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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT
INVESTMENT COMPANIES
Investment Company Act file
number 811-04041
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GE INVESTMENTS FUNDS, INC.
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(Exact name of registrant as specified in charter)
3001, SUMMER STREET,STAMFORD, CONNECTICUT, 06905
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(Address of principal executive offices) (Zip code)
GE ASSET MANAGEMENT INC,3001, SUMMER STREET,STAMFORD,CONNECTICUT, 06905
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(Name and address of agent for service)
Registrant"s telephone number, including area code: 800-242-0134
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Date of fiscal year end: 12/31
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Date of reporting period: : 12/31/06
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<page>
ITEM 1. REPORTS TO STOCKHOLDERS.
GE Investments Funds, Inc.
U.S. Equity Fund
Annual Report
DECEMBER 31, 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 10
FINANCIAL STATEMENTS
Financial Highlights 11
Statement of Assets and Liabilities 12
Statement of Operations 13
Statements of Changes in Net Assets 14
Notes to Financial Statements 15
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM 20
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 December 31, 2006
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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
CHRISTOPHER D. BROWN, GEORGE A. BICHER, PAUL C. REINHARDT AND STEPHEN V. GELHAUS
(PICTURED BELOW LEFT TO RIGHT). EACH OF THE FOREGOING PORTFOLIO MANAGERS
CO-MANAGES ONE OF THREE SUB-PORTFOLIOS, WHICH COMPRISE THE FUND.
GEORGE A. BICHER IS A SENIOR VICE PRESIDENT OF GE ASSET MANAGEMENT. MR. BICHER
IS DIRECTOR OF THE U.S. EQUITY RESEARCH TEAM AND A PORTFOLIO MANAGER FOR THE
U.S. EQUITY FUND. MR. BICHER HAS HELD THE POSITION OF EQUITY RESEARCH ANALYST
SINCE JOINING GE ASSET MANAGEMENT IN JUNE 2002. PRIOR TO JOINING GE ASSET
MANAGEMENT, HE SERVED IN A NUMBER OF POSITIONS AT DEUTSCHE BANC ALEX BROWN SINCE
1994.
PAUL C. REINHARDT IS A SENIOR VICE PRESIDENT OF GE ASSET MANAGEMENT. HE HAS BEEN
A PORTFOLIO MANAGER FOR THE U.S. EQUITY FUND SINCE JANUARY 2001. MR. REINHARDT
JOINED GE ASSET MANAGEMENT IN 1982 AS AN EQUITY ANALYST AND HAS BEEN A PORTFOLIO
MANAGER SINCE 1987.
STEPHEN V. GELHAUS IS A VICE PRESIDENT OF GE ASSET MANAGEMENT. HE HAS BEEN A
MEMBER OF THE PORTFOLIO MANAGEMENT TEAM FOR THE U.S. EQUITY FUND SINCE JANUARY
2002. MR. GELHAUS JOINED GE ASSET MANAGEMENT IN JUNE 1991 AND WAS A RESEARCH
ANALYST IN THE U.S. EQUITY DEPARTMENT FROM 1995 THROUGH 2001.
CHRISTOPHER D. BROWN IS A SENIOR VICE PRESIDENT OF GE ASSET MANAGEMENT. HE HAS
SERVED ON THE PORTFOLIO MANAGEMENT TEAM FOR THE U.S. EQUITY FUND SINCE DECEMBER
1998. MR. BROWN JOINED GE ASSET MANAGEMENT IN 1985 AS A MANAGER OF FUNDS
ACCOUNTING. HE BECAME A U.S. EQUITY ANALYST IN 1989, A VICE PRESIDENT AND
PORTFOLIO MANAGER IN 1992, AND A SENIOR VICE PRESIDENT IN 1996.
Q. HOW DID THE U.S. EQUITY FUND PERFORM COMPARED TO ITS BENCHMARK AND LIPPER
PEER GROUP FOR THE TWELVE-MONTH PERIOD ENDED DECEMBER 31, 2006?
A. For the twelve-month period ended December 31, 2006, the U.S. Equity Fund
returned 16.12%. The S&P 500 Index, the Fund's benchmark, returned 15.79%
and the Fund's Lipper peer group of 224 Large-Cap Core funds returned an
average of 13.31% for the same period.
Q. WHAT MARKET CONDITIONS IMPACTED FUND PERFORMANCE?
A. The U.S. equity markets had a strong year, with upbeat returns across all
market sectors. 2006 marked the fourth consecutive year of positive equity
returns, establishing the second-longest running bull market since 1928.
However, we characterized this bull market
[PHOTOS OMITTED]
PICTURED FROM BOTTOM LEFT TO BOTTOM RIGHT:
GEORGE A. BICHER, PAUL C. REINHARDT,
STEPHEN V. GELHAUS, CHRISTOPHER D. BROWN
2
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Q&A
as muted -- its average annual return of +17% versus an average of +38%
for the past 20 bull markets ranked it dead last in terms of magnitude.
After an uneventful first half of 2006, most of this year's gains occurred
in the second half with strong advances in each of the broad market
indices. It seems Santa took advantage of declining oil prices to power up
his sleigh early, and investors enjoyed a remarkable second-half rally
bolstered by continued profit growth, an abundance of deal-making, cooling
inflation worries and a pause in Fed tightening. For the year, the Dow
Jones Industrial Average posted a +19.1% total return -- its best annual
gain since 2003 (and at 12,463, near an all-time high). The S&P 500 ended
the year +15.8%, at a level unseen for the past six years, and the Russell
1000 gained +15.5%. The Russell 2000 (+18.4%) outpaced the larger cap
indices, and the tech-heavy NASDAQ (+9.5%) lagged, while still turning in
a respectable absolute return.
During the year, telecommunications services (+36.8%), energy (+24.2%) and
utilities (+21.0%) led broad market returns, while technology (+8.3%) and
health care (+7.5%) trailed the S&P 500 by the widest margins. While
telecom services was one of the worst performing sectors in 2005,
investors applauded M&A activity in the space in 2006, especially AT&T's
announced acquisition of BellSouth (up +53% and +80%, respectively). Given
the sector leadership, it was not surprising that value once again
outperformed growth. For the eighth consecutive year, small caps
outperformed large caps, but this year it was by a narrower margin. While
lagging significantly in 2005, the returns of the 100 largest stocks
(+15.7%) were approximately in-line with the S&P 500 benchmark (+15.8%) in
2006.
Q. WHAT WERE THE PRIMARY DRIVERS OF FUND PERFORMANCE?
A. A slightly more defensive positioning and strong stock selection across
most all sectors benefited the Fund in 2006. Our technology, energy,
industrials, and consumer holdings contributed most to our winning
performance during the year. Within technology, many of the high-quality
names that lagged in 2005 rebounded in 2006, and a well-diversified group
of tech names bolstered the Fund. For example, Cisco (+59.6%) enjoyed
accelerating demand for its data networking products (due to increased
video content on the Internet), and Oracle (+40.4%) continued to beat
earnings expectations and gain share of the enterprise software market. We
also achieved strong stock selection in energy, with particular strength
in energy services companies, including Schlumberger (+31.1%). The Fund's
industrials holdings bolstered returns as unprecedented levels of global
infrastructure investment spending continued to benefit companies like
electrical equipment manufacturer, ABB (+86.0%). In the consumer space,
avoiding stocks that might lag in a mid-cycle slowdown helped, for
example, underweighting Wal-Mart (-3.5%). We felt household products
companies like Colgate-Palmolive (+21.5%) were a safer place to focus,
given the non-discretionary nature of their products. Additionally, a
turnaround in media companies added to returns. Comcast (+63.0%) and
Cablevision (+84.6%) put up terrific results throughout the year, quelling
fears over significant subscriber losses to telephone companies' bundled
services (cable, telephone and broadband).
Slightly offsetting these positives were underweights in the
telecommunications and financials sectors. Underweighting diversified
telecom services companies was the single greatest drag on performance, as
the group soared over +50% amid restructuring initiatives and heightened
M&A activity. While BellSouth rose +79.9% on their announced combination
with AT&T (+53.2%), we had been underweight with respect to both names in
the Fund. However, the value portion of the Fund did initiate a position
in AT&T during the third quarter, due to better fundamentals and synergies
expected from the merger. During the year we owned fewer financial stocks
than the S&P 500 due to concerns about the aging credit cycle and higher
interest rates. Despite positive contributions from several financials,
including Mellon (+26.0%), State Street (+23.2%) and Fannie Mae (+24.3%),
the Fund's underweight in this outperforming sector dragged on returns.
3
U.S. Equity Fund
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Q&A
Q. WERE THERE ANY SIGNIFICANT CHANGES TO THE FUND OVER THE PERIOD?
A. We have remained resolutely committed to investing in high quality
large-cap stocks with predictable and steady earnings growth, and that
discipline served us well in 2006. We continue to be relatively
defensively positioned, although at year-end our largest overweight was in
technology, an area that we believe could benefit from increased capital
expenditures in the year ahead. We also expected our portfolio of
diversified, high quality tech names to perform well in a slowing growth
environment. We increased our overweight in health care -- a traditionally
defensive area -- valuing its relatively steady growth and attractive
dividend yields. Accordingly, we decreased our weighting in consumer
discretionary names, and initiated an overweight in consumer staples
sector. We moved away from cyclicals, increasing our underweight in energy
and going underweight in materials as commodity prices moderated. We
believed many commodity-based stocks were over-owned, making them
vulnerable to short-term pullbacks. Our largest underweight remained in
financials, reflecting headwinds from a higher interest rate environment
and concerns about the credit cycle.
We remain focused on a long-term investment horizon and continue to
utilize a bottom-up, research-driven, fundamental approach to stock
selection. Over the long-term, our stock selection has added value to
performance and we believe the high quality companies we own should
provide above-average returns going forward.
4
U.S. Equity Fund
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Understanding Your Fund's Expenses
As a shareholder of the Fund you incur transaction and ongoing expenses.
Transaction expenses including sales charges on purchase payments, reinvested
dividends (or other distributions), and redemption fees directly reduce the
investment return of the Fund. Ongoing costs include portfolio management fees,
distribution and service fees, professional fees, administrative fees and other
Fund expenses. The following example is intended to help you understand your
ongoing costs (in dollars) of investing in the Fund and to compare these costs
with the ongoing costs of investing in other mutual funds.
To illustrate these ongoing costs, we have provided an example and calculated
the expenses paid by investors during the period. The information in the
following table is based on an investment of $1,000, which is invested at the
beginning of the period and held for the entire six-month period ended December
31, 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 $1,000 = 8.6), then multiply the result by the number
given for your class under the heading "Expenses Paid During Period."
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The second section of the table provides information about hypothetical account
values and hypothetical expenses based on the Fund's actual expense ratio and an
assumed rate of return of 5% per year before expenses, which is not the Fund's
actual return. You may use this information to compare the ongoing costs of
investing in the Fund and other funds. To do so, compare this 5% hypothetical
example with the 5% hypothetical examples that appear in the shareholders
reports of other funds.
Please note that the expenses shown in the table do not reflect any transaction
costs, such as sales charges or redemption fees.
JULY 1, 2006 - DECEMBER 31, 2006
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ACCOUNT VALUE AT ACCOUNT VALUE EXPENSES
THE BEGINNING OF AT THE END OF PAID DURING
THE PERIOD ($) THE PERIOD ($) THE PERIOD ($)*
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Actual Fund Return** 1,000.00 1,123.61 3.42
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Hypothetical 5% Return
(2.5% for the period) 1,000.00 1,021.75 3.26
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* EXPENSES ARE EQUAL TO THE FUND'S ANNUALIZED EXPENSE RATIO OF 0.64% (FROM
PERIOD JULY 1, 2006 - DECEMBER 31, 2006), MULTIPLIED BY THE AVERAGE
ACCOUNT VALUE OVER THE PERIOD, MULTIPLIED BY 184/365 (TO REFLECT THE SIX
MONTH PERIOD).
** ACTUAL FUND RETURN FOR SIX-MONTH PERIOD ENDED DECEMBER 31, 2006 WAS:
12.36%.
5
U.S. Equity Fund
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CHANGE IN VALUE
OF A $10,000 INVESTMENT
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[LINE GRAPH OMITTED, PLOT POINTS ARE AS FOLLOWS:]
U.S. Equity Fund S&P 500 Index
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12/96 10,000 10,000
12/97 13,213 13,329
12/98 16,307 17,154
12/99 19,504 20,768
12/00 19,389 18,861
12/01 17,746 16,614
12/02 14,328 12,942
12/03 17,663 16,660
12/04 19,105 18,473
12/05 19,584 19,382
12/06 22,742 22,442
AVERAGE ANNUAL TOTAL RETURN
FOR THE PERIODS ENDED DECEMBER 31, 2006
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ONE FIVE TEN
YEAR YEAR YEAR
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U.S. Equity Fund 16.12% 5.09% 8.56%
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S&P 500 Index 15.79% 6.20% 8.42%
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Lipper peer group average* 13.31% 5.22% 6.71%
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Inception date 1/3/95
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U.S. Equity Fund (ending value $22,742)
S&P 500 Index (ending value $22,442)
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 circumstances.
TOP TEN EQUITY HOLDINGS
AS OF DECEMBER 31, 2006
as a % of Market Value
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Exxon Mobil Corp. 4.53%
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Microsoft Corp. 3.26%
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American International Group, Inc. 2.72%
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PepsiCo, Inc. 2.64%
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Bank of America Corp. 2.60%
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Pfizer Inc. 2.30%
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Wyeth 2.28%
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Industrial Select Sector SPDR Fund 2.27%
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Amgen, Inc. 2.00%
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Oracle Corp. 1.75%
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PORTFOLIO COMPOSITION
AS OF DECEMBER 31, 2006
as a % of Market Value
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Market Value of $106,619 (in thousands)
[PIE CHART OMITTED, PLOT POINTS ARE AS FOLLOWS:]
Financials 17.6%
Information Technology 17.6%
Healthcare 13.4%
Consumer Discretionary 9.9%
Industrials 9.6%
Consumer Staples 9.6%
Energy 8.1%
Short-Term 7.1%
Utilities 2.9%
Materials 2.4%
Telecommunication Services 1.8%
* LIPPER PERFORMANCE COMPARISONS ARE BASED ON AVERAGE ANNUAL TOTAL RETURNS
FOR THE ONE YEAR, FIVE-YEAR AND TEN-YEAR PERIODS INDICATED IN THE
LARGE-CAP CORE FUNDS PEER GROUP CONSISTING OF 224, 165 AND 64 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.
6
U.S. EQUITY FUND
Schedule of Investments December 31, 2006
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U.S. EQUITY FUND
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NUMBER
OF SHARES VALUE
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COMMON STOCK -- 94.2%
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CONSUMER DISCRETIONARY -- 10.3%
Autozone, Inc. 1,361 $ 157,277 (a)
Bed Bath & Beyond, Inc. 25,798 982,904 (a)
Cablevision Systems Corp. 7,416 211,208
Carnival Corp. 13,762 675,026
Comcast Corp. (Class A) 39,341 1,647,601 (a,d,e)
Home Depot, Inc. 18,961 761,474
Koninklijke Philips
Electronics N.V. ADR 10,726 403,083
Liberty Global, Inc. (Series C) 16,211 453,908 (a)
Liberty Media Holding Corp -
Capital (Series A) 5,132 502,833 (a)
Liberty Media Holding Corp -
Interactive (Series A) 25,659 553,465 (a)
News Corp. (Class A) 14,144 303,813
Omnicom Group, Inc. 14,108 1,474,850
Staples, Inc. 20,543 548,498
Starwood Hotels & Resorts
Worldwide, Inc. 2,905 181,562
Target Corp. 14,558 830,534
Time Warner, Inc. 29,817 649,414
Viacom Inc. (Class B) 4,970 203,919 (a)
10,541,369
CONSUMER STAPLES -- 10.0%
Alberto-Culver Co. 9,251 198,434
Clorox Co. 16,408 1,052,573
Colgate-Palmolive Co. 19,370 1,263,699
Diageo PLC ADR 2,446 193,992
General Mills, Inc. 10,850 624,960
Kellogg Co. 15,568 779,334
Kimberly-Clark Corp. 12,222 830,485
PepsiCo, Inc. 45,026 2,816,376 (d)
Procter & Gamble Co. 10,016 643,728
Sally Beauty Holdings, Inc. 9,156 71,417 (a)
Sara Lee Corp. 4,194 71,424
The Coca-Cola Co. 34,435 1,661,489
10,207,911
ENERGY -- 8.4%
EOG Resources, Inc. 6,896 430,655
Exxon Mobil Corp. 63,088 4,834,433 (d)
Halliburton Co. 11,009 341,829
Hess Corp. 11,352 562,719
Occidental Petroleum Corp. 11,737 573,118
Schlumberger Ltd. 20,874 1,318,402
Transocean Inc. 6,522 527,565 (a)
8,588,721
NUMBER
OF SHARES VALUE
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FINANCIALS -- 17.9%
ACE Ltd. 11,796 $ 714,484
AFLAC Incorporated 8,104 372,784
Allstate Corp. 9,327 607,281
American International
Group, Inc. 40,526 2,904,093
AON Corp. 3,032 107,151
Bank of America Corp. 51,981 2,775,266
Berkshire Hathaway, Inc.
(Class B) 22 80,652 (a)
BlackRock Inc. (Class A) 1,223 185,774 (e)
CB Richard Ellis Group, Inc.
(Class A) 623 20,684 (a)
Chubb Corp. 8,104 428,783
Citigroup, Inc. 22,172 1,234,980
Everest Re Group, Ltd. 3,287 322,488
Federal Home Loan
Mortgage Corp. 12,386 841,009
Federal National
Mortgage Assoc. 15,826 939,906
HCC Insurance Holdings, Inc. 5,840 187,406
Mellon Financial Corp. 22,478 947,448
Merrill Lynch & Company, Inc. 8,664 806,618
Metlife, Inc. 21,866 1,290,313 (e)
Morgan Stanley 3,364 273,931
Prudential Financial, Inc. 3,570 306,520
State Street Corp. 16,308 1,099,812 (c)
SunTrust Banks, Inc. 14,610 1,233,814
The Bank of New York
Company, Inc. 3,058 120,393
US Bancorp 11,190 404,966
18,206,556
HEALTHCARE -- 14.1%
Abbott Laboratories 20,337 990,615 (d)
Advanced Medical Optics, Inc. 1,564 55,053 (a)
Aetna, Inc. 27,653 1,194,057
Amgen, Inc. 31,144 2,127,447 (a)
Baxter International, Inc. 20,548 953,222
Boston Scientific Corp. 13,901 238,819 (a)
Bristol-Myers Squibb Co. 2,434 64,063
DaVita, Inc. 2,676 152,211 (a)
Eli Lilly & Co. 3,593 187,195
Gilead Sciences, Inc. 3,914 254,136 (a)
GlaxoSmithKline PLC ADR 6,725 354,811
Johnson & Johnson 5,275 348,255
Lincare Holdings Inc. 12,462 496,486 (a)
Medco Health Solutions, Inc. 7,645 408,549 (a)
Medtronic Inc. 11,311 605,252
Novartis AG ADR 5,581 320,573
Pfizer Inc. 94,646 2,451,331 (d)
Quest Diagnostics Inc. 1,988 105,364
Thermo Electron Corp. 4,587 207,745 (a)
UnitedHealth Group, Inc. 7,350 394,915
Wyeth 47,709 2,429,342
14,339,441
See Notes to Schedule of Investments on page 10 and Notes to Financial
Statements.
7
U.S. EQUITY FUND
Schedule of Investments December 31, 2006
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NUMBER
OF SHARES VALUE
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INDUSTRIALS -- 7.7%
ABB Ltd. ADR 20,643 $ 371,161
Burlington Northern
Santa Fe Corp. 2,141 158,027
Cooper Industries Ltd. 2,676 241,991
Corinthian Colleges, Inc. 7,003 95,451 (a)
CSX Corp. 6,728 231,645
Deere & Co. 5,275 501,494
Dover Corp. 26,545 1,301,236 (d)
Eaton Corp. 7,034 528,535
Emerson Electric Co. 7,432 327,677
General Dynamics Corp. 3,670 272,864
ITT Corp. 2,217 125,970
Northrop Grumman Corp. 7,645 517,567
Rockwell Collins, Inc. 1,682 106,454 (e)
Southwest Airlines Co. 30,047 460,320
Textron Inc. 4,733 443,813
3M Co. 4,281 333,618
Tyco International Ltd. 23,828 724,371
United Technologies Corp. 15,023 939,238
Waste Management, Inc. 1,135 41,734
WESCO International, Inc. 1,453 85,451 (a,e)
7,808,617
INFORMATION TECHNOLOGY -- 18.4%
Activision, Inc. 9,175 158,177 (a,e)
Analog Devices, Inc. 20,413 670,975 (e)
Automatic Data Processing, Inc. 12,080 594,940
Checkfree Corp. 2,294 92,127 (a)
Cisco Systems, Inc. 68,045 1,859,670 (a)
Dell, Inc. 6,116 153,450 (a)
eBay, Inc. 8,639 259,775 (a)
EMC Corp. 23,326 307,903 (a)
Fidelity National Information
Services, Inc. 8,947 358,685
First Data Corp. 27,525 702,438 (d)
Hewlett-Packard Co. 8,639 355,840
Intel Corp. 32,111 650,248
International Business
Machines Corp. 9,297 903,204
Intuit Inc. 14,984 457,162 (a)
Lam Research Corp. 459 23,235 (a)
Linear Technology Corp. 6,560 198,899
Maxim Integrated Products, Inc. 19,540 598,315
Microchip Technology Inc. 12,080 395,016
Microsoft Corp. 116,448 3,477,137 (d)
Molex, Inc. (Class A) 24,619 681,946
National Semiconductor Corp. 12,768 289,834
Oracle Corp. 108,566 1,860,821 (a)
Paychex, Inc. 14,654 579,419
Sun Microsystems, Inc. 17,585 95,311 (a)
Texas Instruments Incorporated 26,606 766,253
Western Union Co. 59,590 1,336,008
Xerox Corp. 1,497 25,374 (a)
Yahoo! Inc. 35,806 914,485 (a)
18,766,647
NUMBER
OF SHARES VALUE
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MATERIALS -- 2.6%
Air Products & Chemicals, Inc. 2,294 $ 161,222
Barrick Gold Corp. 24,060 738,642
Freeport-McMoRan Copper &
Gold Inc. (Class B) 5,339 297,542
Monsanto Co. 19,063 1,001,379
PAN American Silver Corp. 978 24,616 (a,e)
Praxair, Inc. 5,464 324,179
Vulcan Materials Co. 526 47,272 (e)
2,594,852
TELECOMMUNICATION SERVICES -- 1.8%
Alltel Corp. 10,531 636,915
AT&T, Inc. 1,892 67,639
Sprint Nextel Corp. (Series 1) 16,630 314,141
Verizon Communications Inc. 16,820 626,377 (d)
Vodafone Group, PLC ADR 8,257 229,379
1,874,451
UTILITIES -- 3.0%
American Electric Power
Company, Inc. 1,912 81,413
Constellation Energy Group, Inc. 8,334 573,963
Dominion Resources, Inc. 7,645 640,957 (e)
Duke Energy Corp. 17,946 595,987
Edison International 8,178 371,935
Entergy Corp. 1,721 158,883
FirstEnergy Corp. 3,563 214,849
FPL Group, Inc. 4,358 237,162
PG&E Corp. 4,238 200,585 (e)
3,075,734
TOTAL COMMON STOCK
(COST $82,988,208) 96,004,299
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EXCHANGE TRADED FUNDS -- 2.9%
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Financial Select Sector SPDR Fund 15,603 573,254 (g)
Industrial Select Sector SPDR Fund 68,983 2,415,095 (g)
TOTAL EXCHANGE TRADED FUNDS
(COST $2,335,645) 2,988,349
TOTAL INVESTMENTS IN SECURITIES
(COST $85,323,853) 98,992,648
- --------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS -- 7.5%
- --------------------------------------------------------------------------------
AFFILIATED SHORT-TERM INVESTMENTS -- 3.1%
GEI Short Term Investment Fund
5.56% 3,200,658 3,200,658 (b,f)
See Notes to Schedule of Investments on page 10 and Notes to Financial
Statements.
8
U.S. EQUITY FUND
Schedule of Investments December 31, 2006
- --------------------------------------------------------------------------------
NUMBER
OF SHARES VALUE
- --------------------------------------------------------------------------------
SHORT-TERM SECURITIES PURCHASED WITH
COLLATERAL FROM SECURITIES ON LOAN -- 4.4%
State Street Navigator Securities
Lending Prime Portfolio
5.33% 4,425,725 $ 4,425,725 (b,c)
TOTAL SHORT-TERM INVESTMENTS
(COST $7,626,383) 7,626,383
TOTAL INVESTMENTS
(COST $92,950,236) 106,619,031
LIABILITIES IN EXCESS OF OTHER ASSETS,
NET -- (4.6)% (4,734,527)
-------------
NET ASSETS -- 100.0% $ 101,884,504
=============
- --------------------------------------------------------------------------------
OTHER INFORMATION
- --------------------------------------------------------------------------------
The GEI U.S. Equity Fund had the following long futures contracts open at
December 31, 2006:
NUMBER CURRENT
EXPIRATION OF NOTIONAL UNREALIZED
DESCRIPTION DATE CONTRACTS VALUE APPRECIATION
- --------------------------------------------------------------------------------
S&P 500 Index
Futures March 2007 2 $714,200 $1,470
See Notes to Schedule of Investments on page 10 and Notes to Financial
Statements.
9
Notes to Schedule of Investments December 31, 2006
- --------------------------------------------------------------------------------
The views expressed in this document reflect our judgment as of the publication
date and are subject to change at any time without notice. The securities cited
may not represent current or future holdings and should not be considered as a
recommendation to purchase or sell a particular security. See the prospectus for
complete descriptions of investment objectives, policies, risks and permissible
investments.
(a) Non-income producing security.
(b) Coupon amount represents effective yield.
(c) State Street Corp. is the parent company of State Street Bank & Trust Co.,
the Fund's custodian and accounting agent.
(d) At December 31, 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) GE Asset Management Incorporated, the investment adviser of the Fund, also
serves as investment adviser of the GEI Short Term Investment Fund.
(g) Sponsored by SSgA Funds Management, Inc., an affiliate of State Street
Bank & Trust Co., the Fund's custodian and accounting agent.
+ Percentages are based on net assets as of December 31, 2006.
Abbreviations:
ADR American Depository Receipt
SPDR Standard & Poors Depository Receipts
TBA To Be Announced
10
Financial Highlights
Selected data based on a share outstanding throughout the periods indicated
- --------------------------------------------------------------------------------
U.S. EQUITY FUND
12/31/06 12/31/05 12/31/04 12/31/03 12/31/02
- ----------------------------------------------------------------------------------------------------------------------------------
INCEPTION DATE -- -- -- -- 1/3/95
Net asset value, beginning of period $ 34.06 $ 33.61 $ 31.48 $ 25.75 $ 32.21
INCOME/(LOSS) FROM INVESTMENT OPERATIONS:
Net investment income 0.53 0.39 0.44 0.26 0.24
Net realized and unrealized gains/(losses) on investments 4.96 0.46 2.13 5.73 (6.45)
- ----------------------------------------------------------------------------------------------------------------------------------
TOTAL INCOME/(LOSS) FROM INVESTMENT OPERATIONS 5.49 0.85 2.57 5.99 (6.21)
- ----------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM:
Net investment income 0.53 0.40 0.44 0.26 0.25
Net realized gains -- -- -- -- --
- ----------------------------------------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS 0.53 0.40 0.44 0.26 0.25
- ----------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 39.02 $ 34.06 $ 33.61 $ 31.48 $ 25.75
==================================================================================================================================
TOTAL RETURN (a) 16.12% 2.51% 8.17% 23.28% (19.26)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in thousands) $101,885 $ 98,883 $112,545 $114,123 $102,112
Ratios to average net assets:
Net investment income 1.43% 1.06% 1.30% 0.95% 0.87%
Expenses 0.63% 0.63% 0.63% 0.61% 0.58%
Portfolio turnover rate 45% 40% 30% 39% 37%
NOTES TO FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(a) Total returns are historical and assume changes in share price and
reinvestment of dividends and capital gains and do not include the effect
of insurance contract charges.
See Notes to Financial Statements.
11
U.S
Statement of Assets EQUITY
and Liabilities DECEMBER 31, 2006 FUND
- -------------------------------------------------------------------------------------------
ASSETS
Investments in securities, at market* (cost $85,323,853) $ 98,992,648
Short-term Investments (at amortized cost) 4,425,725
Short-term affiliated investments (at amortized cost) 3,200,658
Receivable for investments sold 84,135
Income receivables 106,440
- -------------------------------------------------------------------------------------------
TOTAL ASSETS 106,809,606
- -------------------------------------------------------------------------------------------
LIABILITIES
Payable upon return of securities loaned 4,425,725
Payable for investments purchased 380,315
Payable for fund shares redeemed 58,830
Payable to GEAM 57,532
Variation margin payable 2,700
- -------------------------------------------------------------------------------------------
TOTAL LIABILITIES 4,925,102
- -------------------------------------------------------------------------------------------
NET ASSETS $ 101,884,504
===========================================================================================
NET ASSETS CONSIST OF:
Capital paid in 90,889,219
Undistributed (distribution in excess of) net investment income 2,817
Accumulated net realized gain (loss) (2,677,797)
Net unrealized appreciation/(depreciation) on:
Investments 13,668,795
Futures 1,470
- -------------------------------------------------------------------------------------------
NET ASSETS $ 101,884,504
===========================================================================================
Shares outstanding ($0.01 par value; unlimited shares authorized) 2,610,992
Net asset value per share $ 39.02
* Includes $4,306,004 of securities on loan.
See Notes to Financial Statements.
12
U.S.
Statement of Operations EQUITY
FOR THE YEAR ENDED DECEMBER 31, 2006 FUND
- -------------------------------------------------------------------------------------------
INVESTMENT INCOME
INCOME:
Dividend $ 1,894,400
Interest* 3,310
Interest from affliated investments 97,751
Less: Foreign taxes withheld (2,351)
- -------------------------------------------------------------------------------------------
TOTAL INCOME 1,993,110
- -------------------------------------------------------------------------------------------
EXPENSES:
Advisory and administrative fees 534,920
Transfer agent 64
Trustee's fees 3,527
Custody and accounting expenses 42,150
Professional fees 19,954
Registration expenses 2,119
Other expenses 10,586
- -------------------------------------------------------------------------------------------
TOTAL EXPENSES 613,320
- -------------------------------------------------------------------------------------------
NET INVESTMENT INCOME (LOSS) 1,379,790
===========================================================================================
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
REALIZED GAIN (LOSS) ON:
Investments 8,199,502
Futures (85,445)
INCREASE (DECREASE) IN UNREALIZED APPRECIATION/(DEPRECIATION) ON:
Investments 5,028,336
Futures (19,255)
Foreign currency transactions 1
- -------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments 13,123,139
- -------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $ 14,502,929
===========================================================================================
* Income attributable to security lending activity, net of rebate expenses,
was $3,310.
See Notes to Financial Statements.
13
U.S.
Statements of EQUITY
Changes in Net Assets FUND
- -----------------------------------------------------------------------------------------------------------------------
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
2006 2005
- -----------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net investments income (loss) $ 1,379,790 $ 1,112,245
Net realized gain (loss) on investments, futures, written options,
foreign currency transactions and swaps 8,114,057 7,703,126
Net increase (decrease) in unrealized appreciation/(depreciation)
on investments, futures, written options, foreign currency translation 5,009,082 (6,433,765)
- -----------------------------------------------------------------------------------------------------------------------
Net increase (decrease) from operations 14,502,929 2,381,606
- -----------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (1,376,973) (1,138,355)
- -----------------------------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS (1,376,973) (1,138,355)
- -----------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets from operations and distributions 13,125,956 1,243,251
- -----------------------------------------------------------------------------------------------------------------------
SHARE TRANSACTIONS:
Proceeds from sale of shares 10,918,601 2,289,141
Value of distributions reinvested 1,376,973 1,138,344
Cost of shares redeemed (22,419,927) (18,333,312)
- -----------------------------------------------------------------------------------------------------------------------
Net increase (decrease) from share transactions (10,124,353) (14,905,827)
- -----------------------------------------------------------------------------------------------------------------------
TOTAL INCREASE (DECREASE) IN NET ASSETS 3,001,603 (13,662,576)
NET ASSETS
Beginning of period 98,882,901 112,545,477
- -----------------------------------------------------------------------------------------------------------------------
End of period $ 101,884,504 $ 98,882,901
=======================================================================================================================
UNDISTRIBUTED (DISTRIBUTION IN EXCESS OF) NET INVESTMENT INCOME, END OF PERIOD $ 2,817 $ --
- -----------------------------------------------------------------------------------------------------------------------
CHANGES IN FUND SHARES
Shares sold 296,918 68,648
Issued for distributions reinvested 35,118 33,178
Shares redeemed (624,307) (547,125)
- -----------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in fund shares (292,271) (445,299)
=======================================================================================================================
See Notes to Financial Statements.
14
Notes to Financial Statements December 31, 2006
- --------------------------------------------------------------------------------
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.
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.
In September 2006, FASB issued Statement of Financial Accounting Standards No.
157, FAIR VALUE MEASUREMENTS ("FAS 157"). FAS 157 establishes a single
authoritative definition of fair value, establishes a framework for measuring
fair value and expands disclosures about fair value measurements. FAS 157
applies to fair value measurements already required or permitted by existing
standards. The change to current generally accepted accounting principles from
the application of FAS 157 relate to the definition of fair value, the methods
used to measure fair value, and the expanded disclosures about fair value
measurements. Management of the Fund does not believe the adoption of FAS 157
will materially impact the financial statement amounts, however, additional
disclosures may be required about the inputs used to develop the measurements
and the effect of certain of the measurements on changes in net assets for the
period.
15
Notes to Financial Statements December 31, 2006
- --------------------------------------------------------------------------------
FAS 157 is effective for financial statements issued for fiscal years beginning
after November 15, 2007 and interim periods within those fiscal years.
REPURCHASE AGREEMENTS The Fund may engage in repurchase agreement transactions
with respect to instruments that are consistent with the Fund's investment
objectives or policies. 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.
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.
16
Notes to Financial Statements December 31, 2006
- --------------------------------------------------------------------------------
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 difference between the premium and the amount paid on effecting
a closing purchase transaction, including brokerage commissions, is also treated
as a realized gain, or if the premium is less than the amount paid for the
closing purchase, as a realized loss. When an option is exercised, the proceeds
from the sale of the underlying security or the cost basis of the securities
purchased is adjusted by the original premium received or paid.
INVESTMENTS IN FOREIGN MARKETS Investments in foreign markets may involve
special risks and considerations not typically associated with investing in the
United States. These risks include revaluation of currencies, high rates of
inflation, repatriation on income and capital, and adverse political and
economic developments. Moreover, securities issued in these markets may be less
liquid, subject to government ownership controls, tariffs and taxes, subject to
delays in settlements, and their prices may be more volatile.
The Fund may be subject to capital gains and repatriation taxes imposed by
certain countries in which it invests. Such taxes are generally based on income
and/or capital gains earned or repatriated. Taxes are accrued based upon net
investment income, net realized gains and net unrealized appreciation as income
and/or capital gains are earned.
INCOME TAXES The Fund intends to comply with all sections of the Internal
Revenue Code applicable to regulated investment companies including the
distribution of substantially all of its taxable net investment income and net
realized capital gains to its shareholders.
Therefore, no provision for federal income tax has been made. The Fund is
treated as a separate taxpayer for federal income tax purposes.
At December 31, 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
- ------------------------------------------------------------------------------
$94,838,223 $14,866,048 $(3,085,240) $11,780,808
Net Tax Appreciation/ Undistributed Undistributed Post
(Depreciation) on Income/ Long-Term Gains/ October
Derivatives, Currency (Accumulated (Accumulated Losses
and Other Net Assets Ordinary Loss) Capital Loss) (see Detail Below)
- ------------------------------------------------------------------------------
$ -- $2,817 $(788,340) $ --
17
Notes to Financial Statements December 31, 2006
- --------------------------------------------------------------------------------
As of December 31, 2006, 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
- --------------------------------------------------------------------------------
$ 788,340 12/31/2011
During the year ended December 31, 2006, the Fund utilized approximately
$6,561,486 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 incurred no such losses after October 31, 2006.
The tax composition of distributions paid (other than return of capital
distributions for the year) during the year ended December 31, 2006 was as
follows:
Ordinary Long-Term
Income Capital Gains Total
- --------------------------------------------------------------------------------
$1,376,973 $ -- $1,376,973
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.
On July 13, 2006, the FASB released FIN48, "Accounting for Uncertainty in Income
Taxes." FIN48 provides guidance for how uncertain tax positions should be
recognized, measured, presented and disclosed in the financial statements. FIN48
requires evaluation of tax positions taken or expected to be taken in the course
of preparing the Fund's tax returns to determine whether the tax positions are
"more likely than not" of being sustained by the applicable tax authority. The
adoption of FIN48 will require financial statements to be adjusted to reflect
only those tax positions that are more likely that not to be sustained as of the
adoption date. Adoption of FIN48 is required for fiscal years beginning after
December 15, 2006 no later than June 29, 2007 and is applied to all open years
as of the effective date. At this time, management is evaluating the
implications of FIN48 and its impact on the financial statements has not yet
been determined.
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 and amortized,
respectively, to call or maturity date, whichever is shorter, using the
effective yield method.
EXPENSES Expenses of the Company which are directly identifiable to one of the
Funds are allocated to that portfolio. Expenses which are not directly
identifiable to one of the Funds are allocated in such a manner as deemed
equitable, taking into consideration the nature and type of expenses and
relative sizes of the Funds. All expenses of the Fund are paid by GEAM and
reimbursed by the Fund.
3. LINE OF CREDIT
The Fund shares a revolving credit facility of up to $25 million with a number
of its affiliates. The credit facility is with its custodian bank, State Street
Bank and Trust Company. The revolving credit facility requires the payment of a
commitment fee equal to 0.09% per annum on the daily unused portion of the
credit facility, payable quarterly. The portion borne by the Funds generally is
borne proportionally based upon net assets. Generally, borrowings under the
credit facility would accrue interest at the Federal Funds Rate plus 50 basis
points and is borne by each of the borrowing Funds. The maximum amount allowed
to be borrowed by any one of the Funds is the lesser of its prospectus
limitation, 20% of its net assets, or $25 million. The credit facility was not
utilized by the Fund during the period ended December 31, 2006.
18
Notes to Financial Statements December 31, 2006
- --------------------------------------------------------------------------------
4. AMOUNTS PAID TO AFFILIATES
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. GEAM's compensation 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 December 31, 2006, $1,694 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 December 31, 2006 were as follows:
Purchases Sales
- --------------------------------------------------------------------------------
$42,474,707 $54,702,835
SECURITY LENDING At December 31, 2006, the Fund participated in securities
lending:
Loaned
securities at Cash
market value collateral*
- -------------------------------------------------------------------------------
$4,306,004 $4,425,725
* COLLATERAL OF $4,448,106 DECREASED BY $22,381 ON JANUARY 1, 2007 TO
REFLECT THE DECEMBER 31, 2006 CHANGE IN VALUE OF SECURITIES ON LOAN.
19
Report of Independent Registered Public Accounting Firm
- --------------------------------------------------------------------------------
The Shareholders and Board of Directors
GE Investments Funds, Inc.
We have audited the accompanying statement of assets and liabilities of the U.S.
Equity Fund, a series of GE Investments Funds, Inc., including the schedule of
investments, as of December 31, 2006, and the related statement of operations
for the year then ended, the statements of changes in net assets for each of the
years in the two-year period then ended, and the financial highlights for each
of the years in the five-year period then ended. These financial statements and
financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included confirmation of
securities owned as of December 31, 2006 by correspondence with the custodian
and brokers, or by other appropriate auditing procedures where replies from
brokers were not received. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
U.S. Equity Fund as of December 31, 2006, the results of its operations, changes
in its net assets and financial highlights for the years described above, in
conformity with U.S. generally accepted accounting principles.
/s/ KPMG LLP
Boston, Massachusetts
February 20, 2007
20
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 6
and December 14, 2006.
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 detail during a
private session with their independent legal counsel at which no representatives
of GEAM were present. The independent Board members and their independent legal
counsel requested, and received and considered, additional information from GEAM
following this session.
In advance of the meetings, 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 recent years, 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 recent years. 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 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 has expended 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.
21
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 overall taking
into consideration the factors discussed above.
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. 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 about the fees
being charged to the Fund and, to the
22
Advisory and Administrative Agreement Renewal (unaudited)
- --------------------------------------------------------------------------------
extent applicable, the effect, if any, of the Securities and Exchange Commission
staff's interpretive guidance concerning soft dollars. 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 that
GEAM may derive from its relationship with the Fund, 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.
23
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;
Trustee of Elfun Foundation; Treasurer, GE Foundation; Director, GE Asset
Management (Ireland) since February 1999.
- --------------------------------------------------------------------------------
ALAN M. LEWIS
- --------------------------------------------------------------------------------
ADDRESS c/o GEAM 3001 Summer St. Stamford, CT 06905
AGE 60
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
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 41
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
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 General Partner, NGN Capital LLC
since 2006; 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 59
POSITION(S) HELD WITH FUND Director
TERM OF OFFICE AND LENGTH OF TIME SERVED Until successor is elected and
qualified - 9 years
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS 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 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)
David B. Carlson, EVP, DOMESTIC EQUITIES
Michael J. Cosgrove, EVP, CHIEF COMMERCIAL OFFICER
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
Judith A. Studer, EVP, INVESTMENT STRATEGIES (AS OF JULY 2006)
Don W. Torey, EVP, ALTERNATIVE INVESTMENTS AND REAL ESTATE
John J. Walker, EVP, CHIEF FINANCIAL OFFICER
27
[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]
<page>
GE Investments Funds, Inc.
S&P 500 Index Fund
Annual Report
DECEMBER 31, 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 11
FINANCIAL STATEMENTS
Financial Highlights 12
Statement of Assets and Liabilities 13
Statement of Operations 14
Statements of Changes in Net Assets 15
Notes to Financial Statements 16
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM 21
ADVISORY AND ADMINISTRATIVE AGREEMENT RENEWAL 22
ADDITIONAL INFORMATION 25
INVESTMENT TEAM 28
This report is prepared for Policyholders of certain variable contracts and may
be distributed to others only if preceded or accompanied by the variable
contract's current prospectus and the current prospectus of the Funds available
for investments thereunder.
Notes to Performance December 31, 2006
- --------------------------------------------------------------------------------
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
- --------------------------------------------------------------------------------
Q&A
SSGA FUNDS MANAGEMENT, INC. ("SSGA FM") IS THE SUB-ADVISER FOR THE S&P 500 INDEX
FUND. SSGA FM IS REGISTERED WITH THE SEC AS AN INVESTMENT ADVISER UNDER THE
INVESTMENT ACT OF 1940 AND IS A WHOLLY OWNED SUBSIDIARY OF STATE STREET
CORPORATION. THE FUND IS MANAGED BY A TEAM OF PORTFOLIO MANAGERS COMPOSED OF THE
FOLLOWING MEMBERS: KARL SCHNEIDER AND JOHN TUCKER.
KARL SCHNEIDER, LEAD PORTFOLIO MANAGER FOR THE FUND, IS A VICE PRESIDENT OF
STATE STREET GLOBAL ADVISORS AND A PRINCIPAL OF SSGA FM. KARL JOINED THE FIRM IN
1996 AND IS A MEMBER OF THE FIRM'S GLOBAL STRUCTURED PRODUCTS TEAM. KARL MANAGES
A VARIETY OF THE FIRM'S DOMESTIC AND INTERNATIONAL PASSIVE FUNDS. KARL HOLDS A
BACHELORS OF SCIENCE DEGREE IN FINANCE AND INVESTMENTS FROM BABSON COLLEGE AND
ALSO A MASTER OF SCIENCE DEGREE IN FINANCE FROM THE CARROLL SCHOOL OF MANAGEMENT
AT BOSTON COLLEGE. ADDITIONALLY, HE HOLDS A SERIES 3 LICENSE FROM THE NATIONAL
FUTURES ASSOCIATION.
JOHN TUCKER, CFA, IS A VICE PRESIDENT OF SSGA AND A PRINCIPAL OF SSGA FM. JOHN
JOINED THE FIRM IN 1988 AND IS HEAD OF US EQUITY MARKETS IN THE GLOBAL
STRUCTURED PRODUCTS TEAM. HE IS ALSO RESPONSIBLE FOR ALL DERIVATIVE STRATEGIES
AND EXCHANGE TRADED FUNDS. JOHN RECEIVED A BA IN ECONOMICS FROM TRINITY COLLEGE
AND AN MS IN FINANCE FROM BOSTON COLLEGE. HE IS A MEMBER OF THE BOSTON SECURITY
ANALYSTS SOCIETY AND THE CFA INSTITUTE.
Q. HOW DID THE S&P 500 INDEX FUND PERFORM COMPARED TO ITS BENCHMARK AND
LIPPER PEER GROUP FOR THE TWELVE-MONTH PERIOD ENDED DECEMBER 31, 2006?
A. For the twelve-month period ended December 31, 2006, the S&P 500 Index
Fund returned 15.43%. The S&P 500 Index, the Fund's benchmark, returned
15.79% and the Fund's Lipper peer group of 52 S&P 500 Index Objective
funds returned an average of 15.38% for the same period.
Q. WHAT MARKET CONDITIONS IMPACTED FUND PERFORMANCE?
A. After a muted finish to 2005, US equity markets began the year on a
positive note. A heady mix of hawkish wording from the Federal Reserve and
troublesome inflation data, however, brought about steady equity selling
in parts of the second quarter, driving volatility measures to levels not
seen since 2004. The third and fourth quarters though brought solid
returns across the US equity market as stocks rallied consistently through
this period. With inflation risks still prominent in official comments,
futures traders pushed the expected arrival date for a cut in fed funds
beyond the first quarter of 2007. Equities showed scant concern about any
delay in accommodation, however, as a flurry of takeover activity
reflected buoyant liquidity conditions that kept sentiment bullish.
Q. WHAT WERE THE PRIMARY DRIVERS OF FUND PERFORMANCE?
A. By utilizing a passive, full replication investment style, the Fund owned
the same stocks and sectors in approximately the same weights as the S&P
500 Index. As of December 31, 2006, the four largest sectors in the S&P
500 Index were Financials (22.3%), Information Technology (15.1%), Health
Care (12.0%) and Industrials (10.8%). The highest returning sector for the
last twelve months was Telecommunication Services (+32%) followed by
Energy (+22%). The lowest returning sectors were Health Care (+6%) and
Information Technology (+8%).
Q. WERE THERE ANY SIGNIFICANT CHANGES TO THE FUND DURING THE PERIOD?
A. Over the last twelve months there were 36 index addition/deletion changes
announced by Standard & Poors that impacted the Fund. However, not all the
additions and deletions were bought and sold in the Fund, as many changes
were a result of a merger or acquisition, or a spin-off involving another
S&P 500 constituent. Additionally, there were numerous index share changes
throughout the period, as well as at each quarter end. Many of the share
changes also required no trading since the weight change within the
portfolio was negligible.
2
S&P 500 Index Fund
- --------------------------------------------------------------------------------
Understanding Your Fund's Expenses
As a shareholder of the Fund you incur transaction and ongoing expenses.
Transaction expenses including sales charges on purchase payments, reinvested
dividends (or other distributions), and redemption fees directly reduce the
investment return of the Fund. Ongoing costs include portfolio management fees,
distribution and service fees, professional fees, administrative fees and other
Fund expenses. The following example is intended to help you understand your
ongoing costs (in dollars) of investing in the Fund and to compare these costs
with the ongoing costs of investing in other mutual funds.
To illustrate these ongoing costs, we have provided an example and calculated
the expenses paid by investors during the period. The information in the
following table is based on an investment of $1,000, which is invested at the
beginning of the period and held for the entire six-month period ended December
31, 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 $1,000 = 8.6), then multiply the result by the number
given for your class under the heading "Expenses Paid During Period."
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The second section of the table provides information about hypothetical account
values and hypothetical expenses based on the Fund's actual expense ratio and an
assumed rate of return of 5% per year before expenses, which is not the Fund's
actual return. You may use this information to compare the ongoing costs of
investing in the Fund and other funds. To do so, compare this 5% hypothetical
example with the 5% hypothetical examples that appear in the shareholders
reports of other funds.
Please note that the expenses shown in the table do not reflect any transaction
costs, such as sales charges or redemption fees.
JULY 1, 2006 - DECEMBER 31, 2006
- --------------------------------------------------------------------------------
ACCOUNT VALUE AT ACCOUNT VALUE EXPENSES
THE BEGINNING OF AT THE END OF PAID DURING
THE PERIOD ($) THE PERIOD ($) THE PERIOD ($)*
- --------------------------------------------------------------------------------
Actual Fund Return** 1,000.00 1,125.83 2.10
- --------------------------------------------------------------------------------
Hypothetical 5% Return
(2.5% for the period) 1,000.00 1,022.96 2.01
- --------------------------------------------------------------------------------
* EXPENSES ARE EQUAL TO THE FUND'S ANNUALIZED EXPENSE RATIO OF 0.39% (FROM
PERIOD JULY 1, 2006 - DECEMBER 31, 2006), MULTIPLIED BY THE AVERAGE
ACCOUNT VALUE OVER THE PERIOD, MULTIPLIED BY 184/365 (TO REFLECT THE SIX
MONTH PERIOD).
** ACTUAL FUND RETURN FOR SIX-MONTH PERIOD ENDED DECEMBER 31, 2006 WAS:
12.58%.
3
S&P 500 Index Fund
- --------------------------------------------------------------------------------
CHANGE IN VALUE
OF A $10,000 INVESTMENT
- --------------------------------------------------------------------------------
[LINE CHART OMITTED, PLOT POINTS AS FOLLOWS:]
S&P 500 Index Fund S&P 500 Index
12/96 10,000 10,000
12/97 13,033 13,329
12/98 16,713 17,154
12/99 20,158 20,768
12/00 18,258 18,861
12/01 16,018 16,614
12/02 12,436 12,942
12/03 15,952 16,660
12/04 17,620 18,473
12/05 18,415 19,382
12/06 21,256 22,442
AVERAGE ANNUAL TOTAL RETURN
FOR THE PERIODS ENDED DECEMBER 31, 2006
- --------------------------------------------------------------------------------
ONE FIVE TEN
YEAR YEAR YEAR
- --------------------------------------------------------------------------------
S&P 500 Index Fund 15.43% 5.82% 7.83%
- --------------------------------------------------------------------------------
S&P 500 Index 15.79% 6.20% 8.42%
- --------------------------------------------------------------------------------
Lipper peer group average* 15.38% 5.78% 8.11%
- --------------------------------------------------------------------------------
Inception date 4/15/85
- --------------------------------------------------------------------------------
S&P 500 Index Fund (ending value $21,256)
S&P 500 Index (ending value $22,442)
INVESTMENT PROFILE
A fund designed for investors who seek growth of capital and accumulation of
income that corresponds to the investment return of the Standard & Poor's 500
Composite Stock Index by investing at least 80% of its net assets in equity
securities of companies contained in that Index.
TOP TEN LARGEST HOLDINGS
AS OF DECEMBER 31, 2006
as a % of Market Value
- --------------------------------------------------------------------------------
Exxon Mobil Corp. 3.45%
- --------------------------------------------------------------------------------
General Electric Co.** 2.96%
- --------------------------------------------------------------------------------
Citigroup, Inc. 2.11%
- --------------------------------------------------------------------------------
Microsoft Corp. 1.99%
- --------------------------------------------------------------------------------
Bank of America Corp. 1.85%
- --------------------------------------------------------------------------------
Procter & Gamble Co. 1.57%
- --------------------------------------------------------------------------------
Johnson & Johnson 1.48%
- --------------------------------------------------------------------------------
Pfizer Inc. 1.45%
- --------------------------------------------------------------------------------
American International Group, Inc. 1.44%
- --------------------------------------------------------------------------------
Altria Group, Inc. 1.39%
- --------------------------------------------------------------------------------
PORTFOLIO COMPOSITION
AS OF DECEMBER 31, 2006
as a % of Market Value
- --------------------------------------------------------------------------------
Market Value of $496,685 (in thousands)
[PIE CHART OMITTED, PLOT POINTS AS FOLLOWS:]
Financials 21.9%
Information Technology 14.9%
Healthcare 11.8%
Industrials 10.7%
Consumer Discretionary 10.4%
Energy 9.7%
Consumer Staples 9.1%
Utilities 3.5%
Telecommunication Services 3.5%
Materials 2.9%
Short-Term 1.6%
* LIPPER PERFORMANCE COMPARISONS ARE BASED ON AVERAGE ANNUAL TOTAL RETURNS
FOR THE ONE YEAR, FIVE-YEAR, AND TEN-YEAR PERIODS INDICATED IN THE S&P 500
INDEX OBJECTIVE FUNDS PEER GROUP CONSISTING OF 52, 44 AND 18 UNDERLYING
ANNUITY FUNDS, RESPECTIVELY.
** GENERAL ELECTRIC CO. IS THE PARENT COMPANY OF GE ASSET MANAGEMENT
INCORPORATED, THE FUND'S INVESTMENT ADVISER.
SEE NOTES TO PERFORMANCE ON PAGE 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
S&P 500 INDEX FUND
Schedule of Investments December 31, 2006
- --------------------------------------------------------------------------------
S&P 500 INDEX FUND
- --------------------------------------------------------------------------------
NUMBER
OF SHARES VALUE
- --------------------------------------------------------------------------------
COMMON STOCK -- 98.3%
- --------------------------------------------------------------------------------
CONSUMER DISCRETIONARY -- 10.4%
Amazon.Com, Inc. 12,100 $ 477,466 (a)
Apollo Group, Inc. (Class A) 5,500 214,335 (a)
Autonation, Inc. 5,772 123,059 (a)
Autozone, Inc. 1,944 224,649 (a)
Bed Bath & Beyond, Inc. 10,700 407,670 (a)
Best Buy Company, Inc. 15,600 767,364
Big Lots, Inc. 4,400 100,848 (a)
Black & Decker Corp. 2,507 200,485
Brunswick Corp. 3,368 107,439
Carnival Corp. 17,100 838,755
CBS Corp. 29,713 926,451
Centex Corp. 4,620 259,967
Circuit City Stores, Inc. 5,226 99,189
Clear Channel Communications, Inc. 19,100 678,814
Coach, Inc. 13,900 597,144 (a)
Comcast Corp. (Class A) 80,039 3,388,051 (a)
D.R. Horton, Inc. 10,200 270,198
Darden Restaurants, Inc. 5,329 214,066
Dillard's, Inc. (Class A) 2,295 80,256
DIRECTV Group, Inc. 29,800 743,212 (a)
Dollar General Corp. 11,591 186,151
Dow Jones & Company, Inc. 2,442 92,796
Eastman Kodak Co. 10,875 280,575
Family Dollar Stores, Inc. 6,200 181,846
Federated Department Stores Inc. 20,630 786,622
Ford Motor Co. 72,999 548,222
Fortune Brands, Inc. 5,741 490,224
Gannett Company, Inc. 9,008 544,624
General Motors Corp. 22,047 677,284
Genuine Parts Co. 6,396 303,362
Goodyear Tire & Rubber Co. 6,419 134,735 (a)
H&R Block, Inc. 12,208 281,272
Harley-Davidson, Inc. 10,100 711,747
Harman International Industries Inc. 2,500 249,775
Harrah's Entertainment, Inc. 7,035 581,935
Hasbro, Inc. 6,396 174,291
Hilton Hotels Corp. 14,688 512,611
Home Depot, Inc. 78,018 3,133,203
IAC/InterActiveCorp. 8,600 319,576 (a)
International Game Technology 13,200 609,840
Interpublic Group of Companies, Inc. 16,830 205,999 (a)
J.C. Penney Company, Inc. 8,587 664,290
Johnson Controls, Inc. 7,582 651,445
Jones Apparel Group, Inc. 4,200 140,406
KB Home 2,860 146,661
Kohl's Corp. 12,700 869,061 (a)
Leggett & Platt, Incorporated 6,800 162,520
NUMBER
OF SHARES VALUE
- --------------------------------------------------------------------------------
Lennar Corp. (Class A) 5,300 $ 278,038
Limited Brands, Inc. 12,988 375,873
Liz Claiborne Inc. 3,830 166,452
Lowe's Companies, Inc. 58,656 1,827,134
Marriott International Inc. (Class A) 13,044 622,460
Mattel, Inc. 14,151 320,662
McDonald's Corp. 46,790 2,074,201
McGraw-Hill Companies Inc. 13,440 914,189
Meredith Corp. 1,498 84,412
New York Times Co. (Class A) 5,188 126,380
Newell Rubbermaid Inc. 10,456 302,701
News Corp. (Class A) 89,800 1,928,904
Nike Inc. (Class B) 7,404 733,218
Nordstrom, Inc. 8,984 443,271
Office Depot, Inc. 11,000 419,870 (a)
OfficeMax, Inc. 3,023 150,092
Omnicom Group, Inc. 6,600 689,964
Pulte Homes, Inc. 8,188 271,187
RadioShack Corp. 4,656 78,128
Sears Holdings Corp. 3,219 540,567 (a)
Snap-On Incorporated 2,409 114,765
Staples, Inc. 28,250 754,275
Starbucks Corp. 29,200 1,034,264 (a)
Starwood Hotels & Resorts Worldwide, Inc. 8,400 525,000
Target Corp. 32,752 1,868,502
The E.W. Scripps Co. (Class A) 3,300 164,802
The Gap, Inc. 20,918 407,901
The Sherwin-Williams Co. 4,263 271,042
The Stanley Works 3,026 152,178
The Walt Disney Co. 79,037 2,708,598
Tiffany & Co. 5,600 219,744
Time Warner, Inc. 153,814 3,350,069 (d)
TJX Companies, Inc. 17,380 495,678
Tribune Co. 7,700 237,006
Univision Communications Inc. (Class A) 9,300 329,406 (a)
VF Corp. 3,402 279,236
Viacom Inc. (Class B) 26,513 1,087,828 (a)
Wendy's International, Inc. 3,331 110,223
Whirlpool Corp. 3,043 252,630
Wyndham Worldwide Corp. 7,449 238,517 (a)
Yum! Brands, Inc. 10,222 601,054
51,910,912
CONSUMER STAPLES -- 9.1%
Altria Group, Inc. 80,279 6,889,544
Anheuser-Busch Companies, Inc. 29,508 1,451,794 (d)
Archer-Daniels-Midland Co. 25,386 811,337
Avon Products, Inc. 17,228 569,213
Brown-Forman Corp. (Class B) 2,958 195,938
Campbell Soup Co. 8,676 337,410
Clorox Co. 5,984 383,874
Coca-Cola Enterprises, Inc. 10,500 214,410
Colgate-Palmolive Co. 19,972 1,302,973
ConAgra Foods, Inc. 19,568 528,336
Constellation Brands, Inc. (Class A) 8,000 232,160 (a)
Costco Wholesale Corp. 17,766 939,288
See Notes to Schedule of Investments on page 11 and Notes to Financial
Statements.
5
S&P 500 INDEX FUND
Schedule of Investments December 31, 2006
- --------------------------------------------------------------------------------
NUMBER
OF SHARES VALUE
- --------------------------------------------------------------------------------
CVS Corp. 31,212 $ 964,763
Dean Foods Co. 5,300 224,084 (a)
General Mills, Inc. 12,922 744,307
HJ Heinz Co. 12,897 580,494
Kellogg Co. 9,490 475,069
Kimberly-Clark Corp. 17,536 1,191,571
McCormick & Company, Inc. 4,800 185,088
Molson Coors Brewing Co. (Class B) 1,665 127,273
Pepsi Bottling Group, Inc. 5,400 166,914
PepsiCo, Inc. 63,074 3,945,279
Procter & Gamble Co. 121,645 7,818,124
Reynolds American Inc. 6,600 432,102
Safeway Inc. 17,100 590,976
Sara Lee Corp. 29,357 499,950
Supervalu Inc. 8,213 293,615
Sysco Corp. 23,844 876,505
The Coca-Cola Co. 77,951 3,761,136 (d)
The Estee Lauder Companies Inc. (Class A) 4,900 200,018
The Hershey Co. 6,784 337,843
The Kroger Co. 27,530 635,117
Tyson Foods, Inc. (Class A) 10,300 169,435
UST Inc. 6,179 359,618
Walgreen Co. 38,500 1,766,765
Wal-Mart Stores, Inc. 94,424 4,360,500
Whole Foods Market, Inc. 5,400 253,422
WM Wrigley Jr. Co. 8,485 438,844
45,255,089
ENERGY -- 9.7%
Anadarko Petroleum Corp. 17,856 777,093
Apache Corp. 12,548 834,567
Baker Hughes Incorporated 12,150 907,119
BJ Services Co. 11,800 345,976
Chesapeake Energy Corp. 16,000 464,800
Chevron Corp. 83,569 6,144,829
ConocoPhillips 63,088 4,539,182
Consol Energy, Inc. 7,000 224,910
Devon Energy Corp. 16,992 1,139,823
El Paso Corp. 27,282 416,869
EOG Resources, Inc. 9,300 580,785
Exxon Mobil Corp. 223,824 17,151,633 (d)
Halliburton Co. 38,220 1,186,731
Hess Corp. 10,470 518,998 (d)
Kinder Morgan, Inc. 4,100 433,575
Marathon Oil Corp. 13,321 1,232,193
Murphy Oil Corp. 6,800 345,780
Nabors Industries Ltd. 11,100 330,558 (a)
National Oilwell Varco, Inc. 6,600 403,788 (a)
Noble Corp. 5,400 411,210
Occidental Petroleum Corp. 33,120 1,617,250
Peabody Energy Corp. 10,300 416,223
Rowan Companies, Inc. 4,477 148,636
Schlumberger Ltd. 45,408 2,867,969
Smith International, Inc. 8,000 328,560
Sunoco, Inc. 4,676 291,595
The Williams Companies, Inc. 22,886 597,782
Transocean Inc. 11,266 911,307 (a)
NUMBER
OF SHARES VALUE
- --------------------------------------------------------------------------------
Valero Energy Corp. 23,300 $ 1,192,028
Weatherford International Ltd. 13,500 564,165 (a)
XTO Energy, Inc. 14,133 664,958
47,990,892
FINANCIALS -- 21.9%
ACE Ltd. 12,400 751,068
AFLAC Incorporated 19,100 878,600
Allstate Corp. 23,976 1,561,077 (d)
AMBAC Financial Group, Inc. 4,000 356,280
American Express Co. 46,022 2,792,155 (d)
American International Group, Inc. 99,809 7,152,313 (d)
Ameriprise Financial, Inc. 9,504 517,968
AON Corp. 11,936 421,818
Apartment Investment & Management Co.
(Class A) (REIT) 3,700 207,274
Archstone-Smith Trust (REIT) 8,300 483,143
Bank of America Corp. 172,221 9,194,879
BB&T Corp. 20,800 913,744
Boston Properties, Inc. (REIT) 4,400 492,272
Capital One Financial Corp. 15,625 1,200,313
CB Richard Ellis Group, Inc. (Class A) 7,200 239,040 (a)
Charles Schwab Corp. 39,111 756,407
Chicago Mercantile Exchange Holdings Inc. 1,327 676,438
Chubb Corp. 15,994 846,243
Cincinnati Financial Corp. 6,492 294,153
CIT Group, Inc. 7,800 435,006
Citigroup, Inc. 188,476 10,498,113 (d)
Comerica Incorporated 6,356 372,970
Commerce Bancorp Inc. 7,100 250,417
Compass Bancshares, Inc. 5,100 304,215
Countrywide Financial Corp. 23,498 997,490
E*Trade Financial Corp. 16,300 365,446 (a)
Equity Office Properties Trust (REIT) 13,300 640,661
Equity Residential (REIT) 11,200 568,400
Federal Home Loan Mortgage Corp. 26,665 1,810,554
Federal National Mortgage Assoc. 36,976 2,196,005
Federated Investors Inc. (Class B) 3,600 121,608
Fifth Third Bancorp 21,716 888,836
First Horizon National Corp. 5,000 208,900
Franklin Resources, Inc. 6,500 716,105
Genworth Financial, Inc. (Class A) 17,600 602,096
Goldman Sachs Group, Inc. 16,400 3,269,340
Hartford Financial Services Group, Inc. 12,204 1,138,755
Huntington Bancshares Incorporated 8,834 209,807
Janus Capital Group, Inc. 7,900 170,561
JP Morgan Chase & Co. 132,976 6,422,741 (d)
Keycorp 15,728 598,136
Kimco Realty Corp. (REIT) 8,200 368,590
Legg Mason, Inc. 5,000 475,250
Lehman Brothers Holdings, Inc. 20,200 1,578,024
Lincoln National Corp. 10,842 719,909
Loews Corp. 17,796 738,000
See Notes to Schedule of Investments on page 11 and Notes to Financial
Statements.
6
S&P 500 INDEX FUND
Schedule of Investments December 31, 2006
- --------------------------------------------------------------------------------
NUMBER
OF SHARES VALUE
- --------------------------------------------------------------------------------
M&T Bank Corp. 3,000 $ 366,480
Marsh & McLennan Companies, Inc. 21,408 656,369
Marshall & Ilsley Corp. 9,800 471,478
MBIA Inc. 5,135 375,163
Mellon Financial Corp. 15,528 654,505
Merrill Lynch & Company, Inc. 34,034 3,168,565
Metlife, Inc. 29,000 1,711,290
MGIC Investment Corp. 3,159 197,564
Moody's Corp. 9,084 627,341
Morgan Stanley 40,496 3,297,589
National City Corp. 23,564 861,500
Northern Trust Corp. 7,400 449,106
Plum Creek Timber Company, Inc (REIT) 6,800 270,980
PNC Financial Services Group, Inc. 11,308 837,244
Principal Financial Group, Inc. 10,200 598,740
Prologis (REIT) 9,500 577,315
Prudential Financial, Inc. 18,200 1,562,652
Public Storage, Inc. (REIT) 4,600 448,500
Realogy Corp. 8,220 249,230 (a)
Regions Financial Corp. 28,068 1,049,743
Safeco Corp. 3,981 249,012
Simon Property Group, Inc. (REIT) 8,600 871,094
SLM Corp. 15,800 770,566
Sovereign Bancorp, Inc. 13,850 351,652
State Street Corp. 12,900 869,976 (c)
SunTrust Banks, Inc. 13,429 1,134,079
Synovus Financial Corp. 12,550 386,916
T Rowe Price Group, Inc. 10,100 442,077
The Bank of New York Company, Inc. 29,210 1,149,998 (d)
The Bear Stearns Companies Inc. 4,469 727,464
The Progressive Corp. 30,200 731,444
The St. Paul Travelers Companies, Inc. 26,699 1,433,469
Torchmark Corp. 3,800 242,288
UnumProvident Corp. 12,789 265,755
US Bancorp 67,899 2,457,265
Vornado Realty Trust (REIT) 4,700 571,050
Wachovia Corp. 73,488 4,185,142
Washington Mutual Inc. 35,981 1,636,776
Wells Fargo & Co. 130,036 4,624,080
XL Capital Ltd. 6,900 496,938
Zions Bancorporation 4,100 338,004
108,767,519
HEALTHCARE -- 11.8%
Abbott Laboratories 58,596 2,854,211 (d)
Aetna, Inc. 20,108 868,263
Allergan, Inc. 5,852 700,718
AmerisourceBergen Corp. 7,542 339,088
Amgen, Inc. 44,848 3,063,567 (a,d)
Applera Corp - Applied Biosystems Group 6,800 249,492
Barr Pharmaceuticals, Inc. 3,900 195,468 (a)
Bausch & Lomb Inc. 2,228 115,990
Baxter International, Inc. 24,848 1,152,699
NUMBER
OF SHARES VALUE
- --------------------------------------------------------------------------------
Becton Dickinson & Co. 9,370 $ 657,305
Biogen Idec, Inc. 13,200 649,308 (a)
Biomet, Inc. 9,515 392,684
Boston Scientific Corp. 45,278 777,876 (a)
Bristol-Myers Squibb Co. 75,008 1,974,211 (d)
C.R. Bard, Inc. 4,002 332,046
Cardinal Health, Inc. 15,401 992,286
Caremark Rx, Inc. 16,170 923,469
Celgene Corp. 14,300 822,679 (a)
Cigna Corp. 3,963 521,412
Coventry Healthcare, Inc. 6,300 315,315 (a)
Eli Lilly & Co. 37,516 1,954,584
Express Scripts, Inc. 5,200 372,320 (a)
Forest Laboratories, Inc. 12,100 612,260 (a)
Genzyme Corp. 9,900 609,642 (a)
Gilead Sciences, Inc. 17,600 1,142,768 (a)
Health Management Associates Inc. (Class A) 9,300 196,323
Hospira, Inc. 6,239 209,506 (a)
Humana Inc. 6,227 344,415 (a)
IMS Health Inc. 7,757 213,162
Johnson & Johnson 111,093 7,334,360
King Pharmaceuticals, Inc. 8,833 140,621 (a)
Laboratory Corp of America Holdings 4,800 352,656 (a)
Manor Care, Inc. 3,037 142,496
McKesson Corp. 11,461 581,073
Medco Health Solutions, Inc. 11,183 597,620 (a)
Medimmune, Inc. 9,000 291,330 (a)
Medtronic Inc. 43,932 2,350,801
Merck & Company, Inc. 83,250 3,629,700
Millipore Corp. 1,945 129,537 (a)
Mylan Laboratories Inc. 8,600 171,656
Patterson Companies, Inc. 5,400 191,754 (a)
PerkinElmer, Inc. 4,410 98,034
Pfizer Inc. 277,777 7,194,424
Quest Diagnostics Inc. 6,400 339,200
Schering-Plough Corp. 57,158 1,351,215 (d)
St. Jude Medical, Inc. 13,592 496,924 (a)
Stryker Corp. 11,300 622,743
Tenet Healthcare Corp. 19,295 134,486 (a)
Thermo Electron Corp. 15,528 703,263 (a)
UnitedHealth Group, Inc. 51,776 2,781,924
Waters Corp. 4,100 200,777 (a)
Watson Pharmaceuticals, Inc. 3,600 93,708 (a)
WellPoint, Inc. 23,600 1,857,084 (a)
Wyeth 51,754 2,635,314 (d)
Zimmer Holdings, Inc. 9,200 721,096 (a)
58,696,863
INDUSTRIALS -- 10.7%
Allied Waste Industries, Inc. 9,000 110,610 (a)
American Power Conversion Corp. 6,200 189,658
American Standard Companies, Inc. 6,600 302,610
Avery Dennison Corp. 3,555 241,491
Boeing Co. 30,616 2,719,925 (d)
See Notes to Schedule of Investments on page 11 and Notes to Financial
Statements.
7
S&P 500 INDEX FUND
Schedule of Investments December 31, 2006
- --------------------------------------------------------------------------------
NUMBER
OF SHARES VALUE
- --------------------------------------------------------------------------------
Burlington Northern Santa Fe Corp. 13,849 $ 1,022,195
Caterpillar, Inc. 25,332 1,553,612
Cintas Corp. 5,000 198,550
Cooper Industries Ltd. 3,471 313,883
CSX Corp. 16,876 581,041
Cummins, Inc. 1,989 235,060
Danaher Corp. 9,000 651,960
Deere & Co. 8,820 838,517
Dover Corp. 7,858 385,199
Eaton Corp. 5,700 428,298
Emerson Electric Co. 31,348 1,382,133
Equifax, Inc. 5,000 203,000
FedEx Corp. 11,860 1,288,233
Fluor Corp. 3,352 273,691
General Dynamics Corp. 15,564 1,157,183
General Electric Co. 395,495 14,716,369 (f)
Goodrich Corp. 4,601 209,576
Honeywell International Inc. 31,416 1,421,260
Illinois Tool Works Inc. 16,194 748,001
Ingersoll-Rand Company Ltd. (Class A) 11,498 449,917
ITT Corp. 7,326 416,263
L-3 Communications Holdings, Inc. 4,700 384,366
Lockheed Martin Corp. 13,752 1,266,147
Masco Corp. 15,390 459,699
Monster Worldwide, Inc. 4,800 223,872 (a)
Norfolk Southern Corp. 15,001 754,400
Northrop Grumman Corp. 13,122 888,359
Paccar Inc. 9,715 630,504
Pall Corp. 4,978 171,990
Parker Hannifin Corp. 4,715 362,489
Pitney Bowes Inc. 8,532 394,093
Raytheon Co. 17,124 904,147
Robert Half International Inc. 6,500 241,280
Rockwell Automation, Inc. 6,368 388,957
Rockwell Collins, Inc. 6,668 422,018
RR Donnelley & Sons Co. 8,652 307,492
Ryder System, Inc. 2,431 124,127
Southwest Airlines Co. 30,049 460,351
Terex Corp. 3,900 251,862 (a)
Textron Inc. 4,868 456,472
3M Co. 28,380 2,211,653
Tyco International Ltd. 76,939 2,338,946
Union Pacific Corp. 10,254 943,573
United Parcel Service Inc. (Class B) 41,100 3,081,678
United Technologies Corp. 38,772 2,424,025
W.W. Grainger, Inc. 2,782 194,573
Waste Management, Inc. 20,712 761,580
53,086,888
INFORMATION TECHNOLOGY -- 14.9%
ADC Telecommunications, Inc. 5,057 73,478 (a)
Adobe Systems Incorporated 22,284 916,318 (a,d)
Advanced Micro Devices, Inc. 21,174 430,891 (a,d)
Affiliated Computer Services, Inc. (Class A) 4,500 219,780 (a)
NUMBER
OF SHARES VALUE
- --------------------------------------------------------------------------------
Agilent Technologies, Inc. 16,085 $ 560,562 (a)
Altera Corp. 13,500 265,680 (a)
Analog Devices, Inc. 13,800 453,606
Apple Computer, Inc. 32,740 2,777,662 (a)
Applied Materials, Inc. 52,900 976,005 (d)
Autodesk, Inc. 9,148 370,128 (a)
Automatic Data Processing, Inc. 21,118 1,040,062
Avaya, Inc. 16,801 234,878 (a)
BMC Software, Inc. 7,600 244,720 (a)
Broadcom Corp. (Class A) 17,950 579,965 (a)
CA, Inc. 15,800 357,870
Ciena Corp. 3,242 89,836 (a)
Cisco Systems, Inc. 232,704 6,359,800 (a,d)
Citrix Systems, Inc. 6,800 183,940 (a)
Cognizant Technology Solutions Corp.
(Class A) 5,400 416,664 (a)
Computer Sciences Corp. 6,682 356,618 (a)
Compuware Corp. 13,700 114,121 (a)
Comverse Technology, Inc. 7,300 154,103 (a)
Convergys Corp. 5,000 118,900 (a)
Corning Incorporated 59,839 1,119,588 (a)
Dell, Inc. 87,348 2,191,561 (a,d)
eBay, Inc. 45,100 1,356,157 (a)
Electronic Arts, Inc. 11,900 599,284 (a)
Electronic Data Systems Corp. 20,000 551,000
EMC Corp. 83,614 1,103,705 (a)
Fidelity National Information Services,
Inc. 6,300 252,567
First Data Corp. 29,760 759,475
Fiserv, Inc. 6,650 348,593 (a)
Google, Inc. (Class A) 8,258 3,802,644 (a)
Hewlett-Packard Co. 105,165 4,331,746
Intel Corp. 221,408 4,483,512
International Business Machines Corp. 58,030 5,637,615
Intuit Inc. 13,100 399,681 (a)
Jabil Circuit, Inc. 7,100 174,305
JDS Uniphase Corp. 8,750 145,775 (a)
Juniper Networks, Inc. 22,000 416,680 (a)
Kla-Tencor Corp. 7,600 378,100
Lexmark International Inc. (Class A) 4,000 292,800 (a)
Linear Technology Corp. 11,600 351,712
LSI Logic Corp. 15,992 143,928 (a)
Maxim Integrated Products, Inc. 12,700 388,874
Micron Technology, Inc. 28,954 404,198 (a)
Microsoft Corp. 331,700 9,904,562 (d)
Molex, Inc. 5,150 162,895
Motorola, Inc. 92,250 1,896,660
National Semiconductor Corp. 11,466 260,278
NCR Corp. 7,200 307,872 (a)
Network Appliance, Inc. 14,300 561,704 (a)
Novell, Inc. 12,866 79,769 (a)
Novellus Systems, Inc. 5,100 175,542 (a)
Nvidia Corp. 13,700 507,037 (a)
Oracle Corp. 154,652 2,650,735 (a)
Paychex, Inc. 13,125 518,963
PMC - Sierra, Inc. 7,100 47,641 (a)
QLogic Corp. 5,700 124,944 (a)
See Notes to Schedule of Investments on page 11 and Notes to Financial
Statements.
8
S&P 500 INDEX FUND
Schedule of Investments December 31, 2006
- --------------------------------------------------------------------------------
NUMBER
OF SHARES VALUE
- --------------------------------------------------------------------------------
QUALCOMM, Inc. 63,100 $ 2,384,549
Sabre Holdings Corp. (Class A) 4,708 150,138
SanDisk Corp. 8,700 374,361 (a)
Sanmina-SCI Corp. 20,300 70,035 (a)
Solectron Corp. 37,700 121,394 (a)
Sun Microsystems, Inc. 135,360 733,651 (a)
Symantec Corp. 35,545 741,113 (a)
Symbol Technologies, Inc. 10,250 153,135
Tektronix, Inc. 3,476 101,395
Tellabs, Inc. 16,852 172,902 (a)
Teradyne, Inc. 8,000 119,680 (a)
Texas Instruments Incorporated 57,136 1,645,517
Unisys Corp. 13,509 105,911 (a)
VeriSign Inc. 9,200 221,260 (a)
Western Union Co. 29,760 667,219
Xerox Corp. 37,190 630,371 (a)
Xilinx, Inc. 13,500 321,435
Yahoo! Inc. 46,500 1,187,610 (a)
74,029,365
MATERIALS -- 2.9%
Air Products & Chemicals, Inc. 8,632 606,657 (d)
Alcoa, Inc. 32,940 988,529 (d)
Allegheny Technologies Incorporated 3,751 340,141
Ashland, Inc. 2,007 138,844
Ball Corp. 3,816 166,378
Bemis Co. 4,162 141,425
Dow Chemical Co. 36,894 1,473,546
E.I. du Pont de Nemours and Co. 35,613 1,734,709
Eastman Chemical Co. 3,059 181,429
Ecolab Inc. 6,752 305,190
Freeport-McMoRan Copper & Gold Inc.
(Class B) 7,384 411,510
Hercules Incorporated 4,228 81,643 (a)
International Flavors & Fragrances Inc. 3,147 154,707
International Paper Co. 17,175 585,667
MeadWestvaco Corp. 6,800 204,408
Monsanto Co. 20,716 1,088,211
Newmont Mining Corp. 17,428 786,874
Nucor Corp. 11,736 641,490
Pactiv Corp. 5,548 198,008 (a)
Phelps Dodge Corp. 7,820 936,210
PPG Industries, Inc. 6,337 406,899
Praxair, Inc. 12,370 733,912
Rohm & Haas Co. 5,414 276,764
Sealed Air Corp. 3,057 198,460
Sigma-Aldrich Corp. 2,691 209,145
Temple-Inland Inc. 3,952 181,911
United States Steel Corp. 4,565 333,884
Vulcan Materials Co. 3,700 332,519
Weyerhaeuser Co. 8,860 625,959
14,465,029
NUMBER
OF SHARES VALUE
- --------------------------------------------------------------------------------
TELECOMMUNICATION SERVICES -- 3.4%
Alltel Corp. 14,094 $ 852,405
AT&T, Inc. 148,029 5,292,037
BellSouth Corp. 69,398 3,269,340 (d)
CenturyTel, Inc. 4,750 207,385
Citizens Communications Co. 12,200 175,314
Embarq Corp. 5,770 303,271
Qwest Communications
International Inc. 62,548 523,527 (a)
Sprint Nextel Corp. (Series 1) 111,500 2,106,235
Verizon Communications Inc. 112,486 4,188,979
Windstream Corp. 16,743 238,085
17,156,578
UTILITIES -- 3.5%
Allegheny Energy, Inc. 6,600 303,006 (a)
Ameren Corp. 8,042 432,097
American Electric Power Company, Inc. 15,325 652,538 (d)
Centerpoint Energy, Inc. 11,818 195,942
CMS Energy Corp. 8,600 143,620 (a)
Consolidated Edison, Inc. 9,607 461,808
Constellation Energy Group, Inc. 7,003 482,297
Dominion Resources, Inc. 13,618 1,141,733
DTE Energy Co. 6,666 322,701
Duke Energy Corp. 48,354 1,605,836
Dynegy Inc. (Class A) 15,500 112,220 (a)
Edison International 12,342 561,314
Entergy Corp. 7,847 724,435
Exelon Corp. 25,726 1,592,182
FirstEnergy Corp. 12,520 754,956
FPL Group, Inc. 15,562 846,884
KeySpan Corp. 6,500 267,670
Nicor Inc. 1,543 72,212
NiSource Inc. 10,415 251,002
Peoples Energy Corp. 1,221 54,420
PG&E Corp. 13,554 641,511
Pinnacle West Capital Corp. 4,000 202,760
PPL Corp. 14,544 521,257
Progress Energy, Inc. 9,756 478,824
Public Service Enterprise
Group, Inc. 9,559 634,526
Questar Corp. 3,300 274,065
Sempra Energy 10,075 564,603
TECO Energy, Inc. 8,600 148,178
The AES Corp. 25,200 555,408 (a)
The Southern Co. 28,158 1,037,904
TXU Corp. 17,772 963,420
Xcel Energy Inc. 15,780 363,887
17,365,216
TOTAL INVESTMENTS IN SECURITIES
(COST $424,497,479) 488,724,351
See Notes to Schedule of Investments on page 11 and Notes to Financial
Statements.
9
S&P 500 INDEX FUND
Schedule of Investments December 31, 2006
- --------------------------------------------------------------------------------
NUMBER
OF SHARES VALUE
- --------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS -- 1.6%
- --------------------------------------------------------------------------------
AFFILIATED SHORT-TERM INVESTMENTS -- 1.3%
GEI Short Term Investment Fund
5.56% 6,473,924 $ 6,473,924 (b,e)
Money Market Obligations Trust
5.20% 437 437 (g)
PRINCIPAL
AMOUNT
- --------------------------------------------------------------------------------
U.S. GOVERNMENT -- 0.3%
U.S. Treasury Bill
4.84% 03/08/07 $1,500,000 1,486,690
TOTAL SHORT-TERM INVESTMENTS
(COST $7,961,051) 7,961,051
TOTAL INVESTMENTS
(COST $432,458,530) 496,685,402
OTHER ASSETS AND LIABLITES,
NET -- 0.1% 419,575
------------
NET ASSETS -- 100.0% $497,104,977
============
- --------------------------------------------------------------------------------
OTHER INFORMATION
- --------------------------------------------------------------------------------
The GEI S&P 500 Index had the following long futures contracts open at
December 31, 2006:
NUMBER CURRENT
EXPIRATION OF NOTIONAL UNREALIZED
DESCRIPTION DATE CONTRACTS VALUE DEPRECIATION
- --------------------------------------------------------------------------------
S&P Mini 500
Index Futures March 2007 133 $9,498,860 $(3,059)
See Notes to Schedule of Investments on page 11 and Notes to Financial
Statements.
10
Notes to Schedule of Investments December 31, 2006
- --------------------------------------------------------------------------------
The views expressed in this document reflect our judgment as of the publication
date and are subject to change at any time without notice. The securities cited
may not represent current or future holdings and should not be considered as a
recommendation to purchase or sell a particular security. See the prospectus for
complete descriptions of investment objectives, policies, risks and permissible
investments.
(a) Non-income producing security.
(b) Coupon amount represents effective yield.
(c) State Street Corp. is the parent company of State Street Bank & Trust Co.,
the Fund's custodian and accounting agent.
(d) At December 31, 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) GE Asset Management, the investment adviser of the Fund, also serves as
investment adviser of the GEI Short Term Investment Fund.
(f) General Electric Co. is the parent company of GE Asset Management
Incorporated, the Fund's investment adviser.
(g) Managed by SSgA Funds Management, Inc., the Fund's sub-adviser.
+ Percentages are based on net assets as of December 31, 2006.
Abbreviations:
REIT Real Estate Investment Trust
TBA To Be Announced
11
Financial Highlights
Selected data based on a share outstanding throughout the periods indicated
- --------------------------------------------------------------------------------
S&P 500 INDEX FUND
12/31/06 12/31/05 12/31/04 12/31/03 12/31/02
- ----------------------------------------------------------------------------------------------------------------------
INCEPTION DATE -- -- -- -- 4/15/85
Net asset value, beginning of period $ 22.94 $ 22.30 $ 20.51 $ 16.18 $ 21.19
INCOME/(LOSS) FROM INVESTMENT OPERATIONS:
Net investment income 0.42 0.36 0.36 0.24 0.24
Net realized and unrealized
gains/(losses) on investments 3.12 0.65 1.79 4.33 (4.98)
- ----------------------------------------------------------------------------------------------------------------------
TOTAL INCOME/(LOSS) FROM INVESTMENT OPERATIONS 3.54 1.01 2.15 4.57 (4.74)
- ----------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM:
Net investment income 0.42 0.37 0.36 0.24 0.24
Net realized gains -- -- -- -- 0.03
- ----------------------------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS 0.42 0.37 0.36 0.24 0.27
- ----------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 26.06 $ 22.94 $ 22.30 $ 20.51 $ 16.18
======================================================================================================================
TOTAL RETURN (a) 15.43% 4.51% 10.46% 28.27% (22.37)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in thousands) $ 497,105 $ 531,015 $ 601,008 $ 597,185 $ 449,173
Ratios to average net assets:
Net investment income 1.58% 1.47% 1.62% 1.41% 1.20%
Expenses 0.40% 0.40% 0.40% 0.37% 0.40%
Portfolio turnover rate 4% 4% 5% 5% 11%
NOTES TO FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(a) Total returns are historical and assume changes in share price and
reinvestment of dividends and capital gains and do not include the effect
of insurance contract charges.
See Notes to Financial Statements.
12
Statement of Assets S&P 500
and Liabilities DECEMBER 31, 2006 INDEX FUND
- -----------------------------------------------------------------------------------------------------
ASSETS
Investments in securities, at market (cost $408,563,929) $ 474,007,982
Investments in affiliated securities, at market (cost $15,933,550) 14,716,369
Short-term Investments (at amortized cost) 1,487,127
Short-term affiliated investments (at amortized cost) 6,473,924
Receivable for investments sold 75,762
Income receivables 702,093
Receivable for fund shares sold 1,437
- -----------------------------------------------------------------------------------------------------
TOTAL ASSETS 497,464,694
- -----------------------------------------------------------------------------------------------------
LIABILITIES
Payable for fund shares redeemed 159,477
Payable to GEAM 164,330
Variation margin payable 35,910
- -----------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 359,717
- -----------------------------------------------------------------------------------------------------
NET ASSETS $ 497,104,977
=====================================================================================================
NET ASSETS CONSIST OF:
Capital paid in 442,064,945
Undistributed (distribution in excess of) net investment income 8,613
Accumulated net realized gain (loss) (9,192,394)
Net unrealized appreciation/(depreciation) on:
Investments 64,226,872
Futures (3,059)
- -----------------------------------------------------------------------------------------------------
NET ASSETS $ 497,104,977
=====================================================================================================
Shares outstanding ($0.01 par value; unlimited shares authorized) 19,077,237
Net asset value per share $ 26.06
See Notes to Financial Statements.
13
Statement of Operations S&P 500
FOR THE YEAR ENDED DECEMBER 31, 2006 INDEX FUND
- -------------------------------------------------------------------------------------------------------------------
INVESTMENT INCOME
INCOME:
Dividend $ 9,174,683
Dividend from affliated investments 443,110
Interest 68,998
Interest from affliated investments 265,068
- -------------------------------------------------------------------------------------------------------------------
TOTAL INCOME 9,951,859
- -------------------------------------------------------------------------------------------------------------------
EXPENSES:
Advisory and administrative fees 1,780,687
Transfer agent fees 40
Trustee's fees 17,659
Custody and accounting expenses 49,880
Professional fees 44,477
Registration expenses 71,658
Other expenses 41,906
- -------------------------------------------------------------------------------------------------------------------
TOTAL EXPENSES 2,006,307
- -------------------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME (LOSS) 7,945,552
===================================================================================================================
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS
REALIZED GAIN (LOSS) ON:
Investments (40,058)
Futures 750,966
INCREASE (DECREASE) IN UNREALIZED APPRECIATION/
(DEPRECIATION) ON:
Investments 63,220,952
Futures 78,923
- -------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments 64,010,783
- -------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $ 71,956,335
===================================================================================================================
See Notes to Financial Statements.
14
Statements of S&P 500
Changes in Net Assets INDEX FUND
- ---------------------------------------------------------------------------------------------------------------------
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
2006 2005
- ---------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net investments income (loss) $ 7,945,552 $ 8,198,211
Net realized gain (loss) on investments, futures, written options,
foreign currency transactions and swaps 710,908 1,726,089
Net increase (decrease) in unrealized appreciation/(depreciation)
on investments, futures, written options, foreign currency translation 63,299,875 13,384,710
- ---------------------------------------------------------------------------------------------------------------------
Net increase (decrease) from operations 71,956,335 23,309,010
- ---------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (7,912,831) (8,404,383)
- ---------------------------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS (7,912,831) (8,404,383)
- ---------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets from operations and distributions 64,043,504 14,904,627
- ---------------------------------------------------------------------------------------------------------------------
SHARE TRANSACTIONS:
Proceeds from sale of shares 5,786,380 12,229,014
Value of distributions reinvested 7,912,831 8,404,349
Cost of shares redeemed (111,652,724) (105,531,086)
- ---------------------------------------------------------------------------------------------------------------------
Net increase (decrease) from share transactions (97,953,513) (84,897,723)
- ---------------------------------------------------------------------------------------------------------------------
TOTAL INCREASE (DECREASE) IN NET ASSETS (33,910,009) (69,993,096)
NET ASSETS
Beginning of period 531,014,986 601,008,082
- ---------------------------------------------------------------------------------------------------------------------
End of period $ 497,104,977 $ 531,014,986
=====================================================================================================================
UNDISTRIBUTED (DISTRIBUTION IN EXCESS OF) NET INVESTMENT INCOME, END OF PERIOD $ 8,613 $ --
- ---------------------------------------------------------------------------------------------------------------------
CHANGES IN FUND SHARES
Shares sold 241,604 551,685
Issued for distributions reinvested 302,363 363,510
Shares redeemed (4,614,589) (4,723,549)
- ---------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in fund shares (4,070,622) (3,808,354)
=====================================================================================================================
See Notes to Financial Statements.
15
Notes to Financial Statements December 31, 2006
- --------------------------------------------------------------------------------
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.
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.
In September 2006, FASB issued Statement of Financial Accounting Standards No.
157, FAIR VALUE MEASUREMENTS ("FAS 157"). FAS 157 establishes a single
authoritative definition of fair value, establishes a framework for measuring
fair value and expands disclosures about fair value measurements. FAS 157
applies to fair value measurements already required or permitted by existing
standards. The change to current generally accepted accounting principles from
the application of FAS 157 relate to the definition of fair value, the methods
used to measure fair value, and the expanded disclosures about fair value
measurements. Management of the Fund does not believe the adoption of FAS 157
will materially impact the financial statement amounts, however, additional
disclosures may be required about the inputs used to develop the measurements
and the effect of certain of the measurements on changes in net assets for the
period.
16
Notes to Financial Statements December 31, 2006
- --------------------------------------------------------------------------------
FAS 157 is effective for financial statements issued for fiscal years beginning
after November 15, 2007 and interim periods within those fiscal years.
REPURCHASE AGREEMENTS The Fund may engage in repurchase agreement transactions
with respect to instruments that are consistent with the Fund's investment
objectives or policies. 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.
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.
17
Notes to Financial Statements December 31, 2006
- --------------------------------------------------------------------------------
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 difference between the premium and the amount paid on effecting
a closing purchase transaction, including brokerage commissions, is also treated
as a realized gain, or if the premium is less than the amount paid for the
closing purchase, as a realized loss. When an option is exercised, the proceeds
from the sale of the underlying security or the cost basis of the securities
purchased is adjusted by the original premium received or paid.
INVESTMENTS IN FOREIGN MARKETS Investments in foreign markets may involve
special risks and considerations not typically associated with investing in the
United States. These risks include revaluation of currencies, high rates of
inflation, repatriation on income and capital, and adverse political and
economic developments. Moreover, securities issued in these markets may be less
liquid, subject to government ownership controls, tariffs and taxes, subject to
delays in settlements, and their prices may be more volatile.
The Fund may be subject to capital gains and repatriation taxes imposed by
certain countries in which it invests. Such taxes are generally based on income
and/or capital gains earned or repatriated. Taxes are accrued based upon net
investment income, net realized gains and net unrealized appreciation as income
and/or capital gains are earned.
INCOME TAXES The Fund intends to comply with all sections of the Internal
Revenue Code applicable to regulated investment companies including the
distribution of substantially all of its taxable net investment income and net
realized capital gains to its shareholders. Therefore, no provision for federal
income tax has been made. The Fund is treated as a separate taxpayer for federal
income tax purposes.
At December 31, 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
- -------------------------------------------------------------------------------
$438,267,241 $127,677,112 $(69,258,951) $58,418,161
Net Tax Appreciation/ Undistributed Undistributed Post
(Depreciation) on Income/ Long-Term Gains/ October
Derivatives, Currency (Accumulated (Accumulated Losses
and Other Net Assets Ordinary Loss) Capital Loss) (see Detail Below)
- --------------------------------------------------------------------------------
$ -- $8,613 $(3,373,386) $(13,356)
18
Notes to Financial Statements December 31, 2006
- --------------------------------------------------------------------------------
As of December 31, 2006, 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
- ----------------------------
$2,515,583 12/31/10
857,803 12/31/11
During the year ended December 31, 2006, the Fund utilized approximately
$122,615 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, 2006 as follows:
Capital Currency
- -------------------------
$(13,356) $ --
The tax composition of distributions paid (other than return of capital
distributions for the year) during the year ended December 31, 2006 was as
follows:
Ordinary Long-Term
Income Capital Gains Total
- -------------------------------------------
$7,912,831 $ -- $7,912,831
DISTRIBUTIONS TO SHAREHOLDERS The Fund declares and pays dividends from net
investment income annually. The Fund declares and pays net realized capital
gains in excess of capital loss carryforwards distributions annually. The
character of income and gains to be distributed is determined in accordance with
income tax regulations which may differ from generally accepted accounting
principles. These differences include (but are not limited to) futures,
distributions from Real Estate Investment Trusts (REITS), and losses deferred
due to wash sale transactions. Reclassifications due to permanent book/tax
differences are made to the Fund's capital accounts to reflect income and gains
available for distribution (or available capital loss carryovers) under income
tax regulations. These reclassifications have no impact on net investment
income, realized gains or losses, or the net asset value of the Fund.
The calculation of net investment income per share in the Financial Highlights
table excludes these adjustments.
The reclassifications for the year ended December 31, 2006 were as follows:
Undistributed
(Distribution
in Excess of)
Net Investment Accumulated Paid in
Income Net Realized Gain Capital
- --------------------------------------------------
$(24,108) $54,148 $(30,040)
On July 13, 2006, the FASB released FIN48, "Accounting for Uncertainty in Income
Taxes." FIN48 provides guidance for how uncertain tax positions should be
recognized, measured, presented and disclosed in the financial statements. FIN48
requires evaluation of tax positions taken or expected to be taken in the course
of preparing the Fund's tax returns to determine whether the tax positions are
"more likely than not" of being sustained by the applicable tax authority. The
adoption of FIN48 will require financial statements to be adjusted to reflect
only those tax positions that are more likely that not to be sustained as of the
adoption date. Adoption of FIN48 is required for fiscal years beginning after
December 15, 2006 no later than June 29, 2007 and is applied to all open years
as of the effective date. At this time, management is evaluating the
implications of FIN48 and its impact on the financial statements has not yet
been determined.
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 and amortized,
respectively, 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.
19
Notes to Financial Statements December 31, 2006
- --------------------------------------------------------------------------------
3. AMOUNTS PAID TO AFFILIATES
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. GEAM's compensation 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 December 31, 2006, $9,074 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 December 31, 2006 were as follows:
Purchases Sales
- ----------------------------
$22,146,218 $121,319,636
20
Report of Independent Registered Public Accounting Firm
- --------------------------------------------------------------------------------
The Shareholders and Board of Directors
GE Investments Funds, Inc.
We have audited the accompanying statement of assets and liabilities of the S&P
500 Index Fund, a series of GE Investments Funds, Inc., including the schedule
of investments, as of December 31, 2006, and the related statement of operations
for the year then ended, the statements of changes in net assets for each of the
years in the two-year period then ended, and the financial highlights for each
of the years in the five-year period then ended. These financial statements and
financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included confirmation of
securities owned as of December 31, 2006 by correspondence with the custodian
and brokers, or by other appropriate auditing procedures where replies from
brokers were not received. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
S&P 500 Index Fund as of December 31, 2006, the results of its operations,
changes in its net assets and financial highlights for the years described
above, in conformity with U.S. generally accepted accounting principles.
/s/ KPMG LLP
Boston, Massachusetts
February 20, 2007
21
Advisory and Administrative Agreement Renewal (unaudited)
- --------------------------------------------------------------------------------
The Fund Board, including the independent Board members, considered and
unanimously approved the continuance of the Fund's investment advisory and
sub-advisory agreements with GE Asset Management Incorporated ("GEAM") and the
Fund's sub-adviser at meetings held on December 6 and December 14, 2006.
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 detail during a private session with
their independent legal counsel at which no representatives of GEAM or the
sub-adviser were present. The independent Board members and their independent
legal counsel requested, and received and considered, additional information
from GEAM following this session.
In advance of the meetings, 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 recent years, 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 recent years. Also in advance of the meetings, 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 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 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 Fund's
investment advisory and sub-advisory 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 has
expended 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.
22
Advisory and Administrative Agreement Renewal (unaudited)
- --------------------------------------------------------------------------------
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 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 index 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 overall taking into
consideration the factors discussed above.
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. 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.
23
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 effect, if any, of the Securities and Exchange Commission
staff's interpretive guidance concerning soft dollars. 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 that
GEAM and the sub-adviser may derive from their relationship with the Fund,
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 interests of the shareholders of the
Fund.
24
Additional Information (unaudited)
- --------------------------------------------------------------------------------
INFORMATION ABOUT DIRECTORS AND EXECUTIVE OFFICERS:
The business and affairs of the Company are managed under the direction of the
Company's Board of Directors. Information pertaining to the Directors and
officers of the Company is set forth below.
INTERESTED DIRECTORS AND EXECUTIVE OFFICERS
- --------------------------------------------------------------------------------
MICHAEL J. COSGROVE
- --------------------------------------------------------------------------------
ADDRESS c/o GEAM 3001 Summer St. Stamford, CT 06905
AGE 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;
Trustee of Elfun Foundation; Treasurer of GE Foundation; Director, GE Asset
Management (Ireland) since February 1999.
- --------------------------------------------------------------------------------
ALAN M. LEWIS
- --------------------------------------------------------------------------------
ADDRESS c/o GEAM 3001 Summer St. Stamford, CT 06905
AGE 60
POSITION(S) HELD WITH FUND Director and Executive Vice President
TERM OF OFFICE AND LENGTH OF TIME SERVED Until successor is elected and
qualified - 6 years
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS Executive Vice President, General
Counsel and Secretary of GEAM
since 1987
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR 48
OTHER DIRECTORSHIPS HELD BY DIRECTOR Trustee and Executive Vice President of GE
Funds, GE Institutional Funds and GE LifeStyle Funds since their inception.
Trustee of Elfun Funds, GE Savings & Security Funds and General Electric Pension
Trust since 1987.
25
Additional Information (unaudited)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SCOTT H. RHODES
- --------------------------------------------------------------------------------
ADDRESS c/o GEAM 3001 Summer St. Stamford, CT 06905
AGE 47
POSITION(S) HELD WITH FUND Treasurer
TERM OF OFFICE AND LENGTH OF TIME SERVED Until successor is elected and
qualified - less than one year
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS GEAM Mutual Funds Operations Manager
since September 2005; Treasurer of GE Institutional Funds, GE LifeStyle Funds
and GE Investments Funds since November 2005 and Elfun Funds and GE Savings &
Security Funds since September 2005; from August 2004 to September 2005 Vice
President, U.S. Trust Company, N.A. and Assistant Treasurer of Excelsior Funds,
Inc., Excelsior Funds Trust, and Excelsior Tax Exempt Funds, Inc.; from January
2004 to August 2004, Vice President BlackRock Financial Management, Inc.; from
December 1996 to November 2003, Controller - Mutual Funds, American Skandia
Investment Services, Inc. and Assistant Treasurer of American Skandia Trust and
American Skandia Advisor Funds, Inc.
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR N/A
OTHER DIRECTORSHIPS HELD BY DIRECTOR N/A
- --------------------------------------------------------------------------------
MATTHEW J. SIMPSON
- --------------------------------------------------------------------------------
ADDRESS c/o GEAM 3001 Summer St. Stamford, CT 06905
AGE 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 41
POSITION(S) HELD WITH FUND Vice President and Assistant Secretary
TERM OF OFFICE AND LENGTH OF TIME SERVED Until successor is elected and
qualified - 2 years
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS Vice President and Associate General
Counsel - Marketing and Client Services (formerly Asset Management Services) at
GEAM since May 1997; Vice President and Assistant Secretary of GE Funds, GE
Institutional Funds and GE LifeStyle Funds since September 2003; Vice President
and Assistant Secretary of Elfun Funds and GE Savings & Security Funds since
October 2003.
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR N/A
OTHER DIRECTORSHIPS HELD BY DIRECTOR N/A
26
Additional Information (unaudited)
- --------------------------------------------------------------------------------
NON-INTERESTED DIRECTORS
- --------------------------------------------------------------------------------
JOHN R. COSTANTINO
- --------------------------------------------------------------------------------
ADDRESS c/o GEAM 3001 Summer St. Stamford, CT 06905
AGE 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 General Partner, NGN Capital LLC
since 2006; 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 59
POSITION(S) HELD WITH FUND Director
TERM OF OFFICE AND LENGTH OF TIME SERVED Until successor is elected and
qualified - 9 years
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS 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 Trustee of GE Funds since 1993, and GE
Institutional Funds and GE LifeStyle Funds since their inception.
- --------------------------------------------------------------------------------
The Statement of Additional Information for the Fund includes additional
information about the Directors and Officers and is available, without charge,
upon request by calling 1-800-242-0134.
27
Investment Team
- --------------------------------------------------------------------------------
INVESTMENT ADVISER AND ADMINISTRATOR
GE Asset Management Incorporated
BOARD OF DIRECTORS
Michael J. Cosgrove, CHAIRMAN
John R. Costantino
Alan M. Lewis
William J. Lucas
Robert P. Quinn
SECRETARY
Matthew J. Simpson
TREASURER
Scott H. Rhodes
ASSISTANT TREASURER
Christopher M. Isaacs
DISTRIBUTOR
GE Investment Distributors, Inc.
Member NASD and SIPC
COUNSEL
Sutherland, Asbill & Brennan, LLP
CUSTODIAN
State Street Bank & Trust Company
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
KPMG LLP
OFFICERS OF THE INVESTMENT ADVISER
Ronald R. Pressman, CHIEF EXECUTIVE OFFICER (EFFECTIVE AS OF JULY 1, 2006)
David B. Carlson, EVP, DOMESTIC EQUITIES
Michael J. Cosgrove, EVP, CHIEF COMMERCIAL OFFICER
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
Judith A. Studer, EVP, INVESTMENT STRATEGIES (AS OF JULY 2006)
Don W. Torey, EVP, ALTERNATIVE INVESTMENTS AND REAL ESTATE
John J. Walker, EVP, CHIEF FINANCIAL OFFICER
28
[This page intentionally left blank.]
INVESTMENT ADVISER
GE ASSET MANAGEMENT INCORPORATED
3001 SUMMER STREET
PO BOX 7900
STAMFORD, CT 06904-7900
DISTRIBUTOR
GE INVESTMENT DISTRIBUTORS, INC.
MEMBER NASD AND SIPC
3001 SUMMER STREET
PO BOX 7900
STAMFORD, CT 06904-7900
- --------------------------------------------------------------------------------
The Fund files its complete schedule of portfolio holdings with the Securities
and Exchange Commission for the first and third quarters of each fiscal year on
Form N-Q. The Fund's Forms N-Q, as well as a description of the policies and
procedures that the Fund uses to determine how to vote proxies (if any) relating
to portfolio securities is available without charge (i) upon request, by calling
1-800-242-0134; (ii) on the Fund's website at http://www.gefunds.com; and (iii)
on the Commission's website at http://www.sec.gov. The Fund's Forms N-Q may be
reviewed and copied at the Commission's Public Reference Room in Washington, DC
- - information on the operation of the Public Reference Room may be obtained by
calling 1-800-SEC-0330.
Information (if any) regarding how the Fund voted proxies relating to portfolio
securities during the most recently disclosed 12-months period ended June 30 is
available without charge (i) through the Fund's website at
http://www.gefunds.com; and (ii) on the Commission's website at
http://www.sec.gov.
- --------------------------------------------------------------------------------
[GE LOGO OMITTED]
<page>
GE Investments Funds, Inc.
Premier Growth Equity Fund
Annual Report
DECEMBER 31, 2006
[GE LOGO]
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
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM 17
ADVISORY AND ADMINISTRATIVE AGREEMENT RENEWAL 18
ADDITIONAL INFORMATION 21
INVESTMENT TEAM 24
This report is prepared for Policyholders of certain variable contracts and may
be distributed to others only if preceded or accompanied by the variable
contract's current prospectus and the current prospectus of the Funds available
for investments thereunder.
Notes to Performance December 31, 2006
- --------------------------------------------------------------------------------
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 EQUITY FUND PERFORM COMPARED TO ITS BENCHMARK
AND LIPPER PEER GROUP FOR THE TWELVE-MONTH PERIOD ENDED DECEMBER 31, 2006?
A. For the twelve-month period ended December 31, 2006, the Premier Growth
Equity Fund returned 9.07%. The S&P 500 Index, the Fund's benchmark,
returned 15.79% and the Fund's Lipper peer group of 194 Large-Cap Growth
funds returned an average of 6.30% for the same period.
Q. WHAT MARKET CONDITIONS IMPACTED FUND PERFORMANCE?
A. The U.S. equity markets had a strong year driven in part by mid-teens
growth in earnings and dividends. However, the growth style of investing
continued to lag -- the Russell 1000 Growth gained just +9.1% versus a
gain of +22.3% for the Russell 1000 Value. 2006 marked the fourth
consecutive year of positive equity returns, establishing the
second-longest running bull market since 1928. However, this bull's
average annual return of +17% versus an average of +38% for the past 20
bull markets ranked it dead last in terms of magnitude.
During the year, telecommunications services (+36.8%), energy (+24.2%) and
utilities (+21.0%) led broad market returns, while technology (+8.3%) and
health care (+7.5%) trailed the S&P 500 by the widest margins. Given the
sector leadership, it was not surprising that growth once again struggled
against value.
Q. WHAT WERE THE PRIMARY DRIVERS OF FUND PERFORMANCE?
A. As a growth oriented portfolio with 34 stocks, the performance of the
individual holdings were the primary driver of Fund performance. The Fund
had no holdings in the telecom and utilities sectors, due to the slow
growth nature of these industries. The Fund had two energy stocks in the
oil service industry, and the Fund's holding of Schlumberger was a
positive contributor with a gain of 31% for the year.
The Fund's technology performance was aided by strong returns from Cisco,
Intuit and Western Union. However, Yahoo! and Ebay declined due to
investors concern over potential competition from Google, although we
continue to believe that there is more than enough growth to go around in
the Internet search, advertising and global ecommerce. In addition,
semiconductor companies Analog Devices and Linear Technology declined as
the near-term demand for the companies' products became clouded.
The majority of underperformance in healthcare was due to declines in four
holdings: UnitedHealth, Amgen, Lincare and Medtronic. However, we continue
to believe in the long-term potential of each of these four healthcare
companies.
[PHOTO OMITTED]
PICTURED FROM BOTTOM LEFT TO RIGHT:
DAVID B. CARLSON
2
- --------------------------------------------------------------------------------
[Q&A]
Within the financial sector, the Fund experienced strong performance from
CB Richard Ellis, State Street and Fannie Mae. However, weakness came from
student lender Sallie Mae (discounting possible rate reductions from a
Democratic Congress) and insurer AFLAC (still turning around its Japanese
operation).
Sectors that contributed positively to Fund performance during the period
included materials, industrials and consumer discretionary. Monsanto, the
Fund's sole holding in the materials sector, continued to exceed earnings
guidance as the company experienced very strong demand for its genetically
modified seed traits. Within industrials, a strong return from the Fund's
sole holding, Dover, helped the most. Within consumer discretionary,
significant advances among our media holdings contributed most to Fund
performance. The concerns regarding pricing power that plagued the media
industry in 2005 subsided in 2006, allowing cable companies like Comcast
to bounce back as their voice business ramped up in the past year. Notable
strength in Liberty Global and Liberty Media/Capital also contributed
significantly to the Fund's return in the media space.
Q. WERE THERE ANY SIGNIFICANT CHANGES TO THE FUND OVER THE PERIOD?
A. There were no significant changes to the Fund's portfolio during the year,
and the portfolio turnover was relatively low. In the last twelve months,
we eliminated positions in Vodafone, Pfizer, Dell, Intel and Baker Hughes,
with the position in Baker Hughes swapped into Transocean. The Fund also
added a new position in leading commercial real estate operator CB Richard
Ellis Group.
The philosophy of the Premier Growth Equity Fund remains the same. The
Fund will continue to own a concentrated list of high quality growth
stocks that we believe will grow earnings at a rate well above the overall
market. We believe this superior growth in earnings will drive superior
price performance over the long term. We believe we are well positioned
for the market environment ahead of us.
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 December
31, 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 $1,000 = 8.6), then multiply the result by the number
given for your class under the heading "Expenses Paid During Period."
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The second section of the table provides information about hypothetical account
values and hypothetical expenses based on the Fund's actual expense ratio and an
assumed rate of return of 5% per year before expenses, which is not the Fund's
actual return. You may use this information to compare the ongoing costs of
investing in the Fund and other funds. To do so, compare this 5% hypothetical
example with the 5% hypothetical examples that appear in the shareholders
reports of other funds.
Please note that the expenses shown in the table do not reflect any transaction
costs, such as sales charges or redemption fees.
JULY 1, 2006 - DECEMBER 31, 2006
- --------------------------------------------------------------------------------------------------
ACCOUNT VALUE AT ACCOUNT VALUE EXPENSES
THE BEGINNING OF AT THE END OF PAID DURING
THE PERIOD ($) THE PERIOD ($) THE PERIOD ($)*
- --------------------------------------------------------------------------------------------------
Actual Fund Return** 1,000.00 1,103.97 3.77
- --------------------------------------------------------------------------------------------------
Hypothetical 5% Return (2.5% for the period) 1,000.00 1,021.37 3.65
- --------------------------------------------------------------------------------------------------
* EXPENSES ARE EQUAL TO THE FUND'S ANNUALIZED EXPENSE RATIO OF 0.72% (FROM
PERIOD JULY 1, 2006 - DECEMBER 31, 2006), MULTIPLIED BY THE AVERAGE
ACCOUNT VALUE OVER THE PERIOD, MULTIPLIED BY 184/365 (TO REFLECT THE SIX
MONTH PERIOD).
** ACTUAL FUND RETURN FOR SIX-MONTH PERIOD ENDED DECEMBER 31, 2006 WAS:
10.40%.
4
Premier Growth Equity Fund
- --------------------------------------------------------------------------------
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 10,000
12/98 14,125 13,087
12/99 19,247 15,844
12/00 18,241 14,389
12/01 16,574 12,675
12/02 13,091 9,873
12/03 16,876 12,710
12/04 18,062 14,093
12/05 18,296 14,786
12/06 19,955 17,121
AVERAGE ANNUAL TOTAL RETURN
FOR THE PERIODS ENDED DECEMBER 31, 2006
- --------------------------------------------------------------------------------
ONE FIVE SINCE
YEAR YEAR INCEPTION
- --------------------------------------------------------------------------------
Premier Growth Equity Fund 9.07% 3.78% 7.93%
- --------------------------------------------------------------------------------
S&P 500 Index 15.79% 6.20% 6.10%
- --------------------------------------------------------------------------------
Lipper peer group average* 6.30% 2.70% N/A
- --------------------------------------------------------------------------------
Inception date 12/12/97
- --------------------------------------------------------------------------------
Premier Growth Equity Fund (ending value $19,955)
S&P 500 Index (ending value $17,121)
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 circumstances. The Fund invests primarily in a
limited number of large- and medium-sized companies that the portfolio manager
believes have above-average growth histories and/or growth potential.
TOP TEN LARGEST HOLDINGS
AS OF DECEMBER 31, 2006
as a % of Market Value
- --------------------------------------------------------------------------------
State Street Corp. 4.04%
- --------------------------------------------------------------------------------
Cisco Systems, Inc. 3.92%
- --------------------------------------------------------------------------------
Dover Corp. 3.62%
- --------------------------------------------------------------------------------
SLM Corp. 3.58%
- --------------------------------------------------------------------------------
Medtronic Inc. 3.56%
- --------------------------------------------------------------------------------
Monsanto Co. 3.50%
- --------------------------------------------------------------------------------
Amgen, Inc. 3.46%
- --------------------------------------------------------------------------------
UnitedHealth Group, Inc. 3.43%
- --------------------------------------------------------------------------------
Molex, Inc. (Class A) 3.34%
- --------------------------------------------------------------------------------
Bed Bath & Beyond, Inc. 3.32%
- --------------------------------------------------------------------------------
PORTFOLIO COMPOSITION
AS OF DECEMBER 31, 2006
as a % of Market Value
- --------------------------------------------------------------------------------
Market Value of $117,828 (in thousands)
[PIE CHART OMITTED, PLOT POINTS ARE AS FOLLOWS:]
Information Technology 27.9%
Consumer Discretionary 19.4%
Healthcare 17.8%
Financials 14.0%
Short-Term 8.3%
Energy 5.5%
Industrials 3.6%
Materials 3.5%
* LIPPER PERFORMANCE COMPARISONS ARE BASED ON AVERAGE ANNUAL TOTAL RETURNS
FOR THE ONE YEAR AND FIVE-YEAR PERIODS INDICATED IN THE LARGE-CAP GROWTH
FUNDS PEER GROUP CONSISTING OF 194 AND 131 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 December 31, 2006
- --------------------------------------------------------------------------------
PREMIER GROWTH EQUITY FUND
- --------------------------------------------------------------------------------
NUMBER
OF SHARES VALUE
- --------------------------------------------------------------------------------
COMMON STOCK -- 97.8%
- --------------------------------------------------------------------------------
CONSUMER DISCRETIONARY -- 20.7%
Bed Bath & Beyond, Inc. 102,757 $ 3,915,042 (a)
Carnival Corp. 75,715 3,713,821 (e)
Comcast Corp. (Class A) 93,292 3,907,069 (a,e)
Home Depot, Inc. 68,955 2,769,233 (d)
Liberty Global, Inc. (Series C) 127,094 3,558,632 (a,e)
Liberty Media Holding Corp -
Capital (Series A) 23,256 2,278,623 (a)
Liberty Media Holding Corp -
Interactive (Series A) 124,390 2,683,092 (a)
22,825,512
Energy -- 5.8%
Schlumberger Ltd. 58,139 3,672,059
Transocean Inc. 34,342 2,777,924 (a)
6,449,983
FINANCIALS -- 14.9%
AFLAC Incorporated 75,716 3,482,936
CB Richard Ellis Group, Inc.
(Class A) 62,735 2,082,802 (a)
Federal National Mortgage Assoc. 32,450 1,927,205
SLM Corp. 86,532 4,220,166
State Street Corp. 70,578 4,759,780 (c)
16,472,889
HEALTHCARE -- 19.0%
Amgen, Inc. 59,762 4,082,342 (a)
Johnson & Johnson 29,745 1,963,765
Lincare Holdings Inc. 71,659 2,854,894 (a)
Medtronic Inc. 78,420 4,196,254
UnitedHealth Group, Inc. 75,175 4,039,153
Zimmer Holdings, Inc. 49,756 3,899,875 (a)
21,036,283
INDUSTRIALS -- 3.9%
Dover Corp. 87,073 4,268,318
INFORMATION TECHNOLOGY -- 29.8%
Analog Devices, Inc. 54,894 1,804,366
Cisco Systems, Inc. 169,008 4,618,989 (a)
eBay, Inc. 78,690 2,366,208 (a)
First Data Corp. 35,155 897,156 (d)
Intuit Inc. 91,939 2,805,059 (a,d)
Linear Technology Corp. 50,297 1,525,005 (e)
Microsoft Corp. 109,517 3,270,178
NUMBER
OF SHARES VALUE
- --------------------------------------------------------------------------------
Molex, Inc. (Class A) 141,967 $ 3,932,486 (d)
Paychex, Inc. 80,177 3,170,199
QUALCOMM, Inc. 60,842 2,299,219
Western Union Co. 127,094 2,849,447
Yahoo! Inc. 131,150 3,349,571 (a)
32,887,883
MATERIALS -- 3.7%
Monsanto Co. 78,420 4,119,403
TOTAL INVESTMENTS IN SECURITIES
(COST 90,815,670) 108,060,271
- --------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS -- 8.8%
- --------------------------------------------------------------------------------
AFFILIATED SHORT-TERM INVESTMENTS -- 2.8%
GEI Short Term Investment Fund
5.56% 3,144,831 3,144,831 (b,f)
SHORT-TERM SECURITIES PURCHASED WITH
COLLATERAL FROM SECURITIES ON LOAN -- 6.0%
State Street Navigator Securities
Lending Prime Portfolio
5.33% 6,622,432 6,622,432 (b,c)
TOTAL SHORT-TERM INVESTMENTS
(COST $9,767,263) 9,767,263
TOTAL INVESTMENTS
(COST $100,582,933) 117,827,534
LIABILITIES IN EXCESS OF OTHER ASSETS,
NET -- (6.6)% (7,289,356)
------------
NET ASSETS -- 100.0% $110,538,178
============
See Notes to Schedule of Investments on page 7 and Notes to Financial
Statements.
6
Notes to Schedule of Investments December 31, 2006
- --------------------------------------------------------------------------------
The views expressed in this document reflect our judgment as of the publication
date and are subject to change at any time without notice. The securities cited
may not represent current or future holdings and should not be considered as a
recommendation to purchase or sell a particular security. See the prospectus for
complete descriptions of investment objectives, policies, risks and permissible
investments.
(a) Non-income producing security.
(b) Coupon amount represents effective yield.
(c) State Street Corp. is the parent company of State Street Bank & Trust Co.,
the Fund's custodian and accounting agent.
(d) At December 31, 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) GE Asset Management Incorporated, the investment adviser of the Fund, also
serves as investment adviser of the GEI Short Term Investment Fund.
+ Percentages are based on net assets as of December 31, 2006.
Abbreviations:
TBA To Be Announced
7
Financial Highlights
Selected data based on a share outstanding throughout the periods indicated
- --------------------------------------------------------------------------------
PREMIER GROWTH EQUITY FUND
12/31/06 12/31/05 12/31/04 12/31/03 12/31/02
- ----------------------------------------------------------------------------------------------------------------
INCEPTION DATE -- -- -- -- 12/12/97
Net asset value, beginning of period $ 75.65 $ 74.95 $ 70.46 $ 54.74 $ 69.34
INCOME/(LOSS) FROM INVESTMENT OPERATIONS:
Net investment income 0.35 0.24 0.47 0.11 0.03
Net realized and unrealized
gains/(losses) on investments 6.51 0.73 4.48 15.72 (14.60)
- ----------------------------------------------------------------------------------------------------------------
TOTAL INCOME/(LOSS) FROM INVESTMENT OPERATIONS 6.86 0.97 4.95 15.83 (14.57)
- ----------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM:
Net investment income 0.34 0.27 0.46 0.11 0.03
Net realized gains -- -- -- -- --
- ----------------------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS 0.34 0.27 0.46 0.11 0.03
- ----------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 82.17 $ 75.65 $ 74.95 $ 70.46 $ 54.74
================================================================================================================
TOTAL RETURN (a) 9.07% 1.29% 7.03% 28.91% (21.02)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in thousands) $ 110,538 $ 126,682 $ 137,801 $ 143,202 $ 87,569
Ratios to average net assets:
Net investment income 0.41% 0.30% 0.62% 0.20% 0.05%
Expenses 0.71% 0.71% 0.71% 0.70% 0.67%
Portfolio turnover rate 27% 34% 22% 24% 25%
NOTES TO FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(a) Total returns are historical and assume changes in share price and
reinvestment of dividends and capital gains and do not include the effect
of insurance contract charges.
See Notes to Financial Statements.
8
PREMIER
Statement of Assets GROWTH
and Liabilities DECEMBER 31, 2006 EQUITY FUND
- -----------------------------------------------------------------------------------------------------
ASSETS
Investments in securities, at market* (cost $90,815,670) $ 108,060,271
Short-term Investments (at amortized cost) 6,622,432
Short-term affiliated investments (at amortized cost) 3,144,831
Income receivables 56,464
Receivable for fund shares sold 20,926
- -----------------------------------------------------------------------------------------------------
TOTAL ASSETS 117,904,924
- -----------------------------------------------------------------------------------------------------
LIABILITIES
Payable upon return of securities loaned 6,622,431
Payable for fund shares redeemed 674,794
Payable to GEAM 69,521
- -----------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 7,366,746
- -----------------------------------------------------------------------------------------------------
NET ASSETS $ 110,538,178
=====================================================================================================
NET ASSETS CONSIST OF:
Capital paid in 95,621,969
Undistributed (distribution in excess of) net investment income 17,964
Accumulated net realized gain (loss) (2,346,393)
Net unrealized appreciation/(depreciation) on:
Investments 17,244,601
Futures 37
- -----------------------------------------------------------------------------------------------------
NET ASSETS $ 110,538,178
=====================================================================================================
Shares outstanding ($0.01 par value; unlimited shares authorized) 1,345,176
Net asset value per share $ 82.17
* Includes $6,421,255 of securities on loan.
See Notes to Financial Statements.
9
PREMIER
Statement of Operations GROWTH
FOR THE YEAR ENDED DECEMBER 31, 2006 EQUITY FUND
- -----------------------------------------------------------------------------------------------------
INVESTMENT INCOME
INCOME:
Dividend $ 1,154,682
Interest* 3,745
Interest from affliated investments 147,593
- -----------------------------------------------------------------------------------------------------
TOTAL INCOME 1,306,020
- -----------------------------------------------------------------------------------------------------
EXPENSES:
Advisory and administrative fees 759,180
Transfer agent fees 98
Trustee's fees 3,970
Custody and accounting expenses 32,034
Professional fees 20,511
Registration expenses 2,279
Other expenses 9,523
- -----------------------------------------------------------------------------------------------------
TOTAL EXPENSES 827,595
- -----------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME (LOSS) 478,425
=====================================================================================================
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS
REALIZED GAIN (LOSS) ON:
Investments 6,515,026
Futures (133,692)
INCREASE (DECREASE) IN UNREALIZED APPRECIATION/
(DEPRECIATION) ON:
Investments 2,919,149
Futures (31,796)
- -----------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments 9,268,687
- -----------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $ 9,747,112
=====================================================================================================
* Income attributable to security lending activity, net of rebate expenses,
was $3,298.
See Notes to Financial Statements.
10
PREMIER
Statements of GROWTH
Changes in Net Assets EQUITY FUND
- ------------------------------------------------------------------------------------------------------------------------
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
2006 2005
- ------------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net investments income (loss) $ 478,425 $ 394,754
Net realized gain (loss) on investments, futures, written options,
foreign currency transactions and swaps 6,381,334 6,078,101
Net increase (decrease) in unrealized appreciation/(depreciation)
on investments, futures, written options, foreign currency translation 2,887,353 (4,777,882)
- ------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) from operations 9,747,112 1,694,973
- ------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (460,461) (454,489)
- ------------------------------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS (460,461) (454,489)
- ------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets from operations and distributions 9,286,651 1,240,484
- ------------------------------------------------------------------------------------------------------------------------
SHARE TRANSACTIONS:
Proceeds from sale of shares 2,711,181 15,512,338
Value of distributions reinvested 460,457 454,492
Cost of shares redeemed (28,602,300) (28,325,838)
- ------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) from share transactions (25,430,662) (12,359,008)
- ------------------------------------------------------------------------------------------------------------------------
TOTAL INCREASE (DECREASE) IN NET ASSETS (16,144,011) (11,118,524)
NET ASSETS
Beginning of period 126,682,189 137,800,713
- ------------------------------------------------------------------------------------------------------------------------
End of period $ 110,538,178 $ 126,682,189
========================================================================================================================
UNDISTRIBUTED (DISTRIBUTION IN EXCESS OF) NET INVESTMENT INCOME, END OF PERIOD $ 17,964 $ --
- ------------------------------------------------------------------------------------------------------------------------
CHANGES IN FUND SHARES
Shares sold 34,867 214,046
Issued for distributions reinvested 5,588 5,954
Shares redeemed (369,756) (383,987)
- ------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in fund shares (329,301) (163,987)
========================================================================================================================
See Notes to Financial Statements.
11
Notes to Financial Statements December 31, 2006
- --------------------------------------------------------------------------------
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.
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.
In September 2006, FASB issued Statement of Financial Accounting Standards No.
157, FAIR VALUE MEASUREMENTS ("FAS 157"). FAS 157 establishes a single
authoritative definition of fair value, establishes a framework for measuring
fair value and expands disclosures about fair value measurements. FAS 157
applies to fair value measurements already required or permitted by existing
standards. The change to current generally accepted accounting principles from
the application of FAS 157 relate to the definition of fair value, the methods
used to measure fair value, and the expanded disclosures about fair value
measurements. Management of the Fund does not believe the adoption of FAS 157
will materially impact the financial statement amounts, however, additional
disclosures may be required about the inputs used to
12
Notes to Financial Statements December 31, 2006
- --------------------------------------------------------------------------------
develop the measurements and the effect of certain of the measurements on
changes in net assets for the period. FAS 157 is effective for financial
statements issued for fiscal years beginning after November 15, 2007 and interim
periods within those fiscal years.
REPURCHASE AGREEMENTS The Fund may engage in repurchase agreement transactions
with respect to instruments that are consistent with the Fund's investment
objectives or policies. 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.
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
13
Notes to Financial Statements December 31, 2006
- --------------------------------------------------------------------------------
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 difference between the premium and the amount paid on effecting
a closing purchase transaction, including brokerage commissions, is also treated
as a realized gain, or if the premium is less than the amount paid for the
closing purchase, as a realized loss. When an option is exercised, the proceeds
from the sale of the underlying security or the cost basis of the securities
purchased is adjusted by the original premium received or paid.
INVESTMENTS IN FOREIGN MARKETS Investments in foreign markets may involve
special risks and considerations not typically associated with investing in the
United States. These risks include revaluation of currencies, high rates of
inflation, repatriation on income and capital, and adverse political and
economic developments. Moreover, securities issued in these markets may be less
liquid, subject to government ownership controls, tariffs and taxes, subject to
delays in settlements, and their prices may be more volatile.
The Fund may be subject to capital gains and repatriation taxes imposed by
certain countries in which it invests. Such taxes are generally based on income
and/or capital gains earned or repatriated. Taxes are accrued based upon net
investment income, net realized gains and net unrealized appreciation as income
and/or capital gains are earned.
INCOME TAXES The Fund intends to comply with all sections of the Internal
Revenue Code applicable to regulated investment companies including the
distribution of substantially all of its taxable net investment income and net
realized capital gains to its shareholders. Therefore, no provision for federal
income tax has been made. The Fund is treated as a separate taxpayer for federal
income tax purposes.
At December 31, 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
- --------------------------------------------------------------------------------
$ 102,949,391 $ 18,842,621 $(3,964,478) $ 14,878,143
Net Tax Appreciation/ Undistributed Undistributed Post
(Depreciation) on Income/ Long-Term Gains/ October
Derivatives, Currency (Accumulated (Accumulated Losses
and Other Net Assets Ordinary Loss) Capital Loss) (see Detail Below)
- --------------------------------------------------------------------------------
$ -- $ 17,964 $ 20,102 $ --
14
Notes to Financial Statements December 31, 2006
- --------------------------------------------------------------------------------
As of December 31, 2006, 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.
During the year ended December 31, 2006, the Fund utilized approximately
$3,350,016 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 incurred no such losses after October 31, 2006.
The tax composition of distributions paid (other than return of capital
distributions for the year) during the year ended December 31, 2006 was as
follows:
Ordinary Long-Term
Income Capital Gains Total
- -------------------------------------------------------------------------------
$ 460,461 $ -- $ 460,461
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.
On July 13, 2006, the FASB released FIN48, "Accounting for Uncertainty in Income
Taxes." FIN48 provides guidance for how uncertain tax positions should be
recognized, measured, presented and disclosed in the financial statements. FIN48
requires evaluation of tax positions taken or expected to be taken in the course
of preparing the Fund's tax returns to determine whether the tax positions are
"more likely than not" of being sustained by the applicable tax authority. The
adoption of FIN48 will require financial statements to be adjusted to reflect
only those tax positions that are more likely that not to be sustained as of the
adoption date. Adoption of FIN48 is required for fiscal years beginning after
December 15, 2006 no later than June 29, 2007 and is applied to all open years
as of the effective date. At this time, management is evaluating the
implications of FIN48 and its impact on the financial statements has not yet
been determined.
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 and amortized,
respectively, to call or maturity date, whichever is shorter, using the
effective yield method.
EXPENSES Expenses of the Company which are directly identifiable to one of the
Funds are allocated to that portfolio. Expenses which are not directly
identifiable to one of the Funds are allocated in such a manner as deemed
equitable, taking into consideration the nature and type of expenses and
relative sizes of the Funds. All expenses of the Fund are paid by GEAM and
reimbursed by the Fund.
3. LINE OF CREDIT
The Fund shares a revolving credit facility of up to $25 million with a number
of its affiliates. The credit facility is with its custodian bank, State Street
Bank and Trust Company. The revolving credit facility requires the payment of a
commitment fee equal to 0.09% per annum on the daily unused portion of the
credit facility, payable quarterly. The portion borne by the Funds generally is
borne proportionally based upon net assets. Generally, borrowings under the
credit facility would accrue interest at the Federal Funds Rate plus 50 basis
points and is borne by each of the borrowing Funds. The maximum amount allowed
to be borrowed by any one of the Funds is the lesser of its prospectus
limitation, 20% of its net assets, or $25 million. The credit facility was not
utilized by the Fund during the period ended December 31, 2006.
15
Notes to Financial Statements December 31, 2006
- --------------------------------------------------------------------------------
4. AMOUNTS PAID TO AFFILIATES
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. GEAM's compensation 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 December 31, 2006, $2,123 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
- --------------------------------------------------------------------------------
$ 30,124,878 $ 56,540,666
SECURITY LENDING At December 31, 2006, the Fund participated in securities
lending:
Loaned
securities at Cash
market value collateral*
- --------------------------------------------------------------------------------
$ 6,421,255 $ 6,622,432
* COLLATERAL OF $6,674,765 DECREASED BY $52,333 ON JANUARY 1, 2007 TO
REFLECT THE DECEMBER 31, 2006 CHANGE IN VALUE OF SECURITIES ON LOAN.
16
Report of Independent Registered Public Accounting Firm
- --------------------------------------------------------------------------------
The Shareholders and Board of Directors
GE Investments Funds, Inc.
We have audited the accompanying statement of assets and liabilities of the
Premier Growth Equity Fund, a series of GE Investments Funds, Inc., including
the schedule of investments, as of December 31, 2006, and the related statement
of operations for the year then ended, the statements of changes in net assets
for each of the years in the two-year period then ended, and the financial
highlights for each of the years in the five-year period then ended. These
financial statements and financial highlights are the responsibility of the
Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included confirmation of
securities owned as of December 31, 2006 by correspondence with the custodian
and brokers, or by other appropriate auditing procedures where replies from
brokers were not received. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
Premier Growth Equity Fund as of December 31, 2006, the results of its
operations, changes in its net assets and financial highlights for the years
described above, in conformity with U.S. generally accepted accounting
principles.
/s/ KPMG LLP
Boston, Massachusetts
February 20, 2007
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 6
and December 14, 2006.
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 detail during a
private session with their independent legal counsel at which no representatives
of GEAM were present. The independent Board members and their independent legal
counsel requested, and received and considered, additional information from GEAM
following this session.
In advance of the meetings, 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 recent years, 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 recent years. 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 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 has expended 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 overall taking
into consideration the factors discussed above.
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. 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 about the fees
being charged to the Fund and, to the
19
Advisory and Administrative Agreement Renewal (unaudited)
- --------------------------------------------------------------------------------
extent applicable, the effect, if any, of the Securities and Exchange Commission
staff's interpretive guidance concerning soft dollars. 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 that
GEAM may derive from its relationship with the Fund, 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;
Trustee of Elfun Foundation; Treasurer of GE Foundation; Director, GE Asset
Management (Ireland) since February 1999.
- --------------------------------------------------------------------------------
ALAN M. LEWIS
- --------------------------------------------------------------------------------
ADDRESS c/o GEAM 3001 Summer St. Stamford, CT 06905
AGE 60
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 41
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 General Partner, NGN Capital LLC
since 2006; 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 59
POSITION(S) HELD WITH FUND Director
TERM OF OFFICE AND LENGTH OF TIME SERVED Until successor is elected and
qualified - 9 years
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS 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 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)
David B. Carlson, EVP, DOMESTIC EQUITIES
Michael J. Cosgrove, EVP, CHIEF COMMERCIAL OFFICER
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
Judith A. Studer, EVP, INVESTMENT STRATEGIES (AS OF JULY 2006)
Don W. Torey, EVP, ALTERNATIVE INVESTMENTS AND REAL ESTATE
John J. Walker, EVP, CHIEF FINANCIAL OFFICER
24
[This page intentionally left blank.]
INVESTMENT ADVISER
GE ASSET MANAGEMENT INCORPORATED
3001 SUMMER STREET
PO BOX 7900
STAMFORD, CT 06904-7900
DISTRIBUTOR
GE INVESTMENT DISTRIBUTORS, INC.
MEMBER NASD AND SIPC
3001 SUMMER STREET
PO BOX 7900
STAMFORD, CT 06904-7900
- --------------------------------------------------------------------------------
The Fund files its complete schedule of portfolio holdings with the Securities
and Exchange Commission for the first and third quarters of each fiscal year on
Form N-Q. The Fund's Forms N-Q, as well as a description of the policies and
procedures that the Fund uses to determine how to vote proxies (if any) relating
to portfolio securities is available without charge (i) upon request, by calling
1-800-242-0134; (ii) on the Fund's website at http://www.gefunds.com; and (iii)
on the Commission's website at http://www.sec.gov. The Fund's Forms N-Q may be
reviewed and copied at the Commission's Public Reference Room in Washington, DC
- - information on the operation of the Public Reference Room may be obtained by
calling 1-800-SEC-0330.
Information (if any) regarding how the Fund voted proxies relating to portfolio
securities during the most recently disclosed 12-months period ended June 30 is
available without charge (i) through the Fund's website at
http://www.gefunds.com; and (ii) on the Commission's website at
http://www.sec.gov.
- --------------------------------------------------------------------------------
[GE LOGO OMITTED]
<page>
GE Investments Funds, Inc.
Value Equity Fund
Annual Report
DECEMBER 31, 2006
[GE LOGO OMITTED]
GE Investments Funds, Inc.
Value 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
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM 19
TAX INFORMATION 20
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 December 31, 2006
- --------------------------------------------------------------------------------
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 TWELVE-MONTH PERIOD ENDED DECEMBER 31, 2006?
A. For the twelve-month period ended December 31, 2006, the Value Equity Fund
returned 17.85%. The S&P 500 Index, the Fund's benchmark, returned 15.79%
and the Fund's Lipper peer group of 224 Large-Cap Core funds returned an
average of 13.31% for the same period.
Q. WHAT MARKET CONDITIONS IMPACTED FUND PERFORMANCE?
A. The U.S. equity markets had a strong year, with upbeat returns across all
market sectors. 2006 marked the fourth consecutive year of positive equity
returns, establishing the second-longest running bull market since 1928.
However, we characterized this bull market as muted -- its average annual
return of +17% versus an average of +38% for the past 20 bull markets
ranked it dead last in terms of magnitude.
After an uneventful first half of 2006, most of this year's gains occurred
in the second half with strong advances in each of the broad market
indices. It seems Santa took advantage of declining oil prices to power up
his sleigh early, and investors enjoyed a remarkable second-half rally
bolstered by continued profit growth, an abundance of deal-making, cooling
inflation worries and a pause in Fed tightening. For the year, the Dow
Jones Industrial Average posted a +19.1% total return -- its best annual
gain since 2003 (and at 12,463, near an all-time high). The S&P 500 ended
the year +15.8%, at a level unseen for the past six years, and the Russell
1000 gained +15.5%. The
[PHOTO OMITTED]
PICTURE BOTTOM RIGHT:
PAUL C. REINHARDT
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2
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Q&A
Russell 2000 (+18.4%) outpaced the larger cap indices, and the tech-heavy
NASDAQ (+9.5%) lagged, while still turning in a respectable absolute
return.
During the year, telecommunications services (+36.8%), energy (+24.2%) and
utilities (+21.0%) led broad market returns, while technology (+8.3%) and
health care (+7.5%) trailed the S&P 500 by the widest margins. While
telecom services was one of the worst performing sectors in 2005,
investors applauded M&A activity in the space in 2006, especially AT&T's
announced acquisition of BellSouth (up +53% and +80%, respectively). Given
the sector leadership, it was not surprising that value once again
outperformed growth. For the eighth consecutive year, small caps
outperformed large caps, but this year it was by a narrower margin. While
lagging significantly in 2005, the returns of the 100 largest stocks
(+15.7%) were approximately in-line with the S&P 500 benchmark (+15.8%) in
2006.
Q. WHAT WERE THE PRIMARY DRIVERS FUND PERFORMANCE?
A. This year the value style of investing outperformed growth, and the Fund's
value orientation boosted its performance relative to the broad market S&P
500 index. Deemphasizing cyclical names has also helped at this point in
the business cycle, with slowing growth on the horizon. Technology,
industrials and healthcare have been the main performance drivers for the
year. Within technology, many of our high-quality holdings enjoyed strong
underlying fundamentals, especially communications equipment provider
Cisco Systems (+59.4%) amid growing demand for its networking solutions.
Within software, Oracle (+40.4%) contributed solidly as its acquisition
strategy positioned the company to gain share. Underweighting companies in
the lagging Internet software and services industry (-15.4%) also paid off
as investors grappled with slowing growth rates and competitive pressures.
A global industrial infrastructure mega-cycle has been driving returns
within industrials, and we leveraged it through our electrical equipment
stocks, including ABB (+86.0%) and Cooper Industries (+26.0%). Deere
(+42.3%) also benefited from growing demand for agricultural equipment,
due to the increasing use of grain-based alternative fuels. Overweighting
defense and aerospace companies helped, with particular strength in
General Dynamics (+32.2%), United Technologies (+12.2%) and Rockwell
Collins (+37.7%). Another key to our success was careful stock picking
within healthcare equipment, led by the dramatic turnaround at Baxter
(+32.6%). In addition, the media names rebounded during the year, and the
Fund enjoyed positive contributions from Cablevision (+84.6%) and Comcast
(+63.0%). Overweighting Exxon Mobil (+39.1%) was a final key contributor
-- a relatively defensive name within energy, which became a tricky sector
to navigate as oil prices pulled back in the second half of the year.
While telecommunications services and materials both detracted from
performance during the year, underweighting diversified telecom services
(+50.0%) was the single greatest drag on the Fund. The Bells have
benefited from restructuring and heightened M&A activity this year.
BellSouth rose approximately +80% on their announced combination with AT&T
(+53.2%) -- both of which had been underweighted in the Fund. However, we
did initiate a position in AT&T during the third quarter, due to improving
fundamentals and synergies we would expect from the BellSouth merger.
Q. WERE THERE ANY SIGNIFICANT CHANGES TO THE FUND OVER THE PERIOD?
A. Our process has remained consistent during the period, and we continued to
employ a bottom-up relative value process to seek out underappreciated
stocks with catalysts for growth or improving fundamentals. The Fund has
been positioned for a moderate slowdown in economic growth, given the
current levels of interest rates, the aging profit cycle and elevated
energy prices. Despite this general positioning, we went from underweight
to overweight technology during the year, as we believed that large
technology stocks are undervalued compared to
3
Value Equity Fund
- --------------------------------------------------------------------------------
Q&A
their historical valuation ranges. In addition, we believe technology
companies should benefit from incremental capital spending by
corporations. Our diversified portfolio of high quality tech stocks
includes new positions in Texas Instruments and National Semiconductor, as
well as increased holdings in Microsoft and Oracle. In the past year, as
we prepared for slowing economic growth, we increased our relative
weighting in health care and have opportunistically increased our exposure
to utilities. We took steps to reduce our exposure to cyclical names,
increasing our underweight in energy and taking some profits in
industrials (although we did add to some late- and long-cycle industrial
names, as well as ones benefiting from secular trends, like Cooper
Industries in the power infrastructure space). In the materials sector, we
eliminated Newmont Mining, Dow, Alcoa and Alcan as we expect slowing rates
of profit growth going forward. Financials and consumer discretionary
remained among our largest underweights, given our concerns about the
interest rate environment, the flat yield curve, and the credit quality
trend. Within financials, we increased our exposure to insurance names,
including new positions in Ace, Aon and MetLife that are less interest
rate sensitive.
4
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 December
31, 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 $1,000 = 8.6), then multiply the result by the number
given for your class under the heading "Expenses Paid During Period."
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The second section of the table provides information about hypothetical account
values and hypothetical expenses based on the Fund's actual expense ratio and an
assumed rate of return of 5% per year before expenses, which is not the Fund's
actual return. You may use this information to compare the ongoing costs of
investing in the Fund and other funds. To do so, compare this 5% hypothetical
example with the 5% hypothetical examples that appear in the shareholders
reports of other funds.
Please note that the expenses shown in the table do not reflect any transaction
costs, such as sales charges or redemption fees.
JULY 1, 2006 - DECEMBER 31, 2006
- --------------------------------------------------------------------------------
ACCOUNT VALUE AT ACCOUNT VALUE EXPENSES
THE BEGINNING OF AT THE END OF PAID DURING
THE PERIOD ($) THE PERIOD ($) THE PERIOD ($)*
- --------------------------------------------------------------------------------
Actual Fund Return** 1,000.00 1,135.41 4.50
- --------------------------------------------------------------------------------
Hypothetical 5% Return
(2.5% for the period) 1,000.00 1,020.78 4.26
- --------------------------------------------------------------------------------
* EXPENSES ARE EQUAL TO THE FUND'S ANNUALIZED EXPENSE RATIO OF 0.84% (FROM
PERIOD JULY 1, 2006 - DECEMBER 31, 2006), MULTIPLIED BY THE AVERAGE
ACCOUNT VALUE OVER THE PERIOD, MULTIPLIED BY 184/365 (TO REFLECT THE SIX
MONTH PERIOD).
** ACTUAL FUND RETURN FOR SIX-MONTH PERIOD ENDED DECEMBER 31, 2006 WAS:
13.54%.
5
Value Equity Fund
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CHANGE IN VALUE
OF A $10,000 INVESTMENT
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[LINE GRAPH OMITTED, PLOT POINTS ARE AS FOLLOWS:]
Value Equity Fund S&P 500 Index
04/28/00 $ 10,000 $ 10,000
06/00 $ 9,970 $ 10,035
12/00 $ 9,979 $ 9,155
06/01 $ 9,486 $ 8,543
12/01 $ 9,105 $ 8,064
06/02 $ 8,357 $ 7,004
12/02 $ 7,506 $ 6,282
06/03 $ 8,220 $ 7,022
12/03 $ 9,311 $ 8,087
06/04 $ 9,517 $ 8,365
12/04 $ 10,202 $ 8,967
06/05 $ 10,181 $ 8,894
12/05 $ 10,616 $ 9,408
06/06 $ 11,019 $ 9,662
12/06 $ 12,511 $ 10,893
AVERAGE ANNUAL TOTAL RETURN
FOR THE PERIODS ENDED DECEMBER 31, 2006
- --------------------------------------------------------------------------------
ONE FIVE SINCE
YEAR YEAR INCEPTION
- --------------------------------------------------------------------------------
Value Equity Fund 17.85% 6.56% 3.41%
- --------------------------------------------------------------------------------
S&P 500 Index 15.79% 6.20% 1.29%
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Lipper peer group average* 13.31% 5.22% N/A
- --------------------------------------------------------------------------------
Inception date 4/28/00
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Value Equity Fund (ending value $12,511)
S&P 500 Index (ending value $10,893)
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 circumstances. The Fund invests primarily in U.S. companies that the
portfolio manager believes are undervalued by the market but have solid growth
prospects.
TOP TEN LARGEST HOLDINGS
AS OF DECEMBER 31, 2006
as a % of Market Value
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Exxon Mobil Corp. 4.25%
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Microsoft Corp. 2.93%
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Industrial Select Sector SPDR Fund 2.14%
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Bank of America Corp. 2.13%
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International Business Machines Corp. 1.97%
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Citigroup, Inc. 1.95%
- --------------------------------------------------------------------------------
PepsiCo, Inc. 1.89%
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Oracle Corp. 1.88%
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Pfizer Inc. 1.83%
- --------------------------------------------------------------------------------
American International Group, Inc. 1.75%
- --------------------------------------------------------------------------------
PORTFOLIO COMPOSITION
AS OF DECEMBER 31, 2006
as a % of Market Value
- --------------------------------------------------------------------------------
Market Value of $43,744 (in thousands)
[PIE CHART OMITTED, PLOT POINTS ARE AS FOLLOWS:]
Financials 18.0%
Information Technology 15.8%
Healthcare 12.3%
Short-Term 10.6%
Industrials 9.9%
Consumer Staples 9.3%
Consumer Discretionary 7.2%
Energy 7.0%
Utilities 4.7%
Telecommunication Services 2.9%
Materials 2.3%
* LIPPER PERFORMANCE COMPARISONS ARE BASED ON AVERAGE ANNUAL TOTAL RETURNS
FOR THE ONE YEAR AND FIVE-YEAR PERIODS INDICATED IN THE LARGE-CAP CORE
FUNDS PEER GROUP CONSISTING OF 224 AND 165 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.
6
VALUE EQUITY FUND
Schedule of Investments December 31, 2006
- --------------------------------------------------------------------------------
VALUE EQUITY FUND
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NUMBER
OF SHARES VALUE
- --------------------------------------------------------------------------------
COMMON STOCK -- 95.6%
- --------------------------------------------------------------------------------
CONSUMER DISCRETIONARY -- 7.9%
Bed Bath & Beyond, Inc. 4,367 $ 166,383 (a)
Cablevision Systems Corp. 7,060 201,069
Comcast Corp. (Class A) 8,733 365,738 (a,e)
Koninklijke Philips
Electronics N.V. ADR 10,227 384,331
News Corp. (Class A) 13,464 289,207
Omnicom Group, Inc. 7,039 735,857
Starwood Hotels & Resorts
Worldwide, Inc. 2,766 172,875
Target Corp. 3,421 195,168
Time Warner, Inc. 28,384 618,204 (d)
3,128,832
CONSUMER STAPLES -- 10.3%
Alberto-Culver Co. 5,531 118,640
Clorox Co. 9,724 623,795 (e)
Diageo PLC ADR 2,329 184,713 (e)
General Mills, Inc. 7,787 448,531
Kellogg Co. 8,005 400,730
Kimberly-Clark Corp. 7,205 489,580
PepsiCo, Inc. 13,246 828,537
Procter & Gamble Co. 9,535 612,814
Sally Beauty Holdings, Inc. 5,624 43,867 (a,e)
Sara Lee Corp. 4,052 69,006 (e)
The Coca-Cola Co. 5,385 259,826
4,080,039
ENERGY -- 7.7%
Exxon Mobil Corp. 24,235 1,857,128 (d)
Halliburton Co. 3,930 122,027
Hess Corp. 5,895 292,215
Occidental Petroleum Corp. 6,405 312,756
Schlumberger Ltd. 3,129 197,628
Transocean Inc. 3,275 264,915 (a,e)
3,046,669
FINANCIALS -- 19.3%
ACE Ltd. 6,041 365,903 (e)
Allstate Corp. 8,879 578,112
American International
Group, Inc. 10,662 764,039
AON Corp. 2,911 102,875 (e)
Bank of America Corp. 17,467 932,563 (d)
BlackRock Inc. (Class A) 1,164 176,812 (e)
CB Richard Ellis Group, Inc.
(Class A) 592 19,654 (a)
Chubb Corp. 7,715 408,201
Citigroup, Inc. 15,284 851,319
NUMBER
OF SHARES VALUE
- --------------------------------------------------------------------------------
Federal Home Loan
Mortgage Corp. 7,642 $ 518,892
Federal National Mortgage Assoc. 3,348 198,838
Mellon Financial Corp. 13,027 549,088
Merrill Lynch & Company, Inc. 4,148 386,179
Metlife, Inc. 9,825 579,773
Morgan Stanley 3,202 260,739
Prudential Financial, Inc. 3,399 291,838
State Street Corp. 2,620 176,693 (c)
SunTrust Banks, Inc. 4,440 374,958
The Bank of New York
Company, Inc. 2,911 114,606
7,651,082
HEALTHCARE -- 13.6%
Aetna, Inc. 10,335 446,265
Amgen, Inc. 9,097 621,416 (a)
Baxter International, Inc. 14,556 675,253
Bristol-Myers Squibb Co. 2,358 62,063
DaVita, Inc. 2,547 144,873 (a,e)
Eli Lilly & Co. 3,421 178,234
GlaxoSmithKline PLC ADR 6,358 335,448
Johnson & Johnson 5,022 331,552
Medco Health Solutions, Inc. 7,278 388,936 (a)
Novartis AG ADR 5,313 305,179
Pfizer Inc. 30,931 801,113 (d)
Quest Diagnostics Inc. 1,892 100,276
Thermo Electron Corp. 4,367 197,781 (a)
UnitedHealth Group, Inc. 2,038 109,502
Wyeth 13,537 689,304
5,387,195
INDUSTRIALS -- 8.6%
ABB Ltd. ADR 19,650 353,307
Burlington Northern
Santa Fe Corp. 2,038 150,425 (e)
Cooper Industries Ltd. 2,547 230,325
Deere & Co. 5,022 477,442
Eaton Corp. 6,696 503,137
General Dynamics Corp. 3,493 259,705
ITT Corp. 2,111 119,947 (e)
Northrop Grumman Corp. 7,278 492,721
Rockwell Collins, Inc. 1,601 101,327 (e)
Textron Inc. 801 75,110
3M Co. 4,075 317,565
Tyco International Ltd. 6,696 203,558
Waste Management, Inc. 1,092 40,153
WESCO International, Inc. 1,383 81,334 (a,e)
3,406,056
INFORMATION TECHNOLOGY -- 17.3%
Analog Devices, Inc. 12,372 406,668 (d,e)
Cisco Systems, Inc. 22,198 606,671 (a,d)
First Data Corp. 11,644 297,155
Hewlett-Packard Co. 8,224 338,747
Intel Corp. 16,011 324,223
See Notes to Schedule of Investments on page 9 and Notes to Financial
Statements.
7
VALUE EQUITY FUND
Schedule of Investments December 31, 2006
- --------------------------------------------------------------------------------
NUMBER
OF SHARES VALUE
- --------------------------------------------------------------------------------
International Business
Machines Corp. 8,850 $ 859,777
Lam Research Corp. 444 22,475 (a)
Maxim Integrated Products, Inc. 10,189 311,987
Microchip Technology Inc. 7,642 249,893
Microsoft Corp. 42,940 1,282,188 (d)
National Semiconductor Corp. 12,154 275,896
Oracle Corp. 48,034 823,303 (a,d)
Sun Microsystems, Inc. 16,739 90,725 (a)
Texas Instruments Incorporated 16,375 471,600
Western Union Co. 18,705 419,366
Xerox Corp. 1,492 25,289 (a)
Yahoo! Inc. 3,275 83,643 (a)
6,889,606
MATERIALS -- 2.5%
Air Products & Chemicals, Inc. 2,183 153,421
Barrick Gold Corp. 12,955 397,718
Freeport-McMoRan Copper &
Gold Inc. (Class B) 4,221 235,236 (e)
Monsanto Co. 1,165 61,197
PAN American Silver Corp. 970 24,415 (a,e)
Praxair, Inc. 1,674 99,318
Vulcan Materials Co. 510 45,834 (e)
1,017,139
TELECOMMUNICATION SERVICES -- 3.2%
Alltel Corp. 5,531 334,515
AT&T, Inc. 1,819 65,029
Sprint Nextel Corp. (Series 1) 11,354 214,477
Verizon Communications Inc. 16,011 596,250
Vodafone Group, PLC ADR 2,071 57,532
1,267,803
UTILITIES -- 5.2%
American Electric Power
Company, Inc. 1,819 77,453
Constellation Energy Group, Inc. 7,933 546,346
Dominion Resources, Inc. 7,278 610,188 (e)
Duke Energy Corp. 9,971 331,137
Edison International 7,788 354,198
Entergy Corp. 1,637 151,128
2,070,450
TOTAL COMMON STOCK
(COST $31,504,949) 37,944,871
- --------------------------------------------------------------------------------
EXCHANGE TRADED FUNDS -- 3.0%
- --------------------------------------------------------------------------------
Financial Select Sector SPDR Fund 6,421 235,908 (g)
Industrial Select Sector SPDR Fund 26,736 936,027 (d,g)
TOTAL EXCHANGE TRADED FUNDS
(COST $908,912) 1,171,935
TOTAL INVESTMENTS IN SECURITIES
(COST $32,413,861) 39,116,806
NUMBER
OF SHARES VALUE
- --------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS -- 11.6%
- --------------------------------------------------------------------------------
AFFILIATED SHORT-TERM INVESTMENTS -- 1.5%
GEI Short Term Investment Fund
5.56% 606,913 $ 606,913 (b,f)
SHORT-TERM SECURITIES PURCHASED WITH
COLLATERAL FROM SECURITIES ON LOAN -- 10.1%
State Street Navigator Securities
Lending Prime Portfolio
5.33% 4,020,607 4,020,607 (b,c)
TOTAL SHORT-TERM INVESTMENTS
(COST $4,627,520) 4,627,520
TOTAL INVESTMENTS
(COST $37,041,381) 43,744,326
LIABILITIES IN EXCESS OF OTHER ASSETS,
NET -- (10.2)% (4,061,626)
------------
NET ASSETS -- 100.0% $ 39,682,700
============
- --------------------------------------------------------------------------------
OTHER INFORMATION
- --------------------------------------------------------------------------------
The GEI Value Equity Fund had the following long futures contracts open at
December 31, 2006:
NUMBER CURRENT
EXPIRATION OF NOTIONAL UNREALIZED
DESCRIPTION DATE CONTRACTS VALUE DEPRECIATION
- --------------------------------------------------------------------------------
S&P 500 Index
Futures March 2007 1 $357,100 $(2,445)
See Notes to Schedule of Investments on page 9 and Notes to Financial
Statements.
8
Notes to Schedule of Investments December 31, 2006
- --------------------------------------------------------------------------------
The views expressed in this document reflect our judgment as of the publication
date and are subject to change at any time without notice. The securities cited
may not represent current or future holdings and should not be considered as a
recommendation to purchase or sell a particular security. See the prospectus for
complete descriptions of investment objectives, policies, risks and permissible
investments.
(a) Non-income producing security.
(b) Coupon amount represents effective yield.
(c) State Street Corp. is the parent company of State Street Bank & Trust Co.,
the Fund's custodian and accounting agent.
(d) At December 31, 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) GE Asset Management Incorporated, the investment adviser of the Fund, also
serves as investment adviser of the GEI Short Term Investment Fund.
(g) Sponsored by SSgA Funds Management, Inc., an affiliate of State Street
Bank & Trust Co., the Fund's custodian and accounting agent.
+ Percentages are based on net assets as of December 31, 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
- --------------------------------------------------------------------------------
VALUE EQUITY FUND
12/31/06 12/31/05 12/31/04 12/31/03 12/31/02
- ----------------------------------------------------------------------------------------------------------------
INCEPTION DATE -- -- -- -- 4/28/00
Net asset value, beginning of period $ 10.01 $ 9.77 $ 9.02 $ 7.36 $ 9.01
INCOME/(LOSS) FROM INVESTMENT OPERATIONS:
Net investment income 0.17 0.11 0.11 0.11 0.07
Net realized and unrealized
gains/(losses) on investments 1.62 0.29 0.75 1.66 (1.65)
- ----------------------------------------------------------------------------------------------------------------
TOTAL INCOME/(LOSS) FROM INVESTMENT OPERATIONS 1.79 0.40 0.86 1.77 (1.58)
- ----------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM:
Net investment income 0.17 0.12 0.11 0.11 0.07
Net realized gains 0.93 0.04 -- -- --
- ----------------------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS 1.10 0.16 0.11 0.11 0.07
- ----------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 10.70 $ 10.01 $ 9.77 $ 9.02 $ 7.36
================================================================================================================
TOTAL RETURN (a) 17.85% 4.06% 9.57% 24.05% (17.57)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in thousands) $ 39,683 $ 37,115 $ 37,128 $ 29,989 $ 24,623
Ratios to average net assets:
Net investment income 1.55% 1.13% 1.26% 1.16% 1.01%
Expenses 0.81% 0.80% 0.80% 0.73% 0.74%
Portfolio turnover rate 42% 36% 53% 78% 76%
NOTES TO FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(a) Total returns are historical and assume changes in share price and
reinvestment of dividends and capital gains and do not include the effect
of insurance contract charges.
See Notes to Financial Statements.
10
VALUE
Statement of Assets EQUITY
and Liabilities DECEMBER 31, 2006 FUND
- -----------------------------------------------------------------------------------------------------
ASSETS
Investments in securities, at market* (cost $32,413,861) $ 39,116,806
Short-term Investments (at amortized cost) 4,020,607
Short-term affiliated investments (at amortized cost) 606,913
Income receivables 47,530
- -----------------------------------------------------------------------------------------------------
TOTAL ASSETS 43,791,856
- -----------------------------------------------------------------------------------------------------
LIABILITIES
Payable upon return of securities loaned 4,020,607
Payable for fund shares redeemed 55,936
Payable to GEAM 31,268
Variation margin payable 1,345
- -----------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 4,109,156
- -----------------------------------------------------------------------------------------------------
NET ASSETS $ 39,682,700
=====================================================================================================
NET ASSETS CONSIST OF:
Capital paid in 32,693,249
Undistributed (distribution in excess of) net investment income --
Accumulated net realized gain (loss) 288,951
Net unrealized appreciation/(depreciation) on:
Investments 6,702,945
Futures (2,445)
- -----------------------------------------------------------------------------------------------------
NET ASSETS $ 39,682,700
=====================================================================================================
Shares outstanding ($0.01 par value; unlimited shares authorized) 3,709,273
Net asset value per share $ 10.70
* Includes $3,913,911 of securities on loan.
See Notes to Financial Statements.
11
VALUE
Statement of Operations EQUITY
FOR THE YEAR ENDED DECEMBER 31, 2006 FUND
- -----------------------------------------------------------------------------------------------------
INVESTMENT INCOME
INCOME:
Dividend $ 863,364
Interest* 963
Interest from affliated investments 24,085
Less: Foreign taxes withheld (2,298)
- -----------------------------------------------------------------------------------------------------
TOTAL INCOME 886,114
- -----------------------------------------------------------------------------------------------------
EXPENSES:
Advisory and administrative fees 246,468
Transfer agent 40
Trustee's fees 1,401
Custody and accounting expenses 34,274
Professional fees 17,339
Registration expenses 1,338
Other expenses 3,228
- -----------------------------------------------------------------------------------------------------
TOTAL EXPENSES 304,088
- -----------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME (LOSS) 582,026
=====================================================================================================
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS
REALIZED GAIN (LOSS) ON:
Investments 3,350,651
Futures 10,830
INCREASE (DECREASE) IN UNREALIZED APPRECIATION/
(DEPRECIATION) ON:
Investments 2,254,409
Futures 2,205
- -----------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments 5,618,095
- -----------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $ 6,200,121
=====================================================================================================
* Income attributable to security lending activity, net of rebate expenses,
was $963.
See Notes to Financial Statements.
12
VALUE
Statements of EQUITY
Changes in Net Assets FUND
- ------------------------------------------------------------------------------------------------------------------------
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
2006 2005
- ------------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net investments income (loss) $ 582,026 $ 418,647
Net realized gain (loss) on investments, futures, written options,
foreign currency transactions and swaps 3,361,481 1,719,665
Net increase (decrease) in unrealized appreciation/(depreciation)
on investments, futures, written options, foreign currency translation 2,256,614 (625,589)
- ------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) from operations 6,200,121 1,512,723
- ------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (583,024) (436,545)
Net realized gains (3,132,510) (139,602)
- ------------------------------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS (3,715,534) (576,147)
- ------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets from operations and distributions 2,484,587 936,576
- ------------------------------------------------------------------------------------------------------------------------
SHARE TRANSACTIONS:
Proceeds from sale of shares 1,598,076 2,384,068
Value of distributions reinvested 3,715,534 576,173
Cost of shares redeemed (5,230,437) (3,910,331)
- ------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) from share transactions 83,173 (950,090)
- ------------------------------------------------------------------------------------------------------------------------
TOTAL INCREASE (DECREASE) IN NET ASSETS 2,567,760 (13,514)
NET ASSETS
Beginning of period 37,114,940 37,128,454
- ------------------------------------------------------------------------------------------------------------------------
End of period $ 39,682,700 $ 37,114,940
========================================================================================================================
UNDISTRIBUTED (DISTRIBUTION IN EXCESS OF) NET INVESTMENT INCOME, END OF PERIOD $ -- $ --
- ------------------------------------------------------------------------------------------------------------------------
CHANGES IN FUND SHARES
Shares sold 145,506 244,856
Issued for distributions reinvested 345,632 57,103
Shares redeemed (488,227) (397,704)
- ------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in fund shares 2,911 (95,745)
========================================================================================================================
See Notes to Financial Statements.
13
Notes to Financial Statements December 31, 2006
- --------------------------------------------------------------------------------
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.
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.
In September 2006, FASB issued Statement of Financial Accounting Standards No.
157, FAIR VALUE MEASUREMENTS ("FAS 157"). FAS 157 establishes a single
authoritative definition of fair value, establishes a framework for measuring
fair value and expands disclosures about fair value measurements. FAS 157
applies to fair value measurements already required or permitted by existing
standards. The change to current generally accepted accounting principles from
the application of FAS 157 relate to the definition of fair value, the methods
used to measure fair value, and the expanded disclosures about fair value
measurements. Management of the Fund does not believe the adoption of FAS 157
will materially impact the financial statement amounts, however, additional
disclosures may be required about the inputs used to
14
Notes to Financial Statements December 31, 2006
- --------------------------------------------------------------------------------
develop the measurements and the effect of certain of the measurements on
changes in net assets for the period. FAS 157 is effective for financial
statements issued for fiscal years beginning after November 15, 2007 and interim
periods within those fiscal years.
REPURCHASE AGREEMENTS The Fund may engage into repurchase agreement transactions
with respect to instruments that are consistent with the Fund's investment
objectives or policies. 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.
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
15
Notes to Financial Statements December 31, 2006
- --------------------------------------------------------------------------------
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 difference between the premium and the amount paid on effecting
a closing purchase transaction, including brokerage commissions, is also treated
as a realized gain, or if the premium is less than the amount paid for the
closing purchase, as a realized loss. When an option is exercised, the proceeds
from the sale of the underlying security or the cost basis of the securities
purchased is adjusted by the original premium received or paid.
INVESTMENTS IN FOREIGN MARKETS Investments in foreign markets may involve
special risks and considerations not typically associated with investing in the
United States. These risks include revaluation of currencies, high rates of
inflation, repatriation on income and capital, and adverse political and
economic developments. Moreover, securities issued in these markets may be less
liquid, subject to government ownership controls, tariffs and taxes, subject to
delays in settlements, and their prices may be more volatile.
The Fund may be subject to capital gains and repatriation taxes imposed by
certain countries in which it invests. Such taxes are generally based on income
and/or capital gains earned or repatriated. Taxes are accrued based upon net
investment income, net realized gains and net unrealized appreciation as income
and/or capital gains are earned.
INCOME TAXES The Fund intends to comply with all sections of the Internal
Revenue Code applicable to regulated investment companies including the
distribution of substantially all of its taxable net investment income and net
realized capital gains to its shareholders. Therefore, no provision for federal
income tax has been made. The Fund is treated as a separate taxpayer for federal
income tax purposes.
At December 31, 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
- --------------------------------------------------------------------------------
$37,280,233 $7,100,523 $(636,430) $6,464,093
Net Tax Appreciation/ Undistributed Undistributed Post
(Depreciation) on Income/ Long-Term Gains/ October
Derivatives, Currency (Accumulated (Accumulated Losses
and Other Net Assets Ordinary Loss) Capital Loss) (see Detail Below)
- --------------------------------------------------------------------------------
$ -- $ 25,896 $ 499,462 $ --
16
Notes to Financial Statements December 31, 2006
- --------------------------------------------------------------------------------
As of December 31, 2006, 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 incurred no such losses after October 31, 2006.
The tax composition of distributions paid (other than return of capital
distributions for the year) during the year ended December 31, 2006 was as
follows:
Long-Term
Ordinary Capital
Income Gains Total
- --------------------------------------------------------------------------------
$ 671,827 $ 3,043,707 $ 3,715,534
DISTRIBUTIONS TO SHAREHOLDERS The Fund declares and pays dividends from net
investment income annually. The Fund declares and pays net realized capital
gains in excess of capital loss carryforwards distributions annually. The
character of income and gains to be distributed is determined in accordance with
income tax regulations which may differ from generally accepted accounting
principles. These differences include (but are not limited to) futures and
losses deferred due to wash sale transactions. Reclassifications due to
permanent book/tax differences are made to the Fund's capital accounts to
reflect income and gains available for distribution (or available capital loss
carryovers) under income tax regulations. These reclassifications have no impact
on net investment income, realized gains or losses, or the net asset value of
the Fund. The calculation of net investment income per share in the Financial
Highlights table excludes these adjustments.
The reclassifications for the year ended December 31, 2006 were as follows:
Undistributed
(Distribution
in Excess of)
Net Investment Accumulated Paid in
Income Net Realized Gain Capital
- --------------------------------------------------------------------------------
$ 998 $ (998) $ --
On July 13, 2006, the FASB released FIN48, "Accounting for Uncertainty in Income
Taxes." FIN48 provides guidance for how uncertain tax positions should be
recognized, measured, presented and disclosed in the financial statements. FIN48
requires evaluation of tax positions taken or expected to be taken in the course
of preparing the Fund's tax returns to determine whether the tax positions are
"more likely than not" of being sustained by the applicable tax authority. The
adoption of FIN48 will require financial statements to be adjusted to reflect
only those tax positions that are more likely that not to be sustained as of the
adoption date. Adoption of FIN48 is required for fiscal years beginning after
December 15, 2006 no later than June 29, 2007 and is applied to all open years
as of the effective date. At this time, management is evaluating the
implications of FIN48 and its impact on the financial statements has not yet
been determined.
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 and amortized,
respectively, 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
17
Notes to Financial Statements December 31, 2006
- --------------------------------------------------------------------------------
is the lesser of its prospectus limitation, 20% of its net assets, or $25
million. The credit facility was not utilized by the Fund during the period
ended December 31, 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. GEAM's compensation 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 December 31, 2006, $655 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 December 31, 2006 were as follows:
Purchases Sales
- --------------------------------------------------------------------------------
$ 15,547,726 $ 18,529,384
SECURITY LENDING At December 31, 2006, the Fund participated in securities
lending:
Loaned
securities at Cash
market value collateral*
- --------------------------------------------------------------------------------
$ 3,913,911 $ 4,020,607
* COLLATERAL OF $4,038,413 DECREASED BY $17,806 ON JANUARY 1, 2007 TO
REFLECT THE DECEMBER 31, 2006 CHANGE IN VALUE OF SECURITIES ON LOAN.
18
Report of Independent Registered Public Accounting Firm
- --------------------------------------------------------------------------------
The Shareholders and Board of Directors
GE Investments Funds, Inc.
We have audited the accompanying statement of assets and liabilities of the
Value Equity Fund, a series of GE Investments Funds, Inc., including the
schedule of investments, as of December 31, 2006, and the related statement of
operations for the year then ended, the statements of changes in net assets for
each of the years in the two-year period then ended, and the financial
highlights for each of the years in the five-year period then ended. These
financial statements and financial highlights are the responsibility of the
Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included confirmation of
securities owned as of December 31, 2006 by correspondence with the custodian
and brokers, or by other appropriate auditing procedures where replies from
brokers were not received. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
Value Equity Fund as of December 31, 2006, the results of its operations,
changes in its net assets and financial highlights for the years described
above, in conformity with U.S. generally accepted accounting principles.
/s/ KPMG LLP
Boston, Massachusetts
February 20, 2007
19
Tax Information (unaudited)
- --------------------------------------------------------------------------------
During the calendar year ended December 31, 2006, the Fund paid to shareholders
of record on December 27, 2006, $0.90274 per share of long-term capital gain
dividends.
20
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 6
and December 14, 2006.
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 detail during a
private session with their independent legal counsel at which no representatives
of GEAM were present. The independent Board members and their independent legal
counsel requested, and received and considered, additional information from GEAM
following this session.
In advance of the meetings, 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 recent years, 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 recent years. 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 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 has expended 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.
21
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 overall taking
into consideration the factors discussed above.
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. 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
22
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 effect, if any, of the
Securities and Exchange Commission staff's interpretive guidance concerning soft
dollars. 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 that
GEAM may derive from its relationship with the Fund, 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.
23
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;
Trustee of Elfun Foundation; Treasurer of GE Foundation; Director, GE Asset
Management (Ireland) since February 1999.
- --------------------------------------------------------------------------------
ALAN M. LEWIS
- --------------------------------------------------------------------------------
ADDRESS c/o GEAM 3001 Summer St. Stamford, CT 06905
AGE 60
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
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 41
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
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 General Partner, NGN Capital LLC
since 2006; 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 59
POSITION(S) HELD WITH FUND Director
TERM OF OFFICE AND LENGTH OF TIME SERVED Until successor is elected and
qualified - 9 years
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS 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 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)
David B. Carlson, EVP, DOMESTIC EQUITIES
Michael J. Cosgrove, EVP, CHIEF COMMERCIAL OFFICER
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
Judith A. Studer, EVP, INVESTMENT STRATEGIES (AS OF JULY 2006)
Don W. Torey, EVP, ALTERNATIVE INVESTMENTS AND REAL ESTATE
John J. Walker, EVP, CHIEF FINANCIAL OFFICER
27
[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]
<page>
GE Investments Funds, Inc.
Mid-Cap Equity Fund
Annual Report
DECEMBER 31, 2006
[GE 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
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM 18
TAX INFORMATION 19
ADVISORY AND ADMINISTRATIVE AGREEMENT RENEWAL 20
ADDITIONAL INFORMATION 23
INVESTMENT TEAM 26
This report is prepared for Policyholders of certain variable contracts and may
be distributed to others only if preceded or accompanied by the variable
contract's current prospectus and the current prospectus of the Funds available
for investments thereunder.
Notes to Performance December 31, 2006
- --------------------------------------------------------------------------------
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 TWELVE-MONTH PERIOD ENDED DECEMBER 31, 2006?
A. For the twelve-month period ended December 31, 2006, the Mid-Cap Equity
Fund returned 8.40%. The Russell Mid-Cap Index, the Fund's benchmark,
returned 15.29% and the Fund's Lipper peer group of 81 Mid-Cap Core funds
returned an average of 12.84% for the same period.
Q. WHAT MARKET CONDITIONS IMPACTED FUND PERFORMANCE?
A. Throughout 2006, the value style of investing consistently outperformed
growth. Traditional value-oriented investments including utilities and
REITs outperformed growth sectors such as healthcare and information
technology. The Fund's growth bias and with that, the overweight in
healthcare and IT and the underweight in utilities and REITs hurt relative
performance. REITs, investments normally reserved for yield-oriented
portfolios, benefited from the recovery in the commercial real estate
market along with increased merger and acquisition activity. Though the
Fund suffered from an underweight in REITs, investments in real estate
services firms proved to be an effective hedge.
At the same time, residential real estate continued to suffer from bloated
inventories. Although homebuilding stocks recovered somewhat during the
second half of the year, these stocks declined on average of approximately
25% in 2006. The Fund benefited from having an underweight in this
industry. Weakening consumer spending, a byproduct of the depressed
housing market, negatively impacted sales of some of the consumer
discretionary companies held in the Fund.
The energy sector which held top ranking in 2005 was the worst performing
sector in the mid-cap space. Energy companies suffered from a reversal in
energy prices and as a group appreciated a mere +3.2%. Though we reduced
exposure to energy stocks throughout the year, our overweight in the
sector detracted from Fund performance.
Q. WHAT WERE THE PRIMARY DRIVERS OF FUND PERFORMANCE?
A. Within information technology, the Fund was negatively impacted by a few
individual stocks that had company-specific issues. Biometric fingerprint
company Cogent Inc., declined 51% as guidance fell below expectations due
to the uncertain timing of contract awards in this nascent industry.
Communications equipment companies Comverse Technology (-21%) and Juniper
Networks (-15%) fell over concerns related to options re-pricing.
Meanwhile, software company Macrovision (+69%), with products that focus
on content protection,
[PHOTO OMITTED]
PICTURED FROM BOTTOM LEFT TO RIGHT:
DIANE M. WEHNER
2
- --------------------------------------------------------------------------------
[Q&A]
benefited from new management and a renewed customer focus. Activision (+25%)
reversed earlier stock price declines as the company's gaming software sales
benefited from the introduction of new generation game consoles and a popular
offering of new games.
Consumer-oriented companies such as retailer William-Sonoma (-27%) and The
Cheesecake Factory restaurant chain (-34%) felt the pullback in spending.
Meanwhile, specialty retailer Michaels Stores (+26%) was acquired by a private
equity firm, and Federated Department Stores (+33%) saw early synergies from its
acquisition of May Department Stores. Media company Getty Images (-49%) suffered
amid increased competition in the low-end stock photography business. Within
consumer staples, the Fund was negatively impacted by not owning
Archer-Daniels-Midland, which rose 68% as of the end of June (at that point the
stock was removed from the benchmark and subsequently declined 24%). However,
the Fund benefited from owning Monsanto (+37%), an agricultural biotech company
focused on increasing corn and other crop yields.
The Fund experienced mixed performance in the healthcare sector with
outperformance by medical instrument companies Thermo Electron (+50%) and
Mettler-Toledo (+43%), which were offset by Barr Pharmaceuticals (-34%) and
Angiotech (-38%). Barr, a generic pharmaceutical company, declined due to
concerns about competition for some of its drugs, as well as concerns about
their recent acquisition of Pliva. Angiotech, a medical device/pharma company,
is an emerging company with a high dependence on the controversial drug-eluting
stent market and a pipeline of promising new drug-coated devices. Market share
shifts in the stent market have put near term pressure on sales.
The Fund participated in the strength of the commercial real estate market
through its investments in services firms CB Richard Ellis and Trammel Crow,
which appreciated +69% and +39%, respectively.
Q. WERE THERE AND SIGNIFICANT CHANGES TO THE FUND OVER THE PERIOD?
A. We reduced the Fund's weighting in the energy sector and slightly
increased the underweight in consumer cyclicals, while increasing exposure
in telecommunication services and healthcare. We focused on investing in
attractively valued companies with solid earnings prospects, strong market
share and superior long-term fundamentals. With an emphasis on growth, we
continue to look to invest in innovative companies that provide prospects
for above-average earnings growth. Therefore, healthcare and information
technology companies represent a meaningful percentage of the Fund's
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 December
31, 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 $1,000 = 8.6), then multiply the result by the number
given for your class under the heading "Expenses Paid During Period."
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The second section of the table provides information about hypothetical account
values and hypothetical expenses based on the Fund's actual expense ratio and an
assumed rate of return of 5% per year before expenses, which is not the Fund's
actual return. You may use this information to compare the ongoing costs of
investing in the Fund and other funds. To do so, compare this 5% hypothetical
example with the 5% hypothetical examples that appear in the shareholders
reports of other funds.
Please note that the expenses shown in the table do not reflect any transaction
costs, such as sales charges or redemption fees.
JULY 1, 2006 - DECEMBER 31, 2006
- -----------------------------------------------------------------------------------------------------
ACCOUNT VALUE AT ACCOUNT VALUE EXPENSES
THE BEGINNING OF AT THE END OF PAID DURING
THE PERIOD ($) THE PERIOD ($) THE PERIOD ($)*
- -----------------------------------------------------------------------------------------------------
Actual Fund Return** 1,000.00 1,059.73 3.56
- -----------------------------------------------------------------------------------------------------
Hypothetical 5% Return (2.5% for the period) 1,000.00 1,021.48 3.54
- -----------------------------------------------------------------------------------------------------
* EXPENSES ARE EQUAL TO THE FUND'S ANNUALIZED EXPENSE RATIO OF 0.69% (FROM
PERIOD JULY 1, 2006 - DECEMBER 31, 2006), MULTIPLIED BY THE AVERAGE
ACCOUNT VALUE OVER THE PERIOD, MULTIPLIED BY 184/365 (TO REFLECT THE SIX
MONTH PERIOD).
** ACTUAL FUND RETURN FOR SIX-MONTH PERIOD ENDED DECEMBER 31, 2006 WAS:
5.97%.
4
Mid-Cap Equity Fund
- --------------------------------------------------------------------------------
CHANGE IN VALUE OF A $10,000 INVESTMENT
- --------------------------------------------------------------------------------
[LINE CHART OMITTED, PLOT POINTS ARE AS FOLLOWS:]
Mid-Cap Equity Fund Russell Midcap Index
05/01/97 $10,000 $10,000
12/97 13,256 12,690
12/98 14,142 13,966
12/99 16,583 16,507
12/00 17,958 17,870
12/01 18,016 16,862
12/02 15,536 14,134
12/03 20,654 19,802
12/04 23,963 23,796
12/05 26,777 26,806
12/06 29,025 30,905
AVERAGE ANNUAL TOTAL RETURN
FOR THE PERIODS ENDED DECEMBER 31, 2006
- --------------------------------------------------------------------------------
ONE FIVE SINCE
YEAR YEAR INCEPTION
- --------------------------------------------------------------------------------
Mid-Cap Equity Fund 8.40% 10.01% 11.65%
- --------------------------------------------------------------------------------
Russell MidCap Index 15.29% 12.88% 12.38%
- --------------------------------------------------------------------------------
Lipper peer group average* 12.84% 11.03% N/A
- --------------------------------------------------------------------------------
Inception date 5/1/97
- --------------------------------------------------------------------------------
Mid-Cap Equity Fund (ending value $29,025)
Russell MidCap Index (ending value $30,905)
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 circumstances. The Fund invests primarily in mid-cap
companies that the portfolio manager believes are undervalued by the market and
have above-average growth potential.
TOP TEN LARGEST HOLDINGS
AS OF DECEMBER 31, 2006
as a % of Market Value
- --------------------------------------------------------------------------------
CB Richard Ellis Group, Inc. (Class A) 1.96%
- --------------------------------------------------------------------------------
Thermo Electron Corp. 1.75%
- --------------------------------------------------------------------------------
Harris Corp. 1.44%
- --------------------------------------------------------------------------------
Psychiatric Solutions Inc. 1.41%
- --------------------------------------------------------------------------------
Activision, Inc. 1.37%
- --------------------------------------------------------------------------------
Barr Pharmaceuticals, Inc. 1.21%
- --------------------------------------------------------------------------------
Rockwell Collins, Inc. 1.20%
- --------------------------------------------------------------------------------
Linear Technology Corp. 1.19%
- --------------------------------------------------------------------------------
Molex, Inc. (Class A) 1.16%
- --------------------------------------------------------------------------------
Legg Mason, Inc. 1.15%
- --------------------------------------------------------------------------------
PORTFOLIO COMPOSITION
AS OF DECEMBER 31, 2006
as a % of Market Value
- --------------------------------------------------------------------------------
Market Value of $231,793 (in thousands)
[PIE CHART OMITTED, PLOT POINTS ARE AS FOLLOWS:]
Short-Term 17.1%
Information Technology 16.8%
Healthcare 15.0%
Financials 13.2%
Industrials 10.9%
Consumer Discretionary 8.5%
Energy 6.1%
Materials 4.2%
Utilities 3.5%
Consumer Staples 3.3%
Telecommunication Services 1.4%
* LIPPER PERFORMANCE COMPARISONS ARE BASED ON AVERAGE ANNUAL TOTAL RETURNS
FOR THE ONE YEAR AND FIVE-YEAR PERIODS INDICATED IN THE MID-CAP CORE FUNDS
PEER GROUP CONSISTING OF 81 AND 54 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 December 31, 2006
- --------------------------------------------------------------------------------
MID-CAP EQUITY FUND
- --------------------------------------------------------------------------------
NUMBER
OF SHARES VALUE
- --------------------------------------------------------------------------------
COMMON STOCK -- 96.5%
- --------------------------------------------------------------------------------
CONSUMER DISCRETIONARY -- 9.9%
Bed Bath & Beyond, Inc. 58,151 $ 2,215,553 (a)
Boyd Gaming Corp. 19,107 865,738
Global Cash Access Holdings, Inc. 103,758 1,683,992 (a,e)
Life Time Fitness, Inc. 26,332 1,277,365 (a,e)
O'Reilly Automotive, Inc. 54,081 1,733,837 (a,e)
Pulte Homes, Inc. 38,541 1,276,478
Regal Entertainment Group,
(Class A) 92,502 1,972,143 (e)
Starwood Hotels & Resorts
Worldwide, Inc. 28,950 1,809,375
The Cheesecake Factory 63,572 1,563,871 (a)
The E.W. Scripps Co. (Class A) 49,093 2,451,704
Univision Communications Inc.
(Class A) 35,818 1,268,674 (a)
Williams-Sonoma, Inc. 50,293 1,581,212 (e)
19,699,942
CONSUMER STAPLES -- 3.8%
Alberto-Culver Co. 70,797 1,518,596
Clorox Co. 23,114 1,482,763
Sally Beauty Holdings, Inc. 97,415 759,837 (a)
The Kroger Co. 54,057 1,247,095
Weight Watchers International Inc. 48,736 2,560,102 (e)
7,568,393
ENERGY -- 7.0%
Dresser-Rand Group, Inc. 67,329 1,647,541 (a)
EOG Resources, Inc. 27,705 1,730,177
GlobalSantaFe Corp. 40,959 2,407,570
Hess Corp. 42,918 2,127,445
Nexen, Inc. 31,916 1,755,380
Peabody Energy Corp. 40,063 1,618,946
Valero Energy Corp. 18,939 968,919
Weatherford International Ltd. 42,171 1,762,326 (a)
14,018,304
FINANCIALS -- 15.3%
Affiliated Managers Group, Inc. 19,858 2,087,672 (a,e)
Allied World Assurance
Holdings Ltd. 37,080 1,617,800
Calamos Asset Management Inc.
(Class A) 68,856 1,847,406 (e)
CB Richard Ellis Group, Inc.
(Class A) 137,138 4,552,982 (a,d)
CVB Financial Corp. 99,452 1,438,076 (e)
Douglas Emmett, Inc. (REIT) 38,493 1,023,529
Everest Re Group, Ltd. 24,853 2,438,328
NUMBER
OF SHARES VALUE
- --------------------------------------------------------------------------------
Greenhill & Company, Inc. 32,135 $ 2,371,563 (e)
Hartford Financial Services
Group, Inc. 21,395 1,996,367
HCC Insurance Holdings, Inc. 61,050 1,959,095
Legg Mason, Inc. 27,954 2,657,028
M&T Bank Corp. 10,582 1,292,697
Maguire Properties, Inc. (REIT) 30,416 1,216,640
SL Green Realty Corp. (REIT) 14,508 1,926,372
Zions Bancorporation 25,543 2,105,765
30,531,320
HEALTHARE -- 17.5%
Advanced Medical Optics, Inc. 35,529 1,250,621 (a,e)
Alcon, Inc. 19,725 2,204,663
Amylin Pharmaceuticals, Inc. 49,644 1,790,659 (a,e)
Angiotech Pharmaceuticals, Inc. 132,135 1,085,489 (a,e)
Barr Pharmaceuticals, Inc. 55,996 2,806,520 (a)
Caremark Rx, Inc. 43,158 2,464,753
DENTSPLY International, Inc. 62,135 1,854,730
Gilead Sciences, Inc. 24,171 1,569,423 (a)
Henry Schein, Inc. 41,382 2,026,890 (a,e)
Manor Care, Inc. 49,382 2,317,003 (e)
Martek Biosciences Corp. 58,149 1,357,198 (a,e)
Psychiatric Solutions Inc. 87,188 3,271,294 (a)
Quest Diagnostics Inc. 36,993 1,960,629
Resmed, Inc. 32,918 1,620,224 (a,e)
Smith & Nephew PLC ADR 36,676 1,919,255 (e)
Thermo Electron Corp. 89,679 4,061,562 (a,d)
Vertex Pharmaceuticals, Inc. 34,286 1,282,982 (a,e)
34,843,895
INDUSTRIALS -- 12.7%
ChoicePoint, Inc. 34,471 1,357,468 (a)
Corinthian Colleges, Inc. 64,324 876,736 (a)
Corporate Executive Board Co. 21,513 1,886,690
CoStar Group, Inc. 28,505 1,526,728 (a,e)
Danaher Corp. 20,981 1,519,864 (e)
Dover Corp. 26,601 1,303,981
Eaton Corp. 21,388 1,607,094
Harsco Corp. 31,676 2,410,544
Hexcel Corp. 102,096 1,777,491 (a,e)
Joy Global, Inc. 32,918 1,591,256
MoneyGram International, Inc. 80,339 2,519,431
Rockwell Collins, Inc. 43,949 2,781,532 (e)
Spirit Aerosystems
Holdings, Inc. (Class A) 3,400 113,798 (a)
Stericycle, Inc. 29,591 2,234,121 (a)
Sunpower Corp. (Class A) 48,560 1,804,975 (a,e)
25,311,709
INFORMATION TECHNOLOGY -- 19.6%
Activision, Inc. 183,755 3,167,936 (a,d)
Affiliated Computer
Services, Inc. (Class A) 35,613 1,739,339 (a)
Analog Devices, Inc. 36,518 1,200,347 (d)
aQuantive, Inc. 22,928 565,404 (a,e)
See Notes to Schedule of Investments on page 8 and Notes to Financial
Statements.
6
MID-CAP EQUITY FUND
Schedule of Investments December 31, 2006
- --------------------------------------------------------------------------------
NUMBER
OF SHARES VALUE
- --------------------------------------------------------------------------------
CDW Corp. 9,778 $ 687,589
Citrix Systems, Inc. 22,244 601,700 (a)
Cogent, Inc. 135,336 1,490,049 (a,e)
Comverse Technology, Inc. 95,747 2,021,219 (a,d,e)
DST Systems, Inc. 26,868 1,682,743 (a)
Fiserv, Inc. 20,827 1,091,751 (a)
Harris Corp. 72,740 3,335,856 (d)
Juniper Networks, Inc. 115,558 2,188,669 (a)
Linear Technology Corp. 90,729 2,750,903 (e)
Macrovision Corp. 52,117 1,472,826 (a,e)
Marvell Technology Group, Ltd. 49,824 956,123 (a)
Mettler Toledo International Inc. 22,923 1,807,479 (a)
Microchip Technology Inc. 44,270 1,447,629
Molex, Inc. (Class A) 97,467 2,699,836
NAVTEQ Corp. 39,928 1,396,282 (a,e)
Neustar, Inc. (Class A) 47,560 1,542,846 (a,e)
Paychex, Inc. 54,270 2,145,836
SAIC, Inc. 87,673 1,559,703 (a,e)
Wind River Systems, Inc. 137,900 1,413,475 (a)
38,965,540
MATERIALS -- 4.9%
Cabot Corp. 24,431 1,064,459
Martin Marietta Materials, Inc. 23,203 2,411,024 (e)
Monsanto Co. 48,861 2,566,668
Praxair, Inc. 38,861 2,305,623
Sealed Air Corp. 22,437 1,456,610 (e)
9,804,384
TELECOMMUNICATION SERVICES -- 1.7%
American Tower Corp. (Class A) 55,783 2,079,590 (a)
Leap Wireless International Inc. 5,916 351,825 (a)
NII Holdings Inc. (Class B) 14,235 917,303 (a,e)
3,348,718
UTILITIES -- 4.1%
Ameren Corp. 18,657 1,002,441 (e)
DTE Energy Co. 38,541 1,865,770 (e)
ITC Holdings Corp. 23,522 938,528
PPL Corp. 67,847 2,431,636
SCANA Corp. 47,017 1,909,831
8,148,206
TOTAL INVESTMENTS IN SECURITIES
(COST $152,559,154) 192,240,411
NUMBER
OF SHARES VALUE
- --------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS -- 19.8%
- --------------------------------------------------------------------------------
AFFILIATED SHORT-TERM INVESTMENTS -- 3.9%
GEI Short Term Investment Fund
5.56% 7,731,413 $ 7,731,413 (b,f)
SHORT-TERM SECURITIES PURCHASED WITH
COLLATERAL FROM SECURITIES ON LOAN -- 15.9%
State Street Navigator Securities
Lending Prime Portfolio
5.33% 31,820,759 31,820,759 (b,c)
TOTAL SHORT-TERM INVESTMENTS
(COST $39,552,172) 39,552,172
TOTAL INVESTMENTS
(COST $192,111,326) 231,792,583
LIABILITIES IN EXCESS OF OTHER ASSETS,
NET -- (16.3)% (32,481,846)
-------------
NET ASSETS -- 100.0% $ 199,310,737
=============
- --------------------------------------------------------------------------------
OTHER INFORMATION
- --------------------------------------------------------------------------------
The GEI Mid-Cap Equity had the following Short futures contracts open at
December 31, 2006:
NUMBER CURRENT
EXPIRATION OF NATIONAL UNREALIZED
DESCRIPTION DATE CONTRACTS VALUE APPRECIATION
- --------------------------------------------------------------------------------
S&P 400 Midcap
Index Futures March 2007 7 $ (2,839,550) $ 25,604
See Notes to Schedule of Investments on page 8 and Notes to Financial
Statements.
7
Notes to Schedule of Investments December 31, 2006
- --------------------------------------------------------------------------------
The views expressed in this document reflect our judgment as of the publication
date and are subject to change at any time without notice. The securities cited
may not represent current or future holdings and should not be considered as a
recommendation to purchase or sell a particular security. See the prospectus for
complete descriptions of investment objectives, policies, risks and permissible
investments.
(a) Non-income producing security.
(b) Coupon amount represents effective yield.
(c) State Street Corp. is the parent company of State Street Bank & Trust Co.,
the Fund's custodian and accounting agent.
(d) At December 31, 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) GE Asset Management Incorporated, the investment adviser of the Fund, also
serves as investment adviser of the GEI Short Term Investment Fund.
+ Percentages are based on net assets as of December 31, 2006.
8
Financial Highlights
Selected data based on a share outstanding throughout the periods indicated
- --------------------------------------------------------------------------------
MID-CAP EQUITY FUND
12/31/06 12/31/05 12/31/04 12/31/03 12/31/02
- -----------------------------------------------------------------------------------------------------------
INCEPTION DATE -- -- -- -- 5/1/97
Net asset value, beginning of period $ 19.22 $ 18.33 $ 17.48 $ 13.30 $ 15.66
INCOME/(LOSS) FROM INVESTMENT OPERATIONS:
Net investment income 0.23 0.05 0.17 0.19 0.12
Net realized and unrealized
gains/(losses) on investments 1.40 2.11 2.63 4.19 (2.28)
- -----------------------------------------------------------------------------------------------------------
TOTAL INCOME/(LOSS) FROM INVESTMENT OPERATIONS 1.63 2.16 2.80 4.38 (2.16)
- -----------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM:
Net investment income 0.22 0.06 0.14 0.18 0.12
Net realized gains 2.44 1.21 1.81 0.02 0.08
- -----------------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS 2.66 1.27 1.95 0.20 0.20
- -----------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 18.19 $ 19.22 $ 18.33 $ 17.48 $ 13.30
===========================================================================================================
TOTAL RETURN (a) 8.40% 11.74% 16.02% 32.94% (13.76)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in thousands) $199,311 $229,097 $239,831 $226,929 $170,422
Ratios to average net assets:
Net investment income 1.01% 0.24% 0.89% 1.36% 0.82%
Expenses 0.69% 0.70% 0.70% 0.69% 0.68%
Portfolio turnover rate 29% 27% 78% 28% 37%
NOTES TO FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(a) Total returns are historical and assume changes in share price and
reinvestment of dividends and capital gains and do not include the effect
of insurance contract charges.
See Notes to Financial Statements.
9
MID-CAP
Statement of Assets EQUITY
and Liabilities DECEMBER 31, 2006 FUND
- --------------------------------------------------------------------------------------------------
ASSETS
Investments in securities, at market* (cost $152,559,154) $ 192,240,411
Short-term Investments (at amortized cost) 31,820,759
Short-term affiliated investments (at amortized cost) 7,731,413
Income receivables 207,724
Receivable for fund shares sold 285
Variation margin receivable 19,250
- --------------------------------------------------------------------------------------------------
TOTAL ASSETS 232,019,842
- --------------------------------------------------------------------------------------------------
LIABILITIES
Payable upon return of securities loaned 31,820,759
Payable for investments purchased 634,867
Payable for fund shares redeemed 136,202
Payable to GEAM 117,277
- --------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 32,709,105
- --------------------------------------------------------------------------------------------------
NET ASSETS $ 199,310,737
==================================================================================================
NET ASSETS CONSIST OF:
Capital paid in 156,363,237
Undistributed (distribution in excess of) net investment income 16,785
Accumulated net realized gain (loss) 3,223,869
Net unrealized appreciation/(depreciation) on:
Investments 39,681,257
Futures 25,604
Foreign currency related transactions (15)
- --------------------------------------------------------------------------------------------------
NET ASSETS $ 199,310,737
==================================================================================================
Shares outstanding ($0.01 par value; unlimited shares authorized) 10,955,337
Net asset value per share $ 18.19
* Includes $30,935,819 of securities on loan.
See Notes to Financial Statements.
10
MID-CAP
Statement of Operations EQUITY
FOR THE YEAR ENDED DECEMBER 31, 2006 FUND
- --------------------------------------------------------------------------------------------------
INVESTMENT INCOME
INCOME:
Dividend $ 3,227,930
Interest* 98,530
Interest from affliated investments 278,903
Less: Foreign taxes withheld (6,848)
- --------------------------------------------------------------------------------------------------
TOTAL INCOME 3,598,515
- --------------------------------------------------------------------------------------------------
EXPENSES:
Advisory and administrative fees 1,403,406
Transfer agent fees 58
Trustee's fees 7,168
Custody and accounting expenses 35,484
Professional fees 24,456
Registration expenses 3,459
Other expenses 17,184
- --------------------------------------------------------------------------------------------------
TOTAL EXPENSES 1,491,215
- --------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME (LOSS) 2,107,300
==================================================================================================
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS
REALIZED GAIN (LOSS) ON:
Investments 24,419,757
Futures (269,863)
Foreign currency transactions (27)
INCREASE (DECREASE) IN UNREALIZED APPRECIATION/
(DEPRECIATION) ON:
Investments (8,813,076)
Futures (25,121)
Foreign currency transactions (15)
- --------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments 15,311,655
- --------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $ 17,418,955
==================================================================================================
* Income attributable to security lending activity, net of rebate expenses,
was $98,530.
See Notes to Financial Statements.
11
MID-CAP
Statements of EQUITY
Changes in Net Assets FUND
- -----------------------------------------------------------------------------------------------------------------
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
2006 2005
- -----------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net investments income (loss) $ 2,107,300 $ 563,287
Net realized gain (loss) on investments, futures, written options,
foreign currency transactions and swaps 24,149,867 14,923,721
Net increase (decrease) in unrealized appreciation/(depreciation)
on investments, futures, written options, foreign currency translation (8,838,212) 9,684,992
- -----------------------------------------------------------------------------------------------------------------
Net increase (decrease) from operations 17,418,955 25,172,000
- -----------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (2,123,415) (677,879)
Net realized gains (23,338,915) (13,537,932)
- -----------------------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS (25,462,330) (14,215,811)
- -----------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets from operations and distributions (8,043,375) 10,956,189
- -----------------------------------------------------------------------------------------------------------------
SHARE TRANSACTIONS:
Proceeds from sale of shares 1,813,307 2,208,712
Value of distributions reinvested 25,462,330 14,215,740
Cost of shares redeemed (49,018,282) (38,115,372)
- -----------------------------------------------------------------------------------------------------------------
Net increase (decrease) from share transactions (21,742,645) (21,690,920)
- -----------------------------------------------------------------------------------------------------------------
TOTAL INCREASE (DECREASE) IN NET ASSETS (29,786,020) (10,734,731)
NET ASSETS
Beginning of period 229,096,757 239,831,488
- -----------------------------------------------------------------------------------------------------------------
End of period $ 199,310,737 $ 229,096,757
=================================================================================================================
UNDISTRIBUTED (DISTRIBUTION IN EXCESS OF) NET INVESTMENT INCOME, END OF PERIOD $ 16,785 $ 15,350
- -----------------------------------------------------------------------------------------------------------------
CHANGES IN FUND SHARES
Shares sold 92,067 117,331
Issued for distributions reinvested 1,391,385 735,424
Shares redeemed (2,449,915) (2,013,679)
- -----------------------------------------------------------------------------------------------------------------
Net increase (decrease) in fund shares (966,463) (1,160,924)
=================================================================================================================
See Notes to Financial Statements.
12
Notes to Financial Statements December 31, 2006
- --------------------------------------------------------------------------------
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.
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.
In September 2006, FASB issued Statement of Financial Accounting Standards No.
157, FAIR VALUE MEASUREMENTS ("FAS 157"). FAS 157 establishes a single
authoritative definition of fair value, establishes a framework for measuring
fair value and expands disclosures about fair value measurements. FAS 157
applies to fair value measurements already required or permitted by existing
standards. The change to current generally accepted accounting principles from
the application of FAS 157 relate to the definition of fair value, the methods
used to measure fair value, and the expanded disclosures about fair value
measurements. Management of the Fund does not believe the adoption of FAS 157
will materially impact the financial statement amounts, however, additional
disclosures may be required about the inputs used to
13
Notes to Financial Statements December 31, 2006
- --------------------------------------------------------------------------------
develop the measurements and the effect of certain of the measurements on
changes in net assets for the period. FAS 157 is effective for financial
statements issued for fiscal years beginning after November 15, 2007 and interim
periods within those fiscal years.
REPURCHASE AGREEMENTS The Fund may engage in repurchase agreement transactions
with respect to instruments that are consistent with the Fund's investment
objectives or policies. 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.
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
14
Notes to Financial Statements December 31, 2006
- --------------------------------------------------------------------------------
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 difference between the premium and the amount paid on effecting
a closing purchase transaction, including brokerage commissions, is also treated
as a realized gain, or if the premium is less than the amount paid for the
closing purchase, as a realized loss. When an option is exercised, the proceeds
from the sale of the underlying security or the cost basis of the securities
purchased is adjusted by the original premium received or paid.
INVESTMENTS IN FOREIGN MARKETS Investments in foreign markets may involve
special risks and considerations not typically associated with investing in the
United States. These risks include revaluation of currencies, high rates of
inflation, repatriation on income and capital, and adverse political and
economic developments. Moreover, securities issued in these markets may be less
liquid, subject to government ownership controls, tariffs and taxes, subject to
delays in settlements, and their prices may be more volatile.
The Fund may be subject to capital gains and repatriation taxes imposed by
certain countries in which it invests. Such taxes are generally based on income
and/or capital gains earned or repatriated. Taxes are accrued based upon net
investment income, net realized gains and net unrealized appreciation as income
and/or capital gains are earned.
INCOME TAXES The Fund intends to comply with all sections of the Internal
Revenue Code applicable to regulated investment companies including the
distribution of substantially all of its taxable net investment income and net
realized capital gains to its shareholders. Therefore, no provision for federal
income tax has been made. The Fund is treated as a separate taxpayer for federal
income tax purposes.
At December 31, 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
- --------------------------------------------------------------------------------
$192,793,762 $46,063,113 $(7,064,292) $38,998,821
Net Tax Appreciation/ Undistributed Undistributed Post
(Depreciation) on Income/ Long-Term Gains/ October
Derivatives, Currency (Accumulated (Accumulated Losses
and Other Net Assets Ordinary Loss) Capital Loss) (see Detail Below)
- --------------------------------------------------------------------------------
$ (15) $ 565,104 $ 3,383,590 $ --
15
Notes to Financial Statements December 31, 2006
- --------------------------------------------------------------------------------
As of December 31, 2006, 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 incurred no such losses after October 31, 2006.
The tax composition of distributions paid (other than return of capital
distributions for the year) during the year ended December 31, 2006 was as
follows:
Long-Term
Ordinary Capital
Income Gains Total
- --------------------------------------------------------------------------------
$3,072,947 $22,389,383 $25,462,330
DISTRIBUTIONS TO SHAREHOLDERS The Fund declares and pays dividends from net
investment income annually. The Fund declares and pays net realized capital
gains in excess of capital loss carryforwards distributions annually. The
character of income and gains to be distributed is determined in accordance with
income tax regulations which may differ from generally accepted accounting
principles. These differences include (but are not limited to) futures,
distributions from Real Estate Investment Trusts (REITS), and losses deferred
due to wash sale transactions. Reclassifications due to permanent book/tax
differences are made to the Fund's capital accounts to reflect income and gains
available for distribution (or available capital loss carryovers) under income
tax regulations. These reclassifications have no impact on net investment
income, realized gains or losses, or the net asset value of the Fund. The
calculation of net investment income per share in the Financial Highlights table
excludes these adjustments.
The reclassifications for the year ended December 31, 2006 were as follows:
Undistributed
(Distribution
in Excess of)
Net Investment Accumulated Paid in
Income Net Realized Gain Capital
- --------------------------------------------------------------------------------
$17,550 $(17,550) $ --
On July 13, 2006, the FASB released FIN48, "Accounting for Uncertainty in Income
Taxes." FIN48 provides guidance for how uncertain tax positions should be
recognized, measured, presented and disclosed in the financial statements. FIN48
requires evaluation of tax positions taken or expected to be taken in the course
of preparing the Fund's tax returns to determine whether the tax positions are
"more likely than not" of being sustained by the applicable tax authority. The
adoption of FIN48 will require financial statements to be adjusted to reflect
only those tax positions that are more likely that not to be sustained as of the
adoption date. Adoption of FIN48 is required for fiscal years beginning after
December 15, 2006 no later than June 29, 2007 and is applied to all open years
as of the effective date. At this time, management is evaluating the
implications of FIN48 and its impact on the financial statements has not yet
been determined.
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 and amortized,
respectively, 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
16
Notes to Financial Statements December 31, 2006
- --------------------------------------------------------------------------------
is the lesser of its prospectus limitation, 20% of its net assets, or $25
million. The credit facility was not utilized by the Fund during the period
ended December 31, 2006.
4. AMOUNTS PAID TO AFFILIATES
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. GEAM's compensation 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 December 31, 2006, $3,993 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 December 31, 2006 were as follows:
Purchases Sales
- --------------------------------------------------------------------------------
$61,237,341 $108,404,688
SECURITY LENDING At December 31, 2006, the Fund participated in securities
lending:
Loaned securities Cash
at market value collateral*
- --------------------------------------------------------------------------------
$30,935,819 $31,820,759
* COLLATERAL OF $31,965,265 DECREASED BY $144,506 ON JANUARY 1, 2007 TO
REFLECT THE DECEMBER 31, 2006 CHANGE IN VALUE OF SECURITIES ON LOAN.
17
Report of Independent Registered Public Accounting Firm
- --------------------------------------------------------------------------------
The Shareholders and Board of Directors
GE Investments Funds, Inc.
We have audited the accompanying statement of assets and liabilities of the
Mid-Cap Equity Fund, a series of GE Investments Funds, Inc., including the
schedule of investments, as of December 31, 2006, and the related statement of
operations for the year then ended, the statements of changes in net assets for
each of the years in the two-year period then ended, and the financial
highlights for each of the years in the five-year period then ended. These
financial statements and financial highlights are the responsibility of the
Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included confirmation of
securities owned as of December 31, 2006 by correspondence with the custodian
and brokers, or by other appropriate auditing procedures where replies from
brokers were not received. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
Mid-Cap Equity Fund as of December 31, 2006, the results of its operations,
changes in its net assets and financial highlights for the years described
above, in conformity with U.S. generally accepted accounting principles.
/s/ KPMG LLP
Boston, Massachusetts
February 20, 2007
18
Tax Information (unaudited)
- --------------------------------------------------------------------------------
During the calendar year ended December 31, 2006, the Fund paid to shareholders
of record on December 27, 2006, $2.33915 per share of long-term capital gain
dividends.
19
Advisory and Administrative Agreement Renewal (unaudited)
- --------------------------------------------------------------------------------
The Fund Board, including the independent Board members, considered and
unanimously approved the continuance of the Fund's investment advisory agreement
with GE Asset Management Incorporated ("GEAM") at meetings held on December 6
and December 14, 2006.
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 detail during a
private session with their independent legal counsel at which no representatives
of GEAM were present. The independent Board members and their independent legal
counsel requested, and received and considered, additional information from GEAM
following this session.
In advance of the meetings, 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 recent years, 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 recent years. 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 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 has expended significant sums to
enhance services, including improvements to its information technology
capabilities. The Board members noted that the Fund represents only a small
portion of the assets managed by GEAM, but benefits from a full array of
services and resources provided by GEAM. In light of these discussions, the
Board members, including the independent members, concluded that GEAM's services
were of a high quality and had benefited the Fund.
20
Advisory and Administrative Agreement Renewal (unaudited)
- --------------------------------------------------------------------------------
INVESTMENT PERFORMANCE OF THE FUND.
The Board members considered the investment performance of the Fund for various
periods. The Board members reviewed detailed comparisons of the performance of
the Fund with the relevant securities indexes and peer groupings of mutual funds
prepared by Lipper with respect to various periods. The Board members also
engaged in detailed discussions with GEAM management about the investment
process, focusing on the Fund's investment objective, the number and experience
of portfolio management personnel, the investment style and approach employed,
the likely market cycles for the investment style, and the relative
underperformance of the Fund in certain periods in light of GEAM's commitment to
long-term satisfactory performance with respect to the Fund's investment
objective and investment approach. The Board members, including the independent
members, concluded that the Fund's performance was acceptable overall taking
into consideration the factors discussed above.
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. 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
21
Advisory and Administrative Agreement Renewal (unaudited)
- --------------------------------------------------------------------------------
about the fees being charged to the Fund and, to the extent applicable, the
effect, if any, of the Securities and Exchange Commission staff's interpretive
guidance concerning soft dollars. 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 that
GEAM may derive from its relationship with the Fund, including, to the extent
applicable, soft dollar commission benefits generated through Fund portfolio
transactions. The Board members noted, however, that the Fund benefits from the
vast array of resources available through GEAM, and that the Fund represents
only a small portion of the assets managed by GEAM.
CONCLUSION.
No single factor was determinative to the Board members' decision. Based on
their discussion and such other matters as were deemed relevant, the Board
members, including the independent members, concluded that the proposed advisory
fee and projected total expense ratio are reasonable in relation to the services
provided to the Fund. In view of these facts, the Board members, including the
independent members, concluded that the renewal of the advisory agreement was in
the best interests of the Fund and its shareholders.
22
Additional Information (unaudited)
- --------------------------------------------------------------------------------
INFORMATION ABOUT DIRECTORS AND EXECUTIVE OFFICERS:
The business and affairs of the Company are managed under the direction of the
Company's Board of Directors. Information pertaining to the Directors and
officers of the Company is set forth below.
INTERESTED DIRECTORS AND EXECUTIVE OFFICERS
- --------------------------------------------------------------------------------
MICHAEL J. COSGROVE
- --------------------------------------------------------------------------------
ADDRESS c/o GEAM 3001 Summer St. Stamford, CT 06905
AGE 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;
Trustee of Elfun Foundation; Treasurer of GE Foundation; Director, GE Asset
Management (Ireland) since February 1999.
- --------------------------------------------------------------------------------
ALAN M. LEWIS
- --------------------------------------------------------------------------------
ADDRESS c/o GEAM 3001 Summer St. Stamford, CT 06905
AGE 60
POSITION(S) HELD WITH FUND Director and Executive Vice President
TERM OF OFFICE AND LENGTH OF TIME SERVED Until successor is elected and
qualified - 6 years
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS Executive Vice President, General
Counsel and Secretary of GEAM since 1987
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR 48
OTHER DIRECTORSHIPS HELD BY DIRECTOR Trustee and Executive Vice President of GE
Funds, GE Institutional Funds and GE LifeStyle Funds since their inception.
Trustee of Elfun Funds, GE Savings & Security Funds and General Electric Pension
Trust since 1987.
23
Additional Information (unaudited)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SCOTT H. RHODES
- --------------------------------------------------------------------------------
ADDRESS c/o GEAM 3001 Summer St. Stamford, CT 06905
AGE 47
POSITION(S) HELD WITH FUND Treasurer
TERM OF OFFICE AND LENGTH OF TIME SERVED Until successor is elected and
qualified - less than one year
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS GEAM Mutual Funds Operations
Manager since September 2005; Treasurer of GE Institutional Funds, GE LifeStyle
Funds and GE Investments Funds since November 2005 and Elfun Funds and GE
Savings & Security Funds since September 2005; from August 2004 to September
2005 Vice President, U.S. Trust Company, N.A. and Assistant Treasurer of
Excelsior Funds, Inc., Excelsior Funds Trust, and Excelsior Tax Exempt Funds,
Inc.; from January 2004 to August 2004, Vice President BlackRock Financial
Management, Inc.; from December 1996 to November 2003, Controller - Mutual
Funds, American Skandia Investment Services, Inc. and Assistant Treasurer of
American Skandia Trust and American Skandia Advisor Funds, Inc.
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR N/A
OTHER DIRECTORSHIPS HELD BY DIRECTOR N/A
- --------------------------------------------------------------------------------
MATTHEW J. SIMPSON
- --------------------------------------------------------------------------------
ADDRESS c/o GEAM 3001 Summer St. Stamford, CT 06905
AGE 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 41
POSITION(S) HELD WITH FUND Vice President and Assistant Secretary
TERM OF OFFICE AND LENGTH OF TIME SERVED Until successor is elected and
qualified - 2 years
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS Vice President and Associate
General Counsel - Marketing and Client Services (formerly Asset Management
Services) at GEAM since May 1997; Vice President and Assistant Secretary of GE
Funds, GE Institutional Funds and GE LifeStyle Funds since September 2003; Vice
President and Assistant Secretary of Elfun Funds and GE Savings & Security Funds
since October 2003.
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR N/A
OTHER DIRECTORSHIPS HELD BY DIRECTOR N/A
24
Additional Information (unaudited)
- --------------------------------------------------------------------------------
NON-INTERESTED DIRECTORS
- --------------------------------------------------------------------------------
JOHN R. COSTANTINO
- --------------------------------------------------------------------------------
ADDRESS c/o GEAM 3001 Summer St. Stamford, CT 06905
AGE 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 General Partner, NGN Capital LLC
since 2006; 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 59
POSITION(S) HELD WITH FUND Director
TERM OF OFFICE AND LENGTH OF TIME SERVED Until successor is elected and
qualified - 9 years
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS 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 Trustee of GE Funds since 1993, and GE
Institutional Funds and GE LifeStyle Funds since their inception.
- --------------------------------------------------------------------------------
The Statement of Additional Information for the Fund includes additional
information about the Directors and Officers and is available, without charge,
upon request by calling 1-800-242-0134.
25
Investment Team
- --------------------------------------------------------------------------------
INVESTMENT ADVISER AND ADMINISTRATOR
GE Asset Management Incorporated
BOARD OF DIRECTORS
Michael J. Cosgrove, CHAIRMAN
John R. Costantino
Alan M. Lewis
William J. Lucas
Robert P. Quinn
SECRETARY
Matthew J. Simpson
TREASURER
Scott H. Rhodes
ASSISTANT TREASURER
Christopher M. Isaacs
DISTRIBUTOR
GE Investment Distributors, Inc.
Member NASD and SIPC
COUNSEL
Sutherland, Asbill & Brennan, LLP
CUSTODIAN
State Street Bank & Trust Company
INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM
KPMG LLP
OFFICERS OF THE INVESTMENT ADVISER
Ronald R. Pressman, CHIEF EXECUTIVE OFFICER (EFFECTIVE AS OF JULY 1, 2006)
David B. Carlson, EVP, DOMESTIC EQUITIES
Michael J. Cosgrove, EVP, CHIEF COMMERCIAL OFFICER
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
Judith A. Studer, EVP, INVESTMENT STRATEGIES (AS OF JULY 2006)
Don W. Torey, EVP, ALTERNATIVE INVESTMENTS AND REAL ESTATE
John J. Walker, EVP, CHIEF FINANCIAL OFFICER
26
[This page intentionally left blank.]
[This page intentionally left blank.]
[This page intentionally left blank.]
INVESTMENT ADVISER
GE ASSET MANAGEMENT INCORPORATED
3001 SUMMER STREET
PO BOX 7900
STAMFORD, CT 06904-7900
DISTRIBUTOR
GE INVESTMENT DISTRIBUTORS, INC.
MEMBER NASD AND SIPC
3001 SUMMER STREET
PO BOX 7900
STAMFORD, CT 06904-7900
- --------------------------------------------------------------------------------
The Fund files its complete schedule of portfolio holdings with the Securities
and Exchange Commission for the first and third quarters of each fiscal year on
Form N-Q. The Fund's Forms N-Q, as well as a description of the policies and
procedures that the Fund uses to determine how to vote proxies (if any) relating
to portfolio securities is available without charge (i) upon request, by calling
1-800-242-0134; (ii) on the Fund's website at http://www.gefunds.com; and (iii)
on the Commission's website at http://www.sec.gov. The Fund's Forms N-Q may be
reviewed and copied at the Commission's Public Reference Room in Washington, DC
- - information on the operation of the Public Reference Room may be obtained by
calling 1-800-SEC-0330.
Information (if any) regarding how the Fund voted proxies relating to portfolio
securities during the most recently disclosed 12-months period ended June 30 is
available without charge (i) through the Fund's website at
http://www.gefunds.com; and (ii) on the Commission's website at
http://www.sec.gov.
- --------------------------------------------------------------------------------
[GE LOGO OMITTED]
<page>
GE Investments Funds, Inc.
Small-Cap Equity Fund
Annual Report
DECEMBER 31, 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 7
FINANCIAL STATEMENTS
Financial Highlights 8
Statement of Assets and Liabilities 9
Statement of Operations 10
Statements of Changes in Net Assets 11
Notes to Financial Statements 12
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM 16
TAX INFORMATION 17
ADVISORY AND ADMINISTRATIVE AGREEMENT RENEWAL 18
ADDITIONAL INFORMATION 21
INVESTMENT TEAM 24
This report is prepared for Policyholders of certain variable contracts and may
be distributed to others only if preceded or accompanied by the variable
contract's current prospectus and the current prospectus of the Funds available
for investments thereunder.
Notes to Performance December 31, 2006
- --------------------------------------------------------------------------------
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
- --------------------------------------------------------------------------------
Q&A
PALISADE CAPITAL MANAGEMENT, L.L.C. ("PALISADE") HAS A HISTORY OF MANAGING
SMALL-CAP EQUITY PORTFOLIOS AND FOR SEVERAL YEARS HAS PROVIDED PENSION FUND
SERVICES TO GE. PALISADE TRANSLATES ITS EXPERIENCE FROM VARIOUS INSTITUTIONAL
AND PRIVATE ACCOUNTS TO MUTUAL FUND PORTFOLIOS IT SUB-ADVISES FOR GE ASSET
MANAGEMENT. PALISADE HAS MANAGED THE SMALL-CAP EQUITY FUND SINCE ITS INCEPTION.
SMALL-CAP EQUITY FUND IS MANAGED BY JACK FEILER, JEFFREY SCHWARTZ AND DENNISON
T. ("DAN") VERU, MEMBERS OF PALISADE'S INVESTMENT POLICY COMMITTEE. MR. FEILER,
MR. SCHWARTZ AND MR. VERU ARE JOINTLY AND PRIMARILY RESPONSIBLE FOR THE STRATEGY
OF THE FUND AND THE DAY-TO-DAY MANAGEMENT OF THE FUND IS EXECUTED BY MR.
SCHWARTZ.
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 FOR
THE TWELVE-MONTH PERIOD ENDED DECEMBER 31, 2006?
A. For the twelve-month period ended December 31, 2006, the Small-Cap Equity
Fund returned 13.27%. The Russell 2000 Index, the Fund's benchmark,
returned 18.36% and the Fund's Lipper peer group of 127 Small-Cap Core
Funds returned an average of 15.23% for the same period.
Q. WHAT MARKET CONDITIONS IMPACTED FUND PERFORMANCE?
A. Sharp changes in sector leadership during the year contributed to the
anomaly: defensive sectors which normally lag in strong markets generally
outperformed, and higher beta sectors, such as information technology &
healthcare, which normally lead in bullish markets lagged by notable
margins. Indications were that quality, earnings predictability and
visibility would matter more. However, that was not the case as the
lower-quality stocks outperformed higher quality stocks by a wide margin
in both the fourth quarter and full year periods.
Q. WHAT WERE THE PRIMARY DRIVERS OF FUND PERFORMANCE?
A. Stock selection drove the generally strong sector returns earned in the
full year period. Holdings in the healthcare sector exhibited more price
volatility that negatively impacted Fund performance, as lower quality
biotechnology & specialty pharmaceutical stocks outperformed their higher
quality peers. Energy stocks provided strong returns in the fourth quarter
with less volatility than what was experienced during the earlier part of
the year. Industrial stocks earned the strongest relative results having
gained 30.7% to outpace the index's sector return of 22.1% for the year.
Q. WERE THERE ANY SIGNIFICANT CHANGES TO THE FUND DURING THE PERIOD?
A. The most significant change in sector allocation included reductions in
the healthcare and financial services sectors and increases in the
industrial sector. Continued rate increases by the Federal Reserve to stem
inflationary pressure impeded the buying power of most consumers in the
last twelve months. We scaled back our exposure to the healthcare sector.
We added a few new stocks to the industrials sector, but most of the
increase in allocation was due to market appreciation.
2
Small-Cap Equity Fund
- --------------------------------------------------------------------------------
Understanding Your Fund's Expenses
As a shareholder of the Fund you incur transaction and ongoing expenses.
Transaction expenses including sales charges on purchase payments, reinvested
dividends (or other distributions), and redemption fees directly reduce the
investment return of the Fund. Ongoing costs include portfolio management fees,
distribution and service fees, professional fees, administrative fees and other
Fund expenses. The following example is intended to help you understand your
ongoing costs (in dollars) of investing in the Fund and to compare these costs
with the ongoing costs of investing in other mutual funds.
To illustrate these ongoing costs, we have provided an example and calculated
the expenses paid by investors during the period. The information in the
following table is based on an investment of $1,000, which is invested at the
beginning of the period and held for the entire six-month period ended December
31, 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 $1,000 = 8.6), then multiply the result by the number
given for your class under the heading "Expenses Paid During Period."
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The second section of the table provides information about hypothetical account
values and hypothetical expenses based on the Fund's actual expense ratio and an
assumed rate of return of 5% per year before expenses, which is not the Fund's
actual return. You may use this information to compare the ongoing costs of
investing in the Fund and other funds. To do so, compare this 5% hypothetical
example with the 5% hypothetical examples that appear in the shareholders
reports of other funds.
Please note that the expenses shown in the table do not reflect any transaction
costs, such as sales charges or redemption fees.
JULY 1, 2006 - DECEMBER 31, 2006
- --------------------------------------------------------------------------------------------------
ACCOUNT VALUE AT ACCOUNT VALUE EXPENSES
THE BEGINNING OF AT THE END OF PAID DURING
THE PERIOD ($) THE PERIOD ($) THE PERIOD ($)*
- --------------------------------------------------------------------------------------------------
Actual Fund Return** 1,000.00 1,076.74 4.48
- --------------------------------------------------------------------------------------------------
Hypothetical 5% Return
(2.5% for the period) 1,000.00 1,020.63 4.41
- --------------------------------------------------------------------------------------------------
* EXPENSES ARE EQUAL TO THE FUND'S ANNUALIZED EXPENSE RATIO OF 0.87% (FROM
PERIOD JULY 1, 2006 - DECEMBER 31, 2006), MULTIPLIED BY THE AVERAGE
ACCOUNT VALUE OVER THE PERIOD, MULTIPLIED BY 184/365 (TO REFLECT THE SIX
MONTH PERIOD).
** ACTUAL FUND RETURN FOR SIX-MONTH PERIOD ENDED DECEMBER 31, 2006 WAS:
7.67%.
3
Small-Cap Equity Fund
- --------------------------------------------------------------------------------
CHANGE IN VALUE
OF A $10,000 INVESTMENT
- --------------------------------------------------------------------------------
[LINE CHART OMITTED, PLOT POINTS ARE AS FOLLOWS:]
Small-Cap Equity Fund Russell 2000 Index
(ending value $ 19,024) (ending value $16,983)
04/28/00 $ 10,000 $ 10,000
06/00 9,890 10,241
12/00 11,326 9,650
06/01 12,029 10,312
12/01 12,455 9,896
06/02 12,466 9,433
12/02 10,730 7,876
06/03 11,116 9,288
12/03 13,317 11,601
06/04 14,247 12,385
12/04 15,334 13,728
06/05 15,931 13,554
12/05 16,796 14,348
06/06 17,668 15,525
12/06 19,024 16,983
AVERAGE ANNUAL TOTAL RETURN
FOR THE PERIODS ENDED DECEMBER 31, 2006
- --------------------------------------------------------------------------------
ONE FIVE SINCE
YEAR YEAR INCEPTION
- --------------------------------------------------------------------------------
Small-Cap Equity Fund 13.27% 8.84% 10.11%
- --------------------------------------------------------------------------------
Russell 2000 Index 18.36% 11.41% 8.27%
- --------------------------------------------------------------------------------
Lipper peer group average* 15.23% 10.28% N/A
- --------------------------------------------------------------------------------
Inception date 4/28/00
- --------------------------------------------------------------------------------
INVESTMENT PROFILE
A fund designed for investors who seek long-term growth of capital by investing
at least 80% of its net assets in equity securities of small-cap companies under
normal circumstances. The Fund invests primarily in small-cap companies that the
portfolio managers believe are undervalued by the market but have solid growth
prospects.
TOP TEN LARGEST HOLDINGS
AS OF DECEMBER 31, 2006
as a % of Market Value
- --------------------------------------------------------------------------------
DRS Technologies, Inc. 2.70%
- --------------------------------------------------------------------------------
Harsco Corp. 2.25%
- --------------------------------------------------------------------------------
HCC Insurance Holdings, Inc. 2.14%
- --------------------------------------------------------------------------------
Parametric Technology Corp. 2.12%
- --------------------------------------------------------------------------------
ADESA, Inc. 2.12%
- --------------------------------------------------------------------------------
MoneyGram International, Inc. 2.11%
- --------------------------------------------------------------------------------
Oil States International, Inc. 2.10%
- --------------------------------------------------------------------------------
Micros Systems, Inc. 2.10%
- --------------------------------------------------------------------------------
Genesee & Wyoming Inc. (Class A) 2.03%
- --------------------------------------------------------------------------------
BioMed Realty Trust, Inc. (REIT) 1.92%
- --------------------------------------------------------------------------------
PORTFOLIO COMPOSITION
AS OF DECEMBER 31, 2006
as a % of Market Value
- --------------------------------------------------------------------------------
Market Value of $149,087 (in thousands)
[PIE CHART OMITTED, PLOT POINTS ARE AS FOLLOWS:]
Industrials 23.3%
Short-Term 18.2%
Financials 16.0%
Information Technology 12.4%
Consumer Discretionary 10.7%
Healthcare 6.9%
Energy 5.5%
Materials 3.2%
Consumer Staples 2.5%
Utilities 1.3%
* LIPPER PERFORMANCE COMPARISONS ARE BASED ON AVERAGE ANNUAL TOTAL RETURNS
FOR THE ONE YEAR AND FIVE-YEAR PERIODS INDICATED IN THE SMALL-CAP CORE
FUNDS PEER GROUP CONSISTING OF 127 AND 85 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
SMALL-CAP EQUITY FUND
Schedule of Investments December 31, 2006
- --------------------------------------------------------------------------------
SMALL-CAP EQUITY FUND
NUMBER
OF SHARES VALUE
- --------------------------------------------------------------------------------
COMMON STOCK -- 95.8%
- --------------------------------------------------------------------------------
CONSUMER DISCRETIONARY -- 12.5%
ACCO Brands Corp. 400 $ 10,588 (a,d)
Aeropostale, Inc. 42,400 1,308,888 (a,d)
American Eagle Outfitters 20,950 653,850
Arbitron, Inc. 52,300 2,271,912 (d)
Bright Horizons Family
Solutions, Inc. 41,800 1,615,988 (a,d)
CBRL Group, Inc. 23,600 1,056,336
Finish Line (Class A) 54,700 781,116 (d)
Interactive Data Corp. 107,700 2,589,108
Pool Corp. 45,900 1,797,903 (d)
RARE Hospitality International, Inc. 12,900 424,797 (a,d)
The Talbots, Inc. 28,100 677,210 (d)
Timberland Co. (Class A) 27,600 871,608 (a,d)
Triarc Companies, Inc. (Class B) 93,400 1,868,000 (d)
15,927,304
CONSUMER STAPLES -- 2.9%
Central European
Distribution Corp. 66,000 1,960,200 (a,d)
Smithfield Foods, Inc. 70,200 1,801,332 (a,d)
3,761,532
ENERGY -- 6.5%
Dril-Quip Inc. 38,100 1,491,996 (a,d)
Hydril Co. 30,200 2,270,738 (a,d)
Oil States International, Inc. 97,200 3,132,756 (a,d)
St. Mary Land & Exploration Co. 36,900 1,359,396 (d)
8,254,886
FINANCIALS -- 18.7%
BioMed Realty Trust, Inc. (REIT) 100,200 2,865,720
Cullen/Frost Bankers, Inc. 18,600 1,038,252
DCT Industrial Trust, Inc. (REIT) 13,600 160,480
Federal Realty Investment
Trust (REIT) 12,800 1,088,000
Global Cash Access Holdings, Inc. 115,900 1,881,057 (a,d)
HCC Insurance Holdings, Inc. 99,300 3,186,537 (d)
Hilb Rogal & Hobbs Co. 58,600 2,468,232 (d)
Jones Lang LaSalle Inc. 23,000 2,119,910 (d)
Omega Healthcare
Investors, Inc. (REIT) 139,400 2,470,168
Raymond James Financial, Inc. 75,775 2,296,740
Sandy Spring Bancorp, Inc. 23,800 908,684 (d)
Sterling Bancorp 32,162 633,591 (d)
Webster Financial Corp. 23,900 1,164,408
Westamerica Bancorporation 29,900 1,513,837 (d)
23,795,616
- --------------------------------------------------------------------------------
NUMBER
OF SHARES VALUE
- --------------------------------------------------------------------------------
HEALTHCARE -- 8.1%
Computer Programs and
Systems, Inc. 53,300 $ 1,811,667 (d)
Immunicon Corp. 79,700 264,604 (a,d)
KV Pharmaceutical Co. (Class A) 89,800 2,135,444 (a,d)
Medical Action Industries Inc. 21,200 683,488 (a)
Molina Healthcare, Inc. 31,300 1,017,563 (a,d)
Salix Pharmaceuticals Ltd. 68,600 834,862 (a,d)
Thoratec Corp. 71,900 1,264,002 (a,d)
Varian, Inc. 52,000 2,329,080 (a)
10,340,710
INDUSTRIALS -- 27.2%
ADESA, Inc. 113,800 3,157,950
Comfort Systems USA, Inc. 131,400 1,660,896
DRS Technologies, Inc. 76,300 4,019,484 (d)
EDO Corp. 28,400 674,216 (d)
Genesee & Wyoming Inc. (Class A) 115,100 3,020,224 (a,d)
Harsco Corp. 44,000 3,348,400
Herman Miller Inc. 75,700 2,752,452
Matthews International
Corp. (Class A) 38,200 1,503,170 (d)
Mueller Industries, Inc. 59,200 1,876,640
NCI Building Systems, Inc. 32,600 1,687,050 (a,d)
Old Dominion Freight Line 50,100 1,205,907 (a,d)
Oshkosh Truck Corp. 51,500 2,493,630 (d)
Quanta Services, Inc. 123,300 2,425,311 (a,d)
RailAmerica, Inc. 8,200 131,856 (a)
Teledyne Technologies Inc. 61,600 2,472,008 (a)
Woodward Governor Co. 57,500 2,283,325
34,712,519
INFORMATION TECHNOLOGY -- 14.5%
Blackbaud, Inc. 52,500 1,365,000 (d)
CommScope, Inc. 36,900 1,124,712 (a,d)
Digital Insight Corp. 19,700 758,253 (a)
Kronos Inc. 37,700 1,385,098 (a,d)
Micros Systems, Inc. 59,400 3,130,380 (a,d)
Mobility Electronics, Inc. 132,600 444,210 (a,d)
MoneyGram International, Inc. 100,100 3,139,136
Parametric Technology Corp. 175,680 3,165,754 (a,d)
Photon Dynamics, Inc. 51,800 605,542 (a,d)
Rudolph Technologies, Inc. 110,600 1,760,752 (a,d)
Semtech Corp. 67,700 884,839 (a)
Zebra Technologies
Corp. (Class A) 18,700 650,573 (a,d)
18,414,249
MATERIALS -- 3.8%
Commercial Metals Co. 110,600 2,853,480
Packaging Corporation
of America 67,500 1,491,750
Pioneer Drilling Co. 37,300 495,344 (a,d)
4,840,574
See Notes to Schedule of Investments on Page 7 and Notes to Financial
Statements.
5
SMALL-CAP EQUITY FUND
Schedule of Investments December 31, 2006
- --------------------------------------------------------------------------------
NUMBER
OF SHARES VALUE
- --------------------------------------------------------------------------------
UTILITIES -- 1.6%
IDACORP, Inc. 51,300 $ 1,982,745 (d)
TOTAL INVESTMENTS IN SECURITIES
(COST $105,213,712) 122,030,135
- --------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS -- 21.2%
- --------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS -- 5.3%
GEI Short Term Investment Fund
5.56% 6,776,664 6,776,664 (b,e)
SHORT-TERM SECURITIES PURCHASED WITH
COLLATERAL FROM SECURITIES ON LOAN -- 15.9%
State Street Navigator Securities
Lending Prime Portfolio
5.33% 20,280,138 20,280,138 (b,c)
TOTAL SHORT-TERM INVESTMENTS
(COST $27,056,802) 27,056,802
TOTAL INVESTMENTS
(COST $132,270,514) 149,086,937
LIABILITIES IN EXCESS OF OTHER
ASSETS -- (17.0)% (21,706,211)
------------
NET ASSETS -- 100.0% $127,380,726
============
See Notes to Schedule of Investments on page 7 and Notes to Financial
Statements.
6
Notes to Schedule of Investments December 31, 2006
- --------------------------------------------------------------------------------
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) GE Asset Management Incorporated, the investment adviser of the Fund, also
serves as investment adviser of the GEI Short Term Investment Fund.
+ Percentages are based on net assets as of December 31, 2006.
Abbreviations:
REIT Real Estate Investment Trust
7
Financial Highlights
Selected data based on a share outstanding throughout the periods indicated
- --------------------------------------------------------------------------------
SMALL-CAP EQUITY FUND
12/31/06 12/31/05 12/31/04 12/31/03 12/31/02
- ----------------------------------------------------------------------------------------------------------------
INCEPTION DATE -- -- -- -- 4/28/00
Net asset value, beginning of period $ 14.44 $ 13.62 $ 12.74 $ 10.27 $ 12.01
INCOME/(LOSS) FROM INVESTMENT OPERATIONS:
Net investment income 0.05 0.02 0.08 0.02 0.03
Net realized and unrealized
gains/(losses) on investments 1.87 1.28 1.85 2.46 (1.69)
- ----------------------------------------------------------------------------------------------------------------
TOTAL INCOME/(LOSS) FROM INVESTMENT OPERATIONS 1.92 1.30 1.93 2.48 (1.66)
- ----------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM:
Net investment income 0.04 0.03 0.07 0.01 0.02
Net realized gains 1.93 0.45 0.98 -- 0.05
Return of capital -- -- -- -- 0.01
- ----------------------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS 1.97 0.48 1.05 0.01 0.08
- ----------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $14.39 $ 14.44 $ 13.62 $ 12.74 $ 10.27
================================================================================================================
TOTAL RETURN (a) 13.27% 9.53% 15.15% 24.11% (13.86)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in thousands) $ 127,381 $ 128,142 $ 117,158 $ 86,330 $ 52,359
Ratios to average net assets:
Net investment income 0.31% 0.11% 0.67% 0.17% 0.34%
Expenses 0.86% 0.86% 0.88% 0.86% 0.84%
Portfolio turnover rate 52% 33% 101% 119% 108%
NOTES TO FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(a) Total returns are historical and assume changes in share price and
reinvestment of dividends and capital gains and do not include the effect
of insurance contract charges.
See Notes to Financial Statements.
8
SMALL-CAP
Statement of Assets EQUITY
and Liabilities DECEMBER 31, 2006 FUND
- ----------------------------------------------------------------------------------------------------
ASSETS
Investments in securities, at market* (cost $105,213,712) $ 122,030,135
Short-term Investments (at amortized cost) 20,280,138
Short-term affiliated investments (at amortized cost) 6,776,664
Income receivables 135,836
- ----------------------------------------------------------------------------------------------------
TOTAL ASSETS 149,222,773
- ----------------------------------------------------------------------------------------------------
LIABILITIES
Payable upon return of securities loaned 20,280,138
Payable for investments purchased 1,440,137
Payable for fund shares redeemed 28,368
Payable to GEAM 93,404
- ----------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 21,842,047
- ----------------------------------------------------------------------------------------------------
NET ASSETS $ 127,380,726
====================================================================================================
NET ASSETS CONSIST OF:
Capital paid in 102,912,429
Undistributed (distribution in excess of) net investment income 36,157
Accumulated net realized gain (loss) 7,615,717
Net unrealized appreciation/(depreciation) on:
Investments 16,816,423
- ----------------------------------------------------------------------------------------------------
NET ASSETS $ 127,380,726
====================================================================================================
Shares outstanding ($0.01 par value; unlimited shares authorized) 8,852,373
Net asset value per share $ 14.39
* Includes $19,605,852 of securities on loan.
See Notes to Financial Statements.
9
SMALL-CAP
Statement of Operations EQUITY
FOR THE YEAR ENDED DECEMBER 31, 2006 FUND
- -----------------------------------------------------------------------------------------------------
INVESTMENT INCOME
INCOME:
Dividend $ 1,247,619
Interest* 55,854
Interest from affliated investments 171,721
Less: Foreign taxes withheld (1,079)
- -----------------------------------------------------------------------------------------------------
TOTAL INCOME 1,474,115
- -----------------------------------------------------------------------------------------------------
EXPENSES:
Advisory and administrative fees 1,058,636
Transfer agent 40
Trustee's fees 4,613
Custody and accounting expenses 31,326
Professional fees 21,296
Registration expenses 2,561
Other expenses 13,609
- -----------------------------------------------------------------------------------------------------
TOTAL EXPENSES 1,132,081
- -----------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME (LOSS) 342,034
=====================================================================================================
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS
REALIZED GAIN (LOSS) ON:
Investments 22,145,575
INCREASE (DECREASE) IN UNREALIZED APPRECIATION/
(DEPRECIATION) ON:
Investments (6,549,704)
- -----------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments 15,595,871
- -----------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $ 15,937,905
=====================================================================================================
* Income attributable to security lending activity, net of rebate expenses,
was $55,764.
See Notes to Financial Statements.
10
SMALL-CAP
Statements of EQUITY
Changes in Net Assets FUND
- ------------------------------------------------------------------------------------------------------------------------
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
2006 2005
- ------------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net investments income (loss) $ 342,034 $ 130,009
Net realized gain (loss) on investments, futures, written options,
foreign currency transactions and swaps 22,145,575 4,386,615
Net increase (decrease) in unrealized appreciation/(depreciation)
on investments, futures, written options, foreign currency translation (6,549,704) 6,257,422
- ------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) from operations 15,937,905 10,774,046
- ------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (348,798) (232,361)
Net realized gains (15,076,626) (3,909,633)
- ------------------------------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS (15,425,424) (4,141,994)
- ------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets from operations and distributions 512,481 6,632,052
- ------------------------------------------------------------------------------------------------------------------------
SHARE TRANSACTIONS:
Proceeds from sale of shares 10,121,601 18,002,125
Value of distributions reinvested 15,425,391 4,142,073
Cost of shares redeemed (26,821,168) (17,792,113)
- ------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) from share transactions (1,274,176) 4,352,085
- ------------------------------------------------------------------------------------------------------------------------
TOTAL INCREASE (DECREASE) IN NET ASSETS (761,695) 10,984,137
NET ASSETS
Beginning of period 128,142,421 117,158,284
- ------------------------------------------------------------------------------------------------------------------------
End of period $ 127,380,726 $ 128,142,421
========================================================================================================================
UNDISTRIBUTED (DISTRIBUTION IN EXCESS OF) NET INVESTMENT INCOME, END OF PERIOD $ 36,157 $ 16,231
- ------------------------------------------------------------------------------------------------------------------------
CHANGES IN FUND SHARES
Shares sold 657,522 1,282,518
Issued for distributions reinvested 1,064,554 284,483
Shares redeemed (1,744,050) (1,292,377)
- ------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in fund shares (21,974) 274,624
========================================================================================================================
See Notes to Financial Statements.
11
Notes to Financial Statements December 31, 2006
- --------------------------------------------------------------------------------
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.
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.
In September 2006, FASB issued Statement of Financial Accounting Standards No.
157, FAIR VALUE MEASUREMENTS ("FAS 157"). FAS 157 establishes a single
authoritative definition of fair value, establishes a framework for measuring
fair value and expands disclosures about fair value measurements. FAS 157
applies to fair value measurements already required or permitted by existing
standards. The change to current generally accepted accounting principles from
the application of FAS 157 relate to the definition of fair value, the methods
used to measure fair value, and the expanded disclosures about fair value
measurements. Management of the Fund does not believe the adoption of FAS 157
will materially impact the financial statement amounts, however, additional
12
Notes to Financial Statements December 31, 2006
- --------------------------------------------------------------------------------
disclosures may be required about the inputs used to develop the measurements
and the effect of certain of the measurements on changes in net assets for the
period. FAS 157 is effective for financial statements issued for fiscal years
beginning after November 15, 2007 and interim periods within those fiscal years.
REPURCHASE AGREEMENTS The Fund may engage in repurchase agreement transactions
with respect to instruments that are consistent with the Funds's investment
objectives or policies. 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.
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.
13
Notes to Financial Statements December 31, 2006
- --------------------------------------------------------------------------------
At December 31, 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
- --------------------------------------------------------------------------------
$ 132,327,768 $ 20,948,566 $ (4,189,397) $ 16,759,169
Net Tax Appreciation/ Undistributed Undistributed Post
(Depreciation) on Income/ Long-Term Gains/ October
Derivatives, Currency (Accumulated (Accumulated Losses
and Other Net Assets Ordinary Loss) Capital Loss) (see Detail Below)
- --------------------------------------------------------------------------------
$ -- $ 1,400,822 $ 6,308,306 $ --
As of December 31, 2006, 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 incurred no such losses after October 31, 2006.
The tax composition of distributions paid (other than return of capital
distributions for the year) during the year ended December 31, 2006 was as
follows:
Long-Term
Ordinary Capital
Income Gains Total
- --------------------------------------------------------------------------------
$ 966,332 $ 14,459,092 $ 15,425,424
DISTRIBUTIONS TO SHAREHOLDERS The Fund declares and pays dividends from net
investment income annually. The Fund declares and pays net realized capital
gains in excess of capital loss carryforwards distributions annually. The
character of income and gains to be distributed is determined in accordance with
income tax regulations which may differ from generally accepted accounting
principles. These differences include (but are not limited to) distributions
from Real Estate Investment Trusts (REITS) and losses deferred due to wash sale
transactions. Reclassifications due to permanent book/tax differences are made
to the Fund's capital accounts to reflect income and gains available for
distribution (or available capital loss carryovers) under income tax
regulations. These reclassifications have no impact on net investment income,
realized gains or losses, or the net asset value of the Fund. The calculation of
net investment income per share in the Financial Highlights table excludes these
adjustments.
The reclassifications for the year ended December 31, 2006 were as follows:
Undistributed
(Distribution
in Excess of)
Net Investment Accumulated Paid in
Income Net Realized Gain Capital
- --------------------------------------------------------------------------------
$ 26,690 $ (26,690) $ --
On July 13, 2006, the FASB released FIN48, "Accounting for Uncertainty in Income
Taxes." FIN48 provides guidance for how uncertain tax positions should be
recognized, measured, presented and disclosed in the financial statements. FIN48
requires evaluation of tax positions taken or expected to be taken in the course
of preparing the Fund's tax returns to determine whether the tax positions are
"more likely than not" of being sustained by the applicable tax authority. The
adoption of FIN48 will require financial statements to be adjusted to reflect
only those tax positions that are more likely that not to be sustained as of the
adoption date. Adoption of FIN48 is required for fiscal years beginning after
December 15, 2006 no later than June 29, 2007 and is applied to all open years
as of the effective date. At this time, management is evaluating the
implications of FIN48 and its impact on the financial statements has not yet
been determined.
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-
14
Notes to Financial Statements December 31, 2006
- --------------------------------------------------------------------------------
dividend date as such information becomes available. Interest income is recorded
on the accrual basis. All discounts and premiums on bonds are accreted and
amortized, respectively, to call or maturity date, whichever is shorter, using
the effective yield method.
EXPENSES Expenses of the Company which are directly identifiable to one of the
Funds are allocated to that portfolio. Expenses which are not directly
identifiable to one of the Funds are allocated in such a manner as deemed
equitable, taking into consideration the nature and type of expenses and
relative sizes of the Funds. All expenses of the Fund are paid by GEAM and
reimbursed by the Fund.
3. LINE OF CREDIT
The Fund shares a revolving credit facility of up to $25 million with a number
of its affiliates. The credit facility is with its custodian bank, State Street
Bank and Trust Company. The revolving credit facility requires the payment of a
commitment fee equal to 0.09% per annum on the daily unused portion of the
credit facility, payable quarterly. The portion borne by the Funds generally is
borne proportionally based upon net assets. Generally, borrowings under the
credit facility would accrue interest at the Federal Funds Rate plus 50 basis
points and is borne by each of the borrowing Funds. The maximum amount allowed
to be borrowed by any one of the Funds is the lesser of its prospectus
limitation, 20% of its net assets, or $25 million. The credit facility was not
utilized by the Fund during the period ended December 31, 2006.
4. AMOUNTS PAID TO AFFILIATES
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. GEAM's compensation 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 December 31, 2006, $2,447 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, Palisade Capital
Management, LLC ("Palisade") is the Sub-Adviser to the Small-Cap Equity Fund.
Palisade is responsible for the day-to-day portfolio management of the assets of
the Fund, including the responsibility for making decisions to buy, sell or hold
a particular security, under the general supervision of GEAM and the Board.
For their services, GEAM pays Palisade monthly sub-advisory fees which are
calculated as a percentage of the average daily net assets of the Fund.
6. INVESTMENT TRANSACTIONS
PURCHASES AND SALES OF SECURITIES The cost of purchases and the proceeds from
sales of investments, other than short-term securities and options, for the
period ended December 31, 2006 were as follows:
Purchases Sales
- --------------------------------------------------------------------------------
$ 66,657,722 $ 85,341,494
SECURITY LENDING At December 31, 2006, the Fund participated in securities
lending:
Loaned
securities at Cash
market value collateral*
- --------------------------------------------------------------------------------
$ 19,605,852 $ 20,280,138
* COLLATERAL OF $20,454,610 DECREASED BY $174,472 ON JANUARY 1, 2007 TO
REFLECT THE DECEMBER 31, 2006 CHANGE IN VALUE OF SECURITIES ON LOAN.
15
Report of Independent Registered Public Accounting Firm
- --------------------------------------------------------------------------------
The Shareholders and Board of Directors
GE Investments Funds, Inc.
We have audited the accompanying statement of assets and liabilities of the
Small-Cap Equity Fund, a series of GE Investments Funds, Inc., including the
schedule of investments, as of December 31, 2006, and the related statement of
operations for the year then ended, the statements of changes in net assets for
each of the years in the two-year period then ended, and the financial
highlights for each of the years in the five-year period then ended. These
financial statements and financial highlights are the responsibility of the
Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included confirmation of
securities owned as of December 31, 2006 by correspondence with the custodian
and brokers, or by other appropriate auditing procedures where replies from
brokers were not received. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
Small-Cap Equity Fund as of December 31, 2006, the results of its operations,
changes in its net assets and financial highlights for the years described
above, in conformity with U.S. generally accepted accounting principles.
/S/ KPMG LLP
Boston, Massachusetts
February 20, 2007
16
Tax Information (unaudited)
- --------------------------------------------------------------------------------
During the calendar year ended December 31, 2006, the Fund paid to shareholders
of record on December 27, 2006, $1.85541 per share of long-term capital gain
dividends.
17
Advisory and Administrative Agreement Renewal (unaudited)
- --------------------------------------------------------------------------------
The Fund Board, including the independent Board members, considered and
unanimously approved the continuance of the Fund's investment advisory and
sub-advisory agreements with GE Asset Management Incorporated ("GEAM") and the
Fund's sub-adviser at meetings held on December 6 and December 14, 2006. During
the December 14, 2006 meeting, the Board members also were informed that GEAM
was exploring potential options to restructure the Fund's portfolio management
principally as a result of anticipated investment capacity constraints. GEAM
reported that the completion of this analysis would occur during the first half
of 2007 and that any changes to the Fund's portfolio management would be
recommended at that time.
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 detail during a private session with
their independent legal counsel at which no representatives of GEAM or the
sub-adviser were present. The independent Board members and their independent
legal counsel requested, and received and considered, additional information
from GEAM following this session.
In advance of the meetings, 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 recent years, 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 recent years. Also in advance of the meetings, 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 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 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 Fund's
investment advisory and sub-advisory 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;
18
Advisory and Administrative Agreement Renewal (unaudited)
- --------------------------------------------------------------------------------
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 has expended 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 experienced investment
and trading personnel, its systems and other resources, including research
capabilities, and its satisfactory 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, remained
concerned about the Fund's performance, recognizing that a substantial portion
of the underperformance occurred in 2003 and that more recent performance has
shown improvement, and the Board members look forward to having the opportunity
to review GEAM's ongoing reports and recommendations relating to the Fund's
portfolio management.
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. The Board members recognized the benefits to the
Funds of GEAM's past
19
Advisory and Administrative Agreement Renewal (unaudited)
- --------------------------------------------------------------------------------
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 and the
sub-adviser about the fees being charged to the Fund and, to the extent
applicable, the effect, if any, of the Securities and Exchange Commission
staff's interpretive guidance concerning soft dollars. 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 that
GEAM and the sub-adviser may derive from their relationship with the Fund,
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 interests of the
shareholders of the Fund.
20
Additional Information (unaudited)
- --------------------------------------------------------------------------------
INFORMATION ABOUT DIRECTORS AND EXECUTIVE OFFICERS:
The business and affairs of the Company are managed under the direction of the
Company's Board of Directors. Information pertaining to the Directors and
officers of the Company is set forth below.
INTERESTED DIRECTORS AND EXECUTIVE OFFICERS
- --------------------------------------------------------------------------------
MICHAEL J. COSGROVE
- --------------------------------------------------------------------------------
ADDRESS c/o GEAM 3001 Summer St. Stamford, CT 06905
AGE 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;
Trustee of Elfun Foundation; Treasurer of GE Foundation; Director, GE Asset
Management (Ireland) since February 1999.
- --------------------------------------------------------------------------------
ALAN M. LEWIS
- --------------------------------------------------------------------------------
ADDRESS c/o GEAM 3001 Summer St. Stamford, CT 06905
AGE 60
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 41
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 General Partner, NGN Capital LLC
since 2006; 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 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)
David B. Carlson, EVP, DOMESTIC EQUITIES
Michael J. Cosgrove, EVP, CHIEF COMMERCIAL OFFICER
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
Judith A.Studer, EVP, INVESTMENT STRATEGIES (AS OF JULY 2006)
Don W. Torey, EVP, ALTERNATIVE INVESTMENTS AND REAL ESTATE
John J. Walker, EVP, CHIEF FINANCIAL OFFICER
24
[This page intentionally left blank.]
INVESTMENT ADVISER
GE ASSET MANAGEMENT INCORPORATED
3001 SUMMER STREET
PO BOX 7900
STAMFORD, CT 06904-7900
DISTRIBUTOR
GE INVESTMENT DISTRIBUTORS, INC.
MEMBER NASD AND SIPC
3001 SUMMER STREET
PO BOX 7900
STAMFORD, CT 06904-7900
- --------------------------------------------------------------------------------
The Fund files its complete schedule of portfolio holdings with the Securities
and Exchange Commission for the first and third quarters of each fiscal year on
Form N-Q. The Fund's Forms N-Q, as well as a description of the policies and
procedures that the Fund uses to determine how to vote proxies (if any) relating
to portfolio securities is available without charge (i) upon request, by calling
1-800-242-0134; (ii) on the Fund's website at http://www.gefunds.com; and (iii)
on the Commission's website at http://www.sec.gov. The Fund's Forms N-Q may be
reviewed and copied at the Commission's Public Reference Room in Washington, DC
- - information on the operation of the Public Reference Room may be obtained by
calling 1-800-SEC-0330.
Information (if any) regarding how the Fund voted proxies relating to portfolio
securities during the most recently disclosed 12-months period ended June 30 is
available without charge (i) through the Fund's website at
http://www.gefunds.com; and (ii) on the Commission's website at
http://www.sec.gov.
- --------------------------------------------------------------------------------
[GE LOGO OMITTED]
<page>
GE Investments Funds, Inc.
International Equity Fund
Annual Report
DECEMBER 31, 2006
[GE 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
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ................... 19
TAX INFORMATION ........................................................... 20
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 December 31, 2006
- --------------------------------------------------------------------------------
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 MSC(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
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 OF FEBRUARY 1, 2007, PAUL NESTRO AND MAKOTO
SUMINO WILL ASSUME MS. STUDER'S RESPONSIBILITIES IN THE FUND. 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.
PAUL NESTRO IS A VICE PRESIDENT OF GE ASSET MANAGEMENT. HE JOINED GE ASSET
MANAGEMENT IN JANUARY 1993 AND HAS BEEN A MEMBER OF THE PORTFOLIO MANAGEMENT
TEAM FOR THE GE INTERNATIONAL EQUITY FUND SINCE FEBRUARY 2007.
JONATHAN L. PASSMORE IS A SENIOR VICE PRESIDENT OF GE ASSET MANAGEMENT. HE HAS
SERVED AS A PORTFOLIO MANAGER OF THE FUND SINCE JANUARY 2002. PRIOR TO JOINING
GE ASSET MANAGEMENT IN JANUARY 2001, HE WAS WITH MERRILL LYNCH FOR SIX YEARS,
MOST RECENTLY AS DIRECTOR, INTERNATIONAL EQUITY.
MICHAEL J. SOLECKI IS A SENIOR VICE PRESIDENT OF GE ASSET MANAGEMENT. HE HAS
SERVED AS A PORTFOLIO MANAGER OF THE FUND SINCE SEPTEMBER 1997 HE JOINED GE
ASSET MANAGEMENT IN 1990 AS AN INTERNATIONAL EQUITY ANALYST. HE BECAME A VICE
PRESIDENT FOR INTERNATIONAL EQUITY PORTFOLIOS IN 1996 AND SENIOR VICE PRESIDENT
IN 2000.
JUDITH A. STUDER IS A DIRECTOR AND EXECUTIVE VICE PRESIDENT OF GE ASSET
MANAGEMENT. SHE HAS SERVED AS A PORTFOLIO MANAGER OF THE FUND SINCE SEPTEMBER
1997. MS. STUDER JOINED GE ASSET MANAGEMENT IN AUGUST 1984. SHE BECAME SENIOR
VICE PRESIDENT -- DOMESTIC EQUITIES IN 1991. SENIOR VICE PRESIDENT --
INTERNATIONAL EQUITIES IN 1995 AND EXECUTIVE VICE PRESIDENT -- INVESTMENT
STRATEGIES IN JULY 2006.
MAKOTO SUMINO IS A SENIOR VICE PRESIDENT OF GE ASSET MANAGEMENT. HE HAS SERVED
ON THE PORTFOLIO MANAGEMENT TEAM FOR THE GE INTERNATIONAL EQUITY FUND SINCE
FEBRUARY 2007. MR. SUMINO JOINED GE ASSET MANAGEMENT IN SEPTEMBER 1996 AS A
SECURITIES ANALYST AND PORTFOLIO MANAGER. HE BECAME DEPUTY DIRECTOR OF THE
INTERNATIONAL EQUITY RESEARCH TEAM IN JANUARY 2001 AND DIRECTOR IN APRIL 2005.
Q. HOW DID THE INTERNATIONAL EQUITY FUND PERFORM COMPARED TO ITS BENCHMARK
AND LIPPER PEER GROUP FOR THE TWELVE-MONTH PERIOD ENDED DECEMBER 31, 2006?
A. For the twelve-month period ended December 31, 2006, the International
Equity Fund returned 24.69%. The MSCI EAFE Index, the Fund's benchmark,
returned
[PHOTO OMITTED]
PICTURED BOTTOM RIGHT:
[OMITTED]
- --------------------------------------------------------------------------------
2
- --------------------------------------------------------------------------------
Q&A
26.34% and the Fund's Lipper peer group of 133 International Core funds
returned an average of 24.35% for the same period.
Q. WHAT MARKET CONDITIONS IMPACTED FUND PERFORMANCE?
A. Strong corporate results driven by increased sales, rising productivity
and increased efficiency through cost reduction. Valuations had remained
attractive even after several quarters of outstanding performance. Low
interest rates had provided ample financing for mergers and acquisitions
of high quality, cash-generating companies held in the Fund portfolio.
Strong demand for commodities, notably energy products and base metals,
had driven excellent returns in energy, oil services and mining holdings.
Q. WHAT DOMESTIC OR WORLD EVENTS HAD A MAJOR IMPACT ON THE FINANCIAL MARKETS?
A. Strong gains in equity markets had been driven by expanding global GDP and
rising demand in the new markets of emerging asian countries and the
recovering economies of Europe and Japan. Despite rising rates, modest
absolute levels facilitated healthy investment in growth and cross-border
M&A. Also, rising commodity prices, while a concern of central bankers,
had largely been shrugged off as other deflationary factors have muted
their effect.
Q. WHICH STOCKS & SECTORS SIGNIFICANTLY AFFECTED FUND PERFORMANCE?
A. The largest positive contributions to the Fund performance came from
holdings in energy and telecom services. Oil companies such as Sinopec
(China) and Petrobras (Brazil) made better than expected profits despite
higher costs. In addition, builders of rigs and other equipment such as
Acergy (Norway) and Saipem (Italy) benefited from enormous backlogs of
demand.
Holdings in Japan, especially financials such as Nomura Holdings, Mitsui
Sumitomo Insurance and MUFJ (banking) and stocks in IT and industrials
fell on disappointment with the lack of speedy development of the local
economy.
Q. DID THE WEIGHTINGS/COUNTRY ALLOCATIONS OF THE FUND CHANGE? WHY?
A. The strong performance of energy holdings led to some sales, reducing
their overall weight in the Fund portfolio. Similarly, belief that certain
segments of the industrial economy are at an advanced stage led us to trim
some late-cycle holdings. The proceeds from these transactions have been
used to add to holdings in telecom services, for exposure to high growth
markets, consumer staples, to take advantage of resurgent growth in
previously ailing economies, and in utilities, where regulated returns
have attracted substantial M&A funding.
Q. WHAT WERE THE MAJOR BUYS AND SELLS FOR THE PERIOD AND WHY?
A. Several stocks were eliminated from the portfolio during the year
including ENI (Italy - energy) and Lukoil (Russia - energy) due to
valuation. Others included Telefonica (Spain - telecom) for business
reasons and Acom (Japan - consumer finance) for loss of market share to
major banks.
Major acquisitions included several in Japan taking advantage of poor
performance: East Japan Railway, for its property holdings, Seven & I
(food retail) for accelerating consumption, and Sekisui Chemicals (housing
materials). Other additions included Syngenta (Switzerland - agricultural
chemicals) and MTN (South Africa - telecom) for its rapid growth in an
underdeveloped market.
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 December
31, 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 $1,000 = 8.6), then multiply the result by the number
given for your class under the heading "Expenses Paid During Period."
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The second section of the table provides information about hypothetical account
values and hypothetical expenses based on the Fund's actual expense ratio and an
assumed rate of return of 5% per year before expenses, which is not the Fund's
actual return. You may use this information to compare the ongoing costs of
investing in the Fund and other funds. To do so, compare this 5% hypothetical
example with the 5% hypothetical examples that appear in the shareholders
reports of other funds.
Please note that the expenses shown in the table do not reflect any transaction
costs, such as sales charges or redemption fees.
JULY 1, 2006 - DECEMBER 31, 2006
- -----------------------------------------------------------------------------------------
ACCOUNT VALUE AT ACCOUNT VALUE EXPENSES
THE BEGINNING OF AT THE END OF PAID DURING
THE PERIOD ($) THE PERIOD ($) THE PERIOD ($)*
- -----------------------------------------------------------------------------------------
Actual Fund Return** 1,000.00 1,141.01 5.78
- -----------------------------------------------------------------------------------------
Hypothetical 5% Return
(2.5% for the period) 1,000.00 1,019.54 5.53
- -----------------------------------------------------------------------------------------
* EXPENSES ARE EQUAL TO THE FUND'S ANNUALIZED EXPENSE RATIO OF 1.09% (FROM
PERIOD JULY 1, 2006 - DECEMBER 31, 2006), MULTIPLIED BY THE AVERAGE
ACCOUNT VALUE OVER THE PERIOD, MULTIPLIED BY 184/365 (TO REFLECT THE SIX
MONTH PERIOD).
** ACTUAL FUND RETURN FOR SIX-MONTH PERIOD ENDED DECEMBER 31, 2006 WAS:
14.10%.
4
International Equity Fund
- --------------------------------------------------------------------------------
CHANGE IN VALUE OF A $10,000 INVESTMENT
- --------------------------------------------------------------------------------
[LINE CHART OMITTED, PLOT POINTS ARE AS FOLLOWS:]
International Equity Fund MSCI EAFE
(ending value $20,892) (ending value $20,962)
12/96 10,000 10,000
12/97 11,017 10,177
12/98 12,939 12,212
12/99 16,864 15,505
12/00 14,719 13,309
12/01 11,649 10,432
12/02 8,873 8,769
12/03 12,236 12,153
12/04 14,175 14,614
12/05 16,755 16,592
12/06 20,892 20,962
AVERAGE ANNUAL TOTAL RETURN
FOR THE PERIODS ENDED DECEMBER 31, 2006
- --------------------------------------------------------------------------------
ONE FIVE TEN
YEAR YEAR YEAR
- --------------------------------------------------------------------------------
International Equity Fund 24.69% 12.39% 7.65%
- --------------------------------------------------------------------------------
MSCI EAFE Index 26.34% 14.98% 7.68%
- --------------------------------------------------------------------------------
Lipper peer group average* 24.35% 13.70% 7.58%
- --------------------------------------------------------------------------------
Inception date 5/1/95
- --------------------------------------------------------------------------------
INVESTMENT PROFILE
A fund designed for investors who seek long-term growth of capital by investing
at least 80% of its net assets in equity securities under normal circumstances.
The Fund invests primarily in developed and developing countries outside the
United States.
TOP TEN LARGEST HOLDINGS AS OF DECEMBER 31, 2006
as a % of Market Value
- --------------------------------------------------------------------------------
Roche Holding AG 2.09%
- --------------------------------------------------------------------------------
Nomura Holdings, Inc. 1.83%
- --------------------------------------------------------------------------------
Royal Bank of Scotland Group, PLC 1.79%
- --------------------------------------------------------------------------------
Toyota Motor Corp. 1.77%
- --------------------------------------------------------------------------------
BHP Billiton PLC 1.73%
- --------------------------------------------------------------------------------
Mitsubishi UFJ Financial Group, Inc. 1.71%
- --------------------------------------------------------------------------------
Saipem S.p.A. 1.66%
- --------------------------------------------------------------------------------
Koninklijke Philips Electronics N.V. 1.65%
- --------------------------------------------------------------------------------
Nestle S.A. (Regd.) 1.61%
- --------------------------------------------------------------------------------
UniCredito Italiano S.p.A. 1.61%
- --------------------------------------------------------------------------------
PORTFOLIO COMPOSITION AS OF DECEMBER 31, 2006
as a % of Market Value
- --------------------------------------------------------------------------------
Market Value of $95,003 (in thousands)
[PIE CHART OMITTED, PLOT POINTS ARE AS FOLLOWS:]
Continental Europe 38.2%
Japan 18.2%
United States 16.2%
United Kingdom 12.4%
Emerging Asia 4.2%
Pacific Rim 4.2%
Latin America 3.3%
Canada 2.2%
Emerging Europe 1.1%
* LIPPER PERFORMANCE COMPARISONS ARE BASED ON AVERAGE ANNUAL TOTAL RETURNS
FOR THE ONE YEAR, FIVE-YEAR, AND TEN-YEAR PERIODS INDICATED IN THE
INTERNATIONAL CORE PEER GROUP CONSISTING OF 133, 95 AND 37 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 December 31, 2006
- --------------------------------------------------------------------------------
INTERNATIONAL EQUITY FUND
- --------------------------------------------------------------------------------
NUMBER
OF SHARES VALUE
- --------------------------------------------------------------------------------
COMMON STOCK -- 97.0%+
- --------------------------------------------------------------------------------
AUSTRALIA -- 0.8%
Brambles Ltd. 22,955 $ 232,135 (a)
Paladin Resources Ltd. 63,152 443,010 (a,f)
675,145
BRAZIL -- 1.3%
Petroleo Brasileiro S.A. ADR 11,629 1,078,706
CANADA -- 2.6%
Canadian National Railway Co. 20,273 872,277 (f)
EnCana Corp. 2,413 111,267 (f)
Potash Corp of Saskatchewan 7,991 1,146,717
2,130,261
CHINA -- 0.7%
China Petroleum &
Chemical Corp. 608,000 562,872
DENMARK -- 0.5%
Group 4 Securicor PLC 108,471 399,108
EGYPT -- 0.6%
Orascom Construction Industries 9,795 473,178
FINLAND -- 1.7%
Nokia OYJ 66,667 1,360,854
FRANCE -- 9.1%
Accor S.A. 2,786 215,650 (f)
Alstom 310 41,982 (a)
AXA S.A. 19,061 770,884 (f)
BNP Paribas 13,659 1,488,646 (e,f)
Carrefour S.A. 3,529 213,783 (f)
Credit Agricole S.A. 11,338 476,334 (f)
France Telecom S.A. 2,957 81,689 (f)
Lagardere SCA (Regd.) 1,753 141,007 (f)
LVMH Moet Hennessy
Louis Vuitton S.A. 6,420 676,836
Renault S.A. 644 77,278 (f)
Sanofi-Aventis 2,517 232,167 (f)
Suez S.A. 8,011 414,414
Total S.A. 17,148 1,235,758 (f)
Veolia Environnement 16,595 1,277,968 (f)
7,344,396
- --------------------------------------------------------------------------------
NUMBER
OF SHARES VALUE
- --------------------------------------------------------------------------------
GERMANY -- 6.8%
Allianz AG (Regd.) 3,789 $ 773,238
BASF AG 4,245 413,388
Bayer AG 11,290 605,328
E.ON AG 9,905 1,343,087
Linde AG 7,533 777,387 (f)
Metro AG 5,764 367,190
RWE AG 3,280 361,152
Siemens AG (Regd.) 8,197 812,187
5,452,957
GREECE -- 0.4%
Hellenic Telecommunications
Organization S.A. 9,743 292,412
HONG KONG -- 1.7%
Hongkong Land Holdings Ltd. 106,999 425,856
Jardine Matheson Holdings Ltd. 16,541 353,977
Sun Hung Kai Properties Ltd. 47,930 550,958 (f)
1,330,791
INDIA -- 1.2%
ICICI Bank Ltd. ADR 21,225 885,931 (f)
Larsen & Toubro Ltd. 1,005 32,857
Reliance Capital Ltd. ADR 1,702 23,344 (a,b)
942,132
ITALY -- 5.5%
Banca Intesa S.p.A. 130,896 1,009,746 (f)
ENI S.p.A. 9,254 310,927
Saipem S.p.A. 60,431 1,573,029 (f)
UniCredito Italiano S.p.A. 174,177 1,525,066
4,418,768
JAPAN -- 21.4%
Asahi Glass Company Ltd. 50,003 600,095 (f)
Bank of Yokohama Ltd. 75,506 590,589 (f)
Chiyoda Corp. 35,618 696,487 (f)
East Japan Railway Co. 127 847,342
Hoya Corp. 25,500 992,992 (f)
Komatsu Ltd. 33,811 685,272
Kubota Corp. 18,000 166,472
Mitsubishi Estate Company Ltd. 58,982 1,524,607
Mitsubishi Heavy Industries Ltd. 30,000 136,209
Mitsubishi UFJ Financial
Group, Inc. 132 1,628,467
Mitsui Sumitomo Insurance
Company Ltd. 49,000 535,420
Nidec Corp. 14,862 1,147,500 (f)
Nomura Holdings, Inc. 92,399 1,740,890 (f)
Sekisui Chemical Company Ltd. 76,998 613,244
Seven & I Holdings Company Ltd. 20,600 639,671 (f)
See Notes to Schedule of Investments on page 9 and Notes to Financial
Statements.
6
INTERNATIONAL EQUITY FUND
Schedule of Investments December 31, 2006
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NUMBER
OF SHARES VALUE
- --------------------------------------------------------------------------------
Shiseido Company Ltd. 38,000 $ 822,794 (f)
SMC Corp. 2,571 364,219
Sumitomo Realty & Development
Company Ltd. 17,000 545,004 (f)
Toray Industries Inc. 176,999 1,325,023 (f)
Toyota Motor Corp. 25,204 1,683,722
17,286,019
MALAYSIA -- 0.0%*
Malaysia International Shipping
Corp. BHD 14,263 35,981
MEXICO -- 0.7%
America Movil S.A. de C.V.
ADR (Series L) 13,112 592,925
NETHERLANDS -- 3.0%
ING Groep N.V. 19,361 857,566
Koninklijke Philips Electronics N.V. 41,687 1,570,510
2,428,076
NORWAY -- 3.0%
Acergy S.A. 44,033 848,645 (a)
Orkla ASA 4,906 278,143
Telenor ASA 66,582 1,253,823
2,380,611
RUSSIA -- 0.1%
Mobile Telesystems OJSC ADR 979 49,136
SINGAPORE -- 2.4%
CapitaLand Ltd. 182,000 735,449
Singapore Telecommunications Ltd. 572,760 1,224,436
1,959,885
SOUTH AFRICA -- 0.7%
MTN Group, Ltd. 46,134 558,129
SOUTH KOREA -- 2.1%
Kookmin Bank 3,600 289,935 (a)
Kookmin Bank ADR 7,254 584,963
Samsung Electronics
Company Ltd. 30 19,774
Samsung Electronics
Company Ltd. GDR 2,304 758,016 (b)
1,652,688
SPAIN -- 1.5%
Banco Santander Central
Hispano S.A. (Regd.) 64,716 1,206,676 (f)
- --------------------------------------------------------------------------------
NUMBER
OF SHARES VALUE
- --------------------------------------------------------------------------------
SWEDEN -- 1.9%
Sandvik AB 64,283 $ 934,701
Telefonaktiebolaget LM
Ericsson (Series B) 157,085 634,722
1,569,423
SWITZERLAND -- 11.7%
ABB Ltd. (Regd.) 65,784 1,177,505
Adecco S.A. (Regd.) 6,922 472,071
Credit Suisse Group, (Regd.) 19,203 1,341,080 (e)
Holcim Ltd. (Regd.) 4,523 413,877
Nestle S.A. (Regd.) 4,315 1,530,593 (e)
Novartis AG (Regd.) 23,608 1,358,616
Roche Holding AG 11,067 1,980,945
Swiss Reinsurance 6,843 580,761
Syngenta AG (Regd) 3,009 558,811
9,414,259
TAIWAN -- 1.0%
Taiwan Semiconductor
Manufacturing Company Ltd. 401,121 830,924
UNITED KINGDOM -- 14.6%
BG Group, PLC 39,900 541,166
BHP Billiton PLC 89,995 1,645,970 (e)
Diageo PLC 45,312 889,043
GlaxoSmithKline PLC 37,705 991,796 (e)
Group 4 Securicor PLC 105,605 388,567
Lloyds TSB Group, PLC 67,536 755,398
National Grid PLC 19,573 282,329
Prudential PLC 69,515 951,679
Reed Elsevier PLC 40,675 446,198
Rio Tinto PLC (Regd.) 15,468 822,826
Royal Bank of Scotland
Group, PLC 43,549 1,698,672
Smiths Group, PLC 28,250 548,195
Tesco PLC 117,417 929,552
Vodafone Group, PLC 328,529 909,818
11,801,209
TOTAL COMMON STOCK
(COST $55,583,282) 78,227,521
- --------------------------------------------------------------------------------
PREFERRED STOCK -- 1.8%
- --------------------------------------------------------------------------------
All America Latina Logistica S.A. 8,300 86,188
Cia Vale do Rio Doce ADR 51,534 1,352,767
TOTAL PREFERRED STOCK
(COST $1,146,359) 1,438,955
TOTAL INVESTMENTS IN SECURITIES
(COST $56,729,641) 79,666,476
See Notes to Schedule of Investments on page 9 and Notes to Financial
Statements.
7
INTERNATIONAL EQUITY FUND
Schedule of Investments December 31, 2006
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NUMBER
OF SHARES VALUE
- --------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS -- 19.0%
- --------------------------------------------------------------------------------
AFFILIATED SHORT-TERM INVESTMENTS -- 0.9%
GEI Short Term Investment Fund
5.56% 735,151 $ 735,151 (c,g)
SHORT-TERM SECURITIES PURCHASED WITH
COLLATERAL FROM SECURITIES ON LOAN -- 18.1%
State Street Navigator Securities
Lending Prime Portfolio
5.33% 14,600,997 14,600,997 (c,d)
TOTAL SHORT-TERM INVESTMENTS
(COST $15,336,148) 15,336,148
TOTAL INVESTMENTS
(COST $72,065,789) 95,002,624
LIABILITIES IN EXCESS OF OTHER ASSETS,
NET -- (17.8)% (14,354,770)
----------------
NET ASSETS -- 100.0% $ 80,647,854
================
- --------------------------------------------------------------------------------
OTHER INFORMATION
- --------------------------------------------------------------------------------
The GEI International Equity had the following short futures contracts open at
December 31, 2006:
NUMBER CURRENT
EXPIRATION OF NOTIONAL UNREALIZED
DESCRIPTION DATE CONTRACTS VALUE APPRECIATION
- -----------------------------------------------------------------------
DJ Euro Stoxx
Index Futures March 2007 4 $ (219,265) $ (53)
FTSE 100 Index
Futures March 2007 2 (243,313) 2,422
Topix Index
Futures March 2007 2 (282,405) (168)
------------
$ 2,201
============
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Foreign currency exchange contracts outstanding at December 31, 2006:
IN
SETTLEMENT CONTRACTS EXCHANGE CONTRACTS UNREALIZED
MONTH TYPE TO RECEIVE FOR AT VALUE DEPRECIATION
- --------------------------------------------------------------------------
Jan-07 Sold MYR 33,711 $ 9,540 $ 9,555 $ (15)
------------------------------------------------
33,711 $ 9,540 $ 9,555 $ (15)
================================================
Jan-07 Sold CAD 24,437 $ 20,996 $ 21,000 $ (4)
------------------------------------------------
24,437 $ 20,996 $ 21,000 $ (4)
================================================
Jan-07 Buy EUR 14,437 $ 19,042 $ 19,038 $ (4)
------------------------------------------------
14,437 $ 19,042 $ 19,038 $ (4)
================================================
Jan-07 Buy JPY 3,000 $ 25 $ 25 $ --
------------------------------------------------
3,000 $ 25 $ 25 $ --
================================================
The GEI International Equity was invested in the following sectors at December
31, 2006:
SECTOR PERCENTAGE (BASED ON MARKET VALUE)
- -----------------------------------------------------------------
Financials 25.11%
Short-Term 16.14%
Industrials 10.82%
Materials 9.54%
Energy 7.06%
Information Technology 6.05%
Consumer Discretionary 5.71%
Consumer Staples 5.68%
Telecommunication Services 5.22%
Healthcare 4.80%
Utilities 3.87%
------
100.00%
======
See Notes to Schedule of Investments on page 9 and Notes to Financial
Statements.
8
Notes to Schedule of Investments December 31, 2006
- --------------------------------------------------------------------------------
The views expressed in this document reflect our judgment as of the publication
date and are subject to change at any time without notice. The securities cited
may not represent current or future holdings and should not be considered as a
recommendation to purchase or sell a particular security. See the prospectus for
complete descriptions of investment objectives, policies, risks and permissible
investments.
(a) Non-income producing security.
(b) Pursuant to Rule 144A of the Securities Act of 1933, these securities may
be resold in transactions exempt from registration, normally to qualified
institutional buyers. At December 31, 2006, these securities amounted to
$781,360 or 0.97% of net assets for the GE Investments International
Equity Fund. These securities have been determined to be liquid using
procedures established by the Board of Trustees.
(c) Coupon amount represents effective yield.
(d) State Street Corp. is the parent company of State Street Bank & Trust Co.,
the Fund's custodian and accounting agent.
(e) At December 31, 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) GE Asset Management Incorporated, the investment adviser of the Fund, also
serves as investment adviser of the GEI Short Term Investment Fund.
+ Percentages are based on net assets as of December 31, 2006.
Abbreviations:
ADR American Depository Receipt
GDR Global Depository Receipt
REGD. Registered
9
Financial Highlights
Selected data based on a share outstanding throughout the periods indicated
- --------------------------------------------------------------------------------
INTERNATIONAL EQUITY FUND
12/31/06 12/31/05 12/31/04 12/31/03 12/31/02
- -------------------------------------------------------------------------------------------------------
INCEPTION DATE -- -- -- -- 5/1/95
Net asset value, beginning of period $ 11.42 $ 9.76 $ 8.52 $ 6.23 $ 8.28
INCOME/(LOSS) FROM INVESTMENT OPERATIONS:
Net investment income 0.15 0.13 0.11 0.07 0.07
Net realized and unrealized
gains/(losses) on investments 2.67 1.65 1.24 2.29 (2.04)
- -------------------------------------------------------------------------------------------------------
TOTAL INCOME/(LOSS) FROM INVESTMENT OPERATIONS 2.82 1.78 1.35 2.36 (1.97)
- -------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM:
Net investment income 0.16 0.12 0.11 0.07 0.08
Net realized gains -- -- -- -- --
- -------------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS 0.16 0.12 0.11 0.07 0.08
- -------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 14.08 $ 11.42 $ 9.76 $ 8.52 $ 6.23
=======================================================================================================
TOTAL RETURN (a) 24.69% 18.19% 15.85% 37.91% (23.83)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in thousands) $ 80,648 $ 65,450 $ 55,714 $ 45,198 $ 31,683
Ratios to average net assets:
Net investment income 1.16% 1.19% 1.31% 1.13% 0.88%
Expenses 1.13% 1.25% 1.15% 1.07% 1.09%
Portfolio turnover rate 34% 53% 38% 35% 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.
See Notes to Financial Statements.
10
Statement of Assets INTERNATIONAL
and Liabilities DECEMBER 31, 2006 EQUITY FUND
- -------------------------------------------------------------------------------------------------
ASSETS
Investments in securities, at market* (cost $56,729,641) $ 79,666,476
Short-term Investments (at amortized cost) 14,600,997
Short-term affiliated investments (at amortized cost) 735,151
Foreign cash (cost $216,926) 217,215
Receivable for investments sold 61,009
Income receivables 116,971
Receivable for fund shares sold 382
Variation margin receivable 1,573
Other assets 127,293
- -------------------------------------------------------------------------------------------------
TOTAL ASSETS 95,527,067
- -------------------------------------------------------------------------------------------------
LIABILITIES
Payable upon return of securities loaned 14,600,997
Payable for investments purchased 190,213
Payable for fund shares redeemed 15,676
Payable to GEAM 72,327
- -------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 14,879,213
- -------------------------------------------------------------------------------------------------
NET ASSETS $ 80,647,854
=================================================================================================
NET ASSETS CONSIST OF:
Capital paid in 57,589,571
Undistributed (distribution in excess of) net investment income (11,962)
Accumulated net realized gain (loss) 127,056
Net unrealized appreciation/(depreciation) on:
Investments 22,936,835
Futures 2,201
Foreign currency related transactions 4,153
- -------------------------------------------------------------------------------------------------
NET ASSETS $ 80,647,854
=================================================================================================
Shares outstanding ($0.01 par value; unlimited shares authorized) 5,728,683
Net asset value per share $ 14.08
* Includes $13,983,954 of securities on loan.
See Notes to Financial Statements.
11
Statement of Operations
INTERNATIONAL
FOR THE YEARS ENDED DECEMBER 31, 2006 EQUITY FUND
- -------------------------------------------------------------------------------------------------
INVESTMENT INCOME
INCOME:
Dividend $ 1,729,033
Interest* 52,439
Interest from affliated investments 65,030
Less: Foreign taxes withheld (170,089)
- -------------------------------------------------------------------------------------------------
TOTAL INCOME 1,676,413
- -------------------------------------------------------------------------------------------------
EXPENSES:
Advisory and administrative fees 735,030
Transfer agent fees 72
Trustee's fees 2,758
Custody and accounting expenses 64,224
Professional fees 19,004
Registration expenses 1,842
Other expenses 6,387
- -------------------------------------------------------------------------------------------------
TOTAL EXPENSES 829,317
- -------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME (LOSS) 847,096
=================================================================================================
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
REALIZED GAIN (LOSS) ON:
Investments 7,483,314
Futures (170,922)
Foreign currency transactions 6,313
INCREASE (DECREASE) IN UNREALIZED APPRECIATION/(DEPRECIATION) ON:
Investments 7,925,046
Futures (12,269)
Foreign currency transactions 5,645
- -------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments 15,237,127
- -------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $ 16,084,223
=================================================================================================
* Income attributable to security lending activity, net of rebate expenses,
was $47,002.
See Notes to Financial Statements.
12
Statements of INTERNATIONAL
Changes in Net Assets EQUITY FUND
- ------------------------------------------------------------------------------------------------------------------
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
2006 2005
- ------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net investments income (loss) $ 847,096 $ 713,463
Net realized gain (loss) on investments, futures, written options,
foreign currency transactions and swaps 7,318,705 6,918,800
Net increase (decrease) in unrealized appreciation/(depreciation)
on investments, futures, written options, foreign currency translation 7,918,422 2,825,088
- ------------------------------------------------------------------------------------------------------------------
Net increase (decrease) from operations 16,084,223 10,457,351
- ------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (903,051) (662,460)
- ------------------------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS (903,051) (662,460)
- ------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets from operations and distributions 15,181,172 9,794,891
- ------------------------------------------------------------------------------------------------------------------
SHARE TRANSACTIONS:
Proceeds from sale of shares 18,473,402 15,506,966
Value of distributions reinvested 903,051 662,453
Cost of shares redeemed (19,359,985) (16,228,136)
- ------------------------------------------------------------------------------------------------------------------
Net increase (decrease) from share transactions 16,468 (58,717)
- ------------------------------------------------------------------------------------------------------------------
TOTAL INCREASE (DECREASE) IN NET ASSETS 15,197,640 9,736,174
NET ASSETS
Beginning of period 65,450,214 55,714,040
- ------------------------------------------------------------------------------------------------------------------
End of period $ 80,647,854 $ 65,450,214
==================================================================================================================
UNDISTRIBUTED (DISTRIBUTION IN EXCESS OF) NET INVESTMENT INCOME, END OF PERIOD $ (11,962) $ 26,984
- ------------------------------------------------------------------------------------------------------------------
CHANGES IN FUND SHARES
Shares sold 1,476,929 1,576,351
Issued for distributions reinvested 64,322 57,505
Shares redeemed (1,544,654) (1,607,573)
- ------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in fund shares (3,403) 26,283
==================================================================================================================
See Notes to Financial Statements.
13
Notes to Financial Statements December 31, 2006
- --------------------------------------------------------------------------------
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.
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.
In September 2006, FASB issued Statement of Financial Accounting Standards No.
157, FAIR VALUE MEASUREMENTS ("FAS 157"). FAS 157 establishes a single
authoritative definition of fair value, establishes a framework for measuring
fair value and expands disclosures about fair value measurements. FAS 157
applies to fair value measurements already required or permitted by existing
standards. The change to current generally accepted accounting principles from
the application of FAS 157 relate to the definition of fair value, the methods
used to measure fair value, and the expanded disclosures about fair value
measurements. Management of the Fund does not believe the adoption of FAS 157
will materially impact the financial statement amounts, however, additional
disclosures may be required about the inputs used to develop the measurements
and the effect of certain of the measurements on changes in net assets for the
period.
14
Notes to Financial Statements December 31, 2006
- --------------------------------------------------------------------------------
FAS 157 is effective for financial statements issued for fiscal years beginning
after November 15, 2007 and interim periods within those fiscal years.
REPURCHASE AGREEMENTS The Fund may engage in repurchase agreement transactions
with respect to instruments that are consistent with the Fund's investment
obectives or policies. 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.
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
15
Notes to Financial Statements December 31, 2006
- --------------------------------------------------------------------------------
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 difference between the premium and the amount paid on effecting
a closing purchase transaction, including brokerage commissions, is also treated
as a realized gain, or if the premium is less than the amount paid for the
closing purchase, as a realized loss. When an option is exercised, the proceeds
from the sale of the underlying security or the cost basis of the securities
purchased is adjusted by the original premium received or paid.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS The Fund may enter into forward
foreign currency exchange contracts to facilitate transactions in foreign
denominated securities and to manage the Fund's currency exposure. Forward
foreign currency exchange contracts are valued at the mean between the bid and
the offered forward rates as last quoted by a recognized dealer. The aggregate
principal amounts of the contracts are not recorded in the Fund's financial
statements. Such amounts appear under the caption forward foreign currency
contracts in the Schedule of Investments. Fluctuations in the value of the
contracts are recorded in the Statement of Assets and Liabilities as an asset
(or liability) and in the Statement of Operations as unrealized appreciation
(depreciation) until the contracts are closed, when they are recorded as
realized gains or losses on foreign currency related transactions. The Fund's
risks in using these contracts include changes in the value of foreign currency
or the possibility that the counterparties do not perform under the contracts'
terms. When the Fund enters into a forward foreign currency exchange contract,
it is required to segregate cash or liquid securities with its custodian in an
amount equal to the value of the Fund's total assets committed to the
consummation of the forward contract. If the value of the segregated securities
declines, additional cash or securities is segregated so that the value of the
account will equal the amount of the Fund's commitment with respect to the
contract.
INVESTMENTS IN FOREIGN MARKETS Investments in foreign markets may involve
special risks and considerations not typically associated with investing in the
United States. These risks include revaluation of currencies, high rates of
inflation, repatriation on income and capital, and adverse political and
economic developments. Moreover, securities issued in these markets may be less
liquid, subject to government ownership controls, tariffs and taxes, subject to
delays in settlements, and their prices may be more volatile.
The Fund may be subject to capital gains and repatriation taxes imposed by
certain countries in which it invests. Such taxes are generally based on income
and/or capital gains earned or repatriated. Taxes are accrued based upon net
investment income, net realized gains and net unrealized appreciation as income
and/or capital gains are earned.
INCOME TAXES The Fund intends to comply with all sections of the Internal
Revenue Code applicable to regulated investment companies including the
distribution of substantially all of its taxable net investment income and net
realized capital gains to its shareholders. Therefore, no provision for federal
income tax has been made. The Fund is treated as a separate taxpayer for federal
income tax purposes.
At December 31, 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
- --------------------------------------------------------------------------------
$ 72,211,097 $ 23,235,796 $ (444,269) $ 22,791,527
16
Notes to Financial Statements December 31, 2006
- --------------------------------------------------------------------------------
Net Tax Appreciation/ Undistributed Undistributed Post
(Depreciation) on Income/ Long-Term Gains/ October
Derivatives, Currency (Accumulated (Accumulated Losses
and Other Net Assets Ordinary Loss) Capital Loss) (see Detail Below)
- -------------------------------------------------------------------------------
$ 6,354 $ (5,732) $ 272,364 $ (6,230)
As of December 31, 2006, 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, 2006, the Fund utilized approximately
$6,931,084 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, 2006 as follows:
Capital Currency
- --------------------
$ -- $ 6,230
The tax composition of distributions paid (other than return of capital
distributions for the year) during the year ended December 31, 2006 was as
follows:
Ordinary Long-Term
Income Capital Gains Total
- -----------------------------------------------------
$ 892,355 $ 10,696 $ 903,051
DISTRIBUTIONS TO SHAREHOLDERS The Fund declares and pays dividends from net
investment income annually. The Fund declares and pays net realized capital
gains in excess of capital loss carryforwards distributions annually. The
character of income and gains to be distributed is determined in accordance with
income tax regulations which may differ from generally accepted accounting
principles. These differences include (but are not limited to) futures,
treatment of realized gains and losses on foreign currency contracts, and losses
deferred due to wash sale transactions. Reclassifications due to permanent
book/tax differences are made to the Fund's capital accounts to reflect income
and gains available for distribution (or available capital loss carryovers)
under income tax regulations. These reclassifications have no impact on net
investment income, realized gains or losses, or the net asset value of the Fund.
The calculation of net investment income per share in the Financial Highlights
table excludes these adjustments.
The reclassifications for the year ended December 31, 2006 were as follows:
Undistributed
(Distribution
in Excess of)
Net Investment Accumulated Paid in
Income Net Realized Gain Capital
- ---------------------------------------------
$ 17,009 $ (17,009) $ --
On July 13, 2006, the FASB released FIN48, "Accounting for Uncertainty in Income
Taxes." FIN48 provides guidance for how uncertain tax positions should be
recognized, measured, presented and disclosed in the financial statements. FIN48
requires evaluation of tax positions taken or expected to be taken in the course
of preparing the Fund's tax returns to determine whether the tax positions are
"more likely than not" of being sustained by the applicable tax authority. The
adoption of FIN48 will require financial statements to be adjusted to reflect
only those tax positions that are more likely that not to be sustained as of the
adoption date. Adoption of FIN48 is required for fiscal years beginning after
December 15, 2006 no later than June 29, 2007 and is applied to all open years
as of the effective date. At this time, management is evaluating the
implications of FIN48 and its impact on the financial statements has not yet
been determined.
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 and amortized,
respectively, to call or maturity date, whichever is shorter, using the
effective yield method.
17
Notes to Financial Statements December 31, 2006
- --------------------------------------------------------------------------------
EXPENSES Expenses of the Company which are directly identifiable to one of the
Funds are allocated to that portfolio. Expenses which are not directly
identifiable to one of the Funds are allocated in such a manner as deemed
equitable, taking into consideration the nature and type of expenses and
relative sizes of the Funds. All expenses of the Fund are paid by GEAM and
reimbursed by the Fund.
3. LINE OF CREDIT
The Fund shares a revolving credit facility of up to $25 million with a number
of its affiliates. The credit facility is with its custodian bank, State Street
Bank and Trust Company. The revolving credit facility requires the payment of a
commitment fee equal to 0.09% per annum on the daily unused portion of the
credit facility, payable quarterly. The portion borne by the Funds generally is
borne proportionally based upon net assets. Generally, borrowings under the
credit facility would accrue interest at the Federal Funds Rate plus 50 basis
points and is borne by each of the borrowing Funds. The maximum amount allowed
to be borrowed by any one of the Funds is the lesser of its prospectus
limitation, 20% of its net assets, or $25 million. The credit facility was not
utilized by the Fund during the period ended December 31, 2006.
4. AMOUNTS PAID TO AFFILIATES
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 December 31, 2006, $1,317 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 December 31, 2006 were as follows:
Purchases Sales
- --------------------------------
$ 24,509,957 $ 24,440,407
SECURITY LENDING At December 31, 2006, the Fund participated in securities
lending:
Loaned
securities at Cash
market value collateral*
- --------------------------------
$ 13,983,954 $ 14,600,997
* COLLATERAL OF $14,508,277 INCREASED BY $92,720 ON JANUARY 1, 2007 TO
REFLECT THE DECEMBER 31, 2006 CHANGE IN VALUE OF SECURITIES ON LOAN.
18
Report of Independent Registered Public Accounting Firm
- --------------------------------------------------------------------------------
The Shareholders and Board of Directors
GE Investments Funds, Inc.
We have audited the accompanying statement of assets and liabilities of the
International Equity Fund, a series of GE Investments Funds, Inc., including the
schedule of investments, as of December 31, 2006, and the related statement of
operations for the year then ended, the statements of changes in net assets for
each of the years in the two-year period then ended, and the financial
highlights for each of the years in the five-year period then ended. These
financial statements and financial highlights are the responsibility of the
Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included confirmation of
securities owned as of December 31, 2006 by correspondence with the custodian
and brokers, or by other appropriate auditing procedures where replies from
brokers were not received. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
International Equity Fund as of December 31, 2006, the results of its
operations, changes in its net assets and financial highlights for the years
described above, in conformity with U.S. generally accepted accounting
principles.
/s/ KPMG LLP
Boston, Massachusetts
February 20, 2007
19
Tax Information (unaudited)
- --------------------------------------------------------------------------------
The Fund intends to make an election under Internal Revenue Code Section 853.
The election will allow shareholders to treat their attributable share of
foreign taxes paid by them directly. For the calendar year ended December 31,
2006, the total amount of income received by the Fund from sources within
foreign countries and possession of the United States was $1,716,803 and the
total amount of taxes paid by the Fund was $150,654.
The Fund designates as a capital gain dividend with respect to the year ended
December 31, 2006 $10,696.
20
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 6
and December 14, 2006.
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 detail during a
private session with their independent legal counsel at which no representatives
of GEAM were present. The independent Board members and their independent legal
counsel requested, and received and considered, additional information from GEAM
following this session.
In advance of the meetings, 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 recent years, 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 recent years. 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 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 has expended 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.
21
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 overall taking
into consideration the factors discussed above.
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. 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 showed no material difference from last year
in the fees being charged as compared to those being charged by
22
Advisory and Administrative Agreement Renewal (unaudited)
- --------------------------------------------------------------------------------
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
effect, if any, of the Securities and Exchange Commission staff's interpretive
guidance concerning soft dollars. 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 that
GEAM may derive from its relationship with the Fund, 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.
23
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;
Trustee of Elfun Foundation; Treasurer of GE Foundation; Director, GE Asset
Management (Ireland) since February 1999.
- --------------------------------------------------------------------------------
ALAN M. LEWIS
- --------------------------------------------------------------------------------
ADDRESS c/o GEAM 3001 Summer St. Stamford, CT 06905
AGE 60
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
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 41
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
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 General Partner, NGN Capital LLC
since 2006; 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 59
POSITION(S) HELD WITH FUND Director
TERM OF OFFICE AND LENGTH OF TIME SERVED Until successor is elected and
qualified - 9 years
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS 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 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)
David B. Carlson, EVP, DOMESTIC EQUITIES
Michael J. Cosgrove, EVP, CHIEF COMMERCIAL OFFICER
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
Judith A. Studer, EVP, INVESTMENT STRATEGIES (AS OF JULY 2006)
Don W. Torey, EVP, ALTERNATIVE INVESTMENTS AND REAL ESTATE
John J. Walker, EVP,CHIEF FINANCIAL OFFICER
27
[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]
<page>
GE Investments Funds, Inc.
Total Return Fund
Annual Report
DECEMBER 31, 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 22
FINANCIAL STATEMENTS
Financial Highlights 23
Statement of Assets and Liabilities 24
Statement of Operations 25
Statements of Changes in Net Assets 26
Notes to Financial Statements 28
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM 34
TAX INFORMATION 35
ADVISORY AND ADMINISTRATIVE AGREEMENT RENEWAL 36
ADDITIONAL INFORMATION 39
INVESTMENT TEAM 42
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 December 31, 2006
- --------------------------------------------------------------------------------
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 FOUR SUB-PORTFOLIOS: U.S. EQUITY,
U.S. MID-CAP EQUITY, INTERNATIONAL EQUITY AND FIXED INCOME. MR. BROWN MANAGES
THE U.S. EQUITY PORTION, MS. WEHNER MANAGES THE U.S. MID-CAP EQUITY PORTION, MR.
LAYMAN MANAGES 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 A DIRECTOR AND EXECTIVE VICE PRESIDENT 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 AND EXECUTIVE VICE PRESIDENT -
INVESTMENT STRATEGIES IN JULY 2006.
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 TWELVE-MONTH PERIOD ENDED DECEMBER 31, 2006?
A. For the twelve-month period ended December 31, 2006, the Total Return Fund
returned 13.75%. The Fund's broad based benchmarks, the S&P 500 Index and
the Lehman Brothers Aggregate Bond Index, returned 15.79% and 4.33%,
respectively. The Fund's Lipper peer group of 141 mixed asset target
allocation growth funds returned an average of 11.67% for the same period.
[PHOTO OMITTED]
- --------------------------------------------------------------------------------
2
- --------------------------------------------------------------------------------
Q&A
Q. WHAT WERE THE PRIMARY DRIVERS OF FUND PERFORMANCE AND WHAT MARKET
CONDITIONS IMPACTED THE PERFORMANCE OF THE FUND?
A. The outperformance of the GE Investments Total Return Fund for the
twelve-month period ended December 31, 2006 was largely driven by the
Fund's overweight position in equities (particularly non-U.S.) and
underweight position in fixed income.
U.S. EQUITY
--------------------------------------------------------------------------
For the year, the Dow Jones Industrial Average posted a +19.1% total
return, its best annual gain since 2003 and at 12,463, near an all-time
high. The S&P 500 ended the year +15.8%, at a level unseen for the past
six years, and the Russell 1000 gained +15.5%. The Russell 2000 (+18.4%)
outpaced the larger cap indices, and while the tech-heavy NASDAQ Composite
(+9.5%) lagged, it still turned in a respectable absolute return.
Following solid gains in the third quarter, the U.S. Equity markets
continued to rally throughout the fourth quarter of 2006, with each of the
broad market indices making strong advances. Investors enjoyed a
remarkable second half rally bolstered by declining oil prices, continued
profit growth, an abundance of deal-making, cooling inflation worries and
a pause in Fed tightening.
During the year, rising markets lifted all S&P 500 sectors. For the
12-month period, telecommunications services (+36.8%), energy (+24.2%) and
utilities (+21.0%) led annual index returns, while technology (+8.3%) and
healthcare (+7.5%) trailed the benchmark by the widest margins.
For the eighth consecutive year, small-caps outperformed large-caps, but
this year by a narrower margin. For the year, value once again
outperformed growth as the Russell 1000 Value returned +22.3% vs. +9.1%
for the Russell 1000 Growth. However, mutual fund flows piled into growth
during the fourth quarter, potentially a result of a mild valuation
advantage over value. We believe we may be at an inflection point for
growth to overtake value in the year ahead.
A slowing housing market did little to squelch consumers' perceptions of
their wealth, given cheaper fuel prices they still felt inclined to spend.
Lower fuel costs also alleviated margin pressure for corporations and
contributed to profit strength for U.S. companies. If one thing surprised
us in the U.S. equity landscape in 2006, it was the amazing vitality of
corporate earnings. The year witnessed a fourth year of double-digit
profit gains for the S&P 500 and according to Thompson Financial, analysts
estimated that S&P 500 earnings rose +14.4% in 2006. As companies
continued to operate at peak margin levels, the year's market returns kept
a better pace with earnings growth. We might expect earnings growth to
moderate in 2007 back into the high single-digit range as the economy
cools. However, a continuation of the mid-cycle slowdown environment
should favor large, high-quality, multinational players, as these
companies have the greatest exposure to non-U.S. sources of revenue. In
addition to robust corporate earnings, 2006 was also marked by tremendous
deal-making activity, with $3.79 trillion of global M&A volume, a 38%
increase over 2005. The year's brisk M&A activity was driven by private
equity, with $738 billion in buyout volume more than doubling the previous
record and comprising approximately 20% of overall M&A volume.
Despite outperforming for the majority of the year, the last couple of
months were challenging for the U.S. Disciplined Growth Equity portion of
the Fund, which resulted in this strategy modestly trailing its benchmark
for the year. The key sectors detracting from performance were financials,
telecom services, and utilities. Sectors adding most to Fund performance
included information technology, energy, materials, and consumer staples.
The philosophy of the Disciplined Growth Equity strategy remains unchanged
which is to focus on fundamental, bottom-up stock selection to identify
high quality companies that have the ability to produce above average
earnings growth for the foreseeable future.
In the mid-cap equity strategy, we focused on investing in attractively
valued companies with solid earnings prospects, strong market share,
superior long-term fundamentals, and prospects for above average earnings
growth. Throughout 2006, traditional value-oriented investments, including
utilities and REITs, outperformed growth sectors such as
3
Total Return Fund
- --------------------------------------------------------------------------------
healthcare and information technology. The growth bias, along with the
overweight in healthcare and information technology and the underweight in
utilities and REITs, hurt relative performance. The Fund benefited from an
underweight in homebuilding stocks that, although recovered somewhat
during the second half of the year, declined on average of about 25% in
2006. Weakening consumer spending, a byproduct of the depressed housing
market, negatively impacted sales of some of the consumer discretionary
companies held in the Fund. Although we reduced exposure to energy stocks
throughout the year, our overweight in the sector detracted from
performance. The energy sector, which held top ranking in 2005, was the
worst performing sector in the mid-cap space as companies suffered from a
reversal in energy prices. The Fund was also negatively affected by stock
selection in the information technology and consumer staples sectors. The
Fund experienced mixed performance in the healthcare sector and
participated in the strength of the commercial real estate market.
OUTLOOK
As we look ahead, we are constructive on the opportunities within the U.S.
equity market, as we believe several factors could support continued
upside for stocks. These include valuation, which is still attractive with
the S&P 500 forward price-to-earnings ratio at 15.8x and in the low end of
its ten-year range. We believe that the multiple expansions we witnessed
in the fourth quarter could persevere into 2007, underpinned by lower core
inflation and a less inverted yield curve. In addition, the attractive
absolute returns and momentum from 2006 could coax some investors off of
the sidelines and increase appetite for U.S. stocks. Finally, liquidity
remains strong, leading us to expect a continuation of strong M&A and
buyout activity that could send markets higher.
Despite our positive outlook, we recognize the risks that exist, including
geopolitical uncertainty and terrorism. Although oil prices remain flat
year-over-year and demand conditions are benign, the aforementioned risks
could cause a harmful spike in energy prices if they came to pass. We
continue to watch the U.S. housing market for signs of distress, which
could weigh on the economy and the stock market. To date, however, the
housing correction has been orderly, and reports late in the year
suggested that housing has stabilized. Finally, we are cognizant of the
weakening dollar, and would be concerned if it leads to higher inflation
and a rise in interest rates. In the meantime, however, a weaker dollar
could be wind in the sails of the U.S. multinationals in which we are
actively invested. Overall, at year-end the underlying fundamentals
appeared solid -- from inflation to interest rates and valuations.
INTERNATIONAL EQUITY
--------------------------------------------------------------------------
Last year was a period of highs and lows, starting strong, fading in the
second and third quarters, and finishing off with a flourish. Throughout
the period, volatility of news flow was as much a factor as volatility of
prices. Last year we worried about avian flu, Iran's nuclear ambitions,
and the election of a Hamas government in Palestine. Iraq has gone from
very bad to much worse, a war has been fought in Lebanon, North Korea has
developed missile technology, Russia has rattled gaseous and oily sabres
at Ukraine and Belarus (and by extension, Western Europe) and NE Africa is
a humanitarian disaster.
So how did the markets survive these issues not only unscathed but with
the second best absolute performance in the last four years of
double-digit returns? The answer lies in low interest rates, despite
multiple hikes from central banks around the world; continued improvements
in productivity that allowed smart companies to offset higher commodity
costs and remain competitive; attractive valuations, despite several
quarters of gains; and massive amounts of liquidity sitting in private
equity and leveraged buyout funds, lining up to take advantage of the
positive spread between cash flow yields and borrowing costs.
The index saw a wide range of performances not correlated to defensive or
cyclical biases but based on sheer cash generation and/or attractiveness
to the managers of the M&A funds that dominate the landscape. While
several sectors (financials, telecom services, industrials, and consumer
discretionary) were clustered around the EAFE benchmark return of 26.3%,
the outliers were interesting for their variety. Utilities led the way, up
48.6% driven by M&A pursuing
4
- --------------------------------------------------------------------------------
Q&A
regulated returns; materials gained 35.0%; and consumer staples rose
29.6%. Laggards included information technology, up 12.8% as pricing
concerns overwhelmed strong volume growth, healthcare, up 16.6% on
pipeline concerns; and energy, up 19.8% as profit growth slowed. For the
portfolio, the gains were principally through stock selection in energy
and telecom services while negative attribution stemmed from holdings in
financials, industrials, and IT. Negative attribution also came largely
from holdings in Japan, where uncertain progress in the economy outweighed
the success enjoyed by many major companies.
Emerging markets returned 32.2% for the year. China performed strongly as
IPOs and improved access for foreign institutional investors energized its
equity market. The other "BRIC" countries, Brazil, Russia, and India, also
performed well. Emerging market investors were reminded of the potential
for negative surprises when a panicky reaction from the Thai authorities
to an unwelcome strengthening of the local currency led to the
introduction of capital controls for foreigners that were reminiscent of
the darkest days for emerging markets of the 1990s. Although the
restrictions were quickly rescinded, the damage had been done and
confidence may take some time to restore. While emerging market valuations
still appear attractive, future outperformance will depend less on their
relative cheapness and more on growth in their domestic economies in
tandem with a strong global environment.
OUTLOOK
After four years of double-digit returns in the developed international
equity markets there is a degree of uncertainty as we stride into 2007.
Negative factors include the potential for further increases in rates, the
risk of a major slowdown in the U.S. based on weakness in housing, further
deterioration in Middle East geopolitics, and accelerated weakness in the
dollar. Uncertainties lie in politics and changes looming in France, the
U.K., and Japan. The consumer's behavior in the recovering markets of
Europe and Japan will be key, and the price of oil will be just one of the
variables that will affect consumer sentiment in the months ahead.
Perhaps most vital to our financial markets, however, is the maintenance
of liquidity, the fuel that has powered the increase in asset prices for
the last few years. Against this backdrop we have a low interest rate
environment, a corporate sector that is generating greater cash returns
than in any previous period, rising demand throughout the world, and
technological developments that offer new opportunities in this fast
changing environment.
The portfolio continues to believe in the upward trend of commodity prices
in a high-demand world, subject, of course, to periods of volatility and
uncertainty. Japan is embarking on a new period of growth in a hesitant,
nervous fashion but the signs are clear that the economy is improving.
Domestic Japanese companies offering services and products to the
population have better times ahead. The industrial sector, especially
capital goods, can benefit from the huge amount of infrastructure
investment needed around the world today and banks can finance increased
business investment and personal borrowing in those parts of the world
where such activity is relatively light. Pharmaceutical companies might
struggle against new legislation from a Democratic U.S. Congress but the
benefits for the best R&D and most efficacious products will still be
there. In short, this continues to be a stock picker's market.
FIXED INCOME
--------------------------------------------------------------------------
The Lehman Brothers Aggregate Bond Index finished 2006 with a total return
of 4.3%. In a year of mild returns, investors were rewarded for taking
non-interest rate risk (credit, securitized). The investment grade credit
market finished the year strong with a total return of 4.3%. The U.S.
Treasury Index returned 3.1% and government agency securities posted a
return of 4.4% for the year. The best performing sectors were high yield
and emerging market debt, returning 11.9% and 9.9%, respectively.
Treasury yields moved up then down over the course of 2006, reflecting
investor reaction to economic data and dynamic sentiment around future Fed
policy moves. The Federal Reserve under Ben Bernanke's leadership
continued to raise the fed funds rate in the first half of 2006, stopping
in June at 5.25%. Although
5
Total Return Fund
- --------------------------------------------------------------------------------
Q&A
it kept the rate steady in the second half, language from the Federal Open
Market Committee and various Fed members emphasized nascent inflation
risks despite economic growth slowed by weakness in the housing and auto
markets. Interest rates did back up in 2006 with yields on the 2-year and
10-year note ending at 4.8% and 4.7%, respectively, up 41 and 31 basis
points. The 10-year note traded to a higher yield through June as the Fed
raised short rates amid strong economic growth above 4%. Yields moved
lower by December after the Fed paused and GDP growth slipped to roughly
2%.
The overweight in BBB-rated corporate bonds contributed positively to
portfolio performance. Some value was also obtained from yield curve
positioning while the contribution from tactical duration moves was
neutral.
OUTLOOK
The Fed continues to plainly state that its view favors a moderate
expansion ahead and that inflation risks remain, which may warrant
"additional firming" of policy. While the Fed appears to be biased toward
further rate hikes in 2007, the U.S. Treasury market is priced for a
reduction in rates. We also expect the Fed Funds rate will be lower by the
end of 2007 with timing dependent on economic data. This view is based
primarily on our analysis of the real funds rate, housing prices, and the
yield curve, which puts the chance of recession around 50%. Our strongest
conviction on interest rates looks for a steeper yield curve most likely
driven by lower short-term rates as economic growth disappoints. If,
however, a moderate expansion does occur and inflation edges up as
suggested by the Fed, we could still see a steeper yield curve through
higher long-term rates. Our focus in early 2007 will be toward reducing
the portfolio overweight in BBB-rated companies, which we view as holding
higher event risk, opting for a higher quality credit portfolio.
6
Total Return Fund
- --------------------------------------------------------------------------------
Understanding Your Fund's Expenses
As a shareholder of the Fund you incur transaction and ongoing expenses.
Transaction expenses including sales charges on purchase payments, reinvested
dividends (or other distributions), and redemption fees directly reduce the
investment return of the Fund. Ongoing costs include portfolio management fees,
distribution and service fees, professional fees, administrative fees and other
Fund expenses. The following example is intended to help you understand your
ongoing costs (in dollars) of investing in the Fund and to compare these costs
with the ongoing costs of investing in other mutual funds.
To illustrate these ongoing costs, we have provided an example and calculated
the expenses paid by investors during the period. The information in the
following table is based on an investment of $1,000, which is invested at the
beginning of the period and held for the entire six-month period ended December
31, 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 $1,000 = 8.6), then multiply the result by the number
given for your class under the heading "Expenses Paid During Period."
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The second section of the table provides information about hypothetical account
values and hypothetical expenses based on the Fund's actual expense ratio and an
assumed rate of return of 5% per year before expenses, which is not the Fund's
actual return. You may use this information to compare the ongoing costs of
investing in the Fund and other funds. To do so, compare this 5% hypothetical
example with the 5% hypothetical examples that appear in the shareholders
reports of other funds.
Please note that the expenses shown in the table do not reflect any transaction
costs, such as sales charges or redemption fees.
JULY 1, 2006 - DECEMBER 31, 2006
- -------------------------------------------------------------------------------------------------
ACCOUNT VALUE AT THE ACCOUNT VALUE AT THE EXPENSES PAID
BEGINNING OF THE PERIOD($) END OF THE PERIOD($) DURING PERIOD ($)*
- -------------------------------------------------------------------------------------------------
ACTUAL FUND RETURN**
- -------------------------------------------------------------------------------------------------
Class 1 1,000.00 1,105.09 1.96
Class 2 1,000.00 1,103.50 3.02
Class 3 1,000.00 1,104.83 3.22
Class 4 1,000.00 1,103.19 3.52
- -------------------------------------------------------------------------------------------------
HYPOTHETICAL 5% RETURN (2.5% FOR THE PERIOD)
- -------------------------------------------------------------------------------------------------
Class 1 1,000.00 1,023.07 1.89
Class 2 1,000.00 1,022.09 2.91
Class 3 1,000.00 1,021.90 3.10
Class 4 1,000.00 1,021.62 3.39
- -------------------------------------------------------------------------------------------------
* EXPENSES ARE EQUAL TO THE FUND'S ANNUALIZED EXPENSE RATIO OF 0.37% FOR
CLASS 1, 0.57% FOR CLASS 2, 0.61% FOR CLASS 3, AND 0.67% FOR CLASS 4,
(FROM PERIOD JULY 1, 2006 - DECEMBER 31, 2006), MULTIPLIED BY THE AVERAGE
ACCOUNT VALUE OVER THE PERIOD, MULTIPLIED BY 181/365 (TO REFLECT THE SIX
MONTH PERIOD).
** ACTUAL FUND RETURNS FOR SIX-MONTH PERIOD ENDED DECEMBER 31, 2006 WERE AS
FOLLOWS: 10.51% FOR CLASS 1 SHARES, 10.35% FOR CLASS 2 SHARES, 10.48% FOR
CLASS 3 SHARES, AND 10.32% FOR CLASS 4 SHARES.
7
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 DECEMBER 31, 2006
as a % of Market Value
- --------------------------------------------------------------------------------
U.S. Treasury Notes, 4.63%, 11/30/08 - 11/15/16 5.87%
- --------------------------------------------------------------------------------
Federal National Mortgage Assoc., 5.50%, TBA 1.80%
- --------------------------------------------------------------------------------
Exxon Mobil Corp. 1.61%
- --------------------------------------------------------------------------------
Federal National Mortgage Assoc., 5.00%, TBA 1.22%
- --------------------------------------------------------------------------------
Microsoft Corp. 1.20%
- --------------------------------------------------------------------------------
American International Group, Inc. 1.19%
- --------------------------------------------------------------------------------
PepsiCo, Inc. 1.11%
- --------------------------------------------------------------------------------
Wyeth 1.08%
- --------------------------------------------------------------------------------
Cisco Systems, Inc. 0.99%
- --------------------------------------------------------------------------------
Pfizer Inc. 0.90%
- --------------------------------------------------------------------------------
LIPPER PERFORMANCE
COMPARISON
Mixed-Asset Target Allocation Growth Funds
Based on average annual total returns for the periods ended 12/31/06
ONE FIVE TEN
YEAR YEAR YEAR
----- ----- -----
Number of Funds in peer group: 141 74 41
- --------------------------------------------------------------------------------
Peer group average annual total return: 11.67% 6.37% 7.18%
- --------------------------------------------------------------------------------
CHANGE IN VALUE OF A $10,000 INVESTMENT
- --------------------------------------------------------------------------------
CLASS 1 SHARES
- --------------------------------------------------------------------------------
[LINE GRAPH OMITTED, PLOT POINTS ARE AS FOLLOWS:]
Total Return LB Aggregate
Fund S&P 500 Index Bond Index
12/96 $10,000 $10,000 $10,000
12/97 $11,799 $13,329 $10,965
12/98 $13,816 $17,154 $11,918
12/99 $15,647 $20,768 $11,820
12/00 $16,420 $18,861 $13,194
12/01 $15,946 $16,614 $14,308
12/02 $14,461 $12,942 $15,776
12/03 $17,399 $16,660 $16,423
12/04 $18,823 $18,473 $17,136
12/05 $19,514 $19,382 $17,552
12/06 $22,197 $22,442 $18,312
AVERAGE ANNUAL TOTAL RETURN FOR THE
PERIODS ENDED DECEMBER 31, 2006
ENDING
VALUE OF A
ONE FIVE TEN $10,000
YEAR YEAR YEAR INVESTMENT
------ ---- ---- ----------
Total Return Fund 13.75% 6.84% 8.30% $22,197
S&P 500 Index 15.79% 6.20% 8.42% $22,442
LB Aggregate Bond Index 4.33% 5.06% 6.24% $18,312
Inception date 7/1/85
- --------------------------------------------------------------------------------
CLASS 2 SHARES
- --------------------------------------------------------------------------------
[LINE GRAPH OMITTED,PLOT POINTS ARE AS FOLLOWS:]
Total Return
Fund S&P 500 Index
05/06 $10,000 $10,000
06/06 $ 9,701 $ 9,725
07/06 $ 9,742 $ 9,785
08/06 $ 9,977 $10,018
09/06 $10,100 $10,276
10/06 $10,376 $10,611
11/06 $10,605 $10,813
12/06 $10,705 $10,965
AVERAGE ANNUAL TOTAL RETURN FOR THE PERIODS ENDED DECEMBER 31, 2006
ENDING
VALUE OF A
CURREN QUARTER SIX SINCE $10,000
MONTH TO DATE MONTHS INCEPTION INVESTMENT
------ ------- ------ --------- ----------
Total Return Fund 0.94% 5.99% 10.35% 7.05% $10,705
S&P 500 Index 1.40% 6.70% 12.74% 9.65% $10,965
Inception date 5/1/06
- --------------------------------------------------------------------------------
CLASS 3 SHARES
- --------------------------------------------------------------------------------
[LINE GRAPH OMITTED, PLOT POINTS ARE AS FOLLOWS:]
Total Return
Fund S&P 500 Index
05/06 $10,000 $10,000
06/06 $ 9,701 $ 9,725
07/06 $ 9,742 $ 9,785
08/06 $ 9,982 $10,018
09/06 $10,106 $10,276
10/06 $10,382 $10,611
11/06 $10,605 $10,813
12/06 $10,717 $10,965
AVERAGE ANNUAL TOTAL RETURN FOR THE
PERIODS ENDED DECEMBER 31, 2006
ENDING
VALUE OF A
CURRENT QUARTER SIX SINCE $10,000
MONTH TO DATE MONTHS INCEPTION INVESTMENT
------- ------- ------ ---------- ----------
Total Return Fund 1.06% 6.05% 10.48% 7.17% $10,717
S&P 500 Index 1.40% 6.70% 12.74% 9.65% $10,965
Inception date 5/1/06
- --------------------------------------------------------------------------------
CLASS 4 SHARES
- --------------------------------------------------------------------------------
[LINE GRAPH OMITTED, PLOT POINTS ARE AS FOLLOWS:]
Total Return
Fund S&P 500 Index
05/06 $10,000 $10,000
06/06 $ 9,689 $ 9,725
07/06 $ 9,730 $ 9,785
08/06 $ 9,965 $10,018
09/06 $10,088 $10,276
10/06 $10,364 $10,611
11/06 $10,587 $10,813
12/06 $10,689 $10,965
AVERAGE ANNUAL TOTAL RETURN FOR THE
PERIODS ENDED DECEMBER 31, 2006
ENDING
VALUE OF A
CURRENT QUARTER SIX SINCE $10,000
MONTH TO DATE MONTHS INCEPTION INVESTMENT
------- ------- ------ ---------- ----------
Total Return Fund 0.96% 5.95% 10.32% 6.89% $10,689
S&P 500 Index 1.40% 6.70% 12.74% 9.65% $10,965
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.
8
TOTAL RETURN FUND
Schedule of Investments December 31, 2006
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
TOTAL RETURN FUND
- --------------------------------------------------------------------------------
Portfolio Composition as a % of the Market Value of $2,051,513 (in thousands) as
of December 31, 2006
[PIE CHART OMITTED, PLOT POINTS ARE AS FOLLOWS:]
Domestic Equity 38.4%
Bonds & Notes 24.6%
Foreign Equity 23.9%
Short Term & Others 13.1%
NUMBER
OF SHARES VALUE
- --------------------------------------------------------------------------------
DOMESTIC EQUITY -- 43.1%+
- --------------------------------------------------------------------------------
COMMON STOCK -- 43.1%
CONSUMER DISCRETIONARY -- 6.0%
Bed Bath & Beyond, Inc. 306,292 $ 11,669,725 (a)
Boyd Gaming Corp. 15,256 691,249
Carnival Corp. 229,332 11,248,735 (h)
Comcast Corp. (Class A) 382,221 16,007,415 (a)
Global Cash Access Holdings, Inc. 82,850 1,344,656 (a)
Home Depot, Inc. 315,969 12,689,315 (h)
Liberty Global, Inc. (Series C) 138,357 3,873,996 (a)
Liberty Media Holding Corp -
Capital (Series A) 85,519 8,379,152 (a)
Liberty Media Holding Corp -
Interactive (Series A) 427,597 9,223,267 (a)
Life Time Fitness, Inc. 21,026 1,019,971 (a,j)
Omnicom Group, Inc. 76,444 7,991,456
O'Reilly Automotive, Inc. 43,183 1,384,447 (a)
Pulte Homes, Inc. 30,774 1,019,235
Regal Entertainment Group,
(Class A) 73,862 1,574,738 (j)
Staples, Inc. 187,914 5,017,304
Starwood Hotels & Resorts
Worldwide, Inc. 23,116 1,444,750
Target Corp. 76,444 4,361,130
The Cheesecake Factory 50,761 1,248,721 (a)
The E.W. Scripps Co. (Class A) 39,200 1,957,648 (j)
Univision Communications Inc.
(Class A) 28,601 1,013,047 (a)
Viacom Inc. (Class B) 82,814 3,397,858 (a)
Williams-Sonoma, Inc. 40,158 1,262,568 (j)
107,820,383
NUMBER
OF SHARES VALUE
- --------------------------------------------------------------------------------
CONSUMER STAPLES -- 3.9%
Alberto-Culver Co. 56,531 $ 1,212,590
Clorox Co. 121,641 7,803,271
Colgate-Palmolive Co. 248,267 16,196,939 (h)
PepsiCo, Inc. 363,007 22,706,088
Sally Beauty Holdings, Inc. 76,745 598,611 (a)
The Coca-Cola Co. 369,609 17,833,634 (h)
The Kroger Co. 43,164 995,793
Weight Watchers
International Inc. 38,916 2,044,257
69,391,183
ENERGY -- 3.8%
Dresser-Rand Group, Inc. 53,762 1,315,556 (a)
EOG Resources, Inc. 98,566 6,155,447
Exxon Mobil Corp. 430,636 32,999,637 (h)
GlobalSantaFe Corp. 32,705 1,922,400
Halliburton Co. 114,666 3,560,379
Hess Corp. 34,270 1,698,764
Peabody Energy Corp. 31,990 1,292,716
Schlumberger Ltd. 259,854 16,412,379
Valero Energy Corp. 15,122 773,642
Weatherford International Ltd. 33,673 1,407,195 (a)
67,538,115
FINANCIALS -- 7.3%
Affiliated Managers Group, Inc. 15,856 1,666,941 (a,j)
AFLAC Incorporated 135,051 6,212,346 (h)
Allied World Assurance
Holdings Ltd. 29,608 1,291,797
American International
Group, Inc. 341,451 24,468,379 (h)
Bank of America Corp. 342,946 18,309,887 (h)
Calamos Asset Management Inc.
(Class A) 54,981 1,475,140
CB Richard Ellis Group, Inc.
(Class A) 109,504 3,635,533 (a)
Citigroup, Inc. 101,926 5,677,278
CVB Financial Corp. 79,411 1,148,283 (j)
Douglas Emmett, Inc. (REIT) 30,736 817,270
Everest Re Group, Ltd. 74,607 7,319,693
Federal National Mortgage Assoc. 205,125 12,182,374
Greenhill & Company, Inc. 25,660 1,893,708 (j)
Hartford Financial Services
Group, Inc. 17,084 1,594,108
HCC Insurance Holdings, Inc. 146,068 4,687,322
Legg Mason, Inc. 22,321 2,121,611
M&T Bank Corp. 8,450 1,032,252
Maguire Properties, Inc. (REIT) 24,287 971,480
Mellon Financial Corp. 146,518 6,175,734
Metlife, Inc. 99,378 5,864,296
SL Green Realty Corp. (REIT) 11,238 1,492,182
State Street Corp. 165,629 11,170,020 (e)
SunTrust Banks, Inc. 86,637 7,316,495
Zions Bancorporation 20,396 1,681,446
130,205,575
See Notes to Schedule of Investments on page 22 and Notes to Financial
Statements.
9
TOTAL RETURN FUND
Schedule of Investments December 31, 2006
- --------------------------------------------------------------------------------
NUMBER
OF SHARES VALUE
- --------------------------------------------------------------------------------
HEALTHCARE - 7.1%
Abbott Laboratories 338,903 $ 16,507,965 (h)
Advanced Medical Optics, Inc. 53,980 1,900,096 (a,j)
Aetna, Inc. 203,851 8,802,286
Alcon, Inc. 15,589 1,742,383
Amgen, Inc. 257,694 17,603,077 (a,h)
Amylin Pharmaceuticals, Inc. 39,640 1,429,815 (a,j)
Barr Pharmaceuticals, Inc. 44,712 2,240,965 (a)
Caremark Rx, Inc. 34,462 1,968,125
DENTSPLY International, Inc. 49,614 1,480,978
Gilead Sciences, Inc. 19,301 1,253,214 (a)
Henry Schein, Inc. 33,026 1,617,613 (a)
Lincare Holdings Inc. 207,673 8,273,692 (a)
Manor Care, Inc. 39,431 1,850,103
Martek Biosciences Corp. 46,432 1,083,723 (a,j)
Medtronic Inc. 159,259 8,521,949
Pfizer Inc. 709,898 18,386,358
Psychiatric Solutions Inc. 69,619 2,612,105 (a)
Quest Diagnostics Inc. 29,538 1,565,514
Resmed, Inc. 26,285 1,293,748 (a,j)
Thermo Electron Corp. 71,608 3,243,126 (a)
Vertex Pharmaceuticals, Inc. 27,377 1,024,447 (a)
Wyeth 433,158 22,056,405
126,457,687
INDUSTRIALS - 3.4%
ChoicePoint, Inc. 27,525 1,083,935 (a)
Corinthian Colleges, Inc. 169,276 2,307,232 (a,j)
Corporate Executive Board Co. 17,178 1,506,511
CoStar Group, Inc. 22,761 1,219,079 (a,j)
Danaher Corp. 16,843 1,220,107
Dover Corp. 321,921 15,780,568 (h)
Eaton Corp. 17,078 1,283,241
Harsco Corp. 25,293 1,924,797
Hexcel Corp. 81,523 1,419,315 (a,j)
Joy Global, Inc. 26,285 1,270,617
MoneyGram International, Inc. 64,150 2,011,744
Rockwell Collins, Inc. 35,321 2,235,466
Southwest Airlines Co. 500,625 7,669,575
Spirit Aerosystems
Holdings, Inc. (Class A) 2,715 90,871 (a)
Stericycle, Inc. 23,628 1,783,914 (a)
Sunpower Corp. (Class A) 38,775 1,441,267 (a,j)
Tyco International Ltd. 279,862 8,507,805
United Technologies Corp. 124,791 7,801,933
60,557,977
INFORMATION TECHNOLOGY - 10.0%
Activision, Inc. 299,615 5,165,362 (a)
Affiliated Computer
Services, Inc. (Class A) 28,436 1,388,814 (a)
Analog Devices, Inc. 152,744 5,020,695 (h)
aQuantive, Inc. 18,308 451,475 (a,j)
Automatic Data Processing, Inc. 201,250 9,911,563
CDW Corp. 7,808 549,059
Checkfree Corp. 38,222 1,534,996 (a)
NUMBER
OF SHARES VALUE
- --------------------------------------------------------------------------------
Cisco Systems, Inc. 745,331 $ 20,369,896 (a,h)
Citrix Systems, Inc. 17,230 466,072 (a)
Cogent, Inc. 108,065 1,189,796 (a,j)
Comverse Technology, Inc. 76,453 1,613,923 (a)
Dell, Inc. 101,926 2,557,323 (a)
DST Systems, Inc. 21,454 1,343,664 (a)
eBay, Inc. 42,044 1,264,263 (a)
EMC Corp. 388,719 5,131,091 (a)
Fidelity National Information
Services, Inc. 86,637 3,473,277 (j)
First Data Corp. 255,328 6,515,971
Fiserv, Inc. 16,630 871,745 (a)
Harris Corp. 58,082 2,663,641
Intel Corp. 254,814 5,159,984
Intuit Inc. 249,641 7,616,547 (a)
Juniper Networks, Inc. 91,532 1,733,616 (a)
Linear Technology Corp. 72,446 2,196,563
Macrovision Corp. 41,615 1,176,040 (a)
Marvell Technology Group, Ltd. 39,662 761,114 (a)
Microchip Technology Inc. 35,349 1,155,912
Microsoft Corp. 825,301 24,643,488
Molex, Inc. (Class A) 487,786 13,511,673
NAVTEQ Corp. 31,882 1,114,914 (a)
Neustar, Inc. (Class A) 37,976 1,231,941 (a,j)
Oracle Corp. 968,139 16,593,902 (a)
Paychex, Inc. 177,078 7,001,664
SAIC, Inc. 69,216 1,231,353 (a)
Western Union Co. 509,628 11,425,860
Wind River Systems, Inc. 110,112 1,128,648 (a)
Yahoo! Inc. 364,302 9,304,273 (a)
178,470,118
MATERIALS - 1.1%
Cabot Corp. 19,508 849,964
Martin Marietta Materials, Inc. 18,527 1,925,141
Monsanto Co. 259,429 13,627,805
Praxair, Inc. 31,030 1,841,010
Sealed Air Corp. 17,916 1,163,107
19,407,027
TELECOMMUNICATION SERVICES - 0.1%
American Tower Corp. (Class A) 44,542 1,660,526 (a)
Leap Wireless International Inc. 4,724 280,936 (a)
NII Holdings Inc. (Class B) 11,366 732,425 (a,j)
2,673,887
UTILITIES - 0.4%
Ameren Corp. 15,046 808,422
DTE Energy Co. 30,774 1,489,769 (j)
ITC Holdings Corp. 18,557 740,424
PPL Corp. 54,175 1,941,632
SCANA Corp. 37,543 1,524,997
6,505,244
TOTAL COMMON STOCK
(COST $694,241,392) 769,027,196
See Notes to Schedule of Investments on page 22 and Notes to Financial
Statements.
10
TOTAL RETURN FUND
Schedule of Investments December 31, 2006
- --------------------------------------------------------------------------------
NUMBER
OF SHARES VALUE
- --------------------------------------------------------------------------------
PREFERRED STOCK - 0.0%*
- --------------------------------------------------------------------------------
KeyCorp Capital
(COST $420,000) 16,800 $ 424,032 (a)
TOTAL DOMESTIC EQUITY
(COST $694,661,392) 769,451,228
- --------------------------------------------------------------------------------
FOREIGN EQUITY - 27.4%
- --------------------------------------------------------------------------------
COMMON STOCK - 26.9%
CONSUMER DISCRETIONARY - 1.8%
Accor S.A. 15,379 1,190,408 (j)
China Travel International Inv 633,319 209,281
Dogan Yayin Holding 60,407 212,373 (a)
Gafisa S.A. 24,976 373,646 (a)
Genting Berhad 43,600 407,823
Hyundai Motor Co. 3,230 234,088 (a)
Indian Hotels Company Ltd. 70,650 246,860
Koninklijke Philips Electronics N.V. 231,186 8,709,666
Lagardere SCA (Regd.) 9,724 782,176 (j)
LVMH Moet Hennessy
Louis Vuitton S.A. 35,605 3,753,697 (j)
Massmart Holdings Ltd. 16,759 166,859
Prajay Engineers Syndicate Ltd. 46,790 311,334
Reed Elsevier PLC 225,571 2,474,475
Renault S.A. 3,572 428,630 (j)
Sekisui Chemical Company Ltd. 421,989 3,360,896
Shenzhou International Group,
Holdings Ltd. 207,000 85,171
Toyota Motor Corp. 139,688 9,331,681
Urbi Desarrollos
Urbanos S.A. de C.V. 123,137 443,557 (a)
32,722,621
CONSUMER STAPLES - 1.9%
Bajaj Hindusthan Ltd. 40,131 199,476
Carrefour S.A. 19,573 1,185,709 (j)
Central European Distribution Corp. 4,342 128,957 (a,j)
Chaoda Modern Agriculture 956,000 615,842
Cosan S.A. Industria e Comercio 16,700 349,644 (a)
Diageo PLC 251,270 4,930,034
Fomento Economico Mexicano
S.A. de C.V. ADR (Series B) 3,829 443,245
IOI Corp Bhd 102,000 531,973
Metro AG 31,938 2,034,579
Nestle S.A. (Regd.) 23,929 8,487,963
Seven & I Holdings Company Ltd. 114,200 3,546,137
Shinsegae Company Ltd. 410 255,699 (a)
Shiseido Company Ltd. 216,000 4,676,933 (j)
Tesco PLC 651,019 5,153,904
Tiger Brands Ltd. 17,047 413,436
Uni-President Enterprises Corp. 356,000 355,071
33,308,602
NUMBER
OF SHARES VALUE
- --------------------------------------------------------------------------------
ENERGY - 2.6%
Acergy S.A. 243,939 $ 4,701,419 (a)
BG Group, PLC 221,270 3,001,096
CAT Oil AG 17,330 456,359 (a)
Centurion Energy
International Inc. 27,911 286,138 (a)
China Petroleum &
Chemical Corp. 4,172,000 3,862,342
China Shenhua Energy
Company Ltd. 114,500 275,604
EnCana Corp. 13,381 617,019
ENI S.p.A. 51,310 1,723,976
LUKOIL ADR 8,610 752,514
Nexen, Inc. 25,485 1,401,675
OAO Gazprom ADR 36,788 1,692,248
Paladin Resources Ltd. 349,296 2,450,304 (a)
PetroChina Company Ltd. 258,000 365,574
Petroleo Brasileiro S.A. ADR 84,436 7,832,283
Reliance Industries Ltd. 10,198 292,841
Saipem S.p.A. 335,133 8,723,567 (j)
Sasol Ltd. 12,200 447,788
Sibir Energy Plc 7,712 64,902 (a)
Total S.A. 95,100 6,853,311 (j)
45,800,960
FINANCIALS - 7.6%
Akbank TAS 35,109 213,157
Allianz AG (Regd.) 21,011 4,287,807
Amata Corp. 603,829 205,452
AXA S.A. 105,709 4,275,191 (j)
Banca Intesa S.p.A. 725,873 5,599,461 (j)
Banco do Brasil S.A. 6,264 187,773
Banco Santander Central
Hispano S.A. (Regd.) 358,895 6,691,855
Bank of Yokohama Ltd. 423,012 3,308,692
BNP Paribas 75,744 8,255,071 (j)
Capital Securities Corp. 935,712 403,460
CapitaLand Ltd. 1,007,000 4,069,217
China Vanke Company Ltd. 278,900 535,405
Credit Agricole S.A. 62,871 2,641,350 (j)
Credit Suisse Group, (Regd.) 106,495 7,437,289
Cyrela Brazil Realty S.A. 23,100 220,613
Emaar Properties 93,916 311,967
Hongkong Land Holdings Ltd. 589,999 2,348,196
Hung Poo Real Estate
Development Corp. 566,000 668,743
ICICI Bank Ltd. 4,172 84,161
ICICI Bank Ltd. ADR 89,729 3,745,288
ING Groep N.V. 107,369 4,755,746
Jardine Matheson Holdings Ltd. 90,306 1,932,548
Kookmin Bank 69,131 5,567,647 (a)
Lloyds TSB Group, PLC 374,535 4,189,216
Mitsubishi Estate Company Ltd. 329,982 8,529,601
Mitsubishi UFJ Financial Group, Inc. 731 9,018,254
Mitsui Sumitomo Insurance
Company Ltd. 269,000 2,939,348
Nomura Holdings, Inc. 512,798 9,661,630 (j)
See Notes to Schedule of Investments on page 22 and Notes to Financial
Statements.
11
TOTAL RETURN FUND
Schedule of Investments December 31, 2006
- --------------------------------------------------------------------------------
NUMBER
OF SHARES VALUE
- --------------------------------------------------------------------------------
Ping An Insurance Group 108,000 $ 596,432
Plaza Centers N.V. 66,734 255,340 (a)
Prudential PLC 385,514 5,277,789
PT Bank Niaga 4,776,516 488,619
Royal Bank of Scotland Group, PLC 241,458 9,418,311
Samsung Fire & Marine Insurance
Company Ltd. 1,900 329,946
Siam Commercial Bank PCL 223,500 355,498
Standard Bank Group, Ltd. 30,448 408,089
State Bank of India Ltd. GDR 4,526 336,734
Sumitomo Realty & Development
Company Ltd. 96,000 3,077,672
Sun Hung Kai Properties Ltd. 266,476 3,063,159
Swiss Reinsurance 28,286 2,400,614
UniCredito Italiano S.p.A. 965,927 8,457,502 (j)
136,549,843
HEALTHCARE -- 1.6%
Angiotech Pharmaceuticals, Inc. 105,508 866,748 (a)
GlaxoSmithKline PLC 209,079 5,499,635
Hikma Pharmaceuticals PLC 14,599 104,361
Novartis AG (Regd.) 130,928 7,534,769
Richter Gedeon Nyrt 1,960 446,600
Roche Holding AG 61,363 10,983,711
Sanofi-Aventis 13,978 1,289,325
Smith & Nephew PLC ADR 29,286 1,532,536 (j)
Teva Pharmaceutical
Industries Ltd. ADR 8,092 251,499 (j)
Yuhan Corp. 1,165 222,978 (a)
Zentiva N.V. 4,509 274,338
29,006,500
INDUSTRIALS -- 3.5%
ABB Ltd. (Regd.) 364,806 6,529,869
Adecco S.A. (Regd.) 38,366 2,616,506
Air China Ltd. 376,000 203,537
Alstom 1,702 230,494 (a)
Asahi Glass Company Ltd. 280,005 3,360,389 (j)
Barloworld Ltd. 9,682 225,203
Brambles Ltd. 118,577 1,199,122 (a)
Canadian National Railway Co. 112,429 4,837,432
China Communications Construction
Company Ltd. 484,080 478,027 (a)
Chiyoda Corp. 200,676 3,924,091 (j)
Doosan Heavy Industries and
Construction Company Ltd. 11,110 528,621 (a)
East Japan Railway Co. 698 4,657,043
Empresas ICA Sociedad
Controladora S.A. de C.V. 98,741 372,095 (a)
Enka Insaat ve Sanayi AS 34,685 369,745
Fraser and Neave Ltd. 66,000 193,574
Grasim Industries Ltd. 4,063 256,577
Group 4 Securicor PLC 601,543 2,213,316
Group 4 Securicor PLC 585,652 2,154,873
Grupo Aeroportuario del Sureste
S.A. de C.V. ADR (Series B) 7,614 323,367 (j)
Jaiprakash Associates Ltd. 30,777 504,212
Komatsu Ltd. 189,075 3,832,119
NUMBER
OF SHARES VALUE
- --------------------------------------------------------------------------------
Kubota Corp. 102,000 $ 943,343
Larsen & Toubro Ltd. 31,164 1,018,850
Malaysia International
Shipping Corp. BHD 81,935 206,695
Mitsubishi Heavy Industries Ltd. 166,000 753,691
Orascom Construction Industries 63,043 3,045,508
Orkla ASA 27,205 1,542,375
Sandvik AB 356,750 5,187,290
Shanghai Electric Group,
Company Ltd. 884,000 369,411
Siemens AG (Regd.) 45,653 4,523,455
SMC Corp. 14,745 2,088,839
Smiths Group, PLC 156,826 3,043,231
United Tractors Tbk PT 588,000 428,243
62,161,143
INFORMATION TECHNOLOGY -- 2.2%
ASM Pacific Technology 40,500 225,485
Delta Electronics Inc. 109,579 353,101
HON HAI Precision Industry
Company Ltd. 170,200 1,214,408
Hoya Corp. 140,900 5,486,769
MediaTek Inc. 74,900 774,629
Mettler Toledo International Inc. 18,304 1,443,270 (a)
Nidec Corp. 82,213 6,347,695 (j)
Nokia OYJ 369,722 7,547,028
Samsung Electronics
Company Ltd. 10,000 6,591,397
Taiwan Semiconductor
Manufacturing Company Ltd. 2,456,125 5,087,876
Taiwan Semiconductor
Manufacturing Company
Ltd. ADR 13,786 150,681 (j)
Telefonaktiebolaget LM
Ericsson (Series B) 871,139 3,519,946
Unimicron Technology Corp. 281,620 388,486
39,130,771
MATERIALS -- 2.6%
Aluminum Corporation
of China Ltd. 80,000 74,268
BASF AG 23,581 2,296,373
Bayer AG 62,610 3,356,919
BHP Billiton PLC 499,455 9,134,816
Evraz Group, S.A. GDR 11,405 292,994 (b)
Good Fellow Group Ltd. 2,440,000 335,697 (a)
Harmony Gold Mining
Company Ltd. ADR 27,811 438,023 (a,j)
Holcim Ltd. (Regd.) 25,079 2,294,851
Israel Chemicals Ltd. 88,993 556,417
Linde AG 41,772 4,310,770 (j)
Makhteshim-Agan Industries Ltd. 54,762 310,699
MMC Norilsk Nickel ADR 2,060 325,480
Polyus Gold Company ZAO ADR 4,151 202,154 (a,j)
POSCO 1,550 515,000
Potash Corp of Saskatchewan 44,314 6,359,365
Rio Tinto PLC (Regd.) 85,838 4,566,182
Syngenta AG (Regd) 16,688 3,099,180
See Notes to Schedule of Investments on page 22 and Notes to Financial
Statements.
12
TOTAL RETURN FUND
Schedule of Investments December 31, 2006
- --------------------------------------------------------------------------------
NUMBER
OF SHARES VALUE
- --------------------------------------------------------------------------------
Tata Steel Ltd. 41,046 $ 449,781
Toray Industries Inc. 982,998 7,358,770 (j)
Vedanta Resources PLC 10,116 241,740
46,519,479
TELECOMMUNICATION SERVICES -- 1.9%
America Movil S.A. de C.V. ADR
(Series L) 89,584 4,050,988
Bharti Airtel Ltd. 32,758 465,651 (a)
Egyptian Company for
Mobile Services 10,715 337,702
France Telecom S.A. 16,396 452,951
Hellenic Telecommunications
Organization S.A. 54,037 1,621,785
Mobile Telesystems OJSC ADR 12,949 649,911
MTN Group, Ltd. 316,277 3,826,320
Orascom Telecom Holding SAE 6,679 441,501
Philippine Long Distance
Telephone Co. 5,870 305,417
Singapore Telecommunications Ltd. 3,174,800 6,787,033
Telekomunikasi Indonesia Tbk PT
(Series B) 450,500 505,927
Telenor ASA 368,974 6,948,244
Turkcell Iletisim Hizmet ADR 9,203 123,136
Vodafone Group, PLC 1,817,389 5,033,018
Vodafone Group, PLC ADR 101,926 2,831,504
34,381,088
UTILITIES -- 1.2%
CEZ 5,680 260,140
E.ON AG 54,931 7,448,470
First Philippine Holdings Corp. 202,400 260,175
Korea Electric Power Corp. 5,610 255,768 (a)
National Grid PLC 108,100 1,559,251
Perusahaan Gas Negara 166,500 214,755
RWE AG 18,190 2,002,852
Suez S.A. 44,027 2,277,546
Veolia Environnement 92,028 7,087,002 (j)
21,365,959
TOTAL COMMON STOCK
(COST $400,501,150) 480,946,966
- --------------------------------------------------------------------------------
PREFERRED STOCK -- 0.5%
- --------------------------------------------------------------------------------
All America Latina Logistica S.A. 106,500 1,105,904
Cia Vale do Rio Doce 34,761 887,179
Cia Vale do Rio Doce ADR 282,970 7,427,963 (j)
Petroleo Brasileiro S.A. 9,500 221,592
TOTAL PREFERRED STOCK
(COST $7,427,044) 9,642,638
TOTAL FOREIGN EQUITY
(COST $407,928,194) 490,589,604
PRINCIPAL
AMOUNT VALUE
- --------------------------------------------------------------------------------
BONDS AND NOTES -- 25.1%
- --------------------------------------------------------------------------------
U.S. TREASURIES -- 8.0%
U.S. Treasury Bonds
4.50% 02/15/36 $ 17,240,000 $ 16,407,652 (j)
U.S. Treasury Inflation
Indexed Bonds
2.00% 01/15/16 2,043,446 1,974,133 (j,m)
3.50% 01/15/11 3,883,856 4,042,861 (m)
U.S. Treasury Notes
4.63% 11/30/08 - 11/15/16 120,710,000 120,325,104 (j)
142,749,750
AGENCY MORTGAGE BACKED -- 7.0%
Federal Home Loan
Mortgage Corp.
4.50% 06/01/33 - 02/01/35 295,766 277,183 (h)
5.00% 07/01/35 - 10/01/35 9,441,391 9,111,476 (h)
5.50% 05/01/20 108,310 108,172 (h)
6.00% 04/01/17 - 11/01/36 848,419 857,429 (h)
6.50% 01/01/27 - 09/01/36 1,536,426 1,566,426 (h)
7.00% 10/01/25 - 08/01/36 335,281 343,989 (h)
7.50% 11/01/09 - 09/01/33 57,982 60,250 (h)
8.00% 01/01/30 17,320 18,202 (h)
9.00% 10/01/25 878 950 (h)
Federal National
Mortgage Assoc.
4.00% 05/01/19 - 06/01/19 279,548 263,372 (h)
4.50% 05/01/18 - 02/01/35 2,716,320 2,601,111 (h)
5.00% 06/01/20 - 08/01/35 5,417,151 5,238,740 (h)
5.02% 07/01/35 1,348,491 1,340,012 (h,i)
5.11% 08/01/35 846,713 849,155 (h,i)
5.50% 04/01/14 - 08/01/35 2,096,702 2,085,913 (h)
6.00% 09/01/19 - 08/01/35 5,212,711 5,250,439 (h)
6.50% 09/01/17 - 08/01/36 2,791,712 2,848,354 (h)
7.00% 04/01/17 - 06/01/36 447,007 459,521 (h)
7.50% 12/01/09 - 03/01/34 121,439 126,225 (h)
8.00% 12/01/11 - 11/01/33 47,638 49,718 (h)
8.50% 06/01/30 232 249 (h)
9.00% 06/01/09 - 12/01/22 26,658 27,859 (h)
5.00% TBA 25,892,000 25,092,471 (c)
5.50% TBA 37,225,000 36,911,014 (c)
6.00% TBA 15,998,000 16,109,858 (c)
6.50% TBA 4,495,000 4,579,281 (c)
Government National
Mortgage Assoc.
4.50% 08/15/33 - 09/15/34 496,617 471,534 (h)
6.00% 04/15/27 - 09/15/36 704,746 714,755 (h)
6.50% 04/15/24 - 09/15/36 659,368 676,466 (h)
7.00% 03/15/12 - 10/15/36 950,094 980,631 (h)
8.00% 03/15/30 3,401 3,540 (h)
9.00% 11/15/16 - 12/15/21 22,938 24,657 (h)
5.50% TBA 6,210,000 6,178,950 (c)
125,227,902
See Notes to Schedule of Investments on page 22 and Notes to Financial
Statements.
13
TOTAL RETURN FUND
Schedule of Investments December 31, 2006
- --------------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
- --------------------------------------------------------------------------------
AGENCY COLLATERALIZED MORTGAGE OBLIGATIONS -- 0.6%
Federal Home Loan Mortgage Corp.
1.30% 10/15/18 $ 371,698 $ 20,469 (g,h,i)
1.80% 12/15/30 466,030 21,408 (g,h,i)
2.43% 09/15/36 1,668,424 139,730 (g,h,i)
3.20% 10/15/33 70,000 54,231 (h,i)
3.94% 12/15/33 45,000 37,102 (h,i)
4.00% 02/15/21 663,215 95,959 (g)
4.50% 04/15/13 - 12/15/20 2,615,286 373,343 (g,h)
4.50% 05/15/17 - 11/15/19 400,000 380,504 (h)
5.00% 12/15/13 - 12/01/34 6,091,468 1,303,410 (g,h)
5.00% 05/15/20 - 02/15/35 2,165,000 2,031,701 (h)
5.50% 04/15/17 - 06/15/33 242,236 34,872 (g,h)
5.50% 10/15/34 286,566 287,338 (h)
7.50% 01/15/16 11,033 11,364 (h)
7.50% 07/15/27 6,962 1,392 (g,h)
8.00% 02/01/23 - 07/01/24 5,011 1,062 (g,h)
18.20% 09/25/43 472,018 4,605 (d,g,h,i)
Federal Home Loan Mortgage STRIPS
5.94% 08/01/27 1,113 903 (d,f,h)
Federal National Mortgage Assoc
STRIPS (Class 1)
4.23% 11/01/34 972,503 739,050 (d,f,h)
Federal National Mortgage Assoc
STRIPS (Class 2)
7.50% 11/01/23 22,225 5,615 (g,h)
8.00% 08/01/23 - 07/01/24 10,441 2,291 (g,h)
Federal National Mortgage Assoc.
1.19% 12/25/42 263,659 5,356 (g,h,i)
1.85% 06/25/36 - 12/25/36 13,037,869 918,507 (g,h,i)
2.25% 09/25/42 263,082 14,305 (g,h,i)
2.30% 04/25/17 - 10/25/17 207,332 13,078 (g,h,i)
2.35% 08/25/16 82,451 3,793 (g,h,i)
3.50% 09/25/31 56,079 51,468 (h,i)
4.50% 05/25/18 141,744 12,868 (g,h)
4.50% 12/25/19 100,000 92,224 (h)
4.75% 11/25/14 28,830 1,790 (g,h)
5.00% 02/25/32 40,466 3,293 (g,h)
5.00% 03/25/35 175,000 163,214 (h)
5.50% 07/25/34 - 02/25/35 526,460 527,076 (h)
5.75% 02/25/35 425,000 428,994 (h)
6.00% 12/25/34 150,000 152,468 (h)
6.50% 12/25/34 165,319 168,214 (h)
8.00% 07/25/14 35,360 35,833 (h)
Federal National Mortgage
Assoc. (Class 1)
4.24% 01/25/36 1,642,828 1,238,809 (d,f)
Federal National Mortgage
Assoc. (Class S)
1.75% 02/25/31 84,828 4,072 (g,h,i)
Federal National Mortgage
Assoc. REMIC
1.88% 01/25/37 4,595,000 296,521 (g,i)
4.50% 11/25/13 115,925 4,448 (g,h)
4.84% 03/25/31 88,446 86,796 (h,i)
5.00% 10/25/22 119,794 17,913 (g,h)
PRINCIPAL
AMOUNT VALUE
- --------------------------------------------------------------------------------
Federal National Mortgage Assoc.
REMIC (Class J)
1080.91% 03/25/22 $ 10 $ 111 (g,h)
Federal National Mortgage Assoc.
REMIC (Class K)
1008.00% 05/25/22 6 170 (g,h)
9,787,670
ASSET BACKED -- 1.9%
Bank One Issuance Trust
3.59% 05/17/10 20,000 19,755 (h)
Bear Stearns Asset Backed
Securities Inc. (Class A)
5.72% 01/25/34 14,031 14,078 (h,i)
Capital Auto Receivables
Asset Trust
5.41% 05/15/11 8,000,000 8,010,000 (i)
Carmax Auto Owner Trust
4.35% 03/15/10 154,000 152,020 (h)
Citibank Credit Card Issuance Trust
4.45% 04/07/10 35,000 34,567 (h)
Countrywide Home Equity Loan Trust (Class A)
5.58% 07/15/27 40,581 40,585 (h,i)
Ford Credit Auto Owner Trust (Class A)
5.39% 02/15/12 7,125,000 7,125,821 (h,i)
Ford Credit Floorplan Master
Owner Trust (Class A)
5.39% 07/15/09 2,000,000 1,999,514 (h,i)
GMAC Mortgage Corp. Loan
Trust (Class A)
5.45% 06/25/34 500,000 500,080 (h,i)
Gracechurch Card Funding PLC
(Class A)
5.38% 02/17/09 2,000,000 2,000,000 (h,i)
Honda Auto Receivables Owner
Trust (Class A)
4.15% 10/15/10 138,000 135,935 (h)
Indymac Residential Asset
Backed Trust
5.52% 10/25/35 4,500,000 4,501,720 (h,i)
Long Beach Mortgage Loan Trust
5.63% 09/25/35 1,500,000 1,502,478 (h,i)
Mid-State Trust
7.54% 07/01/35 5,584 5,958 (h)
Peco Energy Transition Trust
6.52% 12/31/10 50,000 52,215 (h)
Residential Asset Mortgage
Products, Inc.
5.59% 03/25/34 17,634 17,644 (h,i)
Residential Asset Securities Corp.
5.60% 07/25/32 - 01/25/36 3,013,223 3,019,788 (h,i)
Residential Asset Securities Corp.
(Class A)
4.16% 07/25/30 226,330 223,313 (h,i)
See Notes to Schedule of Investments on page 22 and Notes to Financial
Statements.
14
TOTAL RETURN FUND
Schedule of Investments December 31, 2006
- --------------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
- --------------------------------------------------------------------------------
SLM Student Loan Trust (Class A)
5.41% 06/15/18 $ 345,969 $ 346,231 (h,i)
Superior Wholesale Inventory
Financing Trust (Class A)
5.53% 06/15/10 4,000,000 4,013,256 (h,i)
Volkswagen Auto Lease Trust
(Class A)
3.94% 10/20/10 103,000 101,942
Wells Fargo Home Equity Trust
3.97% 05/25/34 54,000 52,843 (i)
33,869,743
CORPORATE NOTES -- 5.1%
Abbey National PLC
7.95% 10/26/29 340,000 428,784 (h)
Abbott Laboratories
5.88% 05/15/16 1,035,000 1,067,315 (h)
Allied World Assurance Holdings Ltd.
7.50% 08/01/16 325,000 348,983
Allstate Life Global Funding Trusts
3.85% 01/25/08 130,000 128,040 (h)
Altria Group, Inc.
7.20% 02/01/07 100,000 100,080 (h)
American Electric Power
Company, Inc. (Series C)
5.38% 03/15/10 835,000 830,643 (h)
American Electric Power
Company, Inc. (Series D)
5.25% 06/01/15 1,040,000 1,008,716 (h)
American General Corp.
7.50% 08/11/10 750,000 803,222 (h)
American International Group, Inc.
6.25% 05/01/36 490,000 523,790
Appalachian Power Co. (Series G)
3.60% 05/15/08 20,000 19,527 (h)
Appalachian Power Co. (Series K)
5.00% 06/01/17 135,000 126,595 (h)
Archstone-Smith Operating Trust
3.00% 06/15/08 810,000 783,582 (h)
Arizona Public Service Co.
6.25% 08/01/16 370,000 377,882 (h)
AT&T, Inc.
4.13% 09/15/09 1,120,000 1,087,763 (h)
5.63% 06/15/16 530,000 526,565 (h)
5.88% 08/15/12 165,000 168,391 (h)
AvalonBay Communities, Inc. (REIT)
5.75% 09/15/16 650,000 652,142 (h)
BAC CAP TRUST V
5.63% 03/08/35 925,000 876,878 (h)
Bank of America Corp.
5.75% 08/15/16 295,000 301,223 (h)
Bear Stearns Companies, Inc.
5.55% 01/22/17 640,000 638,831 (h)
BellSouth Corp.
4.20% 09/15/09 735,000 715,397 (h)
6.55% 06/15/34 510,000 522,516 (h)
PRINCIPAL
AMOUNT VALUE
- -------------------------------------------------------------------------------
BJ Services Co.
5.75% 06/01/11 $ 430,000 $ 433,441 (h)
Bristol-Myers Squibb Co.
5.88% 11/15/36 420,000 415,047 (h)
British Telecommunications PLC
8.63% 12/15/10 170,000 189,786 (h)
Burlington Northern Santa Fe Corp.
6.75% 07/15/11 1,000,000 1,053,598 (h)
8.13% 04/15/20 170,000 203,419 (h)
Campbell Soup Co.
5.50% 03/15/07 50,000 50,010 (h)
Capital One Bank
6.50% 06/13/13 25,000 26,349 (h)
Capital One Capital III
7.69% 08/15/36 425,000 482,250 (h)
Capital One Financial Corp.
8.75% 02/01/07 200,000 200,489 (h)
Carolina Power & Light Co.
5.15% 04/01/15 810,000 790,930 (h)
5.70% 04/01/35 155,000 151,476 (h)
6.13% 09/15/33 190,000 196,603 (h)
CBS Corp.
5.63% 05/01/07 25,000 25,013
CIT Group, Inc.
5.13% 09/30/14 485,000 471,401 (h)
Citigroup, Inc.
5.00% 03/06/07 90,000 89,937 (h)
5.10% 09/29/11 805,000 801,526 (h)
5.13% 05/05/14 2,000,000 1,975,895 (h)
5.85% 12/11/34 845,000 859,069 (h)
Clear Channel Communications, Inc.
4.63% 01/15/08 500,000 495,217 (h)
CNA Financial Corp.
6.50% 08/15/16 565,000 589,388 (h)
Comcast Cable Communications
Holdings, Inc.
9.46% 11/15/22 865,000 1,119,769 (h)
Comcast Cable Communications, Inc.
6.88% 06/15/09 1,455,000 1,505,784 (h)
Comcast Corp
5.88% 02/15/18 635,000 626,912 (h)
Commonwealth Edison Co.
5.40% 12/15/11 390,000 387,625
ConocoPhillips Canada Funding Co.
5.95% 10/15/36 485,000 492,471
Consumers Energy Co.
5.15% 02/15/17 555,000 529,503 (h)
Countrywide Home Loans, Inc.
5.63% 05/15/07 50,000 50,038 (h)
CRH America, Inc.
6.00% 09/30/16 290,000 292,725 (h)
CSX Transportation, Inc.
9.75% 06/15/20 1,021,000 1,364,240 (h)
DaimlerChrysler NA Holding Corp.
4.05% 06/04/08 280,000 274,468 (h)
4.75% 01/15/08 1,080,000 1,070,620 (h)
5.88% 03/15/11 405,000 406,799 (h)
See Notes to Schedule of Investments on page 22 and Notes to Financial
Statements.
15
TOTAL RETURN FUND
Schedule of Investments December 31, 2006
- --------------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
- --------------------------------------------------------------------------------
Delhaize America, Inc.
8.13% 04/15/11 $1,330,000 $ 1,434,745 (h)
Detroit Edison Co.
6.13% 10/01/10 475,000 485,342
Detroit Edison Co. (Series B)
5.45% 02/15/35 900,000 837,122 (h)
Deutsche Telekom International
Finance BV
3.88% 07/22/08 490,000 479,175 (h)
Devon OEI Operating Inc.
4.38% 10/01/07 15,000 14,882 (h)
Diageo Capital PLC
5.50% 09/30/16 960,000 947,805 (h)
Dominion Resources, Inc.
5.69% 05/15/08 370,000 370,535 (h,k)
Dominion Resources, Inc. (Series B)
4.13% 02/15/08 1,090,000 1,074,311 (h)
6.30% 09/30/66 965,000 969,511 (h,i)
Dover Corp.
6.50% 02/15/11 375,000 390,850 (h)
6.65% 06/01/28 195,000 215,416 (h)
Duke Capital LLC
5.67% 08/15/14 295,000 294,325 (h)
8.00% 10/01/19 225,000 261,575 (h)
Duke Energy Corp.
5.38% 01/01/09 160,000 159,674 (h)
EI Du Pont de Nemours & Co.
4.88% 04/30/14 325,000 313,726
El Paso Electric Co.
6.00% 05/15/35 365,000 352,468 (h)
Embarq Corp.
7.08% 06/01/16 490,000 498,970 (h)
Enterprise Products Operating LP
4.00% 10/15/07 1,100,000 1,086,544 (h)
EOP Operating LP
7.00% 07/15/11 415,000 449,163 (h)
7.75% 11/15/07 835,000 852,216 (h)
Firstar Bank NA
7.13% 12/01/09 650,000 683,995 (h)
FirstEnergy Corp. (Series B)
6.45% 11/15/11 1,360,000 1,418,223 (h)
FPL Group Capital, Inc.
7.38% 06/01/09 750,000 785,720 (h)
FPL Group Capital, Inc. (Series B)
5.55% 02/16/08 430,000 430,555 (h)
Georgia Power Co.
4.88% 07/15/07 65,000 64,799 (h)
Goldman Sachs Group, Inc.
5.75% 10/01/16 1,630,000 1,654,800 (h)
6.60% 01/15/12 1,000,000 1,057,171 (h)
Greater Bay Bancorp
5.25% 03/31/08 175,000 174,490 (h)
GTE Corp.
6.94% 04/15/28 850,000 884,716 (h)
7.51% 04/01/09 165,000 172,129 (h)
Halliburton Co.
8.75% 02/15/21 390,000 488,531 (h)
PRINCIPAL
AMOUNT VALUE
- --------------------------------------------------------------------------------
Harrah's Operating Company Inc.
5.75% 10/01/17 $ 205,000 $ 171,750 (h)
Home Depot, Inc.
5.25% 12/16/13 485,000 481,393
5.40% 03/01/16 750,000 733,300 (h)
HSBC Bank USA NA
3.88% 09/15/09 1,175,000 1,137,888 (h)
HSBC Finance Corp.
5.25% 01/15/14 630,000 624,615 (h)
6.50% 11/15/08 625,000 638,711 (h)
HSBC Holdings PLC
6.50% 05/02/36 100,000 107,585
Hydro Quebec
8.05% 07/07/24 820,000 1,060,903 (h)
8.50% 12/01/29 225,000 313,448
Indiana Michigan Power Company
(Series H)
6.05% 03/15/37 190,000 186,653 (h)
ING Capital Funding TR III
8.44% 12/29/49 455,000 503,573 (h,i)
ING Groep N.V.
5.78% 12/29/49 595,000 592,545 (h,i)
International Business
Machines Corp.
3.80% 02/01/08 100,000 98,427 (h)
4.75% 11/29/12 1,300,000 1,268,934 (h)
IPSCO, Inc.
8.75% 06/01/13 350,000 374,938
iStar Financial, Inc. (REIT)
4.88% 01/15/09 605,000 596,211 (h)
7.00% 03/15/08 400,000 406,707 (h)
JP Morgan Chase & Co.
7.00% 11/15/09 1,130,000 1,181,752 (h)
JP Morgan Chase Bank
5.88% 06/13/16 655,000 674,632
Kansas Gas & Electric
5.65% 03/29/21 425,000 415,357 (h)
Kimco Realty Corp. (REIT)
4.82% 06/01/14 150,000 143,080 (h)
Kinder Morgan Energy Partners LP
5.13% 11/15/14 70,000 66,600 (h)
Lehman Brothers Holdings, Inc.
5.00% 01/14/11 1,150,000 1,139,975 (h)
Lehman Brothers Holdings, Inc.
5.75% 07/18/11 450,000 458,949 (h)
Markel Corp.
7.35% 08/15/34 340,000 366,926 (h)
Marsh & McLennan Companies, Inc.
5.51% 07/13/07 1,500,000 1,500,047 (h,i)
Merck & Company, Inc.
5.75% 11/15/36 445,000 440,220
Merrill Lynch & Company, Inc.
6.05% 05/16/16 475,000 492,696 (h)
Midamerican Energy Holdings Co.
3.50% 05/15/08 425,000 414,329 (h)
Morgan Stanley
5.30% 03/01/13 500,000 499,072 (h)
See Notes to Schedule of Investments on page 22 and Notes to Financial
Statements.
16
TOTAL RETURN FUND
Schedule of Investments December 31, 2006
- --------------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
- --------------------------------------------------------------------------------
Morgan Stanley (Series F)
6.25% 08/09/26 $ 295,000 $ 308,477 (h)
Motorola, Inc.
4.61% 11/16/07 565,000 561,218 (h)
MUFG Capital Finance 1 Ltd.
6.35% 07/25/49 240,000 243,797 (i)
Munich Re America Corp. (Series B)
7.45% 12/15/26 325,000 372,784
NB Capital Trust IV
8.25% 04/15/27 215,000 224,554 (h)
Nevada Power Co. (Series A)
8.25% 06/01/11 250,000 273,097 (h)
Nevada Power Company (Series I)
6.50% 04/15/12 515,000 528,687 (h)
New Cingular Wireless Services Inc.
8.75% 03/01/31 1,000,000 1,295,937 (h)
News America, Inc.
7.25% 05/18/18 925,000 1,009,360 (h)
Nisource Finance Corp.
5.45% 09/15/20 370,000 344,452 (h)
7.88% 11/15/10 160,000 172,395 (h)
Norfolk Southern Corp.
6.00% 04/30/08 20,000 20,157 (h)
8.63% 05/15/10 485,000 530,994 (h)
Norfolk Southern Railway Co.
9.75% 06/15/20 64,000 86,230 (h)
Northeast Utilities (Series B)
3.30% 06/01/08 30,000 29,128 (h)
NorthWestern Corp.
5.88% 11/01/14 200,000 196,508 (h)
ONEOK Partners LP
5.90% 04/01/12 780,000 788,597 (h)
Pacific Bell
7.13% 03/15/26 55,000 58,799 (h)
Pacific Gas & Electric Co.
6.05% 03/01/34 305,000 307,839 (h)
Pemex Finance Ltd.
9.03% 02/15/11 225,250 240,119 (h)
Pemex Project Funding Master Trust
7.38% 12/15/14 2,055,000 2,258,157 (h)
8.63% 02/01/22 60,000 74,052 (h)
Pepco Holdings, Inc.
5.50% 08/15/07 305,000 304,756 (h)
5.99% 06/01/10 40,000 40,053 (h,i)
Petrobras International Finance Co.
6.13% 10/06/16 740,000 747,400 (h)
Popular North America, Inc.
4.25% 04/01/08 200,000 196,722 (h)
Procter & Gamble - ESOP (Series A)
9.36% 01/01/21 177,232 221,484 (h)
Prudential Financial, Inc.
5.70% 12/14/36 485,000 473,452
Public Service Company of Colorado
7.88% 10/01/12 520,000 581,895 (h)
Puget Sound Energy, Inc.
3.36% 06/01/08 30,000 29,166 (h)
5.48% 06/01/35 130,000 118,747 (h)
6.27% 03/15/37 205,000 208,178 (h)
PRINCIPAL
AMOUNT VALUE
- --------------------------------------------------------------------------------
Royal Bank of Scotland Group PLC
5.00% 10/01/14 $ 375,000 $ 365,474 (h)
Simon Property Group, L.P. (REIT)
4.88% 08/15/10 1,000,000 982,816 (h)
SLM Corp.
4.00% 01/15/10 485,000 468,009 (h)
Smith International, Inc.
6.00% 06/15/16 290,000 295,005 (h)
Standard Chartered Bank
Hong Kong Ltd.
4.38% 12/03/14 380,000 369,208 (i)
Station Casinos Inc.
7.75% 08/15/16 240,000 241,800 (h)
Sunoco, Inc.
5.75% 01/15/17 485,000 474,472
Telecom Italia Capital S.A.
4.88% 10/01/10 810,000 787,337
5.98% 07/18/11 570,000 569,150 (i)
7.20% 07/18/36 325,000 338,071
Telefonos de Mexico S.A. de C.V.
4.50% 11/19/08 625,000 613,727
The Kroger Co.
6.80% 12/15/18 160,000 167,681 (h)
The Thomson Corp.
5.50% 08/15/35 165,000 151,466
Time Warner, Inc.
6.88% 05/01/12 25,000 26,433 (h)
TXU Electric Delivery Co.
5.00% 09/01/07 140,000 139,435 (h)
6.38% 05/01/12 580,000 596,278 (h)
Union Pacific Railroad Co.
5.87% 07/02/30 245,000 251,461
Valero Energy Corp.
3.50% 04/01/09 725,000 696,231
Verizon Pennsylvania Inc.
8.75% 08/15/31 165,000 197,204 (h)
Wachovia Corp.
5.25% 08/01/14 500,000 493,398
5.63% 10/15/16 630,000 634,705
Wal-Mart Stores, Inc.
5.25% 09/01/35 215,000 198,005
6.88% 08/10/09 1,000,000 1,041,333
Wells Fargo & Co.
5.25% 12/01/07 90,000 89,940
Wells Fargo Bank NA
5.95% 08/26/36 1,000,000 1,031,189
Westar Energy, Inc.
7.13% 08/01/09 190,000 196,386
Weyerhaeuser Co.
6.13% 03/15/07 20,000 20,014
7.38% 03/15/32 165,000 172,063
Wisconsin Electric Power
3.50% 12/01/07 70,000 68,799
5.70% 12/01/36 115,000 114,095
Wyeth
4.38% 03/01/08 800,000 791,240
6.95% 03/15/11 405,000 430,138 (h)
91,913,117
See Notes to Schedule of Investments on page 22 and Notes to Financial
Statements.
17
TOTAL RETURN FUND
Schedule of Investments December 31, 2006
- --------------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
- --------------------------------------------------------------------------------
NON-AGENCY COLLATERALIZED MORTGAGE OBLIGATIONS -- 2.5%
Banc of America Commercial
Mortgage Inc.
5.32% 10/10/11 $ 1,300,000 $ 1,302,311 (h)
Banc of America Funding Corp.
5.75% 03/20/36 194,493 193,451 (h,i)
5.87% 02/20/36 - 02/20/36 346,317 346,104 (h,i)
Banc of America Mortgage
Securities (Class B)
5.33% 10/25/35 202,930 196,353 (h,i)
5.38% 01/25/36 - 01/25/36 199,330 195,189 (h,i)
5.56% 02/25/36 159,427 157,202 (h,i)
Bank of America Alternative
Loan Trust
6.50% 07/25/35 238,979 241,957 (h)
Bear Stearns Commercial
Mortgage Securities
5.41% 03/11/39 1,000,000 1,009,362 (h,i)
5.48% 10/12/41 1,500,000 1,512,226 (h,i)
5.53% 10/12/41 1,500,000 1,517,872 (h,i)
6.02% 02/14/31 75,000 75,818 (h)
Bear Stearns Commercial Mortgage
Securities (Class A)
5.47% 04/12/38 700,000 707,645 (h,i)
Citigroup Mortgage Loan Trust, Inc.
6.10% 08/25/36 608,938 610,083 (h,i)
Countrywide Alternative Loan Trust
5.98% 05/25/36 74,432 67,369 (h,i)
6.00% 03/25/36 - 08/25/36 425,488 370,370 (h)
Countrywide Alternative Loan
Trust (Class B)
6.00% 05/25/36 - 08/25/36 229,082 205,937 (h)
Countrywide Home Loan Mortgage
Pass Through Trust (Class M)
5.50% 12/25/35 167,759 162,803 (h)
Credit Suisse Mortgage
Capital Certificates
5.47% 09/15/39 682,000 687,249 (h)
Credit Suisse Mortgage Capital
Certificates (Class C)
5.65% 02/25/36 113,898 110,977 (h,i)
Crusade Global Trust (Class A)
5.57% 01/17/34 2,954,937 2,959,586 (h,i)
CS First Boston Mortgage
Securities Corp.
5.25% 08/25/34 286,806 284,001
5.33% 10/25/35 168,440 161,151 (h,i)
6.13% 04/15/37 50,000 51,857 (h)
DLJ Commercial Mortgage Corp.
6.24% 11/12/31 226,066 228,731 (h)
GMAC Commercial Mortgage
Securities, Inc.
6.42% 05/15/35 450,158 455,302 (h)
6.47% 04/15/34 400,000 415,945 (h)
GMAC Commercial Mortgage
Securities, Inc. (Class X)
5.12% 12/10/41 3,642,895 81,854 (d,h,i)
PRINCIPAL
AMOUNT VALUE
- --------------------------------------------------------------------------------
Greenwich Capital Commercial
Funding Corp.
5.12% 04/10/37 $ 500,000 $ 498,222 (h)
Impac CMB Trust
5.61% 04/25/35 523,110 523,793 (h,i)
Impac CMB Trust (Class A)
6.11% 12/25/33 96,020 96,056 (h,i)
Indymac INDA Mortgage Loan Trust
5.16% 01/25/36 99,886 96,765 (h,i)
Indymac INDA Mortgage Loan
Trust (Class B)
5.16% 01/25/36 107,877 106,853 (h,i)
Indymac Index Mortgage Loan Trust
5.38% 06/25/35 317,824 312,461 (h,i)
JP Morgan Chase Commercial
Mortgage Securities Corp.
6.47% 11/15/35 40,000 41,917 (h)
JP Morgan Mortgage Trust
5.41% 11/25/35 605,074 597,085 (h,i)
LB-UBS Commercial Mortgage Trust
4.06% 09/15/27 108,000 105,183 (h,i)
4.51% 12/15/29 135,000 130,848 (h)
5.06% 01/18/12 4,865,756 129,578 (d,h,i)
5.26% 09/15/39 1,000,000 1,001,210 (h)
5.37% 09/15/39 1,000,000 1,001,679 (h)
5.53% 03/15/39 1,000,000 1,011,697 (h)
5.66% 03/15/39 1,000,000 1,024,044 (h,i)
6.23% 03/15/26 53,000 53,959 (h)
LB-UBS Commercial Mortgage
Trust (Class A)
6.65% 11/15/27 704,000 739,771 (h)
LB-UBS Commercial Mortgage
Trust (Class X)
5.28% 09/15/39 21,464,000 729,621 (d,h,i)
Master Alternative Loans Trust
5.00% 08/25/18 57,667 8,920 (g,h)
6.50% 08/25/34 - 05/25/35 525,959 533,004 (h)
Master Alternative Loans Trust
(Class 3)
6.50% 01/25/35 121,995 123,711 (h)
Medallion Trust (Class A)
5.41% 08/22/36 1,818,909 1,823,847 (h,i)
Merrill Lynch Mortgage Trust
(Class A)
5.62% 05/12/39 1,000,000 1,016,393 (h,i)
MLCC Mortgage Investors, Inc.
5.39% 02/25/36 164,986 162,459 (h,i)
Morgan Stanley Capital I
5.28% 12/15/43 1,500,000 1,501,448 (i)
5.33% 12/15/43 1,500,000 1,496,202 (i)
5.39% 11/12/41 2,000,000 1,996,543 (h,i)
5.71% 07/20/44 300,000 306,410 (h)
6.53% 03/15/31 280,654 285,282 (h)
7.11% 04/15/33 73,000 75,841 (h)
Morgan Stanley Dean Witter
Capital I
6.96% 10/15/33 7,612 7,642 (h)
7.20% 10/15/33 50,000 52,561 (h)
See Notes to Schedule of Investments on page 22 and Notes to Financial
Statements.
18
TOTAL RETURN FUND
Schedule of Investments December 31, 2006
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
- --------------------------------------------------------------------------------
MortgageIT Trust (Class A)
5.65% 08/25/35 $ 2,842,315 $ 2,850,895 (h,i)
Nomura Asset Securities Corp.
(Class A)
6.59% 03/15/30 495,748 501,780 (h)
Opteum Mortgage Acceptance Corp.
5.65% 02/25/35 430,814 430,612 (h,i)
Residential Accredit Loans, Inc.
6.00% 01/25/36 247,213 241,765 (h)
6.03% 01/25/36 109,650 110,147 (h,i)
Residential Asset Securitization
Trust (Class A)
5.50% 05/25/35 1,138,638 1,138,586 (h,i)
Residential Funding Mortgage
Security I
5.75% 01/25/36 - 01/25/36 230,916 224,802 (h)
Wachovia Bank Commercial
Mortgage Trust
5.51% 03/15/45 1,200,000 1,210,080
5.68% 05/15/43 1,000,000 1,015,226 (i)
Wachovia Bank Commercial
Mortgage Trust (Class A)
5.77% 07/15/45 700,000 720,483
Washington Mutual Inc.
5.69% 01/25/45 223,096 223,398 (i)
Wells Fargo Mortgage Backed
Securities Trust
5.00% 11/25/20 483,027 476,276
5.35% 10/25/36 1,130,372 1,123,924 (i)
5.39% 08/25/35 - 08/25/35 473,767 462,366 (i)
5.50% 01/25/36 - 03/25/36 688,801 658,481
Wells Fargo Mortgage Backed
Securities Trust (Class B)
5.50% 03/25/36 989,884 956,353
44,244,884
SOVEREIGN BONDS -- 0.0%*
Government of Canada
3.38% 01/15/08 500,000 490,534 (h)
Government of Manitoba Canada
4.90% 12/06/16 330,000 325,293 (h)
815,827
TOTAL BONDS AND NOTES
(COST $451,721,833) 448,608,893
NUMBER
OF SHARES VALUE
- --------------------------------------------------------------------------------
EXCHANGE TRADED FUNDS -- 1.1%
- --------------------------------------------------------------------------------
Financial Select Sector SPDR Fund 104,647 3,844,731 (j,n)
Industrial Select Sector SPDR Fund 434,996 15,229,210 (j,n)
TOTAL EXCHANGE TRADED FUNDS
(COST $15,841,191) 19,073,941
- --------------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
- --------------------------------------------------------------------------------
SECURITIES PURCHASED WITH COLLATERAL
FROM SECURITIES ON LOAN -- 3.1%
- --------------------------------------------------------------------------------
ASSET BACKED -- 2.2%
Bear Stearns Asset Backed
Securities Inc.
5.57% 11/25/35 $ 5,000,000 $ 5,008,274 (h,i)
Countrywide Asset-Backed
Certificates
5.43% 06/25/35 2,768,302 2,768,431 (h,i)
Countrywide Asset-Backed
Certificates (Class M)
6.05% 06/26/33 1,658,157 1,674,547 (h,i)
Discover Card Master Trust I (Class A)
5.38% 04/16/10 3,200,000 3,201,914 (h,i)
GSAA Trust
5.38% 10/25/36 9,115,954 9,116,932 (h,i)
GSAMP Trust
5.46% 05/25/36 2,445,484 2,445,484 (b,h,i)
GSR Mortgage Loan Trust
5.55% 11/25/30 3,081,952 3,083,232 (h,i)
Indymac Residential Asset
Backed Trust
5.47% 06/25/36 7,000,000 7,003,690 (h,i)
Waverly Community School
(Class A)
5.51% 02/25/37 5,000,000 5,000,000 (h,i)
39,302,504
CORPORATE NOTES -- 0.5%
Countrywide Financial Corp.
5.45% 06/27/07 5,000,000 5,000,720 (h,i)
5.52% 09/02/08 4,000,000 4,002,396 (h,i)
9,003,116
NON-AGENCY COLLATERALIZED MORTGAGE OBLIGATIONS -- 0.4%
JP Morgan Alternative Loan Trust
5.38% 08/25/36 2,972,605 2,973,028 (h,i)
Residential Accredit Loans, Inc.
5.53% 07/25/36 4,299,418 4,300,291 (h,i)
7,273,319
TOTAL SECURITIES PURCHASED WITH
COLLATERAL FROM SECURITIES ON LOAN
(COST $55,549,762) 55,578,939
TOTAL INVESTMENTS IN SECURITIES
(COST $1,625,702,372) 1,783,302,605
See Notes to Schedule of Investments on page 22 and Notes to Financial
Statements.
19
TOTAL RETURN FUND
Schedule of Investments December 31, 2006
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NUMBER
0F SHARES VALUE
- --------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS -- 15.0%
- --------------------------------------------------------------------------------
AFFILIATED SHORT-TERM INVESTMENTS -- 8.0%
GEI Short Term Investment Fund
5.56% 143,607,996 $ 143,607,996 (d,l)
AFFILIATED SHORT-TERM SECURITIES PURCHASED
WITH COLLATERAL FROM SECURITIES ON LOAN -- 7.0%
GEI Short Term Investment Fund
5.56% 27,935,986 27,935,98 (d,l)
State Street Navigator Securities
Lending Prime Portfolio
5.33% 96,666,602 96,666,602 (d,e)
TOTAL SHORT-TERM INVESTMENTS
(COST $268,210,584) 268,210,584
TOTAL INVESTMENTS
(COST $1,893,912,956) 2,051,513,189
LIABILITIES IN EXCESS OF OTHER ASSETS,
NET -- (14.8)% (264,932,291)
--------------
NET ASSETS -- 100.0% $1,786,580,898
==============
- --------------------------------------------------------------------------------
OTHER INFORMATION
- --------------------------------------------------------------------------------
The GEI Total Return Fund had the following long futures contracts open at
December 31, 2006:
NUMBER CURRENT UNREALIZED
EXPIRATION OF NOTIONAL APPRECIATION/
DESCRIPTION DATE CONTRACTS VALUE DEPRECIATION
- --------------------------------------------------------------------------------
Long Gilt
Futures March 2007 13 $ 2,751,146 $ (19,150)
S&P 500 Index
Futures March 2007 178 63,563,800 45,438
U.S. Treasury
Notes 2 Yr.
Futures March 2007 50 10,201,563 (40,763)
U.S. Treasury
Notes 10 Yr.
Futures March 2007 157 16,872,594 (134,057)
-------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The GEI Total Return Fund had the following Short futures contracts open at
December 31, 2006:
NUMBER CURRENT UNREALIZED
EXPIRATION OF NOTIONAL APPRECIATION/
DESCRIPTION DATE CONTRACTS VALUE DEPRECIATION
- --------------------------------------------------------------------------------
Euro Bond
Futures March 2007 16 $(2,448,048) $ 40,011
--------------
$ (108,521)
===============
The GEI Total Return Fund had the following forward foreign currency contracts
open at December 31, 2006:
SETTLEMENT UNREALIZED
CURRENCY BOUGHT CURRENCY SOLD DATE DEPRECIATION
- --------------------------------------------------------------------------------
1,200,800 EUR 1,576,754 USD January 16, 2007 $ 8,089
1,188,788 USD 900,600 EUR January 16, 2007 156
169,916,058 JPY 1,440,960 USD January 16, 2007 (11,505)
------------
$ (3,260)
============
Foreign currency exchange contracts outstanding at December 31, 2006:
IN
SETTLEMENT CONTRACTS EXCHANGE CONTRACTS UNREALIZED
MONTH TYPE TO RECEIVE FOR AT VALUE APPRECIATION
- --------------------------------------------------------------------------------
Jan-07 Sold MYR 178,566 $ 50,535 $ 50,614 $ (79)
Sold MYR 15,546 $ 4,399 $ 4,406 $ (7)
-------------------------------------------------
194,112 $ 54,934 $ 55,020 $ (86)
=================================================
IN
SETTLEMENT CONTRACTS EXCHANGE CONTRACTS UNREALIZED
MONTH TYPE TO RECEIVE FOR AT VALUE APPRECIATION
- --------------------------------------------------------------------------------
Jan-07 Sold CAD 134,070 $115,189 $ 115,210 $ (21)
-------------------------------------------------
134,070 $115,189 $ 115,210 $ (21)
=================================================
IN
SETTLEMENT CONTRACTS EXCHANGE CONTRACTS UNREALIZED
MONTH TYPE TO RECEIVE FOR AT VALUE APPRECIATION
- --------------------------------------------------------------------------------
Jan-07 Sold GBP 7,098 $ 13,894 $ 13,892 $ 2
-------------------------------------------------
7,098 $ 13,894 $ 13,892 $ 2
=================================================
See Notes to Schedule of Investments on page 22 and Notes to Financial
Statements.
20
TOTAL RETURN FUND
Schedule of Investments December 31, 2006
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
IN
SETTLEMENT CONTRACTS EXCHANGE CONTRACTS UNREALIZED
MONTH TYPE TO RECEIVE FOR AT VALUE APPRECIATION
- --------------------------------------------------------------------------------
Jan-07 Buy EUR 79,406 $ 104,730 $ 104,708 $ (22)
------------------------------------------------------
79,406 $ 104,730 $ 104,708 $ (22)
======================================================
IN
SETTLEMENT CONTRACTS EXCHANGE CONTRACTS UNREALIZED
MONTH TYPE TO RECEIVE FOR AT VALUE APPRECIATION
- --------------------------------------------------------------------------------
Jan-07 Buy BRL 112,618 $ 52,522 $ 52,749 $ 226
Buy BRL 41,696 $ 19,548 $ 19,530 $ (18)
Buy BRL 39,990 $ 18,748 $ 18,731 $ (18)
Buy BRL 256,900 $ 120,582 $ 120,327 $ (255)
------------------------------------------------------
451,204 $ 211,400 $ 211,337 $ (65)
======================================================
IN
SETTLEMENT CONTRACTS EXCHANGE CONTRACTS UNREALIZED
MONTH TYPE TO RECEIVE FOR AT VALUE APPRECIATION
- --------------------------------------------------------------------------------
Jan-07 Buy IDR 194,623,939 $ 21,673 $ 21,641 $ (32)
Buy IDR 1,173,824,958 $ 130,715 $ 130,519 $ (196)
------------------------------------------------------
1,368,448,897 $ 152,388 $ 152,160 $ (228)
======================================================
IN
SETTLEMENT CONTRACTS EXCHANGE CONTRACTS UNREALIZED
MONTH TYPE TO RECEIVE FOR AT VALUE APPRECIATION
- --------------------------------------------------------------------------------
Jan-07 Buy HKD 447,469 $ 57,539 $ 57,536 $ (3)
------------------------------------------------------
447,469 $ 57,539 $ 57,536 $ (3)
======================================================
See Notes to Schedule of Investments on page 22 and Notes to Financial
Statements.
21
Notes to Schedule of Investments December 31, 2006
- --------------------------------------------------------------------------------
The views expressed in this document reflect our judgment as of the publication
date and are subject to change at any time without notice. The securities cited
may not represent current or future holdings and should not be considered as a
recommendation to purchase or sell a particular security. See the prospectus for
complete descriptions of investment objectives, policies, risks and permissible
investments.
(a) Non-income producing security.
(b) Pursuant to Rule 144A of the Securities Act of 1933, these securities may
be resold in transactions exempt from registration, normally to qualified
institutional buyers. At December 31, 2006, these securities amounted to
$2,738,478 or 0.15% 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 December 31, 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
December 31, 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) GE Asset Management Incorporated, the investment adviser of the Fund, also
serves as investment adviser of the GEI Short Term Investment Fund.
(m) Treasury Inflation Protected Securities
(n) 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 December 31, 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
22
Financial Highlights
Selected data based on a share outstanding throughout the periods indicated
- --------------------------------------------------------------------------------
TOTAL RETURN FUND
------------------------------------------------------------ -------- --------- ----------
CLASS 1 CLASS 2 CLASS 3 CLASS 4
------------------------------------------------------------ -------- --------- ----------
12/31/06 12/31/05 12/31/04 12/31/03 12/31/02 12/31/06 12/31/06 12/31/06
------------------------------------------------------------ -------- --------- ----------
INCEPTION DATE -- -- -- -- 7/1/85 5/1/06 5/1/06 5/1/06
Net asset value, beginning
of period $ 16.04 $ 15.97 $ 15.09 $ 12.68 $ 14.49 $ 17.03 $ 17.03 $ 17.03
INCOME/(LOSS) FROM
INVESTMENT OPERATIONS:
Net investment income 0.36 0.23 0.20 0.16 0.31 0.26 0.12 0.26
Net realized and unrealized
gains/(losses)
on investments 1.84 0.36 1.04 2.41 (1.67) 0.94 1.10 0.92
- --------------------------------------------------------------------------------------------------------------------------------
TOTAL INCOME/(LOSS) FROM
INVESTMENT OPERATIONS 2.20 0.59 1.24 2.57 (1.36) 1.20 1.22 1.18
- --------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM:
Net investment income 0.31 0.23 0.20 0.16 0.32 0.31 0.32 0.29
Net realized gains 0.24 0.29 0.16 -- 0.13 0.24 0.24 0.24
- --------------------------------------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS 0.55 0.52 0.36 0.16 0.45 0.55 0.56 0.53
- --------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE,
END OF PERIOD $ 17.69 $ 16.04 $ 15.97 $ 15.09 $ 12.68 $ 17.68 $ 17.69 $ 17.68
================================================================================================================================
TOTAL RETURN (a) 13.75% 3.67% 8.19% 20.31% (9.31)% 7.05% 7.17% 6.89%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(in thousands) $ 1,390,230 $ 959,531 $ 515,506 $ 225,867 $ 112,747 $ 1 $ 396,349 $ 1
Ratios to average net assets:
Net investment income* 2.33% 1.89% 1.81% 1.58% 2.22% 2.33% 2.09% 2.17%
Net Expenses* 0.48% 0.45% 0.49% 0.53% 0.54% 0.57% 0.62% 0.77%
Gross Expenses* 0.53% 0.45% 0.49% 0.53% 0.54% 0.64% 0.69% 0.84%
Portfolio turnover rate 138% 146% 141% 115% 126% 138% 138% 138%
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.
See Notes to Financial Statements.
23
TOTAL
Statement of Assets RETURN
and Liabilities DECEMBER 31, 2006 FUND
- -----------------------------------------------------------------------------------------------------
ASSETS
Investments in securities, at market* (cost $1,625,702,372) $ 1,783,302,605
Short-term Investments (at amortized cost) 96,666,602
Short-term affiliated investments (at amortized cost) 171,543,982
Foreign cash (cost $1,976,966) 1,976,060
Receivable for investments sold 19,681,517
Income receivables 4,921,691
Receivable for fund shares sold 4,201,078
Variation margin receivable 14,090
Unrealized gain on forward foreign currency contracts 8,245
Other assets 918,575
- -----------------------------------------------------------------------------------------------------
TOTAL ASSETS 2,083,234,445
- -----------------------------------------------------------------------------------------------------
LIABILITIES
Payable upon return of securities loaned 180,181,527
Payable for investments purchased 115,367,180
Payable for fund shares redeemed 728
Payable to GEAM 743,551
Variation margin payable 263,832
Payable to custodian 85,224
Unrealized loss on forward foreign currency contracts 11,505
- -----------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 296,653,547
- -----------------------------------------------------------------------------------------------------
NET ASSETS $ 1,786,580,898
=====================================================================================================
NET ASSETS CONSIST OF:
Capital paid in 1,614,236,283
Undistributed (distribution in excess of) net investment income 277,312
Accumulated net realized gain (loss) 14,576,319
Net unrealized appreciation/(depreciation) on:
Investments 157,600,233
Futures (108,521)
Written options --
Foreign currency related transactions (728)
- -----------------------------------------------------------------------------------------------------
NET ASSETS $ 1,786,580,898
=====================================================================================================
CLASS 1:
NET ASSETS 1,390,230,248
Shares outstanding ($0.01 par value; unlimited shares authorized) 78,579,248
Net asset value per share 17.69
CLASS 2:
NET ASSETS 1,071
Shares outstanding ($0.01 par value; unlimited shares authorized) 61
Net asset value per share 17.68
CLASS 3:
NET ASSETS 396,348,509
Shares outstanding ($0.01 par value; unlimited shares authorized) 22,409,225
Net asset value per share 17.69
CLASS 4:
NET ASSETS 1,070
Shares outstanding ($0.01 par value; unlimited shares authorized) 61
Net asset value per share 17.68
* Includes $175,142,927 of securities on loan.
See Notes to Financial Statements.
24
TOTAL
Statement of Operations RETURN
FOR THE YEAR ENDED DECEMBER 31, 2006 FUND
- -----------------------------------------------------------------------------------------------------
INVESTMENT INCOME
INCOME:
Dividend $ 17,750,259
Interest* 12,471,100
Interest from affliated investments 7,981,147
Less: Foreign taxes withheld (720,684)
- -----------------------------------------------------------------------------------------------------
TOTAL INCOME 37,481,822
- -----------------------------------------------------------------------------------------------------
EXPENSES:
Advisory and administrative fees 4,531,451
Investor Service Fees -- Class 1 1,723,320
Distributors Fees (Notes 4)
Class 2 2
Class 3 343,035
Class 4 3
Transfer agent fees 23,844
Trustee's fees 58,723
Custody and accounting expenses 295,765
Professional fees 94,815
Registration expenses 23,103
Other expenses 144,120
- -----------------------------------------------------------------------------------------------------
TOTAL EXPENSES BEFORE WAIVER AND REIMBURSEMENT 7,238,181
- -----------------------------------------------------------------------------------------------------
Less: Expenses Waived or borne by the adviser (635,830)
Net expenses 6,602,351
- -----------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME (LOSS) 30,879,471
=====================================================================================================
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS
REALIZED GAIN (LOSS) ON:
Investments 29,640,573
Futures 5,301,849
Written options (26,392)
Foreign currency transactions (80,440)
INCREASE (DECREASE) IN UNREALIZED APPRECIATION/
(DEPRECIATION) ON:
Investments 115,550,684
Futures 84,092
Foreign currency transactions 4,335
- -----------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments 150,474,701
- -----------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $ 181,354,172
=====================================================================================================
* Income attributable to security lending, net of rebate expenses was
$266,565.
See Notes to Financial Statements.
25
TOTAL
Statements of RETURN
Changes in Net Assets FUND
- ------------------------------------------------------------------------------------------------------------------------
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
2006 2005
- ------------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net investments income (loss) $ 30,879,471 $ 13,296,651
Net realized gain (loss) on investments, futures, written options,
foreign currency transactions and swaps 34,835,590 18,548,560
Net increase (decrease) in unrealized appreciation/(depreciation)
on investments, futures, written options, foreign currency translation 115,639,111 2,438,623
- ------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) from operations 181,354,172 34,283,834
- ------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income
Class 1 (23,735,343) (13,261,759)
Class 2 (18) --
Class 3 (6,765,709) --
Class 4 (17) --
Net realized gains
Class 1 (18,619,381) (16,598,435)
Class 2 (15) --
Class 3 (5,194,867) --
Class 4 (15) --
- ------------------------------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS (54,315,365) (29,860,194)
- ------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets from operations and distributions 127,038,807 4,423,640
- ------------------------------------------------------------------------------------------------------------------------
SHARE TRANSACTIONS:
Proceeds from sale of shares
Class 1 289,978,256 414,284,705
Class 2 1,000 --
Class 3 372,387,466 --
Class 4 1,000 --
Value of distributions reinvested
Class 1 42,354,257 29,860,187
Class 2 32 --
Class 3 11,960,436 --
Class 4 31 --
Cost of shares redeemed
Class 1 (16,516,114) (4,544,063)
Class 2 -- --
Class 3 (155,188) --
Class 4 -- --
- ------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) from share transactions 700,011,176 439,600,829
- ------------------------------------------------------------------------------------------------------------------------
TOTAL INCREASE (DECREASE) IN NET ASSETS 827,049,983 444,024,469
NET ASSETS
Beginning of period 959,530,915 515,506,446
- ------------------------------------------------------------------------------------------------------------------------
End of period $ 1,786,580,898 $ 959,530,915
========================================================================================================================
UNDISTRIBUTED (DISTRIBUTION IN EXCESS OF) NET INVESTMENT INCOME, END OF PERIOD $ 277,312 $ (20,632)
- ------------------------------------------------------------------------------------------------------------------------
See Notes to Financial Statements.
26
TOTAL
Statements of Changes in Net Assets (continued) RETURN
Changes in Fund Shares FUND
- ------------------------------------------------------------------------------------------------------------------------
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
2006 2005
- ------------------------------------------------------------------------------------------------------------------------
CLASS 1:
Shares sold 17,330,893 25,964,206
Issued for distributions reinvested 2,390,195 1,850,074
Shares redeemed (952,918) (281,159)
- ------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in fund shares 18,768,170 27,533,121
========================================================================================================================
CLASS 2:
Shares sold 59 --
Issued for distributions reinvested 2 --
Shares redeemed -- --
- ------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in fund shares 61 --
========================================================================================================================
CLASS 3:
Shares sold 21,743,379 --
Issued for distributions reinvested 674,968 --
Shares redeemed (9,122) --
- ------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in fund shares 22,409,225 --
========================================================================================================================
CLASS 4:
Shares sold 59 --
Issued for distributions reinvested 2 --
Shares redeemed -- --
- ------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in fund shares 61 --
========================================================================================================================
See Notes to Financial Statements.
27
Notes to Financial Statements December 31, 2006
- --------------------------------------------------------------------------------
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.
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.
In September 2006, FASB issued Statement of Financial Accounting Standards No.
157, FAIR VALUE MEASUREMENTS ("FAS 157"). FAS 157 establishes a single
authoritative definition of fair value, establishes a framework for measuring
fair value and expands disclosures about fair value measurements. FAS 157
applies to fair value measurements already required or permitted by existing
standards. The change to current generally accepted accounting principles from
the application of FAS 157 relate to the definition of fair value, the methods
used to measure fair value, and the expanded disclosures about fair value
measurements. Management of the Fund does not believe the adoption of FAS 157
will materially impact the financial statement amounts, however, additional
disclosures may be required about the inputs used to develop the measurements
and the effect of certain of the measurements on changes in net assets for the
period.
28
Notes to Financial Statements December 31, 2006
- --------------------------------------------------------------------------------
FAS 157 is effective for financial statements issued for fiscal years beginning
after November 15, 2007 and interim periods within those fiscal years.
REPURCHASE AGREEMENTS The Fund may enter into repurchase agreement transactions
with respect to instruments that are consistent with the Fund's investment
objectives or policies. 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.
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.
29
Notes to Financial Statements December 31, 2006
- --------------------------------------------------------------------------------
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 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,
30
Notes to Financial Statements December 31, 2006
- --------------------------------------------------------------------------------
additional cash or securities is segregated so that the value of the account
will equal the amount of the Fund's commitment with respect to the contract.
INVESTMENTS IN FOREIGN MARKETS Investments in foreign markets may involve
special risks and considerations not typically associated with investing in the
United States. These risks include revaluation of currencies, high rates of
inflation, repatriation on income and capital, and adverse political and
economic developments. Moreover, securities issued in these markets may be less
liquid, subject to government ownership controls, tariffs and taxes, subject to
delays in settlements, and their prices may be more volatile.
The Fund may be subject to capital gains and repatriation taxes imposed by
certain countries in which it invests. Such taxes are generally based on income
and/or capital gains earned or repatriated. Taxes are accrued based upon net
investment income, net realized gains and net unrealized appreciation as income
and/or capital gains are earned.
INCOME TAXES The Fund intends to comply with all sections of the Internal
Revenue Code applicable to regulated investment companies including the
distribution of substantially all of its taxable net investment income and net
realized capital gains to its shareholders. Therefore, no provision for federal
income tax has been made. The Fund is treated as a separate taxpayer for federal
income tax purposes.
At December 31, 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
- --------------------------------------------------------------------------------
$1,895,462,342 $178,341,434 $(22,290,587) $156,050,847
Net Tax Appreciation/ Undistributed Undistributed Post
(Depreciation) on Income/ Long-Term Gains/ October
Derivatives, Currency (Accumulated (Accumulated Losses
and Other Net Assets Ordinary Loss) Capital Loss) (see Detail Below)
- --------------------------------------------------------------------------------
$20,861 $5,032,325 $11,282,646 $(42,064)
As of December 31, 2006, 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, 2006 as follows:
Capital Currency
---------------------------
$ -- $42,064
The tax composition of distributions paid (other than return of capital
distributions for the year) during the year ended December 31, 2006 was as
follows:
Ordinary Long-Term
Income Capital Gains Total
----------------------------------------------
$31,461,661 $22,853,704 $54,315,365
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,
treatment of realized gains and losses on foreign currency transactions, 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.
31
Notes to Financial Statements December 31, 2006
- --------------------------------------------------------------------------------
The reclassifications for the year ended December 31, 2006 were as follows:
Undistributed
(Distribution
in Excess of)
Net Investment Accumulated Paid in
Income Net Realized Gain Capital
----------------------------------------------
$(80,440) $80,440 $ --
On July 13, 2006, the FASB released FIN48, "Accounting for Uncertainty in Income
Taxes." FIN48 provides guidance for how uncertain tax positions should be
recognized, measured, presented and disclosed in the financial statements. FIN48
requires evaluation of tax positions taken or expected to be taken in the course
of preparing the Fund's tax returns to determine whether the tax positions are
"more likely than not" of being sustained by the applicable tax authority. The
adoption of FIN48 will require financial statements to be adjusted to reflect
only those tax positions that are more likely that not to be sustained as of the
adoption date. Adoption of FIN48 is required for fiscal years beginning after
December 15, 2006 no later than June 29, 2007 and is applied to all open years
as of the effective date. At this time, management is evaluating the
implications of FIN48 and its impact on the financial statements has not yet
been determined.
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 and amortized
respectively 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 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 amount allowed
to be borrowed by any one of the Funds is the lesser of its prospectus
limitation, 20% of its net assets, or $25 million. The credit facility was not
utilized by the Fund during the period ended December 31, 2006.
4. AMOUNTS PAID TO AFFILIATES
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. GEAM's compensation 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
32
Notes to Financial Statements December 31, 2006
- --------------------------------------------------------------------------------
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 December 31, 2006, $20,992 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 December 31, 2006, were as follows:
Purchases Sales
--------------------------------------
$2,523,585,560 $1,806,862,530
OPTIONS During the period ended December 31, 2006, the following option
contracts were written:
Number of
of Contracts Premium
- --------------------------------------------------------------------------------
Balance as of
December 31, 2005 -- $ --
Written 815 20,840
Closed and Expired (815) (20,840)
- --------------------------------------------------------------------------------
Balance as of
December 31, 2006 -- --
- --------------------------------------------------------------------------------
SECURITY LENDING At December 31, 2006, the Fund participated in securities
lending:
Loaned
securities at Cash
market value collateral*
-----------------------------------------
$175,142,927 $180,181,527
* COLLATERAL OF $180,426,108 DECREASED BY $244,581 ON JANUARY 1, 2007 TO
REFLECT THE DECEMBER 31, 2006 CHANGE IN VALUE OF SECURITIES ON LOAN.
33
Report of Independent Registered Public Accounting Firm
- --------------------------------------------------------------------------------
The Shareholders and Board of Directors
GE Investments Funds, Inc.
We have audited the accompanying statement of assets and liabilities of the
Total Return Fund, a series of GE Investments Funds, Inc., including the
schedule of investments, as of December 31, 2006, and the related statement of
operations for the year then ended, the statements of changes in net assets for
each of the years in the two-year period then ended, and the financial
highlights for each of the years or periods in the five-year period then ended.
These financial statements and financial highlights are the responsibility of
the Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included confirmation of
securities owned as of December 31, 2006 by correspondence with the custodian
and brokers, or by other appropriate auditing procedures where replies from
brokers were not received. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
Total Return Fund as of December 31, 2006, the results of its operations,
changes in its net assets and financial highlights for the periods described
above, in conformity with U.S. generally accepted accounting principles.
/s/ KPMG LLP
Boston, Massachusetts
February 20, 2007
34
Tax Information (unaudited)
- --------------------------------------------------------------------------------
During the calendar year ended December 31, 2006, the Fund paid to shareholders
of record on December 27, 2006, $0.23456 per share of long-term capital gain
dividends.
35
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 6
and December 14, 2006.
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 detail during a
private session with their independent legal counsel at which no representatives
of GEAM were present. The independent Board members and their independent legal
counsel requested, and received and considered, additional information from GEAM
following this session.
In advance of the meetings, 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 recent years, 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 recent years. 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 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 has expended 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.
36
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 overall taking
into consideration the factors discussed above.
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. 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 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
37
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 effect, if any, of the Securities and Exchange
Commission staff's interpretive guidance concerning soft dollars. 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 that
GEAM may derive from its relationship with the Fund, 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.
38
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;
Trustee of Elfun Foundation; Treasurer of GE Foundation; Director, GE Asset
Management (Ireland) since February 1999.
- --------------------------------------------------------------------------------
ALAN M. LEWIS
- --------------------------------------------------------------------------------
ADDRESS c/o GEAM 3001 Summer St. Stamford, CT 06905
AGE 60
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.
39
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 41
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
40
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 General Partner, NGN Capital LLC
since 2006; 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 59
POSITION(S) HELD WITH FUND Director
TERM OF OFFICE AND LENGTH OF TIME SERVED Until successor is elected and
qualified - 9 years
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS 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 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.
41
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)
David B. Carlson, EVP, DOMESTIC EQUITIES
Michael J. Cosgrove, EVP, CHIEF COMMERCIAL OFFICER
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
Judith A. Studer, EVP, INVESTMENT STRATEGIES (AS OF JULY 2006)
Don W. Torey, EVP, ALTERNATIVE INVESTMENTS AND REAL ESTATE
John J. Walker, EVP, CHIEF FINANCIAL OFFICER
42
[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]
<page>
GE Investments Funds, Inc.
Income Fund
Annual Report
DECEMBER 31, 2006
[GE 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 15
FINANCIAL STATEMENTS
Financial Highlights 16
Statement of Assets and Liabilities 17
Statement of Operations 18
Statements of Changes in Net Assets 19
Notes to Financial Statements 20
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM 26
ADVISORY AND ADMINISTRATIVE AGREEMENT RENEWAL 27
ADDITIONAL INFORMATION 30
INVESTMENT TEAM 33
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 December 31, 2006
- --------------------------------------------------------------------------------
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 PAUL M.
COLONNA, MARK DELANEY, ERIC H. GOULD, WILLIAM M. HEALEY, JAMES F. PALMIERI 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.
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.
JAMES F. PALMIERI IS AN ASSISTANT PORTFOLIO MANAGER OF GEAM. SINCE MARCH 2006,
HE HAS MANAGED THE MORTGAGE-BACKED SECURITIES SECTOR FOR THE S&S INCOME FUND.
PRIOR TO JOINING GEAM, MR. PALMIERI WAS A DIRECTOR OF INVESTMENTS FOR
CONSTITUTION CORPORATE FEDERAL CREDIT UNION FROM FEBRUARY 2005 TO MARCH 2006 AND
A PORTFOLIO MANAGER FOR CIGNA INVESTMENT MANAGEMENT FROM JANUARY 2000 TO
FEBRUARY 2005.
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.
Q. HOW DID THE INCOME FUND PERFORM COMPARED TO ITS BENCHMARK AND LIPPER PEER
GROUP FOR THE TWELVE-MONTH PERIOD ENDED DECEMBER 31, 2006?
A. For the twelve-month period ended December 31, 2006, the Income Fund
returned 4.37%. The Lehman Brothers Aggregate Bond Index, the Fund's
benchmark, returned 4.33% and the Fund's Lipper peer group of 58
Intermediate Investment Grade Debt Funds returned an average of 4.14% for
the same period.
[PHOTO OMITTED]
PICTURED BOTTOM RIGHT:
PAUL M. COLONNA
- --------------------------------------------------------------------------------
2
- --------------------------------------------------------------------------------
Q&A
Q. DESCRIBE WHAT HAPPENED IN THE U.S. ECONOMY DURING THE 12-MONTH PERIOD
ENDING DECEMBER 31, 2006.
A. The Federal Reserve, under Dr. Ben Bernanke's leadership, continued to
raise the Fed funds rate in the first half of 2006, stopping in June at
5.25%. Although the Fed kept the rate steady in the second half, language
from the Federal Open Market Committee and various Fed members emphasized
nascent inflation risks, despite economic growth slowed by weakness in the
housing and auto markets. While the Fed appears to be biased towards
further rate hikes in 2007, the U.S. Treasury market is priced for a
reduction in rates. Interest rates did backup in 2006 with yields on the
2-year and 10-year notes ending at 4.8% and 4.7%, respectively, up 41 and
31 basis points. The 10-year note traded to a higher yield through June as
the Fed raised short rates amid strong economic growth above 4%. Yields
moved lower by December after the Fed paused and GDP growth slipped to
roughly 2%.
Q. WHAT WERE THE PRIMARY DRIVERS OF FUND PERFORMANCE?
A. Fund performance benefited from the allocation in high yield and emerging
market debt securities. These two sectors significantly outperformed the
high-grade market with returns of 11.85% (high yield) and 9.86% (EMD). The
Fund's overweight in BBB-rated corporate bonds also contributed
positively. Some value was obtained from yield curve positioning while the
contribution from tactical duration moves was neutral.
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 December
31, 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 $1,000 = 8.6), then multiply the result by the number
given for your class under the heading "Expenses Paid During Period."
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The second section of the table provides information about hypothetical account
values and hypothetical expenses based on the Fund's actual expense ratio and an
assumed rate of return of 5% per year before expenses, which is not the Fund's
actual return. You may use this information to compare the ongoing costs of
investing in the Fund and other funds. To do so, compare this 5% hypothetical
example with the 5% hypothetical examples that appear in the shareholders
reports of other funds.
Please note that the expenses shown in the table do not reflect any transaction
costs, such as sales charges or redemption fees.
JULY 1, 2006 - DECEMBER 31, 2006
- --------------------------------------------------------------------------------
ACCOUNT VALUE AT ACCOUNT VALUE EXPENSES
THE BEGINNING OF AT THE END OF PAID DURING
THE PERIOD ($) THE PERIOD ($) THE PERIOD ($)*
- --------------------------------------------------------------------------------
Actual Fund Return** 1,000.00 1,048.14 3.22
- --------------------------------------------------------------------------------
Hypothetical 5% Return
(2.5% for the period) 1,000.00 1,024.60 3.16
- --------------------------------------------------------------------------------
* EXPENSES ARE EQUAL TO THE FUND'S ANNUALIZED EXPENSE RATIO OF 0.62% (FROM
PERIOD JULY 1, 2006 - DECEMBER 31, 2006), MULTIPLIED BY THE AVERAGE
ACCOUNT VALUE OVER THE PERIOD, MULTIPLIED BY 184/365 (TO REFLECT THE SIX
MONTH PERIOD).
** ACTUAL FUND RETURN FOR SIX-MONTH PERIOD ENDED DECEMBER 31, 2006 WAS:
4.81%.
4
Income Fund
- --------------------------------------------------------------------------------
CHANGE IN VALUE
OF A $10,000 INVESTMENT
- --------------------------------------------------------------------------------
[LINE GRAPH OMITTED, PLOT POINTS ARE AS FOLLOWS:]
Income Fund LB Aggregate Bond Index
12/96 $10,000 $10,000
12/97 $10,900 $10,965
12/98 $11,766 $11,918
12/99 $11,598 $11,820
12/00 $12,844 $13,194
12/01 $13,798 $14,308
12/02 $15,162 $15,776
12/03 $15,707 $16,423
12/04 $16,245 $17,136
12/05 $16,576 $17,552
12/06 $17,300 $18,312
AVERAGE ANNUAL TOTAL RETURN
FOR THE PERIODS ENDED DECEMBER 31, 2006
- --------------------------------------------------------------------------------
ONE FIVE TEN
YEAR YEAR YEAR
- --------------------------------------------------------------------------------
Income Fund 4.37% 4.63% 5.63%
- --------------------------------------------------------------------------------
LB Aggregate Bond Index 4.33% 5.06% 6.24%
- --------------------------------------------------------------------------------
Lipper peer group average* 4.14% 4.90% 5.81%
- --------------------------------------------------------------------------------
Inception date 1/3/95
- --------------------------------------------------------------------------------
Income Fund (ending value $17,300)
LB Aggregate Bond Index (ending value $18,312)
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 circumstances.
QUALITY RATINGS
AS OF DECEMBER 31, 2006
as a % of Market Value
- --------------------------------------------------------------------------------
MOODY'S/S&P/ PERCENTAGE OF
FITCH RATING** MARKET VALUE
- --------------------------------------------------------------------------------
Aaa / AAA 74.57%
- --------------------------------------------------------------------------------
Aa / AA 3.75%
- --------------------------------------------------------------------------------
A / A 6.51%
- --------------------------------------------------------------------------------
Baa / BBB 7.78%
- --------------------------------------------------------------------------------
Ba / BB and lower 7.39%
- --------------------------------------------------------------------------------
PORTFOLIO COMPOSITION
AS OF DECEMBER 31, 2006
as a % of Market Value
- --------------------------------------------------------------------------------
Market Value of $169,162 (in thousands)
[PIE CHART OMITTED, PLOT POINTS ARE AS FOLLOWS:]
Mortgage-Backed 32.1%
Asset-Backed and Other 27.6%
Corporate Notes 22.7%
U.S. Treasuries 17.6%
* LIPPER PERFORMANCE COMPARISONS ARE BASED ON AVERAGE ANNUAL TOTAL RETURNS
FOR THE ONE YEAR, FIVE-YEAR AND TEN-YEAR PERIODS INDICATED IN THE
INTERMEDIATE INVESTMENT GRADE DEBT FUNDS PEER GROUP CONSISTING OF 58, 39
AND 16 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 December 31, 2006
- --------------------------------------------------------------------------------
Income Fund
- --------------------------------------------------------------------------------
Principal
Amount Value
- --------------------------------------------------------------------------------
BONDS AND NOTES -- 97.6%
- --------------------------------------------------------------------------------
U.S. TREASURIES -- 23.5%
U.S. Treasury Bonds
4.50% 02/15/36 $ 3,175,000 $ 3,021,711 (i)
U.S. Treasury Inflation Indexed Bonds
2.00% 01/15/16 615,067 594,204 (i,l)
3.50% 01/15/11 1,170,954 1,218,892 (l)
U.S. Treasury Notes
4.63% 11/30/08 - 11/15/16 24,960,000 24,883,123 (i)
29,717,930
AGENCY MORTGAGE BACKED -- 22.3%
Federal Home Loan Mortgage Corp.
4.50% 06/01/33 - 02/01/35 295,766 277,183 (g)
5.00% 07/01/35 - 10/01/35 484,222 467,320 (g)
5.50% 05/01/20 78,738 78,639 (g)
6.00% 04/01/17 - 05/01/35 1,078,105 1,089,525 (g)
6.50% 01/01/27 - 09/01/36 753,723 769,016 (g)
7.00% 10/01/16 - 08/01/36 267,644 275,198 (g)
7.50% 11/01/09 - 09/01/33 30,136 31,174 (g)
8.00% 09/01/09 - 11/01/30 28,706 29,982 (g)
8.50% 04/01/30 - 05/01/30 30,586 32,793 (g)
Federal National Mortgage Assoc.
4.00% 05/01/19 - 06/01/19 298,258 280,999 (g)
4.50% 05/01/18 - 12/01/34 1,708,686 1,641,638 (g)
5.00% 03/01/34 - 08/01/36 629,120 607,699 (g)
5.50% 12/01/13 - 12/01/35 822,250 819,377 (g)
6.00% 06/01/14 - 07/01/35 1,902,415 1,917,794 (g)
6.50% 07/01/17 - 02/01/35 2,322,591 2,370,703 (g)
7.00% 03/01/15 - 06/01/36 791,597 814,276 (g)
7.50% 12/01/09 - 03/01/34 220,056 228,417 (g)
8.00% 12/01/12 - 11/01/33 162,704 171,728 (g)
8.50% 05/01/31 7,161 7,697 (g)
9.00% 04/01/16 - 12/01/22 28,814 30,504 (g)
5.00% TBA 6,040,190 5,847,558 (c)
5.50% TBA 6,203,000 6,164,953 (c)
6.00% TBA 675,000 679,429 (c)
6.50% TBA 1,230,000 1,253,063 (c)
Government National
Mortgage Assoc.
4.50% 08/15/33 - 09/15/34 543,772 516,313 (g)
5.13% 11/20/22 - 12/20/24 8,182 8,282 (g,h)
5.38% 02/20/23 - 02/20/26 20,445 20,651 (g,h)
6.00% 04/15/27 - 09/15/36 597,270 606,220 (g)
6.50% 04/15/19 - 08/15/36 507,755 521,359 (g)
7.00% 03/15/12 - 10/15/36 385,708 397,931 (g)
7.50% 11/15/31 - 10/15/33 14,602 15,248 (g)
8.00% 12/15/29 - 04/15/30 7,481 7,862 (g)
8.50% 10/15/17 26,432 28,158 (g)
9.00% 11/15/16 - 12/15/21 64,780 69,628 (g)
5.50% TBA 235,000 233,825 (c)
28,312,142
Principal
Amount Value
- --------------------------------------------------------------------------------
AGENCY COLLATERALIZED MORTGAGE OBLIGATIONS -- 6.4%
Federal Home Loan
Mortgage Corp.
1.30% 10/15/18 $ 416,302 $ 22,926 (f,g,h)
1.80% 12/15/30 1,048,567 48,169 (f,g,h)
2.43% 09/15/36 468,936 39,273 (f,h)
3.20% 10/15/33 235,000 182,063 (g,h)
3.94% 12/15/33 150,000 123,675 (g,h)
4.00% 02/15/21 185,319 26,813 (f)
4.50% 04/15/13 - 12/15/20 1,425,151 174,534 (f,g)
4.50% 05/15/17 - 11/15/19 350,000 331,163 (g)
5.00% 05/15/20 - 02/15/35 1,775,000 1,664,058 (g)
5.00% 12/15/13 - 12/01/34 5,722,939 1,089,685 (f,g)
5.50% 10/15/34 229,253 229,870 (g)
5.50% 04/15/17 - 06/15/33 629,938 115,701 (f,g)
7.50% 01/15/16 60,683 62,503 (g)
7.50% 07/15/27 16,232 3,246 (f,g)
8.00% 02/01/23 - 07/01/24 8,193 1,737 (f,g)
8.25% 06/01/26 60,000 77,999 (g,j)
18.20% 09/25/43 1,943,604 18,961 (d,f,g,h)
Federal Home Loan
Mortgage STRIPS
5.94% 08/01/27 1,962 1,591 (d,e,g)
Federal National Mortgage Assoc
STRIPS (Class 1)
4.23% 11/01/34 736,424 559,643 (d,e,g)
Federal National Mortgage Assoc
STRIPS (Class 2)
7.50% 11/01/23 49,617 12,536 (f,g)
8.00% 08/01/23 - 07/01/24 17,509 3,848 (f,g)
8.50% 07/25/22 846 180 (f,g)
9.00% 05/25/22 543 138 (f,g)
Federal National Mortgage Assoc.
1.19% 12/25/42 131,830 2,678 (f,g,h)
1.65% 10/25/29 542,682 31,359 (f,g,h)
1.75% 12/25/30 529,942 26,710 (f,g,h)
1.85% 06/25/36 - 12/25/36 3,643,692 257,222 (f,h)
2.15% 05/25/18 923,308 60,938 (f,g,h)
2.25% 09/25/42 1,384,641 75,290 (f,g,h)
2.30% 04/25/17 - 10/25/17 1,180,301 72,960 (f,g,h)
2.35% 08/25/16 356,650 16,406 (f,g,h)
2.75% 06/25/42 469,070 29,903 (f,g,h)
3.50% 09/25/31 358,280 328,823 (g,h)
4.00% 02/25/28 30,908 30,303 (g)
4.50% 05/25/18 154,630 14,038 (f,g)
4.50% 12/25/19 125,000 115,280 (g)
4.75% 11/25/14 86,489 5,370 (f,g)
5.00% 08/25/17 - 02/25/32 232,183 25,638 (f,g)
5.00% 03/25/35 175,000 163,214 (g)
5.50% 07/25/34 - 02/25/35 459,872 460,318 (g)
5.75% 02/25/35 250,000 252,350 (g)
6.00% 12/25/34 175,000 177,879 (g)
6.50% 12/25/34 91,844 93,452 (g)
8.00% 07/25/14 163,702 165,894 (g)
Federal National Mortgage
Assoc. (Class 1)
4.24% 01/25/36 450,153 339,448 (d,e)
See Notes to Schedule of Investments on page 15 and Notes to Financial
Statements.
6
INCOME FUND
Schedule of Investments December 31, 2006
- --------------------------------------------------------------------------------
Principal
Amount Value
- --------------------------------------------------------------------------------
Federal National Mortgage
Assoc. (Class S)
1.75% 02/25/31 $ 503,497 $ 24,172 (f,g,h)
Federal National Mortgage
Assoc. REMIC
1.88% 01/25/37 1,260,000 81,309 (f,h)
4.50% 11/25/13 269,046 10,361 (f,g)
4.84% 03/25/31 483,852 474,828 (g,h)
5.00% 10/25/22 141,574 21,169 (f,g)
7.00% 09/25/20 1,064 1,078 (g)
Federal National Mortgage Assoc.
REMIC (Class B)
5.11% 12/25/22 526 436 (d,e,g)
Federal National Mortgage Assoc.
REMIC (Class J)
1080.91% 03/25/22 10 111 (f,g)
Federal National Mortgage Assoc.
REMIC (Class K)
1008.00% 05/25/22 12 340 (f,g)
8,149,589
ASSET BACKED -- 4.1%
Bank One Issuance Trust
3.59% 05/17/10 85,000 83,958 (g)
Capital One Master Trust (Class C)
6.70% 06/15/11 200,000 203,946 (b,g)
Carmax Auto Owner Trust
4.35% 03/15/10 131,000 129,316 (g)
Chase Funding Mortgage Loan
Asset-Backed Certificates
5.63% 02/25/33 75,075 75,141 (g,h)
5.75% 05/25/32 32,000 30,797 (g)
Citibank Credit Card Issuance Trust
4.45% 04/07/10 274,000 270,613 (g)
Countrywide Asset-Backed Certificates
5.78% 05/25/33 23,717 23,735 (g,h)
Countrywide Home Equity Loan
Trust (Class A)
5.58% 07/15/27 81,162 81,170 (g,h)
GSAA Trust
5.38% 10/25/36 1,823,191 1,823,386 (g,h)
Honda Auto Receivables Owner
Trust (Class A)
4.15% 10/15/10 146,000 143,815 (g)
Mid-State Trust
7.54% 07/01/35 2,792 2,979 (g)
Peco Energy Transition Trust
6.52% 12/31/10 192,000 200,504 (g)
Residential Asset Securities Corp.
5.60% 07/25/32 12,021 12,023 (g,h)
Superior Wholesale Inventory
Financing Trust (Class A)
5.53% 06/15/10 2,000,000 2,006,628 (h)
Volkswagen Auto Lease Trust (Class A)
3.94% 10/20/10 88,000 87,096
Wells Fargo Home Equity Trust
3.97% 05/25/34 77,000 75,351 (g,h)
5,250,458
Principal
Amount Value
- --------------------------------------------------------------------------------
CORPORATE NOTES -- 30.4%
Abbey National PLC
7.95% 10/26/29 $ 200,000 $ 252,226 (g)
Abbott Laboratories
5.88% 05/15/16 255,000 262,962 (g)
AES Panama S.A.
6.35% 12/21/16 100,000 98,135 (b)
Allied Waste North America Inc.
(Series B)
7.13% 05/15/16 345,000 341,550
Allied World Assurance Holdings Ltd.
7.50% 08/01/16 110,000 118,117
Allstate Life Global Funding Trusts
3.85% 01/25/08 165,000 162,512 (g)
Altria Group, Inc.
7.20% 02/01/07 125,000 125,099 (g)
American Electric Power
Company, Inc. (Series C)
5.38% 03/15/10 270,000 268,591
American Electric Power
Company, Inc. (Series D)
5.25% 06/01/15 90,000 87,293 (g)
American Express Travel Related
Services Company Inc.
5.25% 11/21/11 200,000 199,852 (b)
American General Corp.
7.50% 08/11/10 130,000 139,225 (g)
American International Group, Inc.
6.25% 05/01/36 155,000 165,689
Appalachian Power Co. (Series G)
3.60% 05/15/08 150,000 146,449 (g)
Appalachian Power Co. (Series K)
5.00% 06/01/17 110,000 103,151 (g)
Archstone-Smith Operating Trust
3.00% 06/15/08 145,000 140,271
Arizona Public Service Co.
6.25% 08/01/16 165,000 168,515 (g)
AT&T, Inc.
4.13% 09/15/09 375,000 364,206
5.88% 08/15/12 110,000 112,261
AvalonBay Communities, Inc. (REIT)
5.75% 09/15/16 110,000 110,363 (g)
BAC CAP TRUST V
5.63% 03/08/35 180,000 170,636 (g)
Banco BMG S.A.
9.15% 01/15/16 115,000 116,553 (b,g)
Banco de Credito del Peru
6.95% 11/07/21 150,000 150,000 (b,h)
Banco Mercantil del Norte S.A.
5.88% 02/17/14 225,000 226,575 (b,g,h)
6.86% 10/13/21 160,000 161,723 (b,g)
Banco Santander Chile
5.38% 12/09/14 215,000 211,684 (b,g)
Bank of America Corp.
5.75% 08/15/16 130,000 132,742 (g)
Bear Stearns Companies, Inc.
5.55% 01/22/17 160,000 159,708
See Notes to Schedule of Investments on page 15 and Notes to Financial
Statements.
7
INCOME FUND
Schedule of Investments December 31, 2006
- --------------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
- --------------------------------------------------------------------------------
BellSouth Corp.
4.20% 09/15/09 $ 100,000 $ 97,333 (g)
6.55% 06/15/34 185,000 189,540 (g)
Bertin Ltda
10.25% 10/05/16 100,000 105,500 (b)
BJ Services Co.
5.75% 06/01/11 165,000 166,320 (g)
BNP US Funding LLC (Series A)
7.74% 12/31/49 80,000 81,430 (b,g,h)
Boyd Gaming Corp.
7.13% 02/01/16 145,000 144,275 (g)
Braskem S.A.
8.00% 01/26/17 110,000 115,913 (b,g)
Bristol-Myers Squibb Co.
5.88% 11/15/36 100,000 98,821
British Telecommunications PLC
8.63% 12/15/10 65,000 72,565 (g)
Burlington Northern Santa Fe Corp.
8.13% 04/15/20 100,000 119,658 (g)
Cablevision Systems Corp.
8.00% 04/15/12 120,000 117,900 (g)
Campbell Soup Co.
5.50% 03/15/07 160,000 160,033 (g)
Cap Cana S.A.
9.63% 11/03/13 100,000 101,375 (b)
Capital One Bank
6.50% 06/13/13 75,000 79,048 (g)
Capital One Capital III
7.69% 08/15/36 80,000 90,777
Capital One Financial Corp.
8.75% 02/01/07 170,000 170,416 (g)
Carolina Power & Light Co.
5.15% 04/01/15 80,000 78,117 (g)
5.70% 04/01/35 45,000 43,977 (g)
6.13% 09/15/33 235,000 243,166 (g)
CBS Corp.
5.63% 05/01/07 200,000 200,103
CCSA Finance Ltd.
7.88% 05/17/16 100,000 107,250 (b,g)
Chaoda Modern Agriculture
7.75% 02/08/10 130,000 130,000 (b)
Cia de Transporte de Energia Electrica
de Alta Tension S.A. (Series 1)
8.88% 12/15/16 100,000 100,250 (b)
CIT Group, Inc.
5.13% 09/30/14 50,000 48,598
Citigroup, Inc.
5.10% 09/29/11 195,000 194,158
5.85% 12/11/34 165,000 167,747
Clarendon Alumina Production Ltd.
8.50% 11/16/21 100,000 104,250 (b)
Clear Channel Communications, Inc.
4.63% 01/15/08 255,000 252,561 (g)
CNA Financial Corp.
6.50% 08/15/16 95,000 99,101
Comcast Cable Communications
Holdings, Inc.
9.46% 11/15/22 155,000 200,652 (g)
PRINCIPAL
AMOUNT VALUE
- --------------------------------------------------------------------------------
Comcast Cable Communications, Inc.
6.88% 06/15/09 $ 350,000 $ 362,216
Comcast Corp.
5.88% 02/15/18 115,000 113,535
Commonwealth Bank of Australia
6.02% 03/29/49 160,000 161,875 (b,g,h)
Commonwealth Edison Co.
5.40% 12/15/11 130,000 129,208
ConocoPhillips Canada Funding Co.
5.95% 10/15/36 165,000 167,542
Constellation Brands, Inc.
7.25% 09/01/16 345,000 354,488
Consumers Energy Co.
5.15% 02/15/17 125,000 119,257 (g)
Corp Andina de Fomento
5.75% 01/12/17 120,000 120,688 (g)
Cosan S.A. Industria e Comercio
8.25% 02/28/49 140,000 136,150 (b,g)
Cosipa Commercial Ltd.
8.25% 06/14/16 115,000 127,650 (b,g)
Countrywide Home Loans, Inc.
5.63% 05/15/07 100,000 100,076 (g)
CRH America, Inc.
6.00% 09/30/16 110,000 111,033 (g)
Crown Americas LLC and Crown
Americas Capital Corp.
7.75% 11/15/15 395,000 409,813 (g)
CSX Transportation, Inc.
9.75% 06/15/20 105,000 140,299 (g)
DaimlerChrysler NA Holding Corp.
4.05% 06/04/08 110,000 107,827 (g)
5.88% 03/15/11 110,000 110,489
DBS Bank Ltd.
5.00% 11/15/19 235,000 227,741 (b,g,h)
7.88% 08/10/09 160,000 169,966 (b)
Delhaize America, Inc.
8.13% 04/15/11 185,000 199,570 (g)
Detroit Edison Co.
6.13% 10/01/10 155,000 158,375
Detroit Edison Co. (Series B)
5.45% 02/15/35 190,000 176,726 (g)
Deutsche Bank Capital Funding
Trust VII
5.63% 01/19/49 100,000 98,272 (b,g,h)
Devon OEI Operating Inc.
4.38% 10/01/07 75,000 74,411 (g)
Diageo Capital PLC
5.50% 09/30/16 165,000 162,904 (g)
Dominion Resources, Inc.
5.69% 05/15/08 165,000 165,239 (g,j)
Dominion Resources, Inc. (Series B)
4.13% 02/15/08 130,000 128,129 (g)
6.30% 09/30/66 210,000 210,982 (h)
Dover Corp.
6.50% 02/15/11 90,000 93,804
6.65% 06/01/28 60,000 66,282
Duke Capital LLC
5.67% 08/15/14 50,000 49,886 (g)
See Notes to Schedule of Investments on page 15 and Notes to Financial
Statements.
8
INCOME FUND
Schedule of Investments December 31, 2006
- --------------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
- --------------------------------------------------------------------------------
Duke Energy Corp.
5.38% 01/01/09 $ 50,000 $ 49,898
Echostar DBS Corp.
7.00% 10/01/13 460,000 459,425
EI Du Pont de Nemours & Co.
4.88% 04/30/14 110,000 106,184
El Paso Corp.
7.63% 09/01/08 160,000 164,800 (g)
El Paso Electric Co.
6.00% 05/15/35 165,000 159,335 (g)
El Paso Production Holding Co.
7.75% 06/01/13 230,000 240,638 (g)
Embarq Corp.
7.08% 06/01/16 165,000 168,020 (g)
Empresa Energetica de Sergipe
and Sociedade Anonima de
Eletrificaao da Paraiba
10.50% 07/19/13 115,000 122,475 (b,g)
Enterprise Products Operating LP
4.00% 10/15/07 160,000 158,043 (g)
EOP Operating LP
7.75% 11/15/07 190,000 193,917 (g)
Evraz Group S.A.
8.25% 11/10/15 130,000 133,738 (b)
Firstar Bank NA
7.13% 12/01/09 250,000 263,075
FirstEnergy Corp. (Series B)
6.45% 11/15/11 225,000 234,632 (g)
FPL Group Capital, Inc. (Series B)
5.55% 02/16/08 220,000 220,284 (g)
Gaz Capital for Gazprom
6.21% 11/22/16 140,000 140,980 (b)
Georgia Gulf Corp.
9.50% 10/15/14 230,000 224,250 (b)
Georgia Power Co.
4.88% 07/15/07 200,000 199,382 (g)
Goldman Sachs Group, Inc.
5.75% 10/01/16 350,000 355,325
Greater Bay Bancorp
5.25% 03/31/08 265,000 264,228 (g)
Greentown China Holdings Ltd.
9.00% 11/08/13 100,000 103,000 (b)
GS Caltex Corp.
5.50% 10/15/15 170,000 168,146 (b,g)
GTE Corp.
6.94% 04/15/28 240,000 249,802 (g)
Halliburton Co.
8.75% 02/15/21 150,000 187,896 (g)
Harrah's Operating Company Inc.
5.75% 10/01/17 75,000 62,835 (g)
Hexion US Finance Corp.
9.75% 11/15/14 260,000 263,575 (b)
Home Depot, Inc.
5.25% 12/16/13 165,000 163,773
5.40% 03/01/16 120,000 117,328
Host Hotels & Resorts LP (Series R)
6.88% 11/01/14 80,000 81,000 (b)
PRINCIPAL
AMOUNT VALUE
- --------------------------------------------------------------------------------
HSBC Capital Funding LP (Series 1)
9.55% 12/31/49 $ 65,000 $ 73,233 (b,g,h)
HSBC Finance Corp.
5.25% 01/15/14 150,000 148,718
HSBC Holdings PLC
6.50% 05/02/36 100,000 107,585
Hutchison Whampoa Finance CI Ltd.
(Series C)
7.50% 08/01/27 285,000 325,009 (b,g)
Hydro Quebec
8.05% 07/07/24 130,000 168,192
8.50% 12/01/29 75,000 104,483
IBM Canada Credit Services Co.
3.75% 11/30/07 95,000 93,407 (b,g)
Idearc Inc.
8.00% 11/15/16 260,000 263,900 (b)
IIRSA Norte Finance Ltd.
8.75% 05/30/24 140,000 164,150 (b,g)
Indiana Michigan Power Company
(Series H)
6.05% 03/15/37 60,000 58,943
Industrias Unidas S.A.
11.50% 11/15/16 140,000 147,000 (b)
ING Capital Funding TR III
8.44% 12/29/49 55,000 60,871 (g,h)
ING Groep N.V.
5.78% 12/29/49 275,000 273,866 (g,h)
International Business
Machines Corp.
3.80% 02/01/08 115,000 113,191 (g)
IPSCO, Inc.
8.75% 06/01/13 120,000 128,550
iStar Financial, Inc. (REIT)
4.88% 01/15/09 55,000 54,201 (g)
7.00% 03/15/08 40,000 40,671 (g)
JBS S.A.
10.50% 08/04/16 100,000 106,500 (b,g)
JP Morgan Chase & Co.
7.00% 11/15/09 195,000 203,931
JP Morgan Chase Bank
5.88% 06/13/16 205,000 211,144
Kansas Gas & Electric
5.65% 03/29/21 105,000 102,618 (g)
Kazkommerts International
7.50% 11/29/16 140,000 139,650 (b)
Kimco Realty Corp. (REIT)
4.82% 06/01/14 110,000 104,925 (g)
Kinder Morgan Energy Partners LP
5.13% 11/15/14 155,000 147,471 (g)
Kraft Foods, Inc.
5.25% 06/01/07 100,000 99,922 (g)
Landsbanki Islands
6.07% 08/25/09 170,000 171,259 (b,h)
6.10% 08/25/11 110,000 111,834 (b,g)
Lehman Brothers Holdings, Inc.
5.75% 07/18/11 70,000 71,392
See Notes to Schedule of Investments on page 15 and Notes to Financial
Statements.
9
INCOME FUND
Schedule of Investments December 31, 2006
- --------------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
- --------------------------------------------------------------------------------
Lloyds TSB Group PLC
6.27% 12/31/49 $ 100,000 $ 99,996 (b,h)
MacDermid, Inc.
9.13% 07/15/11 275,000 286,000 (g)
Majapahit Holding BV
7.25% 10/17/11 330,000 339,488 (b)
7.75% 10/17/16 300,000 317,625 (b)
Majestic Star Casino LLC
9.50% 10/15/10 300,000 315,000
Markel Corp.
7.35% 08/15/34 60,000 64,752
Mediacom LLC
9.50% 01/15/13 230,000 236,900 (g)
Merck & Company, Inc.
5.75% 11/15/36 70,000 69,248
Merrill Lynch & Company, Inc.
6.05% 05/16/16 185,000 191,892 (g)
Metropolitan Life Global Funding I
4.25% 07/30/09 185,000 180,570 (b)
MGM Mirage
5.88% 02/27/14 195,000 180,375 (g)
Midamerican Energy Holdings Co.
3.50% 05/15/08 200,000 194,978 (g)
6.13% 04/01/36 115,000 115,926
Mohegan Tribal Gaming Authority
8.00% 04/01/12 270,000 281,138 (g)
Morgan Stanley (Series F)
6.25% 08/09/26 130,000 135,939 (g)
Motorola, Inc.
4.61% 11/16/07 135,000 134,096 (g)
MUFG Capital Finance 1 Ltd.
6.35% 07/25/49 100,000 101,582 (h)
Munich Re America Corp.
(Series B)
7.45% 12/15/26 110,000 126,173
NAK Naftogaz Ukrainy
8.13% 09/30/09 200,000 195,236
Nakilat Inc.
6.07% 12/31/33 215,000 213,375 (b)
6.27% 12/31/33 130,000 128,801 (b)
National Power Corp.
9.63% 05/15/28 145,000 175,845 (g)
NB Capital Trust IV
8.25% 04/15/27 110,000 114,888 (g)
Nelnet, Inc.
5.13% 06/01/10 205,000 200,559 (g)
Nevada Power Co. (Series N)
6.65% 04/01/36 75,000 77,913
New Cingular Wireless Services Inc.
8.75% 03/01/31 220,000 285,106 (g)
News America, Inc.
7.25% 05/18/18 110,000 120,032 (g)
Nisource Finance Corp.
5.45% 09/15/20 165,000 153,607 (g)
7.88% 11/15/10 50,000 53,874
Noble Group, Ltd.
6.63% 03/17/15 130,000 118,087 (b)
PRINCIPAL
AMOUNT VALUE
- --------------------------------------------------------------------------------
Norfolk Southern Corp.
8.63% 05/15/10 $ 155,000 $ 169,699
Norfolk Southern Railway Co.
9.75% 06/15/20 170,000 229,047 (g)
Northeast Utilities (Series B)
3.30% 06/01/08 235,000 228,170 (g)
Northern States Power Co.
6.25% 06/01/36 65,000 69,490 (g)
NorthWestern Corp.
5.88% 11/01/14 85,000 83,516 (g)
Ohio Power Co. (Series E)
6.60% 02/15/33 65,000 69,129 (g)
ONEOK Partners LP
5.90% 04/01/12 110,000 111,212 (g)
Pacific Bell
7.13% 03/15/26 85,000 90,871 (g)
Pacific Gas & Electric Co.
6.05% 03/01/34 95,000 95,884 (g)
PanAmSat Corp.
9.00% 08/15/14 320,000 338,000 (g)
Pemex Finance Ltd.
9.03% 02/15/11 55,250 58,897
9.69% 08/15/09 148,500 160,448 (g)
Pemex Project Funding
Master Trust
6.13% 08/15/08 265,000 266,815 (g)
7.38% 12/15/14 30,000 32,966 (g)
Pepco Holdings, Inc.
5.99% 06/01/10 45,000 45,060 (g,h)
Peru Enhanced Pass-Through
Finance Ltd.
3.65% 05/31/18 250,000 165,625 (b,d)
Petrobras International
Finance Co.
6.13% 10/06/16 110,000 111,100 (g)
Pioneer Natural Resources Co.
6.88% 05/01/18 230,000 222,386 (g)
Popular North America, Inc.
4.25% 04/01/08 100,000 98,361 (g)
Potomac Edison Co.
5.35% 11/15/14 95,000 93,570 (g)
Procter & Gamble - ESOP (Series A)
9.36% 01/01/21 300,309 375,293 (g)
Prudential Financial, Inc.
5.70% 12/14/36 165,000 161,071
Prudential Holdings LLC (Series C)
8.70% 12/18/23 170,000 207,868 (b,g)
Puget Sound Energy, Inc.
3.36% 06/01/08 125,000 121,526 (g)
5.48% 06/01/35 110,000 100,478 (g)
6.27% 03/15/37 65,000 66,008 (g)
Rabobank Capital Funding Trust
5.25% 12/29/49 130,000 125,340 (b,h)
Ranhill Labuan Ltd.
12.50% 10/26/11 30,000 29,700 (b)
Reichhold Industries, Inc.
9.00% 08/15/14 260,000 254,800 (b)
See Notes to Schedule of Investments on page 15 and Notes to Financial
Statements.
10
INCOME FUND
Schedule of Investments December 31, 2006
- --------------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
- --------------------------------------------------------------------------------
Resona Bank Ltd.
5.85% 09/29/49 $ 215,000 $ 209,938 (b,h)
Roseton Danskammer (Series B)
7.67% 11/08/16 230,000 238,338
Rouse Company LP (REIT)
6.75% 05/01/13 165,000 165,702 (b)
Royal Bank of Scotland Group PLC
5.00% 10/01/14 115,000 112,079
RSHB Capital S.A.
7.18% 05/16/13 145,000 152,794 (b)
Simon Property Group, L.P. (REIT)
4.60% 06/15/10 115,000 112,162
4.88% 08/15/10 150,000 147,422
Skandinaviska Enskilda Banken AB
7.50% 03/29/49 250,000 262,385 (b,h)
SLM Corp.
4.00% 01/15/10 155,000 149,570
Smith International, Inc.
6.00% 06/15/16 110,000 111,899
Southern Copper Corp.
7.50% 07/27/35 280,000 303,600
Standard Chartered Bank
Hong Kong Ltd.
4.38% 12/03/14 210,000 204,036 (h)
Station Casinos Inc.
7.75% 08/15/16 90,000 90,675
Stewart Enterprises, Inc.
6.25% 02/15/13 350,000 336,875
Sunoco, Inc.
5.75% 01/15/17 160,000 156,527
Telecom Italia Capital S.A.
4.88% 10/01/10 275,000 267,306
5.98% 07/18/11 220,000 219,672 (h)
7.20% 07/18/36 110,000 114,424
Telefonos de Mexico S.A. de C.V.
4.50% 11/19/08 125,000 122,745
The Kroger Co.
6.80% 12/15/18 110,000 115,281 (g)
The Thomson Corp.
5.50% 08/15/35 115,000 105,567
TNK-BP Finance S.A.
7.50% 07/18/16 100,000 106,375 (b)
Tronox Worldwide LLC
9.50% 12/01/12 260,000 273,650
TXU Electric Delivery Co.
5.00% 09/01/07 115,000 114,536 (g)
Union Pacific Railroad Co.
5.87% 07/02/30 110,000 112,901
United Overseas Bank Ltd.
4.50% 07/02/13 220,000 209,184 (b)
Vale Overseas Ltd.
8.25% 01/17/34 145,000 171,759
Valero Energy Corp.
3.50% 04/01/09 180,000 172,857
Verizon Pennsylvania Inc.
8.75% 08/15/31 110,000 131,470 (g)
PRINCIPAL
AMOUNT VALUE
- --------------------------------------------------------------------------------
VTB Capital S.A.
5.97% 08/01/08 $ 115,000 $ 115,058 (b,h)
6.12% 09/21/07 105,000 105,000 (b,h)
Wachovia Corp.
5.25% 08/01/14 155,000 152,953
5.63% 10/15/16 150,000 151,120
Wal-Mart Stores, Inc.
5.25% 09/01/35 165,000 151,957
Westar Energy, Inc.
5.15% 01/01/17 90,000 85,493
7.13% 08/01/09 60,000 62,017
Westfield Capital Corporation Ltd.
4.38% 11/15/10 175,000 168,789 (b)
Weyerhaeuser Co.
6.13% 03/15/07 74,000 74,053
7.38% 03/15/32 55,000 57,354
Williams Partners LP
7.25% 02/01/17 155,000 158,100 (b)
Wisconsin Electric Power
3.50% 12/01/07 160,000 157,256
5.70% 12/01/36 40,000 39,685
Wyeth
4.38% 03/01/08 100,000 98,905
6.95% 03/15/11 110,000 116,828
38,461,583
NON-AGENCY COLLATERALIZED MORTGAGE OBLIGATIONS -- 8.9%
Banc of America Commercial
Mortgage Inc.
5.32% 10/10/11 148,000 148,263
Banc of America Funding Corp.
5.75% 03/20/36 69,818 69,444 (g,h)
5.87% 02/20/36 174,655 174,548 (g,h)
Banc of America Mortgage
Securities (Class B)
5.38% 01/25/36 74,748 73,157 (g,h)
Bank of America Alternative
Loan Trust
6.50% 07/25/35 79,660 80,652 (g)
Bear Stearns Commercial
Mortgage Securities
5.48% 10/12/41 245,000 246,997 (h)
5.53% 10/12/41 245,000 247,919 (h)
6.02% 02/14/31 300,000 303,272 (g)
CalSTRS Trust
4.13% 11/20/12 529,000 523,019 (b,g)
Countrywide Alternative Loan Trust
5.98% 05/25/36 24,811 22,456 (g,h)
6.00% 03/25/36 - 08/25/36 132,696 115,413 (g)
Countrywide Alternative Loan
Trust (Class B)
6.00% 05/25/36 - 08/25/36 64,736 57,417 (g)
Countrywide Home Loan Mortgage
Pass Through Trust (Class M)
5.50% 12/25/35 74,011 71,825 (g)
See Notes to Schedule of Investments on page 15 and Notes to Financial
Statements.
11
INCOME FUND
Schedule of Investments December 31, 2006
- --------------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
- --------------------------------------------------------------------------------
Credit Suisse Mortgage
Capital Certificates
5.47% 09/15/39 $ 217,000 $ 218,670 (g)
Credit Suisse Mortgage Capital
Certificates (Class C)
5.65% 02/25/36 39,617 38,601 (g,h)
Crusade Global Trust (Class A)
5.55% 09/18/34 126,444 126,725 (g,h)
CS First Boston Mortgage
Securities Corp.
1.50% 03/15/35 3,704,291 128,193 (b,g,h)
5.22% 07/15/37 2,517,041 66,334 (b,d,g,h)
5.25% 08/25/34 80,139 79,356
5.33% 10/25/35 74,312 71,096 (g,h)
6.13% 04/15/37 175,000 181,498 (g)
First Union-Lehman Brothers-Bank
of America
6.56% 11/18/35 127,860 129,094 (g)
GMAC Commercial Mortgage
Securities, Inc.
6.42% 05/15/35 325,014 328,728 (g)
6.47% 04/15/34 159,000 165,338 (g)
GMAC Commercial Mortgage
Securities, Inc. (Class X)
5.12% 12/10/41 4,167,046 93,632 (d,g,h)
Greenwich Capital Commercial
Funding Corp.
5.12% 04/10/37 301,000 299,930 (g)
Indymac INDA Mortgage Loan Trust
5.16% 01/25/36 99,886 96,765 (g,h)
Indymac INDA Mortgage Loan Trust
(Class B)
5.16% 01/25/36 99,886 98,938 (g,h)
Indymac Index Mortgage Loan Trust
5.38% 06/25/35 118,164 116,170 (g,h)
JP Morgan Chase Commercial
Mortgage Securities Corp.
1.12% 01/12/39 2,711,739 92,035 (b,g,h)
6.47% 11/15/35 190,000 199,105 (g)
JP Morgan Mortgage Trust
5.41% 11/25/35 246,684 243,427 (g,h)
LB-UBS Commercial Mortgage Trust
4.06% 09/15/27 495,000 482,089 (g,h)
4.51% 12/15/29 163,000 157,987 (g)
5.06% 01/18/12 3,432,304 91,404 (d,g,h)
5.26% 09/15/39 150,000 150,181 (g)
5.37% 09/15/39 600,000 601,007 (g)
6.23% 03/15/26 130,000 132,353 (g)
6.31% 10/15/35 820,954 34,200 (b,d,g,h)
7.34% 02/15/40 2,719,896 58,069 (b,d,g,h)
7.67% 03/15/36 3,222,322 91,158 (b,d,g,h)
LB-UBS Commercial Mortgage
Trust (Class A)
6.13% 12/15/30 172,000 178,213 (g)
6.65% 11/15/27 144,000 151,317 (g)
LB-UBS Commercial Mortgage
Trust (Class B)
6.65% 07/14/16 34,000 35,927 (b,g)
PRINCIPAL
AMOUNT VALUE
- --------------------------------------------------------------------------------
LB-UBS Commercial Mortgage
Trust (Class X)
5.28% 09/15/39 $ 6,830,000 $ 232,171 (d,g,h)
Master Alternative Loans Trust
5.00% 08/25/18 184,534 28,545 (f,g)
6.50% 08/25/34 - 05/25/35 523,267 530,403 (g)
Master Alternative Loans
Trust (Class 3)
6.50% 01/25/35 139,423 141,384 (g)
MLCC Mortgage Investors, Inc.
5.39% 02/25/36 59,995 59,076 (g,h)
Morgan Stanley Capital I
5.28% 12/15/43 102,000 102,098 (h)
5.33% 12/15/43 102,000 101,742 (h)
5.39% 11/12/41 280,000 279,516 (h)
5.71% 07/20/44 100,000 102,137 (g)
7.11% 04/15/33 513,000 532,967 (g)
Morgan Stanley Dean Witter
Capital I
7.20% 10/15/33 199,000 209,191 (g)
Morgan Stanley Dean Witter
Capital I (Class A)
6.39% 10/15/35 150,000 156,835 (g)
6.54% 02/15/31 25,047 25,619 (g)
Morgan Stanley Dean Witter
Capital I (Class X)
1.41% 02/01/31 311,907 12,927 (b,g,h)
Nomura Asset Securities Corp.
(Class A)
6.59% 03/15/30 495,748 501,780 (g)
Residential Funding Mortgage
Security I
5.75% 01/25/36 198,212 192,783 (g)
Wachovia Bank Commercial
Mortgage Trust (Class A)
5.77% 07/15/45 203,000 208,940
Wells Fargo Mortgage Backed
Securities Trust
5.00% 11/25/20 196,789 194,039
5.35% 10/25/36 332,530 330,633 (h)
5.39% 08/25/35 106,498 104,152 (h)
5.50% 01/25/36 149,997 143,305
11,262,165
SOVEREIGN BONDS -- 2.0%
Government of Argentina
7.00% 03/28/11 - 09/12/13 395,000 391,178
8.28% 12/31/33 144,624 157,279 (i)
9.38% 09/14/18 100,000 103,350 (b)
Government of Bahamas
6.63% 05/15/33 125,000 139,467 (b,g)
Government of Brazil
12.50% 01/05/22 535,000 286,795
Government of Colombia
7.38% 09/18/37 140,000 150,290 (g)
8.13% 05/21/24 125,000 144,375 (g)
Government of Philippine
7.75% 01/14/31 140,000 158,900
See Notes to Schedule of Investments on page 15 and Notes to Financial
Statements.
12
INCOME FUND
Schedule of Investments December 31, 2006
- --------------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
- --------------------------------------------------------------------------------
Government of Turkey
7.38% 02/05/25 $ 140,000 $ 143,500
Government of Ukraine
6.58% 11/21/16 230,000 230,000 (b)
Government of Uruguay
7.63% 03/21/36 130,000 143,000
8.00% 11/18/22 100,000 113,500
Government of Venezuela
7.65% 04/21/25 130,000 141,700
9.38% 01/13/34 160,000 211,200
2,514,534
TOTAL BONDS AND NOTES
(COST $126,168,505) 123,668,401
NUMBER
OF SHARES VALUE
- --------------------------------------------------------------------------------
PREFERRED STOCK -- 0.1%
- --------------------------------------------------------------------------------
KeyCorp Capital
(COST $100,000) 4,000 100,960 (a)
PRINCIPAL
AMOUNT VALUE
- --------------------------------------------------------------------------------
SECURITIES PURCHASED WITH COLLATERAL
FROM SECURITIES ON LOAN -- 17.2%
- --------------------------------------------------------------------------------
ASSET BACKED -- 12.0%
Bear Stearns Asset Backed
Securities Inc.
5.57% 11/25/35 $ 2,000,000 2,003,310 (g,h)
Countrywide Asset-Backed
Certificates
5.43% 06/25/35 922,767 922,810 (g,h)
Fleet Home Equity Loan
Trust (Class A)
5.60% 01/20/33 358,631 359,065 (g,h)
Ford Credit Floorplan
Master Owner
Trust (Class A)
5.39% 07/15/09 2,500,000 2,499,393 (g,h)
RAAC Series (Class A)
5.49% 08/25/36 4,353,000 4,354,118 (g,h)
Residential Asset Mortgage
Products, Inc.
5.55% 04/25/35 5,000,000 5,007,760 (g,h)
5.68% 12/25/33 30,194 30,224 (g,h)
Residential Asset Mortgage
Products, Inc. (Class A)
5.63% 06/25/32 37,035 37,391 (g,h)
15,214,071
PRINCIPAL
AMOUNT VALUE
- --------------------------------------------------------------------------------
NON-AGENCY COLLATERALIZED MORTGAGE OBLIGATIONS -- 5.2%
Bear Stearns Commercial Mortgage
Securities (Class C)
5.73% 08/03/14 $ 1,000,000 $ 1,000,000 (b,g,h)
Granite Mortgages PLC (Class 1)
5.68% 01/20/43 643,496 644,093 (g,h)
JP Morgan Alternative Loan Trust
5.38% 08/25/36 2,229,454 2,229,771 (g,h)
Puma Finance Ltd. (Class A)
5.56% 10/11/34 200,400 200,615 (g,h)
Residential Accredit Loans, Inc.
5.53% 07/25/36 2,579,651 2,580,175 (h)
6,654,654
TOTAL SECURITIES PURCHASED WITH COLLATERAL
FROM SECURITIES ON LOAN
(COST $21,854,772) 21,868,725
TOTAL INVESTMENT IN SECURITIES
(COST $148,123,277) 145,638,086
NUMBER
OF SHARES VALUE
- --------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS -- 18.6%
- --------------------------------------------------------------------------------
AFFILIATED SHORT-TERM INVESTMENTS -- 12.6%
GEI Short Term Investment Fund
5.56% 15,921,135 15,921,135 (d,k)
AFFILIATED SHORT-TERM SECURITIES PURCHASED WITH
COLLATERAL FROM SECURITIES ON LOAN -- 6.0%
GEI Short Term Investment Fund
5.56% 7,603,118 7,603,118 (d,k)
TOTAL SHORT-TERM INVESTMENTS
(COST $23,524,253) 23,524,253
TOTAL INVESTMENTS
(COST $171,647,530) 169,162,339
LIABILITIES IN EXCESS OF OTHER ASSETS,
NET -- (33.5)% (42,429,898)
------------
NET ASSETS -- 100.0% $126,732,441
============
See Notes to Schedule of Investments on page 15 and Notes to Financial
Statements.
13
INCOME FUND
Schedule of Investments December 31, 2006
- --------------------------------------------------------------------------------
OTHER INFORMATION
- --------------------------------------------------------------------------------
The GEI Income Fund had the following long futures contracts open at December
31, 2006:
NUMBER CURRENT UNREALIZED
EXPIRATION OF NOTIONAL APPRECIATION/
DESCRIPTION DATE CONTRACTS VALUE DEPRECIATION
- ---------------------------------------------------------------------------
Long Gilt
Futures March 2007 4 $ 846,507 $ (5,892)
U.S. Treasury
Notes 2 Yr.
Futures March 2007 15 3,060,469 (12,229)
U.S. Treasury
Notes 10 Yr.
Futures March 2007 56 6,018,250 (49,623)
-------------
The GEI Income Fund had the following short futures contracts open at December
31, 2006:
NUMBER CURRENT UNREALIZED
EXPIRATION OF NOTIONAL APPRECIATION/
DESCRIPTION DATE CONTRACTS VALUE DEPRECIATION
- ---------------------------------------------------------------------------
Euro Bund
Future March 2007 5 $ (765,015) $ 12,331
-------------
$ (55,413)
=============
The GEI Income Fund had the following forward foreign currency contracts open at
December 31, 2006:
SETTLEMENT UNREALIZED
CURRENCY BOUGHT CURRENCY SOLD DATE DEPRECIATION
- ---------------------------------------------------------------------------
356,400 EUR 467,984 USD January 16, 2007 $ 2,401
352,835 USD 267,300 EUR January 16, 2007 46
50,431,449 JPY 427,680 USD January 16, 2007 (3,415)
-------------
$ (968)
=============
See Notes to Schedule of Investments on page 15 and Notes to Financial
Statements.
14
Notes to Schedule of Investments December 31, 2006
- --------------------------------------------------------------------------------
The views expressed in this document reflect our judgment as of the publication
date and are subject to change at any time without notice. The securities cited
may not represent current or future holdings and should not be considered as a
recommendation to purchase or sell a particular security. See the prospectus for
complete descriptions of investment objectives, policies, risks and permissible
investments.
(a) Non Income Producing Security.
(b) Pursuant to Rule 144A of the Securities Act of 1933, these securities may
be resold in transactions exempt from registration, normally to qualified
institutional buyers. At December 31, 2006, these securities amounted to
$12,318,475 or 9.72% 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.
(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) Principal only securities represent the right to receive the monthly
principal payments on an underlying pool of mortgages. No payments of
interest on the pool are passed through to the "principal only" holder.
(f) Interest only securities represent the right to receive the monthly
interest payments on an underlying pool of mortgages. Payments of
principal on the pool reduce the value of the "interest only" holding.
(g) At December 31, 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.
(h) Variable or floating rate security. The stated rate represents the rate at
December 31, 2006.
(i) All or a portion of the security is out on loan.
(j) Step coupon bond. Security becomes interest bearing at a future date.
(k) GE Asset Management Incorporated, the investment adviser of the Fund, also
serves as investment adviser of the GEI Short Term Investment Fund.
(l) Treasury Inflation Protected Securities.
+ Percentages are based on net assets as of December 31, 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
15
Financial Highlights
Selected data based on a share outstanding throughout the periods indicated
- --------------------------------------------------------------------------------
INCOME FUND
12/31/06 12/31/05 12/31/04 12/31/03 12/31/02
- ---------------------------------------------------------------------------------------------------------------
INCEPTION DATE -- -- -- -- 1/3/95
Net asset value, beginning of period $ 11.84 $ 12.25 $ 12.61 $ 12.93 $ 12.26
INCOME/(LOSS) FROM INVESTMENT OPERATIONS:
Net investment income 0.56 0.61 0.55 0.51 0.37
Net realized and unrealized
gains/(losses) on investments (0.04) (0.36) (0.12) (0.04) 0.84
- ---------------------------------------------------------------------------------------------------------------
TOTAL INCOME FROM INVESTMENT OPERATIONS 0.52 0.25 0.43 0.47 1.21
- ---------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM:
Net investment income 0.56 0.61 0.57 0.56 0.38
Net realized gains -- 0.05 0.22 0.23 0.16
Return of capital -- 0.00(b) -- -- --
- ---------------------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS 0.56 0.66 0.79 0.79 0.54
- ---------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 11.80 $ 11.84 $ 12.25 $ 12.61 $ 12.93
===============================================================================================================
TOTAL RETURN (a) 4.37% 2.04% 3.42% 3.60% 9.89%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in thousands) $ 126,732 $ 116,558 $ 135,172 $ 189,318 $ 220,800
Ratios to average net assets:
Net investment income 5.07% 4.49% 3.82% 3.24% 3.79%
Expenses 0.61% 0.60% 0.59% 0.55% 0.53%
Portfolio turnover rate 270% 311% 343% 419% 385%
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.
See Notes to Financial Statements.
16
Statement of Assets INCOME
and Liabilities DECEMBER 31, 2006 FUND
- -----------------------------------------------------------------------------------------------------
ASSETS
Investments in securities, at market* (cost $148,123,277) $ 145,638,086
Short-term affiliated investments (at amortized cost) 23,524,253
Foreign cash (cost $277,322) 276,527
Receivable for investments sold 5,319,079
Income receivables 1,211,529
Receivable for fund shares sold 15,623
Variation margin receivable 4,263
- -----------------------------------------------------------------------------------------------------
TOTAL ASSETS 175,989,360
- -----------------------------------------------------------------------------------------------------
LIABILITIES
Payable upon return of securities loaned 29,471,843
Payable for investments purchased 19,625,241
Payable for fund shares redeemed 101,959
Payable to GEAM 48,736
Variation margin payable 8,172
Unrealized loss on forward foreign currency contracts 968
- -----------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 49,256,919
- -----------------------------------------------------------------------------------------------------
NET ASSETS $ 126,732,441
=====================================================================================================
NET ASSETS CONSIST OF:
Capital paid in 131,795,676
Undistributed (distribution in excess of) net investment income 74,783
Accumulated net realized gain (loss) (2,595,538)
Net unrealized appreciation/(depreciation) on:
Investments (2,485,191)
Futures (55,413)
Written options --
Foreign currency related transactions (1,876)
- -----------------------------------------------------------------------------------------------------
NET ASSETS $ 126,732,441
=====================================================================================================
Shares outstanding ($0.01 par value; unlimited shares authorized) 10,742,625
Net asset value per share $ 11.80
* Includes $28,864,644 of securities on loan.
See Notes to Financial Statements.
17
Statement of Operations INCOME
FOR THE YEAR ENDED DECEMBER 31, 2006 FUND
- -----------------------------------------------------------------------------------------------------
INVESTMENT INCOME
INCOME:
Dividend $ 3,907
Interest* 5,339,109
Interest from affliated investments 1,122,370
- -----------------------------------------------------------------------------------------------------
TOTAL INCOME 6,465,386
- -----------------------------------------------------------------------------------------------------
EXPENSES:
Advisory and administrative fees 572,967
Transfer agent fees 60
Trustee's fees 4,332
Custody and accounting expenses 79,095
Professional fees 20,938
Registration expenses 2,418
Other expenses 13,984
- -----------------------------------------------------------------------------------------------------
TOTAL EXPENSES 693,794
- -----------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME (LOSS) 5,771,592
=====================================================================================================
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS
REALIZED GAIN (LOSS) ON:
Investments (1,218,698)
Futures 23,677
Written options (9,700)
Foreign currency transactions 7,341
INCREASE (DECREASE) IN UNREALIZED APPRECIATION/
(DEPRECIATION) ON:
Investments 381,395
Futures (53,131)
Foreign currency transactions (1,876)
- -----------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments (870,992)
- -----------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $ 4,900,600
=====================================================================================================
* Income attributable to security lending, net of rebate expenses, was
$15,950.
See Notes to Financial Statements.
18
Statements of INCOME
Changes in Net Assets FUND
- ------------------------------------------------------------------------------------------------------------------------
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
2006 2005
- ------------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net investments income (loss) $ 5,771,592 $ 5,667,191
Net realized gain (loss) on investments, futures, written options,
foreign currency transactions and swaps (1,197,380) (1,131,629)
Net increase (decrease) in unrealized appreciation/(depreciation)
on investments, futures, written options, foreign currency translation 326,388 (1,964,504)
- ------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) from operations 4,900,600 2,571,058
- ------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (5,692,439) (5,660,155)
Net realized gains -- (471,683)
Return of Capital -- (28,414)
- ------------------------------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS (5,692,439) (6,160,252)
- ------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets from operations and distributions (791,839) (3,589,194)
- ------------------------------------------------------------------------------------------------------------------------
SHARE TRANSACTIONS:
Proceeds from sale of shares 20,048,467 4,387,459
Value of distributions reinvested 5,692,439 6,160,341
Cost of shares redeemed (14,774,800) (25,572,505)
- ------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) from share transactions 10,966,106 (15,024,705)
- ------------------------------------------------------------------------------------------------------------------------
TOTAL INCREASE (DECREASE) IN NET ASSETS 10,174,267 (18,613,899)
NET ASSETS
Beginning of period 116,558,174 135,172,073
- ------------------------------------------------------------------------------------------------------------------------
End of period $ 126,732,441 $ 116,558,174
========================================================================================================================
UNDISTRIBUTED (DISTRIBUTION IN EXCESS OF) NET INVESTMENT INCOME, END OF PERIOD $ 74,783 $ (11,711)
- ------------------------------------------------------------------------------------------------------------------------
CHANGES IN FUND SHARES
Shares sold 1,659,946 354,588
Issued for distributions reinvested 482,819 520,299
Shares redeemed (1,241,749) (2,069,626)
- ------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in fund shares 901,016 (1,194,739)
========================================================================================================================
See Notes to Financial Statements.
19
Notes to Financial Statements December 31, 2006
- --------------------------------------------------------------------------------
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.
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.
In September 2006, FASB issued Statement of Financial Accounting Standards No.
157, FAIR VALUE MEASUREMENTS ("FAS 157"). FAS 157 establishes a single
authoritative definition of fair value, establishes a framework for measuring
fair value and expands disclosures about fair value measurements. FAS 157
applies to fair value measurements already required or permitted by existing
standards. The change to current generally accepted accounting principles from
the application of FAS 157 relate to the definition of fair value, the methods
used to measure fair value, and the expanded disclosures about fair value
measurements. Management of the Fund does not believe the adoption of FAS 157
will materially impact the financial statement amounts, however, additional
disclosures may be required about the inputs used to
20
Notes to Financial Statements December 31, 2006
- --------------------------------------------------------------------------------
develop the measurements and the effect of certain of the measurements on
changes in net assets for the period. FAS 157 is effective for financial
statements issued for fiscal years beginning after November 15, 2007 and interim
periods within those fiscal years.
REPURCHASE AGREEMENTS The Fund may engage in repurchase agreement transactions
with respect to instuments that are consistent with the Fund's investment
objectives or policies. 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.
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
21
Notes to Financial Statements December 31, 2006
- --------------------------------------------------------------------------------
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 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
22
Notes to Financial Statements December 31, 2006
- --------------------------------------------------------------------------------
segregate cash or liquid securities with its custodian in an amount equal to the
value of the Fund's total assets committed to the consummation of the forward
contract. If the value of the segregated securities declines, additional cash or
securities is segregated so that the value of the account will equal the amount
of the Fund's commitment with respect to the contract.
INVESTMENTS IN FOREIGN MARKETS Investments in foreign markets may involve
special risks and considerations not typically associated with investing in the
United States. These risks include revaluation of currencies, high rates of
inflation, repatriation on income and capital, and adverse political and
economic developments. Moreover, securities issued in these markets may be less
liquid, subject to government ownership controls, tariffs and taxes, subject to
delays in settlements, and their prices may be more volatile.
The Fund may be subject to capital gains and repatriation taxes imposed by
certain countries in which it invests. Such taxes are generally based on income
and/or capital gains earned or repatriated. Taxes are accrued based upon net
investment income, net realized gains and net unrealized appreciation as income
and/or capital gains are earned.
INCOME TAXES The Fund intends to comply with all sections of the Internal
Revenue Code applicable to regulated investment companies including the
distribution of substantially all of its taxable net investment income and net
realized capital gains to its shareholders. Therefore, no provision for federal
income tax has been made. The Fund is treated as a separate taxpayer for federal
income tax purposes.
At December 31, 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
- --------------------------------------------------------------------------------
$ 171,730,811 $ 654,766 $ (3,223,238) $ (2,568,472)
Net Tax Appreciation/ Undistributed Undistributed Post
(Depreciation) on Income/ Long-Term Gains/ October
Derivatives, Currency (Accumulated (Accumulated Losses
and Other Net Assets Ordinary Loss) Capital Loss) (see Detail Below)
- --------------------------------------------------------------------------------
$ 6,438 $ 72,908 $ (2,378,076) $ (196,033)
As of December 31, 2006, 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
1,322,182 12/31/14
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, 2006 as follows:
Capital Currency
- --------------------------------------------------------------------------------
$ 196,033 $ --
The tax composition of distributions paid during the year ended December 31,
2006 was as follows:
Long-Term
Ordinary Capital
Income Gains Total
- --------------------------------------------------------------------------------
$ 5,692,439 $ -- $ 5,692,439
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
23
Notes to Financial Statements December 31, 2006
- --------------------------------------------------------------------------------
character of income and gains to be distributed is determined in accordance with
income tax regulations which may differ from generally accepted accounting
principles. These differences include (but are not limited to) futures,
treatment of realized gains and losses on foreign currency contracts and losses
deferred due to wash sale transactions. Reclassifications due to permanent
book/tax differences are made to the Fund's capital accounts to reflect income
and gains available for distribution (or available capital loss carryovers)
under income tax regulations. These reclassifications have no impact on net
investment income, realized gains or losses, or the net asset value of the Fund.
The calculation of net investment income per share in the Financial Highlights
table excludes these adjustments.
The reclassifications for the year ended December 31, 2006 were as follows:
Undistributed
(Distribution
in Excess of)
Net Investment Accumulated Paid in
Income Net Realized Gain Capital
- --------------------------------------------------------------------------------
$ 7,341 $ (7,341) $ --
On July 13, 2006, the FASB released FIN48, "Accounting for Uncertainty in Income
Taxes." FIN48 provides guidance for how uncertain tax positions should be
recognized, measured, presented and disclosed in the financial statements. FIN48
requires evaluation of tax positions taken or expected to be taken in the course
of preparing the Fund's tax returns to determine whether the tax positions are
"more likely than not" of being sustained by the applicable tax authority. The
adoption of FIN48 will require financial statements to be adjusted to reflect
only those tax positions that are more likely that not to be sustained as of the
adoption date. Adoption of FIN48 is required for fiscal years beginning after
December 15, 2006 no later than June 29, 2007 and is applied to all open years
as of the effective date. At this time, management is evaluating the
implications of FIN48 and its impact on the financial statements has not yet
been determined.
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 and amortized,
respectively, to call or maturity date, whichever is shorter, using the
effective yield method.
EXPENSES Expenses of the Company which are directly identifiable to one of the
Funds are allocated to that portfolio. Expenses which are not directly
identifiable to one of the Funds are allocated in such a manner as deemed
equitable, taking into consideration the nature and type of expenses and
relative sizes of the Funds. All expenses of the Fund are paid by GEAM and
reimbursed by the Fund.
3. LINE OF CREDIT
The Fund shares a revolving credit facility of up to $25 million with a number
of its affiliates. The credit facility is with its custodian bank, State Street
Bank and Trust Company. The revolving credit facility requires the payment of a
commitment fee equal to 0.09% per annum on the daily unused portion of the
credit facility, payable quarterly. The portion borne by the Funds generally is
borne proportionally based upon net assets. Generally, borrowings under the
credit facility would accrue interest at the Federal Funds Rate plus 50 basis
points and is borne by each of the borrowing Funds. The maximum amount allowed
to be borrowed by any one of the Funds is the lesser of its prospectus
limitation, 20% of its net assets, or $25 million. The credit facility was not
utilized by the Fund during the period ended December 31, 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 December 31, 2006, $1,918 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
24
Notes to Financial Statements December 31, 2006
- --------------------------------------------------------------------------------
such officers or employees also serve in a similar capacity for other funds
advised by GEAM. Compensation paid to unaffiliated directors are reflected on
the Statement of Operations. These fees are allocated pro rata across all of the
mutual fund platforms and share classes served by the directors, including the
Fund, and are based upon the relative net assets of each fund within such
platforms. (For additional information about directors compensation please refer
to the Statement of Additional Information.)
5. INVESTMENT TRANSACTIONS
PURCHASES AND SALES OF SECURITIES The cost of purchases and the proceeds from
sales of investments, other than short-term securities and options, for the
period ended December 31, 2006 were as follows:
Purchases Sales
- --------------------------------------------------------------------------------
$ 360,105,500 $ 322,536,992
OPTIONS During the period ended December 31, 2006, the following option
contracts were written:
Number of
of Contracts Premium
- --------------------------------------------------------------------------------
Balance as of
December 31, 2005 -- $ --
Written 415 11,353
Closed and Expired (415) (11,353)
- --------------------------------------------------------------------------------
Balance as of
June 30, 2006 -- $ --
- --------------------------------------------------------------------------------
SECURITY LENDING At December 31, 2006, the Fund participated in securities
lending:
Loaned
securities at Cash
market value collateral
- --------------------------------------------------------------------------------
$ 28,864,644 $ 29,471,843
25
Report of Independent Registered Public Accounting Firm
- --------------------------------------------------------------------------------
The Shareholders and Board of Directors
GE Investments Funds, Inc.
We have audited the accompanying statement of assets and liabilities of the
Income Fund, a series of GE Investments Funds, Inc., including the schedule of
investments, as of December 31, 2006, and the related statement of operations
for the year then ended, the statements of changes in net assets for each of the
years in the two-year period then ended, and the financial highlights for each
of the years in the five-year period then ended. These financial statements and
financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included confirmation of
securities owned as of December 31, 2006 by correspondence with the custodian
and brokers, or by other appropriate auditing procedures where replies from
brokers were not received. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
Income Fund as of December 31, 2006, the results of its operations, changes in
its net assets and financial highlights for the years described above, in
conformity with U.S. generally accepted accounting principles.
/s/ KPMG LLP
Boston, Massachusetts
February 20, 2007
26
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 6
and December 14, 2006.
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 detail during a
private session with their independent legal counsel at which no representatives
of GEAM were present. The independent Board members and their independent legal
counsel requested, and received and considered, additional information from GEAM
following this session.
In advance of the meetings, 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 recent years, 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 recent years. 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 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 has expended 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.
27
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 overall taking
into consideration the factors discussed above.
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. 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 about the fees
being charged to the Fund and, to the extent applicable, the effect, if any, of
the Securities and Exchange Commission staff's interpretive guidance
28
Advisory and Administrative Agreement Renewal (unaudited)
- --------------------------------------------------------------------------------
concerning soft dollars. 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 that
GEAM may derive from its relationship with the Fund, 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.
29
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;
Trustee of Elfun Foundation; Treasurer of GE Foundation; Director, GE Asset
Management (Ireland) since February 1999.
- --------------------------------------------------------------------------------
ALAN M. LEWIS
- --------------------------------------------------------------------------------
ADDRESS c/o GEAM 3001 Summer St. Stamford, CT 06905
AGE 60
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.
30
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 41
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
31
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 General Partner, NGN Capital LLC
since 2006; 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.
- --------------------------------------------------------------------------------
WILLIAM J. LUCAS
- --------------------------------------------------------------------------------
ADDRESS c/o GEAM 3001 Summer St. Stamford, CT 06905
AGE 59
POSITION(S) HELD WITH FUND Director
TERM OF OFFICE AND LENGTH OF TIME SERVED Until successor is elected and
qualified - 9 years
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS 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 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.
32
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)
David B. Carlson, EVP, DOMESTIC EQUITIES
Michael J. Cosgrove, EVP, CHIEF COMMERCIAL OFFICER
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
Judith A.Studer, EVP, INVESTMENT STRATEGIES (AS OF JULY 2006)
Don W. Torey, EVP, ALTERNATIVE INVESTMENTS AND REAL ESTATE
John J. Walker, EVP, CHIEF FINANCIAL OFFICER
33
[This page intentionally left blank.]
[This page intentionally left blank.]
[This page intentionally left blank.]
[This page intentionally left blank.]
INVESTMENT ADVISER
GE ASSET MANAGEMENT INCORPORATED
3001 SUMMER STREET
PO BOX 7900
STAMFORD, CT 06904-7900
DISTRIBUTOR
GE INVESTMENT DISTRIBUTORS, INC.
MEMBER NASD AND SIPC
3001 SUMMER STREET
PO BOX 7900
STAMFORD, CT 06904-7900
- --------------------------------------------------------------------------------
The Fund files its complete schedule of portfolio holdings with the Securities
and Exchange Commission for the first and third quarters of each fiscal year on
Form N-Q. The Fund's Forms N-Q, as well as a description of the policies and
procedures that the Fund uses to determine how to vote proxies (if any) relating
to portfolio securities is available without charge (i) upon request, by calling
1-800-242-0134; (ii) on the Fund's website at http://www.gefunds.com; and (iii)
on the Commission's website at http://www.sec.gov. The Fund's Forms N-Q may be
reviewed and copied at the Commission's Public Reference Room in Washington, DC
- - information on the operation of the Public Reference Room may be obtained by
calling 1-800-SEC-0330.
Information (if any) regarding how the Fund voted proxies relating to portfolio
securities during the most recently disclosed 12-months period ended June 30 is
available without charge (i) through the Fund's website at
http://www.gefunds.com; and (ii) on the Commission's website at
http://www.sec.gov.
- --------------------------------------------------------------------------------
[GE LOGO OMITTED]
<page>
GE Investments Funds, Inc.
Money Market Fund
Annual Report
DECEMBER 31, 2006
[GE LOGO OMITTED]
GE Investments Funds, Inc.
Money Market 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
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM 16
ADVISORY AND ADMINISTRATIVE AGREEMENT RENEWAL 17
ADDITIONAL INFORMATION 20
INVESTMENT TEAM 23
This report is prepared for Policyholders of certain variable contracts and may
be distributed to others only if preceded or accompanied by the variable
contract's current prospectus and the current prospectus of the Funds available
for investments thereunder.
Notes to Performance December 31, 2006
- --------------------------------------------------------------------------------
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 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
Money Market Fund
- --------------------------------------------------------------------------------
Q&A
DONALD J. DUNCAN IS A VICE PRESIDENT OF GE ASSET MANAGEMENT AND PORTFOLIO
MANAGER OF THE MONEY MARKET FUND. MR. DUNCAN JOINED GE ASSET MANAGEMENT IN 1988
IN TRADE SUPPORT AND HELD SEVERAL POSITIONS INCLUDING MUTUAL FUND CONTROLLER. HE
WAS APPOINTED INVESTMENT MANAGER -SHORT TERM SECURITIES IN 1990 AND VICE
PRESIDENT - MONEY MARKETS IN 2002.
Q. HOW DID THE MONEY MARKET FUND PERFORM COMPARED TO ITS BENCHMARK AND LIPPER
PEER GROUP FOR THE TWELVE-MONTH PERIOD ENDED DECEMBER 31, 2006?
A. For the twelve-month period ended December 31, 2006, the Money Market Fund
returned 4.65%. The 90-day Treasury Bill, the Fund's benchmark, returned
4.83% and the Fund's Lipper peer group of 108 Money Market funds returned
an average of 4.55% for the same period.
Q. DESCRIBE WHAT HAPPENED IN THE U.S. ECONOMY DURING THE 12-MONTH PERIOD
ENDING DECEMBER 31, 2006.
A. The Federal Reserve, under Dr. Ben Bernanke's leadership, continued to
raise the Fed funds rate in the first half of 2006, stopping in June at
5.25%. Although the Fed kept the rate steady in the second half, language
from the Federal Open Market Committee and various Fed members emphasized
nascent inflation risks, despite economic growth slowed by weakness in the
housing and auto markets. While the Fed appears to be biased towards
further rate hikes in 2007, the U.S. Treasury market is priced for a
reduction in rates. Interest rates did backup in 2006 with yields on the
2-year and 10-year notes ending at 4.8% and 4.7%, respectively, up 41 and
31 basis points. The 10-year note traded to a higher yield through June as
the Fed raised short rates amid strong economic growth above 4%. Yields
moved lower by December after the Fed paused and GDP growth slipped to
roughly 2%.
Q. WHAT WERE THE PRIMARY DRIVERS OF FUND PERFORMANCE?
A. The primary driver of Fund performance relative to the benchmark resulted
from positioning along the short end of the yield curve. During the first
half of the year, the Fund's average maturity was held shorter than the
90-day benchmark, taking advantage of rising short-term rates as the
Federal Reserve moved toward a higher Fed funds rate.
[PHOTO OMITTED]
PICTURED BOTTOM RIGHT:
DONALD J. DUNCAN
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 December
31, 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 $1,000 = 8.6), then multiply the result by the number
given for your class under the heading "Expenses Paid During Period."
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The second section of the table provides information about hypothetical account
values and hypothetical expenses based on the Fund's actual expense ratio and an
assumed rate of return of 5% per year before expenses, which is not the Fund's
actual return. You may use this information to compare the ongoing costs of
investing in the Fund and other funds. To do so, compare this 5% hypothetical
example with the 5% hypothetical examples that appear in the shareholders
reports of other funds.
Please note that the expenses shown in the table do not reflect any transaction
costs, such as sales charges or redemption fees.
JULY 1, 2006 - DECEMBER 31, 2006
- ---------------------------------------------------------------------------------------------------------
ACCOUNT VALUE AT ACCOUNT VALUE EXPENSES
THE BEGINNING OF AT THE END OF PAID DURING
THE PERIOD ($) THE PERIOD ($) THE PERIOD ($)*
- ---------------------------------------------------------------------------------------------------------
Actual Fund Return** 1,000.00 1,024.53 2.47
- ---------------------------------------------------------------------------------------------------------
Hypothetical 5% Return (2.5% for the period) 1,000.00 1,022.52 2.47
- ---------------------------------------------------------------------------------------------------------
* EXPENSES ARE EQUAL TO THE FUND'S ANNUALIZED EXPENSE RATIO OF 0.48% (FROM
PERIOD JULY 1, 2006 - DECEMBER 31, 2006), MULTIPLIED BY THE AVERAGE
ACCOUNT VALUE OVER THE PERIOD, MULTIPLIED BY 184/365 (TO REFLECT THE SIX
MONTH PERIOD).
** ACTUAL FUND RETURN FOR SIX-MONTH PERIOD ENDED DECEMBER 31, 2006 WAS:
2.45%.
3
Money Market Fund
- --------------------------------------------------------------------------------
CHANGE IN VALUE
OF A $10,000 INVESTMENT
- --------------------------------------------------------------------------------
[LINE CHART OMITTED, PLOT POINTS ARE AS FOLLOWS:]
Money Market Fund 90-Day T-Bill
(ending value $14,294) (ending value $14,285)
12/96 10,000 10,000
12/97 10,541 10,520
12/98 11,095 11,035
12/99 11,650 11,562
12/00 12,377 12,257
12/01 12,870 12,681
12/02 13,061 12,888
12/03 13,163 13,020
12/04 13,288 13,202
12/05 13,659 13,627
12/06 14,294 14,285
INVESTMENT PROFILE
A fund designed for investors who seek a high level of current income consistent
with the preservation of capital and maintenance of liquidity by investing
primarily in short-term U.S. dollar-denominated money market instruments.
AVERAGE ANNUAL TOTAL RETURN
FOR THE PERIODS ENDED DECEMBER 31, 2006
- --------------------------------------------------------------------------------
ONE FIVE TEN
YEAR YEAR YEAR
- --------------------------------------------------------------------------------
Money Market Fund 4.65% 2.12% 3.64%
- --------------------------------------------------------------------------------
90 Day T-Bill 4.83% 2.41% 3.63%
- --------------------------------------------------------------------------------
Lipper peer group average* 4.55% 1.99% 3.50%
- --------------------------------------------------------------------------------
Inception date 7/1/85
- --------------------------------------------------------------------------------
FUND YIELD AT DECEMBER 31, 2006
- --------------------------------------------------------------------------------
FUND IBC'S MONEY FUND**
- --------------------------------------------------------------------------------
7-DAY CURRENT 4.91%+ 4.74%
- --------------------------------------------------------------------------------
7-DAY EFFECTIVE 5.03% 4.85%
- --------------------------------------------------------------------------------
CURRENT YIELD REPRESENTS INCOME EARNED ON AN INVESTMENT IN THE MONEY MARKET FUND
FOR A SEVEN DAY PERIOD AND THEN ANNUALIZED.
EFFECTIVE YIELD IS CALCULATED SIMILARLY BUT COULD BE SLIGHTLY HIGHER BECAUSE IT
REFLECTS THE COMPOUNDING EFFECT OF EARNINGS ON REINVESTED DIVIDENDS.
+ THE SEVEN DAY CURRENT YIELD, RATHER THAN THE TOTAL RETURN, MORE CLOSELY
REFLECTS THE CURRENT EARNINGS OF THE MONEY MARKET FUND AT DECEMBER 31,
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 ONE YEAR, FIVE-YEAR, AND TEN-YEAR PERIODS INDICATED IN THE MONEY
MARKET FUNDS PEER GROUP CONSISTING OF 108, 95 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 December 31, 2006
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
MONEY MARKET FUND
- --------------------------------------------------------------------------------
Portfolio Composition based on a Market Value of $278,308 (in thousands) as of
December 31, 2006
[PIE CHART OMITTED, PLOT POINTS ARE AS FOLLOWS:]
Commercial Paper 30.9%
Repurchase Agreements 23.8%
Certificates of Deposit 20.8%
Corporate Notes 17.0%
U.S. Governments 7.4%
Time Deposit 0.1%
PRINCIPAL AMORTIZED
AMOUNT COST
- --------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS -- 99.5%
- --------------------------------------------------------------------------------
U.S. GOVERNMENTS -- 7.4%
U.S. AGENCIES
Federal Home Loan
Bank Discount Notes
5.12% 01/18/07 $ 10,510,000 $ 10,485,532 (a)
Federal Home Loan Bank System
5.41% 12/28/07 10,170,000 10,170,000
20,655,532
COMMERCIAL PAPER -- 30.8%
Abbey National PLC
5.24% 03/19/07 11,000,000 10,876,832
Bank of America Corp.
5.25% 01/31/07 11,630,000 11,579,119
Barclays PLC
5.25% 02/12/07 11,460,000 11,389,808
Bear Stearns Companies
5.24% 02/28/07 5,370,000 5,324,665
5.25% 02/28/07 5,720,000 5,671,618
Citigroup Funding Inc.
5.25% 02/22/07 11,230,000 11,144,839
PRINCIPAL AMORTIZED
AMOUNT COST
- --------------------------------------------------------------------------------
HBOS PLC
5.22% 03/09/07 $ 11,140,000 $ 11,031,775
ING Group
5.24% 01/16/07 8,100,000 8,082,332
JP Morgan Chase Bank
5.23% 03/13/07 11,120,000 11,005,300
86,106,288
REPURCHASE AGREEMENTS -- 23.7%
Barclays Bank
5.30% date 12/29/06, to be
repurchased at $5,504,049
on 01/02/07 collateralized
by $5,610,851 U.S. Government
Agency Bond, Zero Coupon,
maturing 01/02/07 5,500,000 5,500,000
Credit Suisse
5.32% date 12/29/06, to be
repurchased at $12,414,064
on 01/02/07 collateralized by
$12,661,269 U.S. Government
Agency Bond, Zero Coupon,
maturing 01/02/07 12,410,000 12,410,000
UBS Securities LLC
5.31% date 12/29/06, to be
repurchased at $48,365,643
on 01/02/07 collateralized by
$49,297,850 U.S. Government
Agency Bond, Zero Coupon,
maturing 01/02/07 48,330,000 48,330,000
66,240,000
CORPORATE NOTES -- 16.9%
American Express Credit Corp.
5.45% 01/04/08 6,940,000 6,943,022 (c)
Canadian Imperial Bank
5.33% 01/28/08 10,580,000 10,580,000
Greenwhich Capital
Holdings Inc.
5.31% 02/13/07 12,870,000 12,870,000
HSBC Finance Corp.
5.41% 06/01/07 5,750,000 5,751,970 (c)
Morgan Stanley
5.37% 01/03/08 11,130,000 11,130,000 (c)
47,274,992
See Notes to Schedule of Investments on page 7 and Notes to Financial
Statements.
5
MONEY MARKET FUND
Schedule of Investments December 31, 2006
- --------------------------------------------------------------------------------
PRINCIPAL AMORTIZED
AMOUNT COST
- --------------------------------------------------------------------------------
TIME DEPOSIT -- 0.0%*
State Street Corp.
4.85% 01/03/07 $ 150,710 $ 150,710 (b)
CERTIFICATES OF DEPOSIT -- 20.7%
Bank of Montreal
5.31% 01/22/07 11,020,000 11,020,000
Calyon
5.34% 05/04/07 10,430,000 10,430,000
Dexia Credit Local S.A.
5.29% 01/16/07 11,490,000 11,490,000
Royal Bank of Canada N Y Branch
5.30% 04/05/07 5,000,000 5,000,000
UBS AG
5.31% 01/05/07 8,780,000 8,780,000
Societe Generale
5.30% 02/01/07 11,160,000 11,160,000
57,880,000
TOTAL SHORT-TERM INVESTMENTS
(COST $278,307,522) 278,307,522
OTHER ASSETS AND LIABLITES,
NET -- 0.5% 1,314,906
------------
NET ASSETS -- 100.0% $279,622,428
============
See Notes to Schedule of Investments on page 7 and Notes to Financial
Statements.
6
Notes to Schedule of Investments December 31, 2006
- --------------------------------------------------------------------------------
The views expressed in this document reflect our judgment as of the publication
date and are subject to change at any time without notice. The securities cited
may not represent current or future holdings and should not be considered as a
recommendation to purchase or sell a particular security. See the prospectus for
complete descriptions of investment objectives, policies, risks and permissible
investments.
(a) Coupon amount represents effective yield.
(b) State Street Corp. is the parent company of State Street Bank & Trust Co.,
the Fund's custodian and accounting agent.
(c) Variable or floating rate security. The stated rate represents the rate at
December 31, 2006.
* Less than 0.1%
+ Percentages are based on net assets as of December 31, 2006.
7
Financial Highlights
Selected data based on a share outstanding throughout the periods indicated
- --------------------------------------------------------------------------------
MONEY MARKET FUND
12/31/06 12/31/05 12/31/04 12/31/03 12/31/02
- -------------------------------------------------------------------------------------------------------------------
INCEPTION DATE -- -- -- -- 7/1/85
Net asset value, beginning of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.05 0.03 0.01 0.01 0.01
Net realized and unrealized
gains on investments -- -- -- 0.00(b) 0.00(b)
- -------------------------------------------------------------------------------------------------------------------
TOTAL INCOME FROM INVESTMENT OPERATIONS 0.05 0.03 0.01 0.01 0.01
- -------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM:
Net investment income 0.05 0.03 0.01 0.01 0.01
Return of capital -- 0.00(b) -- -- --
- -------------------------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS 0.05 0.03 0.01 0.01 0.01
- -------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
===================================================================================================================
TOTAL RETURN (a) 4.65% 2.79% 0.95% 0.78% 1.48%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in thousands) $279,622 $250,149 $278,703 $392,533 $685,353
Ratios to average net assets:
Net investment income 4.58% 2.74% 0.92% 0.80% 1.46%
Net expenses 0.49% 0.49% 0.47% 0.43% 0.40%
Gross expenses 0.49% 0.49% 0.47% 0.43% 0.40%
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.
See Notes to Financial Statements.
8
MONEY
Statement of Assets MARKET
and Liabilities DECEMBER 31, 2006 FUND
- ----------------------------------------------------------------------------------
ASSETS
Short-term Investments (at amortized cost) $ 212,067,522
Repurchase Agreements 66,240,000
Income receivables 885,444
Receivable for fund shares sold 620,165
- ----------------------------------------------------------------------------------
TOTAL ASSETS 279,813,131
- ----------------------------------------------------------------------------------
LIABILITIES
Payable for fund shares redeemed 79,522
Payable to GEAM 111,181
- ----------------------------------------------------------------------------------
TOTAL LIABILITIES 190,703
- ----------------------------------------------------------------------------------
NET ASSETS $ 279,622,428
==================================================================================
NET ASSETS CONSIST OF:
Capital paid in 279,686,297
Accumulated net realized gain (loss) (63,869)
- ----------------------------------------------------------------------------------
NET ASSETS $ 279,622,428
==================================================================================
Shares outstanding ($0.01 par value; unlimited shares authorized) 279,676,134
Net asset value per share $ 1.00
See Notes to Financial Statements.
9
MONEY
Statement of Operations MARKET
FOR THE YEAR ENDED DECEMBER 31, 2006 FUND
- ----------------------------------------------------------------------------------
INVESTMENT INCOME
INCOME:
Interest $ 14,276,299
- ----------------------------------------------------------------------------------
TOTAL INCOME 14,276,299
- ----------------------------------------------------------------------------------
EXPENSES:
Advisory and administrative fees 1,279,720
Transfer agent fees 58
Trustee's fees 10,065
Custody and accounting expenses 34,368
Professional fees 27,975
Registration expenses 4,736
Other expenses 22,697
- ----------------------------------------------------------------------------------
TOTAL EXPENSES 1,379,619
- ----------------------------------------------------------------------------------
NET INVESTMENT INCOME (LOSS) 12,896,680
==================================================================================
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $ 12,896,680
==================================================================================
See Notes to Financial Statements.
10
MONEY
Statements of MARKET
Changes in Net Assets FUND
- ---------------------------------------------------------------------------------------------------------------------
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
2006 2005
- ---------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS OPERATIONS:
Net investments income (loss) $ 12,896,680 $ 7,726,824
- ---------------------------------------------------------------------------------------------------------------------
Net increase (decrease) from operations 12,896,680 7,726,824
- ---------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (12,896,680) (7,736,548)
Net realized gains -- --
Return of Capital -- (42,984)
- ---------------------------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS (12,896,680) (7,779,532)
- ---------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets from operations and distributions -- (52,708)
- ---------------------------------------------------------------------------------------------------------------------
SHARE TRANSACTIONS:
Proceeds from sale of shares 176,527,442 199,487,509
Value of distributions reinvested 12,896,680 7,752,316
Cost of shares redeemed (159,950,239) (235,741,886)
- ---------------------------------------------------------------------------------------------------------------------
Net increase (decrease) from share transactions 29,473,883 (28,502,061)
- ---------------------------------------------------------------------------------------------------------------------
TOTAL INCREASE (DECREASE) IN NET ASSETS 29,473,883 (28,554,769)
NET ASSETS
Beginning of period 250,148,545 278,703,314
- ---------------------------------------------------------------------------------------------------------------------
End of period $ 279,622,428 $ 250,148,545
=====================================================================================================================
UNDISTRIBUTED (DISTRIBUTION IN EXCESS OF) NET INVESTMENT INCOME, END OF PERIOD $ -- $ --
- ---------------------------------------------------------------------------------------------------------------------
CHANGES IN FUND SHARES
Shares sold 176,527,116 199,487,510
Issued for distributions reinvested 12,897,006 7,752,316
Shares redeemed (159,950,239) (235,741,886)
- ---------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in fund shares 29,473,883 (28,502,060)
=====================================================================================================================
See Notes to Financial Statements.
11
Notes to Financial Statements December 31, 2006
- --------------------------------------------------------------------------------
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.
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.
In September 2006, FASB issued Statement of Financial Accounting Standards No.
157, FAIR VALUE MEASUREMENTS ("FAS 157"). FAS 157 establishes a single
authoritative definition of fair value, establishes a framework for measuring
fair value and expands disclosures about fair value measurements. FAS 157
applies to fair value measurements already required or permitted by existing
standards. The change to current generally accepted accounting principles from
the application of FAS 157 relate to the definition of fair value, the methods
used to measure fair value, and the expanded disclosures about fair value
measurements. Management of the Fund does not believe the adoption of FAS 157
will materially impact
12
Notes to Financial Statements December 31, 2006
- --------------------------------------------------------------------------------
the financial statement amounts, however, additional disclosures may be required
about the inputs used to develop the measurements and the effect of certain of
the measurements on changes in net assets for the period. FAS 157 is effective
for financial statements issued for fiscal years beginning after November 15,
2007 and interim periods within those fiscal years.
REPURCHASE AGREEMENTS The Fund may engage in repurchase agreement transactions
with respect to instruments that are consistent with the Fund's investment
objectives or policies. 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.
FOREIGN CURRENCY Accounting records of the Fund are maintained in U.S. dollars.
Investment securities and other assets and liabilities denominated in a foreign
currency are translated into U.S. dollars at the prevailing rates of exchange at
period end. Purchases and sales of securities, income receipts and expense
payments denominated in foreign currencies are translated into U.S. dollars at
the prevailing exchange rate on the respective dates of such transactions.
The Fund does not isolate the portion of the results of operations resulting
from changes in foreign exchange rates from the fluctuations arising from
changes in the market prices of securities during the period. Such fluctuations
are included in the net realized or unrealized gain or loss from investments.
Net realized gains or losses on foreign currency transactions represent net
gains or losses on sales and maturities of foreign currency contracts,
disposition of foreign currencies, the difference between the amount of net
investment income and withholding taxes accrued and the U.S. dollar amount
actually received or paid, and gains or losses between the trade and settlement
date on purchases and sales of securities. Net unrealized foreign exchange gains
and losses arising from changes in the value of other assets and liabilities as
a result of changes in foreign exchange rates are included as increases or
decreases in unrealized appreciation/depreciation on foreign currency related
transactions.
INVESTMENTS IN FOREIGN MARKETS Investments in foreign markets may involve
special risks and considerations not typically associated with investing in the
United States. These risks include revaluation of currencies, high rates of
inflation, repatriation on income and capital, and adverse political and
economic developments. Moreover, securities issued in these markets may be less
liquid, subject to government ownership controls, tariffs and taxes, subject to
delays in settlements, and their prices may be more volatile.
The Fund may be subject to capital gains and repatriation taxes imposed by
certain countries in which it invests. Such taxes are generally based on income
and/or capital gains earned or repatriated. Taxes are accrued based upon net
investment income, net realized gains and net unrealized appreciation as income
and/or capital gains are earned.
INCOME TAXES The Fund intends to comply with all sections of the Internal
Revenue Code applicable to regulated investment companies including the
distribution of substantially all of its taxable net investment income and net
realized capital gains to its shareholders. Therefore, no provision for federal
income tax has been made. The Fund is treated as a separate taxpayer for federal
income tax purposes.
At December 31, 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
- --------------------------------------------------------------------------------
$278,307,522 $ -- $ -- $ --
Net Tax Appreciation/ Undistributed Undistributed Post
(Depreciation) on Income/ Long-Term Gains/ October
Derivatives, Currency (Accumulated (Accumulated Losses
and Other Net Assets Ordinary Loss) Capital Loss) (see Detail Below)
- --------------------------------------------------------------------------------
$ -- $ -- $(63,869) $ --
13
Notes to Financial Statements December 31, 2006
- --------------------------------------------------------------------------------
As of December 31, 2006, 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 incurred no such losses after October 31, 2006.
The tax composition of distributions paid during the year ended December 31,
2006 was as follows:
Long-Term
Ordinary Capital
Income Gains Total
- -------------------------------------
$12,896,680 $ -- $12,896,680
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.
On July 13, 2006, the FASB released FIN48, "Accounting for Uncertainty in Income
Taxes." FIN48 provides guidance for how uncertain tax positions should be
recognized, measured, presented and disclosed in the financial statements. FIN48
requires evaluation of tax positions taken or expected to be taken in the course
of preparing the Fund's tax returns to determine whether the tax positions are
"more likely than not" of being sustained by the applicable tax authority. The
adoption of FIN48 will require financial statements to be adjusted to reflect
only those tax positions that are more likely that not to be sustained as of the
adoption date. Adoption of FIN48 is required for fiscal years beginning after
December 15, 2006 no later than June 29, 2007 and is applied to all open years
as of the effective date. At this time, management is evaluating the
implications of FIN48 and its impact on the financial statements has not yet
been determined.
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 and amortized,
respectively, to call or maturity date, whichever is shorter, using the
effective yield method.
EXPENSES Expenses of the Company which are directly identifiable to one of the
Funds are allocated to that portfolio. Expenses which are not directly
identifiable to one of the Funds are allocated in such a manner as deemed
equitable, taking into consideration the nature and type of expenses and
relative sizes of the Funds. All expenses of the Fund are paid by GEAM and
reimbursed by the Fund.
3. LINE OF CREDIT
The Fund shares a revolving credit facility of up to $25 million with a number
of its affiliates. The credit facility is with its custodian bank, State Street
Bank and Trust Company. The revolving credit facility requires the payment of a
commitment fee equal to 0.09% per annum on the daily unused portion of the
credit facility, payable quarterly. The portion borne by the Funds generally is
borne proportionally based upon net assets. Generally, borrowings under the
credit facility would accrue interest at the Federal Funds Rate plus 50 basis
points and is borne by each of the borrowing Funds. The maximum amount allowed
to be borrowed by any one of the Funds is the lesser of its prospectus
limitation, 20% of its net assets, or $25 million. The credit facility was not
utilized by the Fund during the period ended December 31, 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
14
Notes to Financial Statements December 31, 2006
- --------------------------------------------------------------------------------
GEAM for investment advisory and administrative services is paid monthly based
on the average daily net assets of the Fund. The advisory and administrative fee
is stated in the following schedule:
Annualized based on
average daily net assets
-------------------------------------
Average Daily Advisory and
Net Assets Administration
of Fund Fees
- ---------------------------------------------------------
Money Market Fund First $100 million .50%
Next $100 million .45%
Next $100 million .40%
Next $100 million .35%
Over $400 million .30%
GENPACT performs certain accounting and certain administration services not
provided by GEAM. For the period ending December 31, 2006, $4,595 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.)
15
Report of Independent Registered Public Accounting Firm
- --------------------------------------------------------------------------------
The Shareholders and Board of Directors
GE Investments Funds, Inc.
We have audited the accompanying statement of assets and liabilities of the
Money Market Fund, a series of GE Investments Funds, Inc., including the
schedule of investments, as of December 31, 2006, and the related statement of
operations for the year then ended, the statements of changes in net assets for
each of the years in the two-year period then ended, and the financial
highlights for each of the years in the five-year period then ended. These
financial statements and financial highlights are the responsibility of the
Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included confirmation of
securities owned as of December 31, 2006 by correspondence with the custodian
and brokers, or by other appropriate auditing procedures where replies from
brokers were not received. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
Money Market Fund as of December 31, 2006, the results of its operations,
changes in its net assets and financial highlights for the years described
above, in conformity with U.S. generally accepted accounting principles.
/s/ KPMG LLP
Boston, Massachusetts
February 20, 2007
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 6
and December 14, 2006.
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 a
similar 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 detail during a
private session with their independent legal counsel at which no representatives
of GEAM were present. The independent Board members and their independent legal
counsel requested, and received and considered, additional information from GEAM
following this session.
In advance of the meetings, 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 recent years, 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 recent years. 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 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 has expended 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, 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 overall taking into consideration the factors
discussed above.
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. 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 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 effect, if any, of
the Securities and Exchange Commission staff's interpretive guidance concerning
soft dollars. In light of the foregoing, the Board
18
Advisory and Administrative Agreement Renewal (unaudited)
- --------------------------------------------------------------------------------
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 that
GEAM may derive from its relationship with the Fund, 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;
Trustee of Elfun Foundation; Treasurer of GE Foundation; Director, GE Asset
Management (Ireland), since February 1999.
- --------------------------------------------------------------------------------
ALAN M. LEWIS
- --------------------------------------------------------------------------------
ADDRESS c/o GEAM 3001 Summer St. Stamford, CT 06905
AGE 60
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 41
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 General Partner, NGN Capital LLC
since 2006; 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.
- --------------------------------------------------------------------------------
WILLIAM J. LUCAS
- --------------------------------------------------------------------------------
ADDRESS c/o GEAM 3001 Summer St. Stamford, CT 06905
AGE 59
POSITION(S) HELD WITH FUND Director
TERM OF OFFICE AND LENGTH OF TIME SERVED Until successor is elected and
qualified - 9 years
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS 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 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)
David B. Carlson, EVP, DOMESTIC EQUITIES
Michael J. Cosgrove, EVP, CHIEF COMMERCIAL OFFICER
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
Judith A. Studer, EVP, INVESTMENT STRATEGIES (AS OF JULY 2006)
Don W. Torey, EVP, ALTERNATIVE INVESTMENTS AND REAL ESTATE
John J. Walker, EVP, CHIEF FINANCIAL OFFICER
23
[This page intentionally left blank.]
[This page intentionally left blank.]
INVESTMENT ADVISER
GE ASSET MANAGEMENT INCORPORATED
3001 SUMMER STREET
PO BOX 7900
STAMFORD, CT 06904-7900
DISTRIBUTOR
GE INVESTMENT DISTRIBUTORS, INC.
MEMBER NASD AND SIPC
3001 SUMMER STREET
PO BOX 7900
STAMFORD, CT 06904-7900
- --------------------------------------------------------------------------------
The Fund files its complete schedule of portfolio holdings with the Securities
and Exchange Commission for the first and third quarters of each fiscal year on
Form N-Q. The Fund's Forms N-Q, as well as a description of the policies and
procedures that the Fund uses to determine how to vote proxies (if any) relating
to portfolio securities is available without charge (i) upon request, by calling
1-800-242-0134; (ii) on the Fund's website at http://www.gefunds.com; and (iii)
on the Commission's website at http://www.sec.gov. The Fund's Forms N-Q may be
reviewed and copied at the Commission's Public Reference Room in Washington, DC
- - information on the operation of the Public Reference Room may be obtained by
calling 1-800-SEC-0330.
Information (if any) regarding how the Fund voted proxies relating to portfolio
securities during the most recently disclosed 12-months period ended June 30 is
available without charge (i) through the Fund's website at
http://www.gefunds.com; and (ii) on the Commission's website at
http://www.sec.gov.
- --------------------------------------------------------------------------------
[GE LOGO OMITTED]
<page>
GE Investments Funds, Inc.
Real Estate Securities Fund
Annual Report
DECEMBER 31, 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
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM 17
TAX INFORMATION 18
ADVISORY AND ADMINISTRATIVE AGREEMENT RENEWAL 19
ADDITIONAL INFORMATION 22
INVESTMENT TEAM 25
This report is prepared for Policyholders of certain variable contracts and may
be distributed to others only if preceded or accompanied by the variable
contract's current prospectus and the current prospectus of the Funds available
for investments thereunder.
Notes to Performance December 31, 2006
- --------------------------------------------------------------------------------
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).
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 GROUP FOR THE TWELVE-MONTH PERIOD ENDED DECEMBER 31, 2006?
A. For the twelve-month period ended December 31, 2006, the Real Estate
Securities Fund returned 33.03%. The NAREIT Equity Index, the Fund's
benchmark, returned 35.06% and the Fund's Lipper peer group of 53 Real
Estate funds returned an average of 35.60% for the same period.
Q. WHAT MARKET CONDITIONS IMPACTED FUND PERFORMANCE?
A. Inflationary pressures have largely eased in the past 6 months, leading
many to believe that the Federal Reserves' course of action will be to
hold rates steady in the intermediate term. Oil has recently traded in the
mid $50 range per barrel, significantly lower than the summer highs of
$70+, and this has largely led to more tame readings of inflation levels
at both the producer and consumer levels. Consumer and business spending
continue to grow at a healthy pace leading to strong corporate earnings.
Investors appear to be more confident in the continued health of the
economy than they were at the beginning of 2006, and this has been
reflected in the performance of the broader equities.
On the whole, the general economic environment has been good for REITs. A
moderately growing economy coupled with limited new supply has led to
strong fundamentals in all real estate property types. Strong
fundamentals, high medium-term growth expectations, and relatively low
long-term interest rates have fueled demand for real estate investment in
both the private and public markets. Private market capitalization rates
used to value real estate continued to trend down in 2006, primarily
caused by increased capital flows but partially reflective of higher
growth expectations. M&A activity increased to record levels in 2006,
further providing a catalyst for the REITs.
Q. WHAT WERE THE PRIMARY DRIVERS OF FUND PERFORMANCE?
A. Urdang Securities Management, Inc. took over the sub-advisory role for the
Fund at the start of the second quarter of 2006. For the last nine months
of the year, performance was slightly below the benchmark. From a sector
allocation standpoint, specialty underweight was the key contributor to
Fund performance, as the sector underperformed the REIT market by over
10%. However, the Fund's underweight in the healthcare sector detracted
from performance, as healthcare REITs outperformed by 13% during the
period. Concerns about the overall
2
- --------------------------------------------------------------------------------
Q&A
health of the economy caused investors to seek investments in less
economically sensitive property types such as healthcare. Sectors with the
shortest leases, specifically apartments and hotels, underperformed during
the period. Selection in the apartment and mall sectors added to Fund
performance, but our office stock picks performed poorly, especially
during the second quarter. Cash drag was significant for the period, as
the REIT market was up nearly 20% since the first quarter. We did our best
to maintain low cash balances, but because returns were so solid, we were
unable to avoid performance dilution.
Q. WERE THERE ANY SIGNIFICANT CHANGES TO THE FUND OVER THE PERIOD?
A. During the reporting period, we continued to increase exposure to office
as fundamentals continue to accelerate. We reduced exposure to apartments
as we are concerned that expectations for fundamentals have become too
lofty. We increased exposure to malls, as the group now trades at a
significant discount to other sectors. The Fund experienced abnormally
high turnover at the end of the period due to end-of-year positioning that
we expect will contribute mightily in 2007.
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 December
31, 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 $1,000 = 8.6), then multiply the result by the number
given for your class under the heading "Expenses Paid During Period."
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The second section of the table provides information about hypothetical account
values and hypothetical expenses based on the Fund's actual expense ratio and an
assumed rate of return of 5% per year before expenses, which is not the Fund's
actual return. You may use this information to compare the ongoing costs of
investing in the Fund and other funds. To do so, compare this 5% hypothetical
example with the 5% hypothetical examples that appear in the shareholders
reports of other funds.
Please note that the expenses shown in the table do not reflect any transaction
costs, such as sales charges or redemption fees.
JULY 1, 2006 - DECEMBER 31, 2006
- --------------------------------------------------------------------------------
ACCOUNT VALUE AT ACCOUNT VALUE EXPENSES
THE BEGINNING OF AT THE END OF PAID DURING
THE PERIOD ($) THE PERIOD ($) THE PERIOD ($)*
- --------------------------------------------------------------------------------
Actual Fund Return** 1,000.00 1,192.40 4.92
- --------------------------------------------------------------------------------
Hypothetical 5% Return
(2.5% for the period) 1,000.00 1,020.55 4.49
- --------------------------------------------------------------------------------
* EXPENSES ARE EQUAL TO THE FUND'S ANNUALIZED EXPENSE RATIO OF 0.88% (FROM
PERIOD JULY 1, 2006 - DECEMBER 31, 2006), MULTIPLIED BY THE AVERAGE
ACCOUNT VALUE OVER THE PERIOD, MULTIPLIED BY 184/365 (TO REFLECT THE SIX
MONTH PERIOD).
** ACTUAL FUND RETURN FOR SIX-MONTH PERIOD ENDED DECEMBER 31, 2006 WAS:
19.24%.
4
Real Estate Securities Fund
- --------------------------------------------------------------------------------
CHANGE IN VALUE
OF A $10,000 INVESTMENT
- --------------------------------------------------------------------------------
[LINE GRAPH OMITTED, PLOT POINTS ARE AS FOLLOWS:]
Real Estate
Securities Fund Wilshire RES Index NAREIT Index
12/96 $10,000 $10,000 $10,000
12/97 11,949 11,980 12,026
12/98 9,836 9,892 9,921
12/99 9,815 9,577 9,463
12/00 13,009 12,500 11,958
12/01 14,549 13,791 13,624
12/02 14,353 14,148 14,144
12/03 19,729 19,393 19,397
12/04 26,099 26,157 25,522
12/05 29,174 29,775 28,626
12/06 38,810 40,394 38,662
AVERAGE ANNUAL TOTAL RETURN
FOR THE PERIODS ENDED DECEMBER 31, 2006
- --------------------------------------------------------------------------------
ONE FIVE TEN
YEAR YEAR YEAR
- --------------------------------------------------------------------------------
Real Estate Securities Fund 33.03% 21.68% 14.52%
- --------------------------------------------------------------------------------
Wilshire RES Index 35.67% 23.98% 14.98%
- --------------------------------------------------------------------------------
NAREIT Equity Index* 35.06% 23.20% 14.48%
- --------------------------------------------------------------------------------
Lipper peer group average** 35.60% 23.43% 14.66%
- --------------------------------------------------------------------------------
Inception date 5/1/95
- --------------------------------------------------------------------------------
Real Estate Securities Fund (ending value $38,810)
Wilshire RES Index (ending value $40,394)
NAREIT Equity Index (ending value $38,662)
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 circumstances.
TOP TEN LARGEST HOLDINGS
AS OF DECEMBER 31, 2006
as a % of Market Value
- --------------------------------------------------------------------------------
Simon Property Group, Inc. 7.20%
- --------------------------------------------------------------------------------
Prologis 5.30%
- --------------------------------------------------------------------------------
Vornado Realty Trust 5.29%
- --------------------------------------------------------------------------------
AvalonBay Communities, Inc. 4.96%
- --------------------------------------------------------------------------------
Kimco Realty Corp. 4.42%
- --------------------------------------------------------------------------------
Equity Office Properties Trust 4.22%
- --------------------------------------------------------------------------------
Boston Properties, Inc. 4.10%
- --------------------------------------------------------------------------------
SL Green Realty Corp. 3.98%
- --------------------------------------------------------------------------------
Archstone-Smith Trust 3.94%
- --------------------------------------------------------------------------------
Alexandria Real Estate Equities, Inc. 3.62%
- --------------------------------------------------------------------------------
PORTFOLIO COMPOSITION
AS OF DECEMBER 31, 2006
as a % of Market Value
- --------------------------------------------------------------------------------
Market Value of $176,512 (in thousands)
[PIE CHART OMITTED, PLOT POINTS ARE AS FOLLOWS:]
Office 24.2%
Multifamily 19.0%
Regional Malls 12.6%
Shopping Centers 10.1%
Diversified 8.2%
Industrial 6.3%
Hotel 5.7%
Self Storage 3.4%
Healthcare 3.1%
Short-Term 2.8%
Office/Industrial 2.0%
Freestanding 1.5%
Specialty 1.1%
* 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 ONE YEAR, FIVE-YEAR, AND TEN-YEAR PERIODS INDICATED IN THE REAL
ESTATE FUNDS PEER GROUP CONSISTING OF 53, 26 AND 5 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 December 31, 2006
- --------------------------------------------------------------------------------
REAL ESTATE SECURITIES FUND
- --------------------------------------------------------------------------------
NUMBER
OF SHARES VALUE
- --------------------------------------------------------------------------------
COMMON STOCK (REIT) -- 91.9%
- --------------------------------------------------------------------------------
DIVERSIFIED -- 8.0%
Cousins Properties, Inc. 83,680 $ 2,951,394
Spirit Finance Corp. 167,543 2,089,261
Vornado Realty Trust 76,810 9,332,415
14,373,070
FREESTANDING -- 1.5%
Realty Income Corp. 95,940 2,657,538
HEALTHCARE -- 3.1%
Nationwide Health Properties Inc. 60,750 1,835,865
Ventas, Inc. 85,900 3,635,288
5,471,153
HOTEL -- 4.6%
Host Hotels & Resorts Inc. 161,518 3,965,267
Strategic Hotels & Resorts, Inc. 84,270 1,836,243
Sunstone Hotel Investors, Inc. 87,630 2,342,350
8,143,860
INDUSTRIAL -- 6.2%
AMB Property Corp. 20,420 1,196,816
First Potomac Realty Trust 21,170 616,259
Prologis 153,940 9,354,934
11,168,009
MULTIFAMILY -- 18.8%
American Campus
Communities, Inc. 53,130 1,512,611
Apartment Investment &
Management Co. (Class A) 90,710 5,081,574
Archstone-Smith Trust 119,337 6,946,607
AvalonBay Communities, Inc. 67,360 8,760,168
BRE Properties, Inc. 8,920 579,978
Camden Property Trust 18,539 1,369,105
Equity Residential 66,580 3,378,935
Essex Property Trust, Inc. 46,030 5,949,378
33,578,356
OFFICE -- 20.8%
Alexandria Real Estate Equities, Inc. 63,630 6,388,452
Boston Properties, Inc. 64,640 7,231,923
Douglas Emmett, Inc. 85,580 2,275,572
Equity Office Properties Trust 154,790 7,456,234
Highwoods Properties, Inc. 57,430 2,340,847
Kilroy Realty Corp. 44,170 3,445,260
Maguire Properties, Inc. 22,490 899,600
SL Green Realty Corp. 52,950 7,030,701
37,068,589
OFFICE/INDUSTRIAL -- 2.0%
Liberty Property Trust 71,650 3,520,881
NUMBER
OF SHARES VALUE
- --------------------------------------------------------------------------------
REGIONAL MALLS -- 12.5%
General Growth Properties, Inc. 95,850 $ 5,006,246
Macerich Co. 17,420 1,508,049
Simon Property Group, Inc. 125,440 12,705,818
Taubman Centers, Inc. 59,700 3,036,342
22,256,455
SELF STORAGE -- 3.3%
Extra Space Storage, Inc. 63,440 1,158,414
Public Storage, Inc. 49,300 4,806,750
5,965,164
SHOPPING CENTERS -- 10.0%
Acadia Realty Trust 61,590 1,540,982
Federal Realty Investment Trust 53,750 4,568,750
Kimco Realty Corp. 173,632 7,804,758
Regency Centers Corp. 50,150 3,920,226
17,834,716
SPECIALTY -- 1.1%
Digital Realty Trust, Inc. 56,470 1,932,968
TOTAL COMMON STOCK (REIT)
(COST $123,678,269) 163,970,759
- --------------------------------------------------------------------------------
COMMON STOCK -- 4.3%
- --------------------------------------------------------------------------------
HOTEL -- 1.1%
Starwood Hotels & Resorts
Worldwide, Inc. 30,270 1,891,875
OFFICE -- 3.2%
Brookfield Properties Corp. 144,660 5,689,478
TOTAL COMMON STOCK
(COST $7,377,536) 7,581,353
TOTAL INVESTMENTS IN SECURITIES
(COST $131,055,805) 171,552,112
- --------------------------------------------------------------------------------
AFFILIATED SHORT-TERM INVESTMENTS -- 2.8%
- --------------------------------------------------------------------------------
GEI Short Term Investment Fund
5.56%
(COST $4,960,296) 4,960,296 4,960,296 (a,b)
TOTAL INVESTMENTS
(COST $136,016,101) 176,512,408
OTHER ASSETS AND LIABILITIES,
NET -- 1.0% 1,805,073
------------
NET ASSETS -- 100.0% $178,317,481
============
See Notes to Schedule of Investments on page 7 and Notes to Financial
Statements.
6
Notes to Schedule of Investments December 31, 2006
- --------------------------------------------------------------------------------
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) GE Asset Management Incorporated, the investment adviser of the Fund, also
serves as investment adviser of the GEI Short Term Investment Fund.
+ Percentages are based on net assets as of December 31, 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
12/31/06 12/31/05 12/31/04 12/31/03 12/31/02
- ----------------------------------------------------------------------------------------------------------------
INCEPTION DATE -- -- -- -- 5/1/95
Net asset value, beginning of period $ 19.20 $ 19.54 $ 16.78 $ 13.14 $ 14.78
INCOME/(LOSS) FROM INVESTMENT OPERATIONS:
Net investment income 0.65 0.70 0.65 0.50 0.80
Net realized and unrealized
gains/(losses) on investments 5.68 1.62 4.76 4.42 (1.01)
- ----------------------------------------------------------------------------------------------------------------
TOTAL INCOME/(LOSS) FROM INVESTMENT OPERATIONS 6.33 2.32 5.41 4.92 (0.21)
- ----------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM:
Net investment income 0.48 0.75 0.52 0.41 0.66
Net realized gains 3.56 1.91 2.13 0.87 0.77
- ----------------------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS 4.04 2.66 2.65 1.28 1.43
- ----------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 21.49 $ 19.20 $ 19.54 $ 16.78 $ 13.14
================================================================================================================
TOTAL RETURN (a) 33.03% 11.78% 32.29% 37.38% (1.35)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in thousands) $ 178,317 $ 143,801 $ 146,221 $ 98,294 $ 70,164
Ratios to average net assets:
Net investment income 3.08% 3.21% 4.15% 4.65% 4.81%
Expenses 0.88% 0.89% 0.90% 0.89% 0.89%
Portfolio turnover rate 92% 52% 78% 52% 90%
NOTES TO FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(a) Total returns are historical and assume changes in share price and
reinvestment of dividends and capital gains and do not include the effect
of insurance contract charges.
See Notes to Financial Statements.
8
REAL ESATE
Statement of Assets SECURITIES
and Liabilities DECEMBER 31, 2006 FUND
- -----------------------------------------------------------------------------------------------------
ASSETS
Investments in securities, at market (cost $131,055,805) $ 171,552,112
Short-term affiliated investments (at amortized cost) 4,960,296
Receivable for investments sold 3,629,147
Income receivables 1,126,554
Receivable for fund shares sold 92
- -----------------------------------------------------------------------------------------------------
TOTAL ASSETS 181,268,201
- -----------------------------------------------------------------------------------------------------
LIABILITIES
Payable for investments purchased 2,723,383
Payable for fund shares redeemed 93,073
Payable to GEAM 134,264
- -----------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 2,950,720
- -----------------------------------------------------------------------------------------------------
NET ASSETS $ 178,317,481
=====================================================================================================
NET ASSETS CONSIST OF:
Capital paid in 133,140,346
Undistributed (distribution in excess of) net investment income 338,045
Accumulated net realized gain (loss) 4,342,783
Net unrealized appreciation/(depreciation) on:
Investments 40,496,307
- -----------------------------------------------------------------------------------------------------
NET ASSETS $ 178,317,481
=====================================================================================================
Shares outstanding ($0.01 par value; unlimited shares authorized) 8,296,127
Net asset value per share $ 21.49
See Notes to Financial Statements.
9
REAL ESATE
Statement of Operations SECURITIES
FOR THE YEAR ENDED DECEMBER 31, 2006 FUND
- -----------------------------------------------------------------------------------------------------
INVESTMENT INCOME
INCOME:
Dividend $ 5,171,470
Interest 80,016
Interest from affliated investments 193,270
- -----------------------------------------------------------------------------------------------------
TOTAL INCOME 5,444,756
- -----------------------------------------------------------------------------------------------------
EXPENSES:
Advisory and administrative fees 1,293,189
Transfer agent fees 39
Trustee's fees 6,022
Custody and accounting expenses 26,486
Professional fees 23,004
Registration expenses 3,040
Other expenses 14,229
- -----------------------------------------------------------------------------------------------------
TOTAL EXPENSES 1,366,009
- -----------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME (LOSS) 4,078,747
=====================================================================================================
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS
REALIZED GAIN (LOSS) ON:
Investments 24,153,309
INCREASE (DECREASE) IN UNREALIZED APPRECIATION/
(DEPRECIATION) ON:
Investments 15,955,603
- -----------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments 40,108,912
- -----------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $ 44,187,659
=====================================================================================================
See Notes to Financial Statements.
10
REAL ESTATE
Statements of SECURITIES
Changes in Net Assets FUND
- ------------------------------------------------------------------------------------------------------------------------
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
2006 2005
- ------------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net investments income (loss) $ 4,078,747 $ 4,570,571
Net realized gain (loss) on investments, futures, written options,
foreign currency transactions and swaps 24,153,309 14,590,401
Net increase (decrease) in unrealized appreciation/(depreciation)
on investments, futures, written options, foreign currency translation 15,955,603 (3,889,363)
- ------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) from operations 44,187,659 15,271,609
- ------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (3,335,137) (4,983,011)
Net realized gains (24,834,755) (12,622,830)
Return of Capital -- --
- ------------------------------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS (28,169,892) (17,605,841)
- ------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets from operations and distributions 16,017,767 (2,334,232)
- ------------------------------------------------------------------------------------------------------------------------
SHARE TRANSACTIONS:
Proceeds from sale of shares 20,203,690 13,870,109
Value of distributions reinvested 28,169,892 17,605,807
Cost of shares redeemed (29,874,788) (31,561,870)
- ------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) from share transactions 18,498,794 (85,954)
- ------------------------------------------------------------------------------------------------------------------------
TOTAL INCREASE (DECREASE) IN NET ASSETS 34,516,561 (2,420,186)
NET ASSETS
Beginning of period 143,800,920 146,221,106
- ------------------------------------------------------------------------------------------------------------------------
End of period $ 178,317,481 $ 143,800,920
========================================================================================================================
UNDISTRIBUTED (DISTRIBUTION IN EXCESS OF) NET INVESTMENT INCOME, END OF PERIOD $ 338,045 $ 109,263
- ------------------------------------------------------------------------------------------------------------------------
CHANGES IN FUND SHARES
Shares sold 870,622 692,127
Issued for distributions reinvested 1,316,352 910,802
Shares redeemed (1,380,231) (1,596,846)
- ------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in fund shares 806,743 6,083
========================================================================================================================
See Notes to Financial Statements.
11
Notes to Financial Statements December 31, 2006
- --------------------------------------------------------------------------------
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.
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.
In September 2006, FASB issued Statement of Financial Accounting Standards No.
157, FAIR VALUE MEASUREMENTS ("FAS 157"). FAS 157 establishes a single
authoritative definition of fair value, establishes a framework for measuring
fair value and expands disclosures about fair value measurements. FAS 157
applies to fair value measurements already required or permitted by existing
standards. The change to current generally accepted accounting principles from
the application of FAS 157 relate to the definition of fair value, the methods
used to measure fair value, and the expanded disclosures about fair value
measurements. Management of the Fund does not believe the adoption of FAS 157
will materially impact the financial statement amounts, however, additional
disclosures may be required about the inputs used to develop the measurements
and the effect of certain of the measurements on changes in net assets for the
period.
12
Notes to Financial Statements December 31, 2006
- --------------------------------------------------------------------------------
FAS 157 is effective for financial statements issued for fiscal years beginning
after November 15, 2007 and interim periods within those fiscal years.
REPURCHASE AGREEMENTS The Fund may enter into repurchase agreement transactions
with respect to instruments that are consistent with the Fund's investment
objectives or policies. 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.
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.
13
Notes to Financial Statements December 31, 2006
- --------------------------------------------------------------------------------
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 difference between the premium and the amount paid on effecting
a closing purchase transaction, including brokerage commissions, is also treated
as a realized gain, or if the premium is less than the amount paid for the
closing purchase, as a realized loss. When an option is exercised, the proceeds
from the sale of the underlying security or the cost basis of the securities
purchased is adjusted by the original premium received or paid.
REAL ESTATE INVESTMENT TRUSTS Dividend income, attributable to real estate
investment trusts ("REITs"), is recorded based on management's estimate of the
income included in the distributions received. Distributions received in excess
of this amount are recorded as a reduction of the cost of the investments. The
actual amounts of income and return of capital are determined by each REIT only
after its fiscal year-end, and may differ from the estimated amounts.
INVESTMENTS IN FOREIGN MARKETS Investments in foreign markets may involve
special risks and considerations not typically associated with investing in the
United States. These risks include revaluation of currencies, high rates of
inflation, repatriation on income and capital, and adverse political and
economic developments. Moreover, securities issued in these markets may be less
liquid, subject to government ownership controls, tariffs and taxes, subject to
delays in settlements, and their prices may be more volatile.
The Fund may be subject to capital gains and repatriation taxes imposed by
certain countries in which it invests. Such taxes are generally based on income
and/or capital gains earned or repatriated. Taxes are accrued based upon net
investment income, net realized gains and net unrealized appreciation as income
and/or capital gains are earned.
INCOME TAXES The Fund intends to comply with all sections of the Internal
Revenue Code applicable to regulated investment companies including the
distribution of substantially all of its taxable net investment income and net
realized capital gains to its shareholders. Therefore, no provision for federal
income tax has been made. The Fund is treated as a separate taxpayer for federal
income tax purposes.
At December 31, 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
- --------------------------------------------------------------------------------
$ 136,123,022 $ 40,760,521 $ (371,135) $ 40,389,386
Net Tax Appreciation/ Undistributed Undistributed Post
(Depreciation) on Income/ Long-Term Gains/ October
Derivatives, Currency (Accumulated (Accumulated Losses
and Other Net Assets Ordinary Loss) Capital Loss) (see Detail Below)
- --------------------------------------------------------------------------------
$ -- $ 643,573 $ 4,144,176 $ --
14
Notes to Financial Statements December 31, 2006
- --------------------------------------------------------------------------------
As of December 31, 2006, 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 incurred no such losses after October 31, 2006.
The tax composition of distributions paid (other than return of capital
distributions for the year) during the year ended December 31, 2006 was as
follows:
Ordinary Long-Term
Income Capital Gains Total
- --------------------------------------------------------------------------------
$ 4,582,222 $ 23,587,670 $ 28,169,892
DISTRIBUTIONS TO SHAREHOLDERS The Fund declares and pays dividends from net
investment income annually. The Fund declares and pays net realized capital
gains in excess of capital loss carryforwards distributions annually. The
character of income and gains to be distributed is determined in accordance with
income tax regulations which may differ from generally accepted accounting
principles. These differences include (but are not limited to) distributions
from Real Estate Investment Trusts (REITS), and losses deferred due to wash sale
transactions. Reclassifications due to permanent book/tax differences are made
to the Fund's capital accounts to reflect income and gains available for
distribution (or available capital loss carryovers) under income tax
regulations. These reclassifications have no impact on net investment income,
realized gains or losses, or the net asset value of the Fund. The calculation of
net investment income per share in the Financial Highlights table excludes these
adjustments.
The reclassifications for the year ended December 31, 2006 were as follows:
Undistributed
(Distribution
in Excess of)
Net Investment Accumulated Paid in
Income Net Realized Gain Capital
- --------------------------------------------------------------------------------
$ (514,828) $ 514,828 $ --
On July 13, 2006, the FASB released FIN48, "Accounting for Uncertainty in Income
Taxes." FIN48 provides guidance for how uncertain tax positions should be
recognized, measured, presented and disclosed in the financial statements. FIN48
requires evaluation of tax positions taken or expected to be taken in the course
of preparing the Fund's tax returns to determine whether the tax positions are
"more likely than not" of being sustained by the applicable tax authority. The
adoption of FIN48 will require financial statements to be adjusted to reflect
only those tax positions that are more likely that not to be sustained as of the
adoption date. Adoption of FIN48 is required for fiscal years beginning after
December 15, 2006 no later than June 29, 2007 and is applied to all open years
as of the effective date. At this time, management is evaluating the
implications of FIN48 and its impact on the financial statements has not yet
been determined.
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 and amortized,
respectively, to call or maturity date, whichever is shorter, using the
effective yield method.
EXPENSES Expenses of the Company which are directly identifiable to one of the
Funds are allocated to that portfolio. Expenses which are not directly
identifiable to one of the Funds are allocated in such a manner as deemed
equitable, taking into consideration the nature and type of expenses and
relative sizes of the Funds. All expenses of the Fund are paid by GEAM and
reimbursed by the Fund.
3. LINE OF CREDIT
The Fund shares a revolving credit facility of up to $25 million with a number
of its affiliates. The credit facility is with its custodian bank, State Street
Bank and Trust Company. The revolving credit facility requires the payment of a
commitment fee equal to 0.09% per annum on the daily unused portion of the
credit facility, payable quarterly. The portion borne by the Funds generally is
borne proportionally based upon net assets. Generally, borrowings under the
credit facility would accrue interest at the Federal Funds Rate plus 50 basis
points and is borne by each of the borrowing Funds. The maximum amount allowed
to be borrowed by any one of the Funds is the lesser of its prospectus
limitation, 20% of its net assets, or $25 million. The credit facility was not
utilized by the Fund during the period ended December 31, 2006.
15
Notes to Financial Statements December 31, 2006
- --------------------------------------------------------------------------------
4. AMOUNTS PAID TO AFFILIATES
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. GEAM's compensation 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 December 31, 2006, $2,555 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 December 31, 2006 were as follows:
Purchases Sales
- --------------------------------------------------------------------------------
$ 139,078,598 $ 147,139,121
16
Report of Independent Registered Public Accounting Firm
- --------------------------------------------------------------------------------
The Shareholders and Board of Directors
GE Investments Funds, Inc.
We have audited the accompanying statement of assets and liabilities of the Real
Estate Securities Fund, a series of GE Investments Funds, Inc., including the
schedule of investments, as of December 31, 2006, and the related statement of
operations for the year then ended, the statements of changes in net assets for
each of the years in the two-year period then ended, and the financial
highlights for each of the years in the five-year period then ended. These
financial statements and financial highlights are the responsibility of the
Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included confirmation of
securities owned as of December 31, 2006 by correspondence with the custodian
and brokers, or by other appropriate auditing procedures where replies from
brokers were not received. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
Real Estate Securities Fund as of December 31, 2006, the results of its
operations, changes in its net assets and financial highlights for the years
described above, in conformity with U.S. generally accepted accounting
principles.
/s/ KPMG LLP
Boston, Massachusetts
February 20, 2007
17
Tax Information (unaudited)
- --------------------------------------------------------------------------------
During the calendar year ended December 31, 2006, the Fund paid to shareholders
of record on December 27, 2006, $3.37803 per share of long-term capital gain
dividends.
18
Advisory and Administrative Agreement Renewal (unaudited)
- --------------------------------------------------------------------------------
The Fund Board, including the independent Board members, considered and
unanimously approved the continuance of the Fund's investment advisory and
sub-advisory agreements with GE Asset Management Incorporated ("GEAM") and the
Fund's sub-adviser at meetings held on December 6 and December 14, 2006.
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 detail during a private session with
their independent legal counsel at which no representatives of GEAM or the
sub-adviser were present. The independent Board members and their independent
legal counsel requested, and received and considered, additional information
from GEAM following this session.
In advance of the meetings, 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 recent years, 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 recent years. Also in advance of the meetings, 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 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 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 Fund's
investment advisory and sub-advisory 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, recognizing, with respect to the Fund's
sub-advisory agreement, that the sub-adviser had only recently begun managing
the Fund's portfolio following approval of the agreement by shareholders during
the first quarter of 2006:
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 has
expended significant sums to
19
Advisory and Administrative Agreement Renewal (unaudited)
- --------------------------------------------------------------------------------
enhance services, including improvements to its information technology
capabilities. The Board members noted that the Fund represents only a small
portion of the assets managed by GEAM, but benefits from a full array of
services and resources provided by GEAM.
In connection with their consideration of the services provided by the
sub-adviser, the Board members noted that the sub-adviser, Urdang Securities
Management, Inc., had only recently begun to manage the Fund's portfolio, and
that the period since the inception of the sub-adviser's management activities
was too short to evaluate fully the nature, extent and quality of services
provided in relation to the Fund's actual experience with Urdang. Nonetheless,
the Board members focused on the sub-adviser's favorable attributes relating to
its investment philosophy and discipline, its high caliber investment and
trading personnel, its systems and other resources, including research
capabilities, and its favorable history and reputation.
In light of the foregoing, the Board members, including the independent members,
concluded that the services provided by GEAM and the sub-adviser were of a high
quality and had benefited the Fund.
INVESTMENT PERFORMANCE OF THE FUND.
The Board members considered the investment performance of the Fund for various
periods, with emphasis on the period since the commencement of the sub-adviser's
management of the Fund's portfolio. 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 engaged in detailed discussions with GEAM management
and representatives of the sub-adviser about the investment process, focusing on
the Fund's investment objective, the number and experience of portfolio
management and supporting research personnel, the investment style and approach
employed, and the likely market cycles for the investment style. The Board
members noted that the sub-adviser had only recently begun to manage the Fund's
portfolio, and that the period since April 2006, when the sub-adviser's
management commenced, was too short for the Board members to meaningfully
evaluate its performance.
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. The Board members
20
Advisory and Administrative Agreement Renewal (unaudited)
- --------------------------------------------------------------------------------
recognized the benefits to the Fund of GEAM's past investment in its operations
through the expenditure of sums to support its substantial infrastructure, and
that, in general, GEAM has not yet fully recouped that investment. The Board
members also recognized the benefits to the Fund of being able to leverage a
favorable cost structure achieved with respect to the Fund's other operating
expenses as a result of GEAM's large overall base of assets under management and
its vendor management practices. The Board members reviewed the applicable
advisory fee breakpoints for the Fund and concluded that no changes were needed.
The Board members recognized the economies of scale benefits derived by the Fund
as a result of this fee structure.
COMPARISON OF SERVICES TO BE RENDERED AND FEES TO BE PAID.
The Board members discussed the services provided to the Fund by GEAM, and the
fees charged for those services. The Board members reviewed information
concerning the fee and expense ratios for the Fund, and comparative information
with respect to similar products. They discussed that the Fund's figures were
within the applicable peer group range. The Board members considered that the
comparative data provided by Lipper showed no material difference from last year
in the fees being charged as compared to those being charged by other advisers
to similar investment products, as determined by Lipper. In addition, the Board
members considered their discussion with representatives of GEAM and the
sub-adviser about the fees being charged to the Fund and, to the extent
applicable, the effect, if any, of the Securities and Exchange Commission
staff's interpretive guidance concerning soft dollars. 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 that
GEAM and the sub-adviser may derive from their relationship with the Fund,
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 interests of the shareholders of the
Fund.
21
Additional Information (unaudited)
- --------------------------------------------------------------------------------
INFORMATION ABOUT DIRECTORS AND EXECUTIVE OFFICERS:
The business and affairs of the Company are managed under the direction of the
Company's Board of Directors. Information pertaining to the Directors and
officers of the Company is set forth below.
INTERESTED DIRECTORS AND EXECUTIVE OFFICERS
- --------------------------------------------------------------------------------
MICHAEL J. COSGROVE
- --------------------------------------------------------------------------------
ADDRESS c/o GEAM 3001 Summer St. Stamford, CT 06905
AGE 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;
Trustee of Elfun Foundation; Treasurer of GE Foundation; Director, GE Asset
Management (Ireland) since February 1999.
- --------------------------------------------------------------------------------
ALAN M. LEWIS
- --------------------------------------------------------------------------------
ADDRESS c/o GEAM 3001 Summer St. Stamford, CT 06905
AGE 60
POSITION(S) HELD WITH FUND Director and Executive Vice President
TERM OF OFFICE AND LENGTH OF TIME SERVED Until successor is elected and
qualified - 6 years
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS Executive Vice President, General
Counsel and Secretary of GEAM since 1987
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR 48
OTHER DIRECTORSHIPS HELD BY DIRECTOR Trustee and Executive Vice President of GE
Funds, GE Institutional Funds and GE LifeStyle Funds since their inception.
Trustee of Elfun Funds, GE Savings & Security Funds and General Electric Pension
Trust since 1987.
22
Additional Information (unaudited)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SCOTT H. RHODES
- --------------------------------------------------------------------------------
ADDRESS c/o GEAM 3001 Summer St. Stamford, CT 06905
AGE 47
POSITION(S) HELD WITH FUND Treasurer
TERM OF OFFICE AND LENGTH OF TIME SERVED Until successor is elected and
qualified - less than one year
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS GEAM Mutual Funds Operations
Manager since September 2005; Treasurer of GE Institutional Funds, GE LifeStyle
Funds and GE Investments Funds since November 2005 and Elfun Funds and GE
Savings & Security Funds since September 2005; from August 2004 to September
2005 Vice President, U.S. Trust Company, N.A. and Assistant Treasurer of
Excelsior Funds, Inc., Excelsior Funds Trust, and Excelsior Tax Exempt Funds,
Inc.; from January 2004 to August 2004, Vice President BlackRock Financial
Management, Inc.; from December 1996 to November 2003, Controller - Mutual
Funds, American Skandia Investment Services, Inc. and Assistant Treasurer of
American Skandia Trust and American Skandia Advisor Funds, Inc.
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR N/A
OTHER DIRECTORSHIPS HELD BY DIRECTOR N/A
- --------------------------------------------------------------------------------
MATTHEW J. SIMPSON
- --------------------------------------------------------------------------------
ADDRESS c/o GEAM 3001 Summer St. Stamford, CT 06905
AGE 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 41
POSITION(S) HELD WITH FUND Vice President and Assistant Secretary
TERM OF OFFICE AND LENGTH OF TIME SERVED Until successor is elected and
qualified - 2 years
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS Vice President and Associate
General Counsel - Marketing and Client Services (formerly Asset Management
Services) at GEAM since May 1997; Vice President and Assistant Secretary of GE
Funds, GE Institutional Funds and GE LifeStyle Funds since September 2003; Vice
President and Assistant Secretary of Elfun Funds and GE Savings & Security Funds
since October 2003.
NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR N/A
OTHER DIRECTORSHIPS HELD BY DIRECTOR N/A
23
Additional Information (unaudited)
- --------------------------------------------------------------------------------
NON-INTERESTED DIRECTORS
- --------------------------------------------------------------------------------
JOHN R. COSTANTINO
- --------------------------------------------------------------------------------
ADDRESS c/o GEAM 3001 Summer St. Stamford, CT 06905
AGE 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 General Partner, NGN Capital LLC
since 2006; 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 59
POSITION(S) HELD WITH FUND Director
TERM OF OFFICE AND LENGTH OF TIME SERVED Until successor is elected and
qualified - 9 years
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS 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 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)
David B. Carlson, EVP, DOMESTIC EQUITIES
Michael J. Cosgrove, EVP, CHIEF COMMERCIAL OFFICER
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
Judith A. Studer, EVP, INVESTMENT STRATEGIES (AS OF JULY 2006)
Don W. Torey, EVP, ALTERNATIVE INVESTMENTS AND REAL ESTATE
John J. Walker, EVP, CHIEF FINANCIAL OFFICER
25
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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.
Please refer to the Code of Ethics included in the following link:
www.ge.com/files/usa/en/commitment/social/integrity/downloads/english.pdf
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
The Board of Trustees of the registrant has determined that both John R.
Costantino and William J. Lucas are designated as audit committee financial
experts for the Funds; and further that it is the finding of the Boards that
Messrs. Costantino and Lucas, the audit committee financial experts, qualify
as being 'independent' pursuant to paragraph (a)(2) of Item 3 to Form N-CSR.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
(a) AUDIT FEES. The aggregate fees billed for each of the last two fiscal
years (the "Reporting Periods") for professional services rendered by the
Registrant's principal accountant (the "Auditor") for the audit of the
Registrant's annual financial statements, or services that are normally
provide by the Auditor in connection with the statutory and regulatory
filings or engagements for the Reporting Periods were $179,100 in 2005 and
$188,200 in 2006.
(b) AUDIT RELATED FEES. There were no fees billed by the Auditor for
assurance and related services that were related to the performance of the
audit for the Registrant during the Reporting Periods.
(c) TAX FEES. There were no fees billed for professional services
rendered by the Auditor for tax compliance, tax advice or tax planning for
the Registrant during the Reporting Periods.
(d) ALL OTHER FEES. There were no fees billed for products and services
provided by the Auditor, other than the services reported in paragraphs
(a) through (c) of this Item for the Registrant during the Reporting Periods.
(e) (1) AUDIT COMMITTEE PRE-APPROVAL POLICIES AND PROCEDURES.
The Audit Committee of the GE Investments Funds (the "Funds") Board of
Trustees is responsible, among other things, for the appointment,
compensation and oversight of the work of the Fund's independent
accountants/auditors (the "Auditor"). As part of this responsibility and
to ensure that the Auditor's independence is not impaired, the Audit Committee
(1) pre-approves the audit and non-audit services provided to the Funds by
the Auditor, and (2) all non-audit services provided to the Funds' investment
adviser and covered affiliates (as defined in the Audit Committee Charter) that
provide ongoing services to the Funds if the services directly impact the
Funds' operations or financial reporting, in accordance with the Audit
Committee Charter. Following are excerpts from the Audit Committee Charter
that sets forth the pre-approval policies and procedures:
1. Selection and Pre-Approval of Auditor and Approval of Fees.
(i) The Audit Committee shall pre-approve the selection of the Auditor and
shall recommend for ratification the selection, retention or termination of the
Auditor by the full Board, including the independent Trustees/Directors, and,
in connection therewith, shall evaluate the independence of the Auditor,
including: (i) an evaluation of whether the Auditor provides any consulting
services to the Fund's investment adviser and the extent to which the Auditor
provides non-audit services to the Fund's investment adviser and certain other
affiliated service providers as defined in Section 2(f) below, which services
are not subject to the pre-approval requirements set forth in Section 4 below;
(ii) an evaluation of the extent to which the Auditor has any relationships
with the Fund or its affiliated persons that are brought to the attention of
the Audit Committee by the Auditor in accordance with applicable standards of
the Independence Standards Board ("ISB"), because, in the Auditor's
professional judgment, such relationships may reasonably be thought to bear
on the Auditor's independence with respect to the Fund; and (iii) monitoring
the Auditor's compliance with respect to the rotation requirements for the
lead and coordinating partners having primary responsibility for the Fund's
audits and any partner responsible for the reviewing the Fund's audits.
The Audit Committee shall review the Auditor's specific representations as
to its independence.
(b) The Audit Committee shall pre-approve and review the fees charged by
the Auditor for audit and non-audit services to be provided to the Fund and
certain affiliated service providers (as defined in Section 2(f) below) in
accordance with the pre-approval requirements set forth in Section 4 below.
The Fund shall provide for appropriate funding, as determined by the Audit
Committee, to compensate the Auditor for any authorized service provided to
the Fund.
2. Meetings with the Auditor. The Audit Committee shall meet with the
Auditor, including private meetings, prior to the commencement of substantial
work on the audit and following the conclusion of the audit, as well as such
other times as the Audit Committee shall deem necessary or appropriate. The
Auditor shall report directly to the Audit Committee. The Auditor shall
report at least annually, concerning the following and other pertinent matters:
(a) to review the arrangements for and scope of the annual audit and any
special audits;
(b) to provide the Auditor the opportunity to report to the Audit
Committee, on a timely basis, all critical accounting policies and practices
to be used;
(c) to discuss any matters of concern relating to the Fund's financial
statements, including: (i) any adjustments to such statements recommended by
the Auditor, or other results of said audit(s), and (ii) any alternative
treatments of financial information within GAAP that have been discussed with
Fund management, the ramifications of the use of such alternative disclosures
and treatments, and the treatment preferred by the Auditor;
(d) to provide the Auditor the opportunity to report to the Audit
Committee, on a timely basis, any material written communication between the
Auditor and Fund management, such as any management letter or schedule of
unadjusted differences;
(e) to discuss the opinion the Auditor has rendered regarding the Fund's
financial statements;
(f) to report all non-audit services that do not require Audit Committee
pre-approval and are provided to certain affiliated persons of the Fund,
including: (1) the Fund's investment adviser or sub-advisers (but excluding
any investment sub-adviser whose role is primarily portfolio management and
is overseen by the investment adviser), (2) the Fund's principal underwriter,
and (3) any entity controlling, controlled by, or under common control with
the investment adviser or principal underwriter, that provides "ongoing"
services to the Funds in accordance with the pre-approval requirements of
paragraph (c)(7)(i) of Rule 2-01 of Regulation S-X (each, a "Covered Affiliate"
and collectively, "Covered Affiliates");
(g) to review, in accordance with current standards of ISB, all
relationships between the Auditor and the Fund or its affiliated persons that,
in the Auditor's professional judgment, may reasonably be thought to bear
on its independence, and to confirm, in light of such information, whether
the Auditor believes, in its professional judgment, that it may properly serve
as independent accountants/auditors with respect to the Fund;
(h) to consider the Auditor's comments with respect to the Fund's financial
policies, procedures and internal accounting controls and responses thereto by
the Fund's officers and Fund management, as well as other personnel;
(i) to investigate any improprieties or suspected improprieties in the
operations of the Fund to the extent necessary or appropriate in light of any
internal investigations by the Fund's officers and/or by officers or employees
of the Fund management of such improprieties;
(j) to receive periodic reports concerning regulatory changes and new
accounting pronouncements that significantly affect the value of the Fund's
assets and their financial reporting;
(k) to report on the Fund's qualification under Subchapter M of the Internal
Revenue Code, amounts distributed and reported to shareholders for Federal tax
purposes and the Fund's tax returns; and
(l) to provide the Auditor the opportunity to report on any other matter
that the Auditor deems necessary or appropriate to discuss with the Audit
Committee.
If the Auditor's report on the above-listed (and other pertinent)
matters is not made in person to the Audit Committee within 60 days following
the end of the Fund's fiscal year, the Auditor shall deliver a written report
to the Audit Committee concerning these matters within such 60 day period.
3. Change in Accounting Principles. The Audit Committee shall consider
the effect upon the Fund of any changes in accounting principles or practices
proposed by the Auditor or the Fund's officers.
4. Pre-Approval of Audit Related Services and Permissible Non-Audit
Services. The Audit Committee shall pre-approve both audit (including audit,
review, and attest) services and permissible non-audit services provided to
the Fund and, if the nature of the engagement relates directly to the
operations and financial reporting of the Fund, permissible non-audit services
provided to any Covered Affiliate.
The Audit Committee may determine to delegate the authority to grant
pre-approvals to one or more Audit Committee members, each acting on behalf
of the Audit Committee. In this event, the member of the Audit Committee so
delegated shall report each delegated pre-approval to the Audit Committee at
its next regularly scheduled meeting. The Audit Committee may also adopt and
follow, in lieu of explicit pre-approval described above, written policies
and procedures detailed as to the particular service, designed to safeguard
the continued independence of the Auditor, consistent with the requirements
of the Act and SEC regulations thereunder.
Notwithstanding the foregoing, the pre-approval requirement concerning
permissible non-audit services provided to the Fund or any Covered Affiliate
is waived if: (1) the aggregate amount of all such non-audit services provided
constitutes no more than five percent (5%) of the total amount of revenues paid
to the Auditor by the Fund and the Covered Affiliates during the fiscal year in
which the services are provided that would have to be pre-approved by the Audit
Committee, (2) the non-audit services were not recognized as non-audit services
at the time of the engagement, and (3) such non-audit services are promptly
brought to the attention of the Audit Committee and approved by the Audit
Committee or one or more designated members of the Audit Committee prior to the
completion of the audit.
5. Prohibited Activities of the Auditor. The Audit Committee shall confirm
with the Auditor that it is not performing contemporaneously (during the audit
and professional engagement period) non-audit services for the Fund that the
Audit Committee believes may taint the independence of the Auditor.
The Auditor will be responsible for informing the Audit Committee of whether it
believes that a particular non-audit service is permissible or prohibited
pursuant to applicable regulations and standards.
(2) PERCENTAGE OF SERVICES IN PARAGRAGHS (b) THROUGH (d) APPROVED BY AUDIT
COMMITTEE. No fees were charged during 2003 or 2004 for audit related, tax or
other services as indicated in sections (b) through (d) of this Item.
(f) Not applicable.
(g) NON-AUDIT FEES. The aggregate non-audit fees billed by the Auditor
for services rendered to the Registrant, and rendered to Service Affiliates,
for the Reporting Periods were $0 in 2005 and $0 in 2006.
(h) AUDITOR INDEPENDENCE. There were no non-audit services rendered to
Service Affiliates that were not pre-approved.
ITEM 5. Audit Committee of Listed Registrants
The Registrant has a separately-designated standing audit committee
established in accordance with Section 3(a)(58)(A) of the Exchange Act.
The Registrant's audit committee members are: John R. Costantino,
William J. Lucas and Robert P. Quinn.
ITEM 6. Schedule of Investments.
Attached as part of ITEM 1.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
Applicable only to Closed-End Management Investment Companies.
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
Applicable only to Closed-End Management Investment Companies.
ITEM 9. Purchases of Equity Securities by Closed-End Management
Investment Company and Affiliated Purchasers.
Applicable only to Closed-End Management Investment Companies.
ITEM 10. Submission of Matters to a Vote of Security Holders.
No material changes.
ITEM 11. CONTROLS AND PROCEDURES.
The officers providing the certifications in this report in accordance
with Rule 30a-3 under the Investment Company Act of 1940 have concluded,
based on their evaluation of the registrant's disclosure controls and
procedures (as such term is defined in such rule), that such controls and
procedures are adequate and reasonably designed to achieve the purpose
described in paragraph (c) of such rule.
There were no significant changes in the registrant's internal controls or
in other factors that could significantly affect these controls subsequent
to the date of their last evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
ITEM 12. EXHIBITS.
(a) Not applicable.
(b) Attached hereto as Exhibit 1 and Exhibit 2 are the Certifications of
Michael J. Cosgrove and Scott Rhodes as principal executive officer and
principal financial officer, respectively, as required by Rule 30a-2 under
the Investment Company Act of 1940.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934
and the Investment Company Act of 1940, the Registrant has duly
caused this Report to be signed on its behalf by the undersigned,
thereunto duly authorized.
GE INVESTMENTS FUNDS, INC
By: /S/MICHAEL J. COSGROVE
Michael J. Cosgrove
Chairman, GE INVESTMENTS FUNDS, INC.
Date: March 06, 2007
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this Report has been signed below by the
following persons on behalf of the Registrant and in the capacities and on
the dates indicated.
By: /S/MICHAEL J. COSGROVE
Michael J. Cosgrove
Chairman, GE INVESTMENTS FUNDS, INC.
Date: March 06, 2007
By: /S/SCOTT RHODES
Scott Rhodes
TREASURER, GE INVESTMENTS FUNDS, INC.
Date: March 06, 2007
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.