Sara Lee Corp.................. 8,046 128,897
The Coca-Cola Co............... 43,969 1,891,546
9,503,362
ENERGY -- 9.3%
EnCana Corp.................... 3,536 186,135
EOG Resources, Inc............. 10,477 726,475
Exxon Mobil Corp............... 56,220 3,449,097(d)
NUMBER
OF SHARES VALUE
Halliburton Co................. 14,626 $ 1,085,395
Hess Corp...................... 14,303 755,914
Occidental Petroleum Corp...... 8,402 861,625
Schlumberger Ltd............... 17,730 1,154,400
Transocean Inc................. 7,328 588,585(a)
8,807,626
FINANCIALS -- 17.1%
AFLAC Incorporated............. 9,429 437,034
Allstate Corp.................. 14,587 798,347
American Express Co............ 5,077 270,198
American International Group, Inc. 35,380 2,089,189
Bank of America Corp........... 56,958 2,739,680
Berkshire Hathaway, Inc. (Class B) 123 374,289(a,e)
BlackRock Inc. (Class A)....... 1,289 179,390(e)
Chubb Corp..................... 8,865 442,364
Citigroup, Inc................. 20,551 991,380
Everest Re Group, Ltd.......... 2,257 195,389
Federal Home Loan
Mortgage Corp................ 13,056 744,323
Federal National Mortgage Assoc. 16,682 802,404
HCC Insurance Holdings, Inc.... 6,286 185,060
Mellon Financial Corp.......... 28,179 970,203
Merrill Lynch & Company, Inc... 8,488 590,425
Metlife, Inc................... 19,745 1,011,141
Morgan Stanley................. 6,838 432,230
Prudential Financial, Inc...... 3,345 259,907(e)
State Street Corp.............. 17,963 1,043,471(c)
SunTrust Banks, Inc............ 15,079 1,149,925
The Bank of New York Company, Inc. 3,868 124,550
US Bancorp..................... 10,345 319,454
Wells Fargo & Co............... 1,179 79,087
16,229,440
HEALTHCARE -- 13.6%
Abbott Laboratories............ 25,386 1,107,083(d)
Advanced Medical Optics, Inc... 2,498 126,649(a,e)
Aetna, Inc..................... 20,773 829,466
Amgen, Inc..................... 22,043 1,437,865(a)
Baxter International, Inc...... 15,715 577,683
Eli Lilly & Co................. 5,319 293,981
Gilead Sciences, Inc........... 3,385 200,257(a)
GlaxoSmithKline PLC ADR........ 8,295 462,861
Johnson & Johnson.............. 26,497 1,587,700
LIncare Holdings Inc........... 12,250 463,540(a,e)
Medco Health Solutions, Inc.... 7,817 447,758(a)
Medtronic Inc.................. 5,591 262,330
Novartis AG ADR................ 5,561 299,849
Pfizer Inc..................... 108,220 2,539,923
Quest Diagnostics Inc.......... 3,143 188,329
Thermo Electron Corp........... 2,176 78,858(a)
UnitedHealth Group Incorporated 7,556 338,358
Wyeth.......................... 38,200 1,696,462
12,938,952
See Notes to Schedule of Investments on page 9 and Notes to Financial
Statements.
6
U.S. EQUITY FUND
Schedule of Investments June 30, 2006 (unaudited)
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NUMBER
OF SHARES VALUE
INDUSTRIALS -- 8.4%
ABB Ltd. ADR................... 21,760 $ 282,010
Burlington Northern Santa Fe Corp. 2,908 230,459
Cooper Industries Ltd.......... 2,821 262,127
Corinthian Colleges, Inc....... 7,459 107,111(a,e)
CSX Corp....................... 3,062 215,687
Deere & Co..................... 6,286 524,818
Dover Corp..................... 27,981 1,383,101(d)
Eaton Corp..................... 12,584 948,834
General Dynamics Corp.......... 4,755 311,262
Honeywell International Inc.... 1,451 58,475
ITT Industries, Inc............ 2,579 127,661
Northrop Grumman Corp.......... 7,092 454,314
Rockwell Collins, Inc.......... 2,015 112,578
Southwest Airlines Co.......... 25,789 422,166
Textron Inc.................... 5,835 537,870
3M Co.......................... 1,612 130,201
Tyco International Ltd......... 25,762 708,455
United Technologies Corp....... 15,033 953,393
Waste Management, Inc.......... 5,883 211,082
7,981,604
INFORMATION TECHNOLOGY -- 16.9%
Activision, Inc................ 9,671 110,056(a)
Adobe Systems Incorporated..... 8,172 248,102(a)
Analog Devices, Inc............ 29,351 943,341
Applied Materials, Inc......... 5,641 91,835(d)
Automatic Data Processing, Inc. 11,086 502,750
Checkfree Corp................. 2,418 119,836(a)
Cisco Systems, Inc............. 68,341 1,334,700(a)
Dell, Inc...................... 11,283 275,418(a)
eBay, Inc...................... 12,421 363,811(a)
EMC Corporation................ 24,588 269,730(a)
Fidelity National Information
Services, Inc................ 4,513 159,760
First Data Corp................ 56,978 2,566,289
Hewlett-Packard Co............. 6,352 201,231
Intel Corp..................... 32,236 610,872
International Business
Machines Corp................ 10,477 804,843
Intuit Inc..................... 8,865 535,357(a)
Linear Technology Corp......... 6,915 231,583
Microchip Technology Inc....... 7,092 237,937
Microsoft Corp................. 122,909 2,863,780
Molex, Inc. (Class A).......... 25,467 731,667
Oracle Corp.................... 107,992 1,564,804(a)
Sun Microsystems, Inc.......... 30,104 124,932(a)
Texas Instruments Incorporated. 12,411 375,929
Xerox Corp..................... 11,283 156,947(a)
Yahoo! Inc..................... 20,309 670,197(a)
16,095,707
MATERIALS -- 3.4%
Air Products & Chemicals, Inc.. 6,286 401,801(e)
Barrick Gold Corp.............. 21,051 623,110
Dow Chemical Co................ 4,674 182,426
NUMBER
OF SHARES VALUE
Freeport-McMoRan Copper &
Gold Inc. (Class B).......... 10,362 $ 574,158
Monsanto Co.................... 13,599 1,144,900
Praxair, Inc................... 4,191 226,314
Weyerhaeuser Co................ 1,531 95,305(e)
3,248,014
TELECOMMUNICATION SERVICES -- 2.3%
Alltel Corp.................... 11,031 704,109
Sprint Corporation............. 25,509 509,925
Verizon Communications Inc..... 17,327 580,281(d)
Vodafone Group PLC ADR......... 20,830 443,679
2,237,994
UTILITIES -- 2.6%
American Electric Power
Company, Inc................. 4,835 165,599
Constellation Energy Group, Inc. 7,253 395,434
Dominion Resources, Inc........ 7,253 542,452
Duke Energy Corp............... 9,671 284,037
Entergy Corp................... 3,788 268,001
FirstEnergy Corp............... 2,418 131,080
PG&E Corp...................... 6,791 266,750(e)
PPL Corp....................... 5,885 190,086
Southern Co.................... 6,317 202,460(e)
2,445,899
TOTAL COMMON STOCK
(COST $84,038,433)........... 90,028,132
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EXCHANGE TRADED FUNDS -- 2.9%
- --------------------------------------------------------------------------------
Financial Select Sector
SPDR Fund.................... 17,383 561,123(g)
Industrial Select Sector
SPDR Fund.................... 66,472 2,246,754(g)
TOTAL EXCHANGE TRADED FUNDS
(COST $2,251,453)............ 2,807,877
TOTAL INVESTMENTS IN SECURITIES
(COST $86,289,886)........... 92,836,009
- --------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS -- 7.4%
- --------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS -- 4.3%
GEI Short Term Investment Fund
6.93%........................ 4,087,911 4,087,911(b,f)
See Notes to Schedule of Investments on page 9 and Notes to Financial
Statements.
7
U.S. EQUITY FUND
Schedule of Investments June 30, 2006 (unaudited)
- --------------------------------------------------------------------------------
NUMBER
OF SHARES VALUE
SHORT-TERM SECURITIES PURCHASED WITH
COLLATERAL FROM SECURITIES ON LOAN -- 3.1%
State Street Navigator Securities
Lending Prime Portfolio
5.25%........................ 2,941,221 $ 2,941,221(b,c)
TOTAL SHORT-TERM INVESTMENTS
(COST $7,029,132)............ 7,029,132
TOTAL INVESTMENTS
(COST $93,319,018)........... 99,865,141
LIABILITIES IN EXCESS OF OTHER ASSETS,
NET-- (5.0)%................. (4,777,322)
------------
NET ASSETS-- 100.0% ........... $95,087,819
===========
- --------------------------------------------------------------------------------
OTHER INFORMATION
- --------------------------------------------------------------------------------
The GEI U.S. Equity had the following long futures contracts open at June
30, 2006 (unaudited):
NUMBER CURRENT
EXPIRATION OF NOTIONAL UNREALIZED
DESCRIPTION DATE CONTRACTS VALUE DEPRECIATION
- --------------------------------------------------------------------------------
S&P 500 Index
Futures September 2006 2 $641,250 $(1,545)
See Notes to Schedule of Investments on page 9 and Notes to Financial
Statements.
8
Notes to Schedule of Investments June 30, 2006 (unaudited)
- --------------------------------------------------------------------------------
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 June 30, 2006, 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 Trust.
(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 June 30, 2006.
Abbreviations:
ADR American Depository Receipt
SPDR Standard & Poors Depository Receipts
TBA To Be Announced
9
Financial Highlights
Selected data based on a share outstanding throughout the periods indicated
- ------------------------------------------------------------------------------------------------------------------------------------
U.S. EQUITY FUND
6/30/06+ 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......... $34.06 $33.61 $31.48 $25.75 $32.21 $35.56
INCOME/(LOSS) FROM INVESTMENT OPERATIONS:
Net investment income..................... 0.20 0.39 0.44 0.26 0.24 0.23
Net realized and unrealized
gains/(losses) on investments.......... 0.94 0.46 2.13 5.73 (6.45) (3.24)
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL INCOME/(LOSS) FROM INVESTMENT
OPERATIONS 1.14 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............... $35.20 $34.06 $33.61 $31.48 $25.75 $32.21
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN (A)............................. 3.35% 2.51% 8.17% 23.28% (19.26)% (8.47)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in thousands).. $95,088 $98,883 $112,545 $114,123 $102,112 $115,578
Ratios to average net assets:
Net investment income*................. 1.14% 1.06% 1.30% 0.95% 0.87% 0.78%
Expenses*.............................. 0.63% 0.63% 0.63% 0.61% 0.58% 0.58%
Portfolio turnover rate................... 24% 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.
* Annualized for periods less than one year.
+ Unaudited.
See Notes to Financial Statements.
10
Statement of Assets
and Liabilities JUNE 30, 2006 (UNAUDITED)
- ------------------------------------------------------------------------------------------------------------------------------------
U.S.
EQUITY
FUND
- ------------------------------------------------------------------------------------------------------------------------------------
ASSETS
Investments in securities, at market* (cost $86,289,886)............................................... $ 92,836,009
Short-term Investments (at amortized cost) ............................................................ 2,941,221
Short-term affiliated investments (at amortized cost).................................................. 4,087,911
Receivable for investments sold........................................................................ 736,952
Income receivables .................................................................................... 112,447
Receivable for fund shares sold........................................................................ 1,746
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS....................................................................................... 100,716,286
- ------------------------------------------------------------------------------------------------------------------------------------
LIABILITIES
Payable upon return of securities loaned............................................................... 2,941,221
Payable for investments purchased ..................................................................... 2,594,325
Payable for fund shares redeemed....................................................................... 45,867
Payable to GEAM........................................................................................ 45,519
Variation margin payable............................................................................... 1,535
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES.................................................................................. 5,628,467
- ------------------------------------------------------------------------------------------------------------------------------------
NET ASSETS................................................................................................ $ 95,087,819
- ------------------------------------------------------------------------------------------------------------------------------------
NET ASSETS CONSIST OF:
Capital paid in ....................................................................................... 93,867,796
Undistributed (distribution in excess of) net investment income ....................................... 547,786
Accumulated net realized gain (loss)................................................................... (5,872,340)
Net unrealized appreciation/(depreciation) on:
Investments......................................................................................... 6,546,123
Futures............................................................................................. (1,545)
Foreign currency related transactions............................................................... (1)
- ------------------------------------------------------------------------------------------------------------------------------------
NET ASSETS................................................................................................ $ 95,087,819
- ------------------------------------------------------------------------------------------------------------------------------------
Shares outstanding ($0.01 par value; unlimited shares authorized)......................................... 2,701,327
Net asset value per share................................................................................. $35.20
* Includes $2,882,992 of securities on loan
See Notes to Financial Statements.
11
Statement of Operations
FOR THE SIX MONTHS ENDED JUNE 30, 2006 (UNAUDITED)
- -------------------------------------------------------------------------------------------------------------
U.S.
EQUITY
FUND
- -------------------------------------------------------------------------------------------------------------
INVESTMENT INCOME
INCOME:
Dividend ....................................................................... $ 815,231
Interest* ...................................................................... 2,159
Interest from affliated investments ............................................ 35,162
Less: Foreign taxes withheld ................................................... (2,586)
- -------------------------------------------------------------------------------------------------------------
TOTAL INCOME ..................................................................... 849,966
- -------------------------------------------------------------------------------------------------------------
EXPENSES:
Advisory and administrative fees ............................................... 265,499
Custody and accounting expenses ................................................ 22,655
Professional fees .............................................................. 7,491
Trustee's fees ................................................................. 1,437
Registration expenses .......................................................... 361
Transfer agent ................................................................. 108
Other expenses ................................................................. 4,629
- -------------------------------------------------------------------------------------------------------------
TOTAL EXPENSES ................................................................... 302,180
- -------------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME (LOSS) ..................................................... 547,786
- -------------------------------------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS
REALIZED GAIN (LOSS) ON:
Investments ................................................................. 4,903,379
Futures ..................................................................... 16,135
INCREASE (DECREASE) IN UNREALIZED APPRECIATION/
(DEPRECIATION) ON:
Investments ................................................................. (2,094,336)
Futures ..................................................................... (22,270)
- -------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments ......................... 2,802,908
- -------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS .................. $3,350,694
- -------------------------------------------------------------------------------------------------------------
* Income attributable to security lending activity, net of rebate expenses, was
$2,159.
See Notes to Financial Statements.
12
Statements of
Changes in Net Assets
- ------------------------------------------------------------------------------------------------------------------------------------
U.S.
EQUITY
FUND
- ------------------------------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 2006 DECEMBER 31,
(UNAUDITED) 2005
- ------------------------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net investments income (loss)..................................................... $ 547,786 $ 1,112,245
Net realized gain (loss) on investments, futures, written options,
foreign currency transactions and swaps......................................... 4,919,514 7,703,126
Net increase (decrease) in unrealized appreciation/(depreciation)
on investments, futures, written options, foreign currency translation.......... (2,116,606) (6,433,765)
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) from operations........................................... 3,350,694 2,381,606
- ------------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income............................................................. -- (1,138,355)
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS................................................................. -- (1,138,355)
- ------------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets from operations and distributions................. 3,350,694 1,243,251
- ------------------------------------------------------------------------------------------------------------------------------------
SHARE TRANSACTIONS:
Proceeds from sale of shares...................................................... 3,674,543 2,289,141
Value of distributions reinvested................................................. -- 1,138,344
Cost of shares redeemed........................................................... (10,820,319) (18,333,312)
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) from share transactions................................... (7,145,776) (14,905,827)
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL INCREASE (DECREASE) IN NET ASSETS............................................. (3,795,082) (13,662,576)
NET ASSETS
Beginning of period................................................................. 98,882,901 112,545,477
- ------------------------------------------------------------------------------------------------------------------------------------
End of period....................................................................... $95,087,819 $ 98,882,901
- ------------------------------------------------------------------------------------------------------------------------------------
UNDISTRIBUTED (DISTRIBUTION IN EXCESS OF) NET INVESTMENT INCOME, END OF PERIOD......... $ 547,786 $ --
- ------------------------------------------------------------------------------------------------------------------------------------
CHANGES IN PORTFOLIO SHARES
Shares sold....................................................................... 104,347 68,648
Issued for distributions reinvested............................................... -- 33,178
Shares redeemed................................................................... (306,283) (547,125)
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in fund shares................................................. (201,936) (445,299)
- ------------------------------------------------------------------------------------------------------------------------------------
See Notes to Financial Statements.
13
Notes to Financial Statements June 30, 2006 (unaudited)
- --------------------------------------------------------------------------------
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, 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 June 30, 2006, GE Life and Annuity Assurance Company ("GE Life") and
General Electric Capital Assurance Company, 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 Fund:
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.
14
Notes to Financial Statements June 30, 2006 (unaudited)
- --------------------------------------------------------------------------------
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.
15
Notes to Financial Statements June 30, 2006 (unaudited)
- --------------------------------------------------------------------------------
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 June 30, 2006, 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
- -----------------------------------------------------------------------------------------------------------------
$96,740,321 $9,481,006 $(6,356,186) $3,124,820
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
16
Notes to Financial Statements June 30, 2006 (unaudited)
- --------------------------------------------------------------------------------
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.
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 June 30, 2006.
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 performs certain accounting and certain administration services not
provided by GEAM. For the period ending June 30, 2006, $694 was charged to the
Fund. Administrative services not performed by GEAM or GENPACT were provided by
an unaffiliated service provider.
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 June 30, 2006 were as follows:
Purchases Sales
- --------------------------------------------------------------------------------
$22,966,173 $30,932,144
SECURITY LENDING At June 30, 2006, the Fund participated in securities lending:
Loaned
securities at Cash
market value collateral*
- --------------------------------------------------------------------------------
$2,882,992 $2,946,332
* COLLATERAL OF $2,941,221 INCREASED BY $5,111 ON JULY 3, 2006 TO REFLECT THE
JUNE 30, 2006 CHANGE IN VALUE OF SECURITIES ON LOAN.
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 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.
18
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
19
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.
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 57
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 45
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 60
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 70
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
Ronald R. Pressman, CHIEF EXECUTIVE OFFICER (EFFECTIVE AS OF JULY 1, 2006)
John H. Myers, CHIEF EXECUTIVE OFFICER (RETIRED FROM ALL POSITIONS AS OF
JUNE 30, 2006)
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.]
[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
Semi-Annual Report
JUNE 30, 2006
[GE LOGO OMITTED]
GE Investments Funds, Inc.
S&P 500 Index Fund Contents
- -----------------------------------------------------------------------------
NOTES TO PERFORMANCE................................................... 1
MANAGER REVIEW AND SCHEDULE OF INVESTMENTS............................. 2
NOTES TO SCHEDULE OF INVESTMENTS....................................... 12
FINANCIAL STATEMENTS
Financial Highlights.............................................. 13
Statement of Assets and Liabilities............................... 14
Statement of Operations........................................... 15
Statements of Changes in Net Assets............................... 16
Notes to Financial Statements..................................... 17
ADVISORY AND ADMINISTRATIVE AGREEMENT RENEWAL.......................... 21
ADDITIONAL INFORMATION................................................. 24
INVESTMENT TEAM........................................................ 27
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.
Notes to Performance June 30, 2006 (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.
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.
1
S&P 500 Index Fund
- -----------------------------------------------------------------------------
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 AND MICHAEL FEEHILY.
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.
MICHAEL FEEHILY, CFA, 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.
Q. HOW DID THE S&P 500 INDEX PERFORM COMPARED TO ITS BENCHMARK AND LIPPER PEER
GROUP FOR THE SIX-MONTH PERIOD ENDED JUNE 30, 2006?
A. For the six-month period ended June 30, 2006, the S&P 500 Index Fund
returned 2.53%. The S&P 500 Index, the Fund's benchmark, returned 2.70%
and the Fund's Lipper peer group of 55 of the S&P 500 Index Objective
funds returned an average of 2.54% for the same period.
Q. WHAT MARKET CONDITIONS IMPACTED THE FUND'S PERFORMANCE?
A. Although global equity markets began the year on a positive note and
finished the second quarter with an appealing upturn, their fluctuations
during May and June sorely tested investor nerve. A heady mix of hawkish
wording from the Fed and troublesome inflation data brought steady equity
selling in May, driving volatility measures to levels not seen since 2004.
When the statement accompanying the June 29 Fed decision, which lifted
short-term rates to 5.25%, appeared distinctly more dovish than a jittery
consensus had feared, the first half of 2006 was able to end with a vigorous
rally in both share prices and sentiment.
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 June 30th, 2006, the four largest sectors in the S&P 500 Index
were financials (21.4%), information technology (14.9%), health care (12.3%)
and industrials (11.7%).
2
Q&A
Q. WHY DID THE FUND UNDERPERFORM ITS BENCHMARK?
A. The Fund slightly underperformed 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 six months were Allegheny
Technologies (92%), Archer Daniels Midland (68%), Nucor Corp (65%), Ciena
Corp (61%), and Officemax Inc (61%). The bottom five returning stocks for
the first half of 2006 were Dana Corp (-62%), KB Home (-36%), Goodyear Tire
and Rubber (-36%), St Jude Medical (-35%), and Radio Shack Corp (-33%). The
highest returning sectors for the last six months were energy (13%) and
telecommunication services (12%) while the lowest returning sectors were
information technology (-6%) and health care (-4%).
Q. WHAT WERE THE MAJOR BUYS AND SELLS FOR THE PERIOD AND WHY?
A. For the 2nd quarter of 2006, there were six index changes announced by
Standard & Poors that impacted the Fund. The additions to the S&P 500 were
SanDisk Corp (Apr 19), Legg Mason (Apr 21), Embarq Corp (May 17), Juniper
Networks (Jun 1), Commerce Bancorp (Jun 5), and Consol Energy (June 27). The
deletions for the quarter were Chiron Corp (Apr 19), Guidant Co (Apr 21),
Applied Micro Circuits (May 17), Albertsons (Jun 1), Engelhard Corp (Jun 5),
and Knight-Ridder (Jun 27). Not all the deletions were sold from the fund,
however, as some companies were removed from the index as the result of a
merger or acquisition.
3
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 June 30,
2006.
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 $1,000 = 8.6), then multiply the result by the number
given for your class under the heading "Expenses Paid During Period."
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The second section of the table provides information about hypothetical account
values and hypothetical expenses based on the Fund's actual expense ratio and an
assumed rate of return of 5% per year before expenses, which is not the Fund's
actual return. You may use this information to compare the ongoing costs of
investing in the Fund and other funds. To do so, compare this 5% hypothetical
example with the 5% hypothetical examples that appear in the shareholders
reports of other funds.
Please note that the expenses shown in the table do not reflect any transaction
costs, such as sales charges or redemption fees.
JANUARY 1, 2006 - JUNE 30, 2006
ACCOUNT VALUE AT ACCOUNT VALUE EXPENSES
THE BEGINNING OF AT THE END OF PAID DURING
THE PERIOD ($) THE PERIOD ($) THE PERIOD ($)*
- -------------------------------------------------------------------------------------------------------------------------
Actual Fund Return** 1,000.00 1,025.28 2.04
- -------------------------------------------------------------------------------------------------------------------------
Hypothetical 5% Return
(2.5% for the period) 1,000.00 1,022.55 2.01
- -------------------------------------------------------------------------------------------------------------------------
* EXPENSES ARE EQUAL TO THE FUND'S ANNUALIZED EXPENSE RATIO OF 0.40% (FROM
PERIOD JANUARY 1, 2006 - JUNE 30, 2006), MULTIPLIED BY THE AVERAGE ACCOUNT
VALUE OVER THE PERIOD, MULTIPLIED BY 181/365 (TO REFLECT THE SIX-MONTH
PERIOD).
** ACTUAL FUND RETURN FOR THE SIX-MONTH PERIOD ENDED JUNE 30, 2006 WAS 2.53%.
4
S&P 500 Index Fund
- --------------------------------------------------------------------------------
CHANGE IN VALUE
OF A $10,000 INVESTMENT
[LINE CHART OMITTED, PLOT POINTS ARE AS FOLLOWS]
S&P 500 INDEX S&P 500 INDEX
6/96 $10000.00 $10000.00
12/96 11338.39 11172.20
12/97 14776.95 14891.40
12/98 18950.19 19164.94
12/99 22856.06 23202.58
12/00 20701.66 21071.78
12/01 18162.38 18561.71
12/02 14100.05 14459.22
12/03 18086.61 18613.09
12/04 19978.71 20638.45
12/05 20879.11 21653.55
6/06 21407.01 22238.88
AVERAGE ANNUAL TOTAL RETURN
FOR THE PERIODS ENDED JUNE 30, 2006
- --------------------------------------------------------------------------------
SIX ONE FIVE TEN
MONTHS YEAR YEAR YEAR
- --------------------------------------------------------------------------------
S&P 500 Index Fund 2.53% 8.22% 2.13% 7.91%
- --------------------------------------------------------------------------------
S&P 500 Index 2.70% 8.63% 2.49% 8.32%
- --------------------------------------------------------------------------------
Lipper peer group average* 2.54% 8.25% 2.10% 8.00%
- --------------------------------------------------------------------------------
Inception date 4/15/85
- --------------------------------------------------------------------------------
S&P 500 Index Fund (ending value $21,407)
S&P 500 Index (ending value $22,239)
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 JUNE 30, 2006
as a % of Market Value
- --------------------------------------------------------------------------------
Exxon Mobil Corp. 3.18%
- --------------------------------------------------------------------------------
General Electric Co. 2.93%
- --------------------------------------------------------------------------------
Citigroup, Inc. 2.05%
- --------------------------------------------------------------------------------
Bank of America Corp. 1.88%
- --------------------------------------------------------------------------------
Microsoft Corp. 1.75%
- --------------------------------------------------------------------------------
Procter & Gamble Co. 1.56%
- --------------------------------------------------------------------------------
Johnson & Johnson 1.52%
- --------------------------------------------------------------------------------
Pfizer Inc. 1.48%
- --------------------------------------------------------------------------------
American International Group, Inc. 1.32%
- --------------------------------------------------------------------------------
Altria Group, Inc. 1.32%
- --------------------------------------------------------------------------------
PORTFOLIO COMPOSITION
AS OF JUNE 30, 2006
as a % of Market Value
Market Value of $491,240 (in thousands)
[PIE CHART OMITTED, PLOT POINTS ARE AS FOLLOWS]
Financials 21.1%
Information Technology 14.6%
Healthcare 12.1%
Industrials 11.5%
Consumer Discretionary 10.0%
Energy 10.0%
Consumer Staples 9.5%
Utilities 3.4%
Telecommunication Services 3.3%
Materials 3.0%
Short-Term 1.5%
* LIPPER PERFORMANCE COMPARISONS ARE BASED ON AVERAGE ANNUAL TOTAL RETURNS FOR
THE SIX-MONTH, ONE-YEAR, FIVE-YEAR, AND TEN-YEAR PERIODS INDICATED IN THE S&P
500 INDEX OBJECTIVE FUNDS PEER GROUP CONSISTING OF 55, 54, 46 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 1 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
S&P 500 INDEX FUND
Schedule of Investments June 30, 2006 (unaudited)
- --------------------------------------------------------------------------------
S&P 500 INDEX FUND
- --------------------------------------------------------------------------------
NUMBER
OF SHARES VALUE
- --------------------------------------------------------------------------------
COMMON STOCK -- 98.5%+
CONSUMER DISCRETIONARY -- 10.0%
Amazon.Com, Inc................ 13,000 $ 502,840(a)
Apollo Group, Inc. (Class A)... 6,000 310,020(a)
Autonation, Inc................ 5,772 123,752(a)
Autozone, Inc.................. 2,244 197,921(a)
Bed Bath & Beyond, Inc......... 12,200 404,674(a)
Best Buy Company, Inc.......... 17,200 943,248
Big Lots, Inc.................. 4,400 75,152(a)
Black & Decker Corp............ 3,107 262,417
Brunswick Corp................. 4,068 135,261
Carnival Corp.................. 18,400 768,016
CBS Corp....................... 32,513 879,477
Centex Corp.................... 5,220 262,566
Circuit City Stores, Inc....... 6,126 166,750
Clear Channel Communications,
Inc. ...................... 21,700 671,615 a)
Coach, Inc..................... 15,800 472,420(a)
Comcast Corp. (Class A)........ 88,839 2,908,589(a)
Cooper Tire & Rubber Co........ 2,923 32,562
D.R. Horton, Inc............... 11,100 264,402
Darden Restaurants, Inc........ 5,329 209,963
Dillard's, Inc. (Class A)...... 2,295 73,096
Dollar General Corp............ 13,191 184,410
Dow Jones & Company, Inc....... 2,442 85,494
Eastman Kodak Co............... 11,875 282,387
Family Dollar Stores, Inc...... 6,200 151,466
Federated Department Stores
Inc. ....................... 22,630 828,258
Ford Motor Co.................. 76,699 531,524
Fortune Brands, Inc............ 6,141 436,072
Gannett Company, Inc........... 9,908 554,154
General Motors Corp............ 23,747 707,423
Genuine Parts Co............... 7,496 312,283
Goodyear Tire & Rubber Co...... 6,419 71,251(a)
H&R Block, Inc................. 13,508 322,301
Harley-Davidson, Inc........... 11,600 636,724
Harman International
Industries Inc.............. 2,800 239,036
Harrah's Entertainment, Inc.... 7,835 557,695
Hasbro, Inc.................... 7,896 142,997
Hilton Hotels Corp............. 13,588 384,269
International Game Technology.. 14,600 553,924
Interpublic Group of
Companies, Inc.............. 16,830 140,530(a)
J.C. Penney Company, Inc....... 9,787 660,720
Johnson Controls, Inc.......... 8,282 680,946
Jones Apparel Group, Inc....... 5,000 158,950
KB Home........................ 3,460 158,641
Kohl's Corp.................... 14,500 857,240(a)
Leggett & Platt Incorporated... 8,000 199,840
Lennar Corp. (Class A)......... 5,900 261,783
Limited Brands................. 15,088 386,102
Liz Claiborne Inc.............. 4,430 164,176
NUMBER
OF SHARES VALUE
- --------------------------------------------------------------------------------
Lowe's Companies, Inc.......... 32,728 $ 1,985,608
Marriott International Inc.
(Class A) .................. 13,844 527,733
Mattel, Inc.................... 16,251 268,304
McDonald's Corp................ 52,234 1,755,062
McGraw-Hill Companies Inc...... 14,840 745,413
Meredith Corp.................. 1,998 98,981
New York Times Co. (Class A)... 6,088 149,400
Newell Rubbermaid Inc.......... 11,356 293,325
News Corp. (Class A)........... 99,100 1,900,738
Nike Inc. (Class B)............ 8,104 656,424
Nordstrom, Inc................. 8,984 327,916
Office Depot, Inc.............. 11,800 448,400(a)
OfficeMax, Inc................. 3,023 123,187
Omnicom Group, Inc............. 7,100 632,539
Pulte Homes, Inc............... 8,988 258,765
RadioShack Corp................ 5,956 83,384
Sears Holdings Corp............ 4,019 622,302(a)
Sherwin-Williams Co............ 4,663 221,399
Snap-On Incorporated........... 2,409 97,372
Stanley Works.................. 3,026 142,888
Staples, Inc................... 30,450 740,544
Starbucks Corp................. 32,500 1,227,200(a)
Starwood Hotels & Resorts
Worldwide, Inc.............. 9,300 561,162
Target Corp.................... 36,552 1,786,296
The E.W. Scripps Co. (Class A). 3,300 142,362
The Gap, Inc................... 22,518 391,813
The Home Depot, Inc............ 86,718 3,103,637
The Walt Disney Co............. 92,037 2,761,110
Tiffany & Co................... 6,400 211,328
Time Warner, Inc............... 179,714 3,109,052(d)
TJX Companies, Inc............. 19,280 440,741
Tribune Co..................... 10,818 350,828
Univision Communications Inc.
(Class A)................... 9,300 311,550(a)
VF Corp........................ 3,702 251,440
Viacom Inc. (Class B).......... 30,113 1,079,250(a)
Wendy's International, Inc..... 4,731 275,770
Whirlpool Corp................. 3,443 284,564
Yum! Brands, Inc............... 11,422 574,184
49,257,308
CONSUMER STAPLES -- 9.5%
Alberto-Culver Co.............. 3,399 165,599(a)
Altria Group, Inc.............. 88,079 6,467,641
Anheuser-Busch Companies, Inc.. 32,308 1,472,922(d)
Archer-Daniels-Midland Co...... 27,486 1,134,622
Avon Products, Inc............. 19,028 589,868
Brown-Forman Corp. (Class B)... 3,458 247,074
Campbell Soup Co............... 7,976 295,989
Clorox Co...................... 6,384 389,232
Coca-Cola Enterprises, Inc..... 13,100 266,847
Colgate-Palmolive Co........... 21,672 1,298,153
ConAgra Foods, Inc............. 21,868 483,501
Constellation Brands, Inc.
(Class A) .................. 8,000 200,000(a)
Costco Wholesale Corp.......... 19,866 1,134,945
CVS Corp....................... 34,712 1,065,658
Dean Foods Co.................. 6,000 223,140(a)
See Notes to Schedule of Investments on page 12 and Notes to Financial
Statements.
6
S&P 500 INDEX FUND
Schedule of Investments June 30, 2006 (unaudited)
- --------------------------------------------------------------------------------
NUMBER
OF SHARES VALUE
- --------------------------------------------------------------------------------
General Mills, Inc............. 15,222 $ 786,369
HJ Heinz Co.................... 14,297 589,322
Kellogg Co..................... 10,490 508,031
Kimberly-Clark Corp............ 19,336 1,193,031
Kroger Co...................... 30,930 676,130
McCormick & Company, Inc....... 5,400 181,170
Molson Coors Brewing Co.
(Class B) 2,265 153,748
Pepsi Bottling Group, Inc...... 5,400 173,610
PepsiCo, Inc................... 69,674 4,183,227
Procter & Gamble Co............ 137,945 7,669,742
Reynolds American Inc.......... 3,700 426,610
Safeway Inc.................... 18,800 488,800
Sara Lee Corp.................. 32,857 526,369
Supervalu Inc.................. 8,214 252,167
Sysco Corp..................... 26,544 811,185
The Coca-Cola Co............... 86,251 3,710,518(d)
The Estee Lauder Companies Inc.
(Class A)................... 4,900 189,483
The Hershey Co................. 7,384 406,637
Tyson Foods, Inc. (Class A).... 10,300 153,058
UST Inc........................ 6,679 301,824
Walgreen Co.................... 42,300 1,896,732
Wal-Mart Stores, Inc........... 105,424 5,078,274
Whole Foods Market, Inc........ 5,900 381,376
WM Wrigley Jr. Co.............. 9,585 434,776
46,607,380
ENERGY -- 10.0%
Anadarko Petroleum Corp........ 19,656 937,395
Apache Corp.................... 13,748 938,301
Baker Hughes Incorporated...... 14,450 1,182,732
BJ Services Co................. 13,800 514,188
Chesapeake Energy Corp......... 15,400 465,850
Chevron Corporation............ 93,369 5,794,480
ConocoPhillips................. 69,388 4,546,996
Consol Energy, Inc............. 7,700 359,744
Devon Energy Corp.............. 18,492 1,117,102
El Paso Corp................... 27,282 409,230
EOG Resources, Inc............. 10,400 721,136
Exxon Mobil Corp............... 254,524 15,615,047(d)
Halliburton Co................. 21,960 1,629,652
Hess Corp...................... 9,870 521,629(d)
Kerr-McGee Corp................ 9,396 651,613
Kinder Morgan, Inc............. 4,400 439,516
Marathon Oil Corp.............. 15,121 1,259,579
Murphy Oil Corp................ 6,800 379,848
Nabors Industries Ltd.......... 13,400 452,786(a)
National Oilwell Varco, Inc.... 7,600 481,232(a)
Noble Corp..................... 5,800 431,636
Occidental Petroleum Corp...... 17,910 1,836,670
Rowan Companies, Inc........... 4,477 159,336
Schlumberger Ltd............... 49,508 3,223,466
Sunoco, Inc.................... 5,476 379,432
The Williams Companies, Inc.... 25,186 588,345
Transocean Inc................. 13,866 1,113,717(a)
Valero Energy Corp............. 25,800 1,716,216
Weatherford International Ltd.. 14,800 734,376(a)
XTO Energy, Inc................ 15,133 669,938
49,271,188
NUMBER
OF SHARES VALUE
- --------------------------------------------------------------------------------
FINANCIALS -- 21.1%
ACE Ltd........................ 13,600 $ 688,024
AFLAC Incorporated............. 21,000 973,350
Allstate Corp.................. 26,976 1,476,396(d)
AMBAC Financial Group, Inc..... 4,500 364,950
American Express Co............ 52,122 2,773,933(d)
American International Group,
Inc. 109,609 6,472,411(d)
Ameriprise Financial, Inc...... 10,104 451,346
AmSouth Bancorp................ 15,050 398,072
AON Corp....................... 13,536 471,324
Apartment Investment &
Management Co. (Class A)
(REIT) 4,300 186,835
Archstone-Smith Trust (REIT)... 8,800 447,656
Bank of America Corp........... 192,421 9,255,450
BB&T Corp...................... 22,400 931,616
Boston Properties, Inc. (REIT). 3,900 352,560
Capital One Financial Corp..... 12,600 1,076,670
Charles Schwab Corp............ 43,111 688,914
Chubb Corp..................... 16,894 843,011
Cincinnati Financial Corp...... 7,592 356,900
CIT Group, Inc................. 8,300 434,007
Citigroup, Inc................. 209,076 10,085,826(d)
Comerica Incorporated.......... 6,856 356,443
Commerce Bancorp Inc........... 7,800 278,226
Compass Bancshares, Inc........ 5,100 283,560
Countrywide Financial Corp..... 25,598 974,772
E*Trade Financial Corp......... 17,400 397,068(a)
Equity Office Properties
Trust (REIT)................ 15,800 576,858
Equity Residential (REIT)...... 12,300 550,179
Federal Home Loan
Mortgage Corp............... 29,365 1,674,099
Federal National Mortgage
Assoc. ..................... 40,676 1,956,516
Federated Investors Inc.
(Class B) .................. 3,600 113,400
Fifth Third Bancorp............ 23,116 854,136
First Horizon National Corp.... 5,000 201,000
Franklin Resources, Inc........ 6,500 564,265
Genworth Financial, Inc.
(Class A) .................. 15,100 526,084
Golden West Financial Corp..... 10,930 811,006
Goldman Sachs Group, Inc....... 18,100 2,722,783
Huntington Bancshares
Incorporated................ 9,934 234,244
Janus Capital Group, Inc....... 9,300 166,470
JPMorgan Chase & Co............ 145,976 6,130,992(d)
Keycorp........................ 16,928 603,991
Kimco Realty Corp. (REIT)...... 8,800 321,112
Legg Mason, Inc................ 5,600 557,312
Lehman Brothers Holdings, Inc.. 22,800 1,485,420
Lincoln National Corp.......... 12,242 690,938
Loews Corp..................... 17,196 609,598
M&T Bank Corp.................. 3,400 400,928
Marsh & McLennan
Companies, Inc.............. 23,308 626,752
Marshall & Ilsley Corp......... 9,300 425,382
MBIA Inc....................... 5,535 324,074
Mellon Financial Corp.......... 17,328 596,603
Merrill Lynch & Company, Inc... 38,634 2,687,381
Metlife, Inc................... 32,200 1,648,962
See Notes to Schedule of Investments on page 12 and Notes to Financial
Statements.
7
S&P 500 INDEX FUND
Schedule of Investments June 30, 2006 (unaudited)
- --------------------------------------------------------------------------------
NUMBER
OF SHARES VALUE
- --------------------------------------------------------------------------------
MGIC Investment Corp........... 3,559 $ 231,335
Moody's Corp................... 10,384 565,513
Morgan Stanley................. 45,096 2,850,518
National City Corp............. 22,564 816,591
North Fork Bancorporation,
Inc. ....................... 19,300 582,281
Northern Trust Corp............ 7,900 436,870
Plum Creek Timber
Company, Inc (REIT)......... 7,600 269,800
Principal Financial Group...... 11,900 662,235
Progressive Corp............... 32,600 838,146
Prologis (REIT)................ 10,400 542,048
Prudential Financial, Inc...... 20,600 1,600,620
Public Storage, Inc. (REIT).... 3,600 273,240
Regions Financial Corp......... 18,982 628,684
Safeco Corp.................... 4,981 280,679
Simon Property Group, Inc.
(REIT) 7,800 646,932
SLM Corp....................... 17,400 920,808
Sovereign Bancorp, Inc......... 15,750 319,883
State Street Corp.............. 13,800 801,642(c)
SunTrust Banks, Inc............ 15,429 1,176,616
Synovus Financial Corp......... 13,550 362,869
T Rowe Price Group, Inc........ 11,400 431,034
The Bank of New York
Company, Inc................ 32,410 1,043,602(d)
The Bear Stearns Companies,
Inc. ....................... 5,069 710,066
The Hartford Financial
Services Group, Inc......... 12,604 1,066,298
The PNC Financial Services
Group, Inc.................. 12,508 877,686
The St. Paul Travelers
Companies, Inc.............. 29,099 1,297,233
Torchmark Corp................. 4,300 261,096
UnumProvident Corp............. 12,789 231,865
US Bancorp..................... 74,799 2,309,793
Vornado Realty Trust (REIT).... 5,000 487,750
Wachovia Corp.................. 67,711 3,661,811
Washington Mutual Inc.......... 40,681 1,854,240
Wells Fargo & Co............... 70,618 4,737,055
XL Capital Ltd................. 7,300 447,490
Zions Bancorporation........... 4,400 342,936
103,647,070
HEALTHCARE -- 12.1%
Abbott Laboratories............ 64,596 2,817,032(d)
Aetna, Inc..................... 24,008 958,639
Allergan, Inc.................. 6,452 692,042
AmerisourceBergen Corp......... 9,142 383,233
Amgen, Inc..................... 49,448 3,225,493(a,d)
Applera Corp. - Applied
Biosystems Group............ 8,200 265,270
Barr Pharmaceuticals, Inc...... 4,400 209,836(a)
Bausch & Lomb Inc.............. 2,228 109,261
Baxter International, Inc...... 27,348 1,005,312
Becton Dickinson & Co.......... 10,670 652,257
Biogen Idec, Inc............... 14,400 667,152(a)
Biomet, Inc.................... 10,415 325,885
Boston Scientific Corp......... 51,478 866,890(a)
Bristol-Myers Squibb Co........ 82,108 2,123,313(d)
NUMBER
OF SHARES VALUE
- --------------------------------------------------------------------------------
C.R. Bard, Inc................. 4,302 $ 315,165
Cardinal Health, Inc........... 17,701 1,138,705
Caremark Rx, Inc............... 18,470 921,099
Cigna Corp..................... 4,963 488,905
Coventry Health Care, Inc...... 6,800 373,592(a)
Eli Lilly & Co................. 47,716 2,637,263
Express Scripts, Inc........... 6,200 444,788(a)
Fisher Scientific International
Inc ........................ 5,400 394,470(a)
Forest Laboratories, Inc....... 14,100 545,529(a)
Genzyme Corp................... 11,100 677,655(a)
Gilead Sciences, Inc........... 19,400 1,147,704(a)
HCA Inc........................ 17,200 742,180
Health Management
Associates Inc. (Class A)... 10,600 208,926
Hospira, Inc................... 6,939 297,961(a)
Humana Inc..................... 7,127 382,720(a)
IMS Health Inc................. 8,757 235,125
Johnson & Johnson.............. 124,793 7,477,597
King Pharmaceuticals, Inc...... 10,333 175,661(a)
Laboratory Corporation of
America Holdings............ 5,200 323,596(a)
Manor Care, Inc................ 3,037 142,496
McKesson Corp.................. 13,061 617,524
Medco Health Solutions, Inc.... 12,783 732,210(a)
Medimmune, Inc................. 10,800 292,680(a)
Medtronic Inc.................. 51,032 2,394,421
Merck & Company, Inc........... 92,150 3,357,025
Millipore Corp................. 2,245 141,413(a)
Mylan Laboratories Inc......... 9,300 186,000
Patterson Companies, Inc....... 6,200 216,566(a)
PerkinElmer, Inc............... 5,410 113,069
Pfizer Inc..................... 308,877 7,249,343
Quest Diagnostics Inc.......... 6,800 407,456
Schering-Plough Corp........... 62,958 1,198,091(d)
St. Jude Medical, Inc.......... 15,092 489,283(a)
Stryker Corp................... 12,200 513,742
Tenet Healthcare Corp.......... 19,295 134,679(a)
Thermo Electron Corp........... 6,928 251,071(a)
UnitedHealth Group
Incorporated 56,976 2,551,385
Waters Corp.................... 4,700 208,680(a)
Watson Pharmaceuticals, Inc.... 4,400 102,432(a)
WellPoint, Inc................. 27,000 1,964,790(a)
Wyeth.......................... 56,854 2,524,886(d)
Zimmer Holdings, Inc........... 10,300 584,216(a)
59,603,714
INDUSTRIALS -- 11.5%
Allied Waste Industries, Inc... 9,000 102,240(a)
American Power
Conversion Corp............. 7,000 136,430
American Standard
Companies, Inc.............. 7,800 337,506
Avery Dennison Corp............ 4,655 270,269
Boeing Co...................... 33,616 2,753,487(d)
Burlington Northern
Santa Fe Corp............... 15,249 1,208,483
Caterpillar, Inc............... 28,132 2,095,271
Cendant Corp................... 42,446 691,445(d)
See Notes to Schedule of Investments on page 12 and Notes to Financial
Statements.
8
S&P 500 INDEX FUND
Schedule of Investments June 30, 2006 (unaudited)
- --------------------------------------------------------------------------------
NUMBER
OF SHARES VALUE
- --------------------------------------------------------------------------------
Cintas Corp.................... 5,600 $ 222,656
Cooper Industries Ltd.......... 3,771 350,401
CSX Corp....................... 9,138 643,681
Cummins, Inc................... 1,989 243,155
Danaher Corp................... 10,100 649,632
Deere & Co..................... 9,720 811,523
Dover Corp..................... 8,358 413,136
Eaton Corp..................... 6,400 482,560
Emerson Electric Co............ 17,474 1,464,496
Equifax, Inc................... 5,800 199,172
FedEx Corp..................... 12,760 1,491,134
Fluor Corp..................... 3,652 339,380
General Dynamics Corp.......... 17,064 1,117,009
General Electric Co............ 437,395 14,416,539(f)
Goodrich Corp.................. 5,101 205,519
Honeywell International Inc.... 35,216 1,419,205
Illinois Tool Works Inc........ 17,394 826,215
Ingersoll-Rand Company Ltd.
(Class A)................... 13,998 598,834
ITT Industries, Inc............ 7,826 387,387
L-3 Communications
Holdings, Inc............... 5,300 399,726
Lockheed Martin Corp........... 14,752 1,058,308
Masco Corp..................... 16,390 485,800
Monster Worldwide, Inc......... 5,300 226,098(a)
Navistar International Corp.... 2,795 68,785(a)
Norfolk Southern Corp.......... 17,301 920,759
Northrop Grumman Corp.......... 14,322 917,467
Paccar Inc..................... 7,210 593,960
Pall Corp...................... 4,978 139,384
Parker Hannifin Corp........... 5,015 389,164
Pitney Bowes Inc............... 9,132 377,152
Raytheon Co.................... 18,824 838,986
Robert Half International Inc.. 7,400 310,800
Rockwell Automation, Inc....... 7,468 537,771
Rockwell Collins, Inc.......... 7,168 400,476
RR Donnelley & Sons Co......... 9,552 305,186
Ryder System, Inc.............. 2,431 142,043
Southwest Airlines Co.......... 30,649 501,724
Textron Inc.................... 5,468 504,040
3M Co.......................... 31,880 2,574,948
Tyco International Ltd......... 85,139 2,341,323
Union Pacific Corp............. 11,154 1,036,876
United Parcel Service Inc.
(Class B) 45,500 3,746,015
United Technologies Corp....... 42,772 2,712,600
W.W. Grainger, Inc............. 3,082 231,859
Waste Management, Inc.......... 22,912 822,083
56,460,098
INFORMATION TECHNOLOGY -- 14.6%
ADC Telecommunications, Inc.... 5,057 85,261(a)
Adobe Systems Incorporated..... 25,584 776,730(a,d)
Advanced Micro Devices, Inc.... 20,574 502,417(a,d)
Affiliated Computer Services,
Inc. Class A)............... 5,000 258,050(a)
Agilent Technologies, Inc...... 18,385 580,231(a)
Altera Corp.................... 14,900 261,495(a)
NUMBER
OF SHARES VALUE
- --------------------------------------------------------------------------------
Analog Devices, Inc............ 15,600 $ 501,384
Andrew Corp.................... 6,356 56,314(a)
Apple Computer, Inc............ 35,740 2,041,469(a)
Applied Materials, Inc......... 65,300 1,063,084(d)
Autodesk, Inc.................. 9,948 342,808(a)
Automatic Data Processing, Inc. 24,518 1,111,891
Avaya, Inc..................... 16,801 191,867(a)
BMC Software, Inc.............. 9,500 227,050(a)
Broadcom Corp. (Class A)....... 18,650 560,433(a)
CA, Inc........................ 19,281 396,225
Ciena Corp..................... 22,700 109,187(a)
Cisco Systems, Inc............. 256,504 5,009,523(a,d)
Citrix Systems, Inc............ 7,500 301,050(a)
Computer Sciences Corp......... 8,082 391,492(a)
Compuware Corp................. 17,100 114,570(a)
Comverse Technology, Inc....... 8,500 168,045(a)
Convergys Corp................. 5,900 115,050(a)
Corning Incorporated........... 65,639 1,587,807(a)
Dell, Inc...................... 96,248 2,349,414(a,d)
eBay, Inc...................... 49,000 1,435,210(a)
Electronic Arts, Inc........... 13,000 559,520(a)
Electronic Data Systems Corp... 21,100 507,666
EMC Corporation................ 98,714 1,082,893(a)
First Data Corp................ 32,460 1,461,998
Fiserv, Inc.................... 7,150 324,324(a)
Freescale Semiconductor Inc.
(Class B)................... 17,119 503,299(a)
Gateway, Inc................... 11,200 21,280(a)
Google, Inc. (Class A)......... 8,658 3,630,559(a)
Hewlett-Packard Co............. 117,165 3,711,787
Intel Corp..................... 244,908 4,641,007
International Business
Machines Corp............... 65,330 5,018,651
Intuit Inc..................... 7,300 440,847(a)
Jabil Circuit, Inc............. 7,100 181,760
JDS Uniphase Corp.............. 70,000 177,100(a)
Juniper Networks, Inc.......... 23,900 382,161(a)
Kla-Tencor Corp................ 8,500 353,345
Lexmark International Inc.
(Class A)................... 4,400 245,652(a)
Linear Technology Corp......... 12,500 418,625
LSI Logic Corp................. 15,992 143,128(a)
Lucent Technologies Inc........ 193,218 467,588(a,d)
Maxim Integrated Products, Inc. 13,600 436,696
Micron Technology, Inc......... 30,754 463,155(a)
Microsoft Corp................. 369,812 8,616,620(d)
Molex, Inc..................... 5,850 196,385
Motorola, Inc.................. 103,650 2,088,548
National Semiconductor Corp.... 14,266 340,244
NCR Corp....................... 8,000 293,120(a)
Network Appliance, Inc......... 15,700 554,210(a)
Novell, Inc.................... 12,866 85,302(a)
Novellus Systems, Inc.......... 5,100 125,970(a)
Nvidia Corp.................... 14,600 310,834(a)
Oracle Corp.................... 164,952 2,390,154(a)
Parametric Technology Corp..... 4,202 53,407(a)
Paychex, Inc................... 13,925 542,797
PMC - Sierra, Inc.............. 7,100 66,740(a)
See Notes to Schedule of Investments on page 12 and Notes to Financial
Statements.
9
S&P 500 INDEX FUND
Schedule of Investments June 30, 2006 (unaudited)
- --------------------------------------------------------------------------------
NUMBER
OF SHARES VALUE
- --------------------------------------------------------------------------------
QLogic Corp.................... 6,800 $ 117,232(a)
QUALCOMM, Inc.................. 70,300 2,816,921
Sabre Holdings Corp. (Class A). 5,508 121,176
SanDisk Corp................... 8,000 407,840(a)
Sanmina-SCI Corp............... 20,300 93,380(a)
Solectron Corp................. 37,700 128,934(a)
Sun Microsystems, Inc.......... 145,360 603,244(a)
Symantec Corp.................. 43,845 681,351(a)
Symbol Technologies, Inc....... 10,250 110,598
Tektronix, Inc................. 3,476 102,264
Tellabs, Inc................... 19,452 258,906(a)
Teradyne, Inc.................. 8,000 111,440(a)
Texas Instruments Incorporated. 66,036 2,000,230
Unisys Corp.................... 13,509 84,837(a)
VeriSign Inc................... 10,400 240,968(a)
Xerox Corp..................... 38,490 535,396(a)
Xilinx, Inc.................... 14,700 332,955
Yahoo! Inc..................... 52,500 1,732,500(a)
71,855,601
MATERIALS -- 3.0%
Air Products & Chemicals, Inc.. 9,532 609,285(d)
Alcoa, Inc..................... 36,640 1,185,670(d)
Allegheny Technologies
Incorporated................ 3,851 266,643
Ashland, Inc................... 2,907 193,897
Ball Corp...................... 4,316 159,865
Bemis Co....................... 4,162 127,440
Dow Chemical Co................ 40,194 1,568,772
E.I. du Pont de Nemours and
Co ......................... 39,113 1,627,101
Eastman Chemical Co............ 3,659 197,586
Ecolab Inc..................... 8,052 326,750
Freeport-McMoRan Copper &
Gold Inc. (Class B)......... 7,784 431,311
Hercules Incorporated.......... 4,228 64,519(a)
International Flavors &
Fragrances Inc.............. 3,147 110,900
International Paper Co......... 20,575 664,573
Louisiana-Pacific Corp......... 4,422 96,842
MeadWestvaco Corp.............. 7,900 220,647
Monsanto Co.................... 11,358 956,230
Newmont Mining Corp............ 19,028 1,007,152
Nucor Corp..................... 13,236 718,053
Pactiv Corp.................... 5,548 137,313(a)
Phelps Dodge Corp.............. 8,720 716,435
PPG Industries, Inc............ 7,037 464,442
Praxair, Inc................... 13,370 721,980
Rohm & Haas Co................. 5,914 296,410
Sealed Air Corp................ 3,557 185,249
Sigma-Aldrich Corp............. 2,691 195,474
Temple-Inland Inc.............. 4,552 195,144
United States Steel Corp....... 4,565 320,098
Vulcan Materials Co............ 4,200 327,600
Weyerhaeuser Co................ 10,360 644,910
14,738,291
NUMBER
OF SHARES VALUE
- --------------------------------------------------------------------------------
TELECOMMUNICATION SERVICES -- 3.3%
Alltel Corp.................... 16,194 $ 1,033,663
AT&T, Inc...................... 163,229 4,552,457
BellSouth Corp................. 75,998 2,751,128(d)
CenturyTel, Inc................ 4,750 176,463
Citizens Communications Co..... 14,100 184,005
Embarq Corp.................... 6,370 261,106(a)
Qwest Communications
International Inc........... 65,548 530,283(a)
Sprint Corporation............. 124,600 2,490,754
Verizon Communications Inc..... 122,786 4,112,103
16,091,962
UTILITIES -- 3.4%
AES Corp....................... 27,500 507,375(a)
Allegheny Energy, Inc.......... 6,600 244,662(a)
Ameren Corp.................... 8,542 431,371
American Electric Power
Company, Inc................ 16,725 572,831(d)
Centerpoint Energy, Inc........ 13,818 172,725
CMS Energy Corp................ 8,600 111,284(a)
Consolidated Edison, Inc....... 10,207 453,599
Constellation Energy Group,
Inc. 7,503 409,064
Dominion Resources, Inc........ 14,718 1,100,759
DTE Energy Co.................. 7,766 316,387
Duke Energy Corp............... 52,554 1,543,511
Dynegy Inc. (Class A).......... 15,500 84,785(a)
Edison International........... 13,542 528,138
Entergy Corp................... 8,847 625,925
Exelon Corp.................... 28,026 1,592,718
FirstEnergy Corp............... 13,920 754,603
FPL Group, Inc................. 17,362 718,440
KeySpan Corp................... 7,200 290,880
Nicor Inc...................... 2,043 84,785
NiSource Inc................... 11,615 253,672
Peoples Energy Corp............ 1,921 68,983
PG&E Corp...................... 14,254 559,897
Pinnacle West Capital Corp..... 4,000 159,640
PPL Corp....................... 16,044 518,221
Progress Energy, Inc........... 10,356 443,962
Public Service Enterprise
Group Incorporated.......... 10,759 711,385
Sempra Energy.................. 11,175 508,239
Southern Co.................... 31,358 1,005,024
TECO Energy, Inc............... 8,600 128,484
TXU Corp....................... 19,672 1,176,189
Xcel Energy Inc................ 17,180 329,512
16,407,050
TOTAL INVESTMENTS IN SECURITIES
(COST $472,079,740).......... 483,939,662
See Notes to Schedule of Investments on page 12 and Notes to Financial
Statements.
10
S&P 500 INDEX FUND
Schedule of Investments June 30, 2006 (unaudited)
- --------------------------------------------------------------------------------
NUMBER
OF SHARES VALUE
- --------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS -- 1.5%
SHORT-TERM INVESTMENTS -- 1.2%
GEI Short Term Investment Fund
6.93%........................ 5,813,592 $ 5,813,592(b,e)
Money Market Obligations Trust
5.00%........................ 426 426(g)
5,814,018
PRINCIPAL
AMOUNT
- -------------------------------------------
U.S. GOVERNMENT -- 0.3%
U.S. Treasury Bills
4.70% 09/07/06............ $1,500,000 1,486,683
TOTAL SHORT-TERM INVESTMENTS
(COST $7,300,701)............ 7,300,701
TOTAL INVESTMENTS
(COST $479,380,441).......... 491,240,363
OTHER ASSETS AND LIABILITIES,
NET -- 0.0%*................ 230,218
------------
NET ASSETS -- 100.0% .......... $491,470,581
============
- --------------------------------------------------------------------------------
OTHER INFORMATION
- --------------------------------------------------------------------------------
The GEI S&P 500 Index had the following long futures contracts open at June 30,
2006 (unaudited):
NUMBER CURRENT
EXPIRATION OF NOTIONAL UNREALIZED
DESCRIPTION DATE CONTRACTS VALUE APPRECIATION
- --------------------------------------------------------------------------------
S&P Mini 500
Index
Futures September 2006 133 $8,508,010 $118,969
See Notes to Schedule of Investments on page 12 and Notes to Financial
Statements.
11
Notes to Schedule of Investments June 30, 2006 (unaudited)
- --------------------------------------------------------------------------------
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 June 30, 2006, 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 Trust.
(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 June 30, 2006.
* Less than 0.1%
Abbreviations:
REIT Real Estate Investment Trust
TBA To Be Announced
12
Financial Highlights
Selected data based on a share outstanding throughout the periods indicated
- ------------------------------------------------------------------------------------------------------------------------------------
S&P 500 INDEX FUND
6/30/06+ 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 ........... $22.94 $22.30 $20.51 $16.18 $21.19 $24.71
INCOME/(LOSS) FROM INVESTMENT OPERATIONS:
Net investment income ....................... 0.19 0.36 0.36 0.24 0.24 0.22
Net realized and unrealized
gains/(losses) on investments ............ 0.39 0.65 1.79 4.33 (4.98) (3.25)
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL INCOME/(LOSS) FROM INVESTMENT OPERATIONS . 0.58 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 ................. $23.52 $22.94 $22.30 $20.51 $16.18 $21.19
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN (A) ............................... 2.53% 4.51% 10.46% 28.27% (22.37)% (12.27)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in thousands) .... $491,471 $531,015 $601,008 $597,185 $449,173 $650,169
Ratios to average net assets:
Net investment income* ................... 1.53% 1.47% 1.62% 1.41% 1.20% 0.99%
Expenses* ................................ 0.40% 0.40% 0.40% 0.37% 0.40% 0.39%
Portfolio turnover rate ..................... 3% 4% 5% 5% 11% 7%
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.
* Annualized for periods less than one year.
+ Unaudited.
See Notes to Financial Statements.
13
<page>
Statement of Assets
and Liabilities JUNE 30, 2006 (UNAUDITED)
- ------------------------------------------------------------------------------------------------------------------------------------
S&P 500
INDEX FUND
- ------------------------------------------------------------------------------------------------------------------------------------
ASSETS
Investments in securities, at market (cost $454,608,709)............................................... $469,523,123
Investments in affiliated securities, at market (cost $17,471,031)..................................... 14,416,539
Short-term Investments (at amortized cost) ............................................................ 1,487,109
Short-term affiliated investments (at amortized cost).................................................. 5,813,592
Income receivables .................................................................................... 576,269
Receivable for fund shares sold........................................................................ 31,352
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS....................................................................................... 491,847,984
- ------------------------------------------------------------------------------------------------------------------------------------
LIABILITIES
Payable for fund shares redeemed....................................................................... 198,053
Payable to GEAM........................................................................................ 158,070
Variation margin payable............................................................................... 21,280
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES.................................................................................. 377,403
- ------------------------------------------------------------------------------------------------------------------------------------
NET ASSETS................................................................................................ $491,470,581
- ------------------------------------------------------------------------------------------------------------------------------------
NET ASSETS CONSIST OF:
Capital paid in ....................................................................................... 486,774,393
Undistributed (distribution in excess of) net investment income ....................................... 3,949,261
Accumulated net realized gain (loss)................................................................... (11,231,964)
Net unrealized appreciation/(depreciation) on:
Investments......................................................................................... 11,859,922
Futures............................................................................................. 118,969
- ------------------------------------------------------------------------------------------------------------------------------------
NET ASSETS................................................................................................ $491,470,581
- ------------------------------------------------------------------------------------------------------------------------------------
Shares outstanding ($0.01 par value; unlimited shares authorized)......................................... 20,895,464
Net asset value per share................................................................................. $23.52
See Notes to Financial Statements.
14
<page>
Statement of Operations
FOR THE SIX MONTHS ENDED JUNE 30, 2006 (UNAUDITED)
- ------------------------------------------------------------------------------------------------------------
S&P 500
INDEX FUND
- ------------------------------------------------------------------------------------------------------------
INVESTMENT INCOME
INCOME:
Dividend ........................................................................ $ 4,601,945
Dividend from affliated investments ............................................. 228,347
Interest ........................................................................ 32,391
Interest from affliated investments ............................................. 116,370
- ------------------------------------------------------------------------------------------------------------
TOTAL INCOME ...................................................................... 4,979,053
- ------------------------------------------------------------------------------------------------------------
EXPENSES:
Advisory and administrative fees ................................................ 906,322
Professional fees ............................................................... 39,904
Registration expenses ........................................................... 31,914
Custody and accounting expenses ................................................. 23,032
Trustee's fees .................................................................. 7,641
Transfer agent .................................................................. 89
Other expenses .................................................................. 20,890
- ------------------------------------------------------------------------------------------------------------
TOTAL EXPENSES .................................................................... 1,029,792
- ------------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME (LOSS)....................................................... 3,949,261
- ------------------------------------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS
REALIZED GAIN (LOSS) ON:
Investments .................................................................. (1,068,810)
Futures ...................................................................... (205,704)
INCREASE (DECREASE) IN UNREALIZED APPRECIATION/
(DEPRECIATION) ON:
Investments .................................................................. 10,854,002
Futures ...................................................................... 200,951
- ------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments .......................... 9,780,439
- ------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS ................... $13,729,700
- ------------------------------------------------------------------------------------------------------------
See Notes to Financial Statements.
15
<page>
Statements of
Changes in Net Assets
- ------------------------------------------------------------------------------------------------------------------------------------
S&P 500
INDEX FUND
- ------------------------------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 2006 DECEMBER 31,
(UNAUDITED) 2005
- ------------------------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net investments income (loss)..................................................... $ 3,949,261 $ 8,198,211
Net realized gain (loss) on investments, futures, written options,
foreign currency transactions and swaps......................................... (1,274,514) 1,726,089
Net increase (decrease) in unrealized appreciation on investments, futures,
written options and foreign currency translation................................ 11,054,953 13,384,710
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) from operations........................................... 13,729,700 23,309,010
- ------------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income............................................................. -- (8,404,383)
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS................................................................. -- (8,404,383)
- ------------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets from operations and distributions................. 13,729,700 14,904,627
- ------------------------------------------------------------------------------------------------------------------------------------
SHARE TRANSACTIONS:
Proceeds from sale of shares...................................................... 3,442,097 12,229,014
Value of distributions reinvested................................................. -- 8,404,349
Cost of shares redeemed........................................................... (56,716,202) (105,531,086)
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) from share transactions.................................. (53,274,105) (84,897,723)
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL INCREASE (DECREASE) IN NET ASSETS............................................. (39,544,405) (69,993,096)
- ------------------------------------------------------------------------------------------------------------------------------------
NET ASSETS
Beginning of period................................................................. 531,014,986 601,008,082
- ------------------------------------------------------------------------------------------------------------------------------------
End of period....................................................................... $491,470,581 $531,014,986
- ------------------------------------------------------------------------------------------------------------------------------------
UNDISTRIBUTED (DISTRIBUTION IN EXCESS OF) NET INVESTMENT INCOME, END OF PERIOD ........ $ 3,949,261 $ --
- ------------------------------------------------------------------------------------------------------------------------------------
CHANGES IN PORTFOLIO SHARES
Shares sold....................................................................... 145,678 551,685
Issued for distributions reinvested............................................... -- 363,510
Shares redeemed................................................................... (2,398,073) (4,723,549)
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in fund shares................................................. (2,252,395) (3,808,354)
- ------------------------------------------------------------------------------------------------------------------------------------
See Notes to Financial Statements.
16
<page>
Notes to Financial Statements June 30, 2006 (unaudited)
- --------------------------------------------------------------------------------
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, 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 June 30, 2006, GE Life and Annuity Assurance Company ("GE Life") and
General Electric Capital Assurance Company, 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 Fund:
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.
17
<page>
Notes to Financial Statements June 30, 2006 (unaudited)
- --------------------------------------------------------------------------------
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.
18
<page>
Notes to Financial Statements June 30, 2006 (unaudited)
- --------------------------------------------------------------------------------
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 June 30, 2006, 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
- -----------------------------------------------------------------------------------------------------------------------
$485,277,416 $106,423,169 $(100,460,222) $5,962,947
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
19
<page>
Notes to Financial Statements June 30, 2006 (unaudited)
- --------------------------------------------------------------------------------
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.
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 performs certain accounting and certain administration services not
provided by GEAM. For the period ending June 30, 2006, $3,731 was charged to the
Fund. Administrative services not performed by GEAM or GENPACT were provided by
an unaffiliated service provider.
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 June 30, 2006 were as follows:
Purchases Sales
- --------------------------------------------------------------------------------
$14,182,555 $64,762,408
20
<page>
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
21
<page>
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
22
<page>
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.
23
<page>
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 57
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.
24
<page>
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 45
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
25
<Page>
Additional Information (unaudited)
- --------------------------------------------------------------------------------
NON-INTERESTED DIRECTORS
- --------------------------------------------------------------------------------
JOHN R. COSTANTINO
- --------------------------------------------------------------------------------
ADDRESS c/o GEAM 3001 Summer St. Stamford, CT 06905
AGE 60
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 70
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.
26
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
Ronald R. Pressman, CHIEF EXECUTIVE OFFICER (EFFECTIVE AS OF JULY 1, 2006)
John H. Myers, CHIEF EXECUTIVE OFFICER (RETIRED FROM ALL
POSITIONS AS OF JUNE 30, 2006)
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
27
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<page>
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<page>
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<page>
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
Semi-Annual Report
JUNE 30, 2006
[GE logo omitted]
<page>
GE Investments Funds, Inc.
Premier Growth Equity Fund
- --------------------------------------------------------------------------------
Contents
NOTES TO PERFORMANCE ...................................................... 1
MANAGER REVIEW AND SCHEDULE OF INVESTMENTS ................................ 2
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
ADVISORY AND ADMINISTRATIVE AGREEMENT RENEWAL ............................. 16
ADDITIONAL INFORMATION .................................................... 19
INVESTMENT TEAM ........................................................... 22
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.
<page>
Notes to Performance June 30, 2006 (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.
1
Premier Growth Equity Fund
- --------------------------------------------------------------------------------
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 SIX-MONTH PERIOD ENDED JUNE 30, 2006?
A. For the six-month period ended June 30, 2006, the Premier Growth Fund
returned -1.20%. The S&P 500 Index, the Fund's benchmark, returned 2.70% and
the Fund's Lipper peer group of 199 Large-Cap Growth Funds returned an
average of -2.44% for the same period.
Q. WHAT MARKET CONDITIONS IMPACTED THE FUND'S PERFORMANCE?
A. The U.S. stock market began the year on a bullish note, however volatility
rose by the end of the period, upsetting all global financial markets. The
S&P 500 rallied through April as investors anticipated an end to the Federal
Reserve's tightening campaign.
By May 10, the Dow Jones Industrials were up more than 8% for the year, less
than 100 points short of the record. However as growth persisted and
inflationary data mounted, Federal Reserve members became more hawkish in
their public comments. At the same time, central bankers around the world
tightened monetary policy, reducing appetite for risk. Investors began to
worry about the sustainability of the global expansion, given the inflation
and liquidity concerns. For most of May and June riskier asset classes--from
developing country stocks to industrial commodities to Florida condos--came
under pressure. U.S. equities swooned amid the uncertainty, and the Dow gave
back half of the year's gains.
Technology and health care were hit the hardest in this environment, and
were the only sectors posting negative returns year-to-date. In fact, health
care dropped to a 12-month low in the last week of June, while consumer
staples registered a new high. This contrasting performance between two
defensive sectors highlighted the importance of careful stock selection in a
volatile market. Value continued to lead growth as the Russell 1000 Value
Index gained 6.6% year-to-date, while the Russell 1000 Growth Index lost
-0.9%.
Q. WHAT WERE THE PRIMARY DRIVERS OF FUND PERFORMANCE?
A. For the six-month period ending June 30, 2006, the Fund underperformed the
benchmark. The areas detracting most from performance included health care,
consumer discretionary, telecom and information technology. The negative
impact from health care was attributable to both an overweight position and
security selection within the sector. The health care equipment and supply
industry detracted most from performance as our overweight position in
orthopedic device maker Zimmer and cardiac device maker Medtronic declined
during the period. After rallying strongly during the second half of 2005,
Amgen has declined in 2006. The company is facing
[Photo of David B. Carlson omitted]
2
Q&A
increased competition for Enbrel, a drug used for arthritis and skin
disease, and, potentially, from Swiss drug maker Roche, which is trying to
market its anemia drug in the U.S. Amgen has filed to block the sale of
Roche's Cera drug based on patent infringement. Consumer discretionary
holdings also hurt performance despite strong returns from Comcast, Liberty
Global and Liberty Media Holdings Corp. - Capital. Holdings offsetting these
gains from the media industry were specialty retailers Bed Bath & Beyond and
Home Depot. Carnival also declined as softness in Caribbean cruise bookings
continued and surging fuel costs impacted profits during the period. In
addition, the underperformance in telecom was driven by a lack of exposure
to diversified telecom services, an industry that returned 13.8% during the
period. The Bells have benefited from restructuring initiatives and
heightened M&A activity in the space. BellSouth has risen 36.2% so far this
year on their announced combination with AT&T--both of which we did not own
during the period. Within information technology a large overweight
negatively impacted performance. Despite strong performance from Inuit and
Yahoo, a number of companies in the portfolio sector declined. The main
detractors in this sector were eBay, Analog Devices, Dell and Microsoft.
On the other hand, sectors that contributed positively to performance during
the period included energy, industrials, and materials. Despite an
underweight position in the energy sector, the second best performing sector
within the S&P 500 for the period, our holdings concentrated in the oil
services sector returned 28.5%. Strength in oil services giant Schlumberger
was the main driver of this positive performance. Within industrials, strong
returns from Dover, our sole holding in the sector, was more than enough to
offset an underweight position in the group. Dover, a diversified machinery
company, has seen strength in many of its business components and the shares
have responded positively to the company exceeding analyst earnings
expectations in early 2006 coupled with providing positive earnings guidance
for the remainder of 2006. Monsanto, our sole holding in the materials
sector, continues to exceed earnings guidance as the company is
experiencing very strong demand for its genetically modified seed traits.
Q. WERE THERE ANY SIGNIFICANT CHANGES TO THE FUND OVER THE PERIOD?
A. The Fund held 35 high quality growth companies at the end of the period.
During the period there were no significant changes to the Fund's
composition or positioning. In early 2006, Intel was eliminated based on a
disappointing fourth quarter earnings report, increased competition from
AMD, and the possibility of slowing personal computer unit growth in 2006.
In addition, within the energy sector, we eliminated our position in Baker
Hughes in favor of Transocean. The transaction was based on more favorable
valuation and business fundamentals.
The philosophy of the Premier Growth Equity strategy remains unchanged,
despite the challenging environment for growth investors. We continue to
focus on fundamental, bottom-up stock selection to identify high-quality
companies that have the ability to produce double-digit earnings growth
for the foreseeable future. We believe that the aggregate portfolio is
well positioned for the rest of 2006 and beyond.
3
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 June 30,
2006.
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 $1,000 = 8.6), then multiply the result by the number
given for your class under the heading "Expenses Paid During Period."
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The second section of the table provides information about hypothetical account
values and hypothetical expenses based on the Fund's actual expense ratio and an
assumed rate of return of 5% per year before expenses, which is not the Fund's
actual return. You may use this information to compare the ongoing costs of
investing in the Fund and other funds. To do so, compare this 5% hypothetical
example with the 5% hypothetical examples that appear in the shareholders
reports of other funds.
Please note that the expenses shown in the table do not reflect any transaction
costs, such as sales charges or redemption fees.
JANUARY 1, 2006 - JUNE 30, 2006
- ------------------------------------------------------------------------------------------------------------------------------------
ACCOUNT VALUE AT ACCOUNT VALUE EXPENSES
THE BEGINNING OF AT THE END OF PAID DURING
THE PERIOD ($) THE PERIOD ($) THE PERIOD ($)*
- ------------------------------------------------------------------------------------------------------------------------------------
Actual Fund Return** 1,000.00 987.97 3.59
- ------------------------------------------------------------------------------------------------------------------------------------
Hypothetical 5% Return
(2.5% for the period) 1,000.00 1,021.05 3.56
- ------------------------------------------------------------------------------------------------------------------------------------
*EXPENSES ARE EQUAL TO THE FUND'S ANNUALIZED EXPENSE RATIO OF 0.71% (FROM
PERIOD JANUARY 1, 2006 - JUNE 30, 2006), MULTIPLIED BY THE AVERAGE ACCOUNT
VALUE OVER THE PERIOD, MULTIPLIED BY 181/365 (TO REFLECT THE SIX-MONTH
PERIOD).
**ACTUAL FUND RETURN FOR THE SIX-MONTH PERIOD ENDED JUNE 30, 2006 WAS (1.20)%.
4
Premier Growth Equity Fund (unaudited)
- --------------------------------------------------------------------------------
CHANGE IN VALUE
OF A $10,000 INVESTMENT
- --------------------------------------------------------------------------------
[Line chart omitted -- plot points are as follows:]
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
6/06 18,075.78 15,185.53
AVERAGE ANNUAL TOTAL RETURN
FOR THE PERIODS ENDED JUNE 30, 2006
- ----------------------------------------------------------------------------------------------------------------------
SIX ONE FIVE SINCE
MONTHS YEAR YEAR INCEPTION
- ----------------------------------------------------------------------------------------------------------------------
Premier Growth Equity Fund -1.20% 3.06% 1.03% 7.17%
- ----------------------------------------------------------------------------------------------------------------------
S&P 500 Index 2.70% 8.63% 2.49% 4.99%
- ----------------------------------------------------------------------------------------------------------------------
Lipper peer group average* -2.44% 6.19% -0.79% N/A
- ----------------------------------------------------------------------------------------------------------------------
Inception date 12/12/97
- ----------------------------------------------------------------------------------------------------------------------
Premier Growth Equity Fund (ending value $18,076)
S&P 500 Index (ending value $15,186)
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 JUNE 30, 2006
as a % of Market Value
- --------------------------------------------------------------------------------
Dover Corp. 4.65%
- --------------------------------------------------------------------------------
First Data Corp. 4.54%
- --------------------------------------------------------------------------------
State Street Corp. 4.23%
- --------------------------------------------------------------------------------
Schlumberger Ltd. 4.13%
- --------------------------------------------------------------------------------
Intuit Inc. 4.10%
- --------------------------------------------------------------------------------
SLM Corp. 3.92%
- --------------------------------------------------------------------------------
Amgen, Inc. 3.73%
- --------------------------------------------------------------------------------
Molex, Inc. (Class A) 3.72%
- --------------------------------------------------------------------------------
Monsanto Co. 3.71%
- --------------------------------------------------------------------------------
AFLAC Incorporated 3.62%
- --------------------------------------------------------------------------------
PORTFOLIO COMPOSITION AS OF JUNE 30, 2006
as a % of Market Value
- --------------------------------------------------------------------------------
Market Value of $118,017 (in thousands)
[Pie chart omitted -- plot points are as follows:]
Information Technology 28.2%
Healthcare 18.0%
Consumer Discretionary 17.4%
Financials 12.1%
Short-Term 9.6%
Energy 6.2%
Industrials 4.2%
Materials 3.4%
Telecommunication Services 0.9%
* LIPPER PERFORMANCE COMPARISONS ARE BASED ON AVERAGE ANNUAL TOTAL RETURNS FOR
THE SIX-MONTH, ONE-YEAR AND FIVE-YEAR PERIODS INDICATED IN THE LARGE-CAP
GROWTH FUNDS PEER GROUP CONSISTING OF 199, 199 AND 117 UNDERLYING ANNUITY
FUNDS, RESPECTIVELY.
SEE NOTES TO PERFORMANCE ON PAGE 1 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
PREMIER GROWTH EQUITY FUND
Schedule of Investments June 30, 2006 (unaudited)
- --------------------------------------------------------------------------------
PREMIER GROWTH EQUITY FUND
- --------------------------------------------------------------------------------
NUMBER
OF SHARES VALUE
- --------------------------------------------------------------------------------
COMMON STOCK -- 95.9%+
- --------------------------------------------------------------------------------
CONSUMER DISCRETIONARY -- 18.4%
Bed Bath & Beyond, Inc. 92,970 $ 3,083,815 (a)
Carnival Corp. 78,667 3,283,561
Comcast Corp. (Class A) 107,869 3,535,946(a,e)
Liberty Global, Inc. (Series C) 177,298 3,647,020 (a)
Liberty Media Holding Corp -
Capital (Series A) 21,306 1,784,804 (a)
Liberty Media Holding Corp -
Interactive (Series A) 106,528 1,838,673 (a)
The Home Depot, Inc. 92,374 3,306,065 (d)
20,479,884
ENERGY -- 6.6%
Schlumberger Ltd. 67,642 4,404,171
Transocean Inc. 36,056 2,896,018 (a)
7,300,189
FINANCIALS -- 12.8%
AFLAC Incorporated 83,435 3,867,212 (d)
Federal National Mortgage Assoc. 35,758 1,719,960
SLM Corp. 78,965 4,178,828
State Street Corp. 77,773 4,517,834 (c)
14,283,834
HEALTHCARE -- 19.1%
Amgen, Inc. 61,086 3,984,640 (a)
Johnson & Johnson 64,066 3,838,835
LIncare Holdings Inc. 69,728 2,638,507 (a)
Medtronic Inc. 70,919 3,327,519 (e)
Pfizer Inc. 113,233 2,657,578
UnitedHealth Group Incorporated 57,510 2,575,298
Zimmer Holdings, Inc. 40,227 2,281,675 (a)
21,304,052
INDUSTRIALS -- 4.5%
Dover Corp. 100,420 4,963,761
INFORMATION TECHNOLOGY -- 29.9%
Analog Devices, Inc. 71,515 2,298,492
Cisco Systems, Inc. 157,930 3,084,373(a,d)
Dell, Inc. 81,349 1,985,729 (a)
eBay, Inc. 77,475 2,269,243(a,e)
First Data Corp. 107,571 4,844,998 (d)
Intuit Inc. 72,409 4,372,779(a,d,e)
Linear Technology Corp. 55,424 1,856,150 (e)
Microsoft Corp. 120,682 2,811,891
NUMBER
OF SHARES VALUE
- --------------------------------------------------------------------------------
Molex, Inc. (Class A) 138,263 $ 3,972,296
Paychex, Inc. 32,778 1,277,686
QUALCOMM, Inc. 43,207 1,731,304
Yahoo! Inc. 85,818 2,831,994(a)
33,336,935
MATERIALS -- 3.6%
Monsanto Co. 47,081 3,963,749
TELECOMMUNICATION SERVICES -- 1.0%
Vodafone Group PLC ADR 50,657 1,078,994
TOTAL INVESTMENTS IN SECURITIES
(COST $98,084,394) 106,711,398
- --------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS -- 10.1%
- --------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS -- 1.6%
GEI Short Term Investment Fund
6.93% 1,787,450 1,787,450(b,f)
SHORT-TERM SECURITIES PURCHASED WITH
COLLATERAL FROM SECURITIES ON LOAN -- 8.5%
State Street Navigator Securities
Lending Prime Portfolio
5.25% 9,517,900 9,517,900(b,c)
TOTAL SHORT-TERM INVESTMENTS
(COST $11,305,350) 11,305,350
TOTAL INVESTMENTS
(COST $109,389,744) 118,016,748
LIABILITIES IN EXCESS OF OTHER ASSETS,
NET -- (6.0)% (6,668,016)
-----------
NET ASSETS -- 100.0% $111,348,732
===========
- --------------------------------------------------------------------------------
OTHER INFORMATION
- --------------------------------------------------------------------------------
The GEI Premier Growth Equity had the following long futures contracts open at
June 30, 2006 (unaudited):
NUMBER CURRENT
EXPIRATION OF NOTIONAL UNREALIZED
DESCRIPTION DATE CONTRACTS VALUE DEPRECIATION
- --------------------------------------------------------------------------------
S&P 500 Index
Futures September 2006 2 $641,500 $(1,763)
See Notes to Schedule of Investments on page 7 and Notes to Financial
Statements.
6
Notes to Schedule of Investments June 30, 2006 (unaudited)
- --------------------------------------------------------------------------------
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 June 30, 2006, 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 Trust.
+ Percentages are based on net assets as of June 30, 2006.
Abbreviations:
ADR American Depository Receipt
TBA To Be Announced
7
Financial Highlights
Selected data based on a share outstanding throughout the periods indicated
- ------------------------------------------------------------------------------------------------------------------------------------
PREMIER GROWTH EQUITY FUND
6/30/06+ 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 ........... $75.65 $74.95 $70.46 $54.74 $69.34 $78.68
INCOME/(LOSS) FROM INVESTMENT OPERATIONS:
Net investment income ....................... 0.13 0.24 0.47 0.11 0.03 0.06
Net realized and unrealized
gains/(losses) on investments ............ (1.04) 0.73 4.48 15.72 (14.60) (7.24)
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL INCOME/(LOSS) FROM INVESTMENT OPERATIONS . (0.91) 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 ................. $74.74 $75.65 $74.95 $70.46 $54.74 $69.34
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN (A) ............................... (1.20)% 1.29% 7.03% 28.91% (21.02)% (9.14)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in thousands) .... $111,349 $126,682 $137,801 $143,202 $87,569 $104,185
Ratios to average net assets:
Net investment income* ................... 0.31% 0.30% 0.62% 0.20% 0.05% 0.10%
Expenses* ................................ 0.71% 0.71% 0.71% 0.70% 0.67% 0.67%
Portfolio turnover rate ..................... 12% 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.
* Annualized for periods less than one year.
+ Unaudited.
See Notes to Financial Statements.
8
Statement of Assets
and Liabilities JUNE 30, 2006 (UNAUDITED)
- ------------------------------------------------------------------------------------------------------------------------------------
PREMIER
GROWTH
EQUITY FUND
- ------------------------------------------------------------------------------------------------------------------------------------
ASSETS Investments in securities, at market* (cost $98,084,394) ..................................... $106,711,398
Short-term Investments (at amortized cost) ......................................................... 9,517,900
Short-term affiliated investments (at amortized cost) .............................................. 1,787,450
Receivable for investments sold .................................................................... 3,078,557
Income receivables ................................................................................. 92,577
Receivable for fund shares sold .................................................................... 515
Variation margin receivable ........................................................................ 699
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS ................................................................................... 121,189,096
- ------------------------------------------------------------------------------------------------------------------------------------
LIABILITIES
Payable upon return of securities loaned ........................................................... 9,517,900
Payable for investments purchased .................................................................. 172,154
Payable for fund shares redeemed ................................................................... 86,221
Payable to GEAM .................................................................................... 64,089
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES .............................................................................. 9,840,364
- ------------------------------------------------------------------------------------------------------------------------------------
NET ASSETS ............................................................................................ $111,348,732
- ------------------------------------------------------------------------------------------------------------------------------------
NET ASSETS CONSIST OF:
Capital paid in .................................................................................... 106,782,712
Undistributed (distribution in excess of) net investment income .................................... 187,077
Accumulated net realized gain (loss) ............................................................... (4,246,298)
Net unrealized appreciation/(depreciation) on:
Investments .................................................................................... 8,627,004
Futures ........................................................................................ (1,763)
- ------------------------------------------------------------------------------------------------------------------------------------
NET ASSETS ............................................................................................ $111,348,732
- ------------------------------------------------------------------------------------------------------------------------------------
Shares outstanding ($0.01 par value; unlimited shares authorized) ..................................... 1,489,846
Net asset value per share ............................................................................. $74.74
* Includes $9,337,105 of securities on loan.
See Notes to Financial Statements.
9
Statement of Operations
FOR THE SIX MONTHS ENDED JUNE 30, 2006 (UNAUDITED)
- ----------------------------------------------------------------------------------------------------------------------
PREMIER
GROWTH
EQUITY FUND
- ----------------------------------------------------------------------------------------------------------------------
INVESTMENT INCOME
INCOME:
Dividend ......................................................................... $ 548,984
Interest* ........................................................................ 2,443
Interest from affliated investments .............................................. 66,720
- ----------------------------------------------------------------------------------------------------------------------
TOTAL INCOME ....................................................................... 618,147
- ----------------------------------------------------------------------------------------------------------------------
EXPENSES:
Advisory and administrative fees ................................................. 396,834
Custody and accounting expenses .................................................. 16,903
Professional fees ................................................................ 9,468
Trustee's fees ................................................................... 1,804
Registration expenses ............................................................ 388
Transfer agent ................................................................... 108
Other expenses ................................................................... 5,565
- ----------------------------------------------------------------------------------------------------------------------
TOTAL EXPENSES ..................................................................... 431,070
- ----------------------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME (LOSS) ....................................................... 187,077
- ----------------------------------------------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS
REALIZED GAIN (LOSS) ON:
Investments ................................................................... 4,503,618
Futures ....................................................................... (22,189)
INCREASE (DECREASE) IN UNREALIZED APPRECIATION/
(DEPRECIATION) ON:
Investments ................................................................... (5,698,448)
Futures ....................................................................... (33,596)
- ----------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments ........................... (1,250,615)
- ----------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS .................... $(1,063,538)
- ----------------------------------------------------------------------------------------------------------------------
* Income attributable to security lending activity, net of rebate expenses, was
$1,995.
See Notes to Financial Statements.
10
Statements of
Changes in Net Assets
- ------------------------------------------------------------------------------------------------------------------------------------
PREMIER
GROWTH
EQUITY FUND
- ------------------------------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 2006 DECEMBER 31,
(UNAUDITED) 2005
- ------------------------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net investments income (loss) .................................................... $ 187,077 $ 394,754
Net realized gain (loss) on investments, futures, written options,
foreign currency transactions and swaps ........................................ 4,481,429 6,078,101
Net increase (decrease) in unrealized appreciation/(depreciation)
on investments, futures, written options, foreign currency translation ......... (5,732,044) (4,777,882)
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) from operations .......................................... (1,063,538) 1,694,973
- ------------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income ............................................................ -- (454,489)
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS ................................................................ -- (454,489)
- ------------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets from operations and distributions ................ (1,063,538) 1,240,484
- ------------------------------------------------------------------------------------------------------------------------------------
SHARE TRANSACTIONS:
Proceeds from sale of shares ..................................................... 1,679,618 15,512,338
Value of distributions reinvested ................................................ -- 454,492
Cost of shares redeemed .......................................................... (15,949,537) (28,325,838)
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) from share transactions .................................. (14,269,919) (12,359,008)
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL INCREASE (DECREASE) IN NET ASSETS ............................................ (15,333,457) (11,118,524)
NET ASSETS
Beginning of period ................................................................ 126,682,189 137,800,713
- ------------------------------------------------------------------------------------------------------------------------------------
End of period ...................................................................... $111,348,732 $126,682,189
- ------------------------------------------------------------------------------------------------------------------------------------
UNDISTRIBUTED (DISTRIBUTION IN EXCESS OF) NET INVESTMENT INCOME, END OF PERIOD ........ $ 187,077 $ --
- ------------------------------------------------------------------------------------------------------------------------------------
CHANGES IN PORTFOLIO SHARES
Shares sold ...................................................................... 21,543 214,046
Issued for distributions reinvested .............................................. -- 5,954
Shares redeemed .................................................................. (206,174) (383,987)
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in fund shares ................................................ (184,631) (163,987)
- ------------------------------------------------------------------------------------------------------------------------------------
See Notes to Financial Statements.
11
Notes to Financial Statements June 30, 2006 (unaudited)
- --------------------------------------------------------------------------------
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, 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 June 30, 2006, GE Life and Annuity Assurance Company ("GE Life") and
General Electric Capital Assurance Company, 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 Fund:
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.
12
Notes to Financial Statements June 30, 2006 (unaudited)
- --------------------------------------------------------------------------------
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.
13
Notes to Financial Statements June 30, 2006 (unaudited)
- --------------------------------------------------------------------------------
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 June 30, 2006, 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
- ----------------------------------------------------------------------------------------------------------------------
$114,735,622 $14,627,040 $(11,345,913) $3,281,127
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.
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
14
Notes to Financial Statements June 30, 2006 (unaudited)
- --------------------------------------------------------------------------------
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.
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 June 30, 2006.
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 performs certain accounting and certain administration services not
provided by GEAM. For the period ending June 30, 2006, $883 was charged to the
Fund. Administrative services not performed by GEAM or GENPACT were provided by
an unaffiliated service provider.
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 June 30, 2006 were as follows:
Purchases Sales
- --------------------------------------------------------------------------------
$13,801,134 $30,936,790
SECURITY LENDING At June 30, 2006, the Fund participated in securities lending:
Loaned
securities at Cash
market value collateral*
- --------------------------------------------------------------------------------
$9,337,105 $9,555,836
* COLLATERAL OF $9,517,900 INCREASED BY $37,936 ON JULY 3, 2006 TO REFLECT THE
JUNE 30, 2006 CHANGE IN VALUE OF SECURITIES ON LOAN.
15
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.
16
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
17
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.
18
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 57
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.
19
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 45
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
20
Additional Information (unaudited)
- --------------------------------------------------------------------------------
NON-INTERESTED DIRECTORS
- --------------------------------------------------------------------------------
JOHN R. COSTANTINO
- --------------------------------------------------------------------------------
ADDRESS c/o GEAM 3001 Summer St. Stamford, CT 06905
AGE 60
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 70
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.
21
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
Ronald R. Pressman, CHIEF EXECUTIVE OFFICER (EFFECTIVE AS OF JULY 1, 2006)
John H. Myers, CHIEF EXECUTIVE OFFICER (RETIRED FROM ALL
POSITIONS AS OF JUNE 30, 2006)
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
22
[This page intentionally left blank.]
<page>
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
Semi-Annual Report
JUNE 30, 2006
[GE LOGO OMITTED]
GE Investments Funds, Inc.
Value Equity Fund Contents
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NOTES TO PERFORMANCE...................................................... 1
MANAGER REVIEW AND SCHEDULE OF INVESTMENTS................................ 2
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
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.
<page>
Notes to Performance June 30, 2006 (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.
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.
1
Value Equity Fund
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THE VALUE EQUITY FUND IS CO-MANAGED BY PAUL C. REINHARDT AND STEPHEN V. GELHAUS.
MESSRS. REINHARDT AND GELHAUS BOTH MANAGE THE FUND AS A COLLABORATIVE TEAM. BOTH
PORTFOLIO MANAGERS HAVE THE AUTHORITY TO INCREASE OR DECREASE EXISTING POSITIONS
IN THE FUND; HOWEVER, 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 SIX-MONTH PERIOD ENDED JUNE 30, 2006?
A. For the six-month period ended June 30, 2006, the Value Equity Fund returned
3.80%. The S&P 500 Index, the Fund's benchmark, returned 2.70% and the
Fund's Lipper peer group of 222 Large-Cap Core Funds returned an average of
1.25% for the same period.
Q. WHAT MARKET CONDITIONS IMPACTED THE FUND'S PERFORMANCE?
A. The U.S. stock market began the year on a bullish note, however volatility
rose by the end of the period, upsetting all global financial markets. The
S&P 500 rallied through April as investors anticipated an end to the Federal
Reserve's tightening campaign. By May 10, the Dow Jones Industrials were up
more than 8% for the year, less than 100 points short of the record. However
as growth persisted and inflationary data mounted, Federal Reserve members
became more hawkish in their public comments. At the same time, central
bankers around the world tightened monetary policy, reducing appetite for
risk. Investors began to worry about the sustainability of the global
expansion, given the inflation and liquidity concerns. For most of May and
June riskier asset classes -- from developing country stocks to industrial
commodities to Florida condos--came under pressure. U.S. equities swooned
amid the uncertainty, and the Dow gave back half of the year's gains.
Technology and health care were hit the hardest in this environment, and
were the only sectors posting negative returns year-to-date. In fact, health
care dropped to a 12-month low in the last week of June, while consumer
staples registered a new high. This contrasting performance between two
defensive sectors highlighted the importance of careful stock selection in a
volatile market. Value continued to lead growth as the Russell 1000 Value
Index gained 6.6% year-to-date, while the Russell 1000 Growth Index lost
-0.9%.
[PHOTO OMITTED]
2
Q&A
Q. WHAT WERE THE PRIMARY DRIVERS OF FUND PERFORMANCE?
A. Strength among our information technology holdings had been a major
contributor to the Fund's outperformance in the past six months. For
example, avoiding poor performing Internet software and services stocks,
including Ebay (-32.2%) and Yahoo (-15.8%) helped our returns. Within
software, strength in Oracle (18.7%) more than offset a drag from Microsoft
(-10.3%), which has been investing to battle competitive threats from
Google. We have been encouraged about Microsoft's upcoming product
refreshment cycle and have maintained our position. In a reversal from last
year, avoiding Apple (-20.3%) had a positive impact. In addition, First Data
Corp. (5.0%) rallied upon the announcement of its Western Union subsidiary
spin-off, benefiting the Fund.
Health care and industrials holdings also were key drivers of Fund
performance, with our health care holdings returning 0.9% versus -3.8% for
the sector benchmark, and our industrials holdings returning 10.0% vs. 7.1%
for the benchmark. Avoiding carnage within the healthcare equipment space
helped -- companies such as Medtronic (-18.2%) and Boston Scientific
(-31.2%) declined on uncertainty surrounding the implantable cardiac device
market. Underweighting biotechnology stocks was also useful as the industry
pulled back -10.6%. Quest Diagnostics (16.8%) and GlaxoSmithKline (12.4%)
have also added to our health care gains. Strength in industrials has
reflected good growth in late cycle end markets, and sustained global
economic development. Our electrical equipment holdings exhibited particular
strength due to growing investment in power infrastructure -- ABB (34.1%)
and Cooper Industries (28.4%) leveraged this secular trend. End-market
demand has also been robust for machinery companies like Deere (23.8%) and
Eaton (13.5%), benefiting the Fund.
Areas of weakness year-to-date have been primarily within the
telecommunications services, financials and utilities sectors.
Underperformance in telecom was driven by a lack of exposure to diversified
telecom services, an industry that returned 19.8% during the period. The
Bells have benefited from restructuring initiatives and heightened M&A
activity in the space. BellSouth has risen 36.2% so far this year on their
announced combination with AT&T (16.9%) -- both of which the Fund did not
own during the period. Within financials, Freddie Mac (-11.4%) declined
amidst uncertain operating conditions for GSE's. Underweighting real estate
investment trusts (8.5%) and commercial banks (5.9%) had also taken away
from relative performance. The Fund has been cautious on financials, as we
have worried about profit margins in an environment of higher financing
costs. Underweighting utilities also hurt performance. Electric utilities
and independent power producers have successfully passed the higher costs of
production on to customers through price increases, in many cases, and being
underrepresented in this area hurt -- especially as the market mood got
defensive in the second half of the period.
Q. WERE THERE ANY SIGNIFICANT CHANGES TO THE FUND OVER THE PERIOD?
A. Our process has remained consistent during the period, and we continue to
employ a bottom-up relative value process to seek out underappreciated
stocks with catalysts for growth or improving fundamentals. The portfolio
has been positioned for a moderate slowdown in economic growth, given the
current levels of interest rates and high energy prices. In the past six
months, as we prepared ourselves for slowing growth, we increased our
weighting in the steady-growth health care sector, initiating positions in
Baxter, Quest Diagnostics, and Thermo Electron Corp., and adding to Pfizer
and Johnson & Johnson. We also increased exposure to consumer staples,
including initiating positions in Diageo and Alberto Culver, and adding to
Pepsico. We have also opportunistically increased our exposure to utilities,
initiating a position in Duke Energy, and increased our holdings in Dominion
Resources. Within industrials, we took some profits and reduced our
overweight. While financials and consumer discretionary remained among our
largest underweights, given our concerns about the interest rate
environment, during the period we reduced our holdings within energy, taking
profits in Burlington Resources, one of last year's top performing stocks
for the Fund.
3
Value 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 June 30,
2006.
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 $1,000 = 8.6), then multiply the result by the number
given for your class under the heading "Expenses Paid During Period."
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The second section of the table provides information about hypothetical account
values and hypothetical expenses based on the Fund's actual expense ratio and an
assumed rate of return of 5% per year before expenses, which is not the Fund's
actual return. You may use this information to compare the ongoing costs of
investing in the Fund and other funds. To do so, compare this 5% hypothetical
example with the 5% hypothetical examples that appear in the shareholders
reports of other funds.
Please note that the expenses shown in the table do not reflect any transaction
costs, such as sales charges or redemption fees.
JANUARY 1, 2006 - JUNE 30, 2006
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ACCOUNT VALUE AT ACCOUNT VALUE EXPENSES
THE BEGINNING OF AT THE END OF PAID DURING
THE PERIOD ($) THE PERIOD ($) THE PERIOD ($)*
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Actual Fund Return** 1,000.00 1,037.96 4.02
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Hypothetical 5% Return
(2.5% for the period) 1,000.00 1,020.69 3.92
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* EXPENSES ARE EQUAL TO THE FUND'S ANNUALIZED EXPENSE RATIO OF 0.78% (FROM
PERIOD JANUARY 1, 2006 - JUNE 30, 2006), MULTIPLIED BY THE AVERAGE ACCOUNT
VALUE OVER THE PERIOD, MULTIPLIED BY 181/365 (TO REFLECT THE SIX-MONTH
PERIOD).
** ACTUAL FUND RETURN FOR THE SIX-MONTH PERIOD ENDED JUNE 30, 2006 WAS 3.80%.
4
Value Equity Fund
CHANGE IN VALUE
OF A $10,000 INVESTMENT
[LINE CHART OMITTED, PLOT POINTS FOLLOWS]
Value S&P 500
Equity Fund Index
4/28/00 $10000.00 $10000.00
6/00 9970.00 10035.00
12/00 9978.58 9154.99
6/01 9486.19 8542.89
12/01 9105.15 8064.45
6/02 8357.33 7003.61
12/02 7505.72 6282.05
6/03 8219.58 7021.98
12/03 9310.98 8086.77
6/04 9517.43 8364.94
12/04 10202.11 8966.72
6/05 10181.23 8894.16
12/05 10616.27 9407.74
6/06 11019.29 9662.05
AVERAGE ANNUAL TOTAL RETURN
FOR THE PERIODS ENDED JUNE 30, 2006
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SIX ONE FIVE SINCE
MONTHS YEAR YEAR INCEPTION
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Value Equity Fund 3.80% 8.23% 3.04% 1.58%
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S&P 500 Index 2.70% 8.63% 2.49% -0.56%
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Lipper peer group average* 1.25% 7.82% 1.55% N/A
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Inception date 4/28/00
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Value Equity Fund (ending value $11,019)
S&P 500 Index (ending value $9,662)
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 JUNE 30, 2006
as a % of Market Value
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Exxon Mobil Corp. 4.31%
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Microsoft Corp. 2.91%
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Bank of America Corp. 2.78%
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PepsiCo, Inc. 2.60%
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Pfizer Inc. 2.50%
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Industrial Select Sector SPDR Fund 2.39%
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International Business Machines Corp. 2.11%
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First Data Corp. 2.02%
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Oracle Corp. 2.02%
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Clorox Co. 1.83%
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PORTFOLIO COMPOSITION
AS OF JUNE 30, 2006
as a % of Market Value
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Market Value of $36,038 (in thousands)
[PIE CHART OMITTED, PLOT POINTS FOLLOWS]
Financials 18.3%
Information Technology 14.3%
Healthcare 13.8%
Industrials 11.9%
Consumer Staples 11.1%
Consumer Discretionary 9.1%
Energy 8.4%
Utilities 4.5%
Materials 4.2%
Telecommunication Services 3.6%
Short-Term 0.8%
* LIPPER PERFORMANCE COMPARISONS ARE BASED ON AVERAGE ANNUAL TOTAL RETURNS FOR
THE SIX-MONTH, ONE-YEAR AND FIVE-YEAR PERIODS INDICATED IN THE LARGE-CAP CORE
FUNDS PEER GROUP CONSISTING OF 222, 220 AND 147 UNDERLYING ANNUITY FUNDS,
RESPECTIVELY.
SEE NOTES TO PERFORMANCE ON PAGE 1 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
VALUE EQUITY FUND
Schedule of Investments June 30, 2006 (unaudited)
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VALUE EQUITY FUND
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NUMBER
OF SHARES VALUE
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COMMON STOCK -- 96.2%+
CONSUMER DISCRETIONARY -- 9.1%
Autozone, Inc.................. 1,976 $ 174,283(a)
Cablevision Systems Corp.
(Class A)................... 9,121 195,645
Comcast Corp. (Class A)........ 4,180 137,020(a)
Koninklijke Philips
Electronics N.V. ADR........ 10,257 319,403
Liberty Global, Inc.
(Series A) ................. 2,7145 8,351(a)
Liberty Global, Inc.
(Series C) ................. 3,640 74,875(a)
News Corp. (Class A)........... 15,201 291,555
Omnicom Group, Inc............. 5,472 487,501
Ross Stores, Inc............... 8,589 240,921
Starwood Hotels & Resorts
Worldwide, Inc.............. 3,800 229,292
Target Corp.................... 4,560 222,847
The Home Depot, Inc............ 2,204 78,881
Time Warner, Inc............... 30,402 525,955(d)
Viacom Inc. (Class B).......... 6,916 247,869(a)
3,284,398
CONSUMER STAPLES -- 11.1%
Alberto-Culver Co.............. 4,712 229,569(a)
Altria Group, Inc.............. 774 56,835
Clorox Co...................... 10,793 658,049
Diageo PLC ADR................. 2,470 166,849
General Mills, Inc............. 6,917 357,332
Kellogg Co..................... 8,209 397,562
Kimberly-Clark Corp............ 5,092 314,176
PepsiCo, Inc................... 15,581 935,483
Procter & Gamble Co............ 6,309 350,780
The Coca-Cola Co............... 12,313 529,705
3,996,340
ENERGY -- 8.4%
EnCana Corp.................... 3,420 180,029(e)
Exxon Mobil Corp............... 25,310 1,552,769(d)
Halliburton Co................. 2,888 214,319
Hess Corp...................... 5,928 313,295
Occidental Petroleum Corp...... 3,420 350,721
Schlumberger Ltd............... 3,420 222,676
Transocean Inc................. 2,432 195,338(a)
3,029,147
FINANCIALS -- 17.7%
Allstate Corp.................. 9,273 507,511
American International Group,
Inc. ....................... 8,057 475,766
Bank of America Corp........... 20,826 1,001,731(d)
BlackRock Inc. (Class A)....... 1,216 169,231
NUMBER
OF SHARES VALUE
Chubb Corp..................... 8,361 $ 417,214
Citigroup, Inc................. 13,301 641,640
Federal Home Loan
Mortgage Corp............... 7,981 454,997
Federal National Mortgage
Assoc. ..................... 3,496 168,158
Mellon Financial Corp.......... 12,845 442,253
Merrill Lynch & Company, Inc... 4,332 301,334
Metlife, Inc................... 7,828 400,872
Morgan Stanley................. 6,613 418,008
Prudential Financial, Inc...... 3,154 245,066
State Street Corp.............. 3,496 203,083(c)
SunTrust Banks, Inc............ 4,332 330,358
The Bank of New York
Company, Inc................ 3,648 117,466
Wells Fargo & Co............... 1,140 76,471
6,371,159
HEALTHCARE -- 13.8%
Abbott Laboratories............ 3,420 149,146
Aetna, Inc..................... 7,600 303,468
Amgen, Inc..................... 3,040 198,299(a)
Baxter International, Inc...... 14,821 544,820
Eli Lilly & Co................. 5,016 277,234
GlaxoSmithKline PLC ADR........ 8,050 449,190
Johnson & Johnson.............. 9,121 546,530
Medco Health Solutions, Inc.... 7,372 422,268(a)
Novartis AG ADR................ 5,244 282,757
Pfizer Inc..................... 38,383 900,849(d)
Quest Diagnostics Inc.......... 2,964 177,603
Thermo Electron Corp........... 2,052 74,364(a)
UnitedHealth Group
Incorporated 2,128 95,292
Wyeth.......................... 12,465 553,571
4,975,391
INDUSTRIALS -- 9.6%
ABB Ltd. ADR................... 20,522 265,965
Burlington Northern
Santa Fe Corp............... 2,812 222,851
Cooper Industries Ltd.......... 2,660 247,167
Deere & Co..................... 5,928 494,929
Eaton Corp..................... 6,536 492,814
General Dynamics Corp.......... 4,484 293,523
Honeywell International Inc.... 1,368 55,130
ITT Industries, Inc............ 2,432 120,384
Northrop Grumman Corp.......... 6,688 428,433
Rockwell Collins, Inc.......... 1,900 106,153
Textron Inc.................... 1,634 150,622
3M Co.......................... 1,520 122,770
Tyco International Ltd......... 7,600 209,000
United Technologies Corp....... 2,204 139,778
Waste Management, Inc.......... 2,660 95,441
3,444,960
INFORMATION TECHNOLOGY -- 14.3%
Analog Devices, Inc............ 12,161 390,855(d)
Applied Materials, Inc......... 5,321 86,626
Cisco Systems, Inc............. 24,702 482,430(a,d)
See Notes to Schedule of Investments on page 8 and Notes to Financial
Statements.
6
VALUE EQUITY FUND
Schedule of Investments June 30, 2006 (unaudited)
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NUMBER
OF SHARES VALUE
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First Data Corp................ 16,189 $ 729,153
Hewlett-Packard Co............. 5,991 189,795
Intel Corp..................... 15,201 288,059
International Business
Machines Corp............... 9,881 759,058
Microchip Technology Inc....... 2,660 89,243
Microsoft Corp................. 44,995 1,048,384(d)
Oracle Corp.................... 50,164 726,876(a,d)
Sun Microsystems, Inc.......... 28,391 117,823(a)
Texas Instruments Incorporated. 3,344 101,290
Xerox Corp..................... 10,641 148,016(a)
5,157,608
MATERIALS -- 4.1%
Air Products & Chemicals, Inc.. 5,928 378,918
Barrick Gold Corp.............. 12,921 382,462
Dow Chemical Co................ 4,408 172,044
Freeport-McMoRan Copper &
Gold Inc. (Class B)......... 6,460 357,949
Monsanto Co.................... 1,368 115,172
Weyerhaeuser Co................ 1,444 89,889
1,496,434
TELECOMMUNICATION SERVICES -- 3.6%
Alltel Corp.................... 6,080 388,086
Sprint Corporation............. 13,681 273,483
Verizon Communications Inc..... 16,341 547,260
Vodafone Group PLC ADR......... 4,561 97,149
1,305,978
UTILITIES -- 4.5%
American Electric Power
Company, Inc................. 4,560 156,180
Constellation Energy Group,
Inc. 6,841 372,971
Dominion Resources, Inc........ 6,840 511,564
Duke Energy Corp............... 9,120 267,854
Entergy Corp................... 3,572 252,719
PG&E Corp...................... 1,140 44,779
1,606,067
TOTAL COMMON STOCK
(COST $31,278,707)........... 34,667,482
NUMBER
OF SHARES VALUE
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EXCHANGE TRADED FUNDS -- 3.0%
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Financial Select Sector
SPDR Fund................... 6,611 $ 213,403(g)
Industrial Select Sector
SPDR Fund................... 25,489 861,528(d,g)
TOTAL EXCHANGE TRADED FUNDS
(COST $869,348) .............. 1,074,931
TOTAL INVESTMENTS IN SECURITIES
(COST $32,148,055) ........... 35,742,413
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SHORT-TERM INVESTMENTS -- 0.8%
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SHORT-TERM INVESTMENTS -- 0.7%
GEI Short Term Investment Fund
6.93%....................... 266,152 266,152(b,f)
SHORT-TERM SECURITIES PURCHASED WITH
COLLATERAL FROM SECURITIES ON LOAN -- 0.1%
State Street Navigator Securities
Lending Prime Portfolio
5.25%........................ 29,621 29,621(b,c)
TOTAL SHORT-TERM INVESTMENTS
(COST $295,773).............. 295,773
TOTAL INVESTMENTS
(COST $32,443,828)........... 36,038,186
OTHER ASSETS AND LIABILITIES,
NET -- 0.0%*................ 6,945
-----------
NET ASSETS -- 100.0% .......... $36,045,131
===========
See Notes to Schedule of Investments on page 8 and Notes to Financial
Statements.
7
Notes to Schedule of Investments June 30, 2006 (unaudited)
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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 June 30, 2006, 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 Trust.
(g) Sponsored by SSgA Funds Management, Inc., an affiliate of State Street Bank
& Trust Co., the Fund's custodian and accounting agent.
* Less than 0.1%
+ Percentages are based on net assets as of June 30, 2006.
Abbreviations:
ADR American Depository Receipt
SPDR Standard & Poors Depository Receipts
TBA To Be Announced
8
Financial Highlights
Selected data based on a share outstanding throughout the periods indicated
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VALUE EQUITY FUND
6/30/06+ 12/31/05 12/31/04 12/31/03 12/31/02 12/31/01
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INCEPTION DATE -- -- -- -- -- 4/28/00
Net asset value, beginning of period......... $10.01 $9.77 $9.02 $7.36 $9.01 $9.93
INCOME/(LOSS) FROM INVESTMENT OPERATIONS:
Net investment income..................... 0.06 0.11 0.11 0.11 0.07 0.05
Net realized and unrealized
gains/(losses) on investments.......... 0.32 0.29 0.75 1.66 (1.65) (0.92)
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TOTAL INCOME/(LOSS) FROM INVESTMENT
OPERATIONS ............................... 0.38 0.40 0.86 1.77 (1.58) (0.87)
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LESS DISTRIBUTIONS FROM:
Net investment income..................... -- 0.12 0.11 0.11 0.07 0.05
Net realized gains........................ -- 0.04 -- -- -- --
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TOTAL DISTRIBUTIONS.......................... -- 0.16 0.11 0.11 0.07 0.05
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NET ASSET VALUE, END OF PERIOD............... $10.39 $10.01 $9.77 $9.02 $7.36 $9.01
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TOTAL RETURN (A)............................. 3.80% 4.06% 9.57% 24.05% (17.57)% (8.75)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in thousands).. $36,045 $37,115 $37,128 $29,989 $24,623 $18,202
Ratios to average net assets:
Net investment income*................. 1.19% 1.13% 1.26% 1.16% 1.01% 0.76%
Expenses*.............................. 0.78% 0.80% 0.80% 0.73% 0.74% 0.79%
Portfolio turnover rate................... 24% 36% 53% 78% 76% 103%
NOTES TO FINANCIAL HIGHLIGHTS
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(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.
* Annualized for periods less than one year.
+ Unaudited.
See Notes to Financial Statements.
9
Statement of Assets
and Liabilities JUNE 30, 2006 (UNAUDITED)
- -----------------------------------------------------------------------------------------------------------------------------
VALUE
EQUITY
FUND
- -----------------------------------------------------------------------------------------------------------------------------
ASSETS
Investments in securities, at market* (cost $32,148,055)............................................... $35,742,413
Short-term Investments (at amortized cost) ............................................................ 29,621
Short-term affiliated investments (at amortized cost).................................................. 266,152
Receivable for investments sold........................................................................ 318,873
Income receivables .................................................................................... 47,009
Receivable for fund shares sold........................................................................ 351
Variation margin receivable............................................................................ 5
- -----------------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS....................................................................................... 36,404,424
- -----------------------------------------------------------------------------------------------------------------------------
LIABILITIES
Payable upon return of securities loaned............................................................... 29,621
Payable for investments purchased ..................................................................... 304,590
Payable for fund shares redeemed....................................................................... 3,164
Payable to GEAM........................................................................................ 21,918
- -----------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES.................................................................................. 359,293
- -----------------------------------------------------------------------------------------------------------------------------
NET ASSETS................................................................................................ $36,045,131
- -----------------------------------------------------------------------------------------------------------------------------
NET ASSETS CONSIST OF:
Capital paid in ....................................................................................... 30,131,392
Undistributed (distribution in excess of) net investment income ....................................... 219,380
Accumulated net realized gain (loss)................................................................... 2,100,001
Net unrealized appreciation/(depreciation) on:
Investments......................................................................................... 3,594,358
- -----------------------------------------------------------------------------------------------------------------------------
NET ASSETS................................................................................................ $36,045,131
- -----------------------------------------------------------------------------------------------------------------------------
Shares outstanding ($0.01 par value; unlimited shares authorized)......................................... 3,468,500
Net asset value per share................................................................................. $10.39
* Includes $28,741 of securities on loan.
See Notes to Financial Statements.
10
Statement of Operations
FOR THE SIX MONTHS ENDED JUNE 30, 2006 (UNAUDITED)
- -----------------------------------------------------------------------------------------------------------
VALUE
EQUITY
FUND
- -----------------------------------------------------------------------------------------------------------
INVESTMENT INCOME
INCOME:
Dividend ......................................................................... $ 355,412
Interest* ........................................................................ 202
Interest from affliated investments .............................................. 10,579
Less: Foreign taxes withheld ..................................................... (2,391)
- -----------------------------------------------------------------------------------------------------------
TOTAL INCOME ....................................................................... 363,802
- -----------------------------------------------------------------------------------------------------------
EXPENSES:
Advisory and administrative fees ................................................. 121,176
Custody and accounting expenses .................................................. 17,687
Professional fees ................................................................ 2,694
Trustee's fees ................................................................... 522
Registration expenses ............................................................ 216
Transfer agent ................................................................... 104
Other expenses ................................................................... 2,023
- -----------------------------------------------------------------------------------------------------------
TOTAL EXPENSES ..................................................................... 144,422
- -----------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME (LOSS) ........................................................... 219,380
- -----------------------------------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS
REALIZED GAIN (LOSS) ON:
Investments ................................................................... 2,062,813
Futures ....................................................................... (23,790)
INCREASE (DECREASE) IN UNREALIZED APPRECIATION/
(DEPRECIATION) ON:
Investments ................................................................... (854,178)
Futures ....................................................................... 4,650
- -----------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments ........................... 1,189,495
- -----------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS .................... $1,408,875
- -----------------------------------------------------------------------------------------------------------
* Income attributable to security lending activity, net of rebate expenses,
was $202.
See Notes to Financial Statements.
11
Statements of
Changes in Net Assets
- ---------------------------------------------------------------------------------------------------------------------------------
VALUE
EQUITY
FUND
- ---------------------------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 2006 DECEMBER 31,
(UNAUDITED) 2005
- ---------------------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net investments income (loss)..................................................... $ 219,380 $ 418,647
Net realized gain (loss) on investments, futures, written options,
foreign currency transactions and swaps......................................... 2,039,023 1,719,665
Net increase (decrease) in unrealized appreciation/(depreciation)
on investments, futures, written options, foreign currency translation.......... (849,528) (625,589)
- ---------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) from operations.......................................... 1,408,875 1,512,723
- ---------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income............................................................. -- (436,545)
Net realized gains................................................................ -- (139,602)
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS................................................................. -- (576,147)
- ---------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets from operations and distributions................. 1,408,875 936,576
- ---------------------------------------------------------------------------------------------------------------------------------
SHARE TRANSACTIONS:
Proceeds from sale of shares...................................................... 496,084 2,384,068
Value of distributions reinvested................................................. -- 576,173
Cost of shares redeemed........................................................... (2,974,768) (3,910,331)
- ---------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) from share transactions................................... (2,478,684) (950,090)
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL INCREASE (DECREASE) IN NET ASSETS............................................. (1,069,809) (13,514)
NET ASSETS
Beginning of period................................................................. 37,114,940 37,128,454
- ---------------------------------------------------------------------------------------------------------------------------------
End of period....................................................................... $36,045,131 $37,114,940
- ---------------------------------------------------------------------------------------------------------------------------------
UNDISTRIBUTED (DISTRIBUTION IN EXCESS OF) NET INVESTMENT INCOME, END OF PERIOD......... $ 219,380 $ --
- ---------------------------------------------------------------------------------------------------------------------------------
CHANGES IN PORTFOLIO SHARES
Shares sold....................................................................... 47,392 244,856
Issued for distributions reinvested............................................... -- 57,103
Shares redeemed................................................................... (285,254) (397,704)
- ---------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in fund shares................................................. (237,862) (95,745)
- ---------------------------------------------------------------------------------------------------------------------------------
See Notes to Financial Statements.
12
Notes to Financial Statements June 30, 2006 (unaudited)
- --------------------------------------------------------------------------------
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, 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 June 30, 2006, GE Life and Annuity Assurance Company ("GE Life") and
General Electric Capital Assurance Company, 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 Fund:
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.
13
Notes to Financial Statements June 30, 2006 (unaudited)
- --------------------------------------------------------------------------------
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
14
Notes to Financial Statements June 30, 2006 (unaudited)
- --------------------------------------------------------------------------------
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 June 30, 2006, 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
- ---------------------------------------------------------------------------------------------------------------------------
$32,797,914 $4,495,133 $(1,254,860) $3,240,273
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.
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.
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
15
Notes to Financial Statements June 30, 2006 (unaudited)
- --------------------------------------------------------------------------------
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 June 30, 2006.
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 performs certain accounting and certain administration services not
provided by GEAM. For the period ending June 30, 2006, $252 was charged to the
Fund. Administrative services not performed by GEAM or GENPACT were provided by
an unaffiliated service provider.
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 June 30, 2006 were as follows:
Purchases Sales
- --------------------------------------------------------------------------------
$8,691,353 $10,650,979
SECURITY LENDING At June 30, 2006, the Fund participated in securities lending:
Loaned
securities at Cash
market value collateral*
- --------------------------------------------------------------------------------
$28,741 $29,348
* COLLATERAL OF $29,621 DECREASED BY $273 ON JULY 3, 2006 TO REFLECT THE JUNE
30, 2006 CHANGE IN VALUE OF SECURITIES ON LOAN.
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
18
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.
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 57
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 45
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 60
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 70
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
Ronald R. Pressman, CHIEF EXECUTIVE OFFICER (EFFECTIVE AS OF JULY 1, 2006)
John H. Myers, CHIEF EXECUTIVE OFFICER (RETIRED FROM ALL
POSITIONS AS OF JUNE 30, 2006)
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
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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
Semi-Annual Report
JUNE 30, 2006
[LOGO OMITTED]
GE Investments Funds, Inc.
Mid-Cap Equity Fund Contents
- -------------------------------------------------------------------------------
NOTES TO PERFORMANCE ................................................. 1
MANAGER REVIEW AND SCHEDULE OF INVESTMENTS ........................... 2
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
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.
Notes to Performance June 30, 2006 (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.
1
Mid-Cap Equity Fund
- --------------------------------------------------------------------------------
DIANE M. WEHNER IS A VICE PRESIDENT OF GE ASSET MANAGEMENT AND PORTFOLIO MANAGER
OF THE MID-CAP 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 AND LIPPER
PEER GROUP FOR THE SIX-MONTH PERIOD ENDED JUNE 30, 2006?
A. For the six-month period ended June 30, 2006, the Mid-Cap Equity Fund
returned 2.29%. The Russell Mid-Cap Index, the Fund's benchmark, returned
4.86% and the Fund's Lipper peer group of 84 Mid-Cap Core funds returned an
average of 4.02% for the same period.
Q. WHAT MARKET CONDITIONS IMPACTED THE FUND'S PERFORMANCE?
A. High oil prices continued to fuel stock price appreciation in the energy
sector, and the Fund's overweight in energy continued to help performance.
At the same time, however, higher oil prices and increased interest rates
raised concerns about global economic growth, putting pressure on capital
markets and negatively impacting our market-sensitive financials. Investors
sought safety in high dividend paying stocks, such as those in the Real
Estate Investment Trust (REIT) industry where the Fund had an underweight
due to its growth bias. However, diverging trends within real estate had a
net positive effect on the Fund during the six months ended June 30, 2006.
Homebuilding stocks declined about 30%, on average, as interest rates moved
higher and inventory of homes for sale increased. The Fund benefited due to
our underweight in this sector. Conversely, commercial real estate stocks
continued their uptrend, due to the ongoing recovery in the commercial real
estate industry. While we were underweight in the REIT sector, the Fund
participated in this appreciation through its investment in commercial real
estate services firms.
Stock option backdating came into the forefront of investor's minds during
the first six months of 2006. Certain of the Fund's holdings, particularly
in the technology sector, were negatively affected by announcements of SEC
inquiries related to option pricing procedures.
Q. WHAT WERE THE PRIMARY DRIVERS OF FUND PERFORMANCE?
A. While there was no particular theme within the information technology
sector, the Fund was negatively affected by a few individual stocks that
weighed on portfolio returns. Biometric fingerprint company Cogent, declined
34% as guidance fell below expectations due to the uncertain timing of new
contract awards. Software companies Wind River and Activision fell 26% and
17%, respectively. Wind River fell due to an earnings miss. Activision's
stock declined due to concerns about the timing and availability of next
generation game consoles. Finally, communications equipment companies
Juniper Networks and Comverse Technology fell 28% and 26%, respectively,
over concerns on options pricing.
[PHOTO OMITTED]
2
Q&A
Within consumer staples, the Fund was negatively impacted by not owning
Archer-Daniels-Midland, which rose 68%. Weight Watchers negatively impacted
us, down 17%, due to weakness in its UK operations related to missteps in a
new program launch.
Within financials, asset managers Legg Mason and Calamos Asset Management,
which declined 17% and 7%, respectively, detracted from Fund performance, as
these asset managers suffered from negative fund flows and market
volatility. On the positive side, real estate services company C.B. Richard
Ellis, up 27%, continues to benefit from strong investment sales, as well as
a strengthening commercial leasing market. Also, within the commercial real
estate sector, information provider CoStar Group rose 39% due to excitement
over the launch of its newest product.
Finally, the Fund continued to benefit from our overweight in Energy as
highlighted above, with Weatherford International, up 37%, GlobalSantaFe, up
21%, while Valero and Peabody Energy rose 29% and 36%, respectively. Within
the Health Care sector, the Fund had strong stock selection with Amylin
Pharmaceuticals up 24%, Thermo Electron up 20% and Advance Medical Optics up
21%.
Q. WERE THERE ANY SIGNIFICANT CHANGES TO THE FUND OVER THE PERIOD?
A. The Fund's sector weightings did not change dramatically during the first
half of 2006. We maintain our underweight in financial services as well as
in consumer discretionary companies. We focus on investing in attractively
valued companies with solid earnings prospects, strong market share and
superior long-term fundamentals. With an emphasis on growth, we continue to
look to invest in innovative companies that provide prospects for
above-average earnings growth. Therefore healthcare and information
technology companies represent a more meaningful percentage of the
portfolio.
3
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 June 30,
2006.
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 $1,000 = 8.6), then multiply the result by the number
given for your class under the heading "Expenses Paid During Period."
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The second section of the table provides information about hypothetical account
values and hypothetical expenses based on the Fund's actual expense ratio and an
assumed rate of return of 5% per year before expenses, which is not the Fund's
actual return. You may use this information to compare the ongoing costs of
investing in the Fund and other funds. To do so, compare this 5% hypothetical
example with the 5% hypothetical examples that appear in the shareholders
reports of other funds.
Please note that the expenses shown in the table do not reflect any transaction
costs, such as sales charges or redemption fees.
JANUARY 1, 2006 - JUNE 30, 2006
- ---------------------------------------------------------------------------------------------------------------------------
ACCOUNT VALUE AT ACCOUNT VALUE EXPENSES
THE BEGINNING OF AT THE END OF PAID DURING
THE PERIOD ($) THE PERIOD ($) THE PERIOD ($)*
- ---------------------------------------------------------------------------------------------------------------------------
Actual Fund Return** 1,000.00 1,022.89 3.59
- ---------------------------------------------------------------------------------------------------------------------------
Hypothetical 5% Return
(2.5% for the period) 1,000.00 1,021.13 3.47
- ---------------------------------------------------------------------------------------------------------------------------
*EXPENSES ARE EQUAL TO THE FUND'S ANNUALIZED EXPENSE RATIO OF 0.69% (FROM
PERIOD JANUARY 1, 2006 - JUNE 30, 2006), MULTIPLIED BY THE AVERAGE ACCOUNT
VALUE OVER THE PERIOD, MULTIPLIED BY 181/365 (TO REFLECT THE SIX-MONTH
PERIOD).
**ACTUAL FUND RETURN FOR THE SIX-MONTH PERIOD ENDED JUNE 30, 2006 WAS 2.29%.
4
Mid-Cap Equity Fund (unaudited)
- --------------------------------------------------------------------------------
CHANGE IN VALUE
OF A $10,000 INVESTMENT
- --------------------------------------------------------------------------------
[LINE CHART OMITTED, PLOT POINTS FOLLOWS]
MIDCAP RUSSELL
EQUITY FUND MIDCAP INDEX
5/1/97 $10000.00 $10000.00
12/97 13255.63 12690.32
12/98 14141.95 13966.07
12/99 16583.39 16507.21
12/00 17957.86 17870.35
12/01 18016.39 16861.85
12/02 15536.50 14134.45
12/03 20653.98 19801.72
12/04 23963.34 23795.64
12/05 26776.52 26806.00
06/06 27389.51 28108.47
AVERAGE ANNUAL TOTAL RETURN
FOR THE PERIODS ENDED JUNE 30, 2006
- --------------------------------------------------------------------------------
SIX ONE FIVE SINCE
MONTHS YEAR YEAR INCEPTION
- --------------------------------------------------------------------------------
Mid-Cap Equity Fund 2.29% 10.79% 8.35% 11.62%
- --------------------------------------------------------------------------------
Russell MidCap Index 4.86% 13.68% 9.92% 11.93%
- --------------------------------------------------------------------------------
Lipper peer group average* 4.02% 12.44% 9.04% N/A
- --------------------------------------------------------------------------------
Inception date 5/1/97
- --------------------------------------------------------------------------------
Mid-Cap Equity Fund (ending value $27,390)
Russell MidCap Index (ending value $28,108)
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 JUNE 30, 2006
as a % of Market Value
- --------------------------------------------------------------------------------
Amylin Pharmaceuticals, Inc. 1.58%
- --------------------------------------------------------------------------------
CB Richard Ellis Group, Inc. (Class A) 1.58%
- --------------------------------------------------------------------------------
Thermo Electron Corp. 1.50%
- --------------------------------------------------------------------------------
Harris Corp. 1.40%
- --------------------------------------------------------------------------------
Rockwell Collins, Inc. 1.38%
- --------------------------------------------------------------------------------
Michaels Stores, Inc. 1.33%
- --------------------------------------------------------------------------------
Legg Mason, Inc. 1.29%
- --------------------------------------------------------------------------------
MoneyGram International, Inc. 1.26%
- --------------------------------------------------------------------------------
GlobalSantaFe Corp. 1.24%
- --------------------------------------------------------------------------------
Barr Pharmaceuticals, Inc. 1.24%
- --------------------------------------------------------------------------------
PORTFOLIO COMPOSITION
AS OF JUNE 30, 2006
as a % of Market Value
- --------------------------------------------------------------------------------
Market Value of $238,659 (in thousands)
[PIE CHART OMITTED, PLOT POINTS FOLLOWS]
Healthcare 15.8%
Information Technology 15.0%
Short-Term 14.0%
Financials 12.8%
Industrials 11.3%
Consumer Discretionary 10.8%
Energy 8.8%
Materials 3.8%
Utilities 3.4%
Consumer Staples 3.1%
Telecommunication Services 1.2%
* LIPPER PERFORMANCE COMPARISONS ARE BASED ON AVERAGE ANNUAL TOTAL RETURNS FOR
THE SIX-MONTH, ONE-YEAR AND FIVE-YEAR PERIODS INDICATED IN THE MID-CAP CORE
FUNDS PEER GROUP CONSISTING OF 84, 81 AND 48 UNDERLYING ANNUITY FUNDS,
RESPECTIVELY.
SEE NOTES TO PERFORMANCE ON PAGE 1 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
MID-CAP EQUITY FUND
Schedule of Investments June 30, 2006 (unaudited)
- --------------------------------------------------------------------------------
MID-CAP EQUITY FUND
NUMBER
OF SHARES VALUE
COMMON STOCK -- 96.9%+
- --------------------------------------------------------------------------------
CONSUMER DISCRETIONARY -- 12.1%
aQuantive, Inc. 25,310 $ 641,102(a,e)
Bed Bath & Beyond, Inc. 64,194 2,129,315(a)
Boyd Gaming Corp. 24,573 991,766(e)
Cheesecake Factory 58,392 1,573,664(a)
Chico's FAS, Inc. 36,339 980,426(a)
Federated Department Stores Inc. 45,492 1,665,007
Getty Images, Inc. 28,828 1,830,866(a,e)
Global Cash Access Holdings, Inc. 85,077 1,329,754(a)
Life Time Fitness, Inc. 20,856 965,007(a,e)
Michaels Stores, Inc. 76,934 3,172,758(d)
Pulte Homes, Inc. 42,546 1,224,899(e)
Regal Entertainment
Group (Class A) 102,114 2,074,956(e)
Starwood Hotels & Resorts
Worldwide, Inc. 31,958 1,928,346
The E.W. Scripps Co. (Class A) 54,194 2,337,929
Univision Communications Inc.
(Class A) 39,540 1,324,590(a)
Williams-Sonoma, Inc. 43,733 1,489,109
25,659,494
CONSUMER STAPLES -- 3.5%
Alberto-Culver Co. 48,690 2,372,177(a)
Clorox Co. 16,677 1,016,797
Kroger Co. 59,674 1,304,474(d)
The Hershey Co. 9,618 529,663
Weight Watchers
International Inc. 53,801 2,199,923(e)
7,423,034
ENERGY -- 9.9%
BJ Services Co. 61,599 2,295,179
Dresser-Rand Group, Inc. 74,325 1,745,151(a)
EOG Resources, Inc. 30,583 2,120,625
GlobalSantaFe Corp. 51,108 2,951,487
Hess Corp. 47,378 2,503,927
Nexen, Inc. 35,233 1,992,074
Peabody Energy Corp. 44,226 2,465,599
Valero Energy Corp. 29,746 1,978,704
Weatherford International Ltd. 59,320 2,943,458(a)
20,996,204
FINANCIALS -- 14.4%
Affiliated Managers Group 33,707 2,928,801(a,e)
Calamos Asset Management Inc.
(Class A) 76,011 2,203,559(e)
NUMBER
OF SHARES VALUE
CB Richard Ellis Group, Inc.
(Class A) 151,389 $ 3,769,586(a,d)
CVB Financial Corp. 75,412 1,180,952(e)
Everest Re Group, Ltd. 27,436 2,375,135
Greenhill & Company, Inc. 30,564 1,857,069(e)
HCC Insurance Holdings, Inc. 67,394 1,984,079
Legg Mason, Inc. 30,858 3,070,988
M&T Bank Corp. 11,681 1,377,424
Maguire Properties, Inc. (REIT) 33,576 1,180,868
MBIA Inc. 14,987 877,489
North Fork Bancorporation, Inc. 75,958 2,291,653(d)
The Hartford Financial Services
Group, Inc. 23,618 1,998,083
Trammell Crow Co. (REIT) 36,250 1,274,912(a,e)
Zions Bancorporation 28,197 2,197,674
30,568,272
HEALTHCARE -- 17.8%
Advanced Medical Optics, Inc. 30,382 1,540,367(a,e)
Alcon, Inc. 24,278 2,392,597
Amylin Pharmaceuticals, Inc. 76,409 3,772,312(a,e)
Angiotech Pharmaceuticals, Inc. 145,866 1,713,925(a,e)
Barr Pharmaceuticals, Inc. 61,815 2,947,957(a)
Caremark Rx, Inc. 58,447 2,914,752
DENTSPLY International, Inc. 34,296 2,078,338
Gilead Sciences, Inc. 26,683 1,578,566(a)
Henry Schein, Inc. 57,444 2,684,358(a)
Kinetic Concepts, Inc. 19,466 859,424(a)
Manor Care, Inc. 54,513 2,557,750
Martek Biosciences Corp. 45,531 1,318,122(a,e)
Psychiatric Solutions Inc. 84,413 2,419,277(a,e)
Quest Diagnostics Inc. 40,837 2,446,953
Smith & Nephew PLC ADR 40,488 1,560,003(e)
Teva Pharmaceutical
Industries Ltd. ADR 21,988 694,601
Thermo Electron Corp. 98,998 3,587,688(a,d)
Vertex Pharmaceuticals, Inc. 15,260 560,195(a,e)
37,627,185
INDUSTRIALS -- 12.8%
ChoicePoint, Inc. 38,053 1,589,474(a)
Corinthian Colleges, Inc. 71,008 1,019,675(a,e)
Corporate Executive Board Co. 12,944 1,296,989
CoStar Group, Inc. 31,467 1,882,671(a,e)
Danaher Corp. 39,769 2,557,942
Dover Corp. 29,366 1,451,561
Eaton Corp. 31,467 2,372,612(d)
Harsco Corp. 34,968 2,726,105
Hexcel Corp. 112,705 1,770,596(a,e)
Joy Global, Inc. 21,607 1,125,509
MoneyGram International, Inc. 88,688 3,010,958
Rockwell Collins, Inc. 59,065 3,299,962
Stericycle, Inc. 32,666 2,126,557(a)
Sunpower Corp. (Class A) 29,053 814,065(a,e)
27,044,676
See Notes to Schedule of Investments on page 8 and Notes to Financial
Statements.
6
<page>
MID-CAP EQUITY FUND
Schedule of Investments June 30, 2006 (unaudited)
- --------------------------------------------------------------------------------
NUMBER
OF SHARES VALUE
INFORMATION TECHNOLOGY -- 16.9%
Activision, Inc. 202,850 $ 2,308,433(a,d)
Affiliated Computer
Services, Inc. (Class A) 39,313 2,028,944(a)
Analog Devices, Inc. 57,991 1,863,831(d)
CDW Corp. 24,865 1,358,872
Cogent, Inc. 149,399 2,251,443(a,e)
Comverse Technology, Inc. 105,697 2,089,630(a,d)
DST Systems, Inc. 29,660 1,764,770(a)
Fiserv, Inc. 22,992 1,042,917(a)
Harris Corp. 80,299 3,333,211(d)
Juniper Networks, Inc. 93,401 1,493,482(a)
Linear Technology Corp. 87,390 2,926,691
Macrovision Corp. 57,533 1,238,110(a,e)
Mettler Toledo International Inc. 25,305 1,532,724(a)
Microchip Technology Inc. 48,871 1,639,622
Molex, Inc. (Class A) 78,747 2,262,401
NAVTEQ Corp. 32,292 1,442,807(a)
Neustar, Inc. (Class A) 32,860 1,109,025(a)
Symantec Corp. 85,509 1,328,810(a,e)
Wind River Systems, Inc. 152,230 1,354,847(a,e)
Xilinx, Inc. 62,915 1,425,025
35,795,595
MATERIALS -- 4.3%
Cabot Corp. 26,969 930,970(e)
Martin Marietta Materials, Inc. 25,614 2,334,716
Monsanto Co. 26,969 2,270,520
Praxair, Inc. 42,900 2,316,600
Sealed Air Corp. 24,768 1,289,917
9,142,723
TELECOMMUNICATION SERVICES -- 1.3%
American Tower Corp. (Class A) 61,579 1,916,338(a)
NII Holdings, Inc. (Class B) 15,714 885,955(a)
2,802,293
UTILITIES -- 3.9%
Ameren Corp. 40,444 2,042,422
DTE Energy Co. 42,546 1,733,324
PPL Corp. 74,897 2,419,173
SCANA Corp. 51,903 2,002,418
8,197,337
TOTAL INVESTMENTS IN SECURITIES
(COST $165,222,177) 205,256,813
NUMBER
OF SHARES VALUE
SHORT-TERM INVESTMENTS -- 15.8%
- --------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS -- 0.6%
GEI Short Term Investment Fund
6.93% 1,244,348 $ 1,244,348(b,f)
SHORT-TERM SECURITIES PURCHASED WITH
COLLATERAL FROM SECURITIES ON LOAN -- 15.2%
State Street Navigator Securities
Lending Prime Portfolio
5.25% 32,158,332 32,158,332(b,c)
TOTAL SHORT-TERM INVESTMENTS
(COST $33,402,680) 33,402,680
TOTAL INVESTMENTS
(COST $198,624,857) 238,659,493
LIABILITIES IN EXCESS OF OTHER ASSETS,
NET -- (12.7)% (26,973,581)
------------
NET ASSETS -- 100.0% $211,685,912
============
- --------------------------------------------------------------------------------
OTHER INFORMATION
- --------------------------------------------------------------------------------
The GEI Mid-Cap Equity had the following long futures contracts open at June 30,
2006 (unaudited):
NUMBER CURRENT
EXPIRATION OF NOTIONAL UNREALIZED
DESCRIPTION DATE CONTRACTS VALUE APPRECIATION
- --------------------------------------------------------------------------------
S&P 400 Midcap
Futures September 2006 4 $1,543,200 $39,230
See Notes to Schedule of Investments on page 8 and Notes to Financial
Statements.
7
<page>
Notes to Schedule of Investments June 30, 2006 (unaudited)
- --------------------------------------------------------------------------------
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 June 30, 2006, 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 Trust.
+ Percentages are based on net assets as of June 30, 2006.
8
<page>
Financial Highlights
Selected data based on a share outstanding throughout the periods indicated
- --------------------------------------------------------------------------------
MID-CAP EQUITY FUND
6/30/06+ 12/31/05 12/31/04
- -------------------------------------------------------------------------------------------------------------------
INCEPTION DATE -- -- --
Net asset value, beginning of period ...................... $19.22 $18.33 $17.48
INCOME/(LOSS) FROM INVESTMENT OPERATIONS:
Net investment income .................................. 0.04 0.05 0.17
Net realized and unrealized
gains/(losses) on investments ....................... 0.40 2.11 2.63
- -------------------------------------------------------------------------------------------------------------------
TOTAL INCOME/(LOSS) FROM INVESTMENT OPERATIONS ............ 0.44 2.16 2.80
- -------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM:
Net investment income .................................. -- 0.06 0.14
Net realized gains ..................................... -- 1.21 1.81
- -------------------------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS ....................................... -- 1.27 1.95
- -------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD ............................ $19.66 $19.22 $18.33
- -------------------------------------------------------------------------------------------------------------------
TOTAL RETURN (A) .......................................... 2.29% 11.74% 16.02%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in thousands) ............... $211,686 $229,097 $239,831
Ratios to average net assets:
Net investment income* .............................. 0.35% 0.24% 0.89%
Expenses* ........................................... 0.69% 0.70% 0.70%
Portfolio turnover rate ................................ 15% 27% 78%
12/31/03 12/31/02 12/31/01
- --------------------------------------------------------------------------------------------------------------
INCEPTION DATE -- -- 5/1/97
Net asset value, beginning of period ...................... $13.30 $15.66 $16.31
INCOME/(LOSS) FROM INVESTMENT OPERATIONS:
Net investment income .................................. 0.19 0.12 0.11
Net realized and unrealized
gains/(losses) on investments ....................... 4.19 (2.28) (0.06)
- --------------------------------------------------------------------------------------------------------------
TOTAL INCOME/(LOSS) FROM INVESTMENT OPERATIONS ............ 4.38 (2.16) 0.05
- --------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM:
Net investment income .................................. 0.18 0.12 0.11
Net realized gains ..................................... 0.02 0.08 0.59
- --------------------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS ....................................... 0.20 0.20 0.70
- --------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD ............................ $17.48 $13.30 $15.66
- --------------------------------------------------------------------------------------------------------------
TOTAL RETURN (A) .......................................... 32.94% (13.76)% 0.33%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in thousands) ............... $226,929 $170,422 $179,044
Ratios to average net assets:
Net investment income* .............................. 1.36% 0.82% 0.85%
Expenses* ........................................... 0.69% 0.68% 0.68%
Portfolio turnover rate ................................ 28% 37% 42%
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.
* Annualized for periods less than one year.
+ Unaudited.
See Notes to Financial Statements.
9
<page>
Statement of Assets
and Liabilities JUNE 30, 2006 (UNAUDITED)
MID-CAP
EQUITY
FUND
- --------------------------------------------------------------------------------------------------------
ASSETS
Investments in securities, at market* (cost $165,222,177) ........................ $205,256,813
Short-term Investments (at amortized cost) ....................................... 32,158,332
Short-term affiliated investments (at amortized cost) ............................ 1,244,348
Receivable for investments sold .................................................. 5,020,271
Income receivables ............................................................... 180,171
Receivable for fund shares sold .................................................. 97,182
Variation margin receivable ...................................................... 8,800
- --------------------------------------------------------------------------------------------------------
TOTAL ASSETS ................................................................. 243,965,917
- --------------------------------------------------------------------------------------------------------
LIABILITIES
Payable upon return of securities loaned ......................................... 32,158,332
Payable for investments purchased ................................................ 1,131
Payable for fund shares redeemed ................................................. 2,070
Payable to GEAM .................................................................. 118,472
- --------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES ............................................................ 32,280,005
- --------------------------------------------------------------------------------------------------------
NET ASSETS .......................................................................... $211,685,912
- --------------------------------------------------------------------------------------------------------
NET ASSETS CONSIST OF:
Capital paid in .................................................................. 154,789,549
Undistributed (distribution in excess of) net investment income .................. 409,280
Accumulated net realized gain (loss) ............................................. 16,413,216
Net unrealized appreciation/(depreciation) on:
Investments .................................................................. 40,034,636
Futures ...................................................................... 39,230
Foreign currency related transactions ........................................ 1
- --------------------------------------------------------------------------------------------------------
NET ASSETS .......................................................................... $211,685,912
- --------------------------------------------------------------------------------------------------------
Shares outstanding ($0.01 par value; unlimited shares authorized) ................... 10,766,107
Net asset value per share ........................................................... $19.66
* Includes $31,705,442 of securities on loan.
See Notes to Financial Statements.
10
<page>
Statement of Operations
FOR THE SIX MONTHS ENDED JUNE 30, 2006 (UNAUDITED)
MID-CAP
EQUITY
FUND
- ------------------------------------------------------------------------------------------------------
INVESTMENT INCOME
INCOME:
Dividend ......................................................................... $1,012,466
Interest* ........................................................................ 56,736
Interest from affliated investments .............................................. 114,311
Less: Foreign taxes withheld ..................................................... (6,134)
- ------------------------------------------------------------------------------------------------------
TOTAL INCOME ....................................................................... 1,177,379
- ------------------------------------------------------------------------------------------------------
EXPENSES:
Advisory and administrative fees ................................................. 738,069
Professional fees ................................................................ 16,642
Custody and accounting expenses .................................................. 15,468
Trustee's fees ................................................................... 3,209
Registration expenses ............................................................ 711
Transfer agent ................................................................... 82
Other expenses ................................................................... 9,268
- ------------------------------------------------------------------------------------------------------
TOTAL EXPENSES ..................................................................... 783,449
- ------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME (LOSS) ....................................................... 393,930
- ------------------------------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS
REALIZED GAIN (LOSS) ON:
Investments ................................................................... 14,080,591
Futures ....................................................................... (97,834)
Foreign cu rrency transactions ................................................ (8)
INCREASE (DECREASE) IN UNREALIZED APPRECIATION/
(DEPRECIATION) ON:
Investments ................................................................... (8,459,697)
Futures ....................................................................... (11,495)
Foreign currency transactions ................................................. 1
- ------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments ........................... 5,511,558
- ------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS .................... $5,905,488
- ------------------------------------------------------------------------------------------------------
* Income attributable to security lending activity, net of rebate expenses, was
$56,736.
See Notes to Financial Statements.
11
<page>
Statements of
Changes in Net Assets
MID-CAP
EQUITY
FUND
- --------------------------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 2006 DECEMBER 31,
(UNAUDITED) 2005
- --------------------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net investments income (loss) ................................................... $ 393,930 $ 563,287
Net realized gain (loss) on investments, futures, written options
and foreign currency transactions ............................................. 13,982,749 14,923,721
Net increase (decrease) in unrealized appreciation/(depreciation)
on investments, futures, written options and foreign
currency translation .......................................................... (8,471,191) 9,684,992
- --------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) from operations ......................................... 5,905,488 25,172,000
- --------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income ........................................................... -- (677,879)
Net realized gains .............................................................. -- (13,537,932)
- --------------------------------------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS ............................................................... -- (14,215,811)
- --------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets from operations and distributions ............... 5,905,488 10,956,189
- --------------------------------------------------------------------------------------------------------------------------------
SHARE TRANSACTIONS:
Proceeds from sale of shares .................................................... 859,285 2,208,712
Value of distributions reinvested ............................................... -- 14,215,740
Cost of shares redeemed ......................................................... (24,175,618) (38,115,372)
- --------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) from share transactions ................................. (23,316,333) (21,690,920)
- --------------------------------------------------------------------------------------------------------------------------------
TOTAL INCREASE (DECREASE) IN NET ASSETS ........................................... (17,410,845) (10,734,731)
NET ASSETS
Beginning of period ............................................................... 229,096,757 239,831,488
- --------------------------------------------------------------------------------------------------------------------------------
End of period ..................................................................... $211,685,912 $229,096,757
- --------------------------------------------------------------------------------------------------------------------------------
UNDISTRIBUTED (DISTRIBUTION IN EXCESS OF) NET INVESTMENT INCOME, END
OF PERIOD .......................................................................... $ 409,280 $ 15,350
- --------------------------------------------------------------------------------------------------------------------------------
CHANGES IN PORTFOLIO SHARES
Shares sold ..................................................................... 43,004 117,331
Issued for distributions reinvested ............................................. -- 735,424
Shares redeemed ................................................................. (1,198,697) (2,013,679)
- --------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in fund shares ............................................... (1,155,693) (1,160,924)
- --------------------------------------------------------------------------------------------------------------------------------
See Notes to Financial Statements.
12
<page>
Notes to Financial Statements June 30, 2006 (unaudited)
- --------------------------------------------------------------------------------
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, 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 June 30, 2006, GE Life and Annuity Assurance Company ("GE Life") and
General Electric Capital Assurance Company, 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 Fund:
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.
13
<page>
Notes to Financial Statements June 30, 2006 (unaudited)
- --------------------------------------------------------------------------------
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
14
<page>
Notes to Financial Statements June 30, 2006 (unaudited)
- --------------------------------------------------------------------------------
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 June 30, 2006, 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
- ------------------------------------------------------------------------------------------------------------------------
$199,101,554 $47,763,996 $(8,206,057) $39,557,939
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
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.
15
<page>
Notes to Financial Statements June 30, 2006 (unaudited)
- --------------------------------------------------------------------------------
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 June 30, 2006.
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 performs certain accounting and certain administration services not
provided by GEAM. For the period ending June 30, 2006, $1,620 was charged to the
Fund. Administrative services not performed by GEAM or GENPACT were provided by
an unaffiliated service provider.
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 June 30, 2006 were as follows:
Purchases Sales
- ------------------------------------------------------------------------
$34,010,507 $58,230,983
SECURITY LENDING At June 30, 2006, the Fund participated in securities lending:
Loaned
securities at Cash
market value collateral*
- -----------------------------------------------------------------------
$31,705,442 $32,465,397
* COLLATERAL OF $32,158,332 INCREASED BY $307,065 ON
JULY 3, 2006 TO REFLECT THE JUNE 30, 2006 CHANGE IN
VALUE OF SECURITIES ON LOAN.
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
<page>
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
18
<page>
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.
19
<page>
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 57
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
<page>
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 45
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
<page>
Additional Information (unaudited)
- --------------------------------------------------------------------------------
NON-INTERESTED DIRECTORS
- --------------------------------------------------------------------------------
JOHN R. COSTANTINO
- --------------------------------------------------------------------------------
ADDRESS c/o GEAM 3001 Summer St. Stamford, CT 06905
AGE 60
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 70
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
Ronald R. Pressman, CHIEF EXECUTIVE OFFICER (EFFECTIVE AS OF JULY 1, 2006)
John H. Myers, CHIEF EXECUTIVE OFFICER (RETIRED FROM ALL
POSITIONS AS OF JUNE 30, 2006)
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
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<page>
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<page>
[This page intentionally left blank.]
<page>
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.
[LOGO OMITTED]
GE Investments Funds, Inc.
Small-Cap Equity Fund
Semi-Annual Report
JUNE 30, 2006
[GE LOGO OMITTED]
GE Investments Funds, Inc.
Small-Cap Equity Fund Contents
- --------------------------------------------------------------------
NOTES TO PERFORMANCE ............................................ 1
MANAGER REVIEW AND SCHEDULE OF INVESTMENTS ...................... 2
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
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.
Notes to Performance June 30, 2006 (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.
1
Small-Cap Equity Fund*
- --------------------------------------------------------------------------------
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
T. ("DAN") 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. 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 AND
LIPPER PEER GROUP FOR THE SIX-MONTH PERIOD ENDED JUNE 30, 2006?
A. For the six-month period ended June 30, 2006, the Small-Cap Equity Fund
returned 5.19%. The Russell 2000 Index, the Fund's benchmark, returned 8.20%
and the Funds Lipper peer group of 126 Small Cap Core funds returned an
average of 6.47% for the same period.
Q. WHAT MARKET CONDITIONS IMPACTED THE FUND'S PERFORMANCE?
A. Not surprisingly, the gains in the first quarter were offset by the second
quarter's setbacks in equities. The first quarter's market performance
leadership was attributable to lower-quality, higher-volatility companies.
Despite this condition, the Fund achieved a positive return while remaining
invested in companies with greater consistent earnings growth, higher
return-on-invested-capital, and increasing free cash flow generation. In the
highly volatile second quarter, such stocks declined more than the
benchmark.
Q. WHAT WERE THE PRIMARY DRIVERS OF FUND PERFORMANCE?
A. The Fund's holdings in the consumer discretionary and information technology
sectors declined 14.9% and 5.6%, respectively, during the period and trailed
their respective Index's sector return. Our positions in the materials,
financial services, and industrials sectors gained 22.8%, 11.7%, and 20.3%
respectively, and surpassed the respective returns achieved by the Index's
sectors. Some core holdings in the Fund were trimmed as their returns
approached high double and
- ----------------------
* 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.
2
Q&A
triple digits. The prices for these stocks declined greatly with the
market's increased volatility in May and the Fund lagged its benchmark as
a result.
Q. WERE THERE ANY SIGNIFICANT CHANGES TO THE FUND DURING THE PERIOD?
A. The most significant changes in sector allocation include reductions in the
consumer discretionary, health care, and information technology sectors and
increases in the financial services and industrial sectors. Continued rate
increases by the Federal Reserve to stem inflationary pressure impeded the
buying power of most consumers in the last six months. We slightly scaled
back our exposure to the health care sector. We added a few new stocks to
the industrials sector but most of the increase in allocation was due to
market appreciation.
3
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 June 30,
2006.
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 $1,000 = 8.6), then multiply the result by the number
given for your class under the heading "Expenses Paid During Period."
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The second section of the table provides information about hypothetical account
values and hypothetical expenses based on the Fund's actual expense ratio and an
assumed rate of return of 5% per year before expenses, which is not the Fund's
actual return. You may use this information to compare the ongoing costs of
investing in the Fund and other funds. To do so, compare this 5% hypothetical
example with the 5% hypothetical examples that appear in the shareholders
reports of other funds.
Please note that the expenses shown in the table do not reflect any transaction
costs, such as sales charges or redemption fees.
JANUARY 1, 2006 - JUNE 30, 2006
- ----------------------------------------------------------------------------------------------------------------------
ACCOUNT VALUE AT ACCOUNT VALUE EXPENSES
THE BEGINNING OF AT THE END OF PAID DURING
THE PERIOD ($) THE PERIOD ($) THE PERIOD ($)*
- ----------------------------------------------------------------------------------------------------------------------
Actual Fund Return** 1,000.00 1,051.94 4.53
- ----------------------------------------------------------------------------------------------------------------------
Hypothetical 5% Return
(2.5% for the period) 1,000.00 1,020.36 4.27
- ----------------------------------------------------------------------------------------------------------------------
*EXPENSES ARE EQUAL TO THE FUND'S ANNUALIZED EXPENSE RATIO OF 0.85% (FROM
PERIOD JANUARY 1, 2006 - JUNE 30, 2006), MULTIPLIED BY THE AVERAGE ACCOUNT
VALUE OVER THE PERIOD, MULTIPLIED BY 181/365 (TO REFLECT THE SIX-MONTH
PERIOD).
**ACTUAL FUND RETURN FOR THE SIX-MONTH PERIOD ENDED JUNE 30, 2006 WAS 5.19%.
4
Small-Cap Equity Fund
- --------------------------------------------------------------------------------
CHANGE IN VALUE
OF A $10,000 INVESTMENT
- --------------------------------------------------------------------------------
[LINE CHART OMITTED, PLOT POINTS FOLLOWS]
SMALL-CAP RUSSELL 2000
EQUITY INDEX
4/28/00 $10000.00 $10000.00
6/00 9890.00 10240.84
12/00 11325.90 9650.02
6/01 12029.37 10312.23
12/01 12455.23 9896.45
6/02 12465.60 9432.91
12/02 10729.52 7876.43
6/03 11116.07 9287.89
12/03 13316.94 11601.44
6/04 14247.25 12385.21
12/04 15334.17 13727.92
6/05 15930.88 13554.49
12/05 16795.59 14348.21
6/06 17667.94 15525.13
AVERAGE ANNUAL TOTAL RETURN
FOR THE PERIODS ENDED JUNE 30, 2006
- --------------------------------------------------------------------------------
SIX ONE FIVE SINCE
MONTHS YEAR YEAR INCEPTION
- --------------------------------------------------------------
Small-Cap Equity Fund 5.19% 10.90% 7.99% 9.65%
- --------------------------------------------------------------
Russell 2000 Index 8.20% 14.54% 8.53% 7.39%
- --------------------------------------------------------------
Lipper peer group average* 6.47% 13.00% 8.13% N/A
- --------------------------------------------------------------
Inception date 4/28/00
- --------------------------------------------------------------
Small-Cap Equity Fund (ending value $17,668)
Russell 2000 Index (ending value $15,525)
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 JUNE 30, 2006
as a % of Market Value
- --------------------------------------------------------------
Genesee & Wyoming Inc. (Class A) 4.19%
- --------------------------------------------------------------
Micros Systems, Inc. 2.80%
- --------------------------------------------------------------
Oshkosh Truck Corp. 2.76%
- --------------------------------------------------------------
DRS Technologies, Inc. 2.65%
- --------------------------------------------------------------
Centene Corp. 2.64%
- --------------------------------------------------------------
Oil States International, Inc. 2.61%
- --------------------------------------------------------------
Manitowoc Co. 2.58%
- --------------------------------------------------------------
Harsco Corp. 2.52%
- --------------------------------------------------------------
Jones Lang LaSalle Inc. 2.50%
- --------------------------------------------------------------
Federal Realty Investment Trust (REIT) 2.43%
- --------------------------------------------------------------
PORTFOLIO COMPOSITION
AS OF JUNE 30, 2006
as a % of Market Value
- --------------------------------------------------------------------------------
Market Value of $153,407 (in thousands)
[PIE CHART OMITTED, PLOT POINTS FOLLOWS]
Industrials 22.7%
Financials 18.5%
Short-Term 16.5%
Information Technology 12.9%
Healthcare 9.2%
Consumer Discretionary 7.7%
Energy 7.5%
Materials 2.4%
Consumer Staples 2.1%
Utilities 0.5%
* LIPPER PERFORMANCE COMPARISONS ARE BASED ON AVERAGE ANNUAL TOTAL RETURNS FOR
THE SIX-MONTH, ONE-YEAR AND FIVE-YEAR PERIODS INDICATED IN THE SMALL-CAP CORE
FUNDS PEER GROUP CONSISTING OF 126, 125 AND 80 UNDERLYING ANNUITY FUNDS,
RESPECTIVELY.
SEE NOTES TO PERFORMANCE ON PAGE 1 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
SMALL-CAP EQUITY FUND
Schedule of Investments June 30, 2006 (unaudited)
- --------------------------------------------------------------------------------
SMALL-CAP EQUITY FUND
NUMBER
OF SHARES VALUE
COMMON STOCK -- 98.7%+
- --------------------------------------------------------------------------------
CONSUMER DISCRETIONARY -- 9.1%
American Eagle Outfitters 49,700 $ 1,691,788
Arbitron, Inc. 43,900 1,682,687(d)
Bright Horizons Family
Solutions, Inc. 10,300 388,207(a,d)
Brinker International, Inc. 31,200 1,132,560
Finish Line (Class A) 52,800 624,624(d)
Interactive Data Corp. 96,900 1,946,721(a,d)
Meritage Homes Corp. 7,800 368,550(a,d)
Pool Corp. 27,900 1,217,277(d)
RARE Hospitality International, Inc. 13,000 373,880(a)
The Talbots, Inc. 40,200 741,690(d)
Timberland Co. (Class A) 26,000 678,600(a,d)
Triarc Companies, Inc. (Class B) 64,400 1,006,572(d)
11,853,156
CONSUMER STAPLES -- 2.5%
Central European
Distribution Corp. 54,900 1,381,284(a,d)
Smithfield Foods, Inc. 62,800 1,810,524(a,d)
3,191,808
ENERGY -- 8.9%
Chesapeake Energy Corp. 89,500 2,707,375(d)
Dril-Quip Inc. 12,300 1,014,012(a,d)
Hydril Co. 25,500 2,002,260(a)
Oil States International, Inc. 97,600 3,345,728(a,d)
St. Mary Land & Exploration Co. 60,700 2,443,175
11,512,550
FINANCIALS -- 21.9%
American Equity Investment Life
Holding Co. 41,700 444,522(d)
BioMed Realty Trust, Inc. (REIT) 83,900 2,511,966
Cullen/Frost Bankers, Inc. 34,200 1,959,660(d)
Federal Realty Investment
Trust (REIT) 44,500 3,115,000
Global Cash Access Holdings, Inc. 74,800 1,169,124(a,d)
HCC Insurance Holdings, Inc. 90,100 2,652,544
Hilb Rogal & Hobbs Co. 35,900 1,337,993
Jones Lang LaSalle Inc. 36,600 3,204,330(d)
Omega Healthcare
Investors, Inc. (REIT) 119,600 1,581,112
Raymond James Financial, Inc. 91,175 2,759,867(d)
Sandy Spring Bancorp, Inc. 21,700 782,502(d)
Sky Financial Group, Inc. 33,500 790,935
Sterling Bancorp 29,562 576,459
Trammell Crow Co. (REIT) 48,100 1,691,677(a,d)
W Holding Company, Inc. 91,982 611,680(d)
NUMBER
OF SHARES VALUE
Webster Financial Corp. 36,700 $ 1,741,048
Westamerica Bancorporation 29,900 1,464,203(d)
28,394,622
HEALTHCARE -- 10.9%
Centene Corp. 143,600 3,378,908(a,d)
Computer Programs and
Systems, Inc. 58,300 2,329,668(d)
Immunicon Corp. 70,600 367,826(a,d)
KV Pharmaceutical Co. (Class A) 22,600 421,716(a,d)
Medical Action Industries Inc. 43,500 960,915(a)
Molina Healthcare, Inc. 9,900 376,695(a,d)
Noven Pharmaceuticals Inc. 85,300 1,526,870(a,d)
Salix Pharmaceuticals Ltd. 52,200 642,060(a,d)
The Cooper Companies, Inc. 20,900 925,661(d)
Thoratec Corp. 71,900 997,253(a,d)
Varian, Inc. 53,800 2,233,238(a)
14,160,810
INDUSTRIALS -- 26.8%
ADESA, Inc. 105,000 2,335,200
Comfort Systems USA, Inc. 83,600 1,194,644(d)
DRS Technologies, Inc. 69,600 3,393,000(d)
EDO Corp. 28,400 691,256(d)
Genesee & Wyoming Inc. (Class A) 151,100 5,359,517(a,d)
Harsco Corp. 41,300 3,219,748
Herman Miller Inc. 47,100 1,213,767
Manitowoc Co. 74,100 3,297,450(d)
Mueller Industries, Inc. 47,200 1,559,016
NCI Building Systems, Inc. 3,300 175,461(a,d)
Old Dominion Freight Line 27,000 1,014,930(a,d)
Oshkosh Truck Corp. 74,300 3,530,736
Quanta Services, Inc. 88,500 1,533,705(a,d)
RailAmerica, Inc. 36,600 382,836(a)
Teledyne Technologies Inc. 61,700 2,021,292(a)
TeleTech Holdings Inc. 137,000 1,734,420(a,d)
Woodward Governor Co. 70,000 2,135,700(d)
34,792,678
INFORMATION TECHNOLOGY -- 15.2%
Blackbaud, Inc. 122,500 2,780,750(d)
Digital Insight Corp. 21,800 747,522(a)
Intergraph Corp. 53,900 1,697,311(a)
Itron, Inc. 14,600 865,196(a,d)
Manhattan Associates, Inc. 43,000 872,470(a)
Micros Systems, Inc. 82,200 3,590,496(a,d)
Mobility Electronics, Inc. 130,700 948,882(a,d)
MoneyGram International, Inc. 63,200 2,145,640
Parametric Technology Corp. 157,480 2,001,571(a,d)
Photon Dynamics, Inc. 63,100 790,012(a,d)
Plantronics, Inc. 28,400 630,764(d)
Rudolph Technologies, Inc. 61,800 896,100(a,d)
Semtech Corp. 66,200 956,590(a)
TNS, Inc. 6,500 134,485(a,d)
Websense, Inc. 32,600 669,604(a,d)
19,727,393
See Notes to Schedule of Investments on page 8 and Notes to Financial
Statements.
6
SMALL-CAP EQUITY FUND
Schedule of Investments June 30, 2006 (unaudited)
- --------------------------------------------------------------------------------
NUMBER
OF SHARES VALUE
MATERIALS -- 2.8%
Commercial Metals Co. 94,000 $ 2,415,800
Packaging Corporation of America 56,400 1,241,928
3,657,728
UTILITIES -- 0.6%
IDACORP, Inc. 21,100 723,519(d)
TOTAL INVESTMENTS IN SECURITIES
(COST $104,018,279) 128,014,264
- --------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS -- 19.6%
- --------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS -- 1.3%
GEI Short Term Investment Fund
6.93% 1,698,012 1,698,012(b,e)
SHORT-TERM SECURITIES PURCHASED WITH
COLLATERAL FROM SECURITIES ON LOAN -- 18.3%
State Street Navigator Securities
Lending Prime Portfolio
5.25% 23,694,930 23,694,930(b,c)
TOTAL SHORT-TERM INVESTMENTS
(COST $25,392,942) 25,392,942
TOTAL INVESTMENTS
(COST $129,411,221) 153,407,206
LIABILITIES IN EXCESS OF
OTHER ASSETS -- (18.3)% (23,778,880)
-------------
NET ASSETS -- 100.0% $129,628,326
=============
See Notes to Schedule of Investments on page 8 and Notes to Financial
Statements.
7
Notes to Schedule of Investments June 30, 2006 (unaudited)
- --------------------------------------------------------------------------------
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 Trust.
+ Percentages are based on net assets as of June 30, 2006.
Abbreviations:
REIT Real Estate Investment Trust
8
Financial Highlights
Selected data based on a share outstanding throughout the periods indicated
- --------------------------------------------------------------------------------
SMALL-CAP EQUITY FUND
6/30/06+ 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 .............. $14.44 $13.62 $12.74 $10.27 $12.01 $11.27
INCOME/(LOSS) FROM INVESTMENT OPERATIONS:
Net investment income .......................... 0.02 0.02 0.08 0.02 0.03 0.04
Net realized and unrealized
gains/(losses) on investments ............... 0.73 1.28 1.85 2.46 (1.69) 1.08
- ------------------------------------------------------------------------------------------------------------------------------
TOTAL INCOME/(LOSS) FROM INVESTMENT OPERATIONS .... 0.75 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 .................... $15.19 $14.44 $13.62 $12.74 $10.27 $12.01
- ------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN (A) .................................. 5.19% 9.53% 15.15% 24.11% (13.86)% 9.97%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in thousands) ....... $129,628 $128,142 $117,158 $86,330 $52,359 $32,787
Ratios to average net assets:
Net investment income* ...................... 0.22% 0.11% 0.67% 0.17% 0.34% 0.56%
Expenses* ................................... 0.85% 0.86% 0.88% 0.86% 0.84% 0.91%
Portfolio turnover rate ........................ 18% 33% 101% 119% 108% 130%
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.
* Annualized for periods less than one year.
+ Unaudited.
See Notes to Financial Statements.
9
Statement of Assets
and Liabilities JUNE 30, 2006 (UNAUDITED)
SMALL-CAP
EQUITY
FUND
- ---------------------------------------------------------------------------------------
ASSETS
Investments in securities, at market* (cost $104,018,279) ............. $128,014,264
Short-term Investments (at amortized cost) ............................ 23,694,930
Short-term affiliated investments (at amortized cost) ................. 1,698,012
Receivable for investments sold ....................................... 204,246
Income receivables .................................................... 124,829
Receivable for fund shares sold ....................................... 28,634
- ---------------------------------------------------------------------------------------
TOTAL ASSETS ...................................................... 153,764,915
- ---------------------------------------------------------------------------------------
LIABILITIES
Payable upon return of securities loaned .............................. 23,694,930
Payable for investments purchased ..................................... 351,167
Payable for fund shares redeemed ...................................... 568
Payable to GEAM ....................................................... 89,924
- ---------------------------------------------------------------------------------------
TOTAL LIABILITIES ................................................. 24,136,589
- ---------------------------------------------------------------------------------------
NET ASSETS ............................................................... $129,628,326
- ---------------------------------------------------------------------------------------
NET ASSETS CONSIST OF:
Capital paid in ....................................................... 99,098,333
Undistributed (distribution in excess of) net investment income ....... 164,179
Accumulated net realized gain (loss) .................................. 6,369,829
Net unrealized appreciation/(depreciation) on:
Investments ....................................................... 23,995,985
- ---------------------------------------------------------------------------------------
NET ASSETS ............................................................... $129,628,326
- ---------------------------------------------------------------------------------------
Shares outstanding ($0.01 par value; unlimited shares authorized) ........ 8,532,318
Net asset value per share ................................................ $15.19
* Includes $23,232,276 of securities on loan.
See Notes to Financial Statements.
10
Statement of Operations
FOR THE SIX MONTHS ENDED JUNE 30, 2006 (UNAUDITED)
SMALL-CAP
EQUITY
FUND
- -------------------------------------------------------------------------------
INVESTMENT INCOME
INCOME:
Dividend ...................................................... $ 610,092
Interest* ..................................................... 44,155
Interest from affliated investments ........................... 72,429
Less: Foreign taxes withheld .................................. (1,012)
- -------------------------------------------------------------------------------
TOTAL INCOME .................................................... 725,664
- -------------------------------------------------------------------------------
EXPENSES:
Advisory and administrative fees .............................. 544,057
Custody and accounting expenses ............................... 15,164
Professional fees ............................................. 9,027
Trustee's fees ................................................ 1,758
Registration expenses ......................................... 1,274
Transfer agent ................................................ 82
Other expenses ................................................ 6,354
- -------------------------------------------------------------------------------
TOTAL EXPENSES .................................................. 577,716
- -------------------------------------------------------------------------------
NET INVESTMENT INCOME (LOSS) .................................... 147,948
- -------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS
REALIZED GAIN (LOSS) ON:
Investments ................................................ 5,796,371
INCREASE (DECREASE) IN UNREALIZED APPRECIATION/
(DEPRECIATION) ON:
Investments ................................................ 629,858
- -------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments ........ 6,426,229
- -------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $6,574,177
- -------------------------------------------------------------------------------
* Income attributable to security lending activity, net of rebate expenses, was
$44,065.
See Notes to Financial Statements.
11
Statements of
Changes in Net Assets
SMALL-CAP
EQUITY
FUND
- ------------------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 2006 DECEMBER 31,
(UNAUDITED) 2005
- ------------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net investments income (loss) .................................................... $ 147,948 $ 130,009
Net realized gain (loss) on investments, futures, written options,
foreign currency transactions and swaps ........................................ 5,796,371 4,386,615
Net increase (decrease) in unrealized appreciation/(depreciation)
on investments, futures, written options and foreign currency translation ...... 629,858 6,257,422
- ------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) from operations .......................................... 6,574,177 10,774,046
- ------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income ............................................................ -- (232,361)
Net realized gains ............................................................... -- (3,909,633)
- ------------------------------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS ................................................................ -- (4,141,994)
- ------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets from operations and distributions ................ 6,574,177 6,632,052
- ------------------------------------------------------------------------------------------------------------------------
SHARE TRANSACTIONS:
Proceeds from sale of shares ..................................................... 6,624,825 18,002,125
Value of distributions reinvested ................................................ -- 4,142,073
Cost of shares redeemed .......................................................... (11,713,097) (17,792,113)
- ------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) from share transactions .................................. (5,088,272) 4,352,085
- ------------------------------------------------------------------------------------------------------------------------
TOTAL INCREASE (DECREASE) IN NET ASSETS ............................................ 1,485,905 10,984,137
NET ASSETS
Beginning of period ................................................................ 128,142,421 117,158,284
- ------------------------------------------------------------------------------------------------------------------------
End of period ...................................................................... $129,628,326 $128,142,421
- ------------------------------------------------------------------------------------------------------------------------
UNDISTRIBUTED (DISTRIBUTION IN EXCESS OF) NET INVESTMENT INCOME, END OF PERIOD ........ $ 164,179 $ 16,231
- ------------------------------------------------------------------------------------------------------------------------
CHANGES IN PORTFOLIO SHARES
Shares sold ...................................................................... 423,108 1,282,518
Issued for distributions reinvested .............................................. -- 284,483
Shares redeemed .................................................................. (765,137) (1,292,377)
- ------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in fund shares ................................................ (342,029) 274,624
- ------------------------------------------------------------------------------------------------------------------------
See Notes to Financial Statements.
12
Notes to Financial Statements June 30, 2006 (unaudited)
- --------------------------------------------------------------------------------
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"), 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 June 30, 2006, GE Life and Annuity Assurance Company ("GE Life") and
General Electric Capital Assurance Company, 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 Fund:
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.
13
Notes to Financial Statements June 30, 2006 (unaudited)
- --------------------------------------------------------------------------------
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 June 30, 2006, 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
- --------------------------------------------------------------------------------------------
$129,463,076 $29,919,376 $(5,975,246) $23,944,130
14
Notes to Financial Statements June 30, 2006 (unaudited)
- --------------------------------------------------------------------------------
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.
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 June 30, 2006.
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%.
GENPACT performs certain accounting and certain administration services not
provided by GEAM. For the period ending June 30, 2006, $914 was charged to the
Fund. Administrative services not performed by GEAM or GENPACT were provided by
an unaffiliated service provider.
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 June 30, 2006 (unaudited)
- --------------------------------------------------------------------------------
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 June 30, 2006 were as follows:
Purchases Sales
- ------------------------------------------------------------
$23,594,036 $27,412,222
SECURITY LENDING At June 30, 2006, the Fund participated in securities lending:
Loaned
securities at Cash
market value collateral*
- ------------------------------------------------------
$23,232,276 $23,858,220
* COLLATERAL OF $23,694,930 INCREASED BY $163,290 ON JULY 3, 2006
TO REFLECT THE JUNE 30, 2006 CHANGE IN VALUE OF SECURITIES ON LOAN.
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 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
17
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.
18
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.
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 57
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 45
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 60
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 70
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
Ronald R. Pressman, CHIEF EXECUTIVE OFFICER (EFFECTIVE AS OF JULY 1, 2006)
John H. Myers, CHIEF EXECUTIVE OFFICER (RETIRED FROM ALL POSITIONS AS OF
JUNE 30, 2006)
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
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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.
International Equity Fund
Semi-Annual Report
JUNE 30, 2006
[LOGO OMITTED]
GE Investments Funds, Inc.
International Equity Fund Contents
- --------------------------------------------------------------------------------
NOTES TO PERFORMANCE.................................................... 1
MANAGER REVIEW AND SCHEDULE OF INVESTMENTS.............................. 2
NOTES TO SCHEDULE OF INVESTMENTS........................................ 9
FINANCIAL STATEMENTS
Financial Highlights............................................... 10
Statement of Assets and Liabilities................................ 11
Statement of Operations............................................ 12
Statements of Changes in Net Assets................................ 13
Notes to Financial Statements...................................... 14
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.
<page>
Notes to Performance June 30, 2006 (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.
1
<page>
International Equity Fund
- --------------------------------------------------------------------------------
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 OCTOBER 1996. 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 CHIEF INVESTMENT OFFICER, INVESTMENT STRATEGIES 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 SIX-MONTH PERIOD ENDED JUNE 30, 2006?
A. For the six-month period ended June 30, 2006, the International Equity Fund
returned 9.28%. The MSCI EAFE, the Fund's benchmark, returned 10.16% and the
Fund's Lipper peer group of 137 International Core Funds returned an average
of 8.95% for the same period.
Q. WHAT MARKET CONDITIONS IMPACTED FUND PERFORMANCE?
A. Stocks moved higher early in the period driven by low interest rates, strong
profitability and optimism over global growth prospects. However, inflation
fears and an aggressive withdrawal of liquidity by the Bank of Japan
triggered a sharp sell off in May and June, even while corporate conditions
remained favorable.
Q. WHAT WORLD EVENTS HAD A MAJOR IMPACT ON THE FINANCIAL MARKETS?
A. The rise in commodity prices in recent quarters has been offset, largely, by
rising productivity, keeping inflation subdued. However, growing concern at
the world's central banks that prices might move unacceptably higher
prompted rate increases around
[PHOTO OMITTED]
2
Q&A
the world in an apparent coordinated move. These actions led short-term
investors, especially those who employ leverage, to aggressively cut long
positions in stocks and commodities, regardless of fundamentals.
Q. WHICH PARTICULAR STOCKS/SECTORS SIGNIFICANTLY CONTRIBUTED TO THE FUND
PERFORMANCE?
A. The IT and Financial sectors were the two sectors that contributed the most
to the underperformance of the Fund during the last six months.
Specifically, Japanese financials, such as Nomura Holdings and Acom, were
under pressure as were certain industrials and technology companies
including Chiyoda and Nidec. Pricing continues to be an issue, especially in
technology where competition is fierce.
Q. DID THE WEIGHTINGS/COUNTRY ALLOCATION OF THE FUND CHANGE? WHY?
A. As a result of switches described below, the weights in telecom services and
energy were slightly reduced. However, the weight remained the same in
industrials while consumer staples was increased slightly. Holdings in Japan
increased once again while the weight in the United Kingdom was reduced.
Q. WHAT WERE THE MAJOR BUYS AND SELLS FOR THE PERIOD AND WHY?
A. Holdings in integrated energy companies were trimmed in favor of oil service
and equipment. Incumbent telecommunication service companies were reduced
and replaced by stocks with significant opportunities in high growth
emerging markets. A Japanese consumer finance company was sold for
competitive reasons and new consumer-focused stocks added, reflecting the
growing optimism about domestic growth in Japan. Niche holdings in specialty
materials (carbon fiber) and fertilizers were added for their unique market
opportunities.
3
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 June 30,
2006.
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 $1,000 = 8.6), then multiply the result by the number
given for your class under the heading "Expenses Paid During Period."
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The second section of the table provides information about hypothetical account
values and hypothetical expenses based on the Fund's actual expense ratio and an
assumed rate of return of 5% per year before expenses, which is not the Fund's
actual return. You may use this information to compare the ongoing costs of
investing in the Fund and other funds. To do so, compare this 5% hypothetical
example with the 5% hypothetical examples that appear in the shareholders
reports of other funds.
Please note that the expenses shown in the table do not reflect any transaction
costs, such as sales charges or redemption fees.
JANUARY 1, 2006 - JUNE 30, 2006
- -----------------------------------------------------------------------------------------------------------------------
ACCOUNT VALUE AT ACCOUNT VALUE EXPENSES
THE BEGINNING OF AT THE END OF PAID DURING
THE PERIOD ($) THE PERIOD ($) THE PERIOD ($)*
- -----------------------------------------------------------------------------------------------------------------------
Actual Fund Return** 1,000.00 1,092.82 6.34
- -----------------------------------------------------------------------------------------------------------------------
Hypothetical 5% Return
(2.5% for the period) 1,000.00 1,018.76 5.91
- -----------------------------------------------------------------------------------------------------------------------
* EXPENSES ARE EQUAL TO THE FUND'S ANNUALIZED EXPENSE RATIO OF 1.18% (FROM
PERIOD JANUARY 1, 2006 - JUNE 30, 2006), MULTIPLIED BY THE AVERAGE ACCOUNT
VALUE OVER THE PERIOD, MULTIPLIED BY 181/365 (TO REFLECT THE SIX-MONTH
PERIOD).
** ACTUAL FUND RETURN FOR THE SIX-MONTH PERIOD ENDED JUNE 30, 2006 WAS 9.28%.
4
International Equity Fund (unaudited)
- --------------------------------------------------------------------------------
CHANGE IN VALUE
OF A $10,000 INVESTMENT
[LINE CHART OMITTED, PLOT POINTS FOLLOWS]
INTERNATIONAL
EQUITY INDEX MSCI EAFE
6/96 $ 10000.00 $ 10000.00
12/96 10085.89 10146.19
12/97 11111.94 10326.24
12/98 13050.44 12390.85
12/99 17008.53 15732.02
12/00 14845.15 13503.22
12/01 11748.70 10584.65
12/02 8948.96 8897.45
12/03 12341.28 12330.60
12/04 14297.23 14827.20
12/05 16898.58 16834.14
06/06 18467.10 18544.78
AVERAGE ANNUAL TOTAL RETURN
FOR THE PERIODS ENDED JUNE 30, 2006
SIX ONE FIVE TEN
MONTHS YEAR YEAR YEAR
- --------------------------------------------------------------------
International Equity Fund 9.28% 30.23% 7.25% 6.33%
- --------------------------------------------------------------------
MSCI EAFE 10.16% 26.56% 10.04% 6.37%
- --------------------------------------------------------------------
Lipper peer group average* 8.95% 26.68% 9.25% 6.76%
- --------------------------------------------------------------------
Inception date 5/1/95
- --------------------------------------------------------------------
International Equity Fund (ending value $18,467)
MSCI EAFE (ending value $18,545)
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 JUNE 30, 2006
as a % of Market Value
- ----------------------------------------------------------------
BHP Billiton PLC 2.48%
- ----------------------------------------------------------------
Nomura Holdings, Inc. 2.04%
- ----------------------------------------------------------------
Roche Holding AG 2.01%
- ----------------------------------------------------------------
GlaxoSmithKline PLC 1.91%
- ----------------------------------------------------------------
BNP Paribas 1.88%
- ----------------------------------------------------------------
Mitsubishi UFJ Financial Group, Inc. 1.75%
- ----------------------------------------------------------------
Saipem S.p.A. 1.73%
- ----------------------------------------------------------------
Nestle S.A. (Regd.) 1.72%
- ----------------------------------------------------------------
UniCredito Italiano S.p.A. 1.71%
- ----------------------------------------------------------------
Nokia OYJ 1.69%
- ----------------------------------------------------------------
PORTFOLIO COMPOSITION
AS OF JUNE 30, 2006
as a % of Market Value
Market Value of $81,717 (in thousands)
[PIE CHART OMITTED, PLOT POINTS FOLLOWS]
Continental Europe 37.9%
Japan 17.7%
United Kingdom 14.2%
United States 13.9%
Emerging Asia 4.5%
Latin America 4.4%
Pacific Rim 3.4%
Canada 2.4%
Emerging Europe 1.6%
* LIPPER PERFORMANCE COMPARISONS ARE BASED ON AVERAGE ANNUAL TOTAL RETURNS FOR
THE SIX-MONTH, ONE-YEAR, FIVE-YEAR, AND TEN-YEAR PERIODS INDICATED IN THE
INTERNATIONAL CORE PEER GROUP CONSISTING OF 137, 137, 85 AND 40 UNDERLYING
ANNUITY FUNDS, RESPECTIVELY.
SEE NOTES TO PERFORMANCE ON PAGE 1 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
INTERNATIONAL EQUITY FUND
Schedule of Investments June 30, 2006 (unaudited)
- --------------------------------------------------------------------------------
INTERNATIONAL EQUITY FUND
NUMBER
OF SHARES VALUE
COMMON STOCK -- 97.0%+
- --------------------------------------------------------------------------------
ARGENTINA -- 0.7%
Tenaris S.A. ADR............... 13,110 $ 530,824
BRAZIL -- 2.9%
Cia Vale do Rio Doce ADR....... 45,712 1,098,917
Petroleo Brasileiro S.A. ADR... 12,086 964,946
2,063,863
CANADA -- 2.7%
Canadian National Railway Co... 16,461 721,732(f)
EnCana Corp.................... 4,736 250,321(f)
Nortel Networks Corp........... 40,410 90,115(a)
Potash Corp of Saskatchewan.... 10,086 866,994
1,929,162
CHINA -- 0.7%
China Petroleum & Chemical Corp. 844,000 483,559
DENMARK -- 0.5%
Group 4 Securicor PLC.......... 109,617 345,739
EGYPT -- 0.4%
Orascom Construction Industries 9,506 289,061(a)
FINLAND -- 1.9%
Nokia OYJ...................... 67,540 1,378,306(a)
FRANCE -- 9.5%
Accor S.A...................... 1,170 71,196(f)
AXA S.A........................ 20,206 662,962(f)
BNP Paribas.................... 16,015 1,532,746(e,f)
Carrefour S.A.................. 3,853 225,837(f)
Credit Agricole S.A............ 19,716 749,993(f)
France Telecom S.A............. 6,330 136,058(f)
Lagardere S.C.A. (Regd.)....... 1,772 130,735(f)
LVMH Moet Hennessy
Louis Vuitton S.A............ 6,488 643,760(f)
Renault S.A.................... 1,270 136,406(f)
Sanofi-Aventis................. 4,317 421,171(f)
Total S.A...................... 18,846 1,239,813(f)
Veolia Environnement........... 17,684 913,737(f)
6,864,414
NUMBER
OF SHARES VALUE
GERMANY -- 5.3%
Allianz AG (Regd.)............. 3,945 $ 623,069(a)
BASF AG........................ 5,762 462,537
E.ON AG........................ 10,889 1,253,368
Linde AG....................... 6,393 492,508
Siemens AG (Regd.)............. 11,277 980,947
3,812,429
HONG KONG -- 1.5%
Hongkong Land Holdings Ltd..... 83,999 307,436
Jardine Matheson Holdings Ltd.. 16,541 291,122
Sun Hung Kai Properties Ltd.... 48,930 498,938(f)
1,097,496
INDIA -- 0.7%
ICICI Bank Ltd. ADR............ 21,225 501,971
ITALY -- 5.5%
Banca Intesa S.p.A............. 104,112 609,702(f)
Ente Nazionale Idrocarburi S.p.A. 18,565 546,689(f)
Saipem S.p.A................... 62,269 1,416,444(f)
UniCredito Italiano S.p.A...... 178,682 1,398,247
3,971,082
JAPAN -- 20.0%
Asahi Glass Company Ltd........ 54,003 685,460(f)
Bank of Yokohama Ltd........... 58,506 452,940(f)
Chiyoda Corp................... 37,618 770,031(f)
East Japan Railway Co.......... 95 706,382
Hoya Corp...................... 19,500 694,266
Komatsu Ltd.................... 34,811 692,779
Kubota Corp.................... 40,000 379,653
Mitsubishi Estate Company Ltd.. 55,982 1,190,012
Mitsubishi Heavy Industries Ltd. 30,000 129,642
Mitsubishi UFJ Financial
Group, Inc................... 102 1,427,634
Mitsui Sumitomo
Insurance Co. Ltd............ 70,000 879,937
Nidec Corp..................... 10,562 757,629(f)
Nomura Holdings, Inc........... 88,999 1,669,972(f)
Sekisui Chemical Company Ltd... 45,576 393,903
Seven & I Holdings Co. Ltd..... 16,000 527,665
Shiseido Company Ltd........... 24,523 481,600(f)
SMC Corp....................... 2,571 364,121
Toray Industries Inc........... 118,999 1,033,688
Toyota Motor Corp.............. 23,397 1,225,981
14,463,295
MALAYSIA -- 0.3%
Malaysia International Shipping
Corp. BHD.................... 110,832 232,251
See Notes to Schedule of Investments on page 9 and Notes to Financial
Statements.
6
INTERNATIONAL EQUITY FUND
Schedule of Investments June 30, 2006 (unaudited)
- --------------------------------------------------------------------------------
NUMBER
OF SHARES VALUE
MEXICO -- 1.0%
America Movil S.A. de C.V.
ADR (Series L)............... 21,858 $ 726,997
NETHERLANDS -- 2.8%
ING Groep N.V.................. 20,261 796,113
Koninklijke Philips
Electronics N.V............... 39,656 1,238,751
2,034,864
NORWAY -- 2.8%
Orkla ASA...................... 2,757 127,823
Stolt Offshore S.A............. 69,096 1,052,108(a)
Telenor ASA.................... 69,242 837,345
2,017,276
RUSSIA -- 0.7%
LUKOIL ADR..................... 5,246 438,565(b)
LUKOIL ADR..................... 668 55,578
494,143
SINGAPORE -- 2.4%
CapitaLand Ltd................ 241,000 685,806
Singapore Telecommunications
Ltd. ....................... 628,896 1,010,147
1,695,953
SOUTH KOREA -- 2.3%
Kookmin Bank................... 4,030 331,338
Kookmin Bank ADR............... 7,279 604,594
Samsung Electronics
Company Ltd.................. 30 19,068
Samsung Electronics
Company Ltd. GDR............. 2,304 724,032(b)
1,679,032
SPAIN -- 1.7%
Banco Santander Central
Hispano S.A. (Regd.)........ 69,000 1,007,550(f)
Telefonica S.A................. 13,238 220,387
Telefonica S.A. ADR............ 120 5,969
1,233,906
SWEDEN -- 2.2%
Sandvik AB..................... 88,530 1,029,283
Telefonaktiebolaget LM Ericsson 158,744 524,486
1,553,769
SWITZERLAND -- 10.7%
ABB Ltd. (Regd.)............... 80,059 1,039,133
Adecco S.A. (Regd.)............ 6,508 384,105
Credit Suisse Group (Regd.).... 20,003 1,116,902(e)
NUMBER
OF SHARES VALUE
Holcim Ltd. (Regd.)............ 6,609 $ 505,521
Nestle S.A. (Regd.)............ 4,496 1,409,358(e)
Novartis AG (Regd.)............ 20,822 1,125,238
Roche Holding AG............... 9,970 1,644,846
Swiss Reinsurance.............. 7,421 517,653
7,742,756
TAIWAN -- 1.0%
Taiwan Semiconductor
Manufacturing Company Ltd.... 420,121 757,793
TURKEY -- 0.7%
Akbank TAS..................... 106,157 507,896
UNITED KINGDOM -- 16.1%
BG Group PLC................... 46,150 616,703
BHP Billiton PLC............... 104,385 2,025,255(e)
Brambles Industries PLC........ 27,985 222,566
Diageo PLC..................... 59,586 1,002,337
GlaxoSmithKline PLC............ 55,931 1,563,087(e)
Group 4 Securicor PLC.......... 106,722 331,118
Lloyds TSB Group PLC........... 69,283 681,077
National Grid PLC.............. 4,796 51,895
Prudential PLC................. 67,110 758,393
Reed Elsevier PLC.............. 43,582 440,115
Rio Tinto PLC (Regd.).......... 17,830 942,826
Royal Bank of Scotland
Group PLC.................... 35,310 1,161,169
Smiths Group PLC............... 31,844 524,773
Tesco PLC...................... 116,228 717,998
Vodafone Group PLC............. 269,761 575,024(e)
11,614,336
TOTAL COMMON STOCK
(COST $53,369,108)........... 70,022,173
PREFERRED STOCK -- 0.4%
Cia Vale do Rio Doce ADR
(COST $275,372)............. 14,277 293,821
RIGHTS -- 0.0%*
Linde AG
(COST $0).................... 6,393 24,687(a)
TOTAL INVESTMENTS IN SECURITIES
(COST $53,644,480)........... 70,340,681
See Notes to Schedule of Investments on page 9 and Notes to Financial
Statements.
7
INTERNATIONAL EQUITY FUND
Schedule of Investments June 30, 2006 (unaudited)
- --------------------------------------------------------------------------------
NUMBER
OF SHARES VALUE
SHORT-TERM INVESTMENTS -- 15.7%
SHORT-TERM INVESTMENTS -- 1.7%
GEI Short Term Investment Fund
6.93%........................ 1,246,378 $ 1,246,378(c,g)
SHORT-TERM SECURITIES PURCHASED
WITH COLLATERAL FROM SECURITIES
ON LOAN -- 14.0%
State Street Navigator Securities
Lending Prime Portfolio
5.25%........................ 10,130,227 10,130,227(c,d)
TOTAL SHORT-TERM INVESTMENTS
(COST $11,376,605)........... 11,376,605
TOTAL INVESTMENTS
(COST $65,021,085)........... 81,717,286
LIABILITIES IN EXCESS OF OTHER
ASSETS, NET -- (13.1)%..... (9,497,428)
NET ASSETS -- 100.0% ........... $72,219,858
OTHER INFORMATION
The GEI International Equity had the following long futures contracts open at
June 30, 2006 (unaudited):
NUMBER CURRENT
EXPIRATION OF NOTIONAL UNREALIZED
DESCRIPTION DATE CONTRACTS VALUE APPRECIATION
- ------------------------------------------------------------------------
DJ EURO Stoxx
50 Index
Futures September 2006 3 $ 140,472 $ 6,523
FTSE 100 Index
Futures September 2006 1 107,736 3,138
-------
$ 9,661
=======
The GEI International Equity was invested in the following sectors at June 30,
2006 (unaudited):
SECTOR PERCENTAGE (BASED ON MARKET VALUE)
- ------------------------------------------------------------
Financials 25.66%
Short-Term 13.92%
Industrials 12.18%
Materials 9.48%
Energy 9.29%
Information Technology 6.05%
Healthcare 5.82%
Consumer Staples 5.34%
Consumer Discretionary 5.24%
Telecommunication Services 4.30%
Utilities 2.72%
------
100.00%
======
See Notes to Schedule of Investments on page 9 and Notes to Financial
Statements.
8
<page>
Notes to Schedule of Investments June 30, 2006 (unaudited)
- --------------------------------------------------------------------------------
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 June 30, 2006, these securities amounted to
$1,162,598 or 1.61% 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 June 30, 2006, 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 Trust.
* Less than 0.1%
+ Percentages are based on net assets as of June 30, 2006.
Abbreviations:
ADR American Depository Receipt
GDR Global Depository Receipt
REGD. Registered
9
<page>
Financial Highlights
Selected data based on a share outstanding throughout the periods indicated
- --------------------------------------------------------------------------------
INTERNATIONAL EQUITY FUND
6/30/06+ 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......... $11.42 $9.76 $8.52 $6.23 $8.28 $10.61
INCOME/(LOSS) FROM INVESTMENT OPERATIONS:
Net investment income..................... 0.13 0.13 0.11 0.07 0.07 0.09
Net realized and unrealized
gains/(losses) on investments.......... 0.93 1.65 1.24 2.29 (2.04) (2.30)
- --------------------------------------------------------------------------------------------------------------------------------
TOTAL INCOME/(LOSS) FROM INVESTMENT
OPERATIONS................................. 1.06 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............... $12.48 $11.42 $9.76 $8.52 $6.23 $8.28
- --------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN (A)............................. 9.28% 18.19% 15.85% 37.91% (23.83)% (20.86)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in thousands).. $72,220 $65,450 $55,714 $45,198 $31,683 $42,119
Ratios to average net assets:
Net investment income*................. 2.08% 1.19% 1.31% 1.13% 0.88% 0.99%
Expenses*.............................. 1.18% 1.25% 1.15% 1.07% 1.09% 1.07%
Portfolio turnover rate................... 18% 53% 38% 35% 42% 42%
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.
* Annualized for periods less than one year.
+ Unaudited.
See Notes to Financial Statements.
10
<page>
Statement of Assets
and Liabilities JUNE 30, 2006 (UNAUDITED)
INTERNATIONAL
EQUITY FUND
- ----------------------------------------------------------------------------------------------------------
ASSETS
Investments in securities, at market* (cost $53,644,480)............................. $70,340,681
Short-term investments (at amortized cost) .......................................... 10,130,227
Short-term affiliated investments (at amortized cost)................................ 1,246,378
Restricted cash...................................................................... 124,335
Foreign cash (cost $84,496).......................................................... 85,398
Receivable for investments sold...................................................... 930,409
Income receivables .................................................................. 177,759
Receivable for fund shares sold...................................................... 42
Variation margin receivable.......................................................... 13,527
- ----------------------------------------------------------------------------------------------------------
TOTAL ASSETS..................................................................... 83,048,756
- ----------------------------------------------------------------------------------------------------------
LIABILITIES
Payable upon return of securities loaned............................................. 10,130,227
Payable for investments purchased ................................................... 528,089
Payable for fund shares redeemed..................................................... 105,977
Payable to GEAM...................................................................... 64,605
- ----------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES................................................................ 10,828,898
- ----------------------------------------------------------------------------------------------------------
NET ASSETS.............................................................................. $72,219,858
- ----------------------------------------------------------------------------------------------------------
NET ASSETS CONSIST OF:
Capital paid in ..................................................................... 58,265,941
Undistributed (distribution in excess of) net investment income ..................... 767,314
Accumulated net realized gain (loss)................................................. (3,530,604)
Net unrealized appreciation/(depreciation) on:
Investments....................................................................... 16,696,201
Futures........................................................................... 9,661
Foreign currency related transactions............................................. 11,345
- ----------------------------------------------------------------------------------------------------------
NET ASSETS.............................................................................. $72,219,858
- ----------------------------------------------------------------------------------------------------------
Shares outstanding ($0.01 par value; unlimited shares authorized)....................... 5,785,473
Net asset value per share............................................................... 12.48
* Includes $9,793,015 of securities on loan.
See Notes to Financial Statements.
11
<page>
Statement of Operations
FOR THE SIX MONTHS ENDED JUNE 30, 2006 (UNAUDITED)
INTERNATIONAL
EQUITY FUND
- ----------------------------------------------------------------------------------------------------------
INVESTMENT INCOME
INCOME:
Dividend ........................................................................... $1,226,215
Interest* .......................................................................... 35,240
Interest from affliated investments ................................................ 38,974
Less: Foreign taxes withheld ....................................................... (139,361)
- ----------------------------------------------------------------------------------------------------------
TOTAL INCOME ......................................................................... 1,161,068
- ----------------------------------------------------------------------------------------------------------
EXPENSES:
Advisory and administrative fees ................................................... 357,609
Custody and accounting expenses .................................................... 53,865
Professional fees .................................................................. 4,581
Trustee's fees ..................................................................... 894
Registration expenses .............................................................. 347
Transfer agent ..................................................................... 30
Other expenses ..................................................................... 3,412
- ----------------------------------------------------------------------------------------------------------
TOTAL EXPENSES ....................................................................... 420,738
- ----------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME (LOSS) ......................................................... 740,330
- ----------------------------------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS
REALIZED GAIN (LOSS) ON:
Investments ..................................................................... 3,802,611
Futures ......................................................................... (157,690)
Foreign currency transactions ................................................... (885)
INCREASE (DECREASE) IN UNREALIZED APPRECIATION/
(DEPRECIATION) ON:
Investments ..................................................................... 1,684,412
Futures ......................................................................... (4,809)
Foreign currency transactions ................................................... 12,837
- ----------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments ............................. 5,336,476
- ----------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS ...................... $6,076,806
- ----------------------------------------------------------------------------------------------------------
* Income attributable to security lending activity, net of rebate expenses, was
$33,231.
See Notes to Financial Statements.
12
<page>
Statements of
Changes in Net Assets
INTERNATIONAL
EQUITY FUND
- ----------------------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 2006 DECEMBER 31,
(UNAUDITED) 2005
- ----------------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net investments income (loss)..................................................... $ 740,330 $ 713,463
Net realized gain (loss) on investments, futures, written options
and foreign currency transactions............................................... 3,644,036 6,918,800
Net increase (decrease) in unrealized appreciation/(depreciation)
on investments, futures, written options and foreign currency translation....... 1,692,440 2,825,088
- ----------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) from operations........................................... 6,076,806 10,457,351
- ----------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income............................................................. -- (662,460)
- ----------------------------------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS................................................................. -- (662,460)
- ----------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets from operations and distributions................. 6,076,806 9,794,891
- ----------------------------------------------------------------------------------------------------------------------------
SHARE TRANSACTIONS:
Proceeds from sale of shares...................................................... 14,535,474 15,506,966
Value of distributions reinvested................................................. -- 662,453
Cost of shares redeemed........................................................... (13,842,636) (16,228,136)
- ----------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) from share transactions.................................. 692,838 (58,717)
- ----------------------------------------------------------------------------------------------------------------------------
TOTAL INCREASE (DECREASE) IN NET ASSETS............................................. 6,769,644 9,736,174
NET ASSETS
Beginning of period................................................................. 65,450,214 55,714,040
- ----------------------------------------------------------------------------------------------------------------------------
End of period....................................................................... $ 72,219,858 $ 65,450,214
- ----------------------------------------------------------------------------------------------------------------------------
UNDISTRIBUTED (DISTRIBUTION IN EXCESS OF) NET INVESTMENT INCOME, END OF PERIOD......... $ 767,314 $ 26,984
- ----------------------------------------------------------------------------------------------------------------------------
CHANGES IN PORTFOLIO SHARES
Shares sold....................................................................... 1,174,022 1,576,351
Issued for distributions reinvested............................................... -- 57,505
Shares redeemed................................................................... (1,120,635) (1,607,573)
- ----------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in fund shares................................................. 53,387 26,283
- ----------------------------------------------------------------------------------------------------------------------------
See Notes to Financial Statements.
13
<page>
Notes to Financial Statements June 30, 2006 (unaudited)
- --------------------------------------------------------------------------------
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,
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 June 30, 2006, GE Life and Annuity Assurance Company ("GE Life") and
General Electric Capital Assurance Company, 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 Fund:
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.
14
<page>
Notes to Financial Statements June 30, 2006 (unaudited)
- --------------------------------------------------------------------------------
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
15
<page>
Notes to Financial Statements June 30, 2006 (unaudited)
- --------------------------------------------------------------------------------
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 June 30, 2006, 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
- ------------------------------------------------------------------------------------------------------------------------
$65,082,617 $17,260,982 $(808,337) $16,452,645
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.
16
<page>
Notes to Financial Statements June 30, 2006 (unaudited)
- --------------------------------------------------------------------------------
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.
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 June 30, 2006.
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 performs certain accounting and certain administration services not
provided by GEAM. For the period ending June 30, 2006, $468 was charged to the
Fund. Administrative services not performed by GEAM or GENPACT were provided by
an unaffiliated service provider.
17
<page>
Notes to Financial Statements June 30, 2006 (unaudited)
- --------------------------------------------------------------------------------
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 June 30, 2006 were as follows:
Purchases Sales
- -----------------------------------------------------------------
$13,631,397 $12,542,277
SECURITY LENDING At June 30, 2006, the Fund participated in securities lending:
Loaned
securities at Cash
market value collateral*
- -----------------------------------------------------------------
$9,793,015 $10,293,803
* COLLATERAL OF $10,130,227 INCREASED BY $163,576 ON JULY 3, 2006 TO REFLECT
THE JUNE 30, 2006 CHANGE IN VALUE OF SECURITIES ON LOAN.
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
<page>
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
20
<page>
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.
21
<page>
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 57
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
<page>
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 45
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
<page>
Additional Information (unaudited)
- --------------------------------------------------------------------------------
NON-INTERESTED DIRECTORS
- --------------------------------------------------------------------------------
JOHN R. COSTANTINO
- --------------------------------------------------------------------------------
ADDRESS c/o GEAM 3001 Summer St. Stamford, CT 06905
AGE 60
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 70
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
Ronald R. Pressman, CHIEF EXECUTIVE OFFICER (EFFECTIVE AS OF JULY 1, 2006)
John H. Myers, CHIEF EXECUTIVE OFFICER (RETIRED FROM ALL
POSITIONS AS OF JUNE 30, 2006)
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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<page>
[This page intentionally left blank.]
<page>
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.
[LOGO OMITTED]
GE Investments Funds, Inc.
Total Return Fund
Semi-Annual Report
JUNE 30, 2006
[GE logo omitted]
GE Investments Funds, Inc.
Total Return Fund Contents
- -------------------------------------------------------------------------------
NOTES TO PERFORMANCE ....................................................... 1
MANAGER REVIEW AND SCHEDULE OF INVESTMENTS ................................. 2
NOTES TO SCHEDULE OF INVESTMENTS ........................................... 18
FINANCIAL STATEMENTS
Financial Highlights .................................................. 19
Statement of Assets and Liabilities ................................... 20
Statement of Operations ............................................... 21
Statements of Changes in Net Assets ................................... 22
Notes to Financial Statements ......................................... 24
ADVISORY AND ADMINISTRATIVE AGREEMENT RENEWAL .............................. 30
ADDITIONAL INFORMATION ..................................................... 33
INVESTMENT TEAM ............................................................ 36
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.
Notes to Performance June 30, 2006 (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.
1
Total Return Fund
- --------------------------------------------------------------------------------
THE TOTAL RETURN FUND IS MANAGED BY A TEAM OF PORTFOLIO MANAGERS THAT INCLUDES
CHRISTOPHER D. BROWN, PAUL M. COLONNA, RALPH R. LAYMAN, JUDITH A. STUDER AND
DIANE M. WEHNER. THE TEAM IS LED BY MS. STUDER WHO, AS A LEAD MEMBER OF THE
TACTICAL ASSET ALLOCATION COMMITTEE, IS VESTED WITH OVERSIGHT AUTHORITY FOR
DETERMINING ASSET ALLOCATIONS FOR THE FUND. EACH OF THE FOREGOING PORTFOLIO
MANAGERS IS RESPONSIBLE FOR MANAGING ONE OF THREE SUB-PORTFOLIOS: U.S. EQUITY,
INTERNATIONAL EQUITY AND FIXED INCOME. MR. BROWN AND MS. WEHNER MANAGE THE U.S.
EQUITY PORTION, MR. LAYMAN AND MS. STUDER MANAGE THE INTERNATIONAL EQUITY
PORTION AND MR. COLONNA MANAGES THE FIXED INCOME PORTION, EACH WITH A TEAM OF
PORTFOLIO MANAGERS AND ANALYSTS. THE SUB-PORTFOLIOS UNDERLYING THIS FUND ARE
MANAGED INDEPENDENTLY OF EACH OTHER AND THE PORTFOLIO MANAGERS HAVE FULL
DISCRETION OVER THEIR PARTICULAR SUB-PORTFOLIO; HOWEVER, THE PORTFOLIO
MANAGEMENT TEAM IS COLLABORATIVE TO ENSURE STRICT ADHERENCE TO THIS FUND'S
OBJECTIVES.
JUDITH A. STUDER IS CHIEF INVESTMENT OFFICER, INVESTMENT STRATEGIES OF GE ASSET
MANAGEMENT. SHE HAS LED THE TEAM OF PORTFOLIO MANAGERS FOR THE TOTAL RETURN FUND
SINCE JULY 2004. 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.
CHRISTOPHER D. BROWN IS A SENIOR VICE PRESIDENT OF GE ASSET MANAGEMENT. HE HAS
SERVED ON THE PORTFOLIO MANAGEMENT TEAM FOR THE TOTAL RETURN FUND SINCE
SEPTEMBER 2003. 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.
PAUL M. COLONNA IS A SENIOR VICE PRESIDENT OF GE ASSET MANAGEMENT. SINCE JANUARY
2005, HE HAS BEEN RESPONSIBLE FOR THE FIXED INCOME PORTION OF THE TOTAL RETURN
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.
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 BEEN RESPONSIBLE FOR THE INTERNATIONAL EQUITY PORTION
OF THE TOTAL RETURN FUND SINCE 1997. MR. LAYMAN JOINED GE ASSET MANAGEMENT IN
1991 AS SENIOR VICE PRESIDENT FOR INTERNATIONAL INVESTMENTS AND BECAME AND
EXECUTIVE VICE PRESIDENT IN 1992.
DIANE M. WEHNER IS A VICE PRESIDENT OF GE ASSET MANAGEMENT. SHE HAS BEEN A
PORTFOLIO MANAGER OF THE TOTAL RETURN FUND SINCE JANUARY 2006. 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 TOTAL RETURN FUND PERFORM COMPARED TO ITS BENCHMARK AND LIPPER
PEER GROUP FOR THE SIX-MONTH PERIOD ENDED JUNE 30, 2006?
A. For the six-month period ended June 30, 2006, the Total Return Fund
returned 2.93%. The Fund's broad-based benchmarks, the S&P 500 Index and
the Lehman Brothers Aggregate Bond Index, returned 2.70% and -0.72%,
respectively. The Fund's Lipper peer group of 114 Mixed-Asset Target
Allocation Growth funds returned an average of 2.14% for the same period.
Q. WHAT MARKET CONDITIONS IMPACTED THE FUND'S PERFORMANCE? WHAT WERE THE
PRIMARY DRIVERS OF FUND PERFORMANCE?
A. The U.S. stock market began the year on a bullish note, however volatility
rose by the end of the period, upsetting all global financial markets. The
S&P 500 rallied through April as investors anticipated an
[Photo of Judith A. Studer omitted]
2
- --------------------------------------------------------------------------------
Q&A
end to the Federal Reserve's tightening campaign. By May 10, the Dow Jones
Industrials were up more than 8% for the year, less than 100 points short
of the record. However as growth persisted and inflationary data mounted,
Federal Reserve members became more hawkish in their public comments. At
the same time, central bankers around the world tightened monetary policy,
reducing appetite for risk. Investors began to worry about the
sustainability of the global expansion, given the inflation and liquidity
concerns. For most of May and June riskier asset classes--from developing
country stocks to industrial commodities to Florida condos--came under
pressure. U.S. equities swooned amid the uncertainty, and the Dow gave back
half of the year's gains.
Technology and health care were hit the hardest in this environment, and
were the only sectors posting negative returns year-to-date. In fact,
health care dropped to a 12-month low in the last week of June, while
consumer staples registered a new high. This contrasting performance
between two defensive sectors highlighted the importance of careful stock
selection in a volatile market. Value continued to lead growth as the
Russell 1000 Value Index gained 6.6% year-to-date, while the Russell 1000
Growth Index lost -0.9%.
The US Equity allocation underperformed the benchmark during the
year-to-date period ending June 30, 2006. The main drivers of the
underperformance included financials, consumer discretionary, and
telecommunications services. Within financials, AIG (-13.0%) suffered most
of its losses in the second quarter; the decline, coupled with our
overweight position in the insurance industry, was the main detractor in
the sector. An underweight in commercial banks also hurt, despite
particular strength in our SunTrust (6.8%) holding. In addition, many of
our consumer discretionary holdings also hurt performance despite strong
returns from Comcast (27.6%) and Liberty Media Holdings Corp. - Capital
(14.0%). Holdings offsetting these gains from the media industry were
specialty retailers Bed Bath & Beyond (-8.2%) and Home Depot (-10.9%).
Carnival (-21.1%) also declined as softness in Caribbean cruise bookings
continued and surging fuel costs impacted profits during the period.
Underperformance in telecom was driven by a lack of exposure to diversified
telecom services, an industry that returned 19.8% during the period. The
Bells have benefited from restructuring initiatives and heightened M&A
activity in the industry. BellSouth has risen (36.2%) so far this year on
their announced combination with AT&T (16.9%)--both of which we did not
own.
Positive contributors to performance during the year-to-date period include
information technology, energy, and health care. Within information
technology, many of the higher quality names that inhibited performance
last year led performance in the first half of 2006. For example, Oracle
(18.7%) continued to successfully integrate acquisitions, Intuit (13.6%)
had a strong TurboTax season, and electronic components manufacturer Molex
(17.4%) surged among favorable business trends and an attractive pricing
environment. In a reversal from last year, avoiding Apple (-20.3%) helped
portfolio returns. In addition, technology services company First Data
Corp. (5.0%) contributed to performance as it announced the spin-off of its
Western Union subsidiary. All of these positives more than offset the drag
from Microsoft (-10.3%), which disappointed many investors by announcing
$2B in additional spending without providing many details as to the scope
and return potential of the expenditures. Within energy, positive stock
selection driven by Schlumberger (34.6%) and Halliburton (20.3%) enabled
our holdings to return 17.9% versus 13.7% for the benchmark. The portfolio
benefited from strong security selection in health care during the period.
Avoiding the health care equipment and supply companies benefited
performance, as did owning Abbott (12.1%) and not owning UnitedHealth
(-27.9%). Amgen detracted from performance as the stock declined 17.3%
during the period. The company is facing increased competition for Enbrel,
a drug used for arthritis and skin disease, and, potentially, from Swiss
drug maker Roche, which is trying to market its anemia drug in the U.S.
Amgen has filed to block the sale of Roche's Cera drug based on patent
infringement.
During the first quarter of 2006, the Fund modified the composition of its
U.S. Equity allocation. The portfolio managers have decided to incorporate
mid-cap securities into the Fund, and during the period increased exposure
to this area by almost 10%. The portfolio managers, following a process
established by GE Asset Management's Asset Allocation Committee
3
Total Return Fund
- --------------------------------------------------------------------------------
Q&A
to diversify holdings across asset classes, make decisions on the Fund's
asset allocation. The Fund adjusts its weightings among asset classes based
on their relative attractiveness.
In the fixed income sector, individual security return was the largest
positive contributor to Fund performance relative to the benchmark. Sector
allocation also provided excess return. In particular, the Fund's exposure
to high yield bonds added significantly to excess return as high yield, in
general, returned over 3.0% for the period. However, the Fund's performance
during the period was negatively affected by relative duration exposure.
Economic growth in the U.S. slowed decidedly in the second quarter, after a
very strong 5.6% growth rate in the first quarter. With the increase in
interest rates across the yield curve, the primary focus has been the
impact on the U.S. housing market, which has fueled much of our growth in
recent years. Indeed, there is justified cause for concern about housing.
Despite an increase in new home sales, month-over-month in May, sales
volume of both new and existing homes are down from year-ago levels. Market
participants fear that a significant decline in home prices and rising
energy costs will force retrenchment by the American consumer.
Despite a slowing in economic growth, inflation pressures did not appear to
be receding. High prices at the gas pump plagued consumers. Housing costs,
which make up a large component of consumer inflation statistics through
owner equivalent rent levels, had risen. Commodity prices remained above
year-ago levels despite falling off a bit most recently. Utilization rates
were back above pre-2001 levels.
The combination of slowing growth and rising inflation had investors
playing the guessing game on future Fed moves. This game has always been a
favorite pastime of bond investors, but with a new Fed chairman in the mix,
the second quarter had been enjoyable to watch. In April, after a 25 basis
point hike in fed funds to 4.75%, FOMC comments led market thinking toward
a move in May to 5% and then pausing in June. The Fed did, in fact, raise
rates again in May to 5%, but a more hawkish tone regarding inflation in
its statement and subsequent comments by various Fed members, including the
chairman, left many investors believing the committee would continue rate
hikes in June and beyond. The committee did follow up in June with another
hike of 25 basis points to 5.25% while reiterating that future rate
decisions will be data dependant.
In the international equity markets, stocks moved higher early in the
period driven by low interest rates, strong profitability and optimism over
global growth prospects. However, inflation fears and an aggressive
withdrawal of liquidity by the Bank of Japan triggered a sharp sell off in
May and June, even while corporate conditions remained favorable.
The rise in commodity prices in recent quarters has been offset, largely,
by rising productivity, keeping inflation subdued. However, growing concern
at the world's central banks that prices might move unacceptably higher
prompted rate increases around the world in an apparent coordinated move.
These actions led short-term investors, especially those who employ
leverage, to aggressively cut long positions in stocks and commodities,
regardless of fundamentals.
The IT and Financial sectors were the two sectors that contributed the most
to the underperformance of the Fund during the last six months.
Specifically, Japanese financials, such as Nomura Holdings and Acom, were
under pressure as were certain industrials and technology companies
including Chiyoda and Nidec. Pricing continues to be an issue, especially
in technology where competition is fierce.
As a result of switches described below, the weights in telecom services
and energy were slightly reduced. However, the weight remained the same in
industrials while consumer staples was increased slightly. Holdings in
Japan increased once again while the weight in the United Kingdom was
reduced.
Holdings in integrated energy companies were trimmed in favor of oil
service and equipment. Incumbent telecommunication service companies were
reduced and replaced by stocks with significant opportunities in high
growth emerging markets. A Japanese consumer finance company was sold for
competitive reasons and new consumer-focused stocks added, reflecting the
growing optimism about domestic growth in Japan. Niche holdings in
specialty materials (carbon fiber) and fertilizers were added for their
unique market opportunities.
4
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 June 30,
2006.
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 $1,000 = 8.6), then multiply the result by the number
given for your class under the heading "Expenses Paid During Period."
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The second section of the table provides information about hypothetical account
values and hypothetical expenses based on the Fund's actual expense ratio and an
assumed rate of return of 5% per year before expenses, which is not the Fund's
actual return. You may use this information to compare the ongoing costs of
investing in the Fund and other funds. To do so, compare this 5% hypothetical
example with the 5% hypothetical examples that appear in the shareholders
reports of other funds.
Please note that the expenses shown in the table do not reflect any transaction
costs, such as sales charges or redemption fees.
JANUARY 1, 2006 - JUNE 30, 2006
- -------------------------------------------------------------------------------------------------------------------------------
Account value at the Account value at the Expenses paid
beginning of the period ($) end of the period ($) during period ($)*
- -------------------------------------------------------------------------------------------------------------------------------
ACTUAL FUND RETURN**
- -------------------------------------------------------------------------------------------------------------------------------
Class 1 1,000.00 1,029.30 2.25
Class 2 1,000.00 970.05 0.93
Class 3 1,000.00 970.05 1.02
Class 4 1,000.00 968.88 1.26
- -------------------------------------------------------------------------------------------------------------------------------
HYPOTHETICAL 5% RETURN (2.5% FOR THE PERIOD)
- -------------------------------------------------------------------------------------------------------------------------------
Class 1 1,000.00 1,022.36 2.21
Class 2 1,000.00 1,007.08 0.96
Class 3 1,000.00 1,007.22 1.04
Class 4 1,000.00 1,007.09 1.29
- -------------------------------------------------------------------------------------------------------------------------------
*EXPENSES ARE EQUAL TO THE FUND'S ANNUALIZED EXPENSE RATIO OF 0.44% FOR CLASS
1, 0.57% FOR CLASS 2, 0.62% FOR CLASS 3, AND 0.77% FOR CLASS 4, (FROM PERIOD
JANUARY 1, 2006 - JUNE 30, 2006), MULTIPLIED BY THE AVERAGE ACCOUNT VALUE
OVER THE PERIOD, MULTIPLIED BY 181/365 FOR CLASS 1 (TO REFLECT THE SIX-MONTH
PERIOD) AND 61/365 FOR CLASS 2, CLASS 3 AND CLASS 4 (TO REFLECT THE TWO-MONTH
PERIOD).
**ACTUAL FUND RETURNS FOR THE RESPECTIVE PERIODS ENDED JUNE 30, 2006 WERE AS
FOLLOWS: 2.93% FOR CLASS 1 SHARES, (2.99)% FOR CLASS 2 SHARES, (2.99)% FOR
CLASS 3 SHARES, AND (3.11)% FOR CLASS 4 SHARES.
5
Total Return Fund
- --------------------------------------------------------------------------------
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 JUNE 30, 2006
as a % of Market Value
===================================================================
U.S. Treasury Notes, 4.88%, 04/30/08 - 05/31/11 4.42%
- -------------------------------------------------------------------
U.S. Treasury Notes, 5.13%, 05/15/16 2.48%
- -------------------------------------------------------------------
Exxon Mobil Corp. 1.45%
- -------------------------------------------------------------------
Federal National Mortgage Assoc., 6.00%, TBA 1.37%
- -------------------------------------------------------------------
First Data Corp. 1.34%
- -------------------------------------------------------------------
Microsoft Corp. 1.13%
- -------------------------------------------------------------------
American International Group, Inc. 1.07%
- -------------------------------------------------------------------
Wyeth 1.03%
- -------------------------------------------------------------------
Pfizer Inc. 0.97%
- -------------------------------------------------------------------
Bank of America Corp. 0.97%
===================================================================
LIPPER PERFORMANCE COMPARISON
Mixed-Asset Target Allocation
Growth Funds
Based on average annual
total returns for the periods ended 6/30/06
Six One Five Ten
Months Year Year Year
------ ---- ---- ----
Number of Funds in peer group: 114 113 67 44
- --------------------------------------------------------------------------------
Peer group average annual total return: 2.14% 7.25% 3.97% 7.12%
- --------------------------------------------------------------------------------
CHANGE IN VALUE OF A $10,000 INVESTMENT
CLASS 1 SHARES
[Line chart omitted -- plot points are as follows:]
Total S&P 500 LB Aggregate
Return Fund Index Bond Index
6/96 $10,000.00 $10,000.00 $10,000.00
12/96 10,841.85 11,172.20 10,490.46
12/97 12,791.86 14,891.40 11,503.20
12/98 14,979.34 19,164.94 12,502.43
12/99 16,964.10 23,202.58 12,399.75
12/00 17,802.77 21,071.78 13,841.35
12/01 17,288.33 18,561.71 15,010.04
12/02 15,678.42 14,459.22 16,549.33
12/03 18,863.29 18,613.09 17,228.59
12/04 20,407.86 20,638.45 17,976.10
12/05 21,156.75 21,653.55 18,412.65
6/06 21,776.68 22,238.88 18,279.61
AVERAGE ANNUAL TOTAL RETURN FOR THE PERIODS ENDED JUNE 30, 2006
Ending
Value of a
Six One Five Ten $10,000
Months Year Year Year Investment
------ ------ ----- ----- ----------
Total Return Fund 2.93% 8.13% 4.78% 8.09% $21,777
S&P 500 Index 2.70% 8.63% 2.49% 8.32% $22,239
LB Aggregate Bond Index -0.72% -0.81% 4.97% 6.22% $18,280
Inception date 7/1/85
CLASS 2 SHARES
[Line chart omitted -- plot points are as follows:]
Total S&P 500 LB Aggregate
Return Fund Index Bond Index
05/01/06 $10,000.00 $10,000.00 $10,000.00
5/06 9,735.76 9,712.23 9,989.29
6/06 9,700.53 9,725.39 10,010.49
AVERAGE ANNUAL TOTAL RETURN FOR THE PERIODS ENDED JUNE 30, 2006
Ending
Value of a
Current Since $10,000
Month Inception Investment
------- --------- ----------
Total Return Fund -0.36% -2.99% $9,701
S&P 500 Index 0.14% -2.75% $9,725
LB Aggregate Bond Index 0.21% 0.10% $10,010
Inception date 5/1/06
CLASS 3 SHARES
[Line chart omitted -- plot points are as follows:]
Total S&P 500 LB Aggregate
Return Fund Index Bond Index
05/01/06 $10,000.00 $10,000.00 $10,000.00
5/06 9,741.63 9,712.23 9,989.29
6/06 9,700.53 9,725.39 10,010.49
AVERAGE ANNUAL TOTAL RETURN FOR THE PERIODS ENDED JUNE 30, 2006
Ending
Value of a
Current Since $10,000
Month Inception Investment
------- --------- ----------
Total Return Fund -0.42% -2.99% $9,701
S&P 500 Index 0.14% -2.75% $9,725
LB Aggregate Bond Index 0.21% 0.10% $10,010
Inception date 5/1/06
CLASS 4 SHARES
[Line chart omitted -- plot points are as follows:]
Total S&P 500 LB Aggregate
Return Fund Index Bond Index
05/01/06 $10,000.00 $10,000.00 $10,000.00
5/06 9,729.89 9,712.23 9,989.29
6/06 9,688.78 9,725.39 10,010.49
AVERAGE ANNUAL TOTAL RETURN FOR THE PERIODS ENDED JUNE 30, 2006
Ending
Value of a
Current Since $10,000
Month Inception Investment
------- --------- ----------
Total Return Fund -0.42% -3.11% $9,689
S&P 500 Index 0.14% -2.75% $9,725
LB Aggregate Bond Index 0.21% 0.10% $10,010
Inception date 5/1/06
SEE NOTES TO PERFORMANCE ON PAGE 1 FOR FURTHER INFORMATION, INCLUDING AN
EXPLANATION OF LIPPER PEER CATEGORIES.
PAST PERFORMANCE DOES NOT PREDICT FUTURE PERFORMANCE AND THE GRAPHS AND TABLES
DO NOT REFLECT THE DEDUCTION OF TAXES.
6
TOTAL RETURN FUND
Schedule of Investments June 30, 2006 (unaudited)
- --------------------------------------------------------------------------------
TOTAL RETURN FUND
Portfolio Composition as a % of the Market Value of $1,464,407 (in thousands) as
of June 30, 2006
[Pie chart omitted -- plot points are as follows:]
Domestic Equity 41.4%
Foreign Equity 22.6%
Bonds & Notes 21.1%
Short Term & Others 14.9%
- --------------------------------------------------------------------------------
NUMBER
OF SHARES VALUE
DOMESTIC EQUITY -- 45.0%+
- --------------------------------------------------------------------------------
CONSUMER DISCRETIONARY -- 6.9%
aQuantive, Inc. 14,826 $ 375,543(a,j)
Bed Bath & Beyond, Inc. 196,992 6,534,225(a)
Boyd Gaming Corp. 14,394 580,942(j)
Carnival Corp. 196,496 8,201,743(h)
CBS Corp. 121,107 3,275,944(h)
Cheesecake Factory 34,205 921,825(a)
Chico's FAS, Inc. 21,287 574,323(a)
Comcast Corp. (Class A) 414,822 13,597,865(a)
Federated Department Stores Inc. 26,648 975,317
Getty Images, Inc. 16,887 1,072,493(a,j)
Global Cash Access Holdings, Inc. 49,836 778,937(a)
Liberty Global, Inc. (Series C) 207,413 4,266,485(a)
Liberty Media Holding Corp -
Capital (Series A) 73,274 6,138,163(a)
Liberty Media Holding Corp -
Interactive (Series A) 366,372 6,323,581(a)
Life Time Fitness, Inc. 11,916 551,353(a,j)
Michaels Stores, Inc. 45,067 1,858,563
Omnicom Group, Inc. 64,452 5,742,029
Pulte Homes, Inc. 24,923 717,533(j)
Regal Entertainment Group
(Class A) 59,817 1,215,481(j)
Staples, Inc. 87,502 2,128,049
Starwood Hotels & Resorts
Worldwide, Inc. 18,721 1,129,625
Target Corp. 74,232 3,627,718
The E.W. Scripps Co. (Class A) 31,746 1,369,522(j)
The Home Depot, Inc. 367,884 13,166,568
Univision Communications Inc.
(Class A) 23,162 775,927(a)
Viacom Inc. (Class B) 87,331 3,129,943(a)
Williams-Sonoma, Inc. 25,618 872,293
89,901,990
NUMBER
OF SHARES VALUE
CONSUMER STAPLES -- 3.8%
Alberto-Culver Co. 28,522 $ 1,389,592(a)
Clorox Co. 75,268 4,589,090
Colgate-Palmolive Co. 221,996 13,297,560(h)
Kroger Co. 34,956 764,138
PepsiCo, Inc. 225,970 13,567,239
Sara Lee Corp. 108,990 1,746,020
The Coca-Cola Co. 308,935 13,290,384(h)
The Hershey Co. 5,495 302,610
Weight Watchers International Inc. 31,516 1,288,689
50,235,322
ENERGY -- 4.4%
BJ Services Co. 36,084 1,344,490
Dresser-Rand Group, Inc. 43,538 1,022,272(a)
EOG Resources, Inc. 111,800 7,752,212
Exxon Mobil Corp. 346,051 21,230,229
GlobalSantaFe Corp. 29,938 1,728,920
Halliburton Co. 87,200 6,471,112
Hess Corp. 27,753 1,466,746
Peabody Energy Corp. 25,907 1,444,315
Schlumberger Ltd. 191,037 12,438,419
Valero Energy Corp. 17,425 1,159,111
Weatherford International Ltd. 34,749 1,724,245(a)
57,782,071
FINANCIALS -- 7.6%
Affiliated Managers Group 19,745 1,715,643(a,j)
AFLAC Incorporated 127,722 5,919,915(h)
Alleghany Corp. 200 55,272(a)
American International Group, Inc. 266,361 15,728,617(h)
Bank of America Corp. 294,468 14,163,911(h)
Berkshire Hathaway, Inc. (Class B) 1,642 4,996,606(a)
Calamos Asset Management Inc.
(Class A) 44,526 1,290,809(j)
CB Richard Ellis Group, Inc.
(Class A) 88,680 2,208,132(a)
Citigroup, Inc. 87,331 4,212,847
CVB Financial Corp. 44,175 691,781(j)
Everest Re Group, Ltd. 46,637 4,037,365
Federal National Mortgage Assoc. 175,755 8,453,816
Greenhill & Company, Inc. 17,904 1,087,847(j)
HCC Insurance Holdings, Inc. 124,630 3,669,107
Legg Mason, Inc. 18,076 1,798,924
M&T Bank Corp. 6,843 806,927
Maguire Properties, Inc. (REIT) 19,668 691,724(j)
MBIA Inc. 8,779 514,010
Mellon Financial Corp. 125,539 4,322,308
Metlife, Inc. 85,151 4,360,583
North Fork Bancorporation, Inc. 44,495 1,342,414
State Street Corp. 157,197 9,131,574(e)
SunTrust Banks, Inc. 74,232 5,660,932
The Hartford Financial Services
Group, Inc. 13,835 1,170,441
Trammell Crow Co. (REIT) 21,235 746,835(a)
Zions Bancorporation 16,518 1,287,413
100,065,753
See Notes to Schedule of Investments on page 18 and Notes to Financial
Statements.
7
TOTAL RETURN FUND
Schedule of Investments June 30, 2006 (unaudited)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NUMBER
OF SHARES VALUE
HEALTHCARE -- 7.1%
Abbott Laboratories 294,747 $ 12,853,917(h)
Advanced Medical Optics, Inc. 51,638 2,618,047(a,j)
Aetna, Inc. 121,176 4,838,558
Alcon, Inc. 14,222 1,401,578
Amgen, Inc. 174,665 11,393,398(a,h)
Amylin Pharmaceuticals, Inc. 44,759 2,209,752(a,j)
Barr Pharmaceuticals, Inc. 36,210 1,726,855(a)
Caremark Rx, Inc. 34,237 1,707,399
DENTSPLY International, Inc. 20,090 1,217,454
Gilead Sciences, Inc. 15,631 924,730(a)
Henry Schein, Inc. 33,650 1,572,465(a)
Johnson & Johnson 122,250 7,325,220
Kinetic Concepts, Inc. 11,403 503,442(a)
LIncare Holdings Inc. 165,930 6,278,791(a)
Manor Care, Inc. 31,933 1,498,296
Martek Biosciences Corp. 26,672 772,154(a,j)
Pfizer Inc. 608,252 14,275,674
Psychiatric Solutions Inc. 49,435 1,416,807(a)
Quest Diagnostics Inc. 23,921 1,433,346
Thermo Electron Corp. 57,992 2,101,630(a)
Vertex Pharmaceuticals, Inc. 8,939 328,151(a,j)
Wyeth 338,415 15,029,010
93,426,674
INDUSTRIALS -- 3.7%
ChoicePoint, Inc. 22,291 931,095(a)
Corinthian Colleges, Inc. 142,625 2,048,095(a,j)
Corporate Executive Board Co. 7,583 759,817
CoStar Group, Inc. 18,433 1,102,846(a,j)
Danaher Corp. 23,301 1,498,720
Dover Corp. 274,830 13,584,847(h)
Eaton Corp. 18,433 1,389,848
Harsco Corp. 20,483 1,596,855
Hexcel Corp. 65,974 1,036,452(a,j)
Joy Global, Inc. 12,563 654,407
MoneyGram International, Inc. 51,952 1,763,770
Rockwell Collins, Inc. 34,599 1,933,046
Southwest Airlines Co. 349,330 5,718,532(j)
Stericycle, Inc. 19,135 1,245,689(a)
Sunpower Corp. (Class A) 17,019 476,872(a,j)
Tyco International Ltd. 239,790 6,594,225
United Technologies Corp. 69,600 4,414,032
Waste Management, Inc. 41,481 1,488,338
48,237,486
INFORMATION TECHNOLOGY -- 9.9%
Activision, Inc. 249,831 2,843,077(a)
Affiliated Computer Services, Inc.
(Class A) 23,029 1,188,527(a)
Analog Devices, Inc. 139,859 4,495,068(h)
Automatic Data Processing, Inc. 150,166 6,810,028(h)
CDW Corp. 14,566 796,032
Checkfree Corp. 32,749 1,623,040(a)
Cisco Systems, Inc. 570,942 11,150,497(a,h)
Cogent, Inc. 87,516 1,318,866(a,j)
Comverse Technology, Inc. 61,915 1,224,060(a)
NUMBER
OF SHARES VALUE
Dell, Inc. 152,830 $ 3,730,580(a)
DST Systems, Inc. 17,374 1,033,753(a)
eBay, Inc. 53,622 1,570,588(a)
EMC Corporation 333,060 3,653,668(a)
Fidelity National Information
Services, Inc. 61,132 2,164,073
First Data Corp. 436,657 19,667,031(h)
Fiserv, Inc. 13,468 610,908(a)
Harris Corp. 47,038 1,952,547
Intel Corp. 218,329 4,137,335
Intuit Inc. 120,066 7,250,786(a)
Juniper Networks, Inc. 54,713 874,861(a)
Linear Technology Corp. 51,191 1,714,387
Macrovision Corp. 33,702 725,267(a)
Microchip Technology Inc. 28,628 960,469
Microsoft Corp. 707,131 16,476,152(h)
Molex, Inc. (Class A) 391,287 11,241,675
NAVTEQ Corp. 18,916 845,167(a)
Neustar, Inc. (Class A) 19,249 649,654(a,j)
Oracle Corp. 742,317 10,756,173(a)
Symantec Corp. 50,090 778,399(a)
Wind River Systems, Inc. 89,174 793,649(a,j)
Xilinx, Inc. 36,855 834,766
Yahoo! Inc. 174,668 5,764,044(a)
129,635,127
MATERIALS -- 1.1%
Cabot Corp. 15,798 545,347
Martin Marietta Materials, Inc. 15,004 1,367,615
Monsanto Co. 129,330 10,888,293
Praxair, Inc. 25,130 1,357,020
Sealed Air Corp. 14,509 755,629
14,913,904
TELECOMMUNICATION SERVICES -- 0.1%
American Tower Corp. (Class A) 36,042 1,121,627(a)
NII Holdings, Inc. (Class B) 9,137 515,144(a)
1,636,771
UTILITIES -- 0.4%
Ameren Corp. 23,691 1,196,396
DTE Energy Co. 24,923 1,015,363
PPL Corp. 43,873 1,417,098
SCANA Corp. 30,404 1,172,986
4,801,843
TOTAL DOMESTIC EQUITY
(COST $579,513,266) 590,636,941
- --------------------------------------------------------------------------------
FOREIGN EQUITY -- 25.2%
- --------------------------------------------------------------------------------
COMMON STOCK -- 24.9%
CONSUMER DISCRETIONARY -- 1.5%
Accor S.A. 4,875 296,648(j)
Corp GEO S.A. de C.V. (Series B) 88,142 293,451(a)
Dogan Yayin Holding 80,674 274,246(a)
- --------------------------------------------------------------------------------
See Notes to Schedule of Investments on page 18 and Notes to Financial
Statements.
8
TOTAL RETURN FUND
Schedule of Investments June 30, 2006 (unaudited)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NUMBER
OF SHARES VALUE
Gafisa S.A. 23,179 $ 252,755(a)
Hyundai Motor Co. 3,000 254,875
Koninklijke Philips
Electronics N.V. 165,197 5,160,327
Lagardere S.C.A. (Regd.) 7,402 546,105(j)
LG Electronics Inc. 3,940 238,800
LVMH Moet Hennessy
Louis Vuitton S.A. 27,022 2,681,210(j)
Massmart Holdings Ltd. 21,275 140,208
Reed Elsevier PLC 181,651 1,834,411
Renault S.A. 5,293 568,503(j)
Rossi Residencial S.A. 22,000 210,419
Sekisui Chemical Company Ltd. 189,563 1,638,352
Shenzhou International Group
Holdings Ltd. 193,000 80,137
Toyota Motor Corp. 97,694 5,119,075
Weiqiao Textile Co. 143,000 183,192
19,772,714
CONSUMER STAPLES -- 1.6%
Carrefour S.A. 16,058 941,212(j)
Chaoda Modern Agriculture 704,000 439,603
Diageo PLC 248,355 4,177,743
Fomento Economico Mexicano
S.A. de C.V. ADR (Series B) 3,921 328,266
IOI Corp. Bhd 113,000 439,761
Nestle S.A. (Regd.) 18,735 5,872,849
Seven & I Holdings Co. Ltd. 66,700 2,199,703
Shinsegae Company Ltd. 380 190,260
Shiseido Company Ltd. 105,603 2,073,908(j)
Tesco PLC 484,426 2,992,540
Tiger Brands Ltd. 15,820 318,319
Uni-President Enterprises Corp. 481,000 418,946
20,393,110
ENERGY -- 2.9%
BG Group PLC 192,419 2,571,295
CAT Oil AG 5,410 109,642(a)
China Oilfield Services Ltd.
(Series H) 360,000 183,082
China Petroleum & Chemical Corp. 4,256,000 2,438,419
China Shenhua Energy
Company Ltd. 40,000 73,387
EnCana Corp. 19,739 1,043,304
Ente Nazionale Idrocarburi S.p.A. 77,560 2,283,933(j)
LUKOIL ADR 34,831 2,897,939
Nexen, Inc. 20,639 1,166,929
OAO Gazprom ADR 34,317 1,443,030
PetroChina Company Ltd. 240,000 256,470
Petroleo Brasileiro S.A. ADR 68,815 5,494,190
Saipem S.p.A. 259,514 5,903,211(j)
Sasol Ltd. 11,300 435,728
Sibir Energy PLC 28,693 256,457(a)
Stolt Offshore S.A. 288,035 4,385,838(a,j)
Tenaris S.A. ADR 61,718 2,498,961
Total S.A. 78,596 5,170,558(j)
38,612,373
NUMBER
OF SHARES VALUE
FINANCIALS -- 7.0%
African Bank Investments Ltd. 54,200 $ 212,719
Akbank TAS 493,441 2,360,813
Aksigorta AS 60,814 167,684
Allianz AG (Regd.) 15,958 2,520,388(a,j)
Amata Corp. (REIT) 434,100 170,659
AXA S.A. 84,218 2,763,205(j)
Banca Intesa S.p.A. 426,710 2,498,906(j)
Banco do Brasil S.A. 5,764 133,111
Banco Santander Central
Hispano S.A. (Regd.) 283,307 4,136,900
Bank Hapoalim BM 37,037 157,606
Bank of Yokohama Ltd. 246,012 1,904,567(j)
BNP Paribas 65,467 6,265,646(j)
Capital Securities Corp. 847,000 325,699(a)
CapitaLand Ltd. 1,003,000 2,854,207
China Vanke Company Ltd. 329,000 279,567(a)
Chinatrust Financial Holding Co. 233,000 193,225
Credit Agricole S.A. 80,953 3,079,438(j)
Credit Suisse Group (Regd.) 80,868 4,515,405(j)
Hongkong Land Holdings Ltd. 351,999 1,288,316(j)
Hung Poo Real Estate Development
Corp. (REIT) 525,000 518,887(a)
ICICI Bank Ltd. ADR 102,326 2,420,010
ING Groep N.V. 84,447 3,318,168
Jardine Matheson Holdings Ltd. 68,706 1,209,226
Kiatnakin Bank PLC 145,883 113,747
Kookmin Bank 59,611 4,901,083
Lloyds TSB Group PLC 284,470 2,796,442
Mitsubishi Estate
Company Ltd. 231,982 4,931,254
Mitsubishi UFJ Financial
Group, Inc. 419 5,864,497
Mitsui Sumitomo
Insurance Co. Ltd. 294,000 3,695,735
Nomura Holdings, Inc. 370,798 6,957,632(j)
Ping An Insurance Group
Company of China Ltd. 111,500 337,357
Prudential PLC 279,715 3,160,990
Royal Bank of Scotland Group PLC 145,104 4,771,745
Samsung Fire & Marine Insurance
Company Ltd. 2,730 366,897
Sanlam Ltd. 55,001 111,826
Shenzhen Investment Ltd. (REIT) 594,354 160,698
Siam Commercial Bank PCL 226,200 331,993
Standard Bank Group Ltd. 28,548 308,227
State Bank of India Ltd. GDR 6,384 255,360
Sun Hung Kai Properties Ltd. 202,476 2,064,645
Swiss Reinsurance 30,931 2,157,595(j)
UniCredito Italiano S.p.A. 733,648 5,741,042(j)
92,323,117
HEALTHCARE -- 1.7%
Angiotech Pharmaceuticals, Inc. 85,445 1,003,979(a)
Gedeon Richter Rt 1,275 234,225
GlaxoSmithKline PLC 233,121 6,514,963
Hikma Pharmaceuticals PLC 35,320 217,046
See Notes to Schedule of Investments on page 18 and Notes to Financial
Statements.
9
TOTAL RETURN FUND
Schedule of Investments June 30, 2006 (unaudited)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NUMBER
OF SHARES VALUE
Novartis AG (Regd.) 86,732 $ 4,687,068
Roche Holding AG 41,556 6,855,892
Sanofi-Aventis 17,991 1,755,220(j)
Smith & Nephew PLC ADR 23,717 913,816(j)
Teva Pharmaceutical
Industries Ltd. ADR 12,880 406,879
22,589,088
INDUSTRIALS -- 3.4%
ABB Ltd. (Regd.) 323,877 4,203,791
Adecco S.A. (Regd.) 27,127 1,601,047
Asahi Glass Company Ltd. 224,005 2,843,295(j)
Barloworld Ltd. 12,271 208,194
Brambles Industries PLC 116,628 927,550
Canadian National Railway Co. 68,610 3,008,204
Chiyoda Corp. 161,676 3,309,468(j)
Doosan Heavy Industries and
Construction Company Ltd. 6,830 247,657
East Japan Railway Co. 394 2,929,624
Empresas ICA Sociedad
Controladora S.A. de C.V. 91,635 259,781(a)
Enka Insaat ve Sanayi AS 54,663 399,176
Fraser and Neave Ltd. 60,000 151,769
Group 4 Securicor PLC 444,819 1,380,105
Group 4 Securicor PLC 456,888 1,441,052(j)
Grupo Aeroportuario del Sureste
S.A. de C.V. ADR (Series B) 3,021 101,475
Komatsu Ltd. 144,075 2,867,258
Korea Electric Terminal
Company Ltd. 5,110 68,137
Kubota Corp. 164,000 1,556,576
Malaysia International
Shipping Corp. BHD 509,182 1,067,003
Mitsubishi Heavy Industries Ltd. 126,000 544,495
Orascom Construction Industries 47,772 1,452,678(a)
Orkla ASA 11,494 532,899
Sandvik AB 367,865 4,276,936(j)
Shanghai Electric Group
Company Ltd. 1,296,000 450,521
Siemens AG (Regd.) 47,000 4,088,367
SMC Corp. 10,845 1,535,936
Smiths Group PLC 132,726 2,187,257
United Tractors Tbk PT 435,000 253,590
Wan Hai Lines Ltd. 260,000 179,078
44,072,919
INFORMATION TECHNOLOGY -- 2.0%
ASM Pacific Technology 37,500 182,262
Delta Electronics Inc. 134,579 382,409(a)
HON HAI Precision Industry
Company Ltd. 131,000 809,216(a)
Hoya Corp. 81,200 2,890,994
MediaTek Inc. 49,000 454,026(a)
Mettler Toledo International Inc. 14,823 897,829(a)
Nidec Corp. 44,414 3,185,888(j)
Nokia OYJ 281,545 5,745,559(a)
NUMBER
OF SHARES VALUE
Nortel Networks Corp. 168,429 $ 375,599(a)
Samsung Electro-Mechanics
Company Ltd. 4,740 163,379
Samsung Electronics
Company Ltd. 7,980 5,072,141
Taiwan Semiconductor
Manufacturing Company Ltd. 1,851,125 3,338,966
Taiwan Semiconductor Manufacturing
Company Ltd. ADR 18,018 165,402
Telefonaktiebolaget LM Ericsson 661,535 2,185,693
Unimicron Technology Corp. 254,000 331,062(a)
26,180,425
MATERIALS -- 2.4%
BASF AG 23,200 1,862,348
BHP Billiton PLC 435,081 8,441,347
Cia Vale do Rio Doce ADR 128,517 3,089,549
Evraz Group S.A. GDR 10,587 264,146(b)
Harmony Gold Mining
Company Ltd. ADR 25,809 420,429(a)
Holcim Ltd. (Regd.) 27,498 2,103,316(j)
Israel Chemicals Ltd. 104,309 415,426
Linde AG 26,641 2,052,387
MMC Norilsk Nickel ADR 3,642 473,460
POSCO 1,990 533,841
Potash Corp of Saskatchewan 41,961 3,607,091
Rio Tinto PLC (Regd.) 74,314 3,929,623
Taiwan Fertilizer Company Ltd. 196,000 325,688(a)
Toray Industries Inc. 498,998 4,334,558
Vedanta Resources PLC 7,514 189,423
32,042,632
TELECOMMUNICATION SERVICES -- 1.7%
America Movil S.A. de C.V.
ADR (Series L) 112,017 3,725,685
Egyptian Company for
Mobile Services 6,043 135,456
France Telecom S.A. 26,384 567,100
MTN Group Ltd. 44,579 330,666
Orascom Telecom Holding SAE 3,479 143,875
Philippine Long Distance
Telephone Co. 5,450 187,728
Singapore Telecommunications Ltd. 2,623,415 4,213,788
Telefonica S.A. 55,400 922,300
Telefonica S.A. ADR 496 24,671
Telekomunikasi Indonesia
Tbk PT (Series B) 418,000 331,674
Telenor ASA 288,111 3,484,131(j)
Telkom S.A. Ltd. 6,231 115,319(a)
Vimpel-Communications
OAO ADR 3,948 180,897(a)
Vodafone Egypt
Telecommunications SAE 17,524 249,660
Vodafone Group PLC 1,124,396 2,396,770
Vodafone Group PLC ADR 223,787 4,766,663
21,776,383
See Notes to Schedule of Investments on page 18 and Notes to Financial
Statements.
10
TOTAL RETURN FUND
Schedule of Investments June 30, 2006 (unaudited)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NUMBER
OF SHARES VALUE
UTILITIES -- 0.7%
E.ON AG 44,051 $ 5,070,449(j)
Korea Electric Power Corp. 5,200 192,664
National Grid PLC 20,112 217,606
Veolia Environnement 73,754 3,810,887(j)
9,291,606
TOTAL COMMON STOCK
(COST $290,726,838) 327,054,367
PREFERRED STOCK -- 0.3%
Cia Energetica de Minas Gerais 3,700,000 156,975
Cia Vale do Rio Doce 39,737 809,337
Cia Vale do Rio Doce ADR 129,629 2,667,765
Petroleo Brasileiro S.A. 8,800 175,573
Telemar Norte Leste S.A. 7,500 150,399
TOTAL PREFERRED STOCK
(COST $3,153,112) 3,960,049
RIGHTS -- 0.0%*
Linde AG
(COST $0) 26,641 102,875(a)
TOTAL FOREIGN EQUITY
(COST $293,879,950) 331,117,291
PRINCIPAL
AMOUNT VALUE
- --------------------------------------------------------------------------------
BONDS AND NOTES -- 20.0%
- --------------------------------------------------------------------------------
U.S. TREASURIES -- 8.1%
U.S. Treasury Bonds
4.50% 02/15/36 $ 5,365,000 4,811,707
5.38% 02/15/31 185,000 188,267(j)
8.13% 08/15/19 - 08/15/21 540,000 688,428(h)
U.S. Treasury Notes
4.88% 04/30/08 - 05/31/11 65,285,000 64,760,312(j)
5.13% 05/15/16 36,290,000 36,250,444(j)
106,699,158
FEDERAL AGENCIES -- 0.1%
Federal Farm Credit Bank
3.75% 01/15/09 650,000 624,456(h)
Federal Home Loan Mortgage Corp.
4.75% 12/08/10 335,000 325,005(h)
949,461
AGENCY MORTGAGE BACKED -- 4.8%
Federal Home Loan Mortgage Corp.
4.50% 06/01/33 - 02/01/35 307,986 279,492
5.00% 07/01/35 - 10/01/35 9,959,517 9,309,763
5.50% 05/01/20 121,697 119,362
6.00% 04/01/17 - 05/01/35 859,640 854,598
PRINCIPAL
AMOUNT VALUE
6.50% 01/01/27 - 12/01/34 $ 605,203 $ 610,030
7.00% 10/01/25 - 02/01/35 125,275 128,270
7.50% 11/01/09 - 09/01/33 64,025 66,076
8.00% 01/01/30 - 11/01/30 18,837 19,899
9.00% 10/01/25 1,011 1,094
4.50% TBA 25,000 22,664(c)
Federal National Mortgage Assoc.
4.00% 05/01/19 - 06/01/19 296,010 273,355
4.50% 05/01/18 - 02/01/35 2,894,902 2,709,629
5.00% 06/01/20 - 08/01/35 5,729,163 5,373,673
5.50% 04/01/14 - 08/01/35 2,261,544 2,199,241
6.00% 09/01/19 - 08/01/35 5,477,282 5,396,612
6.50% 09/01/17 - 02/01/35 2,152,587 2,169,498
7.00% 04/01/17 - 05/01/35 326,843 334,777
7.50% 12/01/09 - 03/01/34 141,074 145,955
8.00% 12/01/11 - 11/01/33 59,397 61,948
8.50% 06/01/30 238 252
9.00% 06/01/09 - 12/01/22 33,828 35,380
4.50% TBA 270,000 244,603(c)
5.00% TBA 920,000 885,787(c)
5.50% TBA 4,160,000 3,994,898(c)
6.00% TBA 20,231,000 19,990,538(c)
6.50% TBA 3,959,000 3,978,795(c)
Government National
Mortgage Assoc.
4.50% 08/15/33 - 09/15/34 541,287 497,443
6.00% 04/15/27 - 06/15/35 590,707 586,620
6.50% 04/15/24 - 08/15/34 174,127 176,225
7.00% 03/15/12 - 06/15/34 64,213 65,665
8.00% 03/15/30 3,424 3,633
9.00% 11/15/16 - 12/15/21 24,959 27,056
5.50% TBA 2,140,000 2,073,793(c)
62,636,624
AGENCY COLLATERALIZED MORTGAGE OBLIGATIONS -- 0.5%
Federal Home Loan Mortgage Corp.
1.45% 10/15/18 399,075 15,521(g,h,i)
1.95% 12/15/30 514,054 22,972(g,h,i)
3.33% 10/15/33 70,000 48,850(i)
4.11% 12/15/33 45,000 33,420(i)
4.50% 04/15/13 - 03/15/19 689,051 58,703(g)
4.50% 05/15/17 - 11/15/19 400,000 369,945
5.00% 01/15/11 - 08/01/35 6,364,497 1,454,488(g)
5.00% 05/15/20 - 02/15/35 2,165,000 1,942,997(h)
5.50% 04/15/17 - 06/15/33 266,938 43,449(g)
5.50% 10/15/34 301,443 297,753
7.50% 01/15/16 12,759 13,135
7.50% 07/15/27 7,857 1,714(g)
8.00% 02/01/23 - 07/01/24 5,611 1,247(g)
10.44% 09/25/43 531,895 7,075(d,g,i)
Federal Home Loan Mortgage STRIPS
5.30% 08/01/27 1,267 1,020(d,f)
Federal National Mortgage Assoc.
1.18% 12/25/42 307,819 6,926(g,i)
2.28% 09/25/42 310,292 20,072(g,i)
2.33% 04/25/17 - 10/25/17 230,831 11,781(g,i)
2.38% 08/25/16 93,467 3,963(g,i)
See Notes to Schedule of Investments on page 18 and Notes to Financial
Statements.
11
TOTAL RETURN FUND
Schedule of Investments June 30, 2006 (unaudited)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
3.56% 09/25/31 $ 60,537 $ 51,691 (i)
4.50% 05/25/18 159,290 16,178(g)
4.50% 12/25/19 100,000 88,453
4.75% 11/25/14 33,832 2,438(g)
5.00% 02/25/11 - 02/25/32 60,923 4,485(g)
5.00% 03/25/35 175,000 154,906
5.50% 07/25/34 - 02/25/35 555,208 548,117(h)
5.75% 02/25/35 425,000 421,512
6.00% 12/25/34 150,000 147,235
6.50% 12/25/34 184,141 185,742
8.00% 07/25/14 46,806 47,548
Federal National Mortgage
Assoc. (Class 1)
5.27% 11/01/34 1,040,999 724,178(d,f)
Federal National Mortgage
Assoc. (Class S)
1.78% 02/25/31 93,489 3,599(g,i)
Federal National Mortgage
Assoc. REMIC
4.50% 11/25/13 169,240 7,415(g)
4.90% 03/25/31 99,478 92,625(i)
5.00% 10/25/22 129,593 22,786(g)
Federal National Mortgage Assoc.
REMIC (Class J)
1080.91% 03/25/22 14 208(g)
Federal National Mortgage Assoc.
REMIC (Class K)
1008.00% 05/25/22 6 202(g)
Federal National Mortgage Assoc.
STRIPS (Class 2)
7.50% 11/01/23 24,654 6,510(g)
8.00% 08/01/23 - 07/01/24 11,499 2,642(g)
Vendee Mortgage Trust
16.44% 05/15/33 363,682 11,365(d,g,i)
6,894,866
ASSET BACKED -- 1.0%
Bank One Issuance Trust
3.59% 05/17/10 20,000 19,545
Bear Stearns Asset Backed
Securities Inc. (Class A)
5.69% 01/25/34 22,878 22,943(h,i)
BMW Vehicle Owner Trust (Class B)
2.93% 03/25/09 28,000 27,886
Carmax Auto Owner Trust
4.35% 03/15/10 154,000 150,430
Citibank Credit Card Issuance Trust
4.45% 04/07/10 35,000 34,194
Countrywide Home Equity Loan
Trust (Class A)
5.43% 07/15/27 58,123 58,124(h,i)
Ford Credit Floorplan Master Owner
Trust (Class A)
5.24% 07/15/09 2,000,000 1,998,560(i)
GMAC Mortgage Corp. Loan
Trust (Class A)
5.42% 06/25/34 500,000 500,173(h,i)
PRINCIPAL
AMOUNT VALUE
Gracechurch Card Funding PLC
(Class A)
5.23% 02/17/09 $2,000,000 $ 2,000,491(i)
Honda Auto Receivables Owner
Trust (Class A)
4.15% 10/15/10 138,000 134,344
Long Beach Mortgage Loan Trust
5.60% 09/25/35 1,500,000 1,503,452(h,i)
Metris Master Trust (Class A)
5.42% 10/20/10 2,000,000 2,000,720(i)
Mid-State Trust
7.54% 07/01/35 5,937 6,063(h)
Peco Energy Transition Trust
6.52% 12/31/10 50,000 51,567
Residential Asset Mortgage
Products, Inc.
5.56% 03/25/34 46,862 46,895(i)
Residential Asset Securities Corp.
5.57% 07/25/32 - 01/25/36 3,018,815 3,026,787(i)
Residential Asset Securities
Corp. (Class A)
4.16% 07/25/30 326,357 321,322(i)
SLM Student Loan Trust (Class A)
5.38% 06/15/18 427,113 427,424(i)
Volkswagen Auto Lease
Trust (Class A)
3.94% 10/20/10 103,000 101,046
Wells Fargo Home Equity Trust
3.97% 09/25/24 54,000 53,343(i)
12,485,309
CORPORATE NOTES -- 3.1%
Abbey National PLC
7.95% 10/26/29 340,000 402,602(h)
Abbott Laboratories
5.88% 05/15/16 660,000 653,936
Allegiance Corp.
7.00% 10/15/26 245,000 249,500(h)
Allstate Life Global Funding Trusts
3.85% 01/25/08 130,000 126,453(h)
Alltel Corp.
4.66% 05/17/07 455,000 451,648
Altria Group, Inc.
7.20% 02/01/07 100,000 100,505
American Electric Power
Company, Inc. (Series D)
5.25% 06/01/15 790,000 739,732(h)
American General Corp.
7.50% 08/11/10 750,000 793,490(h)
Appalachian Power Co. (Series G)
3.60% 05/15/08 20,000 19,233(h)
Appalachian Power Co. (Series K)
5.00% 06/01/17 135,000 120,911(h)
Archer-Daniels-Midland Co.
7.00% 02/01/31 165,000 178,983(h)
Assurant, Inc.
6.75% 02/15/34 145,000 142,387(h)
See Notes to Schedule of Investments on page 18 and Notes to Financial
Statements.
12
TOTAL RETURN FUND
Schedule of Investments June 30, 2006 (unaudited)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
AT&T, Inc.
4.13% 09/15/09 $630,000 $ 598,950
5.63% 06/15/16 530,000 503,879
5.88% 08/15/12 165,000 163,458
BAC CAP TRUST V
5.63% 03/08/35 425,000 369,673(h)
BellSouth Corp.
6.55% 06/15/34 510,000 485,214(h)
BJ Services Co.
5.75% 06/01/11 430,000 425,850
British Telecommunications PLC
8.38% 12/15/10 170,000 186,555
Burlington Northern Santa Fe Corp.
8.13% 04/15/20 170,000 200,517(h)
Campbell Soup Co.
5.50% 03/15/07 50,000 49,969(h)
Capital One Bank
6.50% 06/13/13 25,000 25,504(h)
Capital One Financial Corp.
8.75% 02/01/07 200,000 203,255(h)
Carolina Power & Light Co.
5.15% 04/01/15 60,000 56,492(h)
5.70% 04/01/35 155,000 140,446(h)
6.13% 09/15/33 190,000 182,837(h)
Citigroup, Inc.
5.00% 03/06/07 90,000 89,612(h)
Comcast Cable Communications
Holdings, Inc.
9.46% 11/15/22 865,000 1,068,338(h)
Consolidated Natural Gas Co.
5.38% 11/01/06 175,000 174,745(h)
Consumers Energy Co.
5.15% 02/15/17 55,000 49,919(h)
5.80% 09/15/35 165,000 148,006(h)
Countrywide Home Loans, Inc.
5.63% 05/15/07 50,000 49,943(h)
CSX Transportation, Inc.
9.75% 06/15/20 21,000 27,219(h)
DaimlerChrysler NA Holding Corp.
4.05% 06/04/08 280,000 271,133(h)
4.75% 01/15/08 580,000 570,618(h)
Detroit Edison Co. (Series B)
5.45% 02/15/35 400,000 342,100(h)
Deutsche Telekom International
Finance BV
3.88% 07/22/08 490,000 472,545(h)
Dominion Resources, Inc.
5.69% 05/15/08 370,000 368,852(h,k)
Dominion Resources, Inc. (Series B)
4.13% 02/15/08 90,000 87,906(h)
Dominion Resources, Inc. (Series G)
3.66% 11/15/06 20,000 19,850(h,k)
Duke Capital LLC
4.33% 11/16/06 230,000 228,994(h)
5.67% 08/15/14 295,000 283,473(h)
8.00% 10/01/19 225,000 253,816(h)
El Paso Electric Co.
6.00% 05/15/35 365,000 328,423(h)
PRINCIPAL
AMOUNT VALUE
Enterprise Products Operating LP
4.00% 10/15/07 $ 350,000 $ 340,543(h)
EOP Operating LP
7.00% 07/15/11 415,000 431,731(h)
EOP Operating LP (REIT)
7.75% 11/15/07 835,000 855,731(h)
FirstEnergy Corp. (Series B)
6.45% 11/15/11 985,000 1,002,259(h)
FPL Group Capital, Inc. (Series B)
5.55% 02/16/08 430,000 428,457(h)
General Mills, Inc.
3.88% 11/30/07 50,000 48,747(h)
Georgia Power Co.
4.88% 07/15/07 65,000 64,611(h)
Goldman Sachs Group, Inc.
6.60% 01/15/12 1,000,000 1,029,844(h)
Goodrich Corp.
7.10% 11/15/27 240,000 252,196(h)
Greater Bay Bancorp
5.25% 03/31/08 175,000 172,894(h)
Grupo Televisa S.A.
6.63% 03/18/25 285,000 266,161
GTE Corp.
6.94% 04/15/28 100,000 98,814(h)
7.51% 04/01/09 165,000 171,502(h)
Halliburton Co.
8.75% 02/15/21 390,000 478,213(h)
HSBC Bank USA NA
3.88% 09/15/09 920,000 872,139(h)
HSBC Finance Corp.
6.50% 11/15/08 625,000 636,443(h)
ING Capital Funding TR III
8.44% 12/29/49 455,000 496,149(h,i)
ING Groep N.V.
5.78% 12/29/49 595,000 557,388(h,i)
International Business
Machines Corp.
3.80% 02/01/08 100,000 97,448(h)
4.75% 11/29/12 250,000 237,016(h)
iStar Financial, Inc.
4.88% 01/15/09 305,000 297,857(h)
7.00% 03/15/08 400,000 406,349(h)
Kansas Gas & Electric
5.65% 03/29/21 425,000 397,854(h)
Kimco Realty Corp. (REIT)
4.82% 06/01/14 150,000 137,323(h)
Kinder Morgan Energy Partners LP
5.13% 11/15/14 70,000 63,904(h)
Laboratory Corp of America Holdings
5.63% 12/15/15 165,000 157,733(h)
Lehman Brothers Holdings, Inc.
5.00% 01/14/11 1,150,000 1,113,785(h)
Marsh & McLennan Companies, Inc.
5.15% 09/15/10 864,000 838,263(h)
5.19% 07/13/07 1,500,000 1,499,042(h,i)
Merrill Lynch & Company, Inc.
6.05% 05/16/16 475,000 471,884
See Notes to Schedule of Investments on page 18 and Notes to Financial
Statements.
13
TOTAL RETURN FUND
Schedule of Investments June 30, 2006 (unaudited)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
Midamerican Energy Holdings Co.
3.50% 05/15/08 $ 425,000 $ 409,448(h)
Morgan Stanley
5.30% 03/01/13 500,000 481,263(h)
Motorola, Inc.
4.61% 11/16/07 565,000 556,869(h)
MUFG Capital Finance 1 Ltd.
6.35% 07/25/49 240,000 231,159(i)
NB Capital Trust IV
8.25% 04/15/27 215,000 225,120(h)
New Cingular Wireless Services Inc.
8.75% 03/01/31 500,000 609,788(h)
News America, Inc.
7.25% 05/18/18 50,000 52,987(h)
Nextel Communications, Inc. (Series E)
6.88% 10/31/13 335,000 340,139(h)
Norfolk Southern Corp.
6.00% 04/30/08 20,000 20,088
Norfolk Southern Railway Co.
9.75% 06/15/20 64,000 83,653
Northeast Utilities (Series B)
3.30% 06/01/08 30,000 28,598
Northrop Grumman Corp.
4.08% 11/16/06 300,000 298,287
NorthWestern Corp.
5.88% 11/01/14 200,000 195,943
Ocean Energy, Inc.
4.38% 10/01/07 15,000 14,707
Pacific Bell
7.13% 03/15/26 55,000 56,639
Pacific Gas & Electric Co.
6.05% 03/01/34 305,000 287,972
Pemex Finance Ltd.
9.03% 02/15/11 19,000 20,243
Pemex Project Funding Master Trust
7.38% 12/15/14 1,305,000 1,357,761
8.63% 02/01/22 60,000 67,446
Pepco Holdings, Inc.
5.50% 08/15/07 305,000 304,904
5.86% 06/01/10 40,000 40,105(i)
Procter & Gamble - Esop (Series A)
9.36% 01/01/21 180,000 218,636
Prudential Financial, Inc.
5.90% 03/17/36 260,000 237,158
Puget Energy, Inc.
3.36% 06/01/08 30,000 28,622
5.48% 06/01/35 130,000 112,912
Quest Diagnostics Inc.
6.75% 07/12/06 45,000 45,007
Reckson Operating Partnership
LP (REIT)
5.88% 08/15/14 65,000 62,902
Residential Capital Corp.
6.13% 11/21/08 1,510,000 1,489,920
Safeco Capital Trust I (Series B)
8.07% 07/15/37 295,000 310,920
Simon Property Group LP (REIT)
4.88% 08/15/10 500,000 481,830
PRINCIPAL
AMOUNT VALUE
Smith International, Inc.
6.00% 06/15/16 $290,000 $ 287,423
Sprint Capital Corp.
6.00% 01/15/07 250,000 250,335
Standard Chartered Bank
Hong Kong Ltd.
4.38% 12/03/14 40,000 38,061(i)
Tampa Electric Co.
6.55% 05/15/36 125,000 124,240
Telefonos de Mexico S.A. de C.V.
4.50% 11/19/08 625,000 602,069
TELUS Corp.
7.50% 06/01/07 375,000 380,541
The Kroger Co.
6.80% 12/15/18 160,000 160,815(h)
Thomson Corp.
5.50% 08/15/35 165,000 142,662
Time Warner Entertainment Co.
8.38% 03/15/23 - 07/15/33 745,000 839,032
Time Warner, Inc.
6.88% 05/01/12 25,000 25,815(h)
TXU Electric Delivery Co.
5.00% 09/01/07 140,000 138,478
6.38% 05/01/12 580,000 586,017
Tyson Foods, Inc.
7.25% 10/01/06 102,000 102,306
8.25% 10/01/11 570,000 604,889
United Utilities PLC
6.45% 04/01/08 125,000 126,251
Valero Energy Corp.
3.50% 04/01/09 185,000 174,186
Verizon Pennsylvania Inc.
8.75% 08/15/31 165,000 187,143(h)
Viacom, Inc.
5.63% 05/01/07 25,000 24,973
Wells Fargo & Co.
5.25% 12/01/07 90,000 89,557
Westar Energy, Inc.
7.13% 08/01/09 190,000 195,520
Weyerhaeuser Co.
6.13% 03/15/07 20,000 20,011
Wisconsin Electric Power
3.50% 12/01/07 70,000 68,084
40,169,185
NON-AGENCY COLLATERALIZED MORTGAGE OBLIGATIONS -- 2.4%
Banc of America Funding Corp.
5.75% 03/20/36 194,801 190,838(h,i)
5.88% 02/20/36 346,685 341,376(h,i)
Banc of America Mortgage
Securities (Class B)
5.33% 10/25/35 205,829 192,918(h,i)
5.39% 01/25/36 199,672 192,062(h,i)
5.57% 02/25/36 159,745 154,929(h,i)
Bank of America Alternative
Loan Trust
6.50% 07/25/35 265,781 265,385(h)
See Notes to Schedule of Investments on page 18 and Notes to Financial
Statements.
14
TOTAL RETURN FUND
Schedule of Investments June 30, 2006 (unaudited)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
Bear Stearns Commercial
Mortgage Securities
5.58% 03/11/39 $1,000,000 $ 989,830(h,i)
6.02% 02/14/31 75,000 75,442(h)
Bear Stearns Commercial Mortgage
Securities (Class A)
5.63% 04/12/38 1,400,000 1,378,655(h,i)
Countrywide Alternative Loan Trust
6.00% 03/25/36 160,000 134,261
Countrywide Alternative Loan
Trust (Class B)
6.00% 05/25/36 89,885 78,260
Countrywide Home Loan Mortgage
Pass Through Trust (Class M)
5.50% 12/25/35 168,758 158,229(h)
Credit Suisse Mortgage Capital
Certificates (Class C)
5.65% 02/25/36 114,511 107,731(h,i)
Crusade Global Trust (Class A)
5.27% 01/17/34 3,411,773 3,416,912(h,i)
CS First Boston Mortgage
Securities Corp.
5.33% 10/25/35 169,017 155,739(h,i)
6.13% 04/15/37 50,000 50,793(h)
DLJ Commercial Mortgage Corp.
6.24% 11/12/31 228,000 230,103(h)
GMAC Commercial Mortgage
Securities, Inc.
6.42% 05/15/35 465,141 470,502(h)
6.47% 04/15/34 400,000 410,147(h)
GMAC Commercial Mortgage
Securities, Inc. (Class X)
5.60% 12/10/41 3,843,135 93,645(d,h,i)
Greenwich Capital Commercial
Funding Corp.
5.12% 04/10/37 500,000 488,424(h)
Impac CMB Trust
5.58% 04/25/35 616,532 617,845(h,i)
Impac CMB Trust (Class A)
6.08% 12/25/33 141,968 142,007(h,i)
Indymac INDA Mortgage Loan Trust
5.16% 01/25/36 99,941 94,901(h,i)
Indymac INDA Mortgage Loan
Trust (Class B)
5.16% 01/25/36 107,936 104,699(h,i)
Indymac Index Mortgage Loan Trust
5.41% 06/25/35 318,337 309,098(h,i)
JPMorgan Chase Commercial
Mortgage Securities Corp.
6.47% 11/15/35 40,000 41,186(h)
JPMorgan Mortgage Trust
5.41% 11/25/35 626,305 606,256(h,i)
LB-UBS Commercial Mortgage Trust
4.06% 09/15/27 108,000 103,416(h,i)
4.51% 12/15/29 135,000 127,279(h)
5.53% 03/15/32 1,000,000 991,509(h)
5.58% 01/18/12 4,865,756 145,431(d,h,i)
PRINCIPAL
AMOUNT VALUE
5.66% 03/15/39 $1,000,000 $ 984,094(h,i)
5.72% 03/15/39 1,000,000 982,884(h,i)
6.23% 03/15/26 53,000 53,668(h)
LB-UBS Commercial Mortgage
Trust (Class A)
6.65% 11/15/27 704,000 730,200(h)
Master Alternative Loans Trust
5.00% 08/25/18 64,541 10,105(g,h)
6.50% 08/25/34 - 05/25/35 585,662 584,477(h)
Master Alternative Loans
Trust (Class 3)
6.50% 01/25/35 134,594 134,594(h)
Medallion Trust (Class A)
5.23% 08/22/36 2,154,504 2,157,679(h,i)
Merrill Lynch Mortgage
Trust (Class A)
5.80% 05/12/39 1,000,000 996,423
MLCC Mortgage Investors, Inc.
5.40% 02/25/36 164,989 160,071(h,i)
Morgan Stanley Capital I
6.53% 03/15/31 285,092 289,323(h)
7.11% 04/15/33 73,000 75,545(h)
Morgan Stanley Dean
Witter Capital I
6.96% 10/15/33 16,935 17,083(h)
7.20% 10/15/33 50,000 52,207(h)
MortgageIT Trust (Class A)
5.62% 08/25/35 3,211,960 3,216,995(h,i)
Nomura Asset Securities
Corp. (Class A)
6.59% 03/15/30 500,000 506,631(h)
Opteum Mortgage Acceptance Corp.
5.62% 02/25/35 588,482 588,206(i)
Residential Accredit Loans, Inc.
6.00% 01/25/36 249,217 236,069
6.05% 01/25/36 109,921 108,787(i)
Residential Asset Securitization Trust
6.00% 01/25/46 74,721 63,723
Residential Asset Securitization
Trust (Class A)
5.50% 05/25/35 1,448,975 1,449,752(h,i)
Residential Funding Mortgage
Security I
5.75% 01/25/36 232,194 218,248
Wachovia Bank Commercial
Mortgage Trust
5.51% 03/15/45 1,200,000 1,186,278
5.68% 05/15/43 1,000,000 996,018
Washington Mutual Inc.
5.66% 01/25/45 298,253 298,621(i)
Wells Fargo Mortgage Backed
Securities Trust
5.00% 11/25/20 505,202 489,668
5.39% 08/25/35 474,594 454,283(i)
5.50% 01/25/36 - 03/25/36 1,687,273 1,563,057
31,464,497
See Notes to Schedule of Investments on page 18 and Notes to Financial
Statements.
15
TOTAL RETURN FUND
Schedule of Investments June 30, 2006 (unaudited)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
SOVEREIGN BONDS -- 0.0%*
Province of Ontario
3.38% 01/15/08 $500,000 $ 484,477
TOTAL BONDS AND NOTES
(COST $267,072,575) 261,783,577
NUMBER
OF SHARES VALUE
- --------------------------------------------------------------------------------
EXCHANGE TRADED FUNDS -- 1.2%
- --------------------------------------------------------------------------------
Financial Select Sector
SPDR Fund 96,470 3,114,052(j,m)
Industrial Select Sector
SPDR Fund 370,221 12,513,470(j,m)
TOTAL EXCHANGE TRADED FUNDS
(COST $13,396,679) 15,627,522
NUMBER OF
CONTRACTS VALUE
- --------------------------------------------------------------------------------
PURCHASED OPTIONS -- 0.0%*
- --------------------------------------------------------------------------------
CALL OPTIONS
Euro Dollar Futures
(COST $3,421) 85 531
PRINCIPAL
AMOUNT VALUE
- --------------------------------------------------------------------------------
SECURITIES PURCHASED WITH COLLATERAL FROM
SECURITIES ON LOAN -- 3.6%
- --------------------------------------------------------------------------------
ASSET BACKED -- 2.5%
Bear Stearns Asset Backed
Securities Inc.
5.54% 11/25/35 $5,000,000 5,008,215(h,i)
Countrywide Asset-Backed
Certificates (Class M)
6.02% 06/26/33 3,500,000 3,507,575(h,i)
Discover Card Master Trust I
(Class A)
5.23% 04/16/10 3,200,000 3,201,517(i)
GSAMP Trust
5.43% 05/25/36 3,385,130 3,385,130(b,i)
GSR Mortgage Loan Trust
5.52% 11/25/30 4,466,742 4,468,619(h,i)
Indymac Residential Asset
Backed Trust
5.44% 06/25/36 7,000,000 7,004,171(h,i)
JPMorgan Mortgage
Acquisition Corp.
5.43% 07/25/36 7,000,000 6,999,946(i)
33,575,173
PRINCIPAL
AMOUNT VALUE
CORPORATE NOTES -- 0.4%
Countrywide Financial Corp.
5.56% 06/27/07 $5,000,000 $ 4,999,205(i)
NON-AGENCY COLLATERALIZED MORTGAGE OBLIGATIONS -- 0.7%
JPMorgan Alternative Loan Trust
5.41% 08/25/36 4,000,000 4,000,000(i)
Residential Accredit Loans, Inc.
5.39% 06/25/36 5,000,000 5,000,000(i)
9,000,000
TOTAL SECURITIES PURCHASED WITH COLLATERAL
FROM SECURITIES ON LOAN
(COST $47,566,165) 47,574,378
TOTAL INVESTMENTS IN SECURITIES
(COST $1,201,432,056) 1,246,740,240
NUMBER
OF SHARES VALUE
- --------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS -- 16.6%
- --------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS -- 10.2%
GEI Short Term Investment Fund
6.93% 134,211,734 134,211,734(d,l)
SHORT-TERM SECURITIES PURCHASED WITH
COLLATERAL FROM SECURITIES ON LOAN -- 6.4%
GEI Short Term Investment Fund
6.93% 17,185,755 17,185,755(d,l)
State Street Navigator Securities
Lending Prime Portfolio
5.25% 66,269,174 66,269,174(d,e)
83,454,929
TOTAL SHORT-TERM INVESTMENTS
(COST $217,666,663) 217,666,663
TOTAL INVESTMENTS
(COST $1,419,098,719) 1,464,406,903
LIABILITIES IN EXCESS OF OTHER ASSETS,
NET-- (11.6)% (152,584,698)
-------------
NET ASSETS-- 100.0% $1,311,822,205
==============
See Notes to Schedule of Investments on page 18 and Notes to Financial
Statements.
16
TOTAL RETURN FUND
Schedule of Investments June 30, 2006 (unaudited)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
OTHER INFORMATION
- --------------------------------------------------------------------------------
The GEI Total Return Fund had the following written option contracts open at
June 30, 2006 (unaudited):
EXPIRATION DATE/ NUMBER OF
CALL OPTIONS STRIKE PRICE CONTRACTS VALUE
- --------------------------------------------------------------------------------
Euro Dollar Futures
(Written Option
Premium $829) July 06 / 95.00 85 $(531)
The GEI Total Return Fund had the following long futures contracts open at June
30, 2006 (unaudited):
NUMBER CURRENT
EXPIRATION OF NOTIONAL UNREALIZED
DESCRIPTION DATE CONTRACTS VALUE APPRECIATION
- -------------------------------------------------------------
Euro Dollar
Futures September 2006 40 $ 9,442,000 $ 1,890
U.S. Treasury
Notes 5 Yr.
Futures September 2006 20 2,068,125 (11,149)
U.S. Treasury
Notes 10 Yr.
Futures September 2006 20 2,097,188 (14,743)
S&P 500 Index
Futures September 2006 114 36,462,900 599,148
--------
$575,146
========
See Notes to Schedule of Investments on page 18 and Notes to Financial
Statements.
17
Notes to Schedule of Investments June 30, 2006 (unaudited)
- --------------------------------------------------------------------------------
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 June 30, 2006, these securities amounted to
$3,649,276 or 0.28% of net assets for the GE Investments Total Return Fund.
These securities have been determined to be liquid using procedures
established by the Board of Trustees.
(c) Settlement is on a delayed delivery or when-issued basis with final
maturity to be announced (TBA) in the future.
(d) Coupon amount represents effective yield.
(e) State Street Corp. is the parent company of State Street Bank & Trust Co.,
the Fund's custodian and accounting agent.
(f) Principal only securities represent the right to receive the monthly
principal payments on an underlying pool of mortgages. No payments of
interest on the pool are passed through to the "principal only" holder.
(g) Interest only securities represent the right to receive the monthly
interest payments on an underlying pool of mortgages. Payments of principal
on the pool reduce the value of the "interest only" holding.
(h) At June 30, 2006, all or a portion of this security was pledged to cover
collateral requirements for futures, options, forward foreign currency
contracts and/or TBA's.
(i) Variable or floating rate security. The stated rate represents the rate at
June 30, 2006.
(j) All or a portion of the security is out on loan.
(k) Step coupon bond. Security becomes interest bearing at a future date.
(l) GEAM, the investment adviser of the Fund, also serves as investment adviser
of the Trust.
(m) Sponsored by SSgA Funds Management, Inc., an affiliate of State Street Bank
& Trust Co., the Fund's custodian and accounting agent.
* Less than 0.1%
+ Percentages are based on net assets as of June 30, 2006.
Abbreviations:
ADR American Depository Receipt
GDR Global 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
TBA To Be Announced
18
Financial Highlights
Selected data based on a share outstanding throughout the periods indicated
- --------------------------------------------------------------------------------
TOTAL RETURN FUND
-------------------------------------------------------------------
CLASS 1
-------------------------------------------------------------------
6/30/06+ 12/31/05 12/31/04 12/31/03 12/31/02
-------------------------------------------------------------------
INCEPTION DATE ............................................ -- -- -- -- --
Net asset value, beginning of period ...................... $16.04 $15.97 $15.09 $12.68 $14.49
INCOME/(LOSS) FROM INVESTMENT OPERATIONS:
Net investment income ................................... 0.20 0.23 0.20 0.16 0.31
Net realized and unrealized gains/(losses) on investments 0.27 0.36 1.04 2.41 (1.67)
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL INCOME/(LOSS) FROM INVESTMENT OPERATIONS ............ 0.47 0.59 1.24 2.57 (1.36)
- -----------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM:
Net investment income ................................... -- 0.23 0.20 0.16 0.32
Net realized gains ...................................... -- 0.29 0.16 -- 0.13
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS ....................................... -- 0.52 0.36 0.16 0.45
- -----------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD ............................ $16.51 $16.04 $15.97 $15.09 $12.68
===================================================================================================================================
TOTAL RETURN (A) .......................................... 2.93% 3.67% 8.19% 20.31% (9.31)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in thousands) ................ $1,236,196 $959,531 $515,506 $225,867 $112,747
Ratios to average net assets:
Net investment income* ................................ 2.68% 1.89% 1.81% 1.58% 2.22%
Net Expenses* ......................................... 0.44% 0.45% 0.49% 0.53% 0.54%
Gross Expenses* ....................................... 0.46% 0.45% 0.49% 0.53% 0.54%
Portfolio turnover rate ................................. 65% 146% 141% 115% 126%
--------- -------- -------- --------
CLASS 1 CLASS 2 CLASS 3 CLASS 4
--------- -------- -------- --------
12/31/01 6/30/06+ 6/30/06+ 6/30/06+
--------- -------- -------- --------
INCEPTION DATE ............................................ 7/1/85 5/1/06 5/1/06 5/1/06
Net asset value, beginning of period ...................... $15.51 $17.03 $17.03 $ 17.03
INCOME/(LOSS) FROM INVESTMENT OPERATIONS:
Net investment income ................................... 0.38 0.09 0.03 0.08
Net realized and unrealized gains/(losses) on investments (0.83) (0.60) (0.54) (0.61)
- -------------------------------------------------------------------------------------------------------------
TOTAL INCOME/(LOSS) FROM INVESTMENT OPERATIONS ............ (0.45) (0.51) (0.51) (0.53)
- -------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM:
Net investment income ................................... 0.38 -- -- --
Net realized gains ...................................... 0.19 -- -- --
- -------------------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS ....................................... 0.57 -- -- --
- -------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD ............................ $14.49 $16.52 $16.52 $16.50
=============================================================================================================
TOTAL RETURN (A) .......................................... (2.89)% (2.99)% (2.99)% (3.11)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in thousands) ................ $130,757 $1 $75,624 $1
Ratios to average net assets:
Net investment income* ................................ 2.54% 1.04% 0.89% 1.01%
Net Expenses* ......................................... 0.53% 0.57% 0.62% 0.77%
Gross Expenses* ....................................... 0.53% 0.62% 0.67% 0.82%
Portfolio turnover rate ................................. 122% 65% 65% 65%
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.
* Annualized for periods less than one year.
+ Unaudited.
See Notes to Financial Statements.
19
Statement of Assets
and Liabilities JUNE 30, 2006 (UNAUDITED)
TOTAL
RETURN
FUND
- -----------------------------------------------------------------------------------
ASSETS
Investments in securities, at market* (cost $1,201,432,056) ... $1,246,740,240
Short-term Investments (at amortized cost) .................... 66,269,174
Short-term affiliated investments (at amortized cost) ......... 151,397,489
Foreign cash (cost $1,372,918) ................................ 1,373,691
Receivable for investments sold ............................... 6,860,747
Income receivables ............................................ 3,688,258
Receivable for fund shares sold ............................... 4,210,411
Variation margin receivable ................................... 16,250
- -----------------------------------------------------------------------------------
TOTAL ASSETS .............................................. 1,480,556,260
- -----------------------------------------------------------------------------------
LIABILITIES
Payable upon return of securities loaned ...................... 131,029,307
Payable for investments purchased ............................. 36,843,321
Payable for fund shares redeemed .............................. 1,251
Payable to GEAM ............................................... 768,445
Variation margin payable ...................................... 91,200
Options written, at market (premium received $829) ............ 531
- -----------------------------------------------------------------------------------
TOTAL LIABILITIES ......................................... 168,734,055
- -----------------------------------------------------------------------------------
NET ASSETS ....................................................... $1,311,822,205
===================================================================================
NET ASSETS CONSIST OF:
Capital paid in ............................................... 1,240,104,410
Undistributed (distribution in excess of) net investment income 14,232,353
Accumulated net realized gain (loss) .......................... 11,567,615
Net unrealized appreciation/(depreciation) on:
Investments ............................................... 45,308,184
Futures ................................................... 575,146
Written options ........................................... 298
Foreign currency related transactions ..................... 34,199
- -----------------------------------------------------------------------------------
NET ASSETS ....................................................... $1,311,822,205
===================================================================================
CLASS 1:
NET ASSETS ....................................................... 1,236,195,929
Shares outstanding ($0.01 par value; unlimited shares authorized) 74,867,472
Net asset value per share ........................................ 16.51
CLASS 2:
NET ASSETS ....................................................... 970.47
Shares outstanding ($0.01 par value; unlimited shares authorized) 58.75
Net asset value per share ........................................ 16.52
CLASS 3:
NET ASSETS ....................................................... 75,624,336
Shares outstanding ($0.01 par value; unlimited shares authorized) 4,577,367
Net asset value per share ........................................ 16.52
CLASS 4:
NET ASSETS ....................................................... 969.39
Shares outstanding ($0.01 par value; unlimited shares authorized) 58.75
Net asset value per share ........................................ 16.50
* Includes $127,971,695 of securities on loan.
See Notes to Financial Statements.
20
Statement of Operations
FOR THE SIX MONTHS ENDED JUNE 30, 2006 (UNAUDITED)
TOTAL
RETURN
FUND
- ----------------------------------------------------------------------------------
INVESTMENT INCOME
INCOME:
Dividend .................................................... $8,843,935
Interest* ................................................... 5,274,285
Interest from affliated investments ......................... 3,163,487
Less: Foreign taxes withheld ................................ (537,882)
- -----------------------------------------------------------------------------------
TOTAL INCOME .................................................. 16,743,825
- -----------------------------------------------------------------------------------
EXPENSES:
Advisory and administrative fees ............................ 1,956,591
Distributors fees (Notes 4)
Class 1 .................................................. 409,184
Class 2 .................................................. 1
Class 3 .................................................. 12,652
Class 4 .................................................. 1
Custody and accounting expenses ............................. 97,376
Professional fees ........................................... 82,728
Trustee's fees .............................................. 11,382
Registration expenses ....................................... 1,853
Transfer agent .............................................. 86
Other expenses .............................................. 36,643
- -----------------------------------------------------------------------------------
TOTAL EXPENSES BEFORE WAIVER AND REIMBURSEMENT ................ 2,608,497
- -----------------------------------------------------------------------------------
Less: Expenses waived or borne by the adviser ............... (117,657)
Net expenses ................................................ 2,490,840
- -----------------------------------------------------------------------------------
NET INVESTMENT INCOME (LOSS) .................................. 14,252,985
===================================================================================
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS
REALIZED GAIN (LOSS) ON:
Investments .............................................. 8,386,251
Futures .................................................. (157,237)
Written options .......................................... (11,830)
Foreign currency transactions ............................ (124,136)
INCREASE (DECREASE) IN UNREALIZED APPRECIATION/
(DEPRECIATION) ON:
Investments .............................................. 3,258,635
Futures .................................................. 767,759
Written options .......................................... 298
Foreign currency transactions ............................ 39,262
- -----------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments ...... 12,159,002
- -----------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $26,411,987
===================================================================================
* Income attributable to security lending, net of rebate expenses, for the Total
Return Fund was $127,332
See Notes to Financial Statements.
21
Statements of
Changes in Net Assets
TOTAL
RETURN
FUND
- -------------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 2006 DECEMBER 31,
(UNAUDITED) 2005
- -------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net investments income (loss) ........................................... $ 14,252,985 $13,296,651
Net realized gain (loss) on investments, futures, written options
and foreign currency transactions ..................................... 8,093,048 18,548,560
Net increase (decrease) in unrealized appreciation/(depreciation)
on investments, futures, written options and foreign
currency translation .................................................. 4,065,954 2,438,623
- -------------------------------------------------------------------------------------------------------------------
Net increase (decrease) from operations ................................. 26,411,987 34,283,834
- -------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income ................................................... -- (13,261,759)
Net realized gains ...................................................... -- (16,598,435)
Return of Capital ....................................................... -- --
- -------------------------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS ....................................................... -- (29,860,194)
- -------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets from operations and distributions ....... 26,411,987 4,423,640
- -------------------------------------------------------------------------------------------------------------------
SHARE TRANSACTIONS:
Proceeds from sale of shares
Class 1 ............................................................... 253,486,557 414,284,705
Class 2 ............................................................... 1,000 --
Class 3 ............................................................... 75,155,062 --
Class 4 ............................................................... 1,000 --
Value of distributions reinvested
Class 1 ............................................................... -- 29,860,187
Class 2 ............................................................... -- --
Class 3 ............................................................... -- --
Class 4 ............................................................... -- --
Cost of shares redeemed
Class 1 ............................................................... (2,763,736) (4,544,063)
Class 2 ............................................................... -- --
Class 3 ............................................................... (580) --
Class 4 ............................................................... -- --
- -------------------------------------------------------------------------------------------------------------------
Net increase (decrease) from share transactions ........................ 325,879,303 439,600,829
- -------------------------------------------------------------------------------------------------------------------
TOTAL INCREASE (DECREASE) IN NET ASSETS ................................... 352,291,290 444,024,469
NET ASSETS
Beginning of period ....................................................... 959,530,915 515,506,446
- -------------------------------------------------------------------------------------------------------------------
End of period ............................................................. $1,311,822,205 $959,530,915
===================================================================================================================
UNDISTRIBUTED (DISTRIBUTION IN EXCESS OF) NET INVESTMENT INCOME, END OF PERIOD $14,232,353 $ 20,632
- -------------------------------------------------------------------------------------------------------------------
See Notes to Financial Statements.
22
Statements of Changes in Net Assets (continued)
Changes in Fund Shares
TOTAL
RETURN
FUND
- ----------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 2006 DECEMBER 31,
(UNAUDITED) 2005
- ----------------------------------------------------------------------
CLASS 1:
Shares sold .......................... 15,221,985 25,964,206
Issued for distribution reinvested ... -- 1,850,074
Shares redeemed ...................... (165,591) (281,159)
- ---------------------------------------------------------------------
Net increase (decrease) in fund shares 15,056,394 27,533,121
=====================================================================
CLASS 2:
Shares sold .......................... 59 --
Issued for distribution reinvested ... -- --
Shares redeemed ...................... -- --
- ---------------------------------------------------------------------
Net increase (decrease) in fund shares 59 --
=====================================================================
CLASS 3:
Shares sold .......................... 4,577,403 --
Issued for distribution reinvested ... -- --
Shares redeemed ...................... (36) --
- ---------------------------------------------------------------------
Net increase (decrease) in fund shares 4,577,367 --
=====================================================================
CLASS 4:
Shares sold .......................... 59 --
Issued for distribution reinvested ... -- --
Shares redeemed ...................... -- --
- ---------------------------------------------------------------------
Net increase (decrease) in fund shares 59 --
=====================================================================
See Notes to Financial Statements.
23
Notes to Financial Statements June 30, 2006 (unaudited)
- --------------------------------------------------------------------------------
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,
International Equity Fund, Total Return Fund (the "Fund"), Income Fund, Money
Market Fund and Real Estate Securities Fund. The Fund presently offers four
classes of shares.
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 June 30, 2006, GE Life and Annuity Assurance Company ("GE Life") and
General Electric Capital Assurance Company, 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 Fund:
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.
24
Notes to Financial Statements June 30, 2006 (unaudited)
- --------------------------------------------------------------------------------
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
25
Notes to Financial Statements June 30, 2006 (unaudited)
- --------------------------------------------------------------------------------
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 maintains 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 upon net
investment income, net realized gains and net unrealized appreciation as income
and/or capital gains are earned.
26
Notes to Financial Statements June 30, 2006 (unaudited)
- --------------------------------------------------------------------------------
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 June 30, 2006, 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
- ----------------------------------------------------------------------------------------------------
$1,421,672,782 $84,836,496 $(42,102,906) $42,733,590
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.
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 and pro rata across share classes .
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 and pro rata among share
classes based on net assets. 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
27
Notes to Financial Statements June 30, 2006 (unaudited)
- --------------------------------------------------------------------------------
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 June 30, 2006.
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%
Pursuant to an expense limitation agreement with the Fund, GEAM has agreed to
limit total operating expenses charged to Fund assets attributable to each class
of shares (excluding class specific expenses such as Distribution and Service
(12b-1) Fees, and excluding interest, taxes, brokerage commissions, other
expenditures that are capitalized in accordance with generally accepted
accounting principles, and other extraordinary expenses not incurred in the
ordinary course of the Fund's business) to 0.32% of the average daily net assets
of the Fund attributable to such shares, in each case on an annual basis. Under
the agreement, this expense limitation will continue until April 30, 2009,
unless extended. The expense limitation agreement will terminate upon
termination of the management agreement, or by the Fund without payment of
penalty upon sixty (60) days written notice to GEAM. The agreement can only be
changed with the approval of both the Fund and GEAM.
GENPACT performs certain accounting and certain administration services not
provided by GEAM. For the period ending June 30, 2006, $6,616 was charged to the
Fund. Administrative services not performed by GEAM or GENPACT were provided by
an unaffiliated service provider.
DISTRIBUTION AND SHAREHOLDER SERVICING FEES The Fund has adopted a Shareholder
Servicing and Distribution Plan ("the Plan") pursuant to Rule 12b-1 under the
1940 Act. The Fund pays GE Investment Distributors, Inc. ("GEID"), a
wholly-owned subsidiary of GEAM and the Fund's principal underwriter, a monthly
fee for distribution and/or shareholder services provided, at an annual rate of
the average daily net assets attributable to each applicable class of shares.
The annual rates applicable are 0.25% for Class 2 shares, 0.30% for Class 3
shares and 0.45% for Class 4 shares. Currently, Class 1 shares are not subject
to a 12b-1 fee.
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 June 30, 2006, were as follows:
Purchases Sales
- --------------------------------------------------------------------------------
$1,020,809,165 $719,351,818
28
Notes to Financial Statements June 30, 2006 (unaudited)
- --------------------------------------------------------------------------------
OPTIONS During the period ended June 30, 2006, the following option contracts
were written:
Number of
of Contracts Premium
- -------------------------------------------------------------------------
Balance as of
December 31, 2005 -- $ --
Written 305 12,616
Closed and Expired (220) (11,787)
- -------------------------------------------------------------------------
Balance as of
June 30, 2006 85 829
- -------------------------------------------------------------------------
SECURITY LENDING At June 30, 2006, the Fund participated in securities lending:
Loaned
securities at Cash
market value collateral*
- -----------------------------------------------------------------------
$128,325,754 $131,871,586
* COLLATERAL OF $131,029,307 INCREASED BY $842,279 ON JULY 3, 2006 TO REFLECT
THE JUNE 30, 2006 CHANGE IN VALUE OF SECURITIES ON LOAN.
29
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.
30
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
31
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.
32
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 57
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.
33
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 45
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
34
Additional Information (unaudited)
- --------------------------------------------------------------------------------
NON-INTERESTED DIRECTORS
- --------------------------------------------------------------------------------
JOHN R. COSTANTINO
- --------------------------------------------------------------------------------
ADDRESS c/o GEAM 3001 Summer St. Stamford, CT 06905
AGE 60
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 70
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.
35
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
Ronald R. Pressman, CHIEF EXECUTIVE OFFICER (EFFECTIVE AS OF JULY 1, 2006)
John H. Myers, CHIEF EXECUTIVE OFFICER (RETIRED FROM ALL POSITIONS AS OF
JUNE 30, 2006)
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
36
[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
Semi-Annual Report
JUNE 30, 2006
[LOGO OMITTED]
GE Investments Funds, Inc.
Income Fund Contents
- ----------------------------------------------------------------------------
NOTES TO PERFORMANCE .............................................. 1
MANAGER REVIEW AND SCHEDULE OF INVESTMENTS ........................ 2
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
ADVISORY AND ADMINISTRATIVE AGREEMENT RENEWAL ..................... 23
ADDITIONAL INFORMATION ............................................ 26
INVESTMENT TEAM ................................................... 29
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.
Notes to Performance June 30, 2006 (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.
1
Income Fund
- --------------------------------------------------------------------------------
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 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
A SENIOR PORTFOLIO MANAGER AT SMITH GRAHAM SINCE AUGUST 1994.
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 TEAM 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 OMITTED]
2
Q&A
Q. HOW DID THE INCOME FUND PERFORM COMPARED TO ITS BENCHMARK AND LIPPER PEER
GROUP FOR THE SIX-MONTH PERIOD ENDED JUNE 30, 2006?
A. For the six-month period ended June 30, 2006, the Income Fund returned
-0.42%. The Lehman Brothers Aggregate Bond Index, the Fund's benchmark,
returned -0.72% and the Fund's Lipper peer group of 52 Intermediate
Investment Grade Debt funds returned an average of -0.70% for the same
period.
Q. WHAT WERE THE PRIMARY DRIVERS BEHIND FUND PERFORMANCE?
A. Individual security return was the largest positive contributor to Fund
performance relative to the benchmark. Sector allocation also provided
excess return. In particular, the Fund's exposure to high yield bonds added
significantly to excess return as high yield, in general, returned over 3.0%
for the period. However, the Fund's performance during the period was
negatively affected by relative duration exposure.
Q. DESCRIBE WHAT HAPPENED IN THE U.S. ECONOMY DURING THE SIX-MONTH PERIOD ENDED
JUNE 30, 2006?
A. Economic growth in the U.S. slowed decidedly in the second quarter, after a
very strong 5.6% growth rate in the first quarter. With the increase in
interest rates across the yield curve, the primary focus has been the impact
on the U.S. housing market, which has fueled much of our growth in recent
years. Indeed, there is justified cause for concern about housing. Despite
an increase in new home sales, month-over-month in May, sales volume of both
new and existing homes are down from year-ago levels. Market participants
fear that a significant decline in home prices and rising energy costs will
force retrenchment by the American consumer.
Despite a slowing in economic growth, inflation pressures did not appear to
be receding. High prices at the gas pump plagued consumers. Housing costs,
which make up a large component of consumer inflation statistics through
owner equivalent rent levels, had risen. Commodity prices remained above
year-ago levels despite falling off a bit most recently. Utilization rates
were back above pre-2001 levels.
The combination of slowing growth and rising inflation had investors playing
the guessing game on future Fed moves. This game has always been a favorite
pastime of bond investors, but with a new Fed chairman in the mix, the
second quarter had been enjoyable to watch. In April, after a 25 basis point
hike in fed funds to 4.75%, FOMC comments led market thinking toward a move
in May to 5% and then pausing in June. The Fed did, in fact, raise rates
again in May to 5%, but a more hawkish tone regarding inflation in its
statement and subsequent comments by various Fed members, including the
chairman, left many investors believing the committee would continue rate
hikes in June and beyond. The committee did follow up in June with another
hike of 25 basis points to 5.25% while reiterating that future rate
decisions will be data dependant.
3
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 June 30,
2006.
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 $1,000 = 8.6), then multiply the result by the number
given for your class under the heading "Expenses Paid During Period."
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The second section of the table provides information about hypothetical account
values and hypothetical expenses based on the Fund's actual expense ratio and an
assumed rate of return of 5% per year before expenses, which is not the Fund's
actual return. You may use this information to compare the ongoing costs of
investing in the Fund and other funds. To do so, compare this 5% hypothetical
example with the 5% hypothetical examples that appear in the shareholders
reports of other funds.
Please note that the expenses shown in the table do not reflect any transaction
costs, such as sales charges or redemption fees.
JANUARY 1, 2006 - JUNE 30, 2006
- ----------------------------------------------------------------------------------------------------------------------
ACCOUNT VALUE AT ACCOUNT VALUE EXPENSES
THE BEGINNING OF AT THE END OF PAID DURING
THE PERIOD ($) THE PERIOD ($) THE PERIOD ($)*
- ----------------------------------------------------------------------------------------------------------------------
Actual Fund Return** 1,000.00 995.78 2.97
- ----------------------------------------------------------------------------------------------------------------------
Hypothetical 5% Return
(2.5% for the period) 1,000.00 1,021.58 3.01
- ----------------------------------------------------------------------------------------------------------------------
*EXPENSES ARE EQUAL TO THE FUND'S ANNUALIZED EXPENSE RATIO OF 0.60% (FROM
PERIOD JANUARY 1, 2006 - JUNE 30, 2006), MULTIPLIED BY THE AVERAGE ACCOUNT
VALUE OVER THE PERIOD, MULTIPLIED BY 181/365 (TO REFLECT THE SIX-MONTH
PERIOD).
**ACTUAL FUND RETURN FOR THE SIX-MONTH PERIOD ENDED JUNE 30, 2006 WAS (0.42)%.
4
Income Fund (unaudited)
- --------------------------------------------------------------------------------
CHANGE IN VALUE
OF A $10,000 INVESTMENT
- --------------------------------------------------------------------------------
[LINE CHART OMITTED, PLOT POINTS FOLLOWS]
LB AGGREGATE
GEI INCOME BOND INDEX
6/96 $ 10000.00 $ 10000.00
12/96 10489.79 10490.46
12/97 11433.46 11503.2
12/98 12342.18 12502.43
12/99 12166.22 12399.75
12/00 13472.85 13841.35
12/01 14473.50 15010.04
12/02 15904.23 16549.33
12/03 16476.77 17228.59
12/04 17040.28 17976.10
12/05 17387.45 18412.65
6/06 17314.03 18279.61
AVERAGE ANNUAL TOTAL RETURN
FOR THE PERIODS ENDED JUNE 30, 2006
- --------------------------------------------------------------------------------
SIX ONE FIVE TEN
MONTHS YEAR YEAR YEAR
- --------------------------------------------------------------------------------
Income Fund -0.42% -0.43% 4.42% 5.64%
- --------------------------------------------------------------------------------
LB Aggregate Bond Index -0.72% -0.81% 4.97% 6.22%
- --------------------------------------------------------------------------------
Lipper peer group average* -0.70% -0.89% 4.86% 5.80%
- --------------------------------------------------------------------------------
Inception date 1/3/95
- --------------------------------------------------------------------------------
Income Fund (ending value $17,314)
LB Aggregate Bond Index (ending value $18,280)
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 JUNE 30, 2006
as a % of Market Value
================================================================================
MOODY'S/S&P/ PERCENTAGE OF
FITCH RATING** MARKET VALUE
- --------------------------------------------------------------------------------
Aaa / AAA 77.48%
- --------------------------------------------------------------------------------
Aa / AA 2.42%
- --------------------------------------------------------------------------------
A / A 5.64%
- --------------------------------------------------------------------------------
Baa / BBB 8.61%
- --------------------------------------------------------------------------------
Ba / BB and lower 5.85%
- --------------------------------------------------------------------------------
NR / Other *** 0.00%
================================================================================
PORTFOLIO COMPOSITION
AS OF JUNE 30, 2006
as a % of Market Value
================================================================================
Market Value of $133,488 (in thousands)
[PIE CHART OMITTED, PLOT POINTS FOLLOWS]
Asset-Backed and Other 30.6%
Mortgage-Backed 29.4%
Corporate Notes 20.3%
U.S. Treasuries 18.4%
Federal Agencies 1.3%
*LIPPER PERFORMANCE COMPARISONS ARE BASED ON AVERAGE ANNUAL TOTAL RETURNS FOR
THE SIX-MONTH, ONE-YEAR, FIVE-YEAR AND TEN-YEAR PERIODS INDICATED IN THE
INTERMEDIATE INVESTMENT GRADE DEBT FUNDS PEER GROUP CONSISTING OF 52, 52, 34
AND 15 UNDERLYING ANNUITY FUNDS, RESPECTIVELY.
**MOODY'S INVESTORS SERVICES INC, STANDARD & POOR'S AND FITCH ARE NATIONALLY
RECOGNIZED STATISTICAL RATING ORGANIZATIONS.
***LESS THAN 0.01%
SEE NOTES TO PERFORMANCE ON PAGE 1 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
INCOME FUND
Schedule of Investments June 30, 2006 (unaudited)
- --------------------------------------------------------------------------------
INCOME FUND
PRINCIPAL
AMOUNT VALUE
BONDS AND NOTES -- 79.1%+
- --------------------------------------------------------------------------------
U.S. TREASURIES -- 22.3%
U.S. Treasury Bonds
4.50% 02/15/36 $ 425,000 $ 381,170(h)
7.13% 02/15/23 290,000 347,011(h)
8.13% 08/15/19 - 08/15/21 1,725,000 2,196,185(h)
U.S. Treasury Notes
4.13% 08/15/08 230,000 225,490(h)
4.88% 04/30/08 - 05/31/11 13,565,000 13,469,707(h)
5.13% 05/15/16 7,955,000 7,946,329(h)
24,565,892
FEDERAL AGENCIES -- 1.5%
Federal Farm Credit Bank
3.75% 01/15/09 670,000 643,670
Federal Home Loan Mortgage Corp.
4.75% 12/08/10 1,065,000 1,033,224
1,676,894
AGENCY MORTGAGE BACKED -- 13.8%
Federal Home Loan Mortgage Corp.
4.50% 06/01/33 - 02/01/35 307,986 279,492
5.00% 07/01/35 - 10/01/35 513,393 479,883
5.50% 05/01/20 88,365 86,670
6.00% 04/01/17 - 05/01/35 1,167,330 1,158,109
6.50% 01/01/27 - 12/01/34 519,332 523,564
7.00% 10/01/16 - 02/01/35 228,319 233,988
7.50% 11/01/09 - 09/01/33 32,964 33,998
8.00% 09/01/09 - 11/01/30 33,178 34,599
8.50% 04/01/30 - 05/01/30 34,920 37,460
Federal National Mortgage Assoc.
4.00% 05/01/19 - 06/01/19 315,795 291,626
4.50% 05/01/18 - 12/01/34 1,826,211 1,717,893
5.00% 03/01/34 - 08/01/35 662,809 620,466
5.50% 12/01/13 - 08/01/33 890,496 868,870
6.00% 06/01/14 - 07/01/35 2,042,094 2,015,981
6.50% 03/01/15 - 02/01/35 2,593,000 2,611,927
7.00% 03/01/15 - 05/01/35 852,516 873,226
7.50% 12/01/09 - 03/01/34 265,047 273,705
8.00% 12/01/12 - 11/01/33 195,993 206,781
8.50% 05/01/31 7,899 8,376
9.00% 04/01/16 - 12/01/22 34,388 36,428
5.00% TBA 25,000 24,070(b)
5.50% TBA 53,000 50,897(b)
6.00% TBA 285,000 285,980(b)
6.50% TBA 329,000 330,645(b)
Government National Mortgage Assoc.
4.50% 08/15/33 - 09/15/34 593,179 545,132
5.13% 11/20/22 - 12/20/24 8,795 8,836(g)
5.38% 02/20/23 - 02/20/26 23,086 23,137(g)
6.00% 04/15/27 - 06/15/35 605,658 601,841
PRINCIPAL
AMOUNT VALUE
6.50% 04/15/19 - 08/15/34 $ 492,906 $ 499,158
7.00% 03/15/12 - 06/15/34 238,533 245,340
7.50% 11/15/31 - 10/15/33 16,177 16,877
8.00% 12/15/29 - 04/15/30 7,532 7,992
8.50% 10/15/17 29,807 31,772
9.00% 11/15/16 - 12/15/21 70,278 76,188
15,140,907
AGENCY COLLATERALIZED MORTGAGE OBLIGATIONS -- 7.1%
Federal Home Loan Mortgage Corp.
1.45% 10/15/18 446,964 17,383(e,g)
1.95% 12/15/30 1,156,622 51,686(e,g)
3.33% 10/15/33 235,000 163,997(g)
4.11% 12/15/33 150,000 111,399(g)
4.50% 04/15/13 - 03/15/19 994,078 103,082(e)
4.50% 05/15/17 - 11/15/19 350,000 321,148
5.00% 01/15/11 - 08/01/35 7,057,771 1,430,981(e)
5.00% 05/15/20 - 02/15/35 1,775,000 1,588,844
5.50% 04/15/17 - 06/15/33 681,989 138,464(e)
5.50% 10/15/34 241,155 238,202
6.50% 02/15/21 326 325
7.50% 01/15/16 70,177 72,241
7.50% 07/15/27 18,318 3,996(e)
8.00% 02/01/23 - 07/01/24 9,175 2,039(e)
8.25% 06/01/26 60,000 74,555(f,i)
10.44% 09/25/43 2,190,158 29,133(c,e,g)
Federal Home Loan Mortgage STRIPS
5.30% 08/01/27 2,233 1,797(c,d)
Federal National Mortgage Assoc.
1.18% 12/25/42 153,909 3,463(e,g)
1.68% 10/25/29 593,144 27,506(e,g)
1.78% 12/25/30 586,947 23,247(e,g)
2.18% 05/25/18 1,023,626 56,197(e,g)
2.28% 09/25/42 1,633,115 105,642(e,g)
2.33% 04/25/17 - 10/25/17 1,317,640 67,082(e,g)
2.38% 08/25/16 404,300 17,142(e,g)
2.78% 06/25/42 533,634 27,636(e,g)
3.56% 09/25/31 386,765 330,246(g)
4.00% 02/25/28 37,081 35,960
4.50% 05/25/18 173,771 17,649(e)
4.50% 12/25/19 125,000 110,567
4.75% 11/25/14 101,497 7,315(e)
5.00% 02/25/11 - 02/25/32 289,604 30,035(e)
5.00% 03/25/35 175,000 154,906
5.50% 07/25/34 - 02/25/35 485,092 478,816 f)
5.75% 02/25/35 250,000 247,948
6.00% 12/25/34 175,000 171,775
6.50% 12/25/34 102,300 103,190
8.00% 07/25/14 216,695 220,131
Federal National Mortgage
Assoc. (Class 1)
5.27% 11/01/34 788,293 548,381(c,d)
Federal National Mortgage
Assoc. (Class S)
1.78% 02/25/31 554,902 21,361(e,g)
See Notes to Schedule of Investments on page 13 and Notes to Financial
Statements.
6
INCOME FUND
Schedule of Investments June 30, 2006 (unaudited)
- --------------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
Federal National Mortgage
Assoc. REMIC
4.50% 11/25/13 $ 392,363 $ 17,233(e)
4.90% 03/25/31 544,205 506,715(g)
5.00% 10/25/22 153,156 26,929(e)
7.00% 09/25/20 1,157 1,158
Federal National Mortgage Assoc.
REMIC (Class B)
5.39% 12/25/22 602 487(c,d)
Federal National Mortgage Assoc.
REMIC (Class J)
1080.91% 03/25/22 14 208(e)
Federal National Mortgage Assoc.
REMIC (Class K)
1008.00% 05/25/22 13 403(e)
Federal National Mortgage Assoc.
STRIPS (Class 2)
7.50% 11/01/23 55,039 14,534(e)
8.00% 08/01/23 - 07/01/24 19,283 4,443(e)
8.50% 07/25/22 938 216(e)
9.00% 05/25/22 607 154(e)
Vendee Mortgage Trust
16.44% 05/15/33 1,500,187 46,881(c,e,g)
7,774,828
ASSET BACKED -- 1.5%
Bank One Issuance Trust
3.59% 05/17/10 85,000 83,066
BMW Vehicle Owner Trust (Class B)
2.93% 03/25/09 213,000 212,131
Capital One Master Trust (Class C)
6.70% 06/15/11 200,000 203,906(a,f)
Carmax Auto Owner Trust
4.35% 03/15/10 131,000 127,963
Chase Funding Mortgage Loan
Asset-Backed Certificates
5.60% 02/25/33 75,075 75,271(f,g)
5.75% 05/25/32 32,000 30,295(f)
Citibank Credit Card Issuance Trust
4.45% 04/07/10 274,000 267,694
Countrywide Asset-Backed
Certificates
5.75% 05/25/33 30,840 30,887(f,g)
Countrywide Home Equity Loan
Trust (Class A)
5.43% 07/15/27 116,246 116,248(f,g)
Honda Auto Receivables Owner
Trust (Class A)
4.15% 10/15/10 146,000 142,132
Mid-State Trust
7.54% 07/01/35 2,968 3,032(f)
Peco Energy Transition Trust
6.52% 12/31/10 192,000 198,018(f)
Residential Asset Securities Corp.
5.57% 07/25/32 17,104 17,108(f,g)
Volkswagen Auto Lease Trust (Class A)
3.94% 10/20/10 88,000 86,330
Wells Fargo Home Equity Trust
3.97% 09/25/24 77,000 76,064(f,g)
1,670,145
PRINCIPAL
AMOUNT VALUE
CORPORATE NOTES -- 24.7%
Abbey National PLC
7.95% 10/26/29 $ 200,000 $ 236,825(f)
Abbott Laboratories
5.88% 05/15/16 255,000 252,657
Air Jamaica Ltd.
9.38% 07/08/15 150,000 151,125(a,f)
Allegiance Corp.
7.00% 10/15/26 210,000 213,857(f)
Allied Waste North America
7.25% 03/15/15 350,000 334,250(f)
Allstate Life Global Funding Trusts
3.85% 01/25/08 165,000 160,498(f)
Altria Group, Inc.
7.20% 02/01/07 125,000 125,632(f)
American Electric Power
Company, Inc. (Series D)
5.25% 06/01/15 90,000 84,273(f)
American General Corp.
7.50% 08/11/10 130,000 137,538(f)
Appalachian Power Co. (Series G)
3.60% 05/15/08 150,000 144,249(f)
Appalachian Power Co. (Series K)
5.00% 06/01/17 110,000 98,520(f)
Archer-Daniels-Midland Co.
7.00% 02/01/31 110,000 119,322(f)
Assurant, Inc.
6.75% 02/15/34 175,000 171,847(f)
AT&T, Inc.
4.13% 09/15/09 220,000 209,157
5.88% 08/15/12 110,000 108,972
BAC CAP TRUST V
5.63% 03/08/35 180,000 156,567(f)
Banco BMG S.A.
9.15% 01/15/16 115,000 112,700(a,f)
Banco Mercantil del Norte S.A.
5.88% 02/17/14 225,000 221,906(a,f,g)
Banco Santander Chile
5.38% 12/09/14 215,000 204,444(a,f)
BellSouth Corp.
6.55% 06/15/34 185,000 176,009(f)
BJ Services Co.
5.75% 06/01/11 165,000 163,407
BNP US Funding LLC (Series A)
7.74% 12/31/49 80,000 81,949(a,f,g)
Boyd Gaming Corp.
7.13% 02/01/16 145,000 140,106(f)
British Aerospace Finance, Inc.
7.50% 07/01/27 125,000 135,453(a,f)
British Telecommunications PLC
8.38% 12/15/10 65,000 71,330
Burlington Northern Santa Fe Corp.
8.13% 04/15/20 100,000 117,951(f)
Campbell Soup Co.
5.50% 03/15/07 160,000 159,900(f)
Capital One Bank
6.50% 06/13/13 75,000 76,512(f)
Capital One Financial Corp.
8.75% 02/01/07 170,000 172,767(f)
See Notes to Schedule of Investments on page 13 and Notes to Financial
Statements.
7
INCOME FUND
Schedule of Investments June 30, 2006 (unaudited)
- --------------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
Carolina Power & Light Co.
5.15% 04/01/15 $ 80,000 $ 75,322(f)
5.70% 04/01/35 45,000 40,775(f)
6.13% 09/15/33 235,000 226,141(f)
CCSA Finance Ltd.
7.88% 05/17/16 100,000 94,500(a)
Clear Channel Communications, Inc.
4.63% 01/15/08 255,000 249,428(f)
Comcast Cable Communications
Holdings, Inc.
9.46% 11/15/22 155,000 191,436(f)
Commonwealth Bank of Australia
6.02% 03/29/49 160,000 152,398(a)
Consumers Energy Co.
5.15% 02/15/17 125,000 113,453(f)
5.80% 09/15/35 110,000 98,671(f)
Corp Interamericana de
Entretenimiento S.A.
8.88% 06/14/15 150,000 142,500(a,f)
Cosan S.A. Industria e Comercio
8.25% 02/28/49 140,000 126,000(a,f)
Cosipa Commercial Ltd.
8.25% 06/14/16 115,000 115,575(a)
Countrywide Home Loans, Inc.
5.63% 05/15/07 100,000 99,885(f)
COX Communications, Inc.
5.45% 12/15/14 200,000 185,411(f)
Crown Americas LLC and Crown
Americas Capital Corp.
7.75% 11/15/15 395,000 389,075(a,f)
CSX Transportation, Inc.
9.75% 06/15/20 105,000 136,096(f)
DaimlerChrysler NA Holding Corp.
4.05% 06/04/08 110,000 106,517(f)
DBS Bank Ltd.
5.00% 11/15/19 235,000 214,094(a,f,g)
Detroit Edison Co. (Series B)
5.45% 02/15/35 190,000 162,498(f)
Deutsche Bank Capital
Funding Trust VII
5.63% 01/19/49 100,000 92,614(a,f,g)
Dominion Resources, Inc.
5.69% 05/15/08 165,000 164,488(f,i)
Dominion Resources, Inc. (Series B)
4.13% 02/15/08 130,000 126,975(f)
Duke Capital LLC
4.33% 11/16/06 135,000 134,409(f)
5.67% 08/15/14 50,000 48,046(f)
Echostar DBS Corp.
5.75% 10/01/08 155,000 151,513(f)
7.13% 02/01/16 305,000 293,563(a,f)
El Paso Electric Co.
6.00% 05/15/35 165,000 148,465(f)
Enterprise Products Operating LP
4.00% 10/15/07 160,000 155,677(f)
EOP Operating LP (REIT)
7.75% 11/15/07 190,000 194,717(f)
FirstEnergy Corp. (Series B)
6.45% 11/15/11 225,000 228,942(f)
PRINCIPAL
AMOUNT VALUE
Forest Oil Corp.
8.00% 06/15/08 $ 275,000 $ 280,844
FPL Group Capital, Inc. (Series B)
5.55% 02/16/08 220,000 219,210(f)
Freescale Semiconductor Inc.
7.13% 07/15/14 345,000 348,450
Georgia Power Co.
4.88% 07/15/07 200,000 198,803(f)
Goodrich Corp.
7.10% 11/15/27 185,000 194,401(f)
Greater Bay Bancorp
5.25% 03/31/08 265,000 261,811(f)
Grupo Gigante S.A. de C.V.
8.75% 04/13/16 40,000 37,600(a,h)
Grupo Televisa S.A.
6.63% 03/18/25 110,000 102,729
GS Caltex Corp.
5.50% 10/15/15 170,000 159,527(a,f)
GTE Corp.
6.94% 04/15/28 240,000 237,154(f)
Halliburton Co.
8.75% 02/15/21 150,000 183,928(f)
HJ Heinz Finance Co.
6.75% 03/15/32 115,000 112,976
Hopson Development Holdings Ltd.
8.13% 11/09/12 145,000 144,275(a,f)
HSBC Bank USA NA
3.88% 09/15/09 425,000 402,890(f)
HSBC Capital Funding LP (Series 1)
9.55% 12/31/49 65,000 72,841(a,f,g)
IBM Canada Credit Services Co.
3.75% 11/30/07 95,000 92,200(a,f)
ING Capital Funding TR III
8.44% 12/29/49 55,000 59,974(f,g)
ING Groep N.V.
5.78% 12/29/49 275,000 257,616(f,g)
International Business
Machines Corp.
3.80% 02/01/08 115,000 112,065(f)
iStar Financial, Inc.
4.88% 01/15/09 55,000 53,712(f)
7.00% 03/15/08 40,000 40,635(f)
Kansas Gas & Electric
5.65% 03/29/21 105,000 98,293(f)
Kimco Realty Corp. (REIT)
4.82% 06/01/14 110,000 100,703(f)
Kinder Morgan Energy Partners LP
5.13% 11/15/14 155,000 141,501(f)
Kraft Foods, Inc.
5.25% 06/01/07 100,000 99,517(f)
L-3 Communications Corp.
6.38% 10/15/15 165,000 157,575(f)
Laboratory Corp of
America Holdings
5.63% 12/15/15 110,000 105,155(f)
Lyondell Chemical Co. (Series A)
9.63% 05/01/07 270,000 274,050(f)
MacDermid, Inc.
9.13% 07/15/11 410,000 428,450(f)
See Notes to Schedule of Investments on page 13 and Notes to Financial
Statements.
8
INCOME FUND
Schedule of Investments June 30, 2006 (unaudited)
- --------------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
Marsh & McLennon Companies, Inc.
5.15% 09/15/10 $ 170,000 $ 164,936(f)
Meritage Homes Corp.
6.25% 03/15/15 480,000 404,400(f)
Merrill Lynch & Company, Inc.
6.05% 05/16/16 185,000 183,786
MGM Mirage
5.88% 02/27/14 495,000 443,644(f)
Midamerican Energy Holdings Co.
3.50% 05/15/08 200,000 192,682(f)
6.13% 04/01/36 115,000 108,390(a,f)
Mohegan Tribal Gaming Authority
8.00% 04/01/12 270,000 274,388(f)
Motorola, Inc.
4.61% 11/16/07 135,000 133,057(f)
MUFG Capital Finance 1 Ltd.
6.35% 07/25/49 100,000 96,316(g)
National Power Corp.
9.44% 08/23/11 110,000 119,079(a,f,g)
NB Capital Trust IV
8.25% 04/15/27 110,000 115,178(f)
Nelnet, Inc.
5.13% 06/01/10 205,000 195,863(f)
New Cingular Wireless Services Inc.
8.75% 03/01/31 220,000 268,307(f)
News America, Inc.
7.25% 05/18/18 110,000 116,572(f)
Nextel Communications, Inc.
(Series E)
6.88% 10/31/13 275,000 279,218(f)
Norfolk Southern Railway Co.
9.75% 06/15/20 170,000 222,204(f)
Northeast Utilities (Series B)
3.30% 06/01/08 235,000 224,019(f)
Northern States Power Co.
6.25% 06/01/36 65,000 64,507
Northrop Grumman Corp.
4.08% 11/16/06 70,000 69,600(f)
NorthWestern Corp.
5.88% 11/01/14 85,000 83,276
Ocean Energy, Inc.
4.38% 10/01/07 75,000 73,536(f)
Ohio Power Co. (Series E)
6.60% 02/15/33 65,000 65,352(f)
Owens Brockway Glass Container Inc.
6.75% 12/01/14 115,000 106,663(f)
Pacific Bell
7.13% 03/15/26 85,000 87,533
Pacific Gas & Electric Co.
6.05% 03/01/34 95,000 89,696(f)
PanAmSat Corp.
9.00% 08/15/14 320,000 324,800(f)
Pemex Finance Ltd.
9.69% 08/15/09 175,500 185,493(f)
Pemex Project Funding Master Trust
6.13% 08/15/08 265,000 264,560(f)
7.38% 12/15/14 30,000 31,213(f)
Pepco Holdings, Inc.
5.86% 06/01/10 45,000 45,119(f,g)
PRINCIPAL
AMOUNT VALUE
Pioneer Natural Resources Co.
6.88% 05/01/18 $ 230,000 $ 221,629
Plains All American Pipeline LP
6.70% 05/15/36 115,000 112,862(a)
Potomac Edison Co.
5.35% 11/15/14 95,000 90,745(f)
Procter & Gamble - ESOP (Series A)
9.36% 01/01/21 305,000 370,467(f)
Prudential Financial, Inc.
5.90% 03/17/36 115,000 104,897(f)
Puget Energy, Inc.
3.36% 06/01/08 125,000 119,257(f)
5.48% 06/01/35 110,000 95,541(f)
Quest Diagnostics Inc.
6.75% 07/12/06 115,000 115,018(f)
Qwest Corp.
7.63% 06/15/15 400,000 395,000(f)
Rabobank Capital Funding Trust
5.25% 12/29/49 130,000 119,092(a,g)
Reader's Digest Assoc, Inc.
6.50% 03/01/11 345,000 332,925
Reckson Operating
Partnership LP (REIT)
5.88% 08/15/14 140,000 135,480(f)
Residential Capital Corp.
6.13% 11/21/08 245,000 241,742(f)
6.90% 04/17/09 170,000 169,991(a,g)
Resona Bank Ltd.
5.85% 09/29/49 215,000 200,030(a)
Rogers Cable Inc.
5.50% 03/15/14 250,000 221,875
Rouse Company LP/TRC
Co-Issuer Inc. (REIT)
6.75% 05/01/13 165,000 160,694(a)
RSHB Capital S.A.
7.18% 05/16/13 145,000 143,731(a)
Safeco Capital Trust I (Series B)
8.07% 07/15/37 130,000 137,015
Simon Property Group LP (REIT)
4.60% 06/15/10 115,000 110,209
4.88% 08/15/10 150,000 144,549
Smith International, Inc.
6.00% 06/15/16 110,000 109,023
Southern Copper Corp.
7.50% 07/27/35 140,000 132,948
Sprint Capital Corp.
6.00% 01/15/07 290,000 290,389
Standard Chartered Bank
Hong Kong Ltd.
4.38% 12/03/14 130,000 123,697(g)
Stewart Enterprises, Inc.
6.25% 02/15/13 350,000 318,938
Tampa Electric Co.
6.55% 05/15/36 55,000 54,666
Telefonos de Mexico S.A. de C.V.
4.50% 11/19/08 125,000 120,414
8.75% 01/31/16 1,500,000 123,056
TELUS Corp.
7.50% 06/01/07 220,000 223,251
See Notes to Schedule of Investments on page 13 and Notes to Financial
Statements.
9
INCOME FUND
Schedule of Investments June 30, 2006 (unaudited)
- --------------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
Tesoro Corp.
6.25% 11/01/12 $ 85,000 $ 80,750(a)
The Kroger Co.
6.80% 12/15/18 110,000 110,560(f)
Thomson Corp.
5.50% 08/15/35 115,000 99,431
Time Warner Entertainment Co.
8.38% 03/15/23 - 07/15/33 270,000 303,641
TuranAlem Finance BV
7.75% 04/25/13 100,000 97,125(a)
TXU Electric Delivery Co.
5.00% 09/01/07 115,000 113,750(f)
Tyson Foods, Inc.
7.25% 10/01/06 6,000 6,018
8.25% 10/01/11 220,000 233,466
United Overseas Bank Ltd.
4.50% 07/02/13 220,000 198,824(a)
Valero Energy Corp.
3.50% 04/01/09 180,000 169,478
Verizon Pennsylvania Inc.
8.75% 08/15/31 110,000 124,762(f)
Viacom, Inc.
5.63% 05/01/07 200,000 199,783
VTB Capital S.A.
6.17% 09/21/07 220,000 220,429(a,g)
Westar Energy, Inc.
5.15% 01/01/17 90,000 82,344
7.13% 08/01/09 60,000 61,743
Westfield Capital Corporation Limited
4.38% 11/15/10 175,000 165,120(a)
Weyerhaeuser Co.
6.13% 03/15/07 74,000 74,039
Williams Partners LP
7.50% 06/15/11 175,000 175,438(a)
Wisconsin Electric Power
3.50% 12/01/07 160,000 155,621
27,122,632
NON-AGENCY COLLATERALIZED MORTGAGE OBLIGATIONS -- 7.5%
Banc of America Funding Corp.
5.75% 03/20/36 69,929 68,506(f,g)
5.88% 02/20/36 174,841 172,164(f,g)
Banc of America Mortgage
Securities (Class B)
5.39% 01/25/36 74,877 71,965(f,g)
Bank of America Alternative
Loan Trust
6.50% 07/25/35 88,594 88,462(f)
Bear Stearns Commercial
Mortgage Securities
6.02% 02/14/31 300,000 301,768(f)
CalSTRS Trust
4.13% 11/20/12 529,000 518,237(a,f)
Countrywide Alternative Loan Trust
6.00% 03/25/36 55,000 46,152
Countrywide Alternative Loan
Trust (Class B)
6.00% 05/25/36 29,962 26,087
PRINCIPAL
AMOUNT VALUE
Countrywide Home Loan Mortgage
Pass Through Trust (Class M)
5.50% 12/25/35 $ 74,452 $ 69,807(f)
Credit Suisse Mortgage Capital
Certificates (Class C)
5.65% 02/25/36 39,830 37,472(f,g)
Crusade Global Trust (Class A)
5.59% 09/18/34 151,341 151,622(f,g)
CS First Boston Mortgage
Securities Corp.
1.69% 03/15/35 3,704,291 152,503(a,f,g)
5.33% 10/25/35 74,566 68,708(f,g)
5.63% 07/15/37 2,517,041 73,126(a,c,f,g)
6.13% 04/15/37 175,000 177,775(f)
First Union-Lehman Brothers-
Bank of America
6.56% 11/18/35 141,914 143,398(f)
GMAC Commercial Mortgage
Securities, Inc.
6.42% 05/15/35 335,832 339,703(f)
6.47% 04/15/34 159,000 163,034(f)
GMAC Commercial Mortgage
Securities, Inc. (Class X)
5.60% 12/10/41 4,396,097 107,119(c,f,g)
Greenwich Capital Commercial
Funding Corp.
5.12% 04/10/37 301,000 294,031(f)
Indymac INDA Mortgage Loan Trust
5.16% 01/25/36 99,941 94,901(f,g)
Indymac INDA Mortgage Loan
Trust (Class B)
5.16% 01/25/36 99,941 96,944(f,g)
Indymac Index Mortgage
Loan Trust
5.41% 06/25/35 118,382 114,946(f,g)
JPMorgan Chase Commercial
Mortgage Securities Corp.
1.29% 01/12/39 2,711,739 104,677(a,f,g)
6.47% 11/15/35 190,000 195,635(f)
JPMorgan Mortgage Trust
5.41% 11/25/35 255,340 247,166(f,g)
LB-UBS Commercial Mortgage Trust
4.06% 09/15/27 495,000 473,990(f,g)
4.51% 12/15/29 163,000 153,678(f)
5.36% 03/15/34 559,328 8,637(a,c,f,g)
5.58% 01/18/12 3,432,304 102,587(c,f,g)
6.23% 03/15/26 130,000 131,638(f)
6.65% 10/15/35 832,115 35,566(a,c,f,g)
7.61% 02/15/40 2,728,401 57,241(a,c,f,g)
8.21% 03/15/36 3,234,704 90,093(a,c,f,g)
LB-UBS Commercial Mortgage
Trust (Class A)
6.13% 12/15/30 172,000 174,815(f)
6.65% 11/15/27 144,000 149,359(f)
LB-UBS Commercial Mortgage
Trust (Class B)
6.65% 07/14/16 34,000 35,220(a,f)
See Notes to Schedule of Investments on page 13 and Notes to Financial
Statements.
10
INCOME FUND
Schedule of Investments June 30, 2006 (unaudited)
- --------------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
Master Alternative Loans Trust
5.00% 08/25/18 $ 206,530 $ 32,335(e,f)
6.50% 08/25/34 - 05/25/35 585,901 584,599(f)
Master Alternative Loans
Trust (Class 3)
6.50% 01/25/35 153,822 153,822(f)
MLCC Mortgage Investors, Inc.
5.40% 02/25/36 59,996 58,208(f,g)
Morgan Stanley Capital I
7.11% 04/15/33 513,000 530,882(f)
Morgan Stanley Dean Witter Capital I
5.03% 04/15/34 497,636 9,914(a,c,f,g)
5.20% 10/15/35 772,261 14,705(a,c,f,g)
7.20% 10/15/33 199,000 207,785(f)
Morgan Stanley Dean Witter
Capital I (Class A)
6.39% 10/15/35 150,000 154,081(f)
6.54% 02/15/31 32,062 32,578(f)
Morgan Stanley Dean Witter
Capital I (Class X)
1.45% 02/01/31 368,283 15,077(a,f,g)
Nomura Asset Securities Corp.
(Class A)
6.59% 03/15/30 500,000 506,631(f)
Residential Asset Securitization Trust
6.00% 01/25/46 24,907 21,241
Residential Funding Mortgage
Security I
5.75% 01/25/36 199,308 187,121(f)
Wells Fargo Mortgage Backed
Securities Trust
5.00% 11/25/20 205,823 199,494
5.39% 08/25/35 106,684 102,367(g)
5.50% 01/25/36 149,998 137,856
8,287,428
SOVEREIGN BONDS -- 0.7%
Government of Argentina
4.89% 08/03/12 145,000 120,640(g)
8.28% 12/31/33 161,312 143,590
Government of Bahamas
6.63% 05/15/33 125,000 133,621(a,f)
Government of Brazil
12.50% 01/05/16 280,000 126,464
Government of Peru
8.38% 05/03/16 145,000 156,600
Government of Turkey
7.25% 03/15/15 85,000 79,794
Government of Uruguay
8.00% 11/18/22 60,000 57,450
818,159
TOTAL BONDS AND NOTES
(COST $91,466,217) 87,056,885
NUMBER OF
CONTRACTS VALUE
PURCHASED OPTIONS -- 0.0 %*
- ------------------------------- ------------------------------------------------
CALL OPTIONS
Euro Dollar Futures
(COST $1,409) 35 $ 219
PRINCIPAL
AMOUNT VALUE
- --------------------------------------------------------------------------------
SECURITIES PURCHASED WITH COLLATERAL FROM
SECURITIES ON LOAN -- 16.6%
- --------------------------------------------------------------------------------
ASSET BACKED -- 9.2%
Bear Stearns Asset Backed
Securities Inc.
5.54% 11/25/35 $ 2,000,000 2,003,286(f,g)
Fleet Home Equity Loan
Trust (Class A)
5.52% 01/20/33 445,998 446,545(f,g)
Ford Credit Floorplan Master Owner
Trust (Class A)
5.24% 07/15/09 2,500,000 2,498,200(g)
Residential Asset Mortgage
Products, Inc.
5.52% 04/25/35 5,000,000 5,008,236(f,g)
5.65% 12/25/33 110,602 110,881(f,g)
Residential Asset Mortgage
Products, Inc. (Class A)
5.60% 06/25/32 60,864 60,897(f,g)
10,128,045
NON-AGENCY COLLATERALIZED MORTGAGE OBLIGATIONS -- 7.4%
Bear Stearns Commercial Mortgage
Securities (Class C)
5.51% 08/03/14 1,000,000 1,000,000(a,f,g)
Granite Mortgages PLC (Class 1)
4.78% 01/20/43 860,888 862,223(f,g)
JPMorgan Alternative Loan Trust
5.41% 08/25/36 3,000,000 3,000,000(g)
Puma Finance Ltd. (Class A)
5.22% 10/11/34 247,298 247,718(f,g)
Residential Accredit Loans, Inc.
5.39% 06/25/36 3,000,000 3,000,000(g)
8,109,941
TOTAL SECURITIES PURCHASED WITH
COLLATERAL FROM SECURITIES ON LOAN
(COST $18,225,847) 18,237,986
TOTAL INVESTMENT IN SECURITIES
(COST $109,693,473) 105,295,090
See Notes to Schedule of Investments on page 13 and Notes to Financial
Statements
11
INCOME FUND
Schedule of Investments June 30, 2006 (unaudited)
- --------------------------------------------------------------------------------
NUMBER
OF SHARES VALUE
SHORT-TERM INVESTMENTS -- 25.6%
- --------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS -- 18.5%
GEI Short Term Investment Fund
6.93% 20,367,210 $ 20,367,210(c,j)
SHORT-TERM SECURITIES PURCHASED WITH
COLLATERAL FROM SECURITIES ON LOAN -- 5.6%
GEI Short Term Investment Fund
6.93% 6,126,477 6,126,477(c,j)
PRINCIPAL
AMOUNT
- ----------------------------------------------------------
COMMERCIAL PAPER -- 1.5%
Merril Lynch & Co.
5.26% 07/06/06 $1,700,000 1,698,758
TOTAL SHORT-TERM INVESTMENTS
(COST $28,192,445) 28,192,445
TOTAL INVESTMENTS
(COST $137,885,918) 133,487,535
LIABILITIES IN EXCESS OF OTHER ASSETS,
NET -- (21.3)% (23,492,761)
===========
NET ASSETS -- 100.0% $109,994,774
===========
OTHER INFORMATION
- --------------------------------------------------------------------------------
The GEI Income Fund had the following written option contracts open at June 30,
2006 (unaudited):
EXPIRATION DATE/ NUMBER OF
CALL OPTIONS STRIKE PRICE CONTRACTS VALUE
- --------------------------------------------------------------------------------
Euro Dollar Futures
(Written Option
Premium $342) July 06 / 95.00 35 $(219)
The GEI Income Fund had the following long futures contracts open at June 30,
2006 (unaudited):
NUMBER CURRENT
EXPIRATION OF NOTIONAL UNREALIZED
DESCRIPTION DATE CONTRACTS VALUE DEPRECIATION
- ---------------------------------------------------------------
Euro Dollar
Futures September 2006 20 $4,721,000 $ 945
U.S. Treasury
Notes 5 Yr.
Futures September 2006 45 4,653,281 (25,202)
U.S. Treasury
Notes 10 Yr.
Futures September 2006 10 1,048,594 (7,371)
-----------
$(31,628)
===========
See Notes to Schedule of Investments on page 13 and Notes to Financial
Statements.
12
Notes to Schedule of Investments June 30, 2006 (unaudited)
- --------------------------------------------------------------------------------
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 June 30, 2006, these securities amounted to
$7,558,416 or 6.87% 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 June 30, 2006, 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
June 30, 2006.
(h) All or a portion of the security is out on loan.
(i) Step coupon bond. Security becomes interest bearing at a future date.
(j) GEAM, the investment adviser of the Fund, also serves as investment adviser
of the Trust.
+ Percentages are based on net assets as of June 30, 2006.
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
6/30/06+ 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 .............. $11.84 $12.25 $12.61 $12.93 $12.26 $11.99
INCOME/(LOSS) FROM INVESTMENT OPERATIONS:
Net investment income .......................... 0.30 0.61 0.55 0.51 0.37 0.60
Net realized and unrealized
gains/(losses) on investments ............... (0.35) (0.36) (0.12) (0.04) 0.84 0.29
- ------------------------------------------------------------------------------------------------------------------------------
TOTAL INCOME FROM INVESTMENT OPERATIONS ........... (0.05) 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 .................... $11.79 $11.84 $12.25 $12.61 $12.93 $12.26
==============================================================================================================================
TOTAL RETURN (A) .................................. (0.42)% 2.04% 3.42% 3.60% 9.89% 7.43%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in thousands) ....... $109,995 $116,558 $135,172 $189,318 $220,800 $117,740
Ratios to average net assets:
Net investment income* ...................... 5.06% 4.49% 3.82% 3.24% 3.79% 5.39%
Expenses* ................................... 0.60% 0.60% 0.59% 0.55% 0.53% 0.55%
Portfolio turnover rate ........................ 123% 311% 343% 419% 385% 278%
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.
* Annualized for periods less than one year.
+ Unaudited.
See Notes to Financial Statements.
14
Statement of Assets
and Liabilities JUNE 30, 2006 (UNAUDITED)
INCOME
FUND
- -----------------------------------------------------------------------------------------------------------------------
ASSETS
Investments in securities, at market* (cost $109,693,473) .......................................... $105,295,090
Short-term Investments (at amortized cost) ......................................................... 1,698,758
Short-term affiliated investments (at amortized cost) .............................................. 26,493,687
Foreign cash (cost $227,202) ....................................................................... 227,483
Receivable for investments sold .................................................................... 449,096
Income receivables ................................................................................. 1,018,399
Receivable for fund shares sold .................................................................... 192,349
Variation margin receivable ........................................................................ 16,225
- -----------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS ................................................................................... 135,391,087
- -----------------------------------------------------------------------------------------------------------------------
LIABILITIES
Payable upon return of securities loaned ........................................................... 24,364,463
Payable for investments purchased .................................................................. 1,013,960
Payable for fund shares redeemed ................................................................... 2,303
Payable to GEAM .................................................................................... 15,368
Options written, at market (premium received $342) ................................................. 219
- -----------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES .............................................................................. 25,396,313
- -----------------------------------------------------------------------------------------------------------------------
NET ASSETS ............................................................................................ $109,994,774
=======================================================================================================================
NET ASSETS CONSIST OF:
Capital paid in .................................................................................... 114,720,546
Undistributed (distribution in excess of) net investment income .................................... 2,759,182
Accumulated net realized gain (loss) ............................................................... (3,055,148)
Net unrealized appreciation/(depreciation) on:
Investments .................................................................................... (4,398,383)
Futures ........................................................................................ (31,628)
Written options ................................................................................ 123
Foreign currency related transactions .......................................................... 82
- -----------------------------------------------------------------------------------------------------------------------
NET ASSETS ............................................................................................ $109,994,774
=======================================================================================================================
Shares outstanding ($0.01 par value; unlimited shares authorized) ..................................... 9,327,477
Net asset value per share ............................................................................. $11.79
* Includes $23,806,908 of securities on loan.
See Notes to Financial Statements.
15
Statement of Operations
FOR THE SIX MONTHS ENDED JUNE 30, 2006 (UNAUDITED)
INCOME
FUND
- -----------------------------------------------------------------------------------------------------------------------
INVESTMENT INCOME
INCOME:
Dividend ....................................................................................... $ 3,907
Interest* ...................................................................................... 2,615,348
Interest from affliated investments ............................................................ 480,596
- -----------------------------------------------------------------------------------------------------------------------
TOTAL INCOME ..................................................................................... 3,099,851
- -----------------------------------------------------------------------------------------------------------------------
EXPENSES:
Advisory and administrative fees ............................................................... 276,173
Custody and accounting expenses ................................................................ 33,935
Professional fees .............................................................................. 8,942
Trustee's fees ................................................................................. 1,751
Registration expenses .......................................................................... 431
Transfer agent ................................................................................. 110
Other expenses ................................................................................. 7,616
- -----------------------------------------------------------------------------------------------------------------------
TOTAL EXPENSES ................................................................................... 328,958
- -----------------------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME (LOSS) ..................................................................... 2,770,893
=======================================================================================================================
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS
REALIZED GAIN (LOSS) ON:
Investments ................................................................................. (1,587,061)
Futures ..................................................................................... (69,566)
Written options ............................................................................. (6,223)
Foreign currency transactions ............................................................... (1,481)
INCREASE (DECREASE) IN UNREALIZED APPRECIATION/
(DEPRECIATION) ON:
Investments ................................................................................. (1,531,797)
Futures ..................................................................................... (29,346)
Written options ............................................................................. 123
Foreign currency transactions ............................................................... 82
- -----------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments ......................................... (3,225,269)
- -----------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS .................................. $ (454,376)
=======================================================================================================================
* Income attributable to security lending, net of rebate expenses, was $275.
See Notes to Financial Statements.
16
Statements of
Changes in Net Assets
INCOME
FUND
- ---------------------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 2006 DECEMBER 31,
(UNAUDITED) 2005
- ---------------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net investments income (loss) .................................................... $ 2,770,893 $ 5,667,191
Net realized gain (loss) on investments, futures, written options
and foreign currency transactions .............................................. (1,664,331) (1,131,629)
Net increase (decrease) in unrealized appreciation/(depreciation)
on investments, futures, written options and foreign currency translation ...... (1,560,938) (1,964,504)
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) from operations .......................................... (454,376) 2,571,058
- ---------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income ............................................................ -- (5,660,155)
Net realized gains ............................................................... -- (471,683)
Return of capital ................................................................ -- (28,414)
- ---------------------------------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS ................................................................ -- (6,160,252)
- ---------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets from operations and distributions ................ (454,376) (3,589,194)
- ---------------------------------------------------------------------------------------------------------------------------
SHARE TRANSACTIONS:
Proceeds from sale of shares ..................................................... 5,408,662 4,387,459
Value of distributions reinvested ................................................ -- 6,160,341
Cost of shares redeemed .......................................................... (11,517,686) (25,572,505)
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) from share transactions .................................. (6,109,024) (15,024,705)
- ---------------------------------------------------------------------------------------------------------------------------
TOTAL INCREASE (DECREASE) IN NET ASSETS ............................................ (6,563,400) (18,613,899)
NET ASSETS
Beginning of period ................................................................ 116,558,174 135,172,073
- ---------------------------------------------------------------------------------------------------------------------------
End of period ...................................................................... $109,994,774 $116,558,174
- ---------------------------------------------------------------------------------------------------------------------------
UNDISTRIBUTED (DISTRIBUTION IN EXCESS OF) NET INVESTMENT INCOME, END OF PERIOD ........ $ 2,759,182 $ (11,711)
- ---------------------------------------------------------------------------------------------------------------------------
CHANGES IN PORTFOLIO SHARES
Shares sold ...................................................................... 457,838 354,588
Issued for distributions reinvested .............................................. -- 520,299
Shares redeemed .................................................................. (971,970) (2,069,626)
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in fund shares ................................................ (514,132) (1,194,739)
- ---------------------------------------------------------------------------------------------------------------------------
See Notes to Financial Statements.
17
Notes to Financial Statements June 30, 2006 (unaudited)
- --------------------------------------------------------------------------------
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,
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 June 30, 2006, GE Life and Annuity Assurance Company ("GE Life") and
General Electric Capital Assurance Company, 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 Fund:
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 June 30, 2006 (unaudited)
- --------------------------------------------------------------------------------
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 June 30, 2006 (unaudited)
- --------------------------------------------------------------------------------
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 maintains 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 upon net
investment income, net realized gains and net unrealized appreciation as income
and/or capital gains are earned.
20
Notes to Financial Statements June 30, 2006 (unaudited)
- --------------------------------------------------------------------------------
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
- ----------------------------------------------------------------------------------------------------------------
$137,965,372 $194,918 $(4,672,974) $(4,478,056)
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.
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,
21
Notes to Financial Statements June 30, 2006 (unaudited)
- --------------------------------------------------------------------------------
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 June 30, 2006.
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 performs certain accounting and certain administration services not
provided by GEAM. For the period ended June 30, 2006, $1,003 was charged to the
Fund. Administrative services not performed by GEAM or GENPACT were provided by
an unaffiliated service provider.
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 June 30, 2006 were as follows:
Purchases Sales
- -------------------------------------------------
$131,926,366 $136,375,741
OPTIONS During the period ended June 30, 2006, the following option contracts
were written:
Number of
of Contracts Premium
- ----------------------------------------------------------
Balance as of
December 31, 2005 -- $ --
Written 135 5,169
Closed and Expired (100) (4,827)
- ----------------------------------------------------------
Balance as of
June 30, 2006 35 $ 342
- ----------------------------------------------------------
SECURITY LENDING At June 30, 2006, the Fund participated in securities lending:
Loaned
securities at Cash
market value collateral
- -------------------------------------------------
$23,995,919 $24,364,463
22
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.
23
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
24
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.
25
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 57
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.
26
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 45
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
27
Additional Information (unaudited)
- --------------------------------------------------------------------------------
NON-INTERESTED DIRECTORS
- --------------------------------------------------------------------------------
JOHN R. COSTANTINO
- --------------------------------------------------------------------------------
ADDRESS c/o GEAM 3001 Summer St. Stamford, CT 06905
AGE 60
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 70
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.
28
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
Ronald R. Pressman, CHIEF EXECUTIVE OFFICER (EFFECTIVE AS OF JULY 1, 2006)
John H. Myers, CHIEF EXECUTIVE OFFICER (RETIRED FROM ALL POSITIONS AS OF
JUNE 30, 2006)
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
29
[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.
[LOGO OMITTED]
GE Investments Funds, Inc.
Money Market Fund
Semi-Annual Report
JUNE 30, 2006
[GE LOGO OMITTED]
<page>
GE Investments Funds, Inc.
Money Market Fund Contents
- --------------------------------------------------------------------------------
NOTES TO PERFORMANCE ..................................................... 1
MANAGER REVIEW AND SCHEDULE OF INVESTMENTS ............................... 2
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
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.
<page>
Notes to Performance June 30, 2006 (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.
1
<page>
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 SIX-MONTH PERIOD ENDED JUNE 30, 2006?
A. For the six-month period ended June 30, 2006, the Money Market Fund returned
2.14%. The 90-day Treasury Bill, the Fund's benchmark, returned 2.28% and
the Fund's Lipper peer group of 110 Money Market funds returned an average
of 2.05% for the same period.
Q. WHAT WERE THE PRIMARY DRIVERS BEHIND THE FUND'S PERFORMANCE?
A. Portfolio positioning with respect to average maturity was a large
contributor to Fund performance in the first half of 2006. As short rates
were pushed higher by the Federal Reserve's continued policy of hiking the
Fed funds target, we kept the average maturity of the fund shorter than that
of the benchmark to take advantage of reinvesting at higher rates.
Q. DESCRIBE WHAT HAPPENED IN THE US ECONOMY DURING THE SIX-MONTH PERIOD ENDING
JUNE 30, 2006?
A. Economic growth in the U.S. slowed decidedly in the second quarter, after a
very strong 5.6% growth rate in the first quarter. With the increase in
interest rates across the yield curve, the primary focus has been the impact
on the U.S. housing market, which has fueled much of our growth in recent
years. Indeed, there is justified cause for concern about housing. Despite
an increase in new home sales, month-over-month in May, sales volume of both
new and existing homes are down from year-ago levels. Market participants
fear that a significant decline in home prices and rising energy costs will
force retrenchment by the American consumer.
Despite a slowing in economic growth, inflation pressures did not appear to
be receding. High prices at the gas pump plagued consumers. Housing costs,
which make up a large component of consumer inflation statistics through
owner equivalent rent levels, had risen. Commodity prices remained above
year-ago levels despite falling off a bit most recently. Utilization rates
were back above pre-2001 levels.
The combination of slowing growth and rising inflation had investors playing
the guessing game on future Fed moves. This game has always been a favorite
pastime of bond investors, but with a new Fed chairman in the mix, the
second quarter had been enjoyable to watch. In April, after a 25 basis point
hike in fed funds to 4.75%, FOMC comments led market thinking toward a move
in May to 5% and then pausing in June. The Fed did, in fact, raise rates
again in May to 5%, but a more hawkish tone regarding inflation in its
statement and subsequent comments by various Fed members, including the
chairman, left many investors believing the committee would continue rate
hikes in June and beyond. The committee did follow up in June with another
hike of 25 basis points to 5.25% while reiterating that future rate
decisions will be data dependant.
[Photo of Donald J. Duncan omitted]
2
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 June 30,
2006.
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 $1,000 = 8.6), then multiply the result by the number
given for your class under the heading "Expenses Paid During Period."
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The second section of the table provides information about hypothetical account
values and hypothetical expenses based on the Fund's actual expense ratio and an
assumed rate of return of 5% per year before expenses, which is not the Fund's
actual return. You may use this information to compare the ongoing costs of
investing in the Fund and other funds. To do so, compare this 5% hypothetical
example with the 5% hypothetical examples that appear in the shareholders
reports of other funds.
Please note that the expenses shown in the table do not reflect any transaction
costs, such as sales charges or redemption fees.
JANUARY 1, 2006 - JUNE 30, 2006
- ------------------------------------------------------------------------------------------------------------------------------------
ACCOUNT VALUE AT ACCOUNT VALUE EXPENSES
THE BEGINNING OF AT THE END OF PAID DURING
THE PERIOD ($) THE PERIOD ($) THE PERIOD ($)*
- ------------------------------------------------------------------------------------------------------------------------------------
Actual Fund Return** 1,000.00 1,021.42 2.49
- ------------------------------------------------------------------------------------------------------------------------------------
Hypothetical 5% Return
(2.5% for the period) 1,000.00 1,022.08 2.50
- ------------------------------------------------------------------------------------------------------------------------------------
* EXPENSES ARE EQUAL TO THE FUND'S ANNUALIZED EXPENSE RATIO OF 0.50% (FROM
PERIOD JANUARY 1, 2006 - JUNE 30, 2006), MULTIPLIED BY THE AVERAGE ACCOUNT
VALUE OVER THE PERIOD, MULTIPLIED BY 181/365 (TO REFLECT THE SIX-MONTH
PERIOD).
** ACTUAL FUND RETURN FOR THE SIX-MONTH PERIOD ENDED JUNE 30, 2006 WAS 2.14%.
3
<page>
Money Market Fund (unaudited)
- --------------------------------------------------------------------------------
CHANGE IN VALUE
OF A $10,000 INVESTMENT
- --------------------------------------------------------------------------------
[LINE CHART OMITTED PLOT POINTS FOLLOWS]
Money
Market Fund 90-Day T-Bill
06/01/96 $10,000.00 $10,000.00
12/96 10,272.81 10,257.54
12/97 10,828.41 10,790.93
12/98 11,398.00 11,319.68
12/99 11,968.18 11,860.15
12/00 12,714.50 12,572.39
12/01 13,221.32 13,007.65
12/02 13,417.63 13,219.75
12/03 13,522.39 13,355.52
12/04 13,650.22 13,542.18
12/05 14,031.60 13,977.80
6/06 14,332.10 14,297.00
Money Market Fund (ending value $14,332)
90-Day T-Bill (ending value $14,297)
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 JUNE 30, 2006
- --------------------------------------------------------------------------------
Six One Five Ten
Months Year Year Year
- --------------------------------------------------------------------------------
Money Market Fund 2.14% 3.84% 1.92% 3.66%
- --------------------------------------------------------------------------------
90 Day T-Bill 2.28% 4.16% 2.17% 3.64%
- --------------------------------------------------------------------------------
Lipper peer group average* 2.05% 3.68% 1.79% 3.51%
- --------------------------------------------------------------------------------
Inception date 7/1/85
- --------------------------------------------------------------------------------
FUND YIELD AT JUNE 30, 2006
- --------------------------------------------------------------------------------
FUND IBC'S MONEY FUND**
- --------------------------------------------------------------------------------
7-DAY CURRENT 4.71%+ 4.48%
- --------------------------------------------------------------------------------
7-DAY EFFECTIVE 4.82% 4.59%
- --------------------------------------------------------------------------------
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 JUNE 30, 2006.
** 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 SIX MONTHS, ONE YEAR, FIVE-YEAR, AND TEN-YEAR PERIODS INDICATED IN THE
MONEY MARKET FUNDS PEER GROUP CONSISTING OF 110, 110, 91 AND 69 UNDERLYING
ANNUITY FUNDS, RESPECTIVELY.
SEE NOTES TO PERFORMANCE ON PAGE 1 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
MONEY MARKET FUND
Schedule of Investments June 30, 2006 (unaudited)
- --------------------------------------------------------------------------------
MONEY MARKET FUND
Portfolio Composition based on a Market Value of $324,759
(in thousands) as of June 30, 2006
[Pie chart omitted -- plot points are as follows:]
Commercial Paper 37.3%
Repurchase Agreements 24.8%
Certificates of Deposit 17.0%
Corporate Notes 12.2%
U.S. Governments 8.6%
Time Deposit 0.1%
- --------------------------------------------------------------------------------
PRINCIPAL AMORTIZED
AMOUNT COST
- --------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS -- 100.0%+
- --------------------------------------------------------------------------------
U.S. GOVERNMENTS -- 8.6%
U.S. Agencies Federal Home
Loan Mortgage Corp.
3.80% 07/12/06 $11,380,000 $ 11,380,000
5.50% 07/03/07 6,490,000 6,490,000
Federal Home Loan Mortgage
Discount Notes
5.12% 01/18/07 10,510,000 10,220,704(a)
28,090,704
COMMERCIAL PAPER -- 37.3%
Abbey National PLC
5.04% 07/03/06 11,350,000 11,346,822
AIG Funding Inc.
5.05% 07/14/06 12,140,000 12,117,861
Bank of Nova Scotia
5.14% 07/14/06 12,380,000 12,357,021
Bank of America Corp.
5.16% 08/08/06 11,840,000 11,775,512
Barclays PLC
5.13% 08/07/06 11,000,000 10,942,059
Bear Stearns Companies
5.09% 11/07/06 7,000,000 6,872,326
5.10% 11/14/06 3,430,000 3,363,915
Citigroup Inc.
5.24% 08/14/06 12,570,000 12,489,496
Credit Suisse First Boston
5.25% 07/24/06 12,660,000 12,617,536
ING Group
5.26% 07/28/06 12,870,000 12,819,228
Merril Lynch & Co.
5.20% 07/24/06 12,640,000 12,598,007
UBS AG
5.27% 07/03/06 1,780,000 1,779,479
121,079,262
PRINCIPAL AMORTIZED
AMOUNT COST
- --------------------------------------------------------------------------------
REPURCHASE AGREEMENTS -- 24.8%
Barclays
5.15% dated 06/30/06, $16,216,957
to be received on 07/03/06,
collateralized by $16,534,884
U.S. Government Agency Bond,
Zero Coupon, maturing
04/03/07 $16,210,000 $ 16,210,000
Morgan Stanley Group, Inc.
5.15% dated 06/30/06, $48,020,600
to be received on 07/03/06,
collateralized by $49,009,967
Resolution Funding Corporation
Bonds, Zero Coupon, maturing
07/15/20 - 01/15/30 48,000,000 48,000,000
UBS
5.25% dated 06/30/06, $16,216,957
to be received on 07/03/06,
collateralized by $16,534,957
U.S. Government Agency Bond,
Zero Coupon, maturing
02/01/34 16,210,000 16,210,000
80,420,000
CORPORATE NOTES -- 12.2%
American Express Credit Corp.
5.23% 07/05/07 6,940,000 6,944,319(c)
Canadian Imperial Bank
5.28% 07/23/07 10,580,000 10,580,000(c)
Morgan Stanley Group, Inc.
5.15% 07/03/07 11,130,000 11,130,000(c)
Societe Generale
5.29% 10/31/06 11,050,000 11,049,460(c)
39,703,779
TIME DEPOSIT -- 0.1%
State Street Corp.
4.85% 07/03/06 155,397 155,397(b)
CERTIFICATES OF DEPOSIT -- 17.0%
BNP Paribas
5.11% 08/15/06 10,390,000 10,390,000
Calyon
5.34% 05/04/07 10,430,000 10,430,000
Fortis Bank
5.08% 07/05/06 11,770,000 11,770,000
Toronto-Dominion Bank
5.03% 07/17/06 10,060,000 10,060,000
Wells Fargo Bank
5.22% 07/21/06 12,660,000 12,660,000
55,310,000
TOTAL SHORT-TERM INVESTMENTS
(COST $324,759,142) 324,759,142
OTHER ASSETS AND LIABILITIES,
NET -- 0.0%* 82,601
-----------
NET ASSETS -- 100.0% 324,841,743
===========
See Notes to Schedule of Investments on page 6 and Notes to Financial
Statements.
5
Notes to Schedule of Investments June 30, 2006 (unaudited)
- --------------------------------------------------------------------------------
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
June 30, 2006.
* Less than 0.1%
+ Percentages are based on net assets as of June 30, 2006.
6
Financial Highlights
Selected data based on a share outstanding throughout the periods indicated
- --------------------------------------------------------------------------------
MONEY MARKET FUND
6/30/06+ 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 $1.00
INCOME FROM INVESTMENT OPERATIONS:
Net investment income ...................... 0.02 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 ....... 0.02 0.03 0.01 0.01 0.01 0.04
- ------------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM:
Net investment income ...................... 0.02 0.03 0.01 0.01 0.01 0.04
Return of capital .......................... -- 0.00(b) -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS ........................... 0.02 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 $1.00
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN (A) .............................. 2.14% 2.79% 0.95% 0.78% 1.48% 3.99%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in thousands) ... $324,842 $250,149 $278,703 $392,533 $685,353 $712,156
Ratios to average net assets:
Net investment income* .................. 4.25% 2.74% 0.92% 0.80% 1.46% 3.80%
Net expenses* ........................... 0.50% 0.49% 0.47% 0.43% 0.40% 0.34%
Gross expenses .......................... 0.50% 0.49% 0.47% 0.43% 0.40% 0.42%
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.
* Annualized for periods less than one year.
+ Unaudited.
See Notes to Financial Statements.
7
Statement of Assets
and Liabilities JUNE 30, 2006 (UNAUDITED)
MONEY
MARKET
FUND
- ------------------------------------------------------------------------------------------------
ASSETS
Short-term Investments (at amortized cost) ................................ $324,759,142
Income receivables ........................................................ 462,753
Receivable for fund shares sold ........................................... 105,589
- ------------------------------------------------------------------------------------------------
TOTAL ASSETS .......................................................... 325,327,484
- ------------------------------------------------------------------------------------------------
LIABILITIES
Payable for fund shares redeemed .......................................... 366,010
Payable to GEAM ........................................................... 119,604
Other liabilities ......................................................... 127
- ------------------------------------------------------------------------------------------------
TOTAL LIABILITIES ..................................................... 485,741
- ------------------------------------------------------------------------------------------------
NET ASSETS ................................................................... $324,841,743
- ------------------------------------------------------------------------------------------------
NET ASSETS CONSIST OF:
Capital paid in ........................................................... 324,938,149
Undistributed (distribution in excess of) net investment income ........... (32,537)
Accumulated net realized gain (loss) ...................................... (63,869)
- ------------------------------------------------------------------------------------------------
NET ASSETS ................................................................... $324,841,743
- ------------------------------------------------------------------------------------------------
Shares outstanding ($0.01 par value; unlimited shares authorized) ............ 324,980,151
Net asset value per share .................................................... $1.00
See Notes to Financial Statements.
8
Statement of Operations
FOR THE SIX MONTHS ENDED JUNE 30, 2006 (UNAUDITED)
MONEY
MARKET
FUND
- ------------------------------------------------------------------------------------------------
INVESTMENT INCOME
INCOME:
Interest .............................................................. $6,201,067
- ------------------------------------------------------------------------------------------------
TOTAL INCOME ............................................................ 6,201,067
- ------------------------------------------------------------------------------------------------
EXPENSES:
Advisory and administrative fees ...................................... 598,328
Professional fees ..................................................... 20,069
Custody and accounting expenses ....................................... 16,049
Trustee's fees ........................................................ 3,972
Registration expenses ................................................. 969
Transfer agent ........................................................ 109
Other expenses ........................................................ 10,935
- ------------------------------------------------------------------------------------------------
TOTAL EXPENSES .......................................................... 650,431
- ------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME (LOSS) ............................................ 5,550,636
- ------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS ......... $5,550,636
- ------------------------------------------------------------------------------------------------
See Notes to Financial Statements.
9
Statements of
Changes in Net Assets
MONEY
MARKET
FUND
- ------------------------------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 2006 DECEMBER 31,
(UNAUDITED) 2005
- ------------------------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net investments income (loss) .................................................. $ 5,550,636 $ 7,726,824
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) from operations ........................................ 5,550,636 7,726,824
- ------------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income .......................................................... (5,583,173) (7,736,548)
Net realized gains ............................................................. -- --
Return of capital .............................................................. -- (42,984)
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS .............................................................. (5,583,173) (7,779,532)
- ------------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets from operations and distributions .............. (32,537) (52,708)
- ------------------------------------------------------------------------------------------------------------------------------------
SHARE TRANSACTIONS:
Proceeds from sale of shares ................................................... 129,893,843 199,487,509
Value of distributions reinvested .............................................. 5,583,187 7,752,316
Cost of shares redeemed ........................................................ (60,751,295) (235,741,886)
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) from share transactions ............................... 74,725,735 (28,502,061)
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL INCREASE (DECREASE) IN NET ASSETS .......................................... 74,693,198 (28,554,769)
NET ASSETS
Beginning of period .............................................................. 250,148,545 278,703,314
- ------------------------------------------------------------------------------------------------------------------------------------
End of period .................................................................... $324,841,743 $250,148,545
- ------------------------------------------------------------------------------------------------------------------------------------
UNDISTRIBUTED (DISTRIBUTION IN EXCESS OF) NET INVESTMENT INCOME, END OF PERIOD ..... $ (32,537) $ --
- ------------------------------------------------------------------------------------------------------------------------------------
CHANGES IN PORTFOLIO SHARES
Shares sold .................................................................... 129,893,843 199,487,510
Issued for distributions reinvested ............................................ 5,583,187 7,752,316
Shares redeemed ................................................................ (60,751,295) (235,741,886)
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in fund shares .............................................. 74,725,735 (28,502,060)
- ------------------------------------------------------------------------------------------------------------------------------------
See Notes to Financial Statements.
10
Notes to Financial Statements June 30, 2006 (unaudited)
- --------------------------------------------------------------------------------
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,
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 June 30, 2006, GE Life and Annuity Assurance Company ("GE Life") and
General Electric Capital Assurance Company, 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 Fund:
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
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 June 30, 2006 (unaudited)
- --------------------------------------------------------------------------------
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 June 30, 2006, 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
- ---------------------------------------------------------------------------------------
$324,759,142 $ -- $ -- $ --
12
Notes to Financial Statements June 30, 2006 (unaudited)
- --------------------------------------------------------------------------------
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.
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 June 30, 2006.
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%
13
<page>
Notes to Financial Statements June 30, 2006 (unaudited)
- --------------------------------------------------------------------------------
GENPACT performs certain accounting and certain administration services not
provided by GEAM. For the period ending June 30, 2006, $1,832 was charged to the
Fund. Administrative services not performed by GEAM or GENPACT were provided by
an unaffiliated service provider.
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.)
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
<page>
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 57
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 45
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
<page>
Additional Information (unaudited)
- --------------------------------------------------------------------------------
NON-INTERESTED DIRECTORS
- --------------------------------------------------------------------------------
JOHN R. COSTANTINO
- --------------------------------------------------------------------------------
ADDRESS c/o GEAM 3001 Summer St. Stamford, CT 06905
AGE 60
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 70
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
Ronald R. Pressman, CHIEF EXECUTIVE OFFICER (EFFECTIVE AS OF JULY 1, 2006)
John H. Myers, CHIEF EXECUTIVE OFFICER (RETIRED FROM ALL
POSITIONS AS OF JUNE 30, 2006)
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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<page>
[This page intentionally left blank.]
<page>
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
Semi-Annual Report
JUNE 30, 2006
[GE LOGO OMITTED]
GE Investments Funds, Inc.
Real Estate Securities Fund Contents
- -----------------------------------------------------------------------------
NOTES TO PERFORMANCE ................................................... 1
MANAGER REVIEW AND SCHEDULE OF INVESTMENTS ............................. 2
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
ADVISORY AND ADMINISTRATIVE AGREEMENT RENEWAL .......................... 16
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.
Notes to Performance June 30, 2006 (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). NAREIT
Equity Index is an unmanaged index of all tax-qualified real estate investment
trusts (REITs) listed on the New York Stock Exchange, American Stock Exchange
and NASDAQ which have 75% or more of their gross invested book assets invested
directly or indirectly in the equity ownership of real estate. 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.
1
Real Estate Securities Fund
- --------------------------------------------------------------------------------
URDANG SECURITIES MANAGEMENT, INC. (URDANG) IS THE SUB-ADVISER FOR THE REAL
ESTATE SECURITIES FUND. URDANG IS A WHOLLY OWNED SUBSIDIARY OF URDANG CAPITAL
MANAGEMENT, INC. (URDANG CAPITAL). URDANG CAPITAL IS WHOLLY OWNED BY THE BANK OF
NEW YORK COMPANY, INC. (BANK OF NEW YORK) AND OPERATES AS PART OF BANK OF NEW
YORK'S ASSET MANAGEMENT DIVISION. AS A WHOLLY OWNED SUBSIDIARY OF URDANG
CAPITAL, URDANG IS A SECOND TIER SUBSIDIARY OF BANK OF NEW YORK. URDANG IS A
REGISTERED INVESTMENT ADVISER THAT WAS FORMED IN 1995 TO FOCUS EXCLUSIVELY ON
OPPORTUNITIES IN THE REAL ESTATE SECURITIES MARKET, INCLUDING PUBLICLY TRADED
REAL ESTATE INVESTMENT TRUSTS (REITS). AS OF DECEMBER 31, 2005, URDANG MANAGED
ACCOUNTS INVESTED IN PUBLICLY-TRADED REAL ESTATE SECURITIES WITH ASSETS IN THE
AGGREGATE TOTALING APPROXIMATELY $1.8 BILLION.
THE REAL ESTATE SECURITIES FUND IS CO-MANAGED BY TODD BRIDDELL, CFA, DEAN
FRANKEL, CFA AND PETER ZABIEREK, CFA.
TODD BRIDDELL IS A MANAGING DIRECTOR OF REAL ESTATE SECURITIES AND SERVES AS
SENIOR PORTFOLIO MANAGER TO THE FUND. HE CO-FOUNDED URDANG SECURITIES MANAGEMENT
IN 1995 AND HAS 14 YEARS OF REAL ESTATE INDUSTRY EXPERIENCE.
DEAN FRANKEL JOINED THE FIRM IN 1997 AND IS A PORTFOLIO MANAGER. HE MANAGES THE
FIRM'S PROPRIETARY RESEARCH EFFORT AND OVERSEES THE FIRM'S TRADING ACTIVITIES.
PETER ZABIEREK IS A PORTFOLIO MANAGER. PRIOR TO JOINING URDANG IN JANUARY 2003,
HE WAS EMPLOYED BY MORGAN STANLEY AS A SENIOR EQUITY RESEARCH ASSOCIATE FROM
2002. FROM 1998 THROUGH 2001, MR. ZABIEREK WAS AN ASSOCIATE FOR SALOMON SMITH
BARNEY IN ITS REAL ESTATE INVESTMENT BANKING DIVISION.
Q. HOW DID THE REAL ESTATE SECURITIES FUND PERFORM COMPARED TO ITS BENCHMARK
AND LIPPER PEER GROUP FOR THE SIX-MONTH PERIOD ENDED JUNE 30, 2006?
A. For the six-month period ended June 30,2006, the
Real Estate Securities Fund returned 11.56%. The NAREIT Equity Index, the
Fund's benchmark, returned 12.92%, and the Fund's Lipper peer group of 52
Real Estate funds returned an average of 13.19% for the same period.
Q. WHAT MARKET CONDITIONS IMPACTED FUND PERFORMANCE?
A. After a brisk start in the first quarter of 2006, U.S. REITs began to face
strong headwinds just before the start of the second quarter. Despite choppy
trading since mid-March, REITs ended the first half up 12.92% well ahead of
other equity market benchmarks. Through June 30, the Dow Jones Industrial
Average was up 5.22%, the S&P 500 was up 2.71%, and the Nasdaq Composite was
down 1.08%. Signs of a domestic slowdown became more evident in the second
quarter as recent economic indicators have been quite bearish on the whole.
Although manufacturing growth, retail sales growth, and job growth have
remained slightly positive, the Consumer Confidence Index and the Index of
Leading Economic Indicators remain markedly negative on the near-term future
of the U.S. economy. In addition, inflation and gas prices have been
increasing steadily.
Earnings reports for the first half have been strong and indicate that
earnings growth for 2006 is expected to be in the high single digits. At the
private level, asset sales continue to support REIT pricing, and
historically, real estate has proved to be an appropriate hedge during
inflationary times. At the halfway point in 2006, the REITs have
outperformed the S&P 500 by over a thousand basis points, heightening the
possibility that the REITs will beat the broader equity market for the
seventh consecutive calendar year.
Q. WHAT WERE THE PRIMARY DRIVERS OF FUND PERFORMANCE?
A. Sector performance was mixed. The best absolute performance came from hotel,
apartment, office, and diversified REITs. All of these sectors posted
positive returns. Weaker stock performance came from the retail, health
care, self-storage, industrial, and specialty sectors, all of which posted
negative returns. Relative to the index, the Fund's overweights to
apartments and hotel and underweights to health care, retail and specialty
contributed positively to performance, while stock selection in the office
REIT space was the primary drag.
2
Q&A
The top performing stocks for the quarter in the portfolio include Highland
Hospitality, Starwood Hotels and Resorts, Equity Office Properties,
Highwoods Properties, and SL Green Realty with returns that ranged from
8.48% to 12.26%. The bottom performing stocks include Equity Lifestyle,
Digital Realty Trust, Strategic Hotel Capital, Kimco Realty Corp, and
Reckson Associates with returns that ranged from -8.2 to -11.7%.
Q. WERE THERE ANY SIGNIFICANT CHANGES TO THE FUND OVER THE PERIOD?
A. In the second quarter of 2006, the portfolio management team adjusted some
property sector weightings to reflect changes in the macroeconomic
environment, valuation, and fundamental operations. We maintained our over
weight in multifamily REITs and hotels due to strong operating results and
the fact that shorter leasing terms provide inflation protection. We also
traded in some multifamily stocks that had outperformed for stocks with, in
our view, better valuations. We moved our office weight from a neutral
weight to an over weight because of growing landlord pricing power and
attractive valuations. We also made some changes to our office and
office/industrial portfolio, focusing a bit more on markets with strong
office fundamentals such as New York City's midtown and southern California.
On the other hand, we reduced our weight in industrial from overweight to
neutral because short development lag may mute potential rent increases. We
maintained our underweight in malls, shopping centers, health care and
self-storage.
3
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 June 30,
2006.
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 $1,000 = 8.6), then multiply the result by the number
given for your class under the heading "Expenses Paid During Period."
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The second section of the table provides information about hypothetical account
values and hypothetical expenses based on the Fund's actual expense ratio and an
assumed rate of return of 5% per year before expenses, which is not the Fund's
actual return. You may use this information to compare the ongoing costs of
investing in the Fund and other funds. To do so, compare this 5% hypothetical
example with the 5% hypothetical examples that appear in the shareholders
reports of other funds.
Please note that the expenses shown in the table do not reflect any transaction
costs, such as sales charges or redemption fees.
JANUARY 1, 2006 - JUNE 30, 2006
- ---------------------------------------------------------------------------------------------------------------------------
ACCOUNT VALUE AT ACCOUNT VALUE EXPENSES
THE BEGINNING OF AT THE END OF PAID DURING
THE PERIOD ($) THE PERIOD ($) THE PERIOD ($)*
- ---------------------------------------------------------------------------------------------------------------------------
Actual Fund Return** 1,000.00 1,115.63 4.71
- ---------------------------------------------------------------------------------------------------------------------------
Hypothetical 5% Return
(2.5% for the period) 1,000.00 1,020.22 4.41
- ---------------------------------------------------------------------------------------------------------------------------
*EXPENSES ARE EQUAL TO THE FUND'S ANNUALIZED EXPENSE RATIO OF 0.88% (FROM
PERIOD JANUARY 1, 2006 - JUNE 30, 2006), MULTIPLIED BY THE AVERAGE ACCOUNT
VALUE OVER THE PERIOD, MULTIPLIED BY 181/365 (TO REFLECT THE SIX-MONTH
PERIOD).
**ACTUAL FUND RETURN FOR THE SIX-MONTH PERIOD ENDED JUNE 30, 2006 WAS 11.56%.
4
Real Estate Securities Fund (unaudited)
- --------------------------------------------------------------------------------
CHANGE IN VALUE
OF A $10,000 INVESTMENT
- --------------------------------------------------------------------------------
[LINE CHART OMITTED, PLOT POINTS FOLLOWS]
REAL ESTATE WILSHIRE RES NAREIT EQUITY
SECURITIES FUND INDEX INDEX
6/96 $ 10000.00 $ 10000.00 $ 10000.00
12/96 12736.89 12537.74 12662.65
12/97 15219.82 15020.00 15228.12
12/98 12528.23 12402.68 12562.87
12/99 12500.99 12007.46 11982.47
12/00 16568.96 15671.91 15141.69
12/01 18530.30 17290.60 17251.36
12/02 18280.91 17738.11 17910.50
12/03 25128.51 24314.36 24561.34
12/04 33242.47 32795.54 32317.19
12/05 37158.84 37330.62 36247.88
06/06 41455.33 42622.21 40929.79
AVERAGE ANNUAL TOTAL RETURN
FOR THE PERIODS ENDED JUNE 30, 2006
- --------------------------------------------------------------------------------------------------
SIX ONE FIVE TEN
MONTHS YEAR YEAR YEAR
- ---------------------------------------------------------------------------------------------------
Real Estate Securities Fund 11.56% 19.04% 18.35% 15.28%
- ---------------------------------------------------------------------------------------------------
Wilshire RES Index 14.17% 21.87% 19.89% 15.60%
- ---------------------------------------------------------------------------------------------------
NAREIT Equity Index* 12.92% 19.06% 19.39% 15.13%
- ---------------------------------------------------------------------------------------------------
Lipper peer group average** 13.19% 20.92% 19.54% 15.28%
- ---------------------------------------------------------------------------------------------------
Inception date 5/1/95
- ---------------------------------------------------------------------------------------------------
Real Estate Securities Fund (ending value $41,455)
Wilshire RES Index (ending value $42,622)
NAREIT Equity Index (ending value $40,930)
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 JUNE 30, 2006
as a % of Market Value
================================================
Simon Property Group, Inc. 6.81%
- ------------------------------------------------
Prologis 5.89%
- ------------------------------------------------
AvalonBoy Communities, Inc. 5.38%
- ------------------------------------------------
Vornado Realty Trust 4.86%
- ------------------------------------------------
Boston Properties, Inc. 4.49%
- ------------------------------------------------
Essex Property Trust, Inc. 3.80%
- ------------------------------------------------
Kimco Realty Co. 3.72%
- ------------------------------------------------
Alexandria Real Estate Equities, Inc. 3.61%
- ------------------------------------------------
Archstone-Smith Trust 3.38%
- ------------------------------------------------
Equity Office Properties Trust 3.15%
================================================
PORTFOLIO COMPOSITION
AS OF JUNE 30, 2006
as a % of Market Value
- --------------------------------------------------------------------------------
Market Value of $145,787 (in thousands)
[PIE CHART OMITTED, PLOT POINTS FOLLOWS]
Office 22.5%
Multifamily 21.4%
Regional Malls 11.3%
Shopping Centers 10.1%
Hotel 9.3%
Industrial 7.4%
Diversified 6.5%
Self Storage 3.6%
Freestanding 1.8%
Office/Industrial 1.5%
Specialty 1.4%
Short-Term 1.3%
Man. Homes 1.0%
Net Leased 0.5%
Healthcare 0.4%
* EFFECTIVE APRIL 1, 2006, THE NAREIT EQUITY INDEX REPLACED THE WILSHIRE RES
INDEX AS THE BENCHMARK USED TO MEASURE THE FUND'S PERFORMANCE.
** LIPPER PERFORMANCE COMPARISONS ARE BASED ON AVERAGE ANNUAL TOTAL RETURNS
FOR THE SIX-MONTH, ONE-YEAR, FIVE-YEAR, AND TEN-YEAR PERIODS INDICATED IN
THE REAL ESTATE FUNDS PEER GROUP CONSISTING OF 52, 52, 26 AND 6 UNDERLYING
ANNUITY FUNDS, RESPECTIVELY.
SEE NOTES TO PERFORMANCE ON PAGE 1 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
REAL ESTATE SECURITIES FUND
Schedule of Investments June 30, 2006 (unaudited)
- --------------------------------------------------------------------------------
REAL ESTATE SECURITIES FUND
NUMBER
OF SHARES VALUE
COMMON STOCK (REIT) -- 95.5%+
- --------------------------------------------------------------------------------
DIVERSIFIED -- 6.5%
Cousins Properties, Inc. 79,150 $ 2,448,110
Vornado Realty Trust 72,570 7,079,203
9,527,313
FREESTANDING -- 1.9%
Realty Income Corp. 122,760 2,688,444
HEALTHCARE -- 0.4%
Windrose Medical Properties Trust 40,890 596,994
HOTEL -- 6.3%
Highland Hospitality Corp. 40,840 575,027
Host Marriott Corp. 201,408 4,404,793
Strategic Hotels & Resorts, Inc. 71,050 1,473,577
Sunstone Hotel Investors, Inc. 96,560 2,806,034
9,259,431
INDUSTRIAL -- 7.4%
AMB Property Corp. 22,000 1,112,100
First Potomac Realty Trust 37,370 1,113,252
Prologis 164,700 8,584,164
10,809,516
MAN. HOMES -- 1.0%
Equity Lifestyle Properties, Inc. 32,340 1,417,462
MULTIFAMILY -- 21.3%
American Campus
Communities, Inc. 27,870 692,570
Apartment Investment &
Management Co. (Class A) 77,950 3,386,927
Archstone-Smith Trust 96,957 4,932,203
AvalonBay Communities, Inc. 70,870 7,839,639
Camden Property Trust 41,250 3,033,937
Equity Residential 63,070 2,821,121
Essex Property Trust, Inc. 49,610 5,539,453
Post Properties, Inc. 41,380 1,876,169
United Dominion Realty Trust, Inc. 37,310 1,045,053
31,167,072
NET LEASED -- 0.5%
Spirit Finance Corp. 69,160 778,742
OFFICE -- 22.5%
Alexandria Real Estate
Equities, Inc. 59,350 5,263,158
Boston Properties, Inc. 72,450 6,549,480
Corporate Office Properties
Trust SBI MD 68,380 2,877,430
Equity Office Properties Trust 125,740 4,590,767
Highwoods Properties, Inc. 80,710 2,920,088
Kilroy Realty Corp. 40,880 2,953,580
NUMBER
OF SHARES VALUE
Reckson Associates Realty Corp. 99,280 $ 4,108,206
SL Green Realty Corp. 32,430 3,550,112
32,812,821
OFFICE/INDUSTRIAL -- 1.5%
Liberty Property Trust 50,650 2,238,730
REGIONAL MALLS -- 11.3%
General Growth Properties, Inc. 64,010 2,884,291
Simon Property Group, Inc. 119,770 9,933,724
Taubman Centers, Inc. 73,980 3,025,782
The Mills Corp. 24,070 643,873
16,487,670
SELF STORAGE -- 3.5%
Extra Space Storage, Inc. 103,770 1,685,225
Public Storage, Inc. 39,290 2,982,111
U-Store-It Trust 26,590 501,487
5,168,823
SHOPPING CENTERS -- 10.0%
Federal Realty Investment Trust 57,870 4,050,900
Kimco Realty Corp. 148,690 5,425,698
Pan Pacific Retail Properties, Inc. 35,840 2,486,221
Regency Centers Corp. 43,200 2,684,880
14,647,699
SPECIALTY -- 1.4%
Entertainment Properties Trust 17,660 760,263
Digital Realty Trust, Inc. 52,340 1,292,275
2,052,538
TOTAL COMMON STOCK (REIT)
(COST $116,755,082) 139,653,255
- --------------------------------------------------------------------------------
COMMON STOCK -- 2.9%
- --------------------------------------------------------------------------------
HOTEL -- 2.9%
Starwood Hotels & Resorts Worldwide, Inc.
(COST $3,671,284) 70,380 4,246,729
TOTAL INVESTMENTS IN SECURITIES
(COST $120,426,366) 143,899,984
- --------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS -- 1.3%
- --------------------------------------------------------------------------------
GEI Short Term Investment Fund
6.93%
(COST $1,887,345) 1,887,345 1,887,345(a,b)
TOTAL INVESTMENTS
(COST $122,313,711) 145,787,329
OTHER ASSETS AND LIABILITIES,
NET-- 0.3% 467,654
------------
NET ASSETS-- 100.0% $146,254,983
============
See Notes to Schedule of Investments on page 7 and Notes to Financial
Statements.
6
Notes to Schedule of Investments June 30, 2006 (unaudited)
- --------------------------------------------------------------------------------
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) GEAM, the investment adviser of the Fund, also serves as investment adviser
of the Trust.
+ Percentages are based on net assets as of June 30, 2006.
Abbreviations:
REIT Real Estate Investment Trust
7
Financial Highlights
Selected data based on a share outstanding throughout the periods indicated
- --------------------------------------------------------------------------------
REAL ESTATE SECURITIES FUND
6/30/06+ 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 $19.20 $19.54 $16.78 $13.14 $14.78 $13.82
INCOME/(LOSS) FROM INVESTMENT OPERATIONS:
Net investment income 0.27 0.70 0.65 0.50 0.80 0.64
Net realized and unrealized
gains/(losses) on investments 1.95 1.62 4.76 4.42 (1.01) 1.00
- --------------------------------------------------------------------------------------------------------------------------------
TOTAL INCOME/(LOSS) FROM INVESTMENT OPERATIONS 2.22 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 $21.42 $19.20 $19.54 $16.78 $13.14 $14.78
- --------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN (A) 11.56% 11.78% 32.29% 37.38% (1.35)% 11.84%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in thousands) $146,255 $143,801 $146,221 $98,294 $70,164 $87,306
Ratios to average net assets:
Net investment income* 2.49% 3.21% 4.15% 4.65% 4.81% 5.05%
Expenses* 0.88% 0.89% 0.90% 0.89% 0.89% 0.90%
Portfolio turnover rate 57% 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.
* Annualized for periods less than one year.
+ Unaudited.
See Notes to Financial Statements.
8
Statement of Assets
and Liabilities JUNE 30, 2006 (UNAUDITED)
REAL ESATE
SECURITIES
FUND
- ------------------------------------------------------------------------------------------
ASSETS
Investments in securities, at market (cost $120,426,366) ............. $143,899,984
Short-term affiliated investments (at amortized cost) ................ 1,887,345
Receivable for investments sold ...................................... 547,879
Income receivables ................................................... 569,197
- ------------------------------------------------------------------------------------------
TOTAL ASSETS ..................................................... 146,904,405
- ------------------------------------------------------------------------------------------
LIABILITIES
Payable for investments purchased .................................... 509,794
Payable for fund shares redeemed ..................................... 37,793
Payable to GEAM ...................................................... 101,835
- ------------------------------------------------------------------------------------------
TOTAL LIABILITIES ................................................ 649,422
- ------------------------------------------------------------------------------------------
NET ASSETS .............................................................. $146,254,983
- ------------------------------------------------------------------------------------------
NET ASSETS CONSIST OF:
Capital paid in ...................................................... 101,132,901
Undistributed (distribution in excess of) net investment income ...... 1,929,519
Accumulated net realized gain (loss) ................................. 19,718,945
Net unrealized appreciation/(depreciation) on:
Investments ...................................................... 23,473,618
- ------------------------------------------------------------------------------------------
NET ASSETS .............................................................. $146,254,983
- ------------------------------------------------------------------------------------------
Shares outstanding ($0.01 par value; unlimited shares authorized) ....... 6,828,011
Net asset value per share ............................................... $21.42
See Notes to Financial Statements.
9
Statement of Operations
FOR THE SIX MONTHS ENDED JUNE 30, 2006 (UNAUDITED)
REAL ESATE
SECURITIES
FUND
- -------------------------------------------------------------------------------------
INVESTMENT INCOME
INCOME:
Dividend ....................................................... $ 2,291,822
Interest ....................................................... 80,016
Interest from affliated investments ............................ 93,251
- -------------------------------------------------------------------------------------
TOTAL INCOME ..................................................... 2,465,089
- -------------------------------------------------------------------------------------
EXPENSES:
Advisory and administrative fees ............................... 612,631
Custody and accounting expenses ................................ 12,887
Professional fees .............................................. 10,467
Trustee's fees ................................................. 2,013
Registration expenses .......................................... 442
Transfer agent ................................................. 86
Other expenses ................................................. 6,307
- -------------------------------------------------------------------------------------
TOTAL EXPENSES ................................................... 644,833
- -------------------------------------------------------------------------------------
NET INVESTMENT INCOME (LOSS) ..................................... 1,820,256
- -------------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS
REALIZED GAIN (LOSS) ON:
Investments ................................................. 15,209,544
INCREASE (DECREASE) IN UNREALIZED APPRECIATION/
(DEPRECIATION) ON:
Investments ................................................. (1,067,086)
- -------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments ......... 14,142,458
- -------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS .. $15,962,714
- -------------------------------------------------------------------------------------
See Notes to Financial Statements.
10
Statements of
Changes in Net Assets
REAL ESTATE
SECURITIES
FUND
- -----------------------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 2006 DECEMBER 31,
(UNAUDITED) 2005
- -----------------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net investments income (loss) ............................................... $ 1,820,256 $ 4,570,571
Net realized gain (loss) on investments, futures, written options
and foreign currency transactions ......................................... 15,209,544 14,590,401
Net increase (decrease) in unrealized appreciation/(depreciation)
on investments, futures, written options and foreign currency translation . (1,067,086) (3,889,363)
- -----------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) from operations ..................................... 15,962,714 15,271,609
- -----------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income ....................................................... -- (4,983,011)
Net realized gains .......................................................... -- (12,622,830)
- -----------------------------------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS ........................................................... -- (17,605,841)
- -----------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets from operations and distributions ........... 15,962,714 (2,334,232)
- -----------------------------------------------------------------------------------------------------------------------------
SHARE TRANSACTIONS:
Proceeds from sale of shares ................................................ 3,647,373 13,870,109
Value of distributions reinvested ........................................... -- 17,605,807
Cost of shares redeemed ..................................................... (17,156,024) (31,561,870)
- -----------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) from share transactions ............................. (13,508,651) (85,954)
- -----------------------------------------------------------------------------------------------------------------------------
TOTAL INCREASE (DECREASE) IN NET ASSETS ....................................... 2,454,063 (2,420,186)
NET ASSETS
Beginning of period ........................................................... 143,800,920 146,221,106
- -----------------------------------------------------------------------------------------------------------------------------
End of period ................................................................. $ 146,254,983 $ 143,800,920
=============================================================================================================================
UNDISTRIBUTED (DISTRIBUTION IN EXCESS OF) NET INVESTMENT INCOME, END OF PERIOD ... $ 1,929,519 $ 109,263
- -----------------------------------------------------------------------------------------------------------------------------
CHANGES IN PORTFOLIO SHARES
Shares sold ................................................................. 173,005 692,127
Issued for distributions reinvested ......................................... -- 910,802
Shares redeemed ............................................................. (834,378) (1,596,846)
- -----------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in fund shares ........................................... (661,373) 6,083
=============================================================================================================================
See Notes to Financial Statements.
11
Notes to Financial Statements June 30, 2006 (unaudited)
- --------------------------------------------------------------------------------
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,
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 June 30, 2006, GE Life and Annuity Assurance Company ("GE Life") and
General Electric Capital Assurance Company, 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 Fund:
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.
12
Notes to Financial Statements June 30, 2006 (unaudited)
- --------------------------------------------------------------------------------
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.
13
Notes to Financial Statements June 30, 2006 (unaudited)
- --------------------------------------------------------------------------------
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 June 30, 2006, 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
- -----------------------------------------------------------------------------------------------------------------
$122,128,783 $25,340,923 $(1,868,055) $23,472,868
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
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
14
Notes to Financial Statements June 30, 2006 (unaudited)
- --------------------------------------------------------------------------------
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.
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 June 30, 2006.
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 performs certain accounting and certain administration services not
provided by GEAM. For the period ending June 30, 2006, $1,032 was charged to the
Fund. Administrative services not performed by GEAM or GENPACT were provided by
an unaffiliated service provider.
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, Urdang Securities
Management, Inc. ("Urdang") is the Sub-Adviser to the Real Estate Securities
Fund. Urdang 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 Urdang 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 June 30, 2006 were as follows:
Purchases Sales
- -----------------------------
$ 80,982,766 $ 91,421,498
15
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") and the Fund's sub-advisory
agreement with Seneca Capital Management, L.L.C. ("Seneca"), at meetings held on
December 9 and December 16, 2005. Due to changes occurring with respect to the
business leadership of Seneca, the Fund Board also reviewed at the December 16,
2005 meeting a proposal by GEAM to complete a process of identifying a suitable
replacement for Seneca as sub-adviser to the Fund. The changes necessitating
this proposal related to the announcement that Gail Seneca, Managing Partner and
Chief Investment Officer of Seneca, would be leaving her firm at the end of
2005. Because Ms. Seneca was responsible for positioning the real estate
securities 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.
Consequently, on January 26, 2006, the Board, including the independent members,
considered and unanimously approved a new sub-advisory agreement with the
replacement sub-adviser, Urdang Securities Management, Inc. ("Urdang").
In considering whether to approve the Fund's investment advisory and
sub-advisory agreements, the Board, including the independent members,
considered and discussed a substantial amount of information and analysis
prepared by GEAM and the sub-advisers at the Board's request. The Board members
also considered detailed information regarding performance and expenses of other
investment companies with similar investment objectives and sizes, including
information that 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 agreements and approvals
with management of GEAM and with experienced legal counsel who is independent of
GEAM and the Fund. The Board members also reviewed a memorandum prepared by
independent legal counsel discussing the legal standards for the consideration
of the proposed approvals. In addition, the independent Board members discussed
the proposed approvals in private sessions with their independent legal counsel
at which no representatives of GEAM or the sub-advisers were present.
In advance of the meetings, and in response to their requests, 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 meetings, the Board
members received from each 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 each
sub-adviser. During the meetings, 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. At the meeting held on December 16, 2005, the Board members discussed
in detail the process by which GEAM had selected Urdang as the proposed
replacement sub-adviser. During the meetings, the Board members also had an
opportunity to hear presentations by representatives of each 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 the agreements and approvals, 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 Seneca, and the
Board members, including the independent members, concurred that GEAM and Seneca
provide high quality advisory and administrative services to the Fund. The Board
members reviewed the anticipated services to be provided by Urdang, and
concurred that Urdang was capable of providing high quality investment
16
Advisory and Administrative Agreement Renewal (unaudited)
- --------------------------------------------------------------------------------
sub-advisory services to the Fund because of the apparent quality of its
research, analysis, investment discipline and other services, such as securities
trading.
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-advisers' 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 Seneca, the
Board members focused on Seneca'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 connection of their consideration of the anticipated services to be provided
by Urdang, the Board members specifically considered a number of Urdang's
favorable attributes, including an investment philosophy oriented toward
long-term, risk adjusted performance, the processes used for selecting
investments, selecting brokers and for compliance activities, the quality of the
investment professionals employed by Urdang and the stability of its
organization.
In light of the foregoing, the Board members, including the independent members,
concluded that the services provided by GEAM and Seneca were of a high quality
and had benefited the Fund, and that the anticipated services to be provided by
Urdang would be of high quality and would stand to benefit the Fund as well.
INVESTMENT PERFORMANCE OF THE FUND.
The Board members, including the independent 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. In connection with their consideration of Urdang's capabilities, the
Board members, including the independent members, reviewed composite performance
information presented by Urdang with respect to client accounts managed in a
style similar to which it proposed to manage the Fund. The Board members also
reviewed comparisons of Urdang's composite performance with relevant securities
indexes and other comparable peer group funds with respect to various periods.
The Board members also engaged in detailed discussions with GEAM management and
representatives of each sub-adviser about their investment processes, focusing
on the Fund's investment objective, the number and experience of portfolio
management and supporting research personnel, the investment style and approach
employed or to be employed by each sub-adviser, and the likely market cycles for
their investment styles. The Board members, including the independent members,
considered and discussed the relative underperformance of the Fund in certain
periods in light of Seneca'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.
They also concluded that Urdang's performance with respect to other client
accounts managed similarly to the Fund was positive.
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-advisers. The Board members reviewed the information they had requested from
GEAM and Seneca concerning their profitability from the fees and services they
provide to the Fund and the financial condition of GEAM and Seneca for various
past periods. The Board members considered the profit margin
17
Advisory and Administrative Agreement Renewal (unaudited)
- --------------------------------------------------------------------------------
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 Seneca 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 Seneca 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 Seneca from their
relationship with the Fund was not unreasonable or excessive.
At the request of the Board members, Urdang provided information concerning the
anticipated range of profitability for the services to be provided to the Fund
by Urdang under its proposed sub-advisory agreement. The Board members reviewed
Urdang's assumptions used in preparing this data. Urdang stated its belief that
its employee compensation levels and anticipated profit margins are consistent
with other investment managers and are reasonable and sufficiently high to
ensure the long-term financial stability of Urdang. The Board members, including
the independent members, determined that Urdang should be entitled to earn a
reasonable level of profits for the services to be provided under the proposed
sub-advisory agreement and, based on their review, concluded that the proposed
sub-advisory fee and anticipated level of profitability to Urdang were not
unreasonable or excessive on the basis of the information presented. The Board,
including the independent members, also noted that retaining Urdang would not
result in an increase in cost to the shareholders of the Fund since Urdang is
paid by GEAM and not by the Fund directly.
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 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.
In connection with their consideration of the proposed sub-advisory fee to be
paid to Urdang, the Board members, including the independent members, determined
that economies of scale should not factor heavily into their decision as to
whether to retain Urdang as the Fund's sub-adviser, because of the relatively
small size of the Fund. Additionally, the Board considered the fact that, since
Urdang's fee is paid by GEAM out of its own resources and not from the assets of
the Fund, economies of scale would be generally less important for approval of a
sub-advisory agreement than it would for approval of the investment advisory
agreement with GEAM. The Board members, including the independent members, did
recognize, however, that above the $100 million asset level, Urdang's fee
incorporates a breakpoint scale reduction as assets increase. In light of this
and in conjunction with a similar breakpoint scale reduction that occurs with
respect to the fee charged by GEAM to the Fund, the Board and the independent
members concluded that Urdang's fee would reflect the effect of economies of
scale for the benefit of Fund investors.
18
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
comparable mutual fund client accounts managed by Seneca and Urdang and with
respect to other client accounts managed by Urdang in a similar style to that of
the Fund. Urdang also provided comparative fee information with respect to the
fees charged by other managers to funds with investment objectives similar to
that of the Fund, including one comparison that involved an investment
sub-advisory fee arrangement. In addition, the Board members, including the
independent members, considered the fact that to the extent the average daily
net assets of the Fund exceed $100 million in any month, GEAM would pay less to
Urdang (and therefore retain more of its management fee) under the proposed
sub-advisory agreement with Urdang than it is required to pay under the
sub-advisory agreement with Seneca. 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 or to be provided to the Fund.
FALL-OUT BENEFITS.
The Board members considered other actual and potential financial benefits to
GEAM and the sub-advisers, 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 the sub-advisers, and that the Fund represents only a
small portion of the assets managed by each.
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 with
GEAM was in the best interests of the Fund and its shareholders, that renewal of
the sub-advisory agreement with Seneca, until such time as a suitable
replacement sub-adviser is identified and approved, was in the best interest of
the shareholders of the Fund, and that the approval of the proposed sub-advisory
agreement with Urdang 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 57
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 45
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 60
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 70
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
Ronald R. Pressman, CHIEF EXECUTIVE OFFICER (EFFECTIVE AS OF JULY 1, 2006)
John H. Myers, CHIEF EXECUTIVE OFFICER (RETIRED FROM ALL POSITIONS AS OF JUNE
30, 2006)
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
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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]
ITEM 2. CODE OF ETHICS.
Applicable only to an annual filing.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
Applicable only to an annual filing.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
Applicable only to an annual filing.
ITEM 5. Audit Committee of Listed Registrants
Applicable only to Closed-End Management Investment Companies.
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: September 05, 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: September 05, 2006
By: /S/SCOTT RHODES
Scott Rhodes
TREASURER, GE INVESTMENTS FUNDS, INC.
Date: September 05, 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.